At the Core of Economic Disorder: End the Fed

This will be my final blog post for the Power Hour, given that I’m graduating from UWG in July and will not be returning to co-host the show (heart breaking, I know, but the show will go on), but I feel that this will certainly be my most important post. This is something that I intend to cover in the Power Hour finale, something that should be at the center of economic reform discussion right now: the Federal Reserve.

This quasi-governmental entity was created under the Federal Reserve Act of 1913 with the power to coin and issue money at its own discretion. Its other initial power was to keep the rate of inflation in check, even though it was later granted an additional mandate to try to secure “full employment” in the economy through any means possible. Full employment, in a textbook economic sense, is the condition in which the unemployment rate stands at approximately 5% since unemployment can never reach 0%. Also, with the implementation of the 2010 Dodd-Frank Act (otherwise known as Wall Street Reform), the Federal Reserve was deemed the power to seize the assets of financial institutions that were deemed to contribute instability to the financial sector. Needless to say, the Federal Reserve, established as an inherently powerful mechanism in “pulling the strings” with steering the direction of our economy.

Its no question that the Federal Reserve has grown in its scope of power since its creation and is asserted as necessary for providing for economic stability, but in reality it does quite the opposite. The first issue in the flaw of the Federal Reserve and its impact on monetary policy in terms of monetary stimulus, in other words, printing money out of thin air to stimulate real market growth. The problem with this seemingly simple concept, however, is that this practice distorts and distributes market gains in wealth and growth. In his book, What Has Government Done to Our Money, Austrian economist Murray Rothbard explains this phenomenon clearly:

The new money works its way, step by step, throughout the economic system. As the new money spreads, it bids prices up—as we have seen, new money can only dilute the effectiveness of each dollar. But this dilution takes time and is therefore uneven; in the meantime, some people gain and other people lose. In short, the counterfeiters and their local retailers have found their incomes increased before any rise in the prices of the things they buy. But, on the other hand, people in remote areas of the economy, who have not yet received the new money, find their buying prices rising before their incomes. (pg. 53, Rothbard)

In other words, the richer businesspersons who are the initial beneficiaries of the stimulus gain while the poor individuals who experience the growth of the monetary supply suffer the rise in prices that come before their resulting incomes rise, IF their incomes rise. Other businesses that weren’t subjected to the stimulus lose also. Thus, creating a disparity in competitive edge that a free market economy would not produce in the absence of a central bank. Inflation resulting from the growth of the monetary supply opens ground for a disparity in wealth that is often blamed on the nature of the market economy. In other words, if you find that $50 could buy a full cart of groceries at the grocery store in 1995, but a half-cart in 2005, then you may find that it takes more of your own income to pay for something that you would have otherwise paid less for in the past. Therefore, inflation is an indirect form of taxation.

Inflation, however, is just one side effect of the policies that the Federal Reserve pursues in impacting the economy. The Federal Reserve’s impact on the market goes deeper into its manipulation of a key signal in the market: Interest Rates. Interest rates play an important role in the market in a way that it serves to notify businesses when it is plausible for them to pursue higher-order capital production to further their innovation of goods and services that benefit the demands of customers and profits of business. In other words, these higher-order capital production projects stand to bring positive outcomes for both sides of economic activity. In a free market, when interest rates are higher, it indicates to businesses that the savings (the basis of credit availability) aren’t available, indicating that individuals are consuming goods and services in the present-day without intent to save their money. While lower interest rates signal to businesses that consumers have switched their preferences to saving their money, indicating that they wish to consume goods and services in the future. From there, when interest rates are lowered, businesses take out credit from the bank to invest in higher-order production to accommodate future production needs of consumption. Oftentimes, this could lead to job creation to keep pace with production efforts.

