The AMA Monopoly

While most people believe that our healthcare industry is one comprised of free markets, it is anything but. It is completely distorted by government manipulation.

To start with, the American Medical Association (AMA) has had a government-granted monopoly on the healthcare system for over 100 years. It has intentionally restricted the number of doctors allowed to practice medicine so as to artificially raise physician incomes. The primary way it does this is by using the coercive power of the state to restrict the number of approved medical schools in operation. After the AMA created its Council on Medical Education in 1904, state medical boards complied with the AMA’s recommendation to close down medical schools. Within three years, 25 schools had been shut down, and the number of students at remaining schools reduced by 50%. After three more years, 10 more schools would be closed. Since that time, the U.S. population has increased by 284%, while the number of medical doctors has declined by 26% to 123.  In, 1996, the peak year for applications, only 16,500 candidates were accepted out of 47,000. While high rejection rates can be common in most schools, applicants to medical schools are usually among the brightest and highest quality students who have put themselves through a very costly admissions process. High rejection rates are why so many people attend medical schools in the Caribbean, where they prepare students to be American doctors. The medical monopoly also marginalizes or outlaws alternative or slightly alternative (i.e., competing) medical practices, along with nurses and midwives, who could perform many of the tasks doctors due today.

The AMA also has monopoly power over the state boards which issued licenses. A physician can practice only by having a state license (licenses in general exist primarily to prevent competition). Each state has licensing boards consisting of AMA members who decide which applicants, according to them, are competent and morally fit. The boards also have police and enforcement powers to monitor their own kind, and keep as many nasty incidents as possible out of the public eye. The state medical boards are presented to the public as a means of protecting them, and masquerade as consumer protection agencies. Instead of presenting competition as something that lowers doctor’s incomes, the AMA and medical boards present it as something that must be stopped in the name of keeping patients safe.

As a further understanding of the intertwining of government and our healthcare system, consider the following explanation from Henry E. Jones, MD:

Most members of the state medical boards are appointed by the governor. State and county medical associations, medical specialty societies, large medical group practices, HMO’s, health insurance companies, chain and wholesale pharmacies, and large hospital chains contribute heavily to the campaigns of candidates for governor and attorney general. Thus, the governor appoints to the state medical board those desired by the medical monopoly. Doctors selected by the medical monopoly for appointment to the state medical board can be counted on to cooperate. And it works the same way with the State Board of Pharmacy.
The medical monopoly contributes heavily to congressmen and maintains one of the best-financed and most effective lobbying programs in Washington, D.C. It is important that the AMA, the state medical board, and the state attorney general in each state work hand-in-glove to further the interest of the medical monopoly.

Do We Need To Be Protected?
One might retort that restricting the supply of doctors is good, because we need only the smartest, most knowledgeable, and safest people to be responsible for our very lives. But under this argument, we could ask “why stop at the doctor-limiting threshold at which we currently operate?” Why not restrict the supply further so that we have only the top thousand or even the top ten doctors in the nation to take care of us? In that case of having only the most qualified doctors, even more people would die each year for lack of affordability as well as lack of opportunity to actually get in to see the doctor.

Look at it another way, in terms of assigning grades to the quality and capability of the doctors: what if we should restrict the number of doctors to those who are grade B and above, but we have already placed restrictions at a higher level such that we only accept A+ doctors?

As yet one more example, what if we limited the number of automobiles in the same way? What if we were only allowed to produce cars with the quality and safety of the top Mercedes, BMWs, and Rolls Royce’s, as well as prohibiting cars older than three years old (since they are less safe)?

Just as a Saturn Astra or a used Ford Escort deliver a valuable service to many, so would a B- or even a C grade doctor, particularly for non-life-threatening issues. There are many of us who would pay, say, $30 to visit a C grade doctor for a cold, versus $100 to visit an A grade doctor.

In a free market, any doctor could practice medicine. But would we then have any and everyone hanging out shingles calling themselves doctors only to kill someone due to misdiagnosis or by removing ones’ heart instead of their spleen? No, we wouldn’t. Even if that did happen on rare occasion, the number of deaths from such an event would likely be much less than the number who die from current doctor’s mistakes (see below), or from the number who die from a lack of affordable healthcare (I know of one such person who couldn’t afford treatment for his Parkinson’s disease; he committed suicide last year). Besides, in those terrible rare cases, individuals would have at least had the opportunity to choose what they thought was best for them.

In reality, the doctors who would practice would be those who are educated to do so. Besides, any unqualified doctor who did bad work would lose clients and go out of business, as word gets around; and, there would without question be private ratings agencies comparable to other consumer reports services telling us how various doctors rank, and which doctors are suspect.

At the least, why not allow competing medical associations? We could have 4 or 5 other associations with the same criteria of competency as the AMA. We could allow an absolute rather than a rank-ordered threshold to be met in order to practice medicine. Or, why not permit many more less qualified people to practice medicine, and then let individuals choose between higher-priced AMA-certified and lower-priced non-AMA certified doctors.

Healthcare “Insurance”
The other major problem with our healthcare system is our third-party payer system, where we rely on someone else to pay most of our bills; namely, we use “insurance” that is funded mostly by corporations and the government. Though this system originated with the Blue Cross and Blue Shield entities early last century (which obtained government-supported advantages over competing private systems), the third-party payer system really took hold with the advent of government regulation during WWII. Since prices were rising due to the government’s printing of money that paid for the war, politicians imposed price and wage controls. Since businesses could not compete for labor by bidding up the wages they were offering, they began competing by offering special benefits, including paying employee’s healthcare costs (which socialists now see as something that large companies should be required to do).

When something is free or mostly free, people demand more of it. With someone else paying their bills, people make more trips to the doctor. This constitutes more demand for the services of healthcare providers, and who thus raise prices, not only to take advantage of their increased pricing power, but to try and reduce their workload, since more people start to demand healthcare than providers have the time and resources to address. Prices are used to equate supply with demand.

With a restricted supply of doctors on the part of the AMA, and increasing demand for relatively free healthcare on the part of consumers, prices began to rise more rapidly, and waiting times to see doctors became longer.

Since healthcare then became unaffordable to many (whereas previously it was not), politicians, in the name of helping people in order to get votes, set up government agencies to offer Medicare and Medicaid to pay for the healthcare costs of those who could not afford it. With the government spending additional billions of dollars to compete for the limited amount of healthcare service, prices began to increase much more. With every new instance of government paying for citizen’s healthcare, such as the Medicare Part D program enacted in 2003 to pay for prescription drugs, healthcare costs rise still further. Had the companies facing price controls in the 1940’s chosen to pay for employee’s food instead of their healthcare, we would likely have grocery prices rising at phenomenal rates today, causing a “foodcare” crisis supposedly brought about by free market failures.

Each year, as costs rise due to increased spending on healthcare, private insurance companies simply raise the costs of premiums so as to cover these increased expenditures they pay on our behalf. The more we spend, the higher are our premiums. But as prices rise, fewer people can afford premiums.
On top of the two primary issues discussed above, doctors and hospitals are subjected to unbelievable amounts of burdensome oversight and enforcement agencies, bureaus and commissions. As Jones states: “Rules, regulations, and laws are duplicated, redundant, multiplied, magnified, and contradictory. Laws and regulations covering doctors and hospitals plus all the other parts of our healthcare system now account for over half of all the words, sentences, and paragraphs in our entire body of law.”

