About Me

In writing the "About Me" portion of this blog I thought about the purpose of the blog - namely, preventing the growth of Socialism & stopping the Death Of Democracy in the American Republic & returning her to the "liberty to abundance" stage of our history. One word descriptions of people's philosophies or purposes are quite often inadequate. I feel that I am "liberal" meaning that I am broad minded, independent, generous, hospitable, & magnanimous. Under these terms "liberal" is a perfectly good word that has been corrupted over the years to mean the person is a left-winger or as Mark Levin more accurately wrote in his book "Liberty & Tyranny" a "statist" - someone looking for government or state control of society. I am certainly not that & have dedicated the blog to fighting this. I believe that I find what I am when I consider whether or not I am a "conservative" & specifically when I ask what is it that I am trying to conserve? It is the libertarian principles that America was founded upon & originally followed. That is the Return To Excellence that this blog is named for & is all about.

Tuesday, April 16, 2024

A System Of Pure Unregulated Laissez-Faire Capitalism

"A system of pure, unregulated laissez-faire capitalism has never existed anywhere."  Ayn Rand writing in Capitalism: The Unknown Ideal

The closest we come to the system Miss Rand described above was during the Liberty to Abundance stage of our history - generally from the Founding to the Civil War & most notably the Era of Good Feelings, President James Monroe's eight years in office. 

During most of the first 86 years of our country's independence, liberty & freedom were cherished & even worshiped, including by the elected representatives. The only entitlement people living in this age were looking for was the rights guaranteed by the Bill of Rights – summarized as the freedom from government intrusion in their lives. Today rights are most often thought of as entitlements to something from the government like the aid relief package from the Covid -19 pandemic caused by the Wuhan coronavirus. 

People living in the first third of our country’s history never had problems waiting for relief packages because the government did not offer any in the first place & the people relied on themselves & were the better for it.

Every time the government gets bigger, free enterprise principles are distorted thereby putting more of a drag on the entrepreneur – the creator of wealth & meaningful jobs that support a family - the foundation of the self-respect & dignity that not only promoted but naturally bred the country’s original mindset.  

In 1930 federal government spending equaled 3% of GDP. Today federal government spending equals 24% of GDP & state & local government spending equals another 17% of GDP for a government spending total of 41% of GDP.  Add in the mandates that the government imposes on private spending & over 50% of the output of the country is controlled by the government - i.e., the equivalent of saying the government owns over 50% of the means of production.

Prior to the Great Depression people thought of government as a necessary evil - they preferred to rely on the private market. But public attitude changed drastically as a result of the Great Depression & people came to regard government as the cure for all problems, the answer to all problems.

Above government spending & Great Depression remarks based on a lecture by Professor Friedman.

Since January, 2012 I have proposed four solutions that, if implemented, would change the government dependent mindset of the American citizenry thereby unleashing a new wave of prosperity & economic growth that will greatly improve the standard of living in the country, summarized as follows: 1) replace the Medicare plan with one of subsidized premium support to buy private insurance using a nominal dollar demogrant, unadjusted for inflation, for people currently younger than 55 when they reach the retirement age of 65, 2) change the basis for the initial Social Security benefit to the CPI instead of the national average wage index (wage base) to ensure that benefits do not grow faster than the cost of living thereby preserving Social Security for future generations while ensuring benefits will not be cut for people 55 & over, 3) cut, cap & balance federal spending @ 18% of GDP, & 4) replace the federal income tax system & IRS with the FairTax Plan.  

All four of these solutions get some play in the financial media from time to time, but much more is needed - each needs to be brought forth & championed by a presidential candidate to change the mindset of the American people before government spending swallows our prosperity.  

Both Trump & Biden do not want to touch either Medicare or Social Security & cutting, capping, & balancing federal spending is the farthest thing from the minds of the two biggest deficit spenders in our history.  Biden, like all Democrats, is not for the FairTax, & Trump criticised Nikki Haley for her support calling the FairTax such a terrible idea that it alone should disqualify her from holding office.  Now if that doesn't make the blood boil of every member of this readership who worked their fingers to the bone for the FairTax, HR-25 legislation, for several years when I was District Director & State Director, I don't know what would.  Trump knows so little about what he is talking about that he doesn't seem to realize that his Vice Presidential selection, Mike Pence, had been a FairTax congressional co-sponsor for several years before Trump selected him for VP.  

The replacement of Medicare with the subsidized premium support system designed by Paul Ryan will preserve Medicare for decades while it is being phased out as younger people adapt to premium support - no one 55 or over will be affected.  New people coming into the premium support program when they turn 65 will have counted on the unadjusted for inflation demogrant less & less over the years because of the demogrant's reduced purchasing power.  They will have naturally adapted themselves to the new system with people currently in their twenties & thirties not counting on it @ all.  Just look @ the graphic below to see that the timid Ryan Plan (bottom curve) with CPI indexing will start to bend down.  Replace the CPI indexing with a nominal dollar subsidized premium support plan & the curve will bend down even faster thereby eliminating dependence on a government healthcare insurance plan for younger people.    

The reality is that all of the proceeds collected from seniors & people on disability make up about 25% of the cost of Medicare Parts B & D – this is why Medicare is going broke & also why seniors & the disabled like it so much (i.e., they are only paying a quarter of the cost).  This is the mindset that a presidential candidate worth voting for needs to change - getting the country back to a mindset of personal responsibility.  The premium support plan replacing Medicare is the only permanent solution to the Medicare funding problem & will help people see the difference between real insurance & prepaid health care arrangements – which is what most of us have today - where policyholders seek approval for medical services they have already paid for in advance.

Subsidized premium support, replacing the federal government's Medicare healthcare system, is a real plus for individual liberty & the return to excellence that America so desperately needs.  I participate in an employer's private plan that follows premium support principles & attest to the results.