The danger, however, comes when the Federal Reserve central bank gets in the business of manipulating interest rates. The consequences of artificial manipulation of interest rates can be seen from the 2008 Financial Crisis. As recalled, the crisis unraveled when home owners were defaulting on homes that they found that they could no longer afford, resulting in a fallout in housing prices and a ripple-effect of damage on the economy in the crisis. This is often blamed on “mass deregulation” of traditional-risk lending practices of commercial banks, but what is often not discussed is that this so-called “deregulation” was the federal government encouraging commercial banks to give out riskier loans to individuals with bad credit while tax payers were left on the hook to pay for this perverse federal incentive (see Meltdown by Tom Woods). However, the Federal Reserve played a role in encouraging construction industries to pursue higher-order capital production of housing by making ready the credit that would not have existed otherwise in a free market (of course, through lowering interest rates). Furthermore, the Federal Reserve lowered the federal funds rate, a market rate at which banks lend to each other overnight to meet their “reserve requirements” and other liquidity needs, to encourage banks to lend to individuals, regardless of credit history. Reviewing the trends of interest rate changes from 2001-2008 provided by the CRS Report illustrates the downward trend of interest rates. The federal funds rate decreasing from 4 1/2% in April, 2001 to 1% in October, 2008. While the discount rate decreased from 4% in April, 2001 to 1 1/4% in October, 2008. While the Federal Reserve altered the credit structure to create a stimulus for home ownership and production, it was inflating a bubble that was doomed to deflate. Austrian Economic minds like Jim Rogers and Peter Schiff predicted this crisis on the basis of the Austrian Business Cycle economic theory, but were laughed at by Keynesian economists for the supposedly “outlandish” claim. The economy succumbed to crisis and the Federal Reserve, instead of being scrutinized for its role in the crisis, it was given new powers to further control the economy.

The 2008 Financial Crisis is not the first time that we have seen the Federal Reserve tangle itself in crisis in an effort to stimulate growth. The Great Depression would be brought on by these loose money policies as well. History often blames the Depression frivolous, mass mal-investment made by businesses and investors that led to the Stock Market Crash. Familiar? Monetary activity of the Federal Reserve was very high during the mid and late 1920’s, with the money supply increasing by over 60% and interest rates falling, as pointed out in Murray Rothbard’s America’s Great Depression case study. You would think that we would learn from history by now.

But how were economic crises handled without central banking involvement? Refer back to the Depression of 1921. Unemployment was rising and the marketplace was hurting badly. In spite of this depression-like phenomena, the President at the time decided that the federal government and Federal Reserve would be inactive and allow the market to recover on its own without the monetary stimulus. The result? The economy recovered in less than a year and did well until the Federal Reserve got involved to stimulate investment and activity and led the way for economic crash. Before the Fed, Depressions lasted for only brief time periods and the markets showed to recover on their own means when given breathing room to liquidate bad investments, pay off debts, an saved for better investments. The opposite of the Keynesian remedy of fiscal stimulus perpetuated by central banks. It took cutting government spending by 70% along with taxes and Federal Reserve activity for the economy to truly thrive again, not WWII.

There is so much more on the Fed that can be covered and why it has done more harm to the market economy than help. I just decided to touch on some main points of it to hopefully get the reader to think more on this structure of money printing and false credit creation. I feel that the true solution for monetary reform incorporates the following reforms:

1. Repeal the Dual Mandate on the Federal Reserve. That is, restrict the focus of the Fed to curtailing inflation instead of trying to maintain full employment, which is impossible and something the Fed has consistently failed to do. Repealing the mandate, along with its power to seize monetary assets from financial institutions established by Dodd-Frank would help to narrow its commitments and rein in its power.
2. Delegate authority to the Government Accountability Office to audit the activities of the Federal Reserve to their fullest extent, as established in former Congressman Ron Paul’s Audit the Fed bill. Doing this would create needed transparency and would pressure the Fed to be more accountable to the American people as opposed to select interests.
3. Abolish all legal tender laws currently established that give the Federal Reserve monopoly protections by the Federal Government to print money and force it to be the only usable currency in our  economy. Abolish capital gains taxation on gold and silver commodities to encourage equal currency competition fairness. The fiat dollar will still be authorized by the Fed, but it will no longer have monopoly power to force the market to use that one currency alone. Given the history of money in market exchange and transaction, it is shown that the consumers and producers in the market choose gold and silver as their currencies of choice because of their viable use as currency and other commodity functions. Nobel Prize Economist Friederich Hayek endorsed a similar idea in his essay, Denationalisation of Money.

With these 3 reform ideas implemented, the Federal Reserve’s power would be reined it and would be eventually obsolete for our growing marketplace and be phased out in a reasonable time while championing policy transparency. We need to take on the Federal Reserve for its role in the anatomy of our economic crises and exacerbation of the Boom-Bust cycles. Grant it, economic problems will never go away. Free market capitalism is not perfect, but we cannot turn to the government every time something goes wrong. The best thing we can do is leave the market to its own devices and only then can we see true recovery, and it starts with reining in the Federal Reserve. The ignored elephant in the room.

If this continues to go ignored, then we can expect to experience another economic crisis by the end of this year that involves the collapse of our currency. I warned about this on the Power Hour and on “The Conversation” during my interview and I stand by it. Furthermore, the Federal Reserve has served as the Great Enabler of our government’s deficit spending with the flexibility of our fiat dollar to buy off government debt. Either way, if we ignore the Federal Reserve, it won’t stop it from bringing abysmal deconstruction of the economy.

