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Archive for November, 2011

I have a new article for National Review about the fallout from the Supercommittee.

Among the points I make are:

o We were lucky to dodge a tax hike.

o There’s still a threat of a tax hike if big-government Republicans side with the so-called rational left in favor of a tax-increase proposal, such as Gang of Six, Simpson-Bowles, and Domenici-Rivlin.

o The sequester is a good outcome.

o Republicans who accept a tax hike to get entitlement cuts will wind up with bad policy that crowds out needed reforms.

I want to focus on this last point because it is critically important, but doesn’t get much attention. Here’s what I wrote for NRO.

…many Republicans (regardless of the no-tax-hike pledge) are susceptible to a deal so long as something is being done to address entitlement costs and so long as the tax hikes are not based on class-warfare ideology. …the real challenge for fiscal conservatives is figuring out how to adopt something akin to the Ryan budget. That means no tax increases, genuine spending cuts, and real entitlement reforms (i.e., not the policies promoted by the rational Left, such as unsustainable price controls or back-door tax hikes via means testing). Sadly, there is no way for such a budget to be enacted in 2011 or 2012. And it may not happen in the four years after that. That would be both frustrating and worrisome — particularly since every year of delay brings us closer to European-style fiscal chaos. But for fiscal conservatives there is no possible compromise with either the hard Left or the rational Left. Both of those camps want bigger government. Both want higher taxes. And both oppose real entitlement reform.

To elaborate, not all entitlement reform is created equal. As I explained in this set of videos, good reform means putting individuals back in charge and restoring market forces. It means personal retirement accounts for Social Security. It means vouchers for Medicare. And it means block-granting Medicaid back to the states.

To the Washington establishment, however, entitlement reform means price controls such as the infamous “doc fix.” The problem with this approach is that price controls are notoriously ineffective and politically unsustainable.

The political elite also thinks that means-testing is entitlement reform. But this policy basically means that people who save and invest during their working years wind up losing eligibility. This approach isn’t as bad as price controls, but it does impose high implicit marginal tax rates on those who save and invest, which almost certainly will have a negative impact on capital formation.

I realize that giving advice to the GOP is about as useful as sticking my arm into a garbage disposal, but the lesson of all this is that there’s no point in trying to strike a deal with Obama or congressional Democrats. Simply stated, there is no way they would agree to good policies.

Moreover, any agreement would be interpreted as a “solution” and therefore kill any chance of real reform in 2013.

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In hopes of stopping investor panic about Europe’s fiscal crisis, the world’s major central banks just announced that they will do whatever is needed to ensure financial markets don’t freeze up.

This could be an appropriate and relatively benign use of the lender-of-last-resort powers, or it could signal another round of reckless easy money and quantitative easing.

I’m skeptical of the Fed and other central banks, but I don’t want to play back-seat driver on monetary policy. Instead, I want to focus on the underlying issue, which is whether there is any alternative to immediate – and real – spending cuts.

Maybe there is some way to muddle through, but I think the answer is no. Easy money from central banks is not a solution. Bailouts from the IMF or some other entity are not the solution.

In this interview with Neil Cavuto, I explain that more bailouts won’t work and that Europe’s welfare states should copy the Baltic nations and shrink the burden of government spending.

One point I made deserves to be emphasized. We wouldn’t be in the current mess if the political elite at the IMF and in Europe and the United States had followed my sage advice and rejected the original bailout for Greece.

The Wall Street Journal agrees. Here’s a passage from today’s editorial page.

Europe’s original sin in this crisis was not letting Greece default, remaining in the euro but shrinking its debt load as it reformed its economy. The example would have sent a useful message of discipline to countries and creditors alike. The fear at the time was that a default would spread the contagion of higher bond rates, but those rates have soared despite the bailouts of Greece and Portugal.

Sadly, I expect more bad policies. Politicians are addicted to big government, so they’ll always take the primrose path of bailouts and easy money as an alternative to fiscal restraint. Especially when the United States is a source of laughably bad advice from the clowns in the Obama Administration.

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When I think about taxes, my first instinct is to rip up the corrupt internal revenue code and implement a simple and fair flat tax.

When I think about Social Security, my first instinct is to copy dozens of other nations and implement personal retirement accounts.

Unfortunately, the political system rarely generates opportunities to enact big reforms that actually solve problems and increase freedom. Instead, we’re stuck with proposals that make things modestly better or modestly worse.

So you can imagine my sense of dissatisfaction that I’m getting peppered with questions about whether the one-year 2-percentage point payroll tax holiday should be extended.

But it’s more complicated than that. The Democrats in the Senate want to make the temporary tax cut even bigger and “offset” that tax cut with some soak-the-rich tax increases. Republicans, meanwhile, are frozen like deer in the headlights. They understandably don’t like the Democrat plan, but they seem reluctant to support anything else, not even a “clean” extension of the current policy.

Here are a handful of observations.

* The Democrat’s proposal for a one-year payroll tax cut financed by a permanent income tax hike on investors, entrepreneurs, and small business owners would be a big net negative for US job creation and competitiveness.

* A “clean” extension of the payroll tax holiday would modestly improve incentives for work, but the temporary nature of the tax cut substantially weakens pro-growth effects.

* Ideally, the extension of the tax holiday should be financed by reducing the growth of federal spending.

* There are other tax cuts, such as permanent reductions in marginal income tax rates and/or permanent reductions in the double taxation of saving and investment, that would have a better impact on the economy.

* There are other tax cuts, such as expanded credits, deductions, preferences, exemptions, and shelters, that have no positive impact on the economy.

* A payroll tax holiday does not undermine Social Security since the Trust Fund is nothing but a big pile of IOUs.

* The best incremental reform would be a permanent reduction in the payroll tax, with the money channeled to personal retirement accounts. This would lower the tax burden of work while reducing the long-run burden of entitlement spending.

* This discussion of payroll taxes and incremental reform should not distract us from the enormously important issue of genuinely fixing entitlement programs, something that is needed to save America from Greek-style fiscal collapse at some point in the future.

So what does all this mean? Simply stated, there are many other fiscal reforms that I prefer, but a temporary extension of the payroll tax holiday is better than nothing – assuming, of course, it is not poisoned by accompanying class-warfare tax hikes.

Last but not least, let me close with a political observation. I’ve commented several times about Republicans being the “stupid party.” Well, if GOPers paint themselves into a corner such that they can be accused of supporting tax cuts for the “rich” while opposing tax cuts for workers, that will set a new record for being tone-deaf and brain-dead.

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This narrator probably won’t get rich, like the guy who did the “Girls Gone Wild” videos, but this is the second-best video I’ve ever seen on the bloated and overpaid government workforce.

I especially like how he understands that the problem is the size of government, and I also admire his recognition that Republicans often are just as bad as Democrats.

He also highlights the danger of creating a society where a majority of people are moochers instead of producers.

By the way, here’s the…ahem…best video I’ve ever seen on the topic of costly and excessive bureaucracy.

