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Media and Politicians Ignore Oncoming Financial Crisis – Article by Ron Paul

Media and Politicians Ignore Oncoming Financial Crisis – Article by Ron Paul

The New Renaissance Hat
Ron Paul
July 7, 2019
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The mainstream media was too busy obsessing over Russiagate to notice that, according to an annual Social Security and Medicare Boards of Trustees report, the Social Security trust fund will run out of money by 2035. The trustees also reported that the Medicare Hospital Insurance trust fund will be empty by 2027.

The trustees’ report is actually optimistic. Social Security is completely funded, and Medicare is largely funded, by payroll taxes. Therefore, their revenue fluctuates depending on the employment rate. So, when unemployment inevitably increases, payroll tax revenue will decline, hastening Medicare and Social Security’s bankruptcy.

Another dark cloud on the government’s fiscal horizon involves the Pension Benefit Guaranty Corporation (PBGC), which provides federal bailouts to bankrupt pension plans. The PBGC currently has an over 50 billion dollars deficit. This deficit will almost certainly increase, as a number of large pension funds are likely to need a PBGC bailout in the next few years. Congress will likely bail out the PBGC to avoid facing the wrath of voters angry that Congress did not save their pensions.

Unfunded liabilities like Social Security and Medicare are not included in the official federal deficit. In fact, Congress raids the Social Security trust fund to increase spending and hide the deficit’s true size, while leaving the trust fund with worthless IOUs.

The media also ignored last week’s Congressional Budget Office (CBO) report predicting the federal debt will increase to an unsustainable 144 percent of the gross domestic product by 2049. The CBO’s report is optimistic as it assumes interest rates remain low, Congress refrains from creating new programs, and there are no major recessions.

Few in Congress or in the Trump administration are even talking about the coming fiscal tsunami, much less proposing the type of spending cuts necessary to pay down the debt and have the funds to unwind the entitlement programs without harming those currently reliant on them. Instead, both parties support increasing spending and debt.

Republican control of both houses of Congress and the While House led to increased federal spending of over $300 billion dollars. The House Democratic majority now wants even more spending increases. House Speaker Nancy Pelosi is threatening to not raise the debt ceiling unless President Trump and congressional Republicans agree to lift the spending caps put in place by the 2011 budget deal.

The Republican Congress routinely exceeded the caps’ minuscule spending limits. Therefore, Speaker Pelosi should have no problem getting President Trump and his Republic congressional allies to once again exceed the caps on welfare spending as long as Democrats agree, as they are likely to agree, to bust the caps on warfare spending.

America’s military budget already equals the combined budgets of the next seven highest-spending countries. Instead of allowing himself to be neoconned into wasting trillions on another Middle East quagmire, President Trump should bring home the nearly 170,000 troops stationed in almost 150 countries.

Unless Congress immediately begins making substantial spending cuts, America will soon face a major economic crisis. This crisis will likely involve the Federal Reserve’s debt monetization resulting in a rejection of the dollar’s world reserve currency status. Since the media and most politicians refuse to discuss this topic, it is up to those of us who understand the truth to spread the word, grow the liberty movement, and force politicians to make real cuts right now.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

A Date That Should Live in Infamy – Article by Sanford Ikeda

A Date That Should Live in Infamy – Article by Sanford Ikeda

The New Renaissance HatSanford Ikeda
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Never forget Executive Order 9066

On February 19, 1942 — seventy-four years ago — Franklin Delano Roosevelt signed Executive Order 9066. With the stroke of his pen, the man who had earlier snubbed Jesse Owens after the Berlin Olympics used his executive powers to order the imprisonment of over 100,000 persons of Japanese ancestry (as well as thousands of German and Italian ancestry) for the duration of World War II.

internment-2Most of the internees were natural-born American citizens, whose “crime” was having a parent or merely a grandparent with Japanese blood. It was an act of naked, aggressive racism that damaged people and families, including my own, for generations.

internmentIt happened here. With the NDAA as the law of the land, and with war-mongering and xenophobia, it could happen here again. We must oppose such collectivism and stand for freedom for all.

On a related note, if you think Apple’s current battle with the FBI over iPhone security is based on empty fears of civil-liberties violations, think again. After decades of denials, the US Census Bureau recently admitted that it provided the Treasury Department with the names and addresses of Japanese-Americans who were later tracked down and herded into concentration camps.

Sanford (Sandy) Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

CBO: Tangled Web of Welfare Programs Creates High Tax Rates on Participants – Article by Charles Hughes

CBO: Tangled Web of Welfare Programs Creates High Tax Rates on Participants – Article by Charles Hughes

The New Renaissance HatCharles Hughes
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The dozens of different programs that form our tangled welfare system often impose high effective marginal tax rates that make it harder for low-income people to transition out of these programs and lift of those programs and into the middle class. As the people in these programs enter the workforce, get a promotion, or work more hours, they can lose a significant portion of those earnings through reduced benefits and increased taxes. A new report from the Congressional Budget Office (CBO) illustrates this predicament: many households hovering around the poverty level face steeper effective marginal tax rates than even the highest earners. These prohibitively high tax rates can discourage work and limit their prospects, ultimately making them less likely to escape poverty.

