How Do We Raise Wages?

As the American middle class continues to struggle, the question of wages comes up more often now.  Wages have gone just about nowhere over the last several decades.

When we talk about stagnant wages, we are talking about real wages.  It does little good to talk about nominal wages.  If you are getting a 3% raise at your job every year, you aren’t coming out any further ahead if the price inflation rate is also at 3%.

The scary thing is that price inflation is likely understated.  I don’t follow someone like John Williams who is almost always claiming that actual price inflation is around 10% or more.  That is rather ridiculous.  That would mean prices are doubling every 7 years, which just isn’t the case.

It is the case with health insurance, but that is just one consumer good.  It is likely weighted far too low in the government’s statistics, but there is no way that most food prices have doubled in the last 7 years.  Car prices certainly haven’t doubled in that time.

Of course, the huge rate increases in health insurance is not just a phenomenon of monetary inflation.  It is also due to government interference in the marketplace.  Still, it is an expense for most households, especially since it is now essentially mandatory.

The CPI should likely be higher than it is reported, but it really is impossible to measure.  But really, I don’t even need any government statistics to tell me that real wages are stagnant, or probably going down.  The American middle class is struggling.

So why are real wages stagnant or declining?

The reasons mostly lie with the government and the central bank and its monetary policy.  The federal government alone spends about 25% of GDP.  Most analysts will look at tax collections, but it is better to look at spending.  For all of the money spent through debt, it is still taking resources out of the voluntary marketplace and misallocating them.

When you add in state and local government spending, government at all levels is consuming over 40% of our productivity.  This doesn’t even account for the massive regulatory burdens and red tape faced by individuals and businesses.

Since the government is consuming and misallocating so much in terms of real wealth, it leaves a lot less for savings and investment.  And it is important to be clear on this point that savings and investment are what ultimately raise wages and improve living standards.

Henry Ford supposedly raised wages for his employees so that they could buy his cars.  But that would be a stupid reason for anyone to raise their employees’ wages.  The reason he raised wages was to keep his employees, and he was only able to do so because of prior savings and investment.

With savings and investment, business owners can invest in machinery and tools to be more productive.  This makes their employees more productive, which means they can be paid more.

The only reason that average wages in the U.S. are so much higher than in China or India is because there has been far higher rates of saving and investment in the U.S. economy, at least in the past.  This is due to government – or more precisely – less government.  It is due to stronger property rights.

Unfortunately, not only do the U.S. government and the Federal Reserve consume our wealth, but the Fed also discourages saving through its policies of easy money and artificially low interest rates.

Most economists make the mistake of saying that savings is not good for the economy.  Even many free market economists make this mistake.  They will say that savings is only good because it means that the money gets invested.

But if someone takes their money and puts it under a mattress, this is deflationary (in a good way) for prices.  The person produced something of value for society and then took the money and hid it away.  In other words, the person gave something away to society without redeeming anything.  This means lower prices for everyone else and is in no way harmful to the economy.

Politicians and others can talk all they want about minimum wage laws, labor unions, education, and other labor laws, but the only thing that is going to raise overall wages for a society is savings and investment that increase productivity.

America needs a raise.  It has been a while.  It needs to start with a drastic reduction in government spending.  And if we can’t abolish the Fed right away, we at least need it to maintain a more neutral monetary stance.  Until that happens, I’m afraid that real wages aren’t going to go up any time soon.

Oregon Ranchers and Jury Nullification

A standoff continues in Oregon where protesters have seized control of a federal building in protest of two Oregon ranchers being sent to prison.  If the goal of the protesters is to draw attention to the story, then perhaps their method has worked.

I am not necessarily endorsing the methods of the protesters, especially as it could lead to violence.  Of course, the violence would really be coming from the federal government agents, but taking control of a federal building is definitely asking for trouble.

But let’s just discuss the actual case at hand here, and let’s ignore whether or not the protesters are correct in their strategy for now.

If you want to read a decent account of the story from a somewhat libertarian perspective, you can check out this lengthy article.

There are many legal issues that are a major problem here.  There are issues of double jeopardy, minimum sentencing laws, federal ownership of land, terrorism laws, and federalism in general.

There is no question that this is a problem of the federal government.  The federal government “owns” vast amounts of land, particularly in the west.  So many of the problems in our society exist on so-called public lands and public property.  It is not that disputes can’t happen with privately owned property, but it is less frequent and the resolutions tend to be more peaceful and just.

From a constitutional standpoint, the federal government obviously does far more than is authorized.  Most crime should be handled by the state and local levels.  The only three crimes mentioned in the U.S. Constitution are piracy, counterfeiting, and treason.  Of course, it is the politicians and central bankers who specialize in these crimes now.

