Obama delivered his speech to Congress this evening.  It is called a jobs plan, but it is more of a plan to keep unemployment where it is.  It was mostly typical Obama stuff, with more Keynesian economics.  However, there are a couple of bright spots with his proposal.

Obama is proposing to extend the tax cut on payroll taxes.  In fact, he is even proposing to lower it more.  This is good for anyone working as it will mean more money in their pocket.

As I have said in the past, if Obama really wants to help unemployment, he needs to lower the cost of labor for employers.  This means that it would be far more effective to have a payroll tax cut on the employer’s portion.  Well, Obama’s advisers must be reading my blog or the website of the Mises Institute.  He proposed this very thing tonight.  He is proposing to lower the employer’s portion of the payroll tax and to even eliminate the tax for wages in the form of raises and new hires.  If he really wanted to make this good, he would propose to make it permanent.

The overall plan he delivered was for about $450 billion.  The yearly deficit alone is $1.5 trillion, so even if his proposals were all good, this is not significant enough to make a big difference, particularly with unemployment.  If he came out with a plan to eliminate the entire deficit, then it would make a huge difference in the economy, freeing up capital for the voluntary sector.

Of course, Obama’s plan also consists of spending on schools and infrastructure and unemployment benefits.  It is typical Obama and Keynesian economics.  It will just do more damage to the economy in the form of misallocating capital.

Obama said that his plan will be paid for, but he was short on specifics, other than playing his typical class warfare.  He will continue to advocate taxing the rich more and it is unlikely that he will advocate anything in the way of significant spending cuts.

In conclusion, we should be happy about the tax cut portion of Obama’s proposal.  If it goes through, you should take your extra money and put it into gold or residential real estate (things that can’t be created out of thin air).  Obama’s proposal for a tax cut on the employer portion of payroll taxes may have a minimal positive effect on jobs.  Unfortunately, the rest of his garbage more than offsets any good from this.

There was a Republican presidential debate on MSNBC this evening and I thought I’d share a few comments about it.

It was Rick Perry’s first appearance in a presidential debate and he certainly got the most time.

I thought Ron Paul did a better job in this debate than in the last one, although that is just from my point of view.  While he didn’t get to speak a lot on foreign policy (which is where he did best the last time), I thought he did a good job of explaining his libertarian views.  He came across radical, yet reasonable.

I was happy to see that Paul finally went on the offensive a little.  He went after Rick Perry, particularly on his executive order to vaccinate young girls.  Congressman Paul got Governor Perry to essentially admit that he should not have done it through executive order.  A few of the other candidates also got their jabs in at Perry on this issue.  While Perry was strong on some issues (even though I don’t believe him), he also took a little beating from the other candidates.  Hopefully he is a little more well known now among Republican voters (and I don’t mean that in a positive way for him).

I would still like to see Congressman Paul challenge the other candidates, particularly Bachmann, on spending.  I want him to challenge her and the other candidates on how, specifically, they would balance the budget.  How would they cut $1.5 trillion out of the budget?  This could only be done by drastic cuts in either (or both) the military or so-called entitlement spending.

I also found it interesting that two candidates said they would get rid of Bernanke and Ron Paul wasn’t one of the candidates asked the question.  Bernanke took another black eye.  He was put in his position by Bush (with Senate approval) and yet most of the Republicans have turned against him.  This is unprecedented as the Federal Reserve is being partially blamed for some of the problems we have.

I don’t think Gingrich, Santorum, Huntsman, or Cain have any real chance at this point.  The race is down to Perry, Romney, Paul, and Bachmann and I’m not even sure about Bachmann.  Ron Paul is actually ahead of her in several national polls at this point.

One more thing to note: Isn’t it ironic that Rick Santorum called Ron Paul an isolationist when just about every other candidate besides Paul wants to build a giant fence on the entire southern border of the United States?

The interest rate on the two-year government bond for Greece has gone above 50%, as of this writing.  The rate on the one-year Greek bond is over 88%, as of this writing.  This is incredible.  This means that investors think a default is coming.

Usually interest rates are higher for the longer-term bonds.  When interest rates are higher for the shorter-term bonds, this is an inverted yield curve, which can often indicate a recession is coming.

