The United States, joined by other countries, is now attacking Libya. (As a side note, before the massive centralization of power that was occurring even before Lincoln’s war, it would have been “the United States are…”, instead of “the United States is…”)

Of course, when I say the United States, I really mean the U.S. government.  The U.S. government is firing missiles to take out certain targets of the Libyan military.  People have been protesting in Libya for weeks now and the Libyan dictator, Gaddafi (spelled a million different ways), has not backed down.

This article by Lew Rockwell makes the point that it is possible to both oppose Gaddafi and oppose a war on Gaddafi and that is the position Americans should take.  As a libertarian, I am aware that in most situations, the opposite actually occurs of the stated purpose for a government program.  If the government passes a law to help poor people, it will inevitably make people more dependent on government and more poor.  If the government tries to save water by mandating low flush toilets, it ends up using more water trying to flush a toilet several times because it doesn’t work.

The same thing will happen with war.  By intervening, the U.S. government actually reduces the chance for liberty in Libya.  By giving orders and blowing things up, it will only turn the people of Libya against the United States.  It may actually strengthen Gaddafi from this perspective and even if Gaddafi is exposed of, who will take power and will it be a puppet of the United States?

The executive branch (presidency) of the U.S. government really does have dictatorial powers at this point.  There has been no declaration of war by congress.  There hasn’t even been an authorization, like what took place preceding the Iraq war.  This is not a compliment to Bush in any way.  It is just to point out that Obama is just as evil as Bush and that Obama does not favor peace.

If the Libyan people have an overwhelming desire for liberty, then they need no help.  If they don’t have a widespread desire for liberty, then why would the U.S. government get involved?  If the liberty movement became widespread enough in Libya, then Gaddafi would fall just as others have.  The men in the military would feel great pressure from friends and family and would turn on Gaddafi.  This needs to happen naturally without the U.S. military bombing buildings and causing massive death counts.

As far as the economy and your investments, this whole episode should just confirm to you that spending will not be reduced in any way until a financial Armageddon hits.  The cost of these missiles is actually very low when you compare them to the trillion dollar deficits.  But this whole thing is another straw on the camel’s back.  Don’t expect Obama and the congress to stop adding straws.  They will continue to spend money like crazy until the Fed refuses to buy U.S. treasuries.  The Fed will only stop buying treasuries when it faces the prospects of massive inflation or hyperinflation.

I have written a few blog posts lately on buying a house.  I had written that for someone buying a house, you should take out a 30-year fixed rate mortgage and pay back the loan in depreciating dollars.  I received a comment from someone asking, “If I had no debt (other than my mortgage) and an extra $1000/month to spend, would it be better to put that $1000 towards the principal of my 5% fixed-rate mortgage, or to invest/use it in some other way?”

I used to be an advocate of paying down the principal on your mortgage with the goal of paying it off early.  I agreed with Dave Ramsey on this.  The reason for this is because it is a guaranteed return on your investment.  If you have a 5% interest rate on your loan, then you are getting a guaranteed 5% return on your money by paying down the principal on your loan.

It is amazing how many people disagreed with me on this strategy.  The most common comeback was, “well, what about the tax deduction on the interest paid?”  First, the tax deduction is overrated.  There are some married people with a small enough loan who don’t even benefit because they can’t itemize their deductions.  The mortgage interest deduction is not in addition to the standard deduction, it is instead of it.  So in many cases, people are not benefiting nearly as much as they think.

In addition, the tax situation works both ways.  The guaranteed 5% return (or whatever rate) is a return that you don’t owe taxes on.  To get a 5% after-tax return on other investments, you would actually have to earn around 6% to 8%, depending on the type of investment, how long you owned it, where you live, and what tax bracket you are in.

