Seeing the IRS grilled like this is something many people have waited for their entire lives. It’s lovely and a sign of the times (government has never been this unpopular). But contrary to Ms. Lerner, it is possible to not break laws but still do wrong things.

The truth is that there is nothing right about an agency that routinely and legally loots the public of a third of private income and presumes the right to take what is left if we, as citizens, fail to comply with every jot and tittle of the regulations.

Sadly, that is not the scandal Congress is interested in. The scandal is that the IRS seems to be discriminating against groups based on their political outlook. And truly, it is alarming to see it all so clearly and to know that the practice was so widespread. Let’s hope these hearings on Capitol Hill are part of a larger project in which Congress takes on the role of actually looking into what the government is doing to the people.

Let’s consider the larger context. In most any authoritarian regime in history, most people felt free, and they enjoyed that freedom as long as they never crossed a (sometimes invisible) line.

Talk to anyone, for example, who lived in Iraq under Saddam Hussein. Everyone knew the rules. For the most part, the regime would leave you alone. You could go about your life raising a family, working and enjoying various luxuries. If you minded your own business, it didn’t feel anything like tyranny.

But if you became interested in politics and actually sought some kind of change in society, matters would be very different. At that point, you became a threat. You could be woken any night by a knock on the door and dragged off, never to be heard from again.

In other words, in any authoritarian regime, the main goal of the government is to protect itself from outside threats and maintain its monopoly on power. So long as you didn’t disturb that monopoly, all was well. (For more on how this works, see Hans-Hermann Hoppe’s The Great Fiction.)

The idea of America is that we don’t have such issues here. Think back to Norman Rockwell’s democratic iconography. The farmer stands up in the town hall meeting to voice his opinion. He is unafraid. Everyone listens. We all have a voice.

The idea of democracy is that there is no such thing as a regime, as traditionally understood. Instead, we govern ourselves. We do not fear mixing in politics. There is no one to come get us if we hold to one perspective over another. There is no such thing as getting on the wrong side of the governing elite, because everyone is a member of the governing elite.

That’s the legend, in any case. It has nothing to do with reality. Starting a little more than 100 years ago, a permanent class of rulers came into being. They are not voted out or voted in. They answer to no one. The laws they enforce can be new or old. You can’t dislodge these people. Their tenure extends beyond any administration.

This is the real structure of government in this country, all Norman Rockwell paintings aside. They have a class interest in protecting themselves against reform, to say nothing of the wrath of the people. This necessarily means that they have an enemies list. If you are collecting taxes, groups that file for approval calling themselves “Citizens Against Taxes” are certainly on the list.

What this incident shows is that there really is such a thing as a ruling class, and that there are people who are regarded as enemies of the state. We aren’t quite to the point at which your political opinions can elicit a knock on the door at night, followed by a sudden disappearance. No, the discrimination is usually, but not always, more subtle than that. In the “free” USA, it might only mean delays and audits.

Still, it offends our sense of justice.

Just as these hearings are taking place, I’ve found myself deeply troubled by the arrest of libertarian activist Adam Kokesh. Last weekend, he was speaking at a pot legalization rally. The police gathered around him. Then, out of nowhere, they arrested him and took him away. They turned him over to the feds, who shut him in a cell without bail.

Judging from the videos posted online, he hadn’t done anything wrong. He was only speaking. He wasn’t even smoking pot. When the charges came down, he was accused of resisting arrest, though no resistance is evident in the videos. And so there he sits.

Many people are more than slightly suspicious that his arrest had nothing to do with the pot rally. He was actually targeted for planning an edgy little gathering on July 4 in Washington, D.C. He had urged people to join him in exercising their Second Amendment rights with an armed march on Washington. Imprudent? Probably. Illegal? Probably. But the point is that this might have led to a certain alarm and targeting, in the same way that the groups applying for nonprofit status were targeted.

But there are no congressional hearings over this. In fact, there isn’t much sympathy, either. The conservative forums I’ve seen have cheered on the police. A white nationalist website even went further to say that his arrest is a good thing because Adam (an Iraq war veteran) is Jewish.

Thus, we can see how the Bill of Rights is so selectively enforced and applied. Adam has no First Amendment rights. And his Second Amendment rights don’t exist in D.C., even if they do exist in a neighboring state. But the IRS official can invoke her Fifth Amendment rights and not even be compelled to answer questions put to her by Congress.

Authoritarian? It’s looking more that way every day.

Sincerely,

Jeffrey Tucker
Original article posted on Laissez Faire Today

It goes like this. He comes out with a book, and the highbrow experts say it’s crazy, that this time he has gone too far. Two-three years later, the world has changed, and his predictions have come true. His critics don’t admit it (have you noticed that few people ever admit errors?). By that time, he has a new book out, and the experts again say it’s crazy. And so on it goes. He is always one step ahead, like a prophet, but without the honor he deserves.

In his first major book, The Long Tail (2006), he said the common culture of enterprise would die, and this is great. Instead, in the future, consumer culture will be driven by the desire to curate micro-cultures for ourselves. Technology has allowed markets to become super focused on a niche, rather than the broad swath of humanity. In fact, he said, there are more profits associated with niche-focused business than the hope of selling to every man or woman on the street.

At the time, this idea seemed crazy. The conventional wisdom of business has been that the bigger the market sector, the better. He was saying the opposite. Now we look around and see that nearly every market is a niche: No two consumers are alike. Not only that, but the biggest and best companies today (Google, Amazon, the app economy) specialize in fanatical service toward millions of tiny niches, in every way that can express itself.

Then he came out with his book Free: How Today’s Smartest Businesses Profit by Giving Something for Nothing (2010). He said that the trend is taking all consumer products down to $0 for the basic service and making money on the add-ons. In fact, business in the future will be begging people to take stuff for free.

His critics went nuts and said, “Oh, this is crazy stuff. Can’t happen.” Today, if you want to denounce his thesis, you can do it in real-time video through Google+ Hangouts, Facebook video chat, Skype, Twitter, or uncountable numbers of free services that uncountable numbers of businesses are begging you to try. Contrary to every prediction, even Facebook is making money by giving away its main product for free.

Again, I’ve not seen his critics eat humble pie.

The purpose of Makers is to explain how manufacturing is traveling on the same trajectory as communication, publishing, and media. It will devolve from big institutions to small institutions, and finally to individuals. The focus is, of course, 3-D printing. He forecasts a world without shipping, without controls, without the huge transactions costs of getting things. Instead, our shopping will consist of downloading models and printing what we need.

