So you’ve heard that Congressman Ron Paul is having a money bomb to support his 2012 presidential campaign. You know that Ron Paul is the only serious presidential candidate who has opposed the Iraq War from the beginning, and that he correctly predicted President Obama’s lies about Iraq. Lately you’ve been learning more about his efforts to audit the Federal Reserve, and you’re starting to understand the connections between bad monetary policy and rising food and gas prices. Moreover, you have a friend who was hassled by the police for a drug-related issue even though your friend never hurt anyone, and so Ron Paul’s staunch opposition to federal drug policies really hits home with you. Bit by bit you’ve grown to realize that this guy just makes sense, and you think he has the potential to help America adopt more sensible policies, making us simultaneously freer and safer. You want to help him on that journey – but how?
1. DON’T donate immediately.
That’s right, I don’t want you to jump right into giving money to Ron Paul’s campaign. There’s a lot more to winning an election than just getting money, and there’s a lot more to achieving liberty than just winning an election. Besides, money is tight for all of us these days, and if you’re a college student or between jobs, the last thing we need is for you to go hog-wild with electioneering and wind up discouraged and short on cash. Your money is your own – keep it until you have made a sound decision to spend it.
2. Get educated and motivated.
Liberty doesn’t come from politicians, and it certainly doesn’t come from ignorance. In order to make the most of your work with the liberty movement, you should view every campaign as an opportunity to learn about the issues. Fortunately Ron Paul is very concerned about openness in government and helping to educate the populace, so his political positions are well-documented here and also here. I’ll list just a few highlights you might find interesting.
- Paul’s stance on foreign policy is one of consistent non-intervention, opposing war of aggression and entangling alliances with other nations.
- His warnings of impending economic crisis and a loss of confidence in the dollar in 2005 and 2006 were at the time derided by many economists, but accelerating dollar devaluation in 2007 led experts like former Federal Reserve chair Alan Greenspan to reconsider hard money policies such as those of Paul.
- Paul broke with his party by voting against the PATRIOT Act in 2001; he also voted against its 2005 enactment.
- Paul supports the right of those who engage in nonviolent resistance when they believe a law is unjust, bringing up the names of Martin Luther King, Lysander Spooner, and Mahatma Gandhi as examples of practitioners of peaceful civil disobedience.
- He believes the internet should be free from government regulation and taxation.
- [Paul is] the only 2008 presidential candidate to earn Gun Owners of America’s A+ rating.
- Paul stated that he supported the right of gay couples to marry, so long as they didn’t “impose” their relationship on anyone else.
- Paul has called for passage of tax relief bills to reduce health care costs for families.
- Paul contends that prohibition of drugs is ineffective and advocates ending the War on Drugs.
Now that you have learned a bit more about Ron Paul’s positions or taken a refresher course if you are a seasoned supporter, you should also watch a couple of videos to remind yourself why the issues of liberty are so important, and why Ron Paul is often considered the leading advocate for liberty in the modern political scene. Fortunately there are a vast array of well-made videos about Ron Paul and his courageous campaign to restore freedom in America. I humbly submit a few suggestions of my own, of which you might pick one or two to watch.
One of the best things you can do for the liberty movement right now, if you like these videos, is to simply send one or two of them to a friend of yours who isn’t already familiar with the ideas of liberty. You don’t need to be pushy or preachy – spreading liberty can be as simple as saying, “Hey, I saw this video and found it really interesting, so I thought I’d pass it along.” This is exactly how philosophies spread.
The last thing you need to do before you are prepared to take financial action in defense of liberty is to increase your knowledge on the day-to-day news of how government is affecting our lives in negative ways right now. Again there are fantastic resources available to you to do this. Maybe you don’t read articles on politics too often, but that’s why you should consider Ron Paul’s money bomb as a special opportunity to get involved in new ways. Try reading one article from the front page of LewRockwell.com, Antiwar.com, or the Mises blog. Just one or two articles is all it takes, and in ten minutes or so you can gain valuable new insight into the political issues that affect our country today. Remember, don’t be afraid to send these articles to friends if you find them genuinely interesting or know someone who would.
