Mr. Obama's $6,800 Free Lunch

When a telemarketer promises something for nothing, we hang up on him. When a Presidential candidate does it, we give him the job.

Remember when Candidate Obama promised health care, education, alternative energy, infrastructure, mortgage relief, AND a tax cut for 95% of us? How cool was that? That wasn’t just a free lunch; that was a free smorgasbord. Those of us who suggested you can’t get something for nothing were drowned out by the thundering chorus of “Yes, We Can!”

Well, as it turns out - "No, We Can't!". Milton Friedman (and my Dad) was right; there is no such thing as a free lunch. It was bad enough that those honkin’ big tax cuts turned out to be only a couple bucks a week; this week Mr. Obama told us they will expire after two years. The timeshare guys must be kicking themselves for not thinking of that one first.

And those free Obamaburgers are getting downright expensive.

Last month, the Congressional Budget Office estimated that the President’s cap and trade energy tax would cost $1,600 per household annually in higher energy and transportation costs. Last week, the administration corrected “a mistake” in its budget materials, and revised the cost of cap-and-trade – tripled it to over $2 trillion. So make that cost $4,800 per household.

CBO also revised its estimate for extending health care coverage to the 46 million uninsured last week; that number was doubled, to $1.5 trillion. In case you missed it, the administration is now thinking about taxing your employer health care benefits to pay for it. The average employer provided insurance premium is $12,000 per year, so if you are in the 15% tax bracket, you will pay $2,000 more in federal and state income taxes.

Somehow spreading THE wealth around seemed like a better idea than spreading YOUR wealth around, didn’t it? Do you have $6,800 laying around for the Democrats to take and spread around?

We don’t need government to spread our wealth around. When people spend, save, invest, or give to charity, they are spreading their wealth around. The issue isn’t whether wealth should be spread around; the issue is who is going to spread it around – those who earned it, or those who didn’t. Each day, we are reminded how important that choice is.

Did you know that AIG gave $43 billion of your bailout money to Germany’s Deutsche Bank? Yup - $43 billion. How’s that for spreading your wealth around. Would you have done that with your money? Isn’t it enough the Germans get to use our army for free? Can’t they bail out their own banks?

And how come the Y-team - Harry, Nancy, Barney, Obey, Tammy, Chucky, and Timmy (the other one) – are willing to torch our Constitution over millions in pay to Americans but won’t lift a finger to stop tens of billions going make their socialist banker buddies in Europe rich? And if that socialism is such a great system, how come the Germans aren’t bailing us out?

Libertarians will not insult your intelligence by promising a free lunch. You wouldn’t need one if the government would just stop stealing your groceries in the first place.

Harder Than It Has To Be

Libertarians don’t just complain about socialists; we offer practical solutions to the problems they create. Here a few deceptively simple ones you will hear more about in the campaign.

Social Security. Eliminate all taxes on wages at age 65. Work as long as you like and keep everything you earn, or retire - your choice. This costs absolutely nothing and there is no downside. If nobody chooses to keep working, there would be no change to the status quo; each person that does keep working reduces the amount of benefits that have to be paid from borrowed money, and eases the stress on the system. The taxes “lost” to the government would not have been collected anyway if the person retired at 65. I think we would be surprised how many of us would continue to work if we didn’t have to give it over to the state.

Banking Crisis. Less than half of the bank losses reported last year were real defaults on loans. Most of the losses that triggered a global meltdown were caused by an accounting regulation called mark-to-market. This requires banks to write down the value of loans when market prices drop, even if the loan is still being serviced on schedule. President Roosevelt suspended mark-to-market in the 1930’s, and we should do it now. If we only wrote down loans that were defaulted, we would instantly stabilize the banking system, something our Treasury Secretary hasn’t figured out how to do now in four months since he was announced for the job.

Stock Market. Cut the capital gains tax to zero and leave it there. The minute we do, the value of stocks (and real estate for that matter) increases by 25%, because the same return on investment can be obtained on a stock at a 25% higher purchase price once the tax on its gains is eliminated. Stock prices will soon reflect the new higher value and half of the money you lost in your 401(k) will be restored. Mr. Obama promised to raise capital gains on stocks by 35%, and when he won the election the market dropped 11% - the exact amount I predicted based on the tax rate increase. Guess what, the math works in reverse, drop the rate to zero (matching Hong Kong and many other investment magnets) and the elevator goes back up. Besides, what gains are there to tax, anyway?

Jobs. Cut the corporate income tax in half and leave it there. We have the highest corporate income tax rate in the world. You can’t be for jobs and against the corporations that create them – corporate taxes kill jobs, and we have lost enough. Corporations would invest the money they save in taxes, or pay out dividends to people who invest them – either way jobs are created. And American-made products would cost less, making us more competitive in the global economy. The increased profitability of firms would cause their stocks to rise, and that would recover the other half of the losses in our 401(k). 17% of trillions is a lot more than 35% of nothing, so tax revenues would increase, not decrease, with a rate cut. This has been proven so many times it is not necessary to explain it again.

