Cap and Trade is Obama’s Smoot-Hawley

June 30, 2009

History repeats itself.  It is amazing how similar the 1920s and 2000s have become.  First, were the unsustainable economic booms; then came the busts.  Of course the easy money policies of the Federal Reserve caused both busts.  Then there is the government’s response to both crises – public works programs, lots of stimulus spending, more easy money by the Fed, and tax hikes on the rich.  For sure, these policies did not cure what was ailing the economy in the late 1920s and they are not curing our economic ills today in the late 2000s.  Really, the only dreadful piece of the government’s response to the crisis in the 1920s that is missing from today’s response is trade protectionism. 

Hold on one minute.  The House this past week passed the president’s cap and trade legislation.  Now, I know that cap and trade has nothing to do with trade between countries and protectionism.  It is not legislation intended to protect domestic products against foreign competition like the Smoot-Hawley Tariff was intended to do in 1929.  Instead, cap and trade is intended to protect the environment against foreign substances.  On the surface, to compare the two measures is a stretch.  However, the consequences of cap and trade if passed by the Senate will be very similar to those of Smoot Hawley during the Great Depression.

In 1929, the Smoot-Hawley Tariff placed duties on thousands of imported products in order to make them less competitive against domestic U.S. products.  Naturally, our trading partners placed equally heavy tariffs on U.S. goods entering their countries.  This had the effect of raising the costs of all good at a time when many were losing their jobs and couldn’t afford to pay more for things.  It is acknowledged by many economists that Smoot-Hawley and the wave of international trade protectionism that it brought forth was a major contributor to worsening an already sharp economic downturn.

Similarly, cap and trade will raise costs for consumers on virtually every product they buy.  Because the goal behind the legislation is to artificially hike the price of electricity and gasoline in order to lessen their use by Americans, higher prices will appear for everything made in plants that use these resources.  This naturally includes everything from food to computers to trucks.

To their credit, Americans are already hoarding their money.  A report last week indicated that the household savings rate in this country has jumped to 7 percent – the highest rate in years and up from 1 percent in 2007.  Higher prices on goods caused by cap and trade are not going to reverse this trend.  As a matter of fact, according to the Heritage Foundation, cap and trade will significantly increase necessary household energy costs by at least $1500 a year.  Cap and trade amounts to nothing more than a tax increase on everyone – including middle class Americans thus another Obama campaign promise broken.

The Smoot-Hawley tariff contributed to the crippling of the American economy during the Great Depression.  Cap and trade, although not a trade protectionist measure, will have similar consequences during this depression.  It will raise the cost of living which will make consumers cut back on spending further.  Production will then decrease further and unemployment will increase more.  Perhaps it’s already too late, but if our so called leaders would just read the history books they could save us a lot of economic hardship.


HR 1207 Must Become Law!

June 14, 2009

Contacting your congressperson to ask them to cosponsor legislation you believe in does work.  Oh, we are always told that members of Congress care about the views of the folks back home.  But, being a libertarian, I am usually on the other side of every political decision that is made. I mean, I haven’t voted for a presidential winner or even the runner up in that contest since 1988.  It is lonely in the political wilderness.

That is why this week was special.  HR. 1207 Federal Reserve Transparency Act of 2009 would “amend title 31, United States Code, to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States.”  In other words, the legislation would force the Fed for the first time in its 95 year history to come clean and submit to an audit similar to the ones carried out against other private banks.

You see, in the last month I have sent two letters to my congressman Heath Shuler D-NC 11th District, asking him to cosponsor this legislation.  This past Tuesday, I received a response from my representative that was somewhat ambivalent to say the least.  The congressman indicated he was a little uneasy with the legislation because “…it is critical that the Board of Governors (of the Fed) not be politicized. This institution is meant to be a part of the government, but it must remain independent of short-term political pressures.”  Feeling a bit down because I had been once again rejected politically, I decided that this week’s blog would blast the 2 term congressman for his short-sightedness and for turning his back on taxpayers.  However, much to my astonishment, on Friday I found out the congressman had committed to HR 1207 and became its 222 cosponsor!  At last, a brief reprieve from the political wilderness.

In fact, things are looking a little up for us libertarians.  And it is about time – being that we are the political descendents of the Enlightenment thinkers and American Founding Fathers that helped usher in the modern world with its respect for economic and personal freedoms.  HR 1207 currently has 224 cosponsors and the numbers are surging (34 new ones since Tuesday)!  That is more than a majority of House members.  It is by far the most serious threat that the economic oligarchs at the unconstitutional Federal Reserve have ever encountered.

Economic oligarchs?  That is what the Fed is.  It is no less a cabal of economic central planners than the old Soviet Politburo (just as effective as well).  In 1913, Congress gave away its control of our money to the Fed through the Federal Reserve Act.  The Central Bank has dictated monetary policy without congressional oversight ever since.  The elected 535 members of Congress have no say whatsoever under current law on the 12 unelected members of the Federal Open Market Committee and their decisions on interest rates, buying and selling of government debt, and the printing of new money.  Congress cannot force Fed chairman Bernanke to give an accounting of where the $11 trillion of new money and credit have gone since the beginning of this recession.  Every act of the Fed is carried out with almost perfect secrecy and impunity. 

