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Running Head: AMERICA’S DECLINE: INDIVIDUALISM AND CAPITALISM 1

America in Decline:

The Abandonment of Individualism and Centralization of Economic Decision-Making,

and How to Change Course

Kreshnik Hasko

The School of Public Affairs at Baruch College, City University of New York

Author Note

This research paper was prepared for the Master’s thesis of spring 2013 semester for

Public Affairs 9190: Capstone Seminar, Section UT, taught by Sonia R. Jarvis of the School of

Public Affairs at Baruch College, City University of New York.

Correspondence cornering this paper should be addressed to Kreshnik Hasko.

Contact: [email protected]

Cell: 347-739-5953

mailto:[email protected]

AMERICA’S DECLINE: INDIVIDUALISM AND CAPITALISM 2

Table of ContentsAbstract............................................................................................................................................4

Introduction......................................................................................................................................5

Methodology Review.....................................................................................................................11

Literature Review..........................................................................................................................31

Articles of Confederation and the Constitution.........................................................................32

The Great Retreat from Federalism...........................................................................................32

Stampede on Representative Government.............................................................................32

Roots of Socialism..................................................................................................................33

Big Government.....................................................................................................................34

The Constitution under Assault..................................................................................................35

The Founding Fathers Ignored...............................................................................................35

Federal vs. National Constitution...........................................................................................36

Abandoning the Natural Law.................................................................................................37

The Center of Balance............................................................................................................39

Judicial Oligarchy...................................................................................................................41

Individual Freedoms in Decline.................................................................................................43

From the Citizen to the State..................................................................................................43

Plunder by Law......................................................................................................................44

Subjects, not Citizens.............................................................................................................45

Freedom vs. Security..............................................................................................................46

Planning and Democracy...........................................................................................................47

The Great Utopia....................................................................................................................47

Collectivism over Individualism............................................................................................49

The Welfare State and the Dependent Class..........................................................................52

The Fallacy of the Nordic Model...........................................................................................59

The Immoral Entitlement State..................................................................................................63

Deficits of Mass Destruction..................................................................................................63

Moral Hazard Issue of Civil Society......................................................................................66

Nationalized Healthcare.........................................................................................................67

Economic Control and Centralization of Economic Decision-Making.....................................69


Short-term vs. Long-term.......................................................................................................69

Spending Our Way to Prosperity............................................................................................71

Broken Politics and Unaccountable Politicians......................................................................81

Central-Planning.....................................................................................................................83

Monopolistic State..................................................................................................................92

Crony Capitalism....................................................................................................................97

Taxation without Representation..........................................................................................101

The Cures and the Solutions....................................................................................................103

Separation of State and the Individual.................................................................................103

Capitalism and Freedom: End Central-Planning..................................................................110

Decentralization of Power....................................................................................................116

Shrink Big Government........................................................................................................118

Reform the Federal Reserve.................................................................................................121

Entitlements: Ending the Great Ponzi Scheme.....................................................................126

Tax Reform: Fair and Balanced...........................................................................................139

The National Deficit: Time for Fiscal Discipline.................................................................144

Where Do We Go From Now?.............................................................................................151

Conclusion...............................................................................................................................152

References....................................................................................................................................154

Appendixes..................................................................................................................................165

Appendix A – Miscellaneous...............................................................................................165

Appendix B – Opinion on Government...............................................................................184

Appendix C – Entitlements and Welfare..............................................................................192

Appendix D – Spending and Interest Rates..........................................................................198

Appendix E – Taxes.............................................................................................................205

Appendix F – Size of Government and GDP Growth..........................................................212


AbstractThe short history of the United States points toward freedom, progress, and prosperity. The

Founders assembled a Constitutional Republic on the principles of limited representative

government, individualism, and free-market economics. The Constitution kept the government

small and efficient. America became unique because of the political genius of the Framers. The

Framers cured the evils of government’s expansion in interfering with personal freedoms.

Protecting personal freedoms meant that government could not interfere in the free-market;

instead its role was to create the right conditions for laissez-faire to thrive. Since then, America

has drifted away from these principles. These sacred principles have been severely weakened,

reinterpreted, or eliminated. Individualism is weaker than ever, as the government has grown at

the expense of the states and the people. Free-market economics have been demonized as evil

and immoral, as the government has taken the role of directing the economy. Individualism and

free-market economics have been replaced with collectivism and centralization. The Framers

understood this danger and warned us of its consequences. America is no longer the unique hope

of the earth; instead it is a country under decline and erosion because we are destroying

ourselves. This is not a temporary decline: it is here to stay permanently. If America is to make a

comeback, it must return to its founding principles: individualism and free-market economics. If

America became successful because of these principles, what’s the rational for moving

backwards? The American people deserve a freer and prosperous country, as it was established

by the Framers.

Keywords: America in decline, individualism, collectivism, centralization, Constitution,

representative government, big government, revitalize America


Introduction

America in Decline: The Abandonment of Individualism and Centralization of Economic Decision-Making,

And How to Change Course

Individualism and capitalism are two distinct topics that have defined the history of

mankind. The United States is one particular exemplary exception. The New World and the

American Revolution was a test of time—men and women seeking liberty and freedom from the

oppression of centralized political and economic monarchies of Europe. The European way of

wars and brutality of kings’ rule, led to great expeditions to find salvation. This salvation was the

freedom of religion, speech, liberty, etc. The establishment of the United States with the defeat

of the mighty British Empire proved that this experiment was possible. The rise of the United

States to global power proved that these principles were sound and effective. The Rule of Law,

Constitution, and the Bill of Rights proved the key toward achieving the great experiment, which

no other civilization had ever attempted. Few European nations that tried such experiment failed

and succumbed back toward monarchy and oppression, because they were not able to maintain

those principles. The Constitution written by the states served as the main function of providing

states and people the power specifically not delegated to the government. Individualism and

capitalism led America to prosperity. This unique trend is under assault. America is in decline

precisely because we have ignored the Constitution and the principles of our founding fathers.

The Founders assembled a Constitutional Republic based on the principles of the

Constitution—freedom, individualism and free markets. Individualism is about self-reliance,

being independent, and opposing external interference. A free market relies on economic

freedom, free of government intrusion (laissez-faire), and capitalism. This political achievement

surpassed all the previous civilizations, dating back as far as 5000 years. Individualism is a


requisite for economic freedom and vice versa. America succeeded because of the ingenuity of

the Constitution, which the Founders believed would empower individualism to thrive. Once

individualism thrived then capitalism was possible. America prevailed in such short time, which

proved the remedies of the Founding Fathers. Government was small and efficient in preserving

individualism and creating the right conditions for economic prosperity. America became liberal,

industrial, wealthy, and a global power. It attracted immigration, talent and ingenuity, and was

destined to become the hope of the earth.

As fast as America expanded to unimaginable heights due to these principles, challenges

and obstacles lay ahead. As time passed, these principles began to fade, and the greatest fear that

had led men and women to cross the Atlantic to seek salvation came to reality: the rise of

collectivism and economic central-planning. The trend of limited central-planning and the power

of the people to steer the government faded away, and faded fast. It’s the main reason why

America is under decline today. Government has grown to epic proportions because the

abandonment of individualism and centralization of economic decision-making through central

planning seem to have no limits. Powers not delegated by the Constitution toward the federal

government have been enacted. Government branches grow and compete for power at the

expense of the Constitution. The individual citizen and the state rights are at the mercy of a

powerful central government.

It’s the reason why in the future America will not be the great prosperous country it was

in the past. This paper concerns the question of whether government’s growth has been

beneficial or harmful. After answering this question, more evidence is presented based on the

status on individualism and economic decision-making through centralization. These two trends

are the most important aspects in our society. It’s what defines our laws and system of


government. Individualism relates to liberty and economic decision-making relates to free

market economics, two pillars of our foundation.

With the progress of time, these principles came under the skepticism of the Progressive

movement. This gave rise to collectivism and centralization. Collectivism is the belief that

individuals are not wise and capable enough to command their own lives. Someone needs to

guide the community and the well-being of society. This role was transferred to the government.

As in collectivism, capitalism came under distrust. Again, instead of relying on the free markets

and individuals, government was much clever in handling economic-decision making for society.

As a result, individualism and capitalism came under assault. The Constitution became a target

of reframe and reinterpretation. In order to adopt collectivism and centralization, growing the

size of the government was necessary. The result is that individualism and economic freedom are

declining because citizens are giving up freedom in the belief that it will provide long-lasting

security.

Representative government was made possible as the Constitution served as an

instrument for the people to restrain government. Federalism served as a check and balance on

power. The competition for power in Washington has shredded the limitations of checks and

balances. Collectivism and centralization have eroded the power of the people and the states. The

Constitution once praised and held high, is ignored at the expense of a monolithic government.

America is on the great retreat from Federalism. Representative government is in decline.

Individual freedoms are shrinking, as the alarming transfer of power shifts from the citizen to the

state. It’s the relentless quest for the Great Utopia toward collectivism and centralization. Big

government defeats the purpose of the Framer’s vision: that of the Constitution and the unique


system of our Constitutional Republic. It defeats individualism and free market economics, while

transforming the political system into Social Democracy.

Today, this is one of the greatest arguments, which not only defines our history, but will

also define future generations. It is the greatest challenge and debate. Issues such as the national

deficit, inefficient government, and the growth of federal power over the states, leads us to ask

the question of whether we have forgotten the principles of our Founders. If so, then what will

our future look like? Will the next generations enjoy the same America that made it the one

exception in the world? Is the great American experiment dead? These are difficult questions,

but if we cannot face them, then we might as well as let our country on the path down into the

drain. The American people are concerned. America is in decline and this is an irrefutable fact.

Americans should worry about the status of the country and take a closer look how far we have

drifted from what the Framers warned us. Our founding principles are under attack. It’s time to

face this decline and be honest with ourselves. It’s time for Americans to understand the decline.

It’s time to build a future for next generations—otherwise there might be no promising future

ahead. It’s not just a question of a future, but a prosperous future.

Prior studies and reports reveal similar traits. Past research revealed the early warnings of

a growing government. Most literature was dedicated toward the chaos that had engulfed the

world. Governments from different parts of the world were under the rule of Socialism,

Despotism, Communism, or other brutal regimes. America was considered unique and alone in

this category, with the exception of Great Britain and other small isolated countries, which

shared the same perspective as the U.S. This literature warned Americans toward the dangers and

the great utopia that all these brutal regimes offered. These regimes were so enticing, that they

promised a perfect world. It’s the perfect trap of giving up representative government for a


government handout in return. The greatest fear is internal rather than external. America could

withstand all the evils out there. Whether it was the nineteenth century imperial European

powers, Imperial Japan or Nazi Germany, America proved that external threats could not bring it

down. Maybe its strategic geographical location was critical, but America possessed the most

vital weapons: human capital and a vigorous economic system. As for human capital, there was a

culture of rolling down the sleeves and doing everything possible to achieve the goals. The

American Dream was alive and prospering. Immigrants from all over the world could succeed at

anything they did, as long as they possessed the will and the dream to go after their goals.

Human capital was America’s greatest strength. This is the reason why immigration worked and

helped America prosper. Human capital built America from beginning of the landing by the

settlers in Virginia’s shores. It was these men and women that founded a political system like no

other ever created on earth, especially at a much larger scale.

The belief in individualism meant that government was small and ruled under a

Constitutional Republic. Economic decision-making would not be centralized; otherwise it

would defeat the purpose of a free-market economy. Prosperity could not thrive if government

became the main decision-maker of the economy. This situation proved the horrors of European

wars. Centralization of economies led to poverty and destabilization of the political system.

Countless brutal conflicts arose because of economic miseries. This misery came from economic

central-planning. The most vivid example was the rise of the Weirmach following World War I.

As the Allies punished the Germans for the consequences of the World War I, the economic

miseries led to the rise of Hitler and centralization of the economy. As a result, this fantasy of a

perfect society under government control—fooled the German people toward utopia. In the end,

it all went down. But it did not go down without a brutal war that led to over fifty million dead


worldwide. So was the end result of the Soviet Union, which under Stalin and others led to more

deaths than the Hitler-war-machine ever caused. Yet, we still believe in the fantasy of Social

Democracy and drift away from Representative Government. Centralization of economic

decision-making was at the heart of the Communist regime. Central planning caused misery of

epic proportions. Central-planning eliminates individualism and freedom.

Today’s research builds on the same issues that concerned Americans since the first

settlements in Virginia. The federal government is too big and too powerful. Size of the

government provides a signal of where we stand and how well we do economically and as a

society in general. Government growth spurs bureaucracy and inefficiency. As government

outstretches its supervision, individuals are less free. Freedom and liberty cannot exist if the

individual ceases to believe in them. Limitations, bans, and restrictions are set by the government

in order to fulfill its appetite for power, at the promise of a better outcome. Collectivism

substitute’s individualism, as government becomes the regulator of private life. Citizens give up

their duty of serving the community and each other, in return for government to do it for them.

Today it’s undeniable that Americans are practicing less of individualism, and are relying

more on collectivist ideology. This generation is more educated and knowledgeable, yet we have

thrown that advantage of out of the window, in exchange for a Nanny Government. Today we

rely on government to deliver our healthcare, our food, and our security. Basically we are

servants, instead of masters of our government. It’s the fear that Americans have lost their

virtues that made them so prosperous. Americans make up 5% percent of the world population

and produce a staggering 25% of the wealth. That remarkable statistic is in sharp decline because

government runs the economy and individual entrepreneurship is also disappearing fast. Other

countries have learned from us and will not repeat the mistakes that we are currently making.


This paper is addressed toward this great debate of our past and where we’re heading in

the future. This is everyday news that we hear. In other words, has government’s growth shrunk

the rights of individuals in favor of collectivism, and has economic decision-making through

central planning defeated our capitalist system? To seek these answers, this paper will examine

the current status of our nation. This includes our economic conditions, the well-being of our

society, and the efficiency of our federal government. This paper is significant to this topic,

because it seeks to analyze and find remedies for our decline. Understanding this decline will

help us seek answers for the future. The future is now, in our doorsteps. Just as Abraham Lincoln

warned us, that, if America shall falter and lose its freedoms, it’s because we destroyed

ourselves. We will save ourselves, as Benjamin Franklin advised: only if we can keep our

Republic and not replace it will illusionary European Social Democracy. After all, this was the

main reason why the War of Independence was fought for, why the Constitution was drafted, and

why America surpassed all civilizations dating back to as far as 5000 years.

Methodology ReviewIndividualism and centralization of economic-decisions making are two distinct topics

that go hand-in-hand together. There can be no political freedom without economic freedom and

vice-versa. The data of this paper consists of policy analysis and a mixed-method (quantitative-

qualitative) analysis. The data of individualism can be related to economic data and vice-versa.

The concern on the decline of individualism and the expansion of centralization in economic

decision-making has reached a milestone in the modern literature. This concern is not limited

only to think-tanks, the media, newspapers, and academic literature—ordinary citizens are more

concerned than ever about their incompetent and unaccountable federal government. As an

ordinary individual, myself being one of the millions amongst the concerned citizens about the


fate of the country. America is not the same and it is not the country once known for its founding

principles. This concern revolves around the decline of individualism, which is self-reliance from

federal officials making all the decisions of your personal life, and economic centralization,

which is a massive government, under the banner of Social Democracy.

This research paper informs concerned citizens who may not be able to understand the

decline, to look upon them and to ask: what has the government done to our founding principles

and what kind of future will our kids have? Unfortunately, not all citizens are able to understand

the depth of economics and how our government has expanded beyond limits set by the

Constitution. The Framers warned against an uninformed population, which they believed would

be a danger to the Republic. Once citizens become uninformed, than big government takes over.

The bureaucrats become more powerful and turn themselves into the few elites—hence, a

powerful majority that stumps on minority.

For decades literature on centralization of economic decision-making came in a fury. The

concern about a big government expanding in fields not authorized by the Constitution put the

American people on alert: the promise that the government would improve society began to fade

away. This concern about big government made Americans uneasy about trusting government.

America under decline has awakened the citizens to reality. The country belongs to the people

and not to the government. Unfortunately, this decline has arrived precisely because the citizens

have “slept” throughout this time, when government took over their individualism and began to

steer all economic decision-making, as if it was a typical socialist European nation. The results

of the literature provide the exact fear that the Founding Fathers warned future generations: it’s

the moral duty of the people to preserve the Republic; otherwise, America would slip away and

decline.


Studies on the size of government prove that higher spending leads to a lower GDP. The

current size of the U.S. total government outlays as a percentage of GDP stands at 41.1% (see

Table 1

Table 1).1 According to a study done by the Organization for Economic Co-operation and

Development (OECD) from 1960-2011 on the most industrialized countries, the U.S.

government outlays have increased to a total of 19.3% from 28.3% in 1960 to 46.6% in 2011. As

a result, growth rate of real GDP has shrunk. In 1960, the GDP growth stood at 4.5%, with

government spending as a percentage of GDP at 28.3%. In 2010, the average growth of GDP

stood at 1.2% with government spending as percentage of GDP at 36.4%. In forty years, the U.S.

1 The size of the government determines the GDP growth. From “The Scope of Government and the Wealth of Nations Revisited” by Joseph Connors and Seth Norton.


has seen a shrinking of -3.3% of average of GDP growth, as a result of a larger government. The

data indicates that a 10 percentage point increase in government expenditures as a share of GDP

reduces the annual rate of growth by 0.9 percentage points (Connors & Norton, 2012). This is a

substantial decline, as the effects are always felt decades later. Currently, we are living on that

effect (see Table 2).2

Table 2

Countries with size of government less than 25% of GDP had an average annual growth

of 6.8%. Countries between 25-30% had a growth of 4.6%. Those with 30-40% had an average

2 The size of the government determines the growth rate of the GDP, as it’s shown in the table. The U.S. has suffered a -3.3% average growth rate, as the spending of the government increased. From “The Scope of Government and the Wealth of Nations Revisited” by Joseph Connors and Seth Norton.


of 3.7%. Countries between 40-50% average the stood at 2.7%. Countries with 50-60% averaged

1.9%, and finally countries with more than 60% had a meager average growth of 1.4%

(Gwartney, Lawson, & Holcombe, 1998). Government size determines GDP growth (See Figure

1).3 There is a negative correlation between the size of government and GDP growth (see Figure

2). 4

Figure 1

Besides total government expenditures, federal government spending during the peacetime

stands at a record high 25% (excluding World War II, which stood just above 45%). State and

local government spending as a share of GDP is also at the highest ever at 15%. Entitlement

3 The size of government and the annual growth of real GDP for OECD countries, 1960-2010. The bigger the size of the government lowers the growth rate. From “The Scope of Government and the Wealth of Nations Revisited” by Joseph Connors and Seth Norton.4 Higher government spending reduces economic growth among OECD countries. There is a negative correlation between the size of government and average growth rate. From “The Scope of Government and the Wealth of Nations Revisited” by Joseph Connors and Seth Norton.


(healthcare, pension, and welfare combined) stands at a record-high 18% as share of GDP

(Silver, 2013).5

Figure 2

Carmen M. Reinhart and Kenneth S. Rogoff (2010) are two distinguished professors at

Harvard University that completed a well-known research paper titled, “Growth in a Time of

Debt” about the size of the government and its relationship to GDP growth. The dataset consisted

of a new multi-country historical data on forty-four countries spanning about two hundred years.

The dataset covered a wide range of political systems, institutions, and historical circumstances.

Their findings from 1945-2009 concurred with the results of the OECD—size of government

retards economic growth. Their results show that spending below 30% has a median growth of

4.1%, between 30 to 60% has a median growth of 2.8%, between 60 to 90% the median growth

stands again at 2.8%, and finally spending beyond 90% has a negative median growth of -0.1%.

This study got a lot of attention because the 90% trademark of government debt became the

5 See Appendix


famous for the European debt crisis and austerity measures throughout the world. It ticked off the

entire economists and politicians that above 90% there would seem that economies would start to

totally collapse. This study became a talking point for austerity measures.

In a subsequent paper titled “Public Debt Overhangs Advanced-Economy Episodes Since

1800,” the same authors Carmen M. Reinhart, her husband Vincent R. Reinhart and Kenneth S.

Rogoff (2012) identified the major public debt overhang episodes by studying 26 countries. The

authors found that public debt overhand episodes are associated with lower growth than during

other periods. The results showed that 20 of those countries lower growth lasted more than a

decade. The long duration implies the cumulative shortfall in output from debt overhang is the

reason for economic decline. Also emerging markets (emerging countries) began to grow at

massive pace because their government debt and total debt combined began to decline in the mid

1980s; meanwhile advanced economies began to move in the opposite direction. As of today, the

authors show that this trend is widening so much more, as advanced economies climb into higher

debts and emerging economies continue to shrink their debt. It’s no surprise why there’s a shift

in the global economy and why the future of global power will look so different in the near-

future. In the same paper, the authors found corrections in their calculations from their previous

research paper, cited above. Their finding shows that below 30% is 4.2% growth, between 30-

60% is 3.0 growth, between 60-90% is 2.9%, and beyond 90% is 1.6%.

Eventually, Reinhart and Rogoff’s 2010 paper was found to have coding errors on its

spreadsheet data, omission of some data, and an unconventional weighting system, which made

that 90% controversy so immerse. This correction was found by three University of

Massachusetts at Amherst researchers, Thomas Herndon, Michael Ash, and Robert Pollin (2013)

in their paper “Does High Public Debt Consistently Stifle Economic Growth? A Critique of


Reinhart and Rogoff.” The three researchers found those three fundamental errors and completed

their own study. Their study corrected the controversial negative GDP growth when government

debt goes beyond 90% of the economy. Eventually their results were awfully close to their

critique. Public debt category of 0-30% had an average GDP growth of 4.2%, 30-60% had a

growth of 3.1%, 60-90% category had an average of 3.2%, and finally above 90% the average

real GDP growth stood at 2.2%, which was very different from Reinhart and Rogoff’s 2010

finding of -0.1% (see Figure 3). 6 The same trend proved too similar for all advanced economies

from 1790 to 2009 (see Figure 4).7

Figure 3

Figure 4

6 The figure shows the combination of both studies, after authors from each respected papers completed their final corrections. The results are for the United States only. Graph assembled by Bloomberg.com. 7 The figure relates to all the advanced economies from 1790 to 2007. Data assembled by Econbrowser.com.


These back-and-back studies reveal one universal truth: government involvement in

economic decision-making leads to decline in GDP growth. There is no right or wrong who has

the most accurate numbers or results. The universal truth tells us that as government’s size and

debt as a percentage of GDP grows—decline in economic output follows. It’s irrelevant to fight

about numbers when we still see the problem expanding. The point is that too much government

and public debt is bad. No one can doubt this theory, yet there’s still zealous support for such

theory and enthusiastic government officials who hang on to such beliefs.

Throughout the short history, our federal government spending as percentage of GDP

remained historically low. Dean Kalahar, of Real Clear Politics explains the historical figures of

federal spending as a percentage of GDP:


From the founding years of the nation 1787-1849 federal spending averaged 1.7% of

GDP. From 1850-1900 (including fighting the Civil War) spending averaged only 3.1%.

From 1901 till 1930 (including fighting World War I) it never reached 8% and averaged

approximately 3.2%. At the height of the progressive movement (including FDR’s New

Deal) federal spending as a percentage of GDP never went above 1934 level of 10.7%.

Even after the historic 1944 (World War II) level of 43.6%, spending had fallen by 11.6%

of GDP. In short, for the first 130 years of the U.S.’s 224 year existence, federal spending

as a percentage of GDP averaged around 2.5%. (20118)

Today total federal spending hovers around 41% of the GDP, federal spending has risen to 24%

and within a decade or so, will pass beyond historical high of World War II (see Figure 5).9

Figure 5

8 Federal government spending has risen to 24% of GDP in 2010, up from an average of 3% from 1790 to 1930. America prospered because government spending stood below 3%, which were historic. The greatest wealth and economic growth was achieved in the nineteenth century. Since the beginning of the twentieth century, government has grown, along with its spending. This has resulted in big government, massive spending, and fewer freedoms for individuals. 9 Obtained from USA, Inc.


These are unsustainable numbers and destructive to future generations.10

Government spending will drive the nation into more economic uncertainty. Spending

and public held debt will drag the economy into meager growth of an average of less than 2%, as

the study of OECD showed. More alarming is that federal debt as a share of the GDP will

skyrocket. According to the Heritage Foundation with numbers comprised from the Office of

Management and Budget, Congressional Budget Office, International Monetary Fund, and

Internal Revenue Service, by 2035 the U.S. federal debt held by the public will be 187% as a

percentage of the GDP, surpassing troubled nations such as Greece, Portugal, Spain, Italy etc

(see Figure 6).11

Figure 6

10 See Appendix D – Spending and Interest Rates 11 The U.S. is on the direct path to join Greece and other troubled debt-ridden countries. Unless spending is cut, only time will tell when we join these countries. From the Heritage Foundation.


As of 2012, 62% of the budget went toward entitlements. By 2085, the budget will be

completely being spent just to cover entitlements, without taking into consideration discretionary

and other spending. Taxes will continue to climb to feed the appetite of a growing government

on a splurge spending, which will further choke any growth or investments (2013).According to

the Congressional Budget Office, public held debt will explode to unimaginable levels (see

Figure 7)12

Figure 7

Solutions to such insanity are not limited, but evidence from the OECD study reveals that

government’s size brings down the entire house. Solutions require the shrinking of the federal

government and its spending as a share of GDP. According to Lewis K. Uhler, President of

National Tax limitation Committee:

12 Congressional Budget Office’s projected fiscal scenarios shows an explosion of federal debt held by pubic. As a consequence of a growing government, it seems imminent that there is no end to spending. Obtained from the Congressional Budget Office.


Government spending is necessary for core services; governments can get too big and

negatively impact the economy. Going forward, if spending were reduced to 20 percent

of GDP and tax rates systematically reduced to maximize growth, by 2030 real GDP

would be double what we anticipate under current spending/tax plans. (p.23)

Another reason why government is the problem is that, “Historical evidence suggests an

undesirable, long-run effect from government spending: it crowds out private-sector spending

and uses money in unproductive ways. Government spending may actually decrease economic

growth, possibly due to inefficient use of money” (Stratmann & Okolski, 2010). This effect is

known as “crowding out” which means that government takes over the economy and interferes

with the private sector, leading to more economic uncertainty.

This is true of the difference between advanced and emerging countries. Lower debt after

World War II explains the economic boom. For the first time, the private sector was allowed the

freedom to steer the economy, instead of the usual centralization of economic decision-making.

In 1970, the U.S. abandoned the gold standard and opened the floodgates for government to

expand. Emerging countries are growing because their debt is declining; meanwhile advanced

countries are heading in the opposite direction. The era of growing the economy with deficits is

over, now it’s about keeping government small and free markets growing (see Figure 8).13

Countries that remain with massive deficits for too long suffer the harshest consequences (see

Table 3).14 The data clearly shows that countries in severe crisis today are the ones that held

unsustainable debts for too long. This debt becomes a burden on the future, which leads to

catastrophic consequences, as it’s seen today in parts of Europe, with average unemployment

11% followed by civil unrest.

