Jefferson’s First Principle of Association

Originally Published in Flourishing July/August 2010

“To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it.”  

—Thomas Jefferson, letter to Joseph Milligan, April 6, 1816.

Larry Summers served briefly as a Secretary of the Treasury under President Clinton, and later as President of Harvard University, where he got into trouble for inadvertently hinting that boys might have a greater natural aptitude for math and science than girls. He is now a key, behind-the-scenes economic advisor to President Obama, having lost out to Tim Geithner as Obama’s Treasury Secretary.

In a New York Times article, The Return of Larry Summers, published on November 26, 2008, David Leonhardt told his readers about one of Summers’ favorite economic arguments: Require every household in the top 1% of American income earners, who as a group have an average annual income of $1.7 million, to write a check for $800,000. This money could then be pooled and used to mail a $10,000 check to every household in the bottom 80 percent of income distribution, those making less than $120,0001.

Leonhardt’s story may only be symbolic, but it is instructive. I see several problems with Summers’ idea.

First is the fact that the $1.7 million is an average. Many households earning less than $500,000 are also in the top 1%. The threshold income to be in the top 1% was $410,096 in 2007, the latest year for which data is available2. Their tax rate would not be the roughly 47% envisioned by Mr. Summers; it would approach 195%. (It’s an important fact, too, that the makeup of the top 1% is constantly changing, as people with new ideas and special talents migrate from the lowest levels of income distribution to the top.)

Second, I believe that Mr. Summers is advocating government-sponsored armed robbery on a heroic scale. I suspect that many among the top 1% might resist having their earnings from whatever source – intellectual and artistic endeavors, business interests, professional practices, or investment, for example – snatched so imperiously. After all, does Summers’ proposal differ in any basic respect from private citizens taking the matter of income inequality into their own hands? It’s probably true that rich people won’t draw their six-shooters to defend their income from the government, but they might well vote with their feet. Talent and Capital tend to reside where they’re treated best.

Third, it’s widely known that Warren Buffett, the world’s third richest man, is very conservative in his personal spending habits, as was Sam Walton, the founder of Walmart.3 Those two may be exceptions of a sort, but the few hundred mansions, yachts, and airplanes belonging to others among the top 1% pale into insignificance alongside the total consumption of the general population. Moreover, a significant portion of the consumption of the wealthy, who are so often demonized as greedy fat-cats, takes the form of support for universities, hospitals, research facilities, theater and music companies, museums, libraries, and churches; to name just a few of their non-profit pursuits.4

Finally, contrary to the myth of conspicuous consumption, most of the wealth owned by the top 1% is held in the form of business, financial, and industrial assets.5 The wealthy and their productive capital can serve consumers throughout the world by producing a vast array of goods and services, or by financing that production, or by paying the wages, salaries, and benefits of a substantial percentage of America’s workforce. The intended beneficiaries of Summers’ scheme should already enjoy a magnificent range of benefits derived from the savings and investments of all Americans, including the invested wealth of those at the top.

I believe that widespread understanding of this issue is critical for America’s return to lasting prosperity; and that economists like Larry Summers and politicians like Barack Obama simply do not appreciate (or care?) that their redistribution policies may limit the formation of productive capital and the creation of well-paying, private-sector jobs. The history of forced wealth and income redistribution is replete with examples.6

In my opinion, Summers’ favorite economic argument does not really benefit the bottom 80%. Rather, forced redistribution of wealth and income consumes the savings and capital of America’s most productive citizens, or drives it and them offshore. My reading of history indicates that such policies have no lasting beneficiaries, only victims. And, most importantly, I believe Thomas Jefferson observed correctly that the forced redistribution of wealth and income is a first-order violation of human rights. mh

1 http://georgereismansblog.blogspot.com/.

2 http://www.ntu.org/tax-basics/who-pays-income-taxes.html.

3The World’s Billionaires, Forbes Fact and Comment, March 10, 2010. 

All the Money In the World, Peter Bernstein (editor), Knopf, 2007.

4 Caroline Bermudez, “Wealthy Are Making Bigger Gifts to Charitable Causes”, Chronicle of Philanthropy, July 1, 2010. (http://philanthropy.com/article/Wealthy-Are-Making-Bigger/66112/).