3. Donate a reasonable amount of money to Ron Paul’s campaign.
Ah yes, we’re finally at that step. You need to decide how much money you want to give to Ron Paul’s money bomb to help him advertise and get more attention in his battle for freedom. Take into consideration your personal financial situation, and remember that the number of people who donate to the money bomb matters at least as much as the total monetary amount. Ron Paul wants sincere support from every-day people, not big checks from special interest groups. This means that it’s completely fair to say no donation is too small, and you should never refrain from donating just because you don’t have much to offer. If you are a college student, ten or twenty dollars is a very reasonable donation to make. If you have a steady income, maybe you want to put down fifty or a hundred. I would never suggest that you give more than you feel comfortable giving, because that will only result in disillusionment and resentment in the long term. But you should give at least a bit if you possibly can, because the more donors Ron Paul has, the more his campaign staff can assess his support throughout the nation and the harder it gets for media outlets to ignore his message. So go on and click this link to send Ron Paul whatever spare funds you have to offer, and help the message of liberty reach more people.
4. Ask your friends to donate as well.
This step is intimidating for a lot of people, but it really should not be. You have earned the right to politely ask for contributions from your friends, because you have given money yourself. You are not just blindly telling people to fork over their hard-earned cash to some guy on the internet. You have investigated his positions, read up on the issues, and even put your own money where your mouth is. It’s not at all out of line to remind any Ron Paul-supporting friends you may have that today is a great day for them to help out, nor is it unusual to make a personal request to people outside the movement that they look into Ron Paul’s campaign. You can think of this as asking for a favor. After all, you care about liberty, and your friends won’t mind you making a genuine request regarding something that’s important to you. So go ahead – you made a donation to prove your dedication, now spread the word about the money bomb to as many people as you can.
Congratulations on participating in your first Ron Paul money bomb, and thank you for supporting the liberty movement! Rational individuals need upstanding people like you to pitch in to build a society based on voluntary associations, free thought, and free markets. I welcome your continued participation in our righteous campaign.
Monday’s issue of the New York Times featured a rather remarkable article titled Rep. Ron Paul, G.O.P. Loner, Comes In From Cold. An improbable divergence from the Times’ history of mostly (though not completely) ignoring the world’s most prominent living libertarian, this article serves to illustrate the increasingly mainstream nature of Dr. Paul’s anti-government philosophy. Yet it is even more than that. The article does not simply observe and comment on Dr. Paul’s stance; it admits that many other mainstream figures who once criticized and mocked him now feel they should have listened to him all along. As former New Mexico governor and now 2012 presidential candidate Gary Johnson has observed, the news media feel they missed out on the movement in 2008, and they wish they had been on board. I wish to analyze and respond to the Times’ piece, item by item, in its entirety.
Rep. Ron Paul, G.O.P. Loner, Comes In From Cold
WASHINGTON — As virtually all of Washington was declaring WikiLeaks’s disclosures of secret diplomatic cables an act of treason, Representative Ron Paul was applauding the organization for exposing the United States’ “delusional foreign policy.”
For this, the conservative blog RedState dubbed him “Al Qaeda’s favorite member of Congress.”
A video of Dr. Paul speaking confirms this is true – and important. I’m glad the article opens with a strong statement relevant to current events. The dust hasn’t settled yet on the Cablegate controversy, but as of this writing, The Journal’s public opinion poll shows 89% of responders calling Wikileaks founder Julian Assange a “hero” as opposed to just 11% who regard him as a “villain.” This contrasts starkly with the views of the political establishment, who almost unanimously seek to silence or assassinate Assange.
There’s no sense in being timid about this. Dr. Paul believes wholeheartedly that the federal government is an excessively secretive and destructive organization which lies and deceives in order to achieve devious goals, especially regarding the occupation of foreign countries. He supports (and I support) anyone who, by peaceful means, attempts to expose the government’s deception to the public, and that includes Wikileaks. If anyone out there disagrees, he or she may as well stop reading and move on to another article.
It was hardly the first time that Mr. Paul had marched to his own beat. During his campaign for the Republican presidential nomination in 2008, he was best remembered for declaring in a debate that the 9/11 attacks were the Muslim world’s response to American military intervention around the globe. A fellow candidate, former Mayor Rudolph W. Giuliani of New York, interrupted and demanded that he take back the words — a request that Mr. Paul refused.
Once again video confirms that this debate occurred. What the Times fails to clarify here is that a myth sprung up surrounding this particular debate – namely, that Dr. Paul claimed the United States “invited” a terrorist attack – which is a pure fabrication. His true stance is much more matter-of-fact. He simply believes that blowback is a predictable consequence of an interventionist foreign policy, rightly or wrongly. Dr. Paul does not claim – and no libertarian claims – that the 9/11 attacks were morally justified or that Osama bin Laden should continue his vendetta against the American people. Rather, the non-interventionist philosophy holds simply that such attacks will occur as a result of United States meddling, regardless of whether they should, and as such policy-makers need to adjust their strategy from intervention to peace in order to keep the American people safe.