13 Public Debt Overhangs: Advanced-Economy Episodes since 1800 (2012) by Carmen M. Reinhart, Vincent R. Reinhart, and Kenneth S. Rogoff 14 Ibid.


Figure 8

Table 3

As a result of catastrophic forecasts and current status of the country, the American

people seem the federal government a threat to their personal rights and freedoms. The latest

January 2013 poll by the Pew Research Center found that only 26% can trust the government


always or most of the time, while 73% say they can trust the government only some of the time

or never (see Figure 9).15

Figure 9

Majorities across all partisan and demographic groups express little or no trust in government.

Fewer Americans have a favorable view of the federal government (28%) with the biggest

decline in recent years coming among Democrats, while the state government stood at 57% and

the local government at 63%. This means less partisan view of states and local government (see

Figure 10). 16

Figure 1015 Decline in government trust has plunged. No more than about three-in-ten Americans have said they trust the federal government to do the right thing always or most of the time. The massive decline began in the 60s as the result of the war in Vietnam and the inaction of the Great Society. Obtained from the Pew Research Center. 16 Widening gap in views of federal, state and local governments. The more negative view of the federal government has produced a growing gap between how Americans see Washington as compared to their state and local governments. Obtained from the Pew Research Center.


Clearly, Americans are looking more into their local and state government, and

distrusting the federal government even more. This is a growing gap that continues to move in

the same direction. Also, voters’ preference for smaller government persists, standing at 56%,

while those for bigger government providing more services stands at 35%. This is interesting

because the federal government continues to spend more on entitlements and outstretching itself

to provide these services at all costs. The public overall favors smaller government providing

fewer services than a bigger government providing more services. The trend in public opinion

favoring a smaller role for government is reflected in declining support for social safety net. 52%

disagree that the government should help more needy people even if it means going deeper in

debt, with 43% agreeing.

Opinions about Congress remains very negative, just 23% offer a favorable opinion while

68% express unfavorable view. In 2009, 50% of the public regarded Congress favorably and,

between 1985 and 2005, Congress was viewed more favorably than unfavorably. With the

massive stimulus and budget deficits in the last few years, fewer Americans have any faith in the

Legislative Branch. On the Supreme Court, the survey found that 52% viewed the court


favorably while 31% regarded it unfavorably. This is also low for the Supreme Court, since its

high rating prior to 1985. The American people are less confident of their government and the

status of the country.17

Majority of the American people are also dissatisfied with the status quo of the country

and most importantly the path that we’re heading in the future. Pew’s latest poll as of February

2013 shows that 64% are dissatisfied with the state of the nation, and only 31% are satisfied.

Satisfaction with national conditions hit a low of 11% in early October 2008 amid increasing

signs of economic crisis. The level of national satisfaction is closely tied to the state of the

economy. A Pew Research Center poll conducted on the sequestration fallout of 2013 showed

that majority want deficit focus on spending. From the poll, 19% wanted only spending cuts, 3%

wanted only tax hikes, and the vast majority of 76% wanted a combination of both. Of that 76%,

54% wanted mostly spending cuts, 16% wanted only tax increases, and 6% were unsure (see

Figure 11). 18

Figure 11

17 See Appendix B – Opinion on Government18 Americans are becoming weary of massive deficits and Congresses inability to cut spending.


Rasmussen Reports (2013), an American media and media company, in its weekly polling on the

direction of the country shows an average of 61% of responders saying the country is heading in

the wrong track, and only 31% believe that it’s heading in the right direction. 19

As with the state, the individual must not fall prey to government’s overreach toward its

private life and decision-making. Ralph Emerson Waldo, the famous 19th century American

essayist, poet, and lecturer—at that time berated the American people and the country for not

being individualistic enough. Moralists urge obedience and submission to the state, but the

government is no guarantee that it will provide freedoms in return. Emerson’s famous phrase

was “check thyself.” When people are influenced by society or a government entity, they

compromise their values and give up their identity, in the hope for something promised, which is

complete utopia. The individual must think and act independently, without the pressure of the

outside world, government entity, or political correctness. Individualism was the virtue that made

Americans’ achievement possible. Instead of minimizing individualism for political correctness

19 Obtained from Rasmussen Reports.


or government-promised utopia, the American people shall enshrine their individualism, and not

retreat from it (Emerson, 2009).

America in on unprecedented road to decline with severe consequences. The country

faces many challenges. Unless we change course, we will have a massive financial crisis. This

crisis will be in epic proportions, nothing even seen in the Great Depression or the recent Great

Recession. Our government will always continue to take short cuts and the easiest way, which is

exactly the way that brought us here. Unless we act, our economy might survive the coming

storm and we will preserve our way of life. In just few decades, spending has outmatched

economic growth (see Figure 12). 20

Figure 12

20 Total government spending annualized growth rate, 1972-2011. As its seen in the data, government average growth has been 3.4% and GDP growth has been 2.7%, which has resulted in the current massive deficits. The math clearly does not work and shows why the government has lead the country into massive debt. From “What is driving growth in government spending?” by Nate Silver of the New York Times.


Successful nations are the ones that control their own future. At the current situation,

America belongs to debt, foreigners, and economic calamity. America has a spending problem,

not a problem of taxation or revenues (see Figure 13).21 This is not what freedom is meant to be,

Figure 13

nor what liberty looks like, or what the pursuit of happiness implies. There is no future in debt or

relying on government to manage our economy or worse, our lives. Our country needs the

opportunity to grow out of this misery. It needs a return to principles of our foundation.

As a result of public sentiment and future federal budget forecasts, Americans are wary

of a growing inefficient government. The public desires smaller government and wants the

federal government to move away from intruding into their personal lives. We are self-governing

people. The government has taken away the ability of ordinary citizens to guide themselves and

make decisions on their own. The explosion of the entitlement spending and the intrusion of the

21 Fiscal Year 2014 Budget Resolution by the House Budget Committee. Tax hikes cannot match the appetite for spending. America has a spending problem, and that spending is bringing the country down to its knees.


government into the private life have zapped away individualism. Taking away individualism

means taking away civic participation and the ability of the people to control the federal

government. Unchecked federal expansion has brought massive deficits and forecasts that point

to a bleak future. The history of the decline of individualism and the rise of centralization of

economic-decision-making is the theme of the paper. But there is also a way out of this decline.

Understanding how we got here will help us get closer to our founding principles, and how to

change course. Our founding principles are the last line of defense to preserve this Republic. In

those principles lies our way toward recovery.

Literature ReviewAmerica’s decline began with the transformation of a bigger government in the personal

lives of the American people and the expansion of the federal government into the free-market.

Understanding this decline could be our ticket from repeating the same mistakes in the future.

America is unique and alone. If we can’t learn from ourselves, there’s no one else out there to do

it for us. If we’re not up to this initiative, we might as well as give up and become a typical

European Social Democracy—content with government provided services, which of course

come out of the taxpayers and massive deficits that will become the burden of future generations.

The other alternative is to rise to our feet, preserve our representative government, and save our

Republic from the relentless quest of “political correctness.” This section provides a quick guide

to the rise of the Republic, how we managed to decline ourselves, and where do we go from now

to turn our fate around. It’s an honor and a great joy to defend liberty and freedom. It will be the

greatest joy when the U.S. returns to its founding principles. After all, freedom and liberty are

the most precious gift that mankind can ever enjoy.


Articles of Confederation and the ConstitutionAmid the Revolutionary War, the Continental Congress began in mid-1776 to establish

the Thirteen Colonies as one entity. The Articles of Confederation established the United States

of America—consisting of the original Thirteen Colonies. The formal ratification was ratified in

early 1781 with a weak national government. Eventually, in 1789, the Articles of Confederation

was replaced by the Constitution, which provided a much stronger national government. The

United States adopted federalism, which evolves the relationship between the federal

government and state governments. Majority of power went to the states and not to the federal

government. With elapse of time, that power has shifted away from the state, toward a much

stronger national government than ever intended. It’s precisely this danger that the Founding

Fathers feared the most. If America abandons its principles, there’s no coming back. In a system

of democracy and republicanism, once laws are adopted, it’s almost impossible to reverse, or

abolish them.

The Great Retreat from Federalism

Stampede on Representative GovernmentAmerica is on the great retreat from federalism. This stampede comes from the rise of

despotism. It’s the centralization and consolidation of authority. The Framers created a Republic

form of government. The problem with democracy becomes the expansion of the nation and the

growth of population. To meet the interests of each group, democracy turns into corruption and

Socialism. This defeats the purpose of defending the minority from majority. Democracy relies

on the full participation of the entire mass. This gives people less incentive in participatory

government and in choosing the right government. A Republic is a representative government,

elected by the people, and consisting of limited terms. James Madison, one of the most

influential Framers, favored large republics because greater number of citizens would elect their


representatives, which would make it more difficult for unworthy candidates to be elected. As he

noted in Federalist 10, a large republic would be less likely to allow the tyranny of the majority.

Factions would cancel each other. Representative government allows the people to be more civic

in participation, better understand the issues, and chose the best fit representative, or

government. Traditionally, America was never a democracy, but a Constitutional Republic. The

federal government’s growth can diminish the power of the people. Constitutional scholar Mark

Levin (2010) believes that, “In doing so, the federal government is imposing its will directly on

communities and citizens in contravention of the Constitution. Consequently, there has been a

fundamental breakdown of the federal system” (p. 55)22. Today that tradition is under threat.

Socialist ideology has gained popularity, thinking that it’s what America needs for the future.

Roots of SocialismAmerica is becoming a European nation, in a sense of political theory. With political

theory follows economic theory of “social ownership”. Socialism arises when representative

government is defeated. As in despotism, Socialism aggressively pursues equality and the rule of

the few. In other words, it is meant to bring justice and equality, but the effect is the opposite: it

leads to tyranny and soft tyrannies, as countless civilizations dating back to 5000 years have

proven. The fruits of democracy are temporary: republicanism lasts forever. As in more modern

times, democracy has ended in tyranny, Socialism, and ultimately in brutal wars. Under the

hymn of democracy, soft tyranny has arisen because of the expansion of government’s role in

society. Levin (2012) states that:

Tocqueville explained in greater detail that the tyranny that most endangers free societies

is a soft tyranny. It is the gradual imposition of and acquiescence to radical

egalitarianism, which is disguised as democratic and administrative utilitarianism. It is

22 Liberty and Tyranny: A Conservative Manifesto.


the belief in the infinite ability and capacity of elected officials to perfect life and in a

vast, neutral administrative state to ensure its proper regulation. (p. 173-174)23

Classical Liberalism holds that individuals are above the government. Government derived its

power solely from the people, and the people could dissolve the government at will. Former

University of Chicago economist and statistician, Milton Friedman (2002) claims that, “The

mere decline, therefore, of faith in self-help—and that such a decline has taken place in certain—

is of itself sufficient to account for the growth of legislation tending toward socialism” (p. 201)24.

Unfortunately, Modern Liberalism has transferred that power to the government and the

legislators. Big government is the ultimate result.

Big GovernmentGovernment expands because democracy is an inefficient system. As it’s stated before,

democracy cannot protect minority from majority, and cannot control majority from becoming

too powerful. To resolve this problem, in comes the excuse that government needs to step in and

moderate the issues. The government becomes the Leviathan, made to resolve all issues and

depend on its ability to regulate such problems. Again and again, this has proven counteractive.

Levin (2012) states that, “The routine is a familiar one: temporary politicians establishing

permanent society changes by using the law to seize the individual’s sovereignty and transfer

control over it to the administrative state” (p. 235)25. Government grows and becomes an

enormous administrative state. It becomes an army of bureaucrats to serve themselves and their

interests. According to England, Morgan, & Pelissero (2012), “Bureaucrats tend to maximize

their own utility by increasing agency power, prestige, and/or budgets” (p. 14).

23 Ameritopia: The Unmaking of America.24 Capitalism and Freedom. This is possibly Friedman’s best books. 25Ibid., p.235.


Maximization of power creates inefficiency and corruption. It gives people no voice,

even under the pretense that it creates equality. Milton Friedman (1993) also agrees, “The self-

interest of people in government leads them to behave in a way that is against the self-interest of

the rest of us” (p. 11)26. America no longer has a government of the people, by the people. Levin

(2012) summarizes the enormous administrative state by claiming that, “The federal government

has become the nation’s largest creditor, debtor, lender, employer, consumer, contractor, grantor,

property owner, tenant, insurer, health-care provider, and pension guarantor. Its size and reach

are vast. Its interventions are illimitable” (p. 213)27. Instead, we have a government of the

bureaucrats, by the bureaucrats. It’s no longer about representation—it’s about power and

making a career out of politics. Federalism is under retreat. There’s something else more

precious under attack, and that is the Constitution.

The Constitution under Assault

The Founding Fathers IgnoredThe Constitution is the supreme law and our political theory. This unique document

established the federal government under limited powers. That power rested in each state. The

states would guide and manage the federal government. Also, the states would enforce the laws

of the Constitution. Citizens are protected under the Bill of Rights, considered “natural rights” or

“God-given rights”. The Constitution serves the citizens, and the citizens guide the federal

government, under the leadership of the states. That trend has reserved severely. Today, America

is in a post-Constitutional Republic. It is no longer strictly a Constitutional Republic. Levin

(2010) further emphasizes how the federal government has stampeded on the Constitution and

Federalism itself:

26 Why Government Is the Problem. Essays in Public Policy. 27 Ameritopia: The Unmaking of America.


When the federal government acts beyond its constitutional limits, it assaults the purest

form of representative government by supplanting representative decision making at the

state and local levels. The federal government cannot possibly comprehend the diversity

of interests that are affected by its decision making. It cannot adequately weigh the costs

and benefits of its decisions on communities. Besides, that is not its purpose. It seeks to

dictate rather than represent. (p. 50-51)28

As the federal government, Congress can also bypass the Constitution and enact laws in a

method not authorized in the Constitution. Levin (2010) further states the following:

If the Constitution’s meaning can be erased or rewritten, and the Framers’ intentions

ignored, it ceases to be a constitution but is instead a concoction of political expedients

that serve the contemporary policy agendas of the few who are entrusted with public

authority to preserve it. (p. 37)

Again, this “freedom” to bypass the Constitution creates a system of unaccountability and waste.

As Despotism and Socialism, soft Totalitarianism arises. Federal authority begins to have a

monopoly on power. When one authority begins to grow too powerful, then it spurs a system of

competition for power. Such is the fate of citizens: squeezed by authority and deemed

unimportant in the affairs of the state.

Federal vs. National ConstitutionThe federal government expansion at the cost of ignoring the Constitution has created

uncertain fields of operation. What are the legitimate and illegitimate fields of government?

Federal government acts beyond constitutional limits, which diminishes representative

government. In other words, it does not operate under a Federal Constitution, but rather under a

National Constitution. The National Constitution is another way of the federal government

28 Liberty and Tyranny: A Conservative Manifesto


operating and making decisions under its own rules and guidelines. The federal government

begins to operate under experimentation with public policy. This is dangerous and illegitimate.

Only states can be successful and produce sound results with experimentation in public policy.

The federal government is inefficient and wasteful (Levin, 2010, p. 51)29. When the federal

government ignores the supreme law, its ability to control experimentation with public policy has

no limits. The result is a dysfunctional political system. According to Eggers and O’Leary

(2009), “Too often, policy makers begin with a theory, and then seek the facts that support the

theory while discounting any evidence that does not support that theory” (p. 30). Because the

federal government never goes out of business, there is no incentive to be accountable. Beyond

ignoring the Constitution, the federal government has abandoned another important principle: the

Natural Law.

Abandoning the Natural LawThe Founding Fathers were keen to defend their beliefs, that in order to create a sound

government, all men are bound by the Creator, and all the unreliable rights are natural. Hence—

the Law of Nature or Nature’s God is the definition of the Natural Law. The rights of men were

natural and God-given, under a common bondage of life and liberty. Men have the duty to obey

the natural law and follow the natural moral order. West and Schambra (2007) of the Heritage

Foundation summarize the Framer’s belief of the Natural Law:

For the Founders, then, the individual’s existence and freedom in this crucial respect are

not a gift of government. They are a gift of God and nature. Government is therefore

always and fundamentally in the service of the individual, not the other way around. The

purpose of government, then, is to enforce the natural law for the members of the

political community by securing the people’s natural rights. In the founding, the liberty to

29 Liberty and Tyranny: A Conservative Manifesto


be secured by government is not freedom from necessity or poverty. It is freedom from

despotic and predatory domination of some human beings from others. (p. 4)

The Framers believed in defending men from the tyranny of government. God, not government is

the provider of rights and law. Natural Law makes virtues possible. Virtue is a key ingredient in

a Republic. Men have a natural bondage with God. Government is temporary and can be

reshaped. When government becomes the law and dictates the law of nature, the Framers

believed that men are no longer bound to be free. After the end of Civil War, the Progressive

movement gave rise to government’s role in individual rights and the belief that the state has the

duty to provide the highest things in life.

The Progressive movement rested on the belief that the constitution had to be

reinterpreted and government has a role in guiding men. Because of the changing circumstances

of time and society, Progressives believed that state institutions were responsible for the

advancement of men and to fulfill their potentials. West and Schambra (2007) summarize the

Progressive view:

Freedom is not something that individuals have as a ready-made possession. It is

something to be achieved. In this view, freedom is not a gift of God or nature. It is a

product of human making, a gift of the state. Man is product of his own history, through

which he collectively creates himself. He is a social construct. Since human beings are no

naturally free, there can be no natural rights or natural law. (p. 3)

The natural rights under the Progressive movement are achieved under a perfect state. Men are

incapable of governing themselves, and that state institutions are necessary to guide people.

This is the opposite view of the Framers’ principles. It’s the main reason why religious

and cultural traditions are declining. It’s the decline of individualism. Religious persecution


taught the Founders that reliance on government t led to tyranny. In his famous pamphlet,

English-American political theorist and revolutionary, Thomas Paine (1997), warned us that

“Society in every state is a blessing, but government even in its best state is but a necessary evil;

in its worst state an intolerable one (p. 3). Government is incapable of protecting individual

rights. Only as individuals, under a common-bondage with the Creator, and the natural moral

order toward the community, would be the best guarantee of life and liberty. Religion and culture

are fundamental toward the Founder’s vision. Society cannot thrive otherwise. Decline in

religious and cultural values leads to a decline in morality. Only the Natural Law guarantees life

and liberty. Man cannot become God and government cannot guarantee life and liberty. History

has proven this point time after time. Levin (2010) claims that, “The abandonment of Natural

Law is the adoption of tyranny in one form or another, because there is no humane or benevolent

alternative to Natural Law” (p. 26)30. Natural Law is about defending all men. Laws of mankind

rely on the survival of the fittest, as the Progressives believed, since rights are not natural. If

rights are not natural, then life and liberty becomes a sort of Darwinism. This means that rights

are not guaranteed by natural rights, but rather by the circumstances of time. The consequence is

a bigger government, and a government that now shrouds the individual. Competition for

political power shreds the center of balance: checks and balance.

The Center of BalanceThe Framers revised the Articles of Confederation because the national government was too

weak. The Constitution balanced that power, and gave the people the power to change and

structure the government, as best fit. The separation of the government functions into three

branches—legislative, executive, and judicial was the first step. What the Founders feared the

most was either tyranny or anarchy. This methodology can be described as a straight line: On the



left is The Ruler’s Law (tyranny), in the middle is People’s Law (balance), and on the right is No

Law (anarchy). The People’s Law relies on a hierarchy that begins with family, township, county

government, and state government (Skousen, 2006). The balanced center is the key to preserve

the people’s power to govern and restraint the political system from slipping into the extreme

sides of the spectrum (see Figure 14) 31.

Figure 14

American constitutionalist, Cleon Skousen (2006) explains the Framers’ methodology of

the balance center by stating that, “The fixing o the American eagle in the center of the spectrum

was designed to maintain thus political equilibrium between the people in the states and the

federal government. The idea was to keep the power base close to the people. The emphasis was

on strong local self-government” (p. 23). Since the Progressive movement, the federal

government has expanded and the balance has shifted more into the Ruler’s Law. Levin (2010)

claims that “through a succession of laws and rulings, all three-branches—the judicial, the

legislative, and the executive—now routinely exercise power well beyond their specific,

31 From “The 5000 years leap: the miracle that changed the world” by Skousen, C. W. (2006). Malta, ID: National Center for Constitutional Studies.


enumerated authority under the Constitution” (p. 54)32. One of the main reasons is the expansion

of power of the Judicial Branch.

Judicial OligarchyThe Framers intended to limit the power of the federal government. This was critical to

preserve the Balance of Power. No one has stomped more on this principle than federal judges,

which is the Judicial Branch. The Constitution is at the mercy of a judge’s opinion and ruling.

The government expands because federal judges continue to reinterpret the Constitution. Levin

(2010) explains the judicial oligarchy on our political system:

There is no denying that the judiciary has assumed the role of final arbiter of the

Constitution and that the other branches have acquiesced. The judiciary today behaves in

the manner of an ongoing constitutional convention, unilaterally amending the

Constitution almost at will. A majority of Supreme Court justices have, on occasion, even

justified the use of foreign law in interpreting the Constitution. (p. 47)33

Again, this is another way of transforming our political system without the consent of the

Constitution. American financial commentator, Peter Schiff (2012) underlines the absolute

power of the Judicial Branch to dictate the law and the power of the citizens, protected under the

Constitution:

If the meaning of the Constitution were open to interpretation, if it simply meant

whatever the Supreme Court decided it meant, then the whole document would be

meaningless. Under the pretense of interpretation, the Supreme Court changed the

meaning of the commerce clause. Originally written to enable Congress to regulate

32 Liberty and Tyranny: A Conservative Manifesto. 33 Ibid. p.47.


commerce, it now enables Congress to regulate anyone engaged in commerce. There is a

huge difference between the two (p. 217).34

In other words, what Schiff is describing—the floodgates are open for Congress to regulate

commerce, which also relates to people. Under the Framers’ vision, Congress was limited to

regulate only trade, but now, since people also engage in commerce, Congress and the federal

government can regulate anything a business does. Under this meaning and pretense of

commerce clause, the federal government can interfere with the lives of the people. What is more

disturbing—the rise of centralization and immerse judicial power without having no one to check

on their decisions.

Who can hold responsible the opinion of a federal judge? Why is the opinion of a federal

judge more important than the people, or the Constitution? When enacting laws, why should we

reinterpret or bypass the Constitution? What is the law? French economist and philosopher,

Frederick Bastiat (2007) best described the pervasion of law when the law has gone further than

this: it has acted in direct opposition to its own purpose to destroy its own objective. It has

annihilated the justice that it was supposed to preserve.35 These are questions that go

unanswered, because we are at the mercy of the elitist group. By controlling the law, you can

control society. When individualism is discouraged, society begins to break down. Whether

intentionally or not, the judicial oligarchy continues to perverse the law and reinterprets the

Constitution, according to a collectivist ideology. The collectivist ideology takes the power of

the people and places it in the hands of the state.

34 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 35 Bastiat Collection Pocket Edition. This pocket book consists of Bastiat’s best works.


Individual Freedoms in Decline

From the Citizen to the StateThe transfer of power from the citizen to the state is an alarming issue in our Republic.

Individual freedom is the most fundamental principle that defines the American political

tradition. The survival of the nation depends on individualism: the idea of self-reliance, being

independent and civic participation. Mankind can only thrive when left free of government’s

expansion in the private life. Canadian political commentator, Mark Steyn (2006) believes that,

“We’ve elevated the secondary impulses over the primary ones” (p. 43)36. We have given up on

individualism, which is a pivotal principle in our morality to be free and happy. Instead, we have

given the government the primary role to dictate our lives. Since the Progressive movement,

there’s been a huge transfer of power—downward to upward. The government has placed itself

in the top of the hierarchy pyramid, and the people are down somewhere in that pyramid. Again,

the main reason why this transfer of power continues to flow upward is the government, as Steyn

(2006) recounts, “As Gerald Ford used to say when trying to ingratiate himself with conservative

audiences, ‘A government big enough to give you everything you want is big enough to take

away everything you have’” (p. 44)37. Once the government takes control of that precious

freedom to be individualistic, it never comes back. Government uses the law to take away the

rights of individuals.

To comprehend the decline of individualism, one has to analyze the spread of wealth in

the country. According to Joseph Stiglitz, of the Vanity Fair:

In terms of wealth rather than income, the top 1 percent control 40 percent. Twenty-five

years ago, the corresponding figures were 12 percent and 33 percent. While the top 1

36 America Alone: The End of the World As We Know It. 37 Ibid., p.44.


percent have seen their incomes rise 18 percent over the past decades, those in the middle

class have seen income fall. Virtually all US senators and most of the representatives in

the House are members of the top 1 percent when they arrive, are kept in office by money

from the top 1 percent, and know that if they serve the top 1 percent well they will be

rewarded by the top 1 percent when they leave office. (2011)

This is the breakdown of society and our political institutions. Our founders were wealthy men,

but never did they abuse their power by remaining in office for such a long time. Actually,

George Washington could have stayed for his entire life in office, because of his popularity and

heroism. Instead, Washington willingly stepped down and allowed others to be leaders too. This

also represents other founding members of the Republic. Today, the problem is not the 1% and

their power, but it is the inability of the powerless people to keep government in check and

government as the servant of the people. Inability to achieve this leads to the few or the 1% elites

to dominate the wealth and politics of the country, just as the elites of a socialist country do the

same thing. Nothing is more dangerous than giving up freedom for the promise that government

officials will the best intentions under the banner of “serving the people.”

Plunder by LawThe sad part of our modern political system is the ability of the government to take away

something at the pretense of the law. The law is used as a pretense that individuals are incapable

of directing their lives. The pretense rests on the premise that only the government can deliver

the conditions for a happier life. The plunder by law is another way of saying legal plunder

(Bastiat, 2007)38. Legal plunder comes to being on the propaganda that society and time change

—to cope with such change it is necessary for the government to coerce our lives. The law is a

false pretense that it serves exactly what we believe it would do. Instead, that law can be

38 The Law. Published in 1850, it was written two years after the third French Revolution of 1848.


reinterpreted and revised according to the bureaucratic and administrative state. According to

Levin (2012), “The ultimate objective is always the same—control over the individual in order to

control society” (p. 22)39. This transforms into a moral and legal restraint. The morality of the

individual diminishes and the state transforms itself in the individual’s footsteps. Therefore, the

state would have completely annihilated the citizen’s inspiration for civic participation. Lack of

civic participation means that the law cannot be changed or challenged. If the citizen is barred

from civic participation, the state rests assured that the law will dominate the individual’s life. In

other words, the state guides and rules the citizen, which turns into a subject.

Subjects, not CitizensBy diminishing individualism, the state becomes the master of the citizen. The citizen

becomes a subject. A subject is bound to serve the state and is under ownership of the state. The

citizen is no longer free to pursue life, liberty, and happiness—unless directed by the state. The

state has no interest to allow the citizen these rights: otherwise, the state may lose its monopoly

on controlling the people in a tyrannical method. The state relies on countless methods to retain

its monopoly intact, as Levin (2012) sums up this phenomenon:

Through persuasion, deceit, and coercion, the individual must be stripped of his identity

and subordinated to the state. He must abandon his own ambitions for the ambitions of

the state. He must become reliant on and fearful of the state. His first duty must be to the

state—not family, community, and faith, all of which challenge the authority of the state.

