Last Thursday I was at Utah State in Logan, where I delivered the luncheon address at the annual Partners in Business conference there.  It is the first time I’ve been invited to speak before a group of professional accountants.  Beautiful setting in the mountains.

In the morning session, the chief accountant of the Securities & Exchange Commission (SEC) from 2007 to 2011 (he’s now works for Price Waterhouse but said he wants to come back as an SEC commissioner) spoke for nearly an hour on the “Current Developments of the SEC” and not once mentioned the $64 billion Bernie Madoff scandal or how it has affected SEC policy (new whistleblower program, etc.).

Needless to say, I was incensed. 

After his talk, he took questions, and I asked, “I’m amazed that in your entire talk you never once mentioned the biggest scandal in SEC history and biggest financial fraud ever committed on Wall Street.  Is it because you are too embarrassed to talk about it?  Do you think that investors who lost money in the Madoff scandal should have the right to sue the SEC for negligence?”

The SEC man looked shaken and visibly unset.  He strongly defended the SEC and said he sacrificed his salary to work for the SEC, and the SEC gets hundreds of letters about potential fraud cases, and can’t police them all, but the SEC does a highly competent job for the American people. 

He made no attempt to express sympathy for the victims of the Madoff crime ($64 billion fraud), or what changes the SEC has made because of its massive failure.  When I brought up Harry Markopolos and his book “Nobody Would Listen,” about how Markopolos the repeatedly warned the Boston and New York offices about Madoff’s ponzi scheme, he was silent. 

“Is that your apology?” I asked.

“Apology?  I don’t need to apologize and will never apologize for what happened.  In fact, you should be thanking us for what we did,” he said with considerable emotion. 

Half the audience applauded!

Can you believe the arrogant of this guy?  The SEC is out of control, I fear.  Why couldn’t he just acknowledge that the SEC made a huge blunder and has adopted a number of policies and rules to make sure it never happens again?  Instead, he adopted the “no apology” and “let’s not talk about it” routine.

Needless to say, my tough questioning was the talk of the conference, and I believe my luncheon speech was energized by the earlier confrontation with the SEC man. 

The new “whistleblower” program of the SEC — in direct response to the Madoff scandal — awards up to 30% of the fines to anyone who directly leads to the conviction of anyone engaging in insider trading or other financial fraud, with a minimum payment of $1 million.  I fear this new aggressive whistleblower program at the SEC will be abused and will create spy networks throughout corporate America and Wall Street, thus hampering more the long-term recovery of the economy. 

All in all, I was surprised at how defensive the accounting profession has become.  I may be misjudging the profession based on just one conference, but it seemed to me that the accountants focused primarily on compliance, auditing, detecting fraud, etc., rather than ways to make companies more profitable and fiscally sound.

Your in (Financial) Liberty, AEIOU,

Mark Skousen

This weekend I attended a very unusual college graduation ceremony.  It isn’t often when the valedictorian is a man convicted of murder!  But that is the case at Sing Sing penitentiary, where 24 students graduated last night from Mercy College’s four-year degree program, Hudson Link.  My wife Jo Ann and I have been involved in this highly successful program for the past three years — she teaching English lit and I teaching economics.  The most amazing results have come from this all-privately funded college program:  Of the 50 graduates who have left prison life, NONE have returned.  The recidivism rate nationwide is over 60%, but Hudson Link boasts a rate of an unbelievable 0%.  Many celebrities have gotten involved because of the success.  Warren Buffett showed up at last year’s graduation ceremony to find out more.

This year my wife and I arranged for Steve Forbes to give the commencement address.  He told the graduates, “Wealth is not in material goods. Wealth is in the mind.” He explained, “Oil is just glop. You can’t drink it, eat it, or feed it to a camel. But a human mind figured out how to turn that glop into energy.” He offered another example. “Silicon is just sand. You find tons of it on every beach. But a human mind figured out how to turn that sand into a micro chip, and completely transformed our world.” He regaled the men with numerous stories, and encouraged them to use their minds to see things differently and make a difference in the world.   For more on last night’s graduation ceremony, see my wife’s review in the Daily Caller:  http://dailycaller.com/2011/06/02/sing-sings-scholars/

My son, Tim, has made a documentary on this success story called “Zero Percent.”  It won the first Silver Spirit Award at the Dallas Film Festival, and will be showing at several more film festivals soon.  To see the 3-minute trailer, go to https://www.facebook.com/ZeroPercentMovie

The Hudson Link Documentary ”Zero Percent,” which focuses on Hudson Link’s college program inside the Sing Sing Correctional Facility, just won the first ever Silver Heart Award at the Dallas International Film Festival.  The award, which is a tremendous honor, was granted by Embrey Family Foundation and rewards “a film for their dedication to fighting injustices and creating social change for the improvement of humanity.”  Prior to announcing the award, the presenter gave “Zero Percent” high praise and talked about the resonating themes of redemption and the power of education throughout the film.  It was an amazing evening.

“Zero Percent” has also been accepted to the “Waterfront Film Festival” in Michigan being held June 9th-12th.

My son Tim Skousen was the director and producer for “Zero Percent,” with producer Robert Fernandez and Moxie Pictures, working to make this vision a reality.  Tim was inspired to take on this project upon hearing on the moving stories and experiences his mother, my wife, Jo Ann Skousen, shared. Jo Ann teaches English and literature as part of the Hudson Link program. (Yours truly also teaches economics.) And thank you to all who support Hudson Link in its efforts to help transform lives through education.

Hudson Link will be scheduling screenings of “Zero Percent” in New York City and Westchester this summer.   Please visit the Hudson Link website to stay updated on scheduled dates.

