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Monday, September 29, 2008

An Open Letter to the Virginia Members of the United States Congress

As I have stated in other letters to you, correlation does not mean cause. So it is with the bailout of our economy. The democrats state that the root cause of the problem is principally attributable to an over emphasis on free market economics and a lack of regulation. Their answer: more government. In fact, the recent failure of the banking system is not principally a failure of the free market or lack of regulation, but is a prime example of the effect of socialism in a free market economy. Through the Community Reinvestment Act, the government provided economic incentive to provide loans to low income people who otherwise could not afford them. In fact, it was even worse than this: the government punished lenders who did not market these loans. As a result, demand was created that needed a supply. Homes were built that people could not afford. Sarbanes Oxley further exacerbated this situation through its “mark to market” requirements, in essence artificially overvaluing these assets and allowing lenders to lend even more money. Now that we are on the downside of this disaster, the government wants to interpose itself back into the equation, by thinking big government solutions can get us out of the mess. I do not believe it will work. As evidence I cite: failed energy policy over the past forty years, especially nuclear power; a failing social security system; a health care system that is broken; and an education system that spends more per capita than any other nation, but whose students rank first in only one category – “self confidence.”

Taking money out of the hands of “hard working” Americans and putting them in the hands of politicians has resulted in a 334% increase in Federal spending since 1965 (from $628 billion to $2.7 trillion in 2007 inflation adjusted dollars), while the median income of the average American has risen 35% ($28,346 to $38,386). Over this period, mandatory spending on entitlement programs has grown from 26.9% of the budget to 52.9% of the budget. When interest is considered (8.3%), only 38.8% of the budget is discretionary (within the control of the President). A better solution is to take the decision making out of the hands of a do-nothing, socially progressive government and let the average “hard working” American decide for himself or herself how to spend his or her income.

In my mind the decision is simple. Do we want a country in which individuals create and distribute wealth (equality of opportunity -- capitalism) or one in which the government taxes the successful and puts it in the hands of a few (the Government) who then redistributes it as it sees fit (equality of outcome – socialism)? We are rapidly moving from an economy where the medium of exchange is one of money to one of votes (47.3% of wage earners do not pay federal income tax, but receive benefits and tax credits). We would be well served to remember the advice of Thomas Jefferson: ““Every government degenerates when trusted to the rulers of the people alone. The people themselves, therefore, are its only safe depositories.” – Thomas Jefferson, Notes on the State of Virginia, Query 14, 1781.”

Saturday, September 27, 2008

What Happened to Our Economy?

Over the past two weeks, we have seen our economy decline precipitously. Many Americans are asking, how did we get to this point? Who is responsible? As they say a picture is worth a thousand word. In this case a video is worth a million words. Go to the following link for a complete crisis history and identification of those who are responsible.

Wednesday, September 10, 2008

Taking America To School … And to Other Places We No Longer Recognize

When I was a young adult, I played a lot of pickup basketball. Each time you faced off against your opposite on the other team, you took the measure of the other player. Invariably, words were exchanged about each other’s alleged competency on the court. My recollection is that more often than not, the player who understated his potential threat was the one you really needed to watch; otherwise, you ended up “being taken to school.” America is being “taken to school” by Barack Obama and the media is doing nothing to warn us. The media have been strangely silent on his college years, during which he solidified his world view, and his experience as a “community organizer” in south side Chicago, during which he put his world view into practice. According to Ryan Lizza of the New Republic, “Publicly, as well, Obama has made his organizing days central to his political identity. When he announced his candidacy for president, he said the ‘best education’ he ever had was not his undergraduate years at Occidental and Columbia or even his time at Harvard Law School, but rather the four years he spent in the mid-1980s learning the art and science of community organizing in Chicago. The night after Obama's announcement speech, he made a similar point on "60 Minutes" as he led Steve Kroft around the old neighborhood.” When there is silence in the liberal media, it is a clear indication that someone should be asking questions.”

