http://thpatriots.blogspot.com/2010/12/elko-mike-cure-disease-debt-and-deficit.html

The Debt Commission's recommendations are in, and they speak of a fiscal day of reckoning. This is the wrong debate and discussion. Debt and deficit are the symptoms of the disease; they are not the nation's disease.

Every shade-tree mechanic knows that a problem must be found before it can be fixed. It does not seem our "leaders" in Washington know what mechanics know. The debt commission set about to make recommendations for finding a way to solve the debt and deficit crisis, and within this narrow scope there are but two alternatives: cut spending and increase revenue. But the debt commission is addressing a question that assumes, among other things, the government is operating as it should.

We must not assume the Federal Government is functioning correctly when it got us into this mess. Like the shade tree mechanic we must find the structural problems with government that created the problem, and then we can set about fixing the problem.

Even that is not the fundamental debate. For if we are to decide how government got us into this mess, we must first decide what it should do. What is the role of the federal government in the United States? The Founding Fathers debated this and left us a republican form of government that had a limited role, spelled out in Article 1 Section 8 of the Constitution, for the federal government. Today, by any measure, the federal government has exceeded its legitimate scope under the limited powers of the Constitution.

So let us decide if we want a nanny state first; then let us determine how much nanny state we want; then let us figure out how to put controls on the federal government so that it can't do more than we want and drive us into a ditch again; and finally let us figure out within this set of objectives how we will solve the debt and deficit crisis. These are the questions that must be addressed in order to fix the nation's problems.

Motivation:
Many of our discussions involve the economy, big government, and prosperity.  So I decided to provide a brief synopsis of how wealth is created according to Adam Smith.  His 5 volumes The Wealth of Nations is extremely difficult to read.  I've managed to read at it a bit and read other books that explain it.  From that reading I believe I've captured his core principles and can explain it and illustrate it with an example.

Principles of Wealth Creation:
First his 3 principles of wealth creation are
1.  People work to meet their needs -- opponents and antagonists call this greed.  It is not; people work to meet their needs, or simply put survive.  Some people, say a Bill Gates, do this very well and achieve results beyond those essential to meeting their needs.  What to do about it is the subject of another discussion.
2.  Specialization -- people tend to find something and do it well.  A butcher, for example, cuts meat to meet his needs.  He doesn't do it out of charity or noble purposes.  He simply tries to meet his needs.  By doing something well other people are willing to pay him for his services (more precisely his time).
3.  Trade -- People specializing in different things trade.  It is this trade that creates wealth. 

The 3 principles above ARE the building blocks of the free market.  Let's look at an example of how it works.

Illustration:
Two people Socks and Gloves specialize in knitting garments.  Not surprisingly Socks makes socks and Gloves makes gloves.  In their specialty each can make two of their garments in an hour.  Socks can make a pair of gloves in 1 hour and Gloves can make a pair of socks in 1 hour. 

For their wardrobes each needs a pair of socks AND a pair of gloves. 

1.  It will take them each 1-1/2 hours to make both garments.  Socks can knit a pair of socks in 30 minutes (1/2 hour) and a pair of gloves in an hour.  So it is 1-1/2 hours to knit his own garments.  It is the same for Gloves.
2.  If they decide to trade with each other then Gloves knits 2 pair of gloves in an hour and Socks knits two pair of socks in an hour.  In one hour they make a trade and each has a pair of gloves and a pair of socks.  By specialization and trade they managed to save 30 minutes each.  That 30 minutes can be used to make or do other things.  Wealth was created by specialization and Trade.  Notice the connection between time and wealth -- that is the essence of wealth creation.

Taxation and Wealth Creation:
How does the government change things?  Well government is coercive and so its transactions create no wealth.  There is no trade involved in a government transaction.  It merely takes wealth that others create for its operations.  As government's taking of wealth is approaching 50% of GDP (topic for another discussion) let's assume that 50% of every transaction is taken by the government. 

If Socks and Gloves do not trade then there is no wealth created and the government gets no revenue. 

If they trade then the wealth created is 1 hour (30 minutes for each of them).  The government takes 15 minutes from each of them.  Now the marginal benefit to Smith and Socks was reduced by 1/2.  So they aren't as motivated to trade, but there is still some benefit and they will trade.  Obviously, however, economic growth (more precisely wealth creation) was cut in half by the government's tax burden. 

That is why taxation ALWAYS limits growth.  There is NO free lunch.  If government is smaller then people benefit more from their trades and are therefore motivated to work harder and trade more.  If the government is larger there is less motivation for people to work hard and get ahead.  This explains why socialist countries are always poor and capitalist countries are always wealthy.  It can be no other way.