Crazy, right? Yes, just like his previous two books — which is to say not crazy at all.

Why has he been so consistently correct in his outlook for the market’s future? Because he is hooked into the community that is making it happen. From his position as editor of Wired, he was constantly in contact with the edgiest and most entrepreneurial companies in the world, the people who are forging a new tomorrow. He observes a pattern, explains, and sees clearly that it will win the day because it works.

By the time the rest of the world catches up to see the point, he has moved on.

Well, this month was the month that the rest of the world saw the point, and it made the headlines in a huge way. Law student Cody Wilson of Defense Distributed printed out a workable handgun called “The Liberator.”

But with every great advance in history, there are those that resist it. The government, in this case, is the chief resistance force. Anticipating this, Cody complied with every regulation, every code, and every mandate. It took nine months to stabilize and perfect the models, but he finally did it. He had a workable model for a gun that anyone on the planet could print out and use. He made one himself and released the files to the world without copyright.

The feds jumped into this scene with an order that made anyone with an ounce of technical sophistication laugh. They demanded that the files for the gun be taken down from his website. He complied.

But this accomplished nothing. Nothing on the Internet goes away, especially not if the files were released to the world. The files for “The Liberator” were quickly re-hosted at storage website Mega and many other places. Once it became clear that the masters of the universe wanted these files down, people all over the world got into the act and began spreading them everywhere, and the downloads soared into the hundreds of thousands.

In a matter of days, people were already working to remix the files and customize them for different purposes and approaches. How is this possible? These files are not physical goods. They consist of information, and information has three features that government hates: It is malleable, reproducible, and — thanks to the Internet — immortal.

In this way, as Anderson explains in his book, the world has changed dramatically in a digital age in which even physical goods take the form of information. And in the long run, there is nothing that those who purport to rule the world can do about it. They can silence one or two people, but that doesn’t cause the things they don’t like to go away.

This is also why it is pointless that the defcad.org’s signup sheet was removed by its domain host, LaunchRock. A further example is the video that announced the creation of files that produced an operational 3-D handgun went viral after it was posted. It had tens of thousands of views, maybe many more. It was a video that ran only a few minutes. Now when you go to the video, a message appears that says it has been removed from YouTube.

Apparently, the video infringed on the copyright of Warner/Chappell. What’s that? That’s a music distributor. So the wrath supposedly had nothing to do with the gun or the subject. It was removed because the background music was alleged to be under copyright.

But wait just one moment. There are dozens of different YouTube videos that use that song. Here’s one. It’s also used in the movie Tree of Life. If it’s copyright protected, isn’t it just a bit strange that Warner happened to pick Cody’s video to order a takedown?

Cody, a law student, was scrupulous in complying with the law. But just as they got Al Capone on tax evasion charges, not bootlegging, Cody Wilson’s dramatic and historic video has been removed on copyright grounds! Never mind that most of his other videos could be removed on the same grounds, and so could perhaps a million other videos that use music from YouTube. This one video was singled out for a reason.

Meanwhile, of course, the video still survives in myriad forms (here, here, here, here, here). It’s just the canonical version that has been taken down. This is a symbol of the new reality that government has not yet processed. The Internet is different from the physical world. It is not only bigger; it lasts forever, no matter what the regulators do. They can drive things underground, but cannot finally stop the progress.

There is a pattern here. The government hates progress. It prefers a world fixed and immobile, so it can regulate and tax it, bully enterprise, and deny consumers. But entrepreneurs don’t like straitjackets. They keep coming up with new ideas and throwing them out there — at great personal risk to themselves.

Chris Anderson’s world will come true. In time. Every intervention that tries to stop it is at best a vast waste.

Sincerely,

Jeffrey Tucker
Original article posted on Laissez Faire Today

So I asked this gentleman what he thought of the talk. His response was quick (I paraphrase here):

“I’ve never once bothered with patents. They are expensive and pointless. They produce no revenue on their own. They sell no product or service. And they harm development by hemming in a company on a preset track. I need to be able to customize offerings and change what we do day to day. Patents bias a company toward old solutions even when they don’t work anymore.”

That’s an interesting perspective. And it raises the question: How much do patents have to do with innovation in the real world?

As much as we hear about patents, we might suppose there is some sort of direct link between them and the innovations we enjoy in our lives. Someone invents something and shows the plan to a bureaucrat. The exclusive license is issued, and away we go.

Economic historians have usually assumed a direct link between patents and innovation, basing much of their chronicle of history on records at the Patent Office. Much of what we think we know — that Eli Whitney invented the cotton gin, that the Wright Brothers were first in flight, that Thomas Edison holds the record for inventions because he has the most patents — comes from these records.

But is it true? Most patent holders assume so. They cling to them as a source of life and defend them against all encroachment. Some businesses build up their war chests with patents as purely defensive measures. The more you own, the more you can intimidate your competitors to stay out of your territory.

So how important are patents in generating innovation? The answer is not much, according to four economists from the Technical University of Lisbon. They are circulating their research on a platform sponsored by the St. Louis Federal Reserve. They looked at the best innovations between 1977-2004, as listed by the R&D awards in the journal Research and Development. They matched 3,000 innovations against patent records to establish the relationship.

Their findings are remarkable: Nine in 10 of the innovations were never patented. They were just created and marketed, and changed the world. In other words, it’s the market, not the bureaucracy, that innovates. The authors grant that there might have been downstream versions of the same innovations that were patented. But that fact actually doesn’t change the implications of the study, namely that there is no relationship between the existence of the Patent Office and direction and pace of innovation.

As you dig through their citations, you find other nuggets of information. It turns out that other researchers have found the same thing in early parts of the 20th century and even all the way back to the middle of the 19th. The results keep coming up the same way: There are patents and there are innovations, but they have little or nothing to do with each other.

These results are a classic case of the huge chasm between pop science and real science. In the pop version, people imagine that they will dream up some idea, file a patent, and then bring it into production and become a billionaire. The reality on the ground is that 90% of patents go completely unused. They are suitable for hanging, but not much else.

The patents that are actually in play in this world are used as weapons by big shots to hurt their competitors. They don’t cause business to succeed; it’s the reverse. The bigger the business, the more it is in the market for patents to help the big business hold its place in the market. They prompt lawsuits that go on for years that are eventually settled with an exchange of cash. Meanwhile, rather than actually fueling the innovative process, they put it on hold. So long as a patent is in existence, other innovations are legally bound not to do what they do best.