My first indication there was a real problem was on September 7, 2008, when Eric Shawn of Fox New’s Weekend Live asked Bob Beckell why Obama had not released his college transcripts and his college thesis, a requirement for graduation. Apparently, Obama’s wife had already released hers. Beckell’s response was that the average American didn’t wake up in the morning asking about Obama’s college transcripts. Alarm bells went off. So, I did some immediate investigation and learned that Obama was a Political Science major at Columbia University. The alarm bell got louder. I remembered reading in Pat Buchanan’s book Death of the West (DOW) that Columbia University was the home to the transplanted Frankfurt School, a school of German Marxist thinkers, and to Herbert Marcuse who championed this cultural revolution school of thought in America in the 1960s. With a little additional research I found that Marcuse’s son, Peter Marcuse, retired as a professor at Columbia and is the “keeper” of the official Marcuse home page (www.Marcuse.org). Disciples of this ideology include Frank Marshall Davis, Malcom X, and Saul Alinsky, all of whom were identified by Barack Obama in his books (Dreams from My Fathers and The Audacity of Hope) as either mentors or influential thinkers in the formation of his world view. In fact, Alinsky was the founder of the Industrial Areas Foundation, the school that taught Obama how to organize. Alinsky was also the subject of Hillary Clinton’s undergraduate thesis.

So what is the Frankfurt School and how has had it shaped political thought on the left in America and possibly the world view of one of our candidates for President? The Frankfurt School was originally established in 1923 as the Institute of Social Research at Frankfurt University by Gyorgy Luckacs and other German communists. According to Pat Buchanan in his book Death of the West (pg. 75), it grew out of a recognition by them that “capitalism was not impoverishing the workers. Indeed their lot was improving, and they had not risen in revolution because their souls had been saturated in two thousand years of Christianity, which blinded them to their true class interests … In biblical terms, the word of Marx, seed of revolution, had fallen on rock-hard Christian soil and died … the Marxist had bet on the wrong horse.” In his work, History of Class Consciousness, Luckacs reiterated his commitment to dialectical materialism: “It is not men’s consciousness that determines their existence, but on the contrary, their social existence that determines their consciousness ... Only when the core of existence stands revealed as a social process can existence be seen as the product, albeit the hitherto unconscious product, of human activity." Translation: man’s social nature shapes the core of his existence, that is his consciousness. There is no room for God. To bring the world into alignment with this thinking, Luckacs “… saw the revolutionary destruction of society as the one and only solution. A world-wide overturning of values cannot take place without the annihilation of the old values and the creation of new ones by the revolutionaries.” Lukacs’s ideas became known as “cultural terrorism.” As the Hungarian Peoples Republic Commissar for Education and Culture, Luckacs put his program into action by instructing students in free love, the archaic nature of the middle-class family codes, rejection of monogamy, the irrelevance of religion, and called women to rebel against the sexual mores of the times. His basic aim was to destroy the institution of Christianity, which is the foundation of western culture. Fifty years later, these ideas were adopted by the baby boomers. Is this starting to sound familiar?

Antonio Gramsci, a contemporary of Luckacs, was an Italian communist, who also understood that traditional Marxism had failed. John Fonte of the Hudson Institute argues that Gramsci believed in “absolute historicism, meaning that morals, values, truth, standards, and human nature itself are products of different historical epochs. There are no absolute moral standards that are universally true for all human beings outside of a particular historical context: rather, morality is socially constructed.” In other words, truth and morality were not absolute, they were relative. Gramsci argued the culture must be changed, starting with the arts, cinema, theatre, schools, colleges, seminaries, newspapers, magazines, and the new electronic medium radio. Through these institutions the public could be captured and converted to the cause. He encouraged fellow Marxists to form alliances with Western intellectuals who embraced human secularism.

In 1930, Max Horkheimer (Traditional and Critical Theory) became the director of the Frankfurt School and the school began to systematically translate Marxism into cultural terms. Musician Theodor Adorno, psychologist Erich Fromm (Escape from Reason), and sociologist Wilhem Reich (The Mass Psychology of Fascism and The Sexual Revolution) joined the school. In 1933, Hitler’s rise to power interrupted the school’s development of its cultural Marxist ideology. The school relocated to America at Columbia University were it developed its Critical Theory, which has been described by Buchanan in DOW (pg.80) as the “essentially destructive criticism of all the main elements of Western culture, including Christianity, capitalism, authority, the family, patriarchy, hierarchy, morality, tradition, sexual restraint, loyalty, patriotism, nationalism, heredity, ethnocentricity, convention, and conservatism … the crimes of the West flow from the history of the West, as shaped by Christianity.” Buchanan then concludes, “Critical theory ultimately results in ‘cultural pessimism,’ a sense of alienation, of hopelessness, of despair where, even though prosperous and free, a people comes to see its society and country as oppressive, evil, and unworthy of its loyalty and love. The new Marxists consider cultural pessimism a necessary precondition of revolutionary change.”

