If you’re a typical American family, your “health” will set you back $20,728 every year. That figure comes gratis of Milliman, a benefits consulting group. A base-model Toyota Camry… the typical family’s most-popular make? It costs $22,055.

Milliman’s numbers account for only the premiums and out-of-pocket costs. Heaven forbid you actually get sick.

Back in 2006-07 while researching and filming our documentary I.O.U.S.A., we made the intimate discovery that health care for an aging society… not just, but mostly in the United States… is by far the biggest driver of deficits, debt and default — for families… and businesses… corporations… and the entire nation.

“In America,” wrote an expatriate in an email, “workers are held hostage to jobs they hate because working independently or taking early retirement means no access to health care unless you are willing to pay $1,000 a month for insurance. International health insurance costs me less than $100 a month.”

Last July, the Supreme Court decided that the Frankenstein piece of legislation known as “Obamacare” jibes with the vision of the Founding Fathers. We all know the end result. The federal government can now force you to buy health insurance from a private company.

The trouble for you… and me, frankly…. is more profound. Let’s say you don’t give two proverbial defecates about the politics of the situation. Let’s also say you’re trying to figure out how to deal with the rising cost of education, food, gas, heat etc., all while your stock investments and house “value” decline… what are you supposed to do?

Unfortunately, the only thing up for debate in 2009-10 when the Patient Protection and Affordable Care Act was being hashed out in closed-door committee hearings was by what means the government would enable insurance and pharmaceutical companies to fleece patients and taxpayers. So now we’re left to our own devices.

The good news? You don’t have to expatriate to take your health care into your own hands. While we can’t possibly address every issue on our plate at the moment — the Fed, Goldman Sachs, two-party electoral charades, spoiled milk — we can address one critical item.

We’ll expose the scams that make U.S. health care the costliest in the world.

“Extraction” by One of the Nation’s Most Powerful Interest Groups

New Yorker Beverly Weintraub is one of the “lucky” ones. She has employer-provided insurance.

Last year, her teenage son choked on a piece of turkey. He spent four hours in the emergency room — a physical exam, sedation, endoscopy and removal of the offending poultry.

For these services, the hospital billed her insurance company, Aetna, $22,214.92.

Aetna agreed to pay only $2,885.67. And the hospital cheerfully settled for that amount. Ms. Weintraub was out of pocket about $800.

“How could those numbers possibly be reconciled?” she wrote. Being employed as a reporter for the New York Daily News, she set out to find answers.

What she found first is that her story is commonplace. “There are the sky-high costs that a hospital will claim reflect its expenses, and the much-lower fees it accepts under contract with insurance companies.”

“What’s missing from this complex web,” Weintraub writes, “is any hint of what the services a patient received actually cost.”

That’s by design. For the U.S. health care system is yet another mechanism of “extraction.” “Washington’s empire,” economist Paul Craig Roberts reminds us, “extracts resources from the American people for the benefit of the few powerful interest groups that rule America.”

The health care complex is surely one of the most powerful… and the utter lack of “price transparency” is what allows them to retain that power.

“The rates that insurance companies pay,” Weintraub writes, “are negotiated based on what they believe a hospital’s true costs are. But then those rates are jacked up an average of 30-50% to make up for money that hospitals lose in treating patients who don’t have private insurance — which is the majority of them. So to make up the difference, they overcharge patients who are insured. This practice is called cost-shifting.”

Cost-Shifting: A Double-Barreled Scam… and How You Pay for Both Barrels

Ms. Weintraub tells a good yarn… but it’s incomplete. Cost-shifting takes place in the form of two insidious scams, patiently described to us by Dr. G. Keith Smith, an Oklahoma City MD who’s doing his level best to undermine the practice.

The first scam is called “uncompensated care.” To understand how it works, it helps to know a rough breakdown of who is treated in a typical hospital:

• About 50% are covered by either Medicare or Medicaid… which don’t pay for the full cost of treatment

• About 10% have no insurance at all. For obvious reasons, they too typically don’t pay full freight

• About 40% have private insurance. They carry the burden for the other 60%.

At the end of each year, many hospitals collect money from an “uncompensated care pool” — funded by federal and state taxes and typically administered by a state government. “That creates the perverse incentive for hospitals to issue fictitiously insane bills,” says Dr. Smith.

“Let’s say they charge $100 for an aspirin for which they pay a penny. They collect $5 [from insurance], and claim they lost $95. That $95 goes into the ‘uncompensated care’ pool and helps them get this rebate at the end of the year.” It also, Smith explains, helps many hospitals maintain the fiction of not-for-profit status.

If you’re a taxpayer, you pay for this.

The second scam involves the insurance scheme known as preferred provider organizations, and is called “PPO re-pricing.” Here too there are perverse incentives: Insurance companies, contrary to popular belief, have zero desire to keep costs to a minimum. “The bigger the bill the insurance company receives, the more money they make,” says Dr. Smith.

“If a large hospital submits a bill to an insurance company for, say, $100,000, and the insurance company pays $22,000 of it, the insurance company then goes back to the employer who provides this insurance product to the employee and says, ‘Look what we did for you; we saved you $78,000.’ The employer, as part of his contract, pays the insurance company a percentage of that fictitious savings.”

If you have employer-provided health insurance, you pay for this. Were it not for the insurance company’s cut, you’d have a bigger paycheck.

Private Equity Scamming Medicaid: When “Extraction” Is More Than a Figure of Speech

We ran across one recent instance in which the “extraction” carried out by the healthcare industry is literal.

“Dental management-services companies,” many of them backed by private equity, are cashing in on Medicaid spending for dentistry — which exploded by 63% between 2007-10.

Result: Medicaid-eligible kids are pulled out of classrooms and undergo dental procedures without their parents’ knowledge or permission. “I was absolutely horrified,” Stacy Gagnon told Bloomberg. The Camp Verde, Ariz., mother was shocked when her 4-year-old son came home from school, having undergone two baby root canals, received two crowns and 10 X-rays — none of which she says he needed.

This practice is so blatant — and costly — that in some cases, the bureaucrats are intervening. “Management companies are at the center of a U.S. Senate inquiry,” Bloomberg reports, “and audits, investigations and civil actions in six states.”

Cost-Shifting’s Biggest Victims: Why You Can’t Afford to Be Uninsured

Meanwhile, “the only people who are actually billed such astronomical sums are the uninsured,” says reporter Weintraub, citing figures from Medical Billing Advocates of America.

“If an uninsured patient can pay even a fraction, it will still far exceed the cost of treatment. So hospitals will gladly settle for a lesser amount — and may even helpfully offer a payment plan or high-interest loan.”

If you have no insurance, you pay through the nose. Little wonder that medical bills are the catalyst for 60% of personal bankruptcies, according to a 2009 study in The American Journal of Medicine.

Which gets us back to this question: What is the actual cost of that “$100,000″ procedure? About $7,000-8,000. For everything. Including the facility, surgeon and anesthesia charges.

That’s what Smith would charge you at his outpatient surgery center in Oklahoma City… a lone outpost of “price transparency” within U.S. borders.

Smith and his facility are one possible solution if you want to break free of the whole sordid cost-shifting system. But if you need a procedure that requires more than a one-night stay, you’re out of luck. No open-heart surgery or major abdominal procedures there.

So it won’t solve all our problems, but at least it’s a start.

Sincerely,

Addison Wiggin

This is basically the thesis of a longtime classic of the genre, The Crowd: A Study of the Popular Mind by Gustave Le Bon (1841-1931). The book came out in 1895. It seems to never be out of print. Financial people love to quote from it, probably because it flatters their worldview. If you have unpopular opinions, Le Bon makes you feel as if you are above the rabble.

I have a copy of the book, and it is still a pretty good read. If you’ve never read it, you probably should get a copy and give it a go. It is mildly stuffy in the way 19th century books are stuffy. It is certainly not politically correct. It is a bit repetitive. Yet there are a number of pearls. Here is a marked passage:

“By the mere fact that he forms part of an organized crowd, a man descends several rungs in the ladder of civilization. Isolated, he may be a cultivated individual; in a crowd, he is a barbarian — that is, a creature acting by instinct. He possesses the spontaneity, the violence, the ferocity, and also the enthusiasm and heroism of primitive beings, whom he further tends to resemble by the facility with which he allows himself to be impressed by words and images — which would be entirely without action on each of the isolated individuals composing the crowd — and to be induced to commit acts contrary to his most obvious interests and his best-known habits. An individual in a crowd is a grain of sand amid other grains of sand, which the wind stirs up at will.”

Not a bad little nugget.

H.L. Mencken wrote about Le Bon’s thesis in Damn! A Book of Calumny. Mencken, as is often the case, is pretty funny about it all:

“[Le Bon's] theory is probably too flattering to the average numskull. He accounts for the extravagance of crowds on the assumption that the numskull, along with the superior man, is knocked out of his wits by suggestion — that he, too, does things in association he would never think of doing singly. The fact may be accepted, but the reasoning raises a doubt.”

People act goofy in crowds, Mencken says, because their suppressed goofiness can now function safely in a crowd. But not everyone loses their cool. And here Mencken doubts Le Bon’s thesis. There is always an intelligent minority. “They usually keep their heads,” Mencken writes, “and often make efforts to combat the crowd action.”

I am inclined to think Mencken is right about that. Not everyone was fooled by the subprime mortgage mania. Indeed, some saw the problems quite early. (And even fewer made huge profits when it all came undone). Not everyone was fooled by internet stocks in 2000. There have always been a few watchful sages in markets who issue warnings when the silly season begins.

Now I turn to two who have definitely not lost their heads. They are excellent investors: Seth Klarman at Baupost Group and Paul Singer at Elliott Associates. I had peeks at the quarterly letters both published at the end of April. And both are full of warnings.

“Investing,” Klarman writes, “when it looks easiest, is at its hardest.” He points to the long list of fundamental challenges that make this environment risky — the crisis in the EU, recession in Japan and a slowdown in China. Beyond this, the Fed is juicing the market and keeping interest rates low. The only way anyone can get any yield is in the stock market. Hence, there are all kinds of distortions as investors hunt for yield. You can see the stretching in the valuation of some master limited partnerships, real estate investment trusts and other yield vehicles.

Yet, being patient and picky probably means you’ve trailed the market a bit. Klarman has so far. It doesn’t bother him. He knows that short-term underperformance is sometimes the price you pay for long-term outperformance.

So, you should continue to do the right things. Avoid leverage. Buy only undervalued securities. Hold fewer stocks and bigger concentrations of what you like. All these can lead to underperformance in the short term… but pay off in the end. Klarman’s letter was all about the importance of maintaining discipline and patience in the face of markets like these.

While Klarman wrote a taut 5-page letter, Paul Singer released a 21-page treatise. (He’s trailed the market this year, too.) But the themes were remarkably similar. The markets are too optimistic. And there are many risks and problems out there. Singer took lingering and dark looks at the EU, the Fed’s policies and more. I will spare you the details. Safe to say, Singer doesn’t like what he sees.

Singer was almost apologetic in talking about these things. “We are not whining,” he writes, “just describing an environment beset by thoroughly confused investors, severely distorted by government policy, and driven by money flows chasing hyperbolic news reports and brokerage firms ‘themes-of-the-day.’”

These gents have very long track records of success in markets. Reading over their letters had a salutary effect on me. It was like a sanity check. I also see the market as too optimistic. I see that bargains are hard to find. I see stocks that I didn’t buy because they were too expensive now soar ahead.

But I will continue to be picky in this market and look for low-risk ideas. When I can’t find them, we’ll sit on our hands. I would warn you, too, not to get swept up in the party atmosphere of the stock market.

By the way, the Mencken piece on Le Bon is part of a book called Three Early Works. It includes The Book of Prefaces, with an outstanding essay on Joseph Conrad that is worth the price of admission by itself. It also includes Damn! A Book of Calumny, made of many witty shorter pieces. (Check out “The American Philosopher,” where Mencken eviscerates Williams Jennings Bryan in a paragraph that will leave you laughing). It also has The American Credo, which begins with a lengthy and perceptive essay on American habits of thought at the time.

Sincerely,

Chris Mayer

Since studios are rarely interested in accuracy, I ended up working as a script consultant for Aaron Russo. Aaron, who died a few years ago, is best known for producing Trading Places, Wise Guys, and The Rose, among other extremely lucrative film projects. A script consultant, by the way, is what you call a writer if you don’t want to pay Writers Guild scale.

