Wednesday, March 27, 2013

No Free Lunch

In the 1960s, Milton Friedman famously explained that "there's no such thing as a free lunch." If the government spends a dollar, that dollar has to come from producers and workers in the private economy. There is no magical "multiplier effect" by taking from productive Peter and giving to unproductive Paul. As obvious as that insight seems, it keeps being put to the test.

You can do that voluntarily by sending a check to the US Treasury and that would be fine and acceptable because it's your choice (freedom) alone. Unfortunately, that's not how the system of taxation operates. Everyone is forced to pay taxes or face fines, penalties, or jail time. There is no liberty in being coerced to pay taxes. 

Tax payers have no clue where the money we pay goes. Most of the money collected in taxes goes to pay the interest on the national debt. 40 cents of dollar the government spends is financed just adding to the national debt. 

There are two types of taxes: what you pay by threat of law and what is stolen from you in the form of inflation. Most of us are aware of direct taxation but clueless about the other silent tax. Government programs are financed by a broke govt borrowing endless paper money backed by tax slaves and in the end it just makes everybody just a bit more poorer although they just don't realize why.

Eventually, the world will wake up and the way it's turning out, I'm pretty sure the rest of the world will see first what Americans are too distracted to see.  Governments around the world are broke and they are coming after the money you and I have saved.  Cyprus is the latest example and those that say it can't happen here are in denial.  It's been happening here since 1913.  The government here, in partnership with the Federal Reserve, just aren't as obvious about it.  

Learn the difference between a hard default and a soft default.  By all appearances we are headed towards the latter which is why the public is so unaware.  On the surface, things seem fine but still waters run deep.