Lawson for Congress

Debating the War on Drugs normally focuses attention on the obvious: the negative effects drugs have on society and the individuals who use them, the money spent on combating the illicit trade, and whether individuals have the right to choose to consume these substances.

The negative effects this war has on other nations and their people is widely ignored.

Trafficking these products in Central America, West Africa and the Caribbean contributes to instability and endangers national security. In both Colombia and Afghanistan, the illicit drug trade helps fund violent insurgencies which cause large regions of lawlessness, commit hundreds of murders, and actively kill government and allied military forces including, in the case of Afghanistan, our own men and women in uniform.

In Colombia, a 42 year civil war has raged between the government and FARC (Revolutionary Armed Forces of Colombia), an authoritarian left-wing organization that has killed countless Colombians and foreigners. Most of Colombia’s 3000 kidnappings are also the work of these revolutionaries. FARC receives $300 million a year by ‘taxing’ the thriving cocaine trade in Colombia, and more than half the world’s coca is grown in FARC controlled territories.

By legalizing and regulating cocaine, any market in the United States could be supplied by legal cultivation in Bolivia, which does not have the problem of a violent insurgency. Since most of the price of cocaine comes from the illegal nature of the product and the risk the suppliers must take, by legalization will hamper FARC’s cash supply and ability to terrorize the countryside.

Meanwhile, southern Afghanistan cultivates 80% of the world’s poppy crop (the plant used to create opiates). 53% of Afghanistan’s GDP now comes from the export of poppies. Currently the Taliban uses this to their advantage, funding themselves with much of the profits. Western troops in the country destroy the crop where they can, but despite our efforts, Afghan poppy production grew 17% last year to hit $4 billion. As a result, the Taliban profited handsomely:

The Taliban earned $200 million to $400 million last year through a 10 percent tax on poppy growers and drug traffickers in areas under its control, Antonio Maria Costa, executive director of the U.N. Office of Drugs and Crime, said in an interview. He estimates that Afghan poppy farmers and drug traffickers last year earned about $4 billion, half of the country’s national income.

American troops have made gains by adopting counter-insurgency tactics and winning the populace over to our side. However, it’s difficult to win support of impoverished citizens when our troops are physically destroying the people’s primary means of subsistence.

As long as the price of the poppy remains high (once again due to the illegal nature of the product), it remains the best crop with which to provide food for one’s family. We can enforce the ban and destroy the crops, but American and Coalition troops will be seen as the enemy. If we legalize the product and depress the price, the problem will be mitigated through market forces. It will become less profitable to cultivate poppy and the Taliban will not be able to fund themselves with the trade. Farmers will switch their crop to either something to eat themselves or whatever else is most profitable.

The interference with real conflicts is another problem with America’s unconstitutional War on Drugs that must not be overlooked.

Robert J. Shiller is professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets LLC. He also authored an article over the weekend in the New York Times this weekend arguing that “One Rebate Isn’t Enough”. Here are some key quotes:

TAX rebates have been arriving in bank accounts and mailboxes, and will eventually put more than $100 billion into the hands of consumers. The hope is that by spending the money, they will lessen the risk of economic disaster from the subprime crisis.

The theory supporting tax rebates was originally devised by John Maynard Keynes, one of the most influential economists of the last century. In 1931, during the Great Depression, he compared the economy to a stalled car. (The car, he said, had “magneto trouble,” referring to a device once commonly used in automobiles to generate an electric spark for ignition.)

In Keynes’s analogy, when an engine is running properly, each stroke of a piston gets the next piston ready to fire, which in turn gets another piston ready, in rapid sequence. Similarly, he said, when the economy is functioning properly, each time someone spends money, he provides income for another person, causing that person to spend money, and so on.

What was needed in the dysfunctional economy of the 1930s was a government stimulus to get things started again. Keynes referred to the additional rounds of expenditure, set off by the initial stimulus, as “repercussions,” and to their total effect as the “multiplier.”

But people who have studied such models find that these repercussions aren’t powerful enough unless the initial stimulus is really large. Consider the Fair simulation model (fairmodel.econ.yale.edu/main2.htm), a free Web site that embodies much of Keynes’s theory and is offered by Professor Ray C. Fair of Yale. With the “U.S. Model” on this site, I increased transfers from government to households (“TRGH”) by $100 billion in the second quarter of 2008. The results showed a $59 billion increase in 2008 gross domestic product. That is less than half of 1 percent of G.D.P.

The reality of the subprime situation, augmented by the energy crisis, at least suggests that we’d better get ready for another round of rebates. There is little talk of it now, but we should be putting in place another stimulus package like the current one, and stand ready for another after that, and another.

Let’s think about that for a moment. Our government is deeply in debt, and the declining value of our dollar on international markets reflects the fact that we’ve been borrowing and printing a lot of money. Now we have a decorated economist advancing the discredited Keynesian economic theory that we can “print our way to prosperity” — just by reloading the monetary guns and firing a few more times, we can spend our way through this latest crisis.

Well, if Keynes isn’t fully discredited yet, he will be once we listen to Prof. Shiller.

It’s true the American people do need more money, and they must keep more of what they earn. But it’s not just the money — it’s what the money will buy. We can try following Shiller’s advice of borrowing and printing a few hundred billion more dollars to throw at the American consumer, and it will be interesting to see what those dollars will buy in terms of gas and food at the end of that exercise.

If it were possible to “stimulate” the economy by printing money, Zimbabwe would be the richest nation on the planet.

Such suggestions, coupled with the mismanagement of our economy by the Federal Reserve, should give Americans pause as we consider our place in the global economic order. Is there anyone who will stand up to the destructive policies of our own government and financial system?

Well, it’s just been reported that we have finally acquiesced to undergo a Financial Sector Assessment Program by the International Monetary Fund:

Officials with the International Monetary Fund (IMF) have informed Bernanke about a plan that would have been unheard-of in the past: a general examination of the US financial system. The IMF’s board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system.

As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team. They will be required to answer the questions they are asked during interviews. Their databases will be subjected to so-called stress tests — worst-case scenarios designed to simulate the broader effects of failures of other major financial institutions or a continuing decline of the dollar.

Under its bylaws, the IMF is charged with the supervision of the international monetary system. Roughly two-thirds of IMF members — but never the United States — have already endured this painful procedure.

The IMF has a long history of taking away irresponsible governments’ credit cards, and enforcing so-called “austerity measures” on the people of developing nations. I can imagine what they’d have to say about Shiller’s Theory of Repeated Stimulations.

