Part 2 – Economic
Policy
The problem with my crazy uncle is that he, actually, isn’t
crazy at all.
He gets a lot of
criticism from the MSM, his coworkers and the general population for a host of
things, his economic ideals seem outrageous to most, but they do resonate with
a host of people, across many different backgrounds.
I have heard a wide
range of criticisms regarding Paul’s policies, everything from,
“Ron Paul wants to
send us back into the Stone Age.”
To
“Ron Paul would allow
the same banks that created the mess we are in to do anything they want.”
And my all time favorite,
“Ron Paul wants to
abolish the Federal Reserve, the IRS and repeal the 16th amendment.
The economy would collapse without the income taxes, because the government
could not function without that revenue.”
There is a plethora
of disinformation, political opposition, ignorance and just plain confusion,
propagated and perpetuated largely by the media and the American people’s
penchant for believing everything they see and hear on TV regarding his views.
I understand where
the confusion comes from, but at the same time I do not understand where the confusion comes from. Let’s look at it
from a completely objective perspective. Let’s just pretend for a brief moment
that I do not support Dr. Paul, but
I am trying to determine if he really is off-base with his positions. I have
heard a lot about this guy running for president and I want to see what his
deal is.
We will consolidate
and address just the four or five things mentioned above; the core issues and
ask questions that any self-respecting American should ask concerning these
things. Responsible adults are tasked with the duty to look at everything
objectively to find the truth in anything. Children can be consumed by emotion
because that is part of the growing process. Adults, however, cannot be
consumed by emotions as that can and ultimately will lead to irrational thought
processes, mistakes and the perpetuation thereof.
It is our job to seek
the truth in all things so that we in turn may pass these truths on to our
children and their children. We do a great disservice to future generations
when we abdicate our responsibility and accept any and all stories at face
value. It is for this reason, chief among others, that I do not watch any of
the MSM channels very often, nor do I rely on them for any form of reliable,
unbiased news and information.
The Idea and
positions:
1. Sound
Money
2. Zero
Government intrusion or involvement in the economy
3. Free
market principles and regulations
That's a fairly accurate summation of his policies and at a
glance, it doesn't really sound all that bad. Let's take a closer look at each
of these and try to break them down into terms and analogies that not only
myself, but also other layman can understand.
After all, I think
most Americans want a stable money supply, they think they government should
stay out of the economy, among other things, because the government really only
messes things up. It's like a big, lumbering elephant trying to eat those little
eggs on sushi rolls with a 2x4, blindfolded and standing on an egg while the
trainer shovels peanuts into the trash can.
Most of us grew up
hearing the phrase "Free Market" and believe that we actually work
and consume in one. From what I have read, watched and heard over the last few
years, it seems more and more like that is not the case.
Sound Money
What is it exactly and why do we need it?
As I understand this
whole thing, Sound Money, is just that - sound. Meaning it is tied to some sort
of commodity or "backed" by it, thereby reducing or preventing the
opportunity for inflation to decrease its purchasing power.
Now, it could
feasibly be argued that the US Dollar is,
in fact, tied to or backed by a commodity so therefore it should be shielded
from inflation. As I am learning, half of this statement is a half truth. The
US Dollar is tied to oil, which is why you sometimes will hear the phrase
"petrodollar" but it is not actually backed by oil.
The Dollar is tied to
oil simply because the US
entered into an agreement with some of the major oil producers (Saudi Arabia,
etc) whereby they agreed the US Dollar would be the sole currency they would accept
as payment for oil. In exchange, the US agreed that it would protect the oil
fields from invasion by any other country. This is kind of complex and
confusing, but in a nutshell, if you want to buy oil, you have to use US
Dollars.
The effect this had
on the dollar was great and immediate. Demand for it as a currency shot up and
so did the value of it. So now, we have
the US Dollar as the sole currency for buying oil, thereby granting it De
Facto, so to speak, status as a reserve currency.