Stimulus. Between the capital gains cut and the corporate income tax cut, there would be a bonanza of foreign investment in this country, and Americans would invest here too, rather than putting their capital overseas to avoid excessive taxation. The amount of this capital inflow would exceed what the government plans to borrow and spend on its so-called stimulus. The big difference would be private investment would seek out projects that are economically viable, and create 4-5 times as many jobs. The recession would be over in a month and the full recovery would be faster than anyone would think possible. And we would not bury our grandchildren in debt.

Any one of these could be done with a single vote of Congress, followed by a single executive order to a single agency to implement immediately. All four could be done in a week and the turnaround would be statistically visible within a month. Unlike Treasury Secretaries, markets respond immediately to sound economic ideas.

Do those four things and our economy would not just be recovering by the 2010 elections, it would be recovered - everyone back to work; money back into our 401(k); businesses expanding and infrastructure being upgraded. Can you beat that, Mr. Obama? Barney? Nancy? Tammy? If you got it, bring it - I will post your plan on this very blog and endorse it publicly.

It is not likely that any of these simple solutions will be embraced by the current administration, because these are market-based solutions that reduce the power of government over the economy. They work precisely because they remove government and let markets work.

The choice is simple: economic recovery and prosperity for individual citizens, or expansion of power and control of the government. Tammy has made her choice; I have made my choice. What is yours?

Vote Libertarian. Vote for Tim, Not Tammy

Misplaced Outrage - AIG Bonuses

Government bailout money is being used to pay AIG executive bonuses; yes, and welfare queens use food stamps to buy cigarettes. What did you expect when the world's dumbest owner buys the world's worst insurance company?

The U.S. government bought an 80% ownership stake in AIG last fall – over the 12 previous months, millions of sensible people all over the world sold their shares of AIG. There is a good reason for this; AIG bet the ranch insuring sub-prime mortgages against foreclosure and lost.

Their executives say they didn’t know the risk; since risk is all there is to the insurance business, that makes them the worst insurance company in the world. Or they are lying, which would also make them the worst insurance company in the world. No one in their right mind wanted to own a share of AIG in August of 2008.

Enter a buyer with no right mind – the U.S. Government – to step in and buy AIG for $170 billion. The firm responded to this ridiculously large cash “stimulus” by turning in the largest single quarterly loss in the history of insurance. And now they have paid out $450 million in performance bonuses; which the new owner of AIG - the U.S. government - did not know about until they say it on TV Sunday morning. For the past two days, every politician who could grab a microphone has been vilifying AIG executives and managers.

Freshman year business students take a note: there is a lot more to running a business than shoveling a boatload of cash at the enterprise and scolding the employees.

The problem at AIG is not the bonuses; they are insignificant in terms of the total cash flow of the firm. From what I have read, most of the bonuses are contractually obligated. It is common for key employees in firms to be paid a lower base salary and variable bonuses based on defined performance objectives being achieved.

Sophomore year business students take a note: when you buy a company, the time to learn about these contracts is in the due diligence before you buy it.

Employment contracts are inviolate, and a dangerous precedent is set when the government retroactively abrogates contracts. Sen. Charles Schumer proposes a law that will tax these bonuses at 100% - easy for him to say since bills of attainder and ex post facto laws are both prohibited in the Constitution. Sen. Grassley suggested the AIG executives commit suicide.

Junior year business students take a note: you cannot encourage your employees to kill themselves. You will get your sued into oblivion for saying things like this.

AIG illustrates the insanity of nationalizing corporations and knee-jerk government intervention into markets. These guys have never run a business; they have no idea what they are doing, and with each week this becomes more obvious. This is nothing to be ashamed of; it is simply impossible to manage the U.S. economy, and no one could possibly do it, not even President Obama and his team of very smart economists.

Senior year business students take a note: when you own a business, you own both its profits and its losses. Our little insurance company is costing us $20 billion per month; and we paid $170 billion for it. On your first job interview, tell them you don’t think this was a good business decision; it will make a good impression.

Markets are imperfect, but they correct their mistakes quickly and efficiently. Government does not correct its mistakes, it enlarges and perpetuates them. Its answer is always more of same: more spending, more borrowing, more taxing, more bailouts, more regulation, more hearings, more outrage, more nagging, more government, more scolding. And nothing will change; AIG is going to keep asking for more money, and Congress will give it to them.

