When Rick Perry entered the presidential race, he was instantly the front runner.  Then he had to show up at the debates.  He stumbled a bit and the other candidates beat up on him and his record (and rightly so in most cases).  Some of his not-so-conservative record from Texas was exposed.  He also has the problem of a Texas swagger and a Texas accent that remind people of George W. Bush.  Bush is not all that popular these days, even in the Republican Party.

Even though he fell dramatically in the polls, I still thought he had a chance to recover.  He raised a lot of money and still had a significant backing.

He should have hired me as his campaign manager (or someone like me because I wouldn’t have worked for the man because he is horrible and I am a Ron Paul supporter).  Nobody can turn him into a great debater, but if he had been given some good advice and taken it, he could have made a comeback.

This is what Perry should have said in the last couple of debates in New Hampshire.  It is also what he should say in the upcoming debates, but probably won’t.  He should say something like the following:

“If you like Ron Paul on domestic issues, then I am with you.  I agree with Ron Paul that we need to start eliminating departments and making big budget cuts.  As far as economic issues go, I am the closest one here to Ron Paul.  But I know some of you disagree with Ron Paul on foreign policy.  I don’t agree with him either.  I believe we need a military presence in the world to defend our vital interests.  If you are looking for the anti-Romney candidate, I am your man.  I agree with Romney to a great extent on foreign policy.  I do not agree with his economic agenda of Romneycare and keeping the status quo in Washington DC.  I am the best parts of Romney and Paul put together.  For all of you Tea Party conservatives out there who want a real fiscal conservative who is strong on national defense, please consider supporting my campaign.”

Some of this would be a lie.  He really isn’t close to Ron Paul on domestic issues.  But saying all of that would attract a lot of people in the Republican Party who are not Ron Paul supporters and who are uncomfortable with Romney (which is almost half the party).

Instead, Perry used the last couple of debates to say he would march back into Iraq and that we shouldn’t support Romney because he broke apart companies.  He also said that everyone else was an insider, including Ron Paul.  Have you ever heard such a ridiculous claim in your life?

Perry has continually messed up.  He coulda’ been a contender.

I am glad that Perry and much of his campaign staff are a bunch of fools.  He would have been a horrible president and he would have given fiscal conservatism a bad name.  At least with Obama messing things up, nobody can seriously claim that it is the fault of his capitalist policies.

Today, I am going to sum up my economic outlook for 2012 (from a libertarian perspective of course).  While I don’t like to make specific predictions, I do want to lay out some possibilities.

Nobody really knows what will happen with Europe.  Can the bureaucrats keep kicking the can down the road for a while longer?  Will Greece break apart from the European Union?  Will Greece decide to default on all of their debt?  Will any major European banks go under?  Will the European Central Bank bail out the major banks?  Will the Federal Reserve bail out major European banks?

These are all questions that are impossible to answer right now.  But even if there is a big event, the U.S. economy has seemed fairly immune.  There might be blips in the stock market.  There might be some fleeing from the Euro (which has actually helped the U.S. dollar).  But until something major happens there, it seems that the U.S. is on its own clock.

I still see a major fight right now between the forces of inflation and recession (or depression).  The Federal Reserve has tripled the adjusted monetary base since late 2008.  While prices are certainly going up at the grocery store, it is mild compared to what it could be.  Price inflation has been quite tame considering the massive monetary inflation.

I see two major reasons that price inflation has remained in check.  First, most of the new money created by the Fed has gone into banks and held as excess reserves.  The banks have not used fractional reserve banking for this new money.  Second, the depressed economy has led to a high demand for money.  Another way of saying this is that velocity is low.  The speed at which money changes hands has been slow.  People are uncertain about the economy and have cut back on their spending.  They are trying to pay down debt and build up cash balances.  This has had the equivalent effect of keeping prices down.

Regardless of the two points above, the monetary base has still tripled and it is almost impossible to keep prices down at this point.  Perhaps they could stay down in the electronic industry where technology is increasing at an exponential rate.  Perhaps housing prices will stay down due to the previous bubble.  But in most sectors, that money is going to leak out and cause price inflation.

