Monday, April 30, 2012

Ron Paul vs. Paul Krugman

The most well-known libertarian, Ron Paul, faced off against Paul Krugman, probably the most well-known big government "economist" of our time.  The link is here.

I may be a bit biased, but Ron Paul took Krugman to school.  He has a way of making Krugman's positions look ridiculous, which in fact they are.

Ron Paul made a reference to Milton Friedman and the Great Depression.  Krugman was correct that Friedman actually advocated that the Fed should have printed more money.  Ron Paul's point was that the Fed is constantly causing booms and busts, regardless of who is in charge and what the policies are.

I found it amusing that Krugman says that the time after World War II was the most prosperous time in the country's history.  First, it really wasn't the most prosperous.  If you simply measure growth and an increasing standard of living, the late 19th century was better.  Regardless though, as Ron Paul pointed out, the end of World War II brought on liquidations, less regulations, bringing home the troops, drastically less spending, and less debt.  Many of the policies followed right after World War II were the epitome of being anti-Krugman.

I liked the point about allowing competition with currencies.  Ron Paul makes the point that if he is wrong, then there is nothing lost.  But people should be free to use whatever they want in the way of money.  Krugman said that people can barter, but that misses the point.  Businesses are not free to accept gold and silver and decline the use of federal reserve notes.  Even in a bartering situation, people would have to pay taxes on capital gains in gold or silver if it is to be legal.

Krugman said, "do you really think that people use dollar bills only because the federal government isn't allowing them to use other stuff?"  But if this is the case, then what is he afraid of?  If he thinks that people would use dollars even if there were no legal tender laws, then why doesn't he allow Ron Paul's proposal to stand?  Again, if Ron Paul is wrong, then there is nothing lost.  Krugman doesn't explain this.

This debate is the debate of the country, or maybe the whole planet.  It is a solution of liberty vs. a solution of big government.  These two people represent each side well.  If you think that more debt, more money creation, and bigger government is the solution, then Paul Krugman is your man.  If you think more liberty and drastically less government is the solution, then Ron Paul is your man.

Saturday, April 28, 2012

Addison Wiggin on the Permanent Portfolio

Addison Wiggin has written a piece on Harry Browne's permanent portfolio concept.  This piece was also published at  Since I promote the permanent portfolio as number one in my investment advice, I figured I would comment on this.

First, I think Wiggin has done a fair assessment of the permanent portfolio.  He points out that there is not a lot of volatility, with very few years where there are negative returns.  With this, the portfolio still gives an overall good return, particularly considering that you don't have to go through the major up and down swings.

Wiggin also does a nice job of describing the mutual fund PRPFX, which is based on the concept.  As he notes in his article, the mutual fund deviates from the permanent portfolio.  It is a little more complex and perhaps a little more aggressive.  While this can mean bigger returns, it can also mean more volatility.

At the end of his piece, Wiggin asks the reader for his opinion.  He is wondering if there is another allocation that could possibly work better for the next 10, 20, or 30 years.  Here are a few responses, most of which I don't really care for.

I am in the Richard Maybury camp on this one.  The permanent portfolio is not perfect and it actually somewhat scares me.  With that said, it is the best and safest portfolio that I know of.

If we tweak the portfolio because of today's environment, then we are speculating.  That should be saved for the speculation portion of your portfolio, which would be separate from your permanent portfolio.  The only time I would really consider changing it would be is if there is some drastic structural change.  For example, if the government ever stops issuing bonds or decides to go to a gold standard, then this would change things.  Of course, this is unlikely any time soon, but there are other possibilities of major structural changes that might alter the permanent portfolio.

Government bonds scare me, but I realize they still serve a purpose.  It helped the portfolio quite a bit in the downturn of 2008.  In addition, the Federal Reserve is the biggest buyer of bonds right now, so I wouldn't fight it.  Of course, if the Fed keeps buying government debt, then gold will do exceptionally well.

I do like the suggestion of real estate, but I'm not sure how that would fit into the permanent portfolio.  I would just keep it as a separate investment right now.  It is more of a speculation in the sense that I think now is a good time to buy.  If you are in the right position to buy an investment property, now may be a good time, especially if you live in a good place.

My one suggestion of the permanent portfolio is that it could be tailored for risk tolerance.  If you want to be more aggressive, you could reduce the cash portion only.  If you are really aggressive, you could have 30% stocks, 30% gold, 30% long-term government bonds, and 10% cash.  I would always try to keep a minimum of 10% cash, just so that you have some cash to buy depressed investments after a recession.

It is hard to imagine getting more conservative with the permanent portfolio, but I suppose it could be done.  To be more conservative, I would reduce the holdings of bonds and stocks and hold more cash and slightly more gold.  For example, you could hold 15% bonds, 15% stocks, 30% gold, and 40% cash.  If you are going to increase your cash, you should add a smaller portion to gold, just to protect against the threat of inflation.

In conclusion, the permanent portfolio still works.  It outperforms many professionals.  You can do it yourself and pay little in the way of trading and management fees.  If it is too complicated, you can always just buy the mutual fund.  The permanent portfolio should really be called the sleep-at-night portfolio.

Thursday, April 26, 2012

America May Still Offer the Best Hope

America has been in a relative decline lately, especially compared to places like China.  America is supposed to be capitalist.  China is supposed to be communist.  However, in some ways, at least economically speaking, China is more free than the U.S.  China actually has less in the way of bureaucratic regulations against businesses which are actually enforced.

There is still far more capital and wealth in the U.S., but much of that is because of the previous prosperity of the last couple of centuries.  China is starting out from being completely poor just a few decades ago.  There are other countries that have surpassed the U.S. economically, at least per capita.  Hong Kong and Singapore come to mind.

I still think the U.S. is the best or near the best when it comes to religious freedom and freedom of speech.  It is also relatively good when it comes to gun rights.  While Congress is trying its best to regulate the internet, its continued attempts will mostly fail.  The cat is already out of the bag.  Americans are not going to shut up and this is a good thing.

I still believe that America offers the best hope for liberty in the future.  I will use the term "America" in this case, instead of "the United States".  The individualistic spirit of Americans has remained, even if it has faded somewhat over time.  Americans are also not ashamed to make money.  Entrepreneurs are mostly embraced, despite listening to some of the "Occupy Wall Street" crowd.

I don't think it is a coincidence that Ron Paul has had great success in America.  I have heard Europeans and other foreigners say that they wish they had a Ron Paul where they live.  But they don't really understand the problem.  I'm sure there is someone like Ron Paul in every country in the world.  It is just that there is not enough support for freedom in those places for their "Ron Paul" to get a footing.

