What a feast for law geeks.  Today, the Supreme Court actually decided an incorporation case.  Most of us never thought we would see such in our life times.  What is incorporation?  It is the judicially created doctrine that certain provisions of the the bill of rights are applicable to the states.  History teaches that the bill of rights only applied to the national government because the people wanted extra security that the new government would not transgress fundamental rights such as free speech.  However, the Court has held that certain provisions of the bill of rights apply to the states via the due process clause of the 14th Amendment.  This is a bit of hocus pocus to give the Court greater control over state legislation. 

At issue in McDonald v. Chicago was whether the Second Amendment precludes a Chicago gun-control law that practically prohibits the ownership of handguns.  (Note that the landmark decision in Heller, only applied to the national government).   In examining whether to incorporate the Second Amendment, the Court had to decide whether the right to bear arms is fundamental to our scheme of ordered liberty and whether the right is deeply rooted in the nation’s history and traditions. 

The majority answered yes to both questions, noting that self-defense is a basic right and the central component of the Second Amendment.  The Court also noted that  the centrality of this right dates back into English history and Blackstone. 

(Props to Independent Institute Research Fellow Stephen Halbrook for being cited by the majority multiple times for his work on the history of gun rights!)

Though I hate selective incorporation because it gives the Court the ability to roam about the Constitution and pick what provisions it will apply to the States, this is a good decision for individual liberty.  Government fails to protect us from the criminal element (especially in the Windy City) and would prefer that we have no defense against it. This decision helps the people on both fronts.

Thanks to the Federal Government, light bulb packages will soon look like food labels and, perhaps eventually, cigarette packages (“ELECTRICIAN GENERAL WARNING: Incandescent Light Bulb Use Increases The Risk Of Infertility, Stillbirth, And Low Birth Weight”). Perhaps you didn’t know that Section 321 of the Energy Independence and Security Act of 2007 gave the Federal Trade Commission authority to design new light bulb labeling rules. Thank goodness someone is looking out for our health and safety! Why, if it hadn’t been for the federal government, we’d probably still be using candles. (HT: Gizmodo.)

As expected by many economists, the Homebuyer Tax Credit did little to nothing to encourage new home purchases and only shifted the purchase of new homes from May to April.  Howard Gleckman over at the Tax Policy Center reports on the waste and fraud afforded by deficit financed public policy of this sort, noting that the “total amount of permanent job creation from this timing change [was] pretty close to zero. Cost to taxpayers: $12.6 billion just through last February.”

Gleckman highlights several points from the Treasury Department’s report that would otherwise be comical if not so costly:

• 1,295 prisoners received $9.1 million in credits for houses they claimed to buy while incarcerated, 241 of which were serving life sentences at the time

• 67 different people claimed the tax break for the same house

• More than 2,500 got almost $18 million for homes they bought before the credit was effective

• A total of 14,132 people received erroneous credits, totaling $17.6 million

So here is what the federal government accomplished.  It succeeded in increasing home sales in April at the expense of those same home sales in May, injecting distortions into a relatively stable pattern of home sales.  In addition to these immediate distortions, arbitrary rule changes increased the uncertainty facing consumers which undermines economic recovery.  Maybe a few people purchased homes they otherwise wouldn’t, but that in itself is poor policy because it encourages individuals to take on more risk than they can afford.  The tax credit created no permanent jobs, but it did increase the expected value of cheating on your taxes, thereby incentivizing tax fraud.  All of this with a price tag of more than $12.6 billion, on which taxpayers will pay about 3% interest ($378 million) per year!

The real stench of the waste comes from the knowledge that this type of policy is systemic.  The complete inefficacy of the Homebuyer tax credit will not prevent similar schemes from emerging from a democratic process through which benefits are handed out while the costs are billed to future generations.

Governments do not bear the full costs of the policies they pass in legislative sessions.  Even the most myopic consumer, because he bears the costs of his actions, would consider postponing consumption if faced with a similar deal.  And if he tossed prudence aside and made the purchase anyway, he would be forced to curtail consumption on other margins to pay for his preferences.  For the individual, if it turns out he could not afford the costs of his decisions, he would eventually be forced to reconcile the reality of his resource constraints with his desires.  At present, no such mechanisms of constraint tie the hands of our policy makers.