So why have I changed my mind (somewhat) on this strategy?  My only answer is because of the political environment.  With quantitative easing (money creation) by the Fed and huge deficits by the politicians in DC, inflation (monetary or price) is a huge threat.  If we are going to experience massive inflation, why not pay off your debts in depreciated dollars?  If your mortgage payment is currently the equivalent of 10 weekly grocery bills and in 20 years it will be the equivalent of one weekly grocery bill, why would you want to hand over 10 weeks worth of groceries now instead of one week worth of groceries 20 years from now?

If you are retired or near retirement, I would suggest using your Social Security checks or some other fixed income to make your fixed monthly mortgage payments.  If you get an increase due to inflation, then I’m sure you can find something to do with your extra money.

If you are younger, and assuming you aren’t wealthy, then you should take out a 30-year fixed rate mortgage if you buy or refinance a house.  I would not recommend anything shorter (like a 15-year) because it is like paying it off early, without the flexibility.

I understand the appeal of paying off your mortgage and owning your house free and clear (even though you will continue to have property taxes).  It can be a powerful feeling.

So for someone with an extra $1,000 per month who wants to pay down their mortgage, why not split the difference?  Investing and managing money isn’t an all-or-nothing game.  Take $500 per month and make an extra payment toward the principal on your home loan (assuming you have an emergency fund and other debts are paid off).  This will give you a guaranteed return and a good hedge against deflation.

Take the other $500 per month and put into an inflation hedge to offset your deflation hedge of paying down your mortgage.  Use this $500 to by gold, gold investments, silver investments, oil stocks, etc.  Then you will be covered either way.

If you have money and you are heavily invested in things that do well in an inflationary environment, then take extra money and pay off your mortgage.  But for the vast majority of people who are very vulnerable to inflation, paying off their mortgage is probably not the best thing to do with any extra savings.  Of course, there are a lot of worse things they could do with it too.

UPDATE:  I have written a special report on this subject.  You can buy it for your Amazon kindle for just $0.99.  It will take the average reader about half an hour to read.  It goes further into depth on whether you should pay down your mortgage.  There is no definitive answer on whether paying down your mortgage is a good idea.  It depends on your personal situation and your goals.  In this special report, I discuss both the advantages and disadvantages of paying down (or paying off) your mortgage.

It is really a bizarre time in history for Americans and for many others throughout the world.  The standard of living for Americans has increased over the last 200 years almost continuously.  There were a few setbacks with Lincoln’s war and the Great Depression, but life got easier for most Americans throughout the 19th and 20th centuries.

The growth in the 1800’s was really unbelievable.  It was a relatively peaceful time (with exceptions) and there was a relatively stable monetary system.  The federal government played a very small role in the lives of most Americans.  Progress continued greatly in the early 20th century, building off of the capital and technology of the 19th century.  Unfortunately, the 20th century also brought us much bigger government. The Federal Reserve, the income tax, and the 17th amendment (dictating that U.S. senators would be directly elected instead of chosen by the state legislatures) all came about in 1913.  Then Americans had to endure World War I.  Then there was alcohol prohibition.  Prohibition was repealed by FDR (about the only good thing he did), but he gave us a continuation of Hoover big government policies.  We saw FDR make holding gold illegal for Americans.  He gave us the New Deal, including Social Security.  Then he got the U.S. into World War II.

The growth of big government has been relentless since then.  Every president has been a disaster for liberty since before FDR.  Some have been worse than others.  Carter is seen as a disaster, but looking back he did less bad things than most others.  Reagan is seen as the closest thing to a libertarian.  While much of his rhetoric was libertarian, his policies were mostly a disaster as he approved big spending and big deficits.

It is really amazing that we saw as much progress as we did in the later part of the 20th century.  This is a tribute to the free market, or at least what is left of it.  Despite government interfering in virtually every aspect of our lives, the market has still found ways to flourish.  The electronics industry has been the most remarkable as we have seen prices drop with technology increasing at an exponential speed.