In 2012, it would not surprise me to see a mini-boom occur.  This would be an artificial boom.  We have already seen stocks do well, with the Dow around 12,500.  This could very well be because of hot money.  Perhaps this is the first sign of money leaking into the system from QE2.

On the other hand, the Fed has been tight with new money since QE2 ended over 6 months ago.  With the adjusted monetary base being basically flat since then, we could see the economy tip the other way and head into another recession.  At that point, we would probably just see more money creation.

While I am bullish on gold for the longer term (5 or more years), I am more uncertain in the short term.  If we see a mini-boom cycle, then gold will most likely go much higher.  If we see the return of a recession, then I expect gold to go lower, at least until more money printing is announced.

Either way, there is more pain to come with the economy.  Even if we have a mini-boom cycle, it will eventually turn into severe price inflation or it will turn into a market crash.

There has been severe malinvestment in the economy.  The interference of the Fed and the federal government has caused huge distortions.  These were not allowed to correct in 2008 and after.  It has been made worse.  The market economy is trying to sort things out and properly reallocate resources, but the crazy laws and crazy monetary policy are not allowing it to happen.

Prepare for a continued roller coaster.

Judge Andrew Napolitano, the host of Freedom Watch, was a guest on Jon Stewart’s show (link is via LewRockwell.com).  I am a fan of Judge Napolitano, but I occasionally have my disagreements with him.

At about 3:25 into the video, Jon Stewart asks Napolitano about states’ rights.  Stewart says, “The federal government cannot infringe on your freedoms.  But apparently if the states do it, yeah, it’s ok.”  Napolitano answers Stewart by citing the 14th amendment, saying that it made the Bill of Rights apply to the states.

I’m not sure why, but Napolitano kept talking about how Republicans stand on the issue.  He should have been talking about libertarians, especially when Stewart framed the question that way.

I am not sure where to start on this, but I strongly disagree with Napolitano (and Stewart) in many ways.

First, I think the 14th amendment is a terrible amendment overall.  It was another thing done by the federal government to centralize power.  Perhaps there were good intentions with it, just as there were with the Civil Rights Act of 1964.  Perhaps portions of it were good.  But overall, it centralized power, regardless of the intentions (although I’m sure not all intentions were pure).

Napolitano says that the 14th amendment made the Bill of Rights apply to the states.  But that is just the way it has been interpreted by many courts, mostly to centralize power.  It is open to interpretation.  Many of the people who supported the 14th amendment did not intend for that to be its purpose.

Second, even if Judge Napolitano were completely correct about the amendment applying the Bill of Rights to the states, that still doesn’t answer the question.  Romneycare in Massachusetts has nothing to do with the Bill of Rights.  Go through the first 10 amendments.  There is nothing about healthcare.  It doesn’t say “Congress shall make no law regarding healthcare.”  Just on that alone, his argument fails.

Third, he really doesn’t answer the question in regards to jurisdiction.  Just because you don’t think the federal government has the authority to do something, it doesn’t mean that you have to agree or disagree with it.  I don’t think the federal government or U.S. Supreme Court should strike down Romneycare in Massachusetts, but that doesn’t mean that I think it is good policy.  I also don’t like it when the Chinese government infringes on property rights and freedom of speech in China, but that doesn’t mean I want the U.S. government to tell the Chinese government what to do.

It is hard to believe that a libertarian judge could not address the issue of jurisdiction (as well as decentralization) in regards to this question.  There are a lot of things that state and city governments do that I don’t agree with, but it doesn’t mean that I think the federal government should do anything about it, even if it were seemingly good.

In conclusion, I am still a fan of Freedom Watch and Judge Napolitano, but I am disappointed with his answer on states’ rights.

As I write this, the results are not final, but it is evident that Mitt Romney will win the New Hampshire primary.  Ron Paul will easily take second.  Jon Huntsman is third.  Gingrich and Santorum are essentially tied for fourth.  Perry gets last.

The two winners tonight are clearly Romney and Paul.  Huntsman certainly had a good showing, but it is hard to imagine him surging at this point, particularly with South Carolina being next.