In the case of Greece’s bonds, these rates are indicating an imminent default.  A lower rate for a two-year bond versus a one-year bond (at these levels) indicates that the probability of default is the highest within the next year.  With an interest rate of 88%, investors are counting on a default.  If I thought there was “only” a 10% chance of default, I would gladly drop some money down on a bond paying 88% interest.  But obviously with a rate like that, investors are betting there is a high chance of default and that, if it does come, it will be coming shortly.

While Greece does not have an overall rich population as compared to the United States, it is not a third-world country either.  This coming default (unless there is a major bailout) is significant.  And what makes this even more significant is that Greece has been a precursor for the other PIIGS (Portugal, Ireland, Italy, Greece, Spain).  If Italy and Spain end up anywhere near as bad as Greece, then there will be big ramifications.

The problem here is that a lot of this debt is owned by other countries and banks in other countries.  The banks in Europe have a lot of power, just as they do in the U.S. (which we saw with the bailouts in 2008).

From a libertarian standpoint, Greece should default.  There should be no bailouts.  Some complain that Greece would no longer be able to get loans, as if loaning out money at 88% interest is a good deal.  But really, that is the whole point.  If the Greek government can no longer borrow any money, it will either have to abandon the euro and print money like crazy or else it will have to dramatically cut its welfare state.  Hopefully it will choose the latter.

The bottom line is that the Greek government has been running up debt and making promises that couldn’t be kept.  They have tried to delay the inevitable and the interest rates on government bonds are indicating that there is no more delay possible.

At an 88% interest rate (who knows what it will be tomorrow), I wouldn’t recommend buying any Greek debt right now.  I believe a default is coming very shortly.  Hold on for a wild ride.  We could see the U.S. dollar get a boost from this.  It is harder to say what will happen with gold in the short term.

Since today is Labor Day, it is a great opportunity to talk about unemployment.  Back in March, I had a post discussing unemployment.  I said that in a truly free market system that unemployment would be close to zero.  I did acknowledge that it would not be zero because there will always be some people in between jobs and a very tiny percentage who are unable to work.

After my post, there were a couple of statists who commented.  The first person did not write much and did not write anything intelligent enough to respond to.  The second person wrote more and I thought I would respond, not to convince that person, but just for the benefit of everyone else.

In my original post I wrote that I would be willing to pay someone $1 a day to be my personal assistant.  The commenter wrote, “I would find this funny if you weren’t being so serious.”  Of course, he left out the part right after that where I said, “I’m sure someone else would be willing to pay someone at least $20 per day to be their assistant.”

This person obviously doesn’t understand a reductio ad absurdum.  I said “$1 a day” to make a point.  The point is that without a minimum wage, there would be jobs available.  I could use a reductio ad absurdum on the other end of the spectrum too.  If the minimum wage is so great and doesn’t cause unemployment, why not make the minimum wage $100 per hour or more?  Why be so stingy?

Next, the commenter says, “Abolishing the minimum wage and other ‘restrictions’ might create a few more jobs- but the jobs created will be paying very low wages and likely offer a lack of job security.”  So he concedes that abolishing the minimum wage “might” create a “few” more jobs.  These are just word games to put spin on the whole thing.  But to his point about the jobs being low wage, he would like us to forget about history.  19th century America, while not perfect, was more free market than virtually anywhere else in history.  During this time, real wages for Americans rose dramatically and Americans saw a dramatic increase in their standard of living.

Next, the commenter writes, “Unemployment benefits also would be abolished in a true Libertarian economy.”  Correction – government unemployment benefits would be abolished in a true libertarian economy.  In a free market, there is nothing to stop employers or outside insurers from offering unemployment insurance.

Next, the commenter says, “So what you would get is a situation where a bunch of people are forced to work hard for low wages.  They would have to work their butts off because they could be easily replaced and yet their wages may be so low they could be in poverty.”  First, nobody would be “forced” to work for low wages.  Nobody would be forced to do anything in a free market economy.  Right now, you are forced not to take a job at certain wages.  You might want to get a job right now for $7 per hour, but a voluntary contract between you and a potential employer cannot take place because you want to hold a gun to the employer’s head.  My scenario is not force.  Your scenario is force.  As for the latter part, you are again ignoring economics and history as real wages go up in a free market environment.

