Politicians Caused Mortgage Meltdown

The following article originally was published July 6, 2009, by the Grand Junction Free Press.

Politicians caused mortgage meltdown

by Linn and Ari Armstrong

If you want to know the basics of how politicians caused the mortgage meltdown and the resulting recession, purchase and read Thomas Sowell's new book, The Housing Boom and Bust. In just 148 pages of text (plus notes and such), Sowell explains how political economic controls largely started in the 1970s gained force in the 1990s, initiating the housing bubble in the early 2000s and resulting in the bust of 2006.

Sowell begins his account with the 1970s, when various localities around the U.S. -- particularly in New York and coastal California -- imposed wide-ranging property controls that restricted building and sent housing prices through the roof.

Through such controls as government open space, zoning, "smart" growth, lot size controls, building height restrictions, preservation restrictions, building permit hassles and limits, and planning commissions, various localities forced up housing costs. Meanwhile, housing remained affordable where local governments left it relatively free.

The politically induced pain created the "misconception... that the free market failed to produce affordable housing, and that government intervention was therefore necessary... to enable ordinary people to find a place to live that was within their means," Sowell writes.

Enter the 1977 Community Reinvestment Act (CRA). The legislation directed federal bureaucrats to "encourage" banks "to help meet the credit needs of the local communities in which they are chartered." Over time, this developed into federal policies to cajole and threaten banks into making risky loans.

Starting in the 1990s, activists such as ACORN (and, as reported elsewhere, Sonia Sotomayor), media outlets such as the New York Times, and politicians from George H. W. Bush to Bill Clinton pressured banks to make riskier loans, on the pretext of helping some minority applicants. (As Sowell points out, minorities were hurt worst in the resulting housing bust.)

Janet Reno, Bill Clinton's Attorney General, warned banks, "Do not wait for the Justice Department to come knocking."

In 1993, the Department of Housing and Urban Development (HUD) brought legal action against banks that failed to meet racial quotas in lending. In 1995, new controls under CRA imposed more stringent quotas. Nevermind whether the recipients of the risky loans were prepared to repay them.

In addition to legal action and threats thereof, bureaucrats threatened banks' ability to form mergers and branches unless they followed politically-correct lending practices, Sowell reviews.

Also during the 1990s, the politician-created Fannie Mae and Freddie Mac began lowering lending requirements, partly under pressure from HUD. These quasi-governmental entities purchased risky loans originated by others. Other investors rightly predicted that the federal government would not allow these organizations to bear the brunt of their irresponsible policies; they were later bailed out with tax dollars.

In 2002, George W. Bush advocated subsidies for down payments and zero-down loans. The Federal Housing Administration also promoted zero-down loans. Yet Bush's American Dream Downpayment Act and aligned measures helped create a financial nightmare.

Meanwhile, the Federal Reserve artificially held down interest rates in the early 2000s, encouraging many to buy houses who could not otherwise afford them.

The net effect of all these political controls was to encourage "creative" lending policies, causing an explosion of adjustable-rate and zero-down mortgages, Sowell reviews. When interest rates crept back up in 2004, the houses of cards began to crumble.

Particularly telling is the political reaction to the mortgage meltdown. Many of the same politicians and activists who previously encouraged risky lending quickly turned to blaming the "greed" of the free market. These quotes alone are worth the price of Sowell's book.

For example, in 2003, Congressman Barney Frank said, "Fannie Mae and Freddie Mac have played a very useful role in helping making housing more affordable." In 2007 Frank blamed the mortgage meltdown on "too little regulation." In 2008 Frank blamed "a conservative philosophy that says the market knows best." So Frank first helped destroy the free market, then blamed the market for not working.

In 2004, Republican Senator Kit Bond threatened to cut the budget of an agency that raised alarms about Freddie and Fannie. Later, Bond complained that the same agency had failed to "look at the practices" of Freddie and Fannie.

In 2004, Senator Christopher Dodd praised Freddie and Fannie as "one of the great success stories of all time." In 2007, Dodd blamed others for the "adjustable-rate mortgages that today are defaulting and going into foreclosure at record rates."

In 2003, Congresswoman Maxine Waters said "we do not have a crisis at Freddie Mac" or Fannie Mae and advocated "affordable housing" through "desktop underwriting to 100 percent loans." In 2004, 76 House Democrats, including Nancy Pelosi, urged President Bush to sacrifice "an exclusive focus on safety and soundness" on the alter of "affordable housing."

Now that they have devastated the housing market and caused the worst recession since the Great Depression, these are the same clowns who want to seize control of energy and health care.

Don't let them get away with it again.

Sotomayor Contributed to Mortgage Crisis

I continue my comments on Sonia Sotomayor today by pointing to an article about Sotomayor's role in the mortgage meltdown (thanks again to Jim Pfaff.)

John Carney writes:

Sonia Sotomayor... served on the board of a New York State agency charged with providing discounted mortgages to middle and low income homebuyers from 1987 to 1992. During the time, she was a consistent advocate of pushing the agency to provide more mortgages to low-income home buyers. In short, she advocated the kind of aggressive lending practices that helped create the mortgage meltdown. ...

The agency, which is called SONYMA, is a local version of Fannie Mae and Freddie Mac. It initially provided mortgage insurance to first time homebuyers, mostly on middle-income housing. It expanded into lower-income homebuyers and then into directly buying mortgages in an attempt to push down mortgage rates. During her time on the agency's board, Sotomayor was a consistent critic of its activities, according to this story in the New York Times. And her critique was always the same: not enough loans were being insured on homes for lower-income and minority buyers.

As Carney notes, while Sotomayor's participation preceded the major bubble, the sorts of policies she (and many others) advocated led directly to the mortgage crisis.

For a more complete account of how federal policies created the mortgage bubble and subsequent bust, read Thomas Sowell's The Housing Boom and Bust.

Denver Tax Day Tea Party

The Denver Tax Day Tea Party was a limited success. People flowed over the capitol steps down to the street below. The Denver Post estimates a crowd of "more than 5,000." Sounds like a fair guess to me. I'll post my initial thoughts for now (at about 2:40); later I'll add extensive photographs and audio interviews of the event. (I'll create a second post.)

I got there about 10:15. I would have arrived earlier had I realized my good friend Michael Huttner was putting on a 10:00 news conference in praise of President Obama's policies.

The audio system was inadequate for the crowd. I heard perhaps a minute of the speeches. Those on the upper steps and away from the loudspeakers could hear practically nothing of the official program. I figured others were capturing the audio of the speakers, so I could work the periphery. I conducted numerous short interviews with ralliers and took even more photos. My goal was to see what the typical person who showed up thought about things.

In the course of this, I also ran across a few people with off-topic messages, particularly in opposition to immigration and abortion (as I predicted here and here).

The basic message of most of the ralliers that I talked with is that they're tired of out-of-control federal spending and disgusted with the debt passed on to their children and grandchildren. A few people had more to say about state policy as well.

I had a very nice conversation with a Democratic couple that came to see what the conservatives were up to. Though we disagree about economic policy and the proper role of government, we also found some common ground and had a nice chat (that will go online).

At one point I saw some young kids wearing masks and carrying "end the Fed" signs. I got the photo, as I wanted to show the goofiness as well as the typical rallier. (I disfavor the Federal Reserve, but I don't think wearing silly masks to a rally will help the cause.) I saw a well-dressed young guy approach the kids with another fellow operating a high-end video camera. It was pretty obvious where that was headed. Indeed, soon the guy conducting the interviews started the chant, "end the Fed," which the kids were happy to take up enthusiastically. Clearly this was not a real news crew. Nevertheless, the fellow conducting video interviews and I had a fairly interesting conversation, which we both recorded.

As I mentioned to a friend, my two biggest concerns with the rally were that it was fairly partisan (even though two Republicans I talked with actually presented the strongest criticisms of W. Bush), and it contained some mixed messages. While anti-immigration and anti-abortion messages constituted a small part of what I saw, clearly there remain some serious rifts within the conservative or broadly "right" movement. (I think it's a mistake to call my beliefs either conservative or right-wing, but I do have many conservative friends -- as I have leftist friends -- and others tend to lump me in with the right because I advocate free markets.)

I took off around 1:15, though the speakers were still at it. Note to rally organizers: don't plan a rally that includes more that 45 minutes of speaking, especially on a hot day. A lot of people were leaving with me. I was getting a little dehydrated, too, and I had water in my car.

It's going to take me awhile to process my digital files, so check back later...

Where Is Colorado's Daniel Hannan?

I know a lot of people have already seen this video of Daniel Hannan, a British politician who sounds more American than most American politicians. Hannon notes that his speech became quite popular.

It is remarkable that the United States must now take economic lessons from Britain -- and even China! -- as warning against our federal profligacy.

I'd like to hear just one Colorado politician or candidate give a speech as eloquently devoted to liberty as this short speech by Hannan. I haven't researched his views in depth, so I cannot comment on his entire ideology. But this is three and a half minutes that makes a person want to stand proud.