The areas with the most government involvement (healthcare, education) have seen the worst results.  Health insurance and medical care get more expensive.  The same goes for education.  Meanwhile, we see little improvements with quality compared to earlier times.  With education, we actually see it getting worse in government schools.

It is hard to compare our standard of living with previous times.  It has been said that the people of America of 200 years ago would have more in common with the people living when Christ walked the earth than they would with us today.  This really is an indication of the massive exponential growth in the last 200 years.

When you compare our living today with the 1950’s it gets a little tougher.  Our basic needs are more expensive today in some ways because of government.  That is why there are far less stay-at-home moms.  They need to work to pay the tax bill and the expensive health insurance.

But we also need to acknowledge the great things that we have today.  The families of the 1950’s did not have flat panel televisions.  They were lucky to have one TV at all.  They did not have microwave ovens.  They didn’t have computers.  They didn’t have internet and cell phones.  They did not have information at their fingertips.

It really is amazing what we can do today.  If you are curious about something, you can solve your curiosity in seconds by doing a google search.  You can use wikipedia.  You can look up directions, or the weather, or the latest sports scores, or what is happening on the other side of the planet.  You can use skype to see your friends and family who are hundreds or thousands of miles away.  You can communicate with the world almost instantly.

There are a few areas where we are worse off today than generations before us.  These can be attributed to big government.  But big government will not stop the technology train.  It can’t be stopped at this point.  While we may experience some setbacks in the near future, our long-term outlook should be bright.  Technology will continue to increase exponentially.  It will eventually phase out big government.

With all that has happened with the unions in Wisconsin, and now spreading to other states, some people are wondering what the libertarian position is on unions.

First, let’s distinguish between what are referred to as private sector unions and public sector unions.  Private sector unions are made up of union workers in the private sector (think General Motors, although this may be a bad example now that it has been bailed out by the government).  Public sector unions are made up of union workers who work for the government.  The battle in Wisconsin was over public sector unions.

A consistent and principled libertarian would actually have no problem with private sector unions if they were not supported by the government.  Libertarians are often viewed as “anti-union”, but it doesn’t give the whole picture.  The reason most libertarians are anti-union right now is because the unions, in general, push for government protection, in this case meaning government force.

The unions have been known to use violence themselves against other workers trying to replace them.  But aside from this, even the so-called peaceful unions are advocating that the government use force on their behalf.  Libertarians have no problem with a group of co-workers getting together and demanding better wages or better working conditions from their employer.  If they are not obligated by any contracts, they can even go on strike.  The problem is that the government uses force against the employers in not allowing them the option to fire the employees.  Freedom of association is a two-way street.

Things get trickier with so-called public sector unions.  An anarchist libertarian does not believe in any government, so there is no issue there.  A panarchist libertarian does not really care what any other governments do, as long as they or any other individual is not subjected to any governments in which they don’t want to participate.  The issue could arise for a minarchist libertarian, but even there you are really only talking about judges and police officers.  No government school teachers would exist in a minarchist society.  If you only had to deal with police officers and judges in a minarchist society, the total spending would be so small that unions would not be that much of an issue.

But let’s deal with the situation we are currently in.  Although consistent libertarians are against having government schools, the reality is that we have them right now.  So should the teachers be able to unionize and bargain collectively?  It really is very hard for a libertarian to answer, but I would think that if the government is spending taxpayer money, it should find the best deal it can (with what is considered acceptable for quality).  If a government is putting a contract out for bid, it should go to the company with the lowest bid that can meet the acceptable standards, so why can’t the same thing be done for government school teachers?  I know, you can hear the wailing that teachers are underpaid and under appreciated, etc.

The whole problem goes back to government schools.  There are probably many teachers that are overpaid and many that are underpaid.  We don’t know because there is no free market.  If teachers had to compete in the marketplace, the best teachers would be those who would tend to get rewarded the most.

In conclusion, libertarians believe in freedom of association.  When it comes to so-called public sector unions, it is difficult for principled libertarians to take a position because they already oppose the state.