You could take someone exactly like Ron Paul and put him in any European country, Asian country, or anywhere else.  Perhaps even Canada might qualify, although Canada is slightly closer to the American way of life.  The Ron Paul clone would probably fail in these other places.  Perhaps the foreign policy message might resonate with some, but his economic views would be laughed at by the large majority of people.  He would not get a hearing because of the socialistic tendencies of the people.

Obama (and Bush before him) may be a socialist.  Maybe he isn't.  Maybe fascist is a better description for his economic views.  But these politicians have to moderate their rhetoric in most cases.  They can't talk like Castro and expect to be elected.  If Obama had campaigned with speeches taken from Hugo Chavez, it is unlikely he would have won the presidency.  While some Americans buy into the class warfare, most Americans do believe in some forms of property rights.  It is as much a moral issue for them as it is an economic issue.

Hugo Chavez would never be elected in America.  Ron Paul would never be elected in Venezuela, at least at this point in history.  It is part of the culture.  I believe that America has the best chance of leading the world away from statism and towards liberty.  If some other country can prove me wrong, then that is fine with me.

Wednesday, April 25, 2012

Keynes Doesn't Matter

When I read or listen about Keynesian economics, named after John Maynard Keynes, I oftentimes hear others say that our economics have been greatly influenced by Keynes.  It doesn't matter whether the person is a Keynesian, an Austro-libertarian, or someone in between (Chicago school?).  It seems that most people believe that Keynes was a highly influential figure and a big reason for the establishment's belief in government solutions to economic problems.

I don't really buy it.  Keynes was used as an excuse by the establishment to promote their big government programs, big government spending, and debt.  If Keynes had never existed, then the elites who wanted to promote statist economics would have found another "economic expert" to say what they wanted said.

Keynes was actually not dumb.  But his "General Theory" book was mostly incoherent and that happens to be his main work that is used to justify massive government spending and deficits.  The ironic thing is that Keynesians (both today and then) are more Keynesian that Keynes was, if that makes sense.  The followers of Keynesian economics are bigger statists that Keynes ever was and Keynes basically acknowledged that.

Keynes wasn't really influential.  He was made to seem influential by the establishment who wanted cover for their big government policies.  Keynes was their excuse.  They could have found someone else if they had to.

It is not like today's libertarian movement with Ron Paul.  Ron Paul actually has influenced people a great deal.  He has been someone for people to rally behind, but he has also served as an educator to many.  I think we would still have a growing libertarian movement without Ron Paul, but it would be a much slower process.

The good news is that Keynesian economics is losing credibility.  Ron Paul is gaining credibility.  Things could completely reverse one day.  Politicians might one day be forced to actually cut back on government, if bankruptcy doesn't do it first.  Public opinion counts and it is changing.  Regardless of what Keynes actually thought, his followers are becoming less relevant as time goes on.

Tuesday, April 24, 2012

Anything Could Arise As Money

Last Saturday, I wrote a post about how technology is capable of slowly making government programs irrelevant.  I used the example of the Post Office becoming irrelevant due to the advances in communication.  I doubt that the U.S. Post Office will be around in 20 years.

It makes me wonder if we could see technology come up with a different form of money.  If the Federal Reserve continues on its disastrous course of buying U.S. government debt, then price inflation will become a major factor in the lives of most Americans.  Actually, it already is a big factor, but it is not so well known.

Could technology provide us with different forms of money.  It could really happen anywhere in the world and it really already does.  When Zimbabwe went into hyperinflation, people started using other currencies, like the U.S. dollar, and gold on a more regular basis.

But it doesn't have to be other fiat currencies and it doesn't even necessarily have to be gold or silver.  I have heard of people using cell phone minutes in other countries as a form of money.  Almost anything could be used.  It could be oil.  It could be stocks.  It could be computer storage space.  It could be timeshare points.  It could be a new website that sells things based on its own point system, instead of using dollars.  It could be any combination of things.

Technology is so sophisticated now, that you could have a broad market of different things with constantly fluctuating exchange rates.  It could be like a big stock market with huge trading.  Just as an example, perhaps you could trade your hotel credits from a timeshare for a certain amount of oil.  You wouldn't actually get delivery of the oil though.  Then you could trade the oil shares for a new watch.

There is always the problem of government regulation and taxation.  That is a problem with using gold as money now.  But the market can find ways around this.  If the U.S. dollar (or any other currency) becomes weak enough, it would not surprise me to see people trying to trade more with other things.  There might eventually be a few things that people start to obtain, not because they want it, but because it is marketable to others.  These few things would then take on the characteristics of a medium of exchange.

I really have no idea how this would work or what might be used.  That would be up to the billions of people in the marketplace.  But it is possible that technology could help us find relief from the destructive policies of central bankers and governments.

Monday, April 23, 2012

Do You Own Your Share of the Gold?

This is hard to believe, but if you take all of the gold on the planet that has ever been mined and you distribute it evenly to every person on earth, then each person would have a little less than an ounce of gold.  It is impossible to know exactly how much gold exists (above ground), but the estimates put it at less than 7 billion ounces.  It would fill less than 3 Olympic-sized swimming pools.

If you own just one ounce of gold, then you are richer than the average person on earth, at least in measured with gold.  Of course, the only reason we correlate gold with wealth so much is because of its history as money.  We could talk about the number of cars people own, but most people don't need several cars and wouldn't buy extra cars as a store of value or medium of exchange.

If gold truly acted like money around the planet, then its value would likely be higher.  Gold is rare, as just discussed, which means that a small increase in demand on the margin could drive the price higher, in terms of dollars.

We should also remember that many governments/ central banks own gold.  This accounts for hundreds of millions of ounces, which means there is even less for individuals to own.

You can't eat gold.  You can't use it by itself to produce other things, aside from jewelry.  But gold has great characteristics for being used as a form of money.  So while gold itself does not really translate into wealth, it is a good medium of exchange and store of value.  So as long as the marketplace thinks it is a good form of money, it is a decent way to store wealth, even though it is really more like a receipt for wealth.

While society would be better off if the free market were able to choose the form of money we use (instead of governments), we should not forget that gold does not make a society rich unless it can be traded for real wealth.  Real wealth are the cars, houses, clothes, appliances, furniture, machinery, etc.  It also includes services and technology.  But if we want more of that real wealth, we will get more with a free market in money, instead of having a fiat currency imposed by governments, which serves to misallocate resources and slow the production of real wealth.

Saturday, April 21, 2012

Technology and Government Programs

Jay Leno told the following joke on the Tonight Show (paraphrasing):  Encyclopedia Britannica is no longer going to be publishing a print edition.  I read that on Wikipedia.

A lot of times, we find humor in things that are true.  In the above joke, it is a business that has failed to keep up with technology that is going to be replaced.  But I often like to examine the effects that technology has on government.  It is said by some that no new government program ever dies.  But I think technology is changing that.

