Dear Friends of Freedom,

I’m happy to report that FreedomFest 2011 was another rip-roaring success. With highlights featuring Senator Rand Paul, Judge Andrew Napolitano, John Mackey (CEO, Whole Foods) and Peter Thiel (founder, PayPal), among many others, the nearly 3,000 attendees had non-stop opportunities to learn, discuss and generate new ideas on liberty and freedom.

We also had the premiere of the Anthem Film Festival, with over 30 films screened. Winners and awards are listed on the Anthem Film Festival website. These narrative and documentary films had terrific messages, strong storylines and interesting concepts that you don’t want to miss. Check out the website. And be sure to part of the Anthem Film Festival next year!

Please see this youtube video, produced by Reason.tv (which was there for the entire conference, conducting fascinating interviews), entitled “What We Saw at FreedomFest” for a nice recap of the conference.

Likewise, you’ll have a chance to view several of the exciting sessions, thanks to C-SPAN’s Book TV. Starting this Saturday, July 30, you can see FreedomFest on C-SPAN Book TV! For more information, go to http://www.booktv.org/Schedule.aspx

If you have never attended FreedomFest before, please consider joining us next year, when we celebrate the Wild West at FreedomFest 2012, July 11-14, at Bally’s in Las Vegas. (Just think 7-11 in Vegas!) And to all our regular attendees, we look forward to meeting up with you once again in Vegas for FreedomFest. Meanwhile, keep protecting our liberties…stay free!

Cheers, AEIOU,
Mark Skousen
Producer, FreedomFest
www.freedomfest.com

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

“Capitalism is turning luxuries into necessities.” — Andrew Carnegie

Watching the shouting matches occurring at the town hall meetings across America, do you ever wonder why nobody holds town hall meetings or writes complaining letters to Congress about food and housing?

After all, food and housing are even more important than medical help.  Most Americans don’t need to go to the doctor every day, but you do need to eat every day and live under a roof.

Read the entire article on Human Events Online.

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.

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.

Suggestion – Liberty Magazine
The Necessary Evil
by Mark Skousen

Today libertarians spend most of their time lamenting the consequences of big government. And rightly so. Today government is less a defender of freedom and more a Hobbesian leviathan that undermines prosperity. When we do talk about limited government, it is often seen solely as “a necessary evil.”1 Too much government and the economy chokes. Too little, and it cannot function. Is there a Golden Mean?

George Washington best summarized the libertarian view: “Government is not reason; it is not eloquence; it is force! Like fire, it is a dangerous servant and a fearful master.”2 So it is with some trepidation that I suggest that societies or countries may not have enough good or legitimate government. In the never-ending battle against big government, it might be well to consider what constitutes “good government” to see how far we have strayed from the proper role of the state.

Each year the Fraser Institute publishes their Economic Freedom of the World Index (see www.fraserinstitute.org), which measures five major areas of government activity in more than 100 countries: size of government, legal structure, sound money, trade, and regulation. The most surprising thing about the study, according to its author James Gwartney, a professor of economics at Florida State University, is the importance of legal structure as the key to maximum performance for an economy. “It turns out,” he told me in a recent interview, “that the legal system — the rule of law, security of property rights, an independent judiciary, and an impartial court system — is the most important function of government, and the central element of both economic freedom and a civil society, and is far more statistically significant than the other variables.”

Gwartney pointed to a number of countries that lack a decent legal system, and as a result suffer from corruption,insecure property rights, poorly enforced contracts, and inconsistent regulatory environments, particularly in Latin America, Africa, and the Middle East. “The enormous benefits of the market network — gains from trade, specialization, expansion of the market, and mass production techniques — cannot be achieved without a sound legal system.” 3

The Proper Role of the State

Milton Friedman identifies the legitimate roles of the state: “The scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow- citizens: to preserve law and order, to enforce private contracts, to foster competitive markets. Beyond this major function, government may enable us at times to accomplish jointly what we would find it more difficult or expensive to accomplish severally.” 4

