11A134 Prescriptions for a Sick Economy by Jim Davies, 10/31/2011    

This is the fourth ZGBlog about Ron Paul's campaign platform, and is more positive than the first three - about his plans for abortion, restoring America, and health care. His web page about what's gone wrong with the American economy and how he will fix it if elected is well worth our attention, as is the related one on Taxes.

"Ten Years, Three Huge Lies" was an early ZGBlog and its third Huge Lie concerned the cause of the present recession; it reminded readers that the source was the creation of surplus, "fiat" money by the government's "Federal Reserve Bank." Dr Paul's conclusion is the same. Vast sums were printed (my friend Elmo Zoneball estimates ten trillion dollars, in the decade preceding 2008) and reached the housing market, because the Community Reinvestment Act forced lenders to finance mortgages to borrowers who lacked good credit. The latter created the demand, and the money was created to meet it, and both caused prices to spiral up so high they formed a bubble that eventually burst.

Had the Federal Reserve and its fiat-money scam not existed, none of that could have happened. So while all his rivals are reluctant to admit it, Ron Paul is spot-on when he promises to "fully audit (and then end) the Federal Reserve System, which has enabled the over 95% reduction of what our dollar can buy and continues to create money out of thin air to finance future debt." I think he's also right to follow it with a promise to "legalize sound money", presumably meaning gold, though I hope he doesn't mean by "legalize" to force anyone to use it. Far better simply to repeal the legal-tender law, which compels people to accept pieces of worthless government paper.

Like a good diagnostician, with those priorities Dr Paul goes to the heart of America's malaise, and proposes the corresponding cure. His rivals might warble about "jobs" and the need to create them, but jobs will follow the removal of government's interference with exchanges including the trading of labor for money, and the biggest single interference is its monopolization of money. So the use as money of gold, which holds its value over time because its quantity is close to constant, is a primary cure for the ailing economy.

All of Paul's "solutions" listed will help fix the economic mess, but the bombshell comes in the seventh: "Eliminating the income, capital gains, and death taxes to ensure you keep more of your hard-earned money and are able to pass on your legacy to your family without government interference."

The alleged income tax produces a trillion dollars a year for the FedGov, so its removal will deprive it of that much ability to wreak mayhem, at home and abroad. This is by far the most important reform I've read yet in the Paul Platform, and more is said about it in his segment on Taxes. He repeats there that "Lowering taxes will leave you more money to take care of yourself and your family, and it will allow businesses greater opportunities to hire new workers, increase current salaries, and expand their companies. As President, Ron Paul will support a Liberty Amendment to the Constitution to abolish the income and death taxes.  And he will be proud to be the one who finally turns off the lights at the IRS for good." Amen to most of that!

I disagree that a Constitutional Amendment is needed to accomplish those fine objectives, and deny that the 16th one needs to be repealed. According to the landmark 1916 Brushaber decision of the Supreme Court, the 16th Amendment gave Congress "no new taxing power." That will be news to almost everyone who lives off its proceeds, but the decision has never been reversed. It means that the income tax as it has been enforced by the IRS and the lower courts (ie, as a tax on ordinary earnings) is and always has been completely illegal and unconstitutional. Accordingly, all President Paul need do is to dismiss all IRS employees (in his capacity as Chief Executive), pardon all imprisoned for income tax "offenses," and publish those words from Brushaber loud and clear during his Inaugural Speech. With a bit of luck, Dr Paul can be persuaded to change his mind about this approach; he is already on record as admitting that there is no statute that makes anyone liable for an income tax - in Aaron Russo's documentary film America, from Freedom to Fascism, at 69 minutes in.

I have only two other reservations about this part of the Paul Platform:

(1) His plan includes a major contradiciton. He says on different pages of his web site that he will

  • Abolish the income tax to let us "keep more of [our] hard-earned money" - implying, by also promising to abolish the IRS, that it will be replaced by nothing
  • Balance the federal budget within three years, and
  • After 2013, maintain federal spending at about 15% of GDP.

Now, arithmetic demands that he can have any two of those, but not all three. The i-tax yields about $1 trillion a year, and his projected 2015 revenue is $2.911 trillion - $0.6T more than at present - and there is no hint in the "Revenues" table on that page of any change to what the income tax yields. So where will the missing trillion come from? He can balance the budget at that new level with some large new tax, or he can leave it unbalanced without one, or he can slash spending much more than he states while keeping it in balance without a new tax (the much-preferred combination.). But he can't have all three cakes and eat them too. This is a serious flaw, which his rivals will eventually expose and ridicule.

(2) He says far too little about the tens of thousands of other, lesser ways in which government hobbles economic activity. Taxes and phony money are the two biggest ways government does so, but in total those thousands have probably an even larger combined effect; it is impossible to turn around without breaking or infringing some intrusive law or regulation and that is horribly constraining. (One example is the minimum wage law, which throws into unemployment all whose skills are worth less to an employer than whatever figure government currently names.) All of it comes from the arrogant presumption that government knows better than the direct participants, what is good for an exchange in trade. That is impossible. The only way a trade can be fair is if both particpants voluntarily agree to it; and each and every intrustion by government into that process makes it less voluntary and so, less fair. And since interference (by writing laws) is the only thing any government ever does, it follows that government itself must vanish, for an economy to operate at full efficiency.

Nonetheless, if Ron Paul is elected and keeps the promises he tabulates in this section and fixes the flaw named in (1) above, America will be a much better place to live, while awaiting that dissolution. It's a good start.

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