Marginal Tax Rates at the Median and 90th Percentiles by Earnings Group, 2016

cbo_tableau_marginal

Source: Congressional Budget Office, “Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016,” November 19, 2015.

Note: Figure created using Tableau. 

CBO’s analysis looks at the range of effective marginal tax rates households face at different levels of income. The median marginal tax rate for households just above the poverty level is almost 34 percent, the highest for any income level. Some households that receive larger benefits or higher state taxes have even higher effective rates: 10 percent of households just above the poverty line face a marginal rate higher than 65 percent. For each additional dollar earned in this range, these households would lose almost two-thirds to taxes or lost benefits. The comparable rate for the highest earners, households above 400 percent of the poverty level, is only 43.4 percent. If anything this analysis might understate how steep the effective marginal rates are for some households. CBO only considers the combined effect of income taxes, payroll taxes, SNAP and ACA exchange subsidies, so households that participate in other programs like TANF or housing assistance could face even higher rates. These results mirror some of Cato’s past work investigating the issues and trade-offs involved with these welfare programs.

The nature of the welfare system contributes to the prevalence of these poverty traps. A House and Ways Human Resources Subcommittee recently held a hearing on issue and released a chart illustrating the complex, labyrinthine nature of the welfare system.

WM-Welfare-Chart-AR-amendment-110215-jpegClick on the image for a full-sized view.

New programs were grafted onto the existing system over time, each intended to address a perceived problem afflicting people in poverty, but they can interact in ways that can deter people from striving to create a better life for their families. That’s part of the reason the status quo system, which the Government Accountability Office estimates spends $742 billion at the federal level each year, has achieved such lackluster results to date.

While these shortcomings would seem to indicate that the welfare system is in need of reform, this tangled web has proved resistant to change. One of the last major reforms happened in 1996, when Temporary Assistance for Needy Families (TANF) replaced Aid to Families with Dependent Children (AFDC). Even that reform only addressed one strand of the dozens that make up our tangled system, so while it might have improved that one aspect the larger flaws with the welfare system as a whole have to some extent continued unabated. Even within this one strand there has been little discussion of reform in the past two decades, TANF hasn’t even been properly reauthorized since the Deficit Reduction Act of 2005, it is usually thrown into short-term continuing resolutions or broader omnibus appropriations acts that do not incorporate any meaningful attempts to address the program’s problems. Absent comprehensive, the flawed current system will continue to fall short even as the government funnels hundreds of billions of dollars into it each year.

If the federal government is going to finance a welfare system, it should foster an environment that encourages work and makes it easier for participants to transition out of these programs as they strive to create a better life. The current system falls far short in that regard and needs comprehensive reforms.

Charles Hughes is a research associate at the Cato Institute, where he focuses on federal budget policy, poverty, entitlement reform, and general economics.  Originally from Texas, Hughes joined Cato in 2011 after graduating from the University of Chicago with degrees in Economics and Public Policy.

This work by Cato Institute is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.

Internet Gambling Ban: A Winner for Sheldon Adelson, A Losing Bet for the Rest of Us – Article by Ron Paul

Internet Gambling Ban: A Winner for Sheldon Adelson, A Losing Bet for the Rest of Us – Article by Ron Paul

The New Renaissance Hat
Ron Paul
November 16, 2014
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Most Americans, regardless of ideology, oppose “crony capitalism” or “cronyism.” Cronyism is where politicians write laws aimed at helping their favored business beneficiaries. Despite public opposition to cronyism, politicians still seek to use the legislative process to help special interests.For example, Congress may soon vote on legislation outlawing Internet gambling. It is an open secret, at least inside the Beltway, that this legislation is being considered as a favor to billionaire casino owner, Sheldon Adelson. Mr. Adelson, who is perhaps best known for using his enormous wealth to advance a pro-war foreign policy, is now using his political influence to turn his online competitors into criminals.Supporters of an Internet gambling ban publicly deny they are motivated by a desire to curry favor with a wealthy donor. Instead, they give a number of high-minded reasons for wanting to ban this activity. Some claim that legalizing online gambling will enrich criminals and even terrorists! But criminalizing online casinos will not eliminate the demand for online casinos. Instead, passage of this legislation will likely guarantee that the online gambling market is controlled by criminals. Thus, it is those who support outlawing online gambling who may be aiding criminals and terrorists.

A federal online gambling ban would overturn laws in three states that allow online gambling. It would also end the ongoing debate over legalizing online gambling in many other states. Yet some have claimed that Congress must pass this law in order to protect states rights! Their argument is that citizens of states that ban Internet gambling may easily get around those laws by accessing online casinos operating in states where online gambling is legalized.

Even if the argument had merit that allowing states to legalize online gambling undermines laws in other states, it would not justify federal legislation on the issue. Nowhere in the Constitution is the federal government given any authority to regulate activities such as online gambling. Arguing that “states rights” justifies creating new federal crimes turns the Tenth Amendment, which was intended to limit federal power, on its head.

