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Obama's Centrally Planned Economy

09-17-2010 08:39 PM CET | Business, Economy, Finances, Banking & Insurance

Press release from: Liberty Institute

Ludwig Von Mises - Founding Austrian Economist

Ludwig Von Mises - Founding Austrian Economist

Obama’s Centrally Planned Economy

It can only be governmental arrogance combined with that of a community organizer that would make one think anyone has the power to centrally plan an economy. The market is as liquid as water and will run to fill every crevice where there is an unfilled void between what consumers wish to buy and what entrepreneurs can learn to produce at a profit. The crevices run deep and form a complex web comprised of billions of people deciding on any given day what they desire based on necessity, desire, and manipulation.

All these considerations are balanced against one's ability and determination to buy or sell at a given price based on sliding scales. These calculations include not only consumption, but also saving and investment, taking into account issues of time preference and the determination to delay the fulfillment of immediate desires or prioritize the meeting of immediate needs in order to have greater wealth and choices at a later time in the future. These decisions necessitate an understanding of economic calculation, division of labor, marginal utility, time preference, supply and demand, market cycles, interest and government intervention into the marketplace.

There is no way government can successfully force these personal decisions that take place millions of times every second to occur via government fiat. The pricing mechanisms used to conduct economic calculation and determine pricing, interest, labor and where to allocate such based on needs at various levels of production, and market corrections that need to occur via inflation and deflation at the macro and micro levels of the economy are beyond the control of government. The complexity of billions of decisions and economic calculations that take place naturally in a free market is beyond anything the government, through threat or use of violence, central planning or other types of market manipulations can cause to occur with the accuracy and responsiveness of a free market economy void of government interference. Hence, Ludwig Von Mises, in the school of Austrian economic thought, developed a name for this phenomenon that accounts for this complexity and called it praxeology.

While Mises claims, rightly so, that this natural market phenomenon is beyond anything the government could replicate,it is something that needs to be accounted for in the science of economics and considered when dealing with other economic laws that are as immutable as gravity. It is without exception that government interference within this realm or scope of human endeavor is a road that leads to futility and allows us to understand the limits of the usefulness of government force. The government can create false demands and scarcity through licensing and prohibition, or surplus through manipulation of money supply and interest, but both examples demonstrate market manipulation and distortion due to government interference with unintended results and unforseen consequences.

Some of the immutable laws are: There is always scarcity. Uncertainty motivates people to undertake action. There are no free lunches, as the time spent on recreation is time lost from production. The desire to have something now forces the surrender of capital in form of interest. Saving leads to greater economic choice. To a single consumer the hundredth loaf of bread is not as valuable as the first. As labor is a commodity, scarcity of labor in an area of production or services leads to an increase in its valuation in that area. The high price paid for this labor, skilled or intellectual, leads to an increase in the supply of that labor, as even labor flows to fill voids created between supply and demand. In a properly functioning economy the market works to reach equilibrium as voids between supply and demand are filled for goods and services, labor and capital, and in interest rates and resources allocated for manufacturing at various levels of production. There is always scarcity and so people have to prioritize their desire, which in the aggregate comprises market demand. Government intervention distorts markets. Printing excess paper currency leads to inflation. Those who have newly created money first are the ones who get to use it before its value is debased. Those who get newly printed money later obtain it at its new inflation-debased value. Inflation is a hidden tax which hits the poor hardest as CPI shows that workers pay has not kept up with the increase in the price of commodities, education, or medical costs.

The natural drive of the market to reach proper exchange ratios is described in the Austrian School of Economics as catallactics. It can be said then that there is a ying and yang to praxeology and catallactics. This is something that is never mentioned in the Keynesian theory that dominates today’s economic thought and political economy, but its implications are as far reaching as the real estate market collapse, the flow of capital into collateralized debt obligations and credit default swaps, or the pricing of illicit drugs.

There is even a ying and yang to the cost of illegal drugs as prohibition drives the profits higher through the government attempting to alter availability. The law of supply and demand, as well as other economic laws, do not cease to exist as a result of government interference and force, these laws merely lead to distortions of the market. As the profitability of drugs becomes higher more people become involved in the illicit drug trade. As a result more police, prisons, lawyers, health care workers and judges are allocated. As a slave market of prison labor develops for exploitation, other elements of this equation also begin to develop a life of their own. Then we see more drugs, more laws, more draconian sentences, while labor unions for all the industry that flourishes for services created by this false economy take root. We then see media manipulation and propaganda, the attending loss of liberties and the criminalization of harmless actions by agents seeking to justify their existence and feeding from the government trough leading to an exponential growth in the police state. The political arena is then also skewed as political demagogues pander to constituents within the framework of government created distortions. The political distortions then lead to even greater economic distortions as political demagogues create a “War of Drugs”, “War on Poverty”, and “War on Terror”. All the false economies located therein create no wealth or economic product, but grow like weeds choking off the real economy while making slaves of those whom survive by selling their labor or meeting some other market demand through production.

