In my opinion, after the recent massive financial bailouts and other interventionist federal actions (and in some cases nationalizations) within our economy (i.e. the private sector), several pressing questions remain unanswered. I have been pondering on five of them for some time now. These are listed below in no apparent order.

1. If bad loans got us into this situation, then why is there so much effort to get banks to loan even more money?

If there is a dollar to be made and people are free to act in rational ways, then somebody creative will find a way to earn that dollar. My thinking is that in spite of the negative news regarding financial markets right now, there remains a market for loaning money to people with good credit. If this is the case, then there must be people willing to make a profit in such a market and so they will loan money to those with the means to pay them back. No crisis there.

On the other hand, the market for people with bad credit (i.e. people who you shouldn’t loan money to) has dried up and rightfully so. That should be a good thing. It made no sense to make risky loans but such actions were encouraged by foolish government policy that distorted reality and created an artificial market for bad loans. No loans to people who should not get loans means no crisis there either.

So let’s fast forward to now. I want to know why there is all the fuss about banks not loaning money then? It’s good banks are not making more bad loans. To push them to loan on a large scale again seems to me to further push us into the mud. We’re supposed to be getting ourselves “unstuck” but loaning more would seem to do just the opposite and compound our already bad situation. That doesn’t make a bit of sense.

2. Bailouts rewards bad performance.

Corporate leaders are paid to lead. Part of leading means avoiding problems. It seems to me that we have a bunch of bad leaders at many financial institutions (and in government) since they led their companies (and federal policy) on a path of suicide. Why should the government reward these guys with a bailout? Seems to me that such actions simply reward their poor judgment and punish those who kept their companies out of trouble.

As for the auto industry in particular, I have some specific thoughts along these lines. They were on an unsustainable path by operating at a loss and piling up debt for so long. Instead of cutting back, rethinking, retooling, living within their means and building products that customers want (and will turn a profit), they were unwilling to change. A bailout will just put off the invevitable and reward their past negatives. Where is the incentive to adjust to market forces and make an honest profit by pleasing customers like all other businesses have to do? Furthermore, a bailout invites the government to meddle within an essential American industry. That’s an incredibly dangerous proposition.

3. Bankruptcy and subsequent restructuring allows serious change to occur quickly.

Bankruptcy can give a company temporary relief while forcing hard decisions to be made and implemented under court order. In some cases, ownership changes as assets are sold or even repossessed. Physical assets, however, don’t disappear just because ownership changes. In most cases of high profile companies, ownership changes don’t kill the company. Just because ownership or the company name changes doesn’t mean the demand for that type of product ends. Good news! That means, then, there is still a market for those products.

Think again of the American auto industry. If General Motors were to go bankrupt, the demand for vehicles would not cease. Somebody would still build cars in most of those General Motors factories. The other companies could not step in overnight and build enough cars, trucks and parts to meet consumer demand. That means there is still a huge market for, and thus incentive, to keep General Motors alive.

If left alone, I predict that instead of collapse, bankruptcy and much-needed restructuring would occur within the American auto industry. The result would be an industry that is much stronger and more competitive for the future after undergoing the tough decisions needed now.

4. We’re on a slippery slope to socialism and nationalization (i.e. communism).

I alluded to this thought above. I don’t like the federal government taking taxpayer money (or borrowing money that taxpayers will have to repay) and “buying” or assuming ownership of private companies or even parts of them. I see no Constitutional authority for such a move and it is highly contrary to the tenets of capitalism.

This economic downturn is not a problem with capitalism. Instead, it is a problem caused by government interference that distorted free markets by preventing them from properly regulating themselves and rooting out bad loans and risky behavior. In short, government created this problem and now we’re asking government to fix it? How foolish is that?

5. Finally, why have certain leaders not been fired for their incompetence?

We have a Treasury Secretary that serves at the will and pleasure of the President. There are leaders in Congress that oversee financial committees and other influential boards and administrative bodies. Corporations and banks have leaders. Surely these leaders should have seen this problem coming years ago. After all, they are paid to prevent problems such as this.