Once dispirited, the individual can be molded by the state with endless social experiments

and lifestyle calibrations. (p. 5)40

39 Ameritopia: The Unmaking of America. 40Ibid.


This strips the individual of its ability to govern itself, and pits individuals against each other, so

that the state cannot be challenged. Once this is successfully maneuvered, the citizen has lost its

autonomy. The loss of autonomy leads to the end of individualism. The individual gives up his

freedom for the promise of security.

Freedom vs. SecurityNothing is more misguiding and destructive than the propaganda of giving up freedom to

gain security. But, this is the strategy of the state to control the fears of the citizen. Actually,

security cannot exist without freedom. If there’s no freedom, nothing can exist. The false hope of

giving up freedom for more security has expanded the state and wakened individualism. Big

government grows at the expense of less freedom. The history of the Roman Empire validates

the essence of the dangers of giving up freedom for security. According to Rufus Fears (2005) of

the Heritage Foundation, the citizens of the Roman Empire were virtuous and always

participatory in local government. But, as the empire grew more and more, the same citizens

began to give up their freedom for more security. This, then, transformed the Senators and the

emperors into the corruption of grabbing power, because the citizens became too reliant on the

promise of more security by giving up more personal freedoms, such as civic participatory and

more influence on government. In the end, the Roman Empire destroyed itself41. Steyn (2006)

states that “Anything that shifts power from the individual judgment of free citizens to

government is a bad thing for the national character in a more general sense” (p. 187).42

It is vital that as citizens, we preserve our freedoms. As it’s been emphasized before, once

those freedoms are given up for more security, almost certainly, they do not come back. The

state grows bigger and more intrusive—yet the citizens remain more isolated at the mercy of the

41 America’s path toward massive debts and decline in civic participation shows the same trend that took the Roman Empire to ruins. 42 America Alone: The End of the World As We Know It.


state. Austrian, later turned British, economist and philosopher Friedrich Hayek (2007) claimed

that, “Whenever liberty as we understand it has been destroyed, this has almost always been

done in the name of some new freedom promised to the people” (p. 174)43. Now, the state may

have the best intentions, but as Levin (2010) shows us that this is not the case:

Having declared the sovereign paramount to God and nature, and having delinked liberty

from property, the individual must rely on the government for his sustenance. Of course,

history shows that man will starve and freeze if he relies on the government for his

sustenance—and surrender his liberty as well. (p. 46)44

Legislators may always seem the easiest solution, but the outcomes are horrendous.

There’s nothing easier than giving up freedom for something promised that will be more

valuable. Friedman (2002) clearly defined this problem, by stating that, “The central defect of

these measures is that they seek through government to force people to act against their own

immediate interests in order to promote a supposedly general interest” (p. 200)45. If people act

against their own will, they act against their own right to freedom and liberty. As individual

freedoms diminish, the state grows more powerful by expanding its role into another step:

planning and democracy.

Planning and Democracy

The Great UtopiaTo understand America’s destructive path, one has to understand what utopia means in

Modern Liberalism. America is currently embarking on the road toward the great Liberal Utopia.

Utopia is the great fantasy of having a perfect society: socially and economically. Again, the

43 In 1974, Friedrich Hayek shared the Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal. Hayek is considered to be one of the most influential economists of the Austrian School of Economics and political thinker of the twentieth century. Hayek inspired other libertarian and conservative economists at a time of the post-New Deal era. 44 Liberty and Tyranny: A Conservative Manifesto. 45 Capitalism and Freedom.


magic answer is the state or the government deciding everything what’s best for society. All the

power shifts to the state, because the state assures society that everything will be better, where all

our needs are met, and everyone is equal. As Hayek (2007) claimed, “Hence, the familiar fact

that the more the state ‘plans,’ the more difficult planning becomes for the individual” (p. 114).

This was the typical Socialist regime. The key is to dominate the individual. Hayek (2007)

furthermore states that, “The most important change which extensive government control

produces is a psychological change, an alternation in the character of the people” (p. 48).

Dominating the individual leads to the domination of the state, as Levin (2012) further

elaborates the utopian ideology:

Utopianism also attempts to shape and dominate the individual by doing two things at

one: it strips the individual of his uniqueness, making him indistinguishable from the

multitudes that form what is commonly referred to as “the masses,” but it simultaneously

assigns him a group identity based on race, ethnicity, age, gender, income, etc., to

highlight the differences within the masses. It then exacerbates old rivalries and disputes

or it incites new ones. This way it can speak to the well-being of “the people” as a whole

while dividing them against themselves, thereby stampeding them in one direction or

another as necessary to collapse the existing society or rule over the new one. (p. 6-7)46

Once the hierarchy is established, it becomes easy to manipulate society. Utopian

Liberalism pretends to bring equality, but actually, it creates a powerful ruling class. This ruling

class controls freedom, the law, and the financial institutions that run the nation. In the end,

everything is implemented against the will of the people, but still holding faith on the utopian

ideology, that the people are better off than they were before. Levin (2010) further examines the

utopian fallacy and its quest to resemble the best results for all mankind, “Thus central planning

46 Ameritopia: The Unmaking of America.


is not about rationality and reason. It is not about knowledge and experience. It is about

illegitimately exercising power over others. It is about the deceit of moral relativism and

situationalism” (p. 212)47. Under this pretense, of a perfect society, Socialism too, ended in

violent and destruction of their society—under the exact pretense: society would have been

perfect. This is Social Democracy at its best, which creates men of corruption, and erodes the

state. Worse yet, it erodes our Republic.

Less Republic and more UtopianAmerica is less Republic and more Utopian. In other words, it’s on the road to Social

Democracy, which defines a typical European nation. Utopianism is incompatible with

constitutionalism, because it requires central-planning and Social Democracy to operate. Our

political system was established purposely to avoid centralization of authority. Supporters of the

Utopian political system rely on wreaking our Republic, and by eroding our Representative

government. Utopianism is despotism in disguise. By allowing the rise of a single centralization

of power, the state pits individualism and collectivism in a collision of principles. Individualism

is then vindicated as greedy, selfish, and immoral. The rise of collectivism over individualism,

further gives the state more incentives to take from one person and give it to the other.

Collectivism then becomes the extension of the utopian quest for equality.

Collectivism over Individualism

Dependency on the StateCollectivism is a menacing outcome, in a system that champions self-reliance and the

pursuit of happiness. Collectivism means that the individual shall not pursue his right to

happiness, and his success shall be demonized. If the individual becomes successful, the utopian

ideology rests that the individual profited at the expense of someone else. Then, each individual



must be forced to be equal. The state believes that this is its moral duty to achieve. This ideology

breeds dependency on the state. Doctor Benjamin Carson (2013), the famous American

neurosurgeon and director of pediatric neurosurgery at Johns Hopkins Hospital, in his book

America the Beautiful: Rediscovering What Made This Nation Great, emphasizes that,

“Capitalism is a system that works extremely well for someone who is highly motivated and very

energetic, but it is not a great system for someone who is not interested in working hard or for

someone who feels no need to contribute to the economic well-being of their community” (p.

69). This is not to say that there are not enough people who work hard. Actually, the American

people work long hours and do the best they can do to bring food on the table. Contrary, it is the

government the main obstacle that prevents people from being independent and becoming

successful on their own, instead of relying on short-term relief. This is the breeding of

collectivism.

Collectivism turns into greed and tyranny of the majority over minority. “According to

new research from Ranking Member of the Senate Budget Committee Jeff Sessions (R-AL)

reveals that this reality may already be here, with more than 107 million Americans on some

form of means-tested government welfare” (Wilson, 2012). As a result of this, the state becomes

more powerful. The end result: loss of individualism at a massive scale. The disintegration of

human capital leads society to be less moral and productive. Former director of customer

research at General Motors, Henry Grady Weaver (2010) pointed out that America became the

most prosperous nation in civilization because, “We, in the United States of America, have made

more effective use of our human energies than have any other people on the face of the globe—

anywhere or at any time” (p. 15). By human energy, Weaver means individualism: the freedom

of the pursuit of happiness and no state interference in personal affairs.


Legal and moral restraint from the state disintegrates the individual’s ability to thrive.

Society transforms it’s faith in the legislator and not mankind (Bastiat, 2007, p. 13)48. If men

believe that their life is miserable or poor, it’s because someone is depriving them. Levin (2010)

examines this attitude of failure, by then relying on the state, which he claims that, “Those who

see their lives as spoiled and wasted crave equality and fraternity more than they do freedom. If

they clamor for freedom, it is but freedom to establish equality and uniformity” (p. 20)49. This

quest for equality puts freedom in danger, as Hayek (2007) indentified, “When it becomes

dominated by collectivist greed, democracy will inevitably destroy itself” (p. 110). As an

advanced and prosperous society, we have fixed our perceptive that we must force equality and

bring down whoever we feel that is above us. This does nothing to enhance human capital.

Disintegration of Human CapitalBy using collectivism as a method for the benefit of society, the state only achieves its

aim of becoming stronger. Forced equality becomes the norm. This strategy gains popularity

amongst the public. The public loves to receive something without effort. The problem of

equality has been the transformation of its meaning. By equality, the Framers meant the right to

be free, liberty, and the pursuit of happiness. Each individual has God-given rights, under the

Natural Law, and government’s role is to protect these rights, not to play the role of the provider.

The government cannot and is incapable of delivering equality. Equality is achieved when the

government protects the individual from plundering the other. The modern government acts like

a bee colony. The queen guides the entire colony and is the supreme leader. All other bees work

and die to serve the queen. But, when the queen dies, then the entire colony collapses, and all

other bees die too (Weaver 2010). Today, equality means socio-economic status. Equality of

48 Bastiat Collection Pocket Edition. 49 Liberty and Tyranny: A Conservative Manifesto.


socio-economic status is a utopian illusion, because as it’s been argued, it brings down

individualism. Brook and Watkins (2012) argue that force is the new the norm for equality:

Because it stops a man from exercising his judgment, from pursuing his own interests,

from adhering to the virtues success requires, the initiation of physical force is the means

—the only means—by which others can violate his rights. If the purpose of rights is to

create a society where people deal with each other by reason, then a society of rights is

one that removes coercion from human affairs. (p. 131)50

An individual cannot achieve with forced equality to become what another individual

achieved on its own. Government’s expansive role as an arbiter leads society to class warfare and

division. (Levin 2010) elaborates by saying that, “This kind of class warfare, pitting straw men

against straw men, is now a routine and regular part of the American political dialogue” (p.

210)51. If disintegration of human capital is the first step to control society, the next step brings

the utopian closer to achieve its goal: the welfare state.

The Welfare State and the Dependent ClassThe path to welfare is the path to poverty and dependency. Welfare may be important in

the short-term, but in the long-term, the individual is permanently settled on dependency. As

Barry Goldwater, the former five-term United States Senator from Arizona, wrote, “Economic

and spiritual aspects of man’s nature are inextricably intertwined. He cannot be economically

efficient, if he is enslaved politically; conversely, man’s political freedom is illusory if he is

dependent for his economic needs on the State” (Goldwater, 2013, p.7). According to Michael

Tanner (2012), director of health and welfare studies at the Cato Institute, “Despite government

50 In 2000, Yaron Brook became the president of the Ayn Rand Institute. Don Watkins is a fellow at the Ayn Rand Institute. In their book, Brook and Watkins argue and implement Rand’s philosophy, Objectivism. Objectivism advocates the virtues of rational self-interest—virtues such as independent thinking, productiveness, justice, honesty, and self-responsibility. Objectivism is fully secular and absolutist; it is neither liberal nor conservative nor anywhere in-between. 51 Liberty and Tyranny: A Conservative Manifesto.


largess, more than 46 million Americans continue to live in poverty. Despite nearly $15 trillion

in total welfare spending since Lyndon Johnson declared war on poverty in 1964, the poverty

rate is perilously close to where we began more than 40 years ago” (p.1). Poverty has remained

constant and all the money in the world had little effect, if not, none at all (see Figure 15)52.

Figure 15

The welfare reform of the 1990s known as the Personal Responsibility and Work

Opportunity Reconciliation Act (PRWORA) enacted in 1996, according to Robert Rector (2001)

a Senior Research Fellow at Title of the Heritage Foundation, “set forth three legislative goals: 1)

to reduce dependency; 2) to reduce child poverty; and 3) to reduce illegitimacy and strengthen

marriage” (p.1). The reform was criticized that more people would go under poverty and suffer.

Instead, both welfare and poverty rates declined; as did the astonishing results in the state of

Wisconsin (see Figure 16)53.

Figure 16

52 Obtained from Capitalspectator.com53 Obtained from the Heritage Foundation


.

Even the New Republic opined, “A broad consensus now holds that welfare reform was certainly

not a disaster--and that it may, in fact, have worked much as its designers had hoped” (2006).

Today, government has reversed most of those provisions of the reform. This unintended

consequence has created more poverty and spending on welfare, because it’s more about politics

rather than fighting poverty. As a result, welfare today is back to the pre-reform days:

dependency and poverty.

Welfare gives no incentive to pursue the best of the abilities that each individual

possesses. According to Amy Payne (2012) of the Heritage Foundation, “The Wall Street Journal

found that in 2011, 49 percent of Americans lived in a household where at least one member of

the family received a government benefit. 63.7 million Americans, or about one in five, is

receiving direct government support from Social Security, welfare, or Pell Grants—and that is at

its highest level ever.” This is the path to the breakdown of society. The nation will be

unsustainable to survive competition from abroad and to create a bright future for the next

generations. Payne (2012) further elaborates the explosion of dependency class in America,


“Federal spending is exploding—and it is already an eye-popping reality that 70.5 percent of

federal spending goes to dependency-creating programs. We are spending more on dependency-

creating program while an ever-shrinking number of taxpayers are paying for them.” These are

the consequences of a dependent class created by the government: A stagnant and unproductive

society. Government spends so much money to fight poverty (see Figure 1654 and Figure 17)55.

Figure 16

Figure 17

54 “The American Welfare State: How We Spend Nearly $1 Trillion a Year Fighting Poverty—and Fail” by Michael Tanner 55 Ibid.


The state begins to plunder the few and the successful, in order to maintain the army of

the dependent. The dependent class will always favor the state, and that’s how the state remains

popular and influential. By doing this, the state distorts the rights of all citizens. As Brook and

Watkins (2012) explain:

We’ve wandered a long way from the Founders’ vision. The intellectual turning point

was complete obliteration of the concept “rights” during the twentieth century, when

individual rights were “supplemented” with collective “rights” and when rights went

from protecting a man’s freedom of action to guaranteeing him certain outcomes (so-

called welfare rights). (p. 128)

Wealth is private property, just as land is private property. Paying taxes is the moral duty of all

citizens who qualify under the law. But when the government abuses its right to tax you to death,

in order to redistribute that money toward welfare, then its plunder. Its redistribution of wealth

disguised. As Levin (2010) elaborates the plunder of property by quoting James Madison:


That is not a just government, nor is property secure under it, where the property which a

man has in his personal safety and personal liberty, is violated by arbitrary seizures of

one class of citizens for the service of the rest…That is not a just government, nor is

property secure under it, where arbitrary restrictions, exemptions, and monopolies deny

to part of its citizens the free use of their faculties, and free choice of their occupations,

which not only constitute their property in the general sense of the word; but are the

means of acquiring property strictly so called….(p. 121)56.

Redistribution of Wealth“The Constitution is quite clear that the government has the right to tax in order to

support its programs, but there is nothing in the Constitution to support redistribution of wealth”

(p.77). The redistribution of wealth leads society into poverty and inequality. The rationale

behind redistribution of wealth rests upon the utopian ideology, that government must create

equality. This is counteractive toward that goal. Friedman (2002) claims that, “The use of force

is therefore at the very heart of the welfare state—a bad means that tends to corrupt the good

ends. That is also the reason why the welfare state threatens our freedom so seriously” (p. 119)57.

By creating a dependency class that relies on seizing the fortunes of someone else to redistribute

it to another, a temporary solution is found, but on the long-term, chronic problems persist.

Society becomes less productive and prudent. Nanny Government establishes itself as the head

of the family. The country is divided and class warfare becomes the norm. Levin (2012) asserts

that “This kind of class warfare, pitting straw men against straw men, is now a routine and

regular part of the American political dialogue” (p. 210)58.

56 Liberty and Tyranny: A Conservative Manifesto. 57 Capitalism and Freedom. 58 Ameritopia: The Unmaking of America.


Egalitarianism is a trend that favors equality for particular entities or living entities.

Egalitarianism has always been defined in political or economic terms. On political terms,

egalitarianism can be of two terms: equality of persons in right (natural rights) and redistributive

(organized labor). The former relates to Classic Liberalism and the latter relates to Karl Marx. In

economic terms, equality of persons in right refers to equality-of-opportunity economic

egalitarianism and redistributive refers to equal outcomes. Peter Corning (2012) in his book,

“The Fair Society,” argues that today we lack more of redistribution to equal outcomes—a

foundation for a new social contract. So do Daron Acemoglu and James A. Robinson (2012) in

their book, “Why Nations Fail: The Origins of Power, Prosperity, and Poverty.” A country does

not prosper solely based on sound government institutions and its ability to distribute equality.

Egalitarianism succeeds only when government becomes accountable and responsive to citizens.

Our government has zealously tried the egalitarian method, yet it’s not working. Fairness and

equality can be achieved when the government creates the right conditions; otherwise, it tends to

shift that power toward the ruling class. Socialism and communism proved this outcome. With

the passing of time society begins to erode.

Society transforms itself into envy and hate. Americans never envied success and wealth.

The national character becomes hatred between those that are successful and those that actually

survive based on the success of others. Elections become less important too. Elections are

decided not on merit of representative government, but based on predetermined government

entitlement laws. Society falls comfortable into welfare and dependency. Once an individual gets

trapped into dependency, escape is nearly impossible. This is not the history of America. Nor is

it the character of America. Dependency breeds lack of morality and degrades the individual. It


makes men and women dependent on government to provide everything in life and be in charge

of everything, as it is in the Nordic countries.

The Fallacy of the Nordic Model Proponents of more government intervention in our society point to the Scandinavian

countries (Norway, Sweden, Finland, Denmark, and Iceland) as an argument for a system that

does wonders for society. Although this is a good argument for more egalitarianism, it has many

ups and downs, which ultimately make the Nordic model unsustainable in the long-run. It is vital

to understand that the Nordic entitlement state was made possible because this region became

wealthy first, before it adopted the massive welfare state. The countries became rich first then

adopted the welfare model (Malyneux, 2013). Prior to 1960s the Nordic countries had modest

growth and smaller government, which was accompanied with lower taxes. This was the case for

Western Europe, as the post-War World II reconstruction era began. After the 1960s the Nordic

countries saw a major shift in their policy: higher taxes and more government spending as a

share of the GDP.

Daniel J. Mitchell, of the Cato Institute, assembled and combined a major study of the

Nordic model based on reports from the World Bank, Organization, for Economic Cooperation

and Development, International Monetary Fund, Central Intelligence Agency, Danish Finance

Ministry, Economic policy Institute, and Ratio Institute in Sweden, which he found that since the

major policy shift of the 1960s, the Nordic countries trail the United States in many significant

economic measures and performance. The U.S. has faster annual economic growth (see Figure

18) 59 and Americans enjoy more economic output (See Figure 19).60

59 Proponents who argue that the United States follow the Nordic model are wrong. As seen by the OECD numbers, the U.S. still retains more growth, all because its size of government is smaller. From “What can the United States learn from the Nordic model?” by Daniel J. Mitchell.60 Ibid. Measures show that Americans have about $6,000 additional economic output per person, significantly more than $20,000 for each family of four.


Figure 18

Figure 19


Also, Americans have higher levels of disposable income (see Figure 20)61; higher living

standards (see Figure 21)62; per capita output, and higher average annual hours worked, per

capita net wealth,

Figure 20

Figure 21

61 The average person in the United States had more than $27,000, of disposable income, while the average person in Nordic nations had disposable income of barely $14,300, less than 53% of the U.S. level. From “What can the United States learn from the Nordic model?” by Daniel J. Mitchell. 62 Ibid. Americans enjoy higher standards than Nordic countries.


and the poorest 10 percent of Americans have about the same level of income as the poorest 10

percent in Nordic countries. Besides these economic measures, Nordic countries have higher

burden of government spending, higher spending on transfers and consumption, enormous tax

rates on individuals and families, and higher tax rate on goods and services. The only advantage

the Nordic countries is that they have one of the lowest corporate taxes in the world, which

makes very competitive (Mitchell, 2007).63

The Nordic system is an inefficient model in the long-turn. These Scandinavian countries

highly praised have been going through a long period of decline. In the early 90s these countries

were virtually bankrupt. Fortunately, the Scandinavian countries were smart enough to cut

spending and begin to lower taxes. It’s a long road from a welfare state to economic growth, but

it’s a good beginning. To this day unemployment continues to be chronically high and these

countries have not been able to recover. The high fiscal burden put on the welfare state has

shifted away more resources of the productive sector to the ever more inefficient government

apparatus (De Vlieghere 2006). The only exception not go to too far into decline is Norway, and

that exception occurred because this nation is a petro state, which means that it derives 20% of

its GDP from oil. Scandinavian countries were built on laissez faire economics and have

declined since the introduction and implementation of their massive welfare state (Malyneux,

2013). The welfare state shrinks economic development. More resources and employment is

shifted toward government and less into productive sector. The same outcome is occurring in the

U.S. On the national scale, dependency on the government breeds a far more serious issue:

massive deficits from the entitlement state.

63 Appendix A – Miscellaneous


The Immoral Entitlement State

Deficits of Mass DestructionThe rise of Modern Liberalism gave birth to the creation of an entitlement state. Under

the pretense of economic hardship and serving the poor, massive legislations were enacted for

the purpose of healing society. America was once the largest creditor of the world. Today,

America is the largest debtor. There will be no stopping from being the most destructive debtor

in the world. Entitlements are the backbone of massive deficits engulfing America.

“Government-controlled programs continue to grow until they destroy themselves. The founding

fathers of this nation were well aware of the perils associated with gigantic government

programs, which is why they emphasized limited government and self-reliance” (Carson, 2013,

p.87). As a share of GDP, entitlements are creeping beyond sustainable levels (see Figure 22)64.

This massive growth is taking a huge chuck of the entire economic ‘pie” (see Figure 23)65

Figure 22

64 Spending on entitlement will rise above and beyond. The spike began in the 60s with the passage of the set of domestic programs, also known as the Great Society. From “What is driving growth in government spending?” by Nate Silver.65 Ibid. As the graph shows, entitlement programs are etching away at the total share of infrastructure, services, and defense. This means that in order to spend more on entitlements we must spend less and have less infrastructure, services, and defense.


Figure 23

Social Security, Medicare, and Medicaid are the ‘Three Musketeers’ of deficits and huge

debts. According to Schiff (2012), “Between the three of them, they take up 41 percent of the

federal budget. And it’s set to get much worse. Just by 2021, the federal budget estimates an 81

percent increase in Social Security spending, and a 78 percent jump in Medicare spending” (p.

154).66 The math will not add up. The retirement of the baby boomers will put more pressure on

the entire financial system (see Figure 24)67. The entitlement state is not making society better-

off. Society would be better-off, if individuals took care of themselves. Those unable to do so

would be covered under the umbrella. The entitlement state removes that capacity. The end

result: total dependency and taking control of personal of decision-making.

66 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 67 Entitlement spending has outrun economic growth. The future will be more severe, as entitlements will continue to increase and economic growth will remain average, below 3%. Obtained from USA, Inc.


Figure 24

Social SecurityEnacted in 1935, Social Security is by far the most disastrous legislation passed. During

the New Deal, Social Security was enacted in the pretense that it served as an insurance program.

A person pays taxes when you work, and by the time you retime, you get to keep what you

contributed. Social Security is a Ponzi scheme, because that money that you contribute is not a

guarantee that you will see. The government runs deficits each year, and each tax payments are

dedicated toward IOUs of previous retirees. In other words, Social Security is already bankrupt,

which relies on Federal Notes to write more debt and deliver funds, which are only fiat money.

As of 2010, Social Security benefits accounted to $701 billion (Schiff, 2012, p. 153).68 With a

ratio of more retirees than taxpayers, Social Security leads to a fiscal cliff. The government is

doing the opposite: grow bigger and expand Social Security.

68 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country.


Medicare and MedicaidMedicare and Medicaid, both enacted in 1965, are two programs that serve the poor and

Americans over 65. Medicare is by far more unsustainable than Medicaid. Medicare is a national

social program that guarantees access to health care for anyone over 65. As a federal health

insurance program for the elderly, is the main problem of health-care costs. Anyone of over 65,

wealthy or not is qualified for benefits. When the federal government runs a program, it tends to

be costing and wasteful. Medicare outlays are expected to grow from $526 billion in 2010 to

$980 billion in 2021—nearly doubling in a decade (Schiff, 2012, p. 178). The federal

government gives out these funds without taking into consideration the market prices: handing

out blank checks. What comes next, fraud and waste on a massive scale, yet, society is not better

off than before.

Medicaid serves as a health program for Americans living in poverty, or who cannot

afford basic healthcare. Medicaid is more efficient because it is a joint federal-state program and

a state-run health-care program. By efficiency, Medicaid is less wasteful and less expensive.

Since states are in budget holes, there’s more incentive to properly manage Medicaid funds, and

administrate them properly. Even Medicaid will not be solvent in the near-future. Medicaid puts

a strain on state budgets, mostly due to a rise of need of dependency. Medicaid is not the main

health-care problem, but it needs as much reform as Social Security and Medicare. All three are a

moral hazard on society and on the future generations. It exhausts the abilities of individualism

to be better-off on their own. If individuals cannot control their lives related to health, then

society cannot control the future massive deficits.

Moral Hazard Issue of Civil SocietyEntitlements create what economists call the moral hazard issue. The moral hazard issue

refers to the tendency to take risks without incurring costs. In other words, it means a free-ride.


The costs of taking any risks will be placed on others, or subsidized by others. That’s why

entitlements do not provide the incentive for society to improve. As its stated before, the decline

of human capital follows. Steyn (2010) argues that, “Human capital is the most important

element in any society” (p. 35).69 Entitlements can make society less virtuous, independent, and

self-reliant. Brook and Watkins (2012) explain the moral hazard issue of the entitlement state:

The widespread conviction that it is our moral duty to sacrifice for the needs of others is

what has made need a political entitlement. If you need something someone else has

produced, you have a right to it—the person who produced it does not. Bare your sores

get a handout—that’s the motto of the entitlement state. (p. 34)

Under the pretense of preserving the well-being of society, entitlements have declined the

standard of living. Chronicle poverty and unemployment have become the new norms. Society

surrenders its liberty and abilities to be successful for the illusion that they are better off under

the care of the state. As Brooks and Watkins conclude, “The disintegration of individual

responsibility, then the entitlement state is geared not to the unable but to the unwilling” (p. 190).

The entitlement state gives birth to nationalized healthcare. If dependency rises, then

nationalization follows.