The two ranchers are going back to jail after already having served time.  After getting out of jail, they were essentially re-sentenced to prison due to mandatory sentencing of 5 years for their “crime”.  To me, this amounts to double jeopardy.  There wasn’t another trial, but there was another sentencing, which was likely done for purely political reasons.

They had been convicted for arson and they were convicted under an anti-terrorism law.  These two ranchers are not arsonists because they did not start the fires with any intention of harming anyone or anyone’s property.  Perhaps they damaged a small amount of federal property (although they likely actually saved it), but either way, there was no intent to do harm.

As for this terrorism statute, it just shows what a joke the whole idea of terrorism has become in our country.  You can pretty much label anyone a terrorist now for any little reason.  And this case also points to what a joke minimum sentencing laws are.  The original judge really shouldn’t have given them any prison time, but at least realized the ridiculousness of locking them up for 5 years.

This case also illustrates the absurdness of our so-called justice system.  Even if the ranchers had damaged property belonging to others, whether the federal government or privately-owned property, the answer here is restitution.  Since there was no intent to do harm, it is far more productive for everyone involved if they just pay for the damages instead of costing taxpayers more money as they sit in prison.

The last important point here is that we will continue to have significant problems in our society until a greater percentage of the populace is educated on liberty.  I’m sorry I have to say this, but these jurors were a bunch of fools that convicted them.  It never should have been up to a judge to sentence these ranchers.

Maybe it was an unfair trial.  Maybe there was bias against the defense in not being able to present certain evidence.  But if I were sitting on a jury and heard the charge of terrorism, it would have been an automatic “not guilty” because there was no intent to harm anyone.

It doesn’t matter if you think they are little bit guilty of something else.  For that charge, there should have been no conviction.  I have no idea what was going through the jurors’ heads.  I have no idea if any of them regret finding them guilty.  But let’s face; they were completely ignorant.  And that means there are tens of millions or hundreds of millions of Americans just like them.

This is where education comes in.  Let’s hope that is the goal of the protesters now, although I am not so sure.  These ranchers would never have gone to jail if the jury had done the right thing and found them not guilty.

So we can blame the federal government all we want (and we should), but this ultimately lies at the feet of the American people and the jury that convicted, which is probably symbolic of what most Americans would have done.

The ranchers should be freed for the sake of justice.  More importantly, more Americans need to step out of their zone of ignorance in these matters and stop assuming that what prosecutors and federal bureaucrats are telling them is true.

Republican Debate – January 14, 2016

As I write this, the Republican debate on Fox Business Network is wrapping up. It is a couple of hours out of my life that I will never get back, but at least I was smart enough to do some multi-tasking.

The debate started off with a question to Ted Cruz about jobs. Cruz starts off talking about how 10 U.S. soldiers were on their knees in Iran and how Obama didn’t really do or say much about it. Cruz said that when he is commander in chief, that no U.S. soldiers will be on their knees.

Now I am not one to hesitate in criticizing Obama, but this is one subject where Obama’s reaction to the event was proper. There was no escalation. Iran released the soldiers who had “drifted” into Iranian waters. I put that in quotes because it is highly doubtful that it was a mistake. And if it was, it certainly wasn’t a mistake that they were near Iranian waters in the first place.

If Obama should be criticized at all for this event, it is just the fact that the U.S. military is over in that region at all. The event never should have happened because the U.S. military shouldn’t be there patrolling waters.

Despite Cruz being somewhat decent on economics, at least compared to the rest of the field, there is no way I could ever think about supporting him even a little bit. He is pro war and pro intervention. He wants to build the U.S. empire even bigger, if that is even possible.

Imagine if Iranian sailors “drifted” into the Gulf of Mexico and ended up just off the beaches of Florida or Texas. What would the reaction be from Americans? What would the reaction be from Ted Cruz?

If anything, this whole incident just proves that Cruz and all of the other war hawks are completely wrong in their assessment of Iran. The Iranians quickly returned the captured sailors and seemed to treat them well. Whether it was done because they are kind or because they are afraid of the blowback from the U.S., it doesn’t even matter that much. The point is that they acted rationally. They are not a bunch of maniacs as portrayed by the media and the likes of Ted Cruz, or at least not any more crazy than U.S. politicians.

I found most of the rest of the debate boring, but maybe it is just a result of seeing too much. I can’t imagine how boring it would be without Donald Trump in there.

The exchange between Trump and Cruz on the issue of whether Cruz qualifies as a naturalized citizen was the most entertaining part of the night. It is interesting that this is just coming up now. I questioned Cruz’s status about a year ago, wondering how he could qualify to run for president if he was born in Canada.

Also, if Cruz is allowed to run because his mother is American, doesn’t that mean that the birther issue with Obama is a non-issue and has been all along? Obama’s mother was an American.