Needs:
Back to the needs statement.  When government transfers wealth then citizens receiving benefits have no need to specialize, work and trade.  They become a drag on the economy just like the government.  In fact from an economic perspective someone receiving government assistance and someone working for the government look exactly the same.  They both slow the rate at which wealth is created.

Conclusion:
Liberal policies MUST make a nation poorer on the principle of reducing wealth creation.  That's why socialism fails every time it is tried.  There are subtle points in wealth creation, but the key to remember here is that liberals like to transfer wealth -- take it from those who are trading and give it to those who are not.  Thus the liberal policies of taxing some to give to others is ALWAYS harmful to economic activity and wealth creation. 

Rumors abound that the NRA is going to endorse Harry Reid, Democrat incumbent Senator, in Nevada.  As an NRA member and curious about the veracity of the rumors, I contacted the NRA.  My point was that Sharron Angle (Reid's Republican opponent) was as good as Harry Reid on the 2nd Amendment and IF they decided to back Reid I would cancel my membership. 

This was clearly a form letter, as I did not say that they had endorsed Reid.  I said I heard that they were considering an endorsement of Harry Reid.  Their response said "has endorsed", which is not what I said.

I've posted their response below. 

They did not make me very comfortable.  How about you?

Thank you for contacting the NRA-ILA regarding recent reports that the NRA Political Victory Fund (NRA-PVF) has endorsed U.S. Senator Harry Reid for reelection. 

For the record, the NRA-PVF has not yet made an endorsement in the Nevada U.S. Senate race.  In fact, there have been no announced endorsements for any U.S. Senate seat for the November general elections-period.

For several reasons, we generally do not announce ratings or endorsements until closer to the elections. There are still votes to be graded and other information to be evaluated prior to issuing an accurate grade as Election Day nears.

The NRA-PVF looks at the entirety of a candidate's record.  We start with the candidate's voting record (if any), along with answers to questionnaires, statements and floor speeches the candidate makes on Second Amendment issues, as well as any action the candidate may have taken as a committee member or leader. 

Our endorsements are not given lightly, nor are they issued in every race.  An NRA-PVF endorsement is something that has to be earned.  As we do every election year, we wait until all the votes are taken and evaluate a candidate's entire record.  Making a decision prematurely, before votes are taken, risks giving politicians a "free pass"-something we can't and won't allow.

It is important to note that the NRA is a single-issue organization. Our ratings and endorsements are based solely on a candidate's support for, or opposition to, our Second Amendment rights.  Other issues, as important as they may be to many people, do not and cannot play any role in those decisions.  NRA represents a broad coalition of American gun owners, who are bound together by their support for the right to keep and bear arms. 

For us to factor non-gun-related issues into our ratings would foolishly divide our unified base of support on the Second Amendment.  This policy has served NRA and gun owners well over the past three-plus decades, making us the nation's pre-eminent pro-Second Amendment advocacy group. 

We fully understand that voters must take into account a variety of issues when deciding for whom to vote.  We respect that.  It is our responsibility, however, to provide voters with information solely on a candidate's position on gun-related issues so that they may factor that consideration in addition to other issues.

Admittedly, Senator Reid's record is not perfect; few politicians' records are.  For a number of years (primarily in the 1990s) Sen. Reid had some problematic votes on our issue.  But in the last five years, he has dramatically improved his record on our issue, so the NRA-PVF would be irresponsible if it did not give due consideration to those recent votes and actions.  There is no doubt that, as Senate Majority Leader, Reid has supported efforts to protect Americans' gun rights, both by voting FOR pro-gun measures AND preventing anti-gun legislation from reaching the Senate floor.

In 2004, Sen. Reid voted against efforts to reauthorize the Clinton ban on "assault weapons" and ammunition magazines that hold more than 10 rounds, which are standard equipment for many rifles and for most modern semi-automatic pistols designed for defensive use. Early last year, he  flatly stated he would oppose any effort to reinstate an "assault weapon" and magazine ban if the Senate were to vote on it in the future.  In 2005, Sen. Reid was instrumental in Senate passage (and eventual enactment into law) of the "Protection of Lawful Commerce in Arms Act" (PLCAA). That law shut down reckless lawsuits against gun manufacturers and dealers, which attempted to hold them liable for the misuse of firearms by criminals.  Sen. Reid also cosponsored the PLCAA in the previous Congress and voted against the Feinstein Amendment to ban "assault weapons" and  "large" magazines, and the Kennedy Amendment that would have banned most hunting ammunition.

Sen. Reid voted for legislation, which became law in 2006, to prohibit gun confiscation during states of emergency.  He also voted for legislation to allow commercial airline pilots to be armed in the cockpit to protect their passengers and crews . 