I would recommend these lists of reading to learn more about monetary economics and the Austrian Business Cycle Theory. Some are in e-book form for easier access:

• What Has Government Done to Our Money? -by Murray Rothbard
• Economics in One Lesson -by Henry Hazlitt
• Meltdown -by Thomas Woods Jr.
• How An Economy Grows and Why It Crashes -by Peter Schiff
• What Is Money? -by Frederic Bastiat
• The Theory of Money and Credit -by Ludwig von Mises
• Denationalisation of Money: The Argument Refined -by Friederich Hayek
• Austrian Business Cycle Theory Explained -by Thomas Woods Jr.
• End the Fed -by Ron Paul

Nathan Fuller, Conservatarian Co-Host of the Power Hour

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Austrian School of Economics and Its Importance

I’m going to let all of the readers in on a little treat that is slightly different from my previous posts: I’m going to give everyone a perspective on my foundation basis of knowledge and logical understanding of the economic issues. From my economics classes in high school and college, to some self-teaching on economic phenomena, I couldn’t help but grow skeptical of the things that I learned from straight-from-the-textbook professors and saw from the actions of our politicians through fiscal policy. The conventional logic of the textbook-style school of economics did not seem to reflect reality much at all, so I researched further into the various schools of economics to see what they had to say based on their understandings and logical basis. No kidding, I read from Keynes’ “General Theory of Employment, Interest, and Money” to Milton Friedman’s “Free to Choose.” As a future statesman, it was imperative for me to study from a school of economics that was credible in its theories/practices and explanations for economic phenomena. Then I came across the school of economics that essentially summed up real economics: The Austrian School.

In a nutshell, the Austrian School of Economics is everything that you would conceive of in a system that advocates for a “free market.” From central banking systems’ impacts on the business cycle to the impacts of higher taxation, this school of economic thought argues how excessive government intervention has adverse impacts on economic growth and sustainability. In the words of the Mises Institute, the sole Institution focusing on the education of Austrian economic thought:

These Late Scholastics observed the existence of economic law, inexorable forces of cause and effect that operate very much as other natural laws. Over the course of several generations, they discovered and explained the laws of supply and demand, the cause of inflation, the operation of foreign exchange rates, and the subjective nature of economic value–all reasons Joseph Schumpeter celebrated them as the first real economists.

As I studied into this school further, it was truly an educational experience that only enhanced my understanding of economics as it happened even further. From Murray Rothbard’s explanation and history of the functions of money to Frederic Bastiat’s Broken Window Fallacy, I learned so much and how it was applicable to American economic affairs today.

When I see what has happened in our current financial crisis and how “unregulated capitalism” was the blame just like it was the so-called blame of the Great Depression, I can’t help but think back to an old saying that rings true today: those who do not learn from the past are condemned to repeat it.”

If we do not learn from our mistakes of the past in terms of economic policy making and stop making the vast assumptions that government is the cure (when, in fact, it has been the primary blame), then we will fall into a crisis that we can’t pull ourselves out of. I encourage everyone to check out the Austrian School and check out some of the well-known texts of these economists whose lessons and studies still apply today. Here is a recommended reading list:

The Law by Frederic Bastiat
What Has Government Done to Our Money by Murray Rothbard (recommended for those interested in monetary policy)
Economics In One Lesson by Henry Hazlitt (a great starter for those new to economics)
That Which is Seen and That Which is Not Seen by Frederic Bastiat
End the Fed by Ron Paul
Meltdown by Tom Woods (for a good perspective on the 2008 financial crisis)
The Road to Serfdom by Friederich Hayek

Also, I would recommend the readers to check out the Mises Institute for check out some of the daily articles posted by economists and professors along with the e-books for some of the texts that I have mentioned above. The link of the site is: http://mises.org/

I hope you can find as much enlightenment from this in your economic studies as I did and even if you do not have a favoritism towards the Austrian School, I’d still encourage you all to check it out to learn from a fresh perspective of solid ideas. I will be talking more about the Austrian School in the last few weeks of my Power Hour career so tune in every Tuesday night at 7!

Nathan Fuller, Conservatarian Co-Host of the Power Hour

Drone Strikes On US Soil? Hell No!