Actually, I don’t care which video you prefer, so long as you are outraged by the fact that federal bureaucrats get twice as much compensation as people in the productive sector of the economy.

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By fighting for freedom in Washington, I’ve condemned myself to a life of frustration and aggravation. One of my many pet peeves is that so many people in DC believe that economic growth depends on consumer spending.

Back in the early days of this blog, I wrote the following.

Many people assume that consumer spending drives growth because it is roughly two thirds of the economy. But this puts the cart before the horse. Higher levels of consumer spending do not cause prosperity. Instead, more consumer spending is best understood as a symptom of prosperity.

So you can imagine how irritating it is for me to see news reports about how Black Friday spending will goose the economy.

This video debunks this notion, while also explaining that Keynesian economics is flawed because it misinterprets the role of consumer spending.

If you like this video, also check out this video on IRS complexity.

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Most people have a vague understanding that America has a huge long-run fiscal problem.

They’re right, though they probably don’t realize the seriousness of that looming crisis.

Here’s what you need to know: America’s fiscal crisis is actually a spending crisis, and that spending crisis is driven by entitlements.

More specifically, the vast majority of the problem is the result of Medicaid, Medicare, and Social Security, programs that are poorly designed and unsustainable.

America needs to fix these programs…or eventually become another Greece.

Fortunately, all of the problems can be solved, as these three videos demonstrate.

The first video explains how to fix Medicaid.

The second video shows how to fix Medicare.

And the final video shows how to fix Social Security.

Regular readers know I’m fairly gloomy about the future of liberty, but this is one area where there is a glimmer of hope.

The Chairman of the House Budget Committee actually put together a plan that addresses the two biggest problems (Medicare and Medicaid) and the House of Representatives actually adopted the proposal.

The Senate didn’t act, of course, and Obama would veto any good legislation anyhow, so I don’t want to be crazy optimistic. Depending on how things play out politically in the next six years, I’ll say there’s actually a 20 percent chance to save America.

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About a year ago, I spoke at a conference in Europe that attracted a lot of very rich people from all over the continent, as well as a lot of people who manage money for high-net-worth individuals.

What made this conference remarkable was not the presentations, though they were generally quite interesting. The stunning part of the conference was learning – as part of casual conversation during breaks, meals, and other socializing time – how many rich people are planning for the eventual collapse of European society.

Not stagnation. Not gradual decline. Collapse.

As in riots, social disarray, plundering, and chaos. A non-trivial number of these people think the rioting in places such as Greece and England is just the tip of the iceberg, and they have plans – if bad things begin to happen – to escape to jurisdictions ranging from Australia to Costa Rica (several of them remarked that they no longer see the U.S. as a good long-run refuge).

This was rather sobering. I’ve never been an optimist about Europe’s future, as I explain here and here, but is the situation really this bad?

Well, the U.K. government seems to think things will get worse. Here are some excerpts from the Telegraph.

British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible. Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis. The Treasury confirmed earlier this month that contingency planning for a collapse is now under way. …Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest. …Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash. …Analysts at UBS, an investment bank earlier this year warned that the most extreme consequences of a break-up include risks to basic property rights and the threat of civil disorder. “When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences,” UBS said.

Let’s think about what this means, and we’ll start with an assumption that European politicians won’t follow my sage advice and that they’ll instead continue to kick the can down the road – thus making the debt bubble even bigger and creating the conditions for a nasty collapse.

I’ve learned over the years that things are usually never as bad as they seem (or as good as they seem), so I don’t expect that a nightmare situation will materialize, but I certainly can understand why wealthy people have contingency plans to escape.

But what about the rest of us? We don’t have property overseas and we don’t have private jets, so what’s our insurance policy?

Part of the answer is to have the ability to protect ourselves and our families. As explained here, firearms are the ultimate guarantor of civilization.

In my discussions and debates about this issue, I’ve traditionally relied on these four arguments:

1. Respect for the Constitution. The Founding Fathers were wise to include “the right of the people to keep and bear arms” in the Bill of Rights. The Second Amendment recognizes the value of a well-armed citizenry, and today’s politicians (or courts) shouldn’t be allowed to weaken that fundamental freedom.

2. The presumption of liberty. It’s sometimes said that everything that isn’t expressly forbidden is allowed in the United States, whereas in Europe it’s the other way around, with everything forbidden unless explicitly permitted. This certainly seems to be the case for guns, with most European governments prohibiting firearms ownership for the vast majority of people.

3. Personal protection against crime. As the first image in this post powerfully illustrates, it doesn’t really matter if cops are only a few minutes away when a person only has a few seconds to protect against danger. And since the evidence is overwhelming that gun ownership reduces crime, this is a powerful argument for the Second Amendment.

4. Ability to resist government oppression. Totalitarian governments invariably seek to disarm people, as this poster indicates. And with the majority of the world still living in nations that are not free, private gun ownership is at least a potential limit on thuggish governments.

But perhaps we now need to add a fifth reason:

5. Personal protection against social breakdown. If politicians destroy the economic system with too much debt and too much dependency, firearms will be the first and last line of defense against those who would plunder and pillage.

Here’s a thought experiment to drive the point home. If Europe does collapse, which people do you think will be in better shape to preserve civilization, the well-armed Swiss or the disarmed Brits?

I hope we never have to find out, but I know which society has a better chance of surviving.

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I’ve been getting some emails complaining that it’s been a while since I posted the funniest politcal one-liners from the late-night comics. Well, I’m susceptible to peer pressure, so your wish is my command.

Here are some from Jay Leno:

  • A 6th-grade student from Springfield, New Jersey, who asked Gov. Chris Christie for campaign advice, wound up losing his election for student council. Worse still, he asked President Obama for economic advice and he now owes his school $14 trillion.
  • Sarah Palin announced that she will not run for president. The reason? She couldn‘t find her birth certificate.
  • Chris Christie has officially endorsed Mitt Romney for president. Christie said President Obama is “shrinking the American pie.” And believe me, if there’s one thing Christie hates, it’s a small pie.
  • China is facing a financial crisis. The unemployment rate there is a staggering 12 percent among 3-year-olds.
  • White House Chief of Staff Bill Daley announced he’ll be leaving the White House after the election. I get the feeling a lot of people are going to be leaving the White House after the election.
  • The economy is still hurting. Thirty percent of Americans are so disillusioned, they are thinking of moving back to Mexico.
  • President Obama joined other world leaders in trying to convince Greece to cut back in spending and reduce their debt. This is part of their “do as we say not as we do” summit, apparently.
  • Political experts say that if Greece goes under, the world banks will go under, and then the U.S. economy will go under, and this will cost President Obama the election. But Obama still has three chances to win: Rick Perry, Mitt Romney, and Herman Cain.
  • Conrad Murray was found guilty of giving Michael Jackson an overdose of a prescription sleeping aid. Pretty reckless on the part of the doctor. They said the sedative he prescribed was five times more powerful than a Joe Biden speech.
  • Herman Cain said he would be willing to take a lie detector test. But that’s kind of a double-edged sword. If he fails, his career is over. And if he passes and it turns out he’s not a liar, he’s obviously not cut out for politics.
  • A guy named Reggie Love leaving the White House to get a degree at the Wharton School of Business. I guess he realized you can’t learn anything about economics in the Obama White House
  • People say Herman Cain was rambling and embarrassed himself while trying to answer a question about Libya. Some say it proves he’s not qualified to be president. But the good news is, rambling and embarrassing himself does qualify him to be vice president.
  • Energy Secretary Stephen Chu testified before Congress yesterday that he thought it was a good idea to lend $535 million of our tax dollars to the solar panel company Solyndra right before they went bankrupt. If he’d taken all of that money, put it in a big pile and set it on fire, it would have produced more energy than Solyndra.