Many supporters of an Internet gambling ban sincerely believe that gambling is an immoral and destructive activity that should be outlawed. However, the proposed legislation is not at all about the morality of gambling. It is about whether Americans who do gamble should have the choice to do so online, or be forced to visit brick-and-mortar casinos.

Even if there was some moral distinction between gambling online or in a physical casino, prohibiting behavior that does not involve force or fraud has no place in a free society. It is no more appropriate for gambling opponents to use force to stop people from playing poker online than it would be for me to use force to stop people from reading pro-war, neocon writers.

Giving government new powers over the Internet to prevent online gambling will inevitably threaten all of our liberties. Federal bureaucrats will use this new authority to expand their surveillance of the Internet activities of Americans who have no interest in gambling, just as they used the new powers granted by the PATRIOT Act to justify mass surveillance.

The proposed ban on Internet gambling is a blatantly unconstitutional infringement on our liberties that will likely expand the surveillance state. Worst of all, it is all being done for the benefit of one powerful billionaire. Anyone who thinks banning online gambling will not diminish our freedoms while enriching criminals is making a losing bet.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

Thomas Jefferson versus John Marshall on the Nature of the American Union (2006) – Article by G. Stolyarov II

Thomas Jefferson versus John Marshall on the Nature of the American Union (2006) – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
July 26, 2014
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Note from the Author: This essay was originally written in 2006 and published in two parts on Associated Content (subsequently, Yahoo! Voices) in 2007.  The essay earned over 1,900 page views on Associated Content/Yahoo! Voices, and I seek to preserve it as a valuable resource for readers, subsequent to the imminent closure of Yahoo! Voices. Therefore, this essay is being published directly on The Rational Argumentator for the first time.  
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~ G. Stolyarov II, July 26, 2014

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Thomas Jefferson’s Views on the American Union as a Compact Among the States

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Early American political thought about the Union’s nature was divided into two radically different perspectives. One of these was expressed by Thomas Jefferson’s 1798 Kentucky Resolutions, which viewed the Union as a loose compact of the states, whose legislatures could overrule and judge the constitutionality of the federal government’s actions. The South Carolina Declaration of Causes (1860) and the Mississippi Resolutions (1861) developed this position-using Jefferson’s premises to justify Southern states’ secession from the Union.

Jefferson portrayed the Union as voluntarily entered into by the states; the states were “not united on the principle of unlimited submission to their general government” (KR, 153). The Union was created by the ratification of the Constitution, which served as a “compact” by which the states “delegated… certain definite powers” to the general government (KR, 154). The government’s exercise of powers not expressly granted to it by the Constitution was thus illegitimate. For Jefferson, the Constitution both defined and limited the Union’s nature and essence.

To keep the national government one of limited and expressly delegated powers, Jefferson warned that it should not be “the exclusive or final judge of the extent of the powers delegated to itself” (KR, 154), since that would allow the government to define the scope of its powers and dissociate these powers from their original source – the states. The states – as parties to the Constitutional compact – have no common judge among them; hence, “each party has an equal right to judge for itself, as well of the infractions as of the mode and measure of redress” (KR, 154). Jefferson acknowledged state legislatures’ right to judge federal actions’ constitutionality.

The South Carolina and the Mississippi legislatures agreed with Jefferson that the Union was a compact among the “free and independent states,” whose sovereignty was asserted in the 1776 Declaration of Independence (SCDC, 310). In 1787, deputies sent by the states affirmed the “Articles of Union”-the Constitution-which defined the Union and required the states’ consent to take effect (SCDC, 311). The South Carolina Declaration emphasized that – while only nine out of thirteen states needed to ratify the Constitution for it to be adopted-those that refused to ratify it would have remained “separate, sovereign states… exercise[ing] the functions of… independent nation[s]” (SCDC, 311). Via the Tenth Amendment, the Constitution assured that all powers not expressly delegated to the national government were left to the states or the people, while the federal government remained “limited to the express words of the grant” (SCDC, 311).

In the Southern legislatures’ view, the Constitution established the “law of compact” (SCDC, 311), which required mutual reciprocity of obligations on behalf of all parties to the Union. If any party – such as the Northern states – refused to fulfill its Constitutional obligations and infringed on the rights of the other parties, the Union was dissolved and “the ends for which this government was instituted have been defeated” (SCDC, 312). The Mississippi Resolution asserted that whenever the compact is thus destroyed, “parties to the compact have the right to resume, each state for itself, such delegated powers” (MR, 314) as they had formerly granted the national government. According to the Mississippi Resolution, the Northern states’ explicit unwillingness to enforce the Constitution’s fugitive slave clause justified the Southern states’ secession from the Union (MR, 315). Jefferson’s Kentucky Resolutions and the declarations of the South Carolina and Mississippi legislatures viewed the Union as a compact of sovereign states that retained broad powers and could exercise them to counter federal abuses.