As for Trump, he continues to not back down on much. That is his main appeal. I did notice he said that we should “repeal and replace” Obamacare. He inherited that talking point from the Republican establishment. We still don’t know what “replace” means.

Trump also said that the police are the most mistreated people in America. I don’t know whether to laugh or cry over that comment. In some cases, it is true that the police have a really tough job in some aspects, especially when dealing with inner cities. On the other hand, has Donald Trump ignored all of the stories that happen daily of innocent people being mistreated by the police?

In terms of economics, I was surprised there was not more, but the end of the debate did have some good discussion about taxes. Rubio completely ignored a question on “entitlement” spending, which really is the major economic issue facing this country. Christie did a good job of pointing out that Rubio did not answer the question.

Still, the debate between Rubio and Cruz was decent. Rubio criticized Cruz’s plan for a VAT tax. He also pointed out that Cruz can’t get rid of the IRS, or else he will just rename it. As long as the government is collecting any forced taxes, then there has to be an agency to enforce it. I actually thought both candidates had good criticisms of the others and their plans.

To look at this situation objectively, and not just from a libertarian point of view (not that you can’t be objective from a libertarian point of view), I will run down how I see the Republican nomination taking shape.

First, there is no question that Trump is the person to beat right now. The longer that people stay in the race, the better it is for Trump. It dilutes all of the anti-Trump people. He can easily win the nomination then with 40% support. The worst case scenario for Trump, aside from having the establishment literally destroy him, is if most of the candidates drop out after Iowa and New Hampshire. If it is just Trump and, say, two other candidates left in the race going into the big primaries, then one of the other candidates may have a chance.

Rubio and Cruz are the two likely main challengers at this point. Since Bush and Walker (remember him?) haven’t worked out too well for the establishment, they are backing Rubio. They don’t really want Cruz, but they will take him over Trump.

Kasich is done. Christie is probably done, but I can’t completely count him out because he is polling ok in New Hampshire. Jeb Bush is a total dud. He is done unless the establishment really oversteps and rigs the whole thing in plain sight.

Ben Carson was barely awake again during the debate. He even made a comment about waking him up when it was his turn to talk. Unless the other major candidates completely implode, Carson is likely done.

My last word is on Rand Paul, who was excluded from the debate. He is throwing a temper tantrum over the exclusion, but he really has no one to blame but himself. It is a sad situation. His whole campaign has been a disaster. He is not his father and I think most libertarians recognize that. That is why most libertarians don’t really support him. And for the ones who do support him, they don’t do so enthusiastically.

Rand Paul is now just digging a deeper hole for himself. He is showing a lack of class, which I can’t believe I am saying because Ron Paul is nothing but class. Rand may not even get reelected to the senate because he has looked so bad.

Even though I am anti political, I am still something of a political junkie. For those like me, we can look forward to the Iowa caucuses, even knowing that it probably won’t matter much who is elected. Still, it is nice to see the candidates who are not favored by the establishment beating the establishment candidates. We have to start somewhere.

Forget Austrian Economics, Talk to Your Neighbor

I keep returning to this theme of the struggling American middle class.  Of course, the lower class is struggling too, but that is really nothing new.

You could say that the upper class is struggling as well, but it is hard to feel sorry for people who have millions of dollars in the bank.  It all depends on how you define upper class.

But even what many would consider to be an upper middle class income is not going too far these days.  For example, a family of four earning $150,000 per year in an average big city (not New York or San Francisco) is not really that well off any more.  They are probably not stressing about money too much and I’m sure they take an occasional nice vacation and live in a decent place.  But my guess is that most families in this situation are not saving a lot of money.

I am a strong proponent of the free market.  A more voluntary society with limited state interference will produce great prosperity.  It is actually amazing how much prosperity we have in the U.S. despite government at all levels spending about 40% (or more) of the national income.

I am also a believer in the Austrian Business Cycle Theory.  Austrian followers can quibble over some details, but most will generally agree that artificially low interest rates and monetary inflation will misallocate resources and cause artificial booms.  I focus a little more on the monetary inflation side than the interest rate side.  Interest rates may not be artificially low right now in the sense that many people are scared of economic conditions and have voluntarily chosen to restrict borrowing and to buy bonds.

The Austrian Business Cycle Theory tells us that we may be in for some trouble in the near future.  The Fed nearly quintupled the adjusted monetary base from 2008 to the end of October 2014.  That is when QE3 ended.

While the monetary inflation has not translated into massive price inflation (much of it due to the huge excess reserves piled up by banks), there has still been asset price inflation.  We can see this in stocks and even in real estate in some areas.

Austrian economics tells us that when the loose money slows down or stops, it is going to lead to a popping of the bubble activity.  Of course, the tricky part is the timing.