I don’t consider an IMF assessment to be good news, however. It should concern all Americans who value national sovereignty, and economic sovereignty.

There’s one silver lining in the IMF investigation, at least for President Bush’s legacy. According to the article:

For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition. The review can begin in Bush’s last year in office, but it may not be completed until he has left the White House.

I’ve written before about the ridiculous and self-destructive tax code that punishes creativity and productivity. Perhaps the best evidence of our present insanity is the Internal Revenue Code’s Section 409a, which was added by Section 885 of the American Jobs Creation Act of 2004. Not ready to read all 650 pages? Here’s the summary:

To amend the Internal Revenue Code of 1986 to remove impediments in such Code and make our manufacturing, service, and high-technology businesses and workers more competitive and productive both at home and abroad.

Of course, by now you’re wondering if this legislation is actually intended to create jobs:

Like a captivating novel, the 650-page American Jobs Creation tax act headed toward President Bush’s desk will make you want to laugh, cry and scream… Will it create new jobs? “Jobs for tax professionals, yes,” says Scharin.

So today, four years later, I received a helpful reminder from my friends at Hutchison Law Group reminding their clients that the deadline for Section 409a compliance is coming up at year’s end. To quote their dispatch:

The deadline for full compliance with Section 409A of the Internal Revenue Code relating to the deferral of compensation for employees and other service providers is December 31, 2008. We do not believe that the IRS will extend this compliance deadline. Therefore, it is crucial for those companies who have delayed reviewing their compensation-related arrangements to do so promptly in order to meet the deadline.

Why is the deadline important?

1. Employee satisfaction. Employees are subject to a 20% excise tax for failure to comply with Section 409A. Since Section 409A, among other things, governs issues regarding severance and bonuses, key executives and salespersons are especially likely to be affected.
2. The Company also loses. A company that fails to comply with Section 409A will have to correct or supplement its withholdings, which may involve the payment of penalties and interest. The company may also be unable to make certain representations regarding Section 409A compliance in its financing or acquisition documents, thereby potentially losing or otherwise adversely affecting a deal. Such representations are now routinely required in these types of transactions.

What does my company need to do now?

1. Inventory and review current documents for compliance with Section 409A, including:

• Employment agreements and offer letters
• Severance agreements
• Post-employment fringe benefits
• Change of control agreements
• Advisory Board arrangements
• Consulting agreements
• Bonus and other cash incentive arrangements
• Commission plans and arrangements
• Equity plans, stock options and stock appreciation rights
• Phantom stock agreements
• Restricted stock unit plans
• Salary deferral arrangements
• Deferred compensation plans
• Supplemental retirement plans (“SERPs”)
• Tax gross-up and indemnification arrangements

Certain types of plans are generally exempt from Section 409A, including:

• Qualified retirement plans, such as 401(k) plans and pension plans
• Most group health plans
• Bona fide sick leave and vacation plans
• Disability plans
• Death benefit plans, such as group life insurance plans
• Certain medical expense reimbursement plans
• Incentive stock options meeting the requirements of Code Section 422
• Most direct grants of restricted stock

2. Consider unwritten arrangements. Review all unwritten arrangements regarding compensation to ensure compliance with Section 409A. (This means, for example, founder arrangements, back of the envelope arrangements and unwritten sales commission plans.) Employers must reduce all unwritten arrangements that are subject to Section 409A to writing by December 31, 2008.

3. Devise a plan to bring non-compliant compensation-related arrangements into compliance by December 31, 2008. In many instances, this will involve drafting or amending agreements which may require Board approval. Employee consent may also be required. It is important to start this process now so that all available amendments or revisions can be made in a timely manner.

4. Devise a plan for internal controls and compliance. After all current arrangements are brought into compliance with Section 409A, it will be important to make sure that all future arrangements are compliant from the start. Therefore, processes and procedures will need to be adopted to ensure that compensation-related arrangements are reviewed for compliance prior to being used or adopted, and that any modifications or amendments to these types of arrangements are reviewed in advance for potential Section 409A consequences.

What does the above have to do with creating value for your customers, and your community?

It’s no secret that our economy is in trouble. How can we improve our current predicament?

American companies need freedom to serve their customers instead of increasingly byzantine tax codes crafted by lobbyists and special interests. Our nation’s attorneys and accountants need to help their clients on offense, instead of squandering resources defending against a government that doesn’t know when to stop.

Now are you ready to start a business? Or would you prefer to just look for a job, preferably with the government?

The price of complying with the current system is a barrier that prevents many from even trying to start or grow a business.

It’s no secret that Washington is broken. We must reject our legislators’ fondness for voting on bills based upon catchy titles and vapid summaries. As our current Rep. David Price reveals, there is a difference between reading legislation and “considering” it:

A further example of Congress’ madness is its tendency to not even write laws anymore. Instead, Congress passes unread legislation that authorizes unelected bureaucrats and other “interested” yet unaccountable parties to write regulations. What results is the worst of both worlds — regulations far too complex to implement or understand, laden with conflicts of interest from those who wrote the regulations, and often missing the intent of the original legislation.

Campaign finance reform is one area where Congress’ regulatory attempts have backfired spectacularly:

A federal appeals court overturned four campaign regulations Friday that remain incomplete six years after Congress approved a landmark election-law overhaul.

The Circuit Court of Appeals for the District of Columbia agreed with a lower court that Federal Election Commission regulations dealing with coordination between campaigns and outside advocates must be rewritten.

The appeals court also agreed with Rep. Christopher Shays , R-Conn., a chief sponsor of the law (PL 107-155), that a regulation dealing with fundraising at state-level events that the District Court upheld should instead be overturned.

Judge David S. Tatel, writing for the three-judge panel, found the regulations either contrary to the law or arbitrary. The court sent the FEC back to the drawing board “in the hope that, as the nation enters the thick of the fourth election cycle since [the law’s] passage, the commission will issue regulations consistent with the act’s text and purpose.”

Here’s the funny part, worthy of Heller himself:

But the results are unclear. The flawed regulations will remain in effect until they are rewritten. But the commission has been unable to function this year for lack of a quorum, although nominations to fill the panel are pending in the Senate.

“We’ve just gotten the opinion and are reviewing it, so we don’t really have any comment now,” said Bob Biersack, an FEC spokesman. “It will be up to the commission to decide how to proceed.

