Voice For Liberty

Tag: Economics

  • Former Congressman McEwen endorses Kelsey, talks about economics

    This week former Ohio Representative Bob McEwen appeared in Wichita on behalf of Kansas Senator Dick Kelsey and his campaign for the Republican nomination for the United States House of Representatives from the fourth district of Kansas.

    At a breakfast meeting, McEwen said that his state — Ohio — needs Dick Kelsey in Congress, and we in Kansas would be doing Ohio a favor by electing him.

    McEwen said in Washington, there are those who are good politicians, but not necessarily effective at government. Then there are those not skilled at politicking, but good at providing leadership in government. The fact that Kelsey was chosen by his colleagues to be head of the caucus shows that he is skilled in both politics and leadership.

    McEwen added that the time to have an impact in government is early on, in the primary. People ask in the fall elections: why can’t we do any better than these two candidates? The answer, he said, is to get involved now and take an interest.

    The United States has just four percent of the world’s population, but we produce more books, plays, symphonies, copyrights, and inventions than the rest of the world combined. It’s competition that makes the difference.

    Politics, McEwen said, equals integrity plus economics. Integrity is trust and reliability. It’s composed of morality, which means not doing what’s wrong, and also of character, which is doing what is right.

    On economics, McEwen said that when someone takes away some portion of your money, you have fewer choices, or less freedom. There are only two classes of people who can take money from you. One has a gun, and is a criminal. The other — government — also has a gun, and the impact is the same. America is the richest and most powerful nation in the world because we are the most free. But as more freedom is taken away from us, the nation becomes poorer.

    How does a nation become poorer because government takes its citizens’ money? McEwen explained that when you buy something for yourself, you care about both the price and the quality of the item. But when one or both of these factors — quality and price — are in the hands of someone else, less than optimal results appear.

    When you’re buying something for someone else, you’re concerned about the price — you are the one paying, after all — but the quality may not be quite as important as when buying something for yourself.

    Or when you’re going to consume something but not pay for it yourself: quality is important — you are the consumer, after all — but price is not important. Someone else is paying the bill.

    The really bad situation is when you are neither the consumer nor the payer. In this case there’s not much incentive to be concerned about either quality or price. This, McEwen said, describes government purchases. “When we run [a dollar] through a third-party system called government, we’re in the process of making the nation poorer.” Because we do less of this than any other nation is why we’re the richest nation.

    Much of the health care that’s purchased in the U.S. is purchased on behalf of people who are not paying for it, so it suffers from the problems of third-party purchases. When health care is paid for by those who are consuming it, as is the case with laser eye surgery for vision correction, price goes down and quality goes up. “It only works every time,” McEwen said.

    So why do people get elected to office and make their country poorer, McEwen asked? Some people believe that government can make people wealthy, but he said that’s never happened in history and never will. But they’re still determined to try this course. Others believe that free people create wealth.

    In public policy, one side always wants more government. The other wants to limit government.

    The starting point is “We hold these truths to be self-evident” — which McEwen said “is a gracious way of saying any idiot ought to understand this” — “that all men are created equal and are endowed by their Creator” — right there, he said, is the distinction between us and other countries.

    Life, liberty, and the pursuit of happiness — these are the ideals of the American Revolution. The French, in their revolution, had the Enlightenment, which didn’t rely upon God, McEwen said. Liberty, equality, and fraternity — the theme of the French Revolution — eliminates God and relies on groups for the source of power and equality. But since government cannot create — it can only take from one and give to another — people object. Therefore, the symbol of the French Revolution was the guillotine.

    The source of rights in America, however, was God, who gave us life and liberty. This explains the drive by liberals to remove God from public life: “They know that if you can separate a nation from God, then there is no protection for life, and for liberty.”

  • Wichita city council discusses economic development incentives

    Last week a Wichita company that’s expanding made an application for industrial revenue bonds and accompanying property tax abatements. The company’s application wasn’t timely, and for that reason is not likely to receive the requested help. The discussion surrounding the item provides insight into city council members’ ideas about the role of the city in economic development.