Countries now had to
purchase or exchange their own currencies for US Dollars if they wanted to buy
oil. I'm not sure how it works exactly, but I do know that when there is a high
demand for something, the cost and value of it increases.
So, the dollar is
tied loosely to oil, but that does not guarantee the value of it. The dollar
can be devalued in two ways:
- If oil-producing countries decide to allow the purchase of oil in any other currency than the dollar, or a barter system or an exchange for a commodity of similar worth or value. This will cause demand to drop and with it the value of the dollar. This is called Deflation and it is happening now. Iran, China, India and Japan have entered into an agreement to purchase/sell oil where they will not use the dollar.
- Inflation. Inflation is caused when a supply of monetary instruments enter a system that already has an abundance of them in supply. It is also caused by increasing a monetary base artificially, because it is not backed by anything real therefore, no new real commodity has been introduced to support it, through the printing and introduction of monetary instruments.
Confused yet? Don't
feel bad, I was and still am. I don't want your head to explode, but now we are
going to look at the half of a half-truth.
So the dollar is tied
to oil and is used as a reserve currency of the world because it is the only currency
with which you can buy oil. However, it is not really backed by anything. For a monetary supply to have a
commodity backing that same supply can only be increased or decreased in conjunction
with the backing commodity.
Is the dollar backed
by anything? No, it is not.
Is the dollar subject
to inflation? Yes, yes it is.
Our current money
supply is a faith/demand based currency, which means two things. If demand is
up for our dollars, then the value of our dollars will also be up, but if the
demand falls, then...
We have faith in our
dollar because the government tells us that we should and because, well, it's
been like this for so long. What the average American doesn't realize, and what
I didn't for so many years is, that our dollars really are not worth anything.
They have no intrinsic value and they are only as valuable as they are limited
in supply.
If a dollar can buy a
cup of coffee today, because there are only 10 trillion of those dollars in the
system, what do you think happens to the value of each dollar when the Federal
Reserve prints another trillion or so? That's right, now that same dollars value
is decreased by that same percentage of money that has been created and
introduced into the system. The effects of inflation are not felt immediately,
but they have a tendency to slowly creep up before they slam the dollar.
This is what is
sometimes referred to as a "loss of purchasing power."
If a monetary supply
is backed by gold, silver, land or any other valuable, permanent commodity,
then it can only be increased by introducing a matching volume of the same
commodity. In simple, if you have 100 tons of gold worth 100 dollars, you
cannot create or introduce another 100 dollars until you find and introduce
another 100 tons of gold.
Demand and inflation
are prevented from wreaking havoc on any permanent, valuable commodity backed
monetary system.
Now knowing this, I
can honestly say that I am all for a gold standard monetary system for the US.
I now find it completely ridiculous that we, as Americans, have accepted
inflation in our monetary base and that we have and are continuing to allow our
purchasing power to be decreased, literally every day.
In the 1970's a
"luxury" car cost about $3500.00
Today a
"luxury" car costs about $35000.00
In 1913 the cost of
one troy ounce of gold was less than $20.00
Today that same ounce
costs close to $2000.00
How is this acceptable?
Zero Government intrusion or involvement in the economy
This one is fairly short, because after all, there really
isn't a lot of digging to be done if you want to know whether or not the
government should be involved in the Economy.
I have been looking
and as of yet, I have not found a single positive thing the government has done
with respect to its involvement in the economy. Really, I can't.
They tax and over
tax. They spend and over spend. They regulate and over regulate. They show
preferential treatment to businesses of their friends. They removed us from the
gold standard in the seventies. They waste money profusely and they created,
foster and protect the Federal Reserve System that is killing our dollar.
I now understand that
the government cannot "stimulate" the economy because the government has nothing with which it can stimulate.
It never really occurred to me that the government really has nothing because
it produces nothing, everything they do have they have taken from the
taxpayers. Therefore, in reality, they are stimulating the economy with our own
money, yet we do not get to see the benefits of it because the money they took
from us; they gave to their friends and the banks that are perpetuating these
problems.