During his 20 years in Congress, Mr. Paul has staked out the lonely end of 434-to-1 votes against legislation that he considers unconstitutional, even on issues as ceremonial as granting Mother Teresa a Congressional Gold Medal. His colleagues have dubbed him “Dr. No,” but his wife will insist that they have the spelling wrong: he is really Dr. Know.
Correct again. A more interesting example in recent memory would be when Ron Paul cast the only “No” vote against granting subpoena power to an executive commission designed to investigate the Deepwater Horizon (BP) oil spill. Public opinion on Dr. Paul’s decision was low, but he cited the absence of any clause in the Constitution authorizing such a subpoena, explained that there were already other procedures in place for cleaning up oil spills which did not involve the shifting of power from the legislature to the executive branch, and lambasted the federal government for dealing with the oil spill inefficiently and using unprecedented executive authority.
Now it appears others are beginning to credit him with some wisdom — or at least acknowledging his passionate following.
After years of blocking him from a leadership position, Mr. Paul’s fellow Republicans have named him chairman of the House subcommittee on domestic monetary policy, which oversees the Federal Reserve as well as the currency and the valuation of the dollar.
I want to thank the author of this article, Kate Zernike, for going out on a limb here. I have heard from many fairly trustworthy people that the last time Ron Paul was in line to chair this subcommittee, the GOP simply abolished the subcommittee entirely rather than permit him to speak out. However, I can’t for the life of me find any primary source confirmation dated to the time this allegedly happened, 2008 or earlier. Everyone agrees that Ms. Zernike is right, but I can’t prove it. If you have a source for this information, please share.
Mr. Paul has strong views on those issues. He has written a book called “End the Fed”; he embraces Austrian economic thought, which holds that the government has no role in regulating the economy; and he advocates a return to the gold standard.
This is not true at all. I guess I shouldn’t be surprised, but I continuously am, at how even reporters who seem to care about their subject and do research can remain agonizingly ignorant of very simple economic issues. It’s par for the course for the NY Times to fail to be clear about how economics actually work, but to make an outright false statement … well, that’s par for the course, too.
Dr. Paul emphatically does not advocate the gold standard. He advocates for freely issued hard-asset currency in the long-term and legalized competing currencies in the short-term. Neither of these two things is the gold standard. Ron Paul firmly believes that no one should be forced to accept a currency which he or she does not value, whether that currency is a Federal Reserve note or a gold coin or anything else.
Furthermore, Austrian economics is not a political ideology, nor any opinion of any other form. Austrian economics is an objective method of studying economic phenomena. It makes no value judgments about what people should or shouldn’t do. A great economics professor, author, and personal friend of mine, Dr. Steven Horwitz, wrote at length to explain what Austrian economics is and what it is not, in case any reporters from the NY Times want to educate themselves.
Nevertheless, the real gem of this article consists of the subsequent several paragraphs:
Many of the new Republicans in the next Congress campaigned on precisely the issues that Mr. Paul has been talking about for 40 years: forbidding Congress from any action not explicitly authorized in the Constitution, eliminating entire federal departments as unconstitutional and checking the power of the Fed.
He has been called the “intellectual godfather of the Tea Party,” but he also is the real father of the Tea Party movement’s most high-profile winner, Senator-elect Rand Paul of Kentucky. (The two will be roommates in Ron Paul’s Virginia condominium. “I told him as long as he didn’t expect me to cook,” the elder Mr. Paul said. “I’m not going to take care of him the way his mother did.”)
Republicans had blocked Mr. Paul from leading the monetary policy panel once before, and banking executives reportedly urged them to do so again. But Republicans on Capitol Hill increasingly recognize that Mr. Paul has a following — among his supporters from 2008 and within the Tea Party, which helped the Republicans recapture the House majority by picking up Mr. Paul’s longstanding and highly vocal opposition to the federal debt.
Aides, supporters and television interviewers now use words like “vindicated” to describe him — a term Mr. Paul, a 75-year-old obstetrician with the manner of a country doctor, brushes off.
“I don’t think it’s very personal,” he said in an interview in his office on the Hill, where he has represented the 14th District of Texas on and off since 1976. “People are really worried about what’s happening, so they’re searching, and I think they see that we’ve been offering answers.”
