How to Reduce the Budget

Says Mr. President:

Tomorrow, I’m pleased to announce, that the Washington Monument as well as the entire federal government will be open for business.

Whew! What a relief. And the best part is that we get to operate under a whopping 1% spending cut. 1 percent! Thats like, I’m spending $100 every day, I’ll cut my spending significantly. From now on, I’ll spend only $99 every day. I’m charging it on the credit card, but let’s not split hairs here. What a circus.

What is mainly wrong with the rhetorical “Where would you cut?” is its implicit assumption that the burden of proof is is on those who wish to cut. The burden of proof, on the contrary, must be on those who wish to make the expenditures. Any dollar of expenditure that they cannot affirmatively justify ought not to be made.

Henry Hazzlitt, “How to Reduce the Budget,” Newsweek, January 20, 1947.

The beginning of wisdom …

… is to call things their right names. Ergo, I am (take a deep breath) – a left wing liberal. Yes, you’ve heard it right – left wing liberal. Read on.

It was originally left, not right that was against the king and big government. As for the term liberal being hijacked by FDR and his followers, it is a notorious fact. Now, I understand that things are different today and people recognize these names in different way. But, that is precisely where the problem is.

To learn about left-right origins, check Dean Russell‘s “The First Leftists“:

[T]he original leftists wanted to abolish government controls over industry, trade, and the professions. They wanted wages, prices, and profits to be determined by competition in a free market, and not by government decree. They were pledged to free their economy from government planning, and to remove the government-guaranteed special privileges of guilds, unions, and associations whose members were banded together to use the law to set the price of their labor or capital or product above what it would be in a free market.

As for liberalism, Bettina Bien Greaves writes in the preface to Ludwig von Mises‘ “Liberalism“:

The term “liberalism,” from the Latin “liber” meaning “free,” referred originally to the philosophy of freedom. It still retained this meaning in Europe when this book was written (1927) so that readers who opened its covers expected an analysis of the freedom philosophy of classical liberalism. Unfortunately, however, in recent decades, “liberalism” has come to mean something very different. The word has been taken over, especially in the United States, by philosophical socialists and used by them to refer to their government intervention and “welfare state” programs.

The book is highly recommended.

And then, good old Hazlitt says:

But this brings us to our problem. Those of us who place a high value on human liberty, and who are professionally engaged in the social sciences — in economics, in politics, in jurisprudence — find ourselves in a minority (and it sometimes seems a hopeless minority) in ideology. There is a great vogue in the United States today for “liberalism.” Every American leftist calls himself a liberal! The irony of the situation is that we, we in this room, are the true liberals, in the etymological and only worthy sense of that noble word. We are the true adherents of liberty. Both words — liberal and liberty — come from the same root. We are the ones who believe in limited government, in the maximization of liberty for the individual and the minimization of coercion to the lowest point compatible with law and order. It is because we are true liberals that we believe in free trade, free markets, free enterprise, private property in the means of production; in brief, that we are for capitalism and against socialism. Yet this is the philosophy, the true philosophy of progress, that is now called not only conservatism, but reaction, the radical Right, extremism, Birchism, and only Bill Buckley here knows how many other terrible things it’s called.

So here we have it today – a great scientific liberal thought forced to go under derogatory (even “libertarian” has a stigma attached to it) names, making it an easy target for pushing on the fringes of society. Sigh.

Writes Bettina Bien Greaves:

Mises had decided that the advocates of freedom and free markets should not relinquish “liberalism” to the philosophical socialists. In the Prefaces of both the second (1963) and third (1966) editions of his magnum opus, Human Action, Mises wrote that the advocates of the freedom philosophy should reclaim “the term ‘liberal’ … because there is simply no other term available to signify the great political and intellectual movement” that ushered in modern civilization by fostering the free market economy, limited government and individual freedom.

The beginning of wisdom is to call things by their right names. Spread the word!

Promise from a Rose Garden

“The fact is, everyone wins,” Obama said during a Rose Garden ceremony

How stupid was it not to elect an expert like this before. There would have never been an economic crisis. Auto industry would have flourished. The minds of executives, economists and engineers of the whole world auto industry were not able to achieve what (yes) he can:

“Consumers pay less for fuel, which means less money going overseas and more money to save or spend here at home. The economy as a whole runs more efficiently by using less oil and producing less pollution,” he said. “And companies like those here today have new incentives to create the technologies and the jobs that will provide smarter ways to power our vehicles.”