Dear Friends of Liberty,

Be one of the first to watch this new video, ObamaCare – Live Your Carefree Lifestyle at http://www.youtube.com/watch?v=rkH_aaaSOP0. This video is brought to you by FreedomFest, the World’s Largest Gathering of Free Minds, happening this July 13-16, 2011 at Paris/Bally’s in Las Vegas, the country’s most libertarian city.

This year’s conference will feature speakers such as: John Mackey, CEO Whole Foods, Stephen Moore, editor, Wall Street Journal, Judge Andrew Napolitano, Fox News, libertarian billionaire Peter Thiel, co-founder of Pay Pal and Steve Forbes, publisher of Forbes Magazine. You don’t want to miss it! Plus see the first ever Anthem Film Festival — a libertarian celebration of film.

With so much at stake, and with so much excitement at FreedomFest, I hope you’ll join us! And watch the new video. Let us know what you think!

Yours in liberty, AEIOU,

MSkousen

Great News! Just released:  A new 4th edition of “The Economics of a Pure Gold Standard,” with a new introduction, by the Foundation for Economic Education (FEE).  This edition tells why more central banks fear the dollar as a reserve currency and are buying gold. To obtain a copy, go to amazon:
http://www.amazon.com/Economics-Pure-Gold-Standard-Skousen/dp/1453753087/ref=ntt_at_ep_dpi_7 Only $12 plus S&H.

(I wrote the following article for Human Events, but apparently it was too controversial and was removed after about 100 e-letters of commentary, both favorable and critical. Read here’s the original op-ed, uncensured.)

By Mark Skousen

This week the Senate grinches stole Christmas. The Obama Nation is getting Obama Care.

It’s easy to blame the sixty Democrats, as the Wall Street Journal does, for “the worse bill ever.” It solemnly declares: “These 60 Democrats are creating a future of epic increases in spending, taxes and command–and control regulation.”

True enough. But what’s the root cause of this disaster?

Sorry, friends, it’s not the Democrats, nor the American people who elected them.

The real culprits are two “conservative” Republicans who ran the show the previous eight years: George W. Bush, and his “master political strategist” Karl Rove. If it weren’t for these two fools in the White House, the Democrats wouldn’t have sixty Senators, including a professional comedian from Minnesota, to close off debate and ram down our throats a bill worse than Hillary Care.

The fact is that the Bush & Rove comedy act pushed through a litany of ruinous government policies that led to the lowest approval numbers in history:

–the undeclared and costly War in Iraq and its stepchild the unconstitutional Patriot Act.

–the monstrous No Child Left Behind Act that dramatically increased federal intervention in private education.

–the Prescription Drug Act that gave the American people another benefit-corrupted entitlement and unfunded liability.

–large and growing deficits and national debt (according to the Cato Institute, George W. Bush was the biggest spender since LBJ: http://www.cato-at-liberty.org/2009/12/19/george-w-bush-biggest-spender-since-lbj/)

–the worst financial crisis since the Great Depression, largely due to their failure to reform government-sponsored agencies Freddie Mac and Fannie Mae.

The supply-side tax cuts were probably the only major piece of economic legislation that Bush/Rove deserve credit for, but even then, they blundered in not making the tax cuts permanent. So now even if the Republicans take back Capitol Hill in the 2010 elections, all President Obama has to do is veto an extension of the Bush tax cuts, a voila, taxes will increase automatically.

In short, we are paying a heavy price for the “compassionate conservativism” of Bush/Rove.

Once Obama Care becomes law, like Medicare and other “Great Society” programs, it will never end. We will be stuck with national health care for the rest of our lives.

And how are Bush and Rove rewarded? Fortunately, we aren’t seeing much of George Bush, who is quietly in retirement in Texas.

The tragedy is Karl Rove, who has been rewarded by conservatives. He’s treated like a triumphant general on Fox News almost every night, and was signed on as a regular columnist in the prestigious Wall Street Journal.

Shame.

In liberty, AEIOU,

Mark Skousen

Thursday’s controversial column “Leaving America” by John Stossel got a lot of comments, and features ideas from yours truly: http://stossel.blogs.foxbusiness.com/

In liberty, AEIOU,

MSkousen

MARK SKOUSEN, Editor of “Forecasts & Strategies.” Paul asks Mark if he has any predictions about the Dow. Mark also offers some new stock recommendations. Push play to watch the interview. (You need Flash installed to watch video.)

Watch the Video.

From Human Events

“A virtuous and industrious people may be cheaply governed.” ~ Benjamin Franklin

“Little else is required to carry a state to the highest level of opulence but peace, easy taxes, and a tolerable administration of justice.” ~ Adam Smith

Today, on April 15 Tax Day, hundreds of thousands of citizens are protesting out of control government spending and taxes at Tea Parties across America.

Should we complain?

The good news is that marginal tax rates have gradually declined since the 1950s, when the rate on income was 90%. And taxes on long-term capital gains and dividends are now at 15%. Long live supply-side Reaganomics tax cuts.

The bad news is that prior to the 1980s, there were plenty of loopholes to escape onerous 90% tax rates. Those tax shelters are largely gone.

The good news is that Tax Freedom Day (the amount of days you have to work to pay Uncle Sam) arrived two days ago, on April 13, according to the Tax Foundation. This is eight days earlier than in 2008, and a full two weeks earlier than in 2007, due to the recession, and the large temporary tax cuts for 2009 and 2010.

The bad news is that Americans will pay more in taxes than they will spend on food, clothing and housing combined! (Source: http://mjperry.blogspot.com/)

Moreover, if you add in the federal budget deficit to total taxes collected, the real Tax Freedom Day is May 29, the worst since World War II.

