The Ultimate Minority

Whenever you find that you are on the side of the majority, it is time to reform – Mark Twain

Browsing Posts published by Dave Martin

Wind Wanglers

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Visiting family in rural Indiana this weekend, I was taken for a drive to see the new wind farm a few miles away. Eighty-seven towering wind turbines standing in the middle of corn fields, all facing the same direction as if they were standing at attention. I looked at the size of these structures and knew they represented substantial investment. My mind started looking for figures to calculate: How much does it cost to build one of these things? How much electricity do they generate? What is the payback period (as in, if it costs a dollar to build one, how long will it take for it to generate a dollar’s worth of electricity to pay for itself?) What is the relative power production of wind turbines compared to traditional power plants? Forgive my cynicism, but all of these questions led to one bigger, more important question: Who’s making big money on this, and who’s getting the shaft?

Once you understand a principle, it is relatively easy to find its application in any number of examples. The principle here is that government planners pick and choose winners in alternative energy sources, awarding them handsomely with subsidies that make economically inviable projects profitable for the few, costly to the many. Profits will be privatized, losses will be socialized.

I started doing some basic research, and quickly found my cynicism to be justified.

There is a substantial lobby in Washington representing the interests of wind farm builders. This fact alone hints that someone is probably making a lot of money at your expense, and if you’re thinking so, you’d be right. Where traditional power generating facilities may write down (depreciate) the value of their capital investment over 20 years, wind facilities enjoy a 5-year double declining balance accelerated depreciation. They then receive a production tax credit of $0.019 for each Kilowatt hour of electricity produced. A wind farm generating 300 MW of electricity a year would earn a tax credit, a dollar-for-dollar reduction of the amount owed in federal taxes of approximately $15 million. For this reason, smaller companies building wind farms typically sell them to very large corporations, who can utilize a tax credit of this size. The acquiring company also gets the five-year accelerated depreciation on their purchase.

All told, the federal subsidies pay for about two thirds of the project, and the state tax credits and incentives typically pick up about another 10%. So what do we get in return? Not much.

For the state of Indiana alone, it would take tens of thousands of wind turbines to generate just 5-10 percent of the total energy used by Indiana consumers in a year. These things don’t produce a lot of energy, typically operating at just 15 to 25% efficiency. Wind turbines only generate their rated capacity in wind speeds of 30-55 mph. Below those numbers, power generation drops off rapidly; if the wind speed falls by half, power drops by a factor of eight. Above 55 mph, the turbines will actually “hit the brakes” and shut themselves off to prevent structural damage.

This is an example of how the global warming hoax is used to line the pockets of politically favored groups. In the name of reducing carbon emissions to save us all from our impending doom, costly, inefficient means are being subsidized with taxpayer dollars, creating a few winners and, as usual, a lot of losers.

There is a fungus in the forest floor of eastern Oregon spanning 2,200 acres; it is known as the world’s largest living organism in terms of area. But there is a growing body of research showing that Armillaria ostoyae has a contender: Governmentus Americanus. This parasitic organism is growing exponentially, and it seems nothing can stop it – not an eroding productive sector, a shrinking tax base, declining revenues, trillion-dollar wars, recession, inefficiency, nor higher operating costs – it appears to shun all dynamics that scientists believe should halt, if not at least stunt, its growth.

A USA Today report provides a cursory glance at the leviathan: While our productive sector continues to shrink, government keeps growing. In the current recession, businesses have cut back 286,000 jobs in Q1 2008, while federal, state, and local governments have added 76,800 jobs.

If your household income is dropping, would you increase your spending? If you were running a business and your revenues were in decline, would you hire more employees? The answer is of course not on both counts. This simple logic escapes government officials.

When 286,000 productive people are out of work, revenues fall. If government spending even stays the same with declining revenues, it must be funded either by extracting more taxes from those still working, or running up more debt. But this situation is worse – they’re adding more cost, more programs, more people.

A Keynesian economist views this as an offsetting effect, softening the loss of jobs and helping to keep the economy out of recession:

“Government jobs are an important cushion for the economy when the private sector falters,” says North Carolina State University economist Michael Walden.