The voters have somewhat soured on Gingrich and Santorum.  Everyone is talking about who the anti-Romney will be, but it doesn’t look like either one of them at this point.  Ron Paul is truly the anti-Romney, both in principle and in politics.  Gingrich and Santorum are just as much pro big government as Romney and the voters are starting to figure this out.  They just have some small government rhetoric that Romney doesn’t have.

Ron Paul is clearly the most likely person to challenge Romney at this point.  South Carolina will determine a lot.  Santorum, Gingrich, and Perry will be fighting it out just to stay alive.

The Paul campaign has basically said that they do not plan on spending a lot of money in Florida.  I think this is a wise move.  It lowers expectations there.  Paul is not likely to win Florida and the size of the state does not make it worth it.  He will focus on the smaller caucus states where he can win and also win significant numbers of delegates.  He certainly has a great chance at taking Nevada and some of the midwestern states.

Everyone is wondering why Paul has not gone on the attack against Romney the way he has against many of the other candidates.  I think one reason is, just as mentioned above, some of the other candidates pretend that they are these great fiscal conservatives and many people buy it.  Paul is simply exposing them for what they are.  When Romney talks about fiscal conservatism, nobody really believes him.  He has the backing of the establishment and Paul probably figures that he can more easily persuade people who are falling for Gingrich or Santorum.

To put this in context, Ron Paul received less than 8% in New Hampshire 4 years ago.  Paul and the entire libertarian movement have made great progress in such a short time span.  We should continue to be optimistic about the long-term future for liberty in America.

If you read Robert Murphy’s blog, he has had several posts on this one particular topic.  Paul Krugman originally made a claim that, essentially, the national debt does not matter because we owe it to ourselves.  Krugman does not think that increasing the national debt leaves a burden to our children.  Murphy was ready to defend Krugman in the sense that future generations do not actually pay off the national debt in terms of real wealth.  But then Murphy listened to a couple of people and had a revelation.  He now believes that future generations do pay for the debts being run up now.

In one of his latest posts (last time I checked), Murphy uses an example of consuming apples.  He assumes that, on average, a person can only consume 100 apples when they are young and 100 apples when they are old.  People can not save apples and use them in the future for their old age.  The number of apples don’t grow.  If someone consumes more than his share of 100 apples, then this is at the expense of someone else.

Murphy comes to the conclusion that future generations do pay for debts run up now.

I am not sure I completely agree with his assessment on this, unless I am misunderstanding something (which is possible because I have a high regard for Murphy as an economist).

I think a better analogy for the apples is the Social Security program.  If someone does not consume their full total of 100 apples in their young age, they expect to get more than 100 in their old age.  But this is a Ponzi scheme.  The first participants in the Social Security program received more than they originally put in.  At some point, somebody is going to have to get less than what they originally put in.

The last person in Murphy’s chart is the loser (Iris).  That person did not get to consume 100 apples while younger, but did not gain anything in old age.

But that person is not really paying off a national debt.  That  young person was paying for someone else’s excesses.  Basically, every generation depends on the next generation to keep the system going.  Once a generation says “no” or is simply unable to pay, then the generation before them will take the greatest loss.

The last person (both young and old) in Murphy’s chart (Iris) could have said “no” and not paid in her younger years.  This would have stiffed the second-to-last person on the chart (Hank).  If the second to last person on the chart had said “no” during his younger years, then it would have been the person just above him who would have taken a loss.  You can backtrack all the way up the chart.

The people who are getting stiffed the most right now from the national debt are the people who are working and paying taxes (or those holding money and having it devalued through inflation), but not receiving the benefits now or in the future.  They are giving up extra capital right now to pay for the national debt, but they will not receive that same amount of capital in return (not even including interest).

Now there is one way that future generations pay and Murphy already identified this in a previous book he had written.  With a higher national debt, the government is spending more and thus misallocating resources more.  This causes less savings, less investment, and less capital accumulation over time.  It leads to less technology being developed.  This all hurts future generations.

If the U.S., along with the rest of the world, had been socialist over the last couple hundred years, then we probably wouldn’t have many great things that we take for granted today.  We wouldn’t have big televisions and cell phones.  We certainly wouldn’t have iPads and digital cameras.  If things were really bad, we might not have air conditioning or even electricity.

