You often hear from Democratic strategists, when they talk about taxes especially, that Bill Clinton had higher tax rates and everything was sunshine and roses.

The first and most obvious reason is that we were for the most of that decade in a stock market bubble. Assets gained value on paper, but it did not reflect real wealth. This also, ironically enough raised the revenues on capital gains, which in turned help balance the budget. The rise in asset values induces people to consume more so for a time being, until the asset values collapse.

The second reason is more dubious. It is also the governmental way to solve problems; namely, if there is a problem, redefine it so that it is no longer a problem. In attempting to explain stagflation with the AD/AS model, economists redefined the natural rate of unemployment upwards, so that real life would fit their theoretical models. However as, Mises said in “Planning for Freedom” it is useless to talk about unemployment without talking about the wage rate. There is no such thing as natural unemployment, except in the sense that people switch jobs or locations. In a similar vein, we have redefined inflation and unemployment, so that they are no longer problems.

Lastly, inflation was lower in the 1990s for a few reasons. There are really two “stages” of inflation, one where the counterfeiter (in this case the government) prints money and two where the people begin to adjust their cash balances. If people expect prices to rise, they begin to draw down their cash balances, and this is the second stage of inflation. This takes time and in our own history, it took until the late 60s for people to realize that prices were not going down under the current Keynesian hegemony. Once this change happens the public spends the money because government can print it to take resources away from them.

During the 1980s and 1990s inflation was lower. The possible reasons why are as follows: cheap goods from China, dollar outflows for hyperinflating countries, Paul Volcker and the 21% Fed Funds Rate, and the tried and true governmental solution, redefining inflation as to make it lower. All of these factors caused more confidence in the dollar, and so the inflation was not noticed (like the 1920s) but the malinvestments were still being made.

So the 1990s were not a time of great prosperity, but one of great illusions.

Jim Grant, a man of whom I have never heard, made a startling remark on CNBC this morning. He said that if you audited the Fed like any other bank, which is true because the Fed is in essence 12 private banks, it would fail. What is startling about this story to me is how “wrong” he is.

The one power that every central banking system has is the ability to control the unit of exchange in a given area. The Fed has power over us because all business in the United States is concluded in dollars. The Fed is not “insolvent” because they can always create heaps of money to pay off their obligations. They could print money and buy all the assets in the United States if they wanted.

As an aside, I hope bowties become more popular, starting with me.

Registration for the Liberty Summer Seminar is open!  Check out the event at their homepage. If you’re interested in going, e-mail me at sfe[at]mackinac[dot]org , and we can hook you up with discount registration fees, complements of Matt Bufton!

Of course they would.  Why wouldn’t they?  Isn’t that reasonable?

These of course are what average Joe’s would say in response to this. What’s the answer?  Obviously regulation did not prevent the fall.  Why do we assume that regulation will in the future?  The answer is making people less dependent on the regulations as a safety net, let them take their own initiative for safety, and make them bear the consequences.

Isn’t that reasonable?

A Jonathon Swift’s Modest Proposal-style approach to single-payer insurance:

“All approaches to single-payer insurance seems awfully below the potential that it could be.  We can methodically search out its various holes and inconsistencies.  Let us start at the beginning.

The whole premise that single-payer insurance will benefit all, without some additions, is just simply ludicrous.  For example:  Surely, some individuals may not have reliable transportation to get to the hospital that would service them.  So, in the very least, we ought to have an on-call driver for this group of people.  But what if the driver is unavailable?  Well then in the very least we need one driver per person.

This might quickly deplete the availability of drivers, so we might very well need to bring more people into the transportation workforce, through extravagant pay and benefits.  But, then again, what if the patient doesn’t even know that they are sick?

This seems like a perfect time to announce that we, for the sake of health and expediency, post one (1) doctor in the home of each individual. This would alleviate the problems of ailment self-identification, but also reduces the strain on the burgeoning transportation infrastructure.

But what if the doctor needs a second opinion, or is not a specialist?  Add (+) two (2) doctors.

What if the doctors are busy in an emergency?  Ok, add (+) one (1) nurse.

What if the situation is really bad? There should be at least (>) three (3) doctors attending.

But they might bump into each other in smaller rooms:  Greater than (>) three (3) but fewer than (<) six (6). 

Looking at those numbers, think of the high-paying jobs we can add to our economy.”

The Senate this week is debating the Family Smoking Prevention and Tobacco Control Act, a piece of legislation which would, for the first time, give the Food and Drug Administration (FDA) the authority to regulate tobacco products. It’s a stupid bill that unfortunately will become law very soon, even though Senators Richard Burr (R-NC) and Kay Hagan (D-NC) are doing everything they can to protect tobacco manufacturers in their state and stop it. Let me be clear: tobacco products are deadly and you shouldn’t use them. Teenagers shouldn’t be smoking. But this bill actually protects some of the biggest tobacco manufacturers (chiefly Altria, which has lobbied hard for its passage), by placing more restrictions on advertising and slows the passage of new products to the market. This is great for Altria, since they already hold a large percentage of the tobacco market share, but it will be a death blow to smaller manufacturers.

But my opposition to the bill has nothing to do with protecting the industry. Instead, the bill places severe restrictions on the marketing and development of “modified risk” products, such as snus, chewing tobacco, and other alternatives, because proponents claim that these products are misleadingly marketed as “safe” alternatives to smoking. This may be true. But by placing more regulations on producers, the likelihood of truly safer alternatives coming to the market are esentially squashed. In my mind, it would make far more sense to not discourage the development of smokeless products that satisfy the addiction without the inhalation of tar. These products also have much less of a negative externality, since they are…smokeless.

Another day, another stupid bill in Congress. For those interested, the American Council on Science and Health has a great op-ed on why this bill is a pro-tobacco bill.

Just yesterday in a Detroit Free Press article here, GM declares that it’s going to be less open with its information.  And yet, on the same day, Fritz Henderson penned a full page ad in the Wall Street Journal in which he commits to be “more transparent”. 

It already seems as though the left hand doesn’t know what the right is doing.

Like we’ve discussed before, if what you’re doing is right, is there any reason to hide it?  And which of these commitments are they going to honor?

If we’re talking about transparency, it’s likely time to get their story straight.

Most of us have seen the pictures in the high school history books: the pictures of weary German citizens wheeling cart loads of money to markets to buy groceries, stuffing ovens with the worthless Deutschmarks for kindling, etc.  The German’s are quite sensitive to the notion of inflation and its effects.

So when they start pointing out that our central bank might be going a little crazy on the liquidity front, maybe it’s time to start listening.  In a speech by Angela Merkel, the Chancellory has openly rebuked the actions of the European Central Bank, the Federal Reserve, and the Bank of England.  ”I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line. We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years’ time.”

The Bureau of Economic Analysis released the 2008 state Gross Domestic Product figures. For Michigan, it points to continued decay. Michigan lost 1.5 percent of its real GDP and only Florida, Alaska, and Delaware performed worse than that. That shouldn’t surprise you. But the extent of the loss should.

While Michigan used to be a very productive state, we can no longer make that claim. We produced 14 percent less than the national average in 2008. We’re #41 among the states in this measure. Since 1999, per capita real GDP for the nation grew by 12 percent. Michigan lost 3 percent. We missed out on an entire decade of growth.