Economics
A Step Backward for Economic Freedom
“Where the Spirit of the Lord is there is liberty“
Last night I spoke to a large gathering of young people in Hong Kong–a new generation with a longing for freedom. Half of the audience was from mainland China.
This Asian generation understands the need for liberty and is ready to pursue it in the nations of the world. They also understand that freedom comes through Christ (2 Corinthians 3:17) and his principles being taught and lived out in government, education, economics and culture.
The Heritage Foundation puts out an excellent annual report on the state of freedom in the world. Where I am in Asia, freedom is rising. Back home in the North America and Europe, liberty is eroding and corruption is increasing through the tyrannical ascendancy of big government.
Ed Feulner’s article below paints the picture well. May we wake up and see a rebirth of freedom. RB
A Step Backward for Economic Freedom
Ed Feulner – Heritage Foundation
The world economy is in trouble, and governments are making things worse. Here’s the story, right out of the pages of the 2012 Index of Economic Freedom, published Thursday by the Heritage Foundation and The Wall Street Journal:
“Rapid expansion of government, more than any market factor, appears to be responsible for flagging economic dynamism. Government spending has not only failed to arrest the economic crisis, but also—in many countries—seems to be prolonging it. The big-government approach has led to bloated public debt, turning an economic slowdown into a fiscal crisis with economic stagnation fueling long-term unemployment.”
The new index documents a world in which economic freedom is contracting, hammered by excessive government regulations and stimulus spending that seems only to line the pockets of the politically well-connected. Government spending rose on average to 35.2% of gross domestic product (GDP) from 33.5% last year as measured by the 2012 index.
Most of the decline in economic freedom was in countries in North America and Europe. Canada, the United States and Mexico all lost ground in the index, and 31 of the 43 countries in Europe suffered contractions. They ought to know better. These are the very countries that have led the world-wide revolution in political and economic freedom since the end of World War II. But now, weighed down by huge welfare programs and social spending that is out of control, many governments are expanding their reach in ways more reminiscent of the 1930s than the 1980s.
How about the U.S., historically the country more responsible than any other for leading the march of freedom? Under President Barack Obama, it has moved to the back of the band. Its economic freedom score has dropped to 76.3 in 2012 from 81.2 in 2007 (on a scale of 0-100). Government expenditures have grown to a level equivalent to over 40% of GDP, and total public debt exceeds the size of the economy.
The expansion of government has brought with it another critical challenge to economic freedom: corruption. The U.S. score on the index’s Freedom from Corruption indicator has dropped to 71.0 in 2012 from 76.0 in 2007. That’s not surprising, given the administration’s excessive regulatory zeal. Each new edict means a new government bureaucracy that individuals and businesses must navigate. Each new law opens the door for political graft and cronyism.
There are some bright spots. Economic freedom has continued to increase in Asia and Africa. In fact, four Asia-Pacific economies—Hong Kong, Singapore, Australia and New Zealand—top the Index of Economic Freedom this year. Taiwan showed impressive gains, moving into the index’s top 20. Eleven of the 46 economies in sub-Saharan Africa gained at least a full point on the index’s economic freedom scale, and Mauritius jumped into the top 10 with the highest ranking—8th place—ever achieved by an
The 2012 index results confirm again the vital linkage between advancing economic freedom and eradicating poverty. Countries that rank “mostly unfree” or “repressed” in the index have levels of poverty intensity, as measured by the United Nations’ new Multidimensional Poverty Index, that are three times higher than those of countries with more economic freedom.
Countries with higher levels of economic freedom have much higher levels of per capita GDP on average. In Asia, for example, the five freest economies have per capita incomes 12 times higher than in the five least free economies. Economic growth rates are higher, too, in countries where economic freedom is advancing. The average growth rate for the most-improved countries in the index over the last decade was 3.7%, more than a point-and-a-half higher than in countries where economic freedom showed little or no gain.
Positive measures of human development in areas such as health and education are highly correlated with high levels of economic freedom, and economically free countries do a much better job of protecting the environment than their more regulated competitors. When you actually look at the performance data, it turns out that the “progressive” outcomes so highly touted by those favoring big government programs to address every societal ill are actually achieved more efficiently and dependably by the marketplace and the invisible hand of free economies.
Unfortunately, most of the world’s people still live in countries where economic freedom is heavily constrained by government control and bureaucracy. India and China, with about one-third of the world’s population, have economic freedom scores barely above 50 (a perfect score would be 100). In a globalized world, both countries are benefiting from the trade and investment liberalization that has taken place elsewhere. But sustained long-term growth will depend on advances in economic freedom within each of these giants so that broad-based market systems may develop.
