Tuesday, January 31, 2012

Florida Republican Primary Results

Mitt Romney is the winner of the Florida presidential preference primary vote.  This is not all that surprising considering that his campaign and backers most likely spent in excess of $15 million in just one state, mostly to attack Newt Gingrich.

Florida also has a lot of old people.  Wisdom is supposed to come with age, but not necessarily when it comes to politics.  Romney does especially well with senior citizens, while it is the worst group for Ron Paul.

Speaking of Ron Paul, he took about 7% of the vote.  I was hoping for 10%, but it was to be expected given that he did not campaign (other than the debates) and he did not spend advertising money in Florida. In addition, the demographics do not favor him as just mentioned.  Florida is a huge market without the delegates to match the population due to being penalized for holding its primary early.  Plus, Florida is a take-all state, where the winner gets all of the delegates.  Even without trying, Paul more than doubled his percentage from 4 years ago.

Ron Paul is wisely spending his time and money in caucus states where he can likely win, or at least take delegates.  He is campaigning in Maine, Minnesota, Colorado, and Nevada.

There is no indication that Santorum or Gingrich will drop out, but you never know what might happen in the next few days.  The demographics in Florida favored Romney, so there really is no reason for the other candidates to drop out, unless they are just plain tired or completely out of money.  Florida is not really a "southern state" (culturally, not geographically).  It is not like South Carolina where Gingrich won.

One thing that surprises me, although it shouldn't, is how many people are saying that the number one thing they are looking for in the Republican nominee is whether they can beat Obama.  I guess that is why the Republican Party may nominate the founder of Obamacare, although it is called Romneycare for those living in Massachusetts.

By this logic of the Republican voters, if Hillary Clinton were to change party registration and run on the Republican ticket, then I guess all of these Republican voters should support Hillary Clinton since she has the best chance of beating Obama, particularly with the Republican vote solidly behind her.  It just shows the absurd thinking of so many voters out there.

This race is not over yet.  I am not naive though.  I realize that Romney is the strong favorite at this point.  Intrade agrees with me on this (or do I agree with Intrade).  Intrade has Romney's chances at close to 90% of being the nominee, as of this writing.

The longer this thing drags out, the better.  It is more of an opportunity for people to learn about Ron Paul and his message of peace and liberty.

Monday, January 30, 2012

Growing the Economy and Inflation

It is hard to fathom what life would be like without a monopolistic central bank and fiat money.  We live in a world of inflation.  This started in 1913 with the start of the Federal Reserve.  It sped up quite a bit in 1971 when Nixon closed the gold window and broke the last links that the U.S. dollar had to gold.  Since then, it has been a world of total inflation.  Of course, some years have been worse than others.

If there was no monetary inflation, or perhaps minimal monetary inflation with a gold coin standard, then things would work much differently now.  You would not see massive swings in stocks.  The price of the general stock market would not go up significantly over time.  This doesn't mean it would be a bad investment.

Housing prices would not continually go up.  The prices might actually decline very gradually (not like a housing bust).  Houses are like cars in that they depreciate.  They just don't depreciate as fast and the land that they sit on doesn't depreciate.  The reason that housing prices go up over time is because of monetary inflation.

For politicians who say that we need to grow our way out of the debt, they only understand a portion of their own argument.  If the GDP grows and the additional tax "revenue" is used to pay down the debt or even if the debt remains the same while the economy grows, then the debt situation improves.  But we can also credit monetary inflation for this happening.  The only way that the national income can increase in nominal terms is through monetary inflation.

If we lived in a world without inflation (or with minimal inflation), then salaries would not rise by much, if at all.  Certain individuals would make more from one year to the next, but the average would stay about the same.

So why is inflation a bad thing then?

Inflation really plays tricks on you.  For even the best Austrian school economist, inflation will distort things.

If you get a raise for your current job for 2%, but price inflation is currently at 3%, then you are actually taking about a 1% loss.  Your income is going down by 1% in real terms, even though it is going up in nominal terms.

In a world with minimal inflation, your income wouldn't rise, but neither would consumer prices.  In fact, in a free market economy, we would see something similar to what we see now with electronics like computers, televisions, and cell phones.  The quality would get better or the prices would go down or perhaps both.  In a relatively free market environment with minimal monetary inflation, you would see prices go down for education, healthcare, cars, vacations, food, etc., while your income would likely remain the same (in the same job).

In a world without inflation, stock investors would buy stocks for dividends.  It would certainly be possible to have capital gains for individual stocks, but the overall stock market would be unlikely to fluctuate too much.

Again, this is all hard to imagine because we live in an inflationary world.

The way to grow the economy isn't through more monetary inflation that results in higher prices.  This is just a distortion.  The way to grow the economy is through a stable free market monetary system and minimal government interference.

The 19th century in America was a time of relative peace and prosperity (not counting the war time of the 1860's).  Prices actually went down slightly over this time.  It was really the most prosperous time in history (unless you want to argue for England during that time).  The technology and capital investment that was built up in the 19th century really laid the groundwork for all of the new great things that came out of the 20th century.

It really is hard to imagine a world without monetary inflation.  Most people think that the world we live in today is the way things are supposed to be.  They don't understand that prices are not supposed to go up continually, year after year.  They don't understand how much they are being robbed from the debasing of their money.  They don't understand how much better their standard of living could be.

Saturday, January 28, 2012

Do You Need Money to Make Money?

There is somewhat of a myth out there that you need money to make money.  If you are investing your money in stocks or real estate and you want to retire off of the dividends and interest, then you will need a lot of money.  Just for an example, if you have $2 million and you can earn an annual return of 4%, then you will have $80,000 per year without depleting your principal amount of $2 million.

However, most people do not become rich investing.  Most people become rich by having a high income and saving a good amount of it.  For people who do not make a high income, then being frugal becomes that much more important.  To have a high income though, you don't necessarily need a lot of money to start off.

Let's look at a few billionaires.  Bill Gates and Steve Jobs both made their fortunes through their own work and effort.  They needed some help along the way, but they both basically started their businesses from nothing.  They used their brains and natural talents and took advantage of the situations around them.  They may have even had some luck along the way.  But the point is, they both made it big without much money to start.

Warren Buffett has made many billions through investing in companies.  He did not exactly start from nothing.  His father, the libertarian Congressman Howard Buffett, was obviously not poor.  But Warren Buffett still used his talents to make billions.  There are a lot of people who start off with a lot more and don't amount to much.

The Walton family has inherited a fortune.  There are Walmarts almost everywhere now.  This was basically a self-made franchise and now the heirs are reaping the rewards.

The point is, most rich people are not like the Rockefellers.  They are more likely people who are mostly self-made in a generation.  It is a big advantage to grow up in a decent household that teaches good values and provides a decent education.  After that, it really depends on each individual.  There are not many people who grow up in an inner city neighborhood in the slums who grow up to be rich.  But even here, there are exceptions.  Some people are strong enough to fight through their environment and control their own destiny.

If you want to make money and become rich, don't worry about not having money.  This is usually a benefit.  You can start from scratch.  Some people have more natural talents than others.  But there is no substitute for hard work and discipline.  If you work hard and you try to grab opportunities when they present themselves, then you can be reasonably successful.  Then you have to make sure that you live below your means and save money.  If you do this, then maybe you can reach a scenario as described above where you can have enough principal money that you can just live off of the interest.

You don't have to have money to make money.  But it definitely helps when it comes to investing and retirement.