The software industry is an excellent case in point. In the 1970s and 1980s, patents were rare to nonexistent. Companies made money by making stuff and selling it, just as free enterprise would suggest. Then, the industry grew. People like Steve Jobs who once touted that talent for stealing the ideas of others began threatening other companies with lawsuits. Young programmers today know for a fact that if they ever come up with anything that threatens a big player, the small company is going to be hammered.

Two parallel streams of innovative software strategies have been running over the last 10 years: 1) highly protected and 2) patentless open source. Apple and Microsoft represent the patented style. Google is much more inclined to the open model. Companies like WordPress reveal their code to the world and make money in other ways. A good test case comes from the big smartphone war between Apple’s iOS, on the one hand, and Google’s Android operating system on the other.

The consensus today is that Android is winning hands down in terms of new users. The open-source system is roaring ahead with more than half the smartphone market already and a growing percentage of the tablet market. In terms of moneymaking, the app economy of the iOS is actually doing much better. But consider that it had a huge start, whereas the Android came much later. My own impression from dealing with both is that Android is moving ahead in every area fast.

We need to rethink our assumptions about the role of patents and innovations. If they have nothing to do with each other, and if patents actually dramatically slow down the pace of development, why not get rid of them altogether? That’s exactly what many of the old liberals of the 19th century pushed, and it the case is further bolstered by Stephan Kinsella’s Against Intellectual Property.

Government planning never works. Laissez Faire isn’t perfect, but it provides the best chance for innovations to appear and thrive and for prosperity to result. The lesson for anyone with a business idea: Run with it and don’t wait on a bureaucracy.

Sincerely,
Jeffrey Tucker

Original article posted on Laissez Faire Today

And no government in the world is in a position to stop it.

That’s not to say that governments won’t try. “It’s stomach-churning,” said New York Sen. Charles Schumer of this remarkable innovation. “We’re facing a situation where anyone — a felon, a terrorist — can open a gun factory in their garage, and the weapons they make will be undetectable.”

A big advocate of gun control, his real goal is not to make the world a more peaceful place. He simply wants government to have all the guns and doesn’t want to make it easier for you and me to get them. He wants to retain the present disparity of power between government and the people and senses that something is upsetting the balance.

Therefore, of course, he wants to amend the law to make printed guns impossible. If you haven’t noticed, this seems to be the main thing government does these days. It puts barriers in the way of progress and tries to stop technological advance.

Legislators just can’t reconcile themselves to the new reality that they have less and less power each day as the digital age progresses. It’s the force of innovators and consumers the world over — creating and exchanging to their mutual benefit — compared with the clunky and blunt instrument of the regulatory state.

The driving energy behind the printed gun is Cody Wilson, a 25-year-old law student at the University of Texas at Austin. He is the visionary behind Defense Distributed, a website that releases the plans, provides updates, and accepts donations in Bitcoin. He calls his new weapon “the Liberator” after the inexpensive, single-shot gun manufactured by the U.S. government during World War II. They were dropped all over Europe to scare and demoralize occupying armies.

Mr. Wilson thinks like the entrepreneurs of old. He had an idea and believed it was achievable. He saw every barrier not as something that would stop him, but as something to overcome. His crowdfunding project was removed by the website that first hosted it. His first rented printer was recalled by its owners. The regulatory barriers were huge, but he responded with overcompliance. And of course, the gun-grabbers consider him to be enemy No. 1.

I’ve been intrigued to watch his vision unfold over the last year. He clearly saw that the 3-D printing revolution has profound implications for the future. Among other things, it challenges the whole basis of government regulation of the economy, which is very much tied to controlling manufacturers and the buying-and-selling process itself.

With distributable and localized manufacturing, the core power of the regulatory state is faced with a fundamental challenge. Patents and other forms of “intellectual property” become irrelevant. If a design is constrained by regulatory controls, it is a simple matter of changing the design to produce an uncompromised product.

With or without printed guns, this new technology is going to lead to continuing upheaval in the years ahead. It is already deeply embedded in the manufacturing process. Boeing has installed some 20,000 different printed parts. Pratt & Whitney, GE, and many other companies depend on it for profitability.

As the revolution advances, printing will gradually replace shipping. More people of the world will have access without transportation costs, making prosperity affordable in a way that was previously unimaginable. (For more on the origins and development of this industry, see the wonderful book Makers by Chris Anderson.)

A crucial element in this disruptive technology is the role of open source sharing. This is a completely different approach from what prevailed from the Industrial Revolution until very recently. Usually, it was believed that a company’s profitability was bound with its proprietary control and its trade secrets. But through open source innovation, companies have discovered that they can extract better ideas by drawing on the energy and skills of people all over the world, resulting in a better product and a faster pace of development.

Defense Distributed uses the open source model. It allows the company to get from here to there faster and to distribute its results universally. Open source approaches also instill the manufacturing process with that crucial element of trust. Think of this as a globalized system of peer review in which nothing is hidden. It’s sort of the opposite of how governments do things.

Think of how the pace of change is accelerating compared with the past. The Gilded Age saw astonishing changes: railroads crossed the country, internal combustion became common, homes were lit with electricity, and steel replaced iron as the building metal of choice. But all of this took 25 years to come about. We are now seeing innovations proceed at a pace that makes the Gilded Age look like slow motion. It is affecting every sector of life — now even gun manufacturing and money and banking.

None of this would be possible without two critical institutions: the Internet and entrepreneurial dreams. Put the two together and you have miracles in the making.

How will Mr. Wilson’s gun change the world? Over time, it could fundamentally upset the balance of the relationship between citizens and their governments, not just here, but around the world. It makes 20th-century-style tyranny less likely, or at least gives the people a fighting chance to hold onto their rights and liberties. Public and private predators can be checked.

Freedom is the victor here, and one would suppose that this would be something to celebrate.

Instead, we get carping politicians, annoyed regulators, and legions of peanut-gallery critics who make fun of the gun’s design and functionality. This misses the bigger picture. We are living in the dawn of a new age, and the future is going to be much different from the immediate past. People like Cody Wilson are society’s benefactors.

Sincerely,

Jeffrey Tucker
Original article posted Laissez Faire Today

• barely keeps up with population;
• features mostly temp workers;
• leaves out prime-age males and all young workers;
• and keeps labor participation rate at a low level from 1979.

This is good news? Hmmm…

But the central bank will save us, right? So say economic journalists. They love metaphors. Actually, professional economists love them too. The latest phrase being tossed around is that world central banks are “stepping on the gas” to get the economy to move.

The European Central Bank dropped rates again after noting that economies are stagnant or shrinking. The Federal Reserve too says it will not let up in its asset-buying program, all in an attempt to make economic growth happen.

