The Nolan Chart Is A Little Off

Not too long ago I was happily surfing the web and found “The World's Shortest Political Quiz.” Only a few minutes later I came across something equally interesting – a chart produced by Libertarian David Nolan. It takes personal and economic freedom and charts them out according to a person's political beliefs.

At first blush, it looks correct. I was quite pleased that someone had plotted out that kind of information. But as I considered its meaning, a glaring problem began to reveal itself.

I think, and I'm sure almost every present day and former communist comrade will agree, that personal and economic freedoms are corollaries so inextricably linked that they deserve to be included on the same axis. You can't have much personal or economic freedom if, as in a communist country, the government supplies you with everything they think you need, and taxes you at a “marginal” tax rate of 100%. So I emailed Jean-Francois Minardi, a Senior Policy Analyst at The Frasier Institute. They sponsor the Economic Freedom of the World project.

He was kind enough to respond right away, and told me that he isn't aware of any chart like the one I was considering. So once my googling was over, and I was convinced that I wouldn't duplicate anyone else's work, I decided to make my own chart.

Here's what I came up with. It includes Dick Armey's flat tax low estimate of diminishing government returns, starting at about 15%. It's important, because he's a former public policymaker, Ph'd Economics Professor and has written several books on the subject. I also included Economist Arthur Laffer's diminishing returns estimate of 40%.

For the record, my own estimate of the pivot point between liberty and socialism was a marginal tax rate of 41%. But there isn't much sense in watering down the chart in small increments, so I've kept my conclusion out of it (I'd rather just take credit for the whole chart).

And the last element is the point at which I think socialism is a certainty. It starts at the confiscation, organization and redistribution of 51% of the GDP of a given economy. I suppose anyone can argue the semantics of what socialism is, isn't, what it represents, and at what point it begins. And there are in fact countries in existence today that have marginal tax rates over 50% and still have democratically elected leaders – like Norway (That's probably not a good example, since they're a constitutional monarchy).

But I did find a large problem in an already existing chart. And it's something that I thought needed more attention. So here's my take on it. Hey, there's no sense in complaining about a problem if you're not willing to offer some kind of solution to fix it. Right?

In case you're wondering... the U.S. corporate tax rate currently tops out as the second highest in the world at 39%, while the federal income tax rate is as high as 35% - depending on your income. And this is only those two taxes. This does not include the sales tax, death tax, state income tax, social security and the myriad other payments you make to government all the time. And I don't need to mention to my readers the bailout programs, the "stimulus" program(s?) or the other very large and very public expansions of government that are being carried out in Washington as I write this.

This post reminds me of a book written in 1963 by Murray Rothbard. He called it: "What Has Government Done To Our Money?". But with the current state of affairs in Washington, I think it's about time for a new book title. How about something like: "What Has Our Government Done To Our Government?"

Just Off The Top Of Your Head

Quickly. Take a look at this picture and tell me your first impression. Does this look “sustainable” to you?



Try to remember, the area with the widest gray column is known as “The Great Depression.” Notice the difference? Hardly a dip. And the white area just after 1940 is the time the WWII effort was running at full force. These pro government monetarists scare me.

The Changing Face Of American Capitalism

Yahoo Finance posted an interesting story yesterday morning, one that describes the reasons former GMAC CEO Alvaro de Molina was forced to step down.

In the news are the details of GMAC's years long financial woes. Molina was in charge of the company for only the last two. But that didn't stop the CEO from having a very clear cut difference of ethical opinion in opposition to GMAC's board of directors.

For anyone who's been following the company's difficulties for even a short time, the memories of bailout monies and other government guarantees are fresh. GMAC received $12.5 billion in bailout funds; had $7.4 billion in loans publicly guaranteed by the FDIC; failed the government's stress tests, and still needs to raise another $11.5 billion to get back on its financial feet. But so far it hasn't been able to raise the necessary money, nor has the company cut its costs enough to aid in its own solvency. Which means... the company is back with hat in hand, ready to once again accept government money to the tune of at least another $5.6 billion in greenbacks.