HT: Edward Lopez

The Richmond Fed’s Kartik Athreya takes the commentariat to task for its habit of making pronouncements on economics that they (we) aren’t qualified to make (HT: Greg Mankiw). Athreya makes several interesting comparisons of economics to oncology, seismology, and cell biology. People who have little or no training in these fields usually refrain from making confident pronouncements about them. Ignorance doesn’t stop those who would opine on economics, and indeed, it is sometimes seen as a sign of even greater credibility. As a regular contributor to the blogosphere and public commentary, I saw Athreya’s piece as a refreshing and re-centering reminder about what I’m qualified (and not qualified) to say.

Disasters have many fathers. The tragic explosion at BP’s well in the Gulf of Mexico, which killed 11 members of the Deepwater Horizon’s crew and continues to cause unprecedented economic and environmental damage from the oil “spill” that began more than two months ago, is no exception.

President Obama and many others have been quick to point the finger of blame at BP as well as to ineffective oversight by the Interior Department’s Minerals Management Service, some of whose staffers reportedly have been in bed (literally) with executives in charge of BP’s offshore drilling operations.

BP surely is culpable. The company’s penchant for cutting corners when it comes to managing risk has been an open secret among oil industry insiders for many years. BP has “the worst safety record of any oil company”, as written by Tim Dickinson recently in Rolling Stone.

However, several factors contributing to the accident on April 20 either have been downplayed or ignored in the rush to judgment.

First and foremost, BP did not own the Deepwater Horizon, now at the bottom of the sea, but instead leased it from a company called Transocean for purposes of exploratory drilling in the Mississippi Trench. The contractual relationship between Transocean and BP created a classic principal-agent problem in which the duties and responsibilities of lessor and lessee undoubtedly were not spelled out fully, especially with respect to maintenance and testing of the rig’s blowout preventer as well as to the advisability of installing a second “blind sheer ram”, which may have been able to plug the well after the first (and only one then in service) failed to do so. Incentives matter. BP would have been more safety-conscious if it had been the owner of the Deepwater Horizon rather than its renter.

Transocean and BP now are at loggerheads. Lots of lawyers will get rich in the process of determining the extent to which BP and Transocean were negligent.

Second, federal law limits liability for damages caused by offshore oil spills to $75 million. Although that limit can be waived in cases of proven gross negligence (and it in all likelihood will be waived in the event at hand), such a limit on liability would have led BP to be less cautious before the fact than if it would have been if it expected to pay accident-related damages in full.

As an aside, the criminal law allows judges to impose monetary fines, prison sentences or both on guilty parties. That is because poor criminals may not be able to pay the fine the law stipulates, and because rich criminals may easily do so. Incarceration therefore sometimes is necessary optimally to deter criminal activity. Tony Hayward, BP’s CEO, will walk away from his job with no criminal liability and a very generous pension. If before the fact he had been exposed to fines against himself personally, the prospect of spending time behind bars or both, he certainly would have been more engaged with the activities at his company’s wells than he admitted to before a congressional panel.

Third, according to the Wall Street Journal, BP may have been misled in calculating its exposure to risk by models produced by the MMS that predict the trajectories of crude oil released by oil spills in the Gulf of Mexico. Those models apparently have not been updated since 2004 and have never considered scenarios in which blowouts happened in ultra-deep waters, which heretofore the MMS and the industry considered to be low-probability events. After all, the last accident of any consequence at an offshore oil well in U.S. waters was off the coast of Santa Barbara, California, in 1969.

Fourth, BP and other oil companies have been forced to drill in ultra-deep waters as a result of rules that limit access to proven oil reserves in shallower waters and on federally owned properties within the continental United States. No major oils spills have occurred on dry land or in waters shallower than 500 feet.

Last, the federal government’s response to the catastrophe in the Gulf has been as muddled, inept and counterproductive as was its response to Hurricane Katrina. Indeed, President Obama has been more derelict than his predecessor insofar as he has failed to waive the provisions of the Merchant Marine Act of 1920 (the so-called Jones Act), which prevents the United States from accepting expert help from foreign nations because their vessels do not fly the American flag and are not crewed by American citizens.

Transocean, BP and federal regulators jointly are responsible for the disaster at the Deepwater Horizon. But, Americans should not jump to the conclusion that the best way of preventing future catastrophes at offshore wells is to adopt more stringent regulations.