North Carolina’s 4th District deserves representation that will read the bills before voting. We must not let our elected representatives unconstitutionally delegate their legislative power. As your Congressman, I will support the Read the Bills Act, and the Write the Laws Act.

Back in August of last year, Barack Obama proposed a solution for the subprime crisis, perfectly following the “bubble script“. Nine months later, we’re still on schedule — right up to high-profile government prosecutions of Bear Stearns hedge fund managers and promises of perpetuating but “regulating” a corrupt system in Senator Dodd’s Housing Bill:

The bill calls for a new, independent regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks that would have the authority to establish capital standards and “prudential management standards,” as well as to “restrict asset growth and capital distributions for undercapitalized institutions,” among other powers, according to a summary of the bill.

As our markets and economy continue sagging under the weight of our unwinding debt (= credit) bubble, and a weak currency continues to send energy and food costs surging, it should be clear that our monetary, banking, and economic systems are sick.

After my two prior blog posts on the banking and monetary systems, it should also be clear that the problems we face are innate feeatures of a deeply flawed system. Or, as we used to say in the software business, “that’s not a defect — it’s working as designed!”

Things are working so well, in fact, that our banking system itself is propped up by “borrowed reserves” — the Federal Reserve has traded its government bonds, which normally serve as the foundation for our monetary system (don’t ask), for a variety of sketchy “assets” that banks are finding impossible to value. In other words, banks are dodging the bullet of having to accurately value some of their assets based on mortgages, credit card debt, and other consumer loans by “borrowing” the Federal Reserve’s treasury debt and leaving their questionable assets as collateral. As a result, the non-borrowed reserves in our banking system are now negative:

Wow. That’s an odd looking chart. What does that mean?

Nothing, really. It means that we’re living in a grand illusion. Don’t worry, go shopping, and go Celtics. Everything will be just fine.

But what about the mortgage bubble, and subsequent bust?

Do you really want to know? NPR’s This American Life had a fantastic episode a few weeks ago that explains the processes, people, and pathologies involved. It’s a great illustration of our financial system’s inherent instability. If you don’t have time to listen to the entire episode, there is a wonderfully concise and illustrative online slideshow that explains the mortgage mess in colloquial terms (Warning: Rated R for language).

So what now? Will Senator Dodd and other august leaders in Washington be able to stop the Great Credit Unwind, restore stability to our financial markets, prevent foreclosures, and empty California’s tent cities?

Time will tell.

But wait, there’s more. In an Orwellian twist, today we learn that language was inserted into Dodd’s Senate Housing bill that would require small businesses and third party payment processors to report all electronic transactions to the federal government:

Hidden deep in Senator Christopher Dodd’s 630-page Senate housing legislation is a sweeping provision that affects the privacy and operation of nearly all of America’s small businesses. The provision, which was added by the bill’s managers without debate this week, would require the nation’s payment systems to track, aggregate, and report information on nearly every electronic transaction to the federal government.

What? Unconstitutional police state surveillance tactics in a housing “relief bill”? Is the government trying to feed us with one hand, while holding us down with the other?

It appears so.

Liberty is Priceless — support our Congressional campaign, and help us question the system that feeds our addiction and enslavement to perpetually-growing debt. Also, help us bring the Read the Bills Act and One Subject at a Time Act to fruition in Washington.

For those of you who are unaware, today (Sunday, June 15) is the anniversary of the Magna Carta, the British document that established the tradition of Constitutional law that protects individual liberty in the western world and that serves as the legal inspiration for the U.S. Constitution. Unfortunately, not many Americans know of this document or appreciate its significance, a by-product of negligence in understanding the importance of our liberties and of maintaining our Constitutional system of government. But while our basic freedoms have been under assault in recent years, so has also been the case in my ancestral homeland, the UK.

This week, the sacred British traditions enshrined in the Magna Carta were dealt a serious blow by Parliament. The Labour Party (the UK’s equivalent of the Democratic Party in the U.S.), who currently controls government under the leadership of Prime Minister Gordon Brown, introduced new legislation that would extend the detention period for terror suspects without charge to 42 days. Whereas the mere presence of detention without charge is a clear violation of Habeas Corpus, a hundred years old principle dictated by the Magna Carta, extending the period of detention to 42 days is a simply unacceptable increase in power of the state and is a serious threat to liberty. It is fundamental to the freedom of the individual that he/she must be allowed to live his/her life without coercion by anyone, as long as there is no coercion of others’ life and liberty. That a person can be held without charge for a crime completely contradicts a free society and establishes the basis for tyranny. This is the initiation of a trend very damaging to the concept of a free British society. What’s to say that in the future, the government won’t ask for the period to be extended to 90 days, or six months, or even a year?

Unfortunately, this legislation passed on Wednesday by a very narrow margin of nine votes, all of which composed by the Northern Irish Democratic Unionist Party (which some suspect may have been the result of a dodgy deal). What is encouraging, though (and surprising, from the perspective of an American) is that the Conservative Party- essentially the UK’s version of the Republican Party- was opposed to the legislation. The Tories (British nickname for the Conservatives) joined the Liberal Democrats (who would be best compared to the left-wing of the Democratic Party here) in fighting the legislation, while most of Labour pushed for it.

But no Tory, or for that matter any other MP, has offered such spirited opposition to the proposal and gone to such extraordinary lengths to defeat it as David Davis, a Shadow Cabinet minister, who this week resigned from Parliament in protest of the Bill’s passage. Mr. Davis, who led the Conservatives’ opposition to the measure, has committed to running in a by-election (when a MP resigns, a special election for the seat called a “by-election” is automatically held) from his district on the platform of protecting civil liberties. In doing so, he gave an eloquent and alarming speech laying out the specific anti-freedom actions pursued by the UK government recently- which reads quite similarly to a list of legislation enacted and being promoted in the US- and boldly initiating a new struggle for British civil liberties.

But while Mr. Davis is promoting a stance in line with his Party’s, this move was truly one of political courage. For one, he resigned from one of the most power seats in the Conservative Party and, effectively, has surrendered any chance he would have at a cabinet post if, as expected, the Tories win power in the next Parliamentary election. The move, according to The Independent, is also said to have angered Tory leader David Cameron with the perception of instability in the Party that has come in the aftermath of the resignation. Cameron, who has been working hard to build momentum for the Conservative Party, who is set to become the next Prime Minister after the next Parliamentary election. All of this gives every indication that Davis is now permanently out of power and out the running to one day be leader of the Conservative Party, which would position him to one day be Prime Minister if the Conservatives hold Parliament under his leadership. This is not exactly a typical quality for a man who very recently made a strong challenge for the leadership of the Conservative Party when it last came up, which would have set him up to be the next Prime Minister of the UK.