    Industrial revenue bonds, or IRBs, are not a loan from the city, and the city does not make any guarantee that the bonds will be repaid. The primary benefit to the recipient of IRBs is that the property purchased with the bonds will generally be exempt, in whole or in part, from property taxes for some period. Also, the company may not have to pay sales tax on the property purchased with the bonds.

    The agenda report for this item is at Request for Letter of Intent for Industrial Revenue Bonds, Michelle Becker, Inc. (District V).

    In introducing the item, the city’s economic development chief Allen Bell said that because the project has already started construction, it falls outside the guidelines for the city’s IRB program. The construction is 85% to 90% complete.

    A question by council member Sue Schlapp established that if the company had made application before the building was started, the application would have been approved as routine.

    She also asked that if we approve this action today, will we have to go back and look at other businesses that are in the same place? Wichita City Manager Bob Layton asked that the council establish guidelines that if a project has already started, a project is not eligible for this type of assistance.

    There was also some discussion about whether this company would move away from Wichita if the tax abatement was not granted. Since the building is already under construction, Bell said this is evidence that the company is intending to stay in Wichita. “It’s difficult to think of an incentive as something that’s given after the fact,” he said.

    A question by council member Paul Gray established that there have not been many cases where companies have asked for tax breaks retroactively, according to Bell’s answer. Bell also said that he didn’t think that approving the current application would spur an avalanche of similar requests.

    Gray also noted that we can create economic disparities between companies by granting incentives, so how do we justify doing this? Bell’s answer was that an important consideration is bringing business from out of state instead of taking business away from other local companies.

    Layton added that an important consideration is whether the project can more forward without public assistance.

    Council member Jeff Longwell remarked that “we really don’t have that many tools in our toolbox for emerging businesses.” Bell agreed.

    In later discussion, Longwell said “I hate to penalize this emerging company … I should have got them in on this process long before we did and we wouldn’t even be having this argument. So I suppose I am at fault in part of this delay.”

    Gray said that because we’re not competing against another community for this company — the normal use of incentives — he can’t support this application.

    Council member Janet Miller said that the appropriate time to look at incentives is, as the manager said, when we think a company can’t move forward without the incentive. She also noted that we’re being asked to approve an action for which we’re going to soon have a policy against.

    Schlapp, indicating a desire to approve the incentive, asked for justification: “We have a company here that doesn’t need an incentive but wants an incentive … can somebody justify that?”

    Longwell said it’s not as simple as a need and a want. He said the applicant is a smart, well-managed company. But we shouldn’t use the qualifier of helping only the companies that couldn’t succeed without the city’s help. “Why not reward some some of those companies that are very well managed and run smart and have the ability to grow even more with our help than without it?” Again he referred to the lack of tools for emerging businesses. “We ought to be helping these types of companies that we think can truly prosper even more with our help … I think they fully warrant our help because they’re successful …”

    Mayor Carl Brewer said that we have a proven track record of trying to help businesses and to get businesses to come to our area. He agreed with Longwell in that we need additional tools to use for economic development, as other communities have been competing successfully. We don’t have the same tools that other communities have, he said.

    Longwell suggested the city visit with the applicant about her financing. He made a motion to defer this item. Council member Williams asked about the impending completion of the project, since it’s scheduled to be completed at the end of December. The answer from the manager was that with regard to IRBs, the project would not be eligible after it’s complete. The motion passed with Council member and Vice-mayor Jim Skelton opposed.

    Analysis

    What’s striking about the discussion are these two things:

    First, many council members and some city staff believe that the city doesn’t have enough “tools in the toolbox” for shoveling incentives on companies for economic development purposes. Evidently the ability to grant exemptions from property taxation — and not only the city’s property tax levy, but also that of the county, school district, and state — along with the ability to make outright gifts of money is not enough.

    Second, many council members and some city staff believe that they can determine which companies are worthy of incentives.

    According to city manager Layton, the city is going to revisit its economic development policies soon. This would be a good time for Wichita to come up with ideas that would benefit all companies, not only those that fall within guidelines that the council or city staff creates. My suggestion, explained in Wichita universal tax exemption could propel growth, is to give all new capital investment a tax abatement for a period of five years.