And David Letterman:

  • I love the protests. And if you think about it, what better way to send a message to Wall Street than by sitting in a pup tent banging on a drum.
  • Rick Perry is now behind in the polls and he’s not taking it well. Today he executed his pollster.
  • President Obama had his annual checkup and everything looks good. His cholesterol is down, his blood pressure is down, and his approval ratings are down.
  • Rick Perry announced today to satisfy environmentalists he is now using solar power. And this is brilliant thinking, using solar power to run the Texas electric chair.

Two good ones from Craig Ferguson:

  • It’s the third week of the Wall Street protests and they’ve closed down an entire Manhattan street. And then, the cops asked Michael Moore to move.
  • The protesters stood outside the homes of five rich dudes. Michael Moore was actually able to stand outside all five homes at the same time.

Jimmy Kimmel has a couple:

  • There’s a bill in Florida to repeal the state ban on dwarf tossing. Is this what Republicans mean when they say they want smaller government?
  • The big movie was the latest installment of ” Twilight” It made more than $140 million over the weekend. I have to say it’s refreshing to finally see a story about wolves and teen pregnancy that doesn’t involve the Palins.

And also Jimmy Fallon:

  • A team of American scientists just traveled to Russia to search for the Abominable Snowman. That’s right, a mythical creature who probably doesn’t exist. Or as Republicans call that, “a presidential candidate.”
  • President Obama had beer with four unemployed construction workers. And Obama asked the guys what was it like to lose their jobs, and they were like, “Oh, you’ll see.”
  • A company in Illinois is selling a collectible baby doll of President Obama. It’s really cute. The doll can even say a few words, as long as it has a teleprompter.
  • And just so Republicans don’t complain, it comes with a birth certificate.
  • Happy Birthday to Vice President Biden, who turns 69 this weekend! When they saw him coming, White House staffers turned off the lights, hid behind the couch, and then waited for him to leave.
  • President Obama came home after a nine-day trip to Asia. Well, he got to see some stuff he never sees at home, like jobs.
  • Tonight was the 14th Republican presidential debate, or as Barack Obama has started calling them, campaign ads.

Conan takes a few shots:

  • At the last Republican debate, the candidates were seated according to how they’ve been doing in the polls. So Jon Huntsman was seated next to Tim Pawlenty at a Denny’s across the street.
  • This morning on the “Today” show, Jenna Bush interviewed Ozzy Osbourne. Ozzy was so confused and inarticulate that Jenna accidentally called him “dad.”
  • According to a new poll, 42 percent of Americans say they are uncomfortable with the idea of having a Mormon president. When asked why, the people said, “We’re still getting used to having a Muslim president.”
  • Over the weekend in New York, two Occupy Wall Street protesters got married at the protest. They are registered at Bed, Bath, and Seriously, You Need to Take a Bath.

If you like these types of jokes, you can read more of them here, here, here, here, and here.

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Remember my post from a week ago when I said I was not a Republican even though Ronald Reagan and Calvin Coolidge are two of my heroes?

Well, now I have another reason to despise the GOP. Those reprehensible statists just voted to expand federal housing subsidies.

Here are some excerpts from an excellent National Review column by Andrew McCarthy.

Almost two weeks ago, when they figured no one was watching, the Republican-dominated House of Representatives, by an overwhelming 292–121 margin, voted to increase funding for the Federal Housing Administration. Just as government debt hit $15 trillion, edging closer to 100 percent of GDP, these self-proclaimed scourges of spending decided Uncle Sam should continue subsidizing mini-mansion mortgage loans — up to nearly three-quarters of a million dollars.  Given the straits that the mortgage crisis has left us in, to say nothing of the government’s central role in getting us there, one might think Republicans would be asking whether the government should be in the housing business at all. …the Republican House — installed by the Tea Party in a sea-change election to be the antidote to Obamanomics — decided the taxpayers should guarantee FHA loans up to $729,750. Had they not acted, the public obligation would have been reduced to “only” $625,500 per FHA loan — couldn’t have that, right? …thanks to GOP leadership’s good offices, this government mortgage guarantor now sports expanding portfolios, capital reserves acknowledged only in the breach, and the potential for hundreds of billions of dollars in losses. …If Republicans really thought the growth of government was unsustainable, they’d stop growing it.

I complained last month when 8 Republican senators voted to expand housing subsidies via Fannie and Freddie. Well, 17 GOP senators voted for destructive FHA subsidies, along with 133 Republican representatives.

So let’s recap. Everyone knows that government intervention caused the housing crisis, which is why Republicans should be voting to shut down the Department of Housing and Urban Development and enacting legislation to get government out of the housing sector.

But they decided instead that campaign loot from the corrupt housing lobbies was more important than doing the right thing.

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It isn’t fair to compare and contrast the views of a distinguished economist with the envious ramblings of a career politician/community activist. But it’s also not right for the government to use coercion to impose bad policy, so I don’t feel guilty about sharing this excerpt from a recent Walter Williams column.

President Barack Obama, in stoking up class warfare, said, “I do think at a certain point you’ve made enough money.” This is lunacy. Andrew Carnegie’s steel empire produced the raw materials that built the physical infrastructure of the United States. Bill Gates co-founded Microsoft and produced software products that aided the computer revolution. But Carnegie had amassed quite a fortune long before he built Carnegie Steel Co., and Gates had quite a fortune by 1990. Had they the mind of our president, we would have lost much of their contributions, because they had already “made enough money.” Class warfare thrives on ignorance about the sources of income. Listening to some of the talk about income differences, one would think that there’s a pile of money meant to be shared equally among Americans. Rich people got to the pile first and greedily took an unfair share. Justice requires that they “give back.” Or, some people talk about unequal income distribution as if there were a dealer of dollars. The reason some people have millions or billions of dollars while others have very few is the dollar dealer is a racist, sexist, a multinationalist or just plain mean. Economic justice requires a re-dealing of the dollars, income redistribution or spreading the wealth, where the ill-gotten gains of the few are returned to their rightful owners. In a free society, for the most part, people with high incomes have demonstrated extraordinary ability to produce valuable services for — and therefore please — their fellow man. People voluntarily took money out of their pockets to purchase the products of Gates, Pfizer or IBM. High incomes reflect the democracy of the marketplace. The reason Gates is very wealthy is millions upon millions of people voluntarily reached into their pockets and handed over $300 or $400 for a Microsoft product. Those who think he has too much money are really registering disagreement with decisions made by millions of their fellow men. In a free society, in a significant way income inequality reflects differences in productive capacity, namely one’s ability to please his fellow man.

