During recent times, economic expectations have continued to escalate.  Today’s younger adults expect to start off with the standard of living of their parents, and to improve from there.  What were previously seen as luxuries came to be perceived as entitlements.  If you don’t have the money, borrow it.  Savings?  Asians save.  We spend!

And yet, surveys of young people entering the work force reveal an unwillingness to sacrifice.  Life style is selected over economic opportunity.  A college degree entitles one to rewards, whereas earlier generations saw a college degree as opening the door to opportunity, so that future rewards might be earned.

This mentality, and this behavior, are not sustainable.

Although I cannot foresee the U.S. Government undergoing a formal bankruptcy, I do expect it to reach the point where it cannot meet its expanding obligations.  Are we close to that point now?

I have been expecting the re-inflation of our economies and our currencies, worldwide, in response to the current economic crisis.  However, plunging stock markets are warning us that governments may not be successful in returning world economies to “business as usual.”

Most people still expect this to be a serious recession, but nothing more.  At some point in my lifetime I expect to see something more.  I expect to see the promises of the U.S. and other governments as empty.  Despite all-out efforts, the economic slide will not be curtailed, and governments will appear helpless.  Should we reach that point, how will the population respond?

Let’s hope we are still Americans, as that term used to describe us:  Self-reliant.  Independent.  Responsible.  Entreprenuerial.  If we have become something less, as recent behavior would tend to indicate, we could be in for real trouble.  Soon.

There is unusual caution among stock market investors, as they not only want to exit the market because of falling prices, they are becoming concerned about the “going concern” issue.  Seemingly healthy, profitable companies are vulnerable to the credit squeeze.  They owe money to banks and cannot pay off their debts if those banks demand payment, at least not without finding substitute sources of debt financing.  And, if those substitute sources are not available, as is frequently the case in this lending environment, they may be forced into bankruptcy.  Seemingly healthy companies are going out if existence.  With that threat hanging over their heads, stock market investors are heading for the exits.  That is a whole new layer of risk that is not normally a concern to market participants.

As an alternative, some of those investors are looking for vacant land to invest in.  Why?  Because land is solid.  It will be there, even during an economic meltdown.

What types of land are they buying?  Some are looking for recreation land they can use, as well as treat as an investment.  Because of a shortage of lending to support vacant land investments, many of these buyers are paying all cash.  In many instances, they are enjoying attractive pricing, as “money talks.”  Larger acreage parcels are attractive, as are properties with some kind of water feature.

How about farmland?  Unlike recreation land, farmland prices have escalated considerably in the past few years, as commodity prices have exploded on the upside.  With recent softness in commodity pricing, the economics of farming is changing.  A correction in farmland pricing can be anticipated, so one should be careful about not getting caught up in the expectation that farmland prices can only go up.

Development land has probably undergone the most drastic change in price in recent months.  Some finished residential lots are selling for 20% to 30% of the retail values they enjoyed just a couple of years ago.  In some “anti-growth” governmental jurisdictions, it takes years to obtain all necessary approvals to create a residential subdivision.  In this economic environment, no one is applying for permission to create new subdivisions.  One might anticipate a lot shortage at some future date.  Some investors are buying up finished lots in anticipation of future shortages, once normal growth and home building resume.  But, be aware, one needs patience.

Asset prices are strongly influenced by the availability of credit.  Credit has dried up.  The prices of many different asset types are heading down.  However, governments throughout the world are trying to resuscitate credit.  If they are successful, watch for the formation of new asset bubbles.  Recreation land, particularly those properties with unique features or popular amenities, could be the next magnet for cash surpluses.

Detroit automakers are asking the government for a “bridge” loan.  Bridge to what?

In short, many in our culture favor socialistic behavior, while rejecting capitalism and its accompanying selfishness.  Why?  Does this trend represent an advancement in civilization?

The United States today is the most advanced technologically and militarily.  Americans enjoy the highest standard of living on earth.  Americans are still among the most free on the planet, having the most control over their own lives.  We have a border problem, not because our people want to escape, but because citizens of other countries want to get in.

How did we get here?  Why is it that Americans enjoy such advantages over other countries?  I believe these questions can be answered with one word: Freedom.  The United States was founded on a notion of individual freedom; one that placed the government in a role of servant of the people, not the other way around.  Per the U.S. Constitution, the government’s primary function was to protect the freedom of its people, and to allow its people to pursue their own interests without government interference.

