Listen to Mish: Public unions and their pensions have bankrupted your city and state.

I don’t care where you live, odds are that your local politicians have put you and your fellow taxpayers on the hook for unpayable quantities of debt, mostly to fund government salaries and benefits that are way out of line with the private sector. This is a huge issue, and the only people who cover it in detail are the blogger Mish Shedlock and author Stephen Greenhut.

This is exactly what has happened in Greece and the rest of the GIPSI states in Europe, and for that matter the US Treasury since FDR introduced the Keynesian the welfare/stimulus state to those shores.

The only ethical solution to the problem is a swift, honest default. Public debt is a racket, the advance sale of stolen goods (interest, extorted at gunpoint) and just another capital transfer from producers to lazy government workers, politicians, bankers, government contractors and other moochers. The alternative to default is a slow death by debt slavery, all to prop up a corrupt system that will fail in the end anyway.

As Murray Rothbard responded to the idea that public debt is ok because “we owe it to ourselves,” the problem is “who’s the we, and who’s the ourselves?”

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See more here: Default, Greece, Default

Murray Rothbard on repudiating the public debt (mises.org)

Kick Lincoln out of Washington’s holiday

Below I’ve posted the audio of a talk by economist and historian Murray Rothbard on America’s only two just wars, the American revolution and the war for southern independence.

Here is Rothbard’s definition of a just war, from an essay based on this talk:

My own view of war can be put simply: a just war exists when a people tries to ward off the threat of coercive domination by another people, or to overthrow an already-existing domination. A war is unjust, on the other hand, when a people try to impose domination on another people, or try to retain an already existing coercive rule over them.

By the way, Rothbard points out in his voluminous history of the US, Conceived in Liberty, that Washington was no Jefferson when it came to the principles of small, decentralized government and personal freedom.  Lincoln, however, was an absolute tyrant. He abolished habeas corpus, jailed newspapermen and others for dissent, and waged total war on civilians, all to support the agenda of northern railroads, steel mills and banks.

Here’s a little more on the war for southern independence from that essay. The war of course was really about taxes and corporatism, and Lincoln was as big a racist as anyone in his day (and a longtime advocate of shipping America’s blacks off to Africa or South America).

His (Lincoln’s) major emphasis was on Whig economic statism: high tariffs, huge subsidies to railroads, public works. As one of the nation’s leading lawyers for Illinois Central and other big railroads, indeed, Lincoln was virtually the candidate from Illinois Central and the other large railroads.

One reason for Lincoln’s victory at the convention was that Iowa railroad entrepreneur Grenville M. Dodge helped swing the Iowa delegation to Lincoln. In return, early in the Civil War, Lincoln appointed Dodge to army general. Dodge’s task was to clear the Indians from the designated path of the country’s first heavily subsidized federally chartered trans-continental railroad, the Union Pacific. In this way, conscripted Union troops and hapless taxpayers were coerced into socializing the costs on constructing and operating the Union Pacific. This sort of action is now called euphemistically “the cooperation of government and industry.”

But Lincoln’s major focus was on raising taxes, in particular raising and enforcing the tariff. His convention victory was particularly made possible by support from the Pennsylvania delegation. Pennsylvania had long been the home and the political focus of the nation’s iron and steel industry which, ever since its inception during the War of 1812, had been chronically inefficient, and had therefore constantly been bawling for high tariffs and, later, import quotas. Virtually the first act of the Lincoln administration was to pass the Morrill protective tariff act, doubling existing tariff rates, and creating the highest tariff rates in American history.

In his First Inaugural, Lincoln was conciliatory about maintaining slavery; what he was hard-line about toward the South was insistence on collecting all the customs tariffs in that region. As Lincoln put it, the federal government would “collect the duties and imposts, but beyond what may be necessary for these objects, there will be no invasion, no using of force against . . . people anywhere.” The significance of the federal forts is that they provided the soldiers to enforce the customs tariffs; thus, Fort Sumter was at the entrance to Charleston Harbor, the major port, apart from New Orleans, in the entire South. The federal troops at Sumter were needed to enforce the tariffs that were supposed to be levied at Charleston Harbor.