The Quality and Cost of Our Regulated Healthcare
With all this regulation and expensive healthcare, Americans receive only a mediocre quality of care. For instance, the U.S. is far from achieving the lowest world infant mortality and death rates; fatalities from incorrect healthcare treatment are the third-leading cause of death in the U.S., after heart disease and cancer; and over 225,000 people die each year from doctors’ mistakes: 12,000 deaths occur each year due to unnecessary surgery, 7,000 deaths are due to medication errors in hospitals, 20,000 deaths are due to other hospital errors, 80,000 deaths are due to infections in hospitals, and 106,000 deaths are due to the negative effects of drugs.

For this level of quality, we pay about $6,000 per person each year in the United States. How is it that we do not realize that we are paying this much since we don’t see that amount subtracted from our checking accounts? Because individuals, on average fund only about 20% of their annual healthcare costs since employers and governments pay the rest. But in truth, we all still pay the remaining amount, because all money eventually comes from individuals (or at least those who work and produce).

The dollar amount of healthcare that employers pay on our behalf is in fact subtracted directly from our paychecks; if companies did not have to pay healthcare costs, those monies would instead be paid to workers, or to machines that would increase the productivity and thus paycheck of workers (as explained in Chapter 1). The dollar amount of healthcare that government pays for on our behalf is taken directly from our paychecks in the form of taxes or indirectly through inflation. Additionally, the Cato Institute estimates that the cost per household of medical providers’ compliance with health services regulation was $1,546 in 2002. It also estimated that roughly one out of every six uninsured persons was uninsured because of the cost of regulations.  All of this regulation exists, yet most people still believe we have a free market in healthcare, and that that is the root of our problems.

Socialized Medicine
Socialists thus want us to turn to nationalized healthcare, where the state will pay for our healthcare (as though we will not still be paying for it). But this will not work either.  When medical care is free, people consume more of it. The costs would continually rise, as they currently do in the United States. Since national governments have limited budgets, governments with socialized medicine impose cost controls and limit spending to a particular amount. But since nothing limits individuals from going to the doctor, waiting lines grow longer and longer. At this point governments limit doctor visits or limit the types of procedures which can be done.(see note below) For example a particular treatment might only be able to take place given the existence of particular set other symptoms. Or surgery might be denied for patients who are over a given age.

After getting sick, famed British record label owner, radio and TV presenter, nightclub owner, and journalist Tony Wilson (about whom the film 24 Hour Party People was made) faced death due to the fact that Britain’s National Health System (NHS) refused to fund a key cancer drug he needed to stay alive. He stated “I’ve never paid for private health care because I’m a socialist. Now I find you can get tummy tucks and cosmetic surgery on the NHS but not the drugs I need to stay alive. It is a scandal.” Wilson died not long after in 2007.

Additionally, in countries with socialized medicine, physicians and researchers incomes are limited, which offers them no incentive to compete or to be innovative with new forms of technology or treatments. Innovation is also limited, as it inherently must be under a government bureaucracy.  For these very reasons, Canada’s healthcare system has taken the first step towards privatization, due to Quebec’s lifting a ban on private health insurance. As the New York Times Stated:

The Supreme Court decision ruled that long waits for various medical procedures in the province had violated patients’ “life and personal security, inviolability and freedom,” and that prohibition of private health insurance was unconstitutional when the public health system did not deliver “reasonable services.”

Only Free Markets Can Solve the Healthcare Crisis
Every election cycle, we hear politicians talk only of cost controls, electronic medical records, and preventing lawsuits in order to solve our medical crisis. Some pundits argue that technology increases medical costs, not of discussions of the real problem of government-paid insurance and medical boards. Though technology lowers costs in other industries, they think that it somehow increases costs in the healthcare industry. Similarly, Paul Krugman claims that healthcare costs rise simply “because of medical progress.”  With these kinds of backwards notions, our “leaders” set out to implement yet more regulation and price controls, which will only exacerbate the problem.

What we need are truly free markets in healthcare, which would bring about an increased supply of doctors and healthcare facilities, and lower costs. By bringing free market profits to the industry, the quality of care would improve due to providers competing to make the most money by trying to please the most consumers. Healthcare costs used to represent 5% of national income, now it’s 17%.  Under free markets, healthcare prices would fall in real terms (if not also nominal terms), and the cost of staying in a hospital would approximate the costs of staying in a hotel plus the additional marginal costs of the labor services of nurses and doctors, and the costs of the use of the tools and technology. In total, costs of healthcare would be affordable to everyone in the same way that food, televisions, and tools at Home Depot are; they would be just another average cost that we pay.

For those who still doubt such an argument, think seriously about whether the supposed high costs that would occur in a free market would really outweigh the costs we incur today where healthcare costs rise at two to three times the rate of inflation. And consider whether the supposed physical harm that would occur would outweigh the deaths and physical suffering that occur today due to the fact that millions can’t afford access to healthcare. Additionally, if licensing is so important in order to reflect competent and qualified service providers, shouldn’t we, in the same vein, require all politicians to go through years of training in the areas of philosophy, history, economics (including free market economics), industrial production, accounting, and management before they are permitted to pass laws that affect the economy and our lives?

Note: Leftists currently say that we already have rationing. Indeed, insurance companies try to limit what things they shell money out for, because otherwise they would be nickled and dimed and would incur losses. But this does not compare in the least to the true rationing that would occur under socialized medicine. In today’s market, for the most part, insurance companies continue to pay for what we spend (thus prices rise at 15% or per year). Under socialized medicine, governments would have an absolute amount of money to be spent and would ration in order to limit spending to that amount only. Thus, people would not have the choice and the opportunity for what they want. Even in our current screwed up system, whatever one wants they can get it if they pay for it.

Indeed, the mathematics of the multiplier theory is sound, but the assumptions are not. (1)  Since it is only productive expenditure, not consumption expenditure, which pays wages, the multiplier could only result in additional profit income, not wage income (the Keynesians specifically state that the multiplier works if incomes are spent, not saved and invested). To understand this concept better, suppose you spent $100 at the book store. Then the bookstore owner, instead of re-investing in his business, spent the money at the grocery store. The grocery store owner then takes the $100 out of the cash register and spends it on a new appliance. The appliance store owner spends it on movies, carnival rides, or whatever. The spending goes on and on in this fashion. In this case, the money was never not spent. If it were not spent, it would instead be saved.

If people spent all their incomes, there would be no funds available with which to invest and to pay wages. It is saving, i.e., not spending, that pays for additional capital goods and labor. Had any of the above businesses saved the $100 and invested it in their business, they could buy new machines or hire more workers. Had they saved the $100 in a bank, other businessmen, in borrowing these funds, could have expanded their operations or started new ones.

If all monies were spent and not saved, we would soon consume all existing goods. Since we would not have produced any new goods to replace those consumed, we would soon have literally no goods of any kind, including food or housing (after our food was eaten and our houses deteriorated).

In sum, the only effect from any additional spending is to raise the rate of profit: Business costs remain the same, but the additional spending increases sales revenues. But nothing new is created, no investments are made, and no wages are paid.