Yes, Tapy, Free Market Would Revitalize Economy

I had so much fun responding to letters in the Denver Post yesterday that I thought I'd have another go. Today the Post published a letter by Frank Tapy that supports political economic controls. I replied:

What is remarkable about Tapy’s letter is that, while it contains a string of ad hominem attacks, it contains not a single argument in favor of his position.

Meanwhile, free-market advocates have explained in detail how federal controls involving Freddie Mac, Fannie May, the Community Reinvestment Act, the Federal Reserve, and more promoted risky lending that is at the root of the real estate and stock bubble.

Tapy’s claim that a free market will lead to “the collapse of the economic system,” whereas increased political controls supposedly will save it, is laughable. If he were correct, then Soviet Russia and Maoist China should have become the wealthiest nations, while Hong Kong should have failed. The crisis of today’s economic system is the result of political interventions in the economy, yet Tapy calls for more of the same poison.

Prosperity results when individuals have the liberty and the legal protection of their rights of property and contract to produce as they know best and to enjoy the fruits of their labor. When politicians violate people’s rights by trying to centrally plan the economy, they impede and discourage production.

Right now, the federal government is taking massive wealth out of the free economy that is desperately needed for investment and squandering it on corporate welfare. Right now, the federal government is seizing the wealth of the responsible in order to reward the irresponsible. Right now, the federal government is undermining the stability of the dollar and loading down our children with debt. And this is what is Tapy thinks will “revitalize” the economy? Seriously?

What we need is a renewal of economic liberty. What we need is a government that protects individual rights instead of violating them on a massive scale.

No amount of “continuous evaluation and modification” of political controls, no “long-term assessment” of political meddling will achieve prosperity. We need freedom.

-Ari Armstrong
http://www.freecolorado.com/

Political Excess

"Members of Service Employees International Union and other activists gathered at noon Thursday outside Denver's Wells Fargo Center to protest what they called 'corporate excess' as part of dozens of demonstrations planned in 30 cities targeting large financial companies." The Denver Daily News also reported the story.

It is indeed an outrage that AIG and others are essentially paying huge bonuses with taxpayer dollars.

But wait just a minute: who is it that promoted this "corporate excess?" It was the union candidate, Barack Obama, who, along with his predecessor George W. Bush, promoted massive corporate bailouts. The fundamental problem is not corporate excess, but political excess. What we need is an end to all federal bailouts and all political controls of the economy.

The unions, too, contributed to this excess. Unjust union legislation is a big reason why American companies are not competitive, and why the auto industry in particular is failing. The union pressure for artificially higher wages is part of the reason why federal politicians acted to bail out corporations rather than let failing companies go bankrupt. So for the unions to now decry the very political interventions that they helped bring about is absurd and hypocritical.

I have plenty of criticisms of the Ludwig von Mises Institute -- which hardly remains true to the ideas of its namesake -- but recently the organization published a talk by Peter Schiff that goes a long way toward explaining the political excesses behind the irresponsibility of some American corporations. Schiff discusses how the Federal Reserve, first under Clinton and then under Bush, promoted a bubble economy through easy credit.

All the unions want to give us is more of the failed policies that created the economic crisis. Unions, insofar as they benefit from federal favoritism, are part of the problem. What we need is an end to political excess and a renewal of truly free markets.

The Inflation Menace

I've joked with several friends that we should create a betting pool to predict the top inflation rate over the next few years. My bet is that inflation will top out at 11 percent (on an annual track). Some of my friends think I'm playing Pollyanna.

While it's impossible to figure out precisely how the future will play out, due to the many factors and the inherent unpredictability of human choices, Paul Hsieh has brought forth some uncomfortable data, brought to us via Todd Zywicki, via Peter Robinson, via Andy Kessler, from the Federal Reserve Bank of Saint Louis. The upshot is that the number of dollars has skyrocketed in the last few months. As in, roughly doubled.

Zywicki argues -- and I've heard this before -- that so far we have not seen the increased money translate to high rates of inflation because "'velocity' of money has remained low -- people and banks are hoarding money, rather than spending, borrowing, and lending it."

But I don't see how its possible to avoid serious inflation at some point, quite possibly amidst an economic recession.

Political Controls Provoke Producers to Go On Strike

The following article originally was published March 2, 2009, by the Grand Junction Free Press.

Political controls provoke producers to go on strike

by Linn and Ari Armstrong

The economy has recovered from every recession so far, so it's a good bet that, eventually, the economy will recover from the current recession as well. We can be sure that, so long as the recession lasts, Barack Obama will blame outside forces, and as soon as the recession has ended Obama will take the credit.

Assuming the economy starts growing again, it will do so in spite of, not because of, Obama's new forced wealth transfers and political controls of the economy. The controls of Obama, the Congress, and the state legislature, on top of earlier controls promoted by both political parties, threaten economic prosperity.

Such controls violate the rights of producers -- of doctors, engineers, programmers, builders -- to set their own destiny, control their own business and property, and interact with others on a voluntary basis. Political controls subject producers to the whims of bureaucrats.

Controls also forcibly transfer wealth from some people to others, thereby reducing the incentive to produce wealth. Around 40 percent of each new dollar earned goes to taxes. The deficit spending of Obama and George W. Bush threatens to impose the hidden tax of inflation.

When producers face the twin threat of bureaucratic meddling and confiscation of the fruits of their labor, many throw up their hands and either quit producing or cut back. They go on strike, in part or in full, loudly or quietly.

We have talked with countless friends who have decided to invest less or work less. Many would rather work on the house or the car, where at least their labor is not taxed, than spend more time in their chosen field where they are largely directed by bureaucrats and forced to hand over much of their earnings to others.

We have heard of doctors leaving medicine or certain specialties to avoid the associated bureaucratic nightmares.

We have heard of entrepreneurs who would rather sell their dreams to safe corporations than risk opening a new business under the regulatory nightmare of Sarbanes-Oxley and other controls.

We have heard the outrage of working-class families, who are struggling to make their ends meet even as they are forced to subsidize the irresponsible, such as the woman in California who added octuplets to her six prior children. We hear, "Why am I working so hard?"

This idea of a strike of producers is hardly new. In 1937, Harold Ickes, FDR's Secretary of the Interior, "gave a radio speech assailing America's wealthy, charging that sixty families who ran the nation were on strike against the rest of the country," writes Amity Shlaes in The Forgotten Man.

The next year, Wendell Willkie fired back at a similar claim made by Assistant Attorney General Robert Jackson. Willkie said, "Mr. Jackson has previously spoken of a 'strike of capital' against the government. If there is any strike of capital it comes from these millions of small investors, not from the wealthy few... The main problem is to restore the confidence of investors in American business, and to do this will require more than pleasant speaking on the part of government. For several years the government has taken definite action to show its hostility to business." [See This Is Wendell Willkie (New York: Dodd, Mead and Company, 1940), p. 70.]

Ayn Rand, who lived through both the Russian Revolution and the Great Depression, made the idea of the productive strike the theme of her 1957 novel, Atlas Shrugged. For many years the working title was "The Strike." Rand described the theme as "what happens to the world when the Prime Movers go on strike."

Rand wrote of her "fantastic premise," a "hypothetical case" in which the world's top producers disappear, one by one. (Much of the drama takes place in a fictional valley near Ouray.) But the truth behind Rand's literary device remains: political economic controls discourage the producers from creating the wealth necessary for our lives.

Today the fantastic pushes through reality. In a touching YouTube video called "My Strike," a man begins his address by quoting Atlas Shrugged. He explains how friends of his have left their fields. He says, "Now I'm on strike... I woke up one morning and could not think of a single reason to come to work... We live in a time when billions of dollars of market capitalization can be wiped out by a single political speech, statutory command, or regulatory decree. And those politicians consume our lives as much as our dollars."

It's no wonder that sales of Atlas Shrugged have tripled over the same period last year, reports the Ayn Rand Institute.

Perhaps it's time for you to fold up this paper, roll up your sleeves, and get back to work. Because that's what we always do, right? We go back to work, no matter what the politicians do to us or how much they take from us. Until they cross that line and we the producers say, "No more."

Stimulus and Partisanship

Partisans to the left of me, partisans to the right. It was a sea of party politics. The partisans of good ideas, the searching thinkers, those who criticize the errors of their friends with the same enthusiasm that they criticize the errors of their enemies, were hard to find.

This is my third article about yesterday's "Pork Roast Rally" in protest of the so-called "stimulus" package. I've also published photos of the event and extensive commentary about it (along with an audio recording). As I mentioned, the event was overly partisan, in the party sense, to fulfill its potential as a pro-liberty rally. But the few left-wing activists in attendance were no less devoted to party politics.