If there is vindication here, Mr. Paul says, it is for Austrian economic theory — an anti-Keynesian model that many mainstream economists consider radical and dismiss as magical thinking.
This quality of journalism coming out of the NY Times is nearly unheard of. Rarely if ever have reporters been willing to take up this stance with such clarity: The establishment said one thing. The libertarians said the opposite. Time passed, and more and more people are thinking the libertarians were right. That’s just not an easy thing to admit to.
Even framing the debate that way is rare. Typically mainstream papers do their absolute best to portray every issue as a conflict between one vague tyranny and some other vague tyranny. When the NY Times summons the will to talk about monetary theory, it almost invariably discusses the arguments for government-created inflation versus government-created deflation. The idea of monetary choice is never mentioned, either because the mainstream reporters don’t want us to know about it, or because they sincerely can’t even imagine it.
But that is changing – fast – and this article proves it. I wonder how many people read the NY Times on Monday and then Googled Keynesian or Austrian economics. I wonder how many of them managed to find the rap video which explains the difference between Keynesian and Austrian views on the causes of and cures for the Great Recession.
Freedom comes when libertarians take control of the dialogue of the day and define the terminology to be used in discussion. As long as people are taught to think in terms of what kind of lifestyle will be forced upon them, progress cannot be made. But when ideas like those of the Austrian economists and others who identified the nature and significance of individual choice start to enter the discussion, the genie is let out of the bottle. A human being, once taught that he is capable of making decisions different from those of others around him without entering into violent conflict with them, cannot be de-educated, and cannot be silenced.
It is unnecessary for me to continue to pick a part the minutiae of this article with commentary. You can see the significance. Now read the remainder of it, observing the terms which I have chosen to emphasize. You will find that they have certain key characteristics. Namely, they are specific, which is to say, they refer to a definable idea or object which can be qualified and observed, they are relevant to serious issues that face America today, and they are oriented around a discussion of choice, meaning that they either are associated with advocates for violent intervention in the lives of peaceful people or associated with advocates for peace and freedom. By helping to shift the dialogue of our day to center around these words, the NY Times has (perhaps inadvertently) made a substantive contribution to the libertarian movement.
The theory argues that markets operate properly only when they are unfettered by government regulation and intervention. It holds that the government should not have a central bank or dictate economic or monetary policy. Once the government begins any economic planning, such thinking goes, it ends up making all the economic decisions for its citizens, essentially enslaving them.
The walls of Mr. Paul’s Congressional office are devoid of the usual pictures with presidents and other dignitaries. Instead, there are portraits of Ludwig von Mises and Murray Rothbard, titans of the Austrian school. For years, Mr. Paul would talk about their ideas and eyes would glaze over. But during his presidential campaign, he said he began to notice a glimmer of recognition among those who attended his events, particularly on college campuses.
Mr. Paul now views his exchange with Mr. Giuliani in 2008 as a crucial moment in his drive for more supporters. “A lot of them said, ‘I’d never heard of you, and I liked what you said and I went and checked your voting record and you’d actually voted that way,’ ” he said. “They’d see that the thing that everybody on the House floor considered a liability for 20 years, my single ‘no’ votes, they’d say, ‘He did that himself; he really must believe this.’ ”
His campaign that year attracted a coalition that even he recognizes does not always stand together: young people who liked his advocacy of greater civil liberties and the decriminalization of marijuana; conservatives who nodded at his antidebt message; and others who agreed with his opposition to the Iraq war.
During George W. Bush’s presidency, he was out of favor with the reigning neoconservatives who were alarmed at his anti-interventionism. He still gives many conservatives fits with comments like his praise for WikiLeaks.
And many of those who follow the Fed closely say his ideas are “very strange indeed,” in the words of Lyle E. Gramley, a former governor of the Fed who is now a senior economic adviser at the Potomac Research Group. “I don’t think he understands what central banking is all about,” Mr. Gramley said.
Putting such a critic of the Federal Reserve chairman, Ben S. Bernanke, in such a prominent role, he added, could damage economic confidence. [Editor's note: Business is driven by the animal spirits!]
“The public doesn’t understand how serious the problem was and why the Fed had to take the action it did,” Mr. Gramley said. “Having someone in Congress taking shots at the Fed makes the situation uneasy.”
