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Why Mandating Coverage For Preexisting Conditions Is Morally Wrong

July 16, 2012 By: Phred Category: Uncategorized

Despite overall disapproval with President Obama’s health care law, many of its provisions remain popular.  Perhaps the most popular provision in the law is one that prevents insurance companies from discriminating against customers based on “preexisting conditions.”  The logic is relatively simple at first glance: people with debilitating conditions will not be able to get coverage at affordable prices unless Congress mandates that insurance companies cannot discriminate against those with a preexisting condition.

We all know someone with a preexisting medical condition, be it cancer, diabetes, or pregnancy.  The fact that we all know someone who currently has or previously has had a preexisting condition is one reason why this provision is so popular.  After all, it is difficult to argue with someone who uses the emotional appeal of an aunt with cancer or a single pregnant woman who is uninsured.  Emotional appeals can be used to “justify” any side of any issue but they cannot prove anything.  Preexisting conditions can be tragically sad and are often not the fault of anyone, be it the victim or society as a whole.

There is a very important question that we must ask before we decide whether or not such a provision is a good idea: is it appropriate to punish someone who has done nothing wrong?

This is a very serious question.  If we decide that it is appropriate to punish someone who has committed no wrong, then we must not only answer why it is appropriate to punish the innocent, but who should punish the innocent and how severely they should be punished for their non-wrongs.

I do not see how any rational person who has thought about this question can decide that it is morally acceptable to punish a person who has done nothing wrong.

Therefore, if it is not appropriate to punish someone who has done nothing wrong, then we must absolutely reject the idea of Congress mandating that insurance companies not discriminate against those with preexisting conditions.  The reason for this is simple: forcing insurance companies to provide “affordable” coverage for those with preexisting conditions must result in increased costs for those of us without preexisting conditions.

Insurance is a vehicle which prices and protects against risk.  This is usually done by assigning people with similar characteristics to “risk pools” and charging them similar premiums.  In a free market for health insurance, 35 year old male smokers residing in the Chicago area who are overweight and have type 2 diabetes are likely to be placed in the same pool and will be charged the same or a similar monthly premium.  Under a system where insurance companies are prevented from discriminating against those with preexisting conditions, the previous group is merged with the group of 35 year old male smokers residing in the Chicago area who are overweight but do not have type 2 diabetes.  While this will result in lower premiums for those with type 2 diabetes, it will result in higher fees for those without the disease.

In other words, while preventing insurance companies from discriminating against those with preexisting conditions sounds like a noble idea, it ends up punishing those who have done no wrong.

I am sorry if you have a preexisting medical condition, I truly am, but unless you can conclude that your preexisting condition is my fault, you have absolutely no moral right to punish me for your condition.

Why CEO’s Earn More Than Janitors

May 12, 2011 By: Phred Category: Uncategorized

You might wonder exactly why it is that janitors earn much less money than CEO’s. After all, in most circumstances, janitors engage in much more physical labor than do CEO’s, executives and managers, and even the average “white collar” worker.

Are the working class laborers being systematically exploited by managers and white collar workers? Is it the case that white collar workers are making money at the expense of blue collar workers, or is there a better explanation?

 

Value Does Not Come From Labor

If labor created value, then society (and all of its members) could get rich by having everyone use their bare hands to dig large holes in the desert and then fill them back up. After all, this would be extremely hard work of a very physical nature. However, this would create no wealth for society—in fact, it would represent a destruction of wealth (imagine what the laborers could have actually produced if they were not hired to complete this task).  Generally, this destruction of wealth takes place in the form of an absence of economic activity which would have otherwise occurred.

The value of a product does not come solely from the labor of the workers. The value of a product is measured subjectively; a product is essentially worth what people are willing to pay for it.

A laborer in turn receives payment for his services based on the value that his work adds to the product or service. A janitor in a shoe factory adds relatively little value to the shoes that are being created. There is likely more value being added by the designer who designs the shoes, by the worker who sews the shoes together, and by the person who manages the distribution network which allows for the shoes to be sold in thousands of stores around the world. These workers add more value to the product, despite the fact that the janitor undoubtedly exerts more physical effort to do his job.

