Last night, a critical referendum, Proposition C, passed by an overwhelming majority in Missouri. According to two initial reports (here and here), the proposition passed with more than 71 percent of the voters in favor.
By passing this proposition, which nullifies and overturns the unconstitutional health insurance mandate signed by president Barack Obama earlier this year, Missouri joins Louisiana, Virginia, Idaho, and Utah as the fifth state to fully nullify the mandate. Four of these states are controlled by a Republican majority; Louisiana is the outlier with a strong Democratic majority. More information can be found at the Tenth Amendment Center.
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I got a chance to interview BJ Lawson again at the Carrboro Famers’ Market on Tomato Day. He was there to talk to consumers about the value of consuming organic produce instead of industrial and processed foods whose only assurance of “safety” is the FDA. Thanks to the Triangle Conservatives for informing me of this opportunity. I encourage all of you to check out their group for information regarding local politics, even if you don’t agree with their opinions.
Click to watch the video, or scroll down to read the transcript of the interview.
JC: Do you think you can beat David Price in a policy debate? Can you, you know, show that you’re better than any opposing candidate on serious economic issues? Can you out-talk him? Do you know more economics than he does?
BJ: Well, I do think David Price is limited by what he’s allowed to say, frankly, and I think one of the frustrations most Americans have is that our government is lying to us and continues to lie to us. So … my offer to the voters: an honest conversation on the issues that are affecting us. So for example in economics, it’s clear that we’re in a crisis that was caused by and is caused by too much debt, yet the only solution that Washington wants to give us involves more debt. You can’t cure an alcoholic with another drink, so just to even be honest about recognizing the cause of our economic problems and then talking about how we transition to a freer economy where we create wealth in our communities is a discussion we desperately need to be having. Mr. Price, unfortunately, is limited by what he’s allowed to say and what his Congressional leadership will let him say, so he’s gonna be in a tough position in a policy debate because he’s not allowed to be honest.
JC: All right, so you talk about debt, and I’ve heard you talk about before reducing government spending, so what I want to know is, you’re in a debate, and David Price says this: “All economists agree that it takes money to make money. Capital gets reinvested into new industries and ventures to generate more wealth and turn the world’s motor. However, during a recession, individuals and banks reduce spending, keeping their capital saved rather than invested and lent. While saving has personal prudence, it is macroeconomically unwise. The decreased consumer spending and bank investment causes factories to slow or shut down resulting in unemployment and rising prices. The government can utilize the multiplier effect by taxing income and savings to fund construction and production projects. These projects aren’t always managed perfectly, but they reinvest capital which would otherwise be stored and not producing output. There’s no advantage to having wealth that isn’t being employed, but funding projects generates new jobs and ensures a cyclic flow of wealth. Shouldn’t we build up our projects when capital lies dormant in a recession?”
BJ: Ah yes, the paradox of thrift. So, were David Price to quote the paradox of thrift by Keynes, we’d also have to remind him that Keynes’s other philosophy was, “In the long run, we’re all dead.” And what we’ve reached in our debt – in our economy – is a point of debt saturation where, effectively, if we try to have the government continue to take on more and more debt beyond our ability to service it, we’re compounding the problem. So, at a very real level, what we need is not more capital in government hands to be mal-invested and given out through crony-capitalism, but we need to get more capital that can be put to work in our local communities. That means freeing up the market to create our own jobs, our own businesses, and not relying on the government as a source of debt finance stimulus, which is simply tying more weights to our ankles and ultimately slowing us down.
JC: But what you’ve just given me is a whole bunch of fiscal policy that assumes completely constant monetary policy. You talk about the federal debt, and you ignore the fact that the Federal Reserve has the ability to reduce the real value of the federal debt by modifying the currency. Can’t we fund projects and modify the value of the currency? Yes, it will reduce the value of savings, and I recognize that that’s disadvantageous to the individual, but we are in a recession. There are disadvantages to the individual. Reducing the value of the currency would increase economic flow if combined with a good fiscal policy.
BJ: So here’s the problem with our monetary policy is that we’re reaching the mathematically constrained end-game for our faith-based currency. What we’ve got is a system of debt-based fiat money that, as you know, can be expanded at will by the Federal Reserve and given out through crony-capitalism, as we’ve all experienced. That system, however, is mathematically limited because, when you’ve got a system of money where your money itself is based upon debt, and new money coming into circulation comes with a burden of interest to pay it back, you need, over time, an exponentially-increasing amount of new money to service the existing debt.
JC: What you’re talking about is when the federal debt becomes so large that the real interest, disregarding what the Federal Reserve claims the interest is, the real interest on the federal debt exceeds the maximum power of taxation at the peak of the Laffer Curve. It becomes impossible even if government spending goes to zero to ever pay off the debt because the interest on the debt exceeds the power of taxation.