Still, Mr. Paul says, his colleagues respect his following outside Washington. “I was on the House floor today,” he said, “and somebody I don’t know real well, another Republican, he was talking to two other members, and he knew I was listening. He pointed at me and said, ‘That guy has more bumper stickers in my district than I do!’ ”
Interview requests are so common that Mr. Paul has set up a camera and studio backdrop in his district office to save him the hour’s drive to television stations in Houston.
His bill demanding a full audit of the Fed, which he had unsuccessfully pushed for years, attracted 320 co-sponsors in the House this year.
And the lunches that he has held in his office every Thursday, where lawmakers can meet intellectuals and policymakers who embrace Austrian economics, have become more crowded, drawing Tea Party celebrities like Congresswoman Michele Bachmann of Minnesota.
“For a long time, a lot of people in Congress on both sides of the aisle agreed with Ron a lot of the time but felt it wasn’t safe to go there,” said Jesse Benton, a longtime Ron Paul aide who ran Rand Paul’s Senate campaign.
The father is about to gain even greater visibility. He says he will use his new chairmanship to renew his push for a full audit of the Fed and to hold a series of hearings on monetary policy.
On Web sites for Ron Paul fans, there are urgent pleas for a father-son (or son-father) “Paul/Paul 2012” ticket. But in an interview, the senior Mr. Paul seemed taken by surprise by the suggestion of teaming up. While he is bursting-proud of his son, he is not necessarily ready to yield the spotlight: He is pondering another presidential run on his own.
“I’d say it’s at least 50-50 that I’ll run again,” he said, adding that he would look at where the economy is. (Aides add that it would depend a lot on what his wife, Carol, says.)
But for all the ways the Tea Party echoes Mr. Paul on fiscal issues, it is not clear such support would carry over into a presidential campaign. The last time he ran, he won less than 2 percent of the vote, though that was before the Tea Party became a force in politics.
Even many Tea Party conservatives are not on board with Mr. Paul’s beliefs about scaling back the United States military worldwide. And Paul supporters look on the Tea Party with some disdain.
Mr. Paul acknowledged the sometimes competing interests among Tea Party supporters and his fans. “What brings them together is this acceptance that there’s something really wrong, that we’ve spent too much money and government’s too big,” he said.
That, he added, was why he had to work at keeping up his influence, particularly in spreading the word about the cost of foreign interventions.
Still, he noted: “We’re further along than I would have expected in getting our message out in front. I thought I’d be long gone from Congress before anybody would pay much attention.”
The Worst-Case Scenario had its second three-man mission last night. David Westbrook, David Hilburger, and I traveled to the Durham Transit Station in downtown Durham, NC to cover the debate between Democratic Congressman David Price of NC’s 4th district and his Republican challenger Dr. B.J. Lawson. The debate was hosted by the Independent Weekly, who organized the event carefully and ran it fairly. David Westbrook was able to film the entire debate and upload the video in four segments. I asked a question in the fourth video beginning at 0:50, which neither of the candidates was willing or able to directly, concisely, and completely answer. Over-all, though, the consensus is that the night was a smashing success for BJ, at least among the crowd of overwhelmingly Tea Party and FairTax supporters.
The four videos are embedded below along with the list of questions asked in each video and the time at which the questions are asked.
4:02 Price Opening Statement
6:08 Lawson Opening Statement
8:36 Question 1: “America has for over a decade, spent more per capita on healthcare intervention than any nation in the world yet has miserable comparative health outcomes, longevity, and quality of life scores. What impact will this years healthcare reform legislation have on this fundamental disparity, and what more if anything do we need to do as a nation to address gaps in coverage, availability, and outcomes?”
12:46 Question 2: “If you are elected during your term, America will likely enter its second decade of war in Afghanistan. Do you believe our nation and our current administration is on the right track or on the wrong track relative to the war, and what leadership would you bring as our US representative on this matter?”
Question 2 is continued in part 2.
2:25 Question 3: “As our nation tries to emerge from the deepest economic downturn since the great depression, what should the federal government do through spending incentives, and or tax policies to induce job creation, and to encourage a return to normalcy and growth, and has the additional national debt from the stimulus package been an appropriate price, or too high a price according to the results you have seen?”
6:59 Question 4: “More than 70% of the governments 30 billion dollars in farm subsidies goes to the largest 10% of farm businesses. Would you support cutting or revising federal farm subsidies?”
10:49 Question 5: “The Triangle has been blessed, or cursed, with rapid growth. The projections show more than a million new residents of Durham, Wake, Orange, and surrounding counties in the coming decade. What is working in our federal transportation policy, and what needs to change? What do you see as the relative roles of and funding for highway and roads, transit, and bicycle and pedestrian systems in our transportation future?”