Anyway, though Russo was sincere about using film to promote founding American principles, he inevitably hit a brick wall whenever he took our projects to the studios. At least one senior studio executive told Aaron that he agreed the project I was working on would make serious money, but its anti-tax message guaranteed that it would never be made.

As an economist, this inability to get “American values” films made is frustrating. We know that good red-state movies make more money on aggregate than the typical deconstructionist Hollywood propaganda. The puzzle, therefore, is why people who hate the prevailing entertainment business’ editorial bias don’t exploit the business opportunity created by Hollywood’s unofficial embargo.

It’s not as if we have no precedents to learn from. In the old days when I sat around with other economists, conversations often turned to the news media’s complete misrepresentation of free market economics.

Perhaps the oddest thing about old-school media bias is that it effectively alienates more than half of the potential customer base — viewers who believe that free enterprise is better for society than big government policies. Besides driving viewers away from their product, the media’s hostility toward half the population was creating an opportunity for potential competitors.

It was this market opportunity, of course, that naturalized Australian-American Rupert Murdoch saw and exploited with the creation of Fox News. Today, Fox dominates the news business, at least in terms of profits. This is because many legacy media outfits compete for about half the market, while Fox is nearly alone in serving the rest. This experience ought, it seems to me, to attract entrepreneurs to serve the Fox viewership in the arenas of film and television.

When I worked for Fred Thompson, in fact, I encouraged him to use his clout to launch a studio and become the Rupert Murdoch of entertainment. Instead, he ran for president. Ah, well. There are, however, entrepreneurs actively working on that goal now, and I have little doubt that someone will succeed.

The Oscars were a perfect demonstration of why this is true. While “live-snarking” the event on her website, the legendary show-business journalist Nikki Finke wrote:

“As if Hanoi Jane weren’t fuel enough. Oh my God — the Academy actually fans the fire by drafting first lady Michelle Obama to help present Best Picture from, presumably, the White House? So unnecessary and inappropriate to inject so much politics into the Oscars yet again. Hollywood will get pilloried by conservative pundits for arranging this payoff for all the campaign donations it gave the president’s reelection campaign. I don’t understand this very obvious attempt to infuriate right-leaning audiences. Clearly, the studios only want to sell their movies to only half of America.”

Finke is, of course, correct. The urban coastal elites have no interest in providing entertainment for the portion of the market that does not share their worldview — just as the legacy media consistently demonstrate either condescension or hostility to the same group.

As media and entertainment are often linked, it’s pretty clear that so-called liberals still have the advantage when it comes to influencing public opinion. Today, propaganda is often called “spin,” but whatever you call it, it is only one factor in opinion formation. The other big one is actual results.

Often, these are very different things. Take, for example, the media’s spin on the automatic budget cuts that will be implemented when sequestration takes place. Well, as you know, they aren’t actually cuts — they’re a reduction of the planned increases in spending, but that makes my point. The spin is that massive cuts in public services will take place as sequestration takes place, probably resulting in anarchy and the collapse of Western civilization. The reality is that spending would go up by $2.4 trillion over the next 10 years, rather than $2.5 trillion.

It’s one thing to paint those who want smaller government as troglodytes. It’s quite another to actually base policy on that rhetoric. Compare, for example, the economies of California, where Hollywood lives and reigns, and red state Texas. Though California politicians deny it, wealthy educated residents are leaving their state daily for Texas.

One of the biggest cultural changes in modern times is the collapse of the image of California as “the Golden State.” Moreover, polls of the nation as a whole demonstrate a far more sophisticated appreciation of economic cause and effect than you would surmise if all you paid attention to were Hollywood and the MSM.

Ultimately, math trumps spin. Though there are a lot of people trying their hardest to convince America that it has permanently adopted European socialism, it isn’t true. Things have been far worse in the past, by all measures. If you don’t know this, you risk falling prey to the conservative doom-and-gloom machine, which I hate almost as much as the liberal scaremongers.

The reality is that our current mess will not be that hard to extract ourselves from, once we have surpassed our national pain threshold. Part of the reason is that there is so much innovation bottled up by high taxes and overregulation. As soon as federal policies change, this backlog will create very rapid growth, especially in the fossil fuel and biotech sectors.

Yours for transformational profits,

Patrick Cox

Their primary message: “I don’t think anyone wants a fight — I think everyone here wants to build Bitcoin, to work with regulators… Cooperation is really the way forward.”

That was the opening salvo.The Bitcoin Foundation’s executive director also weighed in. “It’s time to engage with regulators and have a good, productive conversation,” Peter Vessenes told Cnet. This comment, and the Foundation’s intention to hire a lobbyist, prompted widespread calls from the rank and file for the Foundation to be dissolved.

And yet, apparently many people in the financial world agree with this nascent Bitcoin establishment. From their perspective, every regulation confers a welcome legitimacy on the currency/payment system, and grants it greater chance for market success. Already, people at the event this past weekend’s conference were discussing whether the Commodity Futures Trading Commission or the Securities and Exchange Commission would be the best overseer.

In private discussions with people who are pushing for this approach, the pro-regulation people view intervention as inevitable, and so therefore it is better to get out in front and push for rules that are not harmful but beneficial.

The presumption is that there are only two options here: government prohibition or government management. The third option — our forgotten and disrespected friend called laissez faire — is not even considered a realistic option.

Some people just think that being controlled by the heavy hand of the state is part of the maturation process. Despite the evidence of all of human history, the pro-regulation side here just assumes that public policy will be benign and even helpful, and, in the end, actually help support more development.

And yet, it has the framework of laissez faire that led to Bitcoin’s creation and adoption in the first place. The creator going by the name Satoshi Nakamoto didn’t propose his invention and submit it to the patent office or seek out some government R&D funds. The early adopters weren’t alerted to the opportunity by any government jobs program. The new businesses that have sprung up around Bitcoin didn’t go crawling to the Small Business Administration.

Essential to the magic and wonder of Bitcoin — and you can actually say this about most technologies in human history — is that it came about spontaneously within market process that encourages and rewards creativity, risk taking, trial and error. There have been no barriers to entry, and anyone can get into the market. This feature has been crucial to its success.

That was also true with planes, trains, and automobiles — all of which fell to the heavy hand —  but there is something special about Bitcoin that makes it inherently resistant to government control. It is built on code. It lives in the cloud. It is globalized and detached from the nation state, has no own institutional owner, operates peer to peer, and its transactions are inherently pseudonymous. It cannot be regulated in the same way as the stock market, government currency markets, insurance, or other financial sectors.

Government has lots of practice at controlling the physical world, and not so much at doing the same in the digital world.

In that end, that might be Bitcoin’s most redeeming feature (among many). It’s as if its creator anticipated this moment, that coming together of the old-line money business, the revenue-seeking government, and a would-be new establishment that wants to maintain industry dominance. The protocol itself resists regulation in the old-fashioned sense. That is built into its very structure.

On the other hand, even the attempts at government regulation can do damage. Earlier this year, the Financial Crimes Enforcement Network of the U.S. Treasury Department weighed in to make clear that every Bitcoin exchange must registered as a money service under the Bank Secrecy Act. Already, some exchanges had made themselves compliant. But within days, three exchanges shut down.

How many new exchanges might have been deterred from starting up, we can’t know. And already Canada is working to court refugees from this law.

This intervention was just the beginning. The first round of regulation will continue to target the exchanges, and focus on reporting requirements and consumer protection. But it won’t stop there. Users will be next, with a focus on moving money from here to there. There will be dollar-based triggers on how much in Bitcoin funds can be moved without self reporting. Then of course the tax authorities will be involved to get a cut of every transaction.

Just think through how many different sectors are covered under Bitcoin’s reach. After all, we are talking about an innovation that defies every previous categorization. It is a payment system and a means of payment itself. It is an emerging money. It is a financial instrument and a proto-commodity. It will be subject to capital-markets speculation. In the future, It could take on take on new functions in insurance, loan markets, labor contracts, and international trade.

In other words, there is probably no bureaucracy in Washington that won’t be able to dream up some rationale for sinking its teeth into Bitcoin in some way. Strangling innovations and adding more costs on institutions doesn’t seem like a good path forward. In fact, one of the great reasons we need Bitcoin right now is precisely because government’s control over the dollar has created such wreckage all around. Why would anyone think it would turn out differently under Bitcoin?

The real danger of all these attempts to regulate digital currency is that they will encourage the emergence of parallel sectors in the Bitcoin world, one fully compliant and one thriving in the gray and black markets. After all, the feds have not even been able to stamp out unregulated behavior with old-fashioned dollars. They face an impossibly more difficult task with digital currency.

These approaches could end up sending the emerging Bitcoin commercial world abroad, and causing the industry to self regulate in a way that excludes American consumers. Already, the major Bitcoin gaming site Satoshi Dice has announced that it will no longer permit access from U.S.-based IP addresses.

Even now, the use of Bitcoin abroad is arguably more developed abroad. It’s big news in the U.S. when a house for sale is priced in Bitcoin. But in a country like Argentina, it’s common for rental and buying contracts to be priced in the digital currency. At this rate, the U.S. could find itself falling far behind the rest of the world in continued digital currency development.

We live in a global economic environment, and every Internet user has the tools to get around even the most egregious regulations. For my part, over the long run, I’m not worried that Bitcoin can be killed or even slowed by all this of these misguided attempts. But they will create opportunities for arbitrary enforcement and unnecessary invasions.

Remember that every act of government ultimately reduces to an act of violence against person and property. When you see the word regulation, think of cops with clubs and tasers. Think of fines, courtrooms, jails. These are the essentials means by which government operates to control society.

It might be a pointless plea, and feel free to tell me to get my head out of the sand, but I’ll just ask the question anyway: why not give freedom a chance? We have a wonderful opportunity here. Let’s not screw it up, again.

Wikipedia tells us that the steel cent is the only coinage that can be picked up with a magnet. Not exactly a requirement for a good money. It is also the only coin in circulation that didn’t contain any copper. Even gold coins had a little copper back in the day.

Now the country is engaged in wars around the world and here at home: the war on terror, the war in Afghanistan, the war on drugs, the war on obesity. The government is constantly at war. As you might expect, valuable resources are needed, and the integrity of the coinage must be sacrificed just as it was for WWII.

To solve this problem, Congressman Steve Stivers (R-Ohio) introduced H.B. 1719 — the “Cents and Sensibility Act” — on April 24. It mandates that pennies, nickels, dimes, and quarters be composed primarily of steel, specifically U.S.-produced steel. By the way, this is the third time Congressman Stivers has pitched this legislation, and as GoldSilver.com reports, “Conveniently, Worthington Industries, a steel processor that supplies steel blanks for Canadian currency, is located in Stivers’ district and strongly supports the bill.”

We can only be thankful that a plastic button fabricator doesn’t operate in the good congressman’s district.

This sort of thing isn’t new. Kings used to “clip” and “sweat” coins constantly to pad the government treasury. Coins would be called in and filed around the edges, with the resulting loose metal coined into new currency for the government to spend. This practice has gone the way of the buggy whip, with the Federal Reserve conjuring up billions from the ether with the ease of a keystroke.

When you think about it, government would like to get out of the production of coinage altogether. The government is interested in earning what’s known as seigniorage — the difference between the value of money and the cost to produce it. It’s estimated that the cost of producing a $100 bill is 8-12 cents: Now that’s some seigniorage.

On the other hand, the government actually loses money creating pennies and nickels. According to GoldSilver.com, “As of May 8, a penny contains one-half cent worth of metal; nickels contain 4.6 cents. Factoring in production costs, the U.S. Mint reported that a penny cost 2 cents and a nickel cost 10 cents to manufacture in 2012.”

Sheesh, government manages to lose money while making money!

So while Stivers has failed before with his steel currency bill, its time may have come. Washington is swimming in red ink, and according to the House Financial Services Committee, the government would save up to $433 million over a decade by switching metals. Besides, carrying around a pocketful of change is as foreign to young people as reading a paper-and-ink newspaper.

It’s questionable whether the government would save money minting steel pennies, but this might be a step toward getting rid of pennies altogether, an idea that is constantly floated. To completely abandon the lowest denomination of currency is the ultimate surrender to inflation.