More regulation will not work any better than it has in the past. Getting the incentives right and exploiting proven oil reserves onshore and in shallow waters offshore will.

Big business leaders—heretofore merry shills for Obama’s disastrous policies—have finally woken up to the fact that such policies are bad even for those with friends in the White House.

The Chairman of the Business Roundtable, a group whose support helped further ObamaCare, Cap-and-Trade, and any and all Keynesian “stimulus” spending, now warns:

By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses.

Noting:

In our judgment, we have reached a point where the negative effects of these policies are simply too significant to ignore.

As Robert Higgs has and continues to document, such regime uncertainty accounted for the Great Depression’s lasting more than a decade, as the Obama administration’s practice of it today dooms any hope for recovery.

It’s too bad big business has spent so many years making back-room deals for itself at the expense of those not in the room, and its coming around now is certainly only the result of its first-hand experience that beasts have a tendency to turn on those who feed them. But regardless of the cause of this sudden epiphany, we invite the Roundtable’s members and all others’ alliance in killing leviathan once and for all.

As Robert Higgs notes, a moratorium on deep-sea drilling, or an even more significant and general governmental effort to stop oil exploration, would be disastrous for the economy. Some commentators have referred to the Gulf Coast oil disaster as the environmentalists’ 9/11 — a crisis that would enable the federal government to seize upon public hysteria and expand its own power immensely, to the extreme detriment of American wealth and liberty.

Thankfully, it is shaping up to be somewhat more difficult for the administration to capitalize on this disaster than it was for the last and current administrations to exploit terrorism. This week, there was the encouraging instance of a judge striking down Obama’s executive decree that deep-sea drilling be halted for half a year, a decision promptly appealed by the administration. Even much more encouraging in the long run, however, is public opinion. A Wall Street-Journal/NBC poll shows half of Americans disapproving of the administration’s response to the spill. What’s more, a Reuters poll reveals that a majority of Americans still favor offshore drilling, and while the vast majority blame BP for the spill, an albeit smaller vast majority of 69% also blame the federal government.

As Higgs and others have shown, a crucial factor in the government’s ability to manipulate crises to the benefit of state power is the role of public opinion. Because Americans were not as ideologically collectivist in the 1890s as they were in the 1930s, the government was not able to use the 1890s depression as an excuse to erect nearly as much government as was built up in response to the 1929 stock market crash. (Of course, many Americans wanted an expansive government in the 1890s, but the ideological devotion to limited government was so pervasive it was even deeply apparent in President Grover Cleveland’s administration, which refused to intervene much.)

Similarly, after 9/11, the government has tested the limits of public tolerance for war and restrictions on civil liberties, and has expanded its power in approximate proportion to what the American people would tolerate. There was no mass roundup of all American Muslims, for example, as there was of Japanese-Americans during World War II. Most Americans would not accept it. But they would accept erosions of the 4th amendment, torture, detention without trial of terror suspects, and aggressive war. Even in foreign policy, however, Americans are much more squeamish about indiscriminate bombing than they were in World War II and the Cold War, which limits the government’s potential to kill civilians abroad (although many of us would say those limits are still far, far too generous toward the warfare state).

On the other hand, in the realm of environmentalism, while this movement has pervaded American culture quite dramatically in just the last two decades, it has not come to dominate the American mindset quite as much as the warfare mentality or the general entitlement mentality of the welfare state. Americans seem to recognize, especially in a time of economic hardship, that we cannot afford to put abstractions about the goodness of Mother Earth or the well-being of fish and bugs above the necessity that human beings thrive with a modern standard of life. Of course, this includes having a clean environment—no one disputes that. Everyone acknowledges this spill is a great travesty, that gross pollution is a real threat to property and human life, that even focusing on the well-being of the plants, animals and water, we can only look upon this calamity with horror. But at the same time, most Americans are primarily concerned with how this will affect people—the fishermen whose vocation has been uprooted, the suffering tourism industry, the locals who have had their environment soiled, the workers who have died during the accident and cleanup. Most of us are concerned with the human side of the story, and thus we are skeptical of any “solution” that will make the lives of the same people and other people all the more difficult.