Keynes stated that if people were careful not to save too much, there could be full employment with interest rates of zero. But this is illogical thinking. For if people saved nothing, there would be no productive expenditure, thus there would be no employment (only self-producing for profit). In this scenario of not saving at all, profits would be equal to the entire amount of sales revenues, and the rate of profit would thus be infinite.

But the Keynesian multiplier has even deeper problems than assumed thus far. Any additional spending cannot create real additional wage income even if the spending was in fact saved, and it cannot create additional profit income if it is spent (except to the extent velocity increases (2)). This is because increased real incomes can only come about from new and additional production; workers can’t consume more goods if there have not been any additional goods created for them to consume. The simple act of spending money merely transfers the same money from one person’s hand to another. Indeed, the faster this is done, the more the volume of total spending (velocity) in the economy increases. But given a static supply of money, spending can only increase a very little—we all have a particular amount of income from which to spend and we can only spend it once. The multipliers’ proponents who argue that any given amount of spending could result in 2, 3, or 4 times as much in additional incomes are implicitly assuming that people will physically take dollars handed to them and in turn hand them to others at 2, 3, or 4 times the speed, in a repetitive fashion, than they did previously. At whatever the speed, Keynesians pretend that simply passing around a given quantity of money can magically create more of the same money. This is all unrealistic nonsense. It could be true that if the new spending comes from newly printed money, increased incomes will occur, but as they are spent, consumer prices rise in proportion, and no new wealth is created. Printing money is therefore not a realistic way to increase incomes.

Still, since most of the government’s economic advisors believe in the multiplier effect, the government continues to spend and spend, on any and everything, believing it will somehow bring prosperity. This is the basis behind our “stimulus” programs. Japan too has tried unsuccessfully to spend its way out of economic recession for the last 19 years; the Keynesian economist’s only explanation is that Japan did not spend enough. The only thing the spending has created is the greatest amount of debt a country has ever had in history. But politicians don’t have to worry about profits and losses, as it’s not their money.

(1) This statement is true with regards to most economists’ mathematical models.

(2) Most of the changes in velocity are affected by speculation. Increased speculation, in turn arises from changes in expected changes in purchasing power. Changes in purchasing power can only come about from changes in the money supply. Velocity does not, as most people believe, have a life of its own unrelated to other factors.

So much for freedom. So much for stating opinions. It is now illegal in South Korea to forecast the negative results of the government’s policies. Korean officials could have at least blamed the free market and a lack of regulation as other countries have—blaming a single blogger for disrupting the economy will not as easily fool even the ignorant public. Still, people are convinced that we need more of this regulation and government control.

GDP is held to reflect the value of national income and output simultaneously, or, more generally, the value of what a country produces. My intention is to show that it reflects primarily the amount of money, and therefore the amount of inflation, in the economy. As more money is created by the central bank and inserted into the economy, prices rise. Increased prices necessarily mean that the value of goods and services, corporate revenues, profits, wages, investments, and expenditures included in the calculation of GDP rise as well. Thus, GDP largely reflects inflation.

By way of illustration, if the quantity of money in the economy did not increase, neither could nominal nor real GDP. Indeed, there are only two ways that prices can rise: the supply of goods and services must fall or the supply of money must increase (any possible alternative causes of rising prices can easily be shown as faulty). Clearly, our volume of goods is not declining – at least not rapidly enough to cause price increases of 3% -6% per year – but the quantity of money, is increasing.

Prices in the GDP calculation are “deflated” with a price index, but only partially, because price indices significantly understate the real inflation rate. There are many reasons for this, one of which is the application of such techniques as “hedonics” to the value of goods and services, with the result that that even when prices are generally rising, product improvements are deemed to be larger than the price increases, and the calculated inflation rate will be less.

As evidence that simply creating money lifts GDP, consider the following scenario. If the money supply of the economy were static, i.e., if the central bank neither added to nor subtracted from the amount of paper bills and bank credit in the economy, GDP would be the same each and every year, because, the fixed quantity of money would have to be distributed across an increasing amount of goods (and velocity, or the number of times we spent those same dollars, would also necessarily remain essentially unchanged each year). With a fixed money supply, our real economic prosperity would be measured by the extent to which prices of goods and services fell relative to our static incomes, since with the same amount of dollars chasing more goods, the price of each good would necessarily fall. This analysis demonstrates that prices and wages cannot rise without the existence of an increasing supply of money (likewise, having more money does not help to produce more goods), and that increased production of goods would only reduce prices. Thus, GDP measures inflation, not production.

What GDP is ideally trying to measure is the actual volume of goods and services at our disposal. But since we can’t add up oranges, trucks, movies and airplane tickets, and since there is not a stable and reliable monetary benchmark with which to measure all such items, we must accept that we can’t fully count our domestic product in numeric terms.

The second major problem with using GDP as an economic indicator is that it counts mostly consumer spending and consumption, not the production of goods and services. Indeed, consumer spending is generally held to account for approximately 70% of GDP. However, since the production of goods, and not the consumption of goods, is what constitutes real wealth, an increase in GDP signifies mostly an increase in spending and consumption, not an increase in real economic prosperity.

As Pepperdine University economist George Reisman has shown, an increase in GDP in fact correlates with a decrease in economic progress. This is because most business spending, or productive spending, is subtracted from the calculation of GDP in order to avoid so-called double-counting (as will be explained below). The greater the productive spending in the economy, the greater is the number that is subtracted from the GDP calculation. The result is a lower stated GDP than would otherwise be the case. This is significant because productive spending – factories, tools, supplies, and work in progress – is what produces both other producers’ goods as well as all consumer goods. Productive spending is the sole means of wealth production.

Most business costs are subtracted from GDP in order to prevent “double counting,” because it is thought that the value of most goods associated with business spending is reflected in the value of the final product, and should be counted as such. Therefore, GDP counts the final product as representing both the final product and all the products that went into it. It says that if we produced bolts, screws, and automobiles, in sum, we produced only automobiles. This is wrong because the screws and bolts were in fact produced, in addition to automobiles, and they have their own separate values, even if they are eventually used to create the automobile.

Since, then, most business spending is excluded from GDP, the resulting calculation over-represents the contribution of consumer spending to total expenditures, and under represents total productive spending, which far exceeds consumer spending and pays most wages. GDP, therefore, leads people to believe that prosperity comes about by way of spending and consuming our wealth. Wall Street and government officials, in turn, tell us to go and spend in order to “help” the economy. But it is savings, i.e., abstaining from consumption, which pay for the production of goods – real wealth – and increase our ultimate amount of consumption.  Contrary to popular belief, savings do not usually sit under a mattress being hoarded, but actively finance production. All the assets companies possess are owned by capitalists, via their invested savings.

After all, if we spent all our savings on consumer goods, what money would finance factories, tools, and machines (and mortgages and credit cards)? What money would pay the wages of workers producing products that have yet to be sold? Machines and workers are paid for the products they make before consumers buy them. When we purchase a house, the hammer and the construction worker have already been paid and have moved on to building the next house. Similarly, an automobile factory is paid for decades prior to the complete reimbursement of the investors (when the last cars are produced). Almost all workers and machines are paid in advance with savings, not with sales revenues from consumers.