According to the folks at RetireThePenny.org, the average American wastes 2.4 hours a year handling pennies. This includes “the ubiquitous 30-second period we sometimes spend waiting for someone who just has to dig through their pockets or purse to find that last cent so they can pay for something with exact change (probably so they don’t get stuck with any more pennies),” writes Susan Headley at About.com.

David Owen wrote for The New Yorker back in March 2008, “More than a few people, upon finding pennies in their pockets at the end of the day, simply throw them away, and many don’t bother to pick them up anymore when they see them lying on the ground. (Breaking stride to pick up a penny, if it takes more than 6.15 seconds, pays less than the federal minimum wage.)”

The minimum wage was $5.85 in some states when the article was published. Now it’s even less worthwhile stopping for a penny with the minimum at $7.25 and more in many states. However, if the penny was minted from 1909-1982, its current melt value is 2.1 cents, so it would be worthwhile to pick up the penny. However, what are the odds that a random penny will be pre-’82?

Just like with the silver dollar, the silver certificate, silver dimes, and copper pennies, eventually Mr. Stivers (or another public servant) will have his way. Then zinc, nickel, and copper will be gone from all coinage. And when that happens, there will be an interesting, and unintended, consequence.

Government has been degrading money for centuries. It will not stop anytime soon. But hopefully, you have enough saved to help keep ahead of the government’s money machine.

Maher seems to think being a libertarian means you’re for smoking dope and hating the church. He said on his show that the libertarian philosophy “meant that I didn’t want Big Government in my bedroom, or my medicine chest, and especially not in the second drawer of the nightstand on the left side of my bed.” When a libertarian starts reading Ayn Rand and promoting laissez faire capitalism, this “new” libertarian, as he put it, became “a selfish prick.”

Meanwhile, Jones makes a handsome living amping up those “freedom lovers” that evidently believe the government is, on one hand, too incompetent to deliver the mail and teach kids while, on the other, so collectively clever it can pull off a running tally of successful “false flag” operations from Sept. 11 to Sandy Hook, with the ultimate objective of the population happily voting for a police state.

The Ron Paul presidential runs in ’08 and ’12 have, indeed, ignited an interest in libertarianism that bears no resemblance to the Maher-Jones clown shows. It’s quite probable that you can meet reasonable, normal people at the chamber of commerce or some other local gathering that consider themselves fiscally conservative and socially liberal. Maybe that’s not “big L” libertarianism, but it’s a start. They don’t know the long tradition and central figures of modern libertarianism, but their instincts are right. And one single book can bring them (or you) up to speed.

Brian Doherty’s Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement is the authoritative history of a movement that progresses onward and upward in fits and starts, challenging government’s monopoly in all things. The author, a senior editor with Reason magazine, has been in and around the movement for decades. He reportedly worked on the book for five years. The effort shows.

The result is a book that will be considered the go-to reference on the libertarian movement for years to come. Libertarianism is about people and freedom, not policy and force. So it’s appropriate that the book is written around the five major catalysts for libertarianism: Ludwig von Mises, F.A. Hayek, Ayn Rand, Milton Friedman, and Murray Rothbard.

Doherty makes plenty of room to talk about the many characters and influences that have created a very diverse and more-than-a-little-divisive libertarian movement. The brilliance of the book is the author’s seamless inclusion of the many entrepreneurs, academics, writers, philosophers, industrialists, and just plain-old normal people who pushed the freedom movement to where it is today. And for those of us in the middle of it who wonder sometimes if we and those who’ve influenced us have really made any sort of difference in the grand scheme of things, Doherty reminds us that we have.

Libertarianism is a political philosophy. Radicals for Capitalism, however, reads like an engrossing biography, not a policy paper or history book. The movement comes to life with Doherty’s words.

One of the genuine heroes of the movement that the book enlightened me to is R.C. Hoiles. I should have known that a courageous man was behind a very libertarian daily newspaper being published from the middle of liberal California: The Orange County Register. As Doherty describes, “Orange County became known, to a large degree thanks to Hoiles himself, as ‘nut country,’ the hotbed of the rightest of the right wing.”

“Anytime a man has to pay for something he does not want because of the initiating of force by the government, he is, to that degree, a slave,” Hoiles wrote. It’s hard to imagine someone in the mainstream media business then or today writing that with all the pressures of making advertisers happy to keep the presses running.

“Hoiles was an earthy and simple man and a notorious union-busting anarchist cuss,” writes Doherty, “who’d thrust himself into picket lines surrounding his property to tell the union boys why they were all wet.” Just learning about the late Mr. Hoiles is worth the price of the book.

Leonard Read was another who devoted his life and considerable entrepreneurial skills to the freedom movement, creating the Foundation for Economic Education (FEE) that thrives to this day. Read truly believed that all that needed to be done was to educate the American public about free-market economics and freedom would take hold once again. The charismatic, handsome Read was naive, but he raised millions to spread the word through publications like The Freeman, and along the way he managed to be, shall we say, the Wilt Chamberlain of the freedom movement.

Hard-money investment newsletter writers are not left out of Doherty’s history. Laissez Faire Club author Doug Casey was converted to anarcho-capitalism by reading LFC selection The Market for Liberty, written by Morris and Linda Tannehill. The world traveler was also a huge Harry Browne fan, and he followed the Tannehills’ and Browne’s lead with his own best-seller, Crisis Investing, a book that, Doherty writes, “got anarcho-capitalist thoughts into the hands and heads of an unprecedented number of Americans.”

Doherty covers, but doesn’t dwell on, the oft-told Ayn Rand cult episode, and his work on Mises and Hayek is solid. In Doherty’s view, Milton Friedman had the most influence of the five pillars of the movement. It likely didn’t hurt that Friedman was extraordinarily charming and articulate on camera as well as in person, and had a seat at the president’s table for a time in Washington.

When interviewed about the book, the author said that Murray Rothbard was his favorite of the five. “Rothbard, in one way, was the most distinctly libertarian of the libertarians. He really had his hands in every aspect of the story, was such a colorful and fun writer, and was so bracing in his radicalism that I found him the most fun to contemplate of all those figures.”

Radicals for Capitalism is loaded with stories about infighting in the libertarian movement. Newcomers might find the amount of “inside baseball” overwhelming. But the reader can easily skip over things like the Cato versus Mises Institute drama and not miss a beat.

Leaving the reader on a high note, the author appropriately gives Rothbard the last word, a portion of which reads, “Quintessentially and metaphysically, [the libertarian] should remain of good cheer. The eventual victory of liberty is inevitable, because only liberty is functional for modern man.”

Doherty’s work should be required reading for all newcomers to the growing liberty crusade inspired by Ron Paul and the tea party movement, especially would-be libertarians like Bill Maher and Alex Jones. However, requiring something like that would be, well, un-libertarian.

Sincerely,

Doug French

To mature means to gradually let go of dependence on others and to depend on your own resources. It also means to accept responsibility for the judgments you make, and not slough them off on other people. It is the same with thinking. To mature means to break loose from canned forms of thought that you once accepted without question, and instead see the world for what it is. It is the essential step toward living a free life.

Modern American democracy seems to war against this kind of maturation. Take a look at the best-selling political and financial books on the conventional lists. Their goal is to play to your biases, to bring you the comfort of having something you already think reinforced. In politics, it means cheering for party X over party Y on grounds that you accept ideology X over ideology Y. There simply is no large market for people who accept some of each or reject both.

In finance, it means believing that the world is either progressively coming together or falling apart. The evidence to support this either/or proposition is assembled in order to confirm as true what you would otherwise think.

This is the easy path. But it is not obtaining maturity. It is not thinking for yourself. It is dependence. It consists in shaping your thinking to a model forged by others. People who read only this way imagine that they are educating themselves. Actually, they are only gorging themselves on settled conventions.

If we really want to think hard and maturely, we need to encounter ideas that cause some element of discomfort. We need to leave our comfort zones and imagine that perhaps the mob is not as smart as people say. Maybe we can only find the truth of a situation in an opinion that cuts against the grain, is not represented by political party, and departs radically from settled orthodoxies. When we realize this, we enter on the road to intellectual maturity.

The thinkers and writers who can assist in this process are few. When they do appear, they disappear just as quickly for lack of champions. I fear this might be the fate of H.L. Mencken. For decades, he was there to stir the pot and work against mob opinion. This is why he opposed U.S. entry into World War I. This is why he was a literary progressive in times when most people were stuck in the past. This is why he ridiculed Prohibition when the entire Northeast religious and government establishment thought it was a brilliant idea. This is why he never shrank from flailing orthodoxies that were accepted by nearly everyone.

Throughout his career, as soon as he found a solid bloc of champions, he would lose them just as quickly. He was uncomfortable with popularity, assuming it was a sign that he needed to shake things up a bit. For example, by the late 1920s, he was the darling of the literati and the toast of the town. His attacks on the Hoover administration kept him in good graces, but then he turned his eye toward Franklin Roosevelt and ridiculed the New Deal for the monstrosity that it was. His support peeled away, and he once again found himself alone. He further dissented on the second charge for war in his lifetime and permanently fell out of favor.

Mencken was a champion of the individual, of rationality, of the human mind in a century of collectivism of many sorts. This is why he seriously doubted that individualism could triumph in an era of mass political and religious manias. As his American Credo showed, he understood American culture as few others before or since have. He loved this country and its multifarious cultures, but he also saw that there was an intractable problem that would prevent America from ever achieving its hope. That flaw he summed up with the word “puritanism.” He was referring not so much to a narrow religious sect, but to an outlook on life that sought the destruction of sin and imperfection and, in so doing, warred against human volition and freedom itself.

Mencken never sought to bring comfort to his readers. He sought to disturb and dislodge biases, pointing to uncomfortable truths about the world around us. In this sense, he was one of the few truly independent thinkers of the last century. He left a mighty legacy that allows us to study under him — not so much the specifics of what he said, but rather how he thought. Everyone who seeks to live a freer, happier, and more prosperous life can now look to him as an example of what it means to exercise truly independent thinking. To be his student means to be grounded even as those around you are being buffeted about by the winds of public opinion and political manipulation.

It’s all summed up in the revolutionary idea of Mencken’s core credo: “I believe that it is better to tell the truth than a lie. I believe it is better to be free than to be a slave. And I believe it is better to know than to be ignorant.”

Sincerely,

Bill Bonner

It goes like this. He comes out with a book, and the highbrow experts say it’s crazy, that this time he has gone too far. Two-three years later, the world has changed, and his predictions have come true. His critics don’t admit it (have you noticed that few people ever admit errors?). By that time, he has a new book out, and the experts again say it’s crazy. And so on it goes. He is always one step ahead, like a prophet, but without the honor he deserves.

In his first major book, The Long Tail (2006), he said the common culture of enterprise would die, and this is great. Instead, in the future, consumer culture will be driven by the desire to curate micro-cultures for ourselves. Technology has allowed markets to become super focused on a niche, rather than the broad swath of humanity. In fact, he said, there are more profits associated with niche-focused business than the hope of selling to every man or woman on the street.

At the time, this idea seemed crazy. The conventional wisdom of business has been that the bigger the market sector, the better. He was saying the opposite. Now we look around and see that nearly every market is a niche: No two consumers are alike. Not only that, but the biggest and best companies today (Google, Amazon, the app economy) specialize in fanatical service toward millions of tiny niches, in every way that can express itself.

Then he came out with his book Free: How Today’s Smartest Businesses Profit by Giving Something for Nothing (2010). He said that the trend is taking all consumer products down to $0 for the basic service and making money on the add-ons. In fact, business in the future will be begging people to take stuff for free.

His critics went nuts and said, “Oh, this is crazy stuff. Can’t happen.” Today, if you want to denounce his thesis, you can do it in real-time video through Google+ Hangouts, Facebook video chat, Skype, Twitter, or uncountable numbers of free services that uncountable numbers of businesses are begging you to try. Contrary to every prediction, even Facebook is making money by giving away its main product for free.

Again, I’ve not seen his critics eat humble pie.

The purpose of Makers is to explain how manufacturing is traveling on the same trajectory as communication, publishing, and media. It will devolve from big institutions to small institutions, and finally to individuals. The focus is, of course, 3-D printing. He forecasts a world without shipping, without controls, without the huge transactions costs of getting things. Instead, our shopping will consist of downloading models and printing what we need.