Nationalized HealthcareThe nationalization of healthcare is another step for government to expand, at the expense

of the individual. If Congress can force you to buy healthcare, then the individual is not free to

choose, but a subject, at the mercy of the legislator. Socialized medicine is a bureaucrat’s dream

and a legislator’s opportunity to expand their power. National healthcare is not about healthcare

per se, it’s about expanding the government. The Patient Protection and Affordable Care Act

represents the most significant government expansion and regulatory of the healthcare system

69 After America: Get Ready for Armageddon


since the enactment of Medicare and Medicaid in 1965. Brook and Watkins (2002) believe that,

“The entitlement state came into existence not because Americans were starving in the streets but

because a growing number of Americans were ideologically committed to expanding the size

and power of the state: They regarded the entitlement state as a moral imperative” (p. 181-182).

Expand the size of the dependent class and the legislator expands the opportunity for political

gains. The self-interest of the legislator is not to make society better-off.

The legislator understands that the Europeanization of medicine is unsustainable:

expensive, less efficient, and more bureaucratic. But, for political gains, socialized medicine

works perfect in the short-term. The individual falls under the claws of the state. As Levin (2010)

explains:

The economic impossibility of these programs was never a utopian concern. Although

cost-cutting, price controls, and benefit denials are instituted haphazardly, there can be no

retreat from the overall mission and the centralized control and planning of the

masterminds. Instead, further consolidation is nearly always the answer. Centralized

control over health-care decisions in particular has been a utopian priority from the

earliest for it maximizes government authority over the individual. (p. 232-233)70

Medicine is a powerful motive for society to fall into the trap. Medicine is costly and

unsustainable. Instead of providing society with incentives for labor and achieving their own

God-given natural rights, the legislator forces society to remain chronically dependent on the

state. As long as the legislator plunders one person, to pay for another, the moral hazard issue

kicks in, and the legislator is held as the champion of the people. If the legislator can control

medicine, it can also have a monopoly on economic control. That’s when the government comes



in and resorts to economic decision-making through centralization, further weakening

individualism and strengthening central-planning.

Economic Control and Centralization of Economic Decision-Making

Short-term vs. Long-termThe control of economic decision-making can either be successful or disastrous. Never

has history shown that centralization can be sustainable, nor is it successful. Politicians and

legislators love to provide good news that only lasts temporarily, while not acknowledging, that

in the long-term, those policies lead to insolvency. American economist and social theorist,

Thomas Sowell (2009) believes that politicians cannot see beyond “Stage One”, because they do

not think beyond the next election cycle (p.13).71 Sowell calls this the “Do something” policies.

Instead of measuring the outcomes and results, politicians purposely rely on the “Do something”

policies, because it is popular and it wins elections. The long-term is ignored, which comes back

later to affect the same individuals, which were meant to be helped, under the exact policies.

American economist and journalist, Henry Hazlitt (1979) claimed that, “The art of

economics consists in looking not merely at the immediate but at the longer effects of any act or

policy; it consists in tracing the consequences of that policy not merely for one group but for all

groups” (p. 17).72 Centralization of economic decision-making prevents long-term policies from

serving all groups. Instead, the government becomes the decision-maker, and then picks winners

and losers in different industries, taking away the power of the individual and the free market to

decide. When the free market is removed, special interests take the wheel. The government is the

main operator.

71 Dr. Sowell advocates for laissez-faire economics. He is National Humanities Medal winner. 72 Henry Hazlitt is another influential economist of the Austrian School of Economics. Economics in One Lesson is considered “an enduring classic” and his work had been highly praised by Ayn Rand, Milton Friedman, Friedrich Hayek, and other influential libertarian-conservative theorists.


Special Interests vs. People’s InterestsBy interfering in the free market, the government becomes involved with special

interests. Although society’s interests are mentioned, as if it’s the main goal, special interests

become more tempting. As Brian Riedl (2010) of the Heritage Foundation states, “However,

stimulus bills provide politicians with the political justification to grant tax dollars to favored

constituencies. By increasing the budget deficit, large stimulus bills eventually contribute to

higher interests rates while dropping even more debt on future generations” (p. 5).73 The

government turns into an institution that functions the special interests of lobbyists. The few

control economic decision-making and make a profit from decisions that are for the short-term

perspective. As Friedman (1990) once claimed, “The majority does rule. But it is rather special

kind of majority. It consists of coalition of special interest minorities” (p. 302).74 The rule of

minority leads the economy on a “flu epidemic”, which means, a volatile economy. An economy

on a “flu epidemic” relies on quick answers to solve our economic issues. This “flu” infects the

economy when we try to spend our way to prosperity, massive unnecessary stimulus after

another, printing money, etc., which will be discussed in more detail. The end result is the

destruction of wealth. When Washington seeks quick economic “miracles,” the end result is a

decline in the wealth of the nation and of all the American people.

Destruction of Wealth and Decline of the Standard of LivingThe destruction wealth occurs with the mismanagement of money and the abuse of

ignoring the need of the people. In economics, there is no short-term solution to any crisis.

Taking short-cuts has put Americans at risk. Legislators, who seek to heal economic maladies

without taking into consideration the future impact, are doomed to fail. When legislators fail,

they also fail the people that they are serving. Senior fellow of the Ludwig von Mises Institute,

73 Why Government Spending Does Not Stimulate Economic Growth: Answering the Critics. 74 Free to Choose: A Personal Statement.


Thomas Woods (2009) warns that, “Policies that might keep recessions short and swift are

inevitably passed over in favor of proposals that will make Americans poorer and keep the hard

times going. (p. 34-35). The power of government to make all economic decisions and confiscate

the wealth of the public, leads to the destruction of wealth. Examples of Socialism and

Communism proved this phenomenon. The mighty Soviet Union collapsed because the

government was everything: the law, the economy, and the centralization of all matters. Levin

(2010) explains this problem:

The free market can never be completely suppressed even in the most repressive regimes.

But in a soft tyranny, where government intervention is pervasive but not absolute, the

individual and society will pay a heavy price from the government’s diversion of

resources, which otherwise might have been used to develop new technologies, products,

medicines, jobs, etc., that better serve both the individual and society. (p. 92-93)75

Government has never been able to manage money, nor able to create economic prosperity.

When wealth is mismanaged and destroyed, the standard of living follows. The standard of living

in America has seen a spiral decline. The government continues to spend its way to prosperity,

believing that it’s the only quick way to get there.

Spending Our Way to ProsperitySpending our way to prosperity is the easiest path to insolvency. Unfortunately, this is the

path of America. It’s a sad ending to a great beginning. America, one time the largest creditor—

now, the largest debtor. You don’t have to go too far to find out the culprit: government went on

a spending spree. Worse yet, the centralization of economic decision-making made this spending

irresponsible and unaccountable to the American people. Brian Riedl (2010) claims that,

“Government spending can affect long-term economic growth, both up and down. Economic



growth is based on the growth of labor productivity and labor supply, which can be affected by

how governments directly and indirectly influence the use of an economy’s resources” (p. 4-5).76

Friedman famously stated that, “The size of government spending is one measure of

government’s role” (p. 37).77

“Spend Baby Spend”According to Brook and Watkins (2012), “The government spending constitutes a

breathtaking 41 percent of gross domestic product” (p. 34). Levin (2010) provides another

shocking figure, “More than $1 of every $4 produced by the economy will be consumed or

controlled by the federal government” (p. 73).78 The European experience provides us a lot of

worries. Governments in Europe consist as the largest spenders of their economy. Yet, Europe is

set to remain in stagnation and chronic unemployment for a long time. Bruce Thornton (2011) of

the Heritage Foundation elaborates this point, by stating that:

The result is increased entitlement spending and government intrusion into the economy,

education, and social life. Consequently, the U.S. is now facing many of the same fiscal

problems that afflict Europe, with entitlement spending projected to double by 2050 and

public debt slated to rise to 180 percent of GDP. (p. 13)

When the government spending becomes a huge chunk of the GDP, this is a recipe for disaster.

Government cannot guarantee economic growth, and this interference distorts the market.

According to Joseph Nye, this is why the future of America is in uncertainty:

The rise in debt is a concern about the future of the U.S economy. In the words of Niall

Ferguson, “This is how empires decline. It begins with a debt explosion.” Not only did

the recent bank bailout and Keynesian stimulus package add to U.S. debt, but rising costs

76 Why Government Spending Does Not Stimulate Economic Growth: Answering the Critics.77 Free to Choose: A Personal Statement. 78 Liberty and Tyranny: A Conservative Manifesto.


of health care and entitlement programs such as Social Security, along with the rising

cost of servicing the debt, will claim large shares of future revenues. (p.8)

Government’s size determines spending and deficits. The U.S. government has no fiscal

responsibility (see Table 4)79. America is not an empire but it shares a common weakness with

Table 4

79 Obtained from Comeback America Initiative.


empires that declined: massive debts and growth of government. Spending our way to trillion

dollar deficits leaves a burden of debt for future economic growth.

Historically, the federal government was always small and spent an average of 3% of the

GDP. Today, the total government spending as a share of GDP has ballooned over 40%, which

soon will reach the levels of World War II and beyond (see Figure 25)80. The share of the federal

government has also gone beyond what the Framers ever intended (see Figure 26)81.

Figure 25

Figure 26

80 The U.S. continues on a path toward the fiscal cliff, as government continues to take over the private market economy. Total government spending as a share of GDP is above 40%. From “What is driving growth in government spending?” by Nate Silver.

81 Ibid. The U.S. has reached an all-time high 25% (excluding World War II) on the federal spending as a share of GDP.


As a result of the growth of the federal government, state and local governments have grown

because of federal mandates (see Figure 27)82 and the expansion of the federal government’s

spending over economic growth (see Figure 28)83.

Figure 27

Figure 28

82 Unlike the federal government, the state and local government have seen an increase in spending, mostly driven by entitlement programs; otherwise spending would have remained constant, with no significant spikes or decreases. From “What is driving growth in government spending?” by Nate Silver.83 Ibid. As the data provides, proponents against defense argue that the U.S. spends too much on defense, and that defense should see massive cuts. Since 1972, defense has shrunk, while entitlements have spiked. Entitlement programs have become more significant for government than infrastructure, education, transportation, science, technology, and defense.


The Burden of National DebtThe burden of debt seems to bring no alarm bells in Washington. Proponents of stimulus

and government spending continue to argue that, in times of crisis, only government’s spending

can bring growth. This theory arose by the British economist, John Maynard Keynes, in his

book, The General Theory of Employment, Interest, and Money, which argues that demand is the

key to overall economic activity. Supply is the opposite argument. By demand, Keynes believed

that consumption was the key to grow the economy.84 This is the rational for government

spending. Ignore the market and let the government dictate how the market should operate, and

how the public shall respond to their economic decisions. Unfortunately, for Keynesians, this

theory has always failed to stir economic growth. Again, the key debate is short-term vs. long-

term. America switched from production to consumption, in search of prosperity by cutting

corners. Keynesian economics advocates the use of fiscal and monetary measures to mitigate

economic slowdown. 84 Keynes became the most influential economist on the practice and theory of macroeconomics. Now known as Keynesian Economics, argues for the opposite economic thought of the Austrian School of Economics. Keynesianism calls for government stimulus, aggregate demand, full employment, etc.


The Keynesian theory pumps money into the economy, and may bring growth into the

short-term, but that growth is too dim for the economy to resurge. In fact, Keynes believed that

the long-term we may have wasted that limited capital for growth, as Wapshott writes, “While

equilibrium depended on the ‘long run,’ he averted, in what was to become one of his most

famous remarks, that ‘in the long-run we are all dead’” (p. 26). In other words, it’s the refusal to

accept crisis, and the persistence that only government can end crisis, or spur economic growth.

When the government spends massive money, it is taking that capital away from the private

sector, which is the most productive sector. Banks do neither have unlimited capital, nor does

any nation. This is the definition of economic scarcity: the choice how to distribute capital, when

everyone cannot have it. Daniel Mitchell, of the Heritage Foundation, states that, “In simple

terms, Keynesian theory overlooks the fact that government does not have some magic source of

money. Government cannot inject money into the economy without first taking it out of the

economy via taxes or borrowing. (2005, p. 9). Capital that could have been used for more

productive purposes have been diverted toward one stimulus after another.

Stimulus to NowhereWith the national debt ballooning, Washington continues to persist on one stimulus after

another. “Examination of a large number of data points shows that the economy responds either

negatively or not at all to increased government spending, which is to say that GDP growth does

not follow stimulus spending” (Davies, Yandle, Thieme, & Starvis, 2012). Economist Henry

Hazlitt emphasized in his chapter, “The Broken Window” the fallacy of economic growth that

stimulus provides. When something is destroyed, replacing it has no real value to the economy.

Instead of using that capital for other purposes, replacing the broken window only wastes the

scarce capital available. If that capital was not used in replacing the broken window, then it could

have been used for investments. Imagine burning down your house and building it again from the


ashes: Would that stimulate your energies and the local economy? Would it have been better to

have built a second house, instead of burning the first? (1979). This is the idea behind a stimulus.

Stimulus has no positive impact on the economy (see Figure 29)85

Figure 29

Changes in federal spending compared to economic growth. From approximately 1950 to 2010,

increases in federal spending were not associated with significant increases in per-capita GDP

growth. Blue and red symbols represent quarters of expansion and recession, respectively.

In 2009, the $830 billion fiscal stimulus was designed to produce a multiplier effect on

the economy. A multiplier means that a one dollar in federal outlays produced GDP greater than

that dollar spent by the government. If the government stimulates the economy with a single

dollar, it expects to gain back more than that in return. In this massive stimulus, one dollar in

federal outlays produced only $1 of GDP. There were no second-round effects. The multiplayer

was one (Congressional Budget Office, 2013). In fact, unemployment ticked up, banks continue 85 Obtained from “The U.S. experience with fiscal stimulus” by Anthony Davies, Bruce Yandle, Derek Thieme, and Robert Sarvis.


to freezing on lending, and the private sector held to a dead-stop (see Figure 30)86. Changes in

federal spending compared to economic growth two years later. From approximately 1950 to

2010, increases in federal spending were associated with decreases in per-capita GDP growth

Figure 30

This is the fallacy that Modern Liberalism argues when recessions hit the country, that by

burning the house and replacing it with a new one, we have grown the economy. As of 2010,

Bryan Riedl explains the fallacy of the stimulus:

The idea that increased deficit spending can cure recessions has been tested repeatedly,

and it has failed repeatedly. The economic models that assert that every $1 of deficit

spending grows the economy by $1.50 cannot explain why $1.4 trillion in deficit

spending did not create a $2.1 million explosion of new economic activity. (p. 3)87

86 Obtained from “The U.S. experience with fiscal stimulus” by Anthony Davies, Bruce Yandle, Derek Thieme, and Robert Sarvis.87 Why Government Spending Does Not Stimulate Economic Growth: Answering the Critics.


A stimulus is just a transfer of money from some people to others. As Caroline Baum of

Bloomberg L.P., explain, “If the federal government takes a dollar from XI, via borrowing or

taxes, and gives it to Y, that spending, may add to GDP in the short run, but there is no long-run

effect” (2013). These are questions that the American people need to ask: Is it worth to destroy

future generations by gambling our money for quick and fallacious economic recoveries?

Destruction of the Next GenerationThe next generation faces insurmountable challenges ahead—not because it’s impossible,

but because the government is on a mission to bring the house down. According to Schiff (2012),

“The problem is that the U.S. government stands behind so many contingent liabilities waiting to

explode that there is no way to tell which one will blow up next” (p. 261).88 One thing is certain

—the next generation faces liabilities that will explode into them. Not only domestic concerns,

the debt puts Americans at risk on global terms. Massive debts and spending mean loss of

sovereignty (Mandelbaum, 2010, p. 15-19).89 Centralization of decision-making makes miracles

in the short-term and provides the illusion of economic growth. Politicians love spending,

because it almost guarantees reelection, while ignoring the consequences of the future.

According to Romina Boccia (2013) of the Heritage Foundation:

U.S. federal spending in 2013, combined with depressed receipts from a weak economy,

is on track to result in a deficit of $850 billion. Publicly held debt in the United States

will exceed 76 percent of gross domestic product (GDP) in 2013, and chronic deficits are

projected to push U.S. debt to 87 percent of the economy in 10 years. (p. 1)

This is the prelude to chronic slow economic growth. It’s the path toward Greece. Public and

government debt lead to economic stagflation. Recovery takes a long time and economic growth

88 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 89 The Frugal Superpower: America’s Global Leadership In a Cash-Strapped Era. Michael Mandelbaum is one of America’s experts on foreign policy.


is meager. The lessons from Greece are alarming, yet we continue to ignore it. Spending and

public debt add more fuel to the fire. Government officials continue to entice the public to spend,

believing that speeding will cause economic growth. Politicians spend other people’s money, or

fiat money that is printed out in the thin air. This is the reality of our government and how

Washington operates: a reckless and insensitive political system

Broken Politics and Unaccountable PoliticiansPolitics in Washington are dysfunctional to the point of insolvency. Our leaders do not

work hard anymore, nor do they take serious the consequences of their actions. It’s the new

reality in Washington—‘pass the buck’ to someone else, and most disturbing: blame someone

else for the failures. None has been more demonized than the free market and Wall Street. It’s

the scapegoat for not taking responsibility. Whenever economic policies fail in Washington, it’s

time to rally the media and blame the market. Adding more fuel to the fire—the public is always

emotional, and always reacts based on how they are informed. This is the future reality of

Washington and the consequences of big government. “America and its political leaders, after

two decades of failing to come together to solve big problems, seem to have lost faith in their

ability to do so. A political system that expects failure doesn’t try hard to produce anything else”

(Friedman & Mandelbaum, 2011, p. 254).90 The bubble has already burst: our political system

will not face the tough issues anymore, because the damage is already done. “How did it happen?

The Short answer: Our political system got paralyzed and our values system got eroded”

(Friedman & Mandelbaum, 2011, p. 241).

America’s decline is due to our politics divided to extreme partisanship and political

hatred, fueled by the political biased national media and special interests in Washington.

90 Thomas Friedman and Michael Mandelbaum wrote this book together, that analyzes the decline of the U.S. and how to come back.


America suffers from domestic decay. Joseph Nye (2010) of the Foreign Affairs magazine

believes that, “the United States could decline not because of imperial overstretch but because of

domestic underreach. The United States will lose its ability to influence world events because of

domestic battles over culture, collapse of its political institutions, and economic stagnation”

(p.5). A nation cannot survive with a political system not interested in solving problems. We are

our own enemies.

Our policymakers in Washington are unaccountable toward their decisions. A new report

states that the U.S. government does not know exactly how many agencies and programs it has.

(Peterson, 2013). This lack of carelessness leads to poor leadership. Poor leadership leads to

extreme partisanship and taxpayers’ waste of money. Because government never goes out of

business, there’s no incentive for solvency. In the private sector the opposite is true—you go out

of business. “The problem is that the very individuals who assured us that all was well are the

ones now entrusted to solve the problem. But how can they solve a problem they still do not

understand?” (Schiff & Downes, 2012, p. 25).91 Our political institutions don’t change. The

systems of our government are in chaos—twisted pipes that get clogged into gridlock. To change

government systems we need to change our beliefs (Miller, 2011, p. 17-29). To change beliefs,

we need to change how we manage our economy. Central-Planning runs our economy and it runs

us toward a great coming crash, that will be more severe than then Great Recession.

Central-PlanningEconomic decision-making through central-planning is the number one public enemy of

our Founders’ vision of a free market economy. Centralization is the path to insolvency and

economic destruction. Hayek (2007) famously explained economic control and central-planning:

91 Crash Proof 2.0: How to Profit From the Economic Collapse.


Economic control is not merely control of a sector of human life which can be separated

from the rest; it is the control of the means for all our ends. And whoever has sole control

of the means must also determine which ends are to be served, which values are to be

rated higher and which lower—in short, what men should believe and strive for. Central

planning means that the economic problem is to be solved by the community instead of

by the individual; but this involves that it must also be the community, or rather its

representatives, who must decide the relative importance of the different needs. (p. 127)

This is the definition of Socialism and its fallacy of economic equality for all: control the means

for all our needs and you control the individual. Economic control is the Progressive quest for a

mixed economy—that of capitalism and Socialism. As Brook and Watkins (2012) explain, it’s

the new movement in the belief of this utopian “solution”:

The solution is neither total capitalism nor total socialism, but the mixed economy. We

just need to find the right mixture of selfishness and selflessness, of freedom and

controls, of capitalism and socialism—and that will solve all our problems. And yet what

we get instead is an overarching trend away from freedom and toward state control of the

economy. (p. 36)

This is the primary problem: there is no middle ground and both systems cannot be combined.

It’s either capitalism or socialism. This middle grounds breeds lack of political leadership

because this mixture creates an instable political process.

The problem with our economy is a failure of political leadership. Searching for a mixed-

economy is the path to insolvency. Economics is not a partisan theory. It’s either this (free

market) or that (centralized economics). Globalization has had tremendous economic benefits

that benefited the entire globe. According to Satyajit Das, of Market Watch, “Various


breakdowns—restrictions on trade, currency manipulation, capital controls and predatory

regulations—now signal the retrenchment of globalization and return to autarky” (2013). These

were mistakes that many nations did in 1930s. Today, our government guides our economy on

these mistakes, which leads to booms and busts of recessions and possible depressions. When

one nation adopts such policies other countries follow and the entire house heads to a crisis

waiting to explode.

Our political system is under decline because Washington searches for easy answers:

throw black checks out, hope for the best, and inflate the benefits. “When confronted with a

crisis caused by government-created moral hazard, cheap money, and central planning,

Washington responded with more moral hazard, even cheaper money, and heightened central

planning” (Schiff, 2012, p. 49).92 Our political failure is a failure of our monetary policy. Our

economy is under the toilet because of our destruction of money. Central banking has weakened

our country and our economy. It has put our country at risk by being vulnerable to outside forces.

If America is to be destroyed, our monetary policy continues to put the dagger deeper into the

heart.

The Failure of Monetary PolicyThe U.S. monetary policy is a soon-to-be century of disaster. The creation of the Federal

Reserve on December 22, 1913, under the Federal Reserve Act, was the beginning of a

destructive monetary policy. It was the beginning of moving away from free market toward

centralization. According to Woods (2009), “The central bank is a government institution,

established by government legislation, whose personnel are appointed by government and which

enjoys government-granted monopoly privileges. It bears repeating: the central’s bank

interventions into the economy give rise to the business cycle, and the central bank is not a free-



market institution” (p. 74). The Federal Reserve is a central bank that manipulates money and

distorts our monetary policy. Politicians love the Fed because it provides money printed out of

thin air. The Fed prints money (Federal Reserve Notes) and gives it to the U.S. Treasury. The

Treasury then credits these notes to all governmental functions. These notes have no real value,

except that it bears the name of the United States Treasury. The government gets these notes to

pay its IOUs, and the cycle continues. The notes have no real value because they do not represent

growth or production. The problem with this is that, “In the spring of 1971, as the Federal

Reserve tried desperately to expand the U.S. economy by flooding it with dollars, the rest of the

world came demanding gold. On August 15, 1971, Richard Nixon ordered the goal window

closed, ending the international currency’s link to gold for the first time in 1,500 years. There

began the worst inflations of the century” (Wanniski, 1998, p.222).93 With that, inflation began to

erode our economy and our future.

Inflation DestructionInflation is over supply of money in circulation by the central bank. When that supply is

not tightened it causes inflation. When the central bank fails to withdraw that money, it causes

painful inflation. Inflation is a rise of prices. The enemy of economic growth is inflation but

politicians love it, because they can borrow money and pay it back much cheaper. Although the

mounted debt will never be paid back, inflation makes that borrowed money less valuable

tomorrow—hence, spending without concerns. “The truth is that the Fed exists for the sole

purpose of providing the inflation necessary to allow the government to spend more than it

collects in taxes” (Schiff, 2010, p.116).94 It makes sense in the short-term, but it leaves us all less

fortunate in the long-term. “It may indeed bring benefits for a short time to favored groups, but

93 Jude Wanniski was an American journalist and political economist. Diagram can be found in the Appendix section.94 How an Economy Grows and Why It Crashes.


only at the expense of others. And in the long run it brings ruinous consequences to the whole

community. Even a relatively mild inflation distorts the structure of production” (Hazlitt, 1979,

p. 170). The history of inflation is the history of the destruction of money, and the U.S. dollar is

the victim. The dollar has been transformed from a genuine currency to fiat money. Fiat money

that doesn’t come out of production, but rather as a Federal Note with artificial value.

Decline of the Dollar“As Ludwig von Mises once said, the history of money is the history of government

efforts to destroy money. If ever there was a monopoly with which government could not be

trusted, this is it” (Woods, 2009, p.154). The decline of the dollar is the result of the Federal

Reserve. “The dollar was worth 75 percent more in 1912 than it was worth in 1800. Of course,

since 1912, the dollar has lost more than 95 percent of its value. That money doesn’t naturally

lose value unless it’s manipulated by central bankers” (Schiff, 2012, p.115).95 The American

dollar is under such decline that its status of the world’s currency reserve is uncertain. Foreigners

are losing confidence in the dollar because our government is irresponsible and unaccountable.

The days of the privilege of having status of the world’s currency are numbered. Foreigners will

not have any strategic value anymore of buying federal debt. China and other rising countries

will either back their own currencies or would go back to the gold standard. If they do so, the

U.S. government will head into chaos.

America has given up on genuine economic growth and prosperity. “The declining dollar

is the result of an American economy characterized by the declining production, inadequate

savings, reckless consumption, soaring household debt, ballooning federal budget deficits, and

an overly accommodating Fed” (Schiff, 2012, 81).96 Inflation has deprived the dollar and its

95 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 96 Crash Proof 2.0: How to Profit From the Economic Collapse.


purchasing power. This becomes regressive and affects the most vulnerable. Taxpayers get

punished and the middle class disappears. The quest for shortcuts has left a massive shortcut in

our ability to produce, instead of producing worthless papers.

Credit Diversion, Artificial Interest Rates, and the Great DepressionCredit diversion and artificial interest rates manipulate economic growth. It is a shortcut

toward growth and prosperity, except that in the long-term it catches up with severe

consequences. “The Fed would increase the money supply as the economy expanded, and then

reduce the money supply as the economy contracted. Today, the Fed increases the money supply

when the economy grows, and expands it even faster as it contracts” (Schiff, 2012, p30).97 Low

artificial interest rates do not match the market price. Low interest rates send a false signal that

inflation is low. The money printed by the Fed is not used for economic growth, but rather

toward the banks so they could finance more federal debt. Rates so low allow the government to

spend more money, while at the same time taking away the ability for others to do business,

invest, and save. Hence—print fiat money to buy more debt today, so that we can print more fiat

money tomorrow. It’s a cycle that repeats itself without an ending in sight, which produces zero

economic growth. It’s a perfect example of capital being squandered and wasted.