In sum, economic progress consists of increased productive capabilities, not production-sacrificing consumption. Therefore, GDP does not measure our wealth-producing capabilities. It gives us an idea of the relative wealth between countries (assuming exchange rates can freely adjust to the relative quantity of money, production, and capital flows across countries). And it shows us the rate of inflation and how much we are consuming. But it should not be understood as an indicator of economic progress or standards of living.

 
Broken economies suffer from a misallocation of resources consequent upon prior government interventions and can be healed only by allowing the economy’s natural balance to be restored. Falling prices and lack of government and consumer spending are part of this process. What is spent or printed is consumed; what is not spent or printed is saved and invested in new machines and labor.

What Created the Onset of the Depression?

As is the case today, it was in fact the government’s central bank that started the economic problems of the 1930s. As we shall see in more detail later, when the central bank expands the money supply, not only does it cause inflation, but it distorts the nation’s production structure in a way that causes a large-scale misallocation of capital. The result of this misallocation is financial losses among companies in the capital goods and construction industries, which in turn results in bank losses and a contraction of the money supply. The central bank lowers interest rates by pumping money into the economy which did not previously exist. This money serves not only as new demand for products, but as funding for business projects which would otherwise not receive funding. When the central bank, for fear that the new money it is printing will cause prices to rise, raises interest rates near the end of the business cycle, the flow of new money is reduced, economy-wide demand falls off, and the availability of credit to businesses - credit which keeps unprofitable projects afloat - is no longer available. Reduced production, bankruptcies, layoffs, and increased unemployment ensue.

It is precisely this turn of events that caused not the depression itself, but only the initial economic downturn. The U. S. central bank, the Federal Reserve, expanded the money supply by about 60% between 1921 and 1929.[2] Official inflation rates were low, primarily due to extraordinary technology-based productivity increases. But the fact that price increases rose at all, instead of falling, during this time of high productivity, reveals that real inflation (i.e., increases in the money supply) was high. The large amounts of money being poured into the economy, along with, to a lesser degree, gold (real money at the time) flowing in from WWI debtor countries, caused a large economic boom that caused this period to be called the “roaring 20s.” But when the money valve was shut off (interest rates rose from 3.5% to 6% between 1938 and 1939), the boom came to a crashing halt.

The reduction in money supply, which fell by 30% over the next three years, and which was exacerbated by the Federal Reserve’s selling of government bonds, caused the economy to collapse and the stock market to fall. Up until that point in our nation’s history, recessions were largely left alone (some more than others) by government, and most lasted less than two years and never more than four. This too would have been an ordinary recession had it been left alone by government. The natural market forces would have corrected the economic imbalances: the price system would have moved labor and capital back to where they were most effective. But the market was not allowed to “clear” - as they are doing today, our politicians prevented the free market from working.

The Economy Under Hoover

Hoover engaged in unprecedented interference in the economy in order to try and help it. He was rightly accused by his 1932 presidential opponent Franklin Roosevelt of taxing and spending too much, boosting the national debt, choking off trade, putting millions on the dole, and for trying to centralize economic turmoil in Washington. John Nance Garner, Roosevelt’s running mate, stated that Hoover was “leading the country down the path of socialism.[3]” Hoover’s administration created 30 new government departments and hired 3,000 new bureaucrats.[4]

In 1930, Hoover, ignoring the pleas of many economists, signed the Smoot-Hawley Tariff, virtually preventing foreign goods from entering the country. The act increased rates on various goods of between 20% and 60%, on average. Production processes that used inputs imported from abroad were hit with higher costs, resulting in unemployment. For example, Most of the 60,000 employees of plants making cheap clothing from imported wool rags were unemployed after the tariff on wool rags rose by 14%.[5] Hoover and Congress thought that by raising trade barriers they would cause more citizens to buy American goods, thereby reducing unemployment. But they didn’t consider that besides raising costs to consumers, tariffs would cause unemployment in those sectors making goods to be exported to other countries.

With the ability of foreigners to sell in the American market drastically reduced, they could not afford to buy as many U.S. products. American agriculture was hit the hardest. Thanks to their politicians, farmers immediately lost a third of their market, causing (along with a declining money supply) agricultural prices to plummet, and tens of thousands of farmers went bankrupt (keep in mind that during this time, almost 30% of the population was involved in farming).

Losses from farming and other industries caused losses for banks, since they were not repaid loans. Over 9,000 banks went out of business between 1930 and 1933. The stock market, as measured by the Dow Jones, fell by almost 90% by summer 1932. It would take 25 years for the market to once again reach its 1929 peak (and 35-40 years when adjusting for inflation).

Since falling prices were hurting farmers the government attempted to raise farm prices by reducing agricultural production. Thus, the government, with public tax money, paid farmers not to work, not to grow food, and not to grow livestock, which also implicitly means it paid them not to hire farm workers. Not only were they directed not to produce, they were directed to destroy crops and animals. Federal agents sanctioned the plowing under of fields of cotton, wheat and corn (mules had to be retrained to walk on the crops, since they had previously been trained not to). Healthy sheep, pigs (including six million baby pigs), and cattle were slaughtered and buried in mass graves. While much of the rest of the country was desperate for food, the government was destroying it in order to attempt to benefit a single political group. Roosevelt, in his administration, not only continued these policies, but accelerated them.

The farmers also took matters into their own hand. One farm union, led by a preacher, tried to force all farmers, against their will, not to produce food. To ensure that independent farmers did not increase supply, the farm unions in multiple mid-west states created an embargo that prevented food from being exported from the states. The farm union threatened fellow farmers and the public with guns in order to enforce their blockade. The governor of Minnesota went so far as to assist the union by offering to use the state militia to prevent innocent citizens from engaging in trade of agriculture.

Farmers were also aided by the senate, which directed the FTC to investigate the too-low export prices being paid to grain farmers.[6] Congress, doing its part, helped farmers to threaten the meatpacking industry. Farmers had always complained that the meatpackers paid them too little for livestock (while consumers complained that the meatpackers charged too much at retail. Since meatpackers were not a big voting block, under the guise of a war emergency, congress threatened to authorize the president to take over and manage their operations. The meatpackers were eventually forced to curtail much of their harmless operations, and to be regulated by the Secretary of Agriculture. This allowed farmers to benefit at the expense of the meatpackers and the public.

With economy-wide consumer prices falling, wages rates needed to fall as well. But Hoover single-handedly came up with the idea to keep wages high. His notion was that high prices bring wealth, when in fact it’s the other way around. He though that by restoring wages to what they were, wealth would be restored (in reality low prices were brought about by previous government policies of inflation). He thus “encouraged” (government encouragement means that if you don’t do if voluntarily, you will eventually be forced to) to keep wages high. Shockingly, many business leaders were at first on board with this idea, because they too thought it would help the economy. Eventually, the plan became broader and mandatory. But as company revenues were falling, in order for businesses to be profitable, costs, including wages, needed to fall as well. During the period in which consumer prices (business selling prices) fell by 25% from 1929 through 1933, wages decreased by only 15%. This represented a relative increase in wage rates and thus business costs. The result was widespread unemployment. (Had wage rates been allowed to fall to the market price, production would have still been profitable for businesses, and they would have still needed the workers. There would still have been a demand for business products by either other businesses or by consumers (who would still have had jobs, and would have kept spending). The only difference in terms of business production, employment, and wages, would have been the change in prices of goods and labor (except that many people would have needed to switch jobs, since the change in the flow of money from the central bank had caused a change in the demand for consumer goods relative to capital goods industries)).

