Letter to Congressman Hinchey: The US Government Needs to Down Size

Dear Congressman Hinchey:

Why don't you and your fellow Congressmen deflate your puffed egos and reduce the federal budget by 50% or 60%? The recent bailouts are proof that you don't know what you're doing.

According to the Census Bureau, in 2007 the US government's direct expenditures or obligations were in excess of $2.5 trillion and other federal assistance, including direct loans, guaranteed loans and insurance, was almost $1.2 trillion. According to the Bureau of Economic Analysis, the Gross Domestic Product in 2008 was $14.3 trillion. Thus, US government spending is roughly (2.5 + 1.2) / 14.3 = 25.8% of GNP. This suggests that the federal government believes that 1/4 of the time it can make decisions that are better for society than private consumers can.

This past year has seen an escalation of federal government spending. It is hard to keep track of all the bailouts, subsidies, and handouts that the Bush-Obama administration and the US Congress have concocted, but it seems that these amounts substantially increase the percentage of Gross Domestic Product over which the federal government mistakenly imagines itself best fit to manage.

Rather, the 25% in 2007 was way too high. The federal government has proven that it is incompetent. The 25% should be slashed to the 10% it was in 1950.

If Congress has trouble deciding which government agencies to close, I have a suggestion. Since all government programs are useless, just cut randomly. After cutting the size of government to 10% of gdp, the next step would be to reduce taxation to 10% of gdp. Then people who are a lot smarter than you are, the American public, can begin to repair the damage that Congress has wrought. It will take many years because of your incredible stupidity and incompetence.

A 10% federal budget would still be 10% too high, but it would be a step in the right direction.

Sincerely,

Mitchell Langbert

President Andrew Jackson on The Limits of Federal Power

Woe is me. We need another president like Andrew Jackson. Although President Jackson favored states' rights, he opposed nullification, i.e., the idea that South Carolina tried to abrogate the tariffs of 1828 and 1832. Although there were things about Jackson that I don't like, such as his disregard for Indian rights, he was the best president in American history. The following excerpt from his 1837 farewell address is quoted in Harry L. Watson, Andrew Jackson vs. Henry Clay: Democracy and Development in Antebellum America*:

"In the legislation of Congress also, and in every measure of the General Government, justice to every portion of the United States should be faithfully observed. No free government can stand without virtue in the people and a lofty spirit of patriotism, and if the sordid feelings of mere selfishness shall usurp the place which ought to be filled by public spirit, the legislation of Congress will soon be converted into a scramble for personal and sectional advantages...Justice--full and ample justice--to every portion of the United States should be the ruling principle of every freeman, and should guide the deliberations of every public body, whether it be State or national.

"It is well known that there have always been those amongst us who wish to enlarge the powers of the General Government, and experience would seem to indicate that there is a tendency on the part of this Government to overstep the boundaries marked out for it by the Constitution. Its legitimate authority is abundantly sufficient for all the purposes for which it was created, and its powers being expressly enumerated, there can be no justification for claiming anything beyond them...From the extent of our country, its diversified interests, different pursuits and different habits, it is too obvious for argument that a single coordinated government would be wholly inadequate to watch over and protect its interests; and every friend of our free institutions should be always prepared to maintain unimpaired and in full vigor the rights and sovereignty of the States and to confine the action of the General Government strictly to the sphere of its appropriate duties.

"There is, perhaps, no one of the powers conferred on the Federal Government so liable to abuse as the taxing power. The most productive and convenient sources of revenue were necessarily given to it, that it might be able to perform the important duties imposed upon it...But...Congress has no right under the Constitution to take money from the people unless it is required to execute some one of the specific powers intrusted to the Government; and if they raise more than is necessary for such purposes, it is an abuse of the power of taxation, and unjust and oppressive...

