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A weekly liberty briefing and news guide to keep you informed and prepared on what’s UP to more freedom or DOWN to bigger, more intrusive government.

Quote of the Week:

“Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
John Maynard Keynes, The General Theory of Employment, Interest and Money

President Obama calls for more “investment” into education during debate (10/3)

During the first presidential debate, President Barack Obama stated that his priorities were to use taxpayer money to continue and increase “investment” into education, energy and other important things that America needs but has been neglected by leaders over the years. Obama commented that children using textbooks that are “ten years old, if not older” was unacceptable and education must be prioritized for investment.

ANALYSIS: “Investment” in the purest definition can be explained as the transfer of resources to the formation of capital goods.  The purpose of investment in a market is to produce future profits for the investor. Politicians like to claim that they are “investing” the public’s money into worthy causes, but the problem with this is all individuals value some things more than others and public goods are not always privately tangible.  Said another way, if I invest in funding a company that wishes to sell an improved light bulb, once those new bulbs go on sale, I will get a return on my investment. When government invests my money into “education” I’m told it’s for the greater good but get no personal, private dividend on that.

Government uses the power of force to say, “an education is important” but every tax dollar spent on public education or education subsidy is a dollar that a private citizen can’t spend on a private investment of their own choice. The use of the word “investment” by politicians is an effort to conceal a less appealing term which is higher spending. Private individuals save for their future, government only steals for the present. Government is nothing more than a pickpocketer and gun. This is clearly a DOWN towards less financial freedom.

U.S. unemployment aid applications rise to 367k (Washington Times, 10/4)

According to the Department of Labor, weekly applications for unemployment aid nationwide increased last week by 4,000. The spiking number of claims is characterized by pundits as evidence of a soft but “no means collapsing labor market.”

ANALYSIS: The reality behind unemployment is always concealed behind clever calculations and crafty statements by bureaucrats and intellectuals for hire alike. If one takes only a shallow analysis of unemployment numbers, one assumes that with only 367 to 375,000 people on unemployment aid, things aren’t that bad. What the numbers don’t reflect are the hundreds of thousands if not millions of others who are so persistently unemployed or ineligible for unemployment aid that they simply have stopped applying.

Also not taken into consideration is the greater economic impact of government policies that are designed to stimulate aggregate market demand (that is, more consumer spending) by injecting large sums of money from the Federal Reserve and/or Congress in hopes of “jump starting the economy” as is often said by politicians. What your high school economics teacher probably never told you in high school however is that recessions serve a role of their own in an economy and as long as government interferes in a recession, the root cause behind it can never be corrected.

When the course of time reveals that investments or market actions are unprofitable, businesses liquidate unprofitable investments, discontinue unprofitable services and when unable to maintain a bottom line, either downscale their operations or reduce their workforce. Demand for labor is a function of production, and production is influenced by market profitability.

It would stand to reason that unlimited employment would be possible if unlimited production were profitable, however changes in interest rates at the Federal Reserve distort the economy in ways that cause large clusters of economic activity that over the course of time are unsustainable or unprofitable and a shrinkage of the economy occurs when investors make corrections. The correct action in a recession is to save money and reduce both consumption and production until such time that equilibrium of the market occurs. Recessions can also be a great time for new wealth to be created in the absence of government intervention because those who saved money can acquire capital while those who need money are liquidating capital.

Unfortunately, to politicians the temptation to “just do something!” is always too much to bear and they attempt to prop up shaky market processes with money thinking this will cure unemployment and falling profits. Companies that are insolvent stay insolvent thanks to government and companies that want to expand their operations and profit from fire sale prices are denied this because their competitors are propped up through the actions of state legislatures and Congress.

So long as government tries to end a recession by throwing money, the long term result is more unemployment and more inflation. While it’s been said “It’s the economy, stupid!” a more appropriate phrase should be “No, it’s the stupid economic policies, stupid!” America’s way of approaching the continuing bad economy through bad government is simply DOWN to the abyss of economic destruction.

Danny de Gracia is the Economic Policy Adviser for the Grassroot Institute of Hawaii. Views expressed in this column are intended to promote creative thought, educate, and, we hope, prompt comment. Accordingly, thoughts expressed do not necessarily reflect the official position of Grassroot Institute of Hawaii or the author.

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Grassroot Institute of Hawaii is a nonprofit, nonpartisan research institute dedicated to the principles of individual liberty, the free market, and limited, accountable government. Through research papers, policy briefings, commentaries and conferences, the Institute seeks to educate and inform Hawaii's policy makers, news media, and general public. Committed to its independence, the Grassroot Institute of Hawaii neither seeks nor accepts government funding. The institute is a 501(c)(3) organization supported by all those who share a concern for Hawaii's future and an appreciation of the role of sound ideas and more informed choices.