The Post Office is a good example.  It is one of the few government programs that is permitted by the Constitution.  But this doesn't mean that government is efficient at running a mail service anymore than it is good at running anything else.  The Post Office is running massive losses each year.  They have a government-granted monopoly on first-class mail.  When I say that the Post Office has competition, most people automatically think Federal Express or UPS.

But it is really technology that is the biggest competition for the Post Office.  Its monopoly is not doing it much good.  It can't even raise prices substantially without incurring more losses.  People are using email, Skype, text messaging, Twitter, Facebook, cell phones, Facetime, and other ways to communicate.  It doesn't have to be through cards and letters.  This will also take down the phone services that gain monopolies in local areas to provide landline services.  They face too much competition from cell phones and other technologies.

The Post Office is also facing competition from websites like Amazon.  If you want to mail a birthday gift to someone, instead of buying it and sending it through the mail, you can buy it on Amazon and have it shipped through Amazon.  Amazon can even gift wrap it for you.  It will probably get to a point where Amazon has its own delivery service because so many packages are being sent.  It would not surprise me to start seeing Amazon planes and delivery trucks.

While the Post Office is still taking our tax money, it is quickly becoming irrelevant.  There will come a day when it comes apart completely.  It is a slow dying government program.

My hope is that we start to see more technological breakthroughs in healthcare.  It is difficult because of all of the government regulations in healthcare.  But if technology can increase in healthcare at just 10% of the speed as it is increasing in the computer industry, then we will see great progress.  We may get to a point where all of this healthcare regulation is virtually meaningless.  If you can just take a vitamin to cure yourself of diseases or if you can just step into a machine for a minute to relieve pain without side effects, then eventually health insurance will become meaningless.  You won't need insurance if everything is cheap and available.

Technology is increasing in the computer and communication industries faster than most realize.  Processing speed is getting faster exponentially.  Chip sizes are getting smaller and storage space is becoming exponentially cheaper.  Where 3 or 4 percent growth in an economy is considered decent, the computer industry is growing at probably 50% per year, with compounding growth.

It is impossible to know what this world will look like in 20 years.  It is a race between big government and technology.  While big government will make life hard in the short term, I think technology will eventually win the race.  Government will slowly become irrelevant and most of it will die off.

Thursday, April 19, 2012

Panarchy is the Way to Win Hearts and Minds

If someone asks me my political persuasion, I generally say I am libertarian.  Of course, being a libertarian can mean different things to different people.  Being libertarian means that you are pro-liberty.  For some, this means being a minarchist, which means they want limited government that protects against force and fraud and enforces contracts.  There are anarchists too, who believe in no government.  There are also people who call themselves libertarians, but who go way beyond the minarchist in terms of wanting government.  They may want smaller government, but that is not saying much in today's world.

If we lived in a society that the minarchists want, we would be exponentially better off.  We would have a free market, with the government involved in only a few things like the court system, policing, and military defense.  The closer we can get to that point, the better off we are.

Anarchists, or anarcho-capitalists so as not to confuse them, believe in a society of liberty, with the complete absence of government.  While I think this is a good ideal, I think it is hard to sell people on.  Most people want government, even if it isn't often good for them.

This is where panarchy comes in.  Michael Rozeff has written extensively on the subject.  It basically means that you should be free to choose your own government, regardless of where you live.  This should be clear in America.  There are red people (Republicans), blue people (Democrats), and others.  We all live with each other.  We interact with each other and do business together.  We may even live together in the same house.  Yet there is this major disagreement hanging over everyone's heads.

We should be free to choose our own government.  I would take it a step further and say that people should be free to choose no government at all, so long as they are not infringing upon anyone else.

I am not sure how many anarcho-capitalists would agree with this.  I like the principled stand that anarchists take.  Most use a strong moral argument.  They use the non-aggression axiom.  They do not believe in the initiation of force for political or social purposes (I stole most of that from the LP pledge).

There is an interesting interview/ conversation between Peter Schiff and Stefan Molyneux.  It is funny because Schiff, as he says at the beginning, is forced to take the position of defending government.  While both of these guys are really bright, I found them not being on the same page a few times during their discussion.  Schiff was talking about the government not outlawing private security firms, but he seemed to miss the point that people are forced to pay for the government "security".

Schiff says he wouldn't put people in jail for not paying taxes (as what happened to his father).  But how could this be a tax then?  If you aren't going to threaten to put people in jail, then it would have to be a voluntary donation.  You can fine a person for not paying taxes, you can order them to court, or do a number of other things, but if you aren't willing to go and arrest the person, then all of the those actions are meaningless.  It is only the threat of force that makes something a tax.

In the discussion, I like when Molyneux said that if you want to get rid of slavery, you don't argue for less slavery.  You argue for no slavery at all.  You win the argument by presenting the moral case.

I have seen different people convinced of liberty in different ways.  But I believe we need to use the moral argument often.  Libertarians hold the moral high ground.  It is those people who promote war and government welfare who want to use violence.  We must point out that virtually every government action involves the use of force or the threat of force.

As I have said before, I would have nothing against Obamacare if it didn't force others to participate.  If a bunch of Obama supporters want to get together and have their own socialized healthcare plan, that is fine with me, as long as you don't use the threat of violence against others who don't want to participate. The same goes for all other government programs.  You can have your own government, or whatever you want to call it, so long as you are not forcing others to join you.

If someone is advocating a particular government program, you don't even have to debate them on the merits of it.  You can simply ask if they will permit you to disagree without using violence against you.  If they agree, then point out that you should not be forced to participate then.  If that is the case, then the law they are advocating should only be voluntary.  You, or anyone else, should not be forced to participate in it or pay for it.

Use the moral argument.  It will frustrate people, but if something clicks inside their head, they will view things a different way.

Wednesday, April 18, 2012

Speculation Opportunity

I am an advocate of setting up a permanent portfolio, as described in Harry Browne's book Fail Safe Investing.  However, I understand that some people want to speculate.  While this should make up a minority of your portfolio, I want to offer a couple of suggestions for speculation right now.

With the Dow above 13,000 again, it is likely that we are in the midst of a Fed-induced mini-boom.  While much of the growth is illusory due to the Fed's loose monetary policy and artificially low interest rates, it would not surprise me to see stocks continue to do well.  However, if this is the case, then I would expect price inflation to kick in more.  The scenario that would surprise me the most would be a continuation of higher stock prices with lower price inflation and lower gold prices.

Gold has been somewhat volatile, but it has been in a relatively narrow range for the last couple of months. Oil has been volatile and seems to keep going higher, with periodic backtracking in the price.

However, gold and oil stocks have been awful in comparison to gold and oil itself.  For some reason, gold and oil/ energy stocks have really suffered.  If you invested in them this time last year, you are probably down.

