Archive for July, 2011

What the Republicans Should Do

Declare that raising the U.S. debt ceiling is off the table. Present to the public a specific plan as to how the U.S. should prioritize spending of available cash: payments first for the military and veterans, then for Social Security and Medicare (but not Medicaid), then for creditors (except for hostile governments such as China and Russia). Tell the President that he must stop wasting his time thinking about a higher debt ceiling and that he must instead decide on his own plan for prioritizing spending. Acknowledge that the government has defaulted on its obligations many times in the past. Acknowledge that the government is bankrupt and cannot pay most of its obligations. Stop borrowing. Decide on an order of payment to creditors, and propose it to a bankruptcy court. Renounce and dismantle the welfare state, including Medicare, Medicaid, Obamacare, Social Security, food stamps, unemployment insurance, housing and housing loans, funding for education, funding for art and journalism, funding for science (other than for military purposes), minimum-wage and other labor laws, anti-trust laws, regulation of insurance, regulation of energy, regulation of transportation, FDA, SEC, NLRB, OSHA, EPA, etc.

Some critics of the Republicans claim that the Republicans must compromise, that they control only one half of one branch of government, and that therefore they cannot expect to have things all their way. But the whole purpose of America’s system of checks and balances is to make it possible for one part of one branch of government to say “No” and make it stick, and thereby put a halt to tyranny.

One of the better policies I have heard is this one from Rep. Steven King (R-IA), speaking about what would happen if the U.S. debt ceiling is not raised:

If Congress doesn’t put a prioritization bill on the President’s desk for him to sign, that—I will say in this order—pays the military first, services our debt second, Social Security third, and Medicare fourth, … then the President has two scenarios. One is he can do nothing and let all of his agencies do catch as catch can … which would be chaotic. The other thing he can do is set the priorities himself. And a responsible commander-in-chief sitting in the Oval Office would have by now assured the world financial markets and the domestic investors in American securities that he will service our debt and pay our troops. He’s not done that.

I would pay Social Security and Medicare before debt service, as I will explain later. More importantly, I would take Rep. King’s approach much further.

The Republican House of Representatives should declare that the debt ceiling will not be raised. It does no good to postpone the inevitable. The U.S. government is bankrupt. The official debt is more than $14 trillion dollars. But that debt is only a small part of the true debt. Unfunded liabilities for Medicare, Social Security, prescription drugs, etc. make the full debt more than $100 trillion. (See the U.S. Debt Clock.) That amount is roughly twice the total net worth of everyone in the country. Default is inevitable.

Some claim that the U.S. is solvent because of its ability to tax its citizens. The ability to tax citizens is not an asset; it is an M.O. (modus operandi). It is immoral to tax citizens in the present for the tyranny of the past.

Keep in mind that raising the retirement age for Social Security and/or Medicare is a default. Raising the retirement age from 65 to 70 is cutting the number of years of benefit payments from roughly 15 to roughly 10 (if people even manage to survive from age 65 to 70 without their Social Security and Medicare “benefits”); that’s a default of more than one third. Raising the retirement age is also increasing, by roughly 10%, the number of years that individuals must pay into the system. Finally, raising the retirement age is also delaying by five years the start of benefit payments. All of these defaults amount to a default on roughly half of the full promised payments; that is, these defaults are a “settlement” to pay out only 50 cents on the dollar.

Moreover, it is simply false that the U.S. government has never before defaulted on its credit obligations. (See A Short History of US Credit Defaults and All the Talk About Debt Default is Just Talk.) One egregious default, during the Administration of President Franklin Roosevelt, was the government’s default on allowing U.S. citizens to redeem their Liberty Bonds for gold at the rate of $20.67 per troy ounce.

In the past century, the government has debased the currency to the extent that one ounce of gold, which used to be equivalent to $20, now costs more than $1600. In effect, the government is paying out less than two cents on the original dollar.

