Discourse on Voluntary Servitude

We posted about how Alexis de Toqueville was prescient about issues we are facing today. Blogger Clarendon points us back even further, to Etienne de la Boetie who wrote Discourse on Voluntary Servitude way back in 1548. Here he refers to ancient Rome, but the principle about government largesse applies in all times:

Tyrants would distribute largess, a bushel of wheat, a gallon of wine, and a sesterce: and then everybody would shamelessly cry, “Long live the King!” The fools did not realize that they were merely recovering a portion of their own property, and that their ruler could not have given them what they were receiving without having first taken it from them.

The discourse considers “how it happens that so many men, so many villages, so many cities, so many nations, sometimes suffer under a single tyrant who has no other power than the power they give him; who is able to harm them only to the extent to which they have the willingness to bear with him; who could do them absolutely no injury unless they preferred to put up with him rather than contradict him.” Here is another gem:

This method tyrants use of stultifying their subjects [by debasing them] cannot be more clearly observed than in what Cyrus[30] did with the Lydians after he had taken Sardis, their chief city, and had at his mercy the captured Croesus, their fabulously rich king. When news was brought to him that the people of Sardis had rebelled, it would have been easy for him to reduce them by force; but being unwilling either to sack such a fine city or to maintain an army there to police it, he thought of an unusual expedient for reducing it. He established in it brothels, taverns, and public games, and issued the proclamation that the inhabitants were to enjoy them. He found this type of garrison so effective that he never again had to draw the sword against the Lydians.

It’s all worth reading.

Taxing and Spending

President Obama’s budget is going all out. From Obama Delivers $3.6 Trillion Budget Blueprint – WSJ.com:

President Barack Obama delivered a $3.6 trillion budget blueprint to Congress Thursday that aims to “break from a troubled past,” with expanded government activism, tax increases on affluent families and businesses, and spending cuts targeted at those he says profited from “an era of profound irresponsibility.”

The budget blueprint for fiscal year 2010 is one of the most ambitious policy prescriptions in decades, a reordering of the federal government to provide national health care, shift the energy economy away from oil and gas, and boost the federal commitment to education.

Here is a list of the new taxes–some trilllion dollars’ worth over 10 years–that he is proposing:

President Obama’s budget proposes $989 billion in new taxes over the course of the next 10 years, starting fiscal year 2011, most of which are tax increases on individuals.

1) On people making more than $250,000.

$338 billion – Bush tax cuts expire
$179 billlion – eliminate itemized deduction
$118 billion – capital gains tax hike

Total: $636 billion/10 years

2) Businesses:

$17 billion – Reinstate Superfund taxes
$24 billion – tax carried-interest as income
$5 billion – codify “economic substance doctrine”
$61 billion – repeal LIFO
$210 billion – international enforcement, reform deferral, other tax reform
$4 billion – information reporting for rental payments
$5.3 billion – excise tax on Gulf of Mexico oil and gas
$3.4 billion – repeal expensing of tangible drilling costs
$62 million – repeal deduction for tertiary injectants
$49 million – repeal passive loss exception for working interests in oil and natural gas properties
$13 billion – repeal manufacturing tax deduction for oil and natural gas companies
$1 billion – increase to 7 years geological and geophysical amortization period for independent producers
$882 million – eliminate advanced earned income tax credit

Total: $353 billion/10 years

Back to doing it ourselves

The economic downturn is bringing out that old virtue of self-reliance. From washingtonpost.com:

The economic downturn is forcing America’s households to learn a tough lesson: how to fend for themselves.

Sales of starter sewing kits have shot up by 30 percent at Wal-Mart as families forgo the tailor. Landscaping companies have suffered a 7 percent drop in revenue over the past year. Procter & Gamble said that it has noticed more questions from customers about how to dye their hair at home to match salon coloring.