Here’s my contribution to the debate, a video listing five reasons why class-warfare tax policy is destructive.

The only point worth adding is that not all wealth is legitimate. Those who profit from crony capitalism and/or insider connections have accumulated money through coercion, not through their ability to serve the needs of others.

That’s why I explained, in this interview, that it is important for defenders of capitalism to draw a bright-line distinction between earning honest wealth through free markets and obtaining dishonest loot via statism.

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The economic and fiscal crisis in Europe looks worse every day as a growing number of international investors decide that nations such as Greece, Portugal, Italy, and Spain can’t be trusted. As a result, interest rates on government debt are hitting record levels.

Not surprisingly, Europe’s craven political class is refusing to reduce the burden of government, perhaps because many nations have reached the dangerous tipping point where the number of people riding in the wagon is greater than the number of people pulling the wagon.

But, as a friend of mine from Ireland explains, there’s no way to kick the can down the road. Here’s some of what Constantin Gurdgiev wrote for Canada’s Globe and Mail.

…the euro area as a whole is no longer an engine for real business creation, productive investment, entrepreneurship or competitive development. The euro area combines some of the world’s fastest aging economies with a decades-old ethos of entitlements-driven policy making. Telling a European that one has to earn her or his health-care benefits or social insurance or pension or access to amenities and infrastructure is equivalent to challenging a brick wall to be flexible and dynamic. Europe as a cultural, political and economic institution has evolved into a status quo preservationist society, where anything new is seen as a challenge to be resisted — i.e. regulated, restricted, taxed. All solutions put forward to date — especially the euro-bonds and top-up bonds proposed by the EU Commission this week, as well as the idea that the ECB should dramatically expand its sovereign debt buying programs — are amounting to a desperate search for another credit card to roll existing overdrafts into. In effect, the euro area is electing to get sober by getting more drunk and is doing this while walking along the precipice of the fiscal and growth cliff.

Constantin hits the nail on the head. You can’t solve the fiscal crisis without economic growth, but it’s virtually impossible to get robust economic performance with a bloated public sector and populations that have been infantilized by government dependency.

Yes, there are solutions to the mess in Europe. The obvious answer is to copy the Baltic nations and slash government spending.

Or governments can default, which would be disreputable, but at least they would then be cut off from credit markets, thus making it much harder for them to engage in debt-financed spending.

In a perverse way (sort of like watching a slow-motion train wreck), it will be interesting to see what happens in the next few months. The only thing we can say with certainty is that the United States should follow these five lessons so we don’t make the same mistakes.

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I haven’t written much on the global-warming debate, other than to warn about how agenda-driven government funding is corrupting scientific inquiry and to mock nutjob extremists who assert climate change will cause catastrophes ranging from genocide to AIDS.

But I feel compelled to address the issue today because of a despicable move by the Australian government. In a step that one might expect from a thugocracy such as Russia or Argentina, Aussie politicians are criminalizing free speech, at least when it comes to businesses dealing with the burden of a new carbon tax.

Here are some excerpts from a column in Australia’s Daily Telegraph.

Now that the carbon tax has passed through federal parliament, the government’s clean-up brigade is getting into the swing by trying to erase any dissent against the jobs-destroying legislation. On cue comes the Australian Competition and Consumer Commission, which this week issued warnings to businesses that they will face whopping fines of up to $1.1m if they blame the carbon tax for price rises. …Businesses are not even allowed to throw special carbon tax sales promotions before the tax arrives on July 1. “Beat the Carbon Tax – Buy Now” or “Buy now before the carbon tax bites” are sales pitches that are verboten. Or at least, as the ACCC puts it, “you should be very cautious about making these types of claims”. There will be 23 carbon cops roaming the streets doing snap audits of businesses that “choose to link your price increases to a carbon price”. Instead, the ACCC suggests you tell customers you’ve raised prices because “the overall cost of running (your) business has increased”. …But no matter how Orwellian the tactics, no matter how many carbon cops are sent into hairdressing salons to interrogate barbers on the precise nature of their price rises, the truth remains: Australia has gone out on a limb, imposing a carbon tax that will send businesses to the wall, cause undue hardship to families, and tether Australians more tightly to government handouts. And soon, we will send billions of dollars overseas to buy useless pieces of paper called carbon credits. Investment bankers, lawyers and carbon traders will get rich, as will all the usual spivs and scam artists ready to stick a bucket under the government spigot raining taxpayer cash.

As is often the case when I read something this grotesque, I hope the author is wrong, or at least wildly exaggerating. I don’t hold politicians in high regard, but I like to think we haven’t reached a stage where they are using government coercion to stifle dissent.

I’m especially chagrined that this soft form of fascism is happening in one of my favorite nations.

By the way, as those of us in the northern hemisphere prepare for winter, we also should prepare for more protests instigated by Al Gore. And if you like global-warming humor, this Hitler parody is a classic.

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In past years, I’ve shared posts about taxes and Thanksgiving, political correctness and Thanksgiving, a serious look at how shifting from communism to private property led to Thanksgiving for the Plymouth Colony, and a humorous look at what Thanksgiving might be like if Mayor Bloomberg of New York City ever becomes President.

In the spirit of the season, here’s a cartoon based on the biggest turkeys in America, the political elite in Washington. As you may have read, they have an uncanny ability to get rich by trading stocks based on their insider knowledge about what is happening with legislation.

I suppose the cartoon is funny, but it’s actually rather outrageous that these jackals come to Washington with modest wealth and leave town decades later as multi-millionaires.

But since this is supposed to be a happy day, here’s a non-political Thanksgiving joke, and here’s another one that’s quite amusing, though I’ll warn you it is R-rated.

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I’m thankful for the usual things, such as my kids and being an American.

But I’m also thankful I’m not a blithering idiot like the bureaucrats at a Florida school. Here are a few details of this astounding example of utter stupidity.

A sheriff’s deputy was dispatched last week to a Florida elementary school after a girl kissed a boy during a physical education class. School brass actually reported the impromptu buss as a possible sex crime, according to the Lee County Sheriff’s Office. …The kiss apparently occurred after two girls debated over whom the boy liked more. That’s when one of the girls “went over and kissed” the boy. The redacted sheriff’s report notes that Haring “stated there were no new allegations of sexual abuse as far as she knew.”

Above and beyond the jaw-dropping idiocy of the education bureaucrats, I have two additional reactions to this story.