This experiment in limited government proved extremely successful, as it fostered a culture of optimism, creativity, energy, self-reliance, personal responsibility and productivity.  It unleashed the power of millions of individuals, each pursuing his or her own dreams, unfettered by controls and restraints, as long as the rights of others were respected.

Gradually, over many decades, the culture of the United States has changed.  Those attributes that made us what we are, are now being condemned as “selfishness”.  No longer is government limited to its constitutional role.  Now government is empowered to control the economy.  No longer is the power of taxation limited to supporting essential services.  Taxation is now a tool to be used to control individual behavior and to redistribute wealth from those who have produced it to those who have come to rely on government for financial support.

So, what’s wrong with that?  Many Americans obviously are voting for this “change”.  They view the Constitution as a “living” thing, that must be adjusted to meet the requirements of a modern society.  Why must we live our lives based upon a 220-year old document?  We don’t need those old, conservative values and rules any more.  After all, we’re rich!  Let’s enjoy life!

Let’s examine their arguments.

First, there is no free lunch.  To the extent that wealth passes through the government, then is redistributed to individuals, there is a price to pay.  You have received benefits.  You have received wealth you did not earn.  But you had to relinquish your freedom to qualify for those payments.  Government is the ultimate example of selfishness.  It never gives without taking something in return.  You have lost some of your freedom of choice.  Government will now make those choices for you.  Every time you qualify for a government transfer payment, whether it’s in the form of unemployment insurance, Social Security payments, government grants, subsidies, loans, welfare payments or government contracts, there are strings attached.  You just came under the umbrella of a government bureaucracy, and you need to conform to the expectations of that agency if you want to receive their benefits.  You have just joined a new culture, one that doesn’t value independence or entrepreneurial spirit.  This culture values conformity and subservience.  Adjust!  They won’t.

Second, these new cultural values affect behavior.  Productivity is now valued less.  Conformity and “needy” behavior are valued more.  So, there will be less wealth produced, and more demand for that wealth.  A culture of “shortages” is fostered.  To each according to his needs?  Then I will be needy.  It’s human nature.

Third, and most important, these new cultural values don’t reflect reality.  If you really believe selflessness is a virtue, go look for it.  Look for it in those “selfless” government agencies that exist to help the “needy”.  Do those government employees look out for others, or do they look out for themselves?  After all, aren’t they being paid?  Do they belong to a union ?  Does that union look out for the “needy” or does it look out for the government employees?  Why is the expression, “I’m from the government, and I’m here to help you” a joke, instead of a reflection of reality?

Capitalism, and the culture it fosters, provides more for everyone.  It rewards and honors production and inventiveness - activities that benefit producers and inventors, but that also benefit many other people, especially those who choose to voluntarily do business with the producers and inventors.

This country was founded on principles of limited government and the supremacy of the individual. These are not principles that require adjustment every generation or two.  They are timeless principles that are unaffected by changes in technology, changes in population density, changes in economic conditions, or changes in international interdependence.  If anything, these principles have been tested over time and under different circumstances, and have been shown to have universal application because they are designed, not for the times, but for the people.  Real people.

Selfishness is not a crime.  It is an inherent characteristic of human beings.  It is what causes us to survive and to flourish.  It is not inconsistent with caring for others.  In a capitalistic economic system, the energies of the ambitious (the “selfish”) are channeled into production of goods and services that benefit everyone.  Those who condemn selfishness bite the hand that feeds them.

Freedom made this country what it is today.  Beyond its economic benefits, freedom creates enormous opportunity to make of your life whatever you want it to be.  To trade away that freedom for the illusion of security is a very bad exchange.

The U.S. Federal Reserve has a stated policy objective of maintaining stable inflation at a rate of 2% or below annually.  Recently, the target level has been exceeded, as the consumer price index has been registering in the 4% range.  That doesn’t seem to alarm the Feds, however, as they see economic weakness as our primary problem, and inflation should decline along with economic activity.

Does this mean we do not need to be concerned about inflation?  Hardly.