Of course, Abraham Lincoln’s conciliatory words on slavery cannot be taken at face value. Lincoln was a master politician, which means that he was a consummate conniver, manipulator, and liar. The federal forts were the key to his successful prosecution of the war. Lying to South Carolina, Abraham Lincoln managed to do what Franklin D. Roosevelt and Henry Stimson did at Pearl Harbor 80 years later – maneuvered the Southerners into firing the first shot. In this way, by manipulating the South into firing first against a federal fort, Lincoln made the South appear to be “aggressors” in the eyes of the numerous waverers and moderates in the North.

Outside of New England and territories populated by transplanted New Englanders, the idea of forcing the South to stay in the Union was highly unpopular. In many middle-tier states, including Maryland, New Jersey, and Pennsylvania, there was a considerable sentiment to mimic the South by forming a middle Confederacy to isolate the pesky and fanatical Yankees. Even after the war began, the Mayor of New York City and many other dignitaries of the city proposed that the city secede from the Union and make peace and engage in free trade with the South. Indeed, Jefferson Davis’s lawyer after the war was what we would now call the “paleo-libertarian” leader of the New York City bar, Irish-Catholic Charles O’Conor, who ran for President in 1878 on the Straight Democrat ticket, in protest that his beloved Democratic Party’s nominee for President was the abolitionist, protectionist, socialist, and fool Horace Greeley.

The Lincoln Administration and the Republican Party took advantage of the overwhelmingly Republican Congress after the secession of the South to push through almost the entire Whig economic program. Lincoln signed no less than ten tariff-raising bills during his administration. Heavy “sin” taxes were levied on alcohol and tobacco, the income tax was levied for the first time in American history, huge land grants and monetary subsidies were handed out to transcontinental railroads (accompanied by a vast amount of attendant corruption), and the government went off the gold standard and virtually nationalized the banking system to establish a machine for printing new money and to provide cheap credit for the business elite. And furthermore, the New Model Army and the war effort rested on a vast and unprecedented amount of federal coercion against Northerners as well as the South; a huge army was conscripted, dissenters and advocates of a negotiated peace with the South were jailed, and the precious Anglo-Saxon right of habeas corpus was abolished for the duration.

Default, Greece, default.

All government debt is a racket, and should be repudiated.

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Widely read investment advisor John Mauldin favors the continued enslavement of the Greek public to corrupt politicians, greedy unions, and German banks. He had this to say today in his email publication:

…if Greece defaults it does not necessarily mean they have to leave the EU, any more than if Illinois defaulted they would have to leave the United States. Greece could still use the euro and life could go on. EXCEPT. The markets would no longer lend the Greek government money at anything close to a livable rate. Greece would be forced to balance its budget. Since they are part of the euro, devaluing the currency is not an option. The results of controlling their fiscal deficit would not initially be pretty and would almost insure a serious prolonged recession or depression in the Greek area, with fall out in the region. It would be a sad decade for Greece. But in the long run, it is a better option than default.

Further, and more important to the rest of Europe and the world, the results of a Greek default would be financial turmoil. 250 billion euros (and maybe 300!) of Greek debt is in international bond funds, pension and insurance companies, and above all at banks. Think German banks. Already undercapitalized banks. Also, think of all the investment banks who have been selling relatively cheap (given the apparent risk) credit default swaps on Greece, in an unregulated market, exposing their balance sheets. What should be a simple, if sad, matter for the Greeks, becomes a problem for the world, just as subprime debt in the US caused a world credit crisis. And the risk of contagion from Portugal, Spain, et al is serious. 2 trillion euros of debt could get downgraded by the bond market in very short order. It could be a replay of the last credit crisis, just with new actors as the prime problem.