As ridiculous as the AIG bonuses seem, I seem to be the only one outraged over what AIG does with the real money - hundreds of billions - we are pouring down its rat hole. It pays out on insurance policies it sold to banks against defaults on all those stupid subprime loans they wrote. If the banks have insurance against their losses, why are we bailing out both the banks and their insurance company? And the deadbeats, too, for that matter. How did we get stuck holding three bags here?

Congresswoman Tammy Baldwin voted for all of this ugly mess – bailouts, stimulus, TARP I, massive deficit spending, earmarks, government ownership of AIG, Fannie Mae, Freddie Mac, Wells Fargo, Bank of America, Citigroup, TARP II.

And Congress is where the outrage of the country should be directed. These guys messed up the economy, then messed it up worse trying to fix it, then threw up their hands and left it for Bush to figure out, then Obama. Last week, the Fed (Lord help us) stepped in to fill the vacuum, but only because Congress has done virtually nothing to stabilize the financial system, where all of this started to come apart over a year ago now.

Throw ‘em all out. Start over. We can do better then this.

Mob Rule

This week, legislation was introduced in Congress with the cynical title “The Employee Free Choice Act”. It is not free, it is not choice, and there will be fewer employees if it passes.

The act is better known by its nickname, “Card Check.” The proposed law would take away the rights of workers to decide union representation in secret ballot elections. Instead, the government would impose a union on an employer when 51% of its employees sign union cards.

This is a truly disgusting piece of legislation; it legitimizes mob rule as the de facto standard in labor relations.

Card Check exposes the first 51% of employees to threats and intimidation, and deprives the second 49% of any say whatsoever. This from a Democrat party that claims to represent workers and bloviates every four years about the sanctity of each and every vote.

The secret ballot protects workers from intimidation by both corporations and unions; it is fundamental to the right to organize and bargain collectively. Libertarians support the right of collective bargaining when it is freely entered into; we support fair and unbiased elections to decide collective representation. We do not support extortion, even if it is sanctioned by the government.

Card Check denies your fundamental right to own your own labor, exchanging it or withholding it as you see fit. Under Card Check, your labor is government property that can be allocated to unions and rationed to employers with terms established under duress. You have no say.

Card Check is so awful that socialist icon former Sen. George McGovern has spoken out against it. I’m happy to see there is an honest liberal willing to stand up for the rights of individual workers in this country – that’s one in a row. Where’s Tammy?

Anyone who has ever witnessed the tactics unions use to coerce employees into signing union cards should be appalled that Congress would give them a green light to fire at will, in some cases, literally. Only a fool would believe that companies will be not be targeted for political reasons.

I have been on the other side of union organizing campaigns in which employee property was vandalized, people assaulted, children threatened, homes shot at, women raped – while unionized Teamster policemen watched and did nothing. I’ve seen whole communities ruined when unions have shut down major local employers. There is a reason that 90% of workers choose not to join unions, and it is not because employers burn things on their lawns, it’s because they know the harm that unions do. Congress does not care about minor details like will of the people.

One of the most egregious provisions of the Card Check bill requires the newly imposed union and company to reach a contract agreement in 90 days or submit to binding arbitration. Under arbitration, the government will dictate wages, benefits, work rules, working conditions and all sorts of other issues that get sorted out in companies every day, both unionized and union free. It is not so easy for professionals to do this, let alone some GS12 who just transferred over from FEMA.

Just think about how ridiculous that notion is for a minute. A government bureaucrat with absolutely no experience in running a business is going to dictate conditions of employment to a company he/she knows nothing about, in an industry that he/she knows nothing about, for an organization he/she has no personal stake in. Does any sane person think this might work?

It is not hyperbole to say this bill will destroy what’s left of our economy. Credible estimates of job losses from Card Check in its first two years range from a low of 750,000 to a high of 1.2 million. I would argue the number will be far higher.

There are thousands of businesses that will choose to close down operations rather than permit their capital to be destroyed by government-imposed union contracts that quickly render the firm insolvent. Many more will transfer jobs to operations overseas to survive.

For public companies, laws concerning fiduciary responsibilities of officers to shareholders would require these actions in many cases. Courts would be jammed with lawsuits from shareholders, unions, employees, companies, creditors – all sorts of aggrieved parties.

Which exposes the real purpose for this bill; it is a bonanza for trial lawyers and union bosses. Payback from Nancy and Tammy for the millions of dollars that have been stuffed into Democrat pockets over the years.

This Card Check bill is un-democratic, un-American and it is anti-American. It is antithetic to the Libertarian principle of voluntary exchange, it is anti-business and it is anti-labor, so principled Republicans and principled Democrats should join us in opposition and outrage.

At a time when the economy is already damaged and fragile, it is unimaginable that Congress would even consider a law that would send jobs overseas, put more companies out of business, send the markets into another slide, and shrink our 401(k) s even further. And for what? To make union bosses and trial lawyers richer.

In a year of really bad ideas, Card Check is the worst so far.

