As I write this, the results are being tallied in the recall election in Wisconsin.  The governor, Scott Walker, is on the hot seat because he dared to take on the public sector unions.  I wrote about this situation last year and the libertarian position on unions.

As a libertarian, I am not a big fan of Scott Walker.  He is not a libertarian.  However, this recall election has been symbolic.  A politician dared to take on the unions and they are trying to make him pay the price.  This is a symbolic issue of the unions vs. the average working American.  While Walker is not an average working American, his position on this issue is symbolic in the defense of the average working American.

The good news for libertarians (and maybe conservatives) is that unions are dying.  The free market (at least what is left of it) is destroying the unions.

In the case of Wisconsin, it is really government vs. the people.  I don’t think most government workers are bad people.  I’m sure most of them are just trying to make a decent living to support themselves and their families like most other Americans do.  The problem is two-fold here.

First, government in general is quite inefficient.  The more government workers you have, particularly with generous benefits, the less efficient it is.  It means that resources are being misallocated.  It means that production suffers and that nearly everyone’s standard of living is worse off because of it.

The second problem is the one that the average American is starting to understand, particularly in this economy.  These government workers with their nice salaries and nice benefits are being subsidized at the expense of the average taxpayer.  These government workers are not being paid a market wage.  They are being paid a government wage, determined by politicians.  Americans are struggling to find work and those who do have work are finding little in the way of pay increases.  Meanwhile, government workers are making out really well and leaving budgets in the red while they are at it.

The Occupy Wall Street groups like to talk about the top 1%.  But the conflict is not really between rich and poor.  It is about government privilege vs. the non-privileged.  While class warfare is still prevalent, the majority of Americans probably don’t care if Mark Zuckerberg gets rich.  The reason is because it was done in the marketplace, without coercing others to use his product.  The government unions cause conflict because they are obtaining their money by using the threat of government force to extract money from the taxpayers.

As it looks like Scott Walker will win this latest election, it symbolizes a loss for the government unions.  I’m sure they were out in full force to vote.  The silent majority really is speaking here.

This should prove that it is not political suicide to fight unions and government workers.  The reason most Republicans don’t do it is because they have no interest in doing it.  They will talk a good game, but they usually do what is necessary to hand out favors to their own special interests once they are in office.  They see nothing to gain in fighting a hot political battle when they don’t really have any serious principles.

In conclusion, while Scott Walker is no libertarian, I think libertarians should be happy with the results in Wisconsin.  It is possible to beat back the beast of big government.

Gary Johnson, the former two-term governor of New Mexico, is the Libertarian Party’s presidential nominee for 2012.  He was recently interviewed by Robert Wenzel of the Economic Policy Journal.  You can listen to the interview here:

After the interview, Wenzel posted a short piece comparing him to Ron Paul.  The amusing thing in that post is reading all of the comments below.

Wenzel really tore into Johnson, in a respectful kind of way.  He challenged him on his libertarian credentials.  It is funny because the one thing that has always worried me the most about Johnson is whether he would really withdraw the troops and end the wars if he became president.  If I was 100% sure that he would do that, then I would probably vote for him, regardless of his economic positions.

He is obviously much better on foreign policy than Obama or Romney.  Johnson is also much better on economics than Obama or Romney.  But when I listened to this interview, I think Johnson may be closer to Romney and Obama than Ron Paul when it comes to economics.  I’m not sure if that is a fair assessment, but I really came away feeling like Johnson doesn’t understand economics very well.

Gary Johnson seems like a nice and decent guy.  Of course, the same could be said for Mitt Romney.  And I do agree with Wenzel that it seems that Johnson has some good instincts.  But he really doesn’t understand the free market, libertarian position on economics.

Johnson said that we have to go through recessions and that recessions are good.  But I have to say that no Austrian school person who really understands what he is talking about would phrase something like that.  The Austrian position is that recessions are generally necessary after a central bank-induced boom.  But the way Johnson said it, he makes it sound like we would still be going through recessions frequently in a free market environment.  While he was somewhat correct in his assessment that recessions are a signal that there has been too much consumption, he misses the point that consumers and entrepreneurs miscalculated, probably due to central bank inflation.