Adam Smith suggests that this “system of natural liberty” will lead to a free and prosperous society. As Smith declares, “Little else is required to carry a state to the highest degree of opulence from the lowest level of barbarism, but peace, easy taxes, and a tolerable administration of justice.”5

The division between the positive and negative role of government can be represented visually. In the diagram on the next page, we have on the vertical axis “socio-economic well-being”: some general measure of the quality of life in a free and civil society. For empirical studies, economists might want to use changes in real per capita income, but this may be too confining. On the horizontal axis we have “government activity.” At point O, we have zero government, and as we move along the horizontal axis, the size and scope of government activity increase. The ultimate extreme is the totalitarian regime, which institutes “total government,” though I would hesitate to label this “100% government,” since no government can control all activity.

Too Little vs. Too Much Government

My thesis is that as a society moves from zero government to point P, economic well-being increases to peak performance. Then, as it adopts a larger and less necessary government, its growth diminishes, and can even turn negative if government becomes too burdensome and controlling. Looking at the left side of the mountain, point O (zero government) to P (optimal government) constitutes “too little” government. For example, a nation may spend too few of its resources on personal protection, property control, and government administration. Here we see how increasing the size and scope of government activity initially leads to increased well-being, as measured by individual freedom and prosperity. Point P represents the right amount of government and the optimal amount of expenditure necessary to fulfill its legitimate functions.

This is the ideal of the minimalist state. Any point to the right of P represents too much government, when the central authority becomes a burden rather than a blessing. I’ve drawn it as a gradual downward slope, so that the more bad government a country adopts, the greater the decline in performance, even to the point X where government is so large and so intrusive that it results in the destruction of economic and social well-being, which is probably worse than the costs of anarchy.

Quantifying the Right Amount of Government

Can we quantify P, the optimal size of government? Several economists have attempted to determine the ideal level of government spending as a percentage of GDP. In the1940s, Australian economist Colin Clark said that the maximum size of government should not exceed 25% of GDP. Anything higher would hurt economic growth.6 Professor Gerald W. Scully, of the University of Texas at Dallas suggests that the tax rate ought not to exceed 23%.7 World Bank economists Vito Tanzi and Ludger Schuknecht analyzed 17 countries during the period 1870 to 1990 and concluded that public spending in newly industrialized countries should not exceed 20% and in industrialized countries not more than 30%.8 Is optimal government (point P) the same for every country?

This would make an interesting study, but I suspect that differences in culture and socio-economic circumstances suggest that some nations require more government than others. As Benjamin Franklin states, “A virtuous and laborious [industrious] people may be cheaply governed.”9 And a lazy, dishonest people must be expensively governed.

Graph

Optimistically, I would think that if all nations were featured together on the diagram above, the various points P would constitute a fairly narrow mountain range. Almost every country in the world today is to the right of Point P, and could grow faster and enjoy a higher quality of life by reducing the size and scope of government. Countries from China to Ireland to Chile have demonstrated how dramatically the economy can improve by cutting back the state. I’m sure even Hong Kong, #1 in the Fraser Institute’s study in terms of performance and freedom, could benefit from some improvements by scaling back some types of government services.

According to the latest surveys of economic freedom by the Fraser Institute and Heritage Foundation, countries on average are becoming more free, and not surprisingly, the world’s economic growth rate is rising.10 After noting that government represents 40–50% of GDP in most developed nations, Tanzi and Schuknecht conclude, “we have argued that most of the important social and economic gains can be achieved with a drastically lower level of public spending than what prevails today.”11

Two Case Studies in Little or No Government

Are there any examples of countries to the left of point P, that have too little government? The United States suffered from too little government under the Articles of Confederation, which was the basic law of the land from its adoption in 1781 until 1789, when they were replaced by the Constitution. The Articles limited the federal government to conducting foreign affairs, making treaties, declaring war, maintaining an army and navy, coining money, and establishing post offices. But it could not collect taxes, it had no control over foreign or interstate commerce, it could not force states to comply with its laws, and it was unable to payoff the massive debts incurred during the Revolutionary War. States were already putting up trade barriers, striking a serious blow to free trade, and the economy struggled. After the Constitution became law, the United States flourished because of improved government finances, protection of legal rights, and free trade among the 13 states.