Yesterday on the floor of the United States Senate, Senator Rand Paul of Kentucky held an incredible filibuster on the approval of John Brennan as the new CIA Director that lasted for nearly 13 hours. For those of you who do not know, John Brennan is the former chief counter-terrorism adviser under President Obama who helped craft the President’s infamous “kill list” of targets that can be assassinated (no one knows, citizen or not, who is on this list other than its existence) and worked to carry out the drone program under former President Bush. Rand Paul, however, held up the nomination to bring light to a significant issue that affects everyone’s civil liberties: the use of drones to kill targets without due process, especially US citizens on US soil.

Rand Paul made this statement that really stood out yesterday during the Senate filibuster:

“I will speak until I can no longer speak, I will speak as long as it takes, until the alarm is sounded from coast to coast that our constitution is important, that your right to trial by jury is precious, that no American should be killed on American soil without first being charged with a crime, without first being found to be guilty by a court.”

Fortunately, after the extended filibuster and the considered approval of John Brennan as the new CIA Director, Attorney General Eric Holder released a letter to finally respond to Paul’s question, stating that the Obama Administration does not have the authority to use drones on US citizens on US territory. Here is the letter, credit going to the Huffington Post for this:

Even though I’m still not convinced of the sincerity of the Obama Administration not to use drones on US citizens given Eric Holder’s previous remarks on the justification of the use of drone force by the President on US territory, it is important that Americans stand up against this policy in the name of their life and liberties. For those that have consistently followed the Power Hour, I brought up the issue of drone strikes last semester and the potential precedent of the use of drones affecting Americans. It is time to address the constitutional issue of drone strikes.

Nowhere in the US Constitution is the President granted power to authorize an assault effort against any person without due process, let alone unilaterally via executive order. The following amendments to the Constitution make the state of our current drone policy null-and-void:

Amendment 5 (Right to due process)-

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Amendment 6 (Right to a fair trial)-

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.

Amendment 14, Section 1 (Equal protections of due process to all)

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside. No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

From these 3 constitutional amendments alone, along with the limitations of Presidential Power in Article 2 of the Constitution, it is clear that there is no constitutional case or rationalization for the authorization of drones against citizens (and non-citizens, for that matter) without due process and trial of law. I can, however, see ONE exception in which the use of drones can ever be justified in a foreign country and that would be if a given target were to pose an immediate threat upon the United States and its people. Only in that case would the initiation of deadly force be justified, as has been established by common law in the case of self-defense. Outside of that, there is no justification.

If the natural law/constitutional case against drones does not sway you to oppose the current state of our drone policy, then consider these little factoids offered by this Stanford-NYU Study:

• From June 2004 through mid-September 2012, drone strikes killed 2,562-3,325 people in Pakistan, of whom 474-881 were civilians, including 176 children.
  
• The term “militant,” which is often used as a categorical label to indicate to the observant reader that the target was a justified kill. The problem, however, is that “militant” does not have a clear definition and has been used to generally label those that are male and military-aged.
• According to a 2012 Pew Research Poll cited within the study, 94% of Pakistanis believe the attacks kill too many innocent people and 74% say they are not necessary to defend Pakistan from extremist organizations. In short: if the US is curious as to why  countries around the world are ticked off at us, then this is something to consider.
• The overall impacts of US drone strikes being used in Pakistan has imposed economic and social hardship on the citizens. That is, many citizens being rendered homeless or marketplaces being destroyed by the explosions, destroying national infrastructure. Citizens have even reported fear of being out in public due to potential drone threats.

To be fair, this policy of drone usage did not start with President Obama; in fact, it was former President Bush Jr. that authorized the program initially. This, however, does not make the actions committed against foreign individuals (or the consideration of the use of drone force against citizens) by the decision of the President any more moral and lawful. Had an average person killed someone at gun point, they would have been placed in court to be sentenced at death. If you are a politician, then you are either overlooked or revered as a hero. This is simply unacceptable and actions like this constitute war crimes that should be punished to the harshest degree possible! The fact that the Justice Department released a memo making the legal case for drone strikes without due process of law and Attorney General Eric Holder rationalizing the use of drones on US soil is outrageous at best. While I can see drones being used justly to defend against the deadly, imminent force being waged by someone else, anything beyond that exception is unjust.

No matter how pundits on the Left and Right try to spin it, the truth remains: President Obama’s actions constitute that of a war criminal and should be a severely impeachable charge. Murder, no matter who deems it, is still murder.

I encourage everyone to watch this video showing some footage on the drone strikes. Its not for the feint of heart, but this is reality at its saddest. Is this what we want on OUR homeland?