Mr. Davis has also opened himself to great public criticism, particularly by the notoriously harsh, yet substantially influential, British media. He has been accused of making a mere self-promoting publicity stunt, the London Times calling it a “disastrous ego trip.” The Sun, a right-leaning publication owned by Rupert Murdoch, accused him of “treachery to David Cameron” in a scathing attack in which they call him a “quitter” and say he has “gone stark raving mad.” Even by media that has been positive to Mr. Davis, such as the Daily Telegraph. Many in the media suspect him of attempting to exploit the situation to engineer public momentum behind him to challenge for Conservative leadership, a notion he has roundly and convincingly rejected.

This historic act by David Davis solidifies him firmly as Britain’s very own Ron Paul. It is an important and inspirational moment in the international movement for liberty, and this is certainly the case for America. Obviously, an act in specified defense of liberty by a politician this powerful and well-known in the cradle of modern Constitutional law of the world qualifies as such. But it is particularly important in that it re-establishes the notion that conservatism- true conservatism- has as one of its fundamental tenants the staunch defense of individual liberty from encroachment by government under any and every pretext. This is absolutely necessary in America, as “conservatism” has come more to resemble the nature of police statism that purges freedom to “promote” security, however ineffective its tactics may be in this regard. While Tory leaders like Davis, Cameron, and former Prime Minister John Major excoriate the British government’s offense on civil liberties; in America, the “conservative” Bush Administration has trampled on the Bill of Rights, while Republican Presidential Candidate John McCain calls the Supreme Court’s rejection of suspension of Habeas Corpus in the Military Commissions Act “one of the worst decisions” in the history of the Supreme Court. A writer at the “conservative” National Review even claimed that the Court’s upholding of Habeas Corpus proclaimed that the America people had “lost to radical Islam.”

As Constitutional lawyer Glen Greenwald explains in this terrific piece on Friday, what the “right” of American politics currently pursues is nothing resembling conservatism, but rather authoritarianism. Basic preconditions to true conservatism are the preservation of tradition and restraint. For America, entails preserving America’s tradition of as a free society rooted in individual liberty and restraint of government from encroaching on this liberty by Constitutional law. Inherent in the actions advocated by “conservative” Republicans like George W. Bush, John McCain, and most of the Republican Party wholly contradict these ideas. In order for the freedom movement to advance in America, conservatism must once again be identified in its true context. Self-identified libertarians (big “L” and small “l”) simply do not amount to a large enough number at this point to ensure victory, and Democrats like David Price who vote to assault our civil liberties through institution of the Patriot Act and the Real ID clearly cannot be trusted completely- if at all- to faithfully carry forth this agenda. The American Right must once again reacquaint itself with its purpose in order to have the numbers and momentum to prevail. In a sense, we who seek to preserve and promote individual liberty- be we self-identified as of the left, right, or the libertarian column- are all true conservatives.

In a previous post, we discussed the hazards (moral and otherwise) of fractional reserve banking. Once you understand fractional reserve banking, you understand why we need a central bank.

When you have a fractional reserve banking system, each bank is technically insolvent in that it cannot meet all of its depositors’ demands for their money. If all holders of demand deposits came to the bank to withdraw their funds, the run on the bank would force the bank to close down. It’s only the depositor’s confidence that the money will be there that keeps the bank in business.

Since that confidence proves shaky — witness the case of Northen Rock, or even Bear Stearns — the idea of “reserve pooling” gradually arose. The idea is that if an individual bank runs into trouble, other banks can temporarily lend it funds to meet its demands. The endgame for reserve pooling, however, is a single bank that has the power to arbitrarily create money — the central bank.

Our central bank, the Federal Reserve, was commissioned in 1913. It is not federal, and is owned by its member banks. The Federal Reserve interacts with the banking system in a simple but important way — it is the “lender of last resort”. That means that when a bank runs into trouble, the Federal Reserve will be there to bail it out, or orchestrate a merger or other transaction that will prevent collapse of the institution, or the entire system.

How does the Federal Reserve do its job? Today’s Federal Reserve is best known for setting the so-called “Fed Funds Rate“, or the price at which banks borrow money from each other overnight. Why would banks borrow from each other? One reason is to meet reserve requirements. If you own a bank, and make a new car or mortgage loan, you create new money for that loan in your borrower’s demand deposit account. You don’t need to have enough “reserves” in advance to make that loan, however — you can just borrow the necessary reserves in an overnight loan from other banks, and you should expect to pay close to the Federal Reserve’s target rate.

The Federal Reserve manages this interest rate by so-called “open market operations“, where the Federal Reserve buys and sells securities in an effort to keep interest rates close to its target. Right now, the Federal Reserve’s “Fed Funds Rate” is set at 2%. When banks are unwilling to lend to each other, and rates creep upwards, the Federal Reserve will add reserves to drive that interest rate down towards its target. Even if banks don’t have surplus reserves to lend, the Federal Reserve will still work to ensure that banks can borrow reserves at its target rate.

So what’s the problem with this system? Well, let’s take the words “add reserves”. The Fed “adds reserves” by purchasing debt, or providing a loan against debt (called a repurchase agreement, or repo).

When the Federal Reserve purchases debt from our government, or provides a loan against debt for a bank, it pays for that debt in Federal Reserve Notes. Where does the Federal Reserve get its Federal Reserve Notes? Well, the Federal Reserve has the unique ability to create new ones. In other words, the Fed has the ability to write a worthless check, and create new money.

Besides the moral issue of letting our central bank create new money that competes with money you’ve earned for goods and services, does this system really make sense?

No, it does not. Many people believe that in order for a bank to make a loan, someone must have first saved money, and made a deposit. That’s simply not true. When the Federal Reserve sets the interest rate at which banks can borrow to meet their reserve requirements, banks compete to make loans and create new paper money based upon their cost of borrowing, as opposed to the amount of reserves they have on deposit. Practically speaking, banks are limited in the amount of loans they can make based upon capital requirements, not reserve requirements.

In addition to the Federal Reserve’s ability to create money to lend to banks is the Federal Reserve’s ability to create money to give to our government. Our United States Treasury is constantly issuing new debt — we’re a “payday lender” nation whose government is constantly rolling over old debt into new debt, and issuing additional debt to pay for our constant budget deficits. Who buys all this debt?