Michael Walden must answer the question: How will the government pay these new hires? It must extract more taxes from the productive, or run up more debt. And this is somehow good for the economy?

State and local governments have run deficits for the last nine months, the Commerce Department reports. Tax collections went flat in the middle of 2007, but spending has continued to rise.

Government jobs add nothing to the economy, they place a further burden, a drain on the economy. Governments create nothing, they leech from the productive private sector. And as long as people believe that government hiring is a good thing in the face of a declining jobs base, we are in a perilous spiral.

Enjoying a sandwich at a pub in Lansing a few months back, I engaged in a conversation with the man sitting next to me. We learned that we had something in common; I own a small manufacturing company, and he is a general manager for a much larger company in the Lansing area.

He told me that his company went from 300 employees to 1,200 in the past year. Wow! I was impressed. In today’s manufacturing climate, quadrupling your staff is a major accomplishment. I went on to ask him what they do, and what they did to experience such phenomenal growth. As it turns out, they do a lot of welding, and they were building armor for military vehicles. I’m not sure if my sigh was audible.

Some time back, I heard the governor speaking of opportunities in defense contracting and homeland security work – that Michigan needs to focus its vast engineering and manufacturing capability to win government contracts. Today, I received the Michigan Business Report in my mailbox. The cover story is DC3: The Forefront of Defense Contracting: Helping Michigan Business Get Ahead.

This is our growth industry. This is what we’ve become, a nation working for the government to build its war machine and security apparatus to further invade our privacy.

The most important thing to understand is this: Government contracts do not create wealth and prosperity, they destroy it. All of the money the government spends is wealth extracted from the productive private sector. The only source of funds government has is what it takes from us. Therefore, every penny of a $20 billion government contract must be paid for with taxes by those of us who don’t work for the government – those holding the contract are taking the money from the rest of us. Yes, they’re paying taxes, but they’re paying their taxes with money received from our taxes. Nothing is created by supplying government.

The money is wasted. When I was a consultant, I worked in the City of Memphis government for a few years. We had a pre-approved supplier list that mandated a source for our purchases. Once, I sent a software request up to purchasing and then asked to see the bids. All of the bids were at least 200% higher than I could have purchased the item off a store shelf. When I brought this up to the purchasing people, they looked at me like I had three heads. Who questions our cost? We have pre-approved suppliers, and we have to use them. This kind of waste is not the exception, it’s the norm – and this is only at the big-city government level. The bigger the government, the bigger the spending. We’ve all heard of the $4,000 ashtrays.

But this pales in comparison to the billions spent building our war machine, which is subsequently destroyed or destroys the infrastructure of others countries, which we then pay to rebuild. When the US Government blows up a bridge in Iraq using bombs purchased on a $50 million contract, that money has evaporated into thin air. When they rebuild the bridge at the cost of $50 million, that money is again extracted from the productive sector.

And yet, the states are tugging at the shirt tails of the federal government for their share of the booty, and governors stand proud to announce the defense contracts they’ve secured. It’s bad enough that the people are ignorant of economics and cheer the fraud, but government officials themselves do not understand that everything they do is waste. They believe they’re adding value to society. The Michigan governor has hired a retired military general and given him $10 million taxpayer dollars to lobby Washington for contracts. Here is a passage from the press release:

“General Lott’s military and acquisition career experience make him an ideal choice to lead this new initiative,” Granholm said. “The high concentration of R&D and talent in Michigan positions us well for securing a larger share of contracts to the multi-billion-dollar defense industry.”

Granholm noted that homeland security/defense is one of the high-tech, high-growth sectors specifically targeted by the 21st Century Jobs Fund initiative.

When I purchased my company three years ago, I established a set of principles to which we must adhere. One of them is simple: We do not accept government contracts.

I was listening to the Scott Horton Show today on Antiwar Radio, an interview with Bruce Gagnon from

The guest had a lot to say about the government’s plans to dominate space and its application in warfare, including some interesting information on plans the government would love to realize giving it the capability to kill an individual from space on remote command, anywhere in the world, at any minute. Some of it seemed a bit far fetched, but when it comes to government’s never ending quest to find new and better ways to kill people, I’ve become reluctant to simply write off anything I hear.

