The Road from Serfdom

“The Road to Serfdom” was a great book written by Friedrich von Hayek in 1944. Many of his economic views are 100% on target even today. I write this to offer a way back from the serfdom road on which we tread.

In a sense, we are becoming serfs to the enemy nations to which we owe and pay money (China, to name one). Things need to change, and there are those who having the appearance of conservatives, but the substance of liberals (Mitt Romney, Newt Gingrich, Bill O’Reilly, Sean Hannity, Mike Pence, Tim Pawlenty, just to name a few). Ever hear a Republican politician say something to the effect of “if you elect me, I am going to grow jobs”? That is one sure sign of a fake conservative. (Hint: Government cannot grow jobs. Not one.)

We need to be able to spot these fakes, not be sidetracked by them, and stay focused on what we need to do to turn our nation back to its traditional form.

The level of government spending should always depend on what it needs to efficiently and effectively carry out its Constitutional (Federal or State, local government charters, etc) duties. In reality, that is way more than it spends now, so spending cuts are a fiscally conservative thing to do on the basis of government spending money on things that are not its responsibility, and there is no reason to wait, nor tie it to tax cuts.

Tax cuts initially lower revenue, but within a year to two years, the revenue increases. So long term, tax cuts usually generate increased revenue. But short term, revenue does drop. That should be an incentive, but not a reason, to cut spending.

I agree that tax cuts, without cutting spending to match Constitutionally required duties, will cause a drop in revenue initially, and will greatly dampen the long term benefit of tax cuts. Look at what happened when Reagan got a Democrat Congress to lower taxes on the promise of cutting the growth in spending. The taxes were lowered, revenue was down the first year or so, and by the end of Reagan’s term, revenues had nearly doubled. But the Democrat Congress increased the rate of growth of government spending significantly, which only increased deficits, when had they kept their promise, we would likely have had balanced budgets by the end of Reagan’s term.

A fiscally conservative approach, as I see it, is to:
1) Cut spending to spend only what is Constitutionally required, and,
2) Cut taxes and level the percentage everyone pays – no free rides except for the most exceptional of cases, and even they need to pay something.  No one rides for free when the price of liberty is the blood of our best youth.

Those who advocate tax cuts alone raise the same red flag to me as those Obamacrats & Rockefeller Republicans who advocate deficit spending under some Keynesian delusion.

We need to cutback government spending, and in large numbers, to the point we can start to pay down the debt.

However, it is only Keynesian economists that see raising taxes as part of the answer. And Keynesian economics has been a failure.

At any given moment, there is a fixed amount of money (of course, that amount changes over time). There are two entities that can use that money – the private sector and the government. The private sector can increase GDP – the government cannot. The more you tax, the larger the government share of the money supply, and the smaller the share the private sector has. Simple math tells you that there is less money to pay down debt when you decrease the amount available for the only entity that can grow the GDP.

Here’s the math:
M = Money Supply ($ at any given point in time)
P = Private Sector Share of M (0-1)
G = Government Share of M (0-1)
T = Effective Avg Tax Rate (0-1)

(P + G) = 1
(P + G) * M = M
G = P * T
by substitution,
(P + (P * T)) * M = M

Thus, as T increases, M decreases. As T decreases, so long as it is not below a level necessary for G to do its Constitutionally mandated duties, M increases. Clearly, if G drops below those levels, there is not a safe and free environment for P, thus negating P’s ability to grow.

I did not include the national debt separately, since that is a government expenditure, and thus falls under G.

For those who want to argue that the private sector does not have a tremendous ability for growth in the US, or that government does indeed grow GDP directly, you will have to fight over 200 years of historical evidence to the contrary.

The traditional American form of free enterprise is the best known process to harness mortal man’s inherent and immutable tendency for greed to the greater good.

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