More Evidence of a Coming Wealth Confiscation

I’ve posted twice already about my theory that the government is moving towards outright confiscation of wealth. We’ve seen what happened in Cyprus—effective confiscation of all bank assets in excess of €100,000, destroying the life savings of many citizens and ruining many businesses. I’ve posted about plans for the US government to ‘assist‘ people with their retirement investments. Please read those articles if you haven’t already done so.

The latest evidence of my theory being put into action comes in the form of President Obama’s budget. In it, he proposes limiting the total assets in a retirement account to $3,000,000. First off, it’s clear that new contributions would be banned. That’s a given. The question is, what happens to assets in excess of that amount? There are several possibilities. One would be forced distribution, at current tax rates. This would immediately raise revenue (taxes would have to be paid on the distributions). Another option would be the transfer of those funds to Social Security to ‘maintain’ the ‘safety net’ for those who don’t have personal retirement accounts. Another option would be to transfer those excess funds to insolvent pension funds (mostly for public employees). Don’t think it can happen? All it takes is a change to tax laws and a cap on the total value of the retirement account.

Of course, this will be sold as a “make the rich pay their fair share” and “it’s not fair that rich people have more money for retirement”. Standard class warfare tactics. Anyone defending the current uncapped accounts will be painted as a protector of monied interests and an ‘enemy’ of the people. As they said on BSG, “All this has happened before; All this will happen again”. Sadly, the only viable solution to this in history has been revolution-violent or otherwise. As the government tries more and more radical ‘solutions’ to stave of the inevitable collapse, more and more draconian controls will be put in place. See my article on the real motivation for gun control.

Every time a government issues unbacked currency, the economic system eventually collapses. This is usually the result of incessant printing of currency by the government in a vain attempt to print/inflate their way out of a unsolvable budget problem. Politicians, having little or no knowledge of history, often being purposefully ignorant of it, try to buy off the population with ever larger, more costly schemes. They go into debt, and when they are no longer able to borrow enough, resort to printing more currency. At that point, inflation takes over, there is a lack of confidence in the currency and collapse is virtually inevitable, since politicians generally won’t even consider the necessary steps to rectify the situation long-term. All one has to do is read Paul Krugman to see the thinking I’m talking about. Sure, they can stave off the collapse for a period of time, but unless their budgets are brought into balance and currency is backed by some kind of asset (usually precious metals like gold or silver), it’s a delaying action at best.

Some will note that the prices of gold and silver have been falling. That’s true. And it makes sense in the short term. Because the government is printing so much money and maintains interest rates of zero (ZIRP) there is a huge stock market bubble. Banks and others are moving from metals to stocks for the immediate gains available. In the long term, though, this bubble, like all others in the past, will pop. Inflation will force the Fed’s hand, causing interest rates to rise (in a vain attempt to stave off the inevitable collapse of the currency) which will cause money to flow from the stock market into interest-bearing assets—a reversal of the current flow direction. There is also a real estate bubble building, and the government is once again trying to inflate it through lax lending policies. Where have we seen this before? In addition to the lax standards, banks are keeping many foreclosures off the market in an attempt to reduce supply and drive up prices. Just like before.

How should a rational person respond to all of this? First off, it must be acknowledged that while all of the above is true, nobody can be sure of the timing. This could happen in the next few months or it could take a decade or more. It’s inevitable, but the timing is uncertain. That means a rational person will hedge their bets as best they can and try to ensure they are in the best possible position for any outcome. In other words, don’t run out and sell all your stocks and bonds today, don’t stop saving/investing and don’t stop funding your retirement fund. The best, safest hedge is, at it always has been, precious metals. Convert at least some of your investments to gold or silver and take possession of them. In a crisis. you might not be able to get them from the bank, even if they are in a safety deposit box. Gemstones are also a possibility, but somewhat riskier as they are harder to trade, have a volatile market and are not generally though of as ‘money’ in the way gold and silver are.

How much of your net worth you convert to gold and/or silver depends on what you think the timeframe is. The shorter the timeframe, the larger the percentage of your assets you should convert to precious metals (or some similar physical store of value). Personally, I don’t see how this can go on for more than a few years before systemic failure strikes and a significant portion of wealth is simply seized by the government. If your money is in the bank or stocks, it’s trivial for them to take it. If you have physical possession of  your wealth, it’s much harder for them to get it. Even more reason to defend your 2nd Amendment rights—they allow you to defend your possessions. I say this because the US government has, in the past, successfully confiscated most private gold holdings. I wouldn’t put it past them to try to do so again (silver was not included then, but it would shock me if they didn’t try to include it in a future confiscation attempt).