Scott refers to himself as a libertarian and an anarchist, and he does a great daily radio show to denounce government and its wars. His guests include antiwar activists and writers from across the political spectrum. I always enjoy listening to their critique of government, but often there comes a turning point in the conversation. It usually starts with: “What we need to do is…”

Mr. Gagnon leveled multiple charges on the Military Industrial Complex and the big multinational corporations that are in control of our government. So far, so good – although, I sensed that he was associating the “big multinational corporations” with capitalism and free markets, but I’ll reserve judgment for the moment. Then the setup line:

“We’ve got to offer an alternative vision for all of this insanity and madness…”

Uh oh, here we go.

“And for me it’s clearly calling for the conversion of the Military Industrial Complex, using our tax dollars, instead of countinually building for this endless war to benefit multinational corporations, using it instead to fund the creation of a new industrial policy.

This is where I’m thinking, here comes the plan. See, socialists can’t understand that central planning doesn’t work. Not only do they not understand that it doesn’t work, they can’t see how anything can possibly be done without a big master plan developed and overseen by a central body of authority. And unsurprisingly, they each have the “right” idea of how everything should be, if everyone would just agree that their way is the right way. Now, we just need to reach consensus.

Mr. Gagnon goes on to suggest that we need a rail system to every corner of America to reduce our consumption of oil, and windmills dotting the landscape.

“The environmental groups have it half right, they’re saying that we need to build solar and rail and wind, but they haven’t come up with a funding source. If they think that the corporations are just going to just do this out of the kindness of their hearts, I’ve got news for you. And in fact, if they think the government is going to be able to pay for it, it doesn’t have the money right now, because of our huge debt.”

And so we see another key trait of socialism: A complete ignorance of economics. Corporations do things because they believe them to be economically feasible, and forecast that they will therefore yield a profit. Profits, of course, are evil to socialists. But if the money won’t come from the corporations, where will “we” get it? It’s ironic that he says the government can’t pay for it because they don’t have the money “right now.” Where does the government get its money? Government creates nothing, it only extracts wealth from the productive element of society – and that includes the corporations that provide jobs. But Mr. Gagnon has an easy solution:

“There is a funding source available, it is the Military Industrial Complex.”

What? Where does the Military Industrial Complex get its money? From government! That’s right, the same government he says doesn’t have any money “right now.” Notwithstanding his glossing over where the money comes from, our distinguished activist wants to convert the MIC into a giant public works program.

“If we took the $12 billion we spent in Iraq last month, and invested it in America, we’d have created a million jobs!”

“Imagine the jobs created building windmills!”

Government jobs for everyone! But where will the money come from? It will need to be expropriated from the productive sector. Yes, it would be great if our government weren’t spending $12 billion a month on war – that is money we don’t have, so it’d probably be a good idea if they didn’t spend it at all.

In wrapping up the interview, Mr. Gagnon says we’re all pitted against one another by the power structure, and that we need to all come together:

“To end this reality in American Politics where we’re fragmented and broken apart from one another, because it is in that fragmentation that the power structure stays in control”

This is the most importantly wrong aspect of socialist idealism. The power structure is the government. The Military Industrial Complex achieves its power from its politically favored position with government. The “big multinational corporations” he speaks of are not products of the free market, but are creations of the government, in the form of corporatism. It is government control and intervention that destroys freedom, destroys jobs, and destroys choice. But to the socialist, there can be no society that is the sum of interactions between individuals, it must be centrally orchestrated. And they believe government is the key. They complain about the outcomes; the wars, the crushing of civil liberties, the corrupt power structures – but they keep wanting to build their centrally planned utopia. Socialist thinking is the enabler. It is how our Republic has devolved into a democracy, and will continue to slide toward totalitarianism.