The secular religion of environmentalism, explored seriously in Robert H. Nelson’s The New Holy Wars: Economic Religion Versus Environmental Religion in Contemporary America, has indeed won over in the schools, in higher academia, in the mainstream press, and the rhetoric and program of the Democratic Party as well as most “moderate” leaders of the Republican Party. But it has yet to conquer America. Americans are not willing to reverse the Industrial Revolution for the utopian schemes of the green central planners. They are willing to humor all too much in the crusade against “climate change,” but they are still sufficiently jealous of their commercial liberties and economic well-being so as to question the extreme proposals and edicts coming from the White House. Even candidate Obama was forced to concede the efficacy and appropriateness of coal in ways that alienated the radical environmentalists. And even after the greatest environmental disaster in American memory, the people draw a line in the sand. They don’t trust BP, but they also don’t trust the federal government, which has long been tied to the hip of this corporation through the military-industrial complex, and considering BP’s conspicuous championing of Cap and Trade, a green corporatist sham to reorganize and indeed regiment American economic life. So do the American people, even some on the left, recognize that more regulation and more government are not the clear-cut answers to the disaster in the Gulf. If only such American distrust of power translated into the realm of warmaking, hundreds of thousands of people might be alive right now who were vanquished in the fog of U.S. wars in this decade.

With the discrediting of and increasing suspicion toward the climate change alarmists and now this failure (however fleeting) of the administration to respond to the BP oil spill with the full-blown crusade against oil-drilling and industry that at least some in the White House are probably pushing for, we have some reasons to hope that the U.S. will not react as hysterically as it has to crises in the past. Also encouraging is the general distrust of Washington, which has not abated, despite this disaster. The environmentalists probably saw this as a great crisis, which could not go to waste, but should instead be recycled into the makings of a Green New World. Fortunately for the rest of us, the undeniable tragedy of the oil spill will not be compounded with quite the economic destruction they were threatening, at least for now.

This is the third in a series of posts on my new book, The Pursuit of Justice: Law and Economics of Legal Institutions. In this post I will discuss how the law evolves instrumentally — that is, to serve private interests rather than the public interest.

Law is often assumed to be a public good that can only be (or is best) provided by governments. Yet despite traditional beliefs and wishes, government-produced law is frequently driven to serve particular narrow interests. Three of the chapters in The Pursuit of Justice analyze legal history to exemplify this point.

Chapter 2 by economists Nicholas A. Curott and Edward P. Stringham is titled, “The Rise of Government Law Enforcement in England.” In this fresh look at the origins of Anglo-American law, we see a new argument to explain the gradual shift from non-centralized Anglo-Saxon law that was largely enforced by social norms, to post-Norman, state-centralized law that was enforced by the crown’s own system of fines and punishments.

In their extensive literature review, Curott and Stringham document how most scholars have framed this episode in Hobbesian, public good terms. The authors write:

Theorists argue that only government can create the rules that reduce conflict, facilitate exchange, and bring order to society. Without government law enforcement, … society would degenerate into the Hobbesian ‘nasty, brutish ans short’ outcome.

Yet applying the principles of public choice to the law poses a paradox to the Hobbesian view: if a model of self-interest explains how people interact within the legal system, then this same model should explain how people interact when establishing the rules that make up the legal system.

Curott and Stringham unearth a good deal of historical evidence to argue: a) before state-monopolized law, the non-centralized system of norm-enforced laws was effective at sustaining order; and b) the centralization of law into a state monopoly was not evidently conducted on public interest grounds but, rather, was driven significantly by the crown’s thirst for more revenues. Violations of the “king’s peace” gradually became good business for kings, and this prompted the state-centralization of law.

Chapters 9 and 12 show that modern U.S. law has also evolved to serve the instrumental interests of lawyers and judges. In “The Lawyer-Judge Hypothesis,” law professor Benjamin H. Barton examines a series of twentieth-century court rulings across several areas of law, through which case law came to embody the economic interests of the legal profession. Quoting the chapter:

Here is the lawyer-judge hypothesis in a nutshell: if there is a clear advantage or disadvantage to the legal profession in any given question of law, judges will choose the route that benefits the profession as a whole.

The courts allow legal professions to self-regulate more than other professions such as medicine or financial services. Attorney-client privilege is far more protected than doctor-patient or clergy-penitent confidentiality, even though the arguments for strong attorney-client privilege apply equally well to other professions. Yet such disparities do increase demand for lawyer services.