But there’s more bad news: For American business, the corporate tax rate is 40% in the United States, 50% higher than the average size of other industrial countries. The average corporate tax rate in OECD countries has been falling over the past 20 years, but not in the U.S.

In addition, legislators have discovered ingenious ways to taxing its citizens — through import duties, levies, and fees of various sorts. Today the federal “excise” tax is taking its toll on gasoline, tobacco, telephone and utility bills.

And sales taxes are inevitably rising in state after state, and I know of no state that has cut sales taxes. After every recession, the governor “temporarily” raises the sales tax by a penny, but then never rescinds it. Moreover, the state legislators are always finding ways to expand the tax base. When I was in Florida recently, the state imposed its 6% sales tax on hotel parking fees!

The few sales tax exemptions left, such as out-of-state and online purchases, are gradually disappearing.

Not surprisingly, taxes at the federal, state and local level are at an all-time high as a percentage of GDP. And under President Obama’s tax increases on the wealthy and on average citizens through his “cap and trade” energy tax (which will raise substantially the price of gasoline and utility bills), the percentage is expected to reach 27%.

Now more than ever, we need a stable, sound, low tax system that individuals and businesses can depend on for long term planning. Unfortunately, we change the tax law practically every year.

Countries like Hong Kong do it right. For the past fifty years, they have not changed their tax code hardly at all. They have a flat tax of 18% on individuals and corporations, and no tax on interest, dividends and capital gains. And they live within their means. No wonder the Economic Freedom Index ranks Hong Kong #1 in the world in terms of economic freedom and economic growth. We could learn a lot from Hong Kong.

I say, it’s time for a tax revolt. I favor a flat tax like the one advocated by Steve Forbes. It’s better than the so-called “fair tax” on consumption because it will create a new bureaucracy and will inevitably result in the U.S. having both a national sales tax and income tax.

But why wait for Congress to change the rules again and again? I say, wage your own tax revolt. But remember, some methods are effective, others are downright dangerous and could land you in jail. Here’s some do’s and don’t:

1. Take advantage of all legitimate tax-advantaged strategies. The two best ones right now are (a) a Sub S corporate business, and (b) investing in real estate, including your own home. Both offer ways to minimize FICA and income taxes; both can benefit from tax credits. In fact, it’s the best “buyers” market in real estate I’ve seen in decades.

2. Do consider moving to low-tax states, including ones that don’t impose an income tax (Florida, Texas, Nevada, Tennessee, Alaska, Washington, Wyoming, and New Hampshire). You might also consider living in a border state to avoid both the income and sales tax, such as Vancouver, Washington (by living in Washington state, you are exempt from the state income tax; by shopping in Oregon, you avoid the sales tax.)

3. Do consider working abroad and taking advantage of the foreign earned income exemption for Americans. My wife and I lived and worked two years in the Bahamas in the 1980s and saved so much in taxes that we bought a second home in London.

4. Do NOT get involved in tax protest movements involving the refusal to file tax returns on Constitutional grounds, or suspicious offshore tax haven deals. You’ll end up losing money and perhaps going to jail.

5. Do NOT renounce your citizenship and move abroad. Recent tax legislation forces ex-patriates to pay taxes on the next 10 years of income. It also limits severely how much time you can spend in the United States.

Finally, do NOT make business or investment decisions solely on the basis of avoiding taxes. There’s more to life than avoiding the tax man. Protest all your want today, but don’t make foolish financial decisions.

Has Keynes Trumped Adam Smith?
By Mark Skousen
February 27, 2009
A nice reprint of one of my articles on a web blog. A great way to spread the word.

“Market Monitor” — Mark Skousen, Editor, Forecasts & Strategies
with Paul Kangas, Nightly Business Report, PBS, Friday, March 06, 2009
Link to transcript of the show

Steve’s Serendipities: Persuasion vs. Force by Mark Skousen
A discovery of my pamphlet on the principles of freedom. Worth a read!

With China We Trade,’ Historical Ties between China and Founding Fathers
by Jeffrey Bingham Mead, History Education Council of Hawaii
March 11, 2009, Honolulu Advertiser
This writer uses my work compiling The Compleated Autobiography by Benjamin Franklin, which revealed a lot of the great Founding Father in his later, significant years, in a fascinating new analysis of China and its trade practices. Take a look!

Plus, some nice reader reviews of Investing in One Lesson on Cheap Best Books. An important book to read in today’s investing climate.

Yours in liberty, AEIOU,

Well, he did it. Glenn Beck has put my uncle Cleon’s book, The 5,000 Year Leap: 28 Principles that Changed the World (How the US Constitution Inspired America’s Greatness) #1 on Amazon.com.

The guy is incredible.

I was on his show a couple of weeks ago, and he told me between commercials, “Cleon Skousen’s book changed my life.” He has written an introduction to a new version of the book, which is expected to come out soon.

Glenn just announced his “912 Project”–go to www.the912project.com. I wonder where this will all lead.

In liberty, AEIOU,

MAS

From the Gilroy Dispatch

Officially, President Obama’s $3.6 trillion budget is titled “A New Era of Responsibility.”

That’s false on two counts. It’s an era – not of responsibility, but of big-government taxation, spending, and regulation. And it’s not new. History is full of attempts to inflate the state to grow the economy. Virtually all have ended badly. As the recent sell-off reminds us, Wall Street’s verdict on Obamanomics has been quick and sharp.