Next, the commenter says, “I also use the word ‘might’ create jobs- because you do not consider that existing jobs might simply lower wages instead, in order to increase the wages of employers.”  This is such a foolish comment.  If this were the case, why don’t all employers simply lower all wages right now to the minimum wage?

He concludes this post saying, “Yeah…. that sounds like a GREAT system you’ve thought up there.”  Oh, you mean like the system of the late 19th century that created the greatest growth in history?  How is your system working out right now with over 9% unemployment?

In a second post, the commenter is back.  He says, “Please point to a single real world example where this has been the case, to prove that your claims are backed by solid real world evidence.”  First, his request is not necessary to make my point.  All you have to do is study economics a little and use a little rational thought.  While it is impossible to find a real world example because there are no truly free markets, we can still see a correlation.  While there are not really unemployment statistics for 19th century America, it is reasonably well known that unemployment was not really an issue at that time.  And, of course, there were no government unemployment benefits or minimum wages.

For a more modern example, I think it is useful to look at Hong Kong.  Compared to the rest of the planet, Hong Kong has had a relatively free market economy.  From 1982 to 1997, the unemployment rate there averaged only 2.5%.  I think this shows a pretty good example of a relatively free market economy producing very low unemployment rates.

The commenter then says, “Can you please explain how ‘Labor laws cause unemployment’.”  This is exactly what I have already done.

To wrap up, the commenter writes, “Certainly in the UK, there has been no proven connection between the minimum wage and unemployment.  In fact, unemployment was much higher in the 1980’s under the ‘free market’ policies of Margaret Thatcher and went DOWN after the minimum wage was introduced.”  This is more leftist garbage.  The UK was anything but a free market in the 1980’s.  Just like Reagan, Thatcher spoke in favor of liberty, but the policies did not usually represent free markets.  This last sentence by the commenter was just a partisan attack on Thatcher without any specifics on her supposed free market policies.

In conclusion, it won’t matter what you say for some people.  They will never understand economics properly and they really don’t want to understand.  This is what we are dealing with.  Fortunately, I think the majority of people are more logical than this guy.

I like to go back in time on occasion and get a dose of Harry Browne.  He is perhaps the person who influenced me the most in my development towards libertarianism.  One article, in particular, that I would like to discuss today is a piece in which he comments on the slow growth of the economy.  This article was written over 8 years ago.

For anyone who follows this blog on a regular basis, you will know that I am an advocate of Harry Browne’s permanent portfolio plan as laid out in his book Fail Safe Investing.  In this 2003 article, he mentions this investment advice in his conclusion.

However, I would like to emphasize what he wrote at the beginning of this piece.  Harry Browne points out that “the economy was very strong for the 24 years from 1949 through 1973, but it has become more and more sluggish since then.”

He then goes on to say, “From 1949 through 1973, the median income rose an average of 3.1% per year.  Since then the increase has been only 0.2% per year – barely any gain at all.  If the earlier trend has continued, the typical American family’s income today would be more than twice as large as it is.”  Again, this was written in 2003.

Browne then asks, “What’s so special about the year 1973?”  He responds to his own question saying “nothing”.  There was no particular thing that happened in 1973 except that the burden of government had finally gotten to a point where the free market economy could not take it any more.  Again, this was written in 2003.

So where are we now?  The federal budget is near $4 trillion per year.  The annual federal deficit is running at about $1.5 trillion.  The overall national debt is close to $15 trillion dollars.  Just to add some perspective, the first trillion dollar budget did not happen until Reagan was in office.  And now we have yearly deficits bigger than the entire budget was in the 1980’s.

Since this article was written in 2003, we have seen the continuation of two major wars, plus other minor ones.  We have seen Bush’s Medicare prescription drug plan.  We have seen a housing boom and bust.  We have seen the financial meltdown from 2008.  We have seen massive stimulus bills.  We have seen massive bailouts of major corporations, including car companies and banks.  We now have Obamacare and more financial regulations.  We have seen a tripling of the adjusted monetary base in the last 3 years alone.  We currently have unemployment above 9%.

Reading what Harry Browne said in 2003, it is easy to see why the economy is struggling so much now.  In fact, it is almost surprising that it isn’t worse.  The government at all levels takes about half of the income from the free market economy.