A final note—property (i.e. ‘real estate’) is not a good, safe investment. If the mortgage crisis didn’t teach you that lesson, then a simple consideration of the following should make it clear. While you own ‘title’ to the land, the government claims ‘eminent domain‘ and the courts will allow them to take it from you for ‘just’ compensation. And they will pay you in paper currency that they control and that they can simply print more of to pay you. The thing is, they don’t have to resort to this. All they have to do is increase your property taxes to a point that you are no longer able to afford them. When you don’t pay, they simply take your land and sell it out from under you. Just like the feudal lords did. Or, even easier, they can simply zone you out of using your property. In other words, you don’t really own and control your land.

If the above doesn’t convince you, I suspect nothing will. If the above does convince (or reinforce your convictions), then take action now. Spread to word. The more like-minded people who follow this, the easier the economy will recover after the collapse, as there will be significant amounts of gold and silver in circulation. Many philosophers in the past saw this coming. In a quote attributed in various forms to many commentators, but finding its roots in Plato’s  analysis of democracy in The Republic:

“When the people find they can vote themselves money, that will herald the end of the republic.”

[updated 2013-04-09 and 2013-06-25 to correct grammar, spelling and punctuation]

And So It Begins – Confiscation of Assets/Wealth in Cyprus

Two weeks ago I wrote that your 401k and other retirement funds were going to be seized by the government. The first step towards this in Europe has started: Bank Deposits in Cyprus Confiscated. The government, in exchange for a bailout from the European Central Bank, announced confiscation of 6.6% on the first €100,000 and 9.9% of any excess beyond that amount. Done, of course, in secret, and when the banks were closed.

This can have nothing but seriously negative ramifications for the future. There will be a run on banks in Cyprus to extract all funds before another round of confiscation. And anyone who lives in Portugal, Italy, Greece or Spain would be foolish not to remove all deposits from all financial institutions in the country. In other words, a bank run. A European-wide bank run will follow. Smart people will convert 100% of their holdings to precious metals or precious stones. And make sure it’s well hidden from the government.

If you think it can’t happen here, think again. That FDIC insurance is only good up to $100,000 ($250,000 temporarily, until the end of 2013). So far, the government has always covered 100% of deposits by transferring accounts to a sound bank. But they don’t have to. They could simply declare that all funds in all accounts for any insolvent bank are lost/forfeit if they exceed $100,000. Instant wealth confiscation. Before you say “but my bank isn’t insolvent” let me remind you that ALL banks are insolvent due to fractional reserve banking. All the government has to do is increase the reserve requirements and close the “Discount Window” at the Fed. Instant insolvency for most, if not all, banks.

In the US the Federal Reserve is inflating the money supply causing a stock market bubble while Democrats announce their intention to raise taxes and increase spending with a target total US National Debt of more than $20 trillion in 10 years. This cannot end well. The government is bankrupt, is printing more and more fiat currency and not telling the truth about GDP growth nor inflation.

Getting as many guns out of the hands of citizens is a key to the political and taker class being able to stay in control and continue to destroy wealth and seize assets. See my post on this topic here: Why They are Coming For Your Guns.

You’ve been given sufficient notice. Only swift public action can prevent this. It means doing whatever is necessary to make the political class understand that they have to reduce the size and scope of government, end the insane wars overseas and  get the budget under control. Now.

[updated]

Your 401K or IRA will soon be seized by the government!

Planning a nice retirement by funding your 401K or IRA with pre-tax dollars? Enjoying the nice employer match? At this point, kiss any hope that you’ll have that money at retirement goodbye. The government is going to take it away from you, sure as the sun rises in the east and sets in the west. Oh, they may not simply confiscate the money, but they will take it. There are several ways they can do this, assuming it’s not destroyed by rampant inflation or the collapse of the currency or the collapse of the stock market. All of those are things that are built into current monetary policy and can’t be avoided.

There are several ways they can seize your retirement funds that don’t involve simple confiscation, and they are all interrelated. Remember, this is pre-tax income and taxes are applied at your rate when the withdrawals are made. So, all they have to do is raise the tax on 401K or IRA distributions. Second, as Social Security becomes more and more untenable and tax increases become impossible, they will ask the ‘rich’ to ‘pay their fair share’ by reducing your Social Security by the amount of your withdrawals (mandatory once you reach age 70.5). Then, as inflation rises, the social security payouts are increased to match inflation (but your private funds do not increase), thus taking an ever larger share of your retirement payout away from you. Eventually, the taxes on  the “excess distributions” (that is, over and above Social Security) will rise to a point where very little, if any of the value you planned to have will be there.