To be fair, I don’t know if Mr. Gagnon calls himself a socialist. While there are some who will read this who do call themselves socialists, there is a far greater number who don’t consider themselves socialists while following the doctrine. That is because our education system teaches socialism, and most of us are not even aware of it. If we are to have any hope of turning this around and restoring freedom and liberty, we must reeducate ourselves regarding free markets and economic liberty. Socialism is not the answer to our problems, it is the cause of our problems.

When an idea goes unquestioned – when an idea is held so deeply within us that we don’t even realize it because it just seems like common sense, we are not in control of the idea, the idea controls us.

This is a topic I’ve often thought about: Why is it that when businesses or individuals do something corrupt or devious, the media and the people get outraged and insist on more government control – then, when the government takes control and government itself screws everything up, or worse, takes the corruption and law breaking to the next level, people laugh about it? What’s so funny?

Let’s start with a simple example of government bumbling and ineptitude. Remember a few years back when the US government “lost” billions of dollars it packaged up and sent to Iraq in the form of $100 bills on pallets? Try telling that story to a patron on a bar stool at your local pub, and I can predict the reaction of your listener: A shake of the head and laughter. Boy, that government sure is incompetent, isn’t it! Never mind that we should be outraged that $12 billion of our tax dollars are being packaged up on pallets, 360 tons of it, and shipped into a war zone to buy support from Iraqi interests. Never mind the fact that $8 billion of it could not be accounted for. Boy, that government sure is bumbling! Ha ha.

Now for a slightly more serious example: Remember when private airline security “failed” to protect us from terrorist attacks? Immediately, the cry went out for the government to take control of airline security. Overnight, an entire industry was removed from private holding and moved to government management. Never mind the fact that now we all pay for airline security whether we fly or not, and never mind the fact that everything the government does costs ten times more, we’ll all be safe now, right? Now, with complete government control over airline security, we’re all treated as subjects to government scrutiny, not paying airline customers. We can’t bring our toothpaste on a plane unless it’s in a government-approved package, we face longer lines, deeper intrusions into our property, and we’re not one bit safer. Reports abound of abuses at security checkpoints, and the constant ongoing failures to stop “dangerous” items from getting past security. Leno and Letterman are making jokes about it – are you laughing? And even if you’re not laughing, where’s the outrage that we had for the private sector failure? It’s as if once something has been pushed up to government responsibility, we expect failure and rest on our belief that it can’t be done in the private sector, and that government will sort out the problems, ill-founded as this faith may be.

But these examples pale in comparison to the hilarious examples of government’s abuse of the law and its attacks on liberty.

Before I go into the details, there is a second and larger issue tied in with all of this: We’re all constantly reminded of the declining morals of society. We blame Hollywood, lack of religious teachings in the schools, an obsession with instant gratification, hedonism…the list goes on and on.

I have been working on the idea lately that government itself is responsible for decline of morality in a civilization. A few examples in my studies kicked the idea into high gear, when I read about how the Jews were dehumanized with humor in Nazi propaganda short films. The people laughed. Eventually, doctors were participating in unthinkable crimes using human babies as rats in research experiments. When the whole system broke down, we look back at the behavior of the doctors and ask “how could they have done such things?” as if there were an event, a single traceable occurrence that led a doctor to one day switch from a caregiver to a monster. It doesn’t happen overnight, it happens through a long series of gradual conditioning steps. Governments, in their ongoing efforts to kill people, consistently dehumanize their victims to make it easier for the people to accept the killing – even to the point of using humor.

And then today I read Joshua Katz’s excellent piece at where he argues that in the United States today, we laugh at such things as torture, police abuse, and military occupation.

These are things we should hold as completely antithetical to the idea that is the United States of America, but we’re joking and laughing. It’s not just a matter of bad humor, it’s that we are desensitizing to atrocities committed by the government we formed to prevent them. Here is a passage from Katz:

Let’s be clear what these events all signify. Guantanamo Bay is a place where people are held, without charges, for 7 years now. In order to avoid judicial oversight, the executive has flown these people outside the boundaries of the United States; there is no law in place to protect them. The people held there, who have not been convicted, or even charged with a crime, are routinely tortured. At the University of Florida, a student asked a Senator a question about what he suspected was a stolen election. In response, he was electrocuted, beaten, and arrested. These are not jokes, these are deadly serious actions which establish, beyond all doubt, that a tyrannical order is being built. Our culture has turned them into jokes.