John Marshall’s View of the American Union as a Direct Association of the People

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John Marshall’s McCulloch v. Maryland (1819) decision stated a view which directly contradicted Thomas Jefferson – a view of the Union as a direct association of the people – not of the states. Marshall denied states the ability to overrule federal actions. Abraham Lincoln’s First Inaugural Address (1861) reinforced this view and argued that the Union was perpetual and could not be dissolved by individual states.

Marshall’s vision of the Union differed sharply from Thomas Jefferson’s. According to Marshall and contrary to Jefferson, the Union was not a compact between the states, but an association created directly by the people. Although the Constitutional Convention’s delegates were elected by state legislatures, the Constitution itself was “submitted to the people” (MMD, 149) for ratification. The Constitutional Convention’s delegates ordained that special conventions in the states – not the state legislatures – ratify the Constitution. Marshall emphasized that “from these conventions, the constitution derives its whole authority” (MMD, 149); thus, “[the] government proceeds directly from the people” (MMD, 149). The states were only instrumental to the Union insofar as their legislatures “called a convention, and thus submit[ed] that instrument to the people” (MMD, 149).

Marshall believed that the national government was granted enumerated powers by the people and was hence free to exercise those powers “directly on them, and for their benefit” (MMD, 149), without states’ interference. Marshall’s view, unlike Jefferson’s, does not permit the states to overrule an act of Congress or to declare it unconstitutional. Marshall interpreted the Constitution’s “necessary and proper” clause to mean that “the government of the Union, though limited in its powers, is supreme within its sphere of action” (MMD, 150); it could use any means necessary to fulfill powers expressly delegated to it, and the states could not legitimately overrule its actions.

Abraham Lincoln challenged claims that the Union was founded via the Constitution. Lincoln traced the Union’s origin back to the Articles of Association in 1774; the Constitution’s purpose was not to create the Union, but merely to “form a more perfect” one (FIA, 121). The Union is not conditional; it “is perpetual,” since “no government proper ever had a provision in its organic law for its own termination” (FIA, 121). The Constitution provides no terms under which the Union might be destroyed; therefore, it will continue to “endure forever” if the Constitution is followed (FIA, 121). Lincoln developed this argument to claim that “no State upon its own mere motion can lawfully get out of the Union” (FIA, 122); any attempt at secession amounts to insurrection. Secession would only set a highly negative precedent for any minority that did not acquiesce to the majority’s decisions. Lincoln saw it necessary for the Union to maintain itself by all constitutional means-though he initially hoped to avoid bloodshed in reconciling the states.

John Marshall and Abraham Lincoln saw the Union as a perpetual association of the people – incapable of being overruled or dissolved by individual states’ actions. This view, incompatible with the ideas of those who saw the Union as a compact among the states, fueled disputes that would eventually culminate in the Civil War.

Debt-Ceiling Crises: Imagined and Real – Article by D. W. MacKenzie

Debt-Ceiling Crises: Imagined and Real – Article by D. W. MacKenzie

The New Renaissance Hat
D. W. MacKenzie
October 14, 2013
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The federal government shutdown and impending debt ceiling “deadline” have led to near panic over possible default on the national debt. This imagined “default crisis” is a canard used for demagogic fearmongering. That said, the long-term federal financial issues are all too serious.

If federal officials simply continue on with their current financial plans, the U.S. government could run into trouble in early November. Without a debt ceiling increase, the Treasury would be unable to meet some of its financial obligations. Treasury bills would take a hit in international markets. With T-bills losing value in markets, interest rates—especially short-term interest rates—would start to rise. Rising interest rates would impair recovery from the 2008 financial crisis.

The assertion that a debt crisis would impair an already weak economic recovery is correct. However, any claim that the federal government is up against a hard deadline to meet its legal financial obligations is utterly untrue. The federal government holds vast amounts of property, all of which is available to be sold off. How much is needed to cover federal interest payments?

Interest rates are, for the moment, very low. Accordingly, interest payments on the debt are a small percentage of the total federal budget, despite the large size of the national debt.

With annual interest payments at a couple of hundred billion dollars, there is no impending debt-ceiling default crisis.

How exactly could the federal government pay interest on the national debt? To start with, the Federal Reserve now holds large numbers of mortgage-backed securities. There is some uncertainty over the market value of these securities, but their face value is immense, well over one trillion dollars. Sales of some of the better quality mortgage-backed securities could fund interest payments in the short term.

U.S. gold reserves are also substantial. The U.S. holds thousands of tons of gold at Fort Knox and at the New York Federal Reserve.

Sales of a small part of U.S. gold reserves could be used to make immediate interest payments.

The U.S. government also holds large amounts of idle real estate. The federal government spends $8 billion on vacant buildings annually. That’s for an estimated total of 55,000 to 77,000 buildings. The fact that our federal officials aren’t sure how many buildings they manage is itself disturbing, and a sign of incompetence. However, it seems that there are at least over 50,000 such buildings. How many hours would it take for federal employees who “manage” these buildings to post some of them on eBay? Surely sales of these properties would raise enough money to cover federal interest for about a month or two of the next year, even if each of these buildings sold for only a half a million dollars on average.