The recession has had a powerful effect on the American state of mind. A Washington Post-ABC News poll released yesterday shows Americans have grown increasingly insecure about their finances since mid-September, as fears about making mortgage payments have spread and more believe the economy is in a long-term, serious decline.

These feelings have helped set off a change in behavior so pronounced marketers and businesses have coined a name for it. They call it “insourcing”: doing yourself what you once gladly paid others to do.

Two-thirds of those responding to the new poll said they’ve cut back on spending, including nearly a third who have pulled back “sharply.” Americans across income groups said they are opening their wallets less often these days.

“There are many of us that have been spending money that we can’t afford to spend and have taken on habits that we had no business taking on,” said Paco Underhill, who studies consumer behavior and wrote the book “Why We Buy.”

Zimbabwe’s stimulus plan

That sad, messed-up nation of Zimbabwe, whose unemployment rate is 94%, finally legalized purchases in foreign currency, thus killing the Zimbabwean Dollar:

Officially, Zimbabwe’s monthly inflation is an unfathomable 231 million percent. Economists scoff at that figure as far too minute. In November, the last time reliable data were available, Hanke calculated it at 79.6 billion percent and proclaimed Zimbabwe “second place in the world hyperinflation record books” — surpassed only by Hungary in 1946.

At one point, the exchange rate for one U.S. dollar was 13 quadrillion Zimbabwe dollars. One egg was selling for $50 billion. You can buy this $100 trillion bill on e-bay (current bid $10.51).

Zimbabwe $100 trillion

Throwing money out of an airplane

John Maynard Keynes, the New Deal era economist whose theories that the government can and should control the economy are back in vogue, said that to combat an economic slowdown, the government should put more money into the system. Even, he said, if that meant dropping money from an airplane.

In Keynesian thinking, if I am understanding him right, it doesn’t matter what the government spends the money on. In the current stimulus plan, road construction, buildup of government agencies, and even pork barrel projects are all equally valid. They inject money into the economy.

Furthermore, the fact that this is all deficit spending does not matter either. In fact, the government HAS to spend money that it does not have and that does not currently exist. If the government spent what it had, that would do no good for a weak economy, anymore than any other normal circulation of buying and spending. For the government measures to work, by this way of thinking, it’s precisely the money supply that has to increase.

But wouldn’t this be inflationary? Yes! This is part of the remedy. Don’t we need housing prices to go up? Don’t we need the value of assets to increase to meet and eventually surpass the amount of the loans for which they were securities?

I believe this is the theoretical justification for what is happening with the stimulus plan. Is this it? (Help us out, EconJeff.) If so, do you think it has a chance of working? If not, how would you critique this theory?

The Neo Deal? The Big Deal? The Raw Deal?

Congress has passed the stimulus package. The Washington Post notes that it is much larger than Roosevelt’s attempt to pull us out of the Depression:

The New Deal of the 1930s equaled no more than 2 percent of the nation’s gross domestic product. The new legislation represents over 5 percent and is probably no more than an opening bid — Obama and his congressional allies will next turn to the foreclosure crisis, the reform of financial markets and an overhaul of federal budget practices.

One of the most liberal Democrats in Congress celebrated the victory of his ideology:

“I think we need to appreciate that the bill is the largest change in domestic policy since the 1930s,” said House Appropriations Committee Chairman David R. Obey (D-Wis.).

Comments the Post: “The legislation represents the start of a new ideological era that places the federal government at the center of the nation’s economic recovery.”

The era of small government, such as it was, is over. Big government is back with a vengeance.

We are in uncharted waters. Worries about deficits assume old-school economics. We are embracing “fiat money,” assuming that since value is relative and arbitrary we need no gold standard or now even labor standards; rather, the state can impose the value of our medium of exchange as an act of power. (Note the postmodernism of all of this: What we have done to truth we are now doing to economics.)

Will this work to restore prosperity, or will the iron laws of economics in all of their objective truth assert themselves? We’ll see.