Crazy, right? Yes, just like his previous two books — which is to say not crazy at all.

Why has he been so consistently correct in his outlook for the market’s future? Because he is hooked into the community that is making it happen. From his position as editor of Wired, he was constantly in contact with the edgiest and most entrepreneurial companies in the world, the people who are forging a new tomorrow. He observes a pattern, explains, and sees clearly that it will win the day because it works.

By the time the rest of the world catches up to see the point, he has moved on.

Well, this month was the month that the rest of the world saw the point, and it made the headlines in a huge way. Law student Cody Wilson of Defense Distributed printed out a workable handgun called “The Liberator.”

But with every great advance in history, there are those that resist it. The government, in this case, is the chief resistance force. Anticipating this, Cody complied with every regulation, every code, and every mandate. It took nine months to stabilize and perfect the models, but he finally did it. He had a workable model for a gun that anyone on the planet could print out and use. He made one himself and released the files to the world without copyright.

The feds jumped into this scene with an order that made anyone with an ounce of technical sophistication laugh. They demanded that the files for the gun be taken down from his website. He complied.

But this accomplished nothing. Nothing on the Internet goes away, especially not if the files were released to the world. The files for “The Liberator” were quickly re-hosted at storage website Mega and many other places. Once it became clear that the masters of the universe wanted these files down, people all over the world got into the act and began spreading them everywhere, and the downloads soared into the hundreds of thousands.

In a matter of days, people were already working to remix the files and customize them for different purposes and approaches. How is this possible? These files are not physical goods. They consist of information, and information has three features that government hates: It is malleable, reproducible, and — thanks to the Internet — immortal.

In this way, as Anderson explains in his book, the world has changed dramatically in a digital age in which even physical goods take the form of information. And in the long run, there is nothing that those who purport to rule the world can do about it. They can silence one or two people, but that doesn’t cause the things they don’t like to go away.

This is also why it is pointless that the defcad.org’s signup sheet was removed by its domain host, LaunchRock. A further example is the video that announced the creation of files that produced an operational 3-D handgun went viral after it was posted. It had tens of thousands of views, maybe many more. It was a video that ran only a few minutes. Now when you go to the video, a message appears that says it has been removed from YouTube.

Apparently, the video infringed on the copyright of Warner/Chappell. What’s that? That’s a music distributor. So the wrath supposedly had nothing to do with the gun or the subject. It was removed because the background music was alleged to be under copyright.

But wait just one moment. There are dozens of different YouTube videos that use that song. Here’s one. It’s also used in the movie Tree of Life. If it’s copyright protected, isn’t it just a bit strange that Warner happened to pick Cody’s video to order a takedown?

Cody, a law student, was scrupulous in complying with the law. But just as they got Al Capone on tax evasion charges, not bootlegging, Cody Wilson’s dramatic and historic video has been removed on copyright grounds! Never mind that most of his other videos could be removed on the same grounds, and so could perhaps a million other videos that use music from YouTube. This one video was singled out for a reason.

Meanwhile, of course, the video still survives in myriad forms (here, here, here, here, here). It’s just the canonical version that has been taken down. This is a symbol of the new reality that government has not yet processed. The Internet is different from the physical world. It is not only bigger; it lasts forever, no matter what the regulators do. They can drive things underground, but cannot finally stop the progress.

There is a pattern here. The government hates progress. It prefers a world fixed and immobile, so it can regulate and tax it, bully enterprise, and deny consumers. But entrepreneurs don’t like straitjackets. They keep coming up with new ideas and throwing them out there — at great personal risk to themselves.

Chris Anderson’s world will come true. In time. Every intervention that tries to stop it is at best a vast waste.

Sincerely,

Jeffrey Tucker

P.S. Here is a great interview with Anderson on EconTalk.

This proposition has been easier for folks to entertain since housing busted and the financial crisis reversed the “wealth effect” in 2008. With that in mind, let’s take a look at the logic of the American Empire and what you can expect in the year(s) ahead.

“Great empires, such as the Roman and British, were extractive,” economist Paul Craig Roberts observed recently. “The empires succeeded because the value of the resources and wealth extracted from conquered lands exceeded the value of conquest and governance.”

We explored a similar theme in our 2006 book, Empire of Debt. But unlike empires of the past, the American Empire has a logic all its own.

“America’s wars are very expensive,” says Roberts, stating the obvious. “Bush and Obama have doubled the national debt, and the American people have no benefits from it. No riches, no bread and circuses flow to Americans from Washington’s wars.”

In the big Iraqi oil auction of 2009, for example, even as U.S. helicopters droned overhead, the oil minister gave out zero contracts to American firms. Not one. And we spent at least $3 trillion on war — $2.9 trillion more than Team Bush’s original budget. So much for paying for war with “oil profits.”

Russia was actually the big winner here. So what gives? The American Empire has perverted the Roman mantra “Veni, vidi, vici” (I came, I saw, I conquered) into the odd imperial slogan, “We came, we saw… we borrowed!”

The results from this turn of phrase are less than desirable. Again Roberts:

“Washington’s empire extracts resources from the American people for the benefit of the few powerful interest groups that rule America. The military-security complex, Wall Street, agribusiness and the Israel lobby use the government to extract resources from Americans to serve their profits and power. The U.S. Constitution has been extracted in the interests of the Security State, and Americans’ incomes have been redirected to the pockets of the 1%.

“That is how the American Empire functions,” concludes Roberts. We agree. To grow, the American Empire is always looking to inflate the next bubble. These serial bubbles each have the effect of “extracting” wealth from the citizens — in the form of bigger mortgages, heftier credit card statements and stuffed stock portfolios. The “extracted” money is, over time, passed from the wallets of citizens to the pockets of the well connected.

For confirmation of this assertion we need look no further than the top o’ the 1%, the Oracle of Omaha. Peter Schweizer of Reason reckoned in an exposè published last year on Warren Buffett that this folksy fellow “needed the TARP bailout more than most.”

Let’s run through the numbers. Berkshire Hathaway firms in total received $95 billion in TARP money. Berkshire, you’ll recall, held stock in Wells Fargo, Bank of America, Goldman Sachs and American Express. Not only did these companies receive TARP funds… they also dipped into the FDIC’s treasury to back their debt. Total bailout: $130 billion. TARP-enabled companies accounted for 30% of the Oracle’s publicly disclosed stock portfolio.

He’s definitely one of the top beneficiaries of the big bank bailout. And to sharpen the sting, he even got a better deal to help ailing Goldman Sachs than our own government. Buffett got a 10% preferred dividend while the Feds got all of 5%. He cleaned up with $500 million a year in dividends. Without the bailout, you can bet many of his stock holdings would have gone near-zero instead.

Contrast that with a blog post from Rosemarie Jackowski, a community activist at Dissident Voice. She’s describes her experiences working with the underclass in a small town in Vermont.

“In Bennington, there are three very distinct classes,” writes Jackowski. “First, there are the ‘fancy people.’ They are the ones who rule and control everything. They are on the boards — the hospital board, the library board, the select board, the school boards. They have the power — even the power over life and death. They, occasionally during a medical crisis in the hospital, make the decision to pull the plug or allow life to go on.”

We hear you. At first, we were prepared to dismiss the piece as another bleeding heart diatribe… but she goes on to describe a theme very familiar to our readers.

Then there is the large group of ordinary citizens. Some are blue-collar workers. Most work hard. Love their families. And have had family in Vermont for generations. They acknowledge the class system in conversation often. They call it the ol’ boys network — cronyism.

The third group consists of those who are in need. Those on the bottom of the economic pile. At the conference, some of the most-impressive comments were made by a poor mother of two disabled children. She talked about the oppressive avalanche of redundant paperwork required to get any tiny benefit. The social services system is designed by nameless, faceless, unelected bureaucrats. It is setup to assure maximum job security to the workers in the system. To a struggling family, it often feels like an attack of the “paper churners.” Being poor is a full-time job.

More and more “ordinary citizens” are faced with the challenge of joining this third group of government dependents… or choosing to join the ranks “nameless, faceless, unelected bureaucrats” just to survive.

Case in point: “In the most recent Census,” writes co-author Samantha Buker in The Little Book of the Shrinking Dollar, “48% of America qualifies as ‘low income.’ There are more Americans living under extreme poverty than have ever been recorded.

“Since 2009, we’ve added another 4 million souls to the category of low income to below the poverty line. That’s 146 million people in America who aren’t consuming much aside from ever-increasing applications for food stamps.”

In November 2008, food stamp applicants topped 30 million for the first time in history. We’re still posting “record highs,” having added over 16 million more names (and counting…) to the food stamp list.

Does this sound like a nation of ripe, robust citizens ready to be drained for the benefit of the national coffers? Au contraire. Sounds like another case in which our Empire will hand out more than it’s taking in.

Again.

In her post, Ms. Jackowski provides a list of 35 ways poverty robs you of your dignity. Here are just a few:

“Poverty means living with shame.”

“Poverty means working three jobs and still not ‘making it.’”

“Poverty means that you go to work when you are sick. Worse than that, you send your children to school when they are sick.”

“Sometimes poverty means that you skip meals so that your children can eat.”

“Poverty means that your housing is never secure…”

“Poverty means following all of the rules. Then graduating with oppressive student debt so that the president of UVM can be paid $447,000 per year.”

It’s Jackowski’s final mention of extraction — the student debt fiasco — that worries us. This bubble that has already taken flight. Now it’s flying dangerously close to a few pins.

Just like with housing, this is one hell of a bubble. And when it bursts, it’ll invite another crew of crony capitalists to the Beltway, who will soon be lining up for bailouts. I urge you to grip your wallet with both hands and prepare for the worse.

Sincerely,

Addison Wiggin

Other neighbors say they called upon seeing women in the property’s attic window, but police say they have no record of the call. Various neighbors say they alerted the police to seeing leashed, naked women in Castro’s backyard. There were even reports that pounding could be heard coming from within the house and that plastic bags covered the house’s windows. The police mostly ignored the tips, the neighbors claim.

Yet if the Cleveland Police Department had believed and convinced a judge that there were drugs being consumed or sold in the Castro home, a battering ram would have collapsed the front door years ago. A dozen cops from various agencies would have stormed the place. Police don’t take those kinds of chances with a less sexy crime like kidnapping.

So while government maintains a monopoly on policing power, its finances don’t allow it to do the job adequately. Police departments prioritize chasing drugs, cash, and terrorists. Because of asset forfeiture laws, those are the crimes that pay. Pay the departments, that is. Mark Naymik writes in the Cleveland Plain Dealer that neighbors sensed that something was wrong at the Castro residence and that patrolling cops would have noticed the same thing if there had been any.

“At the moment, the hum of criticism on Seymour Avenue is about the subtle signs, such as the lowered shades or odd behavior of Castro and how he never entertained guests,” he writes. “These are the kinds of signs that police officers who patrol a specific beat over time might notice or hear about from neighbors. But that kind of patrol disappeared when community policing ended.”

The police union explained in a letter to the editor for The Plain Dealer back in 2010, “The Cleveland Police Department has never recovered from the 2004 downsizing of 252 police officers. We have been working with no Auto Theft, Community Policing, or Gang units.”

If you had to prioritize, one would think protecting against property theft and violence would be a priority. Guess not.

With these restraints in place all over the country, one would guess the criminal justice system would be lacking for participants. Hardly.

America has 5% of the world’s population and 25% of the world’s prisoners. America’s prison and jail incarceration rate is the highest in the world at 756 per 100,000 people. Russia is comfortably in second at 629, followed by countries not exactly known for their freedom, like Cuba, Belarus, Belize, Georgia, Kazakhstan, Suriname, South Africa, Botswana, Israel, Ukraine, and Chile.

Saudi Arabia and China have rates well under 200 per 100,000 people.

So while municipalities are low on money, relegating “protecting and serving” to the back seat, Washington is dishing out plenty of money to fight the war on drugs. The Drug Policy Alliance estimates that $51 billion each year goes to fund the unwinnable war. The group estimates that $1 trillion has been funneled to the drug war over the past 40 years. That kind of money would put a lot of cops on the beat.

All of that money hasn’t changed drug addiction rates a lick. However, we now have 2.2 million people behind bars. According to The Sentencing Project, that’s a 500% increase over the past 30 years.