Let’s look at the car analogy. I took my car into the shop the other day. It had developed two problems. The gas pedal was sticky. I mashed and mashed the pedal, but the car was unresponsive. At the same time, the brakes weren’t working right. I had to push the brake all the way to the floorboard to stop the car.

Let say the mechanics had said, “The fix is to do more of what you are doing. Just sit there and keep pushing the gas and the brake. Do this as long as necessary to get it going again.”

As a customer, I would have immediately seen that this was stupid advice. The point isn’t to keep doing the same thing, but to look for a deeper solution. One that actually fixes the problem. It turns out that a cable that made the accelerator work was slipping, and the brakes needed more fluid. The mechanics fixed both, and I was on my way.

But with the central bank, it never occurs to them to look under the hood or check the underlying mechanics. They just keep doing the same thing over and over again: lowering rates and buying bad assets with newly created money.

How’s that worked out?

Well, the results are in: five years of continued stagnation. The central bankers are sitting in the car and really want to make it move, but they keep using the tools they have in front of them. It’s almost as if they can’t discern the incredibly obvious fact that they need to get out and look under the hood.

One of the symptoms of the problem is right in front of their eyes. The money they are creating isn’t becoming part of the real economic lives of spenders. Instead, it keeps piling up in bank vaults, fixing the balance sheets of banks, but not achieving the end of bringing about economic growth.

On the one hand, there are the reserve balances of banks carried by the Federal Reserve. They have never been higher. The money to create the appearance of recovery and even create crazy hyperinflation is certainly there:

Banks Suddenly Turned into Hoarders After 2008 and the Introduction of Easy Money

On the other hand, there is the money velocity statistic. This measures the average frequency with which money is being spent. It is a crucial indicator, because consumers and borrowers are the ones who determine velocity. It is an extension of human choice that the Fed with all its power cannot control.

Now look at what’s happened. Velocity was at its highest point during the inflation of the late 1970s, because people couldn’t wait to get rid of their money. But as the inflation rate has fallen over the last 30-plus years, so too has velocity fallen. You can see that it rose slightly during the 2000s bubble, but then crashed again after the beginning of the 2008 recession:

Consumers, Not the Fed, Controls How Fast We Spend Dollars

Again, there is absolutely nothing that the Fed’s stimulative activities can do to change this. Yet in order for the Fed’s policies to actually inspire economic growth, this will have to change. Not that the Fed hasn’t been trying. It has knocked interest rates down to zero in order to discourage saving and punish people for failing to employ cash balances. But it hasn’t done the trick. It is just like the 1930s, when the Fed tried to inflate, but couldn’t manage to get the public to go along with its plan.

For anyone who believes in markets as opposed to central planning, these results are actually encouraging. They show that even the much-vaunted power of central bankers can be severely limited by human choice. If we don’t go along, they are circumscribed in their power. They can buy and buy and print and print, but it changes nothing about how you and I respond. Yet you and I are the keys to making their plans come to fruition.

What mistake have the central bankers made? To beat an already dead analogy, they failed to look under the hood and see that the economic problem cannot be cured through the exercise of the printing power alone.

What was revealed in 2008 is known as a bubble. Bubbles follow predictable courses. They appear and expand due to increases in the money supply. They are exacerbated by policies like “too big to fail” and federally guaranteed institutions like Fannie Mae and Freddie Mac. This money expansion gives rise to irrational exuberance that shows up in various sectors, and this is followed by the realization that such exuberance is unsustainable.

This pattern is not new. Doug French demonstrates this in his wonderful book Early Speculative Bubbles, available now to all members of the Laissez Faire Club.

Tulip mania, the Mississippi bubble, and the South Sea bubble were all due to this same thing. They were blown up by increases in the money supply. They were cured by deleveraging and starting over again.

Here, you can easily see the relationship between recession (in the gray bars) and the expansion and contraction of the rate of increase in the money supply:

How an economy responds to delusional, know-it-all central bankers

The most recent period of recession is particularly interesting. The people who calculate whether we are in a recession or not called its end in 2009. Yet has expansion really been the result? Not really. We had the deepest collapse in economic activity in the postwar period, followed by the slowest sustained rates of economic growth in living memory. Meanwhile, incomes continue to fall, small-business creation is pathetic, and the falling rate of unemployment is due almost entirely to labor-force dropouts.

This is not a pretty picture, yet the central banks just keep doing the same thing over and over. This is not scientific public policy. This is pure witchcraft. And it is dangerous. Moreover, it all traces to one fundamental error. The Fed was unwilling to let the economy hit bottom so that it could enter a sustainable growth path. Its role as savior after the bubble collapse has gone nearly unquestioned. It’s as if the whole world just suddenly decided that dealing with economic pain should be against the law. Ironically, this decision has only prolonged the pain.

Back to the original metaphor. If the time of honesty ever arrives and someone in a position to fix the problem finally lifts up the hood of this stalled engine, there will be an ugly sight to behold. That person will find a bank sector sustained by fake money, a housing sector sustained by a fake market, a savings sector gutted by mandatorily low returns, and a whole new series of new bubbles that will prove themselves unsustainable.

The managers of the central banks can look at these charts same as you or I. They just choose to ignore the obvious lessons they impart.

It kind of makes you long for the days of Tulip mania. The episode in Holland was nuts, but at least no one tried to repair the damage by doing more of what caused it in the first place.

Sincerely,
Jeffrey Tucker

Original article posted on Laissez Faire Today

This is a major factor in why, despite every prediction that it could never work, Internet commerce rose from the ashes of the dot-com crash to become a huge and growing profit center today.

Alas, those days seem to be coming to an end. And why? Because the U.S. Congress is highly sympathetic to the plight of its state-based cousins, who are starved for money. As a proposed fix, Congress is suggesting a new innovation. Congress wants to give the OK to states that want to take your money.

Here is one argument you will not hear in the debate over taxing Internet sales: This will be good for the business climate. Instead, the debating points concern how much revenue it will raise for states, how onerous the burden will be for small business, whether it is “fair” to brick-and-mortar shops to pay and for online sellers not to pay, and so on.

The real issue — whether this is good for business and prosperity — is not even on the table.

Will taxing all Internet purchases harm business, harm job creation, harm the profitability of those who have seized on digital venues as a viable commercial space? Of course it will. There can be no doubt. The question then becomes: Why is the political class interested in unleashing state legislatures to collect sales tax when it is so obviously harmful to prosperity?