Lots of people, and lots of institutions, purchase our Treasury’s debt. Many of these investors are overseas. The Federal Reserve also purchases our Treasury’s debt. But when the Federal Reserve purchases our government’s debt, unlike you or me, the Fed can give the Treasury a check with no money in the checking account. While you would be charged with fraud for writing worthless checks, it’s business as usual at the Federal Reserve. The Fed’s “checks” simply create new dollars in the Treasury’s checking account.

Money doesn’t grow on trees any more — it’s even easier than that. The Treasury just needs to sell some bonds, and if there aren’t enough willing purchaser with existing dollars, the Federal Reserve creates new electronic money to make up the difference.

So why do we have inflation? One important factor is the Federal Reserve’s new money competing with your earnings and savings for goods and services. Ultimately, our flawed system makes everyone’s dollar worth less.

While the American worker and saver gets hurt by this arrangement, who benefits?

Consider the banks — banks are protected from failure by a central bank that can create money out of nothing. Furthermore, this perception of “stability” allows banks to create loans out of nothing, backed with minimal reserves, and thus claim an ever-greater share of borrowers’ future income through interest payments. More loans leads to more profits — it’s definitely a winner for the banks.

Consider our government — politicians can make promises that we can’t begin to afford, but our central bank’s ability to create money to buy our government’s debt means that politicians can spend obscene amounts of money without raising taxes. Instead, they simply borrow and print new money. As long as the American public is unaware that government benefits are paid for by newly-printed money, and don’t understand the link with rising prices, this system is tolerated. Even the mainstream media is widely ignorant of how this system works.

But the dynamics are changing. We can no longer ignore gas prices, and grocery bills. We can no longer ignore the future costs that our children face. A speech on May 28 entitled “Storms on the Horizon” by Dallas Federal Reserve President and CEO Richard Fisher (world government fans unite — check out his biography in Spanish!) paints a surprisingly realistic picture:

Tonight, I want to talk about a different matter. In keeping with Bill Martin’s advice, I have been scanning the horizon for danger signals even as we continue working to recover from the recent turmoil. In the distance, I see a frightful storm brewing in the form of untethered government debt. I choose the words—“frightful storm”—deliberately to avoid hyperbole. Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets that we are now working so hard to correct.

You might wonder why a central banker would be concerned with fiscal matters. Fiscal policy is, after all, the responsibility of the Congress, not the Federal Reserve. Congress, and Congress alone, has the power to tax and spend. From this monetary policymaker’s point of view, though, deficits matter for what we do at the Fed. There are many reasons why. Economists have found that structural deficits raise long-run interest rates, complicating the Fed’s dual mandate to develop a monetary policy that promotes sustainable, noninflationary growth. The even more disturbing dark and dirty secret about deficits—especially when they careen out of control—is that they create political pressure on central bankers to adopt looser monetary policy down the road. I will return to that shortly. First, let me give you the unvarnished facts of our nation’s fiscal predicament.

…

Doing deficit math is always a sobering exercise. It becomes an outright painful one when you apply your calculator to the long-run fiscal challenge posed by entitlement programs. Were I not a taciturn central banker, I would say the mathematics of the long-term outlook for entitlements, left unchanged, is nothing short of catastrophic.

Typically, critics ranging from the Concord Coalition to Ross Perot begin by wringing their collective hands over the unfunded liabilities of Social Security. A little history gives you a view as to why. Franklin Roosevelt originally conceived a social security system in which individuals would fund their own retirements through payroll-tax contributions. But Congress quickly realized that such a system could not put much money into the pockets of indigent elderly citizens ravaged by the Great Depression. Instead, a pay-as-you-go funding system was embraced, making each generation’s retirement the responsibility of its children.

Now, fast forward 70 or so years and ask this question: What is the mathematical predicament of Social Security today? Answer: The amount of money the Social Security system would need today to cover all unfunded liabilities from now on—what fiscal economists call the “infinite horizon discounted value” of what has already been promised recipients but has no funding mechanism currently in place—is $13.6 trillion, an amount slightly less than the annual gross domestic product of the United States.

Demographics explain why this is so. Birthrates have fallen dramatically, reducing the worker–retiree ratio and leaving today’s workers pulling a bigger load than the system designers ever envisioned. Life spans have lengthened without a corresponding increase in the retirement age, leaving retirees in a position to receive benefits far longer than the system designers envisioned. Formulae for benefits and cost-of-living adjustments have also contributed to the growth in unfunded liabilities.

The good news is this Social Security shortfall might be manageable. While the issues regarding Social Security reform are complex, it is at least possible to imagine how Congress might find, within a $14 trillion economy, ways to wrestle with a $13 trillion unfunded liability. The bad news is that Social Security is the lesser of our entitlement worries. It is but the tip of the unfunded liability iceberg. The much bigger concern is Medicare, a program established in 1965, the same prosperous year that Bill Martin cautioned his Columbia University audience to be wary of complacency and storms on the horizon.

Medicare was a pay-as-you-go program from the very beginning, despite warnings from some congressional leaders—Wilbur Mills was the most credible of them before he succumbed to the pay-as-you-go wiles of Fanne Foxe, the Argentine Firecracker—who foresaw some of the long-term fiscal issues such a financing system could pose. Unfortunately, they were right.

Please sit tight while I walk you through the math of Medicare. As you may know, the program comes in three parts: Medicare Part A, which covers hospital stays; Medicare B, which covers doctor visits; and Medicare D, the drug benefit that went into effect just 29 months ago. The infinite-horizon present discounted value of the unfunded liability for Medicare A is $34.4 trillion. The unfunded liability of Medicare B is an additional $34 trillion. The shortfall for Medicare D adds another $17.2 trillion. The total? If you wanted to cover the unfunded liability of all three programs today, you would be stuck with an $85.6 trillion bill. That is more than six times as large as the bill for Social Security. It is more than six times the annual output of the entire U.S. economy.

Why is the Medicare figure so large? There is a mix of reasons, really. In part, it is due to the same birthrate and life-expectancy issues that affect Social Security. In part, it is due to ever-costlier advances in medical technology and the willingness of Medicare to pay for them. And in part, it is due to expanded benefits—the new drug benefit program’s unfunded liability is by itself one-third greater than all of Social Security’s.

Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.

What do we do about that? How can we begin to “fund” a $99 trillion liability?

Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income.

