I have always found it curious that some people will advocate government spending in a particular area, yet they would never spend any of their own personal money to fund it.  While it doesn’t seem to make any sense, I can see some rationale behind it.

For instance, it would be an interesting survey to ask 100 people if they think that NASA should be abolished.  My guess is that a good majority would say no.  Then ask them if they are interested in contributing money to a charity that is involved in space study and sending people and satellites into orbit.  My guess is that a majority would not contribute anything out of their own pocket.  Perhaps some might donate a few bucks.  There might even be a few who donate hundreds of dollars, thinking it is a worthy cause with a lot of potential.  But it is rather obvious that the responses to the two questions would not match in a lot of cases.

So why would some people want to fund NASA through the government, yet they would never spend a personal dime on such a thing?  There are different possible explanations.

Some people don’t want to pay for something when others are not.  Someone might want to contribute his own money to NASA, but he also wants everyone else to contribute too.  The only way to get everyone to contribute a little is by using the force of government.  People like this don’t want any “freeloaders”, even though they are the ones who are advocating force.

Ironically, we live with freeloaders our whole lives.  You are probably a freeloader yourself.  You don’t have to shop at Ebay or at Walmart, yet you probably benefit from these entities in that they provide competition and get other stores to lower their prices.

You could also be a freeloader if you walk into a mall or a store and browse and don’t buy anything.  You might even enjoy some of the Christmas decorations or something else visually pleasing, yet you haven’t paid anything.

Ironically, it is usually the rich who pay more, while the freeloaders tend to be the lower and middle classes.  When a new technological gadget comes on the market, rich people will pay thousands of dollars to be the first ones to have it.  They are the guinea pigs.  The prices eventually come down.  Now we can buy a big screen television for under a thousand dollars.

Another reason someone may advocate a government program, yet never pay for it voluntarily, is that he sees his tax money as a set number.  If you asked people for a choice between getting rid of NASA or paying twenty five dollars out of their wallet on the spot, then a lot more people would want to get rid of NASA.  Most people, and probably correctly so, realize that NASA could be defunded, yet they probably wouldn’t see any of the extra money.  From this standpoint, taking differing positions might actually make a little sense.

I think a third reason for this seeming contradiction is that many people simply do not think about it enough.  Some people assume that if government didn’t fund NASA, that all space exploration would come to an end.  Libertarians should be able to relate to this, because we witness a lot of lazy thinking.  As a libertarian, it is common to be accused of being in favor of drugs, just because I favor drug legalization.  It is common to be accused of being against education, just because I don’t favor government run schools.  It is common to be accused of being unsympathetic towards the poor, just because I don’t think anyone should be forced to “give”.

I think this contradiction of some people advocating government spending on a program that they would never voluntarily fund is a good example to point out to others.  It is a good technique to have a conversation about libertarianism, without making it into an argument.  You don’t even have to take a position upfront.  You can just say that you find it interesting that many people favor war, yet they would be unlikely to voluntarily donate money to the government to fund going to war.  You can use this for any government program that is up for discussion.  And even if someone were willing to voluntarily fund a particular program, does it mean that everyone should be forced to fund it?

In Obama’s state of the union speech, one of the things he touched on was the deficit.  He said the following:

“Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion, mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans.  As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.”

Is this man nuts or does he just think everyone else is that stupid?  How can he possibly say that the deficit has been reduced by more than $2.5 trillion over the last few years?  The annual deficit is still over $1 trillion per year.  This is impossible that it has been cut that much.

The only thing he could possibly be referring to, especially since he also talked about raising tax rates on the wealthiest 1 percent (it should be top income earners, not wealthiest), is that the future projected deficit has been reduced.  Talk about playing word games.  How can you say that you have reduced a deficit that is set to occur sometime in the future?

Obama has no idea what the actual growth rate will be.  He has no idea what the actual spending will be.  He has no idea how much money will be collected by the government.  But the most amazing thing about this is that immediately after saying these words, he goes on to say that the parties need to work together to avoid these “sudden, harsh, arbitrary cuts” that will go into effect.

So Obama takes credit for cutting the deficit in the future, but then immediately says that we need to stop the future cuts that would actually translate into this deficit reduction.  You got that?  He didn’t even wait until five minutes later in his speech to contradict himself.  He does it immediately.

While politicians, including Obama, are often ignorant, I don’t believe this is ignorance.  This is a planned speech.  It is meant to deceive.

I remember when George W. Bush, early in his presidency, talked about cutting the deficit in half and giving a time period that wouldn’t occur until he was out of office.  Of course, by the time Bush left office, the deficit had ballooned to unimaginable levels with his bailouts of car companies, banks, and other financial institutions.