This was the failure that led to the Great Depression. “From the mid-1921 to mid-1929,

the Fed increased the money supply by 55 percent. This extra money was the air that filled the

stock and real estate bubbles” (Schiff, 2012, 34).98 History repeated itself with the Great

Recession. “The asset bubble we know as the Roaring Twenties that ended with the Crash of

1929 was the result of an easy money policy not unlike the one that has led to our present crisis”

(Schiff, 2012, 30).99 A repeated cycle under the guidance of the government, which gambles like

97 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 98 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 99 Crash Proof 2.0: How to Profit From the Economic Collapse.


an addicted gambler in casino. “The fact is that the Great Depression, like most other periods of

severe unemployment, was produced by government mismanagement rather than by any inherent

instability of the private economy. Similarly today, governmental measures constitute the major

impediments to economic growth in the United States” (Friedman, 2002, p.38).100 The problem is

that we are told to believe that it’s the greedy Wall Street that caused it. Government is noble and

serves the people. Who would ever blame the government? The current Greek debt crisis,

hopefully, should finally convince us: the Greeks lived the “la dolce vita” with low interest rates,

while the economy grew under artificial credit. It all seemed magical, until the house came

down. Unfortunately, the Greeks did not have a Wall Street to blame. The European Central

Bank acted as the Federal Reserve did with previous financial crisis: pump cheap credit and if it

collapsed, blame it on laissez-faire and the “greedy” capitalists out there.

America cannot operate under the bandwagon of artificial credit and low interest rates.

Hyperinflation is a reality and it’s something to worry about. Hyperinflation occurs with the

rapid increase of the supply of money and rise of prices on extreme levels. Hyperinflation will

occur when foreigners stop financing federal debt, in response— the Fed will print even more

money to fill that missing gap. Because our government is addicted to spending, it will have no

choice but to print more money. Hyperinflation can only be defined as Armageddon: a total

collapse of the economy and the complete erosion of the currency. History has shown that

hyperinflation leads to war and political instability. It’s one of the main reasons why Hitler

grabbed power and led Germany to World War II. America won’t go in the same path, but it

might as well as become a meager “First World” country. That is so because loss of economic

freedom leads to accepting average.

100 Capitalism and Freedom.


Loss of Economic FreedomEconomic freedom came as a result of free market economics. The U.S. became the

superpower because it adopted the capitalist system that marginalized the freedom of

entrepreneurship and free of government interference. Brook and Watkins (2012) describe

capitalism as, “the system that institutionalizes freedom in order to protect a specific way of life:

a life of reason, productiveness, and trade” (p.133). Government’s role was to maintain the right

conditions under the law and stay away from deciding the end results. That trend has diminished,

and instead of mediating the conditions, now it runs as the main decision maker. It does so under

excessive regulations. “Economic freedom leads to wealth and prosperity—yet we’re losing it.

To take just one rough barometer, the United States fell from 80.6 percent free in 2008 to only

76.3 percent free in the latest Index” (Brook and Watkins, 2012, 12).101

Regulations are necessary to maintain the correctness of the market and abide by the

rules. That is a genuine role of the government. Under that right, the government has gone

beyond its role of meditating. As Schiff (2012) states, “So our government overregulated a free

market better left unfettered, and underregulates its own entities badly in need of restraint”

(p.60).102 So who regulates our government? How can we be sure that the free market needs

more regulation, when no one regulates the government? “The so-called economic freedom

which the planners promise us means precisely that we are to be relieved of the necessity of

solving our own economic problems and that the bitter choices which this often involves are to

be made for us” (Hayek, 2007, p.127). Government is now the single-plan mechanism or the

visible hand, which is the opposite of Adam Smith’s famous metaphor: the invisible hand.

101 See Appendix A – Miscellaneous 102 Crash Proof 2.0: How to Profit From the Economic Collapse.


The Visible HandIn his famous book, The Wealth of Nations, Scottish economist, Adam Smith conceived

the famous metaphor, the invisible hand of the free market to describe the self-regulating

behavior of the free market. Smith believed that the market can correct itself. It can balance itself

and not harm one another. This was driven by the individuals’ effort to maximize their own gains

in the free market. Doing so benefits the whole society, and as beneficiaries, individuals have no

incentives to break the rules. The visible hand is any government authority that inhibits invisible

hand in the coordination of market activities. It’s understandable that government’s involvement

is required and necessary at some point, something that Smith acknowledged. But if government

interferes excessively, it can misuse the benefits that the free market provides. In other words, it

competes for power. “Arbitrary power placed in the hands of government bureaucrats does harm

the rational and productive” (Brooks and Watkins, 2012, p.176).

The free market provides the right incentive to marginalize society’s interests and needs.

Government is necessary for the market but not necessary to retard the benefits that the invisible

hand provides. As Hayek (2007) stated, “If all the means of production were vested in a single

hand, whether it be nominally that of ‘society’ as a whole or that of a dictator, who-ever

exercises this control has complete power over us” (p.136). So the question remains: whether we

want a government that protects the rules to make the invisible hand possible or do we want a

government that replaces it by becoming the visible hand of the market—the decision maker via

central-planning? This role has had unintended consequences, causing harmful outcomes toward

our financial system

The Law of Unintended ConsequencesThe visible hand is a distraction in the market and misleading to the public. In his famous

essay, What is Seen and What is Not Seen, Bastiat wrote about the consequences and the


outcomes of the visible hand. As Rob Norton (2008) of the Library of Economics and Liberty

wrote:

Bastiat often distinguished in his writing between the ‘seen’ and the ‘unseen.’ The seen

were obvious visible consequences of an action or policy. The unseen were less obvious,

and often unintended, consequences. ‘There is only one difference between a bad

economist and a good one: the bad economist confines himself to the visible effect; the

good economist takes into account both the effect that can be seen and those effects that

must be foreseen. (p.1)

Distinguished American sociologist, Robert K. Merton in 1936 expanded this concept in social

sciences with his famous article titled, The Unanticipated Consequences of Purposive Action

Social Action. It’s easy to judge our decision making based on the visible consequences, but it’s

very hard to analyze the invisible aspect. Merton identified five sources of unanticipated

consequences; ignorance, error, immediacy of interest, basic values, and self-defeating

predictions (Merton, 1936).

Friedman (2002) stated that, “As a result a government attempt to rectify the situation

may very well end up making matters worse rather than better—imposing costs on innocent third

parties or conferring benefits on lucky bystanders” (p.32).103 Under Merton’s concepts, we can

say that government is the necessary evil that commits the pervasive unanticipated consequences

because of ignorance, error, immediacy of interest and self-defeating prediction. The history of

the Federal Reserve and the decline of the dollar are just few of many unanticipated

consequences. Government can distort the market because America is no longer a pure capitalist

economy: it’s a mixed economy via central-planning and monopolistic. The rise of the

monopolistic state has further strengthened centralization.

103 Capitalism and Freedom.


Monopolistic StateMonopolies exist when government grants them protective privileges from competition.

Monopolies grow bigger and earn enough profit to operate, under government rules. That sounds

great for the monopoly—never goes out of business and earns guaranteed profits. The offset is

that the consumer loses. Lack of competition means less efficiency and higher prices. The

nationalization of healthcare is a similar outcome. Hayek (2007) outlined the issue of

monopolies:

Our freedom of choice in a competitive society rests on the fact that, if one person refuses

to satisfy our wishes, we can turn to another. But if we face a monopolist we are at his

mercy. And an authority directing the whole economic system would be the most

powerful monopolist conceivable. (p. 127)

The freedom to choose is disappearing. Politicians love monopolies because it creates political

support and contributions. Besides special interests, lies the mentality that government can run

anything more efficiently than other sectors. With this mentality, the nationalization and

monopolization of industries expands.

Nationalization of Industries, Price-Fixing, Protectionism, and Destruction of CompetitionThe nationalization of industries is the process of taking private sector into government

ownership. Some famous examples of nationalization include the railroad service (Amtrak), the

postal service (U.S. Postal Service), the electrical power grid (Tennessee Valley Authority),

Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Loan

(Fannie Mae), and lately General Motors. These entities are known for high costs, lack of

efficiency, and competition. Amtrak and the postal service continue to post billion dollar deficits

each year, yet it never concerns Washington. Tennessee Valley Authority has no competitor to

offer the best service at lower prices. Fannie Mae and Freddie Mac continue to demand bailouts,


even after the housing bubble. Finally, General Motors is falling behind in the auto industry.

Ford Motor Company never received any bailout, and is on the path toward an acceptable

growth. General Motors is yet to pay its money back from the bailout, and it’s still on the verge

for another bankruptcy. And you know the answer, as to what they will ask for: another bailout.

As Ronald Reagan once said, “Government does not solve problems; it subsidizes them.”

Government ownership determines winners and losers in all sectors. Government aids borrowers

and poor-managed corporations by subsidizing their failures because of politically connected

interests. Powerful members of Congress lend power to these industries because of their location

in their district and political contributions (Woods, 2009, p. 52). “This is typical government

action. Wreck an industry with subsidies and regulation: blame the ensuring failure on

capitalism; then ‘solve’ the problem with a complete government takeover” (Brooks & Watkins,

2012, p. 191).

Government’s monopolization distorts market prices. “It has been argued that the

Depression was so severe because the money supply was too low. A closer look suggests the

problem was government interference with the price system” (Woods, 2009, p.101-102).

Distortion of one industry leads to a domino effect on others. The beauty of the free market is

that prices are set based on competition. Competition spurs innovation and entrepreneurship. A

monopoly has no concern about prices because they are the price-setter. The end result is higher

prices for consumers. Because of high prices, the government interferes even more with

inflation. Government causes the balance between supply and demand to go counteractive with

the free market. As a result, we experience economic instability and protectionism. When the

balance is distorted, government protects industries from competition. Protectionism sets a chain

of tariff wars and political instability with other nations.


Protectionism is a destructive method of economic policy. Protectionism serves only the

goals of special interests and select members of Congress. Protectionism can either be a tariff on

trade or bailouts of specific industries. A tariff is an import-export tax imposed on another

country. In the short-term, tariffs may protect our industries, but they decrease the efficiency of

these industries. If an industry is sure that the government will protect it from its competitors, it

has no incentive to upgrade its products or lower its prices. On the other hand, the other country

is furious and in return retaliates with its own tariffs. The end result: the public loses at the mercy

of government protectionism. Tariffs put a bad stamp on efficiency and innovation. Just like

tariffs, a stimulus has the same effect: protect an industry from competition and from pursuing

efficiency. In the end, destruction of competition is the ultimate outcome.

Government takeover leads to the destruction of competition. From nationalization, to

price-fixing, and to protectionism, the distortion of the market has long-term consequences. It’s

tempting to be fooled that government creates the perfect conditions for competition. It’s even

more fooling to believe that government is protecting the consumer. The duty of government is

to observe, not to steer the entire decisions of the free market. Its outreach has distorted by

organizing labor and forced a decline in productivity.

Organized Labor and CapitalOrganized labor is a method of government expanding its circle of influence. Labor is a

critical aspect of society and productivity. Under the pretense of rights, the government

establishes organized labor as a method of delivering proper protection against employers, health

insurance, monopolies, wage rate and other labor issues. Although they may seem tempting, they

are tyranny’s disguise. Hayek (2007) once stated that, “The impetus of the movement toward

totalitarianism comes mainly from the two great vested interests: organized capital and organized

labor. Probably the greatest menace of all is the fact that the policies of these two most powerful


groups point the same direction” (p.204). Socialism claims to provide the same benefits, but it

only dominates the individual’s property, which is the individual’s labor. By dominating the

individual’s labor, the government dominates the individual. (Levin, 2012, p.203).104

Control of the individual means control of society. The Soviet Union and other brutal

regimes dominated the individual under the same pretenses: the right to work, rest and leisure,

education, healthcare, social insurance, and many other “rights”. Whittaker Chambers, a former

member of the Communist Party USA, Soviet spy, and proponent of the New Deal, who later

acknowledged in his autobiography, Witness, “The New Deal was a genuine revolution, whose

deepest purpose was not simply reform within the existing traditions, but a basic change in the

social and, above all, the power relationships within the nation. It was not a revolution of

violence. It was a revolution by bookkeeping and lawmaking” (Levin, 2012, p.206-207).105 The

New Deal expanded the government and made Americans dependent on government assistance.

Under the pretense of “rights” and “protection,” the trap did work, and indeed it succeeded in

disintegrating human capital. By disintegrating human capital, it organized labor and began to

squander capital for unnecessary social spending.

Our government continues to pursue policies that the Soviet Union believed would work

better than capitalism. Full employment, minimum wage laws, and anti-competition are common

economic policy. Full employment is a fallacy and can never be accomplished. The Soviet Union

had full employment, yet the standard of living continued to decline, with stagnant wages and

decline of wealth. Minimum wage law is another fallacy that is a bad unintended consequence.

Minimum wage laws may help an individual by earning a few dollars more, but it hurts those

who are unemployed, and most importantly, the youth. By raising the minimum wage, it

104 Ameritopia: The Unmaking of America.105 Ibid., p. 206-207.


becomes more expensive for employers to hire more workers. Also, for the youth, who rely on

low paid-temporary-jobs, the minimum wage pushes them out of the labor market. Again, it

becomes more expensive for employers to add inexperienced labor with artificial wages. All of

this creates a surplus of workers. Hayek (2007) described the minimum wage that, “To aim

always at the maximum of employment achievable by monetary means is a policy which is

certain in the end to defeat its own purposes. It tends to lower the productivity of labor and

thereby constantly increases the proportion of the working population” (p.214). It’s precisely

what unions are for: less productivity and expensive labor.

Labor unions are powerful because they are considered a monopoly. As monopolies they

transfer money to governmental officials for protection, while leaving those outside of unions

vulnerable to their powerful special interests. Hayek (2007) explained the labor movement and

its intentions:

The labor movement came under the influence of anti-competition doctrines and became

itself entangled in the strife for privilege. The recent growth of monopoly is largely the

result of a deliberate collaboration of organized capital and organized labor where the

privileged groups of labor share in the monopoly profits at the expense of the community

and particularly at the expense of the poorest, those employed in the less-well-organized

industries and the unemployed. (p.207)

This labor movement diminished the incentive to create employment. That capital for

employment is diverted to protect and serve the interests of these groups. According to Schiff

(2012), “Jobs come from (a) the incentive to earn a profit and (b) capital formation. The harder

government makes it for employers to earn profits and the less we save to finance capital


formation, the fewer jobs that will be created” (p.58).106 Our government does not operate under

that method. Instead, it has opted to operate under crony capitalism: more central-planning.

Crony CapitalismCrony capitalism arises from the need of government to control the state. After all, the

economy is everything that runs society. Crony capitalism is the cooperation of the government

and business. The power and the benefits are many, and the end result is economic inefficiency,

waste, and corruption. While there are many types of cronyism, the most damaging has been the

debate of production vs. consumption. The distortion of supply and demand is another example

of cronyism. This distortion is a price restriction or quantity restriction. The oil embargo crisis of

1970s is an example of government’s unintended consequences. Cronyism involves picking

winners and losers in economic decision making. America used to be production country, which

turned into a consumption o—debtor to spender. Cronyism also involves special interests—

reliance on the Feds artificial money and borrowing without producing. The twentieth century

proved that consumption is a short-term benefit, while production creates wealth. America is

heading toward more and more consumption, while producing less and less. Thanks to our

government’s shortcuts to prosperity, we are speeding ourselves toward insolvency.

Production vs. ConsumptionIn the twentieth century, the U.S. saw a major shift from production to consumption.

After World War II, production continued to be a key part of the economy. Production continued

to decline as the U.S. shifted more toward consumption. Technology made it possible to produce

less and consume more, but the shift in monetary policy was the reason for this shift.

Government policies of organized labor and capital, which made labor far more expensive, the

abandonment of the gold standard, pushed production further down. Without the gold standard,



the Fed could print money and only import goods. This blew the trade deficit and other countries

began to grow at the expense of U.S. cheap artificial credit. History has proven that countries

that produce (manufacture) goods become wealthy. By production, is meant real economic

growth or tangible goods. The U.S. moved in the opposite direction: artificial goods made up of

Federal Reserve Notes. This policy was enough to shrink manufacturing and jobs to disappear.

The consequences of this policy can be seen across the country—Michigan, Ohio, Pennsylvania,

upstate New York, etc.

As in monetary policy, our government went after another shortcut in economic growth:

borrowing money for consumption rather than production. The government isn’t borrowing for

investment, it’s borrowing for consumption. (Schiff, 2012, p.20).107 Reliance on China is the

reason why the national deficit exploded and continues to grow. Substituting Federal Reserve

Notes for real production is not an economic policy. It’s a path to insolvency. We are going into

debt so that we can consume more without producing much in return. That makes other countries

grow economically, while in the long-run we become dependent on them. “Our GDP is over 70

percent consumption, which could collapse at any time because it is financed by debt and not

supported by domestic production” (Schiff, 2012, 51).108 Consumption and debt trigger bubbles

made possible by artificial low interest rates. Low interest rates entice everyone into speculative

mania, seeking shortcuts to prosperity, as does our monetary policy. Speculative mania causes

boom-bust cycle: the business cycle that grows artificially from quantitative easing, and then

comes crashing down faster and painfully.

107 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 108 Crash Proof 2.0: How to Profit From the Economic Collapse.


Boom-Bust CycleEconomic bubbles are another way to speeding up growth, by using quantitative easing as

a method to spur economic growth. Quantitative easing occurs when the central bank buys

financial assets from commercial banks, creating capital, which then is injected in the economy.

As it’s stated before, its fiat money, printed out of thin air, and not from real economic growth.

The dotcom bubble, the housing bubble, and all other bubbles have ruined the foundations of our

economy. Bubbles make the economic growth seem genuine, but since its fiat capital, in the end,

it blows up because low artificial interests rates mislead investors. When investors pull out or

when everyone finds out that this bubble will blow, and then the entire system collapses. It’s the

typical central-planning method that the government continues to pursue, along with cronyism of

defending special interests. And as always, in the end, blame Wall Street or any “greedy”

investor. As Woods (2009) explains the cycle, by quoting Hayek:

Central banks—which are creatures of government, not the free-market—set the boom-

bust cycle in motion when they try to take shortcuts to prosperity. There are no such

shortcuts, and central banks’ attempts to pretend otherwise are destined to end in disaster.

That is what happened in our case: artificially low interest rates, thanks to the Federal

Reserve, encouraged lines of production that made no sense and could not be sustained in

the long run. (p. 60-61)

In order to cover one exploding bubble with another, the government sponsored one bubble on

top of the other. When the dotcom bubble was about the burst, it was time to sponsor the housing

bubble to keep the economic ‘boom” going. With artificial credit, it is possible to do so, because

it’s the only way to expand the economy without real production, until it bursts again.


The boom-bust cycle leads to the moral hazard issue. In the housing bubble, Freddie Mac

and Fannie Mae led the charge in the misallocation of resources, thanks to government policies.

Schiff (2012) explains the process:

First, it allowed Fannie and Freddie to buy up massive amounts of mortgages, and to buy

up riskier mortgages. If Fannie and Freddie would buy a loan, there was no reason not to

issue it. Had there been no government-subsidized secondary mortgage market, selling

mortgages would have been harder for banks, and so lending standards and interests rates

would have been higher. (p.45)109

Banks did act irresponsible because the government forced them to do so under the law. People

not qualified for loans got one. Construction boom for demand that never existed went up.

Artificial stimulus made possible other bubble projects with capital that never existed. Because

each bubble would burst, the government needed another bubble to keep the economy going. But

in 2008, when the housing bubble collapsed, the government was too late to create another one

before it burst. And so began more cronyism: bailouts of many industries.

Bailouts prove why cronyism is alive and expanding. When companies go down, it’s

either because of government bailouts or protectionism from competition. Bailouts give more

incentive to moral hazard. If companies are sure that failures will lead to bailouts, there’s no

incentive to be responsible. If meagerness will be protected from competition, there’s no

incentive to lower prices or upgrade quality. Woods (2009) explains why the moral hazard is a

problem with bailouts:

In that sense, these firms we’re told are too big to fail in fact too big to be kept alive. The

longer they are kept on life support, the more they drain capital and resources away from

fundamentally sound firms that could put those resources to much more productive use



from consumers’ point of view. Keeping such firms alive via government bailouts

discourages rather than encourages capital formation and economic recovery. (p. 40-41)

What the authorities are trying to do is to put out fire by turning off the smoke alarm (Woods,

2009, 56-57). How does government finance this moral hazard of bailouts and more bubbles?

Uncle Sam to the rescue: taxes and more taxes.

Taxation without RepresentationTaxation is another good indication of government’s power and expansion. It is necessary

for government to raise taxation in order to bring revenue. But taxation should not be the most

reliant source, or the only source of revenue. The higher the taxes, the lower the production and

incentive to work. As Hazlitt (1979) explains, “But the larger the percentage of the national

income taken by taxes the greater the deterrent to private production and employment. When the

total tax burden grows beyond a bearable size, the problem of devising taxes that will not

discourage and disrupt production becomes insoluble” (p.39). Wealth is private property and it’s

not any different from physical property, let’s say land or house. Dominating the individual’s

property discourages production. There are two types of taxes: direct and indirect. An example of

direct tax is income tax, payroll tax, or property tax. An example of indirect tax is sales tax,

tariffs, or value-added taxes. “Our tax code discourages work, promotes consumption, induces

wasteful behavior, imposes huge compliance costs, invades privacy, and tramples on individual

rights” (Schiff, 2012, 132).110

Taxation has become a legal plunder, by using the law to increase the clause commerce

of taxation. Legal plunder has become so pervasive that Congress comes up with so many ways

to tax. The more the taxing power, the more wasteful becomes the government. According to

Schiff (2012), “For every dollar the IRS collects, another thirty cents is spent to collect it. Put



another way, for every dollar spent complying with the tax code, twenty-three cents is simply

dead-weight loss, going to activities that provide no value to anyone” (p.143).111 The expansion

of taxing power combined with inflation destroys the middle class. “Governments love inflation.

It’s a way for them to take money from the people without realizing they took it” (Schiff, 2012,

95).112

In other words, taxation combined with inflation becomes regressive, as Friedman (1990)

explains, “Inflation also yields revenue indirectly by automatically raising effective tax rates. As

people’s dollar incomes go up with inflation, the income is pushed into higher brackets and taxed

at a higher rate” (p.269).113 Government officials ignore inflation, as more money is printed, and

instead slap the public with taxes. Inflation is a hidden tax and hurts the most vulnerable. “The

share of taxes paid by the bottom 40% of the population has been shrinking along with their

share of income” (Wessel, 2012).114 The problem is that incomes are not keeping pace with

inflation. Soaking the rich to the maximum is not a solution either, because it doesn’t solve the

problem of tax brackets being pushed into higher rates. It’s alright—as long as the government

expands its power to tax, it will continue into the same path.

Economic decision-making via central-planning is one step away from our founding

principles. The good old times of irresponsibility are gone and never to come back.

Centralization has weakened our country. Our government has traded our way of genuine

economic growth for special interests, deficits, monopolies, cronyism, and taxation. But there are

solutions out there, and it must be done by expanding individual and economic freedoms.

111 Crash Proof 2.0: How to Profit from the Economic Collapse.112 Ibid., p.143.113 Free to Choose: A Personal Statement. 114 Op-ed written in the Wall Street Journal. Wessel argues that taxes on the rich have gone up, and it’s still not even close to close the budget gap. At some point, raising taxes on the wealthy will reach the maximum level, and this option will be finally exhausted, still leaving a huge budget gap. Diagram can be found in the Appendix section.


The Cures and the Solutions

Separation of State and the IndividualAmerica’s founding principles rely on empowering the individual to achieve liberty,

prosperity, and happiness. The return to those principles is the key to bring the best of America.

“The framers of the Constitution had learned the lesson. They were not only students of history,

but victims of it: they knew from vivid, personal experience that freedom depends on effective

restraints against the accumulation of power in a single authority” (Goldwater, 2013, p.10).

Individualism is essential for liberty and freedom to thrive. Those liberties exist in the

Constitution and in the Bill of Rights. As it’s been discussed, the Constitution has been perverted

and reinterpreted. The future of liberty and of free Americans depends on these principles of

preserving the most fundamental document, which is the Constitution.

Enhance and Preserve the ConstitutionThe Constitution is the rule of law, not the government. It’s not a document that needs to

be reinterpreted because of our state-of-society or our state-of-economy changes. “The

Constitution did precisely what it was designed to do, limiting the growth of central power and

encouraging the development of a pluralist society” (Hannan, 2010, p.46).115 Also, as the

influential America political theorist, Martin Diamond (1981) emphasized:

The underlying aim of the constitutional system is, upon the basis of democracy, to

render government adequately powerful and competent to its tasks, and yet to guard

effectually against the perversion of the power that has to be granted. The scope of

government and the exercise of its political power are constrained by the constitutional

system. (p.105)

115 Daniel John Hannan is a politician who is a Member of the European Parliament, representing Southeast England for the Conservative Party.


Constraining government was the main intention of the Constitution. Grabbing power is easy and

leads to tyranny. Levin (2010) explains that, “The Constitution and, more particularly, the

framework of the government it establishes are not intended to address every issue or answer

every perceived grievance. This is not a defect but strength, because the government was

intended to be a limited one” (p.39).116 This is the reason why individualism thrived in the

American society. It’s precisely the reason why the pursuit of liberty and happiness was possible.

Government can take it away claiming that Congress is exercising its authority under the

Constitution’s Commerce Clause, but as Levin (2012) explains, by quoting Article, Section 6,

“The Congress shall have Power…To regulate Commerce with Foreign Nations, and among the

several States, and with the Indian Tribes.” (p.239).117 Or to quote the Tenth Amendment, “The

Tenth Amendment clearly states that “The Powers not delegated to the United States by the

Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the

people” (U.S. Const. amend. X). “The language clearly states that the demands by Congress or

the federal government to expand its authority are non-existent.

Preserving the Constitution is vital to the well-being of the nation. If the Constitution can

be stampeded and reinterpreted, then the government becomes the rule of the land. In that case,

we’re not the United States, but just a federation similar to the dysfunctional European Union.

“The framers were well aware of the danger posed by self-seeking demagogues—that they might

persuade a majority of the people to confer on government vast powers in return for deceptive

promises of economic gain” (Goldwater, 2013, p.10). Such transfer of power was forbidden by

the framers, which certain activities were outside the natural and legitimate scope of public

116 Liberty and Tyranny: A Conservative Manifesto. 117 Ameritopia: The Unmaking of America.


authority and that dispersing public authority among several levels was necessary to preserve

checks and balances.

When the government violates the Constitution, it violates the will and interests of the

people. This stampede on the Constitution gives rise to the tyrannical tendency of competing for

power, which is exactly what the Three Branches have accomplished. Today, that competition is

under full gear, and as fierce as we’ve ever seen. The Constitution is the last stand, the last

barrier against tyranny over the people. Yes, tyranny may sound over exaggerated, but think

about it, once you give up yourself to the government, you are permanently giving up your will

and interests. You’re giving up your individualism in the hands of the administrative state, so

that collectivism can rule your life. Individualism preserves the Constitution and prevents the

dominance of the state over the people.

Individualism over the State“The kind of government that the framers did not want was one that tried to control the

lives of its constituencies. They realized that the latter type of government would transform ‘we

the people’ from a ‘can do’ society to a ‘what you do for me’ society” (Carson, 2013, p.38).