Thursday, January 26, 2012

Republican Debate in Jacksonville, FL

The last debate has finished up before the Florida primary voting.  It may be the last debate we see for almost another month.

First, I thought Wolf Blitzer did a decent job.  Of course, it is all relatively speaking.  There could still be much better questions, but at least he was reasonably fair in giving time to all of the candidates.

Second, I have a little factoid to present to Mitt Romney.  English is not the official language of the United States.  There is no official language.  Obviously, English is the most widely spoken.  There is no need to have an official language, unless there is just something that states that all federal legislation will be written in English, but there is really no need for that even.  Just like everything else, the free market has a way of handling these things.  If English is that important for someone in getting a job, then they will have motivation to learn it.  It won't be because a bunch of politicians got together and declared English to be the official language.

Third, I thought Ron Paul had a great debate.  He was more relaxed and had a few funny lines that the audience appreciated.  He made many strong points and was quite clear that he is the candidate who believes that the role of government should be severely limited.  This particularly came through when he talked about the space program and saying that government has no role except possibly for national defense reasons.

Fourth, I thought it was interesting that Newt Gingrich was echoing Paul so much.  I think part of that was because Paul was making so much sense and resonating with the audience.  I think another part of that is that Gingrich did not want to pick a fight with him.  He is hoping that if he becomes the nominee that he can get at least a few Paul supporters to vote for him.

Fifth, I liked Rick Santorum's presence in the debate.  I don't particularly like Santorum and what he stands for.  In fact, he probably scares me more than anyone, including Obama.  However, he did a great job of exposing Gingrich and Santorum on their support of government-run healthcare.  The ironic thing in all of that though, is that Santorum supported the massive Medicare prescription drug program started under Bush.  That program is the epitome of top-down government-run healthcare.

In conclusion, I thought it was a good night for Ron Paul.  Gingrich and Romney beat up on each other. While they focus on Florida, Paul is focusing on Maine and other caucus states where he can win and pick up delegates.  The longer he stays competitive in this whole thing, the more of a chance that people will have to see the light.

Wednesday, January 25, 2012

Fed to Keep Rates Near Zero Until Late 2014

The Federal Open Market Committee (FOMC) released its statement today saying that it is likely to leave rates near zero until late 2014.  If this ends up happening, that means that the overnight rate for borrowing will have been near zero for 6 years.  The Fed dropped the rate below .25% after the economic fall of 2008.

As I have said before, the Federal Reserve is not really controlling this rate right now.  This is the rate that banks are charged to borrow money overnight in order to meet reserve requirements.  However, since the Fed has more than tripled the adjusted monetary base, the excess reserves held by commercial banks have skyrocketed with the monetary base.  Since banks have huge excess reserves, they don't need to borrow from the overnight window because they are not falling below the reserve requirements.

These low interest rates are not without a cost.  Overall low interest rates hurt savers.  This discourages saving, which is required for capital investment, which is required for future economic growth.  People who are saving money in a bank account right now are losing in a major way.  They are earning a fraction of a percent in interest.  They are not even keeping up with inflation.

In Bernanke's press conference this afternoon, he suggested that QE3 (more money creation) is possible if economic conditions warrant it.  This should come as no surprise.  He did not earn the nickname Helicopter Ben for nothing.

In the FOMC statement, it was also stated that the Fed would continue its program of extending the average maturity of its holdings.  This means that it will be swapping shorter-term bonds for longer-term bonds.  I suspect this is an attempt to keep mortgage rates down, along with borrowing costs for Congress.

As Gary North has said, the Fed is in Goldilocks mode right now: not too hot, not too cold.  It does not want to tip the scales to recession or high price inflation.  If and when the Fed faces a situation of high price inflation, it will be in major trouble.

The stock market, the bond market, and gold, all reacted positively to this news today.  The dollar fell.  This is not surprising.  Stock market investors like to hear news of low interest rates and the possibility of more money creation.

Bernanke and his cohorts really don't know what they are doing.  They are playing politics and they are hurting the economy.  There will be a day of reckoning.  We can't know when that day will be.  There will be a day when the Fed has to make a big decision.  It will have to stop creating money and let interest rates rise and severe recession hit, or it will keep creating money and go to hyperinflation.  Let's hope they choose the former and not that latter.

Tuesday, January 24, 2012

Iran and Your Investments

I haven't discussed foreign policy in a while (aside from the Republican candidates).  I have stated that my economic outlook for 2012 is more uncertainty, with a fight between inflationary forces and recessionary forces.

If there is war with Iran, everything changes.  It would be quite catastrophic.  It would be horrible for the people of Iran.  There would be many needless deaths and major destruction.  Lives would be ruined.

There would also be effects felt throughout the planet.  It would be devastating to the U.S. economy, along with most other inhabited places that rely on the global economy.

One thing that is easy to predict is that the price of oil would go to the sky.  The Iranian government would attempt to close the Straight of Hormuz.  It could be quite "successful" in doing this for a period of time.  Even if it closed for just a few days, it would spook the oil market like never before.  Many people are predicting that oil would hit $200.  I think this is very conservative.  I think we could see a temporary spike go over $300 easily.

As I have said before, a rise oil prices does not cause inflation.  If there is no change in the money supply, people will have to budget differently.  They will either have to cut back on the use of oil (mostly driving) or they will have to cut back somewhere else in their budget.  Most people will do both.  This means less money to eat out, to buy electronics, to take vacations, etc.  Prices will fall in other areas.

However, if there is war with Iran, then the Fed will most likely start another round of quantitative easing (money creation).  It will cost the government even more money to fight a war with Iran, which means that the deficit/ debt will get even worse.  It means that the Fed will have to monetize this debt.

The fact that the U.S. government is in such a hole financially might just save us from another major war.  There is a lot of talking going on, but hopefully Obama is not that stupid.  He has to realize that the U.S. would suffer financially in a major way.  If Obama does not start a war with Iran, maybe I can give his presidency a "D minus" instead of an "F".  McCain would have been more likely to start another major war.  So perhaps we could have done worse than Obama.

There is a possibility that the Israeli government might start a war.  But I find this unlikely if they do not have the support from the Obama administration.

The U.S. has really already committed an act of war by placing these embargoes on Iran.  Hopefully it will end there and there will be no major conflicts.

I give the chances of an all-out war with Iran to be less than 50%.  Those odds would continue with a Romney presidency.  They would go up with Gingrich or Santorum.  They would be near zero with Ron Paul.

Hopefully there will be no war.  If there is, be prepared for an even more wild ride financially.  Expect oil to go out of control.  You can also expect gold to skyrocket with it.

Monday, January 23, 2012

Republican Debate in Tampa, Florida

The Republican debate in Tampa, Florida has just finished up.  It was hosted by NBC and Brian Williams and the questions were just horrible.  As similar to other debates, some of the questions are just about meaningless.

I would like to see more substance on where the candidates stand philosophically.  I would like to see some questions such as:

How much should the federal government spend each year?
What specific government programs and/ or departments would you eliminate or reduce?
Do you favor tariffs on sugar (did Newt answer that?)?
What areas do you think the government should stay out of completely?
What does Article I, Section 8 of the Constitution mean to you?
Does the Constitution limit the power of the federal government?
Who are the best and worst presidents in American history?
Are there any amendments to the Constitution that you disagree with?

Of course, the media doesn't want to ask questions like these because it would show the insincerity of three of the candidates.  It would show that Ron Paul is the only principled candidate.