"You cannot legislate the poor into freedom by legislating the
industrious out of it. You don't multiply wealth by dividing it. Government
cannot give anything to anybody that it doesn't first take from somebody else.
Whenever somebody receives something without working for it, somebody else has
to work for it without receiving. The worst thing that can happen to a nation
is for half of the people to get the idea they don't have to work because
somebody else will work for them, and the other half to get the idea that it
does no good to work because they don't get to enjoy the fruit of their
labor."
Dr. Adrian Rogers
So now, I understand that the government should stay out of
the economy completely. It should let the consumers stimulate it, should it
need to be stimulated and that it should not take our money to stimulate the
economies of a few banks or corporations.
Free market principles and regulations
I have already researched sound money and government involvement in the economy and so far, Paul seems to be making a lot of sense on these issues. It really is just common sense and I have a hard time understanding why or how others cannot see this.
We need to have policies in place that protect
our monetary base or money supply from inflation and deflation. It just makes
sense, I don’t want to wake up tomorrow to find out that it now takes one and a
half dollars to buy a cup of coffee, when yesterday, it was only one dollar. To
me that’s ridiculous, and I have to call it as I see it. Someone, other than
the IRS is stealing my money, that’s the only way I can rationalize it. Whether
it’s the retail store or the Federal Reserve, some one is not playing fair or
anything that could even be loosely referred to as fair.
Okay, so now let’s move on to the Free Market
and those principles. For the longest time I was under the impression that our
economy was, in fact, a Free Market –
I was wrong. You have to look at it from a realistic and objective perspective.
Party lines aside, whenever the government gets involved in anything, that
anything is no longer free. It’s that simple.
What we see today is the government getting
involved way too often and instituting far too over reaching and over bearing
regulations upon the people that actually work in the market. It has,
essentially, created a “closed” market in which certain entities garner special
treatment. It’s true, just look at Halliburton, GE and Boeing. These large
companies and those similar to them, get the lion’s share of government contracts,
not because they are the most efficient or proficient at what they do, but
because they have friends in high places.
The free market is just that – free. It is
free to regulate itself and free to operate in a true supply and demand cycle. Before
I get into the specific arguments that I have heard, I just want to touch on
the actual vs. artificial supply and demand cycles we see in our economy today.
Free Market:
If a base of consumers desires a product, then
a demand is created for said product. Companies will compete and the consumer
will decide what companies are successful based on the quality of the product
and the value-for-dollar-exchanged it offers. When demand increases, prices are
also likely to increase in the short term, simply because “everybody wants one”
and the demand puts a strain on the supply of not only raw materials, but the
actual supply of product being created.
Prices will increase over the short term, but
in most cases will ultimately peak and begin a decline into stabilization. They
will remain stable until a newer version of the product is introduced into the
market causing another increase in demand. One the older product version is no
longer in such high demand; we will begin to see prices for it begin to drop,
sometimes dramatically. We see this everyday on “Clearance” racks and end of
the year car “Sales”. Out with the old and in with the new.
This is the way the free market should operate. To a certain extent, it
does have the illusion of operating in this fashion, but a deeper look can and
will reveal the tell tale signs of government intervention and market
oppression.
Closed Market:
This
type of market is actually what we operate and consume in today, and have for
some years. I think most of us don’t even bother to look deep enough at certain
things and because of that, we are unable to recognize the tell-tale signs of
this closed market system.
In a closed market, the supply and demand
cycle is still present, but it is, for the most part - an illusion. Demand is
still a driving force behind production and consumption, but the demand is all
too often artificially created or propped up by government interactions and
regulations. Let’s take a look at a few examples of an artificial demand cycle
created by government interaction within the market.
A great example is the auto industry. We need
look no further than the bail-outs of 2007 and 2008 to see this interference.
Car companies, namely US car companies, were in bad shape. They were
increasingly becoming unable to compete in the market due to foreign
manufacturers producing superior products with better prices. There are three
prongs to this issue of government interference and will address the most
prevalent first.
