A new state law will punish cities like Harrisburg for declaring bankruptcy before July of next year.
So a few days ago I called Pontiac Michigan a “Canary in the Coal Mine“, a sign of things to come, just the beginning of city level defaults that would eventually lead to state defaults.
Today I have more news on that front for you. Another city in a lot of trouble is Harrisburg, PA. Harrisburg is a very different place than Pontiac but subject to the same laws of mathematics. Basically when you spend more than you have for long enough eventually you are screwed.
Harrisburg has been teetering on financial collapse for quite a while and has been recently attempting to stave off creditors with the threat of bankruptcy. In short asking for better payment terms, reducing debt by negotiation with the concept of “if you work with us you will get what we can give you, if you work against us you will get little or nothing if we file bankruptcy”. To me this actually sounds reasonable, any company would do this, dealing with employees, suppliers or debt holders.
Of course the government believes they know better and wants to make bankruptcy hurt a city more than it already does, according to a report by WHTM ABC27, a new law was just passed that states…
“Small to medium-sized cities that are deemed by the state to be financially distressed would lose all state aid if they file for bankruptcy protection before July of next year.”
So basically a city like Harrisburg would loose state funding at the time when they most needed it. This of course will embolden their creditors who will make more demands which may very well push the city into bankruptcy even more quickly.
I want to be clear Harrisburg isn’t as bad off as Pontiac, not yet anyway, but here again we see another city on the verge of economic collapse. The collapse of Harrisburg’s finances is coming, the law MIGHT, stave it off until 2012 but you can’t prevent people from running out of money with a law, if you could we would just outlaw poverty and eliminate it as a problem. The sad and scary thing is out there right now in the tiny brain of a politician that thought is being seriously considered!
Now for something far more sobering and concerning. I have profiled two cities this week in different stages of bankruptcy, I could continue to profile one a week and not run out of cities to profile for over two years even if no additional cities were added to the current list.
Sooner or later this will drag us into stage to of the double dip recession that is more accurately a depression. It may not be this year or next year but if you have money in stocks and bonds, keep a very close eye on this situation. Protect your investments with stop losses and/or covered shorts. Do not keep 100% of your money in stocks and bonds, do not keep 100% of your money in precious metals or US dollars. Practice true diversity and please be prepared to move our of your exposed positions long before the sheep figure out it is time for “Slaughter House Two” to air.
I just read an article over on CNBC called, Why GDP Growth Has Not Provided Jobs Yet, the article is well written, well thought out and honestly gives a good free market text book explanation to answer the question, where are the jobs and why aren’t companies hiring?
Cutting to the chase the entire explanation in the article comes down to “uncertainty”, simply put business owners don’t know how they will be taxed, they don’t know what oil will do, etc. The author goes into great detail on passed recessions, how they played out, when the jobs returned, etc.
Yet in the end his conclusion is simply, business owners don’t know what to expect so they are not hiring.
From the article,
“So, what does this mean for today? Why aren’t business owners hiring people? Like the 1973-75 and 1990-91 recessions, why is there such a lag with job growth? I think businesses have uncertainty around oil prices, yes, but the real cause is their uncertainty about conditions and interferences with their operating environment. If not this, what else?? Interest rates are low. Inflation has largely been under control since the late 1970s. And GDP is growing, probably the most important barometer.”
Such explanations are fine for political banter and I am sure there is an air of truth to it. As a business owner I am certainly concerned about all of these things but would it prevent me from hiring an employee I NEED? Not only no but HELL NO. If I need and can afford talent I am going to hire it. If they change the tax code and I can’t afford said talent after the change I will lay them off or more likely I will lay off a lesser employee. Business people, successful ones anyway are logical not emotional. We do not fear that we will get emotionally attached to our employees, we hire, fire, give raises, cut salaries, upgrade our talent pool and we do it all the time based on our needs and the situation on the ground.