The president’s budget is right in castigating the “troubled past” of the Bush administration, which spent money like a drunken sailor on education, healthcare, bailouts, and two seemingly endless wars in the greater Middle East, with virtually no regard for how to pay for a rapidly growing national debt.

But now we must confront the troubled future. Obama has adopted the big-spending policies of George W. Bush, with trillions more proposed for education, bailouts, and healthcare. He wants to sharply reduce (but not end) the American presence in Iraq. At the same time, he plans to deploy an additional 17,000 troops to Afghanistan, which may lead to an expanded quagmire there.

Hasn’t Obama read the bestseller “Three Cups of Tea: One Man’s Mission to Promote Peace … One School at a Time,” by Greg Mortenson and David Oliver Relin? A Pakistani general who talked with Mr. Mortenson aptly identified the real problem in Afghanistan: “The enemy is ignorance. The only way to defeat it is to build relationships with these people, to draw them into the modern world with education and business. Otherwise the fight will go on forever.”

In some ways, Obama’s plans are more grandiose than Bush’s. He wants to encourage green technology and energy independence, and move toward national healthcare. The cost is enormous. The deficit for this year alone is expected to reach $1.7 trillion.

To help pay for this, Obama proposes the largest tax increase in history. Some of this, such as new taxes on oil and gas companies, is explicit. Some of it, such as the new cap and trade program, is quite subtle. And some of it will “merely” repeal the Bush tax rates on high incomes. But all of it represents a tremendous muzzle on the economy at a time when it needs to be unleashed.

Even these huge tax hikes won’t be nearly sufficient to pay for the outlays. In fact, to pay for it in full, The Wall Street Journal pointed out, Uncle Sam would have to confiscate every penny earned by Americans making at least $75,000 a year.

What’s the future for Obamanomics? The stock market’s reaction doesn’t bode well. The Dow has fallen more than 18 percent since the last trading day of Bush’s term. Clearly, Wall Street thinks that Obama’s tax, spend, and regulate policies will be a disaster.

Despite the dire headlines, the world is not coming to an end, we are not headed into another Great Depression, and free-market capitalism has not breathed its last breath.

In my book, “The Big Three in Economics,” I found that the press has frequently and prematurely written the obituary of Adam Smith and his free-market philosophy, only to see a new and more vibrant global marketplace reemerge after being savagely attacked by Keynesians, Marxists, and assorted socialists. Market capitalism survived and prospered after the boom-bust industrial revolution of the 19th century, and the Great Depression and world wars of the 20th century. It will recover from the financial panic of 2008-09 and Obamanomics.

Adam Smith, the supreme defender of market capitalism, expressed this optimism well in 1776 when he wrote in “The Wealth of Nations”:

“The uniform, constant, and uninterrupted effort of every man to better his condition … is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.”

The ideas of Adam Smith and his modern followers will make a comeback. Already, pro-market forces are gathering in Congress to defeat Obama’s ambitious and highly socialistic agenda. Charities and nonprofits are already up in arms about the proposed limits on tax deductions for wealthy donations for good causes.

I’m doing my part by holding the world’s largest gathering of free minds at FreedomFest, July 9-11, 2009, in Las Vegas.

Details: www.freedomfest.com.

“The Obama budget is nothing less than an attempt to end the ideas of Ronald Reagan.” — New York Times

Adam Smith, the father of free-market economics, once stated, “There is much ruin in a nation.”  President Obama is out to prove it in his Newspeak program he calls “A New Era of Responsibility.”  It should be called “A New Era of Irresponsibility.”

And there’s no better proof than the stock market’s reaction to Obamanomics, which is big-government Keynesianism at its worst.  Since Obama took office, the Dow is down a whooping 15% — and that’s after the huge sell off in the market in 2008 by more than 30%.

And the market has continued to drop precipitously since Obama addressed Congress and announced his obscene $3.6 trillion budget for fiscal year 2010.  This budget includes:

–the largest tax increase in history, including a monstrous tax on oil & gas (cap and trade) and the repeal of the Bush tax rates on incomes higher than $200,000 for individuals and $250,000 for couples.  Contrary to Obama’s claim, over 65% of tax filers in this category are small business owners and investors.

–the highest level of federal spending since 1945, from today’s 21% of GDP to a whooping 27.7%.  This includes new entitlements in health care and energy.

Clearly Wall Street has spoken:  Obama’s tax, spend and regulate policies are a disaster for the nation.

And sadly Obama doesn’t get it.

What should investors do?  Play it conservative.  Be well-diversified in global stocks.  Maintain a high cash position, look for bargain opportunities, and keep squirreling away gold and silver coins.

And do not despair.  It is not time to head for the hills, although some wealthy friends are talking about moving to New Zealand, or the Bahamas.  (One friend of mine has already taken the extreme step of renouncing his US citizenship!)

In writing “The Big Three in Economics” (click here to order), I found that Adam Smith and his “system of natural liberty” have come under attack on many occasions by his sworn enemies Keynesians, Marxists and socialists, and has often been left for dead, but always makes a comeback.

As Adam Smith declared in his 1776 classic “The Wealth of Nations,”

“The uniform, constant, and uninterrupted effort of every man to better his condition . . . is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.”

In sum, the ideas of Adam Smith, and his modern followers, including Ronald Reagan, are far from dead.  They are only in hibernation.  The free-market giant will soon be awakened by our dire situation.

Hopefully pro-market forces in Congress (both Republicans and Democrats)  will filibuster the Obama tax increases and budget excesses.  Charities and non-profits are already up in arms about the proposed limits on tax deductions for wealthy donations for good causes.

I’m doing my part by holding the world’s largest gathering of free minds at FreedomFest, July 9-11, 2009, in Las Vegas, the focal point of liberty.  For details, go to www.freedomfest.com.  I hope you will join us.