Johnson cites Milton Friedman as a libertarian having influence on him.  Wenzel is quick to point out Friedman’s flaws.  While there is a lot to like about Friedman from a libertarian standpoint, school choice is not one of them.  Unfortunately, that was one of the two things that Johnson pointed out about Friedman (the other being drug legalization).  I suppose we should be thankful that Johnson didn’t praise Friedman for his monetary policy.

Johnson also cited Cato and Reason as good resources that he likes to read.  This pretty much shows where Johnson is on the spectrum of libertarianism.  He doesn’t understand Austrian economics.  He is from the Chicago school.  The Chicago school of Milton Friedman is better than the Keynesians, but not so much when it comes to monetary policy.

One thing I have noticed about Gary Johnson is that he usually uses utilitarian arguments.  He does not argue the position of morality often, if at all.  He will say we need to legalize marijuana, but his reasons are pragmatic.  He does not say that it is because people should be free to put anything they want in their bodies as long as they are not encroaching on other people’s rights.  He would never say that taxation is theft.  He would say that we need to reduce taxation so that we can create more jobs and have a strong economy.

Ron Paul, on the other hand, uses both types of arguments.  He argues from a pragmatic standpoint sometimes and he also argues based on morality.  I think it is important to use both.  There are some libertarians like Stefan Molyneux who tend to argue the moral position more frequently.

If Johnson is going to use utilitarian arguments most of the time, it would be nice if he understood them.  He has little grasp of Austrian economics, which means his utilitarian arguments are not even that good.

In the interview, Wenzel tripped up Johnson by asking him about libertarian books.  It has reminded some people of Sarah Palin when she was interviewed by Katie Couric.  Johnson said that he had read Rothbard at the beginning of the interview, but then later recanted.

I don’t think there is anything wrong with Johnson just because he hasn’t read Rothbard, or Mises, or Hayek.  In Johnson’s defense, Mises is tough to read.  It would be one of the last things I would recommend to someone new to libertarianism.  I am partial to Harry Browne or Richard Maybury.  If you want to teach someone economics, you don’t hand him a copy of Human Action.  That will put him to sleep and turn him off of the subject.

As I have written before, I wish that Lee Wrights would have won the Libertarian Party’s nomination.  He is a principled libertarian who understands the issue.  Gary Johnson would not even come out and say that he favors legalization (at least from a federal standpoint) of all drugs.

Radical libertarians have been spoiled by Ron Paul.  We start to take it for granted that other libertarians understand economics.  Ron Paul looks highly articulate next to Johnson, only because Paul understands the issues with great depth and he believes in what he is saying.  It will be interesting to see if Johnson’s views evolve at all through the campaign and which way they evolve.

Today, I am going to talk about myself a bit and my experience in investing.  I have been doing at least a little bit of investing for 15 years.  It has consisted of stocks, mutual funds, commodities, options, money market funds, and probably other things that I can’t think of right now.

When I look back at the big picture, there are really only two investment strategies that have paid off.  One is in the permanent portfolio (mutual fund or otherwise) that was advocated in Harry Browne’s book Fail Safe Investing.  The other investment that has done well is commodities.  This would be mostly gold and silver related investments, but also a little bit in energy.

When it comes to options or just trading individual stocks, I can’t really say that I’ve done that well.  I’ve certainly had some winners, but I’ve also had some losers.  When I consider that these things almost offset each other over time, I probably would have been better off paying down my mortgage or putting more into the permanent portfolio setup.

I am guessing that I am not alone in this analysis.  There are very few people who make it big in investing.  Even most people who spend a significant amount of time studying the investment markets do not make out big, unless they are trading other people’s money for a fee.  In that case, it is really their job or career.

The problem is that many people feel they need to spend a lot of time doing their homework and watching CNBC for the latest stock tips.  If they only understood the monetary system and understood the power of the permanent portfolio, it would save them a lot of time and headache.  They could spend just a few minutes setting up their portfolio and then basically forget about it, except for rebalancing.

When it comes to speculating on stocks or any other investments, I am probably slightly better than average.  Yet, I still acknowledge that it is usually a crap shoot and that it is impossible to time the markets.  I cannot compete with Warren Buffett at his own game.  Overall, playing the stock market is almost equivalent to playing blackjack in Las Vegas.  In the case of the stock market, the big financial institutions and the government are the “house”.  They collect the most money in trading fees and taxes.