1. Why didn’t any girls try to kiss me in PE class? This isn’t right. There should have been redistribution so I got my fair share.

2. What on earth is wrong with Florida. Yes, they have the shame of being the home of the Florida Gators, but I’m talking about more fundamental weirdness. Many posts about government stupidity originate in the Sunshine State, including jack-booted speed trap policy, horrific stories about welfare abuse, and a kid getting suspended from school for having a toy gun.

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The left wanted to get one thing from the Supercommittee, and that was to seduce gullible Republicans into a 1990-style tax increase deal in order to enable bigger government.

But I was pleasantly surprised when GOPers failed to surrender, which means that taxpayers didn’t get raped and pillaged. But winning a battle is not the same as winning a war.

The real fight is now whether the sequester is allowed to happen. In other words, will politicians preserve the provision that will automatically slow the growth of the federal budget so that spending over the next 10 years  grows by about $2.0 trillion rather than $2.1 trillion.

This may not seem like much of an achievement, but it is a very important indicator of what will happen in the future. If we want to protect against higher taxes in the long run, we need to figure out how to restrain government spending.

At the very least, this means following Mitchell’s Golden Rule so that the private sector grows faster than government. This would slowly but surely shrink the burden of federal spending as a share of economic output, though actual spending cuts would be preferable and they would more quickly get us where we need to be.

The main obstacle to the sequester, at least on the right, is that it would slow the growth of the defense budget. According to recent calculations, the Pentagon budget would increase by only about $100 billion over the next 10 years if the sequester is implemented.

That might not be enough to keep pace with inflation, and some are wondering whether this puts America’s national security at risk. But  this chart, which was developed by Cato Institute colleagues, shows that the United States dominates global defense spending.

Not only does the United States account for 48 percent of total defense spending, our allies in Europe and the Pacific Rim account for another 24 percent of military outlays.

And even if we use an absurdly expansive definition of possible enemies (Russia, China, all of Central/South Asia, and the entire Middle East and Africa), the military expenditures by those nations and regions don’t even amount to one-fourth of the world total.

More important, the combined spending by all potential adversaries is only about one-half of what the United States is spending, and only one-third of the combined spending of the United States and our allies.

This isn’t an argument for blindly slashing the defense budget. Nor is it an argument that says a sequester is the best way to prune military spending. But it certainly suggests that some modest restraint won’t put America in danger.

Moreover, perhaps the sequester will trigger some much-needed analysis of how best to protect America’s national security.

Maybe Mark Steyn and Steve Chapman are correct and it is time to revisit our spending on NATO, an alliance that was put together to fight the Warsaw Pact, an adversary that no longer exists.

Perhaps it means we shouldn’t spend huge sums of money to defend South Korea, which is far richer and stronger than its crazy northern neighbor.

Or maybe it means that the United States shouldn’t be engaged in nation-building exercises that exacerbate anti-American sentiment in other nations.

I’m not a defense/national security expert, so I don’t pretend to know the right approach to all of these issues.

But I have some familiarity with the way things get done in Washington. Politicians, lobbyists, interest groups, and bureaucracies will all act like the world is coming to an end if budgets are not endlessly expanded. That’s just as true for the Pentagon as it is for all other parts of the federal government.

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I’ve written before on the topic of allowing organ sales, including a post on some polling data showing how a free market would save lives, so you won’t be surprised that I find this short video very persuasive.

I’m genuinely curious why some people are opposed to this reform. Seems like it’s a win-win-win situation. Could it be that there’s some visceral, evolutionary basis for the opposition?

I’d welcome feedback in the comments, especially from folks who are opposed.

(h/t: David Henderson, via Cafe Hayek)

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I’ve done a video on excessive compensation for bureaucrats and I’ve written many times about wasteful spending, but here’s a cartoon that manages to effectively combine both concepts.

If your eyes are getting old like mine, you may need to click on the image to read everything.

This cartoon is good, but here’s another that is remarkable because it does capture the mindset that exists inside the government.

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Even though I expressed some support for the Occupy protesters the other day, I strongly reject their entitlement mindset.

So you can imagine how I found this image both humorous and accurate. Maybe I’m biased because a lot of my softball buddies are in the military or former military, but each soldier is worth about 100 of the OWS protesters.

If you like this type of humor, scroll down on this post.

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Welcome Instapundit readers! Canada’s fiscal restraint (relative to the U.S., at least) is not the only positive development. Canada also has privatized its air traffic control system and fought against European schemes for bank taxes. No wonder Canada now ranks above America in both the Economic Freedom of the World Index and the Index of Economic Freedom.

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Since I’ve written before about Canada’s remarkable period of fiscal restraint during the 1990s, I am very pleased to see that the establishment press is finally giving some attention to what our northern neighbors did to reduce the burden of government spending.

Here are some key passages from a Reuters story.

“Everyone wants to know how we did it,” said political economist Brian Lee Crowley, head of the Ottawa-based think tank Macdonald-Laurier Institute, who has examined the lessons of the 1990s. But to win its budget wars, Canada first had to realize how dire its situation was and then dramatically shrink the size of government rather than just limit the pace of spending growth. It would eventually oversee the biggest reduction in Canadian government spending since demobilization after World War Two. …The turnaround began with Chretien’s arrival as prime minister in November 1993, when his Liberal Party – in some ways Canada’s equivalent of the Democrats in the U.S. – swept to victory with a strong majority. The new government took one look at the dreadful state of the books and decided to act. “I said to myself, I will do it. I might be prime minister for only one term, but I will do it,” said Chretien. …The Liberals thought their first, rushed budget – delivered in February 1994, three months after taking office, was tough. It reformed unemployment insurance entitlements, and cut defense and foreign aid… The upstart Reform Party, then the main national opposition party, had campaigned on “zero-in-three” – balance the budget in three years. “We were always trying to go faster,” said Reform’s leader at the time, Preston Manning. …The Liberals were stung by the criticism and, at first reluctantly but then with gusto, they got out the chain saws. …Cutting government spending programs went against the Liberal grain. Contrary to the Reform Party, the Liberals saw a more important role for government. Paul Martin now has a lasting reputation as the finance minister who slayed Canada’s deficit, but the conversion from spender to cutter was painful. His father, also called Paul, had helped create Medicare, Canada’s publicly funded health care system, and suddenly here was Paul Junior contemplating massive cuts.

This is a remarkable story. My only real quibble is that the fiscal restraint actually started the year before the Liberal Party took power, as the chart (click to enlarge) illustrates.

But the key thing to understand is that Canada enjoyed a five-year period when government spending increased by an average of only 1 percent each year.

There are more good passages in the story. Can anybody imagine Obama doing this?