Financial dire straits
These
manufacturers found themselves literally on the verge of insolvency as they had
mounting debt and a consumer base that could no longer support their business.
In addition to the shrinking consumer base, the general market had been, for
some time, rejecting their products as inferior, resulting in an ever shrinking
base of support.
Unable to generate enough revenue to sustain
the businesses they turned to the federal government for help. Public outcry
was indeed great and I, myself, was among those enraged by the bail outs they
received. The influx of much needed capitol by the Federal Reserve by way of
government decree is one example of government interference in the market. If
this truly were a free market, the unviable business would have been unable to
attract private investor support and would ultimately become totally insolvent.
It would have filed for bankruptcy and most likely restructured, becoming again
a viable company in the after math.
The company would have lost little to no blue
collar jobs in the end and would have shed a few needless middle and upper
management positions. This is the way it works in America everyday, and this is the
way to should have been allowed to work in this instance. The market will force
a change or correction to any industry unwilling or incapable of imposing that
correction upon itself, when the market, or consumers, decide it is necessary.
The US automakers would most likely be
in a much better position than they are now and they would most likely be
offering new and better products to the market. Instead, they are offering the
same old bucket of bolts with fresh paint. The market isn’t buying it.
Government sponsored union influence
The
introduction of the unionized workforce was a good thing, once upon a time, but
it is no longer necessary. Unions were successful and they should be given some
credit and praise for influencing and bringing about changes in work place
safety and overall conditions. However, the time of the union is over and it
should be recognized that, while they once sought legitimate protections for
their workers, they now only succeed in hampering any production advances in
the majority of industries.
When a union of workers demand safer working
environments and fair pay, I have no issue with that. When a union of workers
demand, dictate and hold a company or agency hostage or seek to extort monetary
gains and relaxed production goals via an organized strike, I have an issue
with that. Take a look at some of the union contracts for the auto industry and
you will see some truly ridiculous things.
These things range form disciplinary action to
production speeds to salary and wage earnings whether or not on the job – as in
lay-offs.
I have knowledge of more than one or two
outrageous things contained in SEIU’s bargaining unit contracts.
The government sponsors these labor unions
through the passage of legislation favoring these organizations and through the
establishment of labor relations boards. When a union can tell a company that
they cannot move their business to another state, and the government backs the
union - that is an issue. When a union can tell a company, they cannot fire a
worker for a reason that would be justified in a non-unionized workforce - that
is an issue. “So he was only caught
selling drugs at work once? Well, did he kill anybody? If he had killed someone
then we would say you have to provide anger management training to him at no
cost and continue to pay his normal wages while he is in training.”
Artificial
Demand
The other example of government interference
and influence upon the market is the artificial demand cycle that it creates. A
great example of this is the recent housing bubble and subsequent collapse. The
federal government passed legislation and instructed financial institutions to
relax their lending guidelines so more Americans would be able to acquire
financing and purchase homes. This is all well and good, for a time, but look
what it ultimately led to. The lax lending guidelines enabled people to finance
homes, cars, boats, RV’s and a host of other things that they, under normal
circumstances and guidelines would not have been able to finance – let alone
afford.
In essence the government allowed the banks to
artificially prop up demand for homes and other consumables in a bubble of
prosperity that would, ultimately burst and leave all who were exposed, in a
terrible position. Artificial Demand…
On the surface, before the bubbles pop, it’s
all well and good, but what people simply don’t understand is that the Federal
Reserve, with the blessing of the federal government has created and is
fostering a moral hazard with respect to investing. Look at the derivatives
market, who knows how much that junk is actually worth, but who cares about
that. Look at what the investors made off the initial sales and how the
taxpayers like you and I got the shaft when the bills came due.
The
second instance is, and has been, going on for some time. It’s real simple;
take a look at any local, state or federal employee cars. It’s an interesting
thing to note that they are all American made cars, meaning they are either,
Chevy, Ford, GMC or…well I can’t even remember the other one. See what I mean?
The demand cannot support the business so they run to the government and say, “Help
us or we will go out of business” and the government obliges. In the free
market, they would go out of business
or be absorbed by another viable company.