In the last two years, Sen. Reid voted for the Ensign Amendment to repeal the Washington D.C. gun ban and restore self-defense rights in our nation's capital.  He cosponsored similar legislation -- S.1414 -- in the 108th Congress.  He also voted for an amendment to allow law-abiding citizens to carry firearms for self-defense in national parks and wildlife refuges.  This federal policy change took effect on February 22.  In addition, Sen. Reid voted last year for the Thune-Vitter Amendment to provide national reciprocity for state Right-to-Carry permits.  Sen. Reid also voted twice for the Wicker Amendment allowing Amtrak passengers to include firearms in their checked luggage.  In his capacity as Senate Majority Leader, Harry Reid made votes on all of these amendments procedurally possible.  And these are but a few examples of Senator Reid's support and leadership on Second Amendment issues.

All of which leads to a very serious question for all NRA members and gun owners who oppose Sen. Reid to contemplate: who would take Reid's place if he loses his race-and his critically important position as Senate Majority Leader?  Remember, the Senate Majority Leader is the gatekeeper who decides which legislation will be considered on the Senate floor.  If Sen. Reid loses, the next candidate for Majority Leader is very likely to be Charles Schumer of New York or [Richard] Durbin of Illinois -two of the most anti-gun U.S. Senators in history!  It is critical to the defense of the Second Amendment that we have pro-gun majorities in the U.S. Congress. 

While no endorsement has yet been issued in this race, nor any other U.S. Senate race for the November general election, rest assured that we will make all of these announcements at the appropriate time and in light of our election policy. 

Thank you for contacting us and please keep an eye out for our grades and endorsements as the election nears.

Sincerely,
NRA-ILA Grassroots Division

Earlier this year, VP Joe Biden released the latest installment of An Annual Report of the White House Task Force On The Middle Class.  Retirement inequities and insecurities were among the issues addressed by the report.  In its Executive Summary we find the following:

"Enhancing Retirement Security. After a lifetime of employment, American workers deserve a secure retirement. Yet for middle-class workers today, especially in the wake of the historic losses to retirement savings and housing wealth in the financial crisis, retirement seems anything but secure. The Budget will:

••Establish Automatic Individual Retirement Accounts. The Administration will require most employers who do not currently offer a retirement plan to enroll their employees in a payroll-deduction IRA unless the employee opts out.
••Simplify and Expand the Saver’s Credit. The Administration will help working families save for retirement by simplifying and expanding the Saver’s Credit to provide a 50 percent match on the first $1,000 of retirement savings for families earning up to $65,000 and providing a partial credit to families up to $85,000. We will also make this credit fully refundable.
••Update 401(k) Regulations to Improve Transparency and Reliability. A majority of American workers rely on 401(k)-style plans to finance their retirements. The Administration is proposing new regulations to improve the transparency and adequacy of 401(k) retirement savings."

For some time, liberal think tanks have encouraged the government to create a Guaranteed Retirement Account for the citizens to tackle the challenges mentioned above.  The elements outlined above  are similar to the GRA proposals.  The concept is that the Social Security Administration will assume control of all 401(k)s to provide retirement equity and security for all Americans.

Obama promised an "all hands on deck" approach to clean up the oil leaking in the Gulf.

Despite this promise to the hard working Americans in the Gulf region, thousands of our nation's skimmers sit idle. The offers of 21 other countries to help with the clean up are ignored by Obama's Administration.

Is this the "all hands on deck" approach promised by President Obama?

Tags:

Most of us recall President Obama promising us he would go through the budget "line by line" and cut wasteful government spending.  Upon hearing this I cheered with excitement. 

In a joint briefing to the Congress he pledged "... to cut the deficit in half by the end of my first term in office.  My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs. 
...
In this budget, we will end education programs that don’t work ..."

For more than 30 years taxpayers were told that more money was the way to improve education outcome.  Since it was created in 1979 the Department of Education fulfilled half of the promise: it saw to it that the nation spent more money, but there are no results to show for the increased spending (source: Heritage Foundation Report, http://www.heritage.org/Research/Reports/2008/09/Does-Spending-More...). 

In 2011 Obama is requesting a budget of $78 billion for the Department of Education.  Mr. President, live up to your pledge; eliminate the Department of Education and save $78 billion for the taxpayers.

There can be no doubt that Obama's concept of fairness through government interventions will end America's prosperity and steal a better future from our children and grandchildren.

Adam Smith, the philosopher who created economics, told us that trade between free people creates wealth. Government, on the other hand, achieves its goals through coercion, and therefore creates no wealth.  As evidence of this point consider: if government created wealth then it wouldn't need to tax its citizens.  Rather it could use the wealth it created. 

The Founding Fathers knew that liberty, which gave people the freedom to create and consume wealth, created prosperity.  The Framers understood that a government established to protect liberty could destroy it -- they therefore created a system of checks and balances to keep government limited. 