Nathan Fuller, Conservatarian Co-Host of the Power Hour

Save a Life, Conceal-Carry a Gun

There is a debate affecting all college campuses right now in my home state of Georgia and it concerns a very sensitive topics: conceal-carry on campus. In the wake of the Sandy Hook Elementary shooting that just happened last December, in combination of past gun-related tragedies,however, the hostility of the idea among college students and professors alike is very high and understandably so. The state of the current gun debate is calling for a crackdown on firearms as the answer to circumvent any future gun-related incident, but is gun ownership and gun-carry truly the problem? Could conceal-carry on college campuses lead to more problems with crime?

The answer to those questions is a big NO.

If anything, concealed-carry (and open carry, in several instances) can and does save lives. From circumventing bank robberies and assaults to concealed-carriers stopping altercations, gun owners nationwide have helped to deter crime. The following map from the Cato Institute outlines 386 cases from 2003 to 2011 in which concealed- and open-carrying gun owners circumvented these incidents:

The incident categories are outlined along with the number of these instances in which a gun owner stopped these incidents before the situation exacerbated:

Altercation (0), Animal (5), Assault (19), Business Burglary (4), Business Robbery (59), Carjacking (2), Concealed Carry Permit (26), Defender Shot (6), Domestic Dispute (8), Female (28), Gun Taken from Criminal and Used against Him (14), Home Invasion (87), Hostage (1), Intoxication (5), Intruder (15), Minor Offender (8), Pizza Delivery Driver (4), Private Security (2), Rape (2), Residence Burglary (32), Residence Robbery (10), Senior (22), Stalking (1), Street Robbery (32), and Trespassing (4).

These selected cases illustrate the positive impact of concealed- and open-carry that is often pointed out by pro-carry advocates: if given the chance, an individual can reduce the probability of a tragic altercation if they are allowed to carry their fire arm. Of course, there is no absolute on stopping the altercation but no one is denying that. Incidents are still going to happen regardless, but the probability of higher self-defense capability is our focus.

The issue at hand that should be the subject of scrutiny and reform is the anti-gun environment and culture of the university setting. As it is known, college campuses are gun-free zones. These areas strictly prohibit carrying, concealed or open, guns in deemed locations with the rationale that gun-related crimes will be contained and deterred. This sounds like a nice concept on the surface. I mean, who in their right mind would want violent gun crime on their college campus? Unfortunately, these gun-free zones are anything but “gun-free.” 

According to the most recent FBI report on college campus crimes, the number of offenses committed with firearms (handguns, shotguns, rifles, and other nonspecific firearms) on college campuses across the nation between 2000-2004 totaled 3,461. The weapons used in criminal offenses on college campuses nationwide are listed below:

Table 8: Type of Weapon/Force Used in Crime in Schools, by Year
	Year of Incident
Weapon Type/Force Used	2000	2001	2002	2003	2004	5-Year Total
Personal Weapons	12,945	17,830	20,636	21,933	25,050	98,394
None	2,702	3,114	2,974	3,294	4,176	16,260
Other	1,775	2,311	2,332	2,420	2,842	11,680
Knife/Cutting Instrument	1,511	2,082	2,080	2,445	2,852	10,970
Handgun	307	376	398	430	497	2,008
Blunt Object	283	404	394	455	469	2,005
Firearm (type not stated)	94	131	103	135	146	609
Other Firearm	74	107	92	155	154	582
Explosives	145	139	93	89	95	561
Motor Vehicle	43	52	46	59	71	271
Fire/Incendiary Device	36	34	42	36	88	236
Rifle	23	33	33	24	37	150
Shotgun	15	24	30	19	24	112
Drugs/Narcotics/Sleeping Pills	9	4	8	14	6	41
Poison	1	8	4	11	16	40
Asphyxiation	2	1	3	6	2	14
Unknown	593	1,128	1,163	1,069	1,098	5,051

Note that these numbers are the most recent ones that have been published by the FBI that I could find so these trends in gun-related offenses are not binding. The numbers do, however, shed light on the truth of the mechanism of the so-called gun-free zones: they do nothing to deter gun crime and, if anything, they leave law abiding citizens disarmed in the event of criminal confrontation. Some well-known instances in which gun-free zones have been subjected to shooting sprees include Virginia Tech and Lonestar College. In spite of the intent of gun-free zones and other bans on conceal-carry on college campuses, they have failed to deter gun crime and have led to more shooting crimes that could have otherwise been prevented.