"Plain as these principles appear to be, you will yet find there is a constant effort to induce the General Government to go beyond the limits of its taxing power and to impose unnecessary burdens upon the people. Many powerful interests are continually at work to procure heavy duties on commerce and to swell the revenue beyond the real necessities of the public service, and the country has already felt the injurious effects of their combined influence. They succeeded in obtaining a tariff of duties bearing most oppressively on the agricultural and laboring classes of society and producing a revenue that could not be usefully employed within the range of the powers conferred upon Congress, and in order to fasten upon the people this unjust and unequal system of taxation extravagant schemes of internal improvement were set up in various quarters to squander the money and to purchase support. Thus one unconstitutional measure was intended to be upheld by another, and the abuse of the power of taxation was to be maintained by usurping the power of expending the money in internal improvements. You can not have forgotten the severe and doubtful struggle through which we passed when the executive department of the Government by its veto endeavored to arrest this prodigal scheme of injustice and to bring back the legislation of Congress to the boundaries prescribed by the Constitution. The good sense and practical judgment of the people when the subject was brought before them sustained the course of the Executives, and this plan of unconstitutional expenditures for the purpose of corrupt influence is, I trust, finally overthrown.

*Boston: Bedford St. Martin, 1998, pp. 243-4.

From Freedom to Fascism

Contrairimairi has forwarded the following 11-part Youtube video sequence by Aaron Russo. The one point I disagree with is that toward the end Russo seems to advocate governmental money creation. I don't think that would work. There needs to be a metallic standard. The Federal Reserve Bank is a barbaric relic, and the incompetence of economists to run the monetary system has firmly demonstrated a commodity based standard, gold or silver, is necessary.



The video argues that the 16th amendment was never approved by the necessary number of states. It has some excellent quotes of Woodrow Wilson. There is no law requiring the filing of income tax returns.



During his presidency, opponents of President Bill Clinton were singled out for tax audits. The federal government uses illegal force to require payment of income tax. Federal Judge Emmet Sullivan ruled that the IRS does not need to obey the law. The court system has gotten out of hand, and perhaps it is time to begin to resist the courts directly. Education is paid through property tax. Highways are paid for through gasoline tax. The corporate income tax pays for defense. The income tax is an instrument of totalitarianism and a method of control by which slow witted Congressmen manipulated by economic special interests reallocate wealth to those same economic special interests.



Interest payments on federal debt and government waste account for 100% of the federal income tax. The IRS refuses to respond to requests for documentation as to where it gets the authority to tax. "What if it's our own government we need to be afraid of?"

The Constitution says that direct taxes must be apportioned. All indirect taxes must be uniform throughout the states. The income tax is neither direct nor indirect. The Supreme Court held that the 16th Amendment conferred no new powers of taxation. In 1894 the Supreme Court held the income tax was unconstitutional. In 1913 the Supreme Court said that the 16th amendment conferred no new power of taxation. Therefore, the federal income tax is unconstitutional. There is no legal requirement for the average American to pay the income tax.

The government is involved in judicial blackmail. The IRS is a racketeering organization that imposes an illegal tax. The Internal Revenue Code enslaves the nation that the Declaration of Independence and the Constitution freed.




The Internal Revenue Code says "compliance" is "voluntary". The government requires the form 1040, yet the Fifth Amendment says that the government cannot mandate self-incrimination. Yet, the government uses the form 1040 against the filer. The definition of income is gain. Labor is private property. The 16th Amendment did not extend Congress's taxing power. Former IRS commissioners do not show the law that requires payment of the income tax. Congress has failed to obey the law. Sheldon Cohen does not seem responsive. Sheldon Cohen says that Supreme Court decisions and the Constitution do not apply to the IRS. The IRS is a criminal protection racket.

The Constitution prohibits a direct, unapportioned tax on wages. Income taxes are taxes on profits and gains, not labor and wages.



The IRS and its supporters resort to defamation and insults in arguing with tax protestors. Law suits against the thuggish IRS and the criminal government it funds have been successful. Irwin Schiff's trial was a mockery, little more than a kangaroo court. No one should ever convict anyone of non-paymentof taxes. The IRS taxed Joe Louis on the money he donated to the US government.



IRS agents behave like storm troopers, attacking a restaurateur. The restaurateur was never charged, but the IRS wrecked his business based on false allegations. The IRS forced the restaurateur's family into bankruptcy. How did America stop being a free country?

The same people who backed the Federal Reserve system also backed the income tax. Why would the government borrow money when it can print money? The Democrats and Republicans are organized crime.

The Federal Reserve has converted America from a nation of freeholders to a nation of employees who are almost serfs. Americans have become serfs to the debt machine.



The Federal Reserve is illegal. Creating money out of thin air will destroy the money supply. The Federal Reserve is not audited and Congress fails to exercise intelligent oversight. The Federal Reserve is a swindle. The Fed has taken possession of Fort Knox gold (I'm not sure of that). America is becoming a police state. Today, you can't open a business, develop land, go to the doctor or whatever without interference from government thugs. Under President Bush's executive orders, you can be jailed without any court protection.