A modern-day example of too little government is Somalia, located east of Ethiopia and Kenya, where life has been difficult and often dangerous without any central authority since 1991. For example, drivers pass seven checkpoints, each run by a different militia, on their way to the capital. At each of these “border crossings” all vehicles must pay an “entry fee” ranging from $3 to $300, depending on the value of goods being transported. Competing warlords vie for control of the countryside, which has frequently collapsed into civil war. Only an estimated 15% of children go to school, compared to 75% in neighboring states. However, a recent report by the World Bank indicates that an innovative private sector is flourishing in Somalia. This vindicates the Coase theorem, named for economist Ronald Coase, which argues that in the absence of government authority, the private sector will step in to provide alternative services, depending on the transaction costs.12 The central market in Bakara is thriving: all kinds of consumer goods, from bananas to AK-47s, are readily sold; mobile phones proliferate and internet cafes prosper. But with no public spending, the roads and utilities are deteriorating. Private companies have yet to appear to build roads — the transaction costs are apparently too prohibitive. Public water is limited to urban areas, and is not considered safe, but a private system extends to all parts of the country as entrepreneurs have built cement catchments, drilled private boreholes, or shipped water from public systems in the city.

There are now 15 airline companies providing service to six international destinations, and airplane safety can be checked at foreign airports. After the public court system collapsed, disputes have been settled at the clan level by traditional systems run by elders, with the clan collecting damages. But there is still no contract law, company law, or commercial law in Somalia. Sharp inflation in 1994–96 and 2000–01 destroyed confidence in the three local currencies, and the U.S. dollar is now commonly used. Because of a lack of reliable data, neither the Fraser Institute nor the Heritage Foundation’s economic freedom indexes rank Somalia. The World Bank concludes, “The achievements of the Somali private sector form a surprisingly long list. Where the private sector has failed — the list is long here too — there is a clear role for government intervention. But most such interventions appear to be failing. Government schools are of lower quality than private schools. Subsidized power isbeing supplied not to the rural areas that need it but to urban areas, hurting a well-functioning private industry. Road tolls are not spent on roads. Judges seem more interested in grabbing power than in developing laws and courts. Conclusion: A more productive role for government would be to build on the strengths of the private sector.”13

In short, most countries could use less government, but a few countries could use more of the right kind of authority. There is an optimal size and structure of government, and when it is reached, the result is, in the words of Adam Smith, “universal opulence which extends itself to the lowest ranks of the people.”14

November 2001
PERSONAL SNAPSHOTS
Forecasts & Strategies

by Mark Skousen

“It was a time for every man to stir.” — Thomas Paine

Westchester County, New York, where I now reside, is full of American heroes. Two are buried in Sleepy Hollow cemetery — Carnegie, the steel magnate (highlighted last month) and Samuel Gompers, the great labor leader. Another hero is Thomas Paine (1737-1809), the revolutionary writer, who owned a farm in New Rochelle. Paine is famous for writing Common Sense, the anonymous pamphlet that galvanized Americans into revolution in 1776. I read it as a teenager one summer and was overwhelmed by the candid, powerful case he made for separation from England. But there were actually three revolutions in 1776 — political revolution declared on July 4 by Thomas Jefferson’s Declaration of Independence; an economic revolution propelled by Adam Smith’s magnum opus, The Wealth of Nations (published on March 9,1776); and a cultural/religious revolution as expressed in Edward Gibbon’s best-seller, The Decline and Fall of the Roman Empire (the first volume published on February 23,1776). Thus, 1776 was a year of wonders.

The Age of Paine: A Supporter of Free Enterprise and a Hater of Taxation

Even more amazing, Tom Paine spoke out in favor of all three revolutions. In Common Sense, published on January 9,1776, he made the greatest case for political independence ever penned. “Government even in its best state is but a necessary evil; in its worst state an intolerable one …Nothing can settle so expeditiously as an open and determined declaration of independence.” He coined the name, “United States of America.” He hated the King and the privileged aristocracy that went with it. He referred to the idle nobility as “no-ability.” What mattered most to Paine was a man’s productivity, not his pedigree. Paine was also an unrepented follower of Adam Smith and laissez faire capitalism.