It has been over a year since QE3 ended and it should not surprise us that the economy is appearing weaker.  The stock market’s poor performance for the first week of 2016 is starting to worry people.

Sometimes observation can be just as accurate as any theory though.  I don’t really need the Austrian Business Cycle Theory to tell me that something isn’t right in the world.  Just talk to your neighbor or your friend and you can get a decent picture.  For a good sample size, it might help to talk to at least 5 different people.

I was talking to a chiropractor the other day and he made the comment that kids are really expensive.  He was speaking from experience.  We discussed how expensive life is and how we can’t understand how somebody making $30,000 per year can possibly get by.

I get a general sense that people are just not happy, especially in their jobs.  While some people just don’t like their jobs, I think one of the frustrations is that they work hard and they don’t really have much to show for it.  I think that is why there is so much talk about playing the lottery.  It is an extreme long shot, but for some people, it is the only shot.

It is crazy that a family can earn close to a six-figure income and still feel like they are struggling.  Sure, we all have our cell phones and tablets, but shouldn’t we be able to have something today that our parents didn’t have?  It is sad to say, but people in the 1950s actually had it easier in terms of paying for basic needs.  Don’t get me wrong here; we are far better off in terms of choices because of technology.  But to pay for food, shelter, medical, etc., I think it is more expensive today.

Go out and talk to a few people and get their opinion.  I think you will find a similar story.  Tell them that you are feeling the pinch too.  Tell them that you think life is just really expensive right now.  Say this in order to get them to open up.  I think a lot of people are not open about it until they hear someone else.

This tells me that there is going to be a major correction.  The government is just taking too much of our resources.  Our wages are going up slightly (nominally speaking), but all of it and more gets eaten up just from health insurance premiums.

We need a correction.  It will be painful, but it is necessary in the long run.  That correction has to lead to something of a downsizing of government.

Things can always be worse, but I just get a general sense that there is a silent majority out there who are struggling in a major way.  Things seem to unsustainable.  We are going to see a correction.  Fear will spread quickly.

You don’t need Austrian economics to tell you this.  Just talk to a few neighbors.

Is the End Near for the House of Saud?

The House of Saud – the ruling family over Saudi Arabia – is in some serious trouble.  In fact, you could almost say there is something of a perfect storm brewing for their fall.

First, there is some (more than usual) condemnation of the rather high frequency of beheadings taking place by the state.  After 157 were executed in 2015, another 47 were executed on January 2, 2016, supposedly for terrorism.

While some executions are for murderers (we won’t get into the arguments here over whether a death penalty is still appropriate), the death penalty can also apply to “crimes” such as drug smuggling, or even adultery.

Maybe more Americans will start to take note that this group of thugs is supposedly a great ally of the U.S. government.  Of course, some might be willing to say that some U.S. politicians are thugs themselves.

Overall, it is positive that the world is looking on and applying social pressure.  It is hard to say if people internally are recognizing the tyrannical state that they live in, but it would be hard to imagine that there isn’t at least some talk in secret amongst the populace.

The House of Saud has likely only been able to hold onto power over the last couple of decades due to the support (financially and militarily) of the U.S. government.

Aside from the social and political issues going on, you can throw economic turmoil into the mix.  Or really, you just need the last three letters of “turmoil” to describe the situation.

Saudi Arabia was the main player that decided to keep oil production running high, despite falling oil prices.  Some speculated that they did it to hurt Russia (on behalf of the U.S.?), and some speculated that they did it to hurt the U.S. shale industry.

While lower oil prices have certainly hit the U.S. shale industry hard, it is nothing compared to how much it is hitting Saudi Arabia.  Saudi Arabia is not in the same position as a place such as Dubai where the tourist industry and financial industry thrive.  Much of the Saudi wealth depends on oil.  And when the price is low, oil revenue is low, and there is a lot less wealth going in.

To top it off, the Saudis are building what is supposed to be the tallest building in the world, which will measure 1 kilometer high.

Mark Thornton recently wrote an article on the skyscraper curse, and how building tall buildings – especially those that set new records – is indicative of an economic bust.  To be sure, building skyscrapers doesn’t cause recessions or pop bubbles, but it can be a symptom of the debt and loose money that goes along with artificial booms and bubbles.

When you also throw in the geo-political turmoil and Saudi Arabia’s fighting with groups in Yemen, along with many strained relationships in much of the Middle East, there is a situation ripe for some kind of downfall for the oligarchy.

It is easy to imagine a scenario where Donald Trump is elected president and he decides for the U.S. government to stop lending political support to the House of Saud.  In fact, it doesn’t even take a president.  Public opinion may just end up being strong enough that U.S. politicians feel political pressure to step up criticisms of the regime, or worse, stop support.