The unemployment rate has been high for the last couple of years.  The Austrian Business Cycle Theory helps explain why the rate has been so high and has remained high.  The Federal Reserve, under Greenspan, artificially lowered interest rates and created new money out of thin air.  This sent false signals to the market and injected money into places where it most likely wouldn’t have otherwise gone.  For example, money flowed into stocks and real estate.  When Bernanke became Fed chairman, he actually stopped the loose monetary policy for a while.  This revealed that much of the previous investment could not be sustained.  It revealed a misallocation of resources.

The reason for the high unemployment is that these resources are trying to realign with consumer demand.  Some of the people that became real estate agents and construction workers due to the housing boom should not have gone to those jobs in the first place.  This error, caused by the Fed’s monetary policy, has to be corrected (without government interference).  To make matters worse, the Fed has been printing money like crazy since 2008 with very low interest rates.  In addition, the government is bailing out certain businesses as well as running huge deficits.  With all of these things and all of the uncertainties, it has prevented the unemployment problem from correcting itself.

Now let’s forget about the Federal Reserve and monetary policy for the sake of discussion.  If the Fed kept a neutral stance and did not change the money supply (I know this is virtually impossible over the long-run), what would unemployment look like?  Now we have to consider all of the other interference by government.

In a completely free market, there would be virtually no unemployment for anyone wanting a job.  I wouldn’t say it would be zero, because there would be temporary unemployment for those in between jobs.  It is also the case that there may be a very tiny percentage who are too sick or disabled to work at all.  But in a truly free market system, unemployment would be close to zero.

The government causes unemployment in a number of ways.  Regulations on businesses cause unemployment.  Taxes cause unemployment.  Labor laws cause unemployment.

If you are willing to wash my car for $10 and I am willing to pay you $10 for my car being washed, then I can employ you to wash my car.  Let’s say that the government imposes an income tax of 20%.  Now you will only make $8 to wash my car, but that may be too low for it to be worth your time.  I could pay you more so that your take home pay is $10, but I may not be willing to pay over $12 to get my car washed.  My time is not worth that much, so I would rather do it myself than pay that much.  So, because the government instituted the income tax, it broke our deal.  It caused unemployment.

Of course, minimum wage laws are the biggest job killer.  If there were no minimum wage, just about anyone could find a job at any time.  I would be willing to pay someone $1 a day to be my personal assistant.  Sure, the wage is extremely low and most people would be foolish to do it, but it is a job offer.  But I can’t make that job offer because of the job destroying minimum wage.  With no minimum wage, I’m sure someone else would be willing to pay someone at least $20 per day to be their assistant.  If you were unemployed, you could at least do this until you found something better.

To top it all off, not only does government do things to destroy jobs, it actually subsidizes not working.  Unemployment “benefits” encourage people not to work.  I have personally heard stories of people intentionally collecting unemployment benefits with no intention of getting a job.  I heard of one person who got displaced and was about to retire anyway, but collected unemployment because it was there.

There are people that have been on unemployment for over 2 years now.  While we can certainly sympathize with people who lose their jobs, it is hard to sympathize with someone who has been out of work for over 2 years.  You can work in a fast food restaurant if you have to.  If it is beneath someone to do that, then it should also be beneath them to collect unemployment.  I don’t blame people who collect unemployment as many of them are just getting some of their money back from the government.  But the system is horrible and it just encourages people to stay unemployed.

To summarize, there are a lot of reasons for unemployment and they all go back to government.  In a truly free market environment, there would be work for anyone who wanted a job and was willing to work.

With the tragic disasters in Japan, there has been a lot more talk of the country in general.  Japan has an interesting economic story and it is important to review.

After World War II, Japan was devastated.  There were two cities that had nuclear bombs dropped on them and the country as a whole experienced a great loss in life and property.  But along with Germany, a miracle seemed to take place.  That miracle was the free market.  Japan and Germany both adopted relatively free market policies that laid the path to huge growth.

