Free Lunches, Money from Nothing and Limits to Government Theft

Consider economics and governments as resembling a restaurant.

In order for there to be a restaurant at all some entrepreneur has to put his money and vision on the line and open it. He has a thing called “overhead,” which is irreducible on-going expenses whether he has any customers at all or not. The rent, utilities, taxes, staff, laundry, raw ingredients, and so forth are constants. He is harried by assorted inspectors, frequently with conflicting demands.

In order for a meal to be put on the table once Joe Entrepreneur reaches that point the cooks have to prepare it and somebody has to serve it.

The diner has to have both the inclination to eat there and the wherewithal to pay for the meal and tip the waiter.

When government becomes the restaurant the system flies apart in many ways. Governments do not worry about overheads; indeed, it is an essential function of government to grow. The gang in DC has no concept of being able to “afford” the expenses they occasion. Money isn’t real to them. Other people’s money rarely is. They print some more any time they want to knowing that it reduces the value of the dollars we hold. They hire staff which always turns out to be permanent with reckless abandon.

Back in the real world government makes everything more expensive and more difficult. In our example, the minimum wage concept makes labor more expensive for the business owner. He has his choice of taking less profit, reducing staff, not expanding, or cutting quality. All of those will damage his enterprise. For over two decades I have been listening to small business owners say that they had the business to expand, but that between ludicrous restrictions, regulations, and taxes it simply was not worth their while to do so.

Cap and Trade will make energy far more expensive, and do so by design. Does the restaurateur reduce the fourteen ounce Angus strip to ten ounces? Raise prices? Charge for parking? Use frozen french fries instead of hand cut ones from fresh potatoes? It does not matter which unpleasant choice he makes he will be obliged to offer less to customers who are under the same constraints with their work and family expenses. Every time one of them decides that dinner out is an expense he cannot justify the restaurant suffers.

The waiters are damaged by the harm done by government to the owner and the customers, and so is the cook, so is the busboy, and so is the bartender.

The diner, at least, still has the choice of whether or not to patronize the restaurant, although he has to eat somewhere, whether at home or out. This is where we get into taxation policies.

Statists and, indeed, politicians in general, rarely know anything about where money comes from. They seem to think that “made,” “earned,” “produced,” and “printed” all mean the same thing. They really cannot tell the difference between a US savings bond and gold. They think borrowed money is real and does not actually have to be paid back.

They appear to believe that incomes are immutable, that if you make $200,000 this year that you will continue to make at least that much every year until you retire no matter what else changes. They speak blithely of your electrical bill doubling, not seeing that as causing you to spend less elsewhere because you have a ludicrous fondness for heat and light in your home. They even think you should run automobiles on the stuff. Some of them probably even believe that you can charge the ten thousand dollar battery on a Volt with twenty-five cents’ worth of electricity, as advertised.

They think that burger-flippers will always flip burgers, and their lot will improve only if Congress mandates higher wages for them.

Governments understand only fear, force, and how to use the public treasury to buy votes. Congress fails to grasp the very simple fact that everything is interconnected. In one sense it does not matter who, other than those with Pelosi-like incomes, has his or her light bill doubled, the money that will be allocated for electricity can no longer be spent in another area. If Hal’s discretionary income is $500/month and he has to give $167 of that to Brazos Power and Light, one out of every three dollars that he had previously to spend in restaurants, or to have carpets cleaned, or to buy a new fishing rod is gone forever, vanished into the insatiable maw of government. If Susie, the single mom teacher loses a third of her discretionary income, she will have to do without a washing machine, painting her house, or as many school clothes for her child. There is no way, short of a second job, to replace the money which has been stolen by government action, or that stolen by inflation which was caused by printing of fiat money.

I suppose I sound as though I am speaking to a sixth grade civics class, although most kids have allowances or parents who utter the foulest three words in the English language, “We can’t afford…” One wonders if the constantly increasing out of control “budgets” at local, state, and national levels are caused in part by a system that requires great wealth to be elected to public office, and great dependence on funds gathered by those who demand political favors in return. I live near Bryan, a town of 55,000 people. Can someone explain to me why Bryan needs to spend nine million dollars a year? All of it extorted from local property owners?

You may wonder why I am covering anything this basic here on Whiskey & Gunpowder! Surely you Shooters, of all others, understand the basic principles of business, budgets, and von Mises. One would have thought so–right up to the point where the Editor was deluged with letters asserting that pie in the sky “health care” is a “right” and expressing their sentiments in language unbefitting ladies, gentlemen, and civilized debate. If you understand why we cannot have “single payer” health insurance, fine, pass this on to some child who needs to know.

The basic fact is that there is only so much “money” in the world, when we see “money” as a medium of exchange, which it is. I need a better way to induce the cobbler to make me a pair of shoes than offering him twenty dozen eggs he can’t eat before they spoil, although we might agree that I would deliver a dozen a week until the debt was paid. He, in turn, needs cow hide to make shoes, and I have cows, but I don’t want to skin one just to get shoes…at any rate, it worked better when we all exchanged little slugs of silver or gold for each others’ labor and production. The balance gets destroyed when the government creates “fiat” money and expects us to accept their fairy not-gold at the same value as shimmering silver ingots. We won’t do it. We also know that every time more money is cranked out of thin air every dollar we have is worth less because there is no way to differentiate between the dollar we had when there were only ten in the world and that same dollar when suddenly there are a hundred.