It’s so simple – economics 101.

For the record here, so he can’t say down the road, “I never promised you a rose garden.”

Change Daily? Yes We Can.

I want to ask you an intimate question: Where was your underwear made?

One of the punch lines for “fair tax” is that it will lower the prices drastically. But is it really so?

It just occurred to me this morning, while dressing, to look at what am I wearing. More specifically, where is it made. Underpants – India, jeans – Mexico, shirt – Haiti (imported via Mexico), shoes – China. Luckily, weather is warm so I don’t need sweater and coat. Also, socks had no tag, which made my day and gave me a little bit of (likely false) hope.

What has happened over the last decade is we have exported our production facilities, alongside with our monetary inflation. We have imported a lot of junk – big-screen TVs, iPods, toys, … borrowing a lot of money in the process, privately and publicly. Not good. Peter Schiff explains:

“Trade deficits are OK under certain circumstance. 1. An emerging nation imports capital goods necessary to enhance its productivity. 2. A developed nation, with a current account surplus, uses some of its investment income to finance the purchases of additional consumer goods from abroad.

While it’s true that removing corporate taxes would stimulate the production in the right direction, such process takes significant time and is not at all likely to have predicted impact in the highly toxic and chaotic financial environment. In the meantime, how is sales tax going to make foreign-made goods and domestic services cheaper, remains to be seen.

I’d like to hear from folks who, while reading this, identify a piece of clothes Made in U.S.A. on them. Let us know the brand of the patriotic company.

The Fairy Tax

“It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of right.”

— Ludwig von Mises, “The Theory of Money and Credit”

In principle, I like the so called “Fair Tax” proposal. I say “in principle”, because I think it is really a good idea to pull the taxing on the edge of the economy – it creates a cleaner interface, thus greatly simplifying the whole process. I say “so called” because it is not fair, but more about it later. The visible taxing is but one of the burdens on the economy. Even in a “sales tax only” world, the government fingers are still in the economic pot and there are many other issues that are much more urgent as well as dangers associated with enacting another tax without making 100% sure it is a replacement rather than addition. So, buckle down, here we go …

According to the Fair Tax website, the fair tax is

“a comprehensive proposal that replaces all federal income and payroll based taxes”.

Additionally, it promises to do away with the much dreaded IRS. The rationale, in a nutshell, is that businesses will be relieved from the tax burden, everyone will pay the same amount and economy shall tremendously prosper as a result. If it were so simple to fix our economic woes, I wonder why did we not do it already? Methinks there is something seriously flawed in both the plan and its timing. Not that it does not have valid points – it does, many. There are indeed measures in there that would have stimulative effects on the economy. But there’s much, much more to it then just simplifying the way we pay taxes and – poof – we find ourselves in a paradise literally overnight. For, that is precisely what the fair tax proponents like Neal Boortz promise.

For starters, there is absolutely nothing in the legislation proposal that addresses the main ill that affects the economy most and has to be dealt with first – the central planning embodied in the lethal combination of Federal Reserve System, fiat-money, fractional-reserve banking and their corollary – the rapidly growing federal deficit-spending machine. Any reform that does not address those issues is merely a band-aid on a cancer. The fair tax proponents are surprisingly honest about it:

“We are not calling for elimination of federal taxation, which would be irresponsible and undesirable.

This would imply that, until 1913, this nation was irresponsible and has lived in undesirable way. The conspiracy-theory-borderline conclusion whether the 16th ammendment only accidentaly coincides with the Federal Reserve Act is left as an exercise to the reader. But, wait, there’s more – the real trouble with the mindset behind the “fair” tax is succintly expresed in the following sentence:

“Nor does our endorsement call for reduced federal spending.

With all due respect, I can not but wonder whether these people are aware of the grim reality of U.S. debt. And, with more due respect, I wonder if they are aware of the fact that some of their colleagues have a very different opinion on the subject.

Furthermore, while the current tax code indeed harms the business efficiency, it is by no means the only obstacle. The main obstacle is the aforementioned rigged financial system and acompanying forrest of regulations. But Fed is not the only culpit – there’s FDIC, EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, OSHA, CPSC, NHTSA, EEOC, BATF … and the obstacles those agencies impose on the businesses.

Futhermore, it is troubling that the H.R. 25 states (SEC. 2 CONGRESIONAL FINDINGS.):

“Findings Relating to Repeal of Present Federal Tax System- Congress further finds that the 16th amendment to the United States Constitution should be repealed.