Don’t wait for 2010. Call and write Tammy now! Tell her you own your labor and she doesn’t; tell her to stand up for you and to stand up to Nancy Pelosi. Tell her to vote no on Card Check.

Her phone number is (202) 225-2906. You can send her an email through her Congressional website http://tammybaldwin.house.gov/get_address.html

Other People's Money

Now that the Democrat’s forced march to socialism is full on, it might be useful to point out that socialism has never worked anywhere else before, and it won’t here.

A century ago, the standard of living in Europe was much higher than in the United States; today, it is 25% lower. Why? Europe rejected free market capitalism and embraced socialism. Until recently, the United States has resisted the temptation to kill the capitalist goose that lays the golden eggs.

The fundamental problem with socialism is that its noble ideals of perfect equality and social justice conflict with the laws of economic science. I didn’t just figure this out myself; it is the brilliant contribution to humanity of Ludwig Von Mises, the Austrian economist who exposed the economic fallacy of socialism in 1920.

In all of its forms, socialism is based on a philosophy of collectivism – the idea that resources belong to the whole of society, not to its individual members.

Mises theorized that the socialists’ opposition to private ownership and capital exchange in free markets would inevitably destroy wealth, as these are the essential elements of wealth creation. He was right. There is no case in which socialism has improved relative standards of living.

Margaret Thatcher made the point more simply in 1979 when she said “The problem with socialism is that you very quickly run out of other people’s money”.

Mrs. Thatcher ended decades of economic decline in Great Britain by turning the nation away from socialism back to free market capitalism and private property. That gives us hope for a post-Obama return to prosperity.

The importance of private property to the prosperity of a society was recognized belatedly by none other than Karl Marx, the father of communism. In has last years, he wrote that the fatal flaw in his communist theory was the elimination of private property – communism could only redistribute wealth created by capitalists, not create any wealth of its own. And indeed, the soviet system collapsed as he predicted.

Marx figured out in the 1880’s that taking other people’s money is not a sound economic system; so did Mises in the 1920’s, Hayek in the 1940’s, Friedman in the 1970’s, Thomas Sowell today. Not much argument among economists on this.

So why doesn’t President Obama get it? Because socialism is good for one small segment of society – the politicians and bureaucrats who get to tell everyone else what to do and dispense benefits to those who curry favor. It’s a good gig; and a lot easier than earning a living through competition. It’s how most of Washington D.C. thinks, so it should not come as surprise to us that Mr. Obama does too.

If you recall, President Obama did not say “spreading your wealth around”; he said “spreading the wealth around”. He told us all we needed to know about his mindset with the choice of that one single word. He doesn’t believe it’s your money. He doesn’t think you earned it. It was allocated to you, and the rules of allocation are what government is all about. It’s why elections matter, and they won.

He is not alone in his misguided belief that wealth exists separately from the person who created it – this is the prism through which all liberal Democrats view economic and fiscal matters. It is what distinguishes the collectivist from the individualist. And the mindset of the collectivists does not switch on and off when it comes to rights – those belong to the society as a whole, too. They are wrong in both spheres. Economic liberty and personal liberty belong to persons, not society.

Libertarians are the last vanguard of individualism in America. Rights belong to individual persons. Wealth is created by individual persons, owned by individual persons, and exchanged with individual persons. The job of government is to provide an environment in which individuals can reach their fullest potential, limited only by talent, character, and initiative.

Libertarians celebrate real diversity, the inequality of outcomes that comes from equality of opportunity. We do not seek the common good; we seek the uncommon better. We do not want to be equally poor; we want to be unequally rich. Rich in every sense – rights, choices, opportunities, wealth, knowledge, and freedom. We do not want our possibilities limited by someone else’s dull view of what is possible. Your success doesn’t threaten me – it encourages me and it thrills me.

The socialists will never understand this; they are frightened by freedom, they are jealous of unequal achievement, they seek order, control, and sameness. They have no concept of where wealth comes from, how it is created, and how it is destroyed. You don’t learn a lot by spending other people’s money.

It is not difficult to understand how socialism destroys wealth by separating the thing that is created from the person who created it, and then claiming it as a collective resource to be shared among all those who did not create it. The incentive to create is removed and there is less of the thing created.

How long would the artist continue to create art that he/she did not own? How long would the author write, the architect design, the musician play, the chef cook, the builder build? What inventor would continue to create new products with enthusiasm if the government claimed rights to each invention and decided how to allocate its royalties to others. The incentives and disincentives for wealth creation are no different than creation of other things of value.

Sadly, we are going to re-learn the lessons of economic history the hard way. Judging by the past year, our leaders are not quick studies, so it will take new people in Washington to restore prosperity in the country that showed the world how to achieve it.

That’s what elections are for; I hope you will vote for me in the next one.