The government is using the right of eminent domain to steal property. Increasingly, the government ignores property rights in favor of fascistic government confiscation and violence. RFID chips transmit information and can be implanted in people as well as ID cards. There will be a massive data base identifying who buys what.



Software facilitates election fraud. America's domestic policy is run by the Fed and the international policy is run by the IMF. "A world system of financial control in private hands." The war on terrorism is a pretext for international finance's interest in international control.



David Rockefeller thanks the mass media for lying on behalf of the Council on Foreign Relations. Rockefeller advocates rule by an intellectual elite and international bankers. Fascism is the merger of corporate power and the state. The media supports this process.



"Will you choose freedom or slavery?" "Stop living in your fear of government." Call for civil disobedience. Revolutionary, anti-statist actions need to commence. Only vote for candidates who have signed an affidavit to shut down the Federal Reserve system and stop world government."

Hamilton on Federalism: The Federalist Papers No. 32-34

The Federalist Nos. 32 and 33 concern taxation. The constitution did not aim to consolidate the states into a single whole. Rather, "the plan of the convention aims only at a partial union or consolidation". State sovereignty would be "alienated" only when the Constitution granted an exclusive authority to the Union; where it gave authority to the Union but prohibited the States from exercising similar authority; and where a power granted expressly to the Union would be contradicted if similar authority were given to the states. The states and the federal government have coequal powers to tax except for exports and imports. Under the constitution the federal government has all powers that are "necessary and proper" for implementing the powers that the Constitution grants it, and "the Constitution and the laws of the United States...shall be the supreme law of the land."

Hamilton asks in No. 33: "Who is to judge of the necessity and propriety of the laws to be passed for executing the powers of the Union?" The national government "must judge in the first instance of the proper exercise of its powers...If the federal government should overpass the just bounds of its authority and make a tyrannical use of its powers, the people, whose creature it is, must appeal to the standard they have formed, and take such measures to redress the injury done to the Constitution as hte exigency may suggest and prudence justify." Hamilton does not introduce the Supreme Court in this discussion.

"...a law (passed by the Union) for abrogating or preventing the collection of a tax laid by the authority of a State (unless upon exports and imports) would not be the supreme law of the land, but a usurpation of power not granted by the Constitution...It is to be hoped and presumed, however ,that mutual interest would dictate a concert in this respect which would avoid any material inconvenience. The inference from the whole is that the individual States would, under the proposed Constitution, retain an independent and uncontrollable authority to raise revenue to any extent..."

In No. 34 Hamilton reemphasizes that "the particular states under the proposed Constitution, would have coequal authority with the Union in the article of revenue, except for duties on imports." But the states have more limited needs for revenue than does the federal government, in Hamilton's view. Future contingencies respecting the federal government would be unlimited, especially because of the threat of European wars. State budgets would likely be no greater than 200,000 pounds, but the potential exigencies of the union were likely unlimited.

He got the the 200,000 pounds part wrong, but forecasted the federal budget with uncanny accuracy. The point is that there is a partnership between state and federal governments, and in Hamilton's elitist view, the central government was to be more dominant than the states. The states need from one tenth to one twentieth of the resources, the federal government from nine tenths to nineteen twentieths. The ratio isn't as lopsided as Hamilton thought it would be, but he anticipated Progressivism nicely.

Thus, he argues for a concurrent jurisdiction in the article of taxation, a partnership between the States and the Union.

Time Preference and Political Ideology

Government has a short time preference. Budgets are annual. Current political reality drives decisions. Neither history nor future projections determine choices. In this way the state is different from corporations. Stock prices reflect anticipated earnings. Corporate executives may think short term, but decisions that might impair long term performance will reduce current price if the market is able to grasp the long term effects. Citizens vary as to their time preferences. Some prefer to defer gratification and so earn greater rewards in the future, while others prefer instant gratification. In general, short time preferences are more common than long ones among the general population, but if you weight population by individual wealth, since wealthier individuals have longer time preferences than the average person, the economic return that the market demands for investment is well below the return the average person demands to save. Therefore, in a free society, wealth tends to concentrate in the hands of those who have longer time preference. However, the reaction of short time preference citizens to wealth disparity is often resentment or a sense that there is inequity because of the wealth disparity. In turn, there is demand for taxation of property, inheritance and capital gains.