The Swastika Sign

Take, for example, the sign with the swastika. Mark Wolf writes about this and displays a photograph. Michael Huttner and Jason Salzman, the two left-wingers who attended, noticed this sign, took multiple photographs of it, and made a big deal out of it.

The sign was a dumb idea. Okay, the technical economic definition of fascism is political control of nominally private property, so in that sense Obama is moving in the direction of fascism (as was Republican George W. Bush before him). But the Nazis were particular sorts of fascists with a genocidal racist bent. Does that in any way describe Obama? No. So why go there? Besides that, using Nazi imagery tends toward shrillness in the course of normal American politics, and it is imagery that is easily misinterpreted (either innocently or willfully). So, again, dumb idea.

But the left's treatment of the sign is ridiculously hypocritical. Let's think back... did anyone on the left ever, at any point, call Bush a fascist or equate him with Hitler? Obviously. Many, many times. So why is it okay for the left to do it but not the right? (I think both sides ought to calm down a bit and stick to the substantive issues.) Did Huttner and Salzman condemn their fellow leftists with equal vigor? Hardly.

Huttner's organization has also made a big deal out of the fact that Michelle Malkin had her photograph taken with the guy and his sign. But the guy approached Malkin, as did many others. If a guy with a "Bush = Hitler" sign had his picture taken with a prominent left-wing pundit, what would Huttner and Salzman have to say about that? I imagine they would say something like, "Look, you can't condemn a whole crowd, or a popular pundit, for one random rallier's stupid choice in imagery." And that would be the sensible view. Whatever happened to the goose-gander rule?

Bailout Madness: Bush Versus Obama

My view is consistent: the Obama "stimulus" package is bad, and so was Bush's. This is a view rooted in the ideas of liberty, not party politics. I am perfectly happy to condemn Republicans and Democrats alike for violating economic liberty and individual rights.

My Democratic and Republican friends were less eager to do so. Huttner actively promoted the Obama "stimulus" while condemning Bush's. Jon Caldara and State Senator Shawn Mitchell opposed Obama's "stimulus" and expressed opposition to Bush's stimulus -- just before explaining why it was more justified than Obama's. I found their respective attempts to defend their parties humorous.

To their credit, both Caldara and Mitchell came out strongly against the federal expansions of the Republican Bush. Meanwhile, I have yet to meet a Democrat who does not treat Obama as something approaching Messianic.

Here is an audio recording of Huttner's comments. Huttner's position of opposing the Bush "bailout" while endorsing Obama's "bailout" makes no sense whatsoever.

Listeners will also notice that a couple of misguided ralliers started shouting down Huttner in the middle of my interview. Salzman is saying, "Let him speak!" in the background. I'm saying, "hey, hey," trying to shut up the rallier as he was telling Huttner to "get the hell out of here." Look, I understand that passions tend to run high during rallies, but Salzman and Huttner had every right to be there. The entire purpose of the rally was to capture some of Obama's media on the "stimulus" signing. Salzman and Huttner, likewise, were trying to capture some of the ralliers' media, and they succeeded. That's the way the game works, so keep those tempers in check.

I've compiled the comments of Caldara and Mitchell on the respective "stimulus" packages (sorry about the wind, which was incredibly strong in Denver yesterday, prompting me to joke that the "winds of change" aren't so pleasant).

Caldara argued that, while he opposed the Bush bailout, at least the money is supposed to be paid back. That struck me as a weak defense; clearly taxpayers won't get back a good chunk of that money. Plus, Caldara included tax breaks as part of Obama's "stimulus" package; shouldn't those be treated differently than straight spending, if we're going to treat "loans" differently?

Mitchell made a more sophisticated argument about liquidity (while again opposing the Bush bailout). But the argument is bogus. What the Bush bailout accomplished was to reward failing banks and prevent the financial restructuring that would have put the economy on sounder footing. Bush also oversaw a massive assertion of more federal control over the banking industry, re-writing private contracts as he went. The long-term result of this will be to further socialize banks, leading to less economic stability and more political manipulation. As for the general liquidity argument, clearly the Federal Reserve -- itself a political intrusion in the market -- ought not artificially reduce the money supply, as it did during parts of the Great Depression. But that's far different than just handing out "free" money to banks, which in some cases were essentially blackmailed into taking the funds whether they wanted them or not.

In general, a recession is not a primary economic problem: it is a symptom of previous malinvestment promoted by the federal government. As George Reisman exlpains, a recession is the period of readjustment, in which businesses tend to slash (nominal) prices and wages in the process of getting the economy going again. Not only is federal "stimulus" unnecessary for recovery, it damages real economic recovery.

I realize both Caldara and Mitchell were playing devil's advocate while opposing the Bush bailout. Nevertheless, it is interesting to note that their first reaction was not to blast Bush's bailout and explain why it was a bad idea, but to defend it relative to Obama's bailout. That is a party instinct that I do not share.

Notes on Partisanship

Salzman and Huttner carried around a ridiculous sign blaming the recession solely on George W. Bush and Colorado State Senator Josh Penry, neglecting the obvious fact that the federal congress as well as the entire state government have been in the hands of Democrats for some time. Their logic -- that rising unemployment in the last year of Bush's presidency proves that Bush and his fellow Republicans alone caused the recession -- is laughably simplistic. In fact both Democrats and Republicans had a hand in forming the federal policies over many years that ultimately culminated in the recession. To blame Bush alone is silly enough; to add Penry to the mix is just partisan stupidity. (As Salzman acknowledged, they expect Penry to run for higher office next year.)

I've also spliced together comments of Huttner, Caldara, and Mitchell on partisanship.

Huttner's idea of moving beyond partisanship is for everybody to follow Obama. Well, no thanks. Certainly I advocate partisanship for good ideas, if not for parties.

Caldara defended his speaking list without adding much new.

Mitchell came out strongly against Bush, saying, "George Bush was a terrible domestic president in many ways. Actually I think he was pretty good on supporting growth-oriented tax policies, and on at least raising the issue of Social Security. Beyond that, he was a big-spending, over-regulating mistake."

Now that was a good answer that went beyond party politics.

The GOP's Faith-Based Problem

Unfortunately, when I asked Mitchell about the GOP's problems with social issues, his answer was less convincing. I have argued that the GOP's faith-based politics, in addition to being wrong, is a huge political obstacle.

Mitchell tried to downplay the social issues:

It's a real conflict, but the juxtaposition is grossly exaggerated. When you talk about social policy, we're talking basically about abortion and marriage policies. ... Even if you hold socially conservative views on those two issues, it doesn't thrust the state nearly as heavily into everyone's doings as liberal economic control does.

Anyone who has read the paper I coauthored against Amendment 48 knows why I disagree with Mitchell on that point. The tendency toward theocracy is at least as dangerous as the tendency toward left-wing socialism.

To me, Mitchell is the prime example of the Republican tragedy. He's very smart, and he truly gets the economic case for liberty. At the same time, he promotes rights-violating government in personal areas. Republicans who could combine Mitchell's economic sense, public grace, and brains with the corresponding social views of liberty would be unstoppable in Colorado. Such candidates could make clean, thoughtful, partisan politics something to again savor.

Unless that happens, I say a pox on both parties' houses.

Pork Roast Mixes Liberty, Populism, and Partisanship

It was a hugely successful rally today at Denver's state capitol to protest the so-called "stimulus" package that President Obama signed while in town. Hundreds of people showed up. Jon Caldara ripped up dollars as an act of civil disobedience to protest the "stimulus." The hugely popular Michelle Malkin arrived with roasted pork. A live pig trotted about. Speakers denounced the federal spending, guiding the crowd alternately in cheering, booing, and chanting. The media attended, and some even covered the event.

Despite the overwhelming media cheerleading for Obama's "stimulus" package, a lot of regular people remain angry about it, very angry, and the success of today's rally shows only a little of that bubbling to the surface.

At the same time, the rally sent a few mixed messages, a few of the participants stepped out of line, and Republican partisanship carried the day. Former congressman Tom Tancredo spent several minutes of the rally ranting against immigration, both legal and illegal. Several others wore anti-immigration shirts or carried anti-immigration signs. These folks don't want economic liberty: they merely want the federal government to control the economy in different ways. A couple of guys shouted down Michael Huttner, a left-wing activist, as I was trying to interview him. The fact that Dick Wadhams, chair of the state GOP, took the stage indicates the partisan flavor of the event.

A personal anecdote suggests why I felt a bit out of place. I had printed a few signs with two messages: "Stimulus? Try Liberty," and "What Would Mises Do?" Yes, I know that, in the general culture, Mises is an obscure figure recognized by few. Yet I still like the quote, as it might provoke some to look him up. I figured that Mises would be widely recognized by those at the rally and that the signs would elicit knowing glances of solidarity. Yet when I offered somebody a sign, I heard, "Who's Mises?" I explained with understatement, "He's a free-market economist."