Don’t think this can happen? The Democrats threw their base under the bus by allowing the payroll tax reduction to expire, hurting the poor and middle class badly. Why? To protect Social Security. This is their touchstone program that will never be cut, never be reduced and payments will never be missed. No matter what. And the demagoguing about how the “rich” are not paying their fair share will only get worse, but this time ‘rich’ will be applied to anyone with private retirement funds. And eventually means-testing will be expanded to include all assets, not just 401k or IRA distributions. After all, we can’t let the ‘rich’ have a comfortable retirement while the ‘poor’ do not. Look up ‘kulak‘ for an idea of what I’m talking about.

Mark my words. This will happen. There is no avoiding it. And the masses who don’t have IRAs or 401Ks will demand it. Of course, the union pensions (or what’s left of them after rampant inflation) won’t be touched. I think you can take that to the bank. Assuming there are any banks left after the fiat currency collapses. Or the stock market bubble being built by Quantitative Easing and Zero Interest Rate Policy bursts and takes your investments to a fraction of their current value.

Bottom line, it’s very likely you won’t see a dime of the money you are saving now. And until we stop printing money via Quantitative Easing and raise interest rates and cut government spending, there is no chance of changing this course. None.

Think this is crazy talk? Read this report of an interview from the new Consumer Financial Protection Bureau. Trust me, this ‘help’ is only the first step. And it’s not new—this was proposed in 2008 by the Democratic Congress

See more on this topic: More Evidence of the Coming Wealth Confiscation. Also see the related post: Why They Are Coming For Your Guns.

The Real Minimum Wage is $ZERO!

You read that right. The actual real minimum wage is $ZERO. No matter what minimum wage the government sets, a business will look at the cost of the employee versus the amount of revenue the employee can generate or assist in generating and if it’s less than the arbitrary number selected by the government, the person won’t be hired. An unemployed person has a wage of $ZERO. When the government purports to set a minimum wage, they are pricing anyone who cannot add at least that much value to a business out of the job market. This hurts the lower-skilled, less-educated people the most. In fact, it hurts the very people it purports to help!

Every business has a cost structure. When the government steps in and artificially changes the cost structure, there are several possibilities:

  • The owners reduce their income/profit and eat the increased costs
  • The owners pass the increased cost to the customers
  • The owners reduce staff or increase individual productivity

There really isn’t another option. The money has to come from somewhere. Let’s look at the options and how they play out. In the first option, the owners decide that they will simply bear the cost, reducing their own income or profit. While this might be possible for some businesses, most small businesses do not make a tremendous profit. The owners have their own expenses and bills and in the end, there is a limit to what they can afford. It’s entirely possible that the minimum wage increase will make their business unprofitable at current prices, and they won’t be able to reduce their income, since there won’t be any! They will have to raise prices.

The second option is to increase prices. Here again, there is a limit to how much prices can be raised (or value reduced) and continue to have sufficient sales. If the cost of a fast food meal rises too high, people will simply reduce the number of times they eat out (not a bad thing health wise, but not so good for those who work in these lower-skilled jobs). If the cost of groceries, sundries, car washes and every other service provided by low-skilled workers rises, people will simply reduce their consumption. If prices rise too much, businesses will close and the entire economy will suffer.

The third option is to either find a way to increase productivity so that the workers do generate sufficient value for their wages, or reduce the total number of staff and either cease certain activities or find ways to do them with fewer people (automation, for example). Certain businesses are already extremely efficient (fast food, for example). There is very little in the way of productivity gains available. If a process can’t be automated, and the number of staff can’t be reduced, then the price will have to rise.

Do you see the common thread here? In the end, either someone loses their job or prices rise (or value is reduced by, e.g. cutting portion sizes). There is no way to escape this, the handwaving by progressive economists notwithstanding. So, the next time someone says they want the minimum wage raised, remind them that the real minimum wage is $ZERO and nothing anyone does or says can change that!