Mitt Romney is so full of it, it is just ridiculous.  However, he is a little less scary because of it.  Rick Santorum does have some principles and I would be scared if he ever had the power to try to carry them out.  He probably wouldn't back down in shoving his religion down other people's throats.  He probably wouldn't back down on annihilating Iran.  At least with Romney, there might be some hope that he could be manipulated into a somewhat coherent policy.

I don't think the Florida vote will mean all that much.  It will probably determine the front runner status of Gingrich or Romney, but both candidates are staying in the race.

Ron Paul is not campaigning actively in Florida and is spending minimal, if any, resources there.  This is a wise move as he will focus on smaller states with caucuses where he has a better chance to win or to pick up delegates.

I think Ron Paul needs to start challenging the other candidates.  If the moderators of these debates are not going to ask the right questions, then Ron Paul needs to do it for them.  He should state that he wants to cut one trillion dollars in the first year (which he has said repeatedly) and then ask if there are any specific departments the other candidates would eliminate.  He should ask them how they plan to balance the budget and point out that simply growing the economy will not be enough.  Be insistent that they offer significant specific spending cuts.

One thing I noticed tonight is that Newt Gingrich was far more cordial towards Ron Paul.  I think he is realizing that he may need some Paul supporters if he were to win the nomination.  While the two acknowledged that their foreign policies are radically different, I think Paul needs to make sure everyone is aware that their fiscal policies are radically different too.  Gingrich is not for small government in any way and people need to be made aware of this fact.

Saturday, January 21, 2012

Results from South Carolina

Most of the results are in from South Carolina as I write this.  Gingrich won overwhelmingly (although still without a majority).  Romney took second and Santorum took third.  Paul took fourth with about 13% of the vote.

This might be seen as somewhat of a disappointment to Ron Paul fans out there.  However, you should consider that the vote totals out of South Carolina are considerably better than 4 years ago when he received less than 4%.

South Carolina is a southern conservative state.  For some reason, many southern conservative Christians who stress morality don't seem to be bothered when foreigners are killed.  Perhaps they don't think in these terms, but for some reason, they are unable to see the incredibly immoral wars that the U.S. government starts for what they are.  Surprisingly, it looks like many of the self-identified Christian conservatives in South Carolina were not bothered by Gingrich's past of infidelity and divorce.

The trend continues (by looking at the exit polls) that older voters tend to support Mitt Romney.  The middle-aged voters go more for Gingrich and Santorum.  The younger voters go overwhelmingly for Ron Paul.  This is highly encouraging for the future.

Another interesting thing from the exit polls is that those making over $200,000 are far less likely to support Ron Paul than those who are low or middle income.  While Ron Paul says he would like to eventually have a zero percent rate for income taxes (which would directly benefit the high income earners), he obviously gains support from young people because they understand it is in their own self interest and also because they understand the morality of allowing people to be free.

Ron Paul is unlikely to do well in Florida.  He is not campaigning much there and the population is tilted towards older people.  But then will come Nevada (where he could win) and some other caucus states.  He will continue to try to collect as many delegates as possible.

While Rick Santorum will probably stay in the race, it looks like his chances are very low at this point.  This is really a three-way race between Romney, Gingrich, and Paul.  I am not delusional.  Romney is still the heavy favorite to be the Republican nominee.  But you never know what might happen.  Perhaps there will be a major stock market crash or some other big financial event that draws people to pay more attention to Ron Paul.

Regardless of what happens, libertarians should stay positive.  These results are extraordinarily better than 4 years ago.  The young people are moving in our direction, which is very important.  While anyone can change their mind, I would venture to guess that most young people who are dedicated Ron Paul supporters today are not going to become less libertarian as time goes on.

Thursday, January 19, 2012

Monetary Inflation vs. Price Inflation

When most people use the term inflation, they are referring to prices.  The definition has changed over the years.  In the distant past, inflation meant an increase in the supply of money.  Rising prices was just the result of inflation (an increase in the money supply).  When I use the term inflation, I generally try to distinguish the two when it is necessary.

The big question these days is why there is such a big difference between monetary inflation and price inflation.  Since the fall of 2008, the adjusted monetary base has more than tripled.  Yet, consumer prices have only been going up a couple of percentage points per year.  Price inflation has been relatively mild, particularly when it is measured against monetary inflation.

I believe there are two main reasons for the big disparity.  First, most of the new money that has been created since 2008 has gone into the commercial banks and is being held as excess reserves.  This new money is not being loaned out (probably due to major problems and fears that the banks have).  This has prevented prices from multiplying due to fractional reserve lending.

The second reason is the velocity of money.  It actually amazes me how little attention this subject gets.  Even most Austrian school economists do not discuss this topic, even though it is a major player.  While I'm sure there are many people out there who discuss it, the only person I know of who discusses this topic frequently is Richard Maybury.

Velocity is the speed at which money changes hands.  Since the fall of 2008, there are a lot of fearful Americans.  Unemployment is high and the economy has been weak.  People are uncertain about the future.  A lot of people have stopped spending as much as they previously did.  More people are paying down debt and saving some extra money for a rainy day.  There is a higher demand for money.  In other words, money is changing hands less frequently.  Velocity is low compared to what it was.

This low velocity means that people are not bidding up prices as much.  This has a counter effect on monetary inflation.  The low velocity of money acts as a deflationary force on prices.

Velocity is psychological and is therefore very difficult to measure and to predict.  Velocity is dependent on the mood of people.  If people are frightened and uncertain, they are more likely to have a higher demand for cash.  The one exception to this is if people perceive that monetary inflation and debt are getting out of control.  If people have a perception that prices are going to go up fast in the near future, they are more likely to buy things so that their money is not devalued.  This money would have a tendency to go into hard assets and bid up those prices faster.

In conclusion, just because there is high monetary inflation, it does not necessarily translate into high price inflation.  There is a time lag and there is the issue of excess reserves.  However, the biggest issue is velocity.  If you can read the general mood of the people, then you will have a better chance of predicting where prices will go.

Wednesday, January 18, 2012

The Presidential Election and Your Investments

I have been writing about the Republican presidential race quite a bit, particularly since Ron Paul is making big waves and drawing a lot of attention.  This blog is "Libertarian Investments" and I have been paying a little less attention to the economy and investments due to my extra attention on politics.  Today, I am going to try to tie together the issues.

So what does the presidential race mean for the economy and your investments?

First, let's talk probability.  Even though Ron Paul is doing really well, his chances are still relatively low for actually winning the presidency.  Right now, I would give Obama an almost 50% chance of being re-elected.  Since Romney has the best chance of being the Republican nominee, I would give him about a 40% chance of being elected president.  The remaining 10% goes to Ron Paul, Newt Gingrich, or some wild card in the case of an unexpected event or late entrant.

If Obama, Romney, Gingrich, or anyone else other than Ron Paul wins the election, I don't see much short-term change.  (I am assuming that a third-party candidate does not win.)  There really won't be much of a difference between Romney and Obama.  Romney will, of course, pander to his Republican base more, but the policies won't be much different.

Gingrich or Santorum might actually be worse if they are crazy enough to start a major war with Iran.  But then again, Romney or Obama might be just as crazy.  Who would have thought in 2000 that George W. Bush would start 2 major wars and be a huge spender?  It is hard to imagine now that Al Gore would have been any worse.  If Gore had been elected (or had won a recount), it might have been better with more opposition to big government policies coming from the Republican side.