The essence of the issue is this: the board wants the money; de Molina doesn't. So the board has forced him out for a very specific reason. He refused to accept money that his company didn't earn. He refused to take your tax dollars. How ironic. When we read of one man of good conscience, among all of those others who are so quickly willing to sell out their morals, their ethics and their companies, just to prop themselves up for a little while longer, it's in an article that states “...de Molina steps down.”

Say “goodbye” to the large companies that deserve your business because they provide you with everything you want, need and actually use. And say “hello” to the companies that stay afloat due mostly to their political connections.

Laissez-faire has been dealt some serious blows over the course of these last couple of years. Every part of the stimulus program, and every aspect of the TARP program, has made doubly sure of that. But also know that when good people of conscience are being pushed out of the doors of formerly competitive companies because they still believe in laissez-faire, the death noose has been tied. It's just the changing face of what used to be American capitalism.

A Late, Great Interview

Last night Gaby and I did something we thought was fun, even though we also realized that it probably makes us either serious intellectuals, or nerds – or both. We happily sat in bed with my laptop on a Saturday night and watched a Mike Wallace interview from 1959. It was just him and my favorite author Ayn Rand. The video is so basic that I called it high schoolish. Which, by today's standards, it is. There's no scrolling info at the top or bottom of the screen; the camera jumps and wavers; the CG is primitive, and it's shot in black and white. The sound is even bad. But having said that, it's also totally engrossing. I can't remember ever being so drawn into an interview. His questions are tough; and she answers every, single one of them with the practice and fearlessness I would expect from her caliber of intellect. There are so many people who are, after all these years, still misunderstanding what she had to say, and why. But I'm happy to share it anyway.

Is It Still Just A Conspiracy?

In one of my previous posts, I focused on an article published by the British newspaper The Independent, in which the authors stated there are now widespread attempts by many central bankers all over the world to divest their countries of US dollars. The swirl associated with their story is more in regard to public reactions to the information than to the info itself. But ultimately denial will get us nowhere. And, for the second time in three weeks, I'm happy to say that I'm in good company with my concerns about the decline of the dollar. In an article posted on Yahoo Finance titled “Wake Up Washington! China Is Already Dumping the Dollar...” Harvard professor Niall Ferguson shares his view, and states that Washington is too dismissive, and that anyone who thinks the Chinese will be left with no or few alternatives to the American consumer is “slightly naïve.”

The crux of the issue is this: if the Chinese sell dollars, or in this case, trillions worth of US treasuries, the greenback will be devalued enormously. A side effect, however, will be the concurrent inflation of the renminbi (a.k.a. Yuan), China's official currency. But our oriental trading partners have more motivation and less to lose than you might think. First, their trade surplus is down nearly 60% from last year. And second, they have much less loose currency in the marketplace as a percentage of their GDP than the US does. This essentially means that if they are ever going to make a major transition away from American consumers and the dollar, the best possible and least painful time is right now. Couple this with the fact that China's leadership has in recent years been purchasing commodities of all kinds in every corner of the planet, and you can see that any likely increase in commodities will result in a major windfall for China's economy.

So Washington can poo poo this idea all they like. But I'm reminded of the words of my favorite author who said: “There's no denial of reality that can change reality.” It looks to me as though China has much to gain and little to lose in transitioning away from the United States.

And I'm already wondering about one of my future posts, when the dreaded term “economic warfare” will undoubtedly make its way back into common English parlance. That should make for some interesting news.

An Interesting Event From Reason Magazine

I just found a nice link to a program I'll be sure to watch this November. I'm always eager to share my love for laissez-faire capitalism – and for the writings of Ayn Rand – so I thought I would pass it along.

Currency and Conspiratorial Currents

A story published this morning by The Independent has columnists, pundits, economists and die hard politicos frothing over its grandiose doom and gloom implications. The publication stated that, according to its sources, a group of central bankers, mainly those from Russia, China, France, Brazil, Japan and several gulf states, are in the earliest stages of banding together to divest their countries of U.S. dollars.