    At the state level, there has been some discussion about the costs of tax abatements or exemptions. In a recent debate in Wichita, Kansas Secretary of Revenue Joan Wagnon used the term “tax expenditures” to describe these giveaways of the state’s income. The idea is that if the state (or other governmental body) didn’t create tax abatements or exemptions, revenue to the government would be higher. Her debate opponent Alan Cobb said it’s wrong to term these tax giveaways as “expenditures,” as the money belongs to the people first, a position I agree with.

    There is the related issue of these tax abatements or exemptions really being appropriations of money that, if processed through the normal process of legislative hearings, etc., would be noticed for what they are. In Wichita city government we don’t have hearings quite like the Kansas Legislature, but the idea is the same: if this company had asked for a grant from the city for $22,253 (that’s the value of the first year of the requested tax abatement, with a similar figure for the following nine years, less $2,500 a year to the city for administrative fees), citizens — news media too — would quite likely look at this matter differently. Presented as industrial revenue bonds — just what are those anyway? — and a tax abatement, well, it all seems so … so innocent, so municipal.

    A few more observations:

    Council member Jeff Longwell’s confession of being at fault for the lateness of this company’s application should be remembered by voters in the next election, should he decide to seek to retain his current post, or — as some have told me — he seeks the mayorship of the city.

    There’s also Longwell’s use of the term “reward,” in that the city should “reward some some of those companies that are very well managed and run smart.” I’d like to remind him and the rest of the council that the free enterprise system contains a very powerful reward mechanism for companies that do well: profit. That alone is sufficient.

    Coverage from the Wichita Eagle is at Wichita City Council puts off tax breaks for accounting firm.

  • In Wichita, Free Market Economics 101 to be held

    On Monday, the Wichita Chapter of Americans For Prosperity is holding an informative meeting to learn more about free market economics and its application.

    The program is:

    A trade exercise
    A private property exercise
    Group discussions of
    “I, Pencil” by Leonard Reed
    “The Law” by Frederic Bastiat
    The Platinum Triangle Redevelopment Project
    “Seven Principles of Sound Public Policy” By Lawrence Reed

    A group discussion and question answering period will follow.

    This event is on Monday, November 30, 2009, from 7:00 pm to 9:30 pm. The location is:

    Belford Electric Inc. Meeting Room
    800 East Third Street
    Wichita, Kansas

    This is at the corner of Mead St. and Third St. North in Old Town. Click here for a Google map.

    The meeting room is limited to 24 participants. Please RSVP to John Todd at john@johntodd.net, 316-312-7335 or Susan Estes at sestes@afphq.org, 316-269-4170.

  • Money, Banking and the Federal Reserve

    Events over the last year have placed our nation’s monetary system in focus. Or, at least it should be in sharp focus, as U.S. monetary policy and the Federal Reserve System bear much responsibility for the financial crisis and the accompanying recession. Few politicians, Ron Paul being one, are looking in the right places for the cause of the problem. His campaign to audit the Fed is a good first step.

    The problems with our system of money have been known for many years. This video, dating from 1996, produced by the Ludwig von Mises Institute, explains the problem and its history. It’s 42 minutes long and well worth the time. Here’s more information from the Mises Institute:

    Thomas Jefferson and Andrew Jackson understood “The Monster”. But to most Americans today, Federal Reserve is just a name on the dollar bill. They have no idea of what the central bank does to the economy, or to their own economic lives; of how and why it was founded and operates; or of the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates.

    Dedicated to Murray N. Rothbard, steeped in American history and Austrian economics, and featuring Ron Paul, Joseph Salerno, Hans Hoppe, and Lew Rockwell, this extraordinary new film is the clearest, most compelling explanation ever offered of the Fed, and why curbing it must be our first priority.

    Alan Greenspan is not, we’re told, happy about this 42-minute blockbuster. Watch it, and you’ll understand why. This is economics and history as they are meant to be: fascinating, informative, and motivating. This movie could change America.

  • Hazlitt’s ‘Economics in One Lesson’ explains today’s economics

    Economics In One Lesson
    Henry Hazlitt

    Economics In One Lesson, first published in 1946 and recently reissued by the Ludwig von Mises Institute, explains fallacies (false or mistaken ideas) that are particularly common in the field of economics and public policy.