In a society with strong property rights and relative free markets, there is economic growth that compounds over time.  Future generations benefit enormously from this.  In that sense, our future grandchildren are paying for the current national debt because of our lack of savings and capital investment today.

In conclusion, I’m not sure if I have a disagreement here with Murphy or not.  The last person on his chart certainly did pay at the expense of others.  But it was done in the younger years.  With Social Security, at some point the younger generation is going to say “no” to the older generation.  They will decide that they do not want to participate in the Ponzi scheme.  They will not be the ones paying.

At any given time, there is a certain amount of wealth.  Some of it can be saved and some of it cannot be saved (like milk) for the future.  We cannot consume wealth that hasn’t been produced yet.  We cannot consume the vegetables that will be grown thirty years from now.  What we can do is save less and invest less.  This might mean that there is less good machinery in the future and that they might not be able to grow as many vegetables in the future or that it will require more labor to grow vegetables than if there had been more capital investment.

I think Murphy’s original instinct was right.

There are two New Hampshire debates for the remaining Republican candidates.  One is tonight and one is tomorrow morning on Meet the Press.  If you are reading this, they may have already happened.  Then the big primary will happen on Tuesday.

I usually provide commentary after a debate.  I am doing it in reverse this time.  Personally, I will be flipping back and forth between the debate and football tonight.  I suspect there will be millions of others doing the same.  The Sunday morning debate may end up with higher ratings.  I will watch all of the Ron Paul clips on Youtube, just to make sure I didn’t miss anything.

If there is anything significant or game-changing in either debates, I will post an update on this post.  I expect that things will be similar to past debates.

I expect Romney will easily win the New Hampshire vote.  Ron Paul will probably take second, but it is possible that Jon Huntsman may slip in there.  It will actually be more significant to see how Gingrich, Santorum, and Perry finish compared to each other.

Do you know who the biggest loser in the Republican primaries is right now?  The answer is Tim Pawlenty.  Does anyone remember him?  He was the governor of Minnesota.  He was in the early debates.  He dropped out after finishing third in the Iowa straw poll back in August.  Bachmann was first and Paul was second.  It obviously meant very little, since Bachmann plummeted right after that.  Just about every candidate has had their day in the sun now.  Pawlenty may have gone up in the polls just by default at this point.

Perry made a good choice in not following in Pawlenty’s footsteps and not dropping out too early.  Michele Bachmann was done after Iowa (that was supposed to be her state) and she made a good choice dropping out.  Perry gave a head fake that he might quit, but he has decided to press on.  I think Perry still has a good chance of doing well.  If I were betting on Intrade, I would put my money on him, given the odds.  I think Romney is the favorite to win, but Perry is being written off by too many.  Let me explain further.

The Tea Party people, who do not agree with Ron Paul on foreign policy, are still looking for their anti-Romney candidate.  They have given an opportunity to Bachmann, Perry, Cain, and Gingrich.  The more they found out about these candidates, the less they liked them.  Now Santorum is the flavor of the month.

They are going to like Santorum even less.  He cannot beat Obama.  He wants to shove his religion down other people’s throats.  He has a horrible record of supporting big-government Bush policies.  He supported raising the debt ceiling numerous times.  He supported expanding federal education.  He supported the Medicare prescription drug plan.  He also supported Arlen Specter (an outspoken supporter of big government).  I can promise that Santorum will not be the Republican nominee.  If for some reason I’m wrong, Obama will have a walk in the park.

So where are Tea Party people going to turn?  Some will go to Ron Paul if they can accept his anti-war views.  A few will go to Romney, only because they think he can beat Obama.  But a lot of people who call themselves conservatives are still looking for an anti-Romney candidate.  They should support Paul, but they are too militaristic.

This leaves Perry.  His record is not as bad.  Santorum and Gingrich have many years of votes in Washington DC.  Perry’s record is all around state politics.  Perry also has money.  While he has not been good in debates, he seems to be more likable than Santorum and Gingrich, at least for independents.  I think he could still emerge as the anti-Romney and anti-Paul candidate, if he stays in it long enough.

I still believe this is a three-person race.  I’m just not sure who the third person is yet.  Romney and Paul are going to the end.  I think Perry may emerge as the third person.  If not, it will be a toss up between Santorum and Gingrich for the third slot.