The End Game

Please reflect on the following facts:

Does the above look like data that portends a positive future? Or does it look like data that predicts disaster? Let’s look at a few things that can be derived from the above:

  • It takes around 2.25% of our GDP just to pay the interest on the debt;
  • It takes about 4.3% of our GDP to pay for military spending;
  • Social Security and Medicare unfunded debts are 3x our GDP and 25% of the total assets of citizens and businesses;
  • Even nominal inflation (around 2%) is greater than the interest rate paid on savings (less than .5%);
  • Less than 2/3 of the adult population is working, meaning that the remaining 1/3 must be supported by them or live off their savings/investments;
  • There have been no realistic plans submitted by Republicans or Democrats to address the deficit;
  • The trade deficit means that their is a continual flow of capital out of out the US making it easier for our trading partners to grow their economy;
  • Our students are falling seriously behind in important skills;

I can only see disaster coming from this. We are in an unsustainable situation. We cannot continue with this. A collapse of the monetary system is inevitable unless massive changes in spending occur. Tax revenues cannot solve the problem; just to cover the annual budget deficit, an additional 6.5% of GDP would need to be collected. Note that this is from gross income, not net income. In other words, 6.5% from your paycheck without any deductions and 6.5% from the gross receipts of every business. Business would have to pass this cost on to the consumer, meaning that the entire amount really must come from the public. Since personal income is about $12 trillion, that means additional taxes or spending equalling at least 8%. This is over and above current taxation levels. This kind of tax increase would destroy the economy. Remember, this money is already being spent, so collecting the taxes would reduce overall public spending by over a trillion dollars, causing GDP to drop by at least 6%. In other words, a massive recession. And these taxes would have to be permanent. And would have to rise as expenditures on Social Security and Medicare rise.

If taxes cannot solve the problem, then spending cuts are necessary. One trillion dollars in spending cuts. Entire programs will have to be cut, significant reductions in all government programs, including the so-called ‘entitlement’ programs. I don’t see this as politically possible given the current Congress and President. The public does not appear to be inclined to massively cut Social Security or Medicare. (Note well that massive reductions like this would cause, at least in the short term, a similar economic dislocation, since the money being spent now is being created out of thin air by the Federal Reserve [via Quantitative Easing].) Long term, significant cuts would be  positive, but the economic pain in the near term would be so great that political pressure to not make such cuts would be overwhelming, and the kinds of cuts necessary could never be implemented. What options are left? There are two available: inflation and default/repudiation.

One way to ‘solve’ the problem of impossible deficits and debt is to inflate it away. Effectively, by causing significant inflation in prices and wages, the existing debt becomes a much smaller part of GDP. If inflation is at 10% (and wages keep up with prices), then after 7 years, GDP would be around $32 trillion but outstanding debt would still be $16 trillion. In other words, only half of what it was before in real terms. Of course, this also wipes out savings and investment, impoverishing the populace, but it does ‘solve’ the problem of paying off the debt. Inflation at 20% means that the effective debt halves every 3.5 years. In ten years, the debt to GDP ratio would go from 100% to 12.5%.

The other way to ‘solve’ the problem is to simply default on the debt or repudiate it. In other words, simply stop paying interest and principal on the debt (default) for some period of time or simply state that such payments will never be made (repudiation). In both cases, the holders of debt are left holding the bag. Debt holders include foreign governments, foreign and domestic banks, foreign and US citizens and the Federal Reserve System. Either of these two options would push the global economy over a cliff. Banks would instantly become insolvent, central banks would be insolvent, and governments would see their reserves disappear overnight.

Does anyone think that our creditors will really sit still for either of these options? I sure don’t! If either of these two options looked imminent, dollar-based global trade would stop, global foreign exchange would stop, and our trading partners would demand gold or other tangible goods for trade. Import prices would rise dramatically. Exports prices would drop dramatically. The net outflow of capital from the US would accelerate, leaving less capital for US business. The US government would no longer be able to borrow and would be in default almost immediately unless there was an immediate, massive expansion of the money supply (i.e. printing money). But this would lead to hyper-inflation and only exacerbate the problem.

So, what’s the solution? How do we get out of this? The answer, unfortunately, is that I do not foresee any way to do so; there is no way to solve this problem at this point that does not result in economic chaos and massive political unrest. History shows us what will happen. Rome suffered a collapse of fiat currency. China suffered a collapse of fiat currency. Every fiat currency eventually collapses. Modern central bankers and finance ministers are not so much smarter than everyone in history that they can make it work. It can not. Eventually, runaway inflation destroys the economy or the government defaults on the debt, creating a slightly different form of economic disaster.

When the collapse comes, the government will resort to physical force to try to keep order. It will seize control of agricultural production in order to try to feed the populace, but history shows this will fail and given that most Americans are city dwellers who have no skills in growing food even if they had the land, supplying food to the cities will be a priority for the government. To keep civil unrest under control, a massive expansion of police forces and the military will be deployed domestically. Goods and services will become more and more scarce and will only be available for barter or hard currency (e.g. gold or silver). As things get worse, civil rights will be suspended and a totalitarian state will evolve. If the military supports the President, he will become, in effect, a dictator. The Constitution will not even be given lip service.