Even if a downfall occurs peacefully, or there is some kind of relatively peaceful coup, it would be hard to imagine that it would not cause some havoc in the oil markets.  That is one reason I am not convinced that oil prices are going to stay down in the long run.

I still believe there is a looming economic downturn.  The oil industry was actually the first major bust after the Fed (and the rest of the major central banks) started the unprecedented money creation in the wake of the fall of 2008.  If we are in for a recession, oil could fall further still.

If the price goes down even further, then this just exacerbates the problems for the House of Saud.  There will be competing forces pulling the oil price in opposite directions.

The oil industry will likely be a good investment at some point, but we should expect higher volatility.  Meanwhile, we won’t shed a tear if the House of Saud falls.  Let’s just hope that the tyranny there doesn’t turn into chaos, as we have seen in places like Iraq and Libya.

The Big Short and Economic Fallacies

I recently saw a few of minutes of the Late Show with Stephen Colbert.  The little I saw is the most I have seen of the show since Colbert took over.

His guest was Steve Carell, who gained a lot of fame for his lead role in The 40 Year-Old Virgin.  Carell more recently starred in The Big Short, which is a movie about the 2008/ 2009 financial crisis.  You could say that the movie is based on a true story.

https://www.youtube.com/watch?v=5Zhy1NQf2NM

In his interview with Colbert, Carell talks about the fact that there were a few people who saw the major economic crisis coming and made a lot of money from it.  He talked about one character who saw the housing bubble and predicted that a lot of these loans were going to default.

Carell stated, “They essentially bet against the U.S. economy.”  He says, “Who are the heroes here?   Because, you kind of root for them, but at the same time, it’s at the same time at the expense of everyone else in America.”

Steve Carell is an actor and not an economist, so don’t take this as harsh criticism against him.  But I think his remarks need some clarifying.  He is sort of right on the one hand, but the way he said it, it is also misleading.

The few people who bet against the U.S. economy did not really gain at the expense of the rest of America.  They certainly did make a lot of money by predicting the downturn, but let’s be clear that the people who went short did not cause any of it.

If you sell a stock because you think it is going to go down, then you exchange money with the buyer of your stock.  If the stock actually goes down, you could say you gained at the expense of the buyer.  But this is really difficult to say.  The buyer probably would have still bought the stock from someone else.  Maybe you gained at the expense of someone else who was only willing to sell the stock at a fraction of a cent higher.

It gets very complicated here.  In a sense, the stock market is a zero sum game between the buyers and sellers.  Actually, it is less than zero sum because of the commissions being paid to the brokers.  But the money changing hands at any given time is zero sum.

Of course, the stock market itself is not zero sum.  There are dividend payouts and capital gains.  The broad stock market in the U.S. is far higher today than it was 40 years ago.

There are always buyers and sellers.  And it is a zero sum game in a certain sense, even with new money entering the market.  But this capital directs investments and sends signals to the marketplace.

Sometimes it is easier to think about something like the oil market.  There are buyers and sellers here.  Just think about the futures market, where some people lose at the expense of others.  But all of this “betting” drives economic activity.  It sends signals to suppliers and consumers on whether to produce more or less and whether to consume more or less, at least on the margin.

The few people who bet against the U.S. economy in 2008, if anything, actually helped the situation.  If those people hadn’t existed, then the boom may have lasted a little bit longer and gone a little bit higher.  In other words, as hard as it seems to believe, the crash could have actually been even worse.

If nobody ever bet against the stock market (let’s say there was no short selling or futures market), then only stock selling could drive stock prices down.  Is just selling a stock considered bad?  Somebody always has to be selling for another person to buy.  Prices will move based on the number of buyers and sellers at a given price.

The few people who were short selling in 2008 gained at the expense of others only in a very convoluted way.  If anything, these people helped the market overall, as they were the only ones trying to drive prices to their “correct” value.

And we have to be absolutely clear that short sellers do not typically cause crashes any more than opening an umbrella causes it to rain.  The short sellers are generally reacting to the situation they see.  They may or may not be correct.

I haven’t seen The Big Short.  I know that some libertarians are excited about the movie.  But it is not a libertarian movie, which is evident by the big name Hollywood actors in the movie.  You aren’t going to see a story about the Federal Reserve blowing up a bubble and the subsequent bust, as all part of the Austrian Business Cycle Theory.

Without even seeing the movie, I can tell you that there are going to be some economic fallacies in The Big Short.  Still, there will be some valid points too and I think some libertarians and those interested in economics will find it interesting.

Maybe one day we will get a libertarian movie based on the true story of Alan Greenspan, Ben Bernanke, and Janet Yellen.

Happy New Year – 2016

Happy new year to everyone.  2016 could turn out to be an interesting year for libertarians and all Americans.