In 2011, just short of half of federal inmates were locked up for drugs. Also, the prison population continues to age. And 39% of state and federal prisoners were age 40 or over. Prisons must now be outfitted with wheelchair ramps and handrails, not to mention a well-supplied medical staff.

On his show GPS, Fareed Zakaria explained that the state of California spent nearly $10 billion on prisons in 2011, while spending just less than 60% of that on schools. The Golden State built one college campus in 2011, while building 20 prisons. California spends less than $9,000 per student at the same time it spends $50,000 per inmate.

We pick on California, but this is a nationwide problem. According to the Heritage Foundation, “The number of criminal offenses in the U.S. Code increased from 3,000 in the early 1980s to 4,000 by 2000 to over 4,450 by 2008.” Bureaucrats are creating new crimes at a rate of one per week.

“All inherently wrongful conduct has been criminalized several times over, yet from 2000-07, Congress enacted 452 new criminal offenses.” Heritage estimates that 60% of new crimes “have inadequate criminal-intent requirements.” In other words, people have no idea they are committing crimes by breaking these statutes.

America’s criminal justice system has turned from a priority of keeping people safe to locking up as many people as possible to maintain jobs for the criminal justice industrial state.

So while thousands are being locked up for bureaucratic made-up crimes, Ariel Castro was able to perpetrate multiple violent crimes against at least three young women undetected in a residential neighborhood for a decade.

Could such an inept provider of criminal justice and defense survive in a private society? Of course not. In his classic book The Great Fiction, Hans-Hermann Hoppe explains that collective security is a myth and “that all security is, and must be, private.”

The Hobbesian view is that without the state, men would be in a constant state of war with each other. It is argued that defense must be provided collectively. However, once the government becomes one big protection racket, it will have every incentive to become larger and larger.

Monopolists have no incentive to protect life and property, but have every incentive to provide the least amount of service for the most cost. Also, in a free market, those charged with protecting life and property would not spend resources aggressing against those engaging in peaceful transactions.

The state police force operates under political objectives. If drugs and vice are demonized and politicians see political advantage in arresting drug addicts and prostitutes, that’s where the priorities will lie.

Hoppe, on the other hand, sees a world in which insurance companies provide defense. After all, they have the most to lose with the loss of life and destruction of property. Without the mirage of collective security, individuals would have incentives to act in a peaceful, nonaggressive manner, allowing them to more easily be insurable.

This may sound complicated, but over time, insurance costs would fall and contracts would standardize. Hoppe writes, “Out of the steady cooperation between different insurers in mutual arbitration proceedings, a tendency toward the standardization and unification of the rules of procedure, evidence, and conflict resolution… and steadily increasing legal certainty would result.”

Because everyone would have protective insurance, they “would be tied into a global competitive enterprise of striving to minimize aggression (and thus maximize defensive protection), and every single conflict and damage claim, regardless of where and by or against whom, would fall into the jurisdiction of exactly one or more enumerable and specific insurance agencies and their mutually defined arbitration procedures.”

Something as important as life and death can’t be left to the whims of government officials that prioritize assets for political considerations. It’s a miracle the three women abducted and imprisoned by Ariel Castro survived. And while the state may get its pound of flesh from Castro, there will be no restitution to the victims.

It’s time to allow the miracle of the marketplace to keep citizens safe and sound. Until then, the state remains Mr. Castro’s accomplice while it imprisons thousands for victimless crimes.

Sincerely,

Doug French

The idea in this case is big. It is human liberty itself, something very much under fire these days. In fact, it has been for at least 100 years. It could use a new injection of energy, something capable of shoring up your own belief system and helping others too.

I’ve got just the book for you. It’s Inclined to Liberty: The Futile Attempt to Suppress The Human Spirit, by Louis Carabini.

Some readers may know Carabini as the brains and entrepreneurial horsepower behind precious metals dealer Monex. As amazing as that is, actually sitting and talking to Carabini is like speaking with a Renaissance man. He has been in the ideas business only part time. His talents have primarily gone into building a precious metals empire.

Carabini is a reluctant author, but was inspired to write by an evening of political discussion that took place at his home. Though I wasn’t present for the party in question, having been to the Carabini home on the Pacific Ocean for dinner, I know the ambiance, food, and drink had to have been spectacular.

In a footnote to the first chapter, he lists the menu, headed by barbecued rack of lamb and various pastas. Several bottles of wine, foreign and domestic, washed down the sumptuous dinner and fueled an animated discussion between those “inclined to liberty” and those “inclined to mastery.”

As the wine flowed, he began to hear assertions such as:

• “No one should be allowed to inherit wealth”

• “The salaries of company executives are too high”

• “It is not fair that companies can terminate their workers just to increase profits.”

We’ve all been in situations similar to the author’s. Heavy-handed responses are a killjoy. Silence seems cowardly, but logic, voiced aggressively, most often comes off as bad manners.

Carabini takes a different approach. He closely examines each point with logic, data, and personal experience. His responses are thoughtful and give the reader an effective way to respond to those that advocate “permitting others to live their lives only as another sees fit.”

The author doesn’t brusquely dismiss the views of those believing the state should intercede to attempt to right what they see as wrongs. He understands that it’s easy for people to be misled by a sensationalistic news media.

Carabini doesn’t spend time, nor does he advocate wasting time, fretting about our lack of liberty or the statist views of others. He is especially suspicious of following leaders or media mouthpieces. Spokespersons tell the crowd what they want to hear.

Unfortunately, we seek out opinions to confirm our existing view of the world. “It’s easier to become a parrot when aligned with any group, be it political, social, religious, or racial, than to think for oneself,” writes Carabini.

These Pied Pipers that seek to divide and incite envy can never deliver on what they promise. “Blaming others for what we don’t have directs our energy and ingenuity away from the only reliably effective source of achievement in the world — self-reliance.”

The need for self-reliance is Carabini’s overarching message. There is no free government lunch. Prosperity can’t be created from nowhere or by decree. Cooperation and virtue more effectively create wealth than coercion.

The promises made by a democracy are the antithesis of individuality. “The very essence of democracy encourages everyone to express opinions about human activities that are none of their business,” writes Carabini in one of my favorite chapters, titled, “The False Lure of Democracy.”

The book doesn’t cast itself to be an economics book, but the author is well trained and passes on sound economic wisdom, making overlooked points. He shows, for example, how buyers are more excited about the purchase they just made than the money they once had. However, it’s most often portrayed that sellers take advantage of buyers. He also shows how money began and explores the characteristics that actually make it money. Additionally, he explains that money itself does not create prosperity.

Carabini relishes the inequality his dinner guests railed against, explaining that billionaires are wealthy because they make our lives richer with the products they create. There is no need for these billionaires to “give back” to society. We are all more prosperous because of them.

Oh, and what about that comment about hiring and firing? First of all, customers are the boss. They will decide who can keep their job and who gets a pink slip. Besides, employers must compete against other employers for labor. They must constantly keep their employees happy enough to stay and to produce while customer demand is in control. Employers must be allowed to fire, because demand may dictate it. Government intrusion will stunt hiring.  Carabini’s pithy explanation is simply, “If you can’t fire, you don’t hire.”

Anyone who has met Louis Carabini knows he is cheerful and upbeat. He ends his book reminding us that it is not liberty that is fragile or requires eternal vigilance, like so many in the political sphere claim. It is mastery, in fact, that is fragile. It fails time and time again, “while the liberty inherent in the human spirit is resilient.”

For liberty lovers who need no convincing, reading this book will make you feel good. And for those that have friends and relatives that need convincing, this is the perfect book to start the conversation.

The new report from the Government Accountability Office, a nonpartisan congressional agency that audits federal programs, paints a dreary picture of the future of municipal finances in the United States.

The report released Thursday, May 9, measures the so-called “fiscal gap,” which the GAO says is a measure of the action necessary to achieve fiscal balance over the next 50 years. With expenditures set to rise as a percentage of GDP over the next few decades and revenues projected to remain mostly flat, the gap will grow year over year unless significant action is taken.

Closing the fiscal gap solely with spending cuts or tax increases would require either a 14.2% reduction in state and local government expenditures or an equal increase in taxes, the GAO found.

“More likely, closing the fiscal gap would involve some combination of both expenditure reductions and revenue increases,” the report states.

The report points to the fact that growth in the costs of Medicaid and other health compensation and retirement payments will drive those cost increases that push local governments off the cliff. Meanwhile, the GAO model suggests that wages for state and local workers will decline as a percentage of GDP.

Rick Dreyfuss, a senior fellow on public pension issues with the Manhattan Institute, a national free-market think tank, said the debt facing many states and municipalities in the nation is not a very optimistic scenario.

“I think it is all but inevitable that the next generation will have a reduced standard of living, because their tax dollars will be paying off the promises made by the current generation of workers,” Dreyfuss said.

Since the report looks at state and local budgets in aggregate, the GAO warns against using the conclusions as a forecast for any specific locality.

But there is no shortage of specific examples from which to choose.

Start with California, something of a poster child for public pension recklessness.

Three cities in the state — Mammoth Lakes, Stockton and San Bernardino – are going through municipal bankruptcy, largely because of unsustainable pension costs. An ongoing court challenge will determine if those obligations can be reduced to help those cities, or others in the future, climb out of the hole.

And a recent report from Stanford University says California’s retirement fund for teachers and state workers is more than $300 billion in debt, even if it achieves expected levels of investment returns for the next several decades.

If the returns come up short of that amount, the deficit could exceed $500 billion, according to the Stanford study.

A January report from the Illinois auditor general revealed the depth of the pension crisis in that state, where the five public pension systems are facing a combined unfunded liability of more than $130 billion.

Worse, the funds are paying out more in benefits than they are taking in each year in contributions from employees and taxpayers.

Bob Williams, president of State Budget Solutions, a national think tank that favors pension reform and performance-based budgeting, said the report indicated changes were necessary to maintain fiscal balance.

“We have long said that lawmakers’ approaches to drafting state budgets only put states closer to the financial cliff, and the recent GAO report illustrates just how close states are to going over the edge,” Williams said.

Traditional defined benefit public pension plans were built on a so-called “three-legged stool” of contributions from employees, contributions from taxpayers and investment returns.

But for a variety of reasons, states and municipalities have dug themselves deep pension deficits.

In some places, lawmakers redirected tax dollars meant for pensions contributions to other purposes for political reasons. Elsewhere, benefits were increased for public-sector workers without the necessary increases in taxes and contributions to pay for them.

Finally, investment returns that were generally pegged too high caused pain everywhere when the market crashed twice during the first decade of the 2000s.

The GAO report indicates in the abstract what most cities and states will be feeling in terms of raw dollars for decades to come.

It’s already starting.

In Pennsylvania, the state budget will have to expand by about $500 million each year for the next decade to cover increasing pension obligations after a decade-long “pension holiday,” during which funds were redirected elsewhere.

Since revenue is not expected to grow at anywhere near that same clip, other parts of the budget will face the ax — or tax increases will be required — to pay the pension bills.

In Florida, where one report indicates more than 30% of municipalities have less than half the necessary funds to meet their pension obligations, the average municipality can expect to see their pension costs double in the next three decades, according to the Center for Retirement Research at Boston College.

Dreyfuss questioned whether the political will exists to address the pension funding crisis, since any meaningful changes will likely mean a combination of higher taxes and spending cuts — something few politicians are likely to support.

Sincerely,

Eric Boehm
Article originally posted here.

So I asked this gentleman what he thought of the talk. His response was quick (I paraphrase here):

“I’ve never once bothered with patents. They are expensive and pointless. They produce no revenue on their own. They sell no product or service. And they harm development by hemming in a company on a preset track. I need to be able to customize offerings and change what we do day to day. Patents bias a company toward old solutions even when they don’t work anymore.”

That’s an interesting perspective. And it raises the question: How much do patents have to do with innovation in the real world?

As much as we hear about patents, we might suppose there is some sort of direct link between them and the innovations we enjoy in our lives. Someone invents something and shows the plan to a bureaucrat. The exclusive license is issued, and away we go.

Economic historians have usually assumed a direct link between patents and innovation, basing much of their chronicle of history on records at the Patent Office. Much of what we think we know — that Eli Whitney invented the cotton gin, that the Wright Brothers were first in flight, that Thomas Edison holds the record for inventions because he has the most patents — comes from these records.