Efficient, competent public officials could simply announce auctions and begin to sell some of these buildings. Of course, red tape could delay property auctions. However, the Fed could make immediate interest payments by using its discretionary powers to sell mortgage-backed securities and gold reserves. President Obama could, in the meantime, expedite sales of vacant federal buildings—not to mention federal lands—by cutting red tape. (See map of federally managed land.)

The President has already acted in arbitrary—and some would say illegal—ways: by granting special exemptions from the Affordable Care Act to favored corporations, by using drones to kill U.S. citizens, and by targeting unfriendly political groups for audits. If Obama really wants save his beloved federal government from default, why shouldn’t he just use the extraordinary powers that he has already claimed to order the immediate sale of vacant buildings? The point here is not to encourage further illegality on the part of this President (he needs no assistance in such matters). The point here is that Obama does not have his back against a wall; there is no “gun to his head.” Obama has already claimed more than enough discretionary powers to prevent a debt-ceiling default in November. If default does happen it is entirely his choice, given that he has legal options and has already assumed various unconstitutional powers.

Obama has occasionally mentioned that some programs might be trimmed or cut. As Obama put it in 2010, “We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of a politician, lobbyist, or interest group.” He added, “We simply cannot afford it.”

The federal government holds over 700 million barrels of oil in the Strategic Petroleum Reserve. Obama could raise billions of dollars for interest payments without selling the whole reserve. Some people might see sales of the SPR as irresponsible. However, the oil in this reserve is a small fraction of monthly oil consumption, U.S. oil production is rising, and owners of foreign oil have overwhelming financial interests in continued oil sales to the United States.

The federal government also holds a Strategic Helium Reserve. It was created for “national security,” for blimps used by the military leading up to and during World War II. This program is archaic and the government already sells some helium. It could sell all of it and shut this program down.

Default on the debt is always possible. Obama and his people at the Treasury Department could have refused to pay interest on the national debt last month even though they had this money at hand. They could choose to default next month even though they can get the money—either through legal means or according to Obama’s demonstrated willingness to act illegally. The sale of federal assets and closing of federal programs would do more than just meet short-term interest payments on the national debt. Movement of securities, gold, buildings, oil, and helium would put these resources in the hands of people who would not merely put these resources to better use, but to actual use. The leeway that exists in federal finances points to longer-term financial and economic problems. Why would Obama engage in fearmongering on the national debt when obvious solutions to this problem exist? For that matter, why would federal officials hold so many idle resources for so long?

The reason why the federal government runs deficits nearly every year, despite collecting trillions in annual taxes, is because it wastes vast amounts of money on dysfunctional programs and special-interest payoffs. An efficient government would not need to tax and borrow nearly as much as does the federal government. The gross inefficiency of government has put federal finances in long-term jeopardy.

The real debt ceiling is determined by the ability of all working Americans to pay more taxes. How much more can we pay? Continued structural deficits and rising entitlement spending will result in default on the national debt, but not for a number of years. The existing path of long-term federal spending does surpass the capacity of taxpayers to fund the federal government, as it is currently designed. Future default on the national debt will have severe consequences. However, Obama’s willingness to engage in demagoguery on the immediate debt-ceiling issue is one of many signs that politicians are unwilling to take necessary steps to fix long-term fiscal finances.

The legal debt-ceiling crisis of 2013 is manufactured and phony. Even if Congress refuses to raise the legal debt ceiling this year, there are many ways of avoiding immediate default. The real problem we face is wasteful and irresponsible spending that will make default unavoidable eventually. Long-run default is, of course, avoidable. What we need are real cuts in federal spending, actual sales of federal assets and properties, and rationality in federal finances. Cutting spending and selling assets are easier said than done. Achieving smaller government will require a dramatic shift in public opinion. Americans need to realize that politicians who try to scare us are the ones that we really should fear.

D. W. MacKenzie is an assistant professor of economics at Carroll College in Helena, Montana. 

This article was originally published by The Foundation for Economic Education.
Why I Prefer the “Fiscal Cliff” to the Alternative – Video by G. Stolyarov II

Why I Prefer the “Fiscal Cliff” to the Alternative – Video by G. Stolyarov II

Mr. Stolyarov expresses hope that Congress will fail in its attempt to avert the overhyped “fiscal cliff” and that this deficit-reducing package of measures will take effect. Mr. Stolyarov is no friend of tax increases, but he expects that most of those will be undone. On the other hand, reductions in planned federal spending – especially military spending – would be more difficult to undo under a “fiscal cliff” scenario, and this therefore presents an opportunity for friends of liberty to gain ground.

If the “fiscal cliff” (which is not really that bad at all) is averted, then this would send a signal to politicians that there exists no substantive strong incentive to negotiate any further deficit or debt reductions.

Remember to LIKE, FAVORITE, and SHARE this video in order to spread rational discourse on this issue.