It can be fun to speculate in stocks, just like it is fun to play the lottery.  But it really isn’t that fun once you realize that you’ve lost.  So my recommendation to most people is to save their money and be conservative with it.  Pay down your debts.  Invest in something similar to the permanent portfolio.  Then take some money and pay down your mortgage.  If you want to get ambitious, then buy an inexpensive investment property that will generate positive cash flow.  After many years, you will be thankful that you were conservative with your money.  You work hard for it, so you should watch over it carefully.  If you want to speculate, then just set aside a small percentage of your savings as “play money”.

Facebook, the extremely popular social networking site, went public recently and made big news.  Its IPO (initial public offering) price was $38.  On the first day of trading, the stock went up above $40, but then retreated back before the day was over.  Since then, the stock has taken a big hit, losing about $10 per share, which is well over 25%.

Investors are suing Morgan Stanley, Goldman Sachs, and JP Morgan, alleging they were misled in their purchase of the stock.  This is because the banks didn’t reveal lower revenue estimates before the shares started selling.

As a libertarian, I don’t have much sympathy for the big banks.  They are mostly in cahoots with the federal government.  They get protection from the FDIC and the Federal Reserve.  They get to take big risks and make a lot of money, but then when the tides turn, they will get bailed out.  The big banks in America are not free enterprise institutions.  They rely on cronyism.

With that said, I think these lawsuits are bogus.  It just shows that people will sue over anything.  The reason I am not that sympathetic to investors is because they are acting just like the banks they are suing.  They think they should get all of the upside of a winning stock.  But then when it doesn’t pan out, then they are all of a sudden suing and using the force of government to intervene.  They don’t want to take responsibility for their actions.

When I heard that Facebook’s initial public offering would value the company at about $100 billion, I knew to stay away.  I am not one of those people who is negative on Facebook.  A lot of people think the company is a joke and can’t understand how a website that doesn’t really sell anything can be of any value.  These people are wrong.  Facebook will probably have a billion users soon.  Take the entire population of the United States and triple it, and that is the approximate number of Facebook users.  With that volume, the company makes money and is going to continue to make some money, even if it is just from Google ads.

However, I think a $100 billion or more valuation seems quite high.  I could have been wrong.  The stock could have gone up quickly, particularly with people wanting to get in on the action.  But I thought it was a huge risk and I stayed away.  Nobody forced me to invest in it.  Nobody threatened me to buy some shares.  I can continue to use Facebook and pay nothing and not own a single share.

These investors who are suing knew the risk they were taking.  Any time you buy shares in a single company, you are taking a significant amount of risk.  But now that the investors are losing money on what was supposed to be a winning stock (at least to them), they are blaming others and using the courts to try to settle the score.  While I’m not exactly cheering for the big banks, I hope the investors lose in this battle.

As far as the banks, the market should be allowed to work.  Unfortunately, we don’t live in a free market world right now.  The big bankers are part of the establishment.  In a free market environment, the market would determine if these banks did anything wrong in not disclosing revenue estimates.  Customers and investors would not continue to do business with these firms in a free market environment, if they thought the banks were doing something wrong.  This is a situation where the markets should decide and not the courts.

The yield on 10-year U.S. treasuries has hit a new low, at least for the last 60 years.  The yield dropped as low as 1.62% earlier today.  The 30-year rate is also down, although not at record low levels yet.

This is interesting for a lot of reasons.  First, the 10-year rate is highly correlated with mortgage rates.  This means that mortgage rates are now at or near an all-time low.  It doesn’t seem to be doing much for the housing market, but maybe on the margin it will encourage a few more buyers.  Anyway, if you can lock in a 30-year fixed rate for under 4% right now, that really is the bargain of the century.

The next interesting thing about the super low rate is the bond market’s defiance of the bond bears.  There are a lot people, libertarians included, who have been predicting higher rates for quite some time.  I remember when Harry Browne was talking about the permanent portfolio about 7 years ago and there were people challenging him on the bond portion of it, saying that rates couldn’t possibly go any lower.  Yet bonds have been one of the best investments of the last 30 years.  While gold has done better in the last 10 years, bonds have been more consistent since the 1980’s.  I’m not saying that it will remain that way, but just that the bond market has proven a lot of people wrong, at least in timing.