I know I’m a dreamer but I’m not the only one.

Unfortunately, the [Keynesian] balance week is unbalanced. ~ Milton Friedman

We have outlived the short-run and are suffering from the long-run consequences of [Keynesian] policies. ~ Ludwig von Mises

Last week, Treasury Secretary Timothy Geithner announced another solution to the financial crisis — his new “Financial Stability Plan.” Since the announcement, Citigroup has fallen 51 percent, Bank of America is down 46 percent, and Wall Street had its worst week in 2009.

So much for the Financial “Stability” Plan.

As John Adams once said, “Facts are a stubborn thing.”  The Obama model of Keynesian-style bailouts and massive deficits is simply failing to cure the growing financial crisis.

Despite all the bailouts President Obama has put forth — for the banks, the big 3 auto companies, and homeowners — the global economy is still reeling.

In fact, I would argue that Obamanomics (Keynesian economics in disguise) is counterproductive and making matters worse.  That’s because business and Wall Street recognize that there is no free lunch — government spending is piling up huge debts that will need to be paid back, probably through the printing presses.  And inflation — another evil — will come back with a vengeance.

Keynes is famous for the line, “In the long run, we are all dead.”  And that’s what Wall Street fears — that financially we are all going to be killed by excessive debt.

Lack of confidence in Obama, Geitner and Bernanke is why gold is going through the roof now, and is approaching $1,000 an ounce. The U.S. Mint is having a hard time keeping up with demand for American eagle gold and silver coins.

The problem is Keynesian-style policy, the darling of the establishment politicos and media giants.  Keynes has suddenly trumped Adam Smith.  And that’s dangerous.

One day last week, I walked into the largest Barnes & Noble bookstore in New York and saw a big display table up front with all kinds of books on John Maynard Keynes and Keynesian economics.  One book, The Return of Depression Economics, was written by Paul Krugman, the caustic New York Times columnist who just won the Nobel Prize.

Another book was called The Case for Big Government by Jeff Madrick, the editor of Challenge magazine.  I can understand writing a book in support of good, efficient, strong, and productive government, but “big” alone?  Most Americans prefer the motto “cheaper and better.”

The biggest surprise at Barnes & Noble was to see my own book, The Big Three in Economics, prominently displayed along side all the Keynesian and Marxist books.  It has suddenly become my most successful book.

Mark Skousen with the Totem Pole of Economics

But mine was the only book there that took a dim view of Keynes and Marx and their solutions to the financial crisis (always more government, more taxes, and more regulations).  For my money, Adam Smith and his followers (Ludwig von Mises, Friedrich Hayek, Milton Friedman, Murray Rothbard) deserve to be on top of the Totem Pole of Economics.

Unfortunately, Keynes is all the rage now.  The British economist became famous in the 1930s for advocating going off the gold standard, running deficits and bailing out troubled banks with easy money as a way to end the Great Depression.
Today’s politicians, from George Bush to Barack Obama, have suddenly become Keynesians during this financial crisis, spending money they don’t have in a vain effort to right the ship.  Even Newsweek has gone so far to say, “We are all socialists now.”  Alan Greenspan, the ex-student of Ayn Rand, now favors nationalization of the big American banks Citibank and Bank of America.

Every investor and gold bug should know the enemy: Keynes, the advocate of big government and the welfare state, and Karl Marx, the radical who advocated outright state socialism and total central control of the means of production.
After World War I, Randolph Bourne observed, “War is the health of the state.”  Today he might say, “A financial crisis is the health of the state.”

It looks like modern-day statists are getting their wish.  We’re getting big government, good and hard.  Adam Smith and Milton Friedman are out of favor, while John Maynard Keynes, the patron saint of bailouts, inflation, and the welfare state, is making a comeback with a vengeance.

The tentacles of the leviathan state are growing by leaps and bounds.  In 2009, global governments will be the largest shareholders in commercial banks, reversing 20 years of retreat by the state.  The costs of entitlements are exploding upwards, and Congress hasn’t had the courage to address future liabilities.  Social Security and Medicare are government-sponsored Ponzi schemes that will make Bernie Madoff’s embezzlement look like a picnic.

The late management guru Peter Drucker said, “Government is better at creating problems than solving them.” In fact, wrote a cynical Ducker, government has gotten bigger, not stronger, and can only do three things well — taxation, inflation, and making war.  According to Drucker, the state has become a “swollen monstrosity….Indeed, government is sick — and just at a time when we need a strong, healthy, and vigorous government.”  (He said all this in 1969.)  If you want to solve problems, he counseled, you must turn to business and the private sector.

But where does one get the straight scoop on Keynes, Marx, and their nemesis, Adam Smith and the followers of free-market capitalism?

I have no apologies for where I stand on the issue.  In writing The Big Three, I commissioned a Florida woodcarver, James Sagui, to create “The Totem Pole of Economics.”  (The Tolem Pole of Economics is shown on the back cover of the book.)  Clearly, my hero is Adam Smith, the author of The Wealth of Nations, published in 1776, a declaration of economic independence.

Adam Smith, the 18th century philosopher, is on top of the Totem Pole for his advocacy of a revolutionary new doctrine which he called a “system of natural liberty,” what we might call laissez faire or free-market capitalism.  He used the “invisible hand” to symbolized how the private actions of individual entrepreneurs would lead to the public good.