If Ron Paul somehow manages to get the Republican nomination and go on to win the presidency, then that would be the one scenario that changes everything.  It would mean an end to the wars.  It would probably mean a drastic cut in spending.  While the Congress has to pass the spending bills, a President Paul could veto anything and force a super majority to pass spending bills.  In addition, just by him being elected, it would mean a major shift in the attitude of the country.  It would mean there would be massive pressure on Congress to drastically scale back government.

So what would a President Paul mean for your investments?  It would probably mean a quick and deep recession to start off.  This would be the cleansing needed.  It would mean a return to prosperity.  Ironically, the one investment that would probably do really poorly would be gold, along with other commodities.  The Fed would be in hiding mode and would hopefully stop the high monetary inflation.  The initial deep recession would drive down asset prices.  Oil would also likely go down, depending on what happens in the Middle East when U.S. troops head home.

There could be some analogies with the 1980's when Reagan became president.  But interest rates and price inflation were really high when Reagan was inaugurated and the Fed had already started tightening.  Of course, Ron Paul would be a completely different president than Reagan because his policies would match his words.  Reagan talked a good game about small government, but did not actually implement much to reflect this.

If Ron Paul is not elected, then it would be wise to continue defensive positions with an emphasis on inflation hedges such as gold and oil.  We can count on more war, more big spending, and more monetary inflation.

I am a long-term optimist, particularly now with all of the support pouring out for Ron Paul from young people.  But regardless of who is elected next November, there will be short-term pain.  It is almost unavoidable due to the huge spending and huge monetary inflation that has already taken place.  The best we can hope for at this point is for the attitude of the overall population to continue to head in the direction of liberty.  We can deal with some short-term pain if we have something to look forward to in the future.

Tuesday, January 17, 2012

Republicans in South Carolina

The Republican race has moved to South Carolina.  There was a debate last night (Monday) and there will be another one on Thursday.  The voting will be on Saturday.

The Monday night debate was bizarre.  There were definitely a lot of attacks on Mitt Romney.  With there only being five candidates left on stage, you would think that the candidates would get a lot of time and a lot could be revealed in two hours.  But we are talking about Fox News.  While perhaps not as bad as CBS and PBS, they still only managed to ask one question to Ron Paul in the first 35 minutes of the debate.

The crowd was also rowdy with a lot of cheers and boos.  It was mostly annoying.

It was also annoying when Ron Paul was asked about the killing of Osama bin Laden.  He was trying to answer, but he kept getting interrupted.  But the interruptions were not from the other candidates.  They were coming from the Fox News moderators of the debate.  Paul made a comparison to Saddam Hussein, saying that he was captured and at least had some kind of a trial.  Paul was interrupted by Bret Baier (with his smugness) telling Paul that he didn't support the Iraq War.  Hey Baier, you moron, that wasn't his point.  That is a different subject.  You can't understand that Paul was just saying that bin Laden could have been captured without being killed (if that is what actually happened)?

Then there was the topic of the National Defense Authorization Act (NDAA) which has provisions which suggest that American citizens on American soil can be detained for terrorist activity by the military and be detained indefinitely without trial.  While I find it just as outrageous that it is done to foreigners, this is obviously a horrible law.

Romney said that he supported the NDAA and that he expects Obama will not abuse it and he said that he will not abuse it as president.  Romney basically said that the legislation is ok because Americans can trust him and Obama not to abuse any power.  Hey Romney, if that is the case, then why not just advocate repealing it?  Even the crazy Santorum couldn't defend this thing.

One of the things that Harry Browne liked to point out was a quote by Michael Cloud.  He said that the abuse of power is not the problem.  The problem is the power to abuse.  This goes to the whole point here.  The NDAA may not be used for any bad purposes for the next decade, but it is putting in place a power that will eventually be used by bad politicians for bad purposes.

Should we just give Romney power because he says that we can trust him?  Romney's answer to that one question completely disqualifies him for being president (in case you had any doubt).  If he thinks that is the way government should operate, then it shows that he himself is a total thug who should never be trusted with any power at all (not that I would really trust anyone with power over others).

There was some entertaining back-and-forth between Paul and Santorum.  When Paul was asked about running negative ads, it was funny to hear him say that he wished he could have had longer than a minute in his commercial to expose all of the big government policies that Santorum had supported.

Then there was a bizarre exchange on gun control.  Santorum said that he supported federal gun control legislation as a "compromise".  Yeah, that's exactly what we need in the White House.

Then Santorum accused Ron Paul of being anti-2nd amendment because he did not support a law protecting manufacturers from lawsuits.  Paul explained that it was a jurisdiction issue.  He explained that tort law like this should be handled at a state level.  So Santorum ignored everything he said and repeated his claim that Paul is against the 2nd amendment.  Santorum was either demagoguing the issue or he is simply too dumb to understand Paul's position on this.

Overall, I don't think many minds were changed on Monday night.  People who love Paul will still love him.  Most of those who don't like him will probably continue to not like him after last night.

While I think Gingrich is full of it, I think he had a stronger appeal than Santorum in the debate.  For that, I think Gingrich will emerge as the third candidate.  I had been leaving the door open for Perry because it is harder to criticize his record and because he has had significant financial backing.  However, it turns out that Perry is a complete moron who debates about as well as the last president from Texas.

My prediction for South Carolina is that Perry finishes last and drops out of the race.  Santorum will not be far behind.  Then we will have a three-way race between Romney, Paul and Gingrich.  Stay tuned.

Monday, January 16, 2012

More on the Debt and Future Generations

Last week, I wrote a post on Robert Murphy (who I regard highly) and his discussions on the national debt.  I may have a rare disagreement with Murphy on this topic and I wanted to add a few points to this.

Murphy gave an example of consuming apples.  He was trying to show that future generations pay for the excesses of current generations.  But the last person on the chart was really just paying at the expense of the person right before.

The interesting thing about the example is that you could not save any apples for the future.  If you could, that may have actually given a better argument for Murphy to use.  If there is only a given amount of wealth at one particular time and it doesn't even have the potential to increase over time, how can one generation benefit at the expense of another generation unless it is two generations that live during the same time?

If you can't carry any wealth into the future, then how can someone living in the year 1900 consume something at the expense of someone living in the year 2000?

Murphy's example is like a Ponzi scheme.  You will only enter into it if you think you can sucker the next group of people behind you into it.  If someone (in this case a whole generation) says "no", then the scheme is over and the last people to buy into it are the losers.

What would happen if the U.S. government just defaulted on the whole national debt right now?  Would we still say that future generations would have to pay for the debt?  If there is a default, then no future person has to pay anything.  It is the people currently holding the bonds who have to pay.  They were the last suckers to pay up who couldn't get another buyer behind them.  It is like people who bought real estate in 2006 in a hot market.  It came to a point where they could not find one more person after them to buy the house at a still higher price.

As I said in the last post, Murphy's original instincts were correct.  The national debt does place a burden on future generations, but not because they necessarily have to pay for anything.  The burden is placed on them because there is less development in technology and capital investment than if there had been no national debt.

The real problem with the huge national debt is the massive government spending.  If the government could not borrow all of this money (or create it out of thin air with the Fed), then it would be forced to cut back spending.  Government spending automatically misallocates resources.  This misallocation leads to less growth and less advancement, and that is where future generations "pay".

The national debt  hurts us right here and right now.  The massive government spending is one of the reasons for the high unemployment and weak economy.  It misallocates resources and it is preventing a proper correction of the previously misallocated resources.  It is taking capital away from the free market economy.