This is an artificial demand created by
governments. They use our tax dollars, or borrow money from foreign governments
or agents to purchase and prop up companies that the market would not purchase
from or support. The auto industry is not the only industries the government
does this to. Remember Solyndra?
The other side of artificial demand and one
that I really do not care to get into – because it makes me sick – is
subsidies. There is so much to them and they are so prevalent that when you
actually look at them – all of them – you have no other choice but to accept
the fact that our market is not, a free market.
Did you know there is an agribusiness in
southern California
that brings in more in government subsidies than its product is worth? What I
mean is if they received no money from any government they would actually lose money every year! And they don’t
even grow necessary food stuffs.
It is true that whenever you subsidize
something, you get more of it. If the government creates an artificial demand
by subsidizing a particular industry or product, then there will be an increase
in the supply for that product. Simply because as more and more producers
become aware of the subsidy, they will want to climb aboard that gravy train.
Just look at corn, cotton, soy, cars and green energy.
The problem with subsidies is at least two
fold. In addition to having serious moral and ethical problems, they also lead
to a false sense of security for the industry. They create a false demand for a
product that the open market, or consumers, cannot or will not sustain.
The other issue is price setting or fixing and
price deflation. Cotton producing countries have sued the US and won over
unfair price advantages due to subsidizing of crops and products. When a
producer receives a subsidy from the government, it essentially allows the
producer to charge whatever price he wishes because he knows he will receive
that check form the government to cover his “losses”. This creates an unfair
advantage in the market and can and most often will lead to the loss of another
market competitor that does not receive subsidies. Look to the Flood Insurance
market for proof of this.
The second part to this is when government
subsidies created the artificial demand and the market does not or cannot
respond to it quickly. What this does is establishes an over abundance of supply,
which in turn, causes the prices of these products to decrease. The price
depreciation requires that the government increase the amount of each subsidy
to cover losses. It’s a self perpetuating cycle that can only be corrected when
the market is given sufficient time and means to react to the problem. However,
the reaction and correction is often severe or at least unlike any realistic
correction a free market would impose. For an example, look at the
corn-ethanol-subsidy relationship.
A few years ago the demand for corn to produce
ethanol increased dramatically due to a broadened filed of government
subsidies. But here is the idiotic part; the government paid these farmers to
grow corn that was ultimately made into ethanol and then added to gas. So we
essentially grew a bunch of corn, and then burned it up. That caused the price
of corn and corn based products to spike. Moronic…
The ironic thing about most of this free
market stuff is that I have never read any books written by Mises or Paul or any
other economist. Most of the stuff I have learned, I learned from a fishing
website. Talk of water rights led to the subsidy issue, which led to the demand
issue, which led to the market question. All of that led to government
intervention and then I took a look at our monetary policy and the fiat
instrument we use.
It is literally mind blowing when you start to
actually go down into the rabbit hole. Most of this stuff I started looking
into before I listened to Ron Paul.
Before I watched that first youtube video at my brother’s house back in 2007, I
knew about subsidies, free market principles and government intervention. I
started looking more deeply because my wife and I were looking to buy our first
home together.
If we are serious when we ask ourselves
questions related to the economy, then we can really only come up with answers
that support Ron Paul.
Should we have sound money?
Yes. My son can drink a gallon of milk a day.
Do you know how expensive milk has become?
Should the government be involved in, try to
stimulate or regulate the economy?
No. Let me spend my money the way I see fit.
Stop taking our money and giving it to you friends or spending it on things we
don’t need or want.
What style of market will best benefit me and
others like me?
A free Market will be beneficial to all that
operate or consume in it. The closed market that we now operate and consume in
only benefits a select few and I can tell you, we the 99%, are not among them.
Should we have a truly free market?
Yes, yes we should. Freedom is always best.
Freedom is popular.
I have since looked into quite a bit and now,
honestly, I have to say - Ron Paul isn’t as crazy as they make him out to be.