    At the very start of the book Hazlitt explains:

    Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine — the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for then plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

    In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

    At first it seems as though not much has changed since the end of World War II. What has changed, however, is the scope of the dangers Hazlitt identifies. That’s because government is much expanded and more intrusive today than when this book was written. We should take these lessons as even more important today.

    It is overlooked consequences that cause harm. They are overlooked sometimes because they are difficult to see, as in the broken window fallacy explained by Frederic Bastiat and also in this book. They are also “overlooked” because, as Hazlitt tells us, one group wants special favors from the government, and because there is no way to grant these favors without harming some other group, the favor-seeking group will seek to hide, obfuscate, muddle, or minimize the bad effects. At the same time they will promote the policy as good for everyone. This is roughly the job lobbyists perform, and billions are spent on it each year. That’s because a powerful government has the ability to bestow valuable favors, but those favors are paid for by someone else, someone often not easily seen.

    These two ideas — the special pleading of selfish interests and the overlooking of secondary consequences — are the core ideas of the book. As Walter Block explains in his introduction (This Book is So Me) to the Mises Institute’s new edition of this book:

    … the plan of Economics in One Lesson is clear: drill these insights into the reader in the first few chapters, and then apply them, relentlessly, without fear or favor, to a whole host of specific examples. Every widespread economic fallacy embraced by pundits, politicians, editorialists, clergy, academics is given the back of the hand they so richly deserve by this author: that public works promote economic welfare, that unions and union-inspired minimum-wage laws actually raise wages, that free trade creates unemployment, that rent control helps house the poor, that saving hurts the economy, that profits exploit the poverty stricken; the list goes on and on.

    An example of overlooked secondary consequences is government spending. When government spends, it must tax or borrow. What government spends is not available for individuals to spend. When we see magnificent public works (say a new downtown arena in Wichita), we don’t see all the things that would have been bought had the government not taxed to build the public work. We see the jobs created by the public work — all the construction workers that built the new arena — but we don’t see the jobs destroyed because people had to reduce their spending elsewhere.

    Foreign trade is a case where people often fail to grasp the complete picture. We often see exports as something good for our economy, while imports are seen as bad. Imported things are things that American workers can’t compete with, and so American jobs are lost, it is often said. But as Hazlitt says: “It is exports that pay for imports. The greater exports we have, the greater imports we must have, if we ever expect to get paid. The smaller imports we have, the smaller exports we can have. Without imports we can have no exports, for foreigners will have to funds with which to buy our goods.” So those wanting restrictions on imports are also calling for fewer exports — although they do not say this, either because they do not recognize it or it doesn’t matter to them.

    In recent years we have been told that our is a “consumer-driven” economy, fueled by people tapping their home equity that accumulated from increased home values, or spending by going into debt. It is as though if consumers started saving rather then spending on immediate consumption, the American economy would collapse. But Mr. Hazlitt tells us that “saving is only another form of spending.” After all, what is done with money that is saved? Today, few put their savings under the mattress. Instead, it is loaned to a bank or invested. Then it is spent on capital goods, which businesses use to increase their productive capability. The key fact is that businesses spend it. And, they spend it on capital goods that either expand their capacity to produce, or decease their present costs of production. Either way, that is good for everyone. It means more jobs, and better jobs. But this saving is derided as not being “productive.”

    As a conclusion Hazlitt tells us:

    And this is our lesson in its most generalized form. For many things that seem to be true when we concentrate on a single economic group are seen to be illusions when the interests of everyone, as consumer no less than producer, are considered.

    To see the problem as a whole, and not in fragments: that is the goal of economic science.

    This is a very valuable book which cuts through the fog and haze of economics and public policy and lets us understand the true effects of our government’s policies.

    An excerpt of this book can be read at One Lesson.

  • Cash for clunkers clunked

    Did the “Cash for Clunkers” program work as advertised? It all depends on the meaning of the word “work,” I suppose.

    If the definition of success means moving more cars off of dealer lots than what probably would have happened anyway, that’s good. But when looking at the marginal activity — and I believe this is the correct way of looking at things — the cost of moving the additional cars is astonishingly high.