UPDATE:  Ron Paul took Gingrich and Santorum to school, particularly in the Saturday night debate.  Where will the pro-war tea party people (a bit of a contradiction) turn to now?

James Altucher is bullish on the economy in 2012, according to one of his recent posts.  If you haven’t read him yet, I would certainly recommend reading some of Altucher’s material.  I sometimes don’t agree with him (and I’m sure most others feel the same), but he is good at stimulating the mind.  If you feel stuck in life or if you are feeling depressed, reading some of Altucher’s material might help you get out of your funk.

So Altucher is bullish on the economy for this year.  I am not as optimistic.  The Fed has tripled the monetary base in just over the last three years and the federal government has accumulated almost $5 trillion in new debt over that same time.  Things were really bad under Bush and (at least economically) they are actually worse now.  The Fed and the governments have not allowed a correction to take place from the previous bubbles they created.  Instead, they have delayed the correction by continuing and adding to the malinvestment.

While I’m not bullish on the economy, there is a possibility that we go through a mini boom cycle this year, due to the loose monetary policy of the Fed, along with the low interest rates and big government spending.  While I think things could tip either way, it wouldn’t surprise me to see the stock market continue to do well for a while longer.  A mini boom might make things appear like they are better than they really are.

While I’m not bullish on the economy as a whole right now, there are some positive things.  Altucher does a good job of pointing out some of these positives.  I will discuss some of his points.

On housing, I’m not sure how much inventories are really down because there are still a lot of houses owned by banks.  However, new housing has slowed down considerably and this is actually good news.  This will allow the remaining inventory to clear and it is necessary to set the stage for a rational housing market.  Prices went up way too fast in the early to mid 2000’s and they have gone down way too fast in the last 5 years.  We need a normal housing market where prices are somewhat stable and just going up with the inflation rate (although that isn’t always that stable).

On corporate profits, I wouldn’t get too excited.  Things can change quite quickly.  We saw that in 2008.

On corporate cash, I think you can look at this two ways.  The reason that businesses have so much cash sitting around is because they are still scared about the economic environment and they don’t want to grow and take risk right now.  On the other hand, it is good because it is a form of savings and it means that businesses are not going into debt as much.

Consumer spending can be good or bad.  It may be a good sign that people are feeling more comfortable with their financial situation and feel like they can spend a little more now.  It may be bad in the sense that people are being duped into thinking their financial situation is better than it really is because of the low interest rates and loose money.  People felt good and were spending money like crazy back in 2005.

Household debt is down and that is a good thing.  Households manage their debt much better than government.  Less debt and increased savings are necessary for economic growth.

On Europe, it is a mess and it will have its effects in the U.S.  We should also pay attention to what is happening in Europe as it could be a sign of what is to come here.

Altucher mentions bank cash and says that the Fed never should have done QE2.  But this is a reason to be bearish.  If the bank releases all of those reserves, it might be good news for a few of the people who see the money first.  For most people, it will mean much higher prices at the grocery store and gas pump.

On his last item, he mentions technology.  I completely agree that this a reason for optimism.  I don’t think it will be enough to overcome the huge barriers put in place by the government.  But the major advances in technology have made our lives better and it will continue to be that way.  Technology will help us overcome many obstacles in the near future.

In conclusion, I am not bullish on the economy like James Altucher.  I am somewhat pessimistic because of all of the distortions caused by the government and Fed.  However, there are reasons for optimism and I think he got some of these right.  Altucher needs to learn some Austrian economics.  However, Austrians should also listen to Altucher, as not everything is doom and gloom.

According to Thomas Sowell’s latest article that I read, he is certainly not a libertarian.  He is far from it.  I never really thought that he was a libertarian, but some people classify him this way.  He is certainly good on some economic issues and he is a great writer when he is thinking straight.  Unfortunately, he does not always think straight as shown by this article from December 29, 2011.

Sowell talks about the Republican candidates.  He is not all that satisfied with the current crop.

Sowell says, “Some voters, whether Democrats, Republicans or independents, treat elections as occasions to vent their emotions, rather than as a process to pick someone into whose hands to place the fate of the nation.”