I’m not laughing. I’m concerned about the growth of government power and its abuses, and I’m acutely aware that a nation of peaceful people does not become a society of tyrant supporters overnight. It starts with ineptitude, and we laugh. It progresses to lawbreaking and we throw our hands up in helplessness, then use humor to deal with it. A society breaks down when it arrives at perpetual war, torture, and general inhumanity – and laughs.  Governments are destructive to morality.

Global Farce

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Three years ago, sitting on a beach in beautiful Northern Michigan with friends and family, I made a prediction: All of this talk of “global warming” would be dropped within a decade.

Everyone was taken aback by my statement, ironically by which, I was taken aback. It was as if I was the first person they’d heard that didn’t accept global warming as reality. After all, “the debate is over”, isn’t it? Everyone knows the planet is heating up and unless we stop what we’re doing, we’re in big trouble, don’t they?

Did I make this statement because I’m an expert in global climatology? No. I made this statement from an understanding of several key principles, from which one may observe a phenomena and make sound predictions.

The nature of mass movements

Charles Mackay said that men go mad in herds, while they only recover their senses slowly, and one by one. I have always been weary of jumping on the majority bandwagon, because I have adopted as a principle the idea that mass movements are usually based on lies and deceit. They are an assault on individual sovereignty, another of my closely held principles.

Fear as a motivator

Mass movements always have something to be afraid of, because nothing motivates people like fear. It is the most basal of all our instincts, prompting our fight-or-flee mechanisms to incite us to action. Whenever you see a mass movement appealing to your fear, ask questions.

There’s always another doomsday

Throughout the history of mankind, there have always been prophecies of doom and destruction. A casual study of doomsday theories will reveal that many predictions have been made, and many have had their time come and go – while the world keeps turning and people keep going about their business. So when I heard the global warming hysteria, my question is “what makes this doomsday more legitimate than all the others?”

An understanding of the theory of variation

My years of study in statistics have taught me that all things vary, and that people are prone to see trends where there are none. Worse yet, those with a cause will often exploit ignorance of variation by manipulating the data to tell the story they want to tell. When presented with a “trend” calling me to alert, my first question is always to understand the frame, the data in its proper context. The manipulators often take a few points in a series, assume a trend, apply algorithms, and paint a picture that tells the story they want to tell. When I first saw the famous “hockey stick” graph, my antennae twitched.

Junk Science

In my odyssey stage of life, I took a keen interest in science as a means to understand the world we live in. I became intrigued with the scientific method and how it contributed to the growth of knowledge. With a solid understanding of scientific method, one can quickly spot junk science, which is not science at all but lies told under the guise of being “science.” When I heard the statement “the debate is over” I knew I was in the realm of junk science – “the debate is over” is antithetical to science. By the very definition of the scientific method, the debate is never over, and anyone who claims otherwise is practicing dogmatism, not science. It took me five minutes of research on the Internet to learn that dissenting scientists were out there, and that they were being muzzled, bullied, and scorned by the global warming adherents. Big red flag.

Government’s role and follow the money

Anytime government is involved, be suspicious. Vast sums of taxpayer money are funneled to global warming research. Follow the money to find out who benefits, and understand their motivation. When academics employ junk science to promote a message the government wants broadcast to the masses in exchange for huge government grants and favors, while dissenting researchers are shut out by the establishment and get their government funding pulled…

Your meter should be pinned.

I was wrong in my prediction. It will take less than a decade for global warming to disappear from the debate. I should have predicted a shorter timeline based on the power of the Internet to inform and expose propaganda and junk science. Be aware, however, that global warming will not be debunked in the mainstream media. It will fade into the background as the next Big Scare takes the stage, and the masses will be fretting over another doomsday.

If the reader gets one thing from this web log, I wish it would be this: Beware of mass movements.

