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Guest MINDSETTER™ Jeff Scott: The Republican Guide to the Liberty Vote II

Wednesday, November 21, 2012


Ludwig von Mises wrote, "Used to the conditions of a capitalistic environment, the average American takes it for granted that every year business makes something new and better accessible to him. Looking backward upon the years of his own life, he realizes that many implements that were totally unknown in the days of his youth and many others which at that time could be enjoyed only by a small minority are now standard equipment of almost every household. He is fully confident that this trend will prevail also in the future. He simply calls it the American way of life and does not give serious thought to the question of what made this continuous improvement in the supply of material goods possible."

In my opinion, no other quote can more aptly define the American problem today. Americans have enjoyed the highest standard of living any people have seen on this Earth, the greatest production of wealth and human freedom. And yet, Americans continue voting themselves further into dependence on government every election year on a state and federal level.

We are no longer a Capitalist country. We are not on F.A. Hayek's Road to Serfdom. We have arrived at our destination. Free market Capitalism did not cause the collapse of the housing market and had nothing to do with the remedies applied thereafter. It is my opinion, and that of the liberty movement, that free market Capitalism should at least be tried and allowed to work before it is written off.

You may be thinking that Mitt Romney is a Capitalist, Capitalism is what he offered, and the American people rejected it. I would respond by telling you that is not the case. Not only did he not offer free market Capitalism and never has, simply being a businessman does not necessarily make you a Capitalist. If you believe that it does, perhaps George Soros and Warren Buffet can be selected for the 2016 ticket. I'll explain how Republicans can earn the liberty vote by using examples from both Mitt Romney and Paul Ryan.

For example, on the campaign trail in May, Mitt Romney said, "My job is to get America back on track to have a balanced budget. Now I'm not going to cut $1 trillion in the first year." When someone in the audience asked why not, Romney replied, "The reason is taking a trillion dollars out of a $15 trillion economy would cause our economy to shrink and would put a lot of people out of work." This is not an isolated statement. He has made many like it throughout his career and campaigns. Through the eyes of those in the liberty movement, this is completely inconsistent with free market economics, not to mention Romney's own talking points.

First of all, there is nothing wrong with cutting $1 trillion from the budget in the first year. There is also nothing wrong with cutting $1 trillion in four years, but he wasn't even offering that. His budget actually didn't balance the budget, and the overwhelming majority of the cuts he claimed were baseline budgeting gimmicks, cutting only projected spending increases. Cutting projected spending increases and calling it spending cuts is like gaining 100 pounds and then losing 25, and saying you've lost 25 pounds. You've still gained 75 pounds. It's also important to note that any budget over the long-term like Romney's budget does not bind any future Congress and President. If you're serious about balancing the budget, you need to do it over four to eight years, not decades.

Second, when Mr. Romney said that cutting $1 trillion out of a $15 trillion economy, what was he implying? Before wealth can be taken, it must first be created. Someone who understands free market Capitalism would view cutting $1 trillion from the federal budget as rescuing capital from being used for political and unproductive reasons by politicians. The money doesn't up and disappear out of our pockets if government doesn't take it; it's still there, and part of the economy.

Keynesian economists would argue that government can help by making up for idle resources via spending in times of distress. This argument was used by Romney in support of stimulus spending in 2009 when he said, "I think there is need for economic stimulus. Americans have lost about $11 trillion in net worth. That translates into about $400 billion a year less spending that they'll be doing, and that's net of additional government programs like Medicaid and unemployment insurance. And government can help make that up in a very difficult time. And that's one of the reasons why I think a stimulus program is needed." The liberty movement is not interested in new central planners. Central planning is the problem. We do not believe government is capable of knowing how to spend hundreds of billions of dollars with the aim of growing the economy. We believe government is only capable of spending money for the purpose of political aims.

Third, Romney contradicts himself when he says cutting $1 trillion from the economy would cause people to lose their jobs. A talking point of Romney and the Republican Party is that government can't create jobs. If this is what Romney really believed, then cutting wouldn't cause job losses. The truth is that government can in fact create jobs and does so every day. Government creates government jobs. Was Romney actually defending the government and the growth of the public sector? You may say that this was an off the cuff statement so it's not that important. I would say that this is more consistent with the beliefs of a Progressive New England Republican. I'd also add that as a self-taught free market economics advocate, I'd never accidentally make such statements.