The very fact that so many of our leaders, from the Treasury Secretary down to corporate executives, either didn’t see the problems or failed to warn of them makes these individuals part of the problem. Instead, and making the case even worse, it seems many of these leaders contributed greatly to the problem. That scenario suggests they are guilty of inept leadership. Simply put, they are incompetent.

In short, those incompetent individuals who contributed to this problem should be fired and replaced with competent individuals who will work to get their companies and our country out of debt and on a solid financial footing. I’m troubled that I can think of nobody who has been fired for their part in creating this problem. Instead, they are awarded billions to spend and authorized with questionable powers to “fix” what they either helped create or failed to avert. That response seems about as reasonable as giving gas and matches to an arsonist.

So, in conclusion, these five ponderings have occupied a great deal of my thought (and frustration) over the past few months. Please share your ponderings below.

I just read something powerful from a pamphlet by William J. H. Boetcker (1873-1962) and entitled The Ten Cannots. It was originally published in 1916 but I feel its message is very fitting to us today and especially now during the 2008 Presidential election cycle. Here are the “10 cannots”:

1. You cannot bring about prosperity by discouraging thrift.
2. You cannot strengthen the weak by weakening the strong.
3. You cannot help little men by tearing down big men.
4. You cannot lift the wage earner by pulling down the wage payer.
5. You cannot help the poor by destroying the rich.
6. You cannot establish sound security on borrowed money.
7. You cannot further the brotherhood of man by inciting class hatred.
8. You cannot keep out of trouble by spending more than you earn.
9. You cannot build character and courage by destroying men’s initiative and independence.
10. And you cannot help men permanently by doing for them what they can and should do for themselves.

I wish all in government and those aspiring to positions in government would take these simple yet powerful concepts to heart. Voters would be wise to do the same.

Please note: The above quote is often wrongly attributed to Abraham Lincoln.

Sometimes a picture really is worth a thousand words. I think the example on the left does just that regarding the seemingly complex concept of socialism and wealth redistribution. In my opinion, it sums up the functional basics of socialism very well.

Under a socialistic system, government (or the “community,” as socialistic proponents like to say) collects resources through “progressive” taxation. Stated another way, government levies an increasingly higher tax burden on those earning or owning more assets. In reality, though, socialism looks a lot like armed robbery since the threat of collective force is used to confiscate a person’s wealth.

It is also worth noting that, according to Marxist theory, socialism is the transitional stage between capitalism and communism.

Please note: I do not know who produced this graphic and thus cannot provide appropriate credit.

Let me clearly state that I don’t like or approve of the recent federal intervention in the United States economy. Government policy over the past three decades, pushed to extremes by left-leaning and radical groups like ACORN and using the Community Reinvestment Act, created the corrupt lending environment that was exploited by Fannie Mae and Freddie Mac to produce the toxic mortgage situation in which we find ourselves. So, since government is primarily responsible for this crisis, why should we then trust government to fix the problem they created?

This unfavorable economic environment is not a shortcoming of capitalism. It is a direct result of government manipulation within our economy for the benefit of a few people. Sometimes manipulation gives an unfair advantage to the rich and sometimes the poor. In this current environment, those who should not get a loan it were encouraged to borrow beyond their means.  While historically no bank would loan money under such terms, Fannie and Freddie created an unnatural market for banks to offload risky mortgages. The result was the poisoning of our entire financial system.

Unfortunately, as is often the case, the federal government stepped in and removed even more of our individual freedoms and made our economic system less of a capitalistic one and more like a planned economy under socialism. To give you an idea of the extent of the change, we’re now talking about the government owning or nationalizing large portions of our banking system. We’re also talking about government confiscating taxpayer money to buy up and refinance failing mortgages. We’re also talking about government, not shareholders, owners or investors, telling companies how much they can pay their employees and how to run their businesses. Sounds more like the old Soviet Union than what the Founding Fathers set up, doesn’t it?