Maybe the answer is obvious, but it still needs to be said. Despite the stump rhetoric, the political class is not interested in fostering a vibrant commercial life to help you and me get by in this world. Instead, it is interested in extracting as much revenue as possible from the existing commercial environment. The government elites want their cut, regardless of the consequences.

You can learn something about the way the world works just by watching the way this legislation is coming down the pike. Here we are, still in a deeply struggling economic environment. Young people have a hard time getting jobs. Growth rates are anemic. Families are still smarting from the surprise payroll tax increase earlier this year.

Online commerce — with low startup costs and a potentially unlimited market — actually represents a ray of hope. This is especially true for young and tech-savvy people.

So what do the politicians do? They plot another hammer blow. Even by old-fashioned Keynesian standards, this is the worst possible time to enable vast tax increases across all states that hit millions of people. But economic rationality is not high on the list of values held by Capitol Hill.

What does this say about whole libraries full of books that instruct the political class on how to foster the well-being of society? What does this say about the hundreds of well-worked-out theories of how the government can manage the economy in the best possible way? What does this say about the oceans of policy reports that presume that the political class has the best interests of the public in mind?

If it is true that political actors only want to get the government’s beak wet and otherwise don’t care a flying fig about the consequences for you and me, many theorists are going to have to go back to the drawing board. The bulk of writing on political economy over the last hundred years might as well be pulped.

There is also an interesting dynamic taking place in terms of those pushing for the change to allow states in which there is no physical presence of the relevant Internet retailer to tax purchase. The world’s largest and most successful Internet retailer, Amazon.com, is backing the change, and paying politicians left and right to go along.

Why? Here, we need to understand something about way regulations are used as a competitive tool in the world of enterprise. The larger the business, the more it is in a position to absorb new regulatory costs. The regulations will invariably hurt the little guy more than the big guy. Therefore, even though the big guy is paying more, the regulations end up working as a kind of subsidy to keep competition at bay.

Not to put too fine a point on it, but Big Business and Big Government work together. Does that sound like a wacky conspiracy theory? It shouldn’t. The reality goes back at least 100 years. Big Business was a huge supporter of the Progressive Era regulations of food and safety, the New Deal’s interventions on prices and labor, the Great Society medical expansions, protectionism during the 1980s, and almost every other major intervention in free enterprise in the annals of history.

Sometimes the biggest enemies of capitalism are not socialists, but the capitalists themselves. They don’t like capitalism because they don’t like competition, because it threatens their business and their profits. A real free market has winners coming and going. But a heavily regulated markets entrenches elites who are working with the political establishment.

You might think that this would cause left liberals pause, but apparently not.

Here is what the blog at National Public Radio said about an Internet sales tax:

“Collecting state and local sales tax all around the country would require a fair bit of effort on the part of online retailers, because sales tax rules vary from state to state. That’s not a huge deal for a giant company like Amazon, but it would be more of a burden for smaller online retailers. From Amazon’s point of view, that’s a good thing — it makes life harder for Amazon’s smaller competitors.

“That’s why big businesses, despite what they may say, often like regulations. They make life harder for small, would-be competitors.”

The Amazon sales tax case is complicated by the fact that it is already mostly paying these taxes because many states started interpreting the law to mean that if there is a warehouse in the state, it is subject to tax. Amazon has warehouses all over the world so that it can offer same-day delivery. That allows it to go after physical stores with even greater intensity.

The average eBay mom and pop is not going to be in a position to file tax statements to every state where it shipped goods. Amazon will be there to not only comply, but have the competitive edge on everyone. The battle between Amazon and eBay has been so intense that the Internet Association has refused to take a position.

This is how business becomes cartelized. There is still competition, but it is not on a level playing field. You have to be heavily capitalized just to get your foot in the door. Then people look at the configuration of the remaining industries and scream, “Hey, business is too big and too powerful!” But they don’t discover the reason. It is too far back in time. And the cause and effect is too opaque to the casual observer.

It’s not hard to imagine the consequences. There will be fewer startups because the accounting costs of filing with states every month will be too daunting. Consumers will start looking at overseas merchants to buy their goods — as they are already doing for cigarettes, prescription drugs, and electronics. Digital currencies will help facilitate this move.

Meanwhile, the domestic market using government currency will be dominated by just a few players.

Everyone these days is sitting around regretting the way the recession just goes on and on, seemingly without end. If you are looking for the answer, look to Capitol Hill. Every time free enterprise tries to come up for air, the Congress and the regulators are there to put it underwater again.

Sincerely,

Jeffrey Tucker

Original article posted on Laissez Faire Today

When do we know it is money? As I was preparing a report for subscribers of the Laissez Faire Club, I was going through the list of goods and services currently priced in Bitcoins and available on the Web. It is mind-boggling how many there are. I’m not sure I knew just how much you can get right now. The conspicuous hole in this panoply are local merchants — the pizza joint down the street, the rent, the cab fare. Otherwise, anything you can buy on the Web, you can buy with Bitcoin.

Then it suddenly occurred to me.

If you put this list together and look at the total, what you find are more goods and services available right now using Bitcoin than have been available to most everyone in all times and places using any money that has ever existed in all of human history except for the past few years.

True, you can buy more with dollars now, but you can get more stuff with BTC now than you could get with dollars in the 1980s or any earlier time in history. You can buy more varieties of grain, cereal, and spices now than you could get with government money at the local grocery back then. You can buy smartphones, tablets, scanners, and cameras that didn’t even exist back then. You can get clothing at prices that were unthinkable back then.

In other words, from a broad historical perspective, Bitcoin is already one of the most functional currencies in the history of humanity.

What keeps it from being money — Bitcoin’s value is constantly assessed in terms of its exchange ratios with government currency — is not its usability, but its stage of development. Its volatility is a problem that raises other problems. The other problem has to do with current infrastructure of Bitcoin that is not sufficiently mature to justify calling it a full-blown money at this point. All the signs look great, but we are not there yet.

For example, many in the Bitcoin world today are enormously frustrated with Mt. Gox, the Bitcoin exchange in Japan that processes some 67% of the Bitcoin business on the Web. That’s down from its near-monopoly status just two years ago, and its percentage of overall business will continue to decline.

One factor that troubles many is that Mt. Gox is highly conventional in its political relationships with the state. Just getting an account requires a great deal of information, more than most people would give even to open up a local bank account. There is no anonymity — not even close. However, this situation will surely be short-lived. The more government money moves to digital currency, the more exchanges can rely on a self-sustaining Bitcoin economy. The problem of state-connected, privacy-violating corporations is a feature of the transition, but not of the long-term operation of the system.