The Consumer Price Index measures the price of goods and services typically purchased by consumers.  If these prices are rising at an annual rate of no more than 2%, the Federal Reserve believes they are doing their job.  Are they?

Through productivity improvements (which lower the real costs of producing goods and services) and through increases in international trade (which allows goods and services to be produced in that part of the world where they can be produced most efficiently and at the lowest cost), the REAL price of consumer goods and services is steadily declining.

If one were to graph the real price of consumer goods and services, with the vertical axis representing price expressed in constant dollars and the horizontal axis representing time, we would see a price line declining downward as we move from left to right on the graph.

How would that same graph look if we were to show prices, not in real terms, but in terms of current dollars?  As stated above, the Federal Reserve would be satisfied if prices were increasing at a 2% annual rate.  So, if we were to graph consumer prices, measured in CURRENT DOLLARS (as opposed to constant dollars), the line would be INCLINING as we move from left to right.

Now, if we were to graph both real consumer prices (as measured by constant dollars) and consumer prices as measured by current dollars on the same graph, we would see that they move rapidly apart, with prices measured in current dollars going steadily up in price, while the prices measured in real terms are steadily going down in price.  The difference between these two lines represents a measurement of real inflation, or the real decline in the purchasing power of the dollar over time.

In real terms, we don’t have 2% annual inflation.  We have 2% plus the decline in the real cost of consumer goods and services.  If real costs are declining at a 3% annual rate, that means the purchasing power of the dollar is declining at least at a 5% annual rate.

Why do I say “at least?”  Because the above only takes into consideration consumer prices.  I maintain real inflation has been occurring at a rate well in excess of 5% annually in recent years.  That is because most of those extra dollars the government keeps creating don’t go into consumer items.  They go into investment assets.  Why?  Because government policy encourages it.

Let’s say the real decline in the value of the dollar is 8% per year.  As the Federal Reserve, in conjunction with the U.S. Treasury, attempts to re-inflate the money supply and credit, interest rates are kept well below 8%.  If I can borrow money at 6% per year, I will be making 2% on someone else’s money, even if I only invest in things that maintain constant, real value.  In essence, I will borrow money and later pay back money that possesses less purchasing power than the money I borrowed.  And, if I can borrow that money and place it in an asset that is rapidly escalating in price, I can make a financial killing!

That is what stock market speculators did in the 1990s.  That is what real estate speculators did in the early 2000s.  That is what commodity speculators did in recent months.  That is what many speculators are waiting to do next, as soon as the taxpayers finish bailing out the last round of losers, so credit can again be made available and we can proceed to “re-inflate”.

These incentives were created by irresponsible monetary management and are destructive to our economy.  Is it any wonder we have a negative savings rate as a nation, when only suckers save depreciating dollars, and those wanting to get ahead financially are provided with such strong incentives to borrow and speculate?

At some point, the government will no longer be able to inflate.  At some point, the whole system will collapse.  This will be blamed on capitalism.  This will be blamed on greedy speculators.  Yet, as long as the government provides the incentives, the activities of the speculators are fully predictable.

How can the cycle be stopped, before the system collapses?  By simply requiring that the Federal Reserve do what all central banks are supposed to do: Maintain a STABLE currency; not a currency that inflates at a stable rate.

In a capitalist economy, capital is allocated through millions of individual decisions, influenced by the supply and demand for goods and services, and the economy functions smoothly.  However, when government intervenes in the marketplace to override those individual decisions by providing incentives that would not otherwise exist, distortions in capital allocation occur which can have a very destructive effect on the economy if left unchecked over time.

Capitalism is under siege.  By those who “know better.”

These same news reports reveal that Michigan Governor, Jennifer Granholm, has rejected Mr. Cox’s proposal on the basis of the cost of establishing a web site.

Now, Mikey, I’m afraid I must side with Jenny on this one.  I know from personal experience that it is not cheap to establish a web site.  Why, I have personally spent several hundred dollars on graphics and professional help setting up a web site!

Jenny’s job is to keep the big picture in mind, spending taxpayer money only on the most essential goods and services.  Throwing taxpayer money at something as frivolous as a web site could be a real budget buster.  I mean, where are you going to get the money?  Are you going to cut into some essential program like Jenny’s favorite Main Street program?  Are you going to deny some downtown building its new facade?