Scarcity

While value added by workers is an important reason for the existence of disparities in income, scarcity tells much more of the story.

As Thomas Sowell put it, economics is the allocation of scarce resources which have alternative uses. With the exception of air, just about all resources are scarce. Similarly, nearly all resources have alternative uses (should this rubber be used to make tires or shoes?, should this glass be used to make a window or a beer bottle?, should my time be spent watching a movie or cleaning the house?).

Scarcity doesnt just mean that there isnt a lot of a certain good. Scarcity means that the good is limited. Even in America, bread is a scarce resource.

Diamonds and Water

Think of diamonds and water. Which of the two resources is absolutely essential to life, and which could we live without? Water is infinitely important: without water we will all die very quickly. Diamonds are nice and sparkly and women love them, but they are hardly essential to our lives. However, water is very cheap and diamonds are very expensive. This phenomenon is known as the “diamond/water” paradox. The reason for the differences in the costs of these goods is scarcity; water is abundant, while diamonds are scarce.

For example, I live in unincorporated DeKalb County [in Georgia] where my water is provided by a government monopoly (and hence is likely more expensive than would be the case under a free market system). Yet, the monthly bill for my 3 bedroom house has averaged $61.17 per month since April of 2007. In other words, over the past 4 years, it has cost about two dollars per day to provide the 2-3 people living in my house at various times with the most important resource that we need for survival. In fact, water is so cheap that I can do more than just use it for survival needs—I use it for showering, cooking, watering my plants, and even brewing beer.

What does this have to do with janitors and CEO’s?

Well, the same principles which lead to the diamond/water paradox also apply to compensation for labor. Please keep in mind that my intent is not to belittle the work that janitors do. I know that this type of work is physically demanding and dirty work. However, there is little skill involved and little intelligence required. The fact of the matter is that nearly every able-bodied person above the age of 13 or so is probably qualified to be a janitor. In contrast, there are only a very limited number of people who have the intelligence, experience, and ability necessary to be a successful CEO of Coca-Cola. Janitors are replaceable and easily trained. High-level executives are not. In other words, the pool of available janitors is relatively unscarce when compared to the pool of available CEO’s of Fortune 100 companies.

Bringing it all together

Disparities in income are hardly the result of exploitation by the white collar class against blue collar workers or the working poor. Compensation results from several factors including the value added by the worker, as well as the relative scarcity of the pool of workers available to fill that position.

There is no Federally mandated wage scale requiring certain salaries for certain types of workers. Decisions on how to pay employees—be they janitors, CEO’s, or something in between—are generally made on a company by company basis. Those in the position to hire janitors will pay them according to the value that they believe will be added to the firm. They will likely tend to pay the janitor at levels similar to that of other janitors in related fields. This is because a janitor is likely to add similar levels of value at which ever company he works. The range of compensation for CEO’s is very large, with CEO’s of smaller companies earning drastically less than do CEO’s at large multi-national firms. This is because of the differences in the amount of value that can be added by different CEO’s in different fields at different companies. The CEO of Wal-Mart is responsible for running a worldwide distribution network, ensuring that over a million employees get paid, and in a broader sense—ensuring that society is fed and clothed. In contrast, the CEO of a small but delicious pizza chain has responsibilities which are much greater than his employees, but which do not compare to that of the CEO of Wal-Mart.

Ceteris Peribus

This article does not deal with things like corporate welfare or other special privileges which are often received by corporations from the State. While special privileges will likely skew the distribution of income away from the bottom of the and towards the top, the principles at hand do not change. In a truly free society with no governmental grants of limited liability, no business licensing requirements, corporate welfare, and private control of the currency, income is likely to be somewhat more evenly distributed among the productive members of society. However, as long as there is any level of freedom of choice, there will always be disparities in income.  Income disparities are not always bad–in fact, they are very important.  Differences in income give us something to strive for.  If we all earned the same wages, no matter how hard we worked, no matter how much value we added to society, and no matter what type of work we did, no matter our ages, or no matter how much experience we had, there would be little reason for people to put much effort into their jobs.  There would be little incentive for anyone to be productive beyond the subsistence level–after all, any additional effort that they did would have to be shared equally with all of society.  If we were all the exact same, there would be no reason for trade, or even for society to exist.  It is our differences which encourage people to interact and trade with each other.  No society larger than a small tribe could survive for long if wages were distributed equally.