The Statists’ theory is that there is no limit to how much money they can “create,” just as there is no limit to how much milk the cow can give. There really are limits to how much moo-juice Bossy will produce, including her heritage, her age, how good her feed is, and whether or not she has had a calf recently. Even cows want a break after being milked for 300 days. It takes nine months to produce another calf and “freshen,” or begin producing more rich, creamy milk.

My darling Charles and I sent Asia, our Segundo, off to pick up a cow and her week old bull calf today. Mathilda, as we have named her, is three-quarters Jersey and a quarter Black Angus, both animals are black, and they will fit in beautifully with the Black Dexters. Mathilda will handle our milk and cream needs for the next three hundred days, more time than it takes for the goats to reproduce (210 days.) The funny part is that the owner didn’t want to milk her so he has been underfeeding her deliberately so that she won’t produce more milk than the calf can drink! How about that, Shooters, when a “simple farmer” in “flyover country” knows that to get less out of the cow you provide less sustenance than she needs. (We gave her a whole bale of first class hay and a big container of clear water for tonight.) Why can’t all those Ivy League economists and lawyers see that when they take too much of our money we produce far less taxes?

There really are practical limits to how many taxes can be extracted from most of us. Particularly in a land where nearly half of the people pay no taxes at all and a lot of them get “earned income credits” for doing one day’s work a year. There is a large class of people that is paid to do one simple chore: vote for the Statists. I suppose it is nice work if one can stomach it. I don’t know, since no government has ever bought my food, shelter, utilities, and medical care. Given my choice I would prefer to be a slum landlord, but the government beat me to it.

There are two points here that the DC gang had better grasp quickly. The first is that no matter how you jigger the figures, jobless people aren’t making money and they aren’t paying taxes on the money they didn’t earn. Just because they aren’t counted officially doesn’t mean that they aren’t out there, as increased robberies, claims for unemployment, and appeals to churches show. Those who are losing more of their income to higher taxes and utility bills are not purchasing as much, which means that the stores they once patronized are no longer making as much money, so they don’t pay as many taxes.

The Statist solution is automatic: “Oh, we’ll just tax the rich!” “Rich” is a relative term but our dear leader defines it at a quarter of a million dollars a year. Their problem is that if they confiscate all of the earnings of every person in America who makes $250,000 a year or more it won’t be more than a drop in the bucket they have to fill to cover their expenditures. It can’t be done. According to the most recent analysis available, 2006, the “richest” ten per cent. paid fifty-five per cent. of all taxes. Statists think that is “fair,” but what they had better start thinking is that pulling that much money out of those who produce jobs, start new businesses, invest in others, or even play the stock market slows everything down. Charity? When you filter money through the government over ninety per cent. of it is spent as salaries and overhead or disappears from graft or theft. Good private charities more than reverse that ratio.

How many families do you suppose there are with incomes of two hundred thousand dollars a year or more? I’ll tell you, since Newsweek kindly told me: 3.4%. That is 34 out of 1000 families, or 340 out of 10,000 families, or 3400 out of 100,000 families, or 34,000 out of a million families. Those are the ones who pay more than half of the taxes. I’m not among them, but I understand the frustration and annoyance such a state of affairs must cause.

The really fun statistic is this one: those 3.4% do 14% of the consumer spending and they are the ones who create and sustain businesses, which is where jobs come from. When the top five per cent. bears the greatest burden of onerous taxes, sooner or later not only does commerce decline but at least some of them ask why they are bothering. That is one of the difficulties with the proposed health “care” legislation, the bizarre proposition that doctors will submit to a 15% pay cut at the government’s whim. No, they won’t. Those who are old enough will retire. Young people who were planning on enrolling in medical school will think of something else to do.

The best solution I can see is to do the John Galt thing. Quit. If you cannot afford to quit your job literally, stop your consumer spending to the greatest extent that you can.

Put the money into commodities for your family’s use or into chunks of silver. Some of you may shake your heads in bewilderment and ask, “Isn’t that consumer spending?” Well…yes, and no. If you spend a hundred dollars taking your family out for pizza and a movie, that money (minus taxes) goes back into the economy to be taxed again and again in every hand that holds it, and you have nothing to show for it beyond a few memories. If you buy a case of MREs (ugh), your money has gone to an individual who will do whatever with it, but you have taken it out of circulation. You are storing value in the form of food that you can eat during the coming Greater Depression. If you wear the clothing you have now and do not visit Macy’s or Dillards, the shock of what you do not spend ripples through the economy. A nice blouse costs a couple of hundred dollars and you may wear it two years. That money goes to pay those who manufactured, shipped, and sold the blouse. If you turn that money into a dozen ounces of silver you have pulled that value out of circulation. You are richer for having “savings” that cannot be lost through devaluation. You have turned the value of your fiat dollars at present into a metal which will preserve it. You have also hit the tax-and-spenders where they live…

A great many stores and firms are going out of business and this trend will gain momentum. You’re smart. You can figure out for yourself which businesses will not make it through a deepening depression and what you should stock now. Only the big, the smart, and the connected will survive, and the myriad choices you have now will be a distant dream perhaps five years from now. Perhaps in less.

Big government turns you into lunch. Most of us cannot afford to be the owner. Our choice is whether to be the waiter, who may lose his job and will surely see his customers and his tips diminish, or to be the diner. It isn’t too late to do the Joseph thing and stock up for the future, and emulating John Galt and Midas Mulligan will shorten the time until the whole rotten system collapses. Too many carpenter ants have been nibbling at the foundations of our financial structure.

John Galt said to withdraw our minds. The current system doesn’t want those and doesn’t want us to use them. Take away what they do want, an endless stream of tax revenues.

Linda Brady Traynham

September 4, 2009

The Daily Reckoning