If the stock market keeps going up, I would expect that gold and oil stocks will catch fire at some point, especially if the commodity prices are rising.  It is a good time to buy low.

There is, of course, a chance that things could turn quickly and the stock market could go tumbling down.  While I think it is less likely in the near future at this point, it might be good to hedge your bets a little.  For every 2 to 3 dollars that you invest in gold and oil stocks, you can put one dollar into an ETF that bets against the stock market.  If you go into a double inverse fund like DXD or SDS, then you will want to invest only one dollar for every 4 to 6 dollars in oil and gold stocks.

There are two mutual funds through Fidelity that you can use to invest in oil and gold stocks.  The gold stock mutual fund is FSAGX.  The oil/ energy stock mutual fund is FSESX.  Both of these funds are down quite significantly over the last year, which makes them a potential bargain right now.

Remember that these are speculation plays.  They are risky.  If you want to be conservative with your money, then put it all in the permanent portfolio setup.  While there is no guarantee with that either, it is the safest thing I know of at this time.

Tuesday, April 17, 2012

Obama on Oil Speculators

Obama has announced plans for stronger oversight of oil futures markets and is proposing an increase in funding for regulators.

So that has been the problem this whole time.  There hasn't been enough government oversight of the financial markets.  Of course that must be the reason for high oil prices (please not sarcasm).

Obama has decided to continue being a demagogue.  If he isn't a demagogue, then he is just plain stupid.  Perhaps he is both.

Obama said, "We can't afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage and driving prices higher, only to flip the oil for a quick profit."  He also said, "We can't afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick."

What is his bigger bureaucracy of regulators going to do?  Are they going to prevent the futures market from working?

It is time for a good economic lesson here, something that Obama and his henchmen wouldn't understand.  Speculators play a vital role in the marketplace.  They provide more accurate pricing and they actually smooth out bumps in pricing.

Let's say that speculators think that there will be an increase in demand for oil in the near future.  Or perhaps they think there will be a war in Iran or some other event that will cause a shortage of oil.  Either way, let's say that speculators think the price of oil will be going up in the near future.  In this case, the oil speculators will buy futures contracts that drive up the price of oil.

But the increase in the price of oil is a signal to the market.  It tells consumers to cut back on their usage. It also sends signals to suppliers.  If the suppliers think that prices will be much higher in the near future, then they may hold back on selling right now.  Or they may decide to extract oil from more expensive places.  With the higher price of oil, it may be worth it to extract more oil using more expensive procedures.

By raising the price of oil now, the speculators are doing others a favor.  They are signaling consumers to cut back now and they are signaling suppliers to increase their supplies for later.  If the speculators hadn't been there to bid the prices up, then the oil prices would have been that much higher in the near future.  Instead, the speculators actually prevented a big spike in prices.  The process was more gradual and less severe because of the speculators.

If the speculators didn't exist, then everyone would be guessing, almost constantly.  You could end up with a situation where the price all of a sudden doubles or triples in the matter of days.  The speculators make this less likely to happen.

Of course, some speculators could be wrong about their guess for the future.  But they will lose money if they bet the wrong way.  Those who guess correctly are the ones who are rewarded.  And they should be rewarded, because they are the ones sending correct signals to the market.  They are preventing less shortages in the future.  They are helping to properly allocate resources.

Obama does not understand free market economics.  If he does, he is a total liar.  Either way, he is demagoguing the situation.  Oil is going up for other reasons that he is partially responsible for.  Oil prices are higher than they would otherwise be because of threats to Iran, government regulation, and monetary inflation (which is encouraged by government debt).  If Obama wants to help lower oil prices, he should resign.  He should ask Bernanke to do the same.

Monday, April 16, 2012

Poor Americans Pay Taxes

The other day, I discussed loaning free money to the government via too much tax withholding.  I briefly mentioned the poor and said that while they don't pay federal income taxes, they most certainly do pay taxes.

First, while I use the term "poor" for the purposes of this writing, a more accurate term would actually be "low income".  The income tax does not tax wealth.  It taxes income.  But we can make an assumption that at least most people who are really poor, also have a low income.

I hear many so-called conservatives who like to point out that the poor do not pay taxes.  This is not correct, when stated like that.  Most poor people do not pay any regular income taxes, but they most certainly do pay taxes.

What really amuses me is when I hear supposed conservatives say that everyone should "contribute" something.  They want to raise taxes on the lower income people.  These people are statists.  If the income tax is unfair, it is only because it exists.  When Ron Paul is asked about only half of American taxpayers paying any income tax, his response is that we are halfway there.  He doesn't want to raise taxes on anyone; he wants to cut them.

While most poor Americans do not pay any federal income taxes, they do pay many other taxes.  There are payroll taxes, which are paid by anyone working "on the books".  There is also the employer portion, which is an indirect tax.  There are corporate taxes, which make shareholders poorer, prices higher for consumers (including the poor), and wages lower for workers (including the poor).  There are many different sales taxes and excise taxes and fees.  There are taxes on gasoline, on hotels, on cars, on phone bills, on water bills, on electric bills, etc.  There are car registration fees.  There are property taxes, which are paid indirectly by renters through higher prices.  The list could go on and on.

Most of these taxes actually fall disproportionately on the poor.  If there is a one dollar tax on something or if the price of a loaf of bread goes up a few cents because of a tax, then it hurts the poor person the most, who is already struggling to make it.

The worst "tax" of all is monetary inflation.  It creates business cycles, it redistributes wealth (usually from the poor and middle class to those with political connections), it discourages savings and investment, it changes people's time horizon, and it is all done in a hidden way.  Most poor people don't realize how much they are being screwed by inflation.  They don't understand that prices are going up solely because of monetary inflation.

Again, when the price of milk goes up 25 cents, it is the poor person who is hurt the most.  Their income won't rise because of inflation until later, if they are lucky.  They are already paying the higher prices by the time they see any rise in earnings.

Inflation is the worst tax of all.  It can ruin a society.  America had huge income tax rates in several decades of the early and mid 20th century.  The highest rate was over 90% at times.  And Americans were supposedly in a Cold War against communism?  90% or more sounds communist enough to me.

Yet, despite the high income tax rates, times were not always too bad.  Society can survive this.  The 1950's were a relatively prosperous time, considering the high rates.  The key is that monetary inflation was relatively low.  In the 1970's, income tax rates were a bit lower, although still high.  But because of the high monetary inflation, it was a tough time, economically speaking.

Today is a tough time because of massive government and massive money creation.  It is wreaking havoc on the economy.  Monetary inflation is hurting us every day.  We need to end the Fed by removing its monopoly on money.  That is one sure way to help the poor.

Saturday, April 14, 2012

Loaning Money to the Government

There are tens of millions of Americans who loan money to the government every year.  I'm not talking about people buying government bonds.  I'm talking about people who have extra income taxes withheld throughout the year and then receive a big refund after filing their taxes.  With the main part of tax filing season coming to an end, now is a good time to discuss the topic.