Support these video-creation efforts by donating. (See the sidebars of the linked pages for donation options in USD and Bitcoin.)

References

– “United States fiscal cliff” – Wikipedia
– “List of countries by military expenditures” – Wikipedia

Federal Student Aid and the Law of Unintended Consequences – Article by Richard Vedder

Federal Student Aid and the Law of Unintended Consequences – Article by Richard Vedder

The New Renaissance Hat
Richard Vedder
July 8, 2012
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RICHARD VEDDER is the Edwin and Ruth Kennedy Distinguished Professor of Economics at Ohio University and director of the Center for College Affordability and Productivity. He received his B.A. from Northwestern University and his M.A. and Ph.D. in economics from the University of Illinois. He has written for the Wall Street Journal, National Review, and Investor’s Business Daily, and is the author of several books, including The American Economy in Historical Perspective and Going Broke by Degree: Why College Costs Too Much.

The following is adapted from a speech delivered on May 10, 2012, at Hillsdale College’s Allan P. Kirby, Jr. Center for Constitutional Studies and Citizenship in Washington, D.C.

Reprinted by permission from Imprimis, a publication of Hillsdale College.

FEDERAL STUDENT financial assistance programs are costly, inefficient, byzantine, and fail to serve their desired objectives. In a word, they are dysfunctional, among the worst of many bad federal programs.

These programs are commonly rationalized on three grounds: on the grounds that assuring more young people a higher education has positive spillover effects for the country; on the grounds that higher education promotes equal economic opportunity (or, as the politicians say, that it is “a ticket to achieving the American Dream”); or on the grounds that too few students would go to college in the absence of federal loan programs, since private markets for loans to college students are defective.

All three of these arguments are dubious at best. The alleged positive spillover effects of sending more and more Americans to college are very difficult to measure. And as the late Milton Friedman suggested to me shortly before his death, they may be more than offset by negative spillover effects. Consider, for instance, the relationship between spending by state governments on higher education and their rate of economic growth. Controlling for other factors important in growth determination, the relationship between education spending and economic growth is negative or, at best, non-existent.

What about higher education being a vehicle for equal economic opportunity or income equality? Over the last four decades, a period in which the proportion of adults with four-year college degrees tripled, income equality has declined. (As a side note, I do not know the socially optimal level of economic inequality, and the tacit assumption that more such equality is always desirable is suspect; my point here is simply that, in reality, higher education today does not promote income equality.)

Finally, in regards to the argument that capital markets for student loans are defective, if financial institutions can lend to college students on credit cards and make car loans to college students in large numbers—which they do—there is no reason why they can’t also make student educational loans.

Despite the fact that the rationales for federal student financial assistance programs are very weak, these programs are growing rapidly. The Pell Grant program did much more than double in size between 2007 and 2010. Although it was designed to help poor people, it is now becoming a middle class entitlement. Student loans have been growing eight to ten percent a year for at least two decades, and, as is well publicized, now aggregate to one trillion dollars of debt outstanding—roughly $25,000 on average for the 40,000,000 holders of the debt. Astoundingly, student loan debt now exceeds credit card debt.

Nor is it correct to assume that most of this debt is held by young people in their twenties and early thirties. The median age of those with loan obligations today is around 33, and approximately 40 percent of the debt is held by people 40 years of age or older. So when politicians talk about maintaining low interest loans to help kids in college, more often than not the help is going to middle-aged individuals long gone from the halls of academia.

With this as an introduction, let me outline eight problems with federal student grant and loan programs. The list is not exclusive.

(1) Student loan interest rates are not set by the forces of supply and demand, but by the political process. Normally, interest rates are a price used to allocate scarce resources; but when that price is manipulated by politicians, it leads to distortions in the use of resources. Since student loan interest rates are always set at below-market rates, too much money is borrowed for college. Currently those interest rates are extremely low, with a key rate of 3.4 percent—which, after adjusting for inflation, is approximately zero. Moreover, both the president and Governor Romney say they want to continue that low interest rate after July 1, when it is supposed to double. This aggravates an already bad situation, and provides a perfect example of the fundamental problem facing our nation today: politicians pushing programs whose benefits are visible and immediate (even if illusory, as suggested above), while their extraordinarily high costs are less visible and more distant in time.

(2) In the real world, interest rates vary with the prospects that the borrower will repay the loan. In the surreal world of student loans, the brilliant student completing an electrical engineering degree at M.I.T. pays the same interest rate as the student majoring in ethnic studies at a state university who has a GPA below 2.0. The former student will almost certainly graduate and get a job paying $50,000 a year or more, whereas the odds are high the latter student will fail to graduate and will be lucky to make $30,000 a year.

Related to this problem, colleges themselves have no “skin in the game.” They are responsible for allowing loan commitments to occur, but they face no penalties or negative consequences when defaults are extremely high, imposing costs on taxpayers.