According to sources, high-level meetings have been taking place in secret, though every statement made since by officials has been one of denial. So far, however, The Independent has not retracted any part of its story, and apparently hasn't been asked to do so. So the fuel on this newest and largest of conspiracies is receiving plenty of time and space to burn – at least in the minds of those who like to worry.

Reaction to the news has been surprise. Reserved surprise. Most pundits are taking the news in stride, even while expressing disappointment with countries like Japan (an American ally) and China (a huge trading partner). Virtually all of the most prominent talking heads have said that any divestiture will take a minimum of “nine years.” Others are stating ten to fifteen is most likely. This is wrong, wrong, wrong. And I can explain why.

Most politicos aren't economists. Nor are they criminally-minded. They don't understand the mentalities of those who deliberately meet in cabal-fashion behind closed doors. When we venture into this deliberate secrecy territory we have to reevaluate our standards. We need the standards of the crime syndicate: protect the family, protect yourself. We come first.

This is where the policy analysts are going astray.

Any group of individuals that would meet secretly in order to overturn a world currency, and throw the world's most prosperous nations into upheaval and bankruptcy, can only be counted on to do one thing predictably – the unpredictable. They are not likely to divest in any way that's orderly. Nor are they likely to respect the economic wishes of any country, even the ones with which they've already made agreements. Rather, they can be counted on to protect themselves. There isn't any leadership in existence that will sit idly by and watch, while other countries purge their unwanted monies. Once the en mass sale of dollars begins, the last country holding any currency will be the country with the least valuable dollars. This is what economists call “the time value of money.” If you have a dollar now, it's worth a dollar. But if you have a dollar one year from now, while all of your “friends” sell four trillion or more as fast as they can, your dollar will be worth a fraction of its current value. The proverbial rush to the door is already evident.

So nine years is rubbish. And so is ten or fifteen. If The Independent is correct, this scenario is probably going to play out more like an ugly mudslide. It will be a solid, unstoppable race to the bottom, with nothing but debris and shocked survivors left in the end. So brace yourselves. If this story is true, we're in for a very fast reversal of fortune, and one nasty and prolonged clean up.

Just For Fun

Go ahead. I dare you. Go ahead. Listen to this song just once, and tell me you don't have it stuck in your head three days from now. I dare you.



I just wanted to let anyone who's interested know that this video is part of a promotion for a game called "Plants vs. Zombies."

Redistributionism In A Nutshell

Ron Paul, “Health Care Is Not A Right”

Yahoo Finance reporter Aaron Task interviewed Congressman and Doctor Ron Paul recently, and the statements he made were as straight forward and logical as any I've heard on the health care “debate” going on in Washington.

He said health care is “not a right,” and that the current administration is going through a series of very large spend, spend, spend procedures to “give” individuals everything they need. Obama and his benevolent helpers are paving the road to economic Armageddon with their good intentions. No good deed goes unpunished is a phrase that comes to mind. We should also ask seriously where the money will come from, because the good Congressman is correct.

Health care isn't a right. Nor is an education for the children you did not conceive; nor is a retirement for someone whom you don't know; nor is a home for those who lost their jobs, or spent too much of their income. It all makes us feel better to know that someone, or something, has our backs if we fall down. But allying our feelings through the public redistribution of privately earned wealth simply isn't a “right.” It's not, because no one has the right to another person's money, no matter how much better it makes them feel.

I personally find it ironic to no end that the first black President in The United States is a man who's pushing so hard to create economic slaves. But the irony doesn't end there.

Government is growing by leaps and bounds, while the income of most Americans is plunging – which is exactly why the deficit is soaring. But ultimately the big problem we should all look out for in health care, at least in the near future, is the same problem we've seen the administration choke over in their predictions of what amount of money is sufficient to make up a “stimulus package.” In short, they don't know. As I mentioned in my last post, there's a litany of problems and interpretations that the stimulus package is dragging along with it. The most disheartening of which is that the Obama administration is avoiding accountability by constantly shifting their baseline in order to cover the incorrect estimates they made regarding the state of the economy. It's hard to know what steps to take, if the floor under your feet is constantly moving.