The Index of Economic Freedom has recorded a step back over the last year for the world as a whole. It was only a small step, with average scores declining less than a point, but the consequences have been severe: slower growth, fiscal and debt crises, and high unemployment. The biggest losers have been the economies in North America and Europe, regions that have led the world in economic freedom over the years.
The 2012 results show the torch of leadership in advancing freedom passing to other regions. Whether this is a long-term trend remains to be seen, but it is clear that if America and Europe do not soon regain trust in the principles of economic freedom on which their historical successes have been built, their people, and perhaps those of the world as a whole, are in for dark days ahead.
(Please also check out a good prescription for change at Solutions for America.)
Fiscal Insanity and the National Day of Prayer
I’m in Washington, D.C. for the National Day of Prayer. There are many important gatherings this week both here and all around the nation.
The main prayer event will be a large gathering in the Cannon House Office building from 9-12noon on Thursday. Many leaders of government will be there. That same evening a cross-section of the “Church of the City” will gather on the west steps of the Capitol. The crowd will represent a broad rainbow expression of the Body Christ from many diverse ethnic backgrounds.
I’m been coming to America’s National Day of Prayer since it began in 1988. This year our youngest son, Jason, is along with me for a graduation trip. Shirley and I just completed twenty-five years of home schooling. What does America’s future hold for Jason and coming generations?
I’m fearful that woefully inept financial policies that our nation is currently engaged in–and their devastating consequences–will overwhelm our son’s generation (and ours) if we don’t get our house in order.
We live in a time of “fiscal insanity” that many of our current leaders seem oblivious to, that could lead the United States over an economic cliff. The danger signs include:
- Sixteen trillion dollars of staggering federal debt.
- One trillion more in national debt added each year, with no end in sight.
- The liberal U.S. Senate has not produced a budget for over three years.
- The college-educated of our nation owe over one trillion dollars in student loans.
- 46% of Americans spend more money than they take in each month–with 600 million active credit cards in use (or misuse) in the United States.
Fiscal insanity–including debt–is a symptom of wrong priorities (wanting more than one can afford), an immoral spirit (thinking immediate actions won’t have long term consequences), and a lack of trust in God (to guide and provide for our needs).
We need to pray for God’s perspective, change our ways both individually and nationally, and elect some leaders who will have the guts to do what’s right in the coming years.
I encourage you to start with yourself. Are you content with what you have? Do you live within your means on a monthly or annual basis? Is your debt-level prudent, and do you have a plan to be debt-free in the coming years? Are you using you time, talents and money wisely to glorify God in your life?
Check out this web-site for a sobering look at the personal debt crisis in this nation. Each of us must start with ourselves, admit our mistakes, ask God’s forgiveness and change our ways. Then we must get up off our knees and help bring our nation back to common sense and self control.
Next, I direct your attention to the Heritage Foundation who give us a helpful visual glimpse of the fiscal insanity the nation faces. Click on this link to view eight eye-popping charts that really tell the story of the danger we’re in.
Heritage and Daily Events also give great insights on the foolishness of the political theater that is currently taking place. Here are some excerpts:
Heritage Foundation
“‘Fairness,'” an elusive idea normally exploited by spoiled children, is now the foundation of the Democratic Party’s economy policy. If implemented, anyone earning $1 million a year or more would be required to pay at least 30 percent of his income in taxes. That would help reduce the deficit by raising $31 billion over 11 years according to congressional tax analysts — 2.8 billion a year, or less than a day’s worth of new debt incurred by Washington.”
“And the wealthy did not create our debt; government did. Government — this administration in particular but all of them in general — is, by nature, risk-averse and never deals with the consequences of its failed ‘investments.’ It is the un-entrepreneur. Really, should the head of an organization that annually spends $1.6 trillion it doesn’t have be setting the parameters for a discussion on ‘fairness’?”
Daily Events
“President Obama…[is] laying out his case for the Buffett Rule, a plan to drastically raise taxes on successful Americans and small businesses. The core of his argument is that the rich aren’t paying their fair share. It makes for great populist rhetoric, especially when families are hurting and angry under today’s high unemployment, but the result is terrible policy. Worse, it’s a distraction from the big issues facing the nation, like the deficit, the economy, jobs, gas prices, health care, and on and on, none of which are addressed by the President’s proposals, and none of which he wants to talk about.”
“Will the President’s tax hike at least tackle the country’s fiscal problems? No, it won’t.