5http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

6 The Ascent of Money: A Financial History of the World, Niall Ferguson, Penguin, 2009.

The Virtue of Saving vs. J.M. Keynes

Originally Published in Flourishing July/August 2010

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on the well-tried principles of laissez-faire to dig up the notes again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there would be no more unemployment,…the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.”

—John Maynard Keynes, The General Theory of Employment, Interest, and Money, Great Minds Series, Prometheus Books, 1997, p 129.

The term “Keynesianism” is in the news, and several of you have asked me, in effect, “What is Keynesianism?” Sadly, the answer is embedded in the nonsense quoted above, but the question deserves a more definitive response.

Keynes was a British subject who lived from 1883 to 1946. The work cited above was first published in New York City by Harcourt, Brace, and World in 1936. Keynesianism is the economic school of thought derived from Keynes’ work, as developed in his “General Theory”. It’s in the news because it’s the economic policy of the Obama administration and the current Congress, e.g. “stimulus” spending, financed by new government debt.

The fundamental aspect, then, of a Keynesian “stimulus package” is the government’s deficit-financing of consumer spending and make-work projects. Keynesians assume that this will cause an increase in employment and production as a way of replacing what is consumed by the stimulus spending. In some degree that may be true; just as consuming one’s savings and acquiring more debt may motivate an individual to seek a second job. I believe the bankruptcy courts might show that’s generally not a good plan.

Our representatives in Washington perennially promise to avoid wasteful spending, but from the point of view of Keynesianism, the bigger the make-work project, the better. That was made clear by Keynes himself in the citation above. And, he continued on the same page with this little gem: “Pyramid-building, earthquakes, and even wars may serve to increase wealth.” If that’s all true, the BP oil spill, along with a good hurricane, should serve to enrich the gulf coast. And, instead of filling up coal mines with bottles of banknotes, we should spend “stimulus” money on today’s equivalent: “green jobs”.

Sarcasm aside, what the economic system really needs for recovery – whether from natural disasters, industrial accidents, or a severe economic recession – is saving and the accumulation of new capital, not deficit spending and make-work projects. In the wake of the housing and mortgage meltdown, new saving and capital accumulation could replace the financial capacity that was lost through the mal-investments of homeowners, homebuilders, banks and other financial institutions. Savings and capital accumulation represent money that can be put to work by businesses (large and small), producing goods and services that meet the real wants and needs of consumers. It’s in that process that real new jobs are created. It’s my opinion that the virtuous cycle of job-creation and prosperity begins with saving (not spending):

Saving leads to capital accumulation, which leads to greater productive capacity—including the creation of productive jobs—which leads to more consumer choice, which leads to more consumer spending and the satisfaction of individual wants and needs, which leads to business profits, which leads to saving and capital accumulation, etc.

Antithetically, Keynesianism—as history and logic have repeatedly shown—destroys savings and capital investment through deficit-financed government spending.* mh

* George Reisman, Keynesianism: A Critique, Capitalism: A Treatise on Economics, Chapter 18, pp 863-894,   Jameson  Books, 1996.

Washington’s Purposeful Will

Originally published in eFlourishing Issue 34, October 27, 2010.

I’ve just recently joined a professional development collaborative led by John A. Warnick, founder and CEO of the Purposeful Planning Institute, based in Denver. John A. was formerly a partner in the Denver office of Holme Roberts & Owen LLP, a prestigious international law firm.

The Purposeful Planning Institute provides its collaborators with weekly and monthly conference calls and regular on-site training sessions at varying locations around the country. I expect to add to my understanding of issues related to intergenerational wealth transfer from this collaborative, and I hope to translate what I learn into practical benefits for clients.

This week, though, I just want to share something I gained from a personal telephone conversation with John A., and from my membership in the Purposeful Planning Institute collaborative.

George Washington – my great-grandfather’s namesake – has taken a lot of heat over the past couple of decades – despite his indispensable role in America’s founding – because, it is alleged, he didn’t free his own slaves. In response to that line of thinking, I’ve always said that the man deserves immeasurable credit for helping to lay the foundation for the actions of Abraham Lincoln and others, who are more widely recognized for their advancement of civil rights equality. And, I’ve said, you have to give a man his historical context.