    An Edmunds.com article calculates the cost per car for the clunkers program in a different way than the government does, and finds this:

    Nearly 690,000 vehicles were sold during the Cash for Clunkers program, officially known as the Car Allowance Rebate System (CARS), but Edmunds.com analysts indicate that only 125,000 of the sales were incremental. The rest of the sales would have happened anyway. Analysts divided three billion dollars by 125,000 vehicles to arrive at the average $24,000 per vehicle sold. The average transaction price in August was $26,915 minus an average cash rebate of $1,667.

    Not surprisingly, the Obama administration attacked the authors of this article.

    This is just the latest evidence that the clunkers program didn’t really increase the wealth of our country. Writing at the Foundation for Economic Education, Bruce Yandle doubts the glowing assessment of effectiveness of the program:

    The doubt arises for at least three reasons. First, the program was supported politically primarily for its much touted environmental benefits. Carbon emissions would be reduced. But the reduction costs are at least ten times higher than alternate ways of removing carbon. Second, there is Bastiat’s parable of the broken window to consider. And third, there is a serious matter of eroding social norms for conserving wealth. A crushed clunker with a frozen engine is lost capital. … The cost per ton of carbon reduced could reach $500 under a set of normal values for critical variables. The cost estimate was $237 per ton under best case conditions. The much celebrated Waxman-Markey cap-and-trade carbon-emission control legislation estimates the cost of reducing a ton of carbon to be $28 when done across U.S. industries. Yes, we are getting carbon-emission reductions by way of clunker reduction, but we are paying a pretty penny for it. … Before touting the total benefits of clunkers, we must take account of the destroyed vehicles and engines that represented part of the wealth of the nation. As Tony Liller, vice president for Goodwill, put it: “They’re crushing these cars, and they’re perfectly good. These are cars the poor need to buy.”

    It’s very difficult for the government to intervene in the economy and produce a net positive result. Even if it could, the harmful effects of taking one person’s money and giving it to another so they can get a discount on a new car far outweigh the small economic benefit that might be realized.

  • Defending insider trading

    Insider trading is almost universally judged to be bad. Company insiders, using information not available to the public, making stock trades and usually very high profits: Is that fair? How could allowing abuse like this be beneficial?

    But if you value the importance of prices as conduits of information, allowing insider trading makes a lot more information available.

    The Wall Street Journal article Learning to Love Insider Trading, written by Donald J. Boudreaux, makes this argument: “Far from being so injurious to the economy that its practice must be criminalized, insiders buying and selling stocks based on their knowledge play a critical role in keeping asset prices honest — in keeping prices from lying to the public about corporate realities.”

    Here’s an extended explanation from the article:

    Suppose that unscrupulous management drives Acme Inc. to the verge of bankruptcy. Being unscrupulous, Acme’s managers succeed for a time in hiding its perilous financial condition from the public. During this lying time, Acme’s share price will be too high. Investors will buy Acme shares at prices that conceal the company’s imminent doom. Creditors will extend financing to Acme on terms that do not compensate those creditors for the true risks that they are unknowingly undertaking. Perhaps some of Acme’s employees will turn down good job offers at other firms in order to remain at what they are misled to believe is a financially solid Acme Inc.

    Eventually, of course, those misled investors, creditors and workers will suffer financial losses. But the economy as a whole loses, too. Capital that would otherwise have been invested in firms more productive than Acme Inc. never gets to those firms. So compared with what would have happened had people not been misled by Acme’s deceitfully high share price, those better-run firms don’t enhance their efficiencies as much. They don’t expand their operations as much. They don’t create as many good jobs. Consumers don’t enjoy the increased outputs, improved product qualities and lower prices that would otherwise have resulted.

    It’s possible that scandals like Enron and Global Crossing might have been avoided if insiders were allowed to trade. Those who knew the true condition of these companies could have made a lot of money by trading on that information, thereby sending out price signals that these companies had serious troubles — information not known by the investing public.

    Yes, these insiders might have become rich — unjustly so, say critics — and that’s the reason why insider trading is illegal. But contrast that with the tremendous losses suffered by investors in these companies who didn’t know what the insiders knew.