Perhaps I shouldn't make too much of it; after all, somebody else had a sign referring to Hayek's Road to Serfdom, while another sign referred to Ayn Rand's Atlas Shrugged. Still. "Who's Mises?" At a rally supposedly about economic liberty? That's a bit like asking "who's Jesus" at Catholic mass or "who's Lars" at a Metallica concert.

But on with the rally. My photos of the event are available, and Slapstick provides video of the event. For those who prefer lower-bandwidth mp3 audio, I've provided a recording of the entire formal event.

Jim Pfaff from Americans for Prosperity kicked off the event:

Is everybody stimulated? [Crowd chants "no!"] Why not? Because it's not stimulus. We're here today today to say, Barack Obama, you don't know stimulus.

Stimulus is when individuals and businesses are able to take their own decisions and go out and make a life for themselves. To pursue life, liberty, and the pursuit of happiness. Now do you pursue happiness through big-government programs? You make your decisions for happiness.

You should be able to make those decisions, and this stimulus package takes decision-making away from individuals like yourselves. And we want to say no more pork. ...

We want real stimulus, and that's what we're here to talk about today. When you consider Barack Obama's program, he takes money from current and future taxpayers, promising to "invest" -- so-called -- in the economy. Except that it's not going to work. He's going to have to come back and ask for more money, and we're here today to say, no more money.

That, to me, guys, looks like a Ponzi scheme. And in my opinion, Obama, Pelosi, and Reed are the Burnie Madoff Democrats who want to take our money and use it for their purposes, and we're here to say, no more!

Next, Jon Caldara of the Independence Institute took the microphone:

So, are we feeling stimulated yet? Let's make this clear: this is not what we usually do. Usually at this time of day, we're at work. All we want to do is get back to work -- and keep what we earn. According to the CBO, the long-term impacts of this is going to be about $30,000 per family. ...

Caldara introduced Michelle Malkin, who ripped also the Republicans who supported the stimulus:

Thank you, my fellow un-Patriots. You know, Barack Obama gave special phone calls to the members of what I call the turn-coat caucus, Specter, Snow, and Collins, who were behind the engineering of this trillion-dollar sell-out. And he praised them for their patriotism. And my response is, if selling out our children and our grandchildren's future is patriotism, I am very proud to be an un-Patriot in the age of Obama.

When President Obama signs the bill here in Denver, it will represent an unprecedented act of generational theft in this country.

Chuck Schumer said that there wasn't anybody in this country who cared about the pork in this bill. And I think that the most important reason that we're here today is to say, yes, we do care. ...

Caldara next introduced Tancredo. He said, "If President Obama wanted to do one thing for American workers... he would stop the illegal immigration into this country. He would reduce the number of people coming here every day legally." Wow. Not a single word about restoring economic liberty, because that is not a goal that the Tancredo wing of the GOP shares. Why Caldara invited Tancredo is beyond me.

Shawn Mitchell thankfully and predictably stuck to theme:

Today is unfortunately historic. It marks one of the biggest, most expensive mistakes in the history of American domestic policy. Obama-Reed-Palosi couldn't decide if they wanted a bill that was an economic boost, a big-spending welfare wish-list, or a politician free-for-all pork fest. So they did all three. I don't get it. If the problem is that people are borrowing too much on credit cards and on home equity, how does it help things for the federal government to shove us aside and show us what a world-class credit binge looks like?

We today, sadly, are betting our grandchildren's future on the falsehood that you can spend your way to prosperity. You cannot. The Obama-Reed-Palosi lurch to the left is not the change that Americans voted for. We need to remember, we need to get involved, and tell the federal government, live within your means. Thank you.

State Senator Nancy Spence, having to compete with the introduction of the live pig, made some noncommittal remarks about how politicians have to do something, just not what this bill states.

State Senator David Schultheis complained that the "stimulus" package does not sufficiently crack down on illegal immigration. It is a shame that Mitchell had to compete with such off-topic nonsense.

State Senator Kevin Lumberg again got back on track but offered no new substance.

State Representative Cindy Acree said, "Thank you Coloradans for joining together to say that we don't expanded government intervention in our lives. We can manage our lives, our businesses, our health care better than the government can."

Josh Penry, showing good stage presence, said, "I believe that history will remember this vote, this moment, this bill as the moment when Republicans reclaim the mantle of fiscal discipline that is rightfully ours." That would certainly be a nice change of pace.

Wadhams pointed out that many Republicans opposed the so-called bailout. Caldara followed the state GOP chair's brief remarks with the unconvincing note that "this is not a Republican or Democrat event." He then introduced yet another Republican politician, State Representative B. J. Nikkel, who delivered a nice if generic speech. Then Pfaff predicted that Colorado would again be a "red state."

State Senator Kent Lambert said:

We're going to start the road back this afternoon; I'm introducing a bill, we're going to have it here in committee this afternoon, to do something that many of you will find very interesting and will support. That's to put the state checkbook back on the gold standard. Starting this afternoon we're joining with other states to do this. We're going to bring fiscal responsibility back to the United States of America.

I have absolutely no idea what he's talking about. States cannot possibly reinstate the gold standard; that is a federal matter.

Peggy Littleton from the state board of education tried unsuccessfully to tie the "stimulus" to her position. (By this time I was wondering just how many speakers Caldara had invited. I guess it's good to get them on record.)

State Representative Frank McNulty repeated the same stuff. He did let slip, "How can a president who campaigned on change give us so much more of the same?" Do you mean, more of the same of what George W. Bush gave us?

Finally -- thank God it was nearly over -- Pfaff regained the microphone, which he passed off to Caldara to close out. Caldara said, "We believe we can spend our money better than government can. In order to support this package, you must believe one simple truth: that somehow Washington can spend your money better than you can."

Again, it was overall a great rally. Still, while it is totally legitimate to criticize pork-barrel, special-interest spending, the fundamental issue is not pork. The fundamental issue is that people have the right to control their own income and associate voluntarily, and therefore forced wealth transfers and political controls of the economy are wrong. The issue, then, individual rights, as manifest in a free market, the system of economic liberty. Yet, by my count, all the speakers combined mentioned the word "liberty" exactly once, and they did not mention free markets or individual rights. Caldara and Pfaff did say that people should be able to control their own resources, and several other speakers at least hinted that economic liberty is a good thing. Yet two of the speakers concentrated their remarks on further violating economic liberty through protectionist immigration restrictions. Thus, as successful as the rally was, it was also a missed opportunity in many ways.

I'll continue the discussion in a subsequent post, "Stimulus and Partisanship."

Pork Roast Rally in Photos

Here are my photographs of today's "Pork Roast" Rally in opposition to the so-called "stimulus" package that President Obama signed today. Both events took place in Denver. My photos may be reproduced if credited to FreeColorado.com. See Slapstick and Michelle Malkin for additional photos and notes. In a future post, I'll include audio of the event and extensive commentary.


The $30,000 estimate of the total per-household cost for the "stimulus" comes from Representative Paul Ryan.


















Jim Pfaff of Americans for Prosperity prepares to address the crowd congregated at the State Capitol.


Left-wingers Jason Salzman and Michael Huttner come out for the show.




Jon Caldara of the Independence Institute fires up the crowd.




Michelle Malkin delivers a short but feisty talk.


"One Trick" Tom Tancredo does what he does best: lament immigration.


State Senator Shawn Mitchell, on the other hand, addresses the matter of the day with his cold logic and passionate ideals.


State Senator Josh Penry, the man on the radar of Salzman and Huttner, may run for higher office next year.


Brad Jones of Face the State (with the still camera) and Michael Sandoval of Slapstick Politics (with the video camera) cover the event.




This was the lucky pig at the rally, who seemed to be enjoying himself. (Or herself.)


This was the unlucky pig, served with a smile by Michelle Malkin to protest the pork-laden "stimulus" package.

Udall Squishes

Previously I have been impressed with Mark Udall, now Senator for Colorado. As Congressman, he voted against the earlier bailout. Now that the Democrats are in charge, he's all for the new bailout. Apparently he's more interested in playing the role of Partisan Puke than in defending the rights of his Colorado constituents.

Notice the difference between Udall's sincere, informative letter on church and state, the single best letter I've ever received from any politician, and the senseless, pandering, gobbledegook he sent me today:

Friday, February 06, 2009
Dear Armstrong, Ari,

Thank you for contacting me regarding the economic recovery bill being debated in the United States Senate. I appreciate your taking the time to write and expressing your specific concerns about this important legislation. Several thousand Coloradans have contacted me to share their views.

With the worst economic crisis facing our nation since the Great Depression, it is important that we do all we can to give a boost to our economy. According to the U.S. Department of Labor, the national unemployment rate has increased to over 7%, a problem that is adversely affecting many Colorado families. Along with rising unemployment, many Coloradans are struggling to stay in their homes as a direct result of the hardships they have faced because of the current economic crisis.