America remains the last hope of the earth because it was the birth of individualism. Individuals

were free to pursue liberty, freedom, and happiness. Americans could organize their community

and elect a representative to Congress. Men and women chose their life according to their needs

and beliefs. These are men and women who took charge of their responsibilities, empowered the

local community, and participated in local affairs. This is the great America and the tradition of

republicanism. “It is this recognition of the individual as the ultimate judge of his ends, the belief

that as far as possible his own views ought to govern his actions, that forms the essence of the

individualist position” (Hayek, 2007, 102). Collectivism may seem the best way to produce

sound leaders because they are “bound” by the needs of the community, but actually it breeds


mediocrity and leaders that have no interest on serving individualism. These leaders of the

community are perverted by the temptation for power and special interests. No one else will

protect the well-being of the community and the interests of himself, as the concerned individual.

Autonomy to choose empowers the individual to seek a community-owned government:

empowering individuals rather than serving all the needs (Osborne and Gaebler, 1993).118 Society

thrives on individual’s responsibility toward themselves and each other. “Independence, self-

reliance, and the willingness to bear risks, the readiness to back one’s own conviction against a

majority, and the willingness to voluntary cooperation with one’s neighbors—are essentially

those on which the working of an individualist society rests” (Hayek, 2007, p.217). This is how

the creative energy of individuals can be harnessed. The government’s role is to create favorable

conditions for individuals to thrive, not to plan their lives and make decisions for them. Alexis de

Tocqueville, French political thinker and historian, on his tour in America, emphasized that, if

democracy and the American experiment were to succeed, it ultimately is up to the people.

Utopianism of the state being the master of all problem-solving can easily inflate the existential

threat toward civil liberties, but only the people can decide, whether they want freedom, or the

opposite of it. (Levin, 2012, 179).119

Removing the individual from the state cannot be achieved as long as the government

continues to hold a vast majority of population dependent on federal programs. Barry Goldwater

(2013) describes the long-term effects of dependency:

The effect of Welfarism on freedom will be felt later on—after its beneficiaries have

become its victims, after dependency on government has turned into bondage and it is too

118 Osborne and Gaebler became famous in the Reagan Revolution of the 80s, arguing for a revolutionary restructuring of the public sector, known as “American Perestroika.” Because of fiscal pressures, monopolization of the public sector engulfed the U.S. political system, putting further financial stress. To remove monopolies, market forces were necessary to revitalize the system and make it more entrepreneurship, instead of bureaucratic. 119 Ameritopia: The Unmaking of America.


late to unlock the jail. Indeed, this is one of the great evils of Welfarism—that it

transforms the individual from a dignified, industrious, self-reliant spiritual being into a

dependent animal creature without his knowing it. It is impossible for the State to assume

responsibility for one without intruding on the essential nature of the other; that if we

take from a man the personal responsibility for caring for his material needs, we take

from his also the will and the opportunity to be free. (p. 37-39)

What needs to be changed is human nature, not economic conditions. Economic conditions

cannot have a significant impact as much as human nature. Government may provide a short-

term relief, but it’s not what changes economic conditions in the long-term. Human values are

more significant than material things. We must enhance man’s spiritual nature and make it our

primary concern—economic conditions are always secondary. Economic wants have become the

dominant mission of our society and our government, which has created an unintended

consequence of more misery. Only the spirit of liberty and human capital is the barrier to an

ever-expanding federal power and from enhancing the individual’s spiritual nature, which can

improve economic conditions.

Spirit of Liberty and Human CapitalThe spirit of liberty and human capital empowers the individual away from relying on the

state. Entrepreneurship and the freedom to take risks benefit the entire society. The advancement

of society did not come from the government, but from individuals seeking to improve their

lives. Their advancement benefits the rest of society. If government interferes, it prevents the

human capital and the spirit to succeed. As Schiff (2010) describes it, “In our desire to make the

pain of economic contraction go away, we have forgotten that freedom involves risk. If

government is obligated to cure all hardships, then no one is really free in the first place. Take


away the freedom to fail and you have obliterated the freedom to succeed” (p.99).120 Human

capital works well when it is free or alone because, “No government bureau can ever compete

with the natural process of self-selection on a free and highly competitive basis” (Weaver, 2010,

p.244). To accomplish the conditions of liberty and human capital, freedom must be more

important than the false promise of security.

Freedom over SecurityBenjamin Franklin wisely said, “Those who would give up essential liberty to purchase a

little temporary safety deserve neither liberty nor safety.” Franklin believed that freedom and

security were necessary preconditions for one another. The American people have been deceived

by the federal government, claiming that security is necessary for freedom. The American

Revolution was fought to prevent the British throne from taking away freedom in order to bring

security. For our Founders, security from the government meant taxation and control of the

private life. When the individual forgoes freedom, he forgoes his own security. The individual

hands his freedom for government bureaucracy. Security is temporary—freedom is everlasting.

“Real security comes from freedom, economic progress, and the choices you make to forge

yourself into a responsible, self-supporting being” (Brook and Watkins, 2012, p.187).

The American people should weight the benefits of making their own decision, versus the

government’s pretense of temporary security. The Patriot Act of 2001 gave the federal

government more power than ever before. The Founders would have been traumatized by this

massive expansion and intrusion. Even before the Patriot Act, many more legislations were

passed in the name of “security”. Yet it did not make the American people safe. Only the

individual’s self-interest is more important. When the individual can defend himself and be the

120 How an Economy Grows and Why It Crashes.


best he can be, he does not become a drag on society. Actually, society benefits and the

individual are better off, because self-interest motivates the pursuit of success.

Self-InterestThe pursuit of happiness is essential for the individual to thrive. Take it away; you take

away the ability to succeed. Success and self-interest are under attack in the American society.

As Brook and Watkins (2012) explain, “the answer is: because we do not trust the profit motive

—we do not trust self-interest” (p.33). Since when did the American people not trust what made

them successful in the first place? Didn’t immigrants from all the corners of the world come to

America because of success and the opportunity for self-interest, that by working hard it was

possible to succeed? Why then suddenly we have turned against success and self-interest, as if

we live in the Soviet Union? The reason is because we now define the individual as greedy and

irresponsible. As a society we have replaced individualism with collectivism. Thanks to

government false promise of promoting a healthier society, we have fallen into the trap that as

sole individuals we don’t have the morality, capacity, and capability to improve our lives. We

have surrendered our morals and duty to the government and the collective society. But, as

Friedman (1990) said, “Moral responsibility is an individual matter, not a social matter”

(p.107).121

The Founders argued that self-interest was essential for freedom. Self-interest makes

production and profit mode possible. The advancement of society was made possible by

individuals seeking production and profit. It was not made possible by government making all

the decisions or by passing any legislation. Even landmark legislations were made possible by

few individuals that defined the impossible and made it possible for the rest of society to follow.

So, to reemerge self-interest, as a society, we have to stop fearing production, entrepreneurship,

121 Free to Choose: A Moral Statement.


or capitalism. The businessman is a producer not a parasite. The greatest contributions came

from simple individuals by contributing ideas, theories, inventions, tool, business and methods to

the productive process. It’s the only reason why society emerged from poverty, misery, and

meagerness. Condemning individualism is to condemn life itself (Book and Watkins, 2012).

There is no such thing as selfishness to pursue the grandest things that bring success. The

pursuit of happiness, the morality of success, higher production, and the profit motive is what

every American needs to pursue. Brook and Watkins (2012) summarizing Ayn Rand’s thoughts,

claim that, “Selfishness is not about giving in to the ‘lower’ pat of your nature but living up to

your highest potential. It is not about mere prudence but about the demanding pursuit of joy—a

pursuit that involves the grandest values and the noblest virtues” (p.80). In the American society,

the morality of success brings individuals to be their best. The America people need to return to

the morality of success: no one else will do it for them, and certainly, not the government.

Overall, this helps society, and it makes it possible to give a hand to the most vulnerable. As

individuals this is not enough. Preventing the government from making economic decisions via

central-planning is another missing step toward returning America to its founding principles.

Freeing the individual frees the economy from the destruction of government’s decision-making.

Capitalism and Freedom: End Central-PlanningCapitalism and freedom are synonymous. One cannot exist without the other. The return

to prosperity means the return to laissez-faire economics. The quest for a mixed-economy, via

central planning under government central-planning is a path to economic disaster. The

economic history of Fascism and Socialism showed the world the consequences, yet shockingly,

in America we continue to doubt capitalism. “Capitalism is the only moral economic system in

history. And, further, that it is moral not because it helps the poor or teaches us to be good

citizens but because it enables the individual to make the most of his own life—to exercise his


mind, take risks, make money, pursue and achieve his own happiness” (Brook and Watkins,

2012, p.4). The Modern Liberalism pursuit of economic perfection leads away from our core

principles. “The market system is imperfect, but it is the most perfect economic system” (Levin,

2012, p.79).122 When the government tries to interfere in the belief that it will balance the market,

the end result is another unintended consequence that leaves everyone worst-off. As Schiff

(2012) explains, “The government’s involvement is not only necessary, but it also creates

distortions, presents moral hazards, invites corruption, and works against the interests of

everybody” (p.188).123 For capitalism to thrive again in America it is vital that government never

interferes with the free market by being the decision-maker. Its role should only participate to

create the right conditions. That’s the only way for laissez-faire economics to thrive. It’s the only

system that created wealth and prosperity.

Laissez-Faire“Capitalism is more than an economic system; it is a social system that protects freedom:

intellectual, political, and economic” (Brook and Watkins, 2012, p.136). The freer the economy,

the richer and prosper.124 Richard Rahn, senior fellow of the Cato Institute and chairman of the

Institute for Global Economic Growth asserts that, “More government control equals poorer

nations. The fact is that big capitalist economies are rapidly becoming less capitalist and more

government-controlled” (2013).125 Capitalist nations are fleeing capitalism for utopian economic

systems—relying on the idea that government can create economic growth and prosperity. Yet,

these are the nations that are in piles of debt, chronic unemployment, and in decline of the

standard of living. “There was, at the end of the twentieth century, a consensus among

economists on what is required for economic growth everywhere: a liberal, market-enhancing

122 Ameritopia: The Unmaking of America. 123 Crash Proof 2.0: How to Profit From the Economic Collapse. 124 See Appendix A – Miscellaneous 125 See Appendix F – Size of Government and GDP Growth


state that protects property rights and encourages investment; freedom for firms to enter and

compete in markets; openness to trade with and investment from the rest of the world; sound

monetary and fiscal policies with modest deficits and low inflation; and measures to enhance the

health and levels of education of the population” (Mandelbaum, 2003, p. 297).126 Let’s not forget

that, “America became the wealthiest country because for most of our history we have followed

the basic principles of economic freedom: property rights, freedom to trade internationally,

minimal governmental regulation of business, sound money, relatively low taxes, the rule of law,

entrepreneurship, freedom to fail, and voluntary exchange” (Mackey, 201).127

Economic freedom is the requisite for political freedom. Political freedom is achieved

from a free society. As Friedman (2002) explains:

Economic arrangements play a dual role in the promotion of a free society. On the one

hand, freedom in economic arraignments is itself a component of freedom broadly

understood, so economic freedom is an end in itself. In the second place, economic

freedom is also an indispensable means toward the achievement of political freedom. (p.

8)128

Lack of belief in economic freedom arises from belief in the concentration of power under a

single authority. Blocking economic freedom allows the government to be in charge of

individuals and the entire economy. Friedman (2002) details the rational:

Political freedom means the absence of coercion of a man by his fellow men. The

fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a

dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the

126 The Idea That Conquered the World: Peace, Democracy, and Free-Markets in the Twenty-first Century. 127 Mackey is co-founder and co-CEO of Whole Foods Market. He is also a member of the Job Creators Alliance, a nonprofit devoted to preserving free enterprise. 128 Capitalism and Freedom.


elimination of such concentration of power to the fullest possible extent and the dispersal

and distribution of whatever power cannot be eliminated—a system of checks and

balances. By removing the organization of economic activity from the control of political

authority, the market eliminates this source of coercive power. It enables economic

strength to be a check to political power rather than reinforcement. (p. 15)

Communism and socialism collapsed because the disparity from capitalism grew so much that

people living under oppression had to revolt. What these people were suffering the most was the

individual freedom and economic freedom. “Economic freedom, in short, means the freedom to

be self-interested” (Brook and Watkins, 2012, p.22). It’s been proven; whether in psychology or

sociology—the individual desires self-fulfillment needs just as much as basic and physiological

needs. Laissez-faire economics cannot thrive with excessive overregulation regulations, which

choke economic growth and cause more unintended consequences.

Excessive regulation causes economic slowdown. Regulations are necessary to play by

the rules and it’s the government’s role to make sure that everyone obeys. The fear toward the

free market is so exaggerated, that more unnecessary regulations are placed. Yet, these

regulations did not prevent any financial crisis, because there’s no one to regulate government’s

central-planning. That power has been taken away from the people and the government is free to

run wild. “The cost of complying with federal regulations is $1.187 trillion per year” (Schiff,

2012, p.74).129 Also, “According to the Small Business Administration, total regulatory costs

amount to about $1.75 trillion annually, nearly twice as much as all individual income taxes

collected last year” (Mackey, 2011). Even Communist China seems to be freer than the U.S. It’s

much easier to start a business in China than it is in the United States.



Excessive regulations are destructive toward jobs and entrepreneurship. Every dollar

spent on the economy, a big chunk is spent on administrative and regulative tasks. The free

market is the only natural way to wealth and prosperity. “This is a typical government action.

Wreck an industry with subsidies and regulation blame the ensuing failure on capitalism; then

‘solve’ the problem with a complete government takeover” (Schiff, 2012, p.191).130 The market

tries to cure the economy, but the government interferes and won’t let it. The government’s

“cure” for the market’s cure is more imaginary wealth. (Schiff, 2012, 20).131 The market is more

beneficial than government intervention because it creates competition.

Competitive SystemA competitive system arises when the market is left alone and the government

participates in creating the right conditions. The right conditions are created when there’s

competition and fair regulations. Free markets cannot have monopolies or industries that are

protected. In other words, “Free markets are competitive. Government interventions can’t create

competition, it can only destroy it” (Brook and Watkins, 2012, p.150). Competition decentralizes

power and prevents government interventions. Competition encourages savings and production.

Investments come from savings, not from spending. “Anything that diminishes our savings

diminishes our real economic growth and the real escalation of our standards of living” (Schiff,

2012, 212).132 Savings increase the supply of lending: it allows banks and entrepreneurs to invest.

That investment turns to jobs and growth of industries. Savings will lower interest rates,

naturally set by market prices. When there’s real capital (not printed money from the Fed)

interest rates go down. The private sector then invests more money for expansion or creating new

industries. Besides the private sector, individuals will be better-off because there will be an

130 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 131 Ibid., p.20. 132 Crash Proof 2.0: How to Profit From the Economic Collapse.


incentive to work harder. Lower interest rates set by market prices slow inflation and makes the

value of the dollar higher—thus a stronger and prosper currency. The value of savings will also

go higher, which helps the seniors the most and parents who save to send their kids to college. A

competitive system best outcome will be an incentive for an increase in production.

Production is necessary for the longevity of the economy. “When your economy shifts

back to producing things consumers need and its labor force is increased and improved, the

economy improves” (Woods, 2009, p.105). America escaped from production for an easier way:

consumption. “No act is more self-serving than consumption. But the ongoing American

spending spree performed an important economic nonetheless. It became the indispensable

supplier of demand to the world” (Mandelbaum, 2005, p. 135).133 In other words, America

served the entire world—accumulated mountains of debt by not producing enough to be a self-

sustained economy. America helped other countries, but it made itself vulnerable in the long-

term. Other countries produce more and remain solvent. Now production is a small part of our

economy. America became the superpower because it expanded the Industrial Revolution and

because of that it became world’s lender of capital. Production will lower the national deficit and

will create jobs: only if government can be prevented from its monetary policy and allow

competition in the free market. “Bright futures are not built on debt and consumption, but on

savings and production” (Schiff, 2012, p.213).134 That’s the harsh truth—but it’s not even harsher

when government’s interference in the free market creates more negative outcomes than it brings

positive consequences. Government hurts the consumer and protects special interests.

When special interests are protected, the consumer is at their mercy. Special interests are

protected by the government, such as monopolies. Monopolies prevent competition, “By

133 The Case for Goliath: How America Acts as the World’s Government in the Twenty-first Century. 134 Crash Proof 2.0: How to Profit From the Economic Collapse.


destroying competition in industry after industry, this policy puts the consumer at the mercy of

the joint monopolist action of capitalists and workers in the best organized industries” (Hayek,

2007, p.89). The current system provides no clear mechanism of protecting the consumer. The

solution, as Friedman (1990) claims to be is, “market competition, when it is permitted to work,

protects the consumer better than do the alternative government mechanics that have been

increasingly superimposed on the market” (p.222).135 The free market is one way to spur a

competitive system. The other part is government’s decentralization of power.

Decentralization of PowerDecentralization of power puts the government in its place; limited and small. Just as it is

in the Constitution, under Article I, Section 8, the Founders did not give the federal government

the authority to do whatever it wanted. Also, the Tenth Amendment made it clear that the states

had more power. Today, “Government is way too big. It spends too much, taxes too much,

regulates too much, and meddles too much in the economy. This causes our debt problems, it

drags down the economy, and it makes us all poorer. But big government isn’t only destroying

the U.S. economy. It’s destroying the country” (Schiff, 2012, p.227).136 Decentralization of

power requires a shift of mentality to achieve reforms: decentralization cannot be achieved

unless we believe in ourselves that government should not solve all the problems out there. “It is

the fundamental error of most so-called reformers. It explains why they so often feel that the

fault lies in the man, not in the ‘system’; that the way to solve problems is to ‘turn the rascals

out’ and put well-meaning people in charge. It explains why their reforms, when ostensibly

achieved, so often go astray” (Friedman, 1990, p.209).137 Decentralizing government calls for

specific and limited roles.

135 Free to Choose: A Personal Statement. 136 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 137 Free to Choose: A Personal Statement.


Decentralization starts with a catalytic government: steering rather than rowing (Osborne

and Gaebler, 1993). Government should participate in economic matters by creating the right

conditions and interfering only when necessary. If government is not controlled by the people,

then it can never be decentralized. Friedman (2002), believed that, “None prevents us, if we will,

from building a society that relies primarily on voluntary cooperation to organize both economic

and other activity, a society that preserves and expands human freedom, that keeps government

in its place, keeping it our servant and not letting it become our master” (p.37).138 It’s impossible

for the government to row by finding all the solutions. Even the most perfect government could

not achieve that purpose. The Founders understood this and purposely gave the states more

power, rather than leave it in one hand: centralized government.

Preserving the power of the states is necessary to preserve our political well-being. States

keep a check on the federal government and prevent decentralization. Tyranny and corruption of

power arouses when there’s no way to disperse power. As Levin (2010) states, “Diffusing

authority among many imperfect men—by enumerating federal power, separating power within

the federal government, and sharing power with the states—isolates and limits tyranny” (p.59).139

Strong local self-government guides society and the community. “Nowhere has democracy ever

worked well without a great measure of local self-government, providing a school of political

training for the people at large as much as for their future leaders” (Hayek, 20070, p.234). Local

government is the only place where responsibility can be achieved. When political measures

become so large and centralized, then it becomes exclusively a matter possessed by bureaucrats,

without the consent of the ordinary citizen.

138 Capitalism and Freedom. 139 Liberty and Tyranny: A Conservative Manifesto.


Dispersing the power of the government is one of the few options left to return to our

founding principles. A results oriented government spurs a competitive system (Osborne and

Gaebler, 1993). “To split or decentralize power is necessarily to reduce the absolute amount of

power, and the competitive system is the only designed to minimize by decentralization the

power exercised by man over man” (Hayek, 2007, p.165-166). A government without a results

oriented goal is irresponsible and incompetent. Freedom and prosperity hang in the balance.

Friedman (2002) said it best, by stating that, “The preservation of freedom is the protective

reason for limiting and decentralizing government power. But there is also a constructive reason.

The great advances of civilization, whether in architecture or painting, in science or literature, in

industry or agriculture, have never come from centralized government” (p.3). The scope of a

limited government and the diversion of power are the first step to reform our institutions.

Shrinking the big government is the next significant step.

Shrink Big GovernmentThe size of government is measured by its inefficiency and waste. Since the beginning of

the twentieth-century, our government has grown into an immerse size. With size comes cost.

“The size of government is one measure of government’s role” (Friedman, 1990, p.37).140 It’s the

main reason why America became the largest debtor and moved away from production. In order

to serve the appetite for government’s growth, massive deficits and imports are necessary to

satisfy that hunger. According to Mackey (2011):

One hundred years ago the total cost of government at all levels in the U.S.—local, state,

and federal—was only 8% of our GDP. In 2010, it was 40%. Government is gobbling up

trillions of dollars from our economy to feed itself through high taxes and unprecedented

deficit money spending.

140 Free to Choose: A Personal Statement.


This is the crisis that it’s fueling the fire. Americans need to ask themselves: is this worth the

cost and has it really improved our lives?

Government needs to be enterprising one: earning rather than spending (Osborne and

Gaebler, 1993). A government that doesn’t balance its budget is an irresponsible one. Spending

money that you don’t have equals to taking money from someone else to spend it. Government’s

size costs us our happiness and limits our chances to prosperity. Levin (2010) believes that, “the

federal government should raise revenue only to fund those activities that the Constitution

authorizes and no other” (p.62).141 This is a key point to understand: it calls for the government to

grow only based on a balanced budget. Government should balance its budget, just as an

ordinary family does. If the revenues grow, then it’s normal for government to expand and

distribute those revenues. But, if the government operates on deficits and continues to grow, then

it jeopardizes our future and it becomes more wasteful. More programs and departments begin to

pile up—one after another. There’s so much waste out there, that beginning by eliminating all

the unnecessary waste can shrink big government.

Eliminating government agencies and departments may seem counterproductive, but

duplication and bureaucracy is at the heart of the problem. That’s where waste and inefficiency

takes root. “Reducing wasteful spending is not easy. Even the most useless programs are

passionately supported by the armies of recipients, administrators, and lobbyists that benefit from

their existence” (Riedl, 2009, p.1). This is exactly the reason why waste occurs: government

officials claim to represent the people, but in reality, they’re only representing themselves and

the big government that keeps them in Washington. Today representation is not measured by

efficiency of the government, but how much spending can Washington shell out. Some programs

can remain forever and it becomes difficult to find out where waste occurs.



According to Mitchell, “Government programs, however, are inherently inflexible, both

because of centralization and because of bureaucracy. Reducing government—or devolving

federal programs to the state and local levels—can eliminate or mitigate this effect” (p. 6). When

there’s hundreds and hundreds of agencies-departments, how in the world can anyone keep track

of them? How can we keep track of how much money is spent and how do we measure

performance? The answer is that we can’t. Only the states can be more accountable, because by

federal law states are required to balance the budget. But to get close to the answer, we have to

shrink many of these unnecessary and duplicative agencies. “But historically, America has

succeeded not because of the ingenuity of its government program but because of the vigor of its

society. It has thrived because it has kept itself open to the world—to goods and services, to

ideas and inventions, and above all, to people and cultures” (Zakaria, 2011, p. 283).142

Government programs did not make America successful. Government programs created more

dependency and costs to society.

As Friedman (1990) once stated, “The smaller the unit of government and the more

restricted the functions assigned government, the less likely it is that it actions will reflect special

interests rather than the general interest” (p.294-295).143 Shrinking agencies-departments starts

with shrinking the federal workforce. Shrinking the federal workforce shrinks the system of

operations. “It must shrink in size, making it lesser burden on the productive part of the economy

and freeing human resources for productive work in the private sector” (Schiff, 2012, p.233).144

This requires the abolishment of federal agencies that are monopolies, such as Fannie Mae,

Freddie Mac, the Postal Service and Amtrak. The banks regulated by the federal government can

142 Fareed Zakaria is an Indian-American author and journalist. Zakaria is an expert on issues related to international relations, trade, and American foreign policy. 143 Free to Choose: A Personal Statement. 144 Crash Proof 2.0: How to Profit From the Economic Collapse.


take over the duties of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are far the

most destructive monopolies, which were heavily involved in the subprime mortgage crisis. The

Postal Service shall be merged into United Parcel Service or FedEx Corporation. Amtrak shall be

operated by small private companies from different regions of the nation. These agencies post

massive deficits and operate without competition, which should not be surprising. All these

agencies operate because they are funded by central banking system: the Federal Reserve, which

has been the most destructive enactment in our financial and institutional history.

Reform the Federal ReserveThe Federal Reserve was established to address banking panics. Since then, its powers

have expanded and it’s not exclusively for banking panics. According to Schiff (2012), “The

government over the years decided it wanted more power than the Constitution allowed, and the

establishment of the Federal Reserve with its power to print money allowed the government to

usurp powers not authorized by the Constitution” (p.110).145 The existence of the Federal

Reserve has declined the dollar, increased inflation, manipulated the free market, created

imaginary wealth, and made economic growth only on paper, not in production. “The Fed

postures as the great rock of stability in the American economy, but it is responsible for more

economic instability than any other institution” (Woods, 2009, p.151). The Federal Reserve

transformed our economy into a fragile one, or as it’s commonly fazed: on a flu epidemic. This is

an epidemic that can explode and infect the entire economy. With centralization of money and

how the rest of the economy responds, it’s no surprise that the house of cards can collapse.

That’s the role of centralization: everything responds to central-planning. It’s the reason why the

U.S. financial system is so fragile. Worst of all is the national deficit. Central-planning of money

might work in the short-term. The long-term possess threats for the good times enjoyed in the



short-term. Today, we have reached that long-term, and it won’t be the same as before: print

more money and everything will be alright. Today that fantasy has become a reality. It’s the

greatest challenge that the U.S. has faced and it’s here to stay. The only chance to escape this

challenge is to reform the Federal Reserve: take the pain now and enjoy a prosperous and secure

freedom, instead of vice-versa.

The nineteenth century was the only period of genuine economic growth. It was the only

period of pure laissez-faire economics. It’s no surprise why the U.S. became a superpower and

why the Industrial Revolution expanded here. “This, in fact, is how the American standard of

living increased in the nineteenth century: a relatively constant money supply combined with an

ever-increasing supply of other goods yielded lower prices, so people could acquire more of the

things they wanted for less money” (Woods, 2009, p.133). Americans were not getting rich on

paper; they were getting wealthy by producing. When you produce, you can consume and save.

Savings will lead to more investments, then more economic prosperity. The Federal Reserve

pumped more money and created inflation. Inflation is a false signal of growth. This is the

consequence of faster monetary growth. Inflation is necessary to allow the government to spend

more than it collects. The Fed blocks deflation from occurring. Deflation is the decrease of prices

and the supply of money. Deflation occurs from the natural outcome of the free market.

Deflation grows domestic manufacturing and products because of supply over demand. Deflation

will cause supply, which then lowers prices. This benefits the consumers and deflation gives

incentives for investments. A dollar today will be more valuable tomorrow. Inflation erases all of

these benefits because to feed the appetite of big government, the Fed exists just for inflation, so

the debt will not look that alarming.


The Federal Reserve must be stripped of its power and decision-making. It’s too risky in

a global economy to depend on centralization of decision-making with money. This requires a

separation of state and money. This means that the government should not distort the market.