Unfortunately, the unintended consequences of gun-free zones have claimed victims along the way. On the Power Hour Townhall Special, I mentioned a case in which a young female college student was unable to conceal-carry due to her college’s ban on conceal-carry. As a result, when she was confronted with her aggressor in the parking deck of the University of Nevada-Reno, she was overpowered and raped at gun-point. Her rapist had raped 2 other women and killed another one after that. The student was later interviewed and had responded to the claims made by conceal-carry opponents on call boxes and safety zones as alternatives:

If I had been carrying that night, two other rapes would have been prevented and a young life would have been saved…but I can tell you that a call box above my head while I was straddled on the parking garage floor being brutally raped wouldn’t have helped me one bit. The safe zone? I was in a safe zone and my attacker didn’t care.

The rape survivor’s name is Amanda Collins and she is one of many survivors in the nation that could have otherwise defended themselves.

 Lastly, there is an important case to look into on this issue: the state of Colorado. Professor Clayton E. Cramer released a study on the effects of Colorado’s conceal-carry law, using Colorado State University (the college that decided to allow conceal-carry) and University of Colorado (the college that continued to ban conceal-carry on campus) for the study. Cramer’s study found that the crime rate at Colorado State University had fallen about 60% while the University of Colorado had experienced a 35% increase in their crime rate. Similar trends of crime decline have shown up in other states that have allowed conceal-carry on campuses as well, such as Mississippi and Utah.

Crime has become a reasonable concern for college students like myself and its no wonder why, given that crime is increasing nationwide on campuses even as overall national crime rates are falling. Students are worried about their colleges being the next criminal targets. Even on a relatively peaceful campus like the University of West Georgia, we are not exempt from crime. My freshman year brought forth cases in which a student was mugged right outside of my dorm at Downs Hall and another one out near the Front Campus Drive area. While a case of sexual assault happened in front of a learning facility near our cafeteria. It is a scary concept, even if the frequency of crime isn’t high. You can’t help but think about how these cases (and many more that may have gone unreported out of fear and guilt) could have been averted had the victims had a solid way to defend themselves.

University Police is not omnipresent: they cannot be everywhere to look after every student on campus and keep them safe. Call boxes, while they can be convenient, do little good if someone is thrust into a confrontation with an aggressor that prevents them from reaching the call box. Even if the person can reach the call box, it may be too late by the time the police arrive. These scenarios happen in every day life and call for further legitimacy to allow students to conceal-carry. We can’t prevent students from exercising their right to defend themselves because of some fearful scenarios that rarely or may never happen. How many more Amanda Collins’s or Victoria Soto’s will it take before we realize that conceal-carry is the best way to assure a student’s probability of better self-defense?

Nathan Fuller, Conservatarian Co-host of the Power Hour

Raising the Minimum Wage Floor Leaves the Lower-Skilled in the Basement

In his 2013 State of the Union Address, President Obama made the proposal to raise the minimum wage from $7.25/hr to $9.00/hr. He said the following:

Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour.  This single step would raise the incomes of millions of working families.  It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.

The whole idea of it sounds pretty nice on the surface, doesn’t it? Raise minimum wage and those workers will have more money in their pockets to buy more groceries, pay rent for their homes, and even some luxury spending on that new Nintendo 3DS that they have been wanting since last year. This, the wage-raise proponents argue, would put more money in the pockets of businesses because consumers would have more confidence to spend and thus, everyone prospers!

Sounds pretty nice, right? Unfortunately, the desired effects of minimum wage do not live up to the reality of its economic impact. If anything, a raise in minimum wage (essentially, an arbitrary increase on the price of labor) hurts any probability of lower-skilled, entry-level workers finding work in the job market because they do not possess the experience to meet the demands of the labor market to work and produce their worth in wages. Independence Institute senior fellow and economics professor Linda Gorman further puts into perspective how minimum wages cause economic hardship for the workers it means to help:

The reason is simple: although minimum wage laws can set wages, they cannot guarantee jobs. In practice they often price low-skilled workers out of the labor market. Employers typically are not willing to pay a worker more than the value of the additional product that he produces. This means that an unskilled youth who produces $4.00 worth of goods in an hour will have a very difficult time finding a job if he must, by law, be paid $5.15 an hour.

As we find out from the cruel reality of economics in real-time, those workers who produces well-below minimum wage floor are put at risk to lose their jobs. Keep in mind that the wages paid to workers is still an expense on the backs of businesses. In addition to the wages paid to workers, businesses also invest, on average, $955 in training for these employees. Businesses realize what they invest in their future employees and want to avoid losses from employees that may create more losses for their companies than gains. The entry-level workers, because of lack of previous work experience, would be seen as a greater risk to hire than other counterpart applicants who may have more experience.