In The Rights of Man (1791) he defended individualism, property, business enterprise and Jeffersonian democracy. He favored a world in which political and social place would be determined by talent, merit and hard work — reliant individuals. He defended the rich and the businessman. His one villain: government. The invisible hand of merchants, manufacturers and bankers create a wholesome civil society; but the “greedy hand of government” oppressed and taxed citizens at home and waged war abroad. He was obsessed with taxation, a symbol of tyranny and corruption. Finally, Paine’s social and religious philosophy was in keeping with Gibbon’s. He favored free thought and freedom of religion, and was opposed to a state religion. He was an outspoken critic of slavery. He was cursed as an atheist and an infidel based on his sharp criticisms of the Bible in The Age of Reason (1794),but he was in fact a deist who strongly believed that “the hand of providence has …accomplished the independence of America.”

The Spirit of Paine Lives On

Some of the stirring words of Tom Paine seem modern to me. After the war on terrorism began, I thought of his words: “These are the times that try men’s souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph.” Long live the spirit of Tom Paine. That spirit lives on at the Foundation for Economic Education (FEE). I urge you to subscribe to our monthly publication, Ideas on Liberty.The cost is only $30 a year for 12 issues. To subscribe, call 914/591-7230. Ideas on Liberty would also make a great holiday or birthday gift.

UPDATE

Foreign Affairs, the premier establishment journal, loves AND hates my new history, just as it goes into a second printing! The October/September issue of Foreign Affairs calls The Making of Modern Economics “both fascinating and infuriating.” On the positive side, the book is “engaging, readable, colorful and entertaining,” on the negative side, it’s “credulous, disingenuous and tendentious.” My kind of review! Love it and hate it! I ’m also happy to report that the first printing is sold out and a second printing is now available from M.E. Sharpe Publishing, 800/541-6563. Be sure to mention you are a subscriber to Forecasts &Strategies, and you pay only $49.95 for the hardback and $24.95 for the paperback, plus S&H, a considerable bargain over the retail prices.

Economics on Trial – Ideas on Liberty - July 2000

by Mark Skousen

“Those who control the adjectives win.” — Larry Abraham

The use of the political labels “left” and “right” may be popular in today’s media, but there are several reasons why the dichotomy is a false and misleading guide to political and economic philosophy. It implies that “left” is equally as extreme as “right,” while the “middle of the road” position appears the more moderate and balanced position. I call this system the pendulum approach, where each individual is categorized along a political spectrum from “extreme left” to “extreme right.” Recently I encountered an example in an economics textbook.

The problem with the pendulum approach is that Adam Smith is characterized as “extreme” as Karl Marx. By implication, neither economist is sensible. Yet the evidence is overwhelming that Adam Smith’s system of natural liberty has advanced civilization far more than Karl Marx’s inexorable system of alienation and exploitation.

Moreover, in the pendulum approach, the middle-of-the-road position held by John Maynard Keynes appears to be the moderate ideal. A pendulum that experiences friction will eventually come to rest in the middle, between both extremes. But is that the best way to go?

A New Alternative: The Totem-Pole Approach

I prefer a fresh approach, which I call the top-down or “totem pole” way. Instead of left to right, I use top to bottom. In Indian folklore, the most-favored chiefs are placed at the top of the totem pole, followed by less impor tant chiefs below. Look at the next page for my rendition of the same three economists according to the totem-pole method.

In this system, I rank Adam Smith first, Keynes second, and Marx third. Of the three, Adam Smith advocated the highest degree of economic freedom. Nations that have adopted Smith’s vision of laissez-faire capitalism have fared the best. Next is Keynes. He usually favored maximum freedom in the microeconomic sphere, but frequently endorsed heavy intervention (inflation and deficit spending) in the macro sphere. His big-government formula has resulted in slower economic growth in many industrial nations. The low man on the totem pole is Marx, who advocated a command economy at both the micro and macro level. Historically, centrally planned Marxist nations have vastly underperformed the market economies.