Clearly, once-and-for-all contributions would be an unbearable burden. Alternatively, we could address the entitlement shortfall through policy changes that would affect ourselves and future generations. For example, a permanent 68 percent increase in federal income tax revenue—from individual and corporate taxpayers—would suffice to fully fund our entitlement programs. Or we could instead divert 68 percent of current income-tax revenues from their intended uses to the entitlement system, which would accomplish the same thing.

Suppose we decided to tackle the issue solely on the spending side. It turns out that total discretionary spending in the federal budget, if maintained at its current share of GDP in perpetuity, is 3 percent larger than the entitlement shortfall. So all we would have to do to fully fund our nation’s entitlement programs would be to cut discretionary spending by 97 percent. But hold on. That discretionary spending includes defense and national security, education, the environment and many other areas, not just those controversial earmarks that make the evening news. All of them would have to be cut—almost eliminated, really—to tackle this problem through discretionary spending.

I hope that gives you some idea of just how large the problem is. And just to drive an important point home, these spending cuts or tax increases would need to be made immediately and maintained in perpetuity to solve the entitlement deficit problem. Discretionary spending would have to be reduced by 97 percent not only for our generation, but for our children and their children and every generation of children to come. And similarly on the taxation side, income tax revenue would have to rise 68 percent and remain that high forever. Remember, though, I said tax revenue, not tax rates. Who knows how much individual and corporate tax rates would have to change to increase revenue by 68 percent?

If these possible solutions to the unfunded-liability problem seem draconian, it’s because they are draconian. But they do serve to give you a sense of the severity of the problem. To be sure, there are ways to lessen the reliance on any single policy and the burden borne by any particular set of citizens. Most proposals to address long-term entitlement debt, for example, rely on a combination of tax increases, benefit reductions and eligibility changes to find the trillions necessary to safeguard the system over the long term.

No combination of tax hikes and spending cuts, though, will change the total burden borne by current and future generations. For the existing unfunded liabilities to be covered in the end, someone must pay $99.2 trillion more or receive $99.2 trillion less than they have been currently promised. This is a cold, hard fact. The decision we must make is whether to shoulder a substantial portion of that burden today or compel future generations to bear its full weight.

OK, so if we can’t cut spending, and if we can’t increase taxes, are there other options?

Now that you are all thoroughly depressed, let me come back to monetary policy and the Fed.

It is only natural to cast about for a solution—any solution—to avoid the fiscal pain we know is necessary because we succumbed to complacency and put off dealing with this looming fiscal disaster. Throughout history, many nations, when confronted by sizable debts they were unable or unwilling to repay, have seized upon an apparently painless solution to this dilemma: monetization. Just have the monetary authority run cash off the printing presses until the debt is repaid, the story goes, then promise to be responsible from that point on and hope your sins will be forgiven by God and Milton Friedman and everyone else.

We know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid.

Earlier I mentioned the Fed’s dual mandate to manage growth and inflation. In the long run, growth cannot be sustained if markets are undermined by inflation. Stable prices go hand in hand with achieving sustainable economic growth. I have said many, many times that inflation is a sinister beast that, if uncaged, devours savings, erodes consumers’ purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currency.

Purging rampant inflation and a debased currency requires administering a harsh medicine. We have been there, and we know the cure that was wrought by the FOMC under Paul Volcker. Even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens, should it take root, is a paramount risk to the long-term welfare of the U.S. economy. The Federal Reserve will never let this happen. It is not an option. Ever. Period.

Mr. Fisher, I wish I could believe you. Based upon the performance of our dollar against other currencies, it appears that we are doing exactly that. In fact, Alan Greenspan was asked about the problem of how we could meet our Social Security obligations back in 2005. His response at the time? “We can guarantee cash, but we cannot guarantee purchasing power!” In other words, we can print the money, but it won’t buy anything.

Odds are, despite Mr. Fisher’s wishes, we keep borrowing and printing. As Mr. Fisher concluded his speech:

Of late, we have heard many complaints about the weakness of the dollar against the euro and other currencies. It was recently argued in the op-ed pages of the Financial Times [3] that one reason for the demise of the British pound was the need to liquidate England’s international reserves to pay off the costs of the Great Wars. In the end, the pound, it was essentially argued, was sunk by the kaiser’s army and Hitler’s bombs. Right now, we—you and I—are launching fiscal bombs against ourselves. You have it in your power as the electors of our fiscal authorities to prevent this destruction. Please do so.

Mr. Fisher, you are correct. We do have the power to prevent this destruction. The cause of this destruction is the system itself. We cannot afford a debt-backed monetary system controlled by a private central bank that creates money out of nothing — thus facilitating unrestrained spending by politicians interested only in their re-election.

Coupling an unstable banking and monetary system with a government that gives favors in exchange for growing its power is a recipe for collapse into tyranny.

To follow up on my latest post discussing Former Democratic Senator and Presidential Nominee George McGovern’s newly-discovered love of liberty, I paid a visit to a blog that I frequent a lot and where I sometimes post called Freedom Democrats, a group of Democrats who, like Senator McGovern, are very freedom-minded. The main poster at the site, Freedom Democrats, also contributes to my main blog, Liberty Republicans. A few weeks ago, he made a post endorsing the election of B.J. in this district instead of David Price, the incumbent and a member of his own party. I’d like to share this post with all of you here. Make sure you share the view of this Democrat with all of your Democratic friends in the 4th District! Away we go:

Stand up to George Bush: Elect a Republican to Congress!

What in the world could bring me, a self-identified libertarian Democrat, to the point of advocating electing a Republican to Congress?

Two things.

First, a Republican like North Carolina’s BJ Lawson.

For those who don’t know Lawson already, he is arguably one of the most dynamic and exciting libertarian Republican candidates this year. With Jim Forsythe out of the race in New Hampshire, the list of Republican congressional candidates representing a new generation of libertarian politics is lead by BJ Lawson and Virginia’s Amit Singh.

Second, there needs to be a Democratic incumbent who is failing to stand up for the district he is elected to represent. In North Carolina’s 4th District, we have such a problem.

Ironically, a front page story at the liberal blog Daily Kos helps make the case.

The great minds in Bush’s Homeland Security department came up with a doozie this year: let’s move the facility where we study the most infectious and dangerous disease among livestock from the isolated island it’s now on (accessible only by ferry or helicopter) and put it where there are lots of livestock operations. Brilliant!