Another interesting thing about the low rates is that it is allowing the Fed to stop its quantitative easing (money creation).  Since QE2 ended about 11 months ago, the Fed has been tight.  It can remain tight with low yields.  That means the U.S. Congress can continue to rack up huge debts without relying on the Fed to buy the debt.

So when will rates finally go up significantly?

I think the answer depends on price inflation.  And price inflation will depend on several factors including the general health of the economy, bank lending, and Fed policy.  If price inflation remains relatively low, then I don’t see interest rates going up.  If rates start to tick up and there is relatively low price inflation, then the Fed can step in and buy.

The only scenario I can see where the Fed would refuse to buy more government debt in the face of rising interest rates is if price inflation is also high.  If there is price inflation of 2 or 3 percent like we have now (at least according to government statistics), then the Fed has no problem creating new money out of thin air.

On the other hand, if we had a scenario where interest rates were rising significantly and we had price inflation of 10 or more percent, then the Fed would have difficulty stepping in and lowering rates, out of fear of triggering massive inflation or even hyperinflation.

Until we see a significant rise in price inflation, I don’t expect a significant rise in rates on U.S. government debt.  There will probably be a good time to short the bond market, but we are not there yet.

It looks like Mitt Romney is the winner in the Texas primary and it looks like he will be the Republican nominee for 2012.  The media is saying that he officially clinches the nomination with his Texas win.  Of course, this is ridiculous because the whole delegate count that the press is using is just a guess.  We won’t really know the delegate count for sure until the convention in Tampa.

This does not mean that I think Ron Paul and his supporters will miraculously snatch the nomination away using a delegate strategy.  I have already said that this would be extremely unlikely.  If the situation were reversed and Ron Paul were winning, then I would worry about Romney and the establishment stealing the nomination away.  But the Ron Paul people are too honest to make a serious challenge at this point.

I never really expected that Ron Paul would get the Republican nomination.  Things would be far more interesting if he were on the Libertarian Party ticket.  But I am still impressed by his vote totals.  He will get about 2 million votes when everything is done.  However, unlike the other Republican candidates, he has a great deal of support outside of the party.  He gets just as much support (sometimes more) from independents and Democrats.  Someone like Rick Santorum would get very few independents and almost no Democrats.

Things have changed a lot in America.  While government has gotten bigger, the lines of communication have opened up.  The number of liberty-minded people has to be larger now than it has been in the last hundred years or more.  It is no longer completely crazy to support someone like Ron Paul.  It is far more socially acceptable now.  It makes it easier for others.  It opens up people’s minds when they know they won’t be called a lunatic for supporting a particular position.

The Ron Paul group, combined with other libertarians, anarchists, etc., are a significant group now.  They can’t influence policy in the direction of smaller government yet, but they can slow down big government.  There will come a tipping point where things shift and it could happen quite quickly, particularly with the fragile state of the economy.

The number of principled libertarians does not have to reach a majority status.  If 10% of the population is strongly libertarian, this might be enough.  I think 15% would mean a radical change in the direction of this country.  20% would just about seal the deal, as change would be inevitable whether it would be through repealing legislation at the federal level or secession.

While Romney vs. Obama is a depressing thought, I am optimistic for the long run.  The libertarian direction that America is starting to take cannot be stopped.

There has been a lot of news in the last couple of weeks about runs on banks in Greece.  It is reported that bank customers have withdrawn euros in total of the equivalent of over a billion U.S. dollars.

There are a couple things that are a little surprising about this news.  First, 800 million euros (or one billion U.S. dollars) is really not a lot of money in today’s world.  In the U.S., we talk about trillions now. One billion dollars is only 0.1% of a trillion dollars.  While the total amount is not insignificant for Greece, it is also not exactly earth-shattering news.  I suppose the symbolism of it is bigger than the actual amount of money.

The second notable thing is just how long it took for this to happen enough that it is headline news.  I was forecasting a Greece pullout from the euro zone last year.  Greece has been a mess for years now.  It is amazing how long people wait until they finally take action.  These people withdrawing money from the banks in a panic remind me of shoppers looking for canned foods and bottled water on the day that a hurricane is about to hit.  They can only hope at that point that there will be something left for them.  The problem is that these people should have known that a hurricane was coming days before if they had paid any attention.  Yet, they waited until the last minute.