This is an extremely dangerous precedent that will severely damage our economy in the long run. It makes the American taxpayer the ultimate holder of risks that the market should allocate to willing investors. It also gives government enormous control over our economy, our money and our everyday lives. In effect, a government bureaucrat will soon be deciding who can borrow, how much they can borrow and under what terms. In the name of fairness and environmentalism, other factors will probably be imposed later like how large our house can be and whether we really need what we can afford.

Instead of the massive bailout that was adopted, I wish government had essentially stepped out of the picture and removed as many of the artificial market distortions imposed on our economy as possible. True, those who foolishly risked assets would go bankrupt but those assets would not disappear (yes, all those over-mortgaged houses would not evaporate into thin air and people would still have places to live). Instead, those assets and failing institutions would be transferred to their creditors who would carry on the business of finding renters and owners for them. The system would have adjusted and done so relatively quickly compared to this permanent fix imposed by the government.

Furthermore, such a capitalist move would have injected more fairness and rational decision-making into our economic system instead of advancing our nation down the slippery slope of socialism. Power corrupts. Whether power is concentrated in the hands of government or unfair markets, it still corrupts. The best fix would have been for government to ensure that free markets existed and then to step back and let the incredibly creative innovations of the American people solve the crisis.

In conclusion, the current economic crisis was caused by government intervention in the first place and will not be fixed by yet another bigger government intervention. It is utter foolishness to grant government more power to tinker with our economy. It is especially dangerous to further empower those same forces who pushed the radical agenda that first took our government down the destructive path of socialism decades ago. Furthermore, I’m also very troubled by the lack of real resistance to this massive erosion of our precious American freedoms.

I’m tired of hearing Democrats say we should raise taxes on the rich or the rich should never receive a tax cut. To make matters even more frustrating, they often state this sentiment as if there’s something evil about being rich. Here are three things to consider before embracing the “tax the rich” notion.

1. Only people who earn more money than they need can afford to hire others.

Excessively taxing the rich kills the economy. Have you ever seen somebody barely scraping a living from paycheck to paycheck start a business and hire employees? Can poor people offer health insurance plans and pay benefits? Of course not. They don’t have any extra money to risk or invest. Excessive taxation of the rich takes their investment capital away which harms the economy.

2. The rich enlarge the economy by their consumption.

Let me illustrate this point by an example. Following the 1993 Clinton tax increase a large surcharge on the sale of new luxury yachts was imposed. That luxury tax almost put the the American yacht construction industry out of business. Who builds the yachts? The rich? Of course not. So guess who was laid off when nobody was buying yachts? The lower class yacht construction workers suffered for that tax (and from the government’s point of view it raised almost no revenue because domestic yacht sales dried up).

3. Who decides what qualifies as rich and how much to confiscate?

Taxing the rich is a Marxist income redistribution scheme. It punishes work, risk and capitalism. It deprives poeple of their individual freedoms and personal property rights. In a free society government has no right to decide who needs how much money and what amount they get to keep.

In conclusion, excessive taxation of the rich is like killing the goose that lays the golden egg. It’s also like poisoning the village’s only water well just to get even with one person. As in both of these cases, the greed and jealousy inflicted via excessive taxation on a select few ends up hurting everyone.

We’ve been told for months now by politicians, especially Democrats, that the U.S. economy is in shambles.  Over the past few days we’ve been told that government must act now in a huge way to bail it out before the woes of Wall Street hit Main Street. We’re told that this is the worst economy since (insert year of choice here). There is so much doom and gloom.

But let’s step back and think for a minute. Yesterday we saw a huge drop in the stock market. Today we saw it recover about half that drop. While wild swings are not ideal, the fact that things calmed down and recovered so much today after the hailed bailout plan was voted down yesterday speaks volumes about consumer confidence (which today was reported for September to be up from August’s numbers and higher than analysts expected).