Similarly in his chapter, “Licensing Lawyers: Failure in the Provision of Legal Services,” policy analyst Adam B. Summers shows how the regulation of legal services insulates lawyers from competition. Summers documents the arguments that occupational licensing and advertising restrictions are supposed to protect consumers who have limited information and expertise about legal services. Yet the actual effects of regulation are far from these noble intentions: higher fees for legal services, lower quality, limits on consumer access to legal services, and disproportionate harm on poor consumers and non-licensed providers. The chapter shows how a market-driven system of voluntary certification and reputational enforcement would spawn a variety of cost-reducing and access-increasing innovations, while not compromising consumer protection.

In conclusion, the encroachment of special interests into the law itself is only a surprise if we view the law with romance, as though it will naturally and through the good intentions of its practitioners wind up serving the general public interest. These three chapters in The Pursuit of Justice remind us that legal institutions evolve instrumentally. That is, the regulatory and common law processes by which legal rules emerge are sensitive to the interests of decision makers in these processes. Whether by insulating the legal profession from competition in our contemporary world, or by the Norman era monopolization in the service of fiscal expedience to kings, the chapters in The Pursuit of Justice advance scholarship demonstrates this as a realistic character of government-produced law.

Warren Buffett’s annual “Letter to Shareholders” may be more famous, but I’d put this “Periodic Overview” from our friend, investment manager Roger King, up against it any day:

RUMINATIONS AND OBSERVATIONS
A Periodic Overview

The inherent vice of capitalism is the unequal sharing of blessings: the inherent virtue of socialism is the equal sharing of miseries.—Sir Winston Churchill

There has been much discussion in recent months as to whether or not the United States is moving toward becoming a socialist state. News flash: The U.S. is a socialist state, and it has been since at least the Great Depression. No, we do not have the type of central economic planning based on government ownership of the means of production and allocation of resources, but there are many other institutions and programs in the U.S. that comprise public ownership and social and economic intervention by the state far beyond that which existed before the New Deal.

Socialism of a broad, encompassing nature would entail complete nationalization of the means of production, distribution, and commercial exchange, the avowed purpose of which is to benefit the citizenry though the allocation of resources. A lesser form of socialism would call for the control of capital within the framework of a “market economy.” Modern, democratic socialism calls for selective nationalization of key industries, with private ownership and regulated, “free” markets, buttressed with tax-funded welfare programs and transfer payments.

Socialism which emerged as communism in the Soviet Union and China in the twentieth century called for state ownership of the means of production combined with central planning for the production of goods, providing services, and the establishment of prices. The human and economic results of both nations were abysmal, and operated only under an umbrella of totalitarianism.

A more benign history of socialism evolved in Western Europe following World War II. Post-war social democratic governments introduced broad measures of social reform and wealth redistribution through state welfare and taxation. Many key industries became state owned. Toward the end of the century, Europe embraced more market-oriented policies that included privatization, deregulation, and the lessening of class warfare. Yet the funding of state controlled services and taxation aimed at redistributing wealth not only remained, but also continued to grow.

At the root of all socialism is the objective of equal results as opposed to equal opportunity. British author, Cecil Palmer, pinpointed a truism of socialism in its most utopian form, “Socialism is workable only in heaven where it isn’t needed, and in hell where they’ve got it.” The end result of socialism is a culture of dependence that has both economic and moral costs. Alexis de Tocqueville opined that, “Democracy and socialism have nothing in common but one word, equality. But notice the difference; while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” The gradual erosion of economic liberty by the granting to or usurpation by the state of individual liberty and property for the “greater good” will lead to a condition of state subjugation.

. . .

The history of the modern welfare state in the U.S. in the wake of the Great Society is one of increased government promises and benefits, and thus greater government spending and ever higher taxes, interrupted only in brief periods by tax reductions and temporary “reform.” As government has grown, interest groups dependent on government largesse have become increasingly powerful, and in turn have loaned their support to politicians who cater to their interests. The process has led to a culture of corruption as well as dependence. It is exceedingly difficult for a career politician to say no. With each new “crisis,” demand for more services and powers leads to an expansion of the state at the expense of the liberty and resources of the individual, especially through taxation.