As often is the case, businesses were all too happy to cozy up to government in cases where they could benefit. Gerard Swope, the head of General Electric, called for the cartelization of American business. This regulation, where the Federal Government would “coordinate production and consumption” was welcomed by much of the business world, including the U.S. Chamber of Commerce.[7] Why? Because such socialist planning would result in restricting production in order to increase selling prices. Such a feat could not be accomplished without government regulation because, in free markets, companies that attempt to maintain a cartel inevitably cheat by not limiting production to the cartel-mandated levels. Thus, supply is not artificially restricted.

Because of widespread unemployment, Hoover dramatically increased government spending on subsidies and relief schemes. The government’s share of GNP increased from 16.4% to 21.5% over a single one-year period between 1930 and 1931. Since farmers were hurt by Hoover’s previous policies, he handed out to them hundreds of millions of dollars. Billions more were given out to other businesses and individuals suffering from prior government actions.

Similar to the politicians of our crisis today, Hoover blamed the crisis on a lack of credit, without identifying what caused that lack of credit.[8] Also, Hoover wanted to loosen bankruptcy laws so as to make lender’s, instead of consumers, suffer from the lack of being able to pay debts (just as our politicians today want the same with consumer mortgages).

As though the previous policies of high tariffs, large subsidies, and a deflationary monetary policy were not enough, congress then passed and Hoover signed the Revenue Act of 1932, which resulted in the largest tax increase in peacetime history. This act doubled the income tax, raising the normal rate from a range of 1.5%-5%, to a range of 4%-8%. The top tax bracket increased to a marginal rate of 63%! Additionally, exemptions were lowered, corporate and estate taxes were raised, new gift, gasoline, and automobile taxes were imposed, and even the writing of checks became taxed (just as some in congress today want to tax each and every stock trade). Not only were people made poorer by these tax increases, but their savings, particularly those of the rich, were desperately needed in the private sector in order to produce goods and to pay wages. By 1933, the results of these policies resulted in one quarter of the population being unemployed. Some states saw as much as 40% unemployment and some cities reached 80%.

The Economy Under Roosevelt

Contrary to Hoover’s view, Roosevelt blamed the depression on “unscrupulous money changers” (just as our politicians today blame shifty lenders for the housing bust and speculators for high oil prices). And like Hoover, he placed no blame on the central bank or the previous government policies which brought about the problems at hand.

FDR won the 1932 election on the promise of a 25% reduction in federal spending, a balanced budget, a sound currency based on gold, to end the “extravagance” of Hoover’s farm programs, and to remove government from areas that “belonged more appropriately to private enterprise.”

But Roosevelt delivered on none of these promises. He used the very same economic manipulation tactics as Hoover, and magnified the intensity. As Murray Rothbard stated, Hoover and Roosevelt were ideological twins. Rexford Guy Tugwell, a great admirer of Stalin and socialist central planning, stated that “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs Hoover started”[9]

During the first year of the New Deal, Roosevelt proposed spending $10 billion, though government revenues were only $3 billion. Federal expenditures would rise 83% in the three years between 1933 and 1936.

As is usually the case with government spending and government “help,” the actions taken were based more on politics than on truly helping those in need. Economists Couch and Shughart, upon statistically analyzing New Deal government spending, concluded that: “The Weight of this evidence thus points to a political explanation for New Deal spending patterns: other things being the same, more federal aid was allocated to states which had supported FDR most solidly in 1932 and which were crucial to the president’s 1936 Electoral College strategy”[10] They also assert that the more economically devastated south, which was already mostly democratic, received disproportionately little new deal spending since it did not need to be encouraged to vote for Roosevelt.

New Deal money intended for economic aid was misused in many areas in order to win votes. Republican government workers in Kentucky were told that they would have to change their party affiliation if they wanted to keep their jobs. Pennsylvania WPA workers were told the same, and many that refused were fired. Tennessee WPA workers were instructed to contribute 2% of their salaries to the Democratic Party as a condition of receiving their wages. In Cook county Illinois, 450 men were directed by the WPA to canvass for democratic votes in 1938. The men were all laid off the day after the election.[11]

As is the case with our crisis today, banking regulation in the 1920s not only caused the great depression, but made it worse. Almost all of the banks that went under during the great depression were those in states with unit banking laws - laws prohibiting branch banking that allows banks to diversify their assets and reduce their risks.[12] Canada, which allowed unit banking, had not one bank failure, while 9,000 banks failed in the U.S.[13] Further, Canada did not have a central bank “saving the economy” during the worst part of the great depression.[14]

Roosevelt, who promised during his elections to take care of the nation’s money, instead, stole it. Upon being given the power by congress, he seized citizen’s private gold holdings. Government took away the only REAL money citizens had, and instead forced them to hold only paper bills. After doing this, the government devalued the dollar by 40%, simultaneously causing the citizens to lose 40% of their wealth while allowing the government to gain by the same degree; it might as well have just gone door to door with a gun to take 40% of their property. It was one morning over breakfast that Roosevelt decided to change the ratio between gold and paper bills, arbitrarily settling on a 21-cent price hike, because it was a lucky number.

The largest of the many New Deal government agencies was the Works Progress Administration (WPA), which employed millions of Americans to build highways, bridges, public buildings, canals, dams, and sidewalks, as well as to engage in artistic projects such as the production of paintings, theatre performances, and musical performances (about 4,000 a month). It could be argued that the infrastructure projects that truly contributed to economic growth do have economic value. But most of the construction did not consist of work that directly benefitted the production of goods and services. The myriad projects such as bridges, canals, and roads that were seldom or never used were a complete waste not only of funds that paid worker’s wages, but also of physical resources that could have been used elsewhere to produce goods consumers needed more urgently.

Similarly, even those projects that were condusive to economic growth still mostly resulted in a decreased standard of living. This is because the labor, materials, and machines employed to, for example, pave a road, could have instead been used to produce, household goods or other capital goods which would have produced more household goods. The importance and the need of one type of investment (such as highways) relative to another type (such as bread and sugar) can only be determined by consumers and businesses through the price system. It is highly likely that had government allowed a free market, suffering consumers would have first chosen to have more food and clothing during the decade of the 1930s, and settled for having new sidewalks and public buildings long after more immediate needs were satisfied.

Perhaps the most dramatic regulation enacted under Roosevelt was the totalitarian-style National Industrial Recovery Act (NRA). Passed in 1933, the NRA suddenly forced most manufacturing industries into government-mandated cartels - and forced businesses to finance it with newly assessed taxes (throwing yet more workers on the street). The mammoth bureaucracy created under the act was given unprecedented powers that would have made Italian dictator Benito Mussolini proud. In fact, it was run by General Hugh “Iron Pants” Johnson, an admirer of Mussolini. Johnson proclaimed: “May Almighty God have mercy on anyone who attempts to interfere” with his agency. He personally threatened to publicly boycott or “punch in the nose” those who refused to comply with the NRA.