But is it true? Most patent holders assume so. They cling to them as a source of life and defend them against all encroachment. Some businesses build up their war chests with patents as purely defensive measures. The more you own, the more you can intimidate your competitors to stay out of your territory.

So how important are patents in generating innovation? The answer is not much, according to four economists from the Technical University of Lisbon. They are circulating their research on a platform sponsored by the St. Louis Federal Reserve. They looked at the best innovations between 1977-2004, as listed by the R&D awards in the journal Research and Development. They matched 3,000 innovations against patent records to establish the relationship.

Their findings are remarkable: Nine in 10 of the innovations were never patented. They were just created and marketed, and changed the world. In other words, it’s the market, not the bureaucracy, that innovates. The authors grant that there might have been downstream versions of the same innovations that were patented. But that fact actually doesn’t change the implications of the study, namely that there is no relationship between the existence of the Patent Office and direction and pace of innovation.

As you dig through their citations, you find other nuggets of information. It turns out that other researchers have found the same thing in early parts of the 20th century and even all the way back to the middle of the 19th. The results keep coming up the same way: There are patents and there are innovations, but they have little or nothing to do with each other.

These results are a classic case of the huge chasm between pop science and real science. In the pop version, people imagine that they will dream up some idea, file a patent, and then bring it into production and become a billionaire. The reality on the ground is that 90% of patents go completely unused. They are suitable for hanging, but not much else.

The patents that are actually in play in this world are used as weapons by big shots to hurt their competitors. They don’t cause business to succeed; it’s the reverse. The bigger the business, the more it is in the market for patents to help the big business hold its place in the market. They prompt lawsuits that go on for years that are eventually settled with an exchange of cash. Meanwhile, rather than actually fueling the innovative process, they put it on hold. So long as a patent is in existence, other innovations are legally bound not to do what they do best.

The software industry is an excellent case in point. In the 1970s and 1980s, patents were rare to nonexistent. Companies made money by making stuff and selling it, just as free enterprise would suggest. Then, the industry grew. People like Steve Jobs who once touted that talent for stealing the ideas of others began threatening other companies with lawsuits. Young programmers today know for a fact that if they ever come up with anything that threatens a big player, the small company is going to be hammered.

Two parallel streams of innovative software strategies have been running over the last 10 years: 1) highly protected and 2) patentless open source. Apple and Microsoft represent the patented style. Google is much more inclined to the open model. Companies like WordPress reveal their code to the world and make money in other ways. A good test case comes from the big smartphone war between Apple’s iOS, on the one hand, and Google’s Android operating system on the other.

The consensus today is that Android is winning hands down in terms of new users. The open-source system is roaring ahead with more than half the smartphone market already and a growing percentage of the tablet market. In terms of moneymaking, the app economy of the iOS is actually doing much better. But consider that it had a huge start, whereas the Android came much later. My own impression from dealing with both is that Android is moving ahead in every area fast.

We need to rethink our assumptions about the role of patents and innovations. If they have nothing to do with each other, and if patents actually dramatically slow down the pace of development, why not get rid of them altogether? That’s exactly what many of the old liberals of the 19th century pushed, and it the case is further bolstered by Stephan Kinsella’s Against Intellectual Property.

Government planning never works. Laissez Faire isn’t perfect, but it provides the best chance for innovations to appear and thrive and for prosperity to result. The lesson for anyone with a business idea: Run with it and don’t wait on a bureaucracy.

Sincerely,
Jeffrey Tucker

Photographing a single license plate one time on a public city street may not seem problematic, but when the data are put into a database, combined with other scans of that same plate on other city streets, and stored forever, it can become very revealing. Information about your location over time can show not only where you live and work, but your political and religious beliefs, your social and sexual habits, your visits to the doctor, and your associations with others. And according to recent research reported in Nature, it’s possible to identify 95% of individuals with as few as four randomly selected geospatial data points (location plus time), making location data the ultimate biometric identifiers.

To better gauge the real threat to privacy posed by ALPRs, the Electronic Frontier Foundation and the ACLU of Southern California asked the LAPD and LA Sheriff’s Department for information on their systems, including their policies on retaining and sharing information and all the license plate data each department collected over the course of a single week in 2012.

After both agencies refused to release most of the records we asked for, we sued. We hope to get access to these data, both to show just how many data the agencies are collecting and to show how revealing they can be.

Automated license plate readers are often touted as an easy way to find stolen cars — the system checks a scanned plate against a database of stolen or wanted cars and can instantly identify a hit, allowing officers to set up a sting to recover the car and catch the thief. But even when there’s no match in the database and no reason to think a car is stolen or involved in a crime, police keep the data.

According to the LA Weekly, the LAPD and LASD together already have collected more than 160 million “data points” (license plates plus time, date, and exact location) in the greater LA area — that’s more than 20 hits for each of the more than 7 million vehicles registered in LA County. That’s a ton of data, but it’s not all — law enforcement officers also have access to private databases containing hundreds of millions of plates and their coordinates collected by “repo” men.

Law enforcement agencies claim that ALPR systems are no different from an officer recording license plate, time and location information by hand. They also argue the data don’t warrant any privacy protections because we drive our cars around in public. However, as five justices of the Supreme Court recognized last year in U.S. v. Jones, a case involving GPS tracking, the ease of data collection and the low cost of data storage make technological surveillance solutions such as GPS or ALPR very different from techniques used in the past.

Police are open about their desire to record the movements of every car in case it might one day prove valuable. In 2008, LAPD police Chief Charlie Beck (then the agency’s chief of detectives) told GovTech magazine that ALPRs have “unlimited potential” as an investigative tool. “It’s always going to be great for the black-and-white to be driving down the street and find stolen cars rolling around… But the real value comes from the long-term investigative uses of being able to track vehicles — where they’ve been and what they’ve been doing — and tie that to crimes that have occurred or that will occur.” But amassing data on the movements of law-abiding residents poses a real threat to privacy, while the benefit to public safety is speculative, at best.

In light of privacy concerns, states including Maine, New Jersey, and Virginia have limited the use of ALPRs, and New Hampshire has banned them outright. Even the International Association of Chiefs of Police has issued a report recognizing that “recording driving habits” could raise First Amendment concerns because cameras could record “vehicles parked at addiction-counseling meetings, doctors’ offices, health clinics, or even staging areas for political protests.”

But even if ALPRs are permitted, there are still common-sense limits that can allow the public safety benefits of ALPRs while preventing the wholesale tracking of every resident’s movements. Police can, and should, treat location information from ALPRs like other sensitive information — they should retain it no longer than necessary to determine if it might be relevant to a crime, and should get a warrant to keep it any longer. They should limit who can access it and who they can share it with. And they should put oversight in place to ensure these limits are followed.

Unfortunately, efforts to impose reasonable limits on ALPR tracking in California have failed so far. Last year, legislation that would have limited private and law enforcement retention of ALPR data to 60 days — a limit currently in effect for the California Highway Patrol — and restricted sharing between law enforcement and private companies failed after vigorous opposition from law enforcement. In California, law enforcement agencies remain free to set their own policies on the use and retention of ALPR data, or to have no policy at all.

Some have asked why we would seek public disclosure of the actual license plate data collected by the police — location-based data that we think is private. But we asked specifically for a narrow slice of data — just a week’s worth — to demonstrate how invasive the technology is. Having the data will allow us to see how frequently some plates have been scanned; where and when, specifically, the cops are scanning plates; and just how many plates can be collected in a large metropolitan area over the course of a single week. Actual data will reveal whether ALPRs are deployed primarily in particular areas of Los Angeles and whether some communities might, therefore, be much more heavily tracked than others. If these data are too private to give a week’s worth to the public to help inform us how the technology is being used, then isn’t it too private to let the police amass years’ worth of data without a warrant?

After the Boston Marathon bombings, many have argued that the government should take advantage of surveillance technology to collect more data, rather than less. But we should not so readily give up the very freedoms that terrorists seek to destroy. We should recognize just how revealing ALPR data are and not be afraid to push our police and legislators for sensible limits to protect our basic right to privacy.

Sincerely,

Jennifer Lynch and Peter Bibring

A version of this article was originally posted here.

As a result, many are seeking permanent expatriation, or a “backdoor” destination, should a sudden move become necessary. In fact, after internationalizing your assets, establishing a back door is the next most important diversification strategy for most. This article will provide valuable insights toward that goal.

The first big hurdle is determining which destination is the right fit for you and your family. This task can be time-consuming and frustrating.

Many in the developed West contemplating personal internationalization (particularly Americans) are saying, “There’s nowhere to go — the whole world is falling apart.” This is far from the truth. Although much of the developed world is in serious decline, there are exceptions. Further, some of the world’s developing countries are on the rise both socially and economically. However, some of the greatest opportunities for those hoping for a better life outside of Europe or America lie in less-developed countries.

The less-developed countries are generally perceived by dwellers of the developed West as impoverished nations where ignorance and disease are the norm. This is certainly true of some countries, such as Somalia, which are the far extreme. However, it is certainly not the case with other locales that technically fit in this category, such as Uruguay, which is almost entirely unaffected by the present First World crisis.

Perhaps your idea of a new home is on a beach in the Caribbean, where there is minimal violence and where your wealth is relatively secure. Possibly, you would prefer a home where there are Old World values and traditions, where you can frequent cafes and surround yourself with the arts. Whatever fits your tastes and needs, such a destination is likely to exist. However, finding the right combination of ingredients is time-consuming and requires some research and a bit of travel.

Our first recommendation is that you begin with a list of what is important to you. This can include such items as low taxation and limited government. However, it may also contain gourmet food and good hair salons. While the latter may seem frivolous, they may not be. Many have expatriated to a new jurisdiction only to discover that it’s the “frivolous” things that they miss most. Therefore, create a table that covers all these things for all who will be going with you. Below is an example of how you might go about this.

Possible Exit Destinations

Click for Entire Chart

The table shown here was used by a Scottish acquaintance of mine when he began his search for a second residence. In the end, his final choice was not even a country on this table. He decided on Chiang Mai, Thailand, also now home to the well-known contrarian investment adviser Marc Faber.

Using a table similar to the one above and ranking your priorities for each contending country is an extremely valuable exercise. While not entirely scientific and obviously subject to personal biases, by conducting extensive due diligence and applying the results to such a document, the person or family looking for a second residence will be less prone to making a commitment that is later regretted. You can ensure you cover all bases before making a decision.

Once the list of contenders has been decided, a bit of travel will be in order. While research can reveal information about any potential destination, getting a feel for the country and how things actually work requires personal experience. By planning a vacation at the place of interest, the priorities in the table can be confirmed and new ones added. Some time on the ground taking notes and refining the table will assist you in determining if a potential choice is a good fit for you and your family.

Once the decision on where in the world to settle is reached, other choices will surface over time: Do you wish to work, start a business, or retire in the new location? Will you pursue citizenship or legal residence? As the answers to these questions surface, you will need to set the appropriate processes in motion. In many countries, accomplishing some or all of these goals can take a long time, so plan accordingly and expect a few hurdles along the way.

Finally, you will need to rent or purchase property and set up a residence, whether you plan to relocate full time or establish a backdoor destination as a nice place to vacation. If you select a destination where the economy is on the upswing, chances are even if you never need to move there, you can sell the property later at a profit. In the meantime, purchasing foreign real estate gives you diversification beyond one economy and one currency.

Purchasing foreign property is one of the best wealth-protection strategies there is, but it’s far from your only option. You can buy precious metals and store them abroad… invest in other countries’ currencies… move your IRA to a foreign jurisdiction… or implement any number of other measures that your government would prefer you not know about. If you’re at all interested in learning more about this increasingly important subject, you need to see Internationalizing Your Assets, a new Casey Research Web video that premiered last Tuesday, April 30. This free event features some of the world’s foremost experts on international diversification, including Casey Research chairman Doug Casey, World Money Analyst editor Kevin Brekke, and Euro Pacific Capital CEO Peter Schiff.

Sincerely,

Jeff Thomas
Article originally posted here.

And no government in the world is in a position to stop it.

That’s not to say that governments won’t try. “It’s stomach-churning,” said New York Sen. Charles Schumer of this remarkable innovation. “We’re facing a situation where anyone — a felon, a terrorist — can open a gun factory in their garage, and the weapons they make will be undetectable.”