According to a recent analysis by the congressional Joint Committee on Taxation, the Buffett Rule would raise a mere $47 billion over ten years. Meanwhile, President Obama’s budget calls for adding $6.7 trillion to the national debt. That means that the Buffett Rule will only cover one half of one percent of the President’s new spending. Soaking the rich cannot get deficits down, only spending reductions can do that.”
“When it comes to the biggest problem America is facing — a weak economy and high unemployment — the Buffett Rule would weaken the economy and make matters worse. Heritage’s J.D. Foster and Curtis Dubay write that the tax would fall most heavily on job creators (who pay taxes at the individual rate) and confiscate their resources that would otherwise be used to start new businesses, grow existing businesses, and hire more workers. As a result, economic growth will slow down right along with job creation.”
“The President says, ‘This is not about a few people doing well. We want people to do well, that’s great. But this is about giving everybody the chance to do well.’ Really? Raising taxes on the rich, weakening the economy, somehow gives everybody the chance to do well? Raising taxes on anybody somehow gives everybody the chance to do well? This is absurd even by the low standards of American political rhetoric.”
“Here’s what you really need to know about Obama’s plan. Under the Buffett Rule, businesses and families earning $1 million will pay a minimum 30 percent effective tax rate. The President says those Americans aren’t paying enough, and as proof he points to billionaire Warren Buffett’s secretary who reportedly pays a higher tax rate than her uber-wealthy boss. But right from the get go, the President is distorting the facts.”
“How can President Obama get away with saying that Warren Buffett pays lower tax rates than his secretary? Many wealthy Americans who have done well like Buffett receive dividends and capital gains — a form of investment income that is subject to multiple levels of tax. First, the investment income results from investment. This capital didn’t appear out of thin air. It was earned and taxed previously, often many times over at rates up to 35 percent.”
“Then, once invested, it generates income that is taxed at the corporate level at a 35 percent rate, and then it’s taxed again at the individual level at a 15 percent rate on dividends and capital gains. The combined rate on corporate earnings alone is over 45 percent, and this is all after the first layer of tax.”
“One way to think about this is to imagine you’re driving down a toll road, and you pay three separate tolls. The first toll of $3.50 is when you get on the highway. Then after a few miles you pay another $3.50 toll, and when you exit there’s a final toll of $1.50. A reporter asks you as you leave the last tollbooth how much toll you paid. What’s the most accurate answer — what you paid at the last tollbooth or what you paid altogether? Obviously, feeling some $8.50 lighter in the wallet, the correct answer is to respond with the total.”
“Conveniently for him, President Obama only talks about the last level of tax, the 15 percent portion, leaving out the rest. He only wants to talk about the last toll paid, not the total, and that’s how he makes his disingenuous argument. And all of this leaves out the final tax that many wealthy Americans pay — the death tax, which is set to return to its 55 percent level in 2013.”
“Then there’s the inconvenient fact that if you look at only the last level of tax, the data show clearly the highest-earning families and businesses in America are already shouldering the vast majority of the country’s tax burden. Heritage’s Curtis Dubay writes that the top 1 percent of income earners — those earning more than $380,000 in 2008 — paid more than 38 percent of all federal income taxes while earning 20 percent of all income. Meanwhile, those in the top 10 percent ($114,000 and above) earned 45 percent of income and paid 70 percent of all taxes. By comparison, the bottom 50 percent of income earners — those earning less than $33,000 — earned 13 percent of all income and paid less than 3 percent of federal income taxes.”
And once again from Heritage:
“Like clockwork, the President has returned to his favorite policy solution: raising taxes. When gas prices went up, he called for higher taxes on oil companies. When he wanted to try to create jobs, he called for higher taxes to pay for stimulus spending. When health care needed a fix, he called for higher taxes to fund Obamacare.”
“If President Obama truly wanted to be fair, he would pursue tax reform like The Heritage Foundation’s “New Flat Tax,” included in its Saving the American Dream plan. It’s simple, coherent, and comprehensive, encourages saving and investment, offers relief for seniors, and helps low and middle income families purchase health care and pay for higher education.”
“Leading with effective policy solutions, though, isn’t the name of the President’s game. Rather, his goal is to concoct a distraction from his failed leadership. Under his watch, the U.S. Senate has failed to pass a budget for the last 1,078 days, the House unanimously rejected Obama’s latest budget, and meanwhile the national debt is closing in on $16 trillion.”