As long as the government keeps spending and regulating us to such a large degree, this economy will keep struggling.  We might see growth again sometime, but it will be anemic.  Unless there is some new technology or invention that is absolutely life changing, then the only way we will see robust growth again is by drastically reducing government interference.

I think even Harry Browne would be shocked by how out of control the government in DC has become.

On one positive note, I think Harry Browne would be pleasantly surprised by the Ron Paul revolution.  While the government continues to make our lives difficult, people are starting to awaken.  Harry Browne always retained hope that human liberty would flourish, but I think even he would be surprised at how fast things have changed in just the last 5 years.

Ron Paul and his followers, along with the internet, have helped changed the dialogue.  So while the economy continues to look bleak, there is hope and Harry Browne could see that hope before it became more apparent to others.

We are currently experiencing the worst economy since the 1970’s or perhaps since the 1930’s and early 1940’s.  There are similarities and differences between our current mess and the mess during the Great Depression and the mess of the stagflation of the 1970’s.

I find the biggest similarity between now and the era of the Great Depression is in the presidencies.  Herbert Hoover is disliked by historians and they blame his laissez-faire policies for the Great Depression.  Of course, Hoover was in favor of big government and his policies reflected this.  Roosevelt simply continued the policies of Hoover and exacerbated the situation by instituting even more big government.

In much the same way, the media and the establishment refer to Bush as a conservative.  Even many Republicans go along with this.  It is assumed that Bush was pro-free market, as some of his rhetoric may have indicated.  Unfortunately, Bush was and is in favor of big government in almost every arena.  He started two major wars and occupations, he centralized education more, he destroyed civil liberties, he instituted more socialized medicine with his prescription drug plan and he oversaw numerous new regulations on business.  These things are just a few of his big government policies from a long list.  The only positive thing a libertarian could say about Bush is that he reduced the marginal income tax rates.

Despite Bush’s abysmal record, the media makes him out to be some kind of free market guy.  This is ridiculous, just the same as the claim for Hoover is ridiculous.  After Bush’s massive bailouts of banks and car companies right before he left office, Obama stepped in and upped the ante.  He passed a massive “stimulus” and instituted Obamacare.  He has also presided over more regulations on businesses, some of which haven’t even taken effect yet.  Basically, Obama has done the same thing as Roosevelt in that he inherited a mess and he has made things even worse.

One of the biggest differences between now and the Great Depression is that we now have the FDIC.  At the start of the Depression, there was no FDIC and there were a lot of bank runs.  This meant a lot of banks went under and this had a deflationary effect as it reversed the fractional reserve process.  One of the major mistakes that people make in economics today is that they think lower prices were a cause of the Great Depression.  Unfortunately, these people are confusing cause and effect.  The lower prices was probably the only blessing of the Depression as it allowed people to at least afford essential goods.

Bernanke claims to be a student of the Great Depression.  He thinks the Fed is to blame because they did not print enough money (seriously).  He is possibly half right.  The Fed is partly to blame, but only because there was too much money printing in the late 1920’s, which caused the artificial boom.  Not many people look at this, except of course for the Austrian economists.

One other thing to note about the Depression is that most people think it ended with the beginning of World War II.  While the war “solved” the unemployment problem, the economy was horrible until after the war ended.  There was major rationing and times were not fun.  It wasn’t until the war ended and government actually shrank (one of the few times in history) that the economy recovered and prospered.

As for the 1970’s, I think the biggest similarity (and one we will see more of) is that the Keynesians are being proven wrong.  In the world of a Keynesian, there is supposed to be a trade-off of inflation and unemployment.  The Fed can print more and this will reduce unemployment.  If the Fed pulls back, this will cure price inflation but may cause higher unemployment.  The Keynesian theory was proven wrong in the 1970’s as there was high unemployment, a stagnant economy, and high price inflation.

The Keynesians are being proven wrong again as all of the monetary inflation and government stimulus has not helped unemployment and the economy continues to struggle.  The only thing we are missing right now in comparison to the 70’s is the high price inflation and high interest rates.  Although the monetary inflation has been huge, interest rates and prices have not spiked due to fear.  This fear is with the bankers and with the general public.