I believe that we must act to keep Coloradans working, but we must be thorough and get every assurance we can from the best minds, best historians, and best economists to ensure that this legislation will provide the necessary boost to our economy. This package must be transparent and restore accountability to the expenditure of federal monies. Importantly, I want to make sure that the bill is heavily weighted towards creating jobs to stimulate the economy as soon as possible. We have a talented workforce in Colorado and I believe that with the right federal policies, we will be able to keep Coloradans at work and keep them in their homes.

During debate of the economic recovery bill thus far, I have partnered with senators from both parties to improve the bill so that the federal government will spend taxpayer dollars effectively. Moreover, I have filed several amendments that would help re-direct federal monies into job-creating projects that would help put Colorado back on the right economic path. As the bill is being considered you can be sure that my staff and I will keep your suggestions and concerns in mind.

Thanks again for contacting me. My job is not merely about supporting or opposing legislation. It is also about bridging ideological divides and bringing people together to solve problems. I welcome your letters and e-mails and always listen closely to what you and other Coloradans have to say about matters before Congress, the concerns of our communities, and the issues facing our state and nation.

Warm Regards,
Mark Udall
United States Senator, Colorado

Stop the Bailout: Salazar Promotes Special-Interest Warfare

The following article originally was published February 2, 2009, by Grand Junction's Free Press.

Salazar promotes special-interest warfare

by Linn and Ari Armstrong

Shame on Congressman John Salazar for voting to pass the special-interest monstrosity deceptively called the American Recovery and Reinvestment Act, passed by the House on January 28. Barack Obama and the Democrats are following in George W. Bush's footsteps in expanding the power of the federal government at the expense of the free economy.

If politicians actually cared about economic recovery, they would remove the political controls that have caused the recession and hampered economic growth. Through myriad controls, politicians have encouraged risky home loans, discouraged the formation of new companies, pushed up the cost of health care and energy, and buried businesses and taxpayers under mountains of paperwork. True economic recovery would consist of repealing those controls and curbing the diversion of precious resources to bureaucrats.

The whole idea that politicians can right the economy with "stimulus" spending is a fallacy. The economy is not a wind-up toy.

The recession is not the fundamental problem: it is the consequence of malinvestment promoted by the federal government. For example, through such measures as the Community Reinvestment Act and easy-money Federal Reserve policies, the federal government encouraged many to buy homes they couldn't afford and weren't prepared to maintain. Federal politicians thus encouraged too much investment to flow to properties, construction, home-improvement stores, etc., and away from other industries. A recession is a period when people recognize the nature of the malinvestment and act to correct it by adjusting investment, production, and employment.

All federal "stimulus" spending accomplishes is to replace earlier malinvestments with new ones, while robbing the free economy of the resources it needs for true, long-term recovery. After all, that "stimulus" money comes from somewhere. The Congressional Budget Office estimates the bill "would increase federal budget deficits... by $816 billion over the 2009-2019 period."

Deficit spending means the federal government is borrowing money that its earners would otherwise spend or invest in the free economy. Deficit spending must be repaid through future taxes or inflation, the most insidious form of taxation.

So where is that money headed, anyway? We don't know quite what the final bill will look like, and we do not doubt that the Senate will further load it up with pork. Part of the package consists of tax breaks, which we don't have a problem with, though we point out that tax breaks without commensurate spending cuts again leads to deficit spending. Figure that new government spending will amount to around three-quarters of a trillion dollars.

Of that money, only a portion will be spent within the next couple of years, while the rest will supposedly "stimulate" the economy into 2019, though we hope the recession has ended well before then. This indicates the basic problem with the bill. It is not fundamentally about "stimulating" the economy, it is about paying off special interests.

The most popular spending is for infrastructure. The Associated Press reports figures of "$30 billion for highway and bridge construction and repair," "$31 billion to build and repair federal buildings and other public infrastructure," "$19 billion in water projects," and we might include here "$21 billion for school modernization." That's about $100 billion, a small fraction of the package.

One thing we can count on is that even infrastructure spending will be wasteful, as funds are spent for political purposes rather than economic ones. Anyway, don't we already pay the gasoline tax for roads and property taxes for schools? Where's all that money going? The federal "stimulus" spending will help free up that money for yet more special-interest payoffs, so that Obama can help Democrats all the way down the line.

Meanwhile, federal politicians want to spend around $150 billion more on health welfare, $43 billion more to pay people not to work, and $20 billion more on food stamps. In other words, the "stimulus" spending devotes more than twice as much resources to expanding the welfare state than for building infrastructure. But rewarding people for not working and for remaining poor does not stimulate the economy. You get more of what you subsidize, and that goes for unemployment and poverty as well.

Do you see how the game works? First, federal politicians eat up a huge portion of people's paychecks in payroll and income taxes, so that many struggle to pay off debt and save for hard times. Then, having largely destroyed people's ability and incentive to save, the same federal politicians kindly step in to help their victims through the recession that federal policies caused. And this is what is known today as "stimulating" the economy.

The American people have trusted the likes of John Salazar for far too long. Some become blinded by the misleading rhetoric of "stimulus." Others just want a handout.

But for Americans who care about economic liberty and individual rights and who want to preserve a free country, now is the time to say enough is enough. Give us liberty.

Barack Obama and the Politics of Cynicism

Barack Obama said many wonderful things in his inauguration address, and he said them very well. Ultimately, however, Obama offers the message that economic liberty must be forcibly restrained because free-market principles no longer apply.

Obama calls his opponents cynics. What is cynicism, and which side exhibits it? Obama uses the term basically to mean a nay-sayer. The modern term but loosely connects to its Greek roots; Oxford's dictionary defines a cynic by today's usage: "A person disposed to rail or find fault; now usually: One who shows a disposition to disbelieve in the sincerity or goodness of human motives and actions, and is wont to express this by sneers and sarcasm; a sneering fault finder."

Obviously merely finding fault is not cynicism; anyone who takes any position whatsoever necessarily finds fault with the other side. Instead, cynicism is faulting others' positions or motives without good reason, or faulting mankind as such though no such conclusion is warranted; it is substituting the sneer for the argument. So what does Obama have to say about cynicism?

Obama complains about "worn-out dogmas that for far too long have strangled our politics"; he says "the time has come to set aside childish things." He leaves his meaning obscure, but clearly he's setting up somebody for a fall.

Obama then offers due praise to the American spirit:

[I]t has been the risk-takers, the doers, the makers of things -- some celebrated, but more often men and women obscure in their labor -- who have carried us up the long, rugged path towards prosperity and freedom. ... We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished.

He then summarizes his ambitious goals:

The state of our economy calls for action: bold and swift. And we will act not only to create new jobs but to lay a new foundation for growth.

We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.

We will restore science to its rightful place and wield technology's wonders to raise health care's quality... and lower its costs.

We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age.

Obama's vision for the federal government is ambitious. He wants the federal government to aggressively fund not only transportation infrastructure, but communications, scientific investigation, health care, energy production, and education. Later he says the federal government should also help people find jobs and prepare for retirement. The scope of this federal control of the economy is breathtaking. Though he invokes the spirit of the Founders, the sort of federal government that Obama promotes bears little resemblance to the government instituted by the Founders, the purpose of which is to defend our "unalienable Rights" to "Life, Liberty and the pursuit of Happiness."

Far from endorsing a free market, Obama instead lauds the "watchful eye" of the federal government. This is not merely the eye of a "night watchman" who guards against force and fraud and helps resolve disputes peaceably. That sort of watch protects a free market. Instead, Obama proposes a "watchful eye" that observes -- and controls -- how people spend large fractions of their money, which corporations receive federal funding, how individuals and companies conduct business, and how individuals receive health care and other basic services. It is a Watchful Eye with a far and penetrating gaze.

Here is the segment in which Obama discusses his Watchful Eye and the alleged cynicism of those who do not care to be so watched:

Now, there are some who question the scale of our ambitions, who suggest that our system cannot tolerate too many big plans. Their memories are short, for they have forgotten what this country has already done, what free men and women can achieve when imagination is joined to common purpose and necessity to courage.

What the cynics fail to understand is that the ground has shifted beneath them, that the stale political arguments that have consumed us for so long, no longer apply.

The question we ask today is not whether our government is too big or too small, but whether it works, whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.

Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

And those of us who manage the public's dollars will be held to account, to spend wisely, reform bad habits, and do our business in the light of day, because only then can we restore the vital trust between a people and their government.

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched.

But this crisis has reminded us that without a watchful eye, the market can spin out of control. The nation cannot prosper long when it favors only the prosperous.

Notably, Obama completely ignores the fundamental cause of our economic troubles: a network of federal controls that promoted risky loans. In other words, the cause of the problem was the federal government's "watchful eye," yet Obama considers it the only solution.