Believe it or not, I actually have mixed opinions on this.  I understand the point made by those who say that you shouldn't loan the government any money at zero percent interest, but I think there are also arguments to be made the other way.

First, if you live in a state with a state income tax, I would be very careful not to overpay too much on your taxes throughout the year.  This is especially true for states that have major fiscal problems, which is many. There have been states, California being one example, in the last few years, that have delayed refunds to taxpayers because of the budget crunches created by politicians spending recklessly.  If I lived in a state like that, I would be sure to not overpay on state taxes.

As for federal taxes, I don't think there is much of a threat of having your refund delayed.  It may take over a month if you file now during the busy time.  But the federal government does not face the same constraints as the state governments (unfortunately).  The government in DC can issue more debt and can get the Fed to buy that debt if needed.  The federal government is not going to delay tax refunds for several months because then people will lower their withholding and it will just cause more of a temporary shortage of money for the government.

I can understand why many Americans overpay on their taxes during the year.  Some reasons are good and others are not as good.  If you don't have a salaried job and your income is not steady, I can see why you might overpay.  The same goes for people who have substantial taxable investments.  They may not know how much they are going to end up making.  People in this situation may want to be conservative and overpay on their taxes, just to make sure that they don't end up owing a large sum when they file their taxes.

The majority of Americans who overpay on their taxes do so because they don't want to have to write a check when filing.  From this point of view, it is actually a good reason.  It is tough to budget and you want to make sure that you don't have an extra unexpected (or even expected) bill.

But many Americans overpay by thousands of dollars and receive huge refunds after filing.  They do this just so that they can have a big windfall, even though it is just money coming back to them that they already paid.  They are basically using the tax system as a forced savings plan.

While I would prefer that Americans simply have the discipline to save their own money, I am not sure that giving an interest free loan to the government matters all that much right now.  If you save your money in your checking, or even savings, account, then it is there, tempting you to spend it.  Meanwhile, even if you have it in a savings account, a couple of thousand dollars won't earn enough interest for you to buy lunch.

If we lived in the 1970's where we had double digit interest rates, I would have a stronger opinion that people should not be significantly overpaying on their taxes.

Of course, there are many Americans who will not pay any federal income tax (but please don't say they don't pay taxes, because they pay many of the other taxes out there).  Some people may even get refundable tax credits where they not only don't pay any income taxes, but they actually receive a check after having not paid anything.  These people don't have to worry about giving a loan to the government because they are getting money that is being redistributed anyway.  They are not getting back money that they already paid in, at least from that pool of taxes collected.

In conclusion, I don't think it is that big of a deal if you give the government an interest free loan, unless you live in a state that is having financial difficulties.  You should teach yourself to save on your own though.  If we hit a situation where we have double digit price inflation and double digit interest rates, then I will have a stronger opinion about not handing over a free loan to the government.

Thursday, April 12, 2012

Tax Freedom Day

The Tax Foundation puts out a report each year reporting "Tax Freedom Day".  It is the day of the year that the average American taxpayer works to pay his share of federal, state, and local taxes.  The tax freedom day this year is listed as April 17, 2012 (not including the Leap Day).

I find this number hard to believe.  In fairness to the Tax Foundation, its article does say that, "If the federal government raised taxes enough to close the budget deficit - an additional $1.014 trillion - Tax Freedom Day would come on May 14 instead of April 17."

While I believe the May 14 date would seem more accurate, it still seems understated to me, and I am not even accounting for government regulations that take away more of our time and effort in our lives.

If we are going to measure a tax freedom day, it should not be done based on just regular taxes.  It should be done based on total government spending.  If government runs a deficit (federal, state, or local), then it is still basically spending taxpayer money, unless you expect it to default on its bonds.  In the case of the federal government, government debt could be (and is) bought up by the Federal Reserve, but then your money is simply being devalued.  In the case of Fed monetary inflation, it might be more accurate to say that dollar holders are paying.  While this would include most American taxpayers, it would also include foreigners who hold U.S. dollars.

So a more accurate measure for a Tax Freedom Day is to use spending.  Using spending, the federal government spends close to 25% of the GDP alone.  The federal budget is about $3.8 trillion.  The annual GDP is approximately $15.3 trillion.  While these numbers may not be perfect, the federal government spends about one quarter of GDP.

The Tax Foundation article lists state and local taxes at $1.42 trillion.  That means they are saying that state and local taxes make up less than 10% of GDP.  I find this quite hard to believe.  I am not sure where they are obtaining this number, but my guess is that it is a lot higher.  If anyone has any sources for a total of state and local spending in the U.S., feel free to leave a link in the comments section.

With the federal government spending about 25% of our income, that would put Tax Freedom Day at about April 1 right there.  I think a more accurate date would be in June for the total.  Prior to the recession hitting in 2008, it would not surprise me if total spending was over 50%, which would put Tax Freedom Day in July.

Regardless, this does illustrate the absurdity.  Government is taking almost half of our money.  This is why so many mothers work and do not have much of a choice to stay home with their kids.  It is why so many Americans struggle to pay their everyday expenses.  Government spending is out of control.  Americans must withdraw their consent to government.  Americans must stop relying on the government.  Americans must realize that their lives will be much better off with a dramatically smaller government.

Wednesday, April 11, 2012

Government Education is Welfare

Whether people want to admit it or not, government education is a form of welfare.  Most people think of welfare as going to poor people, such as food stamps.  But there are all kinds of welfare.  Social Security and Medicare are forms of welfare.  Corporate bailouts are welfare, mostly for the rich.  Wars and the military industrial complex involves welfare.

Of course, everyone in America could be accused of being on some kind of welfare.  We all get some kind of "benefit" from the government.  We have to drive on government roads.  With education, you don't have much of a choice in having taxes taken away from you, although you do have the choice of not sending your kids to government schools.

I don't fault anyone for collecting Social Security.  They had to pay taxes previously and are still paying taxes in other ways.  You may as well get back some of your money that is being confiscated.  The same goes for education.  I don't fault anyone for using the government school system, at least as far as getting some of your money back.  If you are to be blamed at all for sending your kids to government schools, it is only because of the brainwashing and lack of actual education that your child is receiving.

Aside from whether it is a good decision to send your kids to government schools and whether you can even afford it, that is not the real issue here.  The real issue is this: are you an advocate of having government run schools?

I don't see hypocrisy for being against government schools, yet using them because you are forced to pay for them.  I do see hypocrisy for those who criticize government welfare to a large degree, yet they are advocates of the public (government) school system.