At one 1994 cabinet meeting, Martin announced a spending freeze. A minister put forward a project that needed funding but Chretien cut him off, reminding him of Martin’s freeze. A second minister raised his hand to ask for funding, and a testy Chretien told the cabinet that the next minister to ask for new money would see his whole budget cut by 20 percent. …The ratio of spending cuts to tax hikes was seven-to-one. Asked why, Chretien said simply: “There was more need on one side than the other.” …Cuts ranged from five percent to 65 percent of departmental budgets.

By the way, while there were a few tax hikes implemented, they were trivial. Tax revenue as a share of GDP rose from 44.2 percent of GDP to 44.5 percent a GDP, an increase that probably was going to happen anyhow as Canada’s economy recovered.

So what were the results of Canada’s spending freeze?

The following passage has some numbers, but the second chart (click to enlarge) shows that the burden of government spending in Canada (right axis) fell from 53 percent of GDP to 44 percent of GDP in just five years. And red ink (left axis) completely disappeared.

The deficit disappeared by 1997 and the debt-to-GDP ratio began a rapid decline – it is now at about 34 percent. …After wrestling the deficit to the ground, Canada enjoyed what Crowley calls the payoff decade, outperforming the rest of the G7 on growth, job creation and inward investment. From 1997 to 2007, it averaged 3.3 percent economic growth. while U.S. growth averaged 2.9 percent.

The most important thing to understand is that Canada’s economy improved because the burden of government spending was reduced. And because the underlying disease was being treated, this meant two of the symptoms of excessive government – deficits and debt – also became less of a problem.

Last but not least, there are rewards for good policy. Just as Reagan enjoyed a landslide in 1984 after sticking to his guns, Canada’s Liberal Party also reaped the benefits of doing the right thing.

The final lesson is that you can impose painful spending cuts and still win elections. Chretien went on to win two more back-to-back to form majority governments, a rare feat. ,,,Drummond, who later moved to the private sector and is now an advisor helping the Ontario provincial government slash its deficit, noted that governments on the right and left in Saskatchewan, Alberta and Ontario won more voter support after their own budget cuts in the 1990s.

Here’s a video I narrated that looks at the Canadian experience, as well as similar good reforms in New Zealand, Ireland, and Slovakia.

Last but not least, let’s put all of this in context. As demonstrated here, the U.S. would enjoy a balanced budget in just eight years if politicians could be convinced to limit spending so that it increased by 1 percent each year.

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As demonstrated by the new video from the Center for Freedom and Prosperity, there are five key lessons to learn from the fiscal crisis in Europe.

Unfortunately, Europe’s despicable political class has not learned from their mistakes. They are not taking the simple and obvious steps that are needed to address the problems of spendthrift governments.

Instead, they want to compound bad fiscal policy with bad monetary policy by having the European Central Bank purchase even more bonds issued by the continent’s most decrepit welfare states.

I warned last year that this was a big mistake and I’m glad to see that the issue is now getting more attention. Here’s some of what the Wall Street Journal said in an editorial this morning.

Only weeks into his new job as president of the European Central Bank, the Italian is being portrayed along with German Chancellor Angela Merkel as the main—the only—obstacle to saving the euro zone. If only the ECB would print a few trillion euros to buy the debt of spendthrift European countries, all will be well. Hang in there, Mr. Draghi, and you too, Chancellor. Don’t let the French, the British and the Yanks, the euro-pundits and the other blabbering bullies for bailouts get you down. Someone needs to defend the principle of central bank independence and price stability. The ECB has been by far the most effective part of the euro system since its founding. It shouldn’t squander that legacy now by taking on the debts of spendthrift governments that are the real cause of this crisis. It’s true that the ECB has already become a little bit pregnant in buying sovereign bonds, first taking on Greek, Irish and Portuguese debt, and this summer Spanish and Italian bonds. A week ago Friday, the ECB held €187 billion worth of country bonds. …So far, the ECB’s bond purchases have been limited enough that the central bank has been able to “sterilize” them, meaning they are offset by withdrawing money elsewhere in the banking system and haven’t added to the overall supply of money. But a multitrillion euro program would make sterilization impossible and would become a money-printing exercise. …If the Germans and ECB do write a blank check, then the balance of power within the euro zone will shift markedly, and perhaps irreversibly, in favor of the spenders. Even if this prevented short-term panic, it would merely postpone the day of reckoning and leave Europe worse off in the medium and long term. Without a system that can enforce spending restraint, borrowing discipline and economic reform, all the ECB bond-buying in the world won’t save the euro, and the independence of the ECB itself will become another casualty of the crisis.

The mess in Europe is like a slow-motion train wreck. It’s easy to see it won’t work, but that doesn’t stop the politicians from doing the wrong thing.

Indeed, I predicted most of the bad policies. But it doesn’t require much insight to know that statism won’t work, as I acknowledged in my I-told-you-so post.

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This is probably my favorite political cartoon, and this one is the most-viewed post in the history of this blog, but here’s one probably should be near the top because it so perfectly captures the mindset of the political class.

Though if you want to teach economics, here are good cartoons about incentives, Keynesian economics, and unemployment insurance.

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Even though I’ve expressed a small bit of sympathy for their motives, I’m not a fan of the OWS protesters. But other than sharing some jokes about the movement (see here, herehereherehere, and here), I haven’t had much to say.

But this video showing a clash with police at UC Davis is rather troubling.

I realize that I don’t know the context, but the police reaction seems rather excessive. Two questions spring to mind.

1. Why does anyone care that they’re blocking a sidewalk? I can understand that the police have to act if protesters decide to block a street,but why was there a need to have a big confrontation (one that the protesters obviously wanted) to clear a sidewalk? My instinct would be to leave them alone.

2. Why did they use mace? Surely there ought to be some rule of proportionality. If a bunch of protesters are smashing windows or overturning cars, then a more aggressive response obviously is needed. But why use pepper spray on some college kids sitting on a sidewalk?

I consider myself a tough-on-crime conservative, but mixed with a strong libertarian belief in individual rights. As I said in an earlier post, the real key is to make sure laws are just.

That’s why I’ve criticized abuses of police power, in cases such as asset forfeiture, the destructive war on drugs, videotaping of public officials, and persecution of victimless crime.

Is this video another example of a government doing the wrong thing? Again, we don’t know the context, but this doesn’t seem right.

I assume the cops are just following orders, so the real issue is decision making by local politicians or university administrators.

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Some people have asked why I’m so agitated about the possibility that Republicans may acquiesce to tax increases as part of the Supercommittee negotiations.

Rather than get into a lengthy discourse about the proper role of the federal government or an analysis of how the Bush-Obama spending binge worsened America’s fiscal situation, I think this chart from a previous post says it all.

Republicans are considering a surrender on taxes because they are afraid that a deadlock will lead to a sequester, which would mean automatic budget savings. And the sequester, according to these politicians, would “cut” the budget too severely.

But as the chart illustrates, that is utter nonsense.

There are only budget cuts if you use dishonest Washington budget math, which magically turns spending increases into spending cuts simply because the burden of government isn’t expanding even faster.