A big advocate of gun control, his real goal is not to make the world a more peaceful place. He simply wants government to have all the guns and doesn’t want to make it easier for you and me to get them. He wants to retain the present disparity of power between government and the people and senses that something is upsetting the balance.

Therefore, of course, he wants to amend the law to make printed guns impossible. If you haven’t noticed, this seems to be the main thing government does these days. It puts barriers in the way of progress and tries to stop technological advance.

Legislators just can’t reconcile themselves to the new reality that they have less and less power each day as the digital age progresses. It’s the force of innovators and consumers the world over — creating and exchanging to their mutual benefit — compared with the clunky and blunt instrument of the regulatory state.

The driving energy behind the printed gun is Cody Wilson, a 25-year-old law student at the University of Texas at Austin. He is the visionary behind Defense Distributed, a website that releases the plans, provides updates, and accepts donations in Bitcoin. He calls his new weapon “the Liberator” after the inexpensive, single-shot gun manufactured by the U.S. government during World War II. They were dropped all over Europe to scare and demoralize occupying armies.

Mr. Wilson thinks like the entrepreneurs of old. He had an idea and believed it was achievable. He saw every barrier not as something that would stop him, but as something to overcome. His crowdfunding project was removed by the website that first hosted it. His first rented printer was recalled by its owners. The regulatory barriers were huge, but he responded with overcompliance. And of course, the gun-grabbers consider him to be enemy No. 1.

I’ve been intrigued to watch his vision unfold over the last year. He clearly saw that the 3-D printing revolution has profound implications for the future. Among other things, it challenges the whole basis of government regulation of the economy, which is very much tied to controlling manufacturers and the buying-and-selling process itself.

With distributable and localized manufacturing, the core power of the regulatory state is faced with a fundamental challenge. Patents and other forms of “intellectual property” become irrelevant. If a design is constrained by regulatory controls, it is a simple matter of changing the design to produce an uncompromised product.

With or without printed guns, this new technology is going to lead to continuing upheaval in the years ahead. It is already deeply embedded in the manufacturing process. Boeing has installed some 20,000 different printed parts. Pratt & Whitney, GE, and many other companies depend on it for profitability.

As the revolution advances, printing will gradually replace shipping. More people of the world will have access without transportation costs, making prosperity affordable in a way that was previously unimaginable. (For more on the origins and development of this industry, see the wonderful book Makers by Chris Anderson.)

A crucial element in this disruptive technology is the role of open source sharing. This is a completely different approach from what prevailed from the Industrial Revolution until very recently. Usually, it was believed that a company’s profitability was bound with its proprietary control and its trade secrets. But through open source innovation, companies have discovered that they can extract better ideas by drawing on the energy and skills of people all over the world, resulting in a better product and a faster pace of development.

Defense Distributed uses the open source model. It allows the company to get from here to there faster and to distribute its results universally. Open source approaches also instill the manufacturing process with that crucial element of trust. Think of this as a globalized system of peer review in which nothing is hidden. It’s sort of the opposite of how governments do things.

Think of how the pace of change is accelerating compared with the past. The Gilded Age saw astonishing changes: railroads crossed the country, internal combustion became common, homes were lit with electricity, and steel replaced iron as the building metal of choice. But all of this took 25 years to come about. We are now seeing innovations proceed at a pace that makes the Gilded Age look like slow motion. It is affecting every sector of life — now even gun manufacturing and money and banking.

None of this would be possible without two critical institutions: the Internet and entrepreneurial dreams. Put the two together and you have miracles in the making.

How will Mr. Wilson’s gun change the world? Over time, it could fundamentally upset the balance of the relationship between citizens and their governments, not just here, but around the world. It makes 20th-century-style tyranny less likely, or at least gives the people a fighting chance to hold onto their rights and liberties. Public and private predators can be checked.

Freedom is the victor here, and one would suppose that this would be something to celebrate.

Instead, we get carping politicians, annoyed regulators, and legions of peanut-gallery critics who make fun of the gun’s design and functionality. This misses the bigger picture. We are living in the dawn of a new age, and the future is going to be much different from the immediate past. People like Cody Wilson are society’s benefactors.

Sincerely,

Jeffrey Tucker

Given all of this, the idea that individuals act rationally seems far-fetched. Only in the ivory-tower world does one find perfectly rational humans making judgments using all available information to satisfy their ends.

Michael Shermer explains in The Mind of the Market: Compassionate Apes, Competitive Humans, and Other Tales From Evolutionary Economics that behavior that is irrational today may have been perfectly rational a hundred years ago. That’s why, he says, you really need the work of evolutionary psychologists to explain human decision-making.

This book is your introduction to and overview of what this discipline contributes. And it is a substantial contribution that helps you understand why markets behave the ways they do.

To behavioral psychologists, the idea of rational economic beings is laughable. So too the neoclassical construct of equilibrium prices, perfect competition, and perfect information.

As messy as human decision-making is, the spontaneous order that emerges from it leads to an extraordinarily productive economy. Shermer makes the case: “Just as living organisms are designed from the bottom up by natural selection, so too is the economy designed from the bottom up by the ‘invisible hand.’”

Shermer cites a number of experiments that show this:

• Most humans choose to avoid risks, instead of being perfectly rational. Folks will take a 50-50 chance only when the payoff exceeds double the potential loss. Humans are “twice as motivated to avoid the pain of loss as we are to seek the pleasure of gain”
• Groupthink is very powerful, with Solomon Asch’s studies showing that people will decide wrongly 70% of the time when influenced by a crowd. Studies of MRI brain scans confirm a correlation between decision-making and reward. Trust and social interactions are tested using the prisoner’s dilemma, while dopamine neurons are released when rewards are greater than expected
• Dopamine plays a prominent role with investors who take increasing amounts of risk to achieve the kick of gains made through speculation. Drugs and sex also feed the dopamine neurons, and so “do addictive ideas, most notably addictive bad ideas, such as those propagated by cults that lead to mass suicides (in the case of Jonestown and Heaven’s Gate), or those propagated by religions that lead suicide bombers to commit mass murder (in the case of Islamic militant extremists),” Shermer explains.

So are the bulk of humans acting irrationally at least some of the time because we can’t help it — or because our brains are wired that way? Or maybe there is no distinction between rational and otherwise.

Shermer contrasts two approaches to business. On one hand, there is Wall Street character Gordon Gekko and his “greed is good” speech and Enron’s tough, aggressive corporate culture. Good apples turn to bad ones in secretive, corrupt, aggressive corporate environments, according to Shermer, and this ultimately leads to the unraveling of those businesses.

On the other hand, there is Sergey Brin and Larry Page’s Google culture of “Don’t be evil.” This is to make their case that greed cannot sustain life on Earth and that “if market capitalism were winner take all, it would have collapsed centuries ago.”

An unfettered free market would lead to more entrepreneurs operating the Google way. It is government licensing and regulation that lead to the incestuous relationship of Big Business and Big Government — a crony capitalism exemplified by Enron and Wall Street.

In my view, Shermer places too much faith in democracy. He naively believes that science should be used to provide structure for government policies, but that these laws should be minimal.

Nevertheless, Shermer does write from a free-market perspective. He mentions the Austrian School specifically, and often quotes Ludwig von Mises, as well as Hayek and Bastiat. And while he doesn’t believe capitalism needs “apologists and propagandists, it does need a scientific foundation grounded in psychology and evolution.”

Science has proved that humans are capable of good and evil. So as Shermer quotes Mises, “People must fight for something that they want to achieve, not simply reject an evil, however bad it may be.” Shermer calls The Mind of the Market “an exercise in consciousness-raising for freedom.”

But Shermer’s work shows that science is on the side of Mises, who wrote that even a “mentally troubled person with whom there is still left a trace of reason and who has not been literally reduced to the mental level of an animal is still an acting being.”

And these troubled, acting beings are investing in the market every day. This book helps you make sense of what otherwise seems senseless.

Sincerely,
Doug French

• barely keeps up with population;
• features mostly temp workers;
• leaves out prime-age males and all young workers;
• and keeps labor participation rate at a low level from 1979.

This is good news? Hmmm…

But the central bank will save us, right? So say economic journalists. They love metaphors. Actually, professional economists love them too. The latest phrase being tossed around is that world central banks are “stepping on the gas” to get the economy to move.

The European Central Bank dropped rates again after noting that economies are stagnant or shrinking. The Federal Reserve too says it will not let up in its asset-buying program, all in an attempt to make economic growth happen.

Let’s look at the car analogy. I took my car into the shop the other day. It had developed two problems. The gas pedal was sticky. I mashed and mashed the pedal, but the car was unresponsive. At the same time, the brakes weren’t working right. I had to push the brake all the way to the floorboard to stop the car.

Let say the mechanics had said, “The fix is to do more of what you are doing. Just sit there and keep pushing the gas and the brake. Do this as long as necessary to get it going again.”

As a customer, I would have immediately seen that this was stupid advice. The point isn’t to keep doing the same thing, but to look for a deeper solution. One that actually fixes the problem. It turns out that a cable that made the accelerator work was slipping, and the brakes needed more fluid. The mechanics fixed both, and I was on my way.

But with the central bank, it never occurs to them to look under the hood or check the underlying mechanics. They just keep doing the same thing over and over again: lowering rates and buying bad assets with newly created money.

How’s that worked out?

Well, the results are in: five years of continued stagnation. The central bankers are sitting in the car and really want to make it move, but they keep using the tools they have in front of them. It’s almost as if they can’t discern the incredibly obvious fact that they need to get out and look under the hood.

One of the symptoms of the problem is right in front of their eyes. The money they are creating isn’t becoming part of the real economic lives of spenders. Instead, it keeps piling up in bank vaults, fixing the balance sheets of banks, but not achieving the end of bringing about economic growth.

On the one hand, there are the reserve balances of banks carried by the Federal Reserve. They have never been higher. The money to create the appearance of recovery and even create crazy hyperinflation is certainly there:

Banks Suddenly Turned into Hoarders After 2008 and the Introduction of Easy Money

On the other hand, there is the money velocity statistic. This measures the average frequency with which money is being spent. It is a crucial indicator, because consumers and borrowers are the ones who determine velocity. It is an extension of human choice that the Fed with all its power cannot control.

Now look at what’s happened. Velocity was at its highest point during the inflation of the late 1970s, because people couldn’t wait to get rid of their money. But as the inflation rate has fallen over the last 30-plus years, so too has velocity fallen. You can see that it rose slightly during the 2000s bubble, but then crashed again after the beginning of the 2008 recession:

Consumers, Not the Fed, Controls How Fast We Spend Dollars

Again, there is absolutely nothing that the Fed’s stimulative activities can do to change this. Yet in order for the Fed’s policies to actually inspire economic growth, this will have to change. Not that the Fed hasn’t been trying. It has knocked interest rates down to zero in order to discourage saving and punish people for failing to employ cash balances. But it hasn’t done the trick. It is just like the 1930s, when the Fed tried to inflate, but couldn’t manage to get the public to go along with its plan.

For anyone who believes in markets as opposed to central planning, these results are actually encouraging. They show that even the much-vaunted power of central bankers can be severely limited by human choice. If we don’t go along, they are circumscribed in their power. They can buy and buy and print and print, but it changes nothing about how you and I respond. Yet you and I are the keys to making their plans come to fruition.

What mistake have the central bankers made? To beat an already dead analogy, they failed to look under the hood and see that the economic problem cannot be cured through the exercise of the printing power alone.

What was revealed in 2008 is known as a bubble. Bubbles follow predictable courses. They appear and expand due to increases in the money supply. They are exacerbated by policies like “too big to fail” and federally guaranteed institutions like Fannie Mae and Freddie Mac. This money expansion gives rise to irrational exuberance that shows up in various sectors, and this is followed by the realization that such exuberance is unsustainable.

This pattern is not new. Doug French demonstrates this in his wonderful book Early Speculative Bubbles, available now to all members of the Laissez Faire Club.

Tulip mania, the Mississippi bubble, and the South Sea bubble were all due to this same thing. They were blown up by increases in the money supply. They were cured by deleveraging and starting over again.

Here, you can easily see the relationship between recession (in the gray bars) and the expansion and contraction of the rate of increase in the money supply:

How an economy responds to delusional, know-it-all central bankers

The most recent period of recession is particularly interesting. The people who calculate whether we are in a recession or not called its end in 2009. Yet has expansion really been the result? Not really. We had the deepest collapse in economic activity in the postwar period, followed by the slowest sustained rates of economic growth in living memory. Meanwhile, incomes continue to fall, small-business creation is pathetic, and the falling rate of unemployment is due almost entirely to labor-force dropouts.