Nothing is more revolting than the majority; for it consists of few vigorous predecessors, of knaves who accommodate themselves, of weak people who assimilate themselves, and the mass that toddles after them without knowing in the least what it wants. – Goethe

Farmland Facism

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Today’s Grand Rapids Press features an article that celebrates the use of taxpayer dollars to pay farmers for their land. You’re probably thinking “what does the state do with the land they purchase from the farmer?” Well, that’s the rub… They don’t use your tax dollars to buy the land from the farmer to turn it into a park or a community center. They pay the farmer only for a pledge that he won’t sell his land to developers, who would probably do something horrible with it, like build houses or businesses. The farmer gets to keep his land and farm it as he always did, it’s just that he gets largesse from the great wealth extraction and redistribution device we call government, all in the name of “saving the farmland.”

The article states that of Michigan’s estimated ten million acres of farmland, 300,000 were “lost” between 1997 and 2002 (wow! At that rate, we won’t have any farmland left in 150 years. Then what will we eat? ) and cheers the socialist planners for putting a roadblock in the way of people and their locust-like race to blight the earth with homes, hailing one such expenditure for “the promise it [the farmland] will never become a neighborhood of ranch homes and bi-levels with 2 1/2-stall garages.” After all, there’s nothing worse than a bunch of middle-class people living in houses, is there?

But what about the city-dwellers? Don’t they “deserve” to have beautiful farmland minutes from their downtown existence? And what about the residents of the outskirts, who have lived in open space with the farm land for so long? Don’t they “deserve” to keep their solitude and keep the city from growing around them? The answer, of course, is no. They have the right to determine what will be done with their property, and their property only. The farmers have the absolute right to do what they see fit with their property, including selling it to a developer. The developer, with ownership of the property, has the right to build a neighborhood. Home buyers, if they are attracted to the area, have a right to buy and hold houses on what used to be farm land. If other people don’t like it, they have a choice: Sell their own property and move farther away from the city. They do not own the property of others, so they do not have a right to tell others what to do with their property. Those who buy property outside a city know that there is the possibility of the city growing toward them – in fact, it is a part of the decision making process, determining how far out to be while enjoying the benefits of the city center nearby, measured against the forecast timeline for when the city will grow nearer.

The planners have their own motivation for interfering. They don’t like this concept of self organization, people living where they choose. They argue that we should force people to live in the city, in their planned developments. Suburban “sprawl” offends them because it represents wealth and free choice. They plot schemes designed to make people feel guilty for their selfish desires to live outside the city. They promote fear, preying on economic ignorance to scare people into thinking that one day, farm land will all be developed and we will have no food. This is absolute bunk.

The value of farmland is a function of the free market and self-organization. Farmers with land just outside of urban centers stand to benefit at some point in the future. A 79 year old farmer in the article sold 111 acres of his land to a developer for $900,000 – that’s $8,100 an acre. The man was able to farm and make a living his whole life, then enjoy a nice retirement bonus and perhaps an inheritance for his children. Indeed, a wise farmer may locate closer to a population center precisely for this reason – knowing that he may profit from cultivating the land for years, all the while holding an asset that will appreciate greatly as the city attracts more people. Of course, the article portrays the aforementioned farmer as a man desperate to save the farm, but ultimately swallowed up by the temptation of the evil capitalists with their offers to buy his land. On the other hand, the land of farmers far away from cities holds its value as farm land, but will not be sought after for development. This is, of course, because building a subdivision in the middle of nowhere probably isn’t a good idea.

Another farm owner in the article chose instead to cash in on the government welfare program, happily accepting your tax dollars as payola. “It’s like we sold it, but it’s still ours,” she said. “Why sell it and have somebody in your backyard?” Why, indeed, when the government will give you money for nothing?

This idea that government thieves are taking money from the masses and giving it to someone else just so they’ll do what the government wants them to do with their property is appalling. The cost of this government intervention goes beyond the redistribution of money – by taking land off the market, the program creates scarcity and forces land prices to be higher in the area, driving up the cost of home ownership. As usual, government control and intervention in the market only makes matters worse.

Deming and Rothbard

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W. Edwards Deming is one of the great management theorists of all time, and Murray N. Rothbard is one of the great economists and political theorists of all time. They share a few key traits in common.