Adapting Social Security's long term ability to meet its promised benefit payments also involves a phase out of one system & phase in of a new one.  People 55 & over would again not be affected.  People under 55 would see their Social Security benefits blended between the number of years they participated in the wage based system & the number of years they participated in the new CPI based system.  People just starting in the workforce would be totally covered by the CPI based system while someone who has been in the workforce for ten years would have ten years of benefits credited to the wage based system & the rest of his benefits credited to the CPI based system.

The solvency problem used to be clearly stated & explained on page 1 of annual Social Security benefit statements that since 2000 were mailed to everyone not receiving benefits - right in plain sight yet I never met one person who was aware of it in the dozens of FairTax seminars I presented or several radio programs I was on, meaning they probably never read it.  

For instance under the heading entitled "About Social Security's future" on page 1 of a February 23, 2000 statement, Social Security clearly states that "By 2034, the trust funds will be exhausted & the payroll taxes collected will be enough to pay only about 71% of benefits owed."  This warning was conspicuously displayed on annual statements until Social Security switched to electronic statements where the same warning is currently hidden in the middle of the statement with the following message appearing in small print - "We base benefit estimates on current law, which Congress has revised before and may revise again to address needed changes. Learn more about Social Security's future at ssa.gov/ThereForMe."

Clicking on the link brings up a page with the remarkably consistent message about default by 2034 & a current estimate that only 80% of benefits will be paid in 2034 without action from Congress when the trust funds are exhausted.  

Since that February, 2000 statement quoted above every annual statement whether paper or electronic has consistently targeted 2034 as the problem year when benefits will be reduced 20% to 29% without action from Congress.

In short, the problem has been known since @ least 2000 & the solution has been known since @ least November, 2004 when Susan Lee wrote about it in the WSJ.  And yet no elected representative wants any part of the solution including Trump & Biden who both do seniors & the disabled the disservice of preaching maintaining the status quo.  How unkind.

You can see that if we had started implementing the CPI based system in 2004 we would have had a thirty year window to work with instead of ten, if we start today.  We can only blame ourselves for squandering these twenty years & putting no pressure on our elected representatives who have been only too happy to ignore both the problem & solution.  But putting Social Security on a permanent path to solvency would take tremendous leadership - of which we have had none in the 21st century.

(Note - with the thirty year window shortened to ten years or less the implementation schedule I describe above for both Medicare & Social Security may have to be modified.  But younger people may find this acceptable when they see the integrity & strength of the updated plans.  Younger people currently believe more in flying saucers than they believe they will receive Social Security & Medicare benefits.  This will reverse as the finances of the updated plans visibly improve so that today's youth can see that benefits will be there for them also.)

The "cut, cap, & balance plan" that Ken Blackwell has proposed is not the "balanced budget amendment" that you hear politicians talk about on TV - a plan that will balance spending & taxes (i.e., no matter how high the spending goes, taxes must be increased to balance this spending).

Now Professor Friedman taught that the real enemy in all or any of the government budget battles is not the deficit but rather spending.  The great libertarian professor would rather have a budget of $1 trillion with a $500 billion deficit than a budget of $2 trillion with no deficit.  He taught that the burden borne by the American economy is measured by what the government spends & disposes of, not by whether it calls its receipts "taxes" or "proceeds from bonds."  Accordingly, the real issue is not how you pay for government spending - debt or taxes - but the spending itself.  In short: don't just look @ the deficit, look @ why we have a deficit.  And the reason we have a deficit is pretty simple: the government spends too much. 

The "cut, cap, & balance" plan meets Professor Friedman's criteria for sound economics & addresses the real budget problem by holding down spending as a fraction of  national income.  It is complemented by the other three solutions outlined herein.

In the "cut, cap, & balance plan" federal spending is controlled so that projected borrowing is cut in half the first year (not 10 years from now), spending is capped @ 18% of GDP - the norm of revenue received for much of the past 65 years - (spending is over 24% of GDP now with a deficit of -6.27% of GDP for fiscal year 2023), & under a balanced-budget amendment the president would be required to submit a balanced budget within the foregoing spending guidelines that call for super congressional majorities to raise future debt limits or tax rates.

The "cut, cap, & balance" plan has a more immediate impact than the Medicare & Social Security fixes but over time they will contribute greatly to restoring economic order.  Seniors have to trust that they will not be thrown off the cliff & younger people will have plenty of time to adjust - see note above about flying saucers & Medicare & Social Security benefits.  As the years go by younger people will buy-in to the updated programs as they see them become more viable.

And the fourth solution point is replacing the income tax system & IRS with the FairTax plan.  Click here to hear Mike Huckabee describe the FairTax plan - a timely message for taxpayers who have the burden of working with the income tax system fresh in their minds this mid-April day.

Governor Huckabee points out that the FairTax is a tax on consumption rather than productivity - you pay the FairTax @ the point of consuming something not producing something.   You would receive your paycheck or pension free of federal taxes & you wouldn't need a CPA or tax attorney to tell you how much you owe the government each year - a real deadweight economic loss (i.e., the deadweight loss is the value these tax professionals could contribute to something of benefit that is foregone by their working on income tax returns instead - the opportunity cost).  The FairTax is designed to collect the same amount of revenue as the current tax system (it is revenue neutral) but does it in a way that stimulates the economy by taxing what comes out of the economy rather than what goes into it. 

The four proposed solutions work hand in hand.  As the financial burdens of Social Security & Medicare are reduced & the "cut, cap, & balance" plan goes into effect the FairTax rate will be lowered thereby producing as close to a system of pure unregulated laissez-faire capitalism as Ayn Rand could ever imagine.