Great article about military spending in Mother Jones

In How to give everyone healthcare and get rid of the income tax, I estimated that about 5% of our workforce goes to the military based on the fact that about 5% of our GDP is military spending. Well, it appears I grossly underestimated the amount of our GDP that is spent on the military.

In Why the debt crisis is now the greatest threat to the American republic, Charles Johnson does a more thorough analysis of how much the USA actually spends on the military. Although the FY08 military budget is $623 billion, the true amount of spending is almost double. These costs include off-budget items like the wars in Iraq and Afghanistan and military spending that is included in non-military department departments (e.g. nuclear weapons in the Department of Energy, foreign military aid in the Department of State, long-term care in the Department of Veteran Affairs).

He estimates that total military spending in 2008 will be $1.1 trillion. To put that in perspective, the total revenue from personal income tax is $1.24 trillion. The total amount spent by China is around $65 billion and $50 billion by Russia. We spend much more than the rest of the world combined.

So basically, the entire personal income tax goes to military spending for maintaining our empire. It makes me sad to think how much I have personally paid in taxes for this.

I agree with almost everything this article says. The one thing with which I disagree is that we need to rollback the Bush tax cuts. I believe that with a policy of non-intervention, where we stop being the policeman of the world and we start dismantling our military empire, we can get rid of the entire income tax and provide quality healthcare for all Americans with an actual free market approach.

Continuing the policies we have is not going to work. The United States is going to go bankrupt. It's going to be ugly. I believe we're headed for a financial crisis worse than the Great Depression. There's a good chance it will happen this year. Our entire policy depends on the rest of the world lending us over $1 billion each day. Most Americans don't give this a thought or think it's normal. There will be a time when we'll will look back in amazement about how we thought this was okay. It will be similar to how people today look back at slave owners and wonder how they thought it was okay.

Ron Paul kicks Laura Ingraham's ass 01-08-08

Video from youtube:

Capitalism versus Corporatism (Part 1)

According to Wikipedia,

Capitalism generally refers to an economic and social system in which the means of production are predominantly privately owned and operated, and in which investments, distribution, income, production and pricing of goods and services are determined through the operation of a market economy. It is usually considered to involve the right of individuals and groups of individuals acting as "legal persons" or corporations to trade capital goods, labor, land and money (see finance and credit).

Capitalism is the system that has created the prosperity we've gained in this country over the past several hundred years. In a true free market, a buyer and seller only agree to a transaction if it's to the mutual benefit of both parties. The buyer believes that the item he wants is worth more to him than the money he is willing to exchange for it. The seller believes the money is worth more to him than the item. Both parties agree to make the exchange because they both benefit from it. This free exchange automatically develops in a non-primitive economy. People specialize and they need to exchange the items or services that they are skilled at providing with other items and services they need or want.

In a modern economy, businesses develop that use capital from their investors and the the skills of their workers to create products desired by their customers. In a true free market, multiple businesses compete to provide the same services giving consumers choices. This competition results in low prices and high quality products. If consumers think they can find something cheaper and of higher quality from another company, they will take their business elsewhere. Companies understand this and must compete on cost and quality in order to retain their customers. New businesses will enter the market if they think they can provide something cheaper or of higher quality.

The virtuous cycle is driven by the owners seeking profit. If a business is not satisfying the needs of its customers, it will start to lose money. The owners will start to see their profits fall and their their capital consumed. If they don't correct this either by making the business meet the needs of its customers or by shutting the business down, they will lose all their capital. On the other hand, owners that make profit will need to continue to increase quality, lower costs, and innovate in order to maintain profits. A business may get far ahead of its competition allowing it to make very high profits, but this will attract new entrants into the market. They will see the opportunity to undercut the market leader thus attracting away his customers. This cycle continues on and on. By rewarding those who create the most value and punishing those who do not create value, the free market provides customers with the lowest cost and highest quality products. This feedback system is very important. It only works if you reward success and punish failure.

It's important to differentiate capitalism from corporatism. Corporatism is an economic and political system whereby power rests in the hands of the government and official cartels that are created or licensed by the government. These cartels correspond to various industries. For example, there might be a banking cartel, a military cartel, a healthcare cartel, and a steel cartel. In Corporatism, big government and big business make the decisions. Corporatism is also known as fascism, but that term can confuse people because they often conflate it with Nazism.

Another form of corporatism, or neo-corporatism, is where the government is heavily influenced by various businesses, labor unions, and industry trade groups. This is a softer form of corporatism that has many of the same consequences. I'm not aware of any true systems of corporatism today, but this softer form of corporatism is widespread.

Corporatism does not provide the benefits of Capitalism. In Corporatism, consumers generally do not get the highest quality products at the lowest prices. Cartels are effectively monopolies and they collude to fix prices. Fixing prices above the free market price allows them to make higher profits than they would otherwise make in the competitive market. When prices are fixed, there is less innovation and incentive to reduce costs and increase quality. Since prices are fixed, a company can not charge more for a higher quality product. Since profits are high, there is less incentive to lower costs.

In a cartel, businesses do not face the constant existential threat of a competitor coming in to take away their customers. In fact, with corporatism, companies are protected from failing as the companies that fail have large amounts of influence with the cartel and with the government. The cartel and the government will step in to prevent the failure because they don't want to disturb the system that benefits them. In this way, the system subsidizes failure. A cartel will also seek to retain the status quo and prevent one company from getting ahead of the others. This tends to punish or taking the incentive away from success. In this way, corporatism does not have the creative destruction present in capitalist systems but rather has the exact opposite characteristic of maintaining the status quo.