TARP was one of the worst domestic policies in our history. Not only was bailing out the financial elite with taxpayer money immoral, it doesn't, and hasn't, worked, and we will suffer the consequences in due time. In 2008, Paul Ryan took to the House floor and gave an impassioned speech urging fellow members of Congress to support the bailout program. Mitt Romney supported the bailout program before it was passed and still continues to defend his support. The moral hazard TARP created will pave the way for further destruction of our banking system, and not surprisingly has made the "too big to fail" banks two to three times bigger than they were prior to the bailouts; unintended consequences of government intervention. Failure is a crucial part of the free market system and no one who actually understands it would ever support TARP. A proper free market advocate would have explained to the American people that these too big to fail banks must be allowed to fail, that bad economics must be allowed to suffer the consequences of terrible policies.

During the first Presidential debate, Romney responded to a question concerning regulations by stating, "Regulation is essential. You can't have a free market work if you don't have regulation. As a business person, I had to have - I need to know the regulations. I needed them there. You couldn't have people opening up banks in their - in their garage and making loans. I mean, you have to have regulations so that you can have an economy work. Every free economy has good regulation. At the same time, regulation can become excessive." The notion that in the absence of government regulations we would choose to do our banking with a guy down the street in his garage is beyond ignorant, making the assumption that Americans are morons. Regulations, specifically in the financial sector, have actually provided Americans with a false sense of security. This couldn't have been more perfectly played out than during the housing collapse and the following bank failures across the country. The prevailing narrative is that the industry was unregulated, severely, and made so by the evil laissez faire free marketeer George W. Bush. The industry had become heavily regulated for decades, contributing to the cozy relationship between Wall Street, and the federal government, and the growth of the "too big to fail" banks.

The general public had no reason to be concerned with what was going on for decades leading up to the crash because, well, the government knows what they're doing. Institutions such as Fannie Mae and Freddie Mac, the FDIC, the SEC, and the Federal Reserve, created the moral hazard of trusting government and a private central bank to plan and protect the economy. Easy money flowed to any and all who desired it. The worst regulation of all was, and remains today to be, the implicit promised bailout from Congress and the Federal Reserve. If Mr. Romney thinks regulations are essential in a free market economy, he probably should have provided some examples. He mentioned he needed regulations in his business experience but failed to explain which ones, and why they were necessary and beneficial to him.

On the subject of the Federal Reserve, finally emerging from being relegated to the tin foil hat section of political discourse, the Republican Party has yet to take this on as a serious economic issue. I'm told often that discussing the Federal Reserve isn't a sexy issue, it bores people, and it's just too confusing for most people to understand. We're tired of these excuses. Inflation is a stealth tax, the most immoral of all, requiring no legislation to be passed, implemented by unelected and unaccountable bureaucrats, and in an inflationary economy, the super rich get richer and bailed out at the expense of the poor, middle class, and small business; isn't that sexy, interesting, and easy enough to understand? Instead of attacking China for currency manipulation during the debates, Romney should have taken the Federal Reserve and their inflationary monetary policies, and bashed the President over the head with them. I believe the Republican establishment refuses to take on this issue because they wish to continue using the Federal Reserve for their own devices. Regardless, if the Republican Party continues to resist the liberty movement on this issue, they stand little chance at gaining much of our support. The Federal Reserve and monetary policy are the two issues most important to me, as well as many others. A free market implies a free currency. One cannot say they support free markets and support a government sponsored monopoly of our money in the same sentence.

Mitt Romney was an unelectable candidate to the liberty movement. He didn't have a record of anything resembling a free market approach to government and we knew it. He wasn't offering much in terms of a free market approach to solving our economic problems, sound money and real tax reform for example. It was insulting to hear a serious candidate for the Presidency attack China for currency manipulation while America takes us all into uncharted territory, debauching the world reserve fiat currency, the US Dollar, by monetizing our debt, the very thing Federal Reserve Chairman Ben Bernanke said they would never do. It's sad and telling to think that a new generation of young people are reading the works of Hayek and Mises, learning about real free market economics and liberty, and the modern Republican Party hasn't a clue of how to reach them, or ignores them, despite claiming to be the alternative to Big Government and Collectivism.


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