Why is it any worse to be on food stamps than it is to use the taxpayer funded school system?  If anything, food is more of a need than education for your kids.  Without food, you can't survive.  This is not an argument for food stamps from either a practical side or a moral side.  The point is, both food stamps and government schools are a form of welfare.

Of course, if we didn't have to pay property taxes, then it would be easier to afford to pay for schooling for kids.  The same could also be said for someone on food stamps.  Despite what we hear, poor people do pay taxes.  They may not pay regular income taxes, but they pay payroll taxes, sales taxes, property taxes (often indirectly), corporate taxes (also indirectly), excise taxes, etc.  The poor also pay heavily for the worst tax there is.  It is the hidden tax of inflation.

There is absolutely no reason that the government should be funding education.  It should not be happening at the federal level.  But it should also not be happening at state and local levels.  People who have children should pay for their own daycare or schooling, or else they should find someone who voluntarily will.  We don't hold a gun to someone's head to make them pay other expenses for parents.  If the government is going to take people's money to pay for schooling, why not clothing, food, furniture, and family vacations?

If education were left to the free market, we would see innovation and cost cutting.  Schools would get cheaper and the learning methods would get better.  Until then, let's call government schooling what it really is: a form of welfare.

Tuesday, April 10, 2012

Inflationary Boom Vs. Recession

There continues to be a tug-of-war between a mini inflationary boom and a recession and/ or depression.  The stock market has been quite strong in the last couple of years after tanking in late 2008 and early 2009.  With the Fed's aggressive monetary policy since that time and with massive government spending, it was bound to create more asset bubbles.  It is always a question of which assets will boom the most.

Of course, if we are in a mini inflationary boom, it is mostly an illusion.  Real growth is based on savings, capital investment, and technological innovations.  While there might be a little of that, most of the boom is illusory, caused by a loose monetary policy and massive government spending.

The last few days have been bad for the stock market.  The Dow has retreated well below 13,000.  It will be interesting to see where it goes from here.  The 10-year yield has dropped back below 2%, meaning that either the Fed is buying more government debt or investors are running to perceived safety.  Of course, U.S. government bonds are only safe as long as people still perceive them as safe or as long as the Fed keeps buying and pushing down rates.

It really does seem to be a struggle between inflation and recession right now.  This doesn't mean that we can't have both at the same time.  The Keynesians were proven wrong in the 1970's when there was high price inflation and high unemployment at the same time.  With that said, I think one or the other will be more dominant.  In the last 6 months, I was leaning more towards a mini inflationary boom (artificial) before we saw another recession.

Americans understand right now that something is not right with the economy.  In fact, the pessimism has helped keep prices in check as more people try to save more and spend a little less.

What Americans don't understand (or at least not many) is that there are going to be some hard times in the near future no matter what.  Even if Ron Paul were elected president and the Congress turned libertarian overnight, there would still be some pain.  A drastic cut in government spending and regulations would probably cause a recession, but that would be the best case scenario, as the recession would likely be over quickly.

On the current path, we are headed for much worse.  While government spending, regulation, and debt are major problems, that is not the worst of it.  It also isn't the massive unfunded liabilities.  The major problem for the short-term economy is all of the past monetary inflation that was used by the Fed to prop things up.  It has not allowed for the previous malinvestment to correct and it has made things far worse by misallocating resources on a grander scale.

We actually need a recession to correct all of the previous malinvestment.  We need a realignment of resources that coincide with actual consumer demand.  Until that happens, the economy will not be on a solid footing.  We will have to continue to endure these roller coaster ups and downs.

Let's see where the stock market goes from here.  If it continues to go down, we may be headed back into recession.  Then we will have to fear more monetary inflation by the Fed.  If the stock market bounces back up, then it is more likely that we will continue in an illusory boom period.  Either way, we will eventually see a major bust.

Monday, April 9, 2012

Libertarian Thoughts on Peak Oil

There was an article on today about peak oil.  The author of the piece gives some history on the subject and the lack of accuracy by those who have warned about peak oil in the past.  He also gives some statistics about oil production and oil reserves that seem to refute the peak oil proponents.

I can't confirm or dispute the numbers.  I don't really have any criticisms of the article, but I do want to add some comments about the subject.

While I found the article interesting, in the long run, it doesn't matter all that much whether peak oil is real or not.  It doesn't matter all that much how many barrels of oil are being produced or how much is in reserve or how much has yet to be discovered or how much demand there will be in the future.

The thing that matters most is that governments get out of the way and stay out of the way.  The oil market is already heavily regulated.  Governments tax oil and gas.  Governments regulate oil drilling and refineries.  Governments own land with oil, almost everywhere it exists.  I could go on for pages about different ways that governments interfere in the energy markets.

Most things done by the government restrict the supply.  Most Republicans think that the U.S. government should drill in ANWR and other places.  The problem is that it shouldn't be up to the government.  The U.S. government should either return the land to its proper owners or else sell it to the highest bidder.  Then the owner or owners of the land could drill.

It would also help if the U.S. stopped running an empire around the world.  Whether the motives involve control of oil or not, bombing Iraq and Libya, and threatening to bomb Iran, does not help the situation.  It causes disruptions in supply or fear of disruptions.

As long as we live in a relatively free market system, then peak oil does not matter much.  If the world really is running out of oil, then prices will go up to reflect the situation.  They will go up in anticipation. Higher prices will encourage people to cut back on demand.  It will also encourage an increase in supply.  Higher prices are the best solution to high prices.

If there is concern about peak oil by the market and prices go up, then the market will turn to other alternatives.  Perhaps the oil in tar sands will be extracted.  This is a more expensive process, but it may be worth it if the price is high enough.  Also, the market will most likely respond with other technologies.  Maybe electric cars are viable, but they shouldn't need to be subsidized by the government.  If gas gets expensive enough, then consumers will voluntarily switch to other forms of energy if they find it is worth it.

There is one thing I may disagree with on the article regarding peak oil.  The author states, "for at least the next hundred years, oil will remain our primary energy source because it is abundant, inexpensive, and reliable."  While he may turn out to be right, it is impossible to know right now.  If the government gets out of the way and stays out of the way, there are endless possibilities for providing energy in the future.  There may be things that don't exist right now that we can't even fathom.  How many people could have fathomed the internet and text messaging 50 years ago?

In conclusion, don't worry about peak oil.  Instead, worry about the government interfering with the free market.  If the market is left free, then peak oil will not be a problem, if it even exists.

Saturday, April 7, 2012

Time Vs. Money

There usually seems to be a trade-off between time vs. money.  It is probably not a coincidence that people who have a lot of money are short on time and people who have a lot of time don't have money.  One would think it would be the opposite.  If you have a lot of money, you should have a lot of time on your hands.  But this only happens if you are retired.  If you have a busy job or own your own business, you don't have much time.  But you can't quit your job or business or you might not have enough money.