Let’s be real, Mikey.  Michigan citizens don’t want to govern the state.  That’s the governor’s job.  So why do they need to know how the money is spent?

Mikey, your job is to fight crime.  You leave those big-picture issues to Jenny.  She has everything under control.

The founding fathers of this country established a limited government while expressing concern about the danger to our liberty of too much government - too much concentration of power in the hands of elected officials.  Over time, their concerns have become justified.

Various special interest groups have attempted to hijack the power of government to achieve their goals at the expense of others.  Acting in collusion with government, businesses attempt to stifle competition.  Unions attempt to maintain monopolies over entire industries. Environmentalists attempt to stop real estate development.

Government enacts licensing laws, zoning restrictions, environmental regulations, trade restrictions, subsidies and a host of other obstacles in order to protect the status quo - in order to prevent CHANGE!

For decades, representatives of the two major parties have been at the forefront of this movement.  These elitist elected officials override the right of individuals to make their own decisions.  They enact layers of laws to “protect” the population from the threat of change.

If there is one illegitimate role that government has come to play in our society it is one of preventing change.  So isn’t it ironic that the standard bearers of the two major parties, the parties that have been the strongest advocates for this illegitimate government role, should now be running for office on platforms of “change?”

Is it any wonder that politicians are held in such low regard in our country?

Isn’t it time for “change?”  REAL change?

Well, I think I know what it means, and I don’t like it.  The implication is that, if someone has become successful, it is because the “community” made him so.  Success does not derive from individual effort, it is an outcome of something that was taken from others.

So, for example, successful NBA basketball players are expected to work in the community, “giving back.”  Let’s examine that idea.

Michael Jordan dedicated his life to becoming the best basketball player he could possibly be.  He worked countless hours, days, weeks, months, years - most of his life - to become one of the best in the world.  He competed against literally millions of others who also wanted to become one of the best in the World.  Upon attaining his goal, Michael Jordan’s skills were at such a high level that millions desired to watch him play, both live and on TV.  Collectively, Michael’s fans were willing to pay millions of dollars each year for his services - to watch him play basketball at a very high skill level.

Michael Jordan’s fans willingly paid to watch him.  Why?  Because he gave them pleasure.  He entertained them.  He provided them benefits for which they gladly paid.

Now, in what sense does Michael Jordan owe more than he has already given?  In what sense has Michael Jordan “taken” from the community, so that he must now give something back?  Michael Jordan was well paid for his performances.  But he earned everything he got.  How do I know that?  Because Michael Jordan offered his services in an open and free market.  No one was forced to pay money to him.  Everyone paid voluntarily.  That is the way the free market works in a capitalist economy.  Providers of goods and services offer them to the public, and the public decides what they will choose to purchase.  They will only part with their money if they believe they are receiving something in exchange that they will value more.

Millions of people chose to voluntarily relinquish their cash in exchange for the entertainment value provided by Michael Jordan.  Michael gave repeatedly over many years.  Fans kept coming back.  Voluntarily.  Giving up their money in exchange for entertainment benefits.

All participants in all of these transactions acted without coercion.  There was no fraud involved.  In what sense does Michael Jordan still owe more than what he has given?

We are regularly bombarded with NBA ads that show NBA basketball players “giving back to the community.”  Again, implying that they took something, and now they owe something in return.

I cannot think of many people who owe less than NBA players.  They Have given - much more than most.  Why should they be the ones asked to “give back?”

I am in no way suggesting there is anything wrong with volunteerism or community service.  I think it is a good thing.  I think it is great that NBA players are willing to set an example by volunteering.

What is wrong here, however, is the characterization of that volunteerism.  It is just that: “volunteerism.”  It is not paying back a debt.  That is something criminals do, not professional athletes.

The reason I object so strenuously is that words do matter.  And I am afraid the use of the expresssion, “giving back to the community” perpetuates the socialist belief that no one should rise above the average.  To do so establishes a debt to society.

I am a capitalist.  I believe people deserve what they have earned.

No, it doesn’t “take a village.”  It takes effort, determination, perserverance, commitment.  Let’s not pretend that we all make an equal contribution, or that our contributions happen without the prospect for reward.

Capitalism works.  Socialism doesn’t.