Obama's passage echoes the writings of Jim Wallis, who preaches "progressive" religion:

One could say that people of faith should endorse a "limited" view of government. This is not the old conservative proposal for small government, sometimes cynically argued in order to reduce the public sector's ability to counter the power of the wealthy and ensure more fairness and balance in a society. But neither is it an argument for big government that usurps more and more control in a society and puts in jeopardy both individual rights and countervailing powers to the state. Clearly, the answer to the endless left-right debate is neither small government nor big government, but rather effective, smart, and good government.

Obama (following Wallis) is right about one thing: the central issue is not about small versus big government. The central issue is about whether government protects or violates individual rights. If a large number of citizens roam the countryside victimizing innocents, government must exert considerable force stopping them. If a foreign aggressor threatens to destroy us or take us over, government must grow to a size necessary to stop the threat. In all cases, it is the proper job of government to protect us from force and fraud and oversee the peaceable resolution of disputes. That is, it is the proper job of government to protect our rights, whatever size of government that requires.

Central to liberty is the right to use one's own wealth and resources as one deems best. We have the right to interact with each other on a voluntary basis, rather than by force. We have the right to exchange and cooperate to mutual advantage. We have the right to volunteer our services or donate our wealth as we see fit. We have a basic, fundamental human right to live in economic liberty. The term for such a socio-economic system, in which the rights of each person are consistently upheld, is capitalism, characterized by the free market.

Notice that Obama does not praise a "free market," but a market under the federal government's Watchful Eye. Obama does not endorse economic liberty, free markets, or individual rights in the economic sphere. He endorses the massive, forced redistribution of wealth by politicians and bureaucrats. He endorses far-reaching economic controls by the same. His vision of the federal government is not one that protects individual rights in the economic sphere, but one that aggressively violates them.

Yet Obama, like Wallis, holds that no principles are necessary in the economic sphere. True, Obama praises the "old" virtues of "honesty and hard work, courage and fair play, tolerance and curiosity, loyalty and patriotism." But these can remain sufficiently vague so as not to challenge the propriety of the Watchful Eye.

To Obama, anyone who upholds government as the defender of economic liberty must be dogmatic, childish, cynical, detached from reality, and "stale" in their arguments. Obama's alternative is a pragmatic appeal to government that "works" to oversee the economy. But this raises several questions. If economic liberty is a dogma, then what is it that Obama advocates? Who is to determine whether the government is "working?" For whom is it "working?" How can a government "work" to violate individual rights without straying from justice and prosperity? How can a government that violates economic rights protect rights generally?

Theory and fact, ideology and history demonstrate that economic liberty promotes justice and prosperity, while political controls promote the opposite. Obama's memory seems to have shut out practically all of the 20th Century. Those who argue that federally-controlled medicine wouldn't work (to take but one example) do not embrace cynicism: they embrace reality.

So who here is the true cynic?

Advocates of economic liberty hold that each individual properly lives his own life and pursues his own ends, consonant with the rights of others. Such advocates hold that, when people are free from force and fraud, they will join together on a voluntary basis to create a just, prosperous, and peaceful society. This view is the opposite of cynicism: it is a view rooted in the belief that people tend to do a good job leading their own lives and cooperating with others, and that the best society is a free one.

Obama, on the other hand, unleashes a string of personal attacks against the defenders of economic liberty. He implies that a government that protects individual rights is inadequate for preserving the "greatness of our nation." He holds that people, if left to their own choices in a system of economic liberty, will tend to do the wrong thing. What people need is not liberty, by Obama's view, but the guidance of a Watchful Eye. He holds that people must be watched -- and controlled -- by federal politicians and bureaucrats.

I can imagine no more cynical view than that.

Obamanomics Threatens Economic Recovery

The following article originally was published January 20 in Grand Junction's Free Press.

Obamanomics threatens economic recovery

by Linn and Ari Armstrong

Barack Obama wants to "stimulate" the economy with barrels of other people's money. Crack cocaine and crystal meth provide a "stimulus" too, and Obama's proposal is about as healthy. Obama would have us believe that the answer to bad debt is more bad debt. Like a drug addict, Obama is looking for a short-term fix that endangers long-term health.

In his January 8 speech on the economy, Obama warned, "If nothing is done, this recession could linger for years." But if Obama proceeds with his plan, he could make the recession worse and undermine long-term economic prosperity.

A recession occurs when an economic shock compels people to readjust their plans. In this case, the shock was largely caused by federal policies that encouraged and even mandated risky home loans. A recession is the period of changing strategies and rethinking behavior that sets the stage for renewed economic prosperity. A sick economy, like a sick person, needs recovery, not artificial stimulation.

The basis for long-term economic prosperity is the enforcement of just and stable laws. The government plays a legitimate role in preserving a free market by protecting property rights and freedom of contract, stopping violence, rooting out fraud, and providing the legal framework for resolving disputes.

Such stability is precisely what Obama threatens to undermine. It is ironic that Obama delivered his address at George Mason University. Russ Roberts, an economist at George Mason, recently wrote, "By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air... The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."

In his Virginia Declaration of Rights, Mason himself wrote "That no free government, or the blessings of liberty, can be preserved to any people but by a firm adherence to justice, moderation, temperance, frugality, and virtue..." Obama's plan is the opposite of temperance and frugality.

Obama said he wants to spend tax and deficit dollars to "invest in priorities like energy and education; health care and a new infrastructure." Isn't it interesting that this is the same corporate and personal welfare Obama also supported before the recession?

Obama wants more federal control over the economy, and he is using the recession as a pretext to achieve it. Does anyone doubt that these "investments" will be politicized? Obama has long supported government-funded health care. He has long demonized traditional energy producers and called for politically-correct -- and frighteningly expensive -- "green" energy.

The result of Obama's "investments" will be to put medicine, energy, and other industries more under the capricious control of federal politicians and bureaucrats, thereby contributing to the insecurity that Roberts warns about.

Obama would also siphon resources away from free-market investment. The government can "invest" only by taking wealth out of the free economy through taxation, deficit spending, or inflation. Politicians now talk of adding a trillion dollars to the deficit. This too threatens long-term prosperity.

Yaron Brook of the Ayn Rand Institute argues that the federal government should reduce spending -- not increase it -- so that "as much real capital as possible will remain in private hands, and be put to productive use by entrepreneurs to create valuable goods and services to sell at home and abroad."

In his speech, Obama invoked the spirit of Franklin Delano Roosevelt and his New Deal. Is Obama the next FDR? Those who read our December 8 column may hope not. Through his first two terms in office, unemployment never dipped below 9 percent (or 14 percent depending on the estimate), and it climbed again by 1938, due largely to FDR's stiffer wage controls.

Amity Shlaes reviews the transition from Coolidge to Hoover to Roosevelt in her book The Forgotten Man. As Vice President under Harding, "Cool Cal" witnessed a recession in the early 1920s, but thanks to a hands-off policy, by 1923 "it was hard to find an unemployed man."

But in the early 20th Century central planning became the rage in parts of Europe and, to a lesser degree, in the United States. Shlaes reviews that two economists popularized the term "beneficent hand" to substitute the hand of politicians for the Invisible Hand of Adam Smith's market. In their book The Road to Plenty, they promoted spending as primary.

But one astute observer of the time wrote about this book, "Too good to be true -- You can't get something for nothing." This observer was FDR himself, just a few years before his own "beneficent hand" stimulated the economy into the ground.

FDR forgot the lesson that Obama seems never to have learned. A stimulated orgy of federal spending is no substitute for a sound economy.


Linn is a local political activist and firearms instructor with the Grand Valley Training Club. His son Ari edits FreeColorado.com from the Denver area.

Quillen on New Deal Make-Work

Unlike FDR's wage and price controls, destruction of agricultural crops, and massive cartelization schemes, the New Deal's make-work spending actually left something to show for the effort. Ed Quillen, neglecting to review the most obviously destructive aspects of the New Deal, points to the "infrastructure" projects that continue to enhance our lives. He pushes his point: "The post- World War II population growth along the Front Range couldn't have happened without those Depression-era water projects."

Letter writer Cora Scherma praises Quillen's analysis and New Deal make-work: "[P]erhaps the neocons and libertarians among us should consider the following: Don’t attend concerts or religious services at Red Rocks; don’t enjoy IMAX films at Phipps Auditorium; avoid sections of the Denver Zoo lest you be tainted by big government..."

But Quillen and Scherma commit a basic economic fallacy. Henry Hazlitt explains in Economics In One Lesson:

There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to "insufficient purchasing power." The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the "deficiency."

An enormous literature is based on this fallacy... [A]ll government expenditures must eventually be paid out of the proceeds of taxation; that inflation itself is merely a form, and a particularly vicious form, of taxation. ...

I am here concerned with public works considered as a means of "providing employment" or of adding wealth to the community that it would not otherwise have had. ...