Deming had a deep respect for theory. His writings and teachings were focused on changing how we think about issues, primarily, to challenge us to understand and embrace uncertainty. When introduced to his ideas, students (many were executives in large companies) would often transpose the ideas to fit their own frame of thinking, usually based in certainty. Looking for a shortcut, they would often ask Dr. Deming how to implement what he was teaching them. Deming, famous for his brevity, would respond with “farm tools.”

He didn’t like the term “implement” because it suggested that the questioner was looking for specific instructions, a prescription to plug in and magically make everything work better without being labored with changing the way they think. Deming knew that the student had to learn and acquire an understanding of the theory and ideas, so that he can first observe the issue correctly and proceed to improve his system with the benefit of a better approach. Simply attempting to “implement” Deming’s methodologies without first understanding the theory behind them would lead to disaster at worst, bastardization of good ideas at best. Deming was uncompromising on the value of theory.

Sitting in mega-corporate boardrooms with high level executives, Deming faced a major challenge. The hardest people to teach new ideas are those who have been successful with their own methods, their own paradigm. Deming represented an entirely different paradigm, and most were reluctant to challenge their own thinking.

Prior to accepting a consulting contract, Deming would insist that the top executive and his top people were in the meetings. Often, he would start a session by asking “how many of you have dead wood on your staffs?” Many hands were raised. Deming would then slam his hand on the table and thunder out “did you hire them that way, or did you kill them?” He was charging them with the responsibility to confront their long-held beliefs about management – that it was their own management system that destroyed innovation and turned good people into drones.

Murray Rothbard is one of history’s colossal champions of freedom. His great teacher, Ludwig Von Mises, said that ideas always win in the long run. Rothbard was committed to ideas, and was uncompromising on them. When he was funded by the billionaire Charles Koch to found the Cato Institute, Rothbard took the opportunity as a means to advance the causes of liberty and freedom. Soon after, Koch and some of his other appointees began to pressure Rothbard to compromise his ideas for the sake of political expediency. Rothbard refers to this as utilitarianism; starting with a bold idea and watering it down to be more palatable to the existing paradigm.

Koch, eager to be politically connected in Washington, recognized that to gain acceptance among beltway power brokers, he would need to appeal to their paradigm, and did not want to be too bold with ideas that would offend their sensibilities.

Rothbard, of course, would have none of that. He refused to water down his ideas for the elites of Washington because it would diminish everything he stood for. They parted ways, with Koch and his statist Cato Institute going on to become politically powerful in Washington while paying only lip service to the ideas of liberty and freedom. Rothbard moved on to a leadership position in the Ludwig von Mises Institute, which to this day is committed to ideas and shuns any connection with establishment politics.

Ideas change the world. Existing paradigms must fall out of popularity or usefulness before they are replaced with the next paradigm, and their adherents do not give up without a fight. The champions of ideas must be bold, uncompromising, and dedicated as teachers to lead the paradigm shift. W. Edwards Deming and Murray N. Rothbard were two great teachers that serve as an example for us all.

Rothbard on Video

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As a follow-up to my post on Deming and Rothbard, I would like to share this great video of Murray Rothbard addressing the Texas Libertarians in 1989. This presentation highlights Rothbard’s dedication to ideas and his optimism that ideas always win in the long run. I challenge you to watch it and not be drawn to his personality and wit.

Fiat Money


Previous Entry: What is Money?

One of the key characteristics of a viable money is scarcity, and when it comes to their ability to acquire money, governments are universal in their opposition to scarcity. More money for government equals more growth in the size and scope of government. It allows government to pacify the masses with handouts in an effort to purchase loyalty to, and legitimacy for, government.

For the purposes of our example, let’s go back in time to an economy in which gold was the standard for money. Gold emerged as the medium of exchange, as a result of activities in the free market. It may have been exchanged in the form of nuggets, dust, bars, coins, or even warehouse certificates representing a claim on gold. Gold, as a medium of exchange on the free market, preceded government control over money.