Political and economic positions should not be divided by left and right. They are either right or wrong. As Milton Friedman has said many times, “There’s only good economics and bad economics.”

Avoid Being Close-Minded

A second reason why I avoid the left-right labels is that it puts people and ideas into boxes. When someone’s theories are labeled and compartmentalized, thinking stops and name-calling begins. There has been far too much bad blood spilt over the years between camps that spend more time shouting epithets than engaging in legitimate dialogue.

This criticism applies equally to the worn out adjectives “liberal” and “conservative.” If John Kenneth Galbraith is a “liberal,” why should conservatives listen to him’? If Milton Friedman is a “conservative,” why should liberals read his books? I try not to prejudice myself. To me, both are economists who have ideas worth examining.

The media will continue to use the hackneyed political lexicon of yesteryear and engage in character assassination. But I will resist the outdated and misleading left-wing/right-wing/liberal-conservative battlelines, and treat every scholar, candidate, and philosopher on his own merits, and not according to some arbitrary label.

Personal Snapshots
FORECASTS & STRATEGIES
May 2000

by Mark Skousen

“Stimulating independent thought… is being done by all too few individuals and institutions, not only in the U.K. but here in the U.S. as well.” — Milton Friedman (1981)

Donating money to a few of my favorite free-market organizations used to be a pleasant duty, but now I’m literally inundated with demands from hundreds of think tanks and public-policy groups, all vying for my limited funds. Maybe you’re wondering if we really need so many foundations and political organizations.

Back in 1946, there was only one free-market organization in the United States: the Foundation for Economic Education, run by Leonard Read. If you were a classical liberal, you wrote for The Freeman (now Ideas for Liberty) and contributed to FEE. (I write a regular column called “Economics on Trial”; to subscribe, call 800/452-3518, only $35 a year! Or see their web site, www.fee.org) But then along came a British chicken farmer, Sir Anthony Fisher (1915-1988), who established the Institute of Economic Affairs in London. Tony was so enamored with the idea of setting up free-market foundations that he created an organization for the very purpose of creating more institutes around the world: The Atlas Economic Research Foundation, based in Fairfax, Virginia.

Over 350 Institutes in over 50 Countries

By going to their web site, www.atlas-fdn.org, you’ll discover its virtual directory, which contains the web site links of hundreds of public-policy institutes in 50 countries. Of course, the big names are there, such as Heritage, Cato and the American Enterprise Institute. But you’ll also find dozens of smaller, lesser-known groups in Europe, Asia and Latin America.

Think tanks sometimes have an objective name, like the Independent Institute or the National Center for Policy Analysis, while others are purposeful and include in their title terms like reason, liberty, sound economy or free enterprise. Others are named after a location like Manhattan or Mont Pelerin. Many are linked to famous classical liberal philosophers like Adam Smith, Ludwig von Mises, Friedrich Hayek, Henry Hazlitt, James Madison, Alexis de Tocqueville, Lord Acton and Edmund Burke.

Atlas Leads the Charge

The Atlas Foundation doesn’t think there are enough think tanks. It has a section of its web site devoted to showing you how to set up your own institute. In “The Need for More Institutes,” Atlas quotes Milton Friedman (see above). I noticed several free-market think tanks devoted to environmental issues. None of them are very big. Maybe if they combined forces, they could offer a countervailing power” to the Sierra Club or Earth First.

The Growth of State Think Tanks

There are two strong arguments favoring an ever-growing number of educational foundations and public-policy think tanks. First, the wider number of institutes, the greater the ability to specialize and fulfill the needs of reformers. Adam Smith made this point in The Wealth of Nations. An expanding market permits greater specialization and higher consumer satisfaction.

For example, state and local organizations can deal with local issues. Recently a proliferation of state think tanks have attracted substantial sums and made valuable contributions: The Mackinac Center in Michigan, the James Madison Institute in Florida, the Sutherland Institute in Utah, the Cascade Policy Institute in Oregon. Clearly, these organizations are making fresh contributions and avoiding duplication.