Today’s advocates of Smithian economics have real solutions to the crisis, as I’ve outlined in previous HUMAN EVENTS columns:  suspend “mark to market” accounting rules, make the Bush tax cuts permanent, slash the corporate tax rate, and mostly importantly “do no harm.”  Also, it wouldn’t hurt to take a look at the Canadian banking system, ranked #1 in the world in soundness (US is #40) for its conservative reserve requirements and nationwide branching.  (Not a single Canadian bank has failed in either the Great Depression or now.)

Keynes is ranked below Adam Smith, because he supported big government and the welfare state as a way to stabilize the crisis-prone capitalist economy, the “middle ground” between laissez faire and totalitarian socialism.  But as we have seen, Keynesian activism has led to much mischief in the world today, and countries that have adopted his bureaucratic, regulated mindset have witnessed “slow growth” and “stagflation” style economies.

And Marx is the “low man” on the Totem Pole.  His radical solution, government ownership and control of the production, distribution and consumption of goods and services, would be, as Hayek says, “the road to serfdom.”

Adam Smith and his “system of natural liberty” have come under attack many times by his arch enemies, the Marxists and Keynesians.  But Smithian economics has nine lives, and has always managed a comeback.  With your help, Adam Smith will return.

Click here for a copy of The Big Three in Economics.

What a pleasant conversation we had when I had dinner with Dan Quayle earlier this year. Quayle didn’t dominate the conversation as my wife Jo Ann and I might expect from a former Vice-President; he was gracious and a good listener.

Dan talked about his support for some form of private Social Security accounts for younger workers, under the age of 40.

He also said he was planning to pursue the presidency in the year 2000, but didn’t want to announce that publicly yet. (Quayle quit his bid for the presidency in the 2000 election after the Iowa Strawpoll in 1999.)

Jo Ann and I had met Dan Quayle 10 years earlier at a Howard Ruff conference, and we talked about those days and what Howard was up to these days.

Economics on Trial The Freeman OCTOBER 1999

by Mark Skousen

“According to the economic approach, criminals, like everyone else, respond to incentives.” -GARY BECKER(1)

The Chicago boys are at it again. This time the economists at the University of Chicago are making headlines in today’s hotly disputed debate about gun control. Milton Friedman set the general standard a generation ago by insisting on rigorous empirical work to support sound (though often unpopular) theory and policy. More recently, Gary Becker extended Chicago-style economic analysis into contemporary social problems such as education, marriage, discrimination, professional sports, and crime.

Now John R. Lott, Jr., until recently the John M. Olin Law and Economics Fellow at Chicago, is making the case that a well-armed citizenry discourages violent crime. Lott analyzed the FBI’s massive yearly crime statistics for all 3,054 U.S. counties over 18 years, the largest national surveys on gun ownership, and state police documents on illegal gun use. His surprising conclusions, published in his recent book, More Guns, Less Crime:

• States now experiencing the largest drop in crime are also the ones with the fastest-growing rates of gun ownership.
• The Brady five-day waiting period, gun buy-back programs, and background checks have little or no impact on crime reduction.
• States that have recently allowed concealed weapon permits have witnessed signif- icant reductions in violent crime.
• Guns are used on average five times more frequently in self-defense than in committing a crime.(2)

According to Lott, recent legislative efforts to restrict gun ownership may actually keep many law-abiding citizens from protecting themselves from attack. (There’s that Law of Unintended Consequences again.)

The Incentive Principle Underlining

Lott’s findings is a basic eco- nomic concept, the law of demand: If the price of a commodity goes up, people use less of it. In the case of criminal activity, if the cost and risk of committing a crime rises, less crime will be committed. This is often referred to as the market’s incentive principle.

Gary Becker has showed that increasing the cost of crime through stiffer jail sentences, quicker trials, and higher conviction rates effectively reduces the number of criminals who rob, steal, or rape.(3)

Similarly, Lott argues that state laws permitting concealed handguns deter crime. “When guns are concealed, criminals are unable to tell whether the victim is armed before striking, which raises the risk to criminals.” (4) He produces a variety of statistics and graphs to support his case. For example, the following graph compares the average number of violent crimes in states before and after the adoption of a concealed-handgun law.

Lott’s crime figures also remind me of Frederic Bastiat’s brilliant essay “What Is Seen and What Is Not Seen.” In 1850, this great French journalist wrote, “In the economic sphere,. . . a law produces not only one effect, but a series of effects. Of these effects, the first . . . is seen. The other effects emerge only subsequently; they are not seen.”(5)

According to Lott, Bastiat’s principle applies in crime statistics. “Many defensive uses [of guns] are never reported to the police.”(6) Lott gives two reasons. First, in many cases of self-defense, a handgun is simply brandished, the assailant backs off, and no one is harmed. Second, in states that have stringent gun laws, cit- izens who use a gun for protection fail to report the incident for fear of being arrested by the police for illegal use of a weapon. Thus, Lott confirms (through extensive surveys) the initial work of Gary Kleck, professor of criminal justice at Florida State University, that guns are used far more frequently in self-defense than in committing crimes. Kleck, by the way, used to have a strong anti-gun bias until he uncovered this revealing statistic.

All this confirms a long-standing constitutional principle: People have the right to own a gun for self-protection.

1. Gary S. Becker and Guity Nashat Becker, The Economics of Life (New York: McGraw-Hill, 1997), p. 143.
2. John R. Lott, Jr., More Guns, Less Crime (University of Chica- go Press, 1998).
3. Becker and Becker, p. 137.
4. Lott, p. 5.
5. Frederic Bastiat, “What Is Seen and What Is Not Seen,” Selected Essays on Political Economy (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1995 [1850]), p. 1.
6. Lott, p. 5.