The NRA developed more than 500 codes that regulated prices and terms of sale of individual products, which transformed American industry into a fascist operation. The codes, which spanned a slew of manufacturing goods categories, covered more than 2 million employers and 22 million workers. As Lawrence W. Reed States:

“there were codes for the production of hair tonic, dog leashes, and even musical comedies. A New Jersey tailor named Jack Magid was arrested and sent to jail for the “crime of pressing a suit of clothes for 35 cents rather than the NRA-inspired “Tailor’s Code” of 40 cents.”

The NRA had its own enforcement police who would enter factories, send out the owner, line up the employees to interrogate them, and confiscate the owner’s books. These enforcers would storm through the clothing district at night knocking down doors with axes to look for those who were committing the terrible crime of sewing clothes. For NRA accomplishments such as these, Time Magazine named Hugh Johnson the New Dealer Man of the Year in 1933.[15]

In the five months prior to the act’s passage, the economy was showing some signs of recovery, with factory payrolls having increased by 35% and employment by 23%. But six months after the implementation of NRA rules that raised business costs, taxed production, limited the hours worked, and raised wage rates, industrial production fell by 25%. The Supreme Court outlawed the NRA in 1935.

Not only did Roosevelt raise minimum wage laws that threw an estimated 500,000 blacks out of work, but he further increased taxes, insuring that fewer jobs would be created, and likely more destroyed. Naturally, like today, he increased taxes on the evil rich, and introduced a five-percent withholding tax on corporate dividends. After several rounds o f tax hikes, he eventually achieved a top marginal tax rate of 90%. He was accused by Senator Arthur Vandenberg of Michigan of doing what virtually every politician does today, namely following the socialist notion that America could “lift the lower one-third up” by pulling “the upper two-thirds down.”[16] (today, however, we try to lift the bottom nine-tenths up by pulling the top one-tenth down). In 1941, he even attempted to have a 99.5% marginal tax rate imposed on incomes over $100,000. When an advisor asked why, Roosevelt replied “Why Not?” He also issued an executive order to tax all income over $25,000 at 100% - to take every bit of income anyone earned that was in excess of $25,000! Soon after, congress rescinded the order.

Dramatic legislation supposedly intended to directly aid workers was also initiated during the depths of the depression. With the passing of the Wagner Act in 1935, not only were labor disputes taken out of courts and placed under the National Labor Relations Board, which was full of union sympathizers who distorted the law and shunned equality under the law, but most employer resistance to labor unions were crushed. Anything business did to defend themselves against unions that were destroying them were deemed to be an “unfair labor practice” punishable by the board. Board decisions ultimately made it illegal to resist the demands of labor union leaders, instead of “negotiating” with them. Naturally, with these kinds of laws, union membership more than doubled, and boycotts, strikes, seizures of plants, and violence increased strongly, causing sharp reductions in productivity and sharp increases in unemployment. Due to union coercion, wages increased by 14% in 1937 alone, meaning that fewer people could be employed.

Roosevelt was anti-business, which means he was anti economy, and therefore anti-prosperity. He claimed that it was businesses that were blocking the recovery. He blamed them for not hiring and not producing, even though it was he and congress that were preventing it. Instead of freeing the economy and allowing business to be more profitable, Roosevelt punished businesses further, therefore also punishing workers and consumers. He imposed new restrictions on the stock market and by assessed a new tax on corporate retained earnings (profits not paid out as dividends). He increased the capital gains tax from 12.5% in 1933 to 39% in 1937[17]. He tried is best to extract all possible wealth from investors responsible for providing capital for companies to operate with. The result was a depletion of capital, and investors who were too scared, for fear of confiscation, to fund business operations.

While very modest economic improvement had been occurring in the mid 1930s, these additional anti-business policies caused a second round of economic suffering. From spring 1937 to spring 1938, the stock market fell by almost 50%. Unemployment, at 17% in 1936, rose to almost 20% in 1938. Bad economic policies generated a recession within a recession.

Overall, the economy did not improve until World War II came along. For on the eve of the war in 1939, GNP per capita was lower than in 1929. Similarly, unemployment, which was 3.2% in 1929, was still over 17% in 1939.

But contrary to popular opinion, it was not the economic stimulus of the war which improved it, as production of bombs and tanks - instead of bread and houses - make an economy weaker, not stronger. As Figure 1 reveals, unemployment declined because the value of what workers could produce was no longer below the cost of employing those workers (there was increasingly less payment of wage rates above and beyond the value of what businesses were getting in return for those wage rates). This was primarily because of the wage and price controls government instituted at the start of the war. The wage controls prevented wage rates from increasing, while high inflation rates raised business selling prices (the value of what workers produced). This, however, is not a productive way to have full employment, as citizens were still relatively impoverished during WWII. They earned wages, but had few goods available to purchase. The unemployment rate received help from the fact that we sent 16 million of our youngest and least skilled workers off to war, thus reducing the number out of work.

Figure 1:

Just as the Hoover and F.D.R. caused the nation to suffer a great depression, so will Obama cause us to suffer tomorrow if he tries to replicate the types of “policies” that “saved” us in the 1930s. What America, and the world, needs are free markets, not government help. It is government help (government intervention in the markets) that caused the very problems we currently face. The markets will right themselves if we let them, and it would not take very long.

.

[2] Murray Rothbard, America’s Great Depression

[3] “FDR’s Disputed Legacy,” Time, February 1,1982, p. 23.

[4] Thomas J. DiLorenzo: http://mises.org/media.aspx?action=search&q=great%20depression

[5] Reed

[6] Murray Rothbard, America’s Great Depression

[7] Murray Rothbard, America’s Great Depression

[8] Today, our politicians blame the lack of credit on the housing market bust, without identifying what caused the housing bust (the central bank’s printing of money)

[9] Paul Johnson, A History of the American People (New York: HarperCollins Publishers, 1997), p.740.

[10] The Political Economy of the New Deal, Jim F. Couch and William F. Shughart II, Cheltenham, Eng., and Northampton, Mass.: Edward Elgar for the Locke Institute, 1998, (p. 190).

[11] These examples are based on a lecture given by Thomas J. DiLorenzo: http://mises.org/media.aspx?action=search&q=great%20depression

[12] Jim Powell, FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression (New York: Crown Forum, 2003), p. 32.

[13] Jim Powell, FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression (New York: Crown Forum, 2003), p. 32.

[14]http://macromarketmusings.blogspot.com/2008/03/what-many-of-great-depression.html

[15] http://en.wikipedia.org/wiki/Hugh_S._Johnson

[16] C. David Tompkins, Senator Arthur H.Vandenberg: The Evolution of a Modern Republican, 1884-1945 (East Lansing, MI: Michigan State University Press, 1970), p. 157.

[17] http://www.huppi.com/kangaroo/TaxTimeline.htm

Imagine that I start a business, and it fails. I lose $50,000 that I risked in the venture. But then imagine that I don’t have to worry, because you and each of our other three million citizens will be forced to chip in less than a penny to compensate me. That’s no skin off of your back, you might think.