For every dollar that is spent on the bridge [or other public work] a dollar will be taken away from taxpayers. ... Therefore, for every public job created by the bridge project a private job has been destroyed elsewhere. ... [Consider also] the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. (1979 edition, pages 31-34)

Of course an artificial boom or bubble -- such as the modern one caused by federal easy credit policies -- necessarily triggers a consequent recession, which tends to generate temporary unemployment. If the government has imposed wage controls, including wage floors and union favoritism, this will dramatically exacerbate unemployment, as it did during the Great Depression clear through the late '30s. The solution is to remove the political impediments to economic activity and allow a recovery. Federal make-work may soak up some of the unemployment, but only at the costs that Hazlitt reviews. These funds are desperately needed in the market economy; they will instead be diverted to politicized projects.

Quillen errs also in imagining that government is the only entity capable of conducting certain projects. But there is no reason to expect that a market cannot provide water as it provides so many other goods and services.

Scherma adds a double error to the above. First she suggests that the only ones to oppose federal make-work are "neocons and libertarians"; I am neither. Second she implies that, when politicians force people to fund projects, those most opposed to that use of force should also refrain from benefiting from that which they were forced to fund. But that would only add a second injustice to the first, first stripping people of their wealth, then of even any marginal benefits of it.

The seen, as Hazlitt puts the matter, consists of the projects funded by politicians with other people's money. These projects are visible, and their use is obvious. They offer something tangible for which the politicians can take credit. The unseen are all the investments and expenditures prevented by the forced wealth transfers. Politicians can take little credit for allowing individuals to produce without their "help." So the next time you read about New Deal spending, or federal spending under Obama, consider not only the jobs and projects created, consider also the jobs and projects prevented.

Russ Randall on the Economy

Last night I heard an interesting presentation by Russ Randall on the economy. I haven't investigated his claims sufficiently to judge whether they're remotely on track, but he tells a fascinating and initially-plausible story.

Randall started a web page with the peculiar name, Austrian Enginomics, which he describes as "Austrian Economic Theory blended with engineering logic." I'm not quite sure what that means. In Randall's favor, he was predicting economic trouble back in 2005:

Many economists believe the current (May 2005) cycle of interest rate tightening will be the cause of the economy eventually “breaking” and sinking into a recession or worse. Enginomics (and Austrian economic theory) recognizes the root cause of any upcoming economic downturn was the financial bubble creation in the first place; NOT the series of interest rate increases. The current series of post-root-cause central bank interest rate increases are belated attempts to correct a problem they created in the first place by the extended artificial suppression of interest rates and administration of easy monetary policy operations. (emphasis omitted)

Randall tries to estimate the real value of economic production based on inflation, population, and productivity measures. He places actual "total equity valuation" in 2007 at around 8 trillion dollars, whereas the nominal value showed closer to 18 billion. By this account, stocks have not reached their downward correction, and real estate is about half way there. The bond market has not yet started to fall but is soon to follow.

Randall further argues that the serious problems started around 1994, when easy money policy started to generate "the most extraordinary equity bubble in the history of the republic." This bubble began to correct from about 1999 till about 2002, when the feds again started cranking out easy credit.

So the bad news, by Randall's account, is that the economy is going to get seriously worse before it recovers. The good news is that our economy does produce vast real value, so, while production will dip below normal for a period as firms and individuals make the necessary transitions, the economy will recover. If, that is, the federal government does not totally destroy the economy through attempts at massive central planning.

There is an obvious potential problem with Randall's account, though: his base-line estimate of productivity may be way off. This goes back to debates about the Great Depression. I am persuaded that most of the stock gains through the '20s represented real economic improvements; the era showed profound advances in technology and manufacturing. While federal policy did create a bubble, the deep problem was caused by Hoover's tariffs and wage and price controls. I have no idea whether productivity today tracks Randall's estimates. But I would want to look carefully at the tremendous advances in computer technology, the internet, cell communication, and medical technology before concluding that his estimates are accurate. Obviously, if real productivity is higher than what Randall estimates, then the bubble is smaller, as are the necessary economic adjustments.

Generally, I am not going to get in the game of trying to predict the economy. It's a very hard thing to do, which is why very smart people routinely lose tons of investment money. A friend of mine once related a story that illustrates the problems. He was part of an investment club that spent considerable time tracking stocks and creating just the right portfolio. After many years of this, the portfolio showed practically the same gains as the S&P 500. We've all heard that chimpanzees throwing darts at a board could over time do about as well in creating a diversified portfolio as the highest-paid experts in the field.

That is not to say that the market is fundamentally irrational or totally unpredictable. Rather, because people tend to capture obvious gains immediately, and because of the inherent uncertainty of the future, "get rich quick" investment typically doesn't work. A major source of uncertainty is the large-scale, capricious economic intervention of politicians.

Yet, at a broader scale, economic trends are predictable. In an economy with fair and stable rules that protect property and voluntary association, the economy will tend to continually grow more productive and prosperous. In a completely capricious society, whether run by local thugs or national dictators, the economy will tend to stagnate and shrink. We are in a middle stage, and general economic trends are difficult to predict precisely because it's hard to measure and anticipate the conflicting movements of productivity gains and political losses.

Obviously, people looking to invest or protect existing investments do their best to anticipate short-term economic trends. But, for the general long-term health of the economy, what are important are the principles. We're in the mess we're in precisely because politicians and their appointees have strayed from sound economic principles and turned to range-of-the-moment tinkering. On this point, Randall and I agree.

Obama's Fear Mongering

Barack Obama wants to frighten us into giving the federal government dramatically more power over the economy. However, not even his own advisers agree with his economic predictions. Obama said, "If nothing is done, this recession could linger for years. The unemployment rate could reach double digits."

Of course it's easy to claim that something "could" happen. But Obama wrongly suggests a causal relationship. It is also true that "if something is done, this recession could linger for years" with double-digit unemployment. And everything about Obama's economic plans promises to undermine the economy, from trade restrictions to welfare expansion to new controls on energy and medicine.

But here let us look only at the job picture. Interestingly, Obama's advisers released a paper the day after Obama's speech in which they claim unemployment will reach 9 percent "Without Recovery Plan" and only 8 percent with it. Well, they can claim whatever they want. The fact is that increased central planning threatens the economy. At least they admit:

It should be understood that all of the estimates presented in this memo are subject to significant margins of error. There is the obvious uncertainty that comes from modeling a hypothetical package rather than the final legislation passed by the Congress. But, there is the more fundamental uncertainty that comes with any estimate of the effects of a program. Our estimates of economic relationships and rules of thumb are derived from historical experience and so will not apply exactly in any given episode. Furthermore, the uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity.

In other words, it's hard to predict the future. A lot of things "could" happen. The economy could recover relatively well despite Obama's grand schemes. But Obama's advisors fail to look at one source of error: the flaws generated by their own pragmatist/Keynesian pretensions.

Richman Versus 'Stimulus'

Sheldon Richman has a nice article out today summarizing the folly of "stimulus" spending:

Since the government has no money lying around waiting to be spent, it will have to borrow close to a trillion dollars to carry out the program President-elect Obama and the congressional leadership are planning. But borrowing money for their pet projects injects nothing into the economy. It merely moves money from where it currently is in the economy to where politicians want it to be. How is that a stimulus?

Moreover, the debt will be covered (monetized) by the Federal Reserve by creating money out of thin air.

Obama is trying to frighten the American public into supporting a massive expansion of federal power -- an expansion that Obama would have favored regardless of economic conditions. But a more-socialized economy will not lead to prosperity: it will undermine it. Now is the time for Americans who care about their liberties and their economic well-being to stand up and demand economic liberty.

Liebowitz Explains Mortgage Meltdown

Stan J. Liebowitz of the Independent Institute wrote a paper this last fall titled, "Anatomy of a Train Wreck: Causes of the Mortgage Meltdown." He summarizes (on page 4):

[M]ortgage underwriting standards had been undermined by virtually every branch of the government since the early 1990s. The government had been attempting to increase home ownership in the U.S., which had been stagnant for several decades. In particular, the government had tried to increase home ownership among poor and minority Americans. Although a seemingly noble goal, the tool chosen to achieve this goal was one that endangered the entire mortgage enterprise: intentional weakening of the traditional mortgage-lending standards.

After the government succeeded in weakening underwriting standards, mortgages seemed to require virtually no down payment, which is the main key to the problem, but few restrictions on the size of monthly payments relative to income, little examination of credit scores, little examination of employment history, and so forth also contributed. This was exactly the government's goal. ...

The increase in home ownership increased the price of housing, helping to create a housing "bubble." The bubble brought in a large number of speculators in the form of individuals owning one or two houses who hoped to quickly resell them at a profit. Estimates are that one quarter of all home sales were speculative sales of this nature. ... Once housing prices stopped rising, these speculators tried to get out from under their investments made largely with other peoples' money, which is why foreclosures increased mainly for adjustable-rate mortgages and not for fixed-rate mortgages, regardless of whether mortgages were prime or subprime.