Japan became one of the richest countries in the world.  By the 1980’s, there was paranoia in the United States and other western countries that Japan was taking over the world.  Japanese companies were buying assets in the U.S. and were becoming big manufacturers.  People were worried that the Japanese were undercutting the competition by selling cheap products.  My response was to point out that we shouldn’t complain if they want to sell us inexpensive products.  Would we complain if they were giving them away for free?

Then the 1990’s came.  The Japanese stock market hit a high of over 38,000 in 1989.  In March 2009, it hit a low just above the 7,000 mark.  Perhaps the lost decade should be referred to as the lost 2 decades.

So if you invested in Japanese stocks in late 1989, you would still be down by well over 50%.  So much for the theory of buy and hold.  But Japan really is a mixed picture and it is important to look at both sides.

The Japanese people in general are hard working and highly educated.  Unfortunately, the government is mercantilist.  The government in Japan, while not the worst, is not exactly an example of free enterprise.  This has stifled growth.  There is much more bureaucracy and spending now than compared to 50 or 60 years ago.

Although Japan has seemingly struggled in the last 20 years, it is important to remember that it is the second richest country in the world (per capita) out of the major countries.  The U.S. is still the richest.  For this, I am not including small countries like Singapore, Hong Kong, and Dubai, which are examples of the most economically free places on earth.

The Japanese government has an enormous debt.  The debt to GDP ratio is around 200%.  This is by far the highest of any industrialized nation.  But at the same time, the Japanese central bank is not creating money out of thin air like crazy as other places are.  This is why the yen is still an attractive currency.  The only reasoning I can think of behind this is that there are a lot of suckers in Japan buying government debt.  Maybe they can’t be considered suckers yet because interest rates have remained low, but at some point the holders of government debt will be suckers.

The Japanese government and Japanese central bank will be faced with a decision similar to that in the U.S.  Either the government will have to drastically cut back or the central bank will have to inflate.  If neither of these happen, then the Japanese government will default on its debt outright.  It cannot be sustained.

If there is one lesson to be learned from Japan, it is that the government can kick the can down the road for a long time if it can find enough suckers.  It really is amazing that the debt to GDP has gone to 200% without seeing rates skyrocket.

Japan will face the inevitable just like the west.  The government’s spending is not sustainable.  The earthquakes and tsunamis are a further setback for the Japanese people.  However, it is still a rich country with hard working people.  If the people there ever get the government to pursue free market policies like it did after World War II, the economy there would take off.

The latest chart of the adjusted monetary base is showing that the Fed is continuing to create new money at an unbelievable pace.  You can view the latest one-year monetary base chart here:

http://research.stlouisfed.org/publications/usfd/page3.pdf

If you want a broader and much scarier view, you can view it here:

http://research.stlouisfed.org/fred2/series/BASE

When QE2 is done, the monetary base will have more than tripled from 2008.  If this money gets out into the system and is loaned out via fractional reserves, then we will see massive price inflation that has never been seen in modern America.  The 1970’s will look very tame.

The Fed says it has an exit plan, but that exit plan would mean a crushing depression.  I think we are years away from that.  We may have another recession (or a continuation of one) before we get to the point of high price inflation.  Normally, upon seeing the adjusted monetary base skyrocket, it would be easy to predict price inflation on the horizon.  This time is different though because banks are taking the money of depositors and keeping it as excess reserves.

You can view the chart of excess reserves here:

http://research.stlouisfed.org/fred2/series/EXCRESNS

The excess reserves have gone up in almost perfect correlation with the monetary base.  This has kept a lid on price inflation.  However, this won’t last forever.  Either the Fed will reverse course or this money will eventually get out in the form of new loans.