(3) Perhaps most importantly, federal student grant and loan programs have contributed to the tuition price explosion. When third parties pay a large part of the bill, at least temporarily, the customer’s demand for the service rises and he is not as sensitive to price as he would be if he were paying himself. Colleges and universities take advantage of that and raise their prices to capture the funds that ostensibly are designed to help students. This is what happened previously in health care, and is what is currently happening in higher education.

(4) The federal government now has a monopoly in providing student loans. Until recently, at least it farmed out the servicing of loans to a variety of private financial service firms, adding an element of competition in terms of quality of service, if not price. But the Obama administration, with its strong hostility to private enterprise, moved to establish a complete monopoly. One would think the example of the U.S. Postal Service today, losing taxpayer money hand over fist and incapable of making even the most obviously needed reforms, would be enough proof against the prudence of such a move. And remember: because of highly irresponsible fiscal policies, the federal government borrows 30 or 40 percent of the money it currently spends, much of that from overseas. Thus we are incurring long-term obligations to foreigners to finance loans to largely middle class Americans to go to college. This is not an appropriate use of public funds at a time of dangerously high federal budget deficits.

(5) Those applying for student loans or Pell Grants are compelled to complete the FAFSA form, which is extremely complex, involves more than 100 questions, and is used by colleges to administer scholarships (or, more accurately, tuition discounts). Thus colleges are given all sorts of highly personal and private information on incomes, wealth, debts, child support, and so forth. A car dealer who demanded such information so that he could see how badly he could gouge you would either be out of business or in jail within days or weeks. But it is commonplace in higher education because of federal student financial assistance programs.

(6) As federal programs have increased the number of students who enroll in college, the number of new college graduates now far exceeds the number of new managerial, technical and professional jobs—positions that college graduates have traditionally taken. A survey by Northeastern University estimates that 54 percent of recent college graduates are underemployed or unemployed. Thus we currently have 107,000 janitors and 16,000 parking lot attendants with bachelor’s degrees, not to mention bartenders, hair dressers, mail carriers, and so on. And many of those in these limited-income occupations are struggling to pay off student loan obligations.

Connected to this is the fact that more and more kids are going to college who lack the cognitive skills, the discipline, the academic preparation, or the ambition to succeed academically. They simply cannot or do not master well much of the rather complex materials that college students are expected to learn. As a result, many students either do not graduate or fail to graduate on time. I have estimated that only 40 percent or less of Pell Grant recipients get degrees within six years—an extremely high dropout or failure rate. No one has seriously questioned that statistic—a number, by the way, that the federal government does not publish, no doubt because it is embarrassingly low.

Also related is the fact that, in an attempt to minimize this problem, colleges have lowered standards, expecting students to read and write less while giving higher grades for lesser amounts of work. Surveys show that students spend on average less than 30 hours per week on academic work—less than they spend on recreation.  As Richard Arum and Josipa Roksa show in their book Academically Adrift: Limited Learning on College Campuses, critical thinking skills among college seniors on average are little more than among freshmen.

(7) As suggested to me a couple of days ago by a North Carolina judge, based on a case in his courtroom, with so many funds so readily available there is a temptation and opportunity for persons to acquire low interest student loans with the intention of dropping out of school quickly to use the proceeds for other purposes. (In the North Carolina student loan fraud case, it was to start up a t-shirt business.)

(8) Lazy or mediocre students can get greater subsidies than hard-working and industrious ones. Take Pell Grants. A student who works extra hard and graduates with top grades after three years will receive only half as much money as a student who flunks several courses and takes six years to finish or doesn’t obtain a degree at all. In other words, for recipients of federal aid there are disincentives to excel.

* * *
If the Law of Unintended Consequences ever applied, it is in federal student financial assistance. Programs created with the noblest of intentions have failed to serve either their customers or the nation well. In the 1950s and 1960s, before these programs were large, American higher education enjoyed a Golden Age. Enrollments were rising, lower-income student access was growing, and American leadership in higher education was becoming well established. In other words, the system flourished without these programs. Subsequently, massive growth in federal spending and involvement in higher education has proved counterproductive.

With the ratio of debt to GDP rising nationally, and the federal government continuing to spend more and more taxpayer money on higher education at an unsustainable long-term pace, a re-thinking of federal student financial aid policies is a good place to start in meeting America’s economic crisis.

The CBO Sees the Economic Cliff Ahead – Article by Ron Paul

The CBO Sees the Economic Cliff Ahead – Article by Ron Paul

The New Renaissance Hat
Ron Paul
June 19, 2012
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In early June 2012 the Congressional Budget Office (CBO) issued its annual long-term budget outlook report, and the 2012 numbers are not promising. In fact, the CBO estimates that federal debt will rise to 70% of GDP by the end of the year– the highest percentage since World War II. The report also paints a stark picture of entitlement spending, as retiring Baby Boomers will cause government spending on health care, Social Security, and Medicare to explode as a percentage of GDP in coming years.

While the mainstream media correctly characterized the CBO report as highly pessimistic, they also ignored longstanding errors of methodology in CBO estimates. And those errors tend to support arguments for higher taxes and government spending, when in fact America needs exactly the opposite.