So, I was delighted to learn about Washington’s 16-page, handwritten will. You can go online and google it for yourself, but here, thanks to John A. Warnick, is a transcript of the relevant portion.

Upon the decease of my wife, it is my Will & desire that all the Slaves which I hold in my own right shall receive their freedom. —To emancipate them during her life, would, tho’ earnestly wished by me, be attended with such insuperable difficulties…And whereas among those who will receive freedome according to this devise, there may be some, who from old age or bodily infirmities, and others who on account of their infancy, that will be unable to support themselves; it is my Will and desire that all…shall be comfortably cloathed & fed by my heirs while they live; —…And I do expressly forbid the Sale, or transportation out of the said Commonwealth, of any Slave I may die possessed of, under any pretence whatsoever. —And I do most pointedly, and most solemnly enjoin upon my Executors…to see that this clause respecting Slaves…be religiously fulfilled.

Washington went on to establish a trust fund for the establishment of a free school for educating the children of poor and indigent slaves.

Isn’t it amazing what I didn’t learn in school? Until next week,

PATIENCE, DISCIPLINE, and CONFIDENCE in the FUTURE! Mh

 John A. Warnick and Purposeful Planning Institute are not affiliated with, nor endorsed by, LPL Financial. 

Thank you, Dr. Lindzen

Originally Published in eFlourishing Issue 6, March 2, 2010

Over the past twenty plus years, Dr. Richard Lindzen has been one of the scientists most maligned by the global warming orthodoxy. Dr. Lindzen, an atmospheric physicist, is the Alfred P. Sloan Professor of Meteorology at MIT. Naturally, that qualification didn’t prevent his being labeled (should I say libeled?) as a “global warming denier” and an “oil industry puppet” by global warming alarmists. Incidentally, I don’t feel either of those charges are true. More to the point of this essay, Dr. Lindzen’s criticisms of the global warming establishment are now being vindicated, albeit ever so quietly in the media.

One very good example of Dr. Lindzen’s long-standing concerns is a paper written for the Cato Institute, published in the Spring 1992 issue of their periodical, Regulation. The title of the article was Global Warming: The Origin and Nature of the Alleged Scientific Consensus.

My favorite line from that 14-page report is this matter-of-fact statement in the first paragraph:

I must state at the outset, that, as a scientist, I can find no substantive basis for the warming scenarios being popularly described. Moreover, according to many studies I have read by economists, agronomists, and hydrologists, there would be little difficulty adapting to such warming if it were to occur.

Dr. Lindzen goes on to acknowledge a substantial increase in CO2 levels over the past two hundred years. He then discusses popular misunderstandings of the “greenhouse effect” and the contribution of CO2 according to his research.  For example:

The main absorbers of infrared in the atmosphere are water vapor and clouds. Even if all other greenhouse gases (such as carbon dioxide and methane) were to disappear, we would still be left with over 98% of the current greenhouse effect.

He discusses the science of atmospheric temperature variation – and lack thereof – at some length, but comes to the crux of the current problem in a section entitled Consensus and the Current “Popular Vision” (quotes in the original):

The growth of environmental advocacy since the 1970’s has been phenomenal. In Europe the movement centered on the formation of Green parties; in the United States the movement centered on the development of large public interest advocacy groups. Those lobbying groups have budgets of several hundred million dollars and employ about 50,000 people; their support is highly valued by political figures. As with any large groups, self-perpetuation becomes a crucial concern. “Global Warming” has become one of the major battle cries in their fundraising efforts. At the same time, the media unquestionably accept the pronouncements of those groups as objective truth. 

Dr. Lindzen then offers several pages of examples of highly qualified, but skeptical, scientists being denied funding for their climate science research and/or being denied the opportunity to publish their findings. He then asks,

Why, one might wonder, is there such insistence on scientific uniformity on the warming issue? After all, unanimity in science is virtually non-existent on far less complex matters. …Biologists and physicians are rarely asked to endorse some theory in high energy physics. Apparently, when one comes to “global warming”, any scientist’s agreement will do. The answer almost certainly lies in politics.