Enter government, and its ongoing desire to increase revenues. The first thing to remember is that government produces nothing – all of its revenues must be acquired from the productive activity of its subjects via taxation. A dollar extracted from the taxpayer is a dollar the taxpayer is deprived of using for his own ends. There is a limit then, to the amount a government can tax – at some point, the people will revolt if taxation becomes excessive. Government will have lost its legitimacy in the eyes of the people.

Constrained by the limitations on its power to tax, governments then launched wars, acquiring money by sacking the wealth of the conquered. The people, receiving more government handouts from the spoils, were pacified. Again, though, there is a limitation to the amount of money that can be acquired by conquest. War is expensive, and the further the distance, the more difficult it is to wage and win wars.

Governments employed alchemists to create gold from lead, but were never successful in their scheme. Instead, they sought to seize control of the gold in the marketplace, monopolizing the coining process by minting gold into official coins issued with the kings portrait. These coins were declared “legal tender” and were the only form of money allowed for commerce. Trading in gold dust or nuggets, then, became illegal. Only the government’s officially certified gold coins were legal for trade.

You may wonder, how does government’s seizing of coinage and legal tender laws allow it to increase its revenues? First, by coin clipping. What was a one ounce coin can now be clipped, or reduced in weight. The government can then skim the value off the money by using the clippings, or the weight of gold saved in production of the coin, to finance its growth. The subjects, forced to obey legal tender laws, must trade with this coin that has had some of its value stolen. Here again, though, we find a limitation to the government’s ability to clip coins – at some point, the value will be so reduced that people will refuse to trade with the money and another form of money will emerge in the black market. Next idea? Debase the coin with other metals – mix lead or zinc in with the gold in the coining process. Now, you still have a full-size and weight coin, and you may fool the people – if not, you still have the legal tender law forcing them to recognize its value. Again we find that, at some point the gold content of the coin drops to the point that people will find it worthless and refuse to trade with it.

It is a good time to pause and think about the effects of these government actions on the marketplace. Each attempt by government to enhance its revenues via the manipulation of the money itself increases the supply of money in the marketplace because what government skims, it spends. Since money is simply a good exchanged for other goods, its increasing supply will lower its purchasing power. This is known as inflation. Socialist economics, as represented in the US media, likes to portray inflation as a rise in prices. It is not. In fact, the rise in prices is a result of inflation. This is an important distinction.

We have explored a number of ways in which governments can increase their revenues without increasing direct taxation, but each time we have found limits. And of course governments did, in practice, push these limits throughout history.

Enter the printing press.

When the printing press was invented, governments seized the opportunity to print paper and call it money, and through legal tender laws, force the people to accept the paper as a medium of exchange. It would not be an easy sell, however, so they “backed” their currency with gold. That is to say, a paper dollar could be exchanged, on demand, for a dollars worth of gold. Over time, the people accepted the paper dollars as legitimate, with the full backing of gold promised by government. This was the first and most important step in the evolution of a true fiat currency – a currency with no value outside of government decree.

Over time, governments continually printed more money than they had in gold reserves. But the people were gradually accustomed to accepting the money at face value and became lulled into complacency. A number of steps later, with the connection to gold continually redefined, manipulated, and eventually severed completely, government had found its alchemy.

Now, money is simply what government says it is. It can print it at will, producing a seemingly unending supply for its own consumption, financing its growth without inciting rebellion from the masses who escape direct taxation. Better yet, the theory of money has become increasingly complex, beyond the understanding of the average Joe – to the benefit of government.

The US government, through inflation, has destroyed the value of the dollar – one dollar in 2008 is equivalent to four cents in 1913, the year the Federal Reserve System was unconstitutionally formed. If you had decided to save $1,000 in the 1980s by setting it aside in a drawer, or stuffing it under your mattress, it would have lost 20% of its value today. This value is being stolen from you by government. It is a hidden tax.

With the power to inflate at will, government can pursue its interest in empire and warfare. Politically connected bankers and the Military Industrial Complex benefit from the inflation in the short term – they receive the money at present value, and are able to spend it before its value is watered down in the marketplace. Those in the middle class, on fixed incomes, and the poor pay for the loss in value when the value of money is decreased.

A zero sum game if ever there was one.