To tell us how limited the Founding Fathers thought government should be, we can look at its size when the Constitution was ratified.  Under the Framers, there was 1 government employee for each 33 people creating wealth.  By consuming wealth, while not creating it, government workers dilute a nation's wealth.  At the nation's founding the wealth dilution was quite small: 33 people created wealth and 34 people consumed wealth. 

In Obama's "fair" America, for each person creating wealth there is 1 additional person consuming it either on government payroll or through subsidies.   Such a dilution of wealth -- 1 person creating wealth and 2 people consuming it -- places too much burden on the productive part of society for continued prosperity.

Our children and grandchildren, who will be saddled with enormous debt and a country no longer prosperous, will suffer most if Obama's vision is realized.  Responsible Americans can't allow this to happen.

Introduction

Using twisted logic regarding the addition of the Bill of Rights to the Constitution, SCOTUS greatly expanded the powers of Congress, which was a concern that Hamilton had expressed.  It is remarkable that they could do this given that it was the intent of the Founding Fathers to greatly limit the powers of the Federal Government. 

I wrote a small missive on this history of the bill of rights in Mark Sherman's TH Post on the upcoming SCOTUS 2nd Amendment case.  I added a little bit to the post and inserted it into the blog.

Hamilton's Concern

Alexander Hamilton argued in Federalist 84 that the Bill of Rights was not necessary: "I go further, and affirm that bills of rights ... are not only unnecessary in the proposed Constitution, but would even be dangerous. They would contain various exceptions to powers not granted ...".   Hamilton was concerned that a Bill of Rights creates a potential argument that the Framers believed it necessary to restrict Congressional power beyond those enumerated and therefore it must have other powers, not enumerated, in the Constitution.

Legal Tenders Case

This is exactly what happened in the Legal Tenders Case, which effectively removed the constraints of enumerated powers from Congress.  SCOTUS wrote "They [Bill of Rights] tend plainly to show that, in the judgment of those who adopted the Constitution, there were powers created by it, neither expressly specified nor deducible from any one specified power, or ancillary to it alone, but which grew out of the aggregate of powers conferred upon the government ... "

Conclusions

The stated intent of the Framers was to balance power between federal and state government, and the people.  Separation of powers was their mechanism for accomplishing this.  Federalist and Anti-Federalist papers #78 debated the role the judiciary plays in maintaining this balance. 

The judiciary can allow the Congress, and therefore the Federal Government, to become expansive, intrusive, and oppressive.  That this could happen was argued by the anti-Federalists in #78 when they said "The supreme court then has a right, independent of the legislature, to give a construction to the constitution and every part of it, and there is no power provided in this system to correct their construction or do it away."

Ironically the Bill of Rights, which sought to restrict the powers of the Federal Government, created an opening to expand such powers.  As a consequence the few justices of the Supreme Court determine how expansive and intrusive the Federal Government can be.  In arguing for ratification the Federalists in #78 said "the judiciary is beyond comparison the weakest of the three ... the general liberty of the people can never be endangered from that quarter."


The anti-Federalists had it right and SCOTUS now legislates from the bench.

Hell must have frozen over this morning, because I thought that would happen before Obama and I  found common ground.  Guess what?  We've found common ground.  In a Chicago Tribune article, President Obama acknowledged opposition to his policies is the result of a disagreement about the role and competency of government.  Amen. 

In ObamaLand, government is competent and good, and only more government can solve the big problems we face.  Some excerpts from his interviews:

• "I think are more passionate about the idea of whether government can do anything right. And I think that that's probably the biggest driver of some of the vitriol."
• "I think that what's driving passions right now is that health care has become a proxy for a broader set of issues about how much government should be involved in our economy, ..."
• "It's an argument that's gone on for the history of this republic,   ... What's the role of government?''

"Can government do anything right?", Obama asks. 

It is important to note that the terms of the debate are sloppy.  Besides the federal government, there are 50 state governments, thousands of county governments, and a host of city governments.  Most governments go about their business and do just fine.  What people mean, or at least what's generally assumed they mean, is that government refers to the powers of the federal government.  "Can government do anything right?", translates to "Can the federal government do anything right?" 

This isn't the first question we should ask; the first question is whether or not the problem under discussion is within the scope of federal government powers. 

Grannies got a hang nail -- we need a new government program to solve her problem, actually means that the federal government feels it must create a hang nail administration.  Assuming all citizens' problems are federal government problems is contrary to the framework of the federal government created by the Founders.  James Madison, who was the principle author of the Constitution, wrote a good deal about the role of the federal government in the Federalists Papers. 