Although the Fed is an independent agency, in reality it’s more than that. It is the sole decision-

maker. By stripping the Fed of its power, there will be hardships in the short-term, as the market

readjusts, but it’s nothing to the long-term crisis that it’s ahead of us. As Schiff (2012) explains:

As a nation, we’re going to have to accept a lower standard of living that we may be

accustomed to enjoying. For one thing, with tighter credit and tighter monetary policy, it

will be harder to live beyond our means. Along the same lines, the United States will no

longer be able to consume more than we produce—we will have to start making things,

too. In other words, we’ll lose that credit card that we were never paying off. (p.26)146

An example would be staying sick at home hopelessly waiting for a miracle or take the right

medicine by visiting the doctor: feel its horrific pain in the short-term but recover in the long-

term. This medicine is possible under the gold standard. The standard that was once abandoned

is now the one that needs to be reinstated.

On August 15, 1971, the United States terminated convertibility of the dollar to gold.

This brought the Bretton Woods system to an end. The Bretton Woods system was a monetary

management system of established commercial and financial rules amongst the major industrial

nations. This conference set up the International Monetary Fund and the World Bank. Besides

that, it was agreed that gold would be the backup currency, meaning that every dollar

spent/possessed was backed my gold. If gold ran out, spending would be limited, thus keeping

the financial system free or risk, collapse, or colossal debt (Bossone, 2011).147 With the

146 Crash Proof 2.0: How to Profit From the Economic Collapse. 147 Biagio Bossone currently advises the Independent Evaluation Office of the IMF and the World Bank’s Financial and Private Sector Development Vice Presidency.


abandonment of the gold standard, the dollar became a fiat currency. The Fed could print

unlimited supply of money, pump it into the economy, and allow inflation to hide the destructive

consequences. Bringing back the gold standard imposes restrictions upon government spending.

Government prefers a system in which paper money cannot be redeemed into anything. Gold

keeps a check on spending, waste, and growth of government. This means that our politicians

will have to work harder, keep promises, and be accountable. If the American people demand so

much to fix Washington, then putting the Fed on the table leads to that outcome. Gold restricts

bureaucracy, duplication, and waste. By ending the destructive path of printing money, the U.S.

dollar will regain strength and value.

The dollar declined since the enactment on the Federal Reserve. Luckily, the dollar

remains the world’s reserve currency. It’s the only reason why the U.S. has not gone officially

bankrupt. Unfortunately, it cannot go on forever, as Schiff (2012) predicts that:

Most costly might be the loss of our role as the issuer of the reserve currency of the

world. Most people don’t understand the value of the United States being the reserve

currency. It’s what allows us to buy something without really paying for it. Once we lose

that status, the free ride ends. The dollar will dramatically lose its value vis-à-vis other

currencies, and it will become more expensive for us to buy things. (p.26)148

And what a rough end to the free ride it will be. The standard of living will decline, while

distorting our economy, sending a massive panic. The U.S. will not be able to run its current

large trade and account deficits. “On the other hand, the next time the U.S. has a real-estate

bubble, we won’t have the Chinese helping us blow it” (Eichengreen, 2011).149 While we feel the

148 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 149 Dr. Eichengreen is a professor of economics and political science at the University of California, Berkeley. His new book is “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System.”


pain, at the same time we will do ourselves a favor: we can control our destiny, instead of relying

on foreigners to help us create economic crisis or to help us out of economic crisis.

As much as the abandonment of the gold standard has damaged the fiscal policy, there

are still proponents that do not like the gold standard to be reinstated. The main argument rests

that a sudden shift in the gold standard could shift the market into uncertainty or maybe even

chaos. This is another scenario of short term vs. long term. This sudden shift will cause a short-

term decline and market uncertainty, but in the long-run, it saves us from massive deficits and

meager economic growth. Moving to the gold standard would cut spending immediately, leaving

millions of Americans without direct aid from the federal government. In other words, the

federal government has assembled a “trap” that we can’t leave return to the gold standard, but at

the same time, we cannot cut spending. The easiest solution is to cut spending, but Washington is

not serious about its spending problem. Career politicians have given up on securing a brighter

and prosperous future for our kids. The gold standard is the long-term solution. Cutting spending

is the least painful solution. If it’s done gradually, it can be possible. Not only possible but it’s a

necessity for our economy and our ability to compete with other countries. No country has ever

resisted collapsing from massive deficits. The U.S. is not immune to this collapse. What comes

up must come down.

Instead of waiting for Armageddon, the government would be more responsible to reform

the Fed without sending a panic shock to the economy. In that way, the American people and

other countries understand the final outcome. Woods (2009) quoting Ludwig von Mises explains

the final outcome and two choices we face:

The Wavelike movement affecting the economic system, the recurrence of periods of

boom which are followed by periods of depression, is the unavoidable outcome of the


attempts, repeated again and again, to lower the gross market rate of interest by means of

credit expansion. There is no means of avoiding the final collapse of a boom brought

about by credit expansion. The alternative is only whether the crisis should come sooner

as the result of a voluntary abandonment of further credit expansion, or later as a final

and total catastrophe of the currency system involved. (p.60)

This current free ride is soon coming to an end. Foreigners will have no more strategic values to

buy valueless Federal Reserve Notes/Treasury Bonds. The irony of all is this: foreigners will

adopt the gold as the reserve currency, or as a back up to currency, sending the dollar in the

toilet. But of course, our government will always find someone to blame: either capitalism or

Wall Street. Maybe this time it won’t be lucky enough to do that. With the entitlement crisis

exploding, it can’t have anyone to blame but itself.

Entitlements: Ending the Great Ponzi SchemeEntitlements are bankrupting our country and our future generations. It’s a Ponzi scheme

created by the government insuring the citizens that these programs can be solvent indefinitely.

The implicit debt, which are unfunded obligations of government programs such as Social

Security and Medicare, benefits promised under current law in excess of anticipated revenue,

amounts between $45-$104 trillion or more (Tanner, 2011, p.7).150 Tanner calculates all types of

U.S. government debt and provides a short definition of each one (see Figure 31).151

Figure 31

150 Bankrupt: Entitlements and the Federal Budget151 Ibid.


Our debt will be impossible to control if nothing is done (see Figure 32)152.

Figure 32

All that spending is not making our people healthier or more productive. A huge portion of

spending is duplicative, waste, and fraudulent. According to Brook and Watkins (2012), “More

than 60 percent of the federal budget alone goes to fund entitlements. Today, the average

152 Congressional Budget Office. House Committee Budget for Fiscal Year 2014


American household pays $16,000 a year toward entitlements—excluding education—virtually

double what we paid a decade ago” (p.33).

The entitlement state exploded because the government decided to get involved. We’ve

learned from Socialist regimes that when the government becomes the main distributor of health

care, it either leads to bankruptcy or a mediocre healthcare. Whether that healthcare and benefits

are universally-free or partially-free, the outcome is the same: expensive and inefficient. As

Schiff (2012) illustrates:

Social Security and Medicare are great examples of what happens when government

ventures into territory it should avoid. The nature of these government programs made it

nearly inevitable that they would become massive drags on America’s fiscal condition.

Had we simply heeded the wisdom of our Founding Fathers and allowed the Constitution,

we would have avoided these problems. It is amazing just how wise our founders were.

These are called the third rails of politics, because supposedly touching them is instant

political death. But if we don’t touch them, we’re asking for a slow, painful, fiscal death.

(p.178)153

So goes the argument that eliminating or reducing these programs is heartless. None has been

more heartless than jeopardizing the future of the country and the very same people who rely on

these programs. Instead of relying on jobs and prosperity, a huge portion of our population relies

on assistance, which at best is only a temporary relief, but a long-term poverty outcome. “The

repeated failure of well-intentioned programs is not an accident. It is simply the result of

mistakes of execution. The failure is deeply rooted in the use of bad means to achieve good

objectives. Despite the failures of these programs, the pressure to expand them grows”



(Friedman, 1990, p.97).154 To preserve the longevity of our nation requires the removal of

government from participating in these programs and a massive cut on the entitlement state.

The removal of government requires an anticipatory government: prevention rather than

cure (Osborne and Gaebler, 1993). The government’s way of writing blank checks leads from

cradle to grave. It’s sad and distressing to see the loss of human capital and how our nation has

declined from these unintended consequences of government policies. “The waste is distressing,

but it is the least of the evils of the paternalistic programs that have grown to such massive size.

Their major evil is their effect on the fabric of our society. They weaken the family; reduce the

incentive to work, save, and improve; reduce the accumulation of capital; and limit our freedom.

These are the fundamental standards by which they should be judged” (Friedman, 1990,

p.127).155 This is the false hope of a bright future, that government will deliver incredible

benefits of a perfect health, safety, education and prosperity. Tanner (2012) provides a solution

toward fighting poverty:

If we wish to fight poverty, we should end those government policies—high taxes and

regulatory excess—that inhibit growth and job creation. We should protect capital

investment and give people the opportunity to start new businesses. We should reform

our failed government control school system to encourage competition and choice. We

should encourage the poor to save and invest. (p.11)156

Instead of measuring the outcomes in the short-term, the end-results should be in the long-term.

Poverty cannot be prevented with more welfare. We did that, we tried that, and we’re still here to

do so the same thing for decades.

154 Free to Choose: A Personal Statement. 155 Ibid., p.127. 156 The American Welfare Sate: How We Spend Nearly $1 Trillion a Year Fighting Poverty— and Fail


Welfare programs, Social Security, Medicare, and Medicaid should be placed under

simpler rules and under one comprehensive system. As Friedman (1990) explains:

Reform the present welfare system by replacing the ragbag of specific programs with a

single comprehensive program of income supplements in cash—a negative income tax

linked to the positive income tax; second, unwind Social Security while meeting present

commitments a gradually requiring people to make their own arrangements for their own

retirement. (p.120)157

Beginning with welfare, the reforms of the 1990s proved the positive outcomes of that

legislation. It attracted partisanship in Congress, which shows what can happen when both

parties sit down and agree on something. Welfare should not be a program based on just shelling

out money or solely to boost household income. Instead, reform should strengthen criteria on

workfare and family values. “Future Welfare reform should be focused on three themes:

encouraging marriage, requiring work, and controlling costs” (Rector, 2001). Marriage is one

source to escape poverty, which creates family values. It’s a deterrent to getting in trouble with

the law, dropping out of school, and seeking a better life. Requiring work should be a necessity.

Welfare should not be solely a handout because it gives no incentive to find a job. Even a low-

paying job is financially more valuable than government’s welfare assistance. A low paying job

is a good start for future advancement and higher salary. Government’s welfare is stagnant and

usually never keeps up with inflation. Lastly, controlling costs means that states should control

how they spend welfare funds. States are more prone toward controlling costs because they’re

able to find ways to do so. The federal government is not entrepreneurial and never operates that

way. States have the incentive to balance budgets and control costs.

157 Free to Choose: A Personal Statement.


Social Security needs to be replaced with private individual savings assisted by the

government. Foreign governments such as Singapore, Chile, Sweden, and many others have

implemented privatization of savings. These savings have made it possible to bring government

spending down and guarantee its citizens that their retirement funds will not be jeopardized by

government debt or inflation. Today, Social Security is already bankrupt. Contributions made

today are not a guarantee that it will be there tomorrow. “In theory, of course, Social Security is

supposed to continue paying benefits by drawing on the Social Security Trust Fund until 1936,

after which the fund will be exhausted. At that point, by law, Social Security benefits will have to

be cut by approximately 24 percent” (Tanner, 2012, p.3).158 If Social Security will be cut, then

why don’t we create private individual investments account?

Social Security cannot pay all promised future benefits with currently projected revenue

and especially the coming demographic shift in population. Investing a portion of Social Security

is a necessity to guarantee promised benefits in the future. This portion can be the 6.2 percent of

wages, which is the tax paid by the individual, and the other portion is paid by the employer.

According to Tanner’s (2012) research, “However, private capital investment remains

remarkably safe over the long term. Despite recent declines in the stock market, a worker who

had invested privately over the past 40 years would have still earned an average yearly return of

6.85 percent investing in the S&P 500, 3.46 percent from corporate bonds, and 2.44 percent

government bonds.” (p.1). The market goes up and down, but on average, there’s always a return

on investment (see Figure 33)159. Today, the Dow is higher than ever, and will continue to climb

higher. The stock market has been on a bull run, as the rest of the economy continues to struggle.

158 Still a Better Deal: Private Investments vs. Social Security 159 The figure shows the annual real return to the Dow over the last 40 years. Obtained from “Still a Better Deal: Private Investments vs. Social Security” by Michael Tanner.


Figure 33

Without private investments, young workers and future Social Security recipients would

end up paying more taxes, work longer, and still end up receiving less benefits. Cuts and lower

benefits are imminent because of the worker-to-retiree ration and unfunded liabilities of $20.8

trillion (Tanner, 2012, p.3).160 To help average people with investments, government should

establish a federal-run program and receive help from creating nonprofits (specifically for

assisting on Social Security private investments) that assist people in safe corporate and

government bonds, which always guarantee a return. So should be with stocks and other

investments that may not always guarantee atypical safe return. It’s an audacious plan, but young

workers will see their Social Security vanish, and for the sake of monstrous deficits, this is good

start toward preventing more projected future debt.

160 Bankrupt: Entitlements and the Federal Budget


For Medicare and Medicaid, state governments need to end all coverage mandates and let

consumers choose—and pay for whatever coverage they desire (Schiff, 2012, 221).161 Price

competition is essential to choice and costs. When choice and costs are improved, individual

responsibility can be achieved. Individual responsibility prevents the moral hazard issue.

Government cannot improve your life: it can only bring a temporary relief without solutions for

the long-term. Reforms and cuts to the entitlement state are necessary for individuals to escape

the world of entitlement misery and for our country’s future. Instead of allowing the federal

government to run programs to deficits, it is wiser to allow the states to handle Medicare and

Medicaid.

Medicare is in trouble as much as Social Security. The current approach of a fee-for-

service system is at the mercy of high costs, abusive practice, and massive fraud. Under this

system there is no incentive for savings or seeking a better solution for care. To keep the

program somewhat sustainable, the government would have make to make two choices: either

huge cuts or it can reconstruct the program in such a way for provides an incentive for

consumers and providers to seek lower costs and efficiency. The second choice is the only way

to keep Medicare sustainable. To achieve this, the federal government would have to remove

itself from running the programs and allow the states to make the decisions. Under the states,

individuals would have more choices and freedom to decide what’s best for them.

To create incentives for providers and consumers to seek greater efficiency and lower

costs, “Medicare needs to be transformed to a consumer-based system, Congress could give

enrollees a voucher and let them choose any health plan available on the market” (Tanner, 2011,

p. 24). This approach forces competition and choices. Choice with vouchers will lower prices, as

consumers seek the best care and providers give the incentive to choose what’s best for the



consumer, instead of raising prices for a coverage that might not be suitable for specific

individuals. Larger vouchers will be given to poorer and sicker seniors.

The whole idea is to provide basic healthcare by giving individuals the right to choose

what they need specifically, instead of raising the price of healthcare for plans that individuals

don’t necessarily need. Each price of the voucher must be fixed. If an individual desires to

purchase additional plans, then it’s welcomed to do so, by paying slightly higher fee. If

consumers choose their own health plan—there’s an incentive for savings—thus removing the

moral hazard issue: no incentive to stay healthy and spend as much money, which is paid by

others. As with Social Security, Medicare won’t be sustainable in the near-future. Reform is

critical to preserve the program for the basic care, which Americans rely on.

As with Medicare, the cost of Medicaid will explode, becoming another major

entitlement burden on the federal budget. Medicaid is infamous for waste and fraud. Medicaid’s

improper payment rate is 8.1 percent—one of the ten highest among government programs (U.S.

Government Accountability Office, 2012). That is only one of the problems. Medicaid is a

structural problem—that is the one-size-fits-all approach. On average, the federal government

pays 57 cents of every dollar spent on Medicaid (U.S. Department of Health and Human

Services, 2012). Clearly, there’s no incentive for savings or providing the best healthcare

possible because the federal government sets up all the rules, forcing the states to comply with

excessive and complicated regulations. No wonder why anything that the federal government

runs—tends to end up in deficits and poor management. As with Medicare, the solution lies on

the states and block grants for individuals.

“Congress should treat Medicaid as it has other welfare programs, with block grants that

give states the ability to innovate and the incentive to target their resources to the truly needy”


(Tanner, 2011, p. 25).162 This way states have the ability to control costs by designing creative

financing mechanism, which targets their specific population growth, inflation, and other

circumstances. To curb costs, the federal government must provide states flexibility on

Medicaid. Government prevents the states from developing innovative coverage options, which

forces states to cut payments to providers. This forces doctors to turn away Medicaid patients

into emergency rooms, which costs up to as much as four or five times more. If states have the

freedom to tailor Medicaid according to their needs and circumstances, then costs can be

controlled, as well as preventing providers from committing fraud. Also, most importantly, the

states would be in better position to offer the best safety-net for low-income Americans more

options and access to care. In return, these folks would be protected from providers and not be

vulnerable to being denied to access to care.

The Affordable Care Act is a massive government outreach in the lives of Americans.

Amid the growing deficits and insolvent path of other entitlements, Congress plows forward with

another long-term, government-run entitlement program. Another federal program that will

punish future generations with more debt, just so that today we can enjoy a “better living.”

History has shows us that any governed-run program will run into massive deficits and poor

management. According to a study by the Society of Actuaries (2013), the Affordable Care Act

will increase costs for individual insurance coverage plans by a staggering 32% by 2017 (see

Figure 34). 163. As the legislation is implemented on January 214, the program will continue to

become more expensive and cost more—thus driving tax hikes on all Americans, not to forget

corporations and small businesses

162 Bankrupt: Entitlements and the Federal Budget163 The study shows that health care costs could rise by a nationwide average of 32 percent. Obtained from the Society of Actuaries.


Figure 34

After all, the affordable care is not that affordable at all. As of March 2012, the Congressional

Budget Office estimated that the legislation would cost $1.8 trillion, double the $900 billion

previously estimate. As we continue to find out more about the program and the language inside,

costs will be expected to go rise to higher levels (see Figure 35).164

164 Bankrupt: Entitlements and the Federal Budget


Figure 35

For the sake of the future generations and to prevent the nationalization of our healthcare

system, the Affordable Care Act must be repealed. The government has no right to force citizens

because it exceeds the scope of the common clause, rewrites contract law, and charges financial

penalties to regulate behavior. The legislation becomes a burden on religious liberty and more

taxation. Most threatening is the preservation of limited government. The individual mandate

exceeds Congress’ commerce power. America cannot sustain itself with more entitlements and

government-run programs that promise to bring utopia into reality. The legislation comes at a

bad time and situation. At a time when America is in crisis of deficits, Washington enacts

another government power-grabbing legislation. It is another entitlement program with no cost-

benefit. Sooner or later, this legislation will become an entitlement drag, which adds another

program into the list of insolvency, placing more pressure on the federal and state budgets. The

legislation will increase taxes, thus choking the economy. Not to forget, adding more debt to our


national deficit, is the last thing that our country needs. What America needs is a free market

healthcare.

A free market healthcare allows individuals to control their own healthcare dollars and

the freedom to choose. According to Michael F. Cannon (2009), “At present, America’s health

care sector is far from a free market. Government directly controls nearly half of all health care

spending, and indirectly controls most of the remainder. Mora than half of U.S. health care

spending takes place under government price and exchange controls” (p.2).165 Isn’t it astounding

that America spends the most on health care per capita in the world, yet it’s nowhere near close

to delivering the best results? Spending has no cost-benefit toward happiness or better health.

Michael Cannon further elaborates the problem of government and the benefits of the free

market healthcare:

Government is largely incapable of eliminating wasteful healthcare spending, because

nobody spends other people’s money as careful as they spend their own. Government tax

and entitlement policy denies patients ownership of their health care dollars, and thereby

strips them of any incentive to control costs. A free market, in contrast, would eliminate

wasteful health care spending. Individuals would control their own health care dollars

and would therefore benefit directly from reducing waste. A less-regulated market would

also free Americans to choose from a wide variety of health plans and providers. When

consumers own and control their health care dollars—in particular, the money that

purchases their health insurance—the self-interest of hundreds of millions of Americans

will lead them to choose heath plans that eliminate wasteful spending, whether through

cost-sharing or care management, in exchange for lower premiums. (p.3)

165 Michael F. Cannon is director of health policy studies at the Cato Institute.


Individual ownership is the key to free market health care. Individuals have the incentive to

choose the best plan, remain healthy, and save money for other purposes. Price controls and

government rationing force the opposite outcome. Price control is equivalent to a monopoly—in

fact that’s how a monopoly functions, and how government treats health care.

If consumers have the freedom to choose on their own, then markets will respond

according to their preferences, instead of government bureaucrats. This reform reduces costs by

spurring competition between health plans and providers. When government is in the middle,

providers have less incentive to do so, because the government as a monopoly makes the

decisions on behalf of everyone else. Government blocks competition and with regulations prices

become less affordable, which forces the states to comply with the same procedure. “The

Congressional Budget Office estimates that state health insurance regulations increase health

insurance premiums by 15 percent on average” (Cannon,2009, p.8). Competition and freedom of

choice would put downward pressure on prices and health plans.

The question is: how do we use scarce resources? Do we need more entitlement

spending, or should we use those funds to create economic growth? Economic growth is the only

path that lifts individuals out of poverty. Jobs are the best and only successful social program.

None can be achieved with the government in control of all important decisions. Entitlements

cannot be reformed without free market initiatives. The government has failed the American

people on health care. The deficits are massive enough to send a warning. These deficits will

grow to unprecedented levels. Health care will become expensive. In the end, we, the people will

pay the price. Reforming the entitlement state will assist in reforming the progressive tax system.

Tax Reform: Fair and BalancedOur tax system is outdated and complicated. Tax rates are much higher than we think. At

the same time these rates discourage economic growth. Our government was an enterprising one:


relying on other methods of revenues. Today, our government heavily relies on taxation, and that

appetite continues to expand, choking economic growth. As Schiff (2012) explains, “Today, in

contrast to what the framers wanted, a vast majority of federal revenue comes from direct taxes.

So 60 percent of all taxes are direct taxes on wages. Our tax code discourages work, promotes

consumption, induces wasteful behavior, imposes huge compliance costs, invades privacy, and

tramples of individual rights” (p.132).166 Prescott and Ohanian (2012) writing for the Wall Street

Journal concur, “Research indicates that raising tax rates further will significantly reduce U.S.

economic activity and by implication will increase tax revenues only a little. High tax rates—on

both labor income and consumption—reduce the incentive to work by making consumption more

expensive relative to leisure.”167 Our tax system discourages production, entrepreneurship, and

creation of jobs. Slashing taxes will shrink government and encourage economic growth.

Spending is the problem not lack of taxation—and it’s a moral problem

By lowering taxes, the massive government will shrink. Since our government heavily

relies on direct taxes, the only outcome is to shrink. A huge portion of spending goes to

unnecessary administrative oversight, such as the process of collection. After collection,

government does what it does best: waste tax dollars. The more tax dollars the government

receives, the more wasteful it becomes. Any new tax revenue is quickly exhausted and it is spent

in a fury. This is the reason why taxes are much higher than we think. This makes our tax system

a progressive system, which means that tax rates increase as the taxable amount increases. The

tax system becomes regressive—hence hurting the most vulnerable. Individuals are placed into

higher and higher tax brackets. Another unintended consequence of government policy, which is

166 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country.167 Mr. Prescott, co-winner of the 2004 Nobel Prize in Economics, is director of the Center for the Advanced Study in Economic Efficiency at Arizona State University. Mr. Ohanian, the associate director of the center, is a professor of economics at UCLA and a senior fellow at Stanford University's Hoover Institution.


meant to assist the poor, but it actually does more harm. Add in inflation, and the tax system

becomes way more regressive. Taxing the rich won’t help the poor either, because socking the

rich will cause less investments and savings. Savings and investments are required for creating

jobs and opportunities for entrepreneurship. According to Wessel, “The tax system narrows the

gap between winners and losers, but not enough to stop the gap from widening” (2012). The tax

system requires remedies to cut waste, shrink big government, and creating jobs.

As we’ve seen in emerging countries such as Singapore, South Korea, Taiwan etc., the

reason for the growth are low tax rates. Actually, this is the post-World War II miracle recovery.

Germany, Sweden, Norway, Japan, South Korea, Taiwan, and other countries slashed their

unnecessary high taxes. The result was an unprecedented growth that lifted the world to

prosperity. The highest growth rate in modern economics happened between the ends of World

War II to the current era. This is the idea behind the Laffer curve, from the economist, Arthur

Laffer, which is a representation of the relationship between possible rates of taxation and the

resulting levels of government revenue. It’s the concept of taxable income elasticity—the

relationship between economic activity and tax rates. At a tax rate of 0%, government will have

no revenue, as does a 100% rate, because no one will be willing to work for free. The curve

shows that, government needs to find the “sweet spot” to accommodate everyone, by bringing

enough revenue and at the same time encouraging production. If you reduce income rates and

capital gains too high, then you reduce government revenue, which discourages labor and

production. The Laffer curve is similar to the Armey curve, which shows the same consequences

(see Figure 36) 168

168 Armey curve is an economic theory, which proposes that there is a level of government speeding which maximizes economic growth. This curve represents how far government can tax without losing more revenues. Higher tax rates do not necessarily represent more revenue. Instead, it becomes more harmful, as it gives people less incentive to work, save, invest, or keep wealth in the country. The trick is to pick the “sweet sport” which balances the tax rate, without discouraging work, production, and investments. The curve suggests the optimal level of government spending is 15-25% of GDP. The higher the spending per GDP, the more difficult it becomes for


Figure 36

Increase government revenues by raising production and growth, not by taxes. By increasing

growth and production, government can widen the tax base (Wanniski 1998, 97).169

This is the reason why the recession of the 1920 occurred, because tax rates from World

War I remained high, which then depressed the economy, along with the Federal Reserve’s

excessive supply of money, leading to the Great Depression. It’s also the reason why the 1970s

were an era of static growth, inflation, and high tax rates. It’s no wonder why the 1980s and the

1990s were a complete turnaround. Congress must also target tax loopholes and exemptions that

encourage avoidance of tax payments and sometimes paying absolutely nothing. This occurs

because corporations and many individuals represent special interests, which in return get special

favors in taxes. Not only is the tax code overcomplicated, it is way outdated, which allows for

ways to get past it. By closing special loopholes, exemptions and consolidating the tax rates, the

the private sector to create economic growth. Government spending is taken out of the economy or the pockets of the people. In other words, the efficiency of scarce resources. For example, as of today, at the optimum size of government, you can find Singapore, South Korea, Hong Kong, Switzerland, and so on. As of January 2013, the U.S. government spending as a percentage of GDP stands at 26% and rising. Obtained from UKlibertarian.com 169 Wanniski was present in the same room in 1974 when Arthur Laffer drew the curve on the famous napkin.


government can generate enough revenue to lower taxes for the rest. This then leads to

implementation of tax rates that encourage genuine economic growth.