He continues, “People who think this way tend to vote for someone they just happen to like, whether for personal or ideological reasons, and regardless of whether that candidate has any realistic chance of being elected.”

Then he goes after Ron Paul and his supporters.  He says, “The surprising support in the polls for Congressman Ron Paul seems to be of this sort.  But does anyone seriously want to put the fate of this nation in the hands of a man who can casually brush aside the danger of nuclear weapons in the hands of Iran, the world’s leading sponsor of international terrorism?”

Sowell goes on to give his support for Newt Gingrich.  He concludes, “With all his shortcomings, his record shows that he knows how to get the job done in Washington.”

Sometimes I try to be sympathetic towards people.  Most people are not libertarians when they are kids.  They usually have to go through a learning process.  Sowell is certainly a bright guy on some things and even has some libertarian leanings on some things.  But the guy is now 81 years old and has spent much of his life in the political arena.  If he hasn’t figured things out by now, I’m not counting on it happening at all.

I have always had this feeling about the man, whether listening to him or reading him, that he has a high opinion of himself.  He accuses the liberals of being elitists, but he completely comes across as an elitist himself.  He is full of himself.

So he first attacks Ron Paul supporters by saying that they vote for him because they just happen to like him.  He criticizes them for supporting him “regardless of whether that candidate has any realistic chance of being elected.”  Then why are you supporting Gingrich, you moron?  Ron Paul has a better chance against Obama than Gingrich.  He also probably has a better chance at getting the Republican nomination.  If we should just support whoever is electable as Sowell suggests, why don’t we all just bow down to Romney?

Then Sowell goes after Paul directly saying that he “can casually brush aside the danger of nuclear weapons in the hands of Iran, the world’s leading sponsor of international terrorism”.  Meanwhile, Sowell can casually brush aside the danger of putting Newt Gingrich in office who might be crazy enough to start a major war with a country of 70 million people and which controls a large supply of the planet’s oil.

Sowell is 81 years old and he has understood for a long time that the government cannot centrally plan an economy (although I’m having my doubts with his support of big-government Gingrich), yet he thinks the U.S. government is great and perfect when it comes to foreign policy.  No Sowell, the government couldn’t possibly lie about anything to do with foreign policy.

And where does he come up with this part about Iran being the world’s leading sponsor of international terrorism?  Is he still getting his talking points from the Bush administration?  I guess Iran has taken the place of Iraq and Afghanistan.

Sowell is an elitist and a moron.  He is 81 and he thinks Newt Gingrich is our best choice.  Sowell was an apologist for Bush for 8 years.  He does not care or does not consider the lives of foreigners.  It does not matter to him if innocent Iranians die.  It did not matter to him that hundreds of thousands of Iraqis died.

If Sowell is so pumped up for another war, maybe he should go to the battlefield.  Oh wait, he is part of the elite club.  The wise-one must stay in safety so that he can write his wonderful articles and play with chess pieces that are human lives.

Thomas Sowell is not a libertarian.

It looks like Ron Paul will be in third place in the Iowa Caucuses.  It is a strong third place, just a few percentage points behind Romney and Santorum, who finished in a virtual dead heat.

I have to take back one thing I said in one of my recent commentaries.  I said that Ron Paul really needed to finish first or a strong second.  However, the one surprise in Iowa for almost everyone is Rick Santorum.  He came out of nowhere.  If Gingrich or Perry had finished ahead of Paul, it would have hugely diminished Paul’s chances.  But for Santorum to finish ahead of him is a different story.

Iowa has a disproportionately higher percentage of evangelical Christians.  This favors Santorum.  It is why Mike Huckabee won Iowa four years ago.  I believe Huckabee was a more viable candidate than Santorum is, and Huckabee didn’t win the nomination.  I don’t think Santorum is going anywhere.  He will quickly be exposed in the next few weeks.  He was a Bush man.  He voted for “No Child Left Behind”.  He voted to raise the debt ceiling many times.  He voted for the Medicare prescription drug plan that added trillions of dollars to the unfunded liabilities.  He supported the big-government politician Arlen Specter.

Santorum also does not appeal to the average independent.  Obama could only be so lucky to face someone like Santorum.  I would be shocked if Santorum won the Republican nomination.