The biggest distortion the government has created, one that is the most hidden, interwoven and one that will make the real estate bubble look like a needle in a haystack, is the dollar bubble. The government uses housing code to prop up home construction, but people have been building homes since the dawn of man. Houses should only cost a fraction of what this distorted market commands. We have a contracting economy in which the government is attempting to re-inflate the housing bubble. Economic law cannot be trumped. You cannot make a $1 bag of peanuts worth $100 regardless of how many people own stock in peanut farms. You can distort the economy until you reach this goal, but then as a $1 bag of peanuts is now worth $100, so to is the $1 can of pop. But the housing bubble, excuse the analogy, is peanuts compared to the dollar bubble. As the dollar bubble deflates, we will see stocks become as worthless as the denomination of the monetary unit used to purchase it.

The problem with Keynesian economics is that money is created by government fiat and not as a result of capital that has formed due to businesses profitably meeting the needs of the marketplace. There is nothing to stop money creation except the limit of those who borrow to finance debt. Money is not created by the government, but by banks. It is true the Government Mint prints out the monetary unit, but this money is pocket change compared to the checkbook money that is exchanged daily. The pocket money and checkbook money is peanuts compared to the digital money that represents the value of all real property, such as buildings and expensive consumables like cars, boats, planes, and trains. We have not even mentioned the value of commodities like gold, silver, precious gems, energy, food and the short-term costs of labor, much of which are usually monetized with existing pocketbook and checkbook money. The things that have not been properly monetized, or have been improperly valued due to market distortions, are future obligations. Things like social security, Medicaid, retirement accounts, and the explosion of the warfare/welfare state are the “known unknowns”. But like with the housing bubble, there are many “unknown unknowns” with respect to the government having reasons to steal wealth through taxation, inflation, and regulation.

Collateralized debt obligations, stocks, mortgages and other financial instuments and derivitives are all attempts to conduct stable and safe valuation and storage of savings, property and business activity, but there is nothing that has shown the stability of gold. In the year of our Lord an ounce of gold would by you a fine toga and a pair of sandals with which to go out and buy the best meal in Rome. Here we are 2010 years later and ounce of gold will still buy you a fine suit and pair of shoes to go out and get the best meal you can buy in New York. Consider the amount of gold needed to buy 500 pounds of steak and you will find the price in gold have been essentially unchanged in 100 years. Which brings us to the question as to why this is not taught in the classroom, nor is economic policy or theory.

Americans should know that the Federal Reserve is the agency that actually creates money. It is this creation of the monetary unit that allows all human endeavor, be it taking a vacation, watching television or lending at interest to be practically and accurately valued and monetized. However, when government and the private banking system, a system that is obscured, hidden, and purposely misnamed the Federal Reserve to hide the fact that it is a private money cartel, all collude to distribute wealth while also concentrating it into the hands of the very few power elites, we begin to understand the modus operandi of banking and government.

The government has not only placed Americans on the hook for all banking losses, but it has also placed Americans on the hook for the retirement and medical bills of every single governmental worker, now the biggest employer in a false economy distorted by the unlimited creation of money and price-fixing in the form of government manipulation in credit and interest.

Wikipedia defines a derivative as being “a financial instrument - or more simply, an agreement between two people or two parties - that has a value determined by the price of something else (called the underlying). It is a financial contract with a value linked to the expected future price movements of the asset it is linked to - such as a share or a currency. There are many kinds of derivatives, with the most notable being swaps, futures, and options. However, since a derivative can be placed on any sort of security, the scope of all derivatives possible is nearly endless. Thus, the real definition of a derivative is an agreement between two parties that is contingent on a future outcome of the underlying. Referring to derivatives as stand-alone assets would be a misconception, since a derivative is incapable of having value of its own. However, some more commonplace derivatives, such as swaps, futures, and options, (which have a theoretical face value that can be calculated using formulas.” Such have been traded on markets before their expiration date as if they were assets.

This being the case, we see that money itself is a financial instrument and its value is actually determined by its ability to buy commodities. The value of real estate had shown to fluctuate wildly and therefore is something that hampers monetary unit valuation and makes property a very poor underly, with the exception of property used for the production of commodities such as food or extraction of precious metals and energy.

Another example of wealth destruction and transfer caused by government intervention, even intervention designed with the best intentions, was the easily obtained farm loans that ended up leading to foreclosures. We can see the impact of a Federal Reserve allowed to print all the money it decides to lend to corporate interests. It was this unlimited lending that helped cause the illiquidity for small farms while corporate conglomerates were able to obtain all the money they needed to drive down profits for small farms and then buy them up and consolidate them into multi-national corporations.