If we use honest math, we can see what this debate is really about. Should we raise taxes so that government spending can grow by more than $2 trillion over the next 10 years?

Or should we have a sequester so that the burden of federal spending climbs by “only” $2 trillion?

The fact that this is even an issue tells us a lot about whether the GOP has purged itself of the big-government virus of the Bush years.

A few Republicans say that a sellout on tax hikes is necessary to protect the defense budget from being gutted, but this post shows that defense spending will climb by about $100 billion over the next 10 years under a sequester. And that doesn’t even count all the supplemental funding bills that doubtlessly will be enacted.

In other words, anyone who says we need to raise taxes instead of taking a sequester is really saying that we need to expand the burden of government spending.

So even though Ronald Reagan and Calvin Coolidge are two of my heroes, now you know why I don’t consider myself a Republican.

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At a basic level, my attitude on patriotism is captured by this t-shirt. And hold the snarky comments. My view is not influenced by the woman modeling it.

Or, if you want something with more substance, this Penn & Teller routine is very instructive.

But this polling data, taken from a recent report from the Pew Research Center, captures what is great about American exceptionalism.

When I periodically express my patriotic feelings, I am celebrating my happiness that I live in a nation where a majority of people still favor liberty over dependency.

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Yesterday, I unloaded on supposed conservatives who are toying with a tax increase to enable more government spending.

Why would they take that route in the “Supercommittee” deliberations, I wondered, when they can deliver a guaranteed victory for taxpayers by holding firm and allowing a sequester to occur, which would automatically slow the growth of federal spending?

Many of the beltway elites seem to think a sequester would be catastrophic, leading to “savage” and “draconian” budget cuts.

This is nonsense. As I’ve already explained, a sequester simply means that spending climbs by $2 trillion between now and 2021 rather than climbing by $2.1 trillion (see this chart).

If that’s “savage” and “draconian,” then I suppose we should hospitalize 300-pounders for anorexia when they trim their toenails.

The Wall Street Journal’s editors are equally dismissive of the anti-sequester hysteria among the politicians, lobbyists, bureaucrats, and special interest groups. Here’s some of what they had to say.

…the sequester does have the virtue of imposing reductions in spending that Congress rarely agrees to on its own. …This would yield $68 billion in savings in 2013, and more savings in future years by ratcheting down the baseline level of spending. …Total domestic discretionary spending doubled to $614 billion in 2010 from $298 billion in 2000. Even if there were a 10-year $1.2 trillion “cut,” total discretionary spending would still rise by $83 billion by 2021 because those cuts are calculated from inflated “current services” projections. …If the super committee choice is between a tax increase that would hurt the economy or letting the sequester strike in 2013, go with the sequester.

And in a column on the editorial page of the Wall Street Journal, former Senator Phil Gramm, along with a Capitol Hill budget expert, Mike Solon, echoed these sentiments. Here are some key passages.

As markets and the media conclude that the congressional super committee on deficit reduction is likely to fail, public attention is increasingly focused on the “draconian” across-the-board cuts that will ensue. …Across-the-board cuts are clearly inferior to rationally setting priorities, but they’d be far from debilitating. Spending has grown so fast in the last five years that even if the cuts are triggered, total spending in 2013 would still be a whopping $3,582 billion—32% more than projected by the Congressional Budget Office in January 2007. Even after adjusting for inflation, real nondefense discretionary spending would be up $41 billion, or 7.6%, and real defense discretionary spending would be up $77 billion, or 13%. …The super committee should write a good plan now if it can do so, but it should not take a bad deal that could hurt the economy and further Hellenize America’s debt crisis. The committee members should bear in mind that help is just an election away.

Gramm and Solon also explain that it will be very easy to modify a sequester after the 2012 election, so pro-defense hawks should not be fearful of a sequester – which was the point I made in an earlier post.

For all intents and purposes, the Supercommittee fight is a battle to see whether the GOP has shed the corrupt big-spending mentality of the Bush years. This should be an easy choice for a party that believes in limited government. The fact that we’re even having this discussion is not an encouraging sigh.

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Earlier this month, I took part in an online debate for U.S. News & World Report about whether Europe or the United States was in deeper fiscal trouble.

I wrote that Europe faced a bigger mess, though I warned that the United States was making the same mistakes of costly and inefficient welfare-state policies and that we would follow them into fiscal crisis if we didn’t reform programs such as Medicare and Medicaid.

More important (at least to my fragile ego), I asked people to vote for the best presentation and I’m happy to say that I now have a huge lead in the voting.

Now there’s a new debate topic. I have squared off against a statist on the topic of bailouts. Here’s some of what I wrote.

The Bush-Obama policies of bailouts and regulation have been bad for taxpayers, but they’ve also been bad for the economy. A vibrant and dynamic economy requires the possibility of big profits, but also the discipline of failure. Indeed, capitalism without bankruptcy is like religion without hell. …Especially when the government adopts bad policies that cause a housing bubble, such as easy money from the Federal Reserve and corrupt subsidies from Fannie Mae and Freddie Mac. …Some people argue that America had no choice but to bail out Wall Street and the financial services industry. …Either through ignorance or corruption, they falsely assert that company-specific bailouts were necessary to recapitalize the financial sector. Nonsense. It is a relatively simple matter for a government to put a financial institution in receivership, hold all depositors harmless, and then sell off the assets. Alternatively, the government can pay a healthy institution to absorb an insolvent institution. This is what America did during the savings & loan bailouts 20 years ago. It’s also what happened with IndyMac and WaMu during the recent financial crisis. And it’s what the Swedish government basically did in the early 1990s when that nation had a financial crisis. …If this policy makes sense and has worked before, why does the crowd in Washington prefer bailouts? At the risk of being cynical, the politicians don’t like the FDIC-resolution approach because it means no giveaways for shareholders, bondholders, and senior managers. And that would require stiff-arming big campaign contributors.

If you agree, you can vote for me by clicking the “mic” button near the top of the page. And, to be fair, you can also vote for bailouts and regulation on the page featuring my opponent’s article.

The debate just started yesterday and I’m currently trailing 14-12 (as of 8:57 EDT), so get your Chicago voter registration cards and vote early and vote often.

If I can win this debate, it will help ease the trauma of losing the stimulus debate in New York City.

Though I’m not sure what this would say about me. I got a big win last year in my US News & World Report debate on the flat tax, so perhaps the lesson to be learned is that I should only take part in online debates rather than appear in person.

Sort of like having a face for radio, I guess.

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What would you do if you saw somebody standing at the top of a skyscraper, about to jump? Would you avert your eyes in horror? Would you watch in dismay as they plummeted to the ground?

These are similar to the thoughts that are going through my mind as I watch Republicans begin the process of capitulating to a tax increase as part of the Supercommittee process.

Indeed, this is one of those moments when I desperately wish I was wrong. I warned back in August that the Supercommittee was a tax increase trap. Republicans have this lemming-like instinct to jump off the cliff, even though they get taken to the cleaners every time they agree to real tax increases and get make-believe spending cuts in exchange.