We have a presidential election.  These typically don’t matter much, but this year may be more interesting than past ones.  Unfortunately, we don’t have Ron Paul to watch, but at least we have the entertainment of Donald Trump.

It could be entertaining too if Hillary Clinton gets indicted for emails or any number of other things, but I don’t see that as likely to happen.

Perhaps the most interesting thing will be the American economy.  The Federal Reserve has been in tight money mode for over a year now.  And now the Fed is paying banks more money to not lend.  The chances for a recession in 2016 are reasonably high at this point.  The economy could very well decide the presidential election as well.

I think it is a good idea to prepare for a recession or some kind of economic downturn.  This means being prepared mentally and financially.

I know the new year is a time for resolutions.  I am not against this, but it should be productive.  Just to say, “I am going to diet and lose weight” is not good enough.  You need to set specific goals.  Actually, you need to set specific steps.

I could say that I want to write more.  But this is too vague.  Instead, I can say that I will write at least 5 days per week.  It should be something concrete that is achievable.

Sometimes people try to overachieve too much as well.  It is better to take smaller steps that are achievable.  Instead of going on a diet, you could say that you will eat at least two servings of vegetables per day and drink at least two glasses of fresh water every day.  You are more likely to meet this goal than to start a new crash diet that isn’t likely to last.

You can do the same thing with money and budgeting.  If you eat out three times a week, start out by cutting it back to two times per week.  If you are in over your head in debt, then you should cut it back to zero.  Otherwise, there is no need to deprive yourself.  Adjust slowly and make new habits.

This is just what I find works with me.  Small changes can add up over time.  And when you do something for long enough, it becomes a habit.

Happy New Year!  Here is to a more libertarian and prosperous future, despite overbearing government.

What is Middle Class?

People define middle class in different ways.  As with many things, it is all relative.  Most would rather be a poor person in the United States than middle class in Ethiopia, if there even is such a thing as middle class in Ethiopia.

Many will define middle class in terms of income or wealth.  Personally, I like the definition of defining classes by their time perspective.  The more future oriented someone is, the more towards the upper class he is.

But for today, let’s discuss the middle class in terms of living a relatively comfortable lifestyle in the United States.  Someone in the middle class should be able to have a decent place to live, a car, and other basic needs.  But we also expect certain luxuries such as televisions and smartphones.

These luxuries, which are now considered common, should be expected.  As a society advances and technology gets better, we should expect greater wealth and more choices.

The problem in today’s world is that while we enjoy these extra luxuries – some of which didn’t even exist just a few years ago – many Americans are struggling with their day-to-day expenses.  It is hard to pay the expenses for basic needs with anything close to the median family income, which is a little over $50,000 per year.

I know some will say that people should give up their cable tv and their cell phones if they are having trouble paying their electric bill and rent (or mortgage).  But I really don’t accept that because we should be able to have these extra luxuries without struggling.

I believe there is a silent majority out there who are struggling, but don’t speak openly about it.  This is part of the reason that some of the unexpected presidential candidates – particularly, Donald Trump and Bernie Sanders – are doing unexpectedly well in the polls.  They may have the wrong solutions, but at least they are recognizing there is a problem.

The problem is burdensome government and Federal Reserve policy.  The massive deficits hurt our standard of living.  While everyone talks about the next generation being burdened with debt, they should be looking at right now.  The massive spending coming out of Washington DC is misallocating and wasting resources on a massive scale.

Charles Hugh Smith recently wrote an article on the shrinking middle class.  He lists ten requirements on what it takes to be middle class.  I don’t necessarily agree with the list, but his overall point is well taken.  Really, his list is a reflection of future orientation, which I mentioned above.

He estimates that to have a chance at a middle class lifestyle, a family would have to earn about $100,000, or $130,000 for those who are self-employed.  He acknowledges that there is a wide range of living expenses across the country.  Obviously $100,000 isn’t going to get you very far in San Francisco or New York City.

I think he is on track with this.  A family earning $100,000 is not really all that well off any more.  A family earning this much will barely get by even in a less expensive city when you factor in a mortgage payment, a couple of cars, health insurance, food, and the other basic necessities.  It gets even more expensive if you factor in daycare or private school.

Of course, the biggest expense any family faces is taxes.  You pay your payroll taxes, your income taxes, your property taxes, your sales taxes (which really add up), excise taxes that are typically hidden, and various other hidden taxes.  This also includes corporate taxes that can make things more expensive.  It also includes the inflation tax, where your money loses its value.

I think the biggest setback for most families over the last few years is health insurance and medical costs.  Not only have premiums skyrocketed, but the plans themselves cover far less.  You can fork out thousands and thousands of dollars in premiums for a policy that doesn’t even cover anything for the first several thousand dollars.  This is not weighted high enough in the CPI numbers, something that Smith alludes to in his article as well.