This creates difficulties for businesses and entry-level workers. Nearly half of all US businesses reported difficulties in filling job positions within their respective organizations, given that they are unable to find workers with the sufficient experience and job skills. In spite of the increasing, double-digit youth unemployment, businesses still find difficulties in drawing a pool of applicants to meet skill requirements. The increasing cost of labor is narrowing the applicant pool while youths find it harder to acquire skills and gain economic mobility. The employers and employees lose in this scenario.

The adverse effects on employment that wage control policies like minimum wage impose goes back deeper into history: as far as the Great Depression. I cited this UCLA study on the last Power Hour program and it had outlined the impacts of some of the wage and price control policies that President Roosevelt had implemented to stabilize the economy during the Great Depression. In a nut shell, the study found that 11 key industries that had raised employee wages 25% higher through compliance with FDR’s policies also saw unemployment go up 25% higher than it should have, with gains in productivity being considered.

The impacts of minimum wage, however, go beyond the issue of unemployment. Another key adverse effect calls for an increase in the cost of living for the every-day consumer. When businesses decide, rather by choice or force of circumstance, not to lay off workers to offset costs created by increases in wage expenses, then they tend to raise the prices on their goods and services to preserve profits. This adverse effect of minimum wage, sadly, is often-overlooked.

I came across this interesting meme on Facebook citing Australia as a case for a minimum wage increase, saying this: 

I couldn’t help but scratch my head at this little tid-bit of info, so I looked into the costs of living in Australia as opposed to the costs of living in the United States. I found this:

US Consumer Price Indexes (link here):

Indexes Consumer Price Index (Excl.Rent): 79.58 Rent Index: 36.75 Groceries Index: 79.45 Restaurants Index: 67.28 Consumer Price Plus Rent Index: 58.97 Local Purchasing Power: 138.36

Australia Consumer Price Indexes (link here):

Indexes Consumer Price Index (Excl.Rent): 131.01 Rent Index: 71.33 Groceries Index: 124.66 Restaurants Index: 114.30 Consumer Price Plus Rent Index: 102.29 Local Purchasing Power: 104.20

Viewing and comparing the consumer price indexes of the US and Australia sheds some light on the impact of minimum wage on consumer prices, at least to some degree. In spite of Australia having a high minimum wage and low unemployment, the costs of living are extremely high in comparison to a more economically-developed US. Of course, this could also be a result of the demand that is potentially stimulated with the higher pay of workers and the resulting consumer confidence. Either way, this serves as a perfect illustration of the implications on costs created by minimum wage.

The important take-away from this post is that minimum wage has 2 key impacts: pricing lower-skilled workers out of the labor market, and raising the costs of living. The difficulty with measuring these effects is the fact that minimum wage has only been increased incrementally, with other economic factors to be considered. The fact is, when government steps in to raise the cost of labor, demand for the labor falls, dis-employing the labor that is lesser skilled.

As the title of the post suggests: raising the minimum wage floor does indeed leave the lower-skilled labor in the “basement” of that floor. The only difference is that everyone, consumers and workers alike, is hurt in the long run economically. The impact may not be large all at once, but the net-losses exceed the net-gains by a long shot.

Nathan Fuller, Conservatarian Co-host of the Power Hour

Throwing Americans off the Fiscal Cliff

Forget about the rhetoric being tossed around about Republicans or Democrats “wanting to push grandma off the cliff.” The real issue is how both political parties have pushed the American people as a whole off the fiscal cliff! As most of you may know, the US Senate put forth the so-called “Fiscal Cliff deal” that passed both Houses of Congress and to be signed into law by President Barack Obama. This plan, according to the Reid-McConnell provisions and the Congressional Budget Office, consisted of increasing taxes by $620 billion in projected revenue (the tax hikes on the upper 2% of income earners) and a meager $15 billion in spending cuts across the board. What’s more, the CBO projects that the deal would result in an added nearly $4 trillion to the national debt over the next 10 years. This plan was a horrible, political ploy from the start and fails to address the true issue in this debate over our unsustainable debt: federal spending.

Before covering the issue of federal spending, it is important to put a myth to rest that has been perpetuated since the balanced budget debate has begun: balancing the budget will require raising taxes. This sounds like a plausible, fair compromise to help balance the budget until you look at the following: 1) The relationship between marginal tax rates & federal revenue; and 2) the economic consequences of raising taxes. 