Madison wrote about the principle of limited government: "e.g. a government where any more than minimal governmental intervention in personal liberties and the economy is not usually allowed by law" in the Federalist papers.  In Madison's words

• "The powers delegated by the proposed Constitution to the federal government are few and defined.  Those which are to remain in the State governments are numerous and indefinite."
  - Federalist #45
• "If Congress can do whatever in their discretion can be done by money, and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one, subject to particular exceptions."

The powers delegated to the federal government are few and defined as enumerated by Article 1 Section 8 of the Constitution.  The powers assumed by the federal government are neither few nor are they enumerated any longer.  This is the demarcation point for the current debate about the role of government.

  On one side we have Obama saying that America's big problems, whatever they are, need big government solutions; on the other side we have Americans saying that big government is not the answer to our problems.  Madison, sometimes called the Father of the Constitution warned us that we could lose our limited Government if Congress "can do whatever in their discretion can be done by money."  In contradiction to Madison's warning, Obama argues for more expansive and intrusive government -- when there is a problem then it is up to Congress and the government to throw money at it.  Many Americans are upset because they see the federal government growing well past the reasonable boundaries of limited government. 

Obama has staked out the position of an expansive federal government, regardless of warnings from the Father of the Constitution.  His position depends upon government properly performing the powers it assumes for itself.  So how's the track record?

• The root cause (see also BBC article and Forbes Commentary) of the 2008 financial meltdown was government action.  FANNIE and FREDDIE, urged on by many (e.g. Barney Frank) in the Federal Government, created the conditions for the sub-prime home loan mess.   
• The FEMA response to Katrina.  
• FAA Modernization (Also 2001 GAO Report)-- if government can't do this (they are trying again with problems) then how will they upgrade the medical records systems?
• Growth in entitlement spending as documented in a Heritage Foundation Report.

We have a sampling of major problems (there are many more), each of which has the fingerprints of government all over them.  Obama asks for more federal government power to fix problems created by government, because, get this, only the government can do it.   Wait.  Wasn't it BIG government that created the problems in the first place and now BIG government is going to fix them?  How is that going to work?  As Obama says, "It doesn't make any sense."

President Obama should explain all HUGE government failures to the American people if he argues that only the government can solve the big problems.  The blame Bush argument doesn't work as there will be presidents who follow Obama, unless he hopes to pull a Chavez.  If that's not the case then a successor to Obama can muck it up but good.  Why should we entrust such power to a government when they have a track record of HUGE failures.  Obma owes the Americal people an explanation of how government will work better this time since he brought it up.

Second his concept of limited government is troubling.  We have some solid, quantifiable evidence from the historical record as to what the Founding Fathers meant by limited government.  What Obama proposes doesn't resemble this historical record.  Once he convinces us that the Federal Government can assume vast new powers without a HUGE failure following it, then he needs to convince us that his vision is consistent with America's form of limited government.

This figure tells us that federal government has grown 7 times larger now than what the Founding Fathers believed was necessary to run limited government.  Obama's spending will raise it to 10 times or more.  This folks can no longer be called limited government. 

Read the quote of Madison's from Federalist #45 above once again carefully -- Madison is saying that State governments are essential for the operation of the federal government; the federal government is NOT essential to the operations of the State governments.  It no longer works like this because the federal government now exercises control over the states by handing them large sums of money. 

These are the facts: Congress spends money as it wishes; Congress with its spending exercises vast powers over the states; Congress spends 10 times more than the Founding Fathers did for government.  These are the facts and these facts are not the facts of limited government.

Obama says the argument about the role and size of government is as old as the nation itself.  He is wrong.  That argument was settled when the nation was founded.  The Framers wrote a contract, the Constitution, with its citizens to provide them with limited federal government. 

The argument now is whether, or not, the federal government is in breach of that contract and what we should do if it is. 

No I'm not talking about "Does He Lie" by Charles Krauthammer.  Rather I'm talking about distortions in behavior caused by government interference with the affairs of society.  In my Townhall blog I provide an example of how government's insertion into free markets causes distortions.

Let's think about tax policy and the way in which it distorts behavior.  Liberals always talk of raising taxes when that is in fact not true.  Government can choose to tax something and they can choose the rate of taxation for it.  Whether or not their actions actually raise taxes depends upon how potential future taxpayers react to the government rates. 

In delicious irony Patrick Kennedy introduced legislation to repeal the luxury tax on yachts that was championed by his uncle Ted Kennedy.  Better still Patrick Kennedy's justification for giving a tax break to the rich who buy yachts was that it would have a trickle down effect on the economy and therefore help the little guy.  Liberals, it seems, have no shame or they have the memories of advanced Alzheimer's patients. 

In short Ted Kennedy championed a bill to raise the luxury tax for the purchase of yachts.  People with money, the sort of people who tend to buy yachts, started buying them overseas to avoid the taxes.  Who knew?  The yacht industry in the US was decimated.  Thousands of people lost their jobs.  Tax revenues declined when tax rates were increased.    Government payouts for unemployment and other assistance increased; the government lost money as a result the tax rate increase.  George Will tells this story wonderfully.