But then suppose that I’m not the only one to be compensated. What if each person who lost various amounts of money from failed businesses each year were compensated for their losses?  According to the Small Business Administration (SBA), a record 672,000 businesses were started in 2005.  Also according to the SBA, 50% of these will fail within five years. The dollars start adding up.

This week, our government told us that we will all be forced to pay $700 billion to compensate various investment banks for their business losses. This is in addition to the $29 billion Bear Sterns Rescue, $300 billion for the Fannie Mae and Freddie Mac nationalization, and $85 billion for the AIG nationalization. All of these total over $1.1 trillion we each have to pay. That averages out to $3,666 per person, or almost $15,000 for a family of four.

Additionally, a good rule of thumb is to multiply by 5 or 7 times any dollar value estimate the government gives us for its spending. The per person expenditure then comes to over $18,000. This number is in addition to the $9.6 trillion of current government debt. And don’t forget the more than $10 trillion in “off-balance sheet” debt which is not counted in the official government debt number. Adding these together reveals that each citizen owes approximately $2 million.

The problem is that most of us citizens don’t think this affects our own lives very much. But it does! We just can’t see the harm because it’s hidden.

How Socializing Losses Harms You

By having to compensate financial institutions every decade for their losses, we lose our ability to produce wealth. When government, through taxes, forcibly takes part of our incomes in order to compensate those who carelessly made bad investments, or to pay interest on the debt (previous bailouts), we have less money. Thus, in addition to spending less, we save less than we would otherwise be able to.

But here’s the kicker: most of the total taxes paid are not paid by each of us citizens, most are paid by a minority of citizens – the “evil” rich. To quote Bruce Bartlett of Creators.com:

“in 2006, 53.7 percent of all federal income taxes were paid by those with incomes over $200,000. Those with incomes between $100,000 and $200,000 paid 28.3 percent of all individual income taxes. Thus those with incomes over $100,000 paid 82 percent of the total….Those with incomes below $40,000 paid no federal income taxes at all in the aggregate. The positive liability for those who paid anything was more than offset by tax rebates [paid for by the rich] from the Earned Income Tax Credit for many more who paid nothing”

The rich pay the most because they have the most. They save an overwhelming majority of their income. That which they save, is invested – it’s made available as capital to businesses. These businesses, with this capital, purchase factories, machinery, tools, technology, trucks and other capital goods. These capital goods make other capital goods, and they make all of our consumer goods. They also pay our salaries. Since these capital goods are used by workers to make things, the more capital each worker has, the more each worker can produce. Because of economic competition, workers are paid according to the amount they are capable of producing. It should be clear that the more wealth that is left with the rich, the more goods we can have in our lives at lower prices (the more goods produced, the less each one costs), and the more we will be paid for producing them.

But by having the rich’s wealth confiscated by taxes in order to pay for other capital destroyed by banks and investment banks, the fewer business the smaller amount of savings/capital can support. Alternatively, the bailouts might be financed by having the government print more money, or by going into more debt, as mentioned above. The outcome is the same regardless of the means of payment – our capital is being destroyed.

The result is fewer goods and services, fewer jobs, and lower salaries. But this happens slowly through time. Had we not already spent millions on bailing out financial institutions, you would instead see that you had a larger home, a higher salary, more luxury goods, more vacations, lower prices for everything you buy, or some combination of these. You don’t notice what you’re missing if you never had it. By accepting to bail out companies, we reduce our own standard of living. It is possible that our standard of living as a nation is already in decline, or might soon start to decline. We are well on the road to full socialism, and to economic retrogression.

Why Financial Bailouts Are “Needed”

Our government officials – the very same people who got us into this mess – tell us that the bailout is needed for the sake of saving the entire financial system. It is true that the system could collapse, but it’s only true because of the fact that these same “leaders” engage in creating money from thin air. They literally bring into existence money which did not previously exist.

Were it not for the fact that new credit is extended, and were all of our money actually backed by something of value, such as gold, all of our bank accounts would actually consist of real money instead of an IOU. Since the banking system takes money we deposit, adds to it almost 10 times that amount of fake money and lends it out to others, our bank could collapse if the loaned money is invested for a loss, because the bank does not have the money with which to repay us. It is because of the fractional reserve system – keeping only a portion of deposits in the bank and loaning the rest out – which creates the possibility that our bank could go bankrupt, and that it could also cause many others to go bankrupt as well.

Otherwise, if one group of people or businesses lost money, they would suffer losses and it would not affect the rest of us. Only a financial system based on debt is one that can cause a chain reaction of bank implosions. Not only is our debt-based financial system supported and encouraged by our government, it exists primarily so that government can take our money through inflation.

There is no economic benefit whatever to adding additional money to the economy. It’s not needed. Instead of being beneficial, credit creation is the sole cause of asset bubbles, financial crises, recessions, and widespread destruction of capital. Our current crisis has been building for many years, under both Republican and Democratic leadership. Virtually every single member of congress supports our current system. All of our politicians, regardless of party, are destroying our country and our lives. We MUST demand change. We must NOT vote for them if they do not support destroying our central bank. If you do not act now to demand change, they will destroy our country.

]]> http://www.theproletariatsnews.com/2008/09/socializing-financial-losses-what-does-it-mean-for-you/feed/ http://www.theproletariatsnews.com/2008/09/how-holding-the-olympics-harms-countries/ http://www.theproletariatsnews.com/2008/09/how-holding-the-olympics-harms-countries/#comments Wed, 24 Sep 2008 22:38:13 +0000 Kel Kelly http://www.theproletariatsnews.com/?p=54 We all marveled at the glamour and prestige of the Chinese Olympics. It was the most impressive, grandiose Olympics yet. That’s exactly the impression the Chinese government wanted us to have. The Chinese people themselves were proud to show the world what their nation could fund, assemble, and display.

But besides national pride, what did those citizens get out of it? What was the true benefit to them? Nothing. The Olympic Games, for any country which holds it, is a losing proposition economically.

Even if governments don’t expect to have their Olympic expenditures recouped in additional taxes, they expect that economic spending will stimulate the economy. The popular notions regarding how Olympic spending will bring economic growth is three-fold. First, foreign visitors who come to see the Chinese games will spend money in hotels, restaurants, historical sites, shops, etc. It is expected that this will be additional income to Chinese citizens, and improve their economic state. This is not true.

This notion is similar to the old Mercantilist fallacy that if a country exports more than it imports it will be better off. This incorrect belief is based on the idea that money per-se is wealth. In reality, goods and services are wealth. If a country exports all of its goods, and obtains cash or gold in return, what is there left to buy? There are no goods remaining in the country because they’ve all been exported. What we need money for is to buy goods.

The same case applies to the Olympics: the goods and services that Chinese consumers sell to foreign Olympic visitors means a net reduction in the amount of these goods and services available in the country. The foreigners did not trade goods in return, they traded cash. One could argue that Chinese vendors will take their new cash and purchase new foreign goods. But the cost of obtaining the cash they collect from Olympic tourists consists of the expenditures made by their government to get the foreigners to come over. Without those expenditures, the additional tourist spending would not exist. The nation as whole spent money so that it could obtain foreign cash. The amount of government spending needed to generate those additional receipts from tourists was greater than the value of the receipts! It was a losing proposition.

