President Obama once again demonstrated his utter lack of understanding of the basic principles of economics during a meeting with his economic advisors on Monday. He chooses to blindly follow the misguided and discredited theories of Lord Keynes, among others, given him by his advisors. It is also most unfortunate for this country that the entire cadre of the presidents economic advisory team seem incapable of objectively analyzing the Keynesian model that they are so attached to, for if they could only extricate themselves from this “third way” paradigm and experience a few moments of economic lucidity, it is highly possible that even they could begin to fully understand just how utterly disastrous Keynesianism has been for the global economy in general, and our economy in particular. Unfortunately, they ignore the continued warning signs that keep popping up and continue to dig the United States ever deeper into this economic black hole that threatens to suck the very life out of what remains of our economy, and will ultimately take what remains of our liberty with it.

Let me be clear: what we are presently witnessing in the ongoing economic crisis is the natural laws of economics giving their referendum on Keynes. The current national unemployment figure of 10.2% simply underscores the point. In short, Keynesian theory suggested what has been called a “third way,” not fully capitalism and not fully socialism. It sought a system where the government, both through the power of the central bank and intervention through regulation, legislation and manipulation would be able to bring about a condition of perpetual prosperity, an end to recessions and economic cycles of boom and bust, and end to the bubble economy. The problem with the theory is that the very controls and manipulations demanded by Keynesians to “grow” and “sustain” the economy are the very things responsible for the creation of the economic bubbles and the business cycle, precisely because these things violate the natural laws of economics. Mises, Rothbard, Hayek and others have proven this time and again. The natural laws of economics correlate with human thought and action, and these things are wholly incompatible with bureaucratized central planning boards and central banks fixing prices, wages and interests rates at values much different than those the free market would deem proper. Attempting to isolate these things from the reality of the marketplace in essence creates the bubbles that are bound to burst at some point because they are at odds with the market, with the decisions and choices producers and consumers make on a daily basis.

Keynesian theory has been the driving force behind the economic policies of the industrialized world since the early twentieth century. Keynes’ model economy was viewed as having evolved beyond capitalism, thus noted above as being a hybrid between capitalism and socialism. It advocates corporatism. It is therefore by its own admission decidedly not capitalism. Those who prefer to cast the blame for the current economic mess on unrestrained capitalism are flat out wrong and woefully uninformed, because there has been no unrestrained capitalism in the United States – ever. Sure, we came fairly close up until 1913; however, once the Federal Reserve Act and Income Tax Acts were passed and the Constitution amended through the ratification of the 16th Amendment, all hopes for true capitalism were indeed dashed.

Mr. Obama and his advisors like to remind us how they inherited this economic crisis from the previous administration. There is nothing untrue in that statement. However, for anyone, especially a well trained and educated economist, to lay the whole blame for this mess at the feet of the Bush Administration without taking into account the overwhelming number of far more important factors that are truly the root cause, is disingenuous, dishonest, and grossly insulting to those of us who have studied anything other than Keynes, as well as an affront to the common sense of anyone who takes the time to question the current scenario and really think it through. Those economists who regurgitate the official government talking points and try to put a positive spin on the current course of action undermine their own legitimacy in doing so. It is simply incredible that so many of these economic advisors are so quick to declare unrestrained laissez-faire capitalism the root cause of this crisis when they know full well that the prevailing Keynesian school of economic thought that has been driving economic policy for the better part of a century is itself specifically defined as being something that is not capitalism. There is far too much at stake to play semantics and talk out of both sides one’s mouth.  (Continued...)

Congress to debate passage of $700 billion “Taxpayer Bailout Economic Stimulus Act of 2008.” OK, maybe that’s not entirely true, but they should consider it. After all, it certainly can’t be worse than what is already being proposed, right? Just consider that with the unprecedented government intervention and unlawful appropriations of the public monies we have endured over the last couple of weeks to bailout several private financial institutions and lenders that failed because of poor, if not corrupt business practices and an overabundance of government meddling in the private sector, the best idea our friends in Washington DC can come up with to solve this ever-growing financial crisis is a $700 billion bailout package to save the companies that screwed us over in the first place. 

If nothing else, this just goes to show how really out of touch with reality the Washington elite are. And it is why I am proposing an alternative to this $700 billion monstrosity, one that will actually prove a benefit to the economy and the taxpayer.

So, what is this solution to calm the perfect storm presently ravaging our economy? It is a “bailout” for the taxpayers to the tune of $700 billion.   The original “plan” really wasn’t my idea. I first saw it posted on a fellow Townhall blogger’s site, which he titled “A Tongue in Cheek Plan for Fixing the Economy.” He gave the credit to a “Mr. T. J. Birkenmeier, A Creative Guy & Citizen of the Republic.” I liked it and thought about it and felt there was room for improvement. I asked the blogger if I could repost this and he said yes. But, after thinking about this proposal and doing a bit of research I have come up with a slightly different version of this plan. I will keep it simple, because there is no need to complicate it.

According to the IRS 138,893,908 individual tax returns were filed for FY 2007, but for the sake of simplicity lets round that up to 140 million.

The “Taxpayer Bailout Economic Stimulus Act of 2008” will would consist of a one-time $700 billion refund being sent in equal amounts back to all eligible citizens. Period. No fancy formulas or breakdowns of this tax rate or that tax rate - everyone who gets a check gets the same amount, plain and simple. So, what that essentially means is that every person who filed a 2007 individual tax return (form 1040) will receive a one-time lump-sum payout of $5,000 to do with what they please. That’s it. Easy, right?