The more amazing thing is the shoppers who just deny that a hurricane will hit at all.  They don’t even bother trying to do some last minute shopping in preparation.  Are there really still people in Greece who have their money in Greek banks?  This is just the epitome of foolishness.

There is definitely a lesson here.  Most things, particularly when it comes to economics and government policy, do not happen all at once.  There are usually warning signs.  Some Jewish people living in Germany in the early 1930’s saw the warning signs and got out.  Some saw the signs in the later 30’s.  Some were able to get out and some weren’t, but at least they had a shot.  Meanwhile, there were some that were in denial right until the end.

It is good to keep an eye on the big picture.  If you were living in Greece during the last few years, what would you have done?  Hopefully you would have left the country, where the government is trying to seize wealth any way it can.  If you stayed, hopefully you would at least have the sense to not leave any significant amount of money in a Greek bank.

Americans should pay attention to the same warning signs.  It is not just about banks or even economics.  It is everything political.  As times get tougher, the U.S. government and state and local governments will be looking for ways to fund their own operations.  Hopefully Americans will do a better job of turning their backs on big government than the Greek people.

Gary North, a prolific libertarian writer, has written two pieces recently on the future.  In the first one, he says that we are not on the road to serfdom, but on the road out of serfdom.  In the second piece, he says that our kids will have it better than us.  I like his optimism and I wish more people had it.

I find that the majority of people who are new to the libertarian movement are pessimistic.  In fact, I could say that even the majority of older libertarians are pessimistic.  They think we are at the breaking point.  They think that if things aren’t turned around immediately and dramatically, that we will be in full-fledged tyranny, if we aren’t there already.

I am relatively young, but I have been a libertarian much longer than most of the young Ron Paul supporters.  I was a child of the Reagan era.  I had libertarian leanings as a child and into young adulthood.  I really became interested at about the age of 25.  It was about 9 years ago at the age of 28 that I became a more hardcore libertarian.  If anything, I have become even more radical since then.

I heard Harry Browne give a speech in 2004 on the prospects of liberty.  He said that he doubted that one in a hundred libertarians understood this one simple thing in our fight for liberty: that human nature is on our side.  The natural state of human beings is not to live under tyranny.  Most people want choices in their lives and they want liberty.

In 2004, there weren’t a lot of libertarians.  But from everything I have read, there were far more libertarians in 2004 than there were in 1954, 1964, or 1974.  I can safely say that there are far more libertarians now than there were 8 years ago.  In fact, I’d venture to guess that the number has at least quadrupled.

I think Gary North has it right.  Barring something disastrous event like a nuclear war, the next generation should be better off.  I warn people about the next several years and the economic trouble ahead.  But long term, I am an optimist.  With technology and the free flow of information, I don’t see how the libertarian movement can be stopped at this point.

There may be certain areas where we are less free in America today.  We have the TSA at airports.  Business regulation is probably as bad as it has ever been.  There are surely other examples, but there are also examples of where we are more free.

There is no more slavery in America (although we could argue that we are all slaves to the state).  With the internet, the news media is no longer monopolized by a small number of networks.  While there are wars going on, there is no full draft as we saw during many past wars.  The top tax rate is far lower now than it was during much of the 20th century.

If there are two things that really symbolize our hope for liberty, it is free speech and guns.  They are both related to the first two amendments to the Constitution.  While there are gun laws and restrictions, most Americans can own guns.  Not only that, but a large portion take advantage and do own guns.  Americans may not be armed to the teeth like the Swiss, but there are tens of millions of American households that have firearms.

As far as speech, we are as free as ever.  That is why I think the best hope for liberty starts in America.  While I can’t say that free speech is 100%, it is pretty close.  Just use google and you can see for yourself.  I laugh when I hear people talk about how great the Founding Fathers were and how they defended all of our liberties.  Have these people never heard of the Alien and Sedition Acts?  If Barack Obama tried to do what John Adams did, he would have a revolution on his hands.  Of course, with the internet, there would be no way to enforce the Sedition Act today, unless the government tries to arrest 50 million Americans.