The process toward this self-sustainability will follow no predictable course. In the digital age, conditions can change extremely rapidly. As we saw with Cyprus, if people believe that government can rob them of their money, they will do what they can to move it, regardless of ideology. No one likes to be robbed. A technology that can prevent that can go from obscurity to ubiquity in days.

But there are other problems with Mt. Gox. It has borne the brunt of anger for several instances of technical failure since 2009. Most recently, the runup of the BTC-to-dollar exchange ratio from $30 to $266 in a matter of days overwhelmed Mt. Gox’s servers. At the same time, the service was hit by DDoS attacks. After the onslaught and constant crashes that drove a selling panic, the company finally declared a cooling-off period of 12 hours while it upgraded its servers.

Right now we are watching a mad scramble for other services that can provide more reliable service and thereby diversify the Bitcoin trade. Many people sense that the market function of price discovery is being inhibited by industrial concentration in the world of Bitcoin. It seems unsustainable for there to exist tens of thousands of Bitcoin retailers and services but for one company to so thoroughly dominate the producer end.

But there’s a beautiful thing going on here. There are no restrictions on establishing a Bitcoin exchange. The barriers to entry are extremely low, and there are not yet any prohibitive legal barriers. This means the competition for handling coins is already very intense. For Mt. Gox to survive in this environment will require it to be unrelentingly innovative.

Is it? All services like this wear their flaws on their sleeves, because they are seen by 100% of users. When things go wrong, we lunge for our rotten tomatoes and start hurling them. Having been on the other side of this for many years, my sympathies go out to any company faced with these sorts of problems.

In the world of server administration and website management, problems are preludes to solutions. The failures serve a profoundly important purpose: They draw attention to the weak points of the current server and database configuration. Things have to break in order for them to be fixed properly and with precision. One hates for this to happen in real-time, but such is the way with markets. This is no perfection out of the box, and this is the way it must be. The upheavals are more productive in a market economy than the stability. And again, these problems have nothing to do with Bitcoin, but rather with the infrastructure in which it is being introduced to the market.

A larger problem with Bitcoin concerns its essential structure that lends itself to growing value in terms of goods and services over time. This is also known as deflation. With a supply that grows on a predictable basis leading to a final fixed supply, it will always buy more and more. Why would that be a problem? Deflation poses special problems for merchants.

Let’s say that for 100 Bitcoin, you buy five tablets that you intend to resell at a profit. But by the time they enter the market, the value of Bitcoin has risen and you can’t resell them at a reasonable markup. This is a similar situation many merchants found themselves in with memory sticks and thumb drives over the last 10 years. They bought them and ended up eating them, given their falling retail prices.

How can merchants deal with this? Well, we can be inspired by the software and computer markets over the last 20 years. Deflation has been the rule. The retailers who have made it through have proven themselves to be radically “antifragile,” in the neologism of Nassim Nicholas Taleb. They have adapted through limited inventory, providing top service, excellent marketing, and a general reliance on relentless improvements in product quality to carry the day. These have been gigantically profitable industries in spite of the constant fall of prices of their goods relative to money.

If Bitcoin does, indeed, grow in value over time, savers will be rewarded. But never forget this fundamental truth: The only point of saving is eventual spending. Those who are hoarding Bitcoins today will be on the market for Bitcoin products and services tomorrow. This is a truth that Keynesians of all sorts turn away from, but it highlights the reality that hoarding is actually a productive force in the market economy.

Still, replicating that model with today’s wild volatility of Bitcoin seems implausible. But this raises another issue. Why should this volatility matter in our minds at all? Because the market is still in its infancy. We are accustomed to constantly checking the price of Bitcoin in terms of other currencies. It does not always have to be this way. For example, most people today couldn’t tell you anything about the dollar-euro exchange rate, because it just doesn’t matter. The more we deal in one currency, the more we think in terms of that currency, not its exchange rate.

Bitcoin will have matured as a currency when people concern themselves not with the exchange rate in terms of other monies, but with its value against the goods and services it buys. At that point, it will not be necessary for merchants to constantly adjust prices. The prices in Bitcoin will have meaning on their own. Even now, Bitcoin users grow tired and frustrated with the relentless focus on its dollar price. This focus tempts people to think of Bitcoin as a speculative product or investment, rather than what it seeks to be: an emerging unit of account.

Part of the irony of Bitcoin’s volatility is that it is a sign of its success. The markets are testing it, flitting between belief and doubt based on events such as bank runs and currency upheavals. It is a viable alternative today to government currencies, which is why we are seeing panic rushes to buy, followed by panic rushes to sell. Once the futures markets of Bitcoin have matured, we will start seeing those ups and downs smoothed over in a way that at least incorporates the speculative judgments of the players with skin in the game.

So yes, there are myriad problems between where we are today and where I think we will eventually be, with money finally leaving the analog age and entering the digital age. But the trajectory is clear, and those who see this and act on it will be ahead of the historical curve.

Sincerely,

Jeffrey Tucker

Original article posted on Laissez Faire Today

Bitcoin came into the world worth absolutely nothing in January 2009, only four years ago. In late 2010, it started to move up in ways that blew the minds of innumerable skeptics. In February 2011, there was a milestone that stunned people who were paying attention. It seemed like the impossible was happening, or maybe it was just a crazy bubble.

It was in that month that Bitcoin achieved parity with the dollar. You could trade 1 Bitcoin for $1. It had officially arrived, or so it seemed. Some hyper-geeks who had been owners of thousands of Bitcoins figured that the moment had arrived. They sold their Bitcoins for dollars and made several thousands of dollars. That was the end. They congratulated themselves for being savvy speculators.

Whoops. If they had held on, what might have happened? Well, they would be millionaires today. But once they sold, they had to spend even more to acquire the same amount. Welcome to the real world of speculation. You win some and you lose some. Sometimes both happen with the same trade.

The “early adopters” know this sector very well. They are not shaken at all by the run-ups and sell-offs. They know not to panic in either direction.

One of the fascinating things about this market is how it has drawn in a younger generation to do boots-on-the-ground investing. It has taught people a number of important life lessons, such as to avoid doing the obvious. If you do what is obvious, you buy high and sell low. To do the opposite requires you to break from the pack and trust that your knowledge is better than that of the screaming mob out there.

If you talk to savvy Bitcoin people, they will be the first to tell you that the intense focus on the exchange rate — which afflicts virtually every “newbie” out there — is absolutely wrong. If anything, they say the exchange rate is a distraction.