During the fifties, Herbert Marcuse, an ex-OSS officer and Brandeis University professor, defined the proletariat of the American Cultural Revolution: radical youth, feminists, black militants, homosexuals, the alienated, and the asocial. His battle cry: “make love, not war.” In Carnivorous Society, he wrote: “One can rightfully speak of cultural revolution, since protest is directed toward the whole cultural establishment … there is one thing we can say with complete assurance. The traditional ideal of revolution and the traditional strategy of revolution have ended. These ideas are old-fashioned … what we must undertake is a type of diffuse and dispersed disintegration of the system.”

Critical Theory forms the basis of Western Marxism and post-modernist thought. Malcom X, Frank Marshall Davis, Saul Alinsky – all self-described by Obama as being influential in his life – studied and practiced the principles of Critical Theory. In his Rules for Radicals, a book that Alinsky ironically dedicated to Lucifer, "the very first radical" [2], Alinsky – Obama’s mentor – outlines his strategy in organizing, writing,

"There's another reason for working inside the system. Dostoevsky said that taking a new step is what people fear most. Any revolutionary change must be preceded by a passive, affirmative, non-challenging attitude toward change among the mass of our people. They must feel so frustrated, so defeated, so lost, so futureless in the prevailing system that they are willing to let go of the past and change the future. This acceptance is the reformation essential to any revolution. To bring on this reformation requires that the organizer work inside the system, among not only the middle class but the 40 per cent of American families - more than seventy million people - whose income range from $5,000 to $10,000 a year [in 1971]. They cannot be dismissed by labeling them blue collar or hard hat. They will not continue to be relatively passive and slightly challenging. If we fail to communicate with them, if we don't encourage them to form alliances with us, they will move to the right. Maybe they will anyway, but let's not let it happen by default."

Why haven't we heard anything about this in the media? The silence is deafening. Do you think we need to know more about Obama’s mentors, his world view, and how it came to be formed? He is asking us to place our country and its future in his hands. With such trust comes transparency. We are not getting that from the media or the man.

America is "being taken to school."

Tuesday, September 9, 2008

“Neighborliness” – The New Form of Social Redistribution of Wealth

On September 8, 2008, Barack Obama appeared on Bill O’Reilly’s The Factor (Fox News Channel) to answer questions about his proposed economic policies. A key point of contention was Obama’s intent to raise federal income and capital gains tax rates on the “rich” (which he defines as anyone earning over $250,000 per year) AND remove the upper limit on social security payroll taxes (currently capped at 6.2% of an individual’s first $97,500 of income AND matched by the employer (i.e., a total of 12.4%)). Obama believes that because the “rich” can afford it, then they should pay to fund a “tax cut” for 95% of all Americans. He further views his tax proposals as ”neighborly,” which he rightfully identifies as an American virtue. The problem, I believe, is that the average American does not interpret being “neighborly” as a virtue that requires Washington to be in the middle nor does it view “neighborliness” as a redistribution of wealth between Americans. Instead, they see “neighborliness” as neighbor helping neighbor, as individuals, and not as classes. The average American believes in equality of opportunity and not in Obama’s social Marxist view of equality of outcome. So who are the “rich?” What do they do with their wealth? What are the potential consequences to all Americans of Obama’s plan?


Who are the “rich?” By “rich,” Obama means those who have been financially successful. This is distinction that deserves emphasis, because the term “rich” is not necessarily the same as being “financially successful.” To the average American, “rich” has a negative connotation, and it is easier to tax the “rich” than it is to tax success. In fact, many people are “rich,” but would not be classified as financially successful. For example Mother Teresa was rich but she was not what the world would claim to be financially successful. Second, it is important to distinguish exactly who Obama wishes to tax: those who have taken financial risks far beyond those of the average employee, who in many cases failed multiple times before succeeding, who worked hard, who invested in their businesses, and who created the jobs that ALL Americans enjoy.


The “rich” are typically people who either own businesses in America or receive employment from those businesses. From a demographics perspective, 80% percent of these businesses are sole proprietorships, partnerships, or S-Corporations (which are taxed at individual tax rates) and 20% are large C-corporations (which are taxed at corporate rates). The small businesses they own are recognizable in every town: gas stations, laundries, retail franchises, and other boutique family businesses. According to 10 Secrets that Millionaires Keep, by Daren Fonda of Smart Money, the financially successful, who have a net worth of $1M, are 90% more wealthy than other US households, earn on average $366,000 per year, and are in the top 1% of taxpayers. Their number has doubled since 2002, with half of them earning their wealth from small business, one-third from large corporations, and less than 3 percent through inheritance. Most come from families, which would not be classified as wealthy, and have enjoyed their financial success for less than 15 years. Their median grade-point average in college was 2.9, with an average SAT score of 1,190. Fifty-nine percent attended a state college or university. Their secrets to success, in their words: hard work, discipline, education, and treating others with respect. Other than their wealth, the “rich” seem to be a lot like the average American, except they have taken extraordinary risks, worked smarter and harder, and converted the opportunities presented to them into greater financial success.