Forecasts & Strategies
Personal Snapshots

by Mark Skousen

“Americans are, above all, a problem-solving people.”
–Paul Johnson, A History of the American People

The transformation of Las Vegas is a perfect example of why the United States of America is still the greatest country in the world. After World War II, developers created in the middle of the Nevada desert a sleazy, tacky town devoted to gambling, shows and sex. But in the past few years, entrepreneurs have created a brand-new Vegas.

Last month, I spent two fun-filled days at the Mirage Resort without gambling. The new Las Vegas offers a wide variety of services for the non-gambler: sports and swimming facilities, great restaurants and buffets, giant IMAX theatres, excellent golf courses, Wet’n Wild water theme park, several spectacular roller-coaster rides, shopping malls (including the sumptuous Forum Shops next to Caesar’s Palace), and a myriad of other forms of entertainment. As a result, Las Vegas is becoming America’s playground.

Another example of urban renewal is New York’s Times Square and 42nd Street. corporations such as Walt Disney have joined with the city to tear down the seedy side of Times Square and re-create a safe environment for local New Yorkers and tourists.

I’m reminded of one other example: Chicago’s Rush Street used to be a crime-infested section of town. Over the past few years, the city fathers have cleaned up the district, and now it’s a hot spot for night life for young people and college students.

PAUL JOHNSON’S NEW BOOK ON AMERICA

The eminent British historian Paul Johnson says, “Americans are, above all, a problem-solving people.” The transformation of Las Vegas, New York’s Times Sauare and Chicago’s Rush Street proves it. It’s our nature to solve problems. Under Reagan, U.S. fought to reduce interest rates, inflation and marginal tax rates.

Under Clinton, the deficit has come down, welfare has been reformed, and crime fallen. And much more can be done. As Johnson states, Americans “will attack again and again the ills in their society, until they are overcome or at least substantial redressed.”

If you want to read an upbeat, one-volume history of the U.S., there is no better source than Paul Johnson’s new book, A History of the American People ($35 or less, available at all major bookstores, on the Internet at www.Amazon.com or through Laissez Faire Books, 800/326-0996). It is a sheer delight to read. Johnson does not hide his admiration, his “labor of love,” of this “most remarkable people,” “this greatest of human adventures,” and this “human achievement without parallel”–the United States of America.

This one-volume history is fresh and exciting to read, not the stale history you may have read when you were a student. Johnson covers material not normally found in the history books, such as the impact of religion and art on American life. Johnson makes you proud of being an American again.

Johnson says, regarding the history of America, “We need to retell it.” Equally, we Americans need to reread it!

ECONOMICS ON TRIAL
The Freeman
March 1999

by Mark Skousen

“No businessman in the real world is equipped with perfect foresight; all make errors.”
–Murray N. Rothbard (1)

Over the past year, I’ve been involved in a series of debates over the impact of the Year 2000 Problem, the potential collapse of computers–and perhaps the economy–owing to the fact that since computer programs use two digits instead of four to indicate years, the year 2000 will be treated as 1900. On the one extreme is Gary North, who claims that the Y2K problem is so serious that it will gravely disrupt society for years. On the other end is Harry Browne, who says that enlightened entrepreneurs will avert a worldwide disaster.

What’s interesting about the debate is that free-market advocates are found on both sides. North and other naysayers focus on the propensity of market players to make entrepreneurial errors and engage in shortsightedness. Browne and other optimists stress the entrepreneurs’ ability to solve problems, especially when so much is at stake. (Some businesses could go bankrupt if they don’t address the Y2K problem.) In short, the market works.

My concern is that the “market always works” camp comprises true believers who blindly think the market can solve all problems almost automatically. They seem to fit into the rational equilibrium-always school of economics where entrepreneurial misjudgment, imperfect knowledge, and uncertainty play little or no role.

MARKETS ARE NOT PERFECT

The Austrian economists teach otherwise. Israel Kirzner, noted for his studies on entrepreneurship, attacks the model of perfect efficiency as “wholly unsatisfying.” He adds that, “It is most embarrassing to have to grapple with the grossly inefficient world we know with economic tools that assume away the essence of the problem with which we wish to deal.” (2)

The market is characterized by profit and loss, success and failure, certainty and uncertainty. There is always room for improvement, and the entrepreneur’s role is to eliminate errors and inefficiencies. Thus, it should come as no surprise that many businesses and financial institutions are making significant headway in fixing their computer programs to avert the Y2K problem.

On the other hand, it would be folly to ignore that many businesses have budgeted insufficient time and money to fix or replace their computers. Evidence is growing that most firms, especially small businesses, are not doing enough. Many major corporations and government agencies, both here and abroad, admit that they only have time to fix critical systems. The rest will fail on January 1, 2000.

Free-market advocates sometimes place too mcuh faith in the market’s ability to solve problems and ignore ubiquitous error in an entrepreneurial economy. Think about all the ways people make mistakes every day in the marketplace: Investors buy the wrong stock. Businessmen declare bankruptcy. Marriages break up. Consumers over-spend and over-eat, especially during the holidays. Kids fail to do homework. Drivers have accidents. Ships sink. Builders don’t meet deadlines. Economists make false predictions. Entrepreneurs cut corners, deceive customers, and embezzle funds. Economic failure, stupidity, and incompetence are common to human nature. As Ludwig von Mises noted, “To make mistakes in pursuing one’s ends is a widespread human weakness.” (3)

The decision by computer programmers in the early 1950s to use two digits instead of four is a classic example of individual shortsightedness. To save space, they cut corners, and now, a generation later, the whole world is paying a heavy price for their blunder.