Basically, if you are a family of four making less than six figures, you are probably struggling. I don’t mean that you can’t put food on the table or a roof over your head.  But if you have your kids in activities and you have your basic luxuries of cable tv and cell phones, then you are going to have trouble taking a nice vacation once a year and still saving some money for a rainy day.

When you get to a family of four making around the median income, it is on the verge of poverty, at least in relative terms in the U.S.  Good luck saving anything at all.

I believe this is generally unsustainable.  Either Americans are going to have to cut back significantly or the government is going to have to be cut back significantly.  That is why there is likely to be a severe correction.

Hopefully a “correction” will be exactly that.  It should downsize the government and make some prices look affordable again.  If the government and Fed respond to a correction with even more spending and inflation, then it will just make things worse.  Something is going to change.

10 Things for a Libertarian Society

We face many challenges in moving towards a more libertarian society.  We can certainly move in that in direction, and despite the advances of the state over the years, there is a lot to be optimistic about.  There are more libertarians today than there have been in a long time, or maybe ever.

Still, while we don’t need a majority to make significant changes, we do need a substantial minority.  This can only be done through outreach and education, which is easier today with modern technology.

There are specific things in which people need to change their world view.  Here is my list of 10 things that a far greater percentage of Americans need to understand if we are going to achieve something even close to a libertarian society.

  1. The U.S. is an empire.  While most people are aware that the U.S. government is heavily involved in disputes around the world, many simply do not understand the depth and history of the American empire.  The U.S. government has been secretly (or not so secretly) overthrowing presidents, dictators, and leaders all over the world for many decades.
  2. The U.S. government has killed millions of people, either directly or indirectly.  The war in Iraq since 2003 has resulted in the deaths of hundreds of thousands of people, or perhaps over a million.  The U.S. government is continually making “mistakes” in bombing hospitals, wedding parties, funerals, and people’s houses.  These are mostly innocent people dying, who never had a trial.  And people wonder why some of these people turn to terrorism after their family and friends gets blown up.
  3. Public education is welfare.  Some middle class Americans will criticize people on welfare or spending food stamps at the grocery store.  But government schools are just as much welfare.  It is welfare for all classes.  This isn’t a criticism of you if you send your children to a government school.  But it is important to recognize that government schools are welfare.  Food is more of a necessity than schooling, so if anything should be cut first, it should be the government schools.
  4. Freedom of association is necessary for liberty.  This is also an issue of property rights.  If a baker wants to refuse to bake a wedding cake for a gay couple’s wedding, that should be the baker’s choice, just as it is the choice of the gay couple to choose any baker willing to transact with them.  This isn’t an issue of religious freedom.  It is an issue of property rights.  Whether or not you think it is in good taste, the baker should have the right in a free society to voluntarily transact or not transact with anyone of his choice.  He should not suffer any consequences in terms of government force.  He can suffer the consequences of people refusing to do business with him.
  5. Medicare and Social Security are welfare.  Again, this isn’t a criticism of people collecting Medicare and Social Security.  But they should be considered welfare.
  6. Spending does not drive the economy.  There is nothing wrong with consumer spending, but we must not confuse cause and effect.  We can only spend money on things that have first been produced.  Production takes savings and capital investment.  Spending is a result of production.  In the same context, consumer demand does not drive the economy.  There is always consumer demand.  People can demand all they want, but they can only get what is actually produced.
  7. Price deflation is not bad.  Since there was deflation during the Great Depression, there is this widespread myth that deflation is bad for an economy.  But the deflation of the Great Depression was a result of the prior monetary inflation and the reversal of the fractional reserve lending process, as banks went under.  In a system of free market money, where the money supply is likely relatively stable, we should expect gradual price deflation.  Your money gradually gains purchasing power.  This is positive for living standards.
  8. We don’t need the government to legislate morality.  Many people falsely believe that others would act immorally if not for the government’s laws.  For example, they think if there were no drug laws, everyone would be walking around high on drugs.  They think if there were no laws against prostitution, then everywhere you go would look like a brothel.  Of course, if you ask someone if they would engage in such behavior if the laws didn’t exist, they would deny doing any of it, but that we need the laws for everyone else.
  9. There is a deep state.  In other words, one person is not running the show.  The president is not really that powerful.  There is an establishment.  It is not a Democrat or Republican thing.  While party leaders will bicker in public, there is strong agreement within the overall establishment.  One person inside the system is virtually powerless.  The John F. Kennedy assassination established this fact.  The only way to change the corrupt system is to change public opinion.  There has to be strong support for a major downsizing of the state at all levels.
  10. The central bank helps enable big government.  While state and local governments are extremely bloated and corrupt, the damage they do tends to be less than the federal government.  The federal government has the Federal Reserve, which enables it to do far greater damage in manipulating the money supply and interest rates, bailing out corporations, and most importantly, funding the deficits.  Congress would not be able to continually run huge deficits every year without the help of the Federal Reserve.