I've listed here some other small details that I think the administration is conveniently overlooking for the sake of expediency and feeling good. When these very real problems come to light, we can expect more shifting baselines, and more calls for expansion of the soon-to-be health care nightmare.

1. The government has underestimated the total number of sick persons in the U.S.

2. They have underestimated the number of individuals who right now do no seek medical attention because of its cost.

3. They have underestimated the initial cost of the program, in the same way that England, France, Canada and many other single-payer countries, now looking to divest themselves of their health care systems, underestimated their initial costs.

4. They are overlooking the obvious fact that many Americans left on the margin will intentionally find ways to reduce their income, if the benefits of publicly subsidized health care outweigh the benefits of keeping the extra income, and the costs of compliance with the punitive new laws.

5. Right now, the medical industry in the U.S. requires one dollar of regulatory cost for every two dollars spent. That's a rate of 50 staggering percent. It's higher than any other industry. With more government intervention, in what's already the most heavily regulated industry in the country, that ratio isn't likely to improve.

What all of this means is that health care will cost the American public far more than the original one trillion dollars estimate. And worse still, once the program is instituted, it will be impossible to extricate. This is horrible news for the people who are already suffering through the worst economic conditions in 70 years.

Eventually, I hope the American people will come to see that we don't suffer from a lack of government meddling. We don't have a lack of medical insurance. What we need is what Mr. Paul stated at the end of his conversation with Aaron Task: “I want everybody to have maximum care at the best price. And that's why I want the government out of it completely.”

Stimulating News

Over the last couple of days there's been some interesting cometary from Washington politicians regarding the stimulus package, it's effects so far and the plans for its future. Like many of you, I've been keeping track of some of the goings on, and I've found the latest statements to be noteworthy.

On Sunday, President Obama took an unusual step by placing an op ed in The Washington Post. He's on the defensive, after being criticized by conservatives for taking too much tax money, taking too much time to get the stimulus program (a.k.a. “The American Recovery and Reinvestment Act”) under way and that the program, which was meant to “stop the bleeding,” simply isn't working. All of this seems to be true, especially when you consider the “metric” the administration is using as their point of reference.

I need to point out that it's pretty tough to have a consistent baseline (metric) of how well you're performing when your point of reference is constantly shifting. At one time in my life, I wished for teachers who would teach the way the Obama administration is administering.

But apparent present-day failures, massive historical lessons showing the same kinds of failures, shifting baselines, constant criticism and an otherwise lack of economic response (unemployment was up again in June) haven't changed the minds of the politicians who can't seem to see what's blatantly obvious to the rest of us. The bleeding hasn't stopped.

But let it not be said that politicians can't take advantage of a perfectly good tragedy. What would you and I do if confronted by massive debt, an uncertain job future and the threat of inflation? Well, we would spend twice as much – clearly. In what sounds like the next step in the performance of The American Recovery and Reinvestment Act, Vice President Joe Biden, who's lately become somewhat of a motormouth, stated that the administration “misread” the economy, leading to new and widespread speculation about the idea of a “...Reinvestment Act” part deux.

If part one has cost us 787 billion official dollars, trillions in printed reserves, a government controlling interest in the automotive and financial sectors and a plunging value for the dollar worldwide, among other things, we can only speculate how much the next installment in this program will distort the American economy. My guess is a new belief in something that I've resisted for several years now – hyper-inflation. I'm remembering my post “Mark's Top 30 Watch List For Economic Armageddon.” Unfortunately, there are only two steps left to take on that list, and Murphy's Law dictates that they're well on their way.

We can only hope and pray that I'm wrong. Even I hope I'm wrong. But one thing is certain, the stimulus package has become the 800 pound gorilla in the room. It's massive, and impossible to ignore or avoid, no matter where you're standing.

So the news over the last several days has been interesting. Our leadership is providing us with little glimpses of insight into how they feel about the status of their economic policies, and where those policies might be headed. Unfortunately, it appears as though the worst of the storm is still directly ahead of us.