As admirable as many of the objectives of liberalism and socialism may be, they have met with the realities of economics. Most economists would acknowledge that businesses do not in the final analysis pay the true cost of taxes. Businesses serve as conduits to collect taxes from the end consumer who ultimately pays the cost of taxes embedded in the cost of a service or good. If businesses did not pass on their cost of taxes, they would cease to earn a rate of return that would be considered acceptable to profitably survive. To believe otherwise is naïve.

Thus, the true cost of government is borne by the individual. As long as individuals are able and willing to pay the cost, the economy can continue to function, and the government can continue meeting the obligations that it has promised. But governments are hurtling toward an economic brick wall. The culture of dependence and government extravagance has reached dangerous levels.

The number of people dependent on the state in most of Europe exceeded 50% long ago. In the “land of the free, and the home of the brave,” 47% of wage earners will pay no federal income tax for 2009. Today, 20% of Americans receive 75% of their income from the federal government, and another 20% get 45% from Uncle Sam. More frightening is the fact that 60% receive more benefits in dollar value from the federal government than they pay in taxes. Projected increases in the current federal budget may move that figure to 70%. U.S. Representative Paul Ryan points out the risks to the United States: “Once that budget is fully put in place, three out of ten families in America are either supplying or supplementing the incomes of seven other families in this country. That is economically destructive. It’s politically inequitable, and unsustainable.” Ryan maintains that the President’s budget calls for $2 trillion in higher taxes, doubles the debt in five years, triples the debt in ten years.”

One can argue about the nuts and bolts of a budget and the intricacies of government accounting, but there is no refuting the fact that the U.S. government for years has been spending far more than it collects in the form of tax revenues. According to Fiscal 2011 federal budget documents, taxes paid to federal, state, and local governments totaled 25% of GDP in 2009. Total government spending equaled 36% of GDP. The political class would just say tax the rich, they can afford it. Yet the top 10% of taxpayers already pay 73% of federal taxes. And the tax burden of the top 1% of taxpayers exceeds that paid by the bottom 95%! As former British Prime Minister Margaret Thatcher observed, “Socialist governments traditionally do make a financial mess. They always run out of other people’s money.”

No doubt, taxes will be going higher, and not just exclusively for the “rich.” All wage earners will be hit with higher taxes for Social Security and Medicare. Projected taxes on “unearned” income from dividends, interest, and rents will be headed higher as well. (As an aside, the term “unearned income” is a government canard. A retiree receiving pitifully low interest on a CD or someone collecting rent on a small home would not consider the income as “unearned.”) More deductions and exemptions will be phased out as well. In states like California, New York, New Jersey, and others, when taking into account property taxes, sales taxes, state income taxes, and federal income taxes, the marginal tax rate will reach or exceed 70%.

. . .

At the heart of socialist ideology is the underlying premise that socialism is morally superior to capitalism; all men are equal and thus should fare equally as well. In reality, the pure socialist solution for the state to own the means of production and to decide the rewards and distribution of labor is a utopian illusion. Most individuals engage in economic activity in order to obtain benefit from the fruits of their labor and property. Individuals are not equal in terms of ability, skills, or intellect. The fruits of their labor will be uneven. If individuals are compelled to devote their economic gain to the state there is a point beyond which they will produce less in inverse proportion to the demands made on their production and income.

Since modern day, liberal socialists in Europe and the U.S. cannot yet install their vision of moral superiority through nationalization and the state ownership of property, they have appropriated property through taxation. The stepchild of socialism, the liberal welfare state, has extended its tentacles through other means, namely regulation and taxation. The state thus takes the fruits of capitalism from the producing, tax-paying class and distributes them legislatively through entitlements. The citizenry becomes ever more dependent on being entitled to many economic “rights” and obligated for very few. Unfortunately, the goals of state welfarism are incompatible with the preservation of a free society. When there are more people who have no “skin in the game” except to take from the producers, the result is a state that will descend into an organ for the punitive enforcement of the collection of wealth by any means considered “just.” In the extreme, it will give rise to totalitarianism.

There are no lines of would-be immigrants rushing to enter Venezuela or Cuba. Both countries are abject, socialist states. The U.S. is at the other end of the spectrum in terms of the existence of economic and political liberty, but it is far from the bastion of economic liberty it was in previous decades. The damage inflicted upon individual liberty and the private economy by attacks on capitalism and the growth of socialism become evident only in degrees and over time.