We should worry about the national debt and government spending.  We should not just worry about it because of our future grandchildren, we should worry about it because of everyone living right now.

Saturday, January 14, 2012

Rick Perry and His Campaign Are Not That Bright

When Rick Perry entered the presidential race, he was instantly the front runner.  Then he had to show up at the debates.  He stumbled a bit and the other candidates beat up on him and his record (and rightly so in most cases).  Some of his not-so-conservative record from Texas was exposed.  He also has the problem of a Texas swagger and a Texas accent that remind people of George W. Bush.  Bush is not all that popular these days, even in the Republican Party.

Even though he fell dramatically in the polls, I still thought he had a chance to recover.  He raised a lot of money and still had a significant backing.

He should have hired me as his campaign manager (or someone like me because I wouldn't have worked for the man because he is horrible and I am a Ron Paul supporter).  Nobody can turn him into a great debater, but if he had been given some good advice and taken it, he could have made a comeback.

This is what Perry should have said in the last couple of debates in New Hampshire.  It is also what he should say in the upcoming debates, but probably won't.  He should say something like the following:

"If you like Ron Paul on domestic issues, then I am with you.  I agree with Ron Paul that we need to start eliminating departments and making big budget cuts.  As far as economic issues go, I am the closest one here to Ron Paul.  But I know some of you disagree with Ron Paul on foreign policy.  I don't agree with him either.  I believe we need a military presence in the world to defend our vital interests.  If you are looking for the anti-Romney candidate, I am your man.  I agree with Romney to a great extent on foreign policy.  I do not agree with his economic agenda of Romneycare and keeping the status quo in Washington DC.  I am the best parts of Romney and Paul put together.  For all of you Tea Party conservatives out there who want a real fiscal conservative who is strong on national defense, please consider supporting my campaign."

Some of this would be a lie.  He really isn't close to Ron Paul on domestic issues.  But saying all of that would attract a lot of people in the Republican Party who are not Ron Paul supporters and who are uncomfortable with Romney (which is almost half the party).

Instead, Perry used the last couple of debates to say he would march back into Iraq and that we shouldn't support Romney because he broke apart companies.  He also said that everyone else was an insider, including Ron Paul.  Have you ever heard such a ridiculous claim in your life?

Perry has continually messed up.  He coulda' been a contender.

I am glad that Perry and much of his campaign staff are a bunch of fools.  He would have been a horrible president and he would have given fiscal conservatism a bad name.  At least with Obama messing things up, nobody can seriously claim that it is the fault of his capitalist policies.

Thursday, January 12, 2012

U.S. Economic Outlook for 2012

Today, I am going to sum up my economic outlook for 2012 (from a libertarian perspective of course).  While I don't like to make specific predictions, I do want to lay out some possibilities.

Nobody really knows what will happen with Europe.  Can the bureaucrats keep kicking the can down the road for a while longer?  Will Greece break apart from the European Union?  Will Greece decide to default on all of their debt?  Will any major European banks go under?  Will the European Central Bank bail out the major banks?  Will the Federal Reserve bail out major European banks?

These are all questions that are impossible to answer right now.  But even if there is a big event, the U.S. economy has seemed fairly immune.  There might be blips in the stock market.  There might be some fleeing from the Euro (which has actually helped the U.S. dollar).  But until something major happens there, it seems that the U.S. is on its own clock.

I still see a major fight right now between the forces of inflation and recession (or depression).  The Federal Reserve has tripled the adjusted monetary base since late 2008.  While prices are certainly going up at the grocery store, it is mild compared to what it could be.  Price inflation has been quite tame considering the massive monetary inflation.

I see two major reasons that price inflation has remained in check.  First, most of the new money created by the Fed has gone into banks and held as excess reserves.  The banks have not used fractional reserve banking for this new money.  Second, the depressed economy has led to a high demand for money.  Another way of saying this is that velocity is low.  The speed at which money changes hands has been slow.  People are uncertain about the economy and have cut back on their spending.  They are trying to pay down debt and build up cash balances.  This has had the equivalent effect of keeping prices down.

Regardless of the two points above, the monetary base has still tripled and it is almost impossible to keep prices down at this point.  Perhaps they could stay down in the electronic industry where technology is increasing at an exponential rate.  Perhaps housing prices will stay down due to the previous bubble.  But in most sectors, that money is going to leak out and cause price inflation.

In 2012, it would not surprise me to see a mini-boom occur.  This would be an artificial boom.  We have already seen stocks do well, with the Dow around 12,500.  This could very well be because of hot money.  Perhaps this is the first sign of money leaking into the system from QE2.

On the other hand, the Fed has been tight with new money since QE2 ended over 6 months ago.  With the adjusted monetary base being basically flat since then, we could see the economy tip the other way and head into another recession.  At that point, we would probably just see more money creation.

While I am bullish on gold for the longer term (5 or more years), I am more uncertain in the short term.  If we see a mini-boom cycle, then gold will most likely go much higher.  If we see the return of a recession, then I expect gold to go lower, at least until more money printing is announced.

Either way, there is more pain to come with the economy.  Even if we have a mini-boom cycle, it will eventually turn into severe price inflation or it will turn into a market crash.

There has been severe malinvestment in the economy.  The interference of the Fed and the federal government has caused huge distortions.  These were not allowed to correct in 2008 and after.  It has been made worse.  The market economy is trying to sort things out and properly reallocate resources, but the crazy laws and crazy monetary policy are not allowing it to happen.

Prepare for a continued roller coaster.

Wednesday, January 11, 2012

Judge Napolitano on the 14th Amendment

Judge Andrew Napolitano, the host of Freedom Watch, was a guest on Jon Stewart's show (link is via LewRockwell.com).  I am a fan of Judge Napolitano, but I occasionally have my disagreements with him.

At about 3:25 into the video, Jon Stewart asks Napolitano about states' rights.  Stewart says, "The federal government cannot infringe on your freedoms.  But apparently if the states do it, yeah, it's ok."  Napolitano answers Stewart by citing the 14th amendment, saying that it made the Bill of Rights apply to the states.

I'm not sure why, but Napolitano kept talking about how Republicans stand on the issue.  He should have been talking about libertarians, especially when Stewart framed the question that way.

I am not sure where to start on this, but I strongly disagree with Napolitano (and Stewart) in many ways.

First, I think the 14th amendment is a terrible amendment overall.  It was another thing done by the federal government to centralize power.  Perhaps there were good intentions with it, just as there were with the Civil Rights Act of 1964.  Perhaps portions of it were good.  But overall, it centralized power, regardless of the intentions (although I'm sure not all intentions were pure).

Napolitano says that the 14th amendment made the Bill of Rights apply to the states.  But that is just the way it has been interpreted by many courts, mostly to centralize power.  It is open to interpretation.  Many of the people who supported the 14th amendment did not intend for that to be its purpose.

Second, even if Judge Napolitano were completely correct about the amendment applying the Bill of Rights to the states, that still doesn't answer the question.  Romneycare in Massachusetts has nothing to do with the Bill of Rights.  Go through the first 10 amendments.  There is nothing about healthcare.  It doesn't say "Congress shall make no law regarding healthcare."  Just on that alone, his argument fails.