People do change their behavior as a result of taxes and that leads to unintended consequences.  What if Obama and the liberals passed the ultimate in progressive taxes.  If you make less than $250,000 then you pay no income tax.  None.  Zero.  If you make $250,00, or more, your tax rate is 100% -- everything goes to the government.  Obviously the utility of the last $1 after $249,999 is very low for the taxpayer.  In some sense the tax on that $1 is $250,000.  Would people work hard to make that last dollar?  Probably not.  Revenue to the government would go to zero as no one would strive to become rich under those terms.  You can bet that the tax code would be changed.  Obviously tax policy impacts behavior and that leads to unintended consequences. 

OK.  That's all theory.  It doesn't work like that in the real world a liberal will say.  Well actually it does.  A study of government size by Work for All mentions a market distortion in which their research found a surgeon painting his own house.  Why would a surgeon paint his own house, we might ask?  Well the marginal utility (money made as with the $1 above) by performing more surgery is less to him than is painting his own house.  Economically he is better off painting his house instead of performing more surgery.  This means that a painter somewhere doesn't have income and a patient needing surgery may not get it.  European tax policies targeted only at the rich hurt others who are lower on the economic ladder. 

An Adam Smith principle is that people act in their own self interest.  The tax structure in Europe was so progressive that it was in a surgeon's own self interest to paint his house rather than performing surgery.  Europe tax policies distorted societal behavior in a way they can hardly afford given the shortage of doctors and surgeons in their socialized health care system.  Clearly ultra-progressive tax policies taken too far hurt the entire economy and all citizens in that economy, as even a Kennedy was forced to admit. 

Just as government interference in market's distorts behavior and results in unintended consequences so does a progressive tax policy.  Liberals who believe their tax the rich policies won't impact ordinary people are wrong today, just as they've been wrong in the past.

Adam Smith's principles for wealth creation inform us that free trade creates wealth.  With ever larger and more intrusive government on the way, how will that work out for America.  Not too well.

Government doesn't create wealth; if it did then it would have no reason to tax its citizens.  However, government services can facilitate wealth creation.  Richard Armey, using the ideas from the Laffer Curve, posited that: countries with no government are chaotic and that very little economic activity could occur; countries in which governments that took all of the money from the economy were not prosperous either.  In between these extremes there was a place where government could optimally help nations grow and prosper.  This idea, as was the case with Dr. Laffer and his curve, was named the Armey Curve. 

A number of studies of the Armey Curve have been conducted; one of them by the Federal Government finds that the optimal size for government, all levels, is about 13.5% of GDP.  With government at all levels now taking more than 30% of the GDP we would expect that economic growth in this country will continue to decline as the Federal and State Governments continue to grow.  There is a bunch of statistical gobbledy gook in this study and the reader shouldn't be alarmed if they don't get it.  We will examine two of the tables to make the point in a way that is more accessible if not more quantitative.   

Table 3 illustrates the size of government as a percentage of GDP.  With the exception ofs spike for the Civil War and WW-I it remained flat and less than 5% of GDP.  In the 1930s with the initiation of the welfare state by FDR, Federal Government spending began to grow.  And in 1997 at the end of the data the Federal Government was spending nearly 20% of GDP.  We also note that the Founding Fathers, who established the principle of limited government, found that less than 5% of the nations resources should be consumed by the Federal Government.

Table 2 illustrates the 10-year economic growth of the GDP over the same time interval as Table 3.  Generally, until the 1900s the GDP 10-year growth is between 40 and 60%.  It remained there after which it began a precipitous decline through the Great Depression until the end of World War II.  It then more or less stabilized at a lower rate of growth.  In 1960 it has become sluggish and growing at less than 40% per decade. 

Events in that period:  Income Tax (16th Amendment) passed in 1913, which gave the Federal Government access to far more taxpayer funds.  In the 1930s the Welfare State began with Social Security.  In the 1960s America started Welfare and an ear of large Federal Spending.  As each of these events occurred and allowed the Federal Government to grow larger, economic growth declined. 

The facts are clear that as the government has grown economic activity has declined.  There are some mathematical issues that will say this isn't conclusive.  But this certainly does indicate that government of the size we have will be destructive of our nation's wealth.  Other studies are confirming this initial result.

A report by EU Prosperity for All contains interesting findings that can be applied to America's situation.  Where the liberals and Obama are taking the country we can expect growth between 2 and 2.8%.  This is, of course, far below his economic projections and that means the deficits will be far worse than he projects.  If Obama raises taxes to close the gap, growth will decline further and he will not close on his deficits. 