Chief Justice John Marshall, in McCulloch v. Maryland, 1819, warned, “An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation.” The U.S. tax code is a mind-boggling 17,000 pages. It is, without question, an encyclopedia replete with methods of legal confiscation and the awarding of entitlements to special interests. It seems that every two or three generations, the benefits of a market economy (as opposed to a completely laissez-faire one) have to be relearned. The past several quarters, and indeed the past several years, have brought the U.S. and other sovereign states closer to a day of reckoning with the folly of tax and spend, spend and tax.

In the land beyond the Beltway, Americans are awakening to the dangers of the seemingly well intentioned, but ultimately enslaving nature of the tax and spend welfare state. In New Jersey, a state long known for a culture of government corruption, voters elected Chris Christie as their Governor last fall. In his budget address, he voiced a call for action that resonates far beyond the state capital of Trenton:

The day of reckoning has arrived. The attitude has always been the same—continue to spend, continue to borrow, and drop the catastrophic sum of all these poor choices into the lap of the next guy. Well, time has run out. The bill has come due . . . . I was not sent here to approve tax increases. I was sent here to veto them . . . . It is time for the tax madness to end.

Christie called raising taxes, “insane.” “If you are unemployed and support tax increases, be ready to stay unemployed . . . . We have the worst unemployment in the region and the highest taxes in America, and that’s no coincidence.”

In Virgil’s Aeneid, Laocoön warns his fellow citizens of Troy, “Do not trust the horse, Trojans. Whatever it is, I fear the Greeks even bearing gifts.” Today, we should be grateful to Greece for the message she is sending to the U.S. and the world. Greece is the quintessential socialist state. In 2009, its budget deficit was 13.6 % of its GDP, and its debt, the accumulation of past deficits, was 115% of GDP. The riots in Greece have unmasked the riddled structure of socialism and the modern welfare state. The ideological bankruptcy of socialism and its concrete failure is becoming increasingly apparent as its standard bearers in Europe flag under the weight of sovereign debt and government insolvency. Over 150 years ago, French economist, Frederic Bastiat, captured the essence of the socialist state, “The State is that great fiction by which everyone tries to live at the expense of everyone else.”

In the U.S., tensions are rising. Washington and state capitals across the nation cannot help but note the travails of Greece and much of Europe. Too, a growing number of Americans are taking heed of the threat posed by the growth of socialism with its accompanying demands on the economy and property and its threats to individual liberty. The seeds of resistance are taking root. There is growing evidence that the country appears ready to order a shift in the direction of national and state government.

If the U.S. is to regain its economic vitality and resurrect an environment of greater economic opportunity and individual liberty, the growth of government spending and taxation must be restrained and eventually reduced. The pendulum must swing away from the march toward socialism. Fiscal discipline is being imposed on governments through the markets. A citizenry that is girding for the battle of the nation’s economic future will fortify it. We believe there are signs that, while the struggle will be difficult, the road ahead will lead to a shift away from the culture of dependence. In recent months, there has been a growing groundswell of support for a market economy and a rising level of concern about the growth of taxes and national debt. A recent Rasmussen poll found that 60% of U.S. adults say that capitalism is better than socialism. A Pew Research Center survey finds that Americans’ distrust of government has grown significantly.

The conflict over the socialist inroads made through the arms of government over the last several decades are not properly framed as a case of Republicans versus Democrats. This is a struggle between those who hold individual liberty, economic freedom, and property rights as paramount in a free society, versus socialist statists who seek to impose their idealized but flawed vision of equal results upon the citizenry they feel they must oversee.

We have confidence in the unique nature of American constitutional government to right itself and avoid a robotic march down The Road to Serfdom, as Friedrich A. Hayek’s classic called the inevitable path of collectivism and especially socialism. Prophetically, he warned of the dangers of the collectivists’ vilifying attacks on the negative aspects of capitalism. “It is essential that we should re-learn frankly to face the fact that freedom can be had only at a price and that as individuals we must be prepared to make severe material sacrifices to preserve our liberty.” As the issue of taxes and individual liberty rise in the hearts of Americans, the flame of revolutionary fervor is growing brighter. It is a healthy sign indeed for the Republic.

King Investment Advisors, Inc.

Reprinted with permission. To download the full, unedited edition of this “Ruminations and Observations,” click here.

(click on image to enlarge)

HT: Guy Monahan and Julie Sheppard