These slick politicians, particularly in DC, like to talk about the deficit.  Do not confuse the deficit and the debt.  When they refer to the deficit, it is the annual amount that the government spends in excess of the money it takes in, primarily from taxes.  Obama can talk about some goal of reducing the deficit by $4 trillion over the next several years, but the fact remains that there will still be massive deficits.  The national debt will keep getting bigger and bigger.  Politicians will call for reducing the deficit, but never for reducing the debt.

Obama is the epitome of big government.  And he has to sugarcoat his message with lies and distortions.  His contradictory statements on the deficit should prove that he has absolutely no interest in reducing spending.  The politicians will keep running up the debt and making us poorer until the American people revolt or the Fed stops buying government debt.

I rarely comment on Paul Krugman.  Austrian school economists often like to analyze Krugman and go after him.  I think they give him too much credit for popularity.  It is because he is a Nobel prize winner and a New York Times columnist.  But this doesn’t mean much anymore.  Does Krugman really influence that many people?  Alex Jones, Matt Drudge, Lew Rockwell, Sean Hannity, and the latest American Idol winner each influence more people to a greater degree than does Paul Krugman.

With that said, I can’t resist today.  I rarely read anything he says unless someone with a contrary point of view quotes him.  So I saw Bob Murphy’s post on him today.  I read Krugman’s post.  Krugman is either completely ignorant or he is a liar, or perhaps both.  He is loved by the establishment for his advocacy of big government.

In his latest post, he puts up a chart showing various countries with their change in employment percentages vs. their change in structural balance (what he calls austerity).  You can clearly see that Ireland and Greece have the worst change in employment.  Krugman is indicating that austerity leads to a depressed economy and higher unemployment.

First, I would like to point out that it is a bit of joke to say that Ireland and Greece are implementing austerity.  While the governments in those countries have been forced to cut back in certain areas, or at least forced to stop expanding the welfare state to such a great degree, they are both still massive welfare states.  It is not like they have gone to some kind of a limited government approach.  The taxes and spending in both countries are incredibly high, even by today’s standards.

But even if Krugman were right and both of those countries had implemented massive austerity (spending cuts), does that really prove anything?  This should really be one of the most elementary things for an economist.  Correlation does not mean causation.  A wet sidewalk does not cause rain.

Take a family that makes $50,000 a year and has credit card debt that is $250,000.  At a certain point, just the minimum monthly payments become so great that that alone will exhaust most of the income.  If the family doesn’t file for bankruptcy, then it must make drastic cuts to its budget.  That doesn’t make the $250,000 in debt disappear.  The interest payments alone will make this family poor for many years to come, assuming no bankruptcy and no major increases in income.  The family will be in a recession for years to come.

While this isn’t exactly a perfect analogy, it is enough to get the point across.  Of course Ireland and Greece are in depressed states.  Even if they had implemented major spending cuts in government, it will take time to recover.  The welfare states there are a giant misallocation of resources.  These resources must be reallocated by the market.  Then there must be savings and investment, which will eventually lead to increases in production.  When the government has messed things up that much, the economy cannot recover instantaneously.  It has to go through a correction.

Unfortunately, that is not even what is happening in Ireland and Greece.  They have just gotten to a point where big government has completely devastated their economies.  It means a dramatically lower standard of living for the people living there.  The governments, through their policies, discouraged saving and encouraged consumption.  It caused a total lack of savings and investment that has severely decreased production.  It has made virtually everyone living there poorer.

There should be a chart showing what happens to countries that follow Krugman’s advice.  Greece and Ireland can be at the top of the list.  They would still follow Krugman’s advice if it were possible, but it is impossible to spend something that is not there.  Socialist policies eventually don’t work any more because there is no more wealth to be distributed.

There are many harmful aspects of monetary inflation.  The obvious (although not to all) effect is that prices rise.  In other words, over the long term, monetary inflation leads to price inflation.

Monetary inflation is a redistribution of wealth.  It benefits debtors at the expense of creditors.  It benefits those holding hard assets (at least during the artificial boom stage).  It hurts consumers.  It tends to hurt wage earners, except those in industries who see the money first.  It hurts savers.

As taught by the Austrian Business Cycle Theory (ABCT), monetary inflation leads to a boom and bust cycle.  The loose money, and typically artificially low interest rates, leads to massive distortions.  It makes certain things appear more profitable than they really are.  It sends false signals to the marketplace, making it appear that there is more savings and capital than what really exists.