00:04 Question 6: “Immigration and citizenship have become a new battleground in American Politics and the culture wars. Some argue that residency and eventual citizenship should come through only currently legal channels. Others not that immigration quotas are far more restrictive than under historic norms. Please let us know your views on the key components of immigration reform.”
TOWN HALL QUESTIONS BEGIN AFTER QUESTION 6
5:08 Town Hall Question 1: “With entitlements representing 57% percent of the total federal budget, what would you do to reduce such entitlements or generate revenue to offset them?”
9:29 Town Hall Question 2: “I would like to know your thoughts on offshore oil drilling.”
12:33 Town Hall Question 3: “In lieu of the recent supreme court decision to treat corporations like a person and the flood of campaign ads paid with money that doesn’t come from individuals and doesn’t disclose where it comes from. Would you be in favor of a law that makes requirements for clarifying the donors for such ads and from where the money comes?”
00:51 Town Hall Question 4: “The chair of the joint chiefs of staff has said that the greatest threat to national security is not Iraq, Iran or Afghanistan, but the federal debt. By 2013 the interest alone will exceed the entire defense budget. 100 trillion dollars in unfunded liabilities loom on the horizon for my generation over the next century. How will you, item by item, eliminate the 1.3 trillion dollar deficit that we had in 2010 to prevent federal default, troop defection, and severe social unrest in my future?”
5:44 Question 7: “Biotechnology is a major driver in the regions growth. One recent steady comparing six southern regions found that the triangle mustered 2031 university research dollars per regional worker. More than 75 times the equivalent figure for Charlotte and tops in the southeast. In 2005 the federal government spent less than 100 dollars per capita on NIH funding versus 1600 dollars on defense spending. Where do you stand on the desirability and appropriateness of today’s federal research investment?”
9:22 Closing Statements
If you liked this post, please share it on your Twitter or Facebook page. You may also like Congressional candidate BJ Lawson is a master of economics, fears censorship of the internet. Check out the index page for more from the Worst-Case Scenario!
The folks over at Econ Stories made history in January of this year when they released Fear the Boom and Bust, the first popular, Ke$ha-endorsed rap video about economics. The video depicts world-renowned economists John Maynard Keynes and Friedrich August Hayek arguing about how the federal government’s fiscal and monetary policies affect the “Boom and Bust” business cycle, focusing on the parallels between the Great Depression and the housing and lending collapse which began near the end of the Bush administration and has continued throughout the Obama administration.
As with any rap, the main feature of the video is its lyrics, which contain the topic of today’s discussion: “Your focus on spending is pushing on thread.” This line is a rather esoteric reference, by way of clever metaphor, to monetary asymmetry. These are daunting words, but they actually refer to a very intuitive concept which has eluded policy-makers and even many economists for over a century. The aim of this post is to help the average observer understand just what is meant by the phrase “pushing on thread,” as well as to provide a conceptual base for further investigation of how ignorance of economics has had grave consequences for nations around the world.
The best way to discover economic principles is through thought experiments that investigate cause-and-effect relationships. Suppose, for example, that the average individual eats out at restaurants or bars about twice a week. If the government were to impose a law mandating that no person may eat out more than once a week, it would obviously have a negative impact on economic activity. In fact just about everyone can guess this if asked. Unfortunately, not so many of us can really explain precisely what is meant by “economic activity” or how the government’s new rule reduces it. Nevertheless, we understand instinctively that economic activity must be depressed by forbidding people from eating at restaurants.
What actually happens in a situation like this is as follows: Consumers, who at any given time have only a certain amount of liquid assets (money) they can spend, are willing to spend some of their assets at restaurants. However it may be that they decided to eat out twice a week, that’s what they’re willing to do. When the government declares that they may not do this, it prevents economic transactions from occurring. This is “bad” for one simple reason – people wanted those transactions to occur. Specifically, restaurant owners and restaurant customers wanted to make an exchange of money for food. They wanted to do this because each of them valued what the other had more than what they were giving. The customer would rather have a meal, and the owner would rather have cash. If the transaction occurs (the customers eat at the restaurant), everyone feels better off than before. If the government prevents this, economic activity – specifically, the exchange of assets in a beneficial way – is diminished.