The purpose of this virtual currency is not to be a speculative vehicle, but rather a means of exchange — a real money. Of course, it has to have value in terms of goods and services in order to achieve that, and that value can also be assessed in terms of existing government monies. But the real aim of this combination payment system and means of exchange is to go its own way as an authentic money.

If this happens, a new world opens up. Just imagine that a Cyprian-style haircut is scheduled in the United States. Ben Bernanke is plotting a press conference to announce an across-the-board tax on all bank deposits in order to refund the Federal Deposit Insurance Corp. This is not bad for you, he will point out, but actually good, because it saves the banking system, and therefore, 99% of your money. If you object, he reasons, you are being shortsighted.

But before he gives his press conference, he remembers that it is a new world. Vast numbers of people have already set up a direct link between their bank accounts and some Bitcoin exchange. As soon as the rumor leaks, people can easily log in and exchange dollars for Bitcoins. Billions could disappear from the money supply in a matter of hours — government money escaping to the private-sector cloud, where it cannot be traced or accessed.

What then? In this case, Bernanke’s plans all come to naught. He will fear his own policies could backfire simply by causing people to lose confidence in the system. By then, people will be aware that they can buy all the tools, groceries, and pharmaceuticals they need with Bitcoin. By that time too, Bitcoin debit cards will make it possible to get gasoline. Under those conditions, what is the point to keeping anything but the bare essentials in dollars?

Might Bernanke rethink his little press conference? Probably. In other words, Bitcoin has suddenly done more than the U.S. Constitution to restrain the state and its banking cartel. The people are no longer monetary prisoners; they have a means of escaping into a realm of monetary freedom. This escape hatch turns out to be a core guardian of freedom and prosperity.

Two years ago, this vision would have seemed outlandish, but today? It is an approaching reality. And unlike gold, which has the problem that it must be kept physically, Bitcoin can live in the cloud, out of the reach of all the bad guys, essentially forever. This is probably the most difficult aspect of Bitcoin for people to grasp.

Now, to be sure, I’m writing as someone only recently converted to the cause of digital currency, so I love nothing more than to talk with people with longer experience. They also have tales of losing money, not just in terms of its exchange rate, but actually losing real coins in the course of buying and selling. It can happen, and most every case I’ve heard of is traceable to user errors. You send money when you don’t mean to. You get your wallets tangled and find that you have mislaid them. This is a particular problem for people who keep their wallets physically on their hard drives and then suddenly find that their computer won’t boot up.

What’s the solution? Aaron Lasher of Real Virtual Currency talked to me at length about the merit of “cold storage.” By way of explanation, hot storage is what you have on hand to use in daily transactions. But cold storage is a way of keeping your coins offline and safe so that no one can access the stuff. You can bring the coins from cold to hot, but it requires a transaction. Many exchanges and client services now offer this feature.

There is an even deeper method of doing the same thing using what is called a “brain wallet.” Under this system, you come up with a 40-character phrase. It could be a poem or a series of random words. You put that into a converter union that changes it to a long private key. Then you move on with your life.

Should the time come when a solar flare hits, or you get in a shipwreck, or you find yourself exiled to Guantanamo Bay, your money is absolutely safe. When real life returns and you get back to normal — this could be years later — you only need to type in your brain wallet phrase, and your access is unlocked. All your money is there, all without having to hide it physically or launder money or any such thing. A brain wallet, then, is the most secure way that anyone can possibly imagine to keep coins.

And it addresses a fundamental fear that many people rightly have.

I’m most fascinated by seeing how the development in the Bitcoin world is proceeding in a beautiful way. We are seeing more retailers jumping onboard. We are see exchanges open up. Venture capital is pouring in. The Keynesian punditry class is furious and denouncing it. The theoreticians are taking up the cause.

On the latter point, I’m thrilled to see the author of one of my favorite books, George Selgin, weigh in on the Bitcoin issue. His book from Laissez Faire is called Good Money and covers the history of private coinage. His new paper on Bitcoin examines the viability of what he calls “synthetic money.” It’s the most coherent scholarly paper I’ve seen yet. You can access it here.

It was also my pleasure to interview Aaron Lasher on issues of security. There are some pretty geeky topics discussed here, but it is extremely informative.

Sincerely,
Jeffrey Tucker

Original article posted on Laissez Faire Today

The particular issue concerns one company, Myriad Genetics, and its claim to own the source code of two genes called BRCA1 and BRCA2, which, when mutated, are related to breast and ovarian cancer. If anyone else tries to test for this mutation, the company’s lawyers swoop down and stop it. Their patent claim has netted the company a great deal of profit, and the CEO a huge salary (nearly $6 million).

The Myriad patents have understandably annoyed many people who are interested in the spread of human knowledge about how to defeat this and many other horrible diseases. That’s why the American Civil Liberties Union has sued. One lower court sided with liberty, and another court sided with the monopolist. Now the high court is called upon to settle the dispute.

In particular, the court will try to decide whether these two genes are more correctly thought of as part of nature, and therefore not subject to patent, or are different enough in isolation to constitute a real technological discovery. Obviously, the entire scientific community is rooting against this company. Researchers need up-to-date information.

It’s one thing for a company to keep its stuff private. That’s a normal business practice. Think of Google: Its search algorithm is a closely held secret, but most everything else it gives away. Every business would like to keep its secret sauce secret. But the nature of the commercial marketplace is always working in the other direction. Profits attract competitors, who try to outdo the innovator in service and price.

That’s how free enterprise works. The patents take a secret to a different level. The technology behind the patent is public information — in fact, it has to be. What the patents do is actively prevent other companies who have reverse-engineered the code from using their newly acquired information. In other words, patents essentially violate other companies’ rights to innovate. This is the bone of contention.

In other words, the patent holder is making a killing using a government grant of privilege over something that has been with us since the dawn of humankind. Meanwhile, anyone else who wants into this business suffers, as do the people seeking testing for cancer.

The opinion will be rather tricky to write. It will attempt to avoid the largest question that everyone is asking these days, which is whether any patents are economically and morally valid. Instead, it will try to narrow the ruling to cover only the point in dispute.

The larger issue is what can and cannot be patented with the government. It’s a controversy that has been around as long as the patent power itself. During the Industrial Revolution, it was only the high-profile inventions that were subject to the patent. Think of the steamship or, much later, the telephone and the airplane. Now the limit of the patent is entirely up to the clerks at the Patent Office. They can issue one on anything, and are tested only later in court.

That’s why for those who are convinced that patents in general are a gigantic error — a form of government grant of monopoly privilege — this decision will be disappointing either way. There are so many more patents that deserve a look closer, such as those on software, seeds, and industrial machinery. They all end up slowing development. They are dragging us down.