There would be one catch. Before getting their checks all eligible recipients would have to read the Constitution of the United States, Milton Friedman’s “Capitalism and Freedom,” as well as “Economic Freedom and Interventionism” and “Liberalism: A Socio-Economic Exposition” by Ludwig von Mises. For those who are unfamiliar and bristled at the title of the last book by Mises, it refers to the Classic or Traditional Liberalism of the kind espoused by the Founding fathers of our nation. The bill would mandate the reading and testing of these works in the public school systems at least twice between beginning middle school and graduating high school. It would eliminate federal withholding for “income” tax purposes and all capital gains for a minimum of two years. It would also require that the Fed seek approval from Congress prior to printing any money, and that it report to Congress on a bi-monthly basis the estimated amount of liquid cash in the national monetary system.

Eligible recipients would then log on to a special and secure government website and, after creating their account by entering their unique taxpayer ID and coded password, take one online test each on the Constitution as well as on each book, and a final cumulative test on the general economic principles espoused within these great works as well as a comprehensive analysis on the Constitutional limitations on government. Immediately upon passing all the tests the recipient’s check would be mailed or electronically deposited, if so desired. This would ensure that all recipients had a solid foundation for understanding at the very least, the basic principles of liberty, free market economics, fiscal responsibility of the individual and government, that the proper respective roles of government and individual citizens in a free republic.

Such a proposal would be far more beneficial to the economy and to the republic than would the current government plan, if for no other reason than that the $700 billion government plan is far too expensive for its intended purpose and is also very, very stupid. But, given how we ended up in this mess, what should we expect from a government conceived and managed “solution” except incompetence, criminal behavior, and unadulterated stupidity? The “Taxpayer Bailout Economic Stimulus Act of 2008” is a far superior solution because, simply put, it is not stupid. It makes perfect sense for a number of reasons: 

First, this proposal is not a bailout. It is either a refund or an inheritance, depending upon how you look at it (just think about the amount of money the IRS confiscated from your families since the Federal Income Tax Act of 1913. 

Second, if you want to pass an economic stimulus package that will actually help the overall economy, said package ought to enable the recipient to do something significant. The recent stimulus check I received, while appreciated didn’t go nearly as far as is needed for its intended purposes. A substantial amount of monies returned to the people would have created the desired effect, but $1,200 when gas is at $4.00 a gallon… well, you get the idea.

Third, given the current situation it makes far more sense to stabilize the economy from the bottom up and not from the top down. Gove the money to the people who will decide where their confidence is in the general market and invest or purchase commodities and goods accordingly. For example, the primary thrust of Secretary Paulson’s argument for a top-down bailout of banks and financial institutions is that under the heavy burden of such vast amounts of bad debt, as the crisis is prolonged the fears of customers and traders will manifest themselves in runs on the banks and financial institutions and will ultimately result in crashing of the collective value of all of these companies, and hence the entire financial system will collapse completely in an economic domino effect. This argument is nothing more than fear-mongering, because it overlooks the simple fact that money in a free market system is equivalent to security, an so if given the money the people who pay that money in the first place will feel more secure (as in they will know they will not be going hungry and will be able to get to work…). When they feel financially secure, they will spend money, either on consumer goods or investing in stocks and commodities, and right now there are many bargains to be had on Wall Street. 

Large numbers of people buying stocks in troubled institutions actually does make sense. Why? Because you generally want to buy something like stock when it is cheap and hold it as it accrues value. T be sure, people would be buying that financial stock up immediately – as they are even now because they know that instinctively buying such stock now is a good bet to make more money later. With waves of people purchasing and therefore by default showing confidence in the overall soundness of the economy and the free market, Wall Street would rally and the value of all companies, public and privately traded would increase, the economy would expand, job would be created due to the affordability of innovation and we would soon find ourselves once again in cyclical upswing, and all without unnecessary government intervention and unlawful nationalization of sectors of the economy or unconstitutional bailouts of private companies. 

Fourth, sending large amounts of money directly to the people instead of to the failing banks and financial businesses is entirely Constitutional and sensible and has a far greater probability of succeeding. Why? Because, in essence, you and I are the economy (read the books…). Such action would truly be supportive of free market capitalism by empowering the consumer and letting the market dictate from there without unlawful manipulation by quasi-government agencies (cough! The Fed) to create artificial conditions conducive to the instability and collapses we are now witnessing because the government wants to perpetuate the upswing cycle and wholly avoid the downswing cycle. Such efforts to force markets and economies to do things and perform in ways that against they nature will never succeed and will only make the eventual downside more severe. Talk to the former Soviet planners about that.

Finally, such an action would boost confidence not only in the economy but also in government for finally realizing that it was the primary reason things are so messed up and for having the sense to trust the people and do the right thing. Bailing out massive corporations that are possibly going to be unresponsive to the injection of cash is just plain stupid. There is no reason whatsoever to appropriate hundreds of billions of dollars for the government to buy bad debt when at the same time there is plenty of reason to spend one-seventh of the current proposed amount and enable those individuals who are struggling to pay off those debts, and by solving their individual financial crises solve by default the collective crises of the larger economy by bringing the debt ratios of the various financial institutions into proper alignment and thereby allowing for the market to do what it alone does best – correct itself.

So, if you are a person who thinks they could use a spare $5,000 maybe you ought to copy this proposal and send it to your representatives in Washington DC before they give a whole lot more of your money to the wrong people and make things even worse.