“Medicare, Medicaid and Social Security are careening toward implosion, gas prices have doubled, the economy is underperforming, 12.7 million Americans remain out of work, and the President’s signature legislation — Obamacare — has never been more unpopular. Instead of offering solutions, the President is offering class warfare..”
The myopia of our leaders toward our nation’s fiscal insanity is stunning. But in other ways, it’s not. We, the American people are also blindingly addicted to getting “something for nothing” and living beyond our personal means as well.
This National Day of Prayer may we wake up as individuals and as a nation, humble ourselves, and pray for God’s forgiveness. Then, let’s have the backbone and faith to reject this pathway of fiscal insanity, and restore God’s blessing to our individual families and nation.
The Real Reason Gas Prices Are Going Higher
Recently Bill O’Reilly and Lou Dobbs ignited a national debate about rising gasoline prices. Dobbs stunned Fox’s “humble correspondent” by stating on the “O’Reilly Factor” that the main reason for expensive gas in the U.S. is excess “supply” being sold to China and India. That made O’Reilly upset and he spent much of the week blaming the “greedy” oil companies for our woes.
Remember this is Fox News–not the mainstream media. Usually liberals blame the oil companies. However, oil prices are an area where Bill O’Reilly leans left–he really believes the oil executives are “hosing the folks.” He’s believed it for years. He may be partly right.
But I don’t think it’s the best answer.
So why are gas prices are so high, and what can we do about it?
First of all, let’s bring the current administration into the equation. When Barack Obama took office in January of 2009, the average price of gas was $1.85 (seems like an eternity ago). Today prices are closer to $3.85 (depending on your region and state taxes)–a 120 percent increase.
In his Saturday, February 25 radio broadcast, the president said there was no easy answer to the problem and blamed Republican complaints as gimmicks: “We know there’s no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight,” he said.
The president suggested that the Republicans have only one answer: drill. But earlier in the week he scoffed at that suggestion: “You know that’s not a plan, especially since we’re already drilling. It’s a bumper sticker.” One journalist wryly commented, “Speaking of bumper stickers, remember ‘Yes We Can!’ Mr. President?
Indeed we do.
After filling up the car this weekend–$45 for three-quarters of a tank–I’ve done some research on rising gas prices. Here’s what I’ve found, with a special eye to the bigger picture.
SHORT TERM PROBLEMS
First, let’s look at our immediate predicament. In February 2012, we have record price levels and a threat of four of five dollars a gallon costs hitting us during the summer months.
Why? Here are what most experts say:
1. Gas prices tend to rise every spring in anticipation of increased demand during the summer driving vacation season. As a result, gas prices hit $3.50 a gallon by February 15, two weeks earlier than in 2011.
2. Global demand is raising the price of crude oil— It stands at $109 a barrel. This accounts for 55% of the price of gasoline. Distribution and taxes influence the remaining 45%. Usually, the latter items don’t change much, so that the daily change in gas prices primarily reflects oil price fluctuations. Right now there is growing demand in the developing countries of Asia (India and China) and the former Soviet Union. Their populations are rising out of poverty, and buying cars and heating oil in record amounts.
3. Commodity trading fear – Oil prices are set by commodities traders who buy and sell futures contracts on the commodities exchanges. These are agreements to buy or sell oil at a specific date in the future at a specific price. Commodities traders can create a self-fulfilling prophecy by bidding up oil futures prices. Once this starts, it can create an asset bubble. In April 2011, fears about unrest in Libya and Egypt sent oil prices up to $113 a barrel. In May 2011, as oil prices dropped, gas prices stayed high. Why? Commodities traders were concerned about refinery closures due to the Mississippi River floods. In February 2012, concerns about a potential military action, by either Israel or even the U.S., against Iran caused high oil prices.
4. Lower US consumption – Oil consumption in the United States is down 15% this year (we’re driving less and experiencing a warm winter). Usually this is a good problem that lowers prices, but this year it was so severe that it led to problem number five.
5. Refinery shutdowns and shake-up – This is probably the most unusual and significant short-term reason for higher prices. On February 23, Bloomberg reported that the U.S. had lost 5 percent of its oil refining capacity in the last 3 months. Over the past year, refineries have faced a squeeze. Prices for Brent crude have gone up, but demand for gasoline in the U.S. is at a 15-year low.
That means refineries haven’t been able to pass on the higher prices to their customers. As a result, companies have chosen to shut down some refineries rather than continue to lose money. This month, two large refineries outside Philadelphia shut down: Sunoco’s plant in Marcus Hook, Pa., and a Conoco Phillips plant in nearby Trainer, Pa. Together they accounted for about 20 percent of all gasoline produced in the Northeast.