The term “should” is obviously weak language and by no means a guarantee that this shall happen. Repealing a constitutional amendment is a long process and H.R. 25 provides no guarantees thereof – only suggests that it should happen. That being said – how likely is it that we end up with both income and sales tax which later, as entitlement programs sink deeper and deeper into financial troubles and U.S.A. drifts ever closer to the European social democratic model, morphs into a full-blown VAT? Even the fair tax proponents admit that there is no guarantee on that. They just hope that things would be so good that additional taxes would not have to be imposed.

But even if one disregards all the mentioned shortcomings that would prevent the realization of the paradise promised by the fair taxers, at it’s very bottom, the fair tax is not fair – it comes with income redistribution as a built-in feature. Yes, the people who receive money without doing any work in return will still be with us. Since subsidies always create more of the subsidized activity, we can expect the number of recipients in this category to keep growing. But, even when I chew up on that one, I stumble over the percentage controversy. Call me paranoid, but if it’s all the same tomato, is it really only by accident that we are served a perception of the smaller one?

Last but not least, what we call taxes (all of them – federal, state, excise, property, …) is by no means a whole picture. Inflation is taxation. So is deficit spending.

Admittedly, it’s easy to be a critic. Some smart people thought hard and long, money was spent, efforts expended and trashing it all without a counter proposal would be irresponsible. So, I propose the following course of action:

• Pass H.R. 1207 (Federal Reserve Transparency Act of 2009). That will give us some grounds to discuss whether central banking is good or not for our economy. I suspect it will provide a lot of reasons to abolish it.
• Abolish the Federal Reserve. For those who think this is radical and impossible, I submit the fact that it was done twice before in the U.S history (hint: check that $20 bill face bio).
• Establish sound money. Since only God can make it, deficit spending is automatically taken care of. This, in turn, automatically shrinks the governement.
• Establish 100% reserve banking.
• Reform the taxes.

I have only touched on the most troubling aspects of the so called “fair” tax. It’s nickname is misguiding and the proposal aims at the right target in a wrong way and prematurely. The authors have fallen into the common economic fallacy trap – not thinking it all the way through.

“Economics is haunted by more fallacies than any other study known to man. This is no accident. … The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

– Henry Hazlitt, “Economics in One Lesson”

With some modifications, H.R.25 would be a worthwhile effort in an economic environment that operates on a solid foundation of free market, sound money and balanced governement budgets. In the reality of our current state of the economic affairs, I hate to say it, but it’s a fairy tale.

Thus Spoke Mhlakaza

David Deming compares Xhosa cattle-killing movement with the contemporary green movement spearheaded by Nobel laureate Al Gore. To achieve his fifteen-year-old niece’s vision, the movement leader Mhlakaza fanatically urges Xhosa people to kill all their cattle and destroy all life-sustaining tools. The reason? Heaven on Earth that will allegedly ensue once all the life-sustaining substance is destroyed. The campaign ultimately causes the population to starve, majority dying out and the rest falling easy prey to colonizers. We may laugh today at Xhosa’s naivete, but we are not much smarter at all, it’s just that somewhat more sofisticated techniques have to be used in order to mislead us. There are ominous parallels in our age, aimed at progress prevention and not limited to green movement only.

The modern cattle-killing attack is two pronged:

• Wealth-producing is bad for the environment.
• Free-market is blamed for economic downturns.

Both of the above points turn the reality upside-down while prescribing cures damaging to the wealth creation. How so? The first one by characterizing things that are most likely occuring naturally to be man-made. The second works toward the same goal by doing the exact opposite – by characterizing man-made effects to have natural causes without scientific explanation. Additionally, their proponents proclaim, in both cases the “debate is over” and “there is no disagreement”. In both cases, naturally, government has all the right answers – all we have to do is follow the instructions. The verdicts are repeatedly and one-sidedly rendered and served to the public.

As it turns out, the reality is quite the opposite from the usual serving that public gets from the mainstream media. No, the debate is not over (not convincing enough? check this) and yes, there is disagreement. With all due respect to Gore’s and Krugman‘s Nobel Prizes, Friedrich A. Hayek and many signees of the above mentioned petitions have those, too.

How does this illusion of passing half-baked semi-truths as “done deals” work? Hayek elaborated on it in the “Intellectuals and Socialism” essay. Ayn Rand described it perfectly well in the character of Ellsworth Toohey.