Second, increased competition not only means more specialized demands are being met, but the total amount of contributions to free-market causes is maximized.

What is the optimal number of think tanks? The market test is the ultimate decision-maker: whatever the market will bear. Apparently the optimal level has not been reached. When I asked Mary Thoreau of the Independent Institute, “Are there too many think tanks?” her reply was succinct: “Is the world free? Is competition bad?”

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.

LIBERTY Magazine

By Mark Skousen

A rose is a rose is a rose. But a conservative is a libertarian is a liberal. When labels confuse rather than clarify, they should be dropped.

RESOLVED: That we use political labels as little as possible when describing
people’s ideologies. When somebody asks me, “Are you a liberal? Conservative? Libertarian? I answer, “What’s the issue?” Categorizing someone’s ideas as either “liberal” or “conservative” is often used to avoid real thinking about actual issues.

I refrain from referring to political positions as either “left” and “right” in my writing. I generally use the word “liberal” to describe a person’s spending habits, as in the case of a “liberal” spender–one who is generous or possibly overly lavish. I also occasionally refer to a person who is open-minded and tolerant of other people’s views as being “liberal” minded. “Conservative” on the other hand, seems best used in the context of investing–I call a person who is prudent and moderate in his choice of investments a “conservative investor” (as opposed to “speculative”)–though it also seems reasonable to describe one who wants to conserve time-honored values as a “conservative.” Not surprisingly, I like to be called “liberal” or “conservative” depending on the issue, the action or the mind-set. I dislike being called either if it is a method for throwing me into a convenient ideological box.

The three main reasons why labels are best avoided in political discussions are: (1) Labels are often an inaccurate description of a person’s or group’s views. (2) Labels often become pejorative terms used in character assassination (3) Labels put people into political boxes and keep them there, preventing individuals from objectively considering alternative opinions and changing their minds.

Obsolescence, Left and Right

The terms “left” and “right” came into use after the French revolution. In the French National Assembly, the “liberals” sat to the left of the president’s chair, the “moderates” in the center, and the “conservatives” to the right. Those on the left were designated “liberals” and “radicals” because they wanted to make major reforms in politics and the economy. Their opponents on the right became “conservatives” and  “reactionaries” because they were aristocratic nationalists who wanted to return to the status quo of the ancien regime. Those in the center were the “moderates” who were looking for a compromise. This political spectrum has often been used in describing the signers of our Declaration of Independence. Still, though Thomas Jefferson has often been called a classical liberal, calling him a left-winger seems out of place.

This dichotomy may have made sense during the American and the French revolutions. But once the principles of freedom and constitutional law were established (in America, at least), the “liberals” gradually became “conservatives” by defending the new status quo of liberty and limited government. Turnabout being fair play, in the 20th century the collectivists who pushed to eliminate economic freedom and expand the role of the state became the “liberals” or “progressives.” Having adopted the favorable titles of “progressive,”  “modern” and  “advanced,” they scorned the opposition as  “right-wing” and  “reactionary.” Thus, in the twisted world of political labeling; what the 19th century liberals supported–free enterprise capitalism and laissez faire government–the 20th-century liberals opposed by pushing for big government and interventionism in the marketplace.

Label confusion has reigned ever since, and the political spectrum has become a rhetorical version of Abbott and Costello’s “Who’s on first?” routine. The 19th century liberal ideals became the policies of some (but by no means all) 20th century conservatives.

Marxists, Communists and other international collectivists became the “radical left,” while the Fascists of the 1930s in Italy and Nazi Germany were designated “right wingers” simply because they opposed the “Reds.” But the only difference in their politics was nationalism vs. internationalism. The fascists were every bit as collectivist as Stalin.

Believers in economic and political liberty had a hard time dealing with label stereotypes in the 1950s. They opposed the New Deal and wanted a return to laissez faire, so they were dubbed “reactionary conservatives.” Because they were ardent “anti-Communists,” they were linked closely with the Fascists and Nazi-era “rightists.” Many conservatives responded by saying they were “old fashioned liberals,” but this didn’t mean anything to anyone in the torrent of nebulous labels.