Also, the value of the U.S. Dollar surged in relation to many foreign currencies today, especially major tracking ones like the Euro, Yen and the British Pound. How could that be if our economy is on the verge of collapse and a second Great Depression? Would foreigners want to hold dollars if they were soon to be devalued or made worthless? I think not.

A couple weeks ago John McCain was ridiculed for expressing that while there are problems in our economy it is fundamentally strong. I agree with McCain and applaud him for speaking the truth and not trying to “talk down” the economy for political gain. Think about it: The American worker remains the most productive in the world. We have an incredible infrastructure to facilitate business transactions, labor exchanges and economic development. We have a strong legal foundation that protects innovation, entrepreneurship, private property — including intellectual property — and individual freedom. Where else in the world can you find all these components required for a strong economy?

Yes, there are problems in our economy today (largely the result of bad government policy) but the American economy remains fundamentally strong because Americans are fundamentally strong and innovative. The sooner government realizes that it needs to get out of the way of free and private markets the better it will be for everyone — from Wall Street to Main Street. I think the positive economic response we say today to yesterday’s no vote on the bailout bill should serve as a lesson that government intervention in the economy ought to be limited and restrained.

In this latest election cycle I’ve been frustrated by the lack of talk about core principles.  It seems that window dressing is king right now and a few buzzwords about change are shaping the political debate.  That’s bad news for people who think critically — especially for those of us who know that change for the sake of change is not necessarily a good thing. We could change from bad to worse, for example, so I want to know why we need change and where (and how) the change agent wants to change things.

While mulling over these notions, they triggered some thinking about my own core principles. I felt it was wise to put my core beliefs about government in writing (even if in a rough format) and provide some basic application of them regarding the federal government.  I am a strong believer in federalism, separation of powers, and checks and balances. As such, I feel the Constitution clearly restricts the federal government from action — particularly in domestic issues.  Similarly, in the areas where federal action is authorized, it is often severely limited. In fact, the Tenth Amendment is very specific about this:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

In a nutshell, this means the federal government is severely limited to a few (primarily national and interstate commerce) powers with the remainder left to the States and the people.  Thus, I advocate a very limited role for the federal government and argue against many social and spending programs currently found at the federal level. However, please note that I am not against all government social programs. While opposing federal programs, I will argue for more involvement at the state and local levels of governments. At these levels of government there are not the same Constitutional prohibitions. Similarly, I firmly believe that social programs are more effective from a practical and service-oriented point of view when administered at the lowest level of government possible (state, county, city, special district, etc.).

So, understanding the above, I will embark on drafting my “Key Principles of Government” as they relate to the federal government specifically, and to all governments in general. Please note that this is a work in progress — thus the short sentences, bullet format and limited explanation/supportive details.

1. Government exists to protect life and liberty and maintain an orderly society.

Government protects but does not create rights. Our government is a representative democracy (not a direct democracy). Minority rights are safeguarded from the “tyranny of the majority.” The federal government exists primarily to:

• provide national defense (foreign and domestic)
• promote national interests
• administer interstate commerce and conflicts

2. Government should be limited and restrained.

Power begins with the people and authority comes from God. Just because a problem exists doesn’t mean the government should try to solve it. A government that governs least tends to governs best. When possible, local solutions are preferred over national or state ones. The Constitution should be followed explicitly. If additional federal involvement is deemed needed then the Constitution should be amended to authorize such action.

3. Economic markets should be free.

The free enterprise system powers personal prosperity. Because government intervention disrupts the “invisible hand” (see Adam Smith) of the economy and encroaches on personal freedom, it should be rare. Also, to avoid creating special advantages and unintended consequences, government should limit its involvement in the economy as much as possible.

4. Taxes should be low.

It’s not the government’s money. Anything the government possesses it has had to first take from somebody.

5. Simple solutions are preferred over more complex alternatives.

The simplest working solution is usually the best one. The more complicated something is the more parts there are to break. Long-term costs and benefits should be considered above short-term impacts.

What do you think? Did I leave anything out? I invite your comments and suggestions.