Eventually, we run into a problem as citizens are more and more taxed and increasing amounts of the paper monetary unit are printed that is backed by nothing except consumer confidence and our ability to wage war to protect the dollar as the world’s reserve currency. We have overextended ourselves as a nation and now cannot fund the exponential growth of expanding liabilities in a contracting economy. Under such circumstances there are only several options that can occur:

1.The government can raise taxes, which will in turn decrease productivity and cause the need for greater taxation until it destroys the productive economy.
2.Government can inflate the money supply thereby discouraging savings needed for investment to allow capital to flow into productive areas of the economy that need to retool or be built instead of bailing out failing industries that have proven to destroy wealth and fail to meet market demands or heed to market discipline.
3.It can borrow, but as lenders begin to see the U.S. is paying its debt with nothing more than printed paper, exponential J-curve interest payments will consume an increasing amount of money that can only be met with more inflationary dollars that will eventually lead to hyper-inflation. The government will then meet its debt obligations with paper money of no value. Don’t forget that government debt is not financed on a long-term basis. It is funded short-term and therefore regularly resets according to interest in the current market.
4.It can default on its debt leading to mass social upheaval.
There is one other option, an impossibility really, and so I did not mention it in the previous category of alternatives. The government can reduce its size and scope through amputation. As nobody wants to cut off their appendages, even more distasteful to bureaucrats is the loss of power, authority and livelihood, it is a political impossibility that government will ever accept market discipline. While never producing anything itself and living as a parasite by forcing producers to pay for the distribution of their own wealth to non-producers, government has ensured is will survive longer than the host from which it feeds.

Lastly, I want to mention the Austrian theory of business cycle. As people borrow money, the banking system creates only the principle. However, long-term loans for things such as housing end up costing the borrower three times the amount of the loan. This money is not created by the banking system, but has to be pulled out of an expanding economy. However, we now have a contracting economy in which interest on debt has begun to consume more of the GDP. Domestically, the money becomes increasingly concentrated. As money begins to dry up in a contracting economy, depression begins and the banks end up with all the money followed by all the property as foreclosures begin to take hold. Then, as foreign business are paid in dollars that have become decreasingly valuable in international markets, they will begin to use American GNP to buy up GDP. This phenomenon will further decreases GDP as capital flows away from Americans in the form of GNP to the benefit of foreign interests.

China has used this fact to obtain money to build its manufacturing base while the U.S. has allowed the export of its productive capacity to flow out as readily as its GNP. This flow of capital cannot be stopped except by constructing trade barriers. However, such barriers will end up harming a debt/consumer/service-based economy much more than one that has a huge manufacturing capacity. China’s government will always have the option of producing consumables for its own people by unhitching itself from the caboose of American consumerism and currency. Regardless of the reason for China’s eventual intention to divest itself from its dollar holdings, be it political or economic, it is inevitable and the results will be the same regardless of why this occurrence takes place. Suddenly the consumer goods we took for granted as no longer inexpensive.

There are many forces working to deflate and inflate, but neither will create true stability nor work towards prosperity for the American people. Money creation versus concentration will always be forces with which to contend. But, it is ignorance of economics and political intervention into the marketplace for imperial interests that have led to the destruction of republics and the enslavement of people whose lack of understanding of such forces are deemed the effects of God’s punishment for a nation’s iniquity or some mysteroius force in nature. There may be some truth to this. However, as a founding father John Adams warned, “All the complexities confusion and distress in America arise, not from defects of the constitution, not for want of honor or virtue so much as from downright ignorance of the nature of coin, credit and circulation.”

The dollar has been debased and is no longer a sound unit of measure to be used as a storage of value. Instead of the monetary unit being designed as a holder of value, our money system has become a way for the elite to steal wealth through inflation, manipulation of the money supply, and as a way to buy assets with worthless paper printed on a press. Paper was never meant to be money and is only a modern historical occurrence. Most people cannot think otherwise as they have no historical perspective or understanding of economic theory. The bible has repeated passages regarding the importance of having honest weights and measures. Deuteronomy 25:15 states: “But thou shalt have a perfect and just weight, a perfect and just measure shalt thou have: that thy days may be lengthened in the land which the Lord thy God giveth thee.” Leviticus19:36 states, “Your scales and weights must be accurate. Your containers for measuring dry materials or liquids must be accurate. I am the LORD your God who brought you out of the land of Egypt.” Any economic system not based on these biblical truths is an unstable system that will lead to harm. The dollar is nothing more than a paper container used hold value while also serving as a medium of exchange. To manipulate its measure is to steal. Diluting the money supply is akin to selling gold coin that has been debased with lead. It is theft, pure and simple, by a banking system and a fictional entity called government made up of counsels of men who collude and devise ways to steal wealth.

When one understands the fall of nations, empires and civilizations, it is with amazement that one views the obliviousness with which our elected officials and ruling classes view the economic carnage, human suffering and resulting wars created from such a disastrous and unbiblical system. There is only one fix to this mess and that is for people to repudiate government itself and develop a system based on cooperation and peaceful exchange.

Liberty Institute

We are involved in activism, education, civil rights and international human rights.

Liberty Institute
Attn: Joseph Zrnchik
9306 Saric Drive
Highland, IN 46322

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