Bloomberg gives further insight into the refinery problem:
“The U.S. refining industry is being split in two. On one hand are the older refineries, mostly on the East and Gulf Coasts, that are set up to handle only the higher quality Brent “sweet” crude—the stuff that comes from the Middle East and the North Sea. Brent is easier to refine, though it’s gotten considerably more expensive recently. (Certainly another reason for higher gas prices.)”
“Then there are the plants able to refine the heavier, dirtier West Texas Intermediate (WTI)—the stuff that comes from Canadian tar sands, the deep water of the Gulf of Mexico, and the newer outposts in North Dakota, which just passed Ecuador in oil production. These refineries tend to be clustered in the Midwest—places such as Oklahoma, Kansas, and outside Chicago. While the price of Brent crude has closed at over $120 a barrel in recent days, WTI is trading at closer to $106. That simple differential is the reason older refineries that can handle only Brent are hemorrhaging cash and shutting down, while refineries that can handle WTI are flourishing.”
“’The U.S. refining industry is undergoing a huge, regional transformation,’” says Ben Brockwell, a director at Oil Price Information Services. ‘If you look at refinery utilization rates in the Midwest and Great Lakes areas, they’re running at close to 95 percent capacity, and on the East Coast it’s more like 60 percent,’ he says. This is primarily why the cheapest gas prices in the country are found in such states as Colorado, Utah, Montana, and New Mexico, while New York, Connecticut, and Washington, D.C., have some of the highest prices.”
These five seem to be the current culprits. Steve Maley (Tulsa World) writes a good article on ten ways to deal with these problems in the short term. You can read it here.
But there is a much bigger problem we desperately need to solve.
THE BIG PICTURE
First let’s talk about the the destructive power of inflation. In fact, price inflation is such a “normal” and insidious thing that we barely notice it. We’re used to things going up in price. We’ve been told by the powers that be that rising prices are standard fare.
They weren’t normal in America for our first one hundred and fifty years. For a majority of our nation’s history, our currency remained as “sound as a dollar” and prices changed little from decade to decade. Then in 1914 we created the Federal Reserve and on January 5, 1933 we went off the gold standard. For the past eighty years, we have been systematically devaluing our currency.
The greatest decline of the dollar has happened recently. In the past six years, the dollar has decreased in value by 40%. When you hear wind of QE2 (quantitative easing) and other methods that the Federal Reserve uses to manipulate our currency, don’t rush to applaud them.
We are flooding the world with fiat dollars to stave off default and pay for our massive government debt. Remember when a $20 bill seemed like a decent chunk of money? Remember when coins or change were valuable? We hardly keep them or use them anymore.
The inflationary spending of the Fed is practically criminal–and one reason why some Republicans are voting for Ron Paul. He’s one of the few politicians willing to be honest about it.
Think of monetary inflation as a game of Monopoly. When you “empty the bank” to all the players, you have more money to spend on “Park Place” or anything else–so prices go up. Why? Increased cash in everyone’s wallet “bids” up the value of everything–which devalues the currency. In my brief driving career (1969-2012), monetary inflation has increased gas prices from 25 cents to almost four bucks. That’s a 1600% increase.
We live in a scary time for inflation in America. Food price are up 30%, gasoline 120% in three years, and run-away inflation could be in front of us. But there is a primary reason for inflation. It comes down to a nation’s faith and morals.
America used to be a nation of faith–of forward-thinking, God-believing people. Our faith produced morals, i.e. hard work, financial prudence, self-control, and a greater concern for “posterity” than for ourselves.
Then the Baby Boom and subsequent generations came along. We rejected God’s authority and cast off all restraints on morality–including financial prudence and debt. We became a “consumer” society where meeting my needs was more important that saving for our children. We used credit cards and risky mortgages to fund our immoral (non-right) attitude of living beyond our means. And we elected officials who did the same thing on a federal level.
Faith, morality and freedom produce hope. Unbelief, immorality, and bondage to debt create “uncertainty.” The biggest problem contributing to rising gas prices is uncertainty, i.e. unbelief.
The American people need to turn back to God, restore faith, stop their reckless spending and demand that their leaders do the same. Then, we must elect leaders who have the guts to reign in the Fed, stabilize the dollar, shrink the size of government, pay down the debt, get off the backs of business, protect the environment, and drill bay drill!–for the sake of future generations.
Prudent faith and actions can bring real long term hope–including cheaper gas..