This brings us to the second popular notion regarding the notion that Olympic spending will bring economic growth. It is the idea that spending on the infrastructure for the Olympic venue sites will constitute income to local providers of materials, construction, and capital goods. Indeed it is, but that income constitutes a loss to other citizens who paid for it with tax money (or inflation). The money taxpayers spent (yes, the Chinese pay taxes) for the Olympics goes mostly into building things that will be used rarely and often never again.

For example, as Martin Rogers of Yahoo! Sports noted, 21 of the 22 Olympic venues from the 2004 Athens Olympics now lie abandoned in various states of ruin. He states:

Gypsy camps have sprung up in the shadow of stadiums where the world’s finest athletes once battled for gold. Graffiti is scrawled over the outer walls of many sites, and it has been reported in Greece that upward of $1 billion has been spent simply to maintain these ugly wrecks.

This one-time spending constitutes a waste of a country’s resources. Even for those few buildings which will be used again, they operate at a huge loss – the total revenues they will create will never equal the total cost put into them. The billions of dollars spent for pride and prestige could have instead been used to build factories, machines, tools, trucks, etc., by individual businesses. In this case, these investments would usually earn a profit; the investments would more than pay for themselves. Additionally, these additional factories and tools would be used to generate more and more truly-needed economic goods and services, year after year.

The third popular notion regarding Olympic spending is one based on Keynesian economics. It is the notion that if a government spends money on anything, that additional spending will constitute additional income to businesses, who will then spend the money causing yet more income and more spending. All of this additional spending will bring additional wealth and additional economic growth. All that’s needed is the original additional spending . It has been argued in Keynesian government textbooks that governments, using the multiplier, could even build pyramids, or build anything, and then dump it in the ocean, and still create wealth. This theory is called the Keynesian multiplier. This theory is not only 100% incorrect, it is absurd.

There are many reasons why the multiplier theory is fallacious, but the main reason is that wealth is not generated by spending, but by saving and investing. Suppose you spent $100 at the book store. Then the bookstore owner, instead of re-investing in his business, also spent the money at the grocery store. The grocery store owner then takes the $100 out of the cash register and spends it on a new appliance. The appliance store owner spends it on movies, gasoline, or whatever. The spending goes on and on in this fashion. In this case, the money was never NOT spent. If it were NOT spent, it would be saved.

It is saving, i.e., not spending, that pays for additional capital goods and labor. Had any of the above businesses saved the $100 and invested it in their business, they could buy new machines or hire more workers. Had they saved the $100 in a bank, other businessmen could have expanded their operations or started new ones. For things company’s produce are paid for (with savings) before customers buy them. When you go to buy a car, or even a bagel, the product is already made. Savings pays for goods to be produced, consumer spending does not.

The only effect from additional spending is to raise the rate of profit of businesses. Business costs remain the same, but the corresponding sales revenues have increased from the new spending. No new wealth is created. No investments are made.

Still, since most government’s economic advisors believe in the multiplier effect, they continue to spend and spend, on any and everything, believing it will somehow bring prosperity. Japan has tried to spend its way out of economic recession for the last 18 years. The only thing the spending has created is the greatest amount of debt a country has ever had in history. But politicians don’t have to worry about profits and losses, as it’s not their money.

The Olympics are just another case of governments wasting their citizens’ taxes on unprofitable “investments.” It destroys wealth and makes people poorer - all in the name of national pride.

The “patriotism card” is pulled more and more these days. It’s used as a tool to make people feel guilty for doing the right thing. A child might say to her mother: “If you don’t buy me this toy, it means you don’t love me!” Most mothers will not fall for that. But many Americans fall for it when other children, our politicians, say that it is un-American or unpatriotic to do things that are in fact…patriotic.

This week in an interview, one child, Joe Biden, said that “it’s time [for the rich] to be patriotic….time to jump in…time to be part of the deal…time to get America out of the rut.” Many people in fact do believe that the rich need to pitch in and help us innocent workers who are in this rut – a rut which was created by Biden and other government officials by their policies of printing money, spending more than they can steal from citizens, and by many other ways that they destroy our wealth and bring on economic crises. It is a rut which was created because we voted yet again for the same bad policies of the last 100 years.

The “rich” are in fact the ones who pay most of the total taxes paid.  And most of our taxes do not go towards roads, bridges, and schools – most taxes go directly into the pockets of other people, the poor and middle class.  The rich are the ones Biden wants to steal more from in order to “return” the funds to the middle class.  The rich provide most of our capital – our farms, factories, tools, equipment, trucks, etc. – everything that enable us to create goods and services.  They also pay our salaries.  They also finance our homes, cars, and all the other things we buy but can’t afford.  Just because they own their own wealth (for now) doesn’t mean we don’t use it and benefit from it.  We do!

But Biden says the wealthy are using too much of their money to provide us with goods and jobs.  They should instead turn their assets into cash and give it to us to consume.  Thus, according to Biden, it’s unpatriotic to provide the things which improve our lives.  Conversely, it’s patriotic to squander all our wealth.

Keep in mind, when the rich pony up even more of their wealth to hand out to us, it’s done by government force.  If the rich refuse to let us steal their money, the government will come to their homes with guns and handcuffs (on our behalf).  This, according to Biden, is patriotism.  If we do not steal our fellow citizens’ wealth, we are unpatriotic.  Naturally, one who is at risk of having more and more of their property taken simply because other’s want it, is not a free person.  They are at risk of having their wealth confiscated at will by the government (thanks to your vote), or else have their freedom of movement taken from them once they arrive in prison for not paying up.  Yet we always speak of having freedom in this country, and we call that patriotism.  Plus, socialists, primarily Democrats, but also many Republicans, who espouse wealth redistribution daily in the name of “equality,” are ones who claim to be ones with morals who care about their fellow citizens.

But life goes on in America whereby we claim to be a free country full of patriots.  And it is not only theft which occurs in the name of patriotism, but also death, destruction, and general impoverishment arising from wars, dictatorships, and outright communism.  Lenin, Stalin, Hitler, Mussolini, and Zedong, all justified their terror, crimes, and repression in the name of one or another form of nationalism (patriotism + 1 more step forward).  Clearly, there were other incentives, such as attempted equality, attempts to gain back lost territories, etc., but all the policies carried out by these monsters were said to be in the name of national pride.  Today Bush and our other politicians wage wars in the Middle East (as usual) in the name of keeping America free (as usual).  Propaganda promoting their military aggression is always presented with the American flag waving (remember “Mission Accomplished?”).  Now, anyone who makes any type of television appearance, including NCAA referees, must wear a pin or patch with an American flag, to show that they are patriotic and that they support our little boys killing people abroad for no reason (and of course all our “enemies” wave their flags equally to reveal that they are the ones who are patriotic and moral).

If this is all what we call patriotism, I want no part of it.  I’m not sure I comprehend what patriotism actually is, but I know what it should not be. It should not be a system where we support theft, economic decline, and killing of others because they want to kill us because we want to kill them because they want to kill us because we knocked over their government or stole their land.

Let’s ditch the patriotism and freedom charades and start to think in terms of real freedom and truly doing the right thing.  Let’s let people live as they choose unless they do real physical harm to us or our property.  Let’s free the rich and free the “enemies.”  We will be better off economically and will live more safely.