Liebowitz goes a long way in explaining the economic problems in which we find ourselves. One lesson to be learned is that "owernship" ought not be confused with a free market. Ownership via voluntary transactions is wonderful; ownership through political force is dangerous.

Bush Rationalizes Bailouts

George W. Bush, a terrible president in nearly every respect, continues his assault on free markets. As Patrick Buchanan notes and others have verified, Bush told CNN in defense of auto bailouts, "I've abandoned free-market principles to save the free-market system."

But Bush never had any free-market principles to abandon. He's been one of the more statist presidents, though lagging behind the likes of Hoover and FDR, dramatically expanding the scope and power of the federal government.

Bush's statement is pragmatism on steroids: it is not merely the view that principles are unnecessary, but that they should be actively violated.

But liberty cannot be saved by violating liberty. To the degree that free-market principles are abandoned, the free-market system no longer exists. Free markets are free from the initiation of force and fraud. Free markets exist when government limits its activities to protecting people's rights to life and property. When the government forcibly takes wealth from some to redistribute to others, that is not a free market, it is a politically-controlled one.

Bush might as well say that he's committing theft to protect property or assault to protect the integrity of the victim. He might as well say he's drinking vodka to stave off drunkenness, cheating to preserve fairness, or lying to protect the truth.

The primary reason that American auto manufacturers are in trouble is that they do not function in a free-market system. They function in a system of federal manipulation of the money supply, federal manipulation of the housing supply (which has generally mucked up the economy), federal manipulation of auto production, and federal manipulation of associations.

There is only one way to save the free-market system, and that is to reinstate the principles of free markets, the principles of liberty, the principles of individual rights. By trampling free-market principles, Bush is helping to destroy the free-market system.

Bailout for Santa Claus?

The following originally was published December 22 by Grand Junction's Free Press.

Would Santa Claus plead for a bailout?

by Linn and Ari Armstrong

For this week's column we submit the following letter that we suspect fell out of Santa's sleigh on one of his pre-Christmas runs.

Dear Mr. President and the Congress,

You've all written me many "Dear Santa" letters, asking me to fulfill your every childhood dream. I did try to give you something meaningful each year, though many of you made the naughty list more often than I would have liked.

Now it's my turn to write you a letter. It pained me to have to hire my first American lobbyist a few years ago, Edgerton the Elf. Edgerton is a good elf, but I'm afraid he's been caught up in the bailout frenzy currently sweeping your lovely little country.

Edgerton pleaded with me to write you a letter asking for my own bailout. Can you imagine -- a bailout for Santa Claus! Well, why not? It seems like everyone else is asking for a bailout on somebody else's dime. Why not me?

I am delighted to take this opportunity to explain why I oppose all bailouts.

You may wonder why I sent my elf Edgerton to Washington. It is unfortunate, shameful, even, that so many Americans treat lobbying as the practice of gaining other people's money or political advantages over their competitors.

My sole interest in keeping a lobbyist is frankly to protect myself from you. Take labor. My elves are perfectly happy to work for me, and those who wish to work elsewhere are free to do so. (I'm delighted that several of my former employees made it big in Hollywood.) Our employment arrangement is properly between us.

Yet some Americans, in a misguided desire to protect their own industries, keep trying to export the crazy American labor laws that go far beyond protecting the right to freely associate. These laws instead artificially boost the wages of some at the expense of consumers and other workers. This is among the reasons your auto producers now face the possibility of bankruptcy.

In the auto industry, executives and union members alike now want to force other Americans to hand over their money, at the cost of surrendering yet more autonomy to politicians. After all, Washington bailed out various banks and lined other pockets, so why not car makers, too?

You don't need Rudolph's nose to see where this is headed. If people who declare to be in need are able to take by political force the wealth of others, then more will figure out how to become needy, and those paying the bills will wonder why they continue to work so hard. They will even wonder why they shouldn't just throw in the mufflers and sign up for their share of the loot.

I've been around long enough to see what happens to countries that follow this course to its logical conclusion. It is the ugly spectacle of everybody trying to steal from everybody else, first under color of law, by other means later on.

Ah, but aren't I the most famous bringer of free gifts? Perhaps. But notice that they are mine to give. I have the resources and ability to do it, and I deeply enjoy it, traveling the world and keeping up with the world's children.

Also notice that I give gifts based on niceness. What is the essence of naughtiness? Here are a couple examples. This past year, little Jed from downtown -- you know who you are -- punched Jamie in the face for no good reason. And Steve from Fruita stole a candy bar from the market.

Naughtiness comes in many forms, but the sort I'm most concerned with is hurting other people and stealing from them, whether by force or through lies. So, I'm sorry to say, most of you politicians have made my naughty list big time this year. Taking people's things by force doesn't become nice just because you vote on it. Giving away things that don't belong to you isn't "playing Santa Claus."

I know you've been shoveling the smelly reindeer stuff about this, pretending you're doing it to "stimulate" the economy. The only things you've been stimulating are the special interests and your reelection coffers. It turns out that people don't feel very stimulated when they keep less of what they earn and see that dissipate in inflation.

If you really want to help people, then quit being naughty. Quit giving some the ability to impose their will on others through force. Protect people's rights to lead their own lives and interact with others by mutual consent.

Now I hope you'll excuse me, as there's purple smoke billowing from one of my work rooms. Remember you have free will, and it's up to you to move from the naughty list to nice. I've always found that to be a big part of Christmas wonder. Now, to all a good night.

Sincerely,
Santa Claus

'Taxpayers... Bleeding at Every Pore'

Here I continue my review of Burton Folsom Jr.'s new book, New Deal Or Raw Deal? In Chapter 6, Burton describes employment payments and the Works Progress Administration (WPA). At the end I relate the history to modern events.

As I've reviewed, federal politicians generated the unemployment problem of the Great Depression through trade-killing tariffs, investment-killing Federal Reserve policies, and job-killing wage controls. On top of this, politicians imposed price controls and reduced crops of food and cotton, thereby increasing the costs of food, clothing, and all manner of other goods and services. Most of these controls resulted from the bipartisan efforts of Hoover, FDR, and Congress. And yet we are to take FDR as some sort of national hero for forcibly redistributing wealth to his victims. And how did that work out?

In 1932, Congress under Hoover passed a $300 million Emergency Relief Construction Act to provide money to states claiming to need it. Roosevelt increased the funding under his Federal Emergency Relief Administration. This had two main effects. First, state leaders had a strong incentive to claim need and to perpetuate need. Second, individuals had a strong incentive to stay on tax-funded relief. It turns out that rewarding people for staying in need tends to generate needy people.

Folsom quotes FDR's concession of 1935 "that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber." (This is one bit of advice I wish modern Democrats would heed.) FDR's answer was to repeal the federal controls that had caused and worsened the Great Depression -- we can only wish. Instead, FDR sought to nationalize various industrial projects under the WPA.

While the WPA boasted real achievements, Folsom reviews, it also fostered worthless make-work schemes. Moreover, the project became deeply politicized. Not only were the funds often directed regionally for political reasons, but individuals were "encouraged" to hold the right political views and make the right political donations to keep their tax-funded jobs.

The line about bleeding taxpayers came from Oklahoma Senator Thomas Gore, who alone voted against the WPA -- and got trounced for it come election time. The country got a taste for interest-based politics.

Folsom curtly answers his main question posed as the chapter's title: "Relief and the WPA: Did They Really Help the Unemployed?" Folsom argues that, prior to the New Deal, "charity had been a state and local function." Critics will answer that the magnitude of the Depression demanded Federal action. Folsom proves that the programs were politicized; that doesn't prove they didn't also achieve their objective or that modern programs can be improved, his critics will return. Folsom rests his case with Henry Hazlitt, who points out that tax-funded projects necessarily come at the expense of the activities that otherwise would have been funded directly by those earning the money.

Public works seems to be the main part of the New Deal that President Elect Barack Obama hopes to duplicate. Obama also wants to expand forced wealth transfers to the unemployed and impose harsher wage controls (though the inflation Bush and Obama seem determined to unleash may make such wage controls superfluous).

It is inevitable that Obama's make-work programs will be politicized; his "green" program is inherently so. No doubt the regions and firms with the best political connections will get the most dollars.

Yet, despite all this, do public-works projects help the economy? It is true that widespread malinvestment -- such as that encouraged by the federal government relative to mortgages -- requires a period of painful readjustment. But that's not a problem that can be fixed through public works. Instead, increased federal spending -- which must come from new taxes or deficits -- will only divert resources critically needed elsewhere for recovery. As Folsom quotes Hazlitt, "for every public job created... a private job has been destroyed somewhere else."

(The argument that various public works are justified because they are public goods -- an argument that I find defective -- properly has nothing to do with trying to spend our way out of a recession.)

Poor old Gore -- who was blind, it turns out -- saw clearly the problem of "taxpayers... bleeding at every pore." Well, if Obama and his followers get their way, we ain't seen nothin' yet.