    Boudreaux says that there are times when information should remain secret: “There are, of course, situations in which it is in the interest of both a company and the public for that company to delay the release of information. Such information should be protected as company property.”

    So what is the regulatory solution? Let each company decide how it defines inside information, and how employees are allowed — or not — to use it. Investors will factor these policies into their investment decisions: a company that prohibits insiders from trading will be judged as riskier than companies that allow insider trading. That’s because investors will have less information about the secretive companies.

    Because of the tremendous variety of companies and business strategies, corporations should be free to select their policies regarding insider trading. Realizing, of course, that all companies compete for investor capital, and a company’s information transparency is one factor in the competition.

  • John A. Allison: The current problem, and what to do

    Last Thursday, John A. Allison visited Wichita to address the annual economic outlook conference produced by the Center for Economic Development and Business Research (CEDBR) at Wichita State University.

    Allison is chairman and former CEO of BB&T Corporation, the nation’s 10th largest financial-holding company. Its headquarters are in Winston-Salem, North Carolina. His talk first diagnosed the cause of the crisis. You can read my coverage of it at Causes of global finance crisis explained in Wichita

    Having described the cause, Allison told what we need to do to fix the mess we’re in, and to avoid future crises like the present.

    One problem is the credit rating agencies and the functional oligopoly granted them by the government. These agencies — Standard & Poor’s, Moody’s, and Fitch — provide ratings for bonds. (These are the “AAA” and other ratings that many people are familiar with.) The oligopoly comes the fact that many institutional investors may purchase only those securities that have been rated by one of these firms.

    These rating firms made many mistakes, and not just small mistakes. These companies did a poor job of analyzing the risk of these securities. That lead to insurance firms, most notably AIG, becoming deeply in trouble. The justification for saving or bailing out AIG is that there was a systems risk. AIG’s relationships with other parties such as the investment bank Goldman Sachs lead many to believe that the fall of AIG would lead to the fall of these other institutions.

    Allison said that if you’re former Treasury Secretary Henry Paulson, who was once chairman and CEO of Goldman Sachs, it’s easy to believe that if Goldman Sachs goes out of business, the world goes out of business. Allison asked: “Is that a systems risk or is that crony capitalism?”

    There was an irrational belief in mathematical models. There is the “tail problem,” which comes from models usually assuming a normal mathematical distribution (the familiar bell-shaped curve). The events out in the tails are usually discounted, as they are rare. But Allison said “For anyone who has built a house in a hundred year flood plain, I’ll give you the bad news: we’re going to have a flood.” Given enough time, these rare events become a certainty.

    Market corrections, Allison said, are healthy phenomenon. These events drive companies that are misallocating capital out of business, and the world is better for it.

    One of the little-known things is that part of the reason for the Troubled Assets Relief Program (TARP) was to bail out General Electric. GE had done a lot of risky long-term financing using commercial paper, and this lead to trouble.

    All the major banks participated in TARP, as there was huge regulatory pressure. There were four very large banks that were on the verge of failure. But the government didn’t want it to look like it was bailing out just those banks, so it forced all large banks to participate, even though many were healthy.

    In his career, Allison said. Citigroup has failed three times, and each time they emerged bigger and worse. That, he said, will also be the result of the current bail out.

    The five banks that are judged, as is Citigroup, as “too large to fail” will have advantages like lower cost of capital, and they’ll be able to engage in risky activities without the risk of going out of business if investments fail.

    Allison said the government should have let these banks fail. Alternatively, they should be broken up, so that none are in the “too large to fail” category.

    Going forward

    “We ought to cut government spending, not increase it,” Allison recommended. The belief that wasteful government spending on the wrong things can increase our standard of living is irrational. It’s based on the belief of the economist John Maynard Keynes. He recommended that we pay people to dig holes in the ground, and then pay them to fill the holes. Will that raise our standard of living?

    In the long term price instability is a major problem, as it leads to economic miscalculation.

    The biggest issue, Allison said, is the continued attack on capitalism. Related is the attack on the wealthy, in terms of both taxation and ethics. Most very productive people become wealthy. If we attack these people, they become more conservative and less willing to take risk.