But again, things are finally and rightly moving against the Fed.  Perhaps the last straw for Congressman Shuler and the other 33 cosponsors of HR 1207 since Tuesday was the testimony of Bank of America’s CEO Ken Lewis that Bernanke threatened and bullied him into finalizing BOA’s takeover of Merrill Lynch.  The threats to his and the Board’s jobs given by Bernanke and Paulson were inappropriate and probably illegal.  If this is what it takes to finally get a long overdue report of the Fed’s secret activities, activities which affect every American deeply, then so be it. 

As the Fed controls the very lifeblood of our economy every American should get involved in this issue.  Technology has made this very easy.  Contact your congressperson at Roll Call – and either thank them for cosponsoring HR 1207 or request they do so.  The fight for passage of this indispensible legislation has just begun.  This commentator is under no illusions about the battle that will be waged to oppose it.  But, one thing is certain.  Contacting members of Congress is an effective way for citizens to support good legislation – even for lonely libertarians.

House Republicans Must Be Joking

June 8, 2009

Thomas Jefferson said, “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”  Certainly, our current unhappiness as a nation can be partially attributed to the fact that for at least the last 38 years we have allowed government at all levels in the United States to rack up enormous debt in the name of providing for the needs of the American people.  The $400 billion national debt in 1971 has ballooned to well over $11 trillion today.  Our national debt as a nation has gotten so bad that the ratio between debt and GDP will soon be one to one.  Most sane Americans agree that the lunacy must end.

The President, however, doesn’t see things quite the same way.  He has proposed a $3.5 trillion budget for fiscal year 2010.  Besides being the largest budget proposal in the history of the republic, it is filled with items the President claims the American people need.  You know the same kinds of expenditures which have traditionally produced huge deficits and sent our total debt into the stratosphere – more for college loans, worker retraining, nutrition, health and housing programs.

But, this article is not about the President’s insane budget proposal.  It is about the response to it by the opposition party, the so called conservative party of the two major parties in the U.S. – the Republican Party.  This week, responding to a challenge by the President to propose cuts in his budget, the House GOP acquiesced and submitted their recommendations for lowering federal spending.  They proposed spending cuts totaling $23 billion over the next five years.  You heard right, spending cuts averaging $4.6 billion a year for the next five years. That amounts to one-ten thousandth of a percent of the total Obama budget!   House Republicans must be joking. 

Now, the Republicans led by House GOP Whip Eric Cantor of Virginia, are right to propose elimination of federal spending on building sidewalks and bike paths and hiring crossing guards.  But, in a $3.5 trillion budget this is the best they can do?  What about slashing the budgets of various federal departments by half?  Take the Education Department for instance.  It’s unconstitutional and doesn’t educate one kid.  If we cut its budget by half, we could save another $23 billion a year.  Then there are the extortionists over at the Transportation Department.  $73 billion a year is given to this bureaucracy so they can take state funds, attach strings to it, and send it back to the states as a gift to them to improve our highway structure.  Why not let the states keep their own revenue and decide how best to spend it locally?  We would save billions a year just in salaries.  How about the Energy Department?  Aren’t we still dependent on foreign oil?  A slashing of fifty percent here would save $13 billion.  Lastly, there is plenty to be cut at the Commerce Department.  Do we really need a federal agency to promote American products abroad?  Isn’t that what the weak dollar and advertising budgets are for?  In Obama’s budget he has allocated $7.4 billion dollars to Commerce for the 2010 Decennial Census.  If we could reduce the census to its original format, simply counting heads for congressional apportionment and not bathrooms and outhouses on properties for God knows what we could save billions.  The total savings just by cutting these few departments’ budgets in half comes to $80 billion per year.  Now we have a start toward fiscal solvency.

In any event, like the mantra that Obama represents real change the idea that the current Republican Party would have the courage to do the rights things as the opposition party was a pipe dream.  Eric Cantor, one of its leaders in the House is emblematic of this.  Cantor served in the House through the Bush years and voted for almost all big spending schemes.  He consistently voted for Bush budgets which nearly doubled the national debt in eight years.  He voted for Bush’s defense authorization bills, lavish federal department appropriations, the $150 billion “stimulus” bill of February 2008, and the $700 billion TARP (twice).  It’s no wonder the best he could do was come up with an amount of spending cuts that don’t even deserve the title “infinitesimal.” 

Sadly, as our day of financial reckoning approaches there are still no real leaders in charge in Washington to put an end to the lunacy that is federal spending.  Both the Democratic and Republican parties are more interested in helping their own cause than in doing what is right for the country.  Ultimately, doing what is right for the country is what Americans really need.