I think it is good to think about the trade-off between time and money.  Of course, everyone's time is limited, unless technology finds a way to make us immortal.

If you make 100 dollars per hour in your work, it is probably not a good use of your time to clip coupons.  On the other hand, if you make 8 dollars per hour, it probably is a good idea to clip coupons.  There is really almost a sliding scale here.

The more money you make, the more you should make use of the division of labor.  Tiger Woods is better off spending an extra hour with his golf coach each week instead of mowing his lawn.  He can pay someone a trivial amount to mow his lawn (from his perspective), but spending an extra hour with his golf coach could mean the difference of a win or second place finish.  It could potentially mean tens of thousands of dollars.

Even if an extra hour with his golf coach wouldn't matter, he is still better off relaxing or doing a hobby (hopefully not getting into any more trouble) than mowing his own lawn.

For someone making 8 or 10 dollars an hour, they probably should be mowing their own lawn, unless they have another source of income or if they are using their extra time building skills.

For someone making 50 dollars an hour, it would make sense for them to call a plumber for something that would take a couple of hours to fix.  It might make sense to hire a lawn service.  It may or may not make sense to hire a maid.

Again, the more you make, the more you should make use of the division of labor and delegate other tasks.  You are better off focusing on your own work.  However, if you like mowing your lawn and find it good exercise, then do it.  If you want to change the oil in your car by yourself because you like working on cars, then do it.  If it is more like a hobby to you than a chore, then there is nothing wrong with doing it.  Tiger Woods should mow his own lawn if he feels like it is a good stress reliever.

You should also look at time vs. money when you are spending.  If you are spending 15 dollars for a dinner and that is how much you make in an hour, then ask yourself if the dinner is worth an hour at your job.  It may be.  I think it is even more useful when talking about larger ticket items.

If someone makes $30,000 a year after taxes and is considering buying a car that will cost $30,000, that person should ask himself if a full year at work is worth having that car.  It puts it in a different perspective.  It makes you realize how much your time is worth.  If you can buy a decent car for $10,000 and "save" $20,000, then perhaps with good investing (if you invested the money you would have spent on the more expensive car) you will be able to retire a year or two earlier than if you bought the expensive car.

If you are looking for ways to make more and/ or spend less, I would look at the spending side first.  If you cut your spending by 10 dollars, then you save 10 dollars.  But to save 10 dollars by working more, you might actually have to earn 12 or 13 dollars because of taxes.

The time vs. money decision is a personal decision.  But you should at least do a fair comparison so that you know what you are getting.  Maybe an expensive vacation isn't a good idea if it is going to cost you a month's salary.  But then again, maybe it is your dream vacation and a month's salary is completely worth it to you.  Just make sure you fund that vacation out of savings and not by running up debt, because putting it on your credit card without paying it off right away will mean it will cost you several months worth of salary.

Thursday, April 5, 2012

Are 401ks and IRAs Safe?

There is a legitimate argument to be made that 401k plans, IRAs, and other retirement plans are not safe.  In saying the word "safe", I am not talking about the threat of financial institutions going bankrupt or the threat of a stock market collapse, although those may be legitimate threats too.  When I say "safe", I am talking about safe from government confiscation.

I go back and forth on this issue.  I think the government would love to get its dirty mitts on retirement accounts.  Governments are in "need" of money and it is only going to get worse.  Politicians will do almost anything they can get away with.  While it has been tried in other countries and even been partially successful (from the government point of view), I think it is less likely in the U.S.

In the U.S. there is a lot of wealth being held in retirement accounts such as 401k plans and IRAs.  While this makes it a big target for governments, it also adds a layer of protection.  With tens of millions of Americans in 401k plans, it means that there will be fierce opposition to any government attempt at confiscation.

The only way that the U.S. government will be successful in confiscating retirement funds is by doing it in baby steps.  Isn't that the way we have turned into a virtual welfare state?  It is the story of putting a frog in boiling water.  If you don't want the frog to jump out, you have to slowly heat up the water.

There are a number of measures the U.S. government can take to start heating up the water, even if slowly.  These are just a few ideas.  The politicians could raise the minimum age for withdrawal without a penalty.  The politicians could increase the penalty for an early withdrawal.  The politicians could simply increase the income tax rates.  This will mean people paying higher taxes upon withdrawal, except for those in a ROTH IRA or ROTH 401k plan.

Another step the government could take would be to offer "government guaranteed investments".  After a stock market crash, the politicians could announce a new government fund designed for a safe and secure retirement.  They would "invest" the money in U.S. treasury bonds.  This would allow them to kick the can further down the road in terms of running up spending and debt.  It would be a way to do this without relying on the Fed for massive monetary inflation.

Such a program of offering a government guaranteed investment would probably be voluntary at first.  Again, you don't want to heat up the water too fast.  After the voluntary program, perhaps the government would start offering tax incentives for people to invest in the government funds.  Again, I have no idea how exactly things could play out, but I am just throwing out some possible ideas.  If you think some politician is going to steal an idea here, don't worry, because I'm sure the politicians are already thinking about all of this.

The good news is that we have the internet.  When the government tries one of these preliminary steps, there will be people like me talking about them and warning others.  There are hundreds of thousands of libertarians now in existence in America.  Perhaps the number is in the millions.  Most of these people have friends, particularly on Facebook.  It will be hard for the government to get away with a retirement confiscation.

If for some reason the current libertarian swell and the internet are not enough to stop the government, you will at least get plenty of warning signs ahead of time.  The government will not throw the American people into a boiling pot.  It will start slowly.

Wednesday, April 4, 2012

Price Inflation Before Higher Interest Rates

A couple of weeks ago, I wrote on the topic of interest rates.  I asked if we were seeing the beginning of rising rates.  Interest rates, like the 10-year yield, jumped higher in a short amount of time.  Since then, the rates have retreated slightly, although the 10-year rate remains above 2% as of this writing.

One thing I failed to mention in that post is that we are not likely to see significantly higher interest rates until we see significantly higher price inflation.  In other words, I don't expect to see the 10-year yield to double or triple until we see much higher consumer price inflation.  We might see the 10-year yield go to 2.5% or even 3%, but I don't expect it to go to, say, 6%, unless we see substantially higher consumer price index (CPI) numbers.

The reason for this outlook is the Federal Reserve.  If the rates start to creep up more, I would expect the Fed to start buying more government debt, particularly longer-term bonds.  Whether they call it QE3, Operation Twist, or anything else, I would expect the Fed to buy longer-term bonds.  This will put a lid on interest rates.  I would not expect to see a Bernanke Fed sit on its hands and do nothing in the face of rising rates in the current environment.

The one scenario where I see the Fed sitting on its hands is if we see a big spike in consumer prices.  I understand that things like food and gas are already going up at a decent clip.  I understand that the CPI is not the most accurate measure of price inflation and may be swayed to understate the number.  But generally speaking, price inflation is not huge right now.  It is not like the 1970's yet.