The Associated Press has the details on a plan to move the nation’s leading center for research into animal diseases from Plum Island to the heartland of America:

The only U.S. facility allowed to research the highly contagious foot-and-mouth disease experienced several accidents with the feared virus, the Bush administration acknowledged Friday.

A 1978 release of the virus into cattle holding pens on Plum Island, N.Y., triggered new safety procedures. While that incident was previously known, the Homeland Security Department told a House committee there were other accidents inside the government’s laboratory.

The accidents are significant because the administration is likely to move foot-and-mouth research from the remote island to one of five sites on the U.S. mainland near livestock herds. This has raised concerns about the risks of a catastrophic outbreak of the disease, which does not sicken humans but can devastate the livestock industry.

One of the five likely sites of the research facility is the town of Butner in Granville County, just outside of the 4th District and the Durham metropolitan area.

Here is where the incumbent in the race stands:

My current assessment is that the Granville County site would be a good location for the NBAF, and that our region of North Carolina would reap many economic and agricultural benefits from such a facility.

Here is BJ Lawson’s view:

As a citizen, physician, and father, I strongly oppose NBAF in our backyard. Join me in opposing David Price, and opposing NBAF. As your Congressman, I will work for the people of the Fourth District by seeking to make our federal government smaller, not larger. I will work to preserve private property rights, and not encourage unaccountable environmental hazards in our backyards.

The AP article outlines a government simulations of a simulated foot-and-mouth disease outbreak in Kansas:

A simulated outbreak of the disease in 2002 — part of an earlier U.S. government exercise called “Crimson Sky” — ended with fictional riots in the streets after the simulation’s National Guardsmen were ordered to kill tens of millions of farm animals, so many that troops ran out of bullets. In the exercise, the government said it would have been forced to dig a ditch in Kansas 25 miles long to bury carcasses. In the simulation, protests broke out in some cities amid food shortages.

Stand up to George Bush and his Department of Homeland Security, elect Republican BJ Lawson.

I couldn’t have said it better myself.

I have just read a policy brief submitted by the Congressional Budget Office (CBO) to Rep. Paul Ryan, the Ranking Member of the House Budget Committee. The brief, written by CBO Director Peter Orszag and prepared by his staff, discusses projects of our current fiscal path, its impact on our economy if left unresolved, the impact of slowing the growth of the deficit, and the impact of financing the deficit completely with tax increases. Here are some significant points in this very sobering brief.

On the rise of the amount of spending and the federal debt (not the total national debt) as a percentage of GDP:

In December 2007, the Congressional Budget Office (CBO) published The Long- Term Budget Outlook, which presented a long-term projection of the budget under an alternative fiscal scenario,” representing one interpretation of what continuing today’s underlying fiscal policy would mean. CBO projected that, under that scenario, spending on Medicare, Medicaid, and Social Security would rise rapidly, and federal outlays excluding interest (primary spending) would climb from about 18 percent of GDP in 2007 to 28 percent in 2050 and to 35 percent in 2082 (see Table 1).2 Because the scenario also assumes that revenues as a share of GDP would not increase much over the 75-year period, CBO projected that the federal budget deficit and federal debt held by the public would rise sharply. By CBO’s reckoning, federal debt under that scenario would climb from about 37 percent of GDP in fiscal year 2007 to more than 290 percent in 2050—a large figure by any standard (see Figure 1). Since the founding of the United States, federal debt surpassed 100 percent of GDP only for a brief period during and just after World War II (see Figure 2 on page 4).

On the economic impact of staying this course:

According to CBO’s simulations using that model, the rising federal budget deficits under this scenario would cause real gross national product (GNP) per person to stop growing and then to begin to contract in the late 2040s (see Figure 3).4 By 2060, real GNP per person would be about 17 percent below its peak in the late 2040s and would be declining at a rapid pace. Beyond 2060, projected deficits would become so large and unsustainable that the model cannot calculate their effects.

Despite the substantial economic costs generated by deficits under this model, such estimates greatly understate the potential loss to economic growth under this scenario. In particular, they are based on a model in which people do not anticipate future changes in debt; as a result, the model predicts a gradual change in the economy as federal debt rises. In reality, the economic effects of rapidly growing debt would probably be much more disorderly and could occur well before the time frame indicated in the scenario. If foreign investors began to expect a crisis, they might significantly reduce their purchases of U.S. securities, causing the exchange value of the dollar to plunge, interest rates to climb, consumer prices to shoot up, and the economy to contract sharply. Amid the anticipation of declining profits and rising inflation and interest rates, stock prices might fall and consumers might sharply reduce their purchases. In such circumstances, the economic problems in this country would probably spill over to the rest of the world and seriously weaken the economies of the United States’ trading partners.

On slowing the growth of the deficit:

Under the target path, federal outlays excluding interest (that is, primary spending) would rise from 18 percent of GDP in 2007 to 20 percent in 2030 and then decline to 19 percent in 2050 and 13 percent in 2082. For almost all years, revenues would remain at 18.5 percent of GDP. Under those assumptions, the budget deficit would gradually increase to about 6 percent of GDP in 2040 but then would decline to almost zero in 2075. By 2082, the target path would generate a budget surplus of about 2 percent of GDP. The primary budget (that is, the budget excluding interest on the public debt) would reach balance around 2050. With possible economic feedbacks not included, federal debt held by the public would increase to a peak of 120 percent of GDP around 2060 and then would decline to 64 percent in 2082. Thus, compared with the alternative fiscal scenario, the target path would substantially reduce future budget deficits and federal debt.

The target path provided by the Committee staff would be economically sustainable. Under that target, real GNP per person (in 2007 dollars) would continue to grow over the entire projection period, rising from about $45,000 in 2007 to about $165,000 in 2082 (see Figure 4). The economy would be considerably stronger under the target path than it would be under the alternative fiscal scenario. By 2060 (the last year for which it is possible to simulate the effects of the alternative fiscal policy using the textbook growth model), real GNP per person under the target path would be about 85 percent higher than that under the alternative fiscal scenario.

On the impact of raising taxes to finance all projected spending:

… tax rates would have to be raised by substantial amounts to finance the level of spending projected for 2082 under CBO’s alternative fiscal scenario. With no economic feedbacks taken into account and under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88 percent. The top corporate income tax rate would also increase from 35 percent to 88 percent. Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion. Revenues would probably fall significantly short of the amount needed to finance the growth of spending; therefore, tax rates at such levels would probably not be economically feasible.