Debasing the currency is a kind of default that is worse than a default on repaying a loan. At least a lender knows that he is incurring a risk, and a lender can choose not to make the loan in the first place. Debasing the currency is outright fraud and theft; it is defaulting on the promise merely to be a storage facility for citizens’ money, that is, for citizens’ gold.

Since default is inevitable, the government must decide three things:
1. What real assets does the government have that can be used to make partial payment to creditors?
2. What is the most ethical order of payment to creditors?
3. What should the government do to continue the government after default?

1. The main real, saleable asset in the possession of the federal government, as far as I know, is land. The federal government “owns” roughly one third of the land in the United States. This situation is a disgrace for a country based on the idea of property rights. The government should immediately begin selling all of this land, except for the land needed for national defense. The cash realized from the sale of this land should go into a fund for paying creditors, in the order described below.

2. The most ethical order of payment of past obligation is as follows. First is payment to veterans. Once this obligation is covered fully, the next in line are Social Security and Medicare. At the same time, all withholdings for Social Security and Medicare should halt immediately. Needless to say, no new obligations for Social Security or Medicare should be incurred. Once the fund for paying creditors is exhausted, Social Security and Medicare benefits should come to an end. I do not know how long the money from land sales can keep such benefits going, whether for one year or ten years. But whatever the duration, that should be that.

What debt should come next, if any money from land sales is left over? Next in line should be holders of formal debt instruments (such as Treasury bonds), except for hostile governments such as China, Russia, and Islamist governments (and government officials) such as Saudi Arabia. But the question is probably moot, because I doubt that there would be money left over for repaying any formal debt instruments.

Why should Social Security and Medicare recipients come before holders of debt instruments? Social Security and Medicare recipients were forced to pay into the system. They had no choice. Holders of debt instruments chose to lend money to the government.

3. If the government defaulted on its debt instruments, how would it be able to borrow again, and wouldn’t the interest rates charged to the government be sky-high? The answer is that the government would not be able to borrow again (for a long time), and would not have to borrow again; both of these things would be good.

What would the elderly do without Social Security and Medicare? I have good news for the elderly. Their children and grandchildren would no longer have to pay roughly 15% of their income into these fraudulent, tyrannical systems, and would therefore have more money with which to help their parents and grandparents if necessary. Social Security and Medicare do not change the mix of young and old; they merely force the young to pay for old strangers. What about the elderly who have no children? They probably had more opportunity to save (since they had no children to raise), but they also can rely on the charity of millions of Obama supporters, many of whom are very wealthy.

What about recipients of Medicaid, food stamps, unemployment payments, and other welfare programs? These people should continue to receive benefits—in the form of loans, not outright payments—for a few weeks or so, and then they should be permanently cut off, cold turkey. And they should not be allowed to vote again until they pay back the loans, with interest. These recipients paid nothing into the system (except for some small payments for unemployment insurance), and deserve nothing out of it. But I have good news for these people. With the repeal of minimum-wage laws, these people would no longer be prevented from earning an honest living merely because of having low earning power; they would be free to start at the bottom and work their way up. And with the repeal of regulations against business, these people would have much more opportunity for honest work. Freedom is worth far more than government handouts.

What about holders of worthless Treasury bonds? I have good news for them. There would be no more income tax, either on individuals or corporations. With the end to the welfare state, the government would need only one quarter of the revenue it takes from citizens today. And there would be no more fascist regulation of business. Freedom is worth far more than Treasury bonds.

What about China and Russia? I have good news for them. They can turn over their nuclear arsenals and weapons programs to the U.S., and think of all the money they would save.

What about Islamist states holding U.S. debt instruments? I have good news for them. They can drop dead and be with Allah.

7/30/2011: For the moral issue underlying the debt-ceiling conflict, see these recent posts:
Shared Sacrifice
“The Despoiling of Ability”
On the Backs of the Productive

On the Backs of the Productive

Treasury Secretary Timothy Geithner, speaking on “Fox News Sunday” this week, cited these statistics, which are remarkable though not in the way that Geithner meant:

And remember this country, this great nation with our great resources today, one in eight Americans are eligible for food stamps today. Forty percent of Americans born today are born to families eligible for Medicaid. The idea that you can ask the American people to balance this budget on the backs of the elderly and the most vulnerable with no burden through tax reforms on the most fortunate Americans is fundamentally unacceptable.