Implementation of the Laffer curve led to supply-side economics, which argues that

economic growth occurs by lowering the barriers to production, by lowering income and capital

gains tax rates. Production causes prices to decline, increases consumption, and revenue for

government. “According to Columbia University economist Xavier Sala-i-Martin, the percentage

of people in the world living on a dollar a day or less—a traditional poverty measure—has fallen

by 80% since 1970. It occurred because billions of souls have been able to pull themselves out of

poverty thanks to global free trade, property rights, the rule of law and entrepreneurship”

(Brooks, 2013).170 In recent times, we have reversed the successful trend that brought prosperity

and economic growth. It’s time to change course now. Levin (2010) explains how we can

achieve this lost rend in the U.S. with our tax system:

Of course, the best way to stimulate the economy would be for the federal government to

slash capital gains taxes, corporate income taxes, and individual income tax rates, thereby

increasing liquidity available to individuals and businesses to make decisions about their

own economic circumstances. Since most people do not hide their cash in cigar boxes,

the additional money would be either spent or invested. The more favorable investment

environment would be to attract the flow of foreign investment into American markets

from countries that tax their citizens and businesses at higher rates. Furthermore, the

stock market would react favorably to market-oriented spending and savings and it would

benefit directly from increased equity purchases resulting from increased investor

confidence. (p.90)171

170 Arthur Brooks is president of the American Enterprise Institute and author of “The Road to Freedom.” See Appendix A – Miscellaneous 171 Liberty and Tyranny: A Conservative Manifesto.


With the current fiscal and global crisis, our options are limited. The good times are over. Now

must be the policy to fiscal discipline and long-term solvency.

The National Deficit: Time for Fiscal DisciplineThe national deficit is a national security threat. Discipline is non-existent, in an era of

printing money and borrowing from other nations. Reckless government fiscal policy has

shredded the middle-class, as deficits and inflation make it difficult for families to keep up with

wages and cost of living. According to Eichengreen (2011), “Federal debt is approaching 75% of

U.S. gross domestic product. Trillion-dollar deficits stretch as far as the eye can see. And as the

burden of debt service grows heavier, questions will be asked about whether the U.S. intends to

maintain the value of its debts or might resort to inflating them away” (2011).172 These are

questions as to whether we want to maintain a prosperous country or remain permanently

bankrupt. The alarming issues are that, “government spending constitutes a breathtaking 41

percent of gross domestic product. And that number is only going to grow: The government

currently has unfunded liabilities surpassing $66 trillion. By 2025, entitlements plus net interest

payments will absorb all—yes—all of government revenues” (Brook and Watkins, 2012, p.34).

Long-term solutions on the national deficit shall consist of laws to balance the budget, laws to

pass balanced budgets, spend only raised revenues, and fiscal solvency. Spending must be cut to

prevent further tax hikes (see Figure 37)173. The budget cannot be balanced solely by

Figure 37

172 See Appendix D – Spending and Interest Rates 173 If spending is not cut, there would be no balanced budget. Taxes alone can never balance the budget. Simply, the math does not add up. Obtained from the Heritage Foundation.


increasing taxes on all business activity and especially on individuals (see Figure 38)174. As the

Laffer and Armey curves showed us, there’s a limit as to how far taxes can go. Spending has no

limit and that’s the problem.

“If U.S. leaders do not act to curb this debt addiction, then global capital markets will do

so for them, forcing a sharp and punitive adjustment in fiscal policy” (Altman and Haas, 2010,

p.1).175 If debt and spending cannot be curtailed, then declaring bankruptcy might be America’s

only option. If Washington is not serious about long-term solutions, then the rest of the world

174 This is scenario if the government decides to balance the budget solely by taxation. The numbers would have be so high into unattainable tax rates, in order to get close to balancing the budget.175 Roger Altman is Chair and CEO of Evercore Partners. He was U.S. Deputy Treasury Secretary in 1993-94. Richard Haas is President of the Council on Foreign Relations. He was Director of Policy Planning at the U.S. State Department in 2001-3.


Figure 38

will do it for them. But when world does, it will be more painful instead of when our government

declares it. Default on the debt is necessary, just as in the private sector, where bankruptcy

means restructure and re-management of the institution. According to Schiff (2012) these are the

outcomes of declaring bankruptcy and starting over:

But for many people, especially in the long run, the crash and what follows will be

beneficial. For one thing, this crash might finally bring about tax cuts. Government will

be forced to shrink, thus freeing up more space in the economy for entrepreneurs. Maybe


when the debt is paid down, we can keep government small. The contraction will clean

out the malinvestment and government bloat. (p. 26-27)176

The debt crisis cannot continue forever. Unlike Greece and other debt-ridden countries, the U.S.

can absorb bankruptcy because of the vitality of its economy and the dollar as the world’s

reserve currency. Bankruptcy will be painful in the short-term, but it will leave a bright future for

next generations.

If bankruptcy is not possible, then fiscal discipline is the only option. A balance-budget

amendment for the federal government is a great start. This amendment is possible and can be

implemented, but unfortunately, Washington is not serious about preserving a prosperous future

for next generations. A balance-budget amendment requires that government cannot spend more

than its revenues. To implement an amendment, it requires two-thirds vote of both houses in

Congress and ratified by three-fourths of the states. The amendment will require massive budget

cuts, which are unpopular amongst politicians, because it cuts pork and wasteful spending. For

most politicians in Washington, spending is one of the main reasons that keep them their seats.

Budget cuts are necessary and it will free the wasteful spending. Budget cuts do not harm the

economy, as J.D. Foster, of the Heritage Foundation states that, “Smaller deficits mean less

uncertainty, which means a somewhat stronger economy in the near term. In the longer run, less

deficit spending means more capital available for private investment to increase future

productivity and future wages” (2013). Massive spending has not brought economic growth, nor

has spending on entitlements or social welfare.177 “If governments could stimulate economies,

there would never be recessions” (Schiff, 2012, p. 58).178 Crises occur when spending balloons,

176 The Real Crash: America’s Coming Bankruptcy—How to Save Yourself and Your Country. 177 See Appendix C – Entitlements and Welfare and Appendix F – Size of Government and GDP Growth 178 Crash Proof 2.0: How to Profit From the Economic Collapse.


government chocks capital for investments, and when the interest rate grows too much, leading

to credit downgrades.

“It is not reckless American activity in the world that jeopardizes American solvency but

American profligacy that threatens American power and security” (Altman and Haas, 2010,

p.11). America is destroying itself. The national deficit is the greatest challenge that America has

faced. It’s greater than the threat of communism or the Soviet Union. “Democratic progress and

liberal economics have been and can be reversed and undone” (Kagan, 2012).179 The U.S. is in

danger of writing its own decline through its own failings. Proposals to fiscal discipline and

budget cuts are always criticized as if they are directly attacking the most vulnerable. But the

most vulnerable Americans will only continue to become vulnerable. National deficits affect all

incomes and most of all the entire economic system. Friedman (1990) made one of the wisest

recommendations on our economic longevity, which continues to be received with criticism—

but in the future, we may as well be sorry for ourselves, for not taking this issue more seriously

when we had to opportunities to act:

Nonetheless, we believe that the formulation and adoption of an economic Bill of Rights

would be the most effective step that could be taken to reverse the trend toward ever

bigger government for two reasons: first, because the process of formulating the

amendments would have great value in shaping the climate of opinion; second, because

the enactment of amendments is a more direct and effective way of converting that

climate of opinion into actual policy than our present legislative process. (p. 300)180

The long-term must be vision and the goal for solvency. This is exactly what the new “economic

Bill of Rights” provides: stability and prosperity. Fiscal solvency was once one of America’s

179 Robert Kagan is a senior fellow in foreign policy at the Brookings Institution. 180 Free to Choose: A Personal Statement.


economic vitality. Spending our way to prosperity is a consequence of an over governed society.

Human freedom and economic freedom cannot function with central-planning. America can’t

survive like this for too long. It’s now or never.

To start the road to solvency, the federal spending must gradually shrink. “The ‘solution’

of addressing the recovery now, via fiscal expansion, and the debt later, via fiscal constraint, is a

pipe dream; the ‘right time’ for fiscal contraction will never arrive” (Miron, 2013, p.4).181 Our

spending must match our revenues. We have learned the lesson that economic growth cannot be

achieved with deficits and more fiat money via Federal Reserve notes. Paul Ryan (2013), a

Republican, which represents Wisconsin’s first congressional district and is chairman of the

House Budget Committee put a plan that can balance the budget by cutting federal spending, as

percentage of the GDP. At the current rate, the federal spending increases by 5% each year. The

goal is to bring spending below 20%, which is close to what the government collects in revenue.

To achieve this, spending per year must be limited to only 3.4%. Under the current path, we’ll

spend $46 trillion over the next 10 years. As a result of this plan, we’ll spend $4.6 trillion less

over the next decade (around $41 trillion) and balance the budget within eleven years, by 2023 or

few years later (see Figure 39)182.

Figure 39

181 Jeffrey Miron is senior lecturer in economics at Harvard University and a senior fellow at the Cato Institute. 182 Congressional Budget Committee and the House Budget Committee, Fiscal Year 2014


This audacious plan will not pay back the national debt, but it sets the government on the right

path: balance the budget before paying any long-term deficits. To achieve economic growth and

create jobs, the budget must be balanced within a decade. If the national debt continues to grow

faster than our economy there is no way to prosperity (Congressional Budget Office, 2013).

While this plan may be criticized as anti-government or anti-social, let’s not forget that

the federal government spends a huge chunk of money that it’s either pork, on special interests,

fraud that goes undetected, and other unaccountable waste. Government is trying to do too much

when we can finally understand that it’s only efficient in wasting taxpayers’ money and

unaccountable how efficient it’s spending is. Smaller deficits or a balanced federal government

budget puts interest rates low and removes the Federal Reserve from pumping more notes that

only transforms into long-term debt. A lot of this spending can be cut without hurting the lower-

class or Americans who need federal aid. Economic growth can be achieved by growing the

economy and not by deficit spending. If we allow our economy to grow with a federal


government operating under a balanced budget, as a nation, we’ll be able to provide more aid

and jobs for millions of Americans out of work or in federal aid payroll.

Where Do We Go From Now?The country needs a credible plan to move on for solutions on the greatest problems that

we’ve ever faced. Dr. Carson (2013) summarized the tough questions that we need to

understand:

What will we see as America’s citizens write in this next chapter of our history? Will we

settle for being herded by our leaders’ understanding of what is best for us? Or will “we

the people” once again rally together, educating ourselves as to the best possible solutions

for a way forward, communicating to our leaders our collective desires, and

demonstrating that we truly are a nation that rebels for positive change? (p.25)

Is it time to have a government that represents the people or politicians with the objective to

make a career out of politics? The American people ought to think about term limits. Term limits

will force politicians to work hard, take the people seriously, and be more accountable, since

time in Washington is limited. The American people must not accept government’s intrusion in

our lives—this leads to more corruption and unaccountability toward representation. Returning

to our founding principles of limited government and individual responsibility—politicians can

become less intrusive and less important to the direction of our country. Taking charge of our

lives and our community makes the government and politicians our servants.

As citizens of a great nation, we need to have the character to believe in ourselves,

personal responsibility, compassion toward others, freedom of choice, practice faith and believe

in God, freedom above financial security, values of hard work, commitment toward community,

preserve a strong military and participate in local government. Dr. Carson (2013) provides

another road map, as to what we can do from now on:


The real question is, will we as Americans, accustomed to freedom, continue to

sheepishly submit to the purveyors of political correctness without recognizing its erosive

effects on our freedom? What each one of us say and does—and what our actions are

collectively as a nation—is born out of what we believe. But if we never act on our

beliefs, can we say that we truly value them? Can we say that we as a nation feel

passionately enough to sacrifice them for? In other words, what is that we stand for?

(p.186)

We, the people, need to ‘force’ our government to be fiscal and an efficient representative

entity of its people and not of special interests. It’s time to stop creating division—pit people and

groups against each other. It’s time to stop the attack on the moral foundations of the nation—

moral principles that founded and preserved the nation. The government must be prevented in its

quest to spend the nation into oblivion. Finally, we must prevent any more steps toward

weakening the U.S. military—demoralizing the nations’ soldiers and bowing to foreign political

views that do not share the same principles (Carson, 2013). Now is the time to stop this

government-made decline and be the force of change.

Conclusion America faces a long road ahead. It’s a road that will define our character, morals, and

our future. The American people deserve a better future. America cannot settle for less, nor

accept meagerness. It’s not who we are—it’s not what we want to pass on to next generations.

The American people are concerned about the lack of leadership in Washington. They are

concerned about a growing government, which has impaired individual and economic freedoms.

The Constitution and our founding principles are no longer respected, let alone enforced. We are

living on thin ice with scarce time to spare. Time is not on our side. Failure is not an option


either. Learning from past failures is the greatest lesson to apply. America can make a comeback:

only if it is reapplies its founding principles of limited government and preserve individual

freedoms. Those are the principles that made America successful and the hope of the earth. It’s

what this paper has raised as our greatest issues and how we can resolve these challenges. We

can build a great economy, but abandoning our founding principles is something that cripples the

nation to pieces. It bears to repeat again Abraham Lincoln’s warning, “America will never be

destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed

ourselves.” The American people are warned too: the future of the country is in your hands. We

can overcome these challenges—and we must.


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Appendixes

Appendix A – Miscellaneous

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Figure 1. Defending the dream: Why income inequality doesn’t threaten opportunity. The figure

shows the difference between the traditional “dreams” to the modern “dream.” From the

Heritage Foundation’s daily Morning Bell.


Figure 2. U.S. Ranking in 10 economic freedoms. The “Index of Economic Freedom” published

annually by from the Heritage Foundation and the Wall Street Journal. From the Heritage

Foundation’s daily Morning Bell.


Figure 3. World GDP per capita, 1800-2000 (in 1990 dollars). The graph shows the world’s

GDP in the last two centuries. Data obtained from “The Madison Project,” by Angus Maddison.


Table 1

Freedom and prosperity

Note. The correlation between political freedom and poverty. From “The Madison Project,” by

Angus Maddison.


Figure 4. Economic freedom and per capita income. From “The Madison Project,” by Angus

Maddison.


Figure 5. U.S. inflation rate in the last 80 years. In the last two decades, inflation has been kept

artificially low by the Federal Reserve. Although this seems good, but actually, it is a hidden

problem. At the expense of keeping inflation artificially low comes the problem of spending. The

dollar gets a blow too. The value declines with the Federal Reserve pumping more money

printed out of thin air. The Federal Reserve keeps inflation artificially low, giving the federal

government to spend more fiat money, which never exists in the first place. Data obtained from

the Department of Labor/Bureau of Labor Statistics.


Figure 6. Labor force statistics from the current population survey. The chart shows a decline,

which has reached 63.3%—the lowest since 1979. From the Department of Labor/Bureau of

Labor Statistics.


Figure 7. Nordic nations consistently lag U.S. economic output. In per capita GDP, Nordic

nations lag behind the U.S. economic output. From “What can the United States learn from the

Nordic model?” by Daniel J. Mitchell.


Figure 8. Where’s the convergence? Per capita output as share of U.S. level. Nordic nations lag

behind the U.S. in per capita output. From “What can the United States learn from the Nordic

model?” by Daniel J. Mitchell.


Figure 9. Average annual hours worked. Because of high taxes, citizens in Nordic nations work

less than the U.S., with the exception of Iceland, which finds itself close to the U.S. U.S. citizens

are productive. From “What can the United States learn from the Nordic model?” by Daniel J.

Mitchell.


Figure 10. Per capita net wealth. Survey from the Panel Study of Income Dynamics and Survey

of Consumer Finance shows that the U.S. has higher per capita net wealth. From “What can the

United States learn from the Nordic model?” by Daniel J. Mitchell.


Figure 11. Share of U.S. median income received by low-income OECD households, 2000. The

poorest 10% of Americans have about the same level of income as the poorest 10% of Finns,

Swedes, and Danes. Only oil-rich Norway has a higher income rate. Data for Iceland was not

available. From “What can the United States learn from the Nordic model?” by Daniel J.

Mitchell.


Figure 12. Burden of government spending. Nordic nations have substantially a higher burden of

government, which explains why their economic growth is weak. From “What can the United

States learn from the Nordic model?” by Daniel J. Mitchell.


Figure 13. Spending on transfers and consumption. Nordic nations spend much more money on

government outlays, instead of private market economy. From “What can the United States learn

from the Nordic model?” by Daniel J. Mitchell.


Figure 14. Government revenue. The figure shows total receipts (including non-tax revenues)

and tax revenues for the United States and the Nordic nations. The tax burden in the Nordic

nations is high, which means that more money is taken away from the private productive

economy. From “What can the United States learn from the Nordic model?” by Daniel J.

Mitchell.


Figure 15. Top tax rate on personal income, including sub-national income taxes. With the

exception of Iceland, Nordic nations have much higher tax rates on personal income, which

discourages production. From “What can the United States learn from the Nordic model?” by

Daniel J. Mitchell.


Figure 16. Nordic nations have a lower corporate tax rates. The only advantage that Nordic

nations hold is that corporate taxes are low, one of the lowest amongst the OECD countries

studies. Low corporate tax rates make Nordic nations more competitive. The U.S. has one of the

highest corporate tax rates, along with Japan, which puts them in huge disadvantage when it

comes to competition of attracting foreign investments. From “What can the United States learn

from the Nordic model?” by Daniel J. Mitchell.


Figure 17. Higher tax burden on goods and services in Nordic nations. The tax burden on

consumption is three times higher in Nordic nations than it is in the United States. From “What

can the United States learn from the Nordic model?” by Daniel J. Mitchell.


Figure 18. Nordic nations used to have competitive tax system. In the 1960s, Nordic nations had

the same tax rate. Since then, those tax rates have increased into higher proportions to feed the

welfare state. Feeding the welfare state has led to bi government and smaller economic growth.

From “What can the United States learn from the Nordic model?” by Daniel J. Mitchell.


Appendix B – Opinion on Government

Figure 19. Majority now view government as threat to personal rights. Fewer Americans have a

favorable view of the federal government. Obtained from the Pew Research Center


Figure 20. Ratings of federal government decline. Fewer Americans have a favorable view of the

federal government, with the biggest decline in recent years coming among Democrats. Obtained

from the Pew Research Center.


Figure 21. The federal government’s reach. The role of the government: In the 2012 Values

survey, 69% of Americans said the federal government should only run things that cannot be

done at the local level. Obtained from the Pew Research Center.


Figure 22. Voters’ preference for smaller government persists. While many Americans may

oppose a range of cuts in specific government programs, the public overall favors smaller

government providing fewer services than a bigger government providing more services.

Obtained from the Pew Research Center.


Figure 23. Less partisan views of state, local governments. Again, state and local government

support trumps the federal government. Obtained from the Pew Research Center.


Figure 24. Support for government safety net remains low. The trend in public opinion favoring

a smaller role for government is reflected in declining support for social safety net. Obtained

from the Pew Research Center.


Figure 25. Congress’s sinking favorability. Congress is the least favorable institute. Americans

have a highly negative view of Congress, no confidence on its ability to get the job done, and have a

positive impact on the country. Obtained from the Pew Research Center.


Figure 26. Public’s views of the Supreme Court. Unfavorable views of the Supreme Court are at

the highest level in years. Obtained from the Pew Research Center.


Appendix C – Entitlements and Welfare

Figure 27. Entitlement spending will nearly double by 2050. Spending on entitlements will

double, which will place a heavier burden on future generations. From the Heritage Foundation.


Figure 28. Tax revenues devoured by Medicare, Medicaid, and Social Security 2045. Tax

revenues will be completely devoured by 2045 because of entitlements. From the Heritage

Foundation.


Figure 29. More than half of all federal spending will be on entitlements programs in 2012. As

of 2012, more than half of the federal budget went to entitlements spending. From the Heritage

Foundation.


Figure 30. Total welfare spending is rising despite attempts at reform. Dependency on welfare

continues to rise despite efforts to curtail it. From the Heritage Foundation.


Figure 31. Discretionary spending cuts alone will not balance the budget. Entitlement priorities

outnumber the rest of priorities by a gigantic margin. Cuts in other places will not close the

deficit. From the Heritage Foundation.


Figure 32. Dependence on government higher than ever. The Heritage Foundation’s “Index of

Dependence” based on data from the Office of Management and Budget and U.S. Department of

Education shows a steady annual rise in government dependency. From the Heritage

Foundation.


Appendix D – Spending and Interest Rates

Figure 33. Federal spending exceeds federal revenue by more than $1 trillion. Since 1965,

government spending has been higher than revenue. In the past few years, that gap has widened

to unprecedented numbers. From the Heritage Foundation.


Figure 34. Federal budget deficit will reach levels never seen in the U.S. With each passing

decade, deficits on entitlements as a percentage off GDP will reach shocking levels. From the

Heritage Foundation.


Figure 35. Federal spending grew nearly 12 times faster than median income. The federal

government spends money without considering the consequences. If families went on a wild

spending spree, their fate would be severe. From the Heritage Foundation.


Figure 36. What if families handled finances like the federal government does? The federal

government handles finances on a shopping spree with “unlimited” credit card funds. From the



Figure 37. Interest on the debt will nearly double over the next decade. As public held debt

grows, so does the interest rate—hence making spending more difficult to curtail. From the



Figure 38. Interest on the debt exceeds spending for many programs. On August 5, 2011, credit

rating agency Standard & Poor (S&P) downgraded the U.S. Government’s credit rating from

AAA (outstanding) to AA+ (excellent), thus spiking the interest on the debt. The consequences

of spending are severe; yet, another credit downgrade is possible and could come soon.


Figure 39. Publicly held debt to skyrocket. The U.S. will be volatile to credit ratings because of

its sky-high publicly held debt and intergovernmental debt. From the Heritage Foundation.


Appendix E – Taxes

Figure 40. Runaway spending, not inadequate tax revenue, is responsible for future deficits.

Spending is the problem, not lack of tax revenue. From the Heritage Foundation.


Figure 41. Budget Control Act sequestration would hit defense hardest. The Budget Control Act

sequestration did not cut any spending on entitlements; instead it targeted other discretionary

spending. The question remains: how far can cut discretionary spending without touching

entitlements? From the Heritage Foundation.


Figure 42. Federal revenues by source. The federal government heavily relies on individual taxes

and that tend will only continue to rise. From the Heritage Foundation.


Figure 43. Increasing tax rates does not necessarily lead to higher income tax receipts. Higher

tax rates have not led to higher tax receipts. Tax receipts have remained constant. From the



Figure 44. Top 10 percent of earners paid 70 percent of federal income taxes. The U.S. tax

system continues to become highly progressive, and at the same time pushing lower earners into

higher brackets, thus becoming regressive too. From the Heritage Foundation.


Figure 45. Taxing the wealthy to balance the budget will not work. To balance the budget solely

by taxing the wealthy would require a tax rate above 100% and beyond, which is imaginary and

impossible. From the Heritage Foundation.


Figure 46. Letting tax cuts will not balance the budget. Letting tax cuts expire is too small to

tackle the massive spending. From the Heritage Foundation.


Appendix F – Size of Government and GDP Growth

Table 2

Government control of the economy

Note. More government control equals poorer nation. By Richard Rahn of the Institute for

Global Economic Growth.


Table 3

U.S. Federal, State, and Local Government Expenditures for Selected Budget Categories as a

Percentage of GDP, 1960-2010

Note. Spending continues to be above normal levels as a percentage of GDP. From “The Scope

of Government and the Wealth of Nations Revisited” by Joseph Connors and Seth Norton.


Figure 47. The core government expenditure as a percentage of GDP. The U.S. is not the only

country OECD country whose increase in the size of government is not due to expenditures in

the core areas. Today, even Greece and Sweden spend less on the core functions of government

as a share of GDP than the U.S. From “The Scope of Government and the Wealth of Nations

Revisited” by Joseph Connors and Seth Norton.


Figure 48. Burden of government: U.S. vs. Europe. The difference between the burden of

government control of the economy between the U.S. and Europe. From the Heritage

Foundation.


Figure 49. Government Debt, Growth, and Inflation: Selected Advanced Economies, 1946-2009.

The figure shows the average and median GDP growth for each of the four debt categories. This

data consists of advanced countries over the period 1946-2009. From “Growth in a Time of

Debt” by Carmen M. Reinhart and Kenneth S. Rogoff.


Figure 50. United States Central (Federal) Government Debt, Growth, and Inflation:

1790-2009. The figure shows the correlation, where debt levels over 90% of GDP are linked to

significantly elevated inflation. From “Growth in a Time of Debt” by Carmen M. Reinhart and

Kenneth S. Rogoff.


Table 4. Real GDP Growth as the Level of Government Debt Varies: Selected Advanced

Economies, 1790-2009 (annual percent change)

Note. Debt in excess of 90 percent has a severe negative impact on economic growth. Table

provides detail on the growth experience for individual countries, but over a much longer period,

typically one to two centuries. From “Growth in a Time of Debt” by Carmen M. Reinhart and

Kenneth S. Rogoff.


Figure 51. Public Debt, Growth, and Inflation: Selected Emerging Markets, 1946-2009. This

figure represents the same results as “Figure 51”. From “Growth in a Time of Debt” by Carmen

M. Reinhart and Kenneth S. Rogoff.


Figure 52. External Debt, Growth, and Inflation: Selected Emerging Markets, 1970-2009. The

connection between gross external debt reported by the World Bank and growth and inflation for

the emerging countries between 1946-2009. From “Growth in a Time of Debt” by Carmen M.

Reinhart and Kenneth S. Rogoff.


Table 5. Real GDP Growth as the Level of Government Debt Varies: Selected Emerging Market

Economies, 1900-2009 (annual percent change)

Note. Historical data proves the same scenario even for emerging or not-so-developed countries

as it is for the advanced countries. From “Growth in a Time of Debt” by Carmen M. Reinhart

and Kenneth S. Rogoff.


Figure 53. Gross External Debt as a Percent of GDP: Averages for Selected 59 Countries,

2003-2009 (in percent). The left hand panel of the figure indicates whether there has been an

increase in indebtedness to GDP over the 2003-09 period, or a decrease (deleveraging). The right

hand panel gives the ratio of gross external debt to GDP as of the end of the second quarter of

2009. The group averages are based on a total data set of 59 countries. From “Growth in a Time

of Debt” by Carmen M. Reinhart and Kenneth S. Rogoff.


Table 6. Real GDP Growth as the Level of Debt Varies: Summary (annual percent change)

Note. From “Growth in a Time of Debt” by Carmen M. Reinhart and Kenneth S. Rogoff. The

authors combine all of their results of the real GDP growth as the level of debt and the inflation

level as of debt.


Figure 54. From “Public Debt Overhangs: Advanced-Economy Episodes Since 1800” by Carmen

M. Reinhart, Vincent R. Reinhart, and Kenneth S. Rogoff. The figure traces the trajectory of the

sum of gross public and private external debt/GDP since 1970 for the same sample of 22

advanced and 48 emerging market economies.



M. Reinhart, Vincent R. Reinhart, and Kenneth S. Rogoff. Figure 55 plots private domestic

credit—the data is essentially bank loans.



M. Reinhart, Vincent R. Reinhart, and Kenneth S. Rogoff. The figure places individual episodes

into a two-by-two matrix. It shows that no nation can achieve higher growth without lower

interest rates (government debt).

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