As this economic crisis continues, I expect we will see a combination of both periods.  If anything, I think things will look a little more like the 1970’s, particularly if and when price inflation turns up.

It is hard to compare all of these eras beyond this because times change so much.  There aren’t soup lines like there were during the 30’s because now people get food stamps and government checks.  Today’s technology also complicates things (in a good way) as communication and the internet allow people to prosper more.  Some things are much cheaper now due to technology (and maybe Walmart), but some essential needs like healthcare are more expensive.

If the government and the Fed continue to be reckless, then things will be worse than the 1970’s.  If all of the monetary inflation and reckless spending get under control quickly, then things could get better a lot faster, particularly with today’s technology.  There is going to be pain no matter what.  It is just a question of when the American people demand that their government get out of the way.  The quicker that this happens, the less pain there will be.

I am not getting ahead of myself here.  I understand that a Ron Paul presidency is still a long shot, although not as much of a long shot as many in the media would suggest.  It will be difficult for Ron Paul to overcome the pro-war faction (the majority) of the Republican Party.  However, if he manages to break through, I think he has a really good chance at beating Obama.  As for this discussion, it doesn’t hurt to fantasize, speculate, and strategize.

Walter Block wrote a piece on this very subject the other day.  He suggested several names.  I would like to comment on some of his suggestions and add a few of my own.  If anyone wants to add any more names in the “comments” section, feel free.

Some of Walter Block’s names are not realistic and he admits this with many of them.  Bachmann, Daniels, Sowell, and even comedian Jon Stewart can’t be Ron Paul’s running mate because they are not anti-war.  Even Gary Johnson, who is better than most other Republicans, is still not anti-war enough.  While I like John Stossel, the same goes for him too.

Gary North suggested Walter Williams as a pick.  While I admire Williams for his great economic lessons, he is, again, too pro-war, or at least not strongly against war.

Unfortunately, the same can be said for Ron Paul’s son.  Rand Paul is easily the best senator in Washington DC, but he is just not radical like his dad.  I would not trust Rand Paul to end the wars like his dad would.  Not only would ending the wars save many lives and make us safer in the long run, it is also the easiest thing to cut out of the budget that would save a significant amount of money.

I don’t know enough about Jim Grant to comment extensively, except with the little I know about him, I get the feeling that he is not as radical as Ron Paul (but I could be wrong).

The only choices I like on Block’s list are Judge Andrew Napalitano, Lew Rockwell, and Doug French. I highly doubt that Lew Rockwell would consider this position and he is much more important in running his website.

If Ron Paul did get the Republican nomination, I think it would be very important for him to pick someone at least as radical as him.  This is actually a safety issue.  The establishment hates Ron Paul and I would not want to see anything happen to him.  The best way to protect himself is to have his running mate as someone that the establishment fears just as much or even more.  Plus, if Ron Paul is going to win the presidency, he should have someone as Vice President who would carry out his radical, pro-liberty agenda.  Plus, it would be nice to have someone who he could talk to for advice.

There are several names I could suggest, but who I don’t feel are quite radical enough in all areas to serve as his running mate.  For example, both Walter Williams and Peter Schiff are great in economics, but I question their foreign policy.  These guys should be economic advisors to a President Ron Paul or one of them could be in his cabinet as Treasury Secretary.  Again, there are also some who are great in foreign policy yet more questionable in economics.  These people could fill positions like the Secretary of State.

So who are my top choices as a running mate for Ron Paul?  I like radical people who are anti-war and also understand Austrian economics.  They also have to be well-mannered.  I am not saying that any of these people would accept the offer, but here are a few of my choices:

Tom Woods
Robert Murphy
Thomas DiLorenzo
Jeff Tucker

I am not sure about DiLorenzo, only because the media would obsess about his writings against Lincoln, although I’m sure the media would find distractions with anyone.  There are also some other names I could come up with like Anthony Gregory, but I’m not sure if he is old enough to qualify.

If Ron Paul received the nomination, he shouldn’t care at that point that the general public would have no idea who these people are.  Ron Paul doesn’t need to pick another politician, since there are no other well-known politicians who are anywhere near as good as Ron Paul.  If someone like Tom Woods were being interviewed on the major networks and he were debating Joe Biden, I would have the utmost confidence that he would present himself well and present the libertarian agenda well.