Who are on whose backs?

Note Geithner’s phrase “this great nation with our great resources.” Evidently, Geithner means this phrase literally: that the resources of individual Americans belong to the nation.

Note also Geithner’s words “vulnerable” and “fortunate.” These words evade the crucial issue: Who produced the “great resources”? Who has a right to them?

Geithner’s choices of words are no accident. They reflect a philosophy that permeates the Obama Administration and Obama: that wealth and poverty are matters of luck, that therefore all resources morally belong to society, that therefore the wealthy are a burden to the poor, and that therefore the government must even out the luck and the burden by taking from the rich (the lucky) and giving to the least able to survive on their own (the most vulnerable).

Marx’s phrase, “from each according to his ability, to each according to his need,” though evil, at least acknowledges openly that it is men of ability who produce wealth.
Geithner’s notion is less honest and more depraved: From each according to his fortune, to each according to his inability.

That no Republican ever challenges these notions is why the Republicans cannot win the current conflict over the budget and the debt ceiling, and cannot save America from eventual collapse.

“The Despoiling of Ability”

As if having read my blog (Shared Sacrifice) from Tuesday and reprising his role as the villain, President Obama said this yesterday:

Look, I want everybody in America to do well. I want everybody to have a chance to become a millionaire. I think the free market system is the greatest wealth generator we’ve ever known. This isn’t about punishing wealth. This is about asking people who have benefited most over the last decade to share in the sacrifice. I think these patriotic Americans are willing to pitch in—if they’re asked—because they know that middle-class families shouldn’t have to pick up the whole tab for closing the deficit.

So this idea of balance, this idea of shared sacrifice, of a deficit plan that includes tough spending cuts but also includes tax reform that raises more revenue—this isn’t just my position. This isn’t just the Democratic position. This isn’t some wild-eyed socialist position. This is a position that’s being taken by people of both parties and no party.

I have never heard Obama state that he wants to force wealthy people to pay more to the government. What I have always heard from Obama is the euphemism of “asking.” Of course, this euphemism is dishonest. And, of course, the government has been punishing the “wealth generators” since income taxes were instituted in 1913.

Obama is right that, as I wrote on Tuesday, the notion of shared sacrifice is shared by both parties and among most independents too. But the position is indeed a socialist position.

Instead of forcing or even asking the wealth generators to sacrifice, a statesman for freedom would do well to address the wealth generators with these words from Ayn Rand (1957, 739–740) in her novel, Atlas Shrugged:

The despoiling of ability has been the purpose of every creed that preached self-sacrifice. The despoilers have always known it. We haven’t. The time has come for us to see. What we are now asked to worship, what had once been dressed as God or king, is the naked, twisted, mindless figure of the human Incompetent. This is the new ideal, the goal to aim at, the purpose to live for, and all men are to be rewarded according to how close they approach it. This is the age of the common man, they tell us—a title which any man may claim to the extent of such distinction as he has managed not to achieve. He will rise to a rank of nobility by means of the effort he has failed to make, he will be honored for such virtue as he has not displayed, and he will be paid for the goods which he did not produce. But we—we, who must atone for the guilt of ability—we will work to support him as he orders, with his pleasure as our only reward. Since we have the most to contribute, we will have the least to say. Since we have the better capacity to think, we will not be permitted a thought of our own. Since we have the judgment to act, we will not be permitted an action of our choice. We will work under directives and controls, issued by those who are incapable of working. They will dispose of our energy, because they have none to offer, and of our product, because they can’t produce. Do you say that this is impossible, that it cannot be made to work? They know it, but it is you who don’t—and they are counting on you not to know it. They are counting on you to go on, to work to the limit of the inhuman and to feed them while you last—and when you collapse, there will be another victim starting out and feeding them, while struggling to survive—and the span of each succeeding victim will be shorter, and while you’ll die to leave them a railroad, your last descendant-in-spirit will die to leave them a loaf of bread.