Bailing out Greece without serious and credible deficit reductions by their government over the next few years would simply delay the problem, and it is not altogether clear the bond markets would go along for very long. At the end of the day, it may be the bond market which forces the Greek government and its people to take some very bitter medicine. Stay tuned. This is just the beginning of what will be a series of sovereign debt crises over the coming decade. It is important for the world that we get this one solved right, or the consequences will be quite severe.

I respectfully disagree with Mr. Mauldin. I believe that default would be the best outcome for the Greek people and the rest of Europe, as well as the financial system. It is ironic that Mauldin does not support this outcome himself, since he claims to be a fan of von Mises, Hayek and Rothbard, all of whom would be appalled at the prospect of perpetuating the racket in Athens. Rothbard specifically advocated the repudiation of government debt, since it serves only the interest of politicians and special interests at the great expense of the society at large:

In the famous words of the left-Keynesian apostle of “functional finance,” Professor Abba Lernr, there is nothing wrong with the public debt because “we owe it to ourselves.” In those days, at least, conservatives were astute enough to realize that it made an enormous amount of difference whether—slicing through the obfuscatory collective nouns—one is a member of the “we” (the burdened taxpayer) or of the “ourselves” (those living off the proceeds of taxation)…

If sanctity of contracts should rule in the world of private debt, shouldn’t they be equally as sacrosanct in public debt? Shouldn’t public debt be governed by the same principles as private? The answer is no, even though such an answer may shock the sensibilities of most people. The reason is that the two forms of debt-transaction are totally different. If I borrow money from a mortgage bank, I have made a contract to transfer my money to a creditor at a future date; in a deep sense, he is the true owner of the money at that point, and if I don’t pay I am robbing him of his just property. But when government borrows money, it does not pledge its own money; its own resources are not liable. Government commits not its own life, fortune, and sacred honor to repay the debt, but ours. This is a horse, and a transaction, of a very different color.

For unlike the rest of us, government sells no productive good or service and therefore earns nothing. It can only get money by looting our resources through taxes, or through the hidden tax of legalized counterfeiting known as “inflation.” …

The public debt transaction, then, is very different from private debt. Instead of a low-time preference creditor exchanging money for an IOU from a high-time preference debtor, the government now receives money from creditors, both parties realizing that the money will be paid back not out of the pockets or the hides of the politicians and bureaucrats, but out of the looted wallets and purses of the hapless taxpayers, the subjects of the state. The government gets the money by tax-coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties, therefore, are making agreements about other people’s property, and both deserve the back of our hand. The public credit transaction is not a genuine contract that need be considered sacrosanct, any more than robbers parceling out their shares of loot in advance should be treated as some sort of sanctified contract.

I highly recommend reading the whole Rothbard essay on Mises.org, since the ideas therein have never been more timely for the US, among a great number of other countries.

It is almost always in citizens’ best interest for their government to repudiate the debt it has accumulated in their names. Politicians take out debt to spend more than is prudent or ethical, in order to buy votes, very often union votes. This is the case in Greece, where repeated strikes by teachers, dockworkers, farmers and others have been met with greater and greater pay and benefits. This system is a racket that rips off the silent majority of taxpayers.

Why should generations have their earnings stolen (make no mistake, taxation is theft, the involuntary taking of property under threat of force) to continue to support politicians, bankers and union thugs?

A default would indeed cripple the government’s ability to borrow, and would thereby end the racket. Politicians would no longer be able to offer something for what seemed like nothing: if they wanted to raise union pay, they would have to raise taxes at the same time, not at some future date beyond the next election.

Yes, a default would hurt bondholders. Duh. That’s perfectly just, since Greek (and Italian, Portugese, Spanish and Irish — GIPSI) bonds pay higher yields than those of Germany or Switzerland. These investors took a gamble, as did those who wrote default swaps on such debt. They deserve to lose money, and frankly, the astute buyers of default swaps deserve it more than they. Besides, as Rothbard makes clear, the creditors are a party to theft, guilty of receiving stolen goods.