The Fed continues to walk on a tight rope that is getting narrower and narrower.  On one side is inflation and on the other side is depression.  It will keep shifting from side to side and overcompensating so that it does not fall.  Eventually, when it is faced with hyperinflation and can’t hold on any longer, the Fed will choose to fall on the side of depression.  Things will not be pretty until we get through this.

After my last post regarding buying a house, I received a comment from someone saying their sister is looking at buying a house.  Specifically, the issue of interest rates was raised and there was a question of whether someone should hurry up and buy now.

As far as interest rates, nobody really knows for sure if they will go up or down in the near future.  Regardless of one’s knowledge of Austrian economics, the future is unpredictable because of human action.  Austrian economics can help us make forecasts based on certain conditions, but even then the timing is almost impossible.  Of course, if any of us knew what interest rates would do next week or next month, we would be rich.  If we could do it on a consistent basis, we would be richer than Warren Buffett.

While I think interest rates will go up over the longer term due to Federal Reserve inflation and the government running up debt, it really is impossible to say what they will do in the short-term.  There were people 6 or 7 years ago saying that interest rates just couldn’t go any lower and yet they did.  If the stock market crashes again and people get scared of another recession (or the recession not ending, depending on how you look at it), then rates could easily go down more.

The good thing is, I don’t think interest rates should really dictate to anyone whether they should hurry up and buy a house.  For the person’s sister who will be looking, my advice is to look, but not hurry.  Unless you live outside of a big city in the Midwest, then chances are that there are some good deals in your neighborhood.  This really is a buyer’s market and you can afford to be patient and wait for a good deal.  In some areas, there are a lot of short sales.  While these can be really frustrating, they can also pay off.  While some foreclosures are good deals too, you have to be careful not to get into any bidding wars with other people.

The good news is that if there is a jump in interest rates, it will probably just drive prices down commensurate with the rise in rates.  If rates fall, then housing prices may tick up, but there should still be some deals out there.

You obviously can’t time the short-term moves in interest rates.  This is just a game of luck.  You can get a contract on a house and rates may go up or down the day before you were planning to lock in.  But I wouldn’t make a big decision based on a quarter point of interest.  And if for some reason you buy a house and rates fall after that, you always have the option of refinancing.

So for buying a house, my advice is that you should do it if it is right for you and you can afford it.  Be patient and don’t feel rushed because of interest rates.  When you do buy something, make sure you lock in a 30-year fixed rate mortgage so that you can pay back the bank in depreciated dollars later on.

Yesterday I received a nice comment and was asked about setting up a permanent portfolio via a 401k plan.  As a side note, I don’t always respond to comments as I don’t want to get bogged down in debates and get sidetracked, but if someone asks an interesting question, I will post a response if I think I can contribute something insightful (I’ll have another response to another comment tomorrow).

For a 401k plan, it is hard to set up a permanent portfolio (as described by Harry Browne in his book Fail Safe Investing).  It is even harder to recommend something because every company is different in what they offer.  Some companies offer plans that limit you to just a few mutual funds, while other plans may offer hundreds of funds.

If your 401k plan is limited and only offers a few funds, then it will be impossible to set up anything close to the permanent portfolio.  My best advice in this situation is to split up your money between stocks, long-term bonds, and a money market fund.  Hopefully your plan at least includes these options.  The problem here is that you don’t have anything in gold or even related to gold.  This leaves your portfolio vulnerable to inflation and if you are going to be short on something right now, an inflation hedge is the last thing you want to leave out of your investments.

In this circumstance, take any non-emergency money that you have saved up and invest it in gold or gold related investments to make up for the shortfall in your retirement plan, if this is possible.

If your 401k plan offers a lot of choices, then you may be able to work with it.  I have seen plans that offer all of the Fidelity mutual funds and Fidelity offers a lot of select funds.  The stocks, bonds, and cash portions should be easy.  For your inflation hedge, you can at least invest in a precious metals mutual fund. Now understand that this is not the same as owning the metal.  Gold stocks are actually much more volatile than the price of the metal.  So if you can’t invest in gold directly, you should go lower with a mutual fund of gold stocks.  In this case, it might be good to put 10% in a gold mutual fund.  For more inflation protection, you could also add in 5% for an energy mutual fund.  If you were to put a full 25% in a gold mutual fund (made up of gold stocks), your portfolio would get hammered if something happened like the fall of 2008.