America is at a critical juncture in its history.  If we continue with big government the consequences will be severe for the nation.  What's the alternative?  Tighten our belt and reduce the size and intrusiveness of government. 

If we do this the "miracle" of the Ireland turnaround may be ours.   Their turnaround, which is discussed in the EU Prosperity report, is nothing short of a miracle.  In 1985 their growth was a sluggish 1.9% as government spent 50% of GDP.  in 1985 Ireland dramatically lowered the tax rates and eliminated superflous government spending.  As a result its economy grew an average of 5.6% per year from 1985 until 2001. 

That's the choice we have: anemic growth, debt as far as the eye can see, and underemployment for the workforce; or we can have robust growth, get on top of our debt, and have a fully employed workforce.  The choice could not be more clear nor could it be more clear that the Obama administration is taking America down a path to disaster.

   Adam Smith published his economic manifesto, the Wealth of Nations, interestingly in 1776, the year America announced its independence from Britain.  This work has guided economic thought since it was published and one still hears references to Adam Smith and his work.  He described three simple principles by which a nation, and its people, create wealth.  I believe these principles are important to understand as they are the foundation from which to make economic arguments.  His principles are

• People and businesses act in their own self interest
• People and businesses specialize in the delivery of certain goods and services
• And, people trading freely with each other to obtain the benefits of specialization

    Economies in the modern world are very complex and I imagine that Adam Smith would be astonished were he alive to see them.  However, his principles apply as well today as when he put them on paper more than two hundred years ago.  Don't let the fact that the rules are simple fool you in any way.  Simple rules, such as these, can lead to remarkably complex structures.  A Mandelbrot Set is an example of a relatively simple set of rules that can create remarkably complex structures.  Adam Smith's rules do so as well and demonstrate that an old-fashioned idea is still stylish. 

 

   These rules have the benefit of providing a framework for thinking of economic structure and behavior without becoming lost in the arcane and difficult details. 

 

   People acting in their own self interest is sometimes seen as greed.  That's really not true.  Adam Smith observed that butchers cut meat in order to provide for their needs.  That isn't really greed; that is simply working to provide for the needs of one's self and family.  There is the seeming contradiction to this simple statement that happens when people sacrifice themselves (not really in their self interest) for others.  Adam Smith said that this was the result of imagination and I won't deal with it here except to say that the example of self-sacrifice doesn't disprove the principle.

 

   In some sense specialization was Adam Smith's real discovery, although it was in front of everybody.  He observed that it allowed a division of labor among people.  He used the example of someone who made pins.  This example illustrates that the pin maker took material from other people and then assembled the pin.  It would be a folly for someone who needed a pin to try to make one themselves.  They would need to learn to mine the material, then they would need to extract the minerals from the material they mined, then they would need to form part of the pins, and so forth.  It is far more efficient if members of society specialize to build parts of the pin.  I, Pencil is a wonderful essay that illustrates this point very well.

 

   Once the benefit of specialization is understood then the benefit of free trade is easy to see.  Free trade between specialists is what creates the wealth and is what Adam Smith meant by the invisible hand "Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. "

 

   Thus by acting in self-interest, people specializing and participating in the commerce of society create wealth.  This is more evident when we think of devices such as an iPod.  Think of all the complexity; think of all the specialization; think of how much joy this device brings.  A consumer can have one for less than $100 dollars.  That very consumer would have no hope whatsoever, as illustrated by the I, Pencil essay, of creating an iPod on their own.  This is the essence of wealth creation: a free person, working with other free people, creates things of such value that other free people will trade for it. 

 

Two key points to take away

1. Liberty is key; people must be able to trade freely in order to unleash this engine of wealth creation.
2. Wealth creation happens because people pursue their own self interest.  It is therefore good, not bad, when people or businesses try to make a profit.
   

 

Imagine what would happen if the government did to auto insurance what it has done to health insurance. First they would pass laws mandating that the auto insurance policies cover the cost of fill ups, oil changes, and tune ups. That sounds like a good deal -- besides premiums are expensive and the executives in those companies get HUGE bonuses. Lawmakers have to take care of the little guys who can't take care of themselves.

What next? Well since gasoline, tune ups, and oil changes are free (strictly speaking they are not, but appear to be so to the consumer of these services) then people who have auto insurance will use more of these things. Predictably, shortages of gas, oil, and mechanics will occur. Shortages drive up the price, which adds to the cost that insurance companies bear.

In response insurance companies will raise the price of their premiums so that they can make a profit. Fewer drivers will be able to afford insurance. Drivers who can still pay the premiums will complain to lawmakers about its cost. Lawmakers will decide they need to create a public option that sells auto insurance.

The original problem was created by government actions that mandated benefits. The actions badly distorted the free markets and the results were predictable. The right fix is to remove the free market impediments rather than adding more government burden or worse still eliminating the markets altogether.