I am tired of this nonsense that somehow banks and investors losing money means the end of the world. That is a fiction fed to a credible and ignorant public in order to justify the transfer of their assets to the most powerful banks. What is the end of the world?  War: the uniquely governmental institution of cities and industry bombed to rubble, crops burned, and whole generations enslaved, blown up, starved and displaced. A banking crisis? My god, that’s nothing, unless the government turns it into prolonged stagnation through theivery (and even worse if they take advantage of the resulting conditions to agitate for war). Factories, roads, bridges, and offices still stand; and human beings still have their lives, talents and freedom to use them. Assets change hands, that’s all. Nobody needs to starve, and unemployment only needs to be brief, unless of course the government prevents the defaults necessary to transfer assets to productive ownership by shifting the losses to the public. In that case, capital is wasted, assets stay idle and jobs disappear.

The Greek public should send a message to their politicians: “We won’t pay. Default away.” If unions can stike, why can’t taxpayers? The fact is, the debt is unpayable anyway, because the taxes necessary to service it would cripple what’s left of enterprise in that socialist economy. Just get it over with and don’t sign up for the lost decade(s) club.

The Reluctant Anarchist

This old essay by columnist Joe Sobran is remarkably close to my own view of government, as is the process by which he arrived at his conclusions (I added the bold below).

…I became a philosophical conservative, with a strong libertarian streak. I believed in government, but it had to be “limited” government — confined to a few legitimate purposes, such as defense abroad and policing at home. These functions, and hardly any others, I accepted, under the influence of writers like Ayn Rand and Henry Hazlitt, whose books I read in my college years.

During the Reagan years, which I expected to find exciting, I found myself bored to death by supply-side economics, enterprise zones, “privatizing” welfare programs, and similar principle-dodging gimmickry. I failed to see that “movement” conservatives were less interested in principles than in Republican victories….

Now I began to be critical of the U.S. Government, though not very. I saw that the welfare state, chiefly the legacy of Franklin Roosevelt’s New Deal, violated the principles of limited government and would eventually have to go. But I agreed with other conservatives that in the meantime the urgent global threat of Communism had to be stopped. Since I viewed “defense” as one of the proper tasks of government, I thought of the Cold War as a necessity, the overhead, so to speak, of freedom. If the Soviet threat ever ceased (the prospect seemed remote), we could afford to slash the military budget and get back to the job of dismantling the welfare state….

Gradually I came to see that the conservative challenge to liberalism’s jurisprudence of “loose construction” was far too narrow. Nearly everything liberals wanted the Federal Government to do was unconstitutional. The key to it all, I thought, was the Tenth Amendment, which forbids the Federal Government to exercise any powers not specifically assigned to it in the Constitution. But the Tenth Amendment had been comatose since the New Deal, when Roosevelt’s Court virtually excised it….

In a way I had transferred my patriotism from America as it then was to America as it had been when it still honored the Constitution. And when had it crossed the line? At first I thought the great corruption had occurred when Franklin Roosevelt subverted the Federal judiciary; later I came to see that the decisive event had been the Civil War, which had effectively destroyed the right of the states to secede from the Union. But this was very much a minority view among conservatives, particularly at National Review, where I was the only one who held it….

In the late 1980s I began mixing with Rothbardian libertarians — they called themselves by the unprepossessing label “anarcho-capitalists” — and even met Rothbard himself. They were a brilliant, combative lot, full of challenging ideas and surprising arguments. Rothbard himself combined a profound theoretical intelligence with a deep knowledge of history. His magnum opus, Man, Economy, and State, had received the most unqualified praise of the usually reserved Henry Hazlitt — in National Review!