The only thing you can do is prepare. What you do right now will be far more important that what you do when the inevitable comes to pass because by then it will be too late. Once the government admits to itself that this is coming, they will take preparatory steps that will make it much harder for you to do the things you need to do. We don’t know when this will happen or how long the governments of the world can string this along. It could be months, or it could be decades. I think it will be less than 20 years.

Here are some things to think about:

  • Learn a skill that will be useful after the collapse. Things that will be important are agriculture-related, as well as carpentry, mechanical and plumbing skills. To survive, you will need to be able to trade your work for goods (especially food) and services.
  • Plant a garden and learn how to care for it. You might not keep the garden you plant after a collapse, but learning how to grow some food is key.
  • Acquire a firearm for each family member and learn how to use them. Stockpile a reasonable amount of ammunition. Do not create a massive armory; you are not arming yourself for war but for hunting and self-defense. Your family selection of firearms should include a pistol, a rifle, and a shotgun. It might not be a bad idea to acquire a crossbow or other similar weapon.
  • Cash out your IRA and/or 401k, pay the penalty (10%) and the taxes. Create an emergency fund for short-term issues and use the remainder to purchase gold or silver coins. I prefer silver since it’s about $35 per coin and easier to use for small exchanges than gold. You should not try to save or invest for the long term since inflation will destroy your dollar-denominated ‘savings’ even if the collapse is decades away.
  • Purchase some basic equipment so you can survive if you lose your home or have to migrate for work or food. A decent tent, sleeping bags, flint and steel, hand-cranked light, hand-cranked radio, hand-cranked flashlight, tool kit, and other basic gear. Ensure you have appropriate clothing, including boots and rain gear.
  • Keep a rotating stock of emergency food supplies. 30 days of food is a good idea. Until it becomes essential, simply use it before it goes out of date and replace it with new.
  • Ensure you have good paper maps. Your GPS or mobile phone or computer are not going to be reliable, especially if you are displaced and living in a tent.

Each person will need to make the plan that seems best to them. There are so many possible outcomes (including a complete breakdown of society, civil war or global war) that it’s impossible to account for every eventuality. Do not create a massive stockpile of food, guns, or supplies; you want just enough to tide you through the initial chaos so you can develop a plan based on events as they occur. If you have to move, you won’t be able to take much with you anyway. And the more you have, especially if people know about it, the more likely they are to try to take it from you whether individually, as a group, or with the government’s help.

I know this might sound like a paranoid delusion, but as a student of history, I do not know of a single precedent where a society recovered from the abuse of a fiat currency, monetization of debt, or a repudiation of their obligations. Recovery has never happened. Unless you are naïve, you will listen to the wisdom of George Santayana who said, “Those who cannot learn from history are doomed to repeat it.” Our political class and the masses who demand uncontrolled government spending have refused to learn from history. That tells me that we are doomed.

If You Don’t Have Anything Honest to Say, Don’t Do Economics At All

Once again, economist Brad DeLong conveniently cuts off a quote mid-thought in an attempt to “prove” how crazy/dishonest those kooky Austrians are (for those not aware, “Austrian” is shorthand for a more capital-based school of economics than that of the mainstream).  DeLong uses this half quote to claim that Ludwig von Mises held an absurd cost-of-production theory of value and believed that increased gold production would end a depression while increased paper money would not.  Thankfully, the brilliant Bob Murphy was paying close attention and was able to reveal the rest of the story to show that if anyone is crazy/dishonest, it’s not the Austrians.

Delong’s portion of the quote:

If gold production had been considerably greater than it actually was in recent years, then the drop in prices would have been moderated or perhaps even prevented from appearing.

The full quote:

If gold production had been considerably greater than it actually was in recent years, then the drop in prices would have been moderated or perhaps even prevented from appearing. It would be wrong, however, to assume that the phenomenon of the crisis would not then have occurred.

Looks pretty clear to me.  DeLong’s error is in his assumption that falling prices (deflation) necessarily mean trouble for an economy.  With that assumption in place, it would then be a logical jump to claim that Mises’ view was that anything preventing deflation is therefore a cure for economic depression (that is, if Mises did not specifically state otherwise in the very next sentence).  On the contrary, Austrian economists do not believe that falling prices are necessarily a bad thing in all cases.  Therefore, money production in and of itself (whether paper or commodity-backed) and its resulting increase of prices (inflation) is not viewed by Austrians as a panacea for economic troubles, and no responsible academic would pretend that it was.  Internet libertarians can and have been guilty of similar tactics at times, but I would expect a professional economist like DeLong to be better than that.