Such a law won’t cause all of the consumers’ wealth to go to waste, of course. By preventing people from patronizing restaurants, the government induces them to do something else with their money. However, whatever it is that they decide to do, it is important to remember that it will always be their second choice. They would rather have spent their money on eating at a restaurant than whatever they spend it on instead. Therefore, the value of what they buy with the money they would have used at restaurants will be less to them. They will be worse off. Similarly, the restaurant owners will be worse off, even if they leave the restaurant industry and take up another profession. This is their second choice profession – it was not the most appealing and profitable venture for them. The transactions that people wanted to make to increase their lot in life have been prevented by the government, and whatever is substituted is by definition less beneficial.
Thus it is now clear precisely how a government mandate against eating out more than once per week reduces economic activity, in the sense of forcing a real reduction in beneficial transactions. The concept of pushing on thread enters if the government attempts to employ the reverse idea. Suppose, now, that a law is passed which requires each person to eat out at least three times per week. Remember the assumption that the average individual eats out twice per week. If limiting the amount that people can eat out has the effect of reducing economic activity, perhaps mandating that people eat out more often will increase economic activity. Certainly, restaurant owners might tend to think so. As there will be more transactions in the restaurant industry, revenue will go up for restaurant owners, some of which will be passed on to their employees. Indeed, more restaurants will be built, and that will create jobs in construction, cooking, and waiting. Consumers will have more meals, and probably better ones, too.
It would be great – right? Not at all. Mandating more consumption of products and services does not have the opposite effect as mandating less. If anything, it actually has the same effect, as total per-capita product still declines. This is the essence of the “pushing on thread” metaphor. If the government’s policies impacted the economy in a manner that were so easily manipulable and reversible as, say, a door – pull to open, push to close – then it is doubtful such highly educated experts would be hired to determine the government’s policies. Instead, though, the effects of policy are complicated, and the more they are analyzed, the more depressing the conclusions become. Mandates and regulations pull down, but can not push up, on the health of the economy.
To see how this is so, recall that consumers have only a certain amount of money to spend at a time. They must budget this money somehow; spending infinitely is not an option. Therefore, as people are forced to spend more and more at restaurants, they must by definition make sacrifices elsewhere. Perhaps before a person went out to eat twice a week and went to the theater once. Now he goes out to eat three times, but stops going to the theater to compensate. This, again, is not an even trade-off. He is actually worse than before, because he has stopped doing something he wanted to do – going to the theater – in favor of a second choice option. He didn’t want to spend all that money at a restaurant, so he is by definition worse off if he is required to do so.
Similarly, the business owners also take a hit in productivity. Obviously the owners of pre-existing restaurants will see a rise in profits if a law were passed requiring more visits to restaurants. Yet what is also true is that the owners of theaters must see a decline in profits, as well. As restaurants are built in the weeks and months after the law is passed, so also theaters are closed. Small business owners and their employees will shift industry. People will quit their jobs as theater directors and go to work in food service. Again, this is a second choice. Again, it is by definition worse than what was in place before. The converts from other industries to the food industry are taking jobs they weren’t trained to do in order to satisfy a fabricated demand that doesn’t really exist except that the government requires that it does.
Economists and politicians may preach about the stimulus effects of increased spending in the restaurant business. The newspapers scream headlines about the new jobs created by constructing more restaurants to meet the growing demand. Yet all of this is in the spirit of the broken window fallacy, commenting on the visible benefits of a transaction while ignoring the unseen opportunity costs. The idea put forth is that any economic transaction is by definition a good one, when in fact only a voluntary exchange benefits both parties involved. When praising the activity generated from a mandate to consume, it is necessary to ignore or dismiss the activity which would have occurred in the absence of the mandate – and that activity would have been preferable to both consumers and producers.
One might imagine that policymakers and politicians had by now come to understand the lesson in this simple parable of restaurants. At the very least, they certainly have hired economists and analysts who are too educated to fall for the basic fallacy of pushing on thread – of assuming that the opposite of an action which produces a result will produce the opposite result. Since elected officials tend to be of above average intelligence and education level, and since the federal government has many panels of experts with decades of experience in economics, it is to be expected that, although government policies may not always be perfect, they aren’t as utterly naive as requiring people to eat at restaurants and then declaring an improvement in the economy.
Aren’t they? It seems not, as the past three years have revealed an ever-increasing role of government spending and government-supported consumer spending in the name of “stimulating” the economy, without much consideration for the fact that it is impossible for such policies to increase total productivity at all. Remember the Bush package, when you and your significant other got mailed a check for six hundred dollars in order to stimulate the economy? The stated goal of this policy decision was to prevent an economic collapse and help boost GDP in the face of an expected moderate decline.
