We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are

Life, Liberty and the pursuit of Happiness.

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,

Tuesday, July 17, 2012

The Keynesian Rope of Sand: Why World War II Did NOT End the Great Depression

By Tom DiLorenzo

Tuesday, July 10, 2012

So-called Keynesian economics is based on numerous myths and superstitions about the economic world. For example, John Maynard Keynes himself blamed the lack of private business investment spending during the Great Depression on "animal spirits" that supposedly spooked investors. The two biggest myths, however, upon which the whole edifice of the Keynesian "Government Can Spend Us into Prosperity" philosophy is based are: 1) the myth that government spending under President Franklin D. Roosevelt ended the Great Depression; and 2) If the Depression was not totally ended by New Deal spending, then government spending on World War II certainly must have done the trick. Exactly the opposite is true: New Deal and World War II spending made the U.S. economy worse off by siphoning off billions of dollars from the pockets and bank accounts of private consumers and investors. Government bureaucracy ballooned while the private sector starved. Only when the war was over, government spending was cut dramatically, and FDR was dead, did the private economy in the U.S. recover from the Great Depression.

Despite a doubling of federal government expenditures from 1933 to 1940, the creation of dozens of new federal government bureaucracies, and the direct employment of some ten million people in "public works" jobs, the official unemployment rate in 1939 was still 17.2 percent, nearly six times higher than it was in 1929 (2.9 percent) on the eve of the Depression. Per capita GDP was lower in 1939 ($847) than in 1929 ($857), as were personal consumption expenditures -- $67.6 billion vs. $78.9 billion (U.S. Dept. of Commerce, Historical Statistics of the United States).

One reason for the abject failure of the New Deal "stimulus spending" to reduce unemployment is that the diversion of billions of dollars out of private-sector pockets to finance government make-work jobs created additional unemployment in the private sector. More temporary, make-work government jobs were created at the expense of destroying a much larger number of private-sector jobs since bureaucracy and red tape typically accounts for several times the amount of money that is spent on salaries alone. It is not unusual to read today that it costs several hundred thousand dollars to "create" a single $30,000/year government job.

World War II did end unemployment in America, but only because more than 11.5 million men were drafted into the military whereas the total number of Americans unemployed as of 1940, on the eve of the war, was 5.3 million. In addition, millions more volunteered for the military to "beat the draft" because they knew that draftees were most likely to serve on the front lines than volunteers were.

The average American consumer was worse off during World War II because of the massive diversion of economic resources from the consumer economy to the war economy and the dramatic increase in taxes. By 1945 the top income tax bracket was 94 percent on an annual income of $200,000. The lowest income tax bracket was 23 percent on an annual income of $2000. There was nothing to buy, and even basic food and clothing items were rationed by the government. So despite an explosion of total federal government spending during the war years, the average American at home was still living in a depression economy worse than 1939/1940.

At the end of the war every Keynesian economist predicted an even worse economic depression because of the demobilization of the military and the accompanying radical reductions in government spending. The reductions in government spending were indeed dramatic: According to the Commerce Department's Historical Statistics of the United States, federal government expenditures fell from $98.4 billion in 1945 to $33 billion in 1948, about a two-thirds reduction. Far from creating a depression, prying all of that money from the hands of politicians and bureaucrats and returning it to its owners – working Americans – created the largest increase in private sector economic growth in all of American history in 1946. According to statistics found in the 1995 Annual Report of the U.S. Council of Economic Advisors, based on Commerce Department data, real inflation-adjusted private sector GDP increased by 29.5 percent in that year. In no other year has the U.S. economy ever grown even half that fast. Private investment skyrocketed and stock prices soared, in complete and total contradiction of what every Keynesian economist in the world had been predicting. Yet thanks to the power of government propaganda, and the state's academic mouthpieces (Paul Krugman comes to mind), the myth persists that government spending during World War II is "proof" that government can spend us into prosperity.

Thomas DiLorenzo is professor of economics at Loyola University Maryland and a member of the senior faculty of the Ludwig von Mises Institute. Among his books are How Capitalism Saved America; Hamilton's Curse; and his forthcoming Organized Crime: The Unvarnished Truth About Government.
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Monday, July 16, 2012

The Corruption of Politics

This is a very powerful piece by Porter Stansberry.  If you agree with what he is saying, then I urge you to sign up for the free S&A digest and join us in the project to Restore America...

The Corruption of Politics

By Porter Stansberry

Let me show you the numbers – the hard facts – behind what's happened to our country…

I'll start with one of the biggest factors in the decline of our civilization – the link between welfare, education, crime, and politics.

It is routinely alleged in national political debates that something is fundamentally unfair and un-American about the huge "wealth gap" between the poorest Americans and the wealthiest. Some politicians like to argue that the poor never have a real shot at the American dream… And as a nation, we owe them more and more of our resources to correct this injustice. Most important, it is alleged that only the government has the resources to correct this inequality.

This is a dangerous notion…

First, it promotes the idea of entitlement. Entitlement is a fairly new idea in the American political lexicon – perhaps because most of our nation's wealth is still fairly new. The American idea of entitlement argues that because you were born into a rich society, other people owe you something. The idea has become pervasive in our culture. It underlies the basic assumptions behind the idea of a "wealth gap." Implicit is the assumption that successful Americans haven't rightfully earned their wealth… that in one way or another, they've taken advantage of society and have an obligation to give back most of what they've "taken."

I believe the idea of entitlement lies at the root of many of our most serious cultural problems.

The more obvious problem is the idea that the government is responsible for fixing the "wealth gap." But the government has proved wholly ineffective at dealing with poverty in America. The data is nearly conclusive that government efforts are far more likely to be the cause of the wealth gap than the solution.