As to the motivation of the global warming alarmists, Dr. Lindzen quotes former Berkeley professor of political science, Dr. Aaron Wildavsky:

Warming (and warming alone), through its primary antidote of withdrawing carbon from production and consumption, is capable of realizing the environmentalist’s dream of an egalitarian society based on the rejection of economic growth in favor of a smaller population’s eating lower on the food chain, consuming a lot less, and sharing a much lower level of resources much more equally.

Dr. Lindzen does have a sense of humor about the environmentalist lobby’s proposed diminutions of human progress:

In many ways Wildavsky’s observation does not go far enough. The point is that carbon dioxide is vitally central to industry, transportation, modern life, and life in general. It has been joked that carbon dioxide controls would permit us to inhale as much as we wish; only exhaling would be controlled.

In my opinion, the end of the global warming hysteria is near, if not at hand. Cap and trade – the death of industry tax on carbon emissions – is itself all but dead.  A year ago that measure seemed almost sure to pass through Congress and become the law of the land. It was supported not just by Obama, Reed, and Pelosi, et al, but by such notable republicans as John McCain and Lindsay Graham.

It is my sincerest hope that scientists like Dr. Richard Lindzen will finally be recognized for their beliefs. If there is such a thing as a Galileo Galilei Prize for Scientific Integrity, I feel Dr. Richard Lindzen is among the most deserving.

Recommended Reading

Originally Published in eFlourishing Issue 8, March 16, 2010

Michel Grandin was ten years old when he saw the plane go down on June 10, 1944. It had been strafing a German convoy, when the pilot apparently misjudged the height of an approaching tree line – one of those infamous and ancient hedgerows of Normandy.

 Michel’s father forbade him to run to the crash site, though he, a local carpenter, and the village priest did so. While these French patriots waited in the nearby woods, German soldiers policed the scene of the crash, taking the pilot’s identification and a few pieces of the wreckage of ConJon IV, a magnificent, scarlet-nosed P-51 aircraft. Later that night, Michel’s father and the priest recovered and took care of the pilot’s body, prepared a casket, and held a private funeral service. They buried Conrad J – the only name they knew to give him – in their church cemetery.

Katherine Henderson was born in 1923. She graduated from the most beautiful high school in the nation (according to Life Magazine) in 1940. She married Conrad John Netting, III in 1943. Within a year of the wedding, Katherine was a widow. Her only child, Conrad Netting, IV was born in San Antonio, Texas just one month after his father died in France.

That’s about all I can write through damp eyes. You’ll have to read Delayed Legacy* by Conrad John Netting, IV – and I sincerely hope you will. In it you will meet the most generous and elegant people of Saint-Michel-des-Andaines, and of San Antonio, Texas, too.

*Delayed Legacy, Conrad John Netting, IV, Maverick Publishing, San Antonio, 2005.

Governed by Principles, Not Gangs

Originally Published in Flourishing November 2010

Once again, we approach the end of silly-season, that time in our lives when politicians excuse themselves of responsibility for their screw-ups, and renew their promises to make everything right. What irritates me about elections, though, is that our candidate choices seem to know very little about our nation’s history or its fundamental founding principles.

Perhaps this time it will be different, but recent history doesn’t offer a lot of hope. According to former President Bill Clinton, the right to vote is “the most fundamental right of citizenship”. John McCain says that the right to vote is “the heart and soul of our democracy.”  Seems innocent.

In fact, voting is an important responsibility of citizenship, because it is our last best defense against tyranny. But, it is not the most fundamental right of citizenship, and democracy is not the essential aspect of our government.

I think Jefferson meant something like that when he said, “All, too, will bear in mind this sacred principle, that though the will of the majority is in all cases to prevail, that will to be rightful must be reasonable; that the minority possess their equal rights, which equal law must protect, and to violate would be oppression.”  The relative size of its gang doesn’t give any political party the right to abuse the minority, any minority.

I’m quite certain that Jefferson wasn’t referring to minorities only in the sense of race or ethnicity. He was, rather, including the smallest minority of all, the individual.

 As you go to the polls this election day, remember that what makes America unique in all of human history is not that it has elections. Iran has elections. Our task as citizens and voters—especially this year—is not just to choose which gang will be in charge of government institutions. It is to renew our commitment to liberty, and to remind all of our elected officials that our elections take place in a country–our country—whose government is limited by the sacred principle of individual rights. mh