Well, it didn’t work at all. GDP ended up dropping far more than predicted, not in spite of the stimulus, but because of it. In fact, Bush’s idea failed so completely that Obama expanded upon it and extended it to affect more people. At every turn, with every new stimulus program, of which there have been about a half dozen since the housing crisis began three years ago, the federal government has sworn that there would be a demonstrable increase in GDP as a result, and every time real GDP (adjusted for inflation) has actually fallen.
This is by no means the extent of the damage – examples of government destruction rationalized as construction abound. It turns out that Barack Obama actually pulled the “mandate that people eat out” trick, only he did so with cars. The infamous Cash for Clunkers program, which one might argue is better termed “the General Motors bailout,” required Americans to buy new cars – with their own money, funneled through the federal government by taxes. Essentially, Obama offered a subsidy, funded out of tax-payer money, for people to scrap old cars and buy new ones. The program was sold on the claim that the act of buying new cars would spur economic growth.
It did not accomplish this, and it could not have under even the most generous interpretation. The philosophy of the program was flawed at its core, because it presumed that the activity generated by purchasing new cars must be good activity – ignoring the fact that, if it were beneficial to buy a new car, people would simply do that on their own. By taking tax dollars, which are of course collected by force, and demanding that they be applied to the purchase of automobiles, the government incentivized allocating resources to one particular sector of the economy, but by definition took resources away from other sectors where consumers would rather have used them. Requiring that people spend their money on a new car is no different from requiring that they spend it at a restaurant, and the damage done is exactly the same. Whatever else people would have spent their money on instead if given the choice, that was better for them than the purchase they were forced into. Ultimately, though, this was lost on policymakers, because they rationalized their decisions by observing the economic activity of buying cars and ignored everything else that money could have been used for.
When the government gets worried by how much of people’s money it is taking to fund purchases they didn’t choose to make, it has another card to play, which is monetary inflation and deficit spending. For a hundred years, Keynesian economists and federal-level politicians have struggled to convince the world – both the people in it and physics itself – that monetary policy allows the government to spend money it doesn’t actually have, if it’s careful enough. All manner of nuanced methods have arisen towards this aim. From the esoteric quantitative easing to tried-and-true manipulation of bonds and printing presses, an academic field and a sector of industry has grown up around selling the notion of the free lunch. The government, it is claimed, can fund programs with other methods besides simply taking money from individuals.
This, unfortunately, is not true. The government cannot create wealth out of thin air, no matter what elaborate practices its banks may employ. Whatever government money is not taken from individuals expressly through taxation is ultimately taken through inflation, the devaluation of savings accounts. When the government bails out banks with trillions of dollars of unofficial spending, this money is taken from the savings accounts of all Americans, especially the middle class, whose combined liquid assets represent the bulk of non-industrial capital. Literally, dollar bills and other written representations of money are created by the government, which the elites call “injecting money into the economy,” and the result is that the value of the dollar declines.
As the dollar is weakened, the ability of savings to buy real products and services decreases proportionally. That means that a person who used to be within a month of having enough money saved up to buy a boat, or who had savings to support his family for a year in case he lost his job, or who was preparing to send his children off to college, is now able to buy less than he otherwise would have with the same amount of dollars. This, then, is the cost of the bailout, and fits the exact same model as the fabled restaurant mandate. The government forces individuals to forgo purchases they otherwise would have made voluntarily in order to pay for a mandated bailout of corporations whose unwanted products and services failed to produce profits – all in the name of stimulating the economy.
The economic crisis has lead to the government fully doubling the monetary base in just a few short years. The long-term consequences of this will be the establishment of recession conditions as the “new normal.” The economy will not improve – it cannot improve – so long as the government continues its policy of mandating spending at levels above what would naturally occur. The American middle class individuals do not want to dig into their savings to bail out enormous banking corporations that have mismanaged their money. They do not want to buy new cars at a time when their income level is uncertain and the bare necessities are of immediate concern. When the government disrespects their decisions in managing their finances, it is only destroying any hope of recovery. Policies that focus on spending are pushing on thread, trying to create a stimulus but ultimately just allocating precious resources where they don’t belong. If Americans want a better future for themselves, the only option is less spending, less mandating, and less government.
If you liked this post, please share it on your Twitter or Facebook page. You may also like The Collapse of the Brain Bubble – How the federal government will end college education. Check out the index page for more from the Worst-Case Scenario!