What are your thoughts on a Ron Paul running mate?

Numismatics is the study or collection of money, coins, and other related things.  When you hear gold advocates talk about numismatics, they are probably talking about rare gold coins.  You can buy coins that are worth more than their actual metal content.  You pay more because of rarity and the condition of the coin.

There are rating systems for rare gold coins.  For example, a gold coin could be rated MS 63, MS 64, etc.  The higher the number is, the better condition the coin is in.  These coins will actually come in a casing with the rating inside the casing.  The MS stands for “mint state”.  The numbers range from 60 to 70, with 70 being a perfect coin.

I am not a big advocate of buying rare coins.  It is purely speculative (although what isn’t?).  You are paying a premium for the rarity and condition of the coin.

I don’t have any specific recommendations as far as owning physical gold vs. other gold investments.  I think it is important to diversify, even here.  Overall, I think it is a good idea to have at least a few ounces of the physical metal, but be sure to store it in a safe place.

If you are going to buy physical gold, I would recommend gold eagles, particularly if you live in the U.S.  You can buy them in different denominations (one ounce, half ounce, quarter ounce, and one-tenth of an ounce).  Aside from physical gold, you can own an ETF such as GLD, you can buy gold certificates, and you can buy gold stocks (although stocks do not necessarily track the price of the metal).

There is one really attractive aspect in speculating in rare coins.  If we hit a gold bubble, you could easily see these coins rise to enormous levels and in multiples of the actual price.  There is, of course, no guarantee, but I feel that I should point out the great possible rewards for buying rare coins.

There are also some major disadvantages.  First, although all value is subjective, it seems to be even more the case with rare coins, if that is possible.  It is the equivalent of buying art, in hopes that the next sucker to come along will pay even more than you did.

Another downside of rare coins is the price spread.  I looked at one gold site and price spreads were in excess of $200 for something that costs just a little more than an ounce of gold.  The price spread on the American eagles were only about $50.  This is the difference between the buy price and the sell price.

If you are going to take a chance and speculate in numismatics, I would recommend you look at the American $20 St. Gaudens gold piece.  The thing I like most about this investment is that you limit your losses.  The actual gold content of this coin is just under an ounce of gold.  Therefore, the value of the coin will never drop below the metal content.  Right now, you should be able to buy one of these coins in MS63 or MS64 for just a few hundred dollars more than a one ounce gold eagle.

If you decide to take a chance and pick up a rare coin or two, don’t forget to unload these first if we go into a bubble stage.  You will not want to be holding these if there is a collapse in the gold price in the future.  You can always just convert them to regular American eagles and profit the difference.

There is an interesting piece today at Mises.org in which the author discusses the economic situation in Canada.  He points out that the economy is better there than in the U.S. and other wealthy nations.  He traces this to the fact that, in the last couple of decades, the Canadian government has actually reduced its debt by controlling spending.

I certainly think there is a lot to this.  As the U.S. government continues to pile up the national debt, we hear about how we are putting this burden on our grandchildren.  But the bottom line is that government spending and debt are burdening us right here and right now.  It is reducing savings and investment by individuals and businesses.  It is sucking capital out of the voluntary economy.  This is one of the reasons there is unemployment over 9%.

Property rights, in general, is typically what will determine how well an economy does in a given area.  More specifically, regulations, spending, and monetary policy are the major factors.  While taxation is important, I tend to lump this in with spending.  If spending is low and monetary policy is good, then taxation is most likely not a problem.

I generally agree with the author on his analysis of Canada.  He focuses primarily on spending.  I think monetary policy has also played a significant role as the Canadian central bank has been less inflationary than the Fed (which isn’t hard right now).

Unfortunately, and as the author admits, Canada is certainly no paradise.  It is another welfare state with high taxes and burdensome regulations.  There is free speech there, but less so than in the U.S.  The environmental regulations tend to be awful compared to most places in the U.S.  And of course we know about the healthcare system there.

The healthcare system in Canada is mostly socialist.  The system in the U.S. is mostly fascist, although there is still a tiny remnant of free markets left.  The quality of care in the U.S. tends to be much better.  I think one advantage of the Canadian system is that, because of the lack of quality and high wait times, people avoid doctors more.  This can actually be beneficial as people turn to healthier alternatives for problems instead of just getting a prescription and popping pills.