Big price inflation (let's say 10% or more) is the one thing that could stop the Fed from buying more government debt.  While many libertarians disagree with me on this point, I think the Fed will stop the monetary inflation if the dollar is severely threatened.  It does not make any sense why the Fed and bankers would allow a situation of hyperinflation.  This would destroy the division of labor.  They would be committing financial suicide to go this far.

So the one situation I can see where the Fed would allow rates to rise would be in the face of severe price inflation.  The Fed will probably choose to save the dollar.  At that point, interest rates would go up.  We would see an unwinding of all of the previous malinvestment.  We would see a severe recession or depression.  The federal government would finally be forced to cut back on its massive spending.

In conclusion, we should watch the CPI just as carefully as we watch interest rates.  If the CPI remains around 2 to 3 percent on an annual basis, then the Fed can keep holding rates down.  Once bigger price inflation kicks in, then the Fed will have to make a decision to stop or severely cut back its purchases of government debt.  Then we could see much higher interest rates.

Tuesday, April 3, 2012

Will the Delegate Strategy Work for Ron Paul?

There is a lot of talk on the internet, and even by the Ron Paul campaign, that the media is not reporting what is actually happening in the race for the Republican nomination.  It has been pointed out, even by Ron Paul himself, that many of these primaries are basically just straw polls and that many of the delegates have not even been decided yet in states where voting has already taken place.  This article published a couple of weeks ago is fairly representative of some of the things I have been reading and hearing.

I hate to be the bearer of bad news on this one.  I really don't want to rain on anyone's parade.  Please don't take this as being negative.  Please don't think that I'm telling you to give up.  Please don't think I am telling you not to vote or voice your opinion.  But I am going to be a realist here and tell you that the chances of a Ron Paul presidential Republican nomination are extremely slim.

Does anyone really believe that Ron Paul can win this, even if it did go all the way to the convention?  The Ron Paul camp is trying to win this on the technicalities of the Republican Party rules.  If anyone is going to win based on technicalities, it sure isn't going to be Ron Paul.  If anything, if Ron Paul were actually the front runner, I would be waiting for dirty tricks by the insiders to try to snatch it away.

Even if it did go to convention, I don't see how Ron Paul could have a majority of the delegates, even after the delegates are no longer "committed".  If anything, it would be Santorum, Gingrich, and Romney teaming up to make sure that the nomination does not fall into Ron Paul's hands.

Based on my outlook, I have no reason to be disappointed at this point.  A lot of libertarians thought this was our last chance.  They thought that the whole point of the Ron Paul campaign was to win and that nothing else mattered.  I had no delusions about this.  I knew his chances would still be slim.  I am positive about the whole thing from an education standpoint.  There are hundreds of thousands of new libertarians now because of the Ron Paul campaign.

As far as the Republican race goes, Mitt Romney will be the nominee.  As I write, he is projected to win Wisconsin, Maryland, and Washington DC.  Romney has been the front runner ever since Rick Perry took a nose dive.  Perry was really the only person capable of beating Romney.  But Perry was a horrible debater and had some really bad advice.  Santorum and Gingrich never really had a chance.  Santorum wants to shove his religion down the throats of others.  He would have been destroyed by Obama.  And Gingrich has too much personal baggage, along with an unlikeable personality.

You are going to see more and more politicians line up behind Romney now.  We have seen those great conservatives (that's sarcasm) like Paul Ryan and Marco Rubio line up behind Romney.  The rest will soon follow, with certain exceptions like Ron Paul.

I think Ron Paul should continue his campaign for educational purposes, assuming he doesn't run on a third party ticket.  However, I don't think the Ron Paul campaign or Ron Paul supporters should go around pretending that he can still win the Republican nomination.

Monday, April 2, 2012

The Lottery is Like a Regressive Tax

There has been a lot of news lately on the lottery.  There was a jackpot worth $640 million, although not really when you take the lump sum and you take away all of the taxes.  There were three tickets that won.  The ticket sales for this one drawing were reportedly near $1.5 billion.

I consider the lottery like a tax on the poor.  Maybe a tax on the lower class is a better description.  Sure, there are middle class people who buy tickets and there are even people with good incomes and high net worths who buy tickets.

There is a difference between poor and lower class.  I have seen a description of class as your outlook for the future or your time preference.  If you have a low time preference and can look far into the future, then you are not lower class, even if you don't have much money.  People who live for today and who have a high time preference are lower class.  It doesn't mean you can't have fun today.  But you do need some planning in life to get out of that lower class mentality.

The lottery is a joke.  For this particular one, the odds of winning were about 1 in 176 million.  I'm not looking down on you if you bought a ticket.  Perhaps you wanted to be part of the mania.  But if you were banking on your retirement plan coming through with 6 winning numbers, then you better have a plan B.

The lottery makes most people poorer.  When I say "most", I mean probably 99.999% of people who play.  It is like a tax.  The government takes a good cut of the money to pour into the state indoctrination systems, otherwise known as schools.  Governments also use the money for other things like buying votes, paying lobbyists, and making more people dependent on government.

If I am going to give up my money gambling, I would rather send it to a casino which is a legitimate business.  Lotteries are a government monopoly.  And the governments take a much bigger cut than the house in a game of blackjack, or even playing the slots.

I could never figure out why people all of a sudden get so excited when the jackpots grow to huge amounts.  There are some people who drive long distances to other states just to buy lottery tickets for that one drawing.  Some people spend twenty dollars, forty dollars, a hundred dollars, or even more at the chance to win.  Why weren't these people doing this when the jackpot was smaller.  Is three million dollars or ten million dollars not enough for you?  You get "serious" about it when it gets up into the hundreds of millions?

The ironic thing is that the odds are much better in the other games.  For this last huge jackpot, you have to pick the Mega Ball number exactly.  In other lotteries, you can pick any six numbers in any order.  Your odds are much better, even if still remote.  So again, three million dollars isn't good enough for you?  You will only make a big effort if the jackpot is in the hundreds of millions?

Of course, we have all heard the stories of lottery winners who go broke.  Worse, they end up ruining their lives or the lives of others with drugs, depression, greed, etc.  These are the lower class people.  They probably make up a majority of the people playing the lottery.  They don't know how to handle getting this large sum of money all at once.  It is overwhelming to them.  In contrast, there are stories about lottery winners who stay grounded and make good decisions, although there seem to be few of these.

If you took everybody in America and took all of the money and divided it up equally amongst everyone, my bet is that 80% of the people would be back near where they started within five years.  The other 20% were probably headed up or down anyway, regardless of the redistribution.

It is not about the money.  It is about mentality.  Some people can see into the future and plan and others will live for today.