As long as there are people with different skills, levels of intelligence, backgrounds, lifestyles, and so on, there will be differences in income. People are different from each other, and as such, will seek out different goods and services. They will also find themselves qualified for different types of employment than their friends and neighbors. Typically, those who are employed in positions that create a lot of value and are relatively scarce will earn higher incomes than those who are employed in positions that create little value and are relatively common.

Americanly Yours,

Phred Barnet

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The Non-Aggression Principle

April 14, 2011 By: Phred Category: Uncategorized

If you arent a libertarian, chances are that you have never heard of the non-aggression principle (also referred to as the non-aggression axiom).  Most libertarians base their views about morality and the role of government around the non-aggression principle.

The non-aggression principle is the idea that no matter how disgusting, immoral, or improper you believe an act to be, you have no right to use force to stop someone from committing that act, unless that act itself involves the initiation of force against another person (or person’s property).

The principle is simple and straight forward; it is wrong to initiate force against another person or group of people. This is by no means a passive or pacifist doctrine; it is absolutely permissible to use force in response to force, in order to protect or defend one’s person or property, to enforce a contract, or punish someone for failure to adhere to the terms of a contract.

However, it is not permissible to use force to attack your neighbor, steal another person’s property, or stop someone from using their justly acquired property in a manner that does not aggress upon another individual.

The non-aggression principle has been stated and restated from ancient times to John Locke ["Being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions"] to Ben Harper ["My choice is what I choose to do, and if I'm causing no harm, it shouldnt bother you. Your choice is who you choose to be and if you're causing no harm, then youre all right with me"].

By applying the non-aggression principle to all aspects of life, a just and coherent philosophy of non-interventionism becomes clear: if no one is being harmed besides those people voluntarily engaged in the act, leave it alone. It is that simple. You dont have to like or respect or engage in prostitution, homosexual relations, religion, or the use of drugs, alcohol, tobacco, etc, but you do not have the right to stop any adult from engaging in any of these acts.

The non-aggression principle is a very important part of the natural rights philosophy.

Every person is the owner of their own body and has the right to do with their body as the see fit.  People can also acquire property by using one of three different methods: homesteading, voluntary exchange, and theft.  Homesteading involves taking unowned resources and improving them, while voluntary exchange involves the unforced transfer of resources from a person (or persons) to another person (or persons).  Both of these two methods are fully consistent with the non-aggression principle–by definition, neither homesteading or voluntary exchange involves the initiation of force.

When the non-aggression principle is violated, property is acquired in the third method: theft. Physical acts of violence or threats of violence against others are violations of a person’s right to self ownership.

Even if one rejects the doctrine of natural rights in favor of a utilitarian (ie, the common good) view, the non-aggression principle is still important.

Man is a social animal. For the most part, we seek to engage in activities which promote the social benefit. Activities which violate the non-aggression principle tend to disrupt the peace by inviting violent retaliation. For example, if I kill or harm a member of your family (or attempt to do so), you are likely to respond by seeking revenge on me. These types of feuds can spiral out of control and disrupt the peaceful cooperation on which society depends. The best way to keep the peace that is essential to the existence of society, is to adhere to the non-aggression principle.

Thus, whether you subscribe to natural rights theories or whether you support some sort of utilitarian view, it is in the best interests of both individuals and society that people adhere to the non-aggression principle.

As we have seen, violations of the non-aggression principle which are committed by individuals can disrupt the peace. However, violations of the non-aggression principle committed by the government are infinitely more eggregious. This is because the government grants itself the power to do things that no individual could ever be permitted to do.

Only the government (or those under the protection of the government) can confiscate money from people without their permission and give it to other people and call it “public policy.” Government redistribution of wealth and granting of special privileges is aggression because it prevents people from using their own property in a peaceful manner of their choosing.

Only the government can commit mass murder against civilians and call it a “defensive war.” A bombing campaign in a densely populated civilian area which results in civilian deaths is murder; it doesnt matter if the bombing was done by a rogue terrorist or by an Air Force member acting under order from the President. Murder is murder. It doesnt matter who does it.