If federal outlays excluding interest did not rise to their 2082 share of GDP (35 percent), but instead were stabilized at the share of GDP projected for 2050 (28 percent), simulations can provide some guidance about the possible economic effects of financing additional spending with a proportional across-the-board increase in all personal and corporate tax rates.6 (The increase would apply to the regular rate schedule, the rates under the alternative minimum tax, and the preferential tax rates on dividends and capital gains.) To carry out the analysis, CBO used two different models of economic behavior—the textbook growth model and what is termed a stochastic overlapping generations model—to reflect the range of opinion among economists about how people respond to taxes. Both models take into account the dynamic effects of
higher tax rates on the economy and how those changes in the economy would in turn affect revenues. However, both models are simplified representations of the economy and therefore provide only a rough guide to the potential effects of the tax scenarios on the economy.

In the textbook growth model, economic output depends on the number of hours of work supplied by workers, the size of the capital stock, and total factor productivity (in simple terms, the state of technological know-how). The labor supply response is projected by CBO’s tax microsimulation model, which, for a sample of taxpayers, provides a detailed representation of individual income taxes. The textbook growth model assumes that households do not explicitly consider expected future policies when they make plans—that is, the model incorporates no forward-looking behavior. Moreover, the model does not account for the way that changes in marginal tax rates on capital income might influence investment, though it does account for the effects of budget deficits on investment.

In the stochastic overlapping generations model, households are forward-looking and their members decide how much to work and save in order to make themselves as well off as possible over their lifetime.9 They face uncertainty about future wages and the length of their life and may be subject to borrowing constraints.

Before accounting for economic feedbacks through the models, CBO estimates that individual income tax rates would have to be raised by about 90 percent to finance the projected increase in spending between 2007 and 2050. The lowest tax rate on individual income would have to be increased from 10 percent to 19 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 47 percent; and the highest statutory rate would have to be raised from 35 percent to 66 percent. The top corporate income tax rate would also have to increase from 35 percent to 66 percent. Those estimates of tax rate changes are meant to be illustrative; official estimates of tax rate and revenue changes for any specific proposal would be prepared by the Joint Committee on Taxation.

Under this scenario, real GNP per person in 2050 could be between 5 percent and 20 percent less than what it would be if revenues and spending in 2050 were the same shares of GDP as in 2007. Those economic effects could be substantially reduced if the tax policies used to finance the additional spending did not distort economic behavior as much as increases in income tax rates would. In particular, tax policies that relied less on proportional increases in marginal income tax rates could have substantially smaller effects on the economy. For example, raising revenues by broadening the income tax base and eliminating various tax preferences (such as the deductions for mortgage interest, state and local taxes, and health insurance) would have a smaller effect on real GNP than would a proportional increase in tax rates.

This is a very sobering account of our nation’s financial status prepared by one of the most well-respected public finance economists around in Orszag, who could hardly be considered a free market libertarian/conservative alarmist given his previous history with the Brookings Institute, a left-leaning think tank. While Dr. Orszag implores that we must slow the growth of deficits, which is surely true, he also states that the damage due to deficits is likely underestimated because the model used does not account for forward-looking and panicky behavior of agents that is unquantifiable and would likely lead to more disastrous consequences. As Orszag’s report demonstrates, we cannot simply tax our way out of this problem, as the tax increases necessary to fund these increases in spending will certainly cause disastrous economic effects and likely wouldn’t even generate enough revenue to fund th spending, given the negative revenue impacts of the economic crash that apparently are not dealt with by the model.

For an additional sobering account of our nation’s long-term finances, I invite all of you to view these two videos by David Walker, the just recently retired Comptroller of the Currency.

As an economics and math major at UNC, and someone with an interest in, well, working and making money in the future, these assessments by respected financial analysts scare me. The bottom line is that if we want to ensure that this absolutely crushing financial burden of our government does not come to pass, we must do the work now to cut spending, eliminate the deficits quickly, and greatly restrain the long-term growth of entitlement programs. We cannot tax our way out, and we cannot grow our way out.

To do this work, we need to have a responsible Representative of the 4th District in Washington who demonstrates a thorough concern for and understanding of this problem and who will is willing to exercise courage in telling the truth about an issue when it may not be politically expedient to do so. Voting for a Concurrent Budget Resolution that plans to add $2 trillion in debt over the next five fiscal years, and then calls the Resolution “fiscally responsible,” does not demonstrate the type of responsible representation that is needed to tackle this problem. Clearly, based on this alone, David Price cannot be trusted in representing our district to address this issue.

It is time for a true Revolution. It is time for a change in Washington and in the seat held by the people of the 4th District of North Carolina. To address this issue, we need a Representative who has the experience of starting, owning, and operating a business from scratch and growing it into a financial success that allowed he and his family to emerge out of their own hefty burden of debt. We need a doctor who has made a career in the medical sector who understands why costs in health care, a major contributor to the projected financial burden of the federal government, are increasing so sharply and how we can abate them. If we as a district want to tackle this grand challenge head on and preserve a bright economic future for our country and for future generations, we must elect Dr. William “B.J.” Lawson to be the next Representative of the 4th U.S. House District of North Carolina.

For more insight into our nation’s fiscal troubles, I would like to recommend two books to all of you. The first is Running on Empty by Pete Peterson, a former U.S. Secretary of Commerce and co-founder of the Concord Coalition, an organization advocating fiscal responsibility and spending restraint in Washington. This is the book I read that really opened my eyes to how bad our fiscal situation, explaining well we got into the mess, the consequences of maintaining the course, and why both Democrats and Republicans are to blame.

The second book is The Coming Generational Storm by Lawrence Kotlikoff, a very well-renowned and respected public finance economist at Boston University. This book is newer and a bit more updated, and the tone is more academic, but it is equally as sobering and powerful.

Today, the Campaign for a New Policy on Iran, in conjunction with organizations such as DownsizeDC, are hosting a National Call-in for Diplomacy, in which people outside of D.C. are calling their representatives’ offices and demanding that the U.S. end years of hostilities toward Iran and begin unconditional diplomacy with them.

As a part of this campaign, Republican Congressman Ron Paul, Democratic Congresswoman Lynn Woosley, and Libertarian Party Presidential Nominee Bob Barr are using red phones set up in the Cannon Congressional Office Building to call directly to Iran to talk to people there. (As others were able to do in D.C. between the hours of 10 AM to 2 PM.) This is a historic opportunity to get the point across to our elected representatives that we want a foreign policy of diplomacy and good faith, not belligerence and distrust. For instructions, please follow the hyperlink to the event above.