Browsing the blog archives for January, 2012.

Class Warfare & the State of the Union

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Nothing is more central to Marxist thought than class envy. The argument is simple: The rich got what they have unfairly so a central authority is needed to make things fair again. This line of reasoning has been extended to other groups as well, especially women and ethnic minorities.

The problem with this thinking is that the central authority–government–must violate individual property rights to remedy the alleged unfairness. When the wealth one accumulates is subject to redistribution, the incentive to acquire it wanes. Many would-be productive citizens determine that it’s just not worth the extra effort to make their own way if the government will take care of them should they choose not to. Add to this the abilities of Congress to overspend and the Fed to inflate the currency and you have a good picture of the current “state of the union.” A lack of incentive has led to a decline in productivity.

Unfortunately, I suspect that President Obama will present a different picture in his State of the Union address. As you listen, I encourage you to track his effort to play the “class envy” card. Words and phrases like “the rich,” “fair share,” “playing by the rules,” “responsibility to others,” and “social justice” are subtle hints that you would have more if the “dog eat dog” world of capitalism were reigned in by government. If the rich would just “pay their fair share”…

This is not a joke. Class envy is a powerful political tool. The leftist candidate wants to convince you that your neighbor has a new car because “unbridled capitalism” enabled him to succeed at your expense. While attacking your neighbor’s lack of morality, he tugs on your own propensity for greed and envy. YOU deserve the car–not your neighbor–and if you vote for the leftist he will use the tax code or other government programs to redistribute your neighbor’s wealth and make things fair again. It’s an emotional argument and can be quite persuasive to those who don’t spend the time to give it serious thought.

Class envy is a key part of the foundation for the socialist economic agenda. We must to a better job of identifying and exposing this false premise to the electorate. The President’s speech this evening will probably give us a great text to work with.

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Revisiting the Gold Standard

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I get lots of questions about the gold standard. Many ridicule the idea and infer that linking paper currency to a precious metal is an outdated concept. A detailed discussion on the gold standard would take volumes, but I will cover the basics in this post.

A gold standard means that all paper money can be exchanged for a given value of gold on demand. Presumably, the exchange level is fixed and the bank or central authority printing the currency would make the exchange if desired. A common myth of a gold standard is that individuals would be required to exchange physical gold in the marketplace. In such a system, however, paper money would represent gold and would serve as a more convenient means of exchange.

In contrast, a fiat currency is not backed by gold, silver, or anything else other than the good faith and credit of the central authority (government) that oversees its printing. FDR took the US off the gold standard in 1933 when he confiscated all gold, requiring that it be exchanged at the rate of $20.67 per ounce. This official exchange rate was changed to $35 per ounce in 1934, enabling the Fed to arbitrarily increase its holdings of the precious metal by 69%. The $35 “price” stuck until Nixon officially ended convertability in 1971. We have had a fiat currency ever since.

The argument for a gold standard is straightforward. If dollars must be convertible to gold, then currency can only be printed when sufficient gold exists to back it. Given the rarity and high costs associated with mining gold, expanding the money supply would be a difficult task. Inflating the currency by simply printing more of it—thereby devaluing what we already hold—would not be possible. Hence, a gold standard would make big government spending much more difficult.

Those who argue against the gold standard claim it’s not practical and is simply unnecessary. The practicality argument is weak given that gold has backed currencies throughout our history. The lack of necessity argument is equally invalid, as evidenced by the recent abuse of the printing press and massive budget deficits. Admittedly, a gold standard is less convenient than a fiat currency, but that’s precisely the point. It shouldn’t be easy for a government to spend now and pay later.

There are a number of side issues concerning a return to the gold standard, including physical storage, setting an exchange rates, and managing trades between gold-based and fiat currencies. I won’t delve into the details here. Suffice to say that while these are legitimate concerns, they can be addressed.

Raising the topic of sound money is not always easy, but the gold standard debate is really about serious fiscal responsibility. Those who scoff at it tend to be Keynesian, big-government spenders. The next time you hear the concept ridiculed, just look for this connection.

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State of the Economy

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Recent economic data suggest a modest improvement in the job situation. While this news is nothing to celebrate–and overblown in my view–any positive movement in the economy puts those seeking to unseat President Obama in an interesting predicament. If the economy appears to be moving in the right direction around election time, the President could make the case to forgetful and less-informed voters that his “economic plan” is starting to work. Should the current strong economic case against Obama weaken a little, the President could find a way to survive in November.

It’s been said the best economists are right only 51% of the time. I agree and I’m not an economist, but one point is worth making. Recessions in the U.S. typically last less than two years and the current downturn is overdue for improvement. You can put off the purchase of a new car, a TV, or even a pair of jeans for a while, but over time things wear out and must be replaced. Markets still adjust some even in an anti-business climate. While a robust recovery is highly unlikely, the economy could improve a little in 2012. The present economic malaise is on Obama’s watch, but making that point isn’t good enough. Republicans seeking office in November should be prepared to provide clear conservative, limited-government solutions.

This is where the Republican primary gets interesting. Ron Paul is the only candidate who has laid out a clear plan to significantly shrink the size of the federal government. His foreign policy views don’t seem to click with enough primary voters to advance his candidacy, however, leaving Republicans without a consistent small-government option. I’ll leave the political analysis to others, but suffice to say that whoever survives the process will likely run against Obama as a right-leaning moderate (at best). This is where I start to get nervous.

I reject the notion that a moderate candidate has the best chance against the President. I fully expect Obama to campaign as a moderate, so its essential that the Republican nominee make a clear distinction between the two alternatives. Big government has failed us. We don’t need to slow the growth, but to make it smaller. A lot smaller.

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