Only the government can throw human beings in cages which are kept in horrible conditions for the “crime” of recreationally smoking a plant in their own home. Smoking marijuana on your couch does not violate the non-aggression principle; raiding someone’s house and confiscating their marijuana does.

It is essentially impossible for government to act without violating the non-aggression principle. This is because mandatory taxation is coercion, theft, and extortion. All of these acts violate the non-aggression principle. Taking people’s money without their permission is theft. Any business regulation, permit requirement, governmental zoning restriction, anti-drug law, restriction of consensual acts deemed to be “immoral,” etc. are violations of the non-aggression principle because they prevent people from using their justly acquired resources in a peaceful manner of their choosing.

Every government act involves a violation of the non-aggression principle. For, even when government is acting to stop one person from aggressing against another, it is doing so using resources that have been obtained via theft. When you violate the non-aggression principle, your actions may be devastating and cause harm, but they are limited by the amount of damage that one person can cause with whatever resources that you have available to use. However, when the government violates the non-aggression principle, it does so with other people’s money subject only to how much damage it can inflict before enough people get angry enough to either withdraw support or threaten revolution. It also does so under the guise of legality. But intelligent people know that an unjust law is no law at all.

Thus, the only way for government to act without aggressing on the rights of its citizens by violating the non-aggression principle would be for the government to set the exact policies that each individual would choose on their own and rely on truly voluntary donations to do so. In other words, the government’s best option is to do nothing at all.

In the words of the French economist, Anne-Robert-Jacques Turgot:

“The policy to pursue, therefore, is to follow the course of nature, without pretending to direct it. For, in order to direct trade and commerce it would be necessary to be able to have knowledge of all of the variations of needs, interests, and human industry in such detail as is physically impossible to obtain even by the most able, active, and circumstantial government. And even if a government did possess such a multitude of detailed knowledge, the result would be to let things go precisely as they do of themselves, by the sole action of the interests of men prompted by free competition.”

This isnt just the stuff of libertarian philosophers. The rapper Lil’ Jon famously uttered the phrase “Don’t start no shit, it won’t be no shit!”

This concept is remarkably simple: do not initiate the use of force against another person. Respect their right to engage in peaceful activities on their own property in any manner that they see fit.

Americanly Yours,

Phred Barnet

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Constitution, Shmonstitution!

August 02, 2010 By: Phred Category: Uncategorized

I have often used the Constitution as one way of justifying my opposition to “laws” passed or proposed by Congress and the President. After all, the US Constitution is touted by many people as the “supreme law of the land.”

But, very few people ever ask why it is the supreme law of the land, or why it even has any power at all, and almost no one asks if it is the supreme law of the land, or if it has any power at all.

In fact, it is the Constitution that calls itself the “supreme Law of the Land.”  So if you ask someone why the Constitution is the supreme law of the land, they are likely to respond by telling you that it says so right there in the Constitution.  If you were to then respond to that by asking what gives the Constitution the right to declare that it is the supreme law of the land, they are likely to respond by saying that it is the supreme law of the land (or something to that same effect). This is what philosophers call a tautological argument, and what everyone else calls a circular argument.

Is the Constitution the supreme law of the land?

Well, the Constitution was a contract.  It was signed by 39 men at the Constitutional Convention (out of the 55 delatates).  Following this, the States held their own votes on ratification in which 1071 men voted in favor of adopting the new Constitution. But, all this tells us is that 1,100 men agreed to the Constitutional Contract.  What of the 16 delegates who refused to sign the Constitution?  What of the hundreds of men who voted against the ratification of the Constitution in their State legislatures.  And most importantly, what of the people who were not given the opportunity to vote for or against the Constitution?

Would it be right to assume that the people who explicitly refused to sign a contract should be forced to abide by it?

But, the vast majority of Americans were not allowed to vote at the time of the Constitution.  This included children, slaves, women, indentured servants, and (in many States) those who did not own property.  They had no say in their local or State governments, and thus no representation in the Constitutional Convention (which—by the way—was authorized by the Congress to amend the Articles of Confederation, not to replace it). The Revolutionary War, which ended less than 5 years before the Constitutional Convention, was fought over the issue of “taxation without representation.”   We must ask ourselves if being governed without one’s consent is substantively different than being taxed without one’s consent/representation.  And no, these arent just the musings of a lone libertarian.  According to recent polling, only 23% of America voters believe that the United States government has the “consent of the governed,” while 62% say that it does not.