Growing up in the 1950s and 1960s, I resented these and other pejorative labels. It was nearly impossible to convince anyone of the virtues of free enterprise capitalism, laissez faire government, and opposition to communism if my views were always called “reactionary,”  “old fashioned’ and “Neanderthal.” The conservatives responded in kind by calling the New Deal liberals  “radicals,”  “pseudo progressives’ and “communist sympathizers.”  Only the  “moderates” sounded “responsible,” and depending on their position on an issue, they usually got hit by traffic going both ways. There was a lot of bad blood, and very little sharing of ideas. Conservatives refused to read John Kenneth Galbraith and The Washington Post, and liberals eschewed Milton Friedman and National Review.
In the 1970s and 1980s, the labels became more complex and less enlightening as the political stereotypes began to crack. We now witness dictatorships of the left and the right, market economies of the left and right, revolutions of the left and right, and totalitarianisms of the left and right. We have socialist left-wing parties privatizing public services, and conservative rightwing governments imposing tariffs and higher taxes. We have extreme liberal Democrats supporting deregulation of the airlines and decontrol of natural gas. We have the nation’s most liberal newspaper, The New York Times, coming out against the minimum wage. We have a right-wing anarchocapitalist endorsing radical left-wing land reform in Latin America and legalization of drugs in the United States.

In the Middle East we have right-wing Christians killing left-wing terrorists. Soviet opponents of perestroika and glasnost are called “conservatives” by the American press, as are South African racists. Political analysts are having a devil of a time labeling an old “liberal” publication, The New Republic, because its views are no longer predictable. Politicians are now starting to run as individuals and not as members of a political party. And what’s this about conservative lobbyists joining hands with liberal lobbyists to fight IMF funding? None of this makes sense if we insist on dividing the world into the standard left-right divisions.

But, alas, instead of scrapping the entire phony nomenclature, everyone seems to be making up more labels. There’s the New Right and the Old Right, the Southern Conservative Democrats and the Northern Liberal Democrats, the Neo-Conservatives and the Paleo-Libertarians, the Post-Keynesians, the Neo-Marxists, and the  Neo-Liberals. The list goes on and on, growing like topsy and confusing everyone except the most stalwart who spend all day reading everything from every point on the political compass.

Fortunately, some editors and publishers have recently recognized the misleading and counterproductive nature of labeling and have largely discarded it. Reason magazine is one example. Eschewing ad hominem political tags, Reason analyzes issues on their own merits, not based on who espouses them.

For the Scrap-Heap of History

It’s time to make a change in our political lexicon. The national press and the political analysts need to stop using the outdated and misleading leftwing liberal/right-wing conservative dichotomy. When someone’s philosophy is labeled and compartmentalized, thinking stops and name-calling begins. Once an economist is labeled a Marxist, only the Marxists listen. When a political analyst writes a column called “On the Right,” no one except the “right-wing” faithful reads it. Dividing ideology into camps on two sides of the political spectrum tends to elevate both sides to an equal status, as if both policies hold equal sway and are equally justifiable. Then the moderates whisper, “Perhaps we should compromise!”  We are left with the erroneous impression that “the extreme left is just as bad as the extreme right.” Categorizing philosophies leads toward political nihilism and away from the desire to find the truth.

In short, it is high time that political pundits and the national media put away their cold-war mentality and endorse a new standard where each person stands on individual merit and not in some political box. Left and right, liberal and conservative, radical and reactionary–all are words of the past that divide people. I say scrap them. When adjectives are absolutely necessary, let’s at least try to be more specific. Use adjectives and nouns that are meaningful, accurate and unbiased. If we don’t, the war of political ideas will be decided on the basis of an axiom of my colleague, Larry Abraham: “Those who control the adjectives win.”