For those interested in this sort of thing, Murphy’s blog is always an entertaining read (and his sparring with neo-monetarist Scott Sumner may be of interest to my co-blogger Thomas Schminke).

Like free trade? You can’t really be an isolationist if you do!

If you like free trade, you can’t really be an isolationist. You also can’t support recalling all armed forces to only defend our ‘home turf. The world just doesn’t work that way! And it never has. So long as there has been trade, there have been those who wish to profit from that trade via shortcuts. Shortcuts that involve tolls, blockades and outright piracy.

There are certainly a number of potential ‘free market’ or private solutions, including arming merchant vessels or creating mercenary companies to defend their clients. Some historical precedents show the potential problems there. Take, for example, the British East India Company which became, effectively, a law unto itself. The company used government granted monopolies and trade agreements to gain power, and eventually ended up issuing it’s own coinage and running India as a ‘company town’ and caused the ‘Opium Wars‘ in China.

The British East India Company was not an anomaly, as the Dutch, Danish, Portuguese, Swedish and French East India Companies show. And this is just one instance. Many of the India companies became de-facto private military powers. This is not something I think we want to contemplate. As an American, I feel safer with the US military. The United States has had a unique position in the world—our military has always been subject to civilian political control. Yes, there have been abuses, but almost always it’s the civilians, not the uniformed forces that are at issue.

Taking this a bit further, think about the size and scope a corporation would need to have to field a single aircraft carrier. A corporation which traded globally would need to field several. This kind of scope leaves Exxon Mobile, IBM, Apple and every other global corporation out of the equation. They simply cannot afford to field a private military force that would protect their interests. Even banding together, the costs would be so high as to give pirates and toll collectors such an advantage that ‘free trade’ would be impossible.

Generally speaking, large land forces are not a solution, nor are large numbers of land-based aircraft. Whilst the latter can provide some limited cover, it is ultimately naval forces which keep the sea lanes open for free passage of all. Recalling the US Navy as a coastal defense force would leave our shipping open to harassment globally, and create such risks that trade would diminish. Private military force is problematic as discussed above. That leaves only one practical solution—a forward deployed navy.

Only a nation-state can afford (if anyone can) to provide the necessary military power to protect shipping in far-flung corners of the globe. And this requires international cooperation as well. Even today, easily protected areas are rife with piracy because of a lack of available forces and lack of commitment to international cooperation.

Isolationism would only make the problem worse. The piracy problem plagues the Red Sea, Gulf of Suez, Gulf of Aden and Western Indian ocean—some of the most traversed waterways—despite attempts by several countries to prevent it. Lack of resources and lack of international cooperation allow the Somali (and other) pirates almost free reign. The same goes for the southern part of the South China Sea, the Molucca Sea, the Java Sea, the Celebes Sea, and the Banda Sea. Pirates from numerous parts of the Indonesian/Philippine region play havoc with private shipping in these well-traveled waters.

History shows that those who love free trade and believe that trade increase wealth (as I do) must devise a way to protect that trade from those who wish to stop it, steal it or toll it. And frankly, the only way to do that is with a forward-deplopyed navy. Isolationism will not work. It cannot work. And private militaries are even more frightful, as history has shown. Sometimes, the only solution is projection of power. And this is case where that’s true.

Crazy, anti-liberty, anti-capitalist, anti-freedom ‘Occupy Wall Street’ Demands

Although disclaimed as not ‘official’ by the owners of occupywallst.org, a list of demands has been posted. I’m going to address those, as well as the protest in general. Let me say that I absolutely support the right of the protesters to peaceably assemble in public spaces, to present demands, to picket and otherwise exercise their First Amendment rights. No police or other government agency ought to interfere with peaceful protests. Of course, this doesn’t mean that the protests can’t be challenged by other view, or that they have some kind of monopoly on protests. We’re all entitled to our point of view, and the marketplace of ideas is open to all. In the end, we elect representatives to decide which viewpoint carries the day (at least so long as it is in line with the Constitution).

So what about the demands?  I fully acknowledge that the demand list I’m addressing is the work of one poster, but the comments attached seem to indicate some fairly broad-based themes and ideas that make this list a useful way to respond. So here they are:

Demand one: Restoration of the living wage. This demand can only be met by ending “Freetrade” by re-imposing trade tariffs on all imported goods entering the American market to level the playing field for domestic family farming and domestic manufacturing as most nations that are dumping cheap products onto the American market have radical wage and environmental regulation advantages. Another policy that must be instituted is raise the minimum wage to twenty dollars an hr.