Imagine if Verizon offered to provide you with wireless service in exchange for a fee, but for whatever reason, you EXPLICITLY DECLINED to sign the contract (even though most of your neighbors agreed).  Could anyone rightfully assume that Verizon would have the right to declare itself your provider? Of course not.

Lysander Spooner brilliantly pointed out that those who support the Constitution often use the right to vote as a method of justifying the legitimacy of the government. A simple examination of these arguments reveals that this argument falls into a severe tautological trap as well. For eaxmple:

  • If I vote for the winning candidate, I have given my consent to his actions because I have sanctioned his platform. Furthermore, I have given sanction to the Constitution by participating in its institutions.
  • If I vote against the winning candidate, I have still given my consent to the Constitution because the act of voting implies that I agree to the process outlined in the Constitution and that I would expect the losers of the vote to abide by the results of the vote had my candidate of choice won.
  • If I choose not to vote, then I have no right to complain about the government because I have declined to participate in a “valid” process which could have yielded different results had I participated.

Thus, whether or not I vote, and whether or not I vote for the winner, I am giving sanction to the Constitution and to the actions of the government. We can easily see how this is a circular argument, akin to the expression “damned if you dont, damned if you do.” You dont have to be a trained philosopher to realize that this argument isnt a sound one.

Lysander Spooner argued that the Constitution actually bound no one. I agree with his logic, but have reached different conclusions.  I will argue that the Constitution does not bind very many people, but it does bind those (and only those) who have expliticly agreed to the Contract.

The President, Vice President, and members of Congress all take an oath upon entering office.  In doing so, they are explicitly giving their consent to the Constitution and agree to act in accordance to this Constitution.

Thus, the President, Vice President, and Congress are required by law to uphold the Constitution and its provisions, whether or not they like what it says. Failure to do so is a violation of their oath and a violation of the laws of the government that they have explicitly agreed to serve. The President’s oath reads

“I do solemnly swear (or affirm) that I will faithfully execute the Office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States.”

Notice the final clause which demands that the President “preserve, protect and defend the Constitution of the United States.” Thus, the President must use his veto power whenever Congress passes a law that violates the terms of the Constitutional Contract. Failure to do so would be an explicit violation of the President’s oath and grounds for removal from office.

Similarly, the oath of Congressmen reads:

“I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.”

This oath differs in that it requires members of Congress to ” support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same. [Emphasis added]” This is an important difference, as it not requires Congressmen to defend the Constitution against domestic enemies as well. Thus, every member of Congress has a duty to defend the Constitutional Contract from those who wish to undermine it. This must not only include other members of Congress who are bent on undermining the Constitution, but also must include protecting the Constitution against Presidents who rountiely violate the Constitution and their oath to the Constitution.

But if most members of Congress, as well as the President, Vice President, Cabinet, and most of the executive bureaucracy—the people who have taken an oath to the Constitution and who are thus bound by it—refuse to adhere to the Constitution or to their oath, then why should we, the American people have to abide by the Constitution?

Generations of Congresses and Presidents have routinely violated the Constitution and have trampled on the protections afforded in the 1st, 2nd, 4th, 5th, 8th, 9th, 10th, 14th, 15th, and 21st amendments. Their actions have rendered many of the above amendments nothing more than “dead letters.” The trampling of the Constitution by the very people who have sworn to protect it is not limited to the Constitutional amendments themselves, but also includes the routine violation of many of the protections contained in the body of the Constitution itself.

I have pointed out that members of Congress and the President have taken oaths requiring adherence to the Constitution. We The People, on the other hand have not. This fact alone leads to the logical conclusion that the Constitution does not apply to those of us who have not declared allegiance to it. And yet, many of those who ahve taken official oaths to the Constitution routinely violate it. Thus, the question must again be asked: if most members of Congress, as well as the President, Vice President, Cabinet, and most of the executive bureaucracy—the people who have taken an oath to the Constitution and who are thus bound by it—refuse to adhere to the Constitution or to their oath, then why should we, the American people have to abide by the Constitution?