Skeptics argue that there is no way to prove that one view is fair and another unfair. Is it right that someone who saves for many years and deprives themselves of luxuries should be taxed on gains from the savings? Is that more right than someone who borrows heavily to enjoy themselves should benefit from the saver's wealth through tax transfers? Should the minority that saves support the majority that does not save?

Perhaps the answer is yes, perhaps it is no. Why can't there be room for choice? Why not permit states to determine levels of property, inheritance and capital gains taxes rather than the federal government. Then, Americans could choose what state to live in based in part on preferences for taxation.

Warren Buffett Should Stay within His Circle of Competence

Today's New York Sun notes that while Warren Buffett complains that he is taxed too little on $46 million in income, his actual economic income last year, including unrealized capital gains, was more than $10 billion dollars. The reason is the unrealized appreciation in Berkshire Hathaway stock, which meant more than $10 billion to Buffett this year. I own four "B" shares that have climbed to $3,621 each this year so I have probably made $1,500 in unrealized appreciation. Tip money compared to a billionaire, but bless Buffett's soul.

Curiously, Buffett argues that public hedge funds and equity funds should be taxed more heavily. Presumably he includes his firm, Berkshire Hathaway. Buffett argues that because hedge fund managers are earning hundreds of millions in salaries, there should be special taxes on hedge fund managers since in many cases they pay lower taxes than those of us who count our earnings in the lowly thousands.

Those New Yorkers who have managed to survive the New York diaspora (the rest having been driven out by "humane" policies of the kind that Mr. Buffett advocates) hear about the hedge fund billionaires. They are obnoxious, boorish, greedy and, in a phrase, nouveaux riche.

Envy is natural in a free society. Success is sometimes out of proportion. This was true in the 19th century with the success of Standard Oil and John D. Rockefeller, and it was true in the twentieth century with the success of A&P, which was prosecuted for anti-trust and price fixing between the 1930s and 1950s. This also has occurred in the case of the hedge fund managers. But there is a difference. Unlike Standard Oil and A&P, hedge fund managers rely on government to profit and have not been particularly innovative in developing new products or new management methods, as did John D. Rockefeller and A&P's Hartford brothers.

Apologists for hedge fund managers, such as Weekly Standard, claim that private equity and hedge funds improve the management of firms that they buy and then resell. This claim is nonsensical. It is well known that corporate acquistions mostly destroy shareholder value in the long run. If you were to limit your investing to stocks of firms that private equity and hedge fund firms have taken off the market and then made public again my hunch is that you will be spending your retirement holding a tin cup. Mark Sirower's book Synergy Trap explains why outsiders do not make good managers. As well, Hayek noticed that management is primarily a matter of knowledge specific to time and place. Outsiders such as financiers lack specific knowledge. The most famous private equity deal involving Henry Kravis and RJR Nabisco that was immortalized in Barbarians at the Gate ended up a financial embarrassment because KKR held onto it.

Federal corporate welfare has made private equity managers, including Warren Buffett, rich. Corporate welfare takes the form of artificially low interest rates that the Fed has pursued since the 1980s. I have previously blogged that hedge fund managers, such as the Carlyle Group's William E. Conway, are well aware that Keynesian monetary policies that liberal economists and the New York Times advocate have spurred enormous profits for hedge funds and have amounted to a transfer from mainstream America to the financial community. There are other beneficiaries of Keynesian re-distribution, to include corporations, universities, mortgage payers and, of course, Warren Buffett. Those who benefit from low interest rates, which stimulate demand for unproductive investment such as $120,000 to study with Paul Krugman or $800,000 for for a condominium in Bayshore, Long Island naturally favor inflationary policies. These include Buffett, Krugman and hedge fund managers. No wonder Buffett, Gates, etc. are all liberals who support left-wing economic policies.

Buffett's father was a hard-money Republican. When Buffett was a student at Penn, he was photographed riding an elephant. However, the elephant must have smacked him upside his head with his trunk, because Buffett switched to the Democrats. Although Buffett is the greatest investor who ever lived, he lacks competence with respect to policy issues. In investing, Buffett argues that you should only invest in areas in which you have expertise, i.e., are within what he calls your "circle of competence". Perhaps he should take his own advice, and avoid advocating frivolous tax policies.