Here’s a depressing paragraph from a recent Washington Post story.

Tensions have mounted in recent days as two of the GOP’s most fervent anti-tax stalwarts on Capitol Hill — Sen. Patrick J. Toomey (Pa.) and Rep. Jeb Hensarling (Tex.) — have lobbied party colleagues behind the scenes to forgo their old allegiances and even break campaign promises by embracing hundreds of billions of dollars in tax hikes.

What makes this potential sellout so disturbing is that every dollar of tax increases will enable another dollar of wasteful spending.

Here’s what George Will wrote in his latest column about the GOP’s foolish naiveté.

Although only 21 of the 242 Republicans in the House and eight of 47 Republicans in the Senate were on Capitol Hill in 1990, everyone there should remember the results of that year’s budget agreement, wherein President George H.W. Bush jettisoned his “no new taxes” pledge: Taxes increased. So did spending. And the deficit. Economic growth decreased.

So why are Republicans thinking of repeating this mistake? Well, there’s no good answer, but the most commonly cited reason is that they have been misled into thinking that the alternative result – automatic “budget cuts” known as sequestration – is too harsh.

This is an absurd line of reasoning, in part because it is blatantly inaccurate. The supposed “budget cuts” are only reductions if one uses dishonest Washington budget math. For those who rely on real-world numbers, total spending will climb significantly even if the sequester occurs.

Here is a chart that was part of an excellent article by Veronique de Rugy of the Mercatus Center. It shows that spending – including defense spending – will increase regardless of what happens.

The only issue is whether members of the Stupid Party agree to a tax hike so that the burden of federal spending can climb even faster.

The Washington elites want a deal so they can transfer more money to Washington. For American taxpayers, however, the only good conclusion is a Supercommittee deadlock, followed by a sequester.

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I’ve written about the fiscal implosion in Europe and warned that America faces the same fate if we don’t reform poorly designed entitlement programs such as Medicare and Medicaid.

But this new video from the Center for Freedom and Prosperity, narrated by an Italian student and former Cato Institute intern, may be the best explanation of what went wrong in Europe and what should happen in the United States to avoid a similar meltdown.

I particularly like the five lessons she identifies.

1. Higher taxes lead to higher spending, not lower deficits. Miss Morandotti looks at the evidence from Europe and shows that politicians almost always claim that higher taxes will be used to reduce red ink, but the inevitable result is bigger government. This is a lesson that gullible Republicans need to learn – especially since some of them want to acquiesce to a tax hike as part of the “Supercommitee” negotiations.

2. A value-added tax would be a disaster. This was music to my ears since I have repeatedly warned that the statists won’t be able to impose a European-style welfare state in the United States without first imposing this European-style money machine for big government.

3. A welfare state cripples the human spirit. This was the point eloquently made by Hadley Heath of the Independent Women’s Forum in a recent video.

4. Nations reach a point of no return when the number of people mooching off government exceeds the number of people producing. Indeed, Miss Morandotti drew these two cartoons showing how the welfare state inevitably leads to fiscal collapse.

5. Bailouts don’t work. This also was a powerful lesson. Imagine how much better things would be in Europe if Greece never received an initial bailout. Much less money would have been flushed down the toilet and this tough-love approach would have sent a very positive message to nations such as Portugal, Italy, and Spain about the danger of continued excessive spending.

If I was doing this video, I would have added one more message. If nations want a return to fiscal sanity, they need to follow “Mitchell’s Golden Rule,” which simply states that the private sector should grow faster than the government.

This rule is not overly demanding (spending actually should be substantially cut, including elimination of departments such as HUD, Transportation, Education, Agriculture, etc), but if maintained over a lengthy period will eliminate all red ink. More importantly, it will reduce the burden of government spending relative to the productive sector of the economy.

Unfortunately, the politicians have done precisely the wrong thing during the Bush-Obama spending binge. Government has grown faster than the private sector. This is why this new video is so timely. Europe is collapsing before our eyes, yet the political elite in Washington think it’s okay to maintain business-as-usual policies.

Please share widely…before it’s too late.

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I posted a video making this point earlier in the year, and I also posted a version of this joke back in 2010, but here’s another version that’s worth sharing because of the five lessons to be learned at the conclusion.

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An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on Obama’s plan”. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy.

When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
It could not be any simpler than that.

There are five morals to this story:

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

2. What one person receives without working for, another person must work for without receiving.

3. The government cannot give to anybody anything that the government does not first take from somebody else.

4. You cannot multiply wealth by dividing it!

5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.

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I’ll make one final point. There are five morals to the story, but there are dozens of nations giving us real-world examples every day.

Sort of makes you wonder why some people still believe this nonsense?

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Appearances can be deceiving. I saw an article with a blaring headline that warmed my heart: “France’s Sarkozy Eyes Welfare Rethink, Fraud Clampdown.”

Could it be, I thought, that the political elite finally realized that the welfare state was the wrong model? Had they finally realized, as demonstrated by these cartoons, that it was foolish to bribe more and more people to ride in the wagon while raping and pillaging the shrinking number of taxpayers pulling the wagon?

I remembered that the French increased the retirement age to 62 last year, so perhaps that tiny step was the beginning of broader reforms to shrink the burden of government.

These were the thoughts that flashed through my mind as I clicked on the Reuters story, and the first few sentences got me even more excited.

President Nicolas Sarkozy branded welfare fraud a “betrayal” of national principles on Tuesday and said France needed to rethink the way its benefit system was financed in order to ease the burden on employers. The financing of the welfare system, one of the world’s most generous, has become a hot issue ahead of a presidential election next April due to worries about the health of public finances and a parliamentary report pointing to billions of euros being lost every year because of fraud.

But then my dreams of a French renaissance were dashed on the rocks of reality when I discovered that “welfare fraud” in France occurs when taxpayers don’t pay enough, not when able-bodied people have their snouts in the public trough.

“We must have no tolerance for cheaters and fraudsters,” Sarkozy told supporters in the southeastern city of Bordeaux. “Cheating — and I mean stealing from the social security system — is stealing from each and every one of us, and each and every one of you.” …The parliamentary report, published earlier this year, estimated the French state loses 20 billion euros ($27 billion)per year to welfare fraud, much of it due to employers failing to pay social fees for their workers.

In other words, oppressed French businesses and workers are the welfare cheats. To the French political class, welfare fraud occurs not when undeserving people suck at the public teat, but instead occurs when employers and employees resort to the shadow economy to protect jobs.

So what can we learn from this?

Well, we can safely assume that the great 19th-century French economist Frederic Bastiat is rolling over in his grave. Classical liberalism is not enjoying a rebirth in France.

More important, we can probably conclude that France is past the tipping point of fiscal suicide. If you have any French government bonds, sell them now. If you don’t believe me, look at this graphic from the New York Times.

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