Looking at the relationship between marginal tax rates and federal revenue, the history lays out the conclusion as plain as day: higher tax rates do not mean higher revenue intake. The following chart from the Mercatus Center outlines the historical trend of tax rates and revenue intake: 

From observing the trends, federal revenue as a percentage of GDP has stood at about 16.5% on average since 1930. Revenue has remained consistently flat in spite of the taxation at higher, marginal rates. In other words, the only true justification for raising taxes carries no weight in facts and it brings bad economic consequence without any “balance” to show for it. This would probably explain the projected growth in future budget deficits in spite of the $620 billion increases in taxation on the upper 2% of income earners.

Not only does increased taxation do virtually little to balance the budget, but its economic consequences prove to be a ripple effect not only on the Upper-income earners, but on the Middle and Lower classes of income earners too. This also ties into why federal revenue intake was low in spite of higher marginal tax rates. Consider the following fact: the upper 3% of taxpayers paid 29.2% of all federal taxes in 1958, but that same class of taxpayers, including 2% more of the upper-income group, paid 58.6% of all federal taxes in spite of dramatic cuts in the top tax rates. With growth in adjusted gross income, the taxation burden on the wealthy has remained relatively similar. In other words, the top marginal tax rates of the 1950’s ( an 81% marginal tax rate applied to incomes above $140,000, and the 91% rate kicked in at $400,000 for couples) were nothing more than symbolic; most of the Wealthy, or the productive sector, used any legal means to dodge the higher tax burdens even if it came that the expense of productive activity. In other words, the working wealthy were more motivated to create losses to avoid the steep tax rates than to create opportunity that would have spurred job growth, innovations in goods and services provided. A modern-day example of how higher taxation stifles productivity can be seen from our corporate tax rate of 35%. As it stands, we have the highest rate in the world and this has proven to be a problem with international competitive edge, given that we are seeing a visible trend in businesses outsourcing jobs overseas to regions with far more favorable tax and regulatory environments. When we raise taxes on those who are most productive in the economy, then they are facing fewer incentives to increase productivity and more towards dodging the higher tax burdens at the expense of middle and lower class individuals who could have benefited from the potential new work or improvements in the standard of living that the productive innovation would have brought. Not only does increased taxation hardly contribute to curbing the federal deficit, but its effects on the economy prove to be regressive as everyone is negatively impacted in the long run. Cutting taxes in combination of loopholes that are otherwise uneconomical is the best path to tax for our economy.

Now that the issue of higher taxation has been addressed and proven to be ineffective, it is important to address the issue of the unsustainable federal spending that is the truly cause of our growing debt. If we are to truly address the issue of such spending on a serious level, Republicans and Democrats need to come to put their “sacred cows” on the table. That is, Republicans need to compromise on military spending while Democrats need to compromise on Entitlements. Entitlements, the biggest portion of the federal budget, are truly worthy of discussion, given the unsustainable structures of Medicare and Social Security and their yearly growth. Military spending, while it takes up far less of the budget than Entitlements, still needs to be addressed along with the US foreign policy that has inspired the growth of the US ambition for “nation-building.” Obviously, both of these forms of spending are hard to touch given their high political priority, but at this juncture in the state of our national debt and the consequences of such crushing debt, we cannot afford to play politics with it any longer. Last year, Entitlements spending consumed 61.9% of all federal spending while military spending consumed 18.7%, with the rest of non-security discretionary spending consuming less than 20%. It is clear that we have a spending problem instead of a revenue problem, but until we reform Entitlements and rein in Military spending, neither Party can truly say that they are committed to reducing the national debt. How many more “deals” are our politicians going to keep scrambling together until they can no longer delay the inevitable fall-out of our debt onto the backs of the American tax payer? 

Nathan Fuller, Conservatarian Co-Host of the Power Hour

The Future of America?

Throughout history America has always been know as the most powerful country in the world, but has that gotten to our head?  In today’s America we have the most ungrateful citizens you could possibly imagine. We are the most overweight country in the world, everything has to be at our fingertips. If not, complete chaos will for sure come into fruition. The one big thing I do not understand is the fact that Americans always talk about the fact that we’re in debt and how will we pay for it. The sad thing about Americans is the fact that we all want the economy to improve, but as long as we don’t have to make individual sacrifices, we’re all for America getting better. For instance Americans always talk about how they do not want taxes raised on anyone, but if you look at the facts we, Americans, are paying the lowest form of taxes in the world. We have it good compared to other countries, but we don’t see it that way, we’re so blind, ignorant, and so spoiled its not even funny. In order for America to improve we ALL have to chip in, not just the wealthiest Americans, but all of us. It’s time for Americans to put their pride and politics aside and do whats right for the county. If America fails, EVERYONE needs to be held accountable. Wake up America, before the sleep that we are in becomes a coma.

-Darryl Forges