This is not a pretty picture, yet the central banks just keep doing the same thing over and over. This is not scientific public policy. This is pure witchcraft. And it is dangerous. Moreover, it all traces to one fundamental error. The Fed was unwilling to let the economy hit bottom so that it could enter a sustainable growth path. Its role as savior after the bubble collapse has gone nearly unquestioned. It’s as if the whole world just suddenly decided that dealing with economic pain should be against the law. Ironically, this decision has only prolonged the pain.

Back to the original metaphor. If the time of honesty ever arrives and someone in a position to fix the problem finally lifts up the hood of this stalled engine, there will be an ugly sight to behold. That person will find a bank sector sustained by fake money, a housing sector sustained by a fake market, a savings sector gutted by mandatorily low returns, and a whole new series of new bubbles that will prove themselves unsustainable.

The managers of the central banks can look at these charts same as you or I. They just choose to ignore the obvious lessons they impart.

It kind of makes you long for the days of Tulip mania. The episode in Holland was nuts, but at least no one tried to repair the damage by doing more of what caused it in the first place.

Sincerely,
Jeffrey Tucker

I think of them as cottage industrials. A cottage industry brings up images of small-scale, local industry. It’s a good metaphor for what I have in mind.

Author William Thorndike sets the scene:

“In American business, there is a deeply ingrained urge to get bigger. Larger companies get more attention in the press; the executives of those companies tend to earn higher salaries and are more likely to be asked to join prestigious boards and clubs. As a result, it is very rare to see a company proactively shrink itself… [Yet] growth, it turns out, often doesn’t correlate with maximizing shareholder value.”

It used to be economies of scale meant you had to get bigger. But there are also diseconomies of scale. Companies can get too big. They can get inflexible. They can saddle themselves with such enormous expenses to support that they no longer can compete effectively in smaller spaces. Yet the returns in those smaller spaces are richer than in the open plains.

Jim Gober, the CEO of Infinity Property & Casualty, told me something fascinating about his business. (Infinity is a small auto insurer.) He said that even with all the advertising dollars spent by the big companies in recent years, consumers are no more likely to switch insurers. As a result, the small guy could compete on price by not spending the money on national advertising. By not having to maintain a national “brand,” he kept his costs lower.

So Infinity has been able to compete successfully with companies 50 times as large in small markets. In fact, Infinity has outperformed them in almost every way for the whole 10 years of its existence as a public company — including the one that really counts: returns to shareholders. The big companies don’t have what it takes to compete with Gober on his own turf. They can’t.

Size, then, can actually be an impediment to good shareholder returns.

Think about what keeps the giants humming. Fat-cat salaries for the brass. Lavish bonuses and stock option plans. Corporate suites with wood furniture and art on the walls. Headquarters in office towers that employ thousands of people. (Doing what? I always wonder as I walk past them in Manhattan.) Glossy annual reports that say nothing. And to top it off, they produce mostly lousy products that people hate. (Does anybody love Microsoft’s products? Try LibreOffice. It does everything Microsoft Office does — for free. It is hard not to love free.)

Where is the shareholder in all this?

Nowhere… The big blue chips are mostly faceless, bureaucratic monstrosities. Like all bureaucracies, they exist to pile food on their own plates. Shareholders are people to keep quiet and out of the way.

A better model is the cottage industrial.

But what is a cottage industrial exactly? The table below stacks up, in general terms, what I think of as “cottage industrial” set against the giant offspring of state corporatism:

Here is another example of a cottage industrial: Contango Oil & Gas.

Ken Peak is the founder and was the CEO and largest shareholder until recently. He was an owner, not an agent. Even at Contango’s height, it was a fraction of the size of large natural gas producers like Chesapeake. But Contango focused on creating value per share. It had eight employees and just 11 wells. Its biggest expense was taxes.

Contango was always among the lowest-cost producers of natural gas in North America. As an investment, investors are up over 2,000% since inception in 1999 — trouncing the Dow’s paltry 26% over the same period. (That’s the Dow Jones industrial average, made up of the giants of American business.) Contango’s investors have been up as much as 4,000% before natural gas prices collapsed.

Contango, as with Infinity above, is a model of the kind of business I’m talking about owning.

All is to say there is an alternative to having to shack up with the swollen GEs and AT&Ts of the world. Your returns will be greater, and instead of backing overpaid CEOs, expense accounts, overhead and bureaucracies… you’ll own shops where people are intrinsically motivated to do well because they own a piece of their work. You’ll own something you can grasp on a human scale.

Our entire portfolio is made up of companies I consider cottage industrials. They are small players in their industries. They focus on local niche markets. They are lean. And they are run by owners — not hired agents.

But there is more to this story…

***The Cottage Industrial Revolution

The above is a simple enough idea. In some ways, the above has always been true. What makes it timely for today?

I have to backtrack a bit and tell you about the darker side to gigantism in Corporate America. It is the history no one talks about. The history that tells you how much the state and big business are partners in crime.

For example, one of the biggest misconceptions about FDR’s New Deal is that it was somehow revolutionary and anti-business. Actually, it was the culmination of a trend that began much earlier. And business welcomed it.

The great Murray Rothbard summed up government intervention this way:

“The intervention by the federal government was designed, not to curb big business monopoly for the sake of the public weal, but to create monopolies that big business… had not been able to establish amidst the competitive gales of the free market.”

He cites the work of Gabriel Kolko, who showed how the vast structure of regulations we take for granted was conceived by — and championed by — big businessmen.

If you apply this kind of thinking to today’s giants, it is not hard to see how government policy enabled them to achieve their great girth:

• What is Boeing if not for the military-industrial complex and the huge sums of tax money dumped into building civil aviation?
• What is JP Morgan without the helping hand of the Federal Reserve Bank?
• What is Wal-Mart without the U.S. taxpayer laying out the enormous capital required to build out the nation’s interstate highways and railroads to carry its cheap junk? Without zoning laws and licensing fees that stifle competition from the small shopkeeper?
• What is Microsoft or Pfizer without the state-granted privilege afforded by copyright and patents?

To answer my own questions: At a minimum, these firms are much smaller without the taxpayer subsidy. State privilege was a crutch that made them the giants they are today.

Today, the state weakens as its finances soften. The state can’t keep up with the roads. Intellectual property is harder to defend in an Internet age. New technologies enable all kinds of small-scale producers to compete effectively with giants.

At the very least, this thesis means lower returns for the old giants. The behemoths that prospered in the old world are ill fitted for the new world that awaits them. In impact, this new world could well be akin to another industrial revolution. Hence, the cottage industrial revolution.

I haven’t fleshed all of this out fully, but I’d be interested to hear your thoughts. Am I crazy? Or do you too see how small, or locally based, owner-managed businesses are turning the tables on the giants — like Infinity?

I admit to a bias.

When I travel, I aim to stay at locally owned hotels. When I seek out good restaurants, I go for the local haunts, not the chains. I prefer locally grown produce over gas-ripened tomatoes shipped from 1,000 miles away. (We have a milkman, for crying out loud!) Local is often better, in more ways than one. But mine is also a personal revolt against sameness and mass-produced crap. This carries over to my investing style, too, as I much prefer a smaller company that I can get my hands around to trying to figure out, say, GE.

Sincerely,
Chris Mayer

In the 19th century, the French economist Frederic Bastiat explained that in order to understand the consequences of a policy, you must consider both “what is seen and what is unseen.” This was also the “one lesson” taught by Bastiat’s intellectual descendant, Henry Hazlitt, in his famous book Economics in One Lesson. Hazlitt identified the “persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be, not only on that special group, but on all groups. It is the fallacy of overlooking secondary consequences.”

The famous case of neglecting the unseen, of course, is the broken shop window. Observers are likely to notice that a glassmaker will have new income to spend. They miss that had the glass not been broken, the owner of the window could have spent his money to better his situation, rather than merely restore it. That’s the unseen.

If you think this is a seldom-committed fallacy, just read the newspaper after the next hurricane or earthquake. $5 will get you $10 that someone will herald the silver lining: reconstruction projects.

If we look at only obvious, primary consequences, we will badly misjudge circumstances, and any resulting policy will be bad. That is one problem with gun control.

Unseen Gun Sales

Advocates of gun bans react to a shooting by saying that if the assailant had not had access to firearms, that shooting could not have occurred. Of course, that is true: The shooting required a gun. But this proves much less than the controllers think. It doesn’t mean that had the killer not been able to get a gun legally, he couldn’t have gotten one at all. Fans of the Brady law, which requires a waiting period [Ed. Note: this provision was dropped in late 1998] and background check for gun buyers, rejoice that tens of thousands of people have had gun applications turned down. (Most were not violent criminals.) But that’s not the end of the story. Will a thug who is turned away from a gun shop give up so easily? Or is he apt to go into the black market to buy a firearm? Worse, might he not break into a gun shop or someone’s home to steal a gun?

Gun control runs aground on this simple fact: People who would use guns to break laws would also break laws to use guns.

The controllers see the turndown at the gun counter. They don’t see, and therefore they don’t take account of, the alternative methods of acquiring firearms.

Unseen Victims

The failure to look for the unseen does not stop there. After each mass shooting, we hear recited the statistics on how many people are murdered by gunshot each year. The implication is that without guns, the total murder rate would be reduced by that number. We are also reminded of how many accidental shootings occur (the firearms accident rate, however, has been falling) and are led to believe that if legal gun possession were severely restricted, fewer people would die each year from gunshots. Not true.

To be sure, some people who were killed might be alive today. But some who were not killed might have been. How so? It might come as a surprise, because it gets no publicity, but people use guns defensively (often without firing them) 2.5 million times each year. As John Lott of the University of Chicago Law School points out, this number includes incidents in which mass shootings are prevented or curtailed and in which mothers thwart carjackings when their children are in the cars.

Writes Lott in the July/August 1998 issue of The American Enterprise: “On the surface, [school shootings] seem to present a strong argument for restricting private gun ownership. But the truth is guns wielded by private citizens have saved lives in such incidents, including some of the recent ones.” He reminds us that the shooting spree at a Pearl, Miss., school might have taken more victims had an assistant principal not retrieved a gun from his car and used it to hold the student assailant until the police appeared. A similar thing happened to end a student shooting incident at Edinboro, Pa.

The deaths that do not occur because lawful people have guns cannot be seen and therefore are not entered in the plus column of the ledger. If guns are banned, lawful people, not criminals, will be denied a key method of using force — in defense of self and others. Thus, more may die at the hands of criminals than do today.

We can demonstrate this negatively with a real incident. Some years ago, George Hennard Jr. walked into Luby’s Cafeteria in Killeen, Texas, and opened fire, killing 23 patrons and wounding 27 others. Suzanna Gratia Hupp was having lunch there with her parents and saw them murdered. It so happens that this woman usually carried a handgun in her purse (which, at the time, was illegal to do). But on this day, fearing revocation of a recently received occupational license, she left the gun in her car when she and her parents went into the cafeteria. She is convinced that if she had taken the gun with her, she would have stopped the shooter. Her parents and others might have been spared. They can be counted among the victims of gun control.

There is still another kind of “unseen” in the issue of gun control. A majority of states have now legalized the concealed carry of handguns for citizens who satisfy a few objective criteria. Formerly, local authorities had wide discretion in granting such permits. Where concealed carry is allowed, it is the criminals who are plagued by the unseen. They can’t know who has a gun and who doesn’t. This creates a free-rider problem — for the thugs. People who choose not to carry firearms nevertheless benefit from the fact that others may and do carry them. Criminals don’t typically like to attack dangerous targets. Since criminals can’t know in advance who’s carrying and who isn’t carrying a gun, they have to assume anyone might be — if not the potential victim, then someone nearby. That’s how to create safety on the streets.

A world without any guns would not be safer than one in which lawful people were free to own them. Without guns, bigger, stronger thugs would have an advantage over smaller, weaker victims. Women, especially, would suffer. In that world, the unseen would be the victims of fatal beatings and stabbings who would have remained alive had they possessed firearms with which to defend themselves.

Sincerely,

Sheldon Richman
Article originally published by the Foundation for Economic Education.