Gingrich is almost done, although we can’t quite eliminate him yet.

Perry did not have a good showing, but I still can’t completely eliminate him yet.  He has money and backing and if people turn sour on Santorum, they may move to Perry.

Bachmann can thankfully call it quits.  Iowa is supposed to be one of her stronger states and she had a horrible showing.  I am glad that the woman who has no doubts that Iran would use a nuclear weapon against Israel and the U.S. will not be the next president.

Huntsman is done unless Romney is caught in a major scandal.

This could end up being a two-person race with Paul and Romney.  I was expecting a third person like Perry to emerge.  The only person to emerge has been Santorum, who will be quickly taken down.

We will wait to see what happens in New Hampshire and beyond.

For Ron Paul supporters out there, don’t be disappointed that he didn’t win Iowa.  He finished above 20%, which is far better than most people would have expected just a couple of months ago.  Four years ago, it would have been unheard of.

The libertarian message is spreading, particularly to young people.  There is reason for optimism.

The Laffer Curve is named after Arthur Laffer, who worked for the Reagan administration.  I am not a huge fan of Art Laffer, especially after his embarrassing (afterwards) exchange with Peter Schiff.  Laffer was calling Schiff crazy for saying that there was a bubble that would burst.  While Laffer was certainly proven wrong on that one, he is not a dumb guy.  He understands some economics and the graph named after him is an interesting topic.

So should libertarians/ followers of Austrian economics pay any attention to the Laffer Curve?  I think it is useful in some ways, but not as the typical Republican uses it.

The Laffer Curve basically says that, at some point, if you raise taxes, it will actually lead to less tax collections by the government.  The Laffer Curve does not claim to know where this point lies.  It could be a 20% marginal tax rate or a 70% marginal tax rate or really almost anything else.  Just by common sense, we can realize that it probably would not be a really low tax rate like 1% or a really high tax rate like 99%.

It is kind of ironic that Art Laffer is most famous for the Laffer Curve.  It really isn’t any great revelation. Unless you are a dedicated Democrat/ socialist who isn’t willing to think with an open mind for one minute, then the Laffer Curve is mostly common sense.  If you have a tax rate of 0%, then the government will not collect any money from that tax.  If you have a tax rate of 100%, then the government will not collect much money from that tax either.  There might be a moron or two who will actually work just so that every single dollar made can be handed over to the government, but it wouldn’t be much.  Most people are not going to work for free, especially if the government is the charity involved.  Therefore, at a 100% tax rate, the government will barely collect anything at all.  It will be almost zero.

Somewhere between 0% and 100% there will be a tax rate where tax collections will be maximized.  If the rate goes higher than that point, then it will actually lead to less in the way of government tax collections even with the higher rate.  This is because of human action.  There is less incentive to work and the higher tax rates cause a slower economy and less growth.

Unfortunately, many Republicans have used the Laffer Curve to justify higher spending.  They actually want to maximize the amount collected by government.  They say that we need to grow our way out of debt and they imply that we can simply cut taxes and resolve the debt issues without addressing spending.

As a libertarian, I don’t want the government to maximize tax collections.  I want less taxes and less spending.  The less of both, the better.  I would ultimately like to see zero taxes, or at least zero involuntary taxes.

So while many of the Democratic politicians are stupid (or they think their constituents are stupid) for thinking that raising taxes will solve a debt and spending problem, the Republican politicians are just as stupid for implying that we can simply lower taxes without addressing spending.

Income tax rates were lowered during the Reagan administration.  There were also other taxes that were raised.  But after the recession ended, government tax collections went up quite a bit.  The problem is that government spending went up even more and the debt grew during the 1980’s.  Lowering the highest tax rate from 70% to 28% did not lower the amount collected by government.  This was the correct thing to do.  In fact, it should have gone much further.  But there was a major spending problem and there still is, of course.

In conclusion, I think the Laffer Curve is useful to libertarians in pointing out human action.  It is a useful argument against Democrats who always seem to want to raise taxes.  However, the Laffer Curve should never be used to deflect a spending problem.  Spending is ultimately more important that the tax rates.  Almost everything that is spent by the government is first obtained by taxes, inflation, or more debt.  I want less spending, followed by lower taxes.