Third, he really doesn't answer the question in regards to jurisdiction.  Just because you don't think the federal government has the authority to do something, it doesn't mean that you have to agree or disagree with it.  I don't think the federal government or U.S. Supreme Court should strike down Romneycare in Massachusetts, but that doesn't mean that I think it is good policy.  I also don't like it when the Chinese government infringes on property rights and freedom of speech in China, but that doesn't mean I want the U.S. government to tell the Chinese government what to do.

It is hard to believe that a libertarian judge could not address the issue of jurisdiction (as well as decentralization) in regards to this question.  There are a lot of things that state and city governments do that I don't agree with, but it doesn't mean that I think the federal government should do anything about it, even if it were seemingly good.

In conclusion, I am still a fan of Freedom Watch and Judge Napolitano, but I am disappointed with his answer on states' rights.

Tuesday, January 10, 2012

New Hampshire Results and Ron Paul

As I write this, the results are not final, but it is evident that Mitt Romney will win the New Hampshire primary.  Ron Paul will easily take second.  Jon Huntsman is third.  Gingrich and Santorum are essentially tied for fourth.  Perry gets last.

The two winners tonight are clearly Romney and Paul.  Huntsman certainly had a good showing, but it is hard to imagine him surging at this point, particularly with South Carolina being next.

The voters have somewhat soured on Gingrich and Santorum.  Everyone is talking about who the anti-Romney will be, but it doesn't look like either one of them at this point.  Ron Paul is truly the anti-Romney, both in principle and in politics.  Gingrich and Santorum are just as much pro big government as Romney and the voters are starting to figure this out.  They just have some small government rhetoric that Romney doesn't have.

Ron Paul is clearly the most likely person to challenge Romney at this point.  South Carolina will determine a lot.  Santorum, Gingrich, and Perry will be fighting it out just to stay alive.

The Paul campaign has basically said that they do not plan on spending a lot of money in Florida.  I think this is a wise move.  It lowers expectations there.  Paul is not likely to win Florida and the size of the state does not make it worth it.  He will focus on the smaller caucus states where he can win and also win significant numbers of delegates.  He certainly has a great chance at taking Nevada and some of the midwestern states.

Everyone is wondering why Paul has not gone on the attack against Romney the way he has against many of the other candidates.  I think one reason is, just as mentioned above, some of the other candidates pretend that they are these great fiscal conservatives and many people buy it.  Paul is simply exposing them for what they are.  When Romney talks about fiscal conservatism, nobody really believes him.  He has the backing of the establishment and Paul probably figures that he can more easily persuade people who are falling for Gingrich or Santorum.

To put this in context, Ron Paul received less than 8% in New Hampshire 4 years ago.  Paul and the entire libertarian movement have made great progress in such a short time span.  We should continue to be optimistic about the long-term future for liberty in America.

Monday, January 9, 2012

Robert Murphy on Krugman and the Debt

If you read Robert Murphy's blog, he has had several posts on this one particular topic.  Paul Krugman originally made a claim that, essentially, the national debt does not matter because we owe it to ourselves.  Krugman does not think that increasing the national debt leaves a burden to our children.  Murphy was ready to defend Krugman in the sense that future generations do not actually pay off the national debt in terms of real wealth.  But then Murphy listened to a couple of people and had a revelation.  He now believes that future generations do pay for the debts being run up now.

In one of his latest posts (last time I checked), Murphy uses an example of consuming apples.  He assumes that, on average, a person can only consume 100 apples when they are young and 100 apples when they are old.  People can not save apples and use them in the future for their old age.  The number of apples don't grow.  If someone consumes more than his share of 100 apples, then this is at the expense of someone else.

Murphy comes to the conclusion that future generations do pay for debts run up now.

I am not sure I completely agree with his assessment on this, unless I am misunderstanding something (which is possible because I have a high regard for Murphy as an economist).

I think a better analogy for the apples is the Social Security program.  If someone does not consume their full total of 100 apples in their young age, they expect to get more than 100 in their old age.  But this is a Ponzi scheme.  The first participants in the Social Security program received more than they originally put in.  At some point, somebody is going to have to get less than what they originally put in.

The last person in Murphy's chart is the loser (Iris).  That person did not get to consume 100 apples while younger, but did not gain anything in old age.

But that person is not really paying off a national debt.  That  young person was paying for someone else's excesses.  Basically, every generation depends on the next generation to keep the system going.  Once a generation says "no" or is simply unable to pay, then the generation before them will take the greatest loss.

The last person (both young and old) in Murphy's chart (Iris) could have said "no" and not paid in her younger years.  This would have stiffed the second-to-last person on the chart (Hank).  If the second to last person on the chart had said "no" during his younger years, then it would have been the person just above him who would have taken a loss.  You can backtrack all the way up the chart.

The people who are getting stiffed the most right now from the national debt are the people who are working and paying taxes (or those holding money and having it devalued through inflation), but not receiving the benefits now or in the future.  They are giving up extra capital right now to pay for the national debt, but they will not receive that same amount of capital in return (not even including interest).

Now there is one way that future generations pay and Murphy already identified this in a previous book he had written.  With a higher national debt, the government is spending more and thus misallocating resources more.  This causes less savings, less investment, and less capital accumulation over time.  It leads to less technology being developed.  This all hurts future generations.

If the U.S., along with the rest of the world, had been socialist over the last couple hundred years, then we probably wouldn't have many great things that we take for granted today.  We wouldn't have big televisions and cell phones.  We certainly wouldn't have iPads and digital cameras.  If things were really bad, we might not have air conditioning or even electricity.

In a society with strong property rights and relative free markets, there is economic growth that compounds over time.  Future generations benefit enormously from this.  In that sense, our future grandchildren are paying for the current national debt because of our lack of savings and capital investment today.

In conclusion, I'm not sure if I have a disagreement here with Murphy or not.  The last person on his chart certainly did pay at the expense of others.  But it was done in the younger years.  With Social Security, at some point the younger generation is going to say "no" to the older generation.  They will decide that they do not want to participate in the Ponzi scheme.  They will not be the ones paying.

At any given time, there is a certain amount of wealth.  Some of it can be saved and some of it cannot be saved (like milk) for the future.  We cannot consume wealth that hasn't been produced yet.  We cannot consume the vegetables that will be grown thirty years from now.  What we can do is save less and invest less.  This might mean that there is less good machinery in the future and that they might not be able to grow as many vegetables in the future or that it will require more labor to grow vegetables than if there had been more capital investment.

I think Murphy's original instinct was right.

Saturday, January 7, 2012

New Hampshire Debates and Primary

There are two New Hampshire debates for the remaining Republican candidates.  One is tonight and one is tomorrow morning on Meet the Press.  If you are reading this, they may have already happened.  Then the big primary will happen on Tuesday.

I usually provide commentary after a debate.  I am doing it in reverse this time.  Personally, I will be flipping back and forth between the debate and football tonight.  I suspect there will be millions of others doing the same.  The Sunday morning debate may end up with higher ratings.  I will watch all of the Ron Paul clips on Youtube, just to make sure I didn't miss anything.

If there is anything significant or game-changing in either debates, I will post an update on this post.  I expect that things will be similar to past debates.

I expect Romney will easily win the New Hampshire vote.  Ron Paul will probably take second, but it is possible that Jon Huntsman may slip in there.  It will actually be more significant to see how Gingrich, Santorum, and Perry finish compared to each other.