In some Fidelity plans (and I suspect others offer similar options), you can use “brokerage link”, which allows you to invest in most mutual funds and maybe more depending on your plan.  If this is an option, you can take most of your 401k money and put it into the permanent portfolio mutual fund (PRPFX).  If your plan allows you to buy exchange traded funds (ETFs), then you can buy TLT (bonds), GLD (gold), and an ETF of the broad market like the S&P 500.  The cash portion is always easy to find something.  In addition, you could always take your gold percentage down to 20% and put the other 5% in SLV (silver).  Silver is more volatile, but can be very profitable in a commodity bull market.

Explore your choices with your 401k plan and adapt as necessary.  Just make sure you find some protection against inflation.  The Fed is creating new money like crazy and having all of your money sitting in cash is actually a huge risk right now.

Yesterday, Paul Craig Roberts had an article on the latest jobs report that said there were 192,000 new jobs last month.  In the latter part of the article, he discusses how these figures are determined.  I can’t really confirm or deny his comments there.  If his claims are accurate, it almost makes you wonder why anyone would pay any attention to such a report.

The part of his article that I would like to discuss in more depth is at the beginning where he points out that most of the added jobs were service jobs.  Paul Craig Roberts is a good writer and has been a great advocate for civil liberties.  He has taken a principled anti-war position and has been very libertarian in these respects.  Although he can provide interesting information when it comes to economics, this is the area where I disagree with him on a lot of issues.  He does not understand the free market.

He says in his article, “How can Americans, who had no growth in their real incomes and who are foreclosed from their homes and maxed out on credit card debt, car payments, and student loans, spend more every month in bars and restaurants?  How can a few service areas of the economy grow when nothing else is?”

This is representative of things he has written before.  He has a lot in common with Pat Buchanan.  Now, I agree with Roberts up to a certain point that, generally speaking, things are a mess right now.  There are a lot of distortions in the economy and government interference is preventing the proper allocation of resources according to consumer demand.  But who is he to say that there should be less jobs in the service area and more in some other area.

Back in January, I wrote a post on a classic article by Harry Browne dealing with economic fallacies.  In Browne’s article, he addressed this exact point.  For decades, people have been complaining that the U.S. does not manufacture enough.

What Paul Craig Roberts and others fail to realize is that there is nothing wrong with service jobs if that is what is being demanded.  Last time I checked, there was no shortage of food and clothing in the United States.  Now I understand that we don’t have a free market in the U.S., but it is still free enough that there is some natural aligning of resources with their proper use.

In an advanced civilization, more services mean more luxury.  There is nothing wrong with this.  It takes less people and less resources to make food, clothing, shelter, and other basic needs.  This is due to a variety of factors within the free market.  The high division of labor allows people to specialize.  There is comparative advantage which means that an American might be better off allowing someone in South America or Asia to make food, clothing, and other goods.  The CEO of McDonald’s might be the best cashier there is, but it doesn’t mean it is a good value of his and the company’s time to have him working the register.

In addition, technology gets better and there is more capital investment over time.  This allows more and better goods to be produced at cheaper prices (if there wasn’t monetary inflation) and it frees up human capital to focus on other things.  If consumers have all of their basic needs met, then they will demand other things.  Those things might be restaurants, spas, hair dressers, massage parlors, etc.

Again, I’m not saying that the economy is great right now (it’s not) and I’m not saying that all resources are being properly allocated (they’re not).  But if there really are service jobs being added, there is nothing wrong with this, especially when it seems that other industries (cars, construction) are being the most subsidized by government.