There is plenty of proof that free market capitalist principles have contributed to our well-being whenever government chose to stay out of the economic recovery business, while massive government interventions have obstructed it. Should we be responsible stewards of our environment? Absolutely. Do we deserve protection from violence and fraud? No doubt. Should we start regressing in hope to prevent icecaps melting? Not at all. Earth came out of ice age without anyone burning coal or gas. Ergo: global warming happens. It may have to do with Sun activity. It may have to do with many things and we simply do not know for sure yet. Is the free market to blame for the current economic difficulties? There is no free market.

Yet, the followers of the J.M. Keynes’ economic doctrine, much like the Xhosa prophet Mhlakaza keep on telling us to do things that absolutely make no sense: market must be constantly tinkered with through regulation; the way out of debt is more debt; the remedy for regulation-caused crisis is more regulation. Naturally, the prescriptions do not work, they actually make things worse. They make things worse for very same reasons that Mhlakaza’s prescription made things worse: destroying wealth-creation means causes economic deterioration. Instead of using common sense and reversing the harmful process, we are told it’s worse because we did not spend and regulate enough. In other words, we did not destroy enough wealth-creation means.

Just like Mhlakaza spoke.

As Ludwig von Mises wrote in “Socialism“:

“No one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result.

Wake up America – persisting on the current course inevitably leads to the Xhosa-like destiny.

Live Free or Die

The cat is out of the bag – Oracle buys Sun. Why this matters? For many reasons, but all of them boil down to one – freedom. Before I am accused of being marxist, a disclaimer – I competely disagree with this comment:

And this may be a reason why the feds should reject this acquisition because Oracle will become as much a monopoly in the db space as Windows is in the operating system space.

No, no, no and no. Nonsense. Government has no business in the economy. Government is not an economic entity. Leave the market alone. And just like government should not be in business of breaking down monopolies, it should not be in business of granting them, either.

OK, back to original topic – what does this mean? Well, there is really only one truly free player left in the enterprise DB arena – PostgreSQL. As recent economic development around the world shows, the current market atmosphere is highly toxic. It is becoming increasingly difficult to remain free from both government financial manipulation and hyper-regulation as well as corporate lock-in attempts. And when the two are combined, one ends up with corporatism, which in it’s worst incarnation has degenerated in fascism. What is common to these entities is that they emit a luring “siren call” promising ever increasing benefits if only we couple our destiny to their product line or economic plan. Initially, the illusion appears to instantly work – that’s why it’s so easy to sell. One can conveniently implement a desired software functionality by using proprietary technology or buy a truck load of gadgets with non-existent, easy-credit money. But, as any other illusion, this one comes to an end soon, too. And as one reader comments:

I personally don’t like spending $60,000 on a license for my software, PLUS a $40,000 service contract. Do you? That’s Oracle. Locks you into their technology silos, and then starts the million cuts that will bleed you dry.

Knowing Oracle, MySQL shall probably be killed or turned into something that does not conflict and/or detract from the Oracle DB user existing or potential base. Poor MySQL users, I feel sorry for them. But the boys from Finland cashed their rewards and took off, leaving it’s faithful followers at the mercy of sharks. There’s a lesson to be learned – don’t trust the corporations and governments. Do honest business with everyone, but keep your options wide opened lest you end up locked-in (or locked-up).

As for all those MySQL users, my advice is: consider switching PostgreSQL. It always was a better choice than MySQL, it still is and, very likely, it will remain so. Java users? Let’s wait and see. In the meantime, I’ll put my long-term investment into good old C++. Why? I know, I know. It’s old. It’s big. It’s crappy. But it still does the job. And it’s not owned by anyone.

Is there anybody out there?

I mean, really, is there anybody out there?

For 8 years, we’ve had allegedly dumb president, presiding over government feeding us misinformation. Now we have an intelligent president presiding over government which is feeding us (surprise, surprise) misinformation. While the previous Commander in Chief had an excuse of not being exactly “the sharpest tool in the toolbox” which could, at least theoretically, be used to justify the costly mistakes, this president is sharp, articulate, and charming, ergo no excuse for bool shift:

Everybody was making record profits – except the wealth created was real only on paper.

I guess that is meant to be presented as something completely opposite to the solution of our days – quantitative easing, a.k.a. printing money out of thin air, which creates “real wealth”. Is there anybody out there?