In corporatism, it's not just the prices of products and services that are fixed. Labor unions may have much influence and try to fix the price of labor. When the price of labor is fixed, there is little incentive for an employee to work harder because there is no way to make more money by doing a better job. Likewise, these systems also generally make it hard to fire an employee so an employee can often get away with the minimum amount of work that's just enough to avoid being fired.

Another thing that can be fixed is the cost of money. A banking cartel can set interest rates. Interest rates are the cost of money. If I borrow money, the interest is the cost to borrow. If I lend money to somebody, the interest is the price I charge. A banking cartel that also has a monopoly to create and destroy money is even more powerful. This debasement, or inflation, results in the loss of value to all existing money. Whoever gets the newly printed money receives an enormous benefit. In corporatism, the beneficiaries of this newly printed money are generally the other cartels and special interests. This is to the harm of the average person who does not get the money first but rather sees his existing money and wages lose value.

So what type of system does the United States have? I will address this in part 2. You can probably guess where I am going...

Great MLK/JFK/Ron Paul Video

Couple Interesting Articles on Healthcare

There's an interesting comment thread going on about healthcare.

I wanted to share a couple links Vijay provided.

This NY Times article discusses how an illegal private healthcare system is developing in Canada because the public healthcare system is such a failure.

Accepting money from patients for operations they would otherwise receive free of charge in a public hospital is technically prohibited in this country, even in cases where patients would wait months or even years in discomfort before receiving treatment.

But no one is about to arrest Dr. Brian Day, who is president and medical director of the center, or any of the 120 doctors who work there. Public hospitals are sending him growing numbers of patients they are too busy to treat, and his center is advertising that patients do not have to wait to replace their aching knees.

The country's publicly financed health insurance system — frequently described as the third rail of its political system and a core value of its national identity — is gradually breaking down. Private clinics are opening around the country by an estimated one a week, and private insurance companies are about to find a gold mine.

Dr. Day, for instance, is planning to open more private hospitals, first in Toronto and Ottawa, then in Montreal, Calgary and Edmonton. Ontario provincial officials are already threatening stiff fines. Dr. Day says he is eager to see them in court.

"We've taken the position that the law is illegal," Dr. Day, 59, says. "This is a country in which dogs can get a hip replacement in under a week and in which humans can wait two to three years."

I've also talked quite at length at how we don't have a free market for healthcare in this country. In fact, we have nothing of the sort. Vijay found this Economist article that discusses some examples of this.

What Has Government Done to Our Money?

This is a great explanation of how money works in a free society and what the government has done to destroy it.

What Has Government Done to Our Money?

Thanks Ben for another great article.

Here's a small quote to wet your appetites. It succinctly sums up the inflation tax and why it's the most regressive tax of all. Unfortunately, the politicians who most claim to want to help the poor are often the ones most in favor of monetary inflation.

To gauge the economic effects of inflation, let us see what happens when a group of counterfeiters set about their work. Suppose the economy has a supply of 10,000 gold ounces, and counterfeiters, so cunning that they cannot be detected, pump in 2000 "ounces" more. What will be the consequences? First, there will be a clear gain to the counterfeiters. They take the newly-created money and use it to buy goods and services. In the words of the famous New Yorker cartoon, showing a group of counterfeiters in sober contemplation of their handiwork: "Retail spending is about to get a needed shot in the arm." Precisely. Local spending, indeed, does get a shot in the arm. The new money works its way, step by step, throughout the economic system. As the new money spreads, it bids prices up, as we have seen, new money can only dilute the effectiveness of each dollar. But this dilution takes time and is therefore uneven; in the meantime, some people gain and other people lose. In short, the counterfeiters and their local retailers have found their incomes increased before any rise in the prices of the things they buy. But, on the other hand, people in remote areas of the economy, who have not yet received the new money, find their buying prices rising before their incomes. Retailers at the other end of the country, for example, will suffer losses. The first receivers of the new money gain most, and at the expense of the latest receivers.

Inflation, then, confers no general social benefit; instead, it redistributes the wealth in favor of the first-comers and at the expense of the laggards in the race. And inflation is, in effect, a race, to see who can get the new money earliest. The latecomers, the ones stuck with the loss, are often called the "fixed income groups." Ministers, teachers, people on salaries, lag notoriously behind other groups in acquiring the new money. Particular sufferers will be those depending on fixed money contracts, contracts made in the days before the inflationary rise in prices. Life insurance beneficiaries and annuitants, retired persons living off pensions, landlords with long term leases, bondholders and other creditors, those holding cash, all will bear the brunt of the inflation. They will be the ones who are "taxed."

In our economy, the banks, the military-industrial complex, and other recipients of corporate welfare are the first-comers that benefit from the system. The middle class and the poor are the latecomers who lose out.

Great Article Explaining Gold

If you're going to read only one article about gold, this is it. It's long, but worth it.

Why the Global Financial System is About to Collapse Part 1 Part 2

Thanks to Ben for bringing this article up again. I remember reading it a couple years ago, but it really resonates now in light of recent events.