There is much more to this passage, but I don’t want to disclose spoilers. The entire novel is an answer to Obama and his ilk. More importantly, the entire novel is a tribute to and celebration of the wealth generators.

As I write this post, there are signs that the Republicans will soon capitulate to Obama and agree to raise the debt limit and to increase taxes on the most productive Americans. It seems that some Republicans are being spooked by hints that credit-rating agencies such as Standard & Poors are about to lower the U.S. government’s credit rating, as President George W. Bush was spooked in 2008 by those who claimed that the economy would collapse into depression without the TARP bailouts.

But if the Republicans don’t cave in by tomorrow, I will write about what our government should do specifically about this debt-ceiling “crisis.” Hint: We should admit that the government has been defaulting in spades since Franklin Roosevelt, and that the government is bankrupt. We should not raise the debt limit. We should continue military spending and eliminate most of the rest (though we should continue Social Security and Medicare for another year or so—and no longer). But more than simply cutting spending, we must explicitly renounce the notion of the welfare state.

Reference

Rand, Ayn (1957), Atlas Shrugged. New York: Random House.

Shared Sacrifice

President Obama and fellow Democrats use the phrase “shared sacrifice” so often that the phrase is now a standard term. I have not heard any Republican use the term favorably, but neither have I heard any Republican dispute the notion. The only argument I have heard some Republicans raise is that the Democrats are hypocrites, not truly wanting to share the sacrifice.

This failure to challenge the Democrats on principle is why I think it is the Republicans, including those in the TEA Party, who will capitulate in the current debate over increasing the debt ceiling. The Republicans will agree to increases in taxes, increases in revenue for government, and continuation of oppressive government regulations of industry.

In a free society, no one is forced to sacrifice.

In a free society, a man is free to pursue his own interests, neither sacrificing himself to others nor sacrificing others to himself. Sacrifice is a barbaric notion.

Millionaires and billionaires, those heroes whom Obama derides, are already subjected to the sacrifice of far more than half their lifetimes in the form of taxes and regulations. The government might as well let these heroes live free until the age of forty or fifty and then murder them and plunder all their wealth. Sadly, we are headed toward the second half of that policy without the first, for the same reason that Germany got there in the 1940s.

Then there are many just below the tier of millionaire who work for many years at a job they do not love, for enough savings to pursue a lifetime of what they do love: an art, a craft, an intellectual study, a less financially lucrative but more personally fulfilling business. Instead of accumulating such savings by, say, the age of forty, these individuals may have to wait until the age of seventy. By what right, and to what kind of people, does society sacrifice the best years of the lives of these individuals?

For the most eloquent refutation of the notion of sacrifice, read Ayn Rand. For a taste, see the quotations on the right panel of the home page of this blog.

Happy Independence Day

Today I celebrated Independence Day by reading the Declaration of Independence and some pages of Atlas Shrugged by Ayn Rand. Anyone who wonders about the connection is invited to read the right-hand column of the home page of this blog.

Second Renaissance Books once published a tear-off calendar, “Ayn Rand Quote of the Day • 1995.” Here is the entry for July 4:

The most profoundly revolutionary achievement of the United States of America was the subordination of society to moral law.

The principle of man’s individual rights represented the extension of morality into the social system—as a limitation on the power of the state, as man’s protection against the brute force of the collective, as the subordination of might to right. The United States was the first moral society in history. —The Virtue of Selfishness

{Rand [1963] 1964, 93.}

Reference:
Rand, Ayn ([1963] 1964), “Man’s Rights”, The Objectivist Newsletter 2(4): 13–14, 16. Reprinted in The Virtue of Selfishness, New York: Signet, 92–100.