In a paper for the St. Louis Fed, Michele Boldrin and David Levine makes the point as plainly as possible:

“The case against patents can be summarized briefly: There is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded — which, as evidence shows, has no correlation with measured productivity. This is at the root of the ‘patent puzzle’: In spite of the enormous increase in the number of patents and in the strength of their legal protection, we have neither seen a dramatic acceleration in the rate of technological progress nor a major increase in the levels of R&D expenditure — in addition to the discussion in this paper, see Lerner [2009] and literature therein.”

This should not be a surprise at all. People say that patents incentivize innovation. That’s just wrong. The prospect of profits incentivizes innovation. The patent only extends the period of profitability — if it comes about — beyond which the market would otherwise allow it. The patent does this by using legal restrictions to prevent anyone else from emulating the invention or improving on it.

The case of the human genome is a great case in point. Research is proceeding at a breakneck pace in every area. Most of the code is not subject to patents. Some of the old patents have run out and become irrelevant. It is only in this area of genes “owned” by one company that we have a bottleneck.

Back in 1851, The Economist magazine had it exactly right. The patent “‘inflames cupidity,’ excites fraud, stimulates men to run after schemes that may enable them to levy a tax on the public, begets disputes and quarrels betwixt inventors, provokes endless lawsuits… The principle of the law from which such consequences flow cannot be just.”

There are many absurd aspects to the current patent case in the hands of the Supreme Court. First, the idea that these lawyers should be arguing a case involving difficult details of scientific discovery is preposterous. Second, the notion that the DNA sequence itself should be subject to patent offends the whole idea of self-ownership. Third, the reality that there is no effective limit on what innovations can or cannot be patented is deeply dangerous to the free commercial marketplace.

The whole debate gets to the core of the whole problem of intellectual property itself. Do we only own the stuff we own or do we own the ideas that go into shaping the stuff we own into other things? Example: If you use ingredients to make a cake, do you own the cake or do you own the way to make the cake — and, therefore, do you have the right to forcibly prevent anyone else from using your method?

The broadest sweep of human history is absolutely clear: We own what we own and nothing more. We can do what we want with our stuff, but we can’t prevent others from doing what they want with their stuff. Not to put too fine a point on it, but Myriad Genetics does not own me or you.

On the other hand, a century or more of decisions shows that the Supreme Court evidently thinks it owns you, me, and everyone. If the court decides against Myriad in this case, how to respond? Thank you, guys, for recognizing the existence of an essential postulate of freedom in this one case at least?

Sincerely,
Jeffrey Tucker

Original article posted on Laissez Faire Today

Illustrating the point is the bitter news that the IRS has considered it completely legal to demand access to your email archive whenever it wants. This news came about because of a Freedom of Information Act request filed by the American Civil Liberties Union.

The filing unearthed a 2009 memo that stated outright: “The Fourth Amendment does not protect communications held in electronic storage, such as email messages stored on a server, because Internet users do not have a reasonable expectation of privacy in such communications.”

Forget search warrants and legal processes. In the interest of getting its share, the government can have it all on demand. This assertion was made again in 2010 by the IRS’ chief counsel: The “Fourth Amendment does not protect emails stored on server” and there is “no privacy expectation” on email.

This assertion openly contradicts a 2010 legal decision from the Sixth U.S. Circuit Court of Appeals. United States v. Warshak said that the government must obtain a probable cause warrant before forcing people and providers to cough up email archives. Granted, even that’s not much protection. Government always has its “probable cause.”

Good for the ACLU for making an issue of this. In the coming months, there will continue to be legal wrangling over this issue, which is obviously important to absolutely everyone. But at some level, it’s all beside the point. The problem isn’t the legal process that allows the government to do what it wants; the problem is that government has a hook into personal income that allows powerful people to have their way with the whole of your life.

As we look back at the history, we can see that the income tax enabled a century of intrusions into our lives. It’s been 100 years of a form of imposition that no American in most of the 19th century could have ever imagined or tolerated. The income tax is what enabled Prohibition, for example. Without the ability to monitor and adjudicate how people made money, the power of enforcement would not have been there at all. Remember that Al Capone was not convicted for bootlegging, but for tax evasion.

It is what made possible the central planning of the New Deal. The government’s presumption that it owns the first fruits of labor gave rise to wage controls and mandatory participation in the Social Security system. It allowed the central planners to push aside young workers and tell them that they aren’t allowed to be part of the workforce. It allowed the introduction of the minimum wage that continues to shut out whole sectors of society.

And look what happened during World War II. The price controls on wages and salaries — made possible only because the income tax gave government a fiduciary interest — inspired companies to start offering health care benefits as part of the compensation package. That practice was intensified over the decades until it became mandatory. That practice is a major source of the health care problems we have today. So there we have it: There is a direct link from Obamacare today back to the income tax of 100 years ago.

Just the other day, with the IRS still on the march, the elaborate lunches provided in highflying companies like Google entered onto the radar screen. Shouldn’t these wonderful buffets be considered as compensation subject to tax? The decision is yet to be made, but there is just something unseemly about an agency that can’t let people even enjoy a lunch without demanding a cut.

Frank Chodorov, author of the masterpiece The Rise and Fall of Society, was right to call the income tax the “root of all evil.” We look back to history and are in awe that anyone ever had the full right to earn whatever money he or she wanted to and to never have to tell the government about it. But that was the way it was for the dominant part of American history. That’s the system once called freedom.

It’s striking when you realize just how completely unnecessary the income tax is for the funding of government. In 2013, the income tax will generate $1.2 trillion in revenue for the government. What if we cut back government spending by exactly that amount so that we replace the income tax with absolutely nothing? That would take us back in time to 2004. As Ron Paul would ask, was the government really too small back then? Would society really collapse if we went back to a government we had just nine years ago?

So let’s face it. Yes, the government likes our money and always wants more of it. But more crucially, the government uses the income tax as a primary means of controlling not just our money, but the whole of our lives. That’s the real purpose of the income tax and why the government will fight for its preservation to the end.

Right now, many Americans are sweating it out to get their taxes done in time for the filing deadline of April 15. It would be immeasurably hard without the brilliant companies that have put together software programs — updated constantly! — that make what would otherwise seem impossible rather easy. This is the type of thing that free enterprise and the private sector do. They help us to have better lives. But government? It just takes, snoops, and controls.

Sincerely,

Jeffrey Tucker

Original article posted on Laissez Faire Today