Do you know who the biggest loser in the Republican primaries is right now?  The answer is Tim Pawlenty.  Does anyone remember him?  He was the governor of Minnesota.  He was in the early debates.  He dropped out after finishing third in the Iowa straw poll back in August.  Bachmann was first and Paul was second.  It obviously meant very little, since Bachmann plummeted right after that.  Just about every candidate has had their day in the sun now.  Pawlenty may have gone up in the polls just by default at this point.

Perry made a good choice in not following in Pawlenty's footsteps and not dropping out too early.  Michele Bachmann was done after Iowa (that was supposed to be her state) and she made a good choice dropping out.  Perry gave a head fake that he might quit, but he has decided to press on.  I think Perry still has a good chance of doing well.  If I were betting on Intrade, I would put my money on him, given the odds.  I think Romney is the favorite to win, but Perry is being written off by too many.  Let me explain further.

The Tea Party people, who do not agree with Ron Paul on foreign policy, are still looking for their anti-Romney candidate.  They have given an opportunity to Bachmann, Perry, Cain, and Gingrich.  The more they found out about these candidates, the less they liked them.  Now Santorum is the flavor of the month.

They are going to like Santorum even less.  He cannot beat Obama.  He wants to shove his religion down other people's throats.  He has a horrible record of supporting big-government Bush policies.  He supported raising the debt ceiling numerous times.  He supported expanding federal education.  He supported the Medicare prescription drug plan.  He also supported Arlen Specter (an outspoken supporter of big government).  I can promise that Santorum will not be the Republican nominee.  If for some reason I'm wrong, Obama will have a walk in the park.

So where are Tea Party people going to turn?  Some will go to Ron Paul if they can accept his anti-war views.  A few will go to Romney, only because they think he can beat Obama.  But a lot of people who call themselves conservatives are still looking for an anti-Romney candidate.  They should support Paul, but they are too militaristic.

This leaves Perry.  His record is not as bad.  Santorum and Gingrich have many years of votes in Washington DC.  Perry's record is all around state politics.  Perry also has money.  While he has not been good in debates, he seems to be more likable than Santorum and Gingrich, at least for independents.  I think he could still emerge as the anti-Romney and anti-Paul candidate, if he stays in it long enough.

I still believe this is a three-person race.  I'm just not sure who the third person is yet.  Romney and Paul are going to the end.  I think Perry may emerge as the third person.  If not, it will be a toss up between Santorum and Gingrich for the third slot.

UPDATE:  Ron Paul took Gingrich and Santorum to school, particularly in the Saturday night debate.  Where will the pro-war tea party people (a bit of a contradiction) turn to now?

Thursday, January 5, 2012

James Altucher on the Economy

James Altucher is bullish on the economy in 2012, according to one of his recent posts.  If you haven't read him yet, I would certainly recommend reading some of Altucher's material.  I sometimes don't agree with him (and I'm sure most others feel the same), but he is good at stimulating the mind.  If you feel stuck in life or if you are feeling depressed, reading some of Altucher's material might help you get out of your funk.

So Altucher is bullish on the economy for this year.  I am not as optimistic.  The Fed has tripled the monetary base in just over the last three years and the federal government has accumulated almost $5 trillion in new debt over that same time.  Things were really bad under Bush and (at least economically) they are actually worse now.  The Fed and the governments have not allowed a correction to take place from the previous bubbles they created.  Instead, they have delayed the correction by continuing and adding to the malinvestment.

While I'm not bullish on the economy, there is a possibility that we go through a mini boom cycle this year, due to the loose monetary policy of the Fed, along with the low interest rates and big government spending.  While I think things could tip either way, it wouldn't surprise me to see the stock market continue to do well for a while longer.  A mini boom might make things appear like they are better than they really are.

While I'm not bullish on the economy as a whole right now, there are some positive things.  Altucher does a good job of pointing out some of these positives.  I will discuss some of his points.

On housing, I'm not sure how much inventories are really down because there are still a lot of houses owned by banks.  However, new housing has slowed down considerably and this is actually good news.  This will allow the remaining inventory to clear and it is necessary to set the stage for a rational housing market.  Prices went up way too fast in the early to mid 2000's and they have gone down way too fast in the last 5 years.  We need a normal housing market where prices are somewhat stable and just going up with the inflation rate (although that isn't always that stable).

On corporate profits, I wouldn't get too excited.  Things can change quite quickly.  We saw that in 2008.

On corporate cash, I think you can look at this two ways.  The reason that businesses have so much cash sitting around is because they are still scared about the economic environment and they don't want to grow and take risk right now.  On the other hand, it is good because it is a form of savings and it means that businesses are not going into debt as much.

Consumer spending can be good or bad.  It may be a good sign that people are feeling more comfortable with their financial situation and feel like they can spend a little more now.  It may be bad in the sense that people are being duped into thinking their financial situation is better than it really is because of the low interest rates and loose money.  People felt good and were spending money like crazy back in 2005.

Household debt is down and that is a good thing.  Households manage their debt much better than government.  Less debt and increased savings are necessary for economic growth.

On Europe, it is a mess and it will have its effects in the U.S.  We should also pay attention to what is happening in Europe as it could be a sign of what is to come here.

Altucher mentions bank cash and says that the Fed never should have done QE2.  But this is a reason to be bearish.  If the bank releases all of those reserves, it might be good news for a few of the people who see the money first.  For most people, it will mean much higher prices at the grocery store and gas pump.

On his last item, he mentions technology.  I completely agree that this a reason for optimism.  I don't think it will be enough to overcome the huge barriers put in place by the government.  But the major advances in technology have made our lives better and it will continue to be that way.  Technology will help us overcome many obstacles in the near future.

In conclusion, I am not bullish on the economy like James Altucher.  I am somewhat pessimistic because of all of the distortions caused by the government and Fed.  However, there are reasons for optimism and I think he got some of these right.  Altucher needs to learn some Austrian economics.  However, Austrians should also listen to Altucher, as not everything is doom and gloom.

Wednesday, January 4, 2012

Is Thomas Sowell a Libertarian?

According to Thomas Sowell's latest article that I read, he is certainly not a libertarian.  He is far from it.  I never really thought that he was a libertarian, but some people classify him this way.  He is certainly good on some economic issues and he is a great writer when he is thinking straight.  Unfortunately, he does not always think straight as shown by this article from December 29, 2011.

Sowell talks about the Republican candidates.  He is not all that satisfied with the current crop.

Sowell says, "Some voters, whether Democrats, Republicans or independents, treat elections as occasions to vent their emotions, rather than as a process to pick someone into whose hands to place the fate of the nation."

He continues, "People who think this way tend to vote for someone they just happen to like, whether for personal or ideological reasons, and regardless of whether that candidate has any realistic chance of being elected."

Then he goes after Ron Paul and his supporters.  He says, "The surprising support in the polls for Congressman Ron Paul seems to be of this sort.  But does anyone seriously want to put the fate of this nation in the hands of a man who can casually brush aside the danger of nuclear weapons in the hands of Iran, the world's leading sponsor of international terrorism?"

Sowell goes on to give his support for Newt Gingrich.  He concludes, "With all his shortcomings, his record shows that he knows how to get the job done in Washington."

Sometimes I try to be sympathetic towards people.  Most people are not libertarians when they are kids.  They usually have to go through a learning process.  Sowell is certainly a bright guy on some things and even has some libertarian leanings on some things.  But the guy is now 81 years old and has spent much of his life in the political arena.  If he hasn't figured things out by now, I'm not counting on it happening at all.