Murray’s view of politics was shockingly blunt: the state was nothing but a criminal gang writ large. Much as I agreed with him in general, and fascinating though I found his arguments, I resisted this conclusion. I still wanted to believe in constitutional government.

Murray would have none of this. He insisted that the Philadelphia convention at which the Constitution had been drafted was nothing but a “coup d’etat,” centralizing power and destroying the far more tolerable arrangements of the Articles of Confederation. This was a direct denial of everything I’d been taught. I’d never heard anyone suggest that the Articles had been preferable to the Constitution! But Murray didn’t care what anyone thought — or what everyone thought. (He’d been too radical for Ayn Rand.)

Murray died a few years ago without quite having made an anarchist of me. It was left to his brilliant disciple, Hans-Hermann Hoppe, to finish my conversion. Hans argued that no constitution could restrain the state. Once its monopoly of force was granted legitimacy, constitutional limits became mere fictions it could disregard; nobody could have the legal standing to enforce those limits. The state itself would decide, by force, what the constitution “meant,” steadily ruling in its own favor and increasing its own power. This was true a priori, and American history bore it out.

What if the Federal Government grossly violated the Constitution? Could states withdraw from the Union? Lincoln said no…. The United States, plural, were really a single enormous state, as witness the new habit of speaking of “it” rather than “them.”

So the people are bound to obey the government even when the rulers betray their oath to uphold the Constitution. The door to escape is barred. Lincoln in effect claimed that it is not our rights but the state that is “unalienable.” And he made it stick by force of arms. No transgression of the Constitution can impair the Union’s inherited legitimacy. Once established on specific and limited terms, the U.S. Government is forever, even if it refuses to abide by those terms.

As Hoppe argues, this is the flaw in thinking the state can be controlled by a constitution. Once granted, state power naturally becomes absolute. Obedience is a one-way street. Notionally, “We the People” create a government and specify the powers it is allowed to exercise over us; our rulers swear before God that they will respect the limits we impose on them; but when they trample down those limits, our duty to obey them remains.

We may challenge the government in the courts… its courts.

…Franklin Roosevelt and his Supreme Court interpreted the Commerce Clause so broadly as to authorize virtually any Federal claim, and the Tenth Amendment so narrowly as to deprive it of any inhibiting force. Today these heresies are so firmly entrenched that Congress rarely even asks itself whether a proposed law is authorized or forbidden by the Constitution.

In short, the U.S. Constitution is a dead letter. It was mortally wounded in 1865. The corpse can’t be revived…

Other things have helped change my mind. R.J. Rummel of the University of Hawaii calculates that in the twentieth century alone, states murdered about 162,000,000 million of their own subjects. This figure doesn’t include the tens of millions of foreigners they killed in war. How, then, can we speak of states “protecting” their people? …As for warfare, Paul Fussell’s book Wartime portrays battle with such horrifying vividness that, although this wasn’t its intention, I came to doubt whether any war could be justified….

…For most people, anarchy is a disturbing word, suggesting chaos, violence, antinomianism — things they hope the state can control or prevent. The term state, despite its bloody history, doesn’t disturb them. Yet it’s the state that is truly chaotic, because it means the rule of the strong and cunning. They imagine that anarchy would naturally terminate in the rule of thugs. But mere thugs can’t assert a plausible right to rule. Only the state, with its propaganda apparatus, can do that. This is what legitimacy means. Anarchists obviously need a more seductive label.

“But what would you replace the state with?” The question reveals an inability to imagine human society without the state. Yet it would seem that an institution that can take 200,000,000 lives within a century hardly needs to be “replaced.”

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Anarchy naturally gives rise to capitalism, as people save and invest the fruits of their labor. Unfortunately, and without much lag, it also seems to give rise to states. Cunning individuals, as well as lazy, short-sighted or naive ones all desire to formalize the use of force to control capital.

To read some of Rothbard’s work, click here.

For Hoppe, here.