While there are no guarantees, I think we will move toward liberty over the next few decades.  Technology will help a lot.  The current group of Ron Paul supporters will help a lot.

It is ironic because there are many Ron Paul supporters who are pessimistic, not knowing that the libertarian movement has grown by leaps and bounds because of them.  Yet, it is because of the Ron Paul supporters that I am so optimistic.

You can view a short-term chart of the adjusted monetary base here:
http://research.stlouisfed.org/publications/usfd/page3.pdf

You can view a longer term chart for a broader view here:
http://research.stlouisfed.org/fred2/series/BASE/

You can view a chart of the excess reserves held by commercial banks here:
http://research.stlouisfed.org/fred2/graph/?chart_type=line&width=800&height=480&preserve_ratio=true&s[1][id]=EXCRESNS

The increase in excess reserves has closely mimicked the increase in the monetary base since the fall of 2008.  I have seen little to indicate a change in this scenario.  This means that the creation of new money by the Fed has gone into excess reserves at banks.  It is not being lent out.  This is helping to keep a lid on price inflation.

The Fed has not really inflated since the end of QE2.  It is hard to believe, but it is almost 11 months since QE2 ended at the end of June of 2011.  The monetary base is actually slightly lower from that point.

The Fed is keeping its powder dry for right now.  It is walking on a tightrope and it doesn’t want to lean too far in one direction.  It does not want to trigger severe price inflation and it also doesn’t want the economy to fall off a cliff.  Eventually, I see it falling one way or the other.

I am guessing there will eventually be a QE3, but not until the economy gets visibly worse.  It is hard to read the minds of central bankers, but I don’t see them sitting on their hands if price inflation is relatively low and the economy is falling off a cliff.

We will continue to watch the adjusted monetary base to see if the Fed is doing what it is saying.  So far this year, the Fed has not been doing much.  Hopefully that will last, but I wouldn’t bet on it.

Dave Ramsey is a money guy.  I have written about him before.  I agree with much of what he has to say about money.  I don’t often agree with him when it comes to investing and anything political.  He does not understand the monetary system, which is rather critical when you are offering investment advice.

With that said, I was surprised to hear what he said this morning on a morning television show.  He was warning people about having state 529 plans.  He pointed out that many states are in financial trouble and that you should avoid contributing to a state prepaid college plan (or something like that) if your state currently has financial difficulties.

This is surprising because I consider Dave Ramsey as part of the establishment.  He has little clue about the monetary system while being a popular personality talking about money on television and the radio.  Yet, with this statement he made about being careful with state 529 plans, he is saying in a not-so-subtle way that some states are headed for bankruptcy.

That is all his statement can mean.  He is saying that states in financial trouble are at least somewhat likely to default on their promises.  This means that you could make contributions for your child’s college education and then see it all evaporate because of politicians spending too much and promising too much. If Dave Ramsey is suggesting something like this, then we can be almost certain that it is going to happen, because I don’t see him as someone who questions the system very often.

I completely agree with him on this topic.  I would go further and say that you should avoid these state plans no matter where you live.  First, college is way too expensive in most places and I would try to find a cheaper way to pay for your child’s education.  There are more choices now with community colleges and online courses.  You can also encourage your child to take college credit classes while in high school and maybe even test out of some college level classes.

Second, if you are going to save some money to help pay for your child’s college, then you don’t need to contribute money to the politicians in your state.  You can save your own money.

I would not contribute to any state plans, as things can change quickly.  Most of the 50 states are in financial trouble.  It is all relative.  But the worst ones that come to mind are California, New York, New Jersey, and Illinois.

Not coincidentally, the states with the highest taxes have the worst problems.  This could be for several reasons.  First, high taxes tend to drive productive people away.  Second, the high taxes meant high government “revenues” during the so-called good times.  When good times went to bad (the bursting housing bubble), then government tax collections went way down.  But the politicians had already made big promises and were already accustomed to spending huge amounts.  Third, the states with the highest taxes also tend to be the states most likely to elect big government politicians.  (I know “big government politicians” is redundant, but it is all relative.)

In conclusion, you should actually take Dave Ramsey’s advice on this.  Stay away from the state college savings plans.  If and when the economy turns south again, we could see a wave of state bankruptcies.  Don’t be one of the victims.