In relation to this last point, inflation misallocates resources.  It directs resources towards things that would not otherwise be done.  So while inflation redistributes wealth, it also reduces the overall wealth.  The net effect is that it makes the average person poorer, or at least worse off than he would have been without the monetary inflation.  Inflation harms productivity.

Inflation is also what allows the federal government to spend such massive amounts of money.  Without the Fed buying government debt, there is no way that the government could spend such vast amounts.  The marketplace probably wouldn’t buy the government debt without demanding higher interest rates.  And vastly higher taxes would be unlikely.  Therefore, without inflation from the central bank, government spending would be much lower.  Since almost all government spending is a misallocation or resources, monetary inflation enables much higher government spending.

Of course, we also wouldn’t have the massive national debt without the ability of the Fed to create new money out of thin air.  While I don’t think the overall debt is the most important thing, it correlates to the massive spending that makes our standard of living far lower than it should be.

This is important to remember, because even if you make some good financial decisions and investments, and seem to benefit from inflation, it is still making your worse off.  It is just that you will be less worse off than those who did not prepare properly and trusted their government with a monopoly over the money they use.

I have already given my investment recommendations for 2013.  The most important piece is the permanent portfolio.  I have not advocated defense stocks recently, except a small portion that would be part of the stocks held in the permanent portfolio (probably in an index fund or ETF of the broad market).

If you are going to put money into defense stocks, it should be in your speculative portion.  It should also be a small amount.

While I wouldn’t bet against defense stocks right now, I also think there are better things to speculate on.  If you look at Fidelity’s Select Defense & Aerospace fund (FSDAX), the returns have not been that great.  If you take its high point in 2007, the price of the fund is actually less now.

There is no question that if you had money to invest in the year 2000, that putting it in defense stocks would have given you a much better return that the overall stock market.  Of course, you would have been much better off in oil stocks or simply buying gold.

Going forward, it would not surprise me to see defense stocks continuing to struggle.  Raw materials to build defense equipment could rise in price and cut into profits.  And while war rages on, I think that Congress will have to find ways to cut back.  While there is a strong defense lobby, it is also easier to cut than Medicare and Social Security.  There is a lot of money coming from the defense lobbyists, but not nearly as many votes.

Of course, the word “defense” should be put in quotes most of the time.  Much of the expenditures for the military and equipment have little to do with defense.  It is mostly to build the American empire with more wars and more occupation, but I digress.

While I don’t expect to see major cuts in government spending right now, I do know that things are getting tighter.  Congress is going to have to start looking for ways to make cuts.  The Federal Reserve can’t support a one trillion dollar (or more) deficit year after year.  It eventually has to stop, which will force spending cuts.  Cutting the so-called defense budget will be easier than cutting the so-called entitlement programs.  For this reason, I would not bet many chips on defense stocks now.

It was recently announced that the U.S. Post Office will stop its delivery of mail on Saturdays, starting in August of 2013.  This was done in order to save approximately $2 billion per year.  The problem is that the losses were $15.9 billion last year, according to this New York Times article.  So, once the Saturday delivery service is cut, the losses will be slightly less, but still huge.

I love to read about new technology in our world and try to figure out its potential impacts.  Most technological advances end up being a net positive for liberty.  While some new technologies are used against us by the government, I think the overall trend is that they are more often beneficial.

I frequently use the example of email and cell phones.  New technology, coupled with delivery companies like Fed Ex and UPS, has made the Post Office far less relevant.  But most people respond that while this is true, the Post Office is still in existence.

But this canceling of Saturday delivery is a crack in the door.  This is just a start.  These continued losses by the Post Office are not sustainable, because eventually people will realize that there is no point on continuing to run a losing organization, with taxpayer money, when the service isn’t that valuable.

Ironically, the Post Office is one of the few things the federal government does that is actually constitutional.  Yet, even this is a disaster and should not be a function of government.  It is also important to note that just because postal service is an enumerated power in the Constitution, it doesn’t mean that Congress has to do it or fund it.  In addition, the Post Office doesn’t have to have a monopoly on the delivery of first-class mail.  Let’s open it up for competition.

I think this is the beginning of the end of the Post Office and its government monopoly over first-class mail.  Perhaps it will take another 10 or 20 years to end the whole thing, but I do believe it is inevitable.  I guess this will prove Reagan’s saying wrong that government programs never disappear.