This is not a full list, but these are the issues that I view as most important in changing minds.  I did not include guns on this list.  Although it is an important issue, the American populace, at least in general, actually has a somewhat favorable view on the issue in favor of liberty.

We will probably never achieve a fully libertarian society, but one can still hope.  But if a majority of people learn these 10 things, then we will be a lot closer to a libertarian society.

Christmas Peace

On Christmas day, the Mises Institute ran an excerpt from John Denson’s book called A Century of War: Lincoln, Wilson and Roosevelt.  This particular excerpt details the “Christmas Truce” that happened in December 1914 during World War I.

Many people do not know this story, where opposing “enemies” came out of the trenches during Christmas time.  Some peace briefly broke out during a horrifically bloody war.

Soldiers who had been fighting each other came out to rescue their wounded and bury their dead.  Some of the soldiers ended up talking to each other, and even played soccer games and exchanged items.  The British and German soldiers found out they had more in common with each other than they did with their commanders.

There is a movie called Joyeux Noel that is based on this true story.  There are subtitles (just as a warning), but you really don’t even think about them much, as the movie is captivating.

It really shows the absurdity of war.  It is just silly games that result in pain, suffering, and a massive loss of life.  There really are no winners in war, except perhaps for a few that aren’t actually fighting in them.

I haven’t always been fervently anti-war as I am now, but even as a child I thought it was silly how soldiers would stand in lines and shoot at each other in the old days.  (Could they just play paintball and agree that the winner gets to take the land, or whatever is at stake?)

It is too bad that the Christmas spirit were not alive during the entire year, without all of the stresses related to the holiday season.  This is far from universally true, but many people seem more patient and friendly during Christmas.  There was obviously some spirit that took over in 1914 in parts of Europe where soldiers refused to fight over a short period of time.

There was one thing that struck me reading this excerpt.  In particular, it was Denson quoting a section from Stanley Weintraub’s book entitled Silent Night: The Story of the World War I Christmas Truce.  Weintraub quotes a British Cabinet Minister in 1930 who had fought during World War I.  He stated the following:

“The fact is that we did it, and I then came to the conclusion that I have held very firmly ever since, that if we had been left to ourselves there would never have been another shot fired.  For a fortnight the truce went on.  We were on the most friendly terms, and it was only the fact that we were being controlled by others that made it necessary for us to start trying to shoot one another again.”

It is likely true that the war never would have continued if the soldiers had been left to themselves.  In fact, you could say that the war never would have started.  It is both ridiculous and sad to think that tens of millions of people died, and it was all triggered over one assassination.  Perhaps this is an overly simplistic version of the story, but it does put it into perspective.

The one part of the above quote that I believe is most relevant is when he said, “it was only the fact that we were being controlled by others that made it necessary for us to start trying to shoot one another again.”  This is true and false at the same time.

It is the fact that the soldiers allowed themselves to be controlled that the war continued.  You can’t say that they were actually being controlled though.  They were all out there with guns, and the soldiers far outnumbered the commanding officers and the politicians at home.

I don’t like to advocate violence in any form, but if the soldiers were going to shoot anybody, why didn’t they just shoot their commanding officers?  Actually, they didn’t even have to do that.  If the numbers had been large enough, they could have just refused to fight.

It makes me wonder how these soldiers could come out and talk to each other and realize they were all regular human beings, yet go on fighting.  Soldiers on all sides were simply obeying orders.

Was it public pressure?  Is it because they did not want to be seen as a coward by their families and hometown?  Is it because they had some sense of allegiance to the state?

In reality, it is the overall populace that is really controlled.  If the people at home had been hoping for the soldiers to turn on their own commanding officers, then I think most of them would have done it.  Most of them really did not want to fight.  But for some reason, most of them followed orders.

When libertarians talk about the state relying on the consent of the people, this is the perfect example.  These wars could only be fought by the soldiers actually firing the rifles.  The politicians don’t fight the wars.  They are absolutely powerless without the consent of the people.

This holds true today.  Wars can only be fought by the people doing the firing.  Unfortunately, today that includes pressing buttons from thousands of miles away for missiles or drones.  Still, it takes somebody to press the button.  Would the person be as likely to press the button if he knew he would be met with hatred and ridicule in society?  “Hey Joe.  Have you killed any little kids in Pakistan today?  You are oh so brave for sitting in your office and firing drone bombs over people.”

War really is absurd.  It only goes on because people are controlled.  But they are only controlled because they allow it to happen.  They are granting their consent, even if it is not explicit.

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