CLUSTER OF ERRORS

In most cases, entrepreneurial error is random, unpredictable, and self-correcting. As Murray Rothbard states, “As a rule only some businessmen suffer losses at any one time; the bulk either break even or earn profits.” (4)

There are, however, cases of widespread error–mistakes that affect virtually every part of an industry or economy. Rothbard, in standard Austrian school fashion, explained depressions in terms of “a sudden general cluster of business errors.” (5) Of course, the Austrians attribute those errors and the business cycle in general to monetary inflation by government.

Yet can’t error with far-reaching harm occur in the market without government being responsible? Austrian economists don’t normally discuss this possibility, but it undoubtedly exists. Market decision-makers have made shortsighted blunders that have had universal consequences. Examples of such errors include asbestos in construction, pesticides in agriculture, and air and water pollution in manufacturing. The Y2K computer glitch is a particularly tough challenge because it is universal and time-sensitive. In most cases, the deadline cannot be postponed.

THE MARKET’S SELF-CORRECTING MECHANISM

Fortunately, the market has a built-in mechanism to minimize mistakes and entrepreneurial error. The market penalizes mistakes and rewards correct behavior. Business leaders know that computer problems can destroy their business; fixing the Y2K bug will avoid losses and may even be profitable. They are willing to pay the price. As Kirzner has said, “Pure profit opportunities exist whenever error occurs.” (6) At the same time, the market will severely penalize businesses that have ignored the Y2K problem or have procrastinated.

Followers of free markets should take note: markets may be self-correcting, but they are not all-seeing.

FOOTNOTES

1. Murray N. Rothbard, Man, Economy, and State (Nash Publishing, 1970), p. 746.

2. Israel M. Kirzner, “Economics and Error,” in Perception, Opportunity, and Profit (University of Chicago Press, 1979), p. 135.

3. Ludwig von Mises, Theory and History (Yale University Press, 1957), p. 268. Mises adds that “Error, inefficiency, and failure must not be confused with irrationality. He who shoots wants, as a rule, to hit the mark. If he misses it, he is not ‘irrational’; he is a poor marksman.”

4. Murray N. Rothbard, America’s Great Depression, 4th ed. (Richardson & Snyder, 1983 [1963]), p. 16.

5. Ibid.

6. Kirzner, op. cit., pp. 132-33.

Ideas Matter
FORBES

By Mark Skousen

The first time I met Wade B. Cook was at a seminar for small investors in the early 1980s, when real estate and other inflation hedges were the rage. Cook gave a workshop on how to buy and sell mortgages–”discounted paper”–for quick profits, which he called the Real Estate Money Machine, which became a best-selling book of the same name. Forget buy-and-hold, he urged. Speculate. Trade mortgages: “Roll them.” Churning mortgages to create a “money machine.”

For a while Cook sold lots of books and tapes and had lots of fans, but apparently his money machine stopped working, and in 1984 he filed for bankruptcy well ahead of the real estate crash that took place later in the decade.

I thought Wade Cook would disappear like the rest of the get rich-off-real-estate gang, but I was wrong. He’s back, reincarnated as a stock market expert. Three of his books are on the Business Week bestseller list: Wall Street Money Machine, Wall Street Miracles and Bear Market Baloney. His book Real Estate Money Machine is back in print. His company is on the radio, promoting his one-day seminars, his books, videos and his three-day, $4,700 Wade Cook Workshops. Apparently the fish are biting.

Never one to overlook an opportunity, Cook has taken his company public (Nasdaq: WADE), and it has risen 500% in the past year. Recent market cap: $210 million. Cook owns 62% of the stock.

Cook’s enticements would catch the eye of any red-blooded investor: Get 14% to 34% monthly returns-consistently! Double your money every 2 1/2 to 4 1/2 months! The evangelist is not timid: “I’m into formulas which produce safe, sane 20%-plus monthly returns,” he says.

You don’t even need patience for the Cook approach: He promises fast results. In his books he annualizes his weekly, daily and even hourly returns. You’d think people would know better, but apparently they don’t.

How does Cook suggest going about investing? Forget buy-and-hold, he urges once again. Trade options. Make full use of margin. Turn your stocks over constantly. “Roll them” like a money machine. He urges buying stock right before the ex-dividend date, capturing the dividend and then selling. But doesn’t the stock price drop by the amount of the dividend “This is not always the case,” Cook claims.

For quicker profits, Cook goads his followers to load up on companies announcing stock splits. He pleads, “Show me a company that has done a stock split, which one year later (or two) is trading down.” Want faster profits? Buy options and buy on margin.

Can’t you get into trouble with a margin account? “Absolutely not.” It’s not surprising that with claims like these Cook’s company has been the subject of a fraud investigation by the SEC since March 1996. He denies any wrongdoing. And goes right on leading naive investors to potential doom.

Perhaps Alan Greenspan had Wade Cook in mind when he referred to “irrational exuberance” on Wall Street. It’s certainly irrational. This is the same nonsense Cook was peddling nearly 20 years ago, but this time it’s stocks, not real estate. The advice is just as dangerous and the people buying it are just as uninformed.

What I find scary is that there is a market for this stuff. The last time Cook prospered was when real estate became overheated and later crashed. Is his resurgence a harbinger of doom. Is the popularity of his stock market stuff telling us something? I hope not.

If it’s good stock market advice you want, read J. Paul Getty’s 12-page chapter on “The Wall Street Investor” in his classic work How to Be Rich. Sample: “The seasoned investor buys his stocks when they are priced low, holds them for the long-pull rise and takes in-between dips and slumps in his stride.” There’s more wisdom in those 26 simple words than in all the get-rich books ever written.

Forbes, December 1, 1997