I expect this to happen with other government programs.  Technology makes them irrelevant over time. One of the worst government programs is education, and it is slowly being undermined by technology. Just like the Post Office, we haven’t seen any cuts in spending on government education, but it will happen eventually.  People will realize that their child can get just as good of an education (or probably better) by sitting at a computer for most of the day.  There is no need for taxpayers to shell out, in many instances, well over $10,000 per year per child.

Libertarians should welcome the news of the Post Office canceling Saturday deliveries.  It means that government programs can be scaled down.  Eventually, we should see an end to the Post Office, or at least the one run by the government.  This is positive news for those who favor liberty.

According to a Fox News poll, 73 percent of American voters polled believe that cutting government spending would be more likely to help strengthen the economy, whereas just 15 percent believe that increasing spending would help the economy.

Of course, this is part of the contradictory American mindset.  How many of these same people who believe government spending should be cut, also voted to re-elect their so-called representative to Congress?

Overall though, I think this is very positive news.  Even if the poll is off a little, it is clear that a good majority of Americans understand economics enough (better than Nobel-prize winner Paul Krugman) that they realize government spending should be cut.

While Keynesianism is defined a little differently depending on who you ask, this question really does go to the heart of Keynesianism.  Keynesians believe that increased government spending, particularly during tough economic times, is needed to help the economy.  A majority of Americans are no longer buying it.

The government used John Maynard Keynes and his famous book as a justification for its policies.  If Keynes had never existed, then the government would have used someone else.  Keynesianism would be called something else, but the policies would likely be the same.

Although a clear majority of Americans are in favor of reduced government spending, it doesn’t mean it will happen.  Many of these people understand it intuitively, but are still not educated to a great enough degree.  They are not as hardcore in their beliefs as they need to be.  They also don’t pay attention to what Congress is doing on a regular basis.  In addition, there are also many Americans who say they want lower spending, but don’t like the idea once it is targeted towards a certain program that they favor.

So while this doesn’t mean a whole lot for the short term, at least in terms of policy, I do think it is significant.  It shows a shift in the American mindset.  People are gradually changing their views.

I think the main reasons for this shifting attitude include the bad economy, Ron Paul, and the internet.  The synergistic effect between these things are changing minds.

This poll is a reason to be optimistic.  If 73 percent of American voters really do have this view, then it will eventually have its effects on policy.  Perhaps it means we have hope for reducing government spending without having to go through a serious economic crisis first.

I recently saw an advertisement for a 55-inch LED television for about $800.  I got a 55-inch about 2 years ago for $1,000 and I thought it was a pretty good deal at the time.  My television is a better name brand, but it is also not LED.  In just 2 short years, prices have come down significantly, while the quality has gone up.  This is price deflation, in spite of monetary inflation.  It is the best kind of price deflation.  It is due to increased technology and productivity.

Gary North recently wrote an article on how our lives are improving.  I like the optimism.  I am pessimistic on several fronts, particularly regarding the overall economic picture in the short term.  This is because of bad government policy.  It is because of too much government spending and regulation.  Despite these massive barriers, the free market continues to find holes in which to innovate.  Technology in electronics has been able to improve dramatically, in spite of big government.

It is really a strange world we live in today.  In some ways, our lives become more difficult.  Health insurance and medical care get more expensive.  Education gets more expensive, at least when dealing with government education and the other institutions that try to compete.  Education in regards to self-learning is vastly cheaper, mostly because of the internet.

So while some of the necessities and other high priority things become more expensive, other things, mostly in electronics, get better and better, and cheaper and cheaper.

There is now a high quality 152-inch television hitting the market for $500,000.  This will be for really wealthy people, at least at the start.  But that is the way most things start out.  You could have said the same thing about cars about a hundred years ago.  But then someone like Henry Ford came along and mass produced them for the general population.

A 55-inch television was not a common thing for middle class America, even just 10 years ago.  Now it is a common thing and the quality is far better.  In terms of televisions and computers and cell phones, our lives are dramatically better than they were just 10 years ago.

I was recently at a park with my kids and we walked to a nearby lake.  My 5 year old daughter asked me if there were any alligators in the lake.  I said that there could be, but that I didn’t know.  Then she said to me, “look on your phone.”  She thinks I can find all of the answers in life on my cell phone.  While my phone couldn’t tell me if there were any alligators in the lake (is there an app for that?), it is remarkable how much information we have at our fingertips today.

Long term, I am an optimist.  In spite of big government, I think our lives will continue to get better in many ways, even if we take steps back sometimes.  We often don’t notice how much better off we are until we look back and realize the things we didn’t have.

While government has not been able to stop advancing technology, I think technology will be able to beat back big government.  Think about what email and cell phones are doing to the Post Office.  That is our future.