In addition to Presidents and the Congress, members of the military take oaths of loyalty to protect and defend the Constitution as well:

“I, [name], do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic [emphasis added]; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.”

The military oath not only requires that members of the armed services protect America against foreign invasion, but also requires that these members protect the Constitution from domestic enemies (those who have sworn allegiance to the Constitution but violate it) as well.

But, instead of taking their oaths seriously and defending the Constitution which they have sowrn to protect, Presidents, members of Congress, and members of the military have been much more willing to use their authority to force the American people to live under an unconstitutional (and nonconsensual) government.

I ask again: If the government refuses to abide by the Constitution, why should we?

The answer is that we shouldnt.

How long will we continue to allow Congress to rule over us using a “do as we say, not as we do” logic? The truth is that this has gone on long enough.

But, even if Congress, the President, and everyone else within the goverment followed their oaths perfectly, this would not be reason enough to follow their laws. The above statement stems fromt he simple fact that the vast majority of the American people have never sworn an oath of allegiance to the Constitution. A simple example can be used to understand why we are not bound to the Constitution—even if it is perfectly followed. Imagine that someone declares himself to be the new owner of your car without your permission. This man has no legal or rightful claim to your car, but that doesnt stop him from claiming ownership. However, this man is “nice enough” to allow you to use the car whenever you want. Thus, his “ownership” of your car doesnt interefere with your right to use the car in any way. But, does this mean that you should allow him to get away with the crime of claiming false ownership over your car? Of course not. It is true that while he still “allowed” you to drive your car whenever and wherever you wanted you probably wouldnt rebel against him, but that surely wouldnt meant hat you have accepted his claim of ownership over your car.

The vast majority of the readers of this article have taken no oath of allegiance to the Constitution or the the US Government (which itself is guilty of repeatedly violating the Constitution).  I have never read the words of the oath aloud, I have never signed an oath of loyalty to the United States or to the Constitution.  How then can anyone argue that this document binds those of us who have not taken a loyalty oath?

The Constitution itself was nothing more than a well orchastrated coup, designed to centralize the powers of the government into the hands of an elite few. The vast majority of citizens (and all of the slaves held) never had a proper say in the approval of the Constitution. And, as Lysander Spooner pointed out, one cannot sign a contract that binds future generations (wouldnt that be the greatest form of taxation without representation that is possible?). Thus, even if the Constitution somehow did bind all those living under it upon its ratification, it binds no one today but those who have explicitly agreed to it.

The Constitution does not bind those of us who have made no such explicit agreement. Thus, we have no legal or moral obligation to follow the “laws” put forth by Congress, the regulations created by Congress or executive agencies, or the executive orders and decrees made by the president.

I am not advising you to break the law—just because the law doesnt bind us does not mean that the government will not employ the use of men with guns to force you to comply with its laws and regultations. Just as an unarmed person would probably be better off (ie, would have a much better chance of survival) turning his wallet over to an armed robber who demanded the wallet, most people will find it easier to comply with the “laws” of the United States government rather than risk their own death or imprisonment.

But, even as we continue to hand the robber our wallet, this does not mean that we should recognize the legitimacy of the robber who demands tribute and restricts the liberty of so many millions of people.  It certainly does not mean that we should be happy to hand the robber our hard earned wealth.

Recognizing the illegitimacy of the Constitution and the United States government is a very important step. The more that people recognize this fact and speak about it, the more obvious it will become to the populace.

A critical mass of Americans is needed to recognize that we do not owe our allegiance to the Constitution.  Furthermore, this critical mass needs to realize that the United States government is illegitimate and that it has no moral right to tax, rule, or restrict the liberty of anyone who has not consented to be ruled.  Only when the people wake up and realize these facts will we be able to restore our lost liberties.