That’s more than one demand, but counting aside, there are quite a few problems with this demand both from an economic liberty point of view, as well as basic economics. Effectively, this demand is a call for an end to global trade, and an expression of ignorance about basic economics. Let’s assume your local burger joint or your local pizza place has to pay double to triple their current wages to the kid making hamburgers or pizzas. Do you think that they can keep the price of the pizza or the double-cheeseburger the same? Not a chance. And so the prices will go up in proportion to the minimum wage, or, if the public won’t bear the new, higher costs, then fewer people will be employed or the business will simply close. Price-fixing cannot make people richer, except in raw dollar terms, but that means nothing. Does it matter if I make 10x as much is everything costs 10x as much? Maybe to someone’s ego, but not to their wallet!

As for increasing tariffs in a misguided effort to force manufacturing back into the US, once again, this will increase prices for everyone and create a scarcity of goods. Even assuming that the US can produce everything it needs (a false assumption), we don’t have all the natural resources we need and I find it highly likely that the countries with those resources will raise costs enough to offset the tariffs. And when other countries also raise their tariffs, all global trade is choked off and this hurts everyone globally. Artificial price floors created by tariffs do not enrich anyone.

Demand two: Institute a universal single payer healthcare system. To do this all private insurers must be banned from the healthcare market as their only effect on the health of patients is to take money away from doctors, nurses and hospitals preventing them from doing their jobs and hand that money to wall st. investors

Using Medicare as an example, we find that the only way to cut costs is to either deny treatment or reduce reimbursement for doctors, hospitals and other health care providers. Medicare for everyone, even if 100% of current private insurance premiums went straight into the program would still have limit both services and reimbursements. Congress has kicked this down the road every year, refusing to cut reimbursement rates further. Why? Because doctors and hospitals would drop out of the system, reducing the availability of care. Every country where single-payer systems has been implemented is looking for ways to reform and reduce cost, including privatization. In the UK, private health care is available, after having been banned. In Sweden, costs are being pushed back onto the consumers of health care. And these are countries with effective personal income tax rates much higher than those in the US. Bottom line, care will have to be rationed. One can either do it by market forces, or by fiat. Doing it by fiat will fail just as every centrally planned economy has failed.

Demand three: Guaranteed living wage income regardless of employment.

This appears to mean that one receives a ‘living wage’ when one is unemployed. The main result of such a policy, especially if it were exactly as written, would be to reduce the number of people who work. Why work when you can live ‘free’ on the taxpayer? Sweden ran into this problem—you started receiving sick pay at 60% of your income on the first day out. This was abused since there was no real way to control for people actually being sick. So they instituted a minor change to the law-you only started receiving benefits on the second day off work. Almost immediately single-day absenteeism disappeared.  That’s what’s in store for America if wages do not depend on work.

Demand four: Free college education.

College education can NOT be free. It could be taxpayer funded, but that’s a far cry from ‘free’. It also begs the question—does everyone need a college education? The answer is clearly ‘no’. In fact, I would argue that far too many people go to college today, and for may of the wrong reasons. No matter how great you make the economy, someone still needs to be a cashier, a gardener, a carpenter and a host of other jobs, some skilled, some unskilled, that by no means need a college education. The taxes those people pay would fund this ‘free’ college education. In other words, the non-college educated would be taxed to pay for college educations.

Demand five: Begin a fast track process to bring the fossil fuel economy to an end while at the same bringing the alternative energy economy up to energy demand.

A nice idea. One I support. But even on a fast-track you are talking decades before we can eliminate fossil fuels. And who is going to pay for this? You are talking about wholesale replacement of infrastructure, vehicles and industry. The costs are staggering. Assuming that by ‘fossil’ fuels they mean coal and oil, but not biofuels and ethanol, the cost would be high. If they really mean carbon-based fuels (which I think they do), then the costs are astronomical. With deficits already running in the trillions, how is this going go be paid for? Add in the later demands for eliminating nuclear power and we have a situation where electrical generation is limited to solar, wind and hydro power which, even if their efficiency increased 5-fold could not power current demands (let alone the demands of a manufacturing economy they desire to restore by fiat). Oh, and as an aside, much of the material necessary to build these non-carbon based power sources has to come from overseas, but in demand one they wrecked global trade. No amount of spending on science is going to fix that problem.

Demand six: One trillion dollars in infrastructure (Water, Sewer, Rail, Roads and Bridges and Electrical Grid) spending now.

 Not sure where this money is supposed to come from. Government spending is already consuming more than 20% of the GDP. The demands for taxpayer funded health care and college education above will create a further strain on spending. Borrowing is out (see the later demands on this). That means printing money or massive tax increases, more likely both. This will result in out of control inflation and reduction in disposable income, both of which will hurt the lowest income people the most.