As Paul Roderick Gregory explained in a recent Forbes column (http://tinyurl.com/cf746dl), CBO has always applied wrongheaded assumptions inherent in Keynesian economics when forecasting future deficits – no matter how many times both history and economic theory have proven such assumptions incorrect. In particular, CBO seems wedded to two enduring Keynesian myths: First, that higher taxes necessarily increase federal revenue and have no negative effect on the economy; and second, that lower government spending hurts the economy.  Neither is true, of course.

CBO also fails to factor in unexpected wars and expensive foreign entanglements, and we should not assign too much validity to predictive models based on peace. Judging from the actions and rhetoric coming from both parties in Washington, new military entanglements in Syria and Iran may well spike military spending in coming years.

Despite these sobering budget realities, the CBO report suggests that a solution is possible with merely a few minor adjustments in the way Congress handles economic issues. But what we need are not minor adjustments, but rather a fundamental shift in our philosophy of government.  If we could come to our senses about the proper role of government in America, and what level of government interference is appropriate in a free economy, we would quickly find that there is no reason for government to spend so much, borrow so much, and tax so much.

If we simply allowed markets to work free of governmental or Federal Reserve interference, bad debt would be liquidated relatively quickly and malinvestment would be curtailed. Scaled-back regulations would encourage businesses to expand. Lower taxes would jump start investment and spur job creation.

This is not rocket science, it is Economics 101. All it would take is for government to get out of the way. There would be some short term pain, of course, but only by allowing the bubble to burst and bad debt to liquidate can we ever hope to begin building a real economy again.

The CBO report was alarming to most simply because they know neither party will take the steps necessary to avoid eventual fiscal calamity. Instead, despite their rhetoric, both parties want to maintain the fantasy that “deficits don’t matter.” But the CBO report, combined with what is happening in Greece and the European Union, should finally make the undeniable case that economic realities apply even to industrialized first world economies. We must take concrete steps today to avoid having America become the next Greece.

Representative Ron Paul (R – TX), MD, is a Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

The Fed: Mend It or End It? – Article by Ron Paul

The Fed: Mend It or End It? – Article by Ron Paul

The New Renaissance Hat
Ron Paul
June 3, 2012
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In early May 2012, I held a hearing to examine the various proposals that have been put forth both to mend and to end the Fed.  The purpose was to spur a vigorous and long-lasting discussion about the Fed’s problems, hopefully leading to concrete actions to rein in the Fed.

First, it is important to understand the Federal Reserve System.  Some people claim it is a secret cabal of elite bankers, while others claim it is part of the federal government.  In reality it is a bit of both.  The Federal Reserve System is the collusion of big government and big business to profit at the expense of taxpayers.  The Fed’s bailout of large banks during the financial crisis propped up poorly-run corporations that should have gone under, giving them a market-distorting advantage that no business in the United States should receive.  The recent news about JP Morgan is a case in point.  JP Morgan, a recipient of $25 billion in bailout money, recently announced it lost another $2 billion.  If a corporation shows itself to be a bottomless money pit of “errors, sloppiness and bad judgment,” the Fed shouldn’t have expected $25 billion in free money to change that or teach anyone a lesson in fiscal discipline.  But it determined that this form of deliberate capital destruction was preferable to one business suffering bankruptcy.  Clearly, some changes need to be made.

Several reforms for the Fed were discussed at the hearing.  One was a call for the full-employment mandate to be repealed, in order to allow the Fed to focus solely on stable prices.

Another reform calls for changes to the composition of the Federal Open Market Committee.  Still another proposal was for outright nationalization of the Fed or of its functions.  But if what the Fed does now is bad and inflationary, allowing the Treasury to print and issue money at-will would be even worse, and could possibly lead to a Weimar-like hyperinflation.

The problems and advantages of the gold standard were discussed at the hearing.  The era of the classical gold standard was undoubtedly one of the greatest eras in human history.  For a period of several decades in the late 19th century, the West made enormous advances.  However, the gold standard was still run by government.  The temptation to suspend gold redemption reared its head again with the outbreak of World War I.  Once the tie to gold was severed and fiscal restraint thrown to the wind, undoing the damage would have required great fiscal austerity.  Instead, the Western world proceeded to set up a gold-exchange standard which lasted not even a decade before easy money led to the Great Depression.

While returning to the gold standard would certainly be far better than maintaining the current fiat paper system, as long as the government retains the power to go off gold we may end up repeating the same mistakes.

The only viable solution is to get government out of the money business permanently.  The way to bring this about is through currency competition: allow parallel currencies to circulate without receiving any special recognition or favor from the government.  Fiat paper monetary standards throughout history have always collapsed due to their inflationary nature, and our current fiat paper standard will be no different.

It is imperative that the American people be educated on the dangers of the Fed and the importance of restoring sound money.  The laying of the groundwork must begin today, so that the American people will be prepared for the day when the mirage the Fed has created evaporates completely.  The full hearing footage is available on my website, and I would encourage every American to take a look.

Representative Ron Paul (R – TX), MD, is a Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.