To be honest I am not sure.  However, I first recall being captivated by politics during the Watergate hearings -- was that ever so long ago?  At that time I worked the graveyard shift (11PM - 7AM) in NY.  So I was home during the day and started to watch the events of Watergate unfold.  I will never forget Howard Baker "What did the president know?  When did he know it?"  The testimony of John Dean was riveting.  I was early in my 20s when that happened -- the drip, drip, drip of the Woodward and Bernstein reports, the testimonies, the court battles, the firing of the special prosecutor, and finally Nixon's resignation.  It all made a huge impression upon me. 

For a number of years, I voted and tried to be informed.  But I was an average citizen.  Working hard, raising a family, reading a newspaper, and casually following politics. 

I guess the 9-11 attacks -- I don't know for sure -- enhanced my interest in politics.  I began following the news more closely.  Also, I was a "rocket engineer", working on defense projects, for a large aerospace company.  After the attacks of 9-11 (4 of my friends and colleagues were on flt AA 77) I began reading defense-related literature about terrorism and realized we were entering an entirely new era of defense for this nation.  With my background that was captivating.

Somewhere in this time I read Madison's Federalist #45 and instantly realized the government wasn't working as it was supposed to work.  Digressing for just a moment.  In my field I am a systems engineer and systems architect.  In my work for an aerospace company I learned to look at large complex systems and understand how they function.  Soon after reading Federalist #45 I knew that government was a system and that my work experiences could apply to thinking of how government operated.

I began reading more and realized that the Founding Fathers were great systems thinkers.  They crafted a system of government that could, for the most part, keep man's natural appetite for power in check.  The term we use for large systems and organizations is governance. The Constitution is a governance model for America.  In reading I've come to realize that this notion of a living Constitution has ruined the governance model crafted by the Founders.   In my view a number of the problems we see today are caused by our digression from the original model of governance.

Many of the things the nation argues about bitterly today -- wealth transfer, for instance -- were discussed and dispatched by the Founding Fathers.  (We need only look at the lessons they left for us and apply them to the problem at hand.)  Our economic system of capitalism evolved in the time of the nation's founding through the work of Adam Smith and others.  For government, society, and economics there may not have been a time that reached its level of insight and creativity in the history of man. 

The lessons they learned and the ideas they gave us will still work today.  That's the reason for the title.  We will see how this works but I plan to blog about my journey of discovery and news events that fit the theme from the perspective of a systems thinker. 

Look, Obama and his Liberal Democratic pals want to establish health care as a universal right.  That's their bottom line.  Any legislation is acceptable if it puts them on a path to a single-payer health care system.  They've all said that is their goal so let's just admit it.  Stop denying it; stop being stupid.  Let's just admit the reality and look at what it means. 

As we approach yet another entitlement program I'm feeling like Charley Brown kicking at a football Lucy is holding.  She keeps telling me she won't pull it out.  I don't quite trust her, but finally decide to go along.  I try to kick the football, she pulls it away, and I land flat on my back.  This happens every time.

What happens with entitlements?  Same thing.  Each time the party in power wants to foist another entitlement on the taxpayer there are endless debates about the cost.  There are promises that it is affordable.  There are promises, ultimately broken, that this one won't grow like the others.  All of this is predictable, and as a Baby Boomer I've seen this movie many times.  The reality is quite different every time.

Once a new right is created, Congress starts to add the goodies to it.  As long as it is free the beneficiaries of Entitlement spending will take more of it.  This pattern happens every time and every time these programs cost taxpayers and the nation more than originally promised.  So what?  They are popular.  Why shouldn't they be popular?  There are people receiving all these benefits at no cost or costs that are significantly less than the value of the service.  Free stuff is usually popular and expensive.
 
My blog entry, Big Government: Less Wealth, will tell you why you should care.  Prior to the birth of entitlements the Federal Government ran just fine with less than 5% of GDP.  Now it consumes more than 20% and is headed to 30% and perhaps more.  Folks for every two working Americans there will be one (perhaps two) Americans working for government or on the government tit.  This is unsustainable.  We can see what size the Founding Fathers thought appropriate for the size of the Federal Government by the less than 5% of GDP that they actually spent for government.

If Obama and the Democrats tell us that this time it will be different then they must also acknowledge the past, tell us what is different, and provide time for strict scrutiny of their claims.  The evidence is strong that the nation can't afford yet another entitlement program, and opponents or those skeptical of their plan and claims deserve every consideration as this matter is legislated. 

The cliche that insanity is doing the same thing over and over again and expecting a different result applies.  If America expects to add another entitlement program without further government growth that is insane.  For now this entire effort should be stopped.  No bill.  No how.  That's the best evidence we can provide that we aren't insane.