The issue of drones is actually getting some attention.  This New York Times article was the headline story on Drudge Report.  While I am glad that it is getting some attention, I still think most of the discussion is on the wrong track.

In the New York Times story, it talks about drone bombings in Yemen.  Of course, they are also happening in Afghanistan, Pakistan, and probably many other countries.  The article does discuss the possibility that these drone attacks are fueling hatred towards America.  People, who have loved ones die at the hands of American bombs, tend to want to get revenge.  This is known as blowback, something that Rudy Giuliani had never heard before.

I think there is a bigger picture that is missing in this whole thing.  Whether we are talking about drone bombings, torture, or just war in general, we have to look at the morality of the whole thing.  When you kill an innocent person with deliberate actions, we usually call that “murder” in our society.  Does it make it any less wrong if it is done through the government?

It doesn’t matter if terrorist operatives are being killed.  It doesn’t matter whether there is blowback or not.  It doesn’t matter if people in a foreign country don’t like us or don’t act the way we want.  None of this matters when it comes to killing innocent people.  Dropping bombs, knowing that innocent people will die, is immoral.  It is wrong, no matter how you try to justify it.

Even if the bombs are killing “suspected terrorists”, it is still wrong.  The key word is “suspected”.  None of these people are given a trial.  None of these people are allowed to explain their side of the story.  None of these people are allowed to identify themselves.  Instead, their lives are just snuffed out, at the commands of U.S. politicians and U.S. military officers.  It is murder.

I also get frustrated when I hear about how the government can now arrest Americans or that Americans are now part of a kill list.  I hear that Americans have the right to a trial under the Constitution.  But this is a complete misrepresentation of the Constitution, which is supposed to enumerate the powers of the federal government.  I don’t see where the Constitution authorizes the federal government to kill innocent people, especially when there aren’t even any declared wars right now.

But regardless of what the Constitution authorizes, it is just plain wrong to murder innocent people.  It doesn’t matter where they were born.  Murdering an innocent person born in Pakistan is no more justified than murdering an innocent American.

I think a good way to look at this whole thing is to imagine it being done in America.  Imagine that a criminal runs into a building.  Do you think the police or military should drop a bomb on the building and celebrate because we got the bad guy?  Or do you think it would be wrong because of the “collateral damage”?

It is ironic that Obama got in front of the cameras and shed some fake tears for the children who were murdered in a Connecticut elementary school.  I have never seen him shed a tear for any of the children that died at the hands of his drone bombings.  It is also ironic that Obama is talking about gun control.  Instead of banning certain guns from the American people, I think we need to ban Obama and the rest of the politicians from drones and other weapons of mass destruction.

I am a big advocate of investing at least half of your money in a permanent portfolio (or something similar), as described by Harry Browne in his book Fail-Safe Investing .  I gave my recommended investment overview for 2013.

For the more speculative portion of your investments, I am not against the idea of investing in oil and energy in general.  I don’t really recommend futures or options, unless you really know what you are doing.  Even then, I would stay away from futures and do only options that have a long time frame with money you are willing to lose.

I think the best bet is to buy oil and energy stocks.  Most of my investment advice does not revolve around individual stocks though.  If you want to buy individual stocks, I would stick with big companies like BHP Billiton (symbol: BHP).  Even with that, I would spread my eggs around and buy a few different companies.

I think an easier and perhaps less risky way to play it is by buying a mutual fund.  Fidelity offers its Fidelity Select Energy Service fund.  The symbol is FSESX.  While it is not a pure oil play, it does encompass the energy sector, which certainly includes oil to a large degree.  While your returns may not be quite as high with a mutual fund, it also takes some risk out of it by not being in any one particular company.

The direction of energy stocks is probably going to depend on the overall economy.  If we go into a deep recession, then energy stocks will do poorly.  If we see an artificial boom caused by the Fed’s loose monetary policies, then energy stocks will likely do quite well.

Even if you are a big gambler, I wouldn’t put more than 10% of your investments into the energy sector (aside from the small portion that may be in index funds in your permanent portfolio).  For most people, I would keep it at under 5%.

There are a lot of reasons that energy stocks could do well in the near future.  Aside from the depreciating dollar, there is constant chaos going on in the Middle East and other oil producing countries.  If any kind of a significant war were to break out, then oil could go up in price very quickly.

With that said, just remember the risk.  The economy is showing a lot of weakness and we still haven’t seen big price inflation yet, despite the big monetary inflation coming out of the Fed.  So for now, concentrate more on wealth preservation than hitting a home run with your investments.