Americanly Yours,

Phred Barnet

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Book Review: “How An Economy Grows And Why It Crashes,” By Peter Schiff

June 27, 2010 By: Phred Category: Uncategorized

I recently read Peter and Andrew Schiff’s new book, “How an Economy Grows and Why It Crashes.”  I am a big fan of Peter Schiff and was excited about reading this book.  Peter Schiff is an economist who is famous for predicting the financial meltdown in advance.  Here is a great video of him making predictions in advance of the meltdown.  He is even laughed at by the other commentators on CNBC and FOX for implying that there was a housing bubble only months before the market crashed.  Well known economists including Ben Stein and Arthur Laffer were among those mocking Schiff.  Interestingly enough, the people laughing at him selected Washington Mutual, Bear Stearns, and Merrill Lynch as great stock picks (all of those companies are now out of business).

This book is a simply written, illustrated allegory which details how economies grow and what can cause economic collapse.  The book begins with three men who are stranded on an isolated island.  The men spend all day fishing just to catch enough fish to barely survive.  After a time, one of the men underconsumes and is able to use his savings to increase the number of fish that he catches.  From this action, an island economy is born.

The story continues for generations and generations (immigrants eventually come to the island) as the island’s economy continues to develop.  I will refrain from giving specific details about the economic expansion so as not to ruin this book.

The chapters contain “Reality Checks” which simply relate the material in the chapter to real life by defining the concepts which are outlined.  In these short sections, the Schiffs explain things like underconsumption, productivity, savings, risk, and so on.  The “Reality Checks” help readers who may have little or no understanding of economics understand basic economics principles.

At the end of each section is a much more detailed (but still simple and easy to understand) section called “Takeaway.”  These sections elaborate on the lessons from the chapter and give further explanation of the underlying economic principles.  They greatly enhance the book by providing the reader with a nice overview as well as a great segue to the next chapter.  The “Reality Check” and “Takeaway” sections both help move the story along and are features which would be great in other books on economics.

The first 5 chapters of this book are absolutely amazing.  The Schiffs do an excellent job of using humor to make reading about economics fun and easy to follow.  They explain the causes of a growing economy (and the effects of a growing economy on society) in a manner that is easy for anyone to understand, regardless of their economic background.

In chapter 6, however, things took a slight turn for the worst.  In this chapter, the Schiffs explain the foundation of a banking system.  I have heard Peter Schiff give speeches on this in the past–his speeches are great and include detailed information on the historical evolution of banking.  It is always interesting to hear Schiff speak about this and I wish that he had included more of this information in his book.  For some reason or another, the Schiffs do not tell the full story of the evolution of the banking system.  This is somewhat perplexing, as he wrote about this quite nicely in his bestselling (and highly recommended by me) book, Crash Proof.  I have also seen him give numerous speeches on this subject, all of which were great speeches which gave this full history.  The failure to include this can certainly be excused, as the Schiffs’ book was surely intended to be a brief, simple overview of how an economy works.

The “Takeaway” section of chapter 6 was also somewhat perplexing.  There was a disconnect between the material in the chapter and the “Takeaway” section which is likely to confuse some readers.  In this section, the Schiffs launch an attack on the Federal Reserve system without explaining to the reader exactly how this ties in with the information in the early part of the chapter.  While I fully agree with the Schiffs on the Federal Reserve, an uninformed reader might have a little trouble understanding the Schiffs’ early critiques of the Federal Reserve System.  To their credit, however, the Schiffs do properly explain this later.

I do want to point out to my reader that this chapter is my only real criticism of the book and that while it is worth pointing out, it does not take much away from what is truly an excellent book.

Following this section, the Schiffs continue to brilliantly explain the evolution of a developing economy into a major economic player.  While the time line is a little off (something that the Schiffs warn the readers of in the introduction), the Schiffs paint a largely accurate picture of the history of the American economy and the growth of the American government (especially with regards to its intervention in the economy).

I wont give away the ending, but the economy in the book suffers a fate similar to that of the American economy during the current economic crisis–the title promises to explain how an economy crashes, so I dont think that Im giving anything away.  However, the Schiffs looks into the future and offers a glimpse of what the future of the American economy might look like if we do not quickly enact sound monetary policies.  Given Peter Schiff’s history of correctly predicting the course of the economy, his prediction is certainly worth taking into account.

My rating:

Strongly recommend:  9/10

Americanly Yours,

Phred Barnet

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