How do the “rich” spend their money? Before they can spend it, they must pay taxes to the government. The top 1% of earners pay 40% of America’s federal income tax. In fact, the top 10% of earners pay 70%, and the top 50% pay 97%. Like all other wage earners, in addition to FICA, the “rich” pay 6.2% on their personal wages to fund social security, up to a maximum salary of $97,500 and 1.45% on all wages to fund Medicare. Because the average wage earner makes approximately $50,233 (2007 Census Bureau), the average wage earner pays, on average, $3,868 in payroll taxes. This is matched by the employer, who pays an additional $3,868. Under the current tax scheme, the financially successful, who earn over $97,500, will pay $7,459; however, fifty percent of them who own their businesses or are sole-proprietors will pay twice this, or $14,918, because they have to pay their own matching contribution. In effect they are paying 3.9 times more than an average wage earner working for a large corporation. These taxes are paid before any other taxes are paid. If Obama eliminates the cap on the Social Security payroll tax, so that all income is exposed to this tax, the average “rich” person who owns his own business will pay 12.4% on his or her full $366,000 in earnings or $45,384, or 3 times his or her current payroll tax level and almost 12 times that of the average American. This is before he or she pays increased marginal capital gains and income tax rates under the Obama plan (see Taxing the Rich is Really Taxing All of Us). Is this fair? It does not seem fair to me, especially in light of the fact that the financially successful person will never receive a payout from social security that even comes close to what was paid in. Based upon projections provided to me over the years by the Social Security Administration, I expect that I will receive approximately $1,500 per month in benefit. This will be substantially offset by income from other financial sources: in effect, my contribution will be transferred to others – simply another tax and redistribution of wealth.


So what does the financially successful person do with what is left? He or she invests it or spends it. Investment means capital formation that leads to further business growth and jobs. Spending includes both consumption and charitable contribution. Expenditure on consumption – you guessed it – creates jobs and opportunities for others to become financially successful. Charitable contributions meet the many social needs of our communities and fund that aspect of “neighborly” which can only be met by monetary investment. According to Arthur C. Brooks, of the American Enterprise Institute, charitable giving in America, which was $265B in 2006, has risen faster than the growth of the American economy over the past half-century. For example in 1995, “Americans gave per capita three and half times as much to causes and charities as the French, seven times as much as the Germans, and 14 times as much as the Italians.” The top ten percent of American earners are responsible for seventy-five percent of giving, and the top 1% of earners represents half of the giving. So who gives more, conservatives or liberals? According to Brooks, “The fact is that self-described ‘conservatives’ in America are more likely to give – and give more money – than self-described ‘liberals.’ In the year 2000, households headed by a conservative gave, on average, 30 percent more dollars to charity than households headed by a liberal. And this discrepancy in monetary donations is not simply an artifact of income differences. On the contrary, liberal families in these data earned an average of 6 percent more per year than conservative families.”



What are the implications of Obama’s tax policy? Simply put, instead of returning a tax rebate to wage earners based upon their contribution (viz., a rate reduction across the board), he proposes to tax the “rich” and return their tax receipts in the form of payments to a majority of Americans who pay little or no income tax. In effect, he is going to take from the financially successful – the backbone of the American economy – and redistribute the wealth to those who did not earn it to ostensibly meet their day-to-day “needs.” In the process, he will: (1) remove capital from the economy that creates opportunities and jobs; (2) drive down charitable contributions by individuals that fund truly “neighborly” projects and place decision making for social concerns in the hands of government rather than individuals; and (3) most importantly, destroy the incentive of financially successful people to compete in the marketplace while incenting those who are either unwilling or unable to compete to “vote” rather than work for their financial success. This is not capitalism; it is social Marxism.

Remember ...

"You're entitled to your own opinion, but you're not entitled to your own facts," Sen. Daniel Patrick Moynihan.

"Against public stupidity, the gods themselves are powerless." Schiller.

“Who controls the past controls the future. Who controls the present controls the past.” – George Orwell, 1984

"Statistics are no substitute for judgement," Henry Clay

"The problem with socialism is that you eventually run out of other peoples' money," Margaret Thatcher