Demand seven: One trillion dollars in ecological restoration planting forests, reestablishing wetlands and the natural flow of river systems and decommissioning of all of America’s nuclear power plants.

Again, not sure where the money is supposed to come from. Even with Obama’s ‘millionaire tax’, that if implemented would collect enough money over 10 years to cover 4 months of deficit spending. Of course, this demand ignores the fact that forest levels are relatively unchanged since 1950. Any massive reforestation would necessary displace people and farmland, something that would likely hurt the poor and family farmers the most. Decommissioning nuclear power plants would take 20% of all electrical generation off the grid. Replacing it immediately would require new carbon-fueled power generation on a massive scale, which defeats the entire environmental platform suggested here.

Demand eight: Racial and gender equal rights amendment.

It exists. It’s called the 14th Amendment. It guarantees every person equal protection of the laws. Nothing more is needed. Unless, of course, they are seeking privileges for non-whites and women. Evidence suggests exactly that. The goal is to push white men out of the way and silence them. This is explicitly racist and goes against this demand!

Demand nine: Open borders migration. anyone can travel anywhere to work and live.

Well, I agree. Those who support economic liberty  support the feee movement of capital, goods, ideas and people. But this demand is not compatible with the demand for trade protectionism. Limiting the flow of goods and capital will massively distort the migration of people. In addition, if the US guarantees a living wage (a demand above) to every person who lives here, and there are no border controls, then millions upon millions will move to the US to gain that benefit. Free migration of people only works when capital and goods are free to flow as well.

Demand ten: Bring American elections up to international standards of a paper ballot precinct counted and recounted in front of an independent and party observers system.

There isn’t anything particularly wrong with this demand, other than being inefficient. Of course, it’s also vital that only those entitled to vote are allowed to vote, so combining the above with an identification system would create a very secure, very clean election. Of course, this demand is really only for ensuring that all the ballots in the ballot box are counted accurately, not ensuring that the only ballots that get into the box are valid! And both matter.

Demand eleven: Immediate across the board debt forgiveness for all. Debt forgiveness of sovereign debt, commercial loans, home mortgages, home equity loans, credit card debt, student loans and personal loans now! All debt must be stricken from the “Books.” World Bank Loans to all Nations, Bank to Bank Debt and all Bonds and Margin Call Debt in the stock market including all Derivatives or Credit Default Swaps, all 65 trillion dollars of them must also be stricken from the “Books.” And I don’t mean debt that is in default, I mean all debt on the entire planet period.

I can’t think of a better way to destroy the world economy, and wipe out the savings of many seniors as well as their pension and retirement funds. One of the most common investment vehicles for older Americans is municipal bonds. Wiping those out (they are debt) will destroy the life savings of most retirees. And the ones who aren’t wiped out by the elimination of the bonds will be wiped out when all banks fail since they would have no assets with which to pay their depositors. Every bank account is wiped out.

This also means that nobody would ever again lend money. Why take the risk. And this means no purchasing of goods or services unless you can pay cash on the spot. No mortgages to allow anyone to buy a house, no car loans, nothing. An immediate halt to the entire global financial system and an immediate collapse of every currency. It would make the Great Depression look like a kindergarten field trip.

Demand twelve: Outlaw all credit reporting agencies.

I’m assuming they mean credit rating agencies (i.e. Moody, S&P, etc). Since the banks are all wiped out, all corporations are wiped out and the financial system destroyed, they aren’t necessary. Especially since nobody will worry about ‘credit worthiness’ since nobody in their right mind would lend money, even if they had it.

Demand thirteen: Allow all workers to sign a ballot at any time during a union organizing campaign or at any time that represents their yeah or nay to having a union represent them in collective bargaining or to form a union.

Card-check on steroids. I’m fine with this so long as every worker has the choice to opt-in or opt-out. Those who opt-out do not pay dues nor are they forced to join or participate in union activities. And they are free to opt-out at any time, for any reason. Of course, this isn’t what the demand wants, which is forced unionization and elections controlled by union thugs who can intimidate workers into signing the union card.

In conclusion, I suppose I could think of a quicker way to destroy the world economy, reduce the standard of living for everyone, drag the world back into the pre-industrial error and create massive starvation, wars and misery. But I would have to think a long hard time to be able to do a more thorough job than this list. It demonstrates a complete lack of understanding of basic economics and complete lack of understanding about how real wealth is created. And because of that, proposes an economic armageddon the likes of which the world has never seen.