The simple fact is, the government has to take resources from someone before it can dole them out to others. And this act of taking is economically destructive. It reduces the market's incentives for entrepreneurs. The more you take from the productive members of society, the less productive they become. That's the primary lesson of the history of socialism. Yet… many of our political leaders seem oblivious to this iron law of human nature.

Consider a simple analysis that compares the unemployment rate with the size of the federal government's spending, as measured against GDP. (We created this chart after reading a similar analysis at Mark Perry's excellent financial blog, Carpe Diem.)

As you can see in this chart, the larger the government grows as a percentage of our economy, the higher unemployment rises. The more government, the less opportunity. These figures are similar when studied comparatively across many different countries.

We also know from decades of experience that little of the government's funding for the poor will ever reach those who are actually in need. Instead, these kinds of socialist policies end up sending billions of dollars into the hands of unions, "community organizers," and other sponsors of the Democratic Party. This tightens their political control of America's inner cities, which have become the source of our country's most intractable social problems.

Believe me, I have reams of data and decades of case studies for these conclusions. But before we get to my proof, I want you to simply assume that what I'm saying is 100% correct. Assume most of the government's social spending ends up corrupting the politics of the inner city. Assume these efforts actually make the "wealth gap" larger. Assume these policies and the politicians who sponsor them are actually creating a society of complete dependence, where the spread of ignorance has created entire generations of people who aren't educated enough to know they've been enslaved by their own leaders.

If these things are true, if my conclusions are exactly right, what would America's poorest communities look like today?

It has now been almost 50 years since the start of the War on Poverty, President Lyndon Johnson's program to radically increase domestic welfare spending. These programs and their various spinoffs have been at the center of Democratic politics ever since. In fact, if you compare speeches about these programs from the mid-1960s until today, you will find the verbiage never changes. Obama is merely echoing the same calls for "social justice" that Robert Kennedy used in his ill-fated 1968 campaign for president.

But besides the soaring rhetoric – besides the promise of a "chicken in every pot" – what have these programs actually achieved? The wholesale destruction of urban communities across America… communities that are overwhelmingly African American. If the intention of these programs had been to destroy black communities, you could have hardly done more damage than the last 50 years of Democratic policy.

I don't think most Americans realize how dangerous these communities have become or the toll they take on our country as a whole. That's primarily because talking about this problem is seen as racist. That's complete nonsense. The victims of these policies are primarily black people. Trying to help them restore dignity and independence to their communities isn't a racist goal. It's humanitarian.

And let me offer a prediction… Sooner or later, the people in these communities are going to finally point their finger at the politicians who've lied and pandered to them for decades, all while stealing from them at every turn. When that moment comes, having a track record of correctly speaking out about the real nature of these problems will be a valuable political asset…

Let me give you some of the numbers that define the enormous scope of these problems.

According to the NAACP, Texas taxpayers spent $175 million in 2009 to imprison residents from a small part of Houston – only 10 zip codes out of 75. Thus, people from neighborhoods that are home to only about 10% of the city's population account for more than 33% of the state's entire $500 million annual prison spending. These neighborhoods are overwhelmingly poor and African American.

In Pennsylvania, taxpayers spent $290 million in 2009 to imprison residents from just 11 of Philadelphia's neighborhoods, representing about 25% of the city's population. On this relatively small urban area, the state spent roughly half its $500 million prison budget. These neighborhoods are overwhelmingly poor and African American.

In New York, taxpayers spent $539 million to imprison residents from only 24 of New York City's 200 different neighborhoods. Only 16% of the city's population lives in these areas, but they account for nearly half of the state's $1.1 billion prison budget. These neighborhoods are overwhelmingly poor and African American.

America has many problems… but these neighborhoods represent more than a society in decline. Life in these places reflects a complete collapse of Western civilization. What's happening in these communities? A breakdown of the family and the resulting collapse of the school system. What you have left is crime – violent and political.

In Detroit, only 27% of the black male students in the school system graduate from high school. This is not a racial problem: Only 19% of the white male students graduate from those same schools. What's causing this problem? A complete breakdown of society. When communities can no longer teach their children the most basic academic skills, such as reading, math, history, literature, and economics… what future can we expect? And what kind of society do you expect after several generations of total ignorance?

What opportunities are available in America to people without even a basic education? The New York Times reports almost 70% of black males without a high school diploma are unemployed in the United States.

In many predominantly black, urban communities, the actual unemployment rate is close to 100% for young dropouts. Given these figures, it isn't surprising that many of these people end up in jail.

According to various studies, black males who dropped out of school by age 16 are four times more likely to end up in jail than those who remained in school. Crime is literally all they know. Likewise, a black youth whose mother was a high school dropout is 88% more likely to end up in jail. These are the two primary reasons nearly one in 11 adult black men are either in jail or on parole.

How did this all happen? How did we end up with expensive schools that can't teach? How did we end up with young mothers who aren't married? How did we end up with entire generations of people who won't – and probably can't – work in the labor force? How did we end up with a skyrocketing prison population? The prison population in America has soared from less than half a million people in 1980 to more than 2.5 million people today. More than seven million adults are in prison or on parole in the United States. We have an incarceration rate that's seven times higher than any other industrialized nation.

The land of the free?

Let's ask the most basic question: What has the gigantic increase in welfare spending and education spending done for the underclass of America? It seems apparent that growth in federal spending has caused far more harm than good. When you study these neighborhoods, what you find is a horrifying story that's been repeated, generation after generation since the early 1960s. It's a story of families who have been destroyed by their dependency on the state.