WALL STREET JOURNAL — THURSDAY, OCTOBER 9, 1997

By Mark Skousen

In 1992, Harvard Prof. Greg Mankiw was paid an unprecedented advance of $1.1 million to produce the “next Salmuelson”–a successor to Paul Samuelson’s “Economics,” the most successful economics textbook ever written, with more than four million copies sold in 15 editions and 41 foreign translations since 1948. Mr. Mankiw’s 800-page “Principles of Economics” has now been published, to great publicity. And for good reason: Mr. Mankiw has written a revolutionary–or rather, counterrevolutionary–work.

Virtually the entire book is devoted to classical economics, leaving the Keynesian model as an afterthought in the end chapters. Mr. Mankiw’s pedagogy is all the more remarkable given that he considers himself a “neo-Keynesian.” His liberal bias has allowed him to do what no other mainstream economist dares: He has betrayed Keynes.

Almost all economics textbooks published in the past 50 years have taken their cue from Mr. Samuelson, whose major influence was John Maynard Keynes’s “The General Theory of Employment, Interest and Money”  (1936).  Keynes’s book taught that Adam Smith’s classical model–founded on the virtues of thrift and balanced budgets, laissez faire capitalism and free trade–was a “special” case and only applied in times of full employment.

Keynes’s model portrayed the market as a driver without a steering wheel, a driver that could push the economy off the road at any time. He taught that the economy needed a large and activist government to steer it on the road of full employment. Keynesianism, or the “new economics,” became widespread–the “general” theory.

Modern economics textbooks thus focused primarily on the ups and downs of the capitalist system and how government policy could attempt to ameliorate the business cycle. They include many chapters studying cyclical fluctuations, while burying the study of economic growth and development–otherwise known as supply-side economics–in the back pages. Now Mr. Mankiw has changed all that, putting classical economics back at the forefront, where it belongs.

This is more than some free-market economists have been able to accomplish in tile past. James Gwartney and Richard Stroup, authors of “Economics: Private and Public Choice” (Dryden, 1997), don’t believe in the Keynesian model of aggregate supply and aggregate demand, or AS-AD, but they were forced to include it by their publisher’s review board, which consists of mainstream economists. Roger LeRoy Miller, author of another best-selling textbook, “Economics Today” (Addison-Wesley, 1997), told me, “AS-AD is a bunch of nonsense, but I’m required to teach it.” (One small victory: Paul Heyne refused to put AS-AD in his “The Economic Way of Thinking” (Prentice-Hall, 1997) and got away with it because he writes for a niche market.)

So, in a Nixon-goes-to-China twist, it took a Keynesian to accomplish what the free-market economists couldn’t–relegating Keynesian models to a minor role in textbooks.

Mr. Mankiw calls his classical model “the real economy in the long run.” His textbook, published by Harcourt Brace’s Dryden Press, teaches that increases in government spending crowd out private capital, producing higher interest rates. Higher thrift and greater savings produce lower interest rates and higher economic growth. Unemployment is caused not by greedy industrialists, but by minimum wage laws, collective bargaining, unemployment insurance and other regulations that raise the cost of labor.

Mr. Mankiw even approvingly quotes Milton Friedman: “inflation is always and everywhere a monetary phenomenon”–not the product of rising labor or supply costs, as many Keynesians believe. In fact, Mr. Mankiw cites Mr. Friedman more than he cites Keynes.

This is not to say that Mr. Mankiw’s textbook isn’t without a few sins of omission. He fails to tell students about the great postwar economic miracles of Japan, Germany, Hong Kong, Singapore and Chile. He also ignores the current debate over Social Security privatization. And there are no references to the great Austrian economists Ludwig von Mises and F.A. Hayek, or to Nobel laureate James Buchanan and the public choice theory he espouses.

But these complaints are small compared with the book’s overall message, that classical economics is now the “general” theory and Keynesian economics is the  “special” case.  Amazingly, Mr. Mankiw doesn’t mention most of the standard Keynesian analysis: No “consumption function,” no “Keynesian cross,” no “propensity to save,” no “paradox of thrift”– and only one short reference to the “multiplier”!

That’s quite a feat for Mr. Mankiw, a man who named his dog Keynes.