BJ: Exactly. And I don’t know if David Price understands that.
JC: Do you think we are at that point?
BJ: Well, we’re clearly at the point where we have tipped over into the diminishing marginal utility of debt, where more debt added into the economy is actually reducing our GDP instead of increasing it. That’s the beginning of the end-game. So until we’re willing to have an honest conversation about the reality of dealing with the crisis of too much debt, and the need to purge mal-investments, to get that back into the economy down to a sustainable level, all we’re gonna be doing is stimulating ourselves off a cliff.
JC: All right, you’ve convinced me on your fiscal policy. Then David Price comes back with a statement about monetary policy again. He says: “During a recession, many companies, especially small businesses, experience a reduction in profits. Because they are businesses, they must scale back their operations to compensate. Yet long-standing social custom coupled with union negotiation makes it almost impossible to reduce wages and hours. Thus the only way a company can scale back operations is through layoffs. In layoffs, not only are some individuals punished for lack of productivity out of proportion to their actual decrease in productivity, but there’s a decrease in specialization of labor, which results in higher prices for consumers. This reduces total economic output, creates an unemployment panic, and compounds the recession. But there is another way. The Federal Reserve can inflate the currency, lowering real wages without lowering nominal wages. The recession is still there, but there are fewer layoffs, the burden of lost productivity is shared instead of focused in certain individuals that didn’t necessarily actually have their productivity go to zero even though they became unemployed and their income went to zero, and there’s no unemployment panic. So shouldn’t the Federal Reserve combat sticky wages by loosening the money supply?”
BJ: Theoretically one might be able to make that argument, but again we’ve reached the point where that process no longer works. How can we lower-
JC: But did it work before? I mean- … it works in some cases?
BJ: Well, I mean it depends on your definition of “work”. If by “work” you mean, “Can we steal from savers and investors and encourage crony-capitalism that benefits the politically well-connected at the expense of everybody?” Yeah, you could argue that it works.
JC: But why does it benefit the politically well-connected at the expense of everybody if I take a real paycut, but everybody in my company stays employed, and a few individuals whose productivity only went down by ten percent don’t lose all their income?
BJ: Right, but people are on the treadmill of trying to compete to maintain a standard of living against a currency that’s declining in purchasing power. The crony-capitalism and the politically-connected gets into who has access to the first dollars off the printing press if you will, the electronic printing press. The people who have access to the money first when it’s created in an easy-money regime – they’re the ones that benefit, because they’re getting the first fruits of the harvest before prices go up. Unfortunately, though, as we’ve talked about, we’re at the point of debt saturation where we’re already seeing interest rates at zero percent. What is left? The Fed is out of bullets, and to say that we can continue to reduce interest rates or be any easier with easy money ignores the fact that there’s too much debt in the system. For every lender, there’s got to be a borrower, and there aren’t a whole lot of credit-worthy borrowers who are interested in levering up in the current environment. So we’re at the point where the tried-and-true forms of Keynesianism, so-called “Keynesianism”, are no longer effective when you reach the point of debt saturation.
JC: Okay, now the federal government is trying to control the internet. Are people like me the target of the federal government’s attempts to control the internet? Are they mad that I don’t have to buy big books to understand what’s happening in the world? And would you fight tooth-and-nail, not just – I don’t want to say, you know, “Vote ‘No’!” on the bill; you can vote ‘No’ on the bill; the bill’s gonna pass anyway. Would you talk to Ron Paul, and talk to Barney Frank if you have to, and stop the federal government from having any – any- regulatory control over the internet.
BJ: It’s a – that is a critical issue. Yes, I will, and you can get a pretty good picture as to how dangerous the current situation is when you consider that the Department of Homeland Security just this past month over the July 4th weekend put out a very short, like fifteen-day request for comment on a proposal for a policy to provide universal internet user identification. So you can see how the screws are going to be clamped down, and it isn’t even going to require additional acts of Congress to happen. The bureaucratic processes are already in motion to start clamping things down, and we need to fight it.
JC: Is it unconstitutional that the Department of Homeland Security even has the authority to make any kind of regulation? Shouldn’t Congress be in charge of all that?
BJ: Indeed, and you get to another important topic which I call the “Write the Laws!” act, where we look at Congress essentially delegating its Constitutional authority to write legislation to unelected bureaucrats and lobbyists. So you end up with regulatory capture and rules that are written by the politically connected with no legislative recourse for we the people, for us the people.
JC: Cool. Thank you.
BJ: Thanks for coming out.
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