I have always had this feeling about the man, whether listening to him or reading him, that he has a high opinion of himself.  He accuses the liberals of being elitists, but he completely comes across as an elitist himself.  He is full of himself.

So he first attacks Ron Paul supporters by saying that they vote for him because they just happen to like him.  He criticizes them for supporting him "regardless of whether that candidate has any realistic chance of being elected."  Then why are you supporting Gingrich, you moron?  Ron Paul has a better chance against Obama than Gingrich.  He also probably has a better chance at getting the Republican nomination.  If we should just support whoever is electable as Sowell suggests, why don't we all just bow down to Romney?

Then Sowell goes after Paul directly saying that he "can casually brush aside the danger of nuclear weapons in the hands of Iran, the world's leading sponsor of international terrorism".  Meanwhile, Sowell can casually brush aside the danger of putting Newt Gingrich in office who might be crazy enough to start a major war with a country of 70 million people and which controls a large supply of the planet's oil.

Sowell is 81 years old and he has understood for a long time that the government cannot centrally plan an economy (although I'm having my doubts with his support of big-government Gingrich), yet he thinks the U.S. government is great and perfect when it comes to foreign policy.  No Sowell, the government couldn't possibly lie about anything to do with foreign policy.

And where does he come up with this part about Iran being the world's leading sponsor of international terrorism?  Is he still getting his talking points from the Bush administration?  I guess Iran has taken the place of Iraq and Afghanistan.

Sowell is an elitist and a moron.  He is 81 and he thinks Newt Gingrich is our best choice.  Sowell was an apologist for Bush for 8 years.  He does not care or does not consider the lives of foreigners.  It does not matter to him if innocent Iranians die.  It did not matter to him that hundreds of thousands of Iraqis died.

If Sowell is so pumped up for another war, maybe he should go to the battlefield.  Oh wait, he is part of the elite club.  The wise-one must stay in safety so that he can write his wonderful articles and play with chess pieces that are human lives.

Thomas Sowell is not a libertarian.

Tuesday, January 3, 2012

Analysis of the Results of the 2012 Iowa Caucuses

It looks like Ron Paul will be in third place in the Iowa Caucuses.  It is a strong third place, just a few percentage points behind Romney and Santorum, who finished in a virtual dead heat.

I have to take back one thing I said in one of my recent commentaries.  I said that Ron Paul really needed to finish first or a strong second.  However, the one surprise in Iowa for almost everyone is Rick Santorum.  He came out of nowhere.  If Gingrich or Perry had finished ahead of Paul, it would have hugely diminished Paul's chances.  But for Santorum to finish ahead of him is a different story.

Iowa has a disproportionately higher percentage of evangelical Christians.  This favors Santorum.  It is why Mike Huckabee won Iowa four years ago.  I believe Huckabee was a more viable candidate than Santorum is, and Huckabee didn't win the nomination.  I don't think Santorum is going anywhere.  He will quickly be exposed in the next few weeks.  He was a Bush man.  He voted for "No Child Left Behind".  He voted to raise the debt ceiling many times.  He voted for the Medicare prescription drug plan that added trillions of dollars to the unfunded liabilities.  He supported the big-government politician Arlen Specter.

Santorum also does not appeal to the average independent.  Obama could only be so lucky to face someone like Santorum.  I would be shocked if Santorum won the Republican nomination.

Gingrich is almost done, although we can't quite eliminate him yet.

Perry did not have a good showing, but I still can't completely eliminate him yet.  He has money and backing and if people turn sour on Santorum, they may move to Perry.

Bachmann can thankfully call it quits.  Iowa is supposed to be one of her stronger states and she had a horrible showing.  I am glad that the woman who has no doubts that Iran would use a nuclear weapon against Israel and the U.S. will not be the next president.

Huntsman is done unless Romney is caught in a major scandal.

This could end up being a two-person race with Paul and Romney.  I was expecting a third person like Perry to emerge.  The only person to emerge has been Santorum, who will be quickly taken down.

We will wait to see what happens in New Hampshire and beyond.

For Ron Paul supporters out there, don't be disappointed that he didn't win Iowa.  He finished above 20%, which is far better than most people would have expected just a couple of months ago.  Four years ago, it would have been unheard of.

The libertarian message is spreading, particularly to young people.  There is reason for optimism.

Monday, January 2, 2012

Is the Laffer Curve Useful to Libertarians?

The Laffer Curve is named after Arthur Laffer, who worked for the Reagan administration.  I am not a huge fan of Art Laffer, especially after his embarrassing (afterwards) exchange with Peter Schiff.  Laffer was calling Schiff crazy for saying that there was a bubble that would burst.  While Laffer was certainly proven wrong on that one, he is not a dumb guy.  He understands some economics and the graph named after him is an interesting topic.

So should libertarians/ followers of Austrian economics pay any attention to the Laffer Curve?  I think it is useful in some ways, but not as the typical Republican uses it.

The Laffer Curve basically says that, at some point, if you raise taxes, it will actually lead to less tax collections by the government.  The Laffer Curve does not claim to know where this point lies.  It could be a 20% marginal tax rate or a 70% marginal tax rate or really almost anything else.  Just by common sense, we can realize that it probably would not be a really low tax rate like 1% or a really high tax rate like 99%.

It is kind of ironic that Art Laffer is most famous for the Laffer Curve.  It really isn't any great revelation. Unless you are a dedicated Democrat/ socialist who isn't willing to think with an open mind for one minute, then the Laffer Curve is mostly common sense.  If you have a tax rate of 0%, then the government will not collect any money from that tax.  If you have a tax rate of 100%, then the government will not collect much money from that tax either.  There might be a moron or two who will actually work just so that every single dollar made can be handed over to the government, but it wouldn't be much.  Most people are not going to work for free, especially if the government is the charity involved.  Therefore, at a 100% tax rate, the government will barely collect anything at all.  It will be almost zero.

Somewhere between 0% and 100% there will be a tax rate where tax collections will be maximized.  If the rate goes higher than that point, then it will actually lead to less in the way of government tax collections even with the higher rate.  This is because of human action.  There is less incentive to work and the higher tax rates cause a slower economy and less growth.

Unfortunately, many Republicans have used the Laffer Curve to justify higher spending.  They actually want to maximize the amount collected by government.  They say that we need to grow our way out of debt and they imply that we can simply cut taxes and resolve the debt issues without addressing spending.

As a libertarian, I don't want the government to maximize tax collections.  I want less taxes and less spending.  The less of both, the better.  I would ultimately like to see zero taxes, or at least zero involuntary taxes.

So while many of the Democratic politicians are stupid (or they think their constituents are stupid) for thinking that raising taxes will solve a debt and spending problem, the Republican politicians are just as stupid for implying that we can simply lower taxes without addressing spending.

Income tax rates were lowered during the Reagan administration.  There were also other taxes that were raised.  But after the recession ended, government tax collections went up quite a bit.  The problem is that government spending went up even more and the debt grew during the 1980's.  Lowering the highest tax rate from 70% to 28% did not lower the amount collected by government.  This was the correct thing to do.  In fact, it should have gone much further.  But there was a major spending problem and there still is, of course.

In conclusion, I think the Laffer Curve is useful to libertarians in pointing out human action.  It is a useful argument against Democrats who always seem to want to raise taxes.  However, the Laffer Curve should never be used to deflect a spending problem.  Spending is ultimately more important that the tax rates.  Almost everything that is spent by the government is first obtained by taxes, inflation, or more debt.  I want less spending, followed by lower taxes.