If you have a small illness, you might be just as well to be in Canada and avoiding the doctors.  If you have an emergency and you need surgery right away, I would much rather be in the U.S.

One other possible advantage of the Canadian healthcare system is that it is easier to start a small business because you don’t have to worry about getting health insurance.  In the U.S., health insurance is usually tied to your employer, so many people seek out regular jobs, particularly with bigger companies, just to have the health benefits.  It discourages entrepreneurship.

Of course, the best system is a free market healthcare system.  You could get high quality for low prices and you wouldn’t worry about health insurance because it would be so cheap.  Both the U.S. and Canada are very far from this.  The U.S. was a lot closer to this 50 or more years ago.

While it is great for Canada that its government debt has gone down, it is important to remember that spending is still high.  The taxes there are high.  They have to pay income taxes, plus they have a national sales tax (on top of the other sales taxes).

One other thing to note about Canada is that the housing market is out of control in some areas.  I have paid some attention to the housing market in big cities like Toronto and the prices are outrageous.  They might be experiencing a housing boom like the U.S. did, except Canada is five or more years behind.  If that is the case, we can expect a bust soon.

As far as money,  I think the Canadian dollar is a better place to be than the U.S. dollar.  However, we must remember that the Canadian dollar is also a fiat currency, so gold is better than either one.

Regardless of the problems facing Canada, the author of that article has made a great point.  Government spending is not what grows an economy.  The Canadian government has been less reckless, fiscally speaking, and the sky is not falling there.  In fact, things are better there.  The Keynesians should try to explain that.

The Prime Minister of Japan has announced his plans to resign.  One of the main reasons for his unpopularity is a view that there has been a lack of leadership in the face of the tsunami disaster.  While I’m sure this is correct, we cannot discount the fact that the Japanese economy is still not in great shape.  Obviously the tsunami was very harmful to the Japanese economy (despite what Paul Krugman might say), but it is also obvious that the economy would be in trouble anyway, even if there had never been a tsunami.

I expect politicians around the world to feel more and more heat as time goes on.  With the world economy in trouble, the welfare state is also in trouble.  Politicians are accustomed to being able to offer free lunches.  This buys them votes and keeps voting citizens content.  With tighter budgets coming, it is harder for politicians to offer free lunches as it is becoming more known that they are not actually free.

The areas where it is the most fun to watch are where citizens are demanding the impossible.  Think of Greece.  People there want these great benefits.  They want the government to provide for their retirement at an early age.  The Greek government is on the verge of bankruptcy.  They simply cannot fulfill these previous promises.  Some of the voters there are asking their government to do the impossible.  It doesn’t matter who they put in office.  No matter what, Greek citizens will see a cutback of the welfare state.  As Margaret Thatcher said, the problem with socialism is that you run out of other people’s money.

California is another place where it should be fun to watch (as long as you don’t live there).  If I were an advocate of one of the major political parties, I would not want to win political offices there.  For example, the Republicans should be happy that Jerry Brown (a Democrat) is now the governor there.  Brown is a big government guy.  He loves the welfare state.  And yet he will be the one that presides over a cut in the welfare state.  Who are the Democrats on welfare going to blame for an end to their supposedly free lunches?

The U.S. government can keep the game going longer.  They have a monopoly on the money supply.  The U.S. government can get the central bank to print money (digitally speaking).  This can keep the welfare state going on a little longer.  California has more limits.  They cannot run up their debts too big or they really will face a default.  They will be forced to default or cut back on their welfare state.  Perhaps it will be a combination of both.

The government in DC will eventually be forced to cut back.  There is a limit to how much the Fed can print before there are very serious repercussions.  I don’t think the Fed will go to hyperinflation.  They would destroy themselves.  There would be a serious breakdown in the division of labor.  There would be massive poverty and starvation in the U.S.

The more likely scenario is that we see high inflation and the Fed eventually tightens its monetary policy in order to save the dollar.  At that point, Congress will be forced to cut back.  The President will take a lot of blame unless he is very straightforward with the people.  Ron Paul is straightforward and none of the other candidates are.  Both major parties should be hoping that they don’t win the presidency in 2012.