    The government needs to privatize Freddie Mac and Fannie Mae and let banks make mortgages the way the had for many years before the government became involved in the business.

    We also need a market-based monetary standard, probably based on gold. “You can’t just print gold,” Allison said. If we can’t do this, we need to do as Milton Friedman advocated, which is to grow the money supply at a slow and predictable rate, probably about 3% per year.

    There should also be less FDIC insurance, so that the shareholders of a bank bear risk, rather than the government.

    Free trade is also needed, even though many conservatives oppose this. One of the reasons for the Great Depression was trade tariffs. Other countries responded to ours, and there was less trade.

    Allison said that the most important problem we have is philosophical. Where does free medical care come from, for example? He said that the idea of rights on which the United States was built is that people have right to what they produce themselves, but not what others produce.

    Free medical care and affordable housing are a perversion of this concepts of rights. The right to free medical care, he said, is the right to enslave a doctor to provide the care, or to enslave someone else to pay the doctor. That’s the opposite of the American system of rights.

    Under such a system, no one has the right to their own life.

    He also addressed the difference between short-term and long-term thinking. Some things that work in the short-term are destructive in the long-term, such as the pick-a-payment mortgages.

    The “free lunch mentality” leads to a lack of personal responsibility, and that is the death of democracy. The “tyranny of the majority” — where a majority can vote a free lunch for themselves, eventually the providers quit.

    The cure is the opposite. Life, liberty, and the pursuit of happiness demand personal responsibility. Each person has a moral right to their own life.

    “The United States is the only country founded on the concept that people should act in their rational long-term self interest, properly understood.” He said that you shouldn’t take advantage of other people, as it doesn’t work. You also shouldn’t self-sacrifice, as you have the right to your own life.

    Where do we go now?

    We are probably in the beginning of an economic recovery. Allison feels the most likely scenario is a period of stagflation — slow growth, high inflation, and higher unemployment than we should have — similar to the 1970s. This would not be a great time, but not a horrible time, he said.

    He is more concerned about the long term. The liabilities in the social security and Medicare systems, our huge operating deficits, a dysfunctional foreign policy, and a failed K through 12 educational system lead to the certainty that in 25 years, the United States will be broke.

    What we need to do, he said, is the opposite of what we’re doing. We need to return to individual rights, the incentives that free markets provide, and less regulation.

    The “American sense of life,” Allison said, means that we are a very individualistic nation and not collectivist.

    Business makes the world a better place to live by providing quality products and services. A primary difference between the United States and Africa is that we have better businesses.

    Allison mentioned two pillars that make the human mind productive. The first is Freedom and liberty. He drew a parallel between academic freedom and economic freedom. Those who believe in academic freedom, however, often want to restrict economic and business freedom.

    The second pillar is knowledge that comes from education, in the broadest context. We need an environment that encourages competition, discipline, and creativity in our educational system.

    Allison encouraged the audience to seek happiness through a “life well-lived.” Self-esteem is developed by doing your job the best you possibly can, he said. Depending on government for security is the European way, but not the American way.

  • ‘Battle for the World Economy’ to be presented in Wichita

    AFP — Kansas presents a new luncheon video series: “Commanding Heights: the Battle for the World Economy.” The video will be shown, and then there is time for discussion.

    11:30 am to 1:00 pm, Wednesday, October 7, 2009
    Mike’s Steakhouse
    2131 S. Broadway, Wichita, Kansas 67211
    316-265-8122

    Menu: Individual choices off the menu with individual tickets plus gratuity.

    For more information, contact John Todd, Wichita AFP volunteer coordinator at john@johntodd.net, 316-312-7335 cell, or
    Susan Estes, AFP Field Director, Kansas at sestes@afphq.org, 316-269-4170.

    “Commanding Heights: The Battle for the World Economy, based on the best-selling book by Pulitzer Prize-winner Daniel Yergin and Joseph Stanislaw, confronts head-on critical concerns about the new interconnected world. Commanding Heights dramatically captures the issues that have defined the wealth and fate of nations and shows how the battle over the world economy will shape our lives in the twenty-first century.”