When people couldn’t get home loans, the crisis in the housing market only deepened. Because the infected securities were being traded worldwide and other nations also had weak regulations, this recession soon became global.

Mr. President, if We the People may ask: as former community leader, activist and lawyer, you are no doubt familiar with  Community Reinvestment Act? Yes, CRA, in conjunction with Fannie and Freddie did it under the false guise of “care for the poor”. Weak regulations? Hmm, let’s see … says NY Times in 1999 :

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

…

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

…

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Sounds like a lot of regulation to me. If anyone has doubt, do a reality check on how regulated the U.S. economy is. Of course, it would be futile to expect someone who has caused the problem in the first place to look into facts honestly and blame itself for current difficulties. Hence, it had to be someone else. So a plethora of usual suspects is pulled out of hat and served to the anxious populus: free market, animal instincts, greedy investors, racists, capitalist pigs, corrupt corporations etc.

So, says Mr. President further:

But whether we like it or not, history has repeatedly shown that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months.

That would be like in the 1930-ies, when Herbert Hoover supposedly did nothing, FDR expanded upon that, unnecessarily prolonged the depression by estimated 7 years and the real recovery did not occur until after WWII. In a more recent history, Japan did not manage to get itself anywhere with bailouts. Rather, it ended up loosing a decade trying to do it. But United States is in a much worse shape. Japanese had saved and still are. US is in debt over its head and shows no signs of changing the deadly habit.

No, the world does not end when bad banks fail and credit shrinks. The world is better off because economic entities are circumstantially forced to save which creates room for healthy growth. Yes, there is economic pain, as it should be when you overdo things. But the pain is there for a reason – it’s telling us something is wrong and we should change our ways. But instead of sound economics, we are offered more of the same as a remedy.

I want every American to know that each action we take and each policy we pursue is driven by a larger vision of America’s future – a future where sustained economic growth creates good jobs and rising incomes; a future where prosperity is fueled not by excessive debt.

Gee, thanks, Mr. President. Coming from someone who managed to spend more money we don’t have than anyone else in history in just a couple of months, it already makes me feel better when I am assured there will be no excessive debt. I guess, what is a couple of trillion to a debt that already exceeds the world’s GDP. Is there anybody out there? Knock, knock … anybody home?

Let’s Re-establish Slavery II

I knew I was on the right track. Here’s what Paul Craig Roberts, a former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal says on the subject:

Some 19th-century slaves, whose skills were worth more in towns than on plantations, were leased by their owners to businesses in towns. The businesses would remit half of the slave’s wages to the owner. Out of the remainder, slaves could save enough to purchase their freedom.

Today, we cannot purchase our freedom from the IRS. The only free Americans today are those who can work off the books or who can live on public welfare.

People who reject my analogy can test the analogy by refusing the government’s claim on their labor. They will find that the IRS can be just as ruthless as the worst feudal lord or slave owner.

Let’s Re-establish Slavery

We’ve been working on POCO 1.3.4 release recently. Well, my friend Günter is, I’m kindof helping a bit here and there. Anyway, we used to have a nice, warning-free compiling code. But, alas, there’s a herd of GNUs that did not like us compiling warning-clean, so they decided to randomly sprinkle some nonsensical warnings throughout the compiler. Anyway, long story short, if you had a piece of perfectly legal, standard, logical and non-ambiguous piece of code like this

if (a && b || c) blah();

the infinitely wise g++, in its 4.3.2 reincarnation shall now loudly and obnoxiously recommend that you reconsider your ways and clarify your intentions by adding a healthy measure of parentheses. Lisp nostalgia or something else? Sigh.
Recently, Günter has brilliantly clarified how it sucks to be rms. Bravo! With all due respect to Mr. Stallman, he is sadly mistaken, unrealistic and unreasonable in his extremism. I mean, true freedom should include freedom to choose not to be free, shouldn’t it? Which brings me to the (intentionally controversial) topic. No, I have not lost it. Things are tough in the world nowadays. There are some voices of reason, but for the most part, unless something changes drastically, we are freaking doomed to years of economic hardship, taxes and the accompanying loss of freedom.
Which is what drives the issue home. If you think it’s crazy, think again. In Roman Empire, (nominally) free people used to sell themselves to slavery to avoid the unbearable burden of taxation. So, this is a call to all democratic governments around the world to give their subjects way out and re-establish slavery.