Now uncertainty will have a bigger effect in states that are not “right to work” states and with bigger businesses that have a bit of a harder of a time (due to unions and regulation) getting rid of new hires as necessary. Trust me though if GM, Ford, Lockheed or General Electric NEED an employee, have the money and can find the applicant they are going to hire them. Why? It is how business works, people who have signed the front side of a paycheck understand this.
So what is the real reason hiring is lagging behind profit and output? Companies are doing more with less, many of the lost jobs are exactly that LOST, they are not coming back, not today, not tomorrow and not next year. I am going to do something for you right now that you won’t get from most media and certainly most politicians. I am going to be brutally honest with you. Here is comes…
Business is a bitch, it can and will kick your ass if you don’t play the game smart and do what needs to be done. Successful business people are successful because they do what needs to be done, when it needs to be done and if it harms some people, so be it, the company’s survival (and the employees who keep their jobs) out weigh any personal attachment to individuals.
Some companies can slack a bit on this during the best of times. Or as my old mentor Frank Madren used to tell me, “Jack even a turkey can fly in a tornado”, but when the boom cycle stops you either follow the rules of business or you die, unless the government pays your bill for you of course.
So here is what no politician or media talking head will tell you. The recession came, companies tightened up, improved efficiency, adapted, got leaner and ELIMINATED jobs. They didn’t do “lay offs” in the traditional way. This isn’t like some companies that lay off every winter and rehire in spring. No they found all the fat, trimmed it, trimmed even more, hired back where they over trimmed and upgraded talent. They are now running under a new model that provides the same output with less head count.
In the government when you have a surplus of cash you grow a department because goverments spend money. In a business when you have a surplus of cash it is called profit, that is why you go into a business in the first place, to make money, not to hire people until no profit remains. You want to know why companies are not hiring people with their new found profits? Simply put they don’t need them under their new more efficient models. In business only idiots hire people that are not needed and recessions quickly educate such idiots who either learn or go out of business.
Efficiency is also operates on an exponential curve. Meaning a small efficiency increase has a magnified effect on the total systems output. Making it simple if a company finds a way to run well with 20% less employees they are going to grow far more than 20% before they need to increase headcount back to the original levels.
The upshot is simple, about 10 million jobs in a nation of over 200 million adults are now gone, they will not return. 10 divided by 200 yields us about 5% of the adult population who no longer are, and this is the key, no longer are needed by their prior employers.
Does this mean these people have no hope of finding a good job ever again? No it isn’t that bad there is hope. Yet there are only two things that will create an environment where these individuals can hope to find jobs to replace what they have lost.
1. The economy must outgrow the efficiency increases businesses made from 2008-2011
2. New industries and new companies must form and hire them
It doesn’t matter what your long term view of our economy is, those two things will take a lot longer to occur than a rise in GDP, Corporate Dividends or the Down Jones Industrial Average.
When the canary dies, the miner who lingers is next! - Photo Credit to afagen via flickr.
The phrase “canary in the coal mine” refers to the old practice of mining workers taking canaries into mine tunnels with them. If poisonous gases such as methane or carbon monoxide leaked into the mine-shaft, the gases would kill the canary before killing the miners.
The canary was basically and indicator of things to come if the miners didn’t pay attention and get back to the surface. The phrase is well known in America today but the wisdom of the concept is lost on most people.
So how bad is it in Pontiac, well according to the article here are a few facts on the ground…
If the city were to lay off every current employee, the city still would be $1.5 million in deficit
The city basically laid off the police department dispatchers and dumped the responsibility on the county sheriff
The city has had a 21.4% decline in taxable property values last year
They have cut the Mayor’s and City Council’s pay to zero
Under a new state law Pontiac is technically in receivership
Sounds bad, but hey it is just Pontiac Michigan right? I mean Michigan isn’t exactly the land of opportunity and Detroit and the other motor cities have been in decline for a long time anyway right?
Sadly that will be the attitude of the average Joe. Such is the short sightedness of a society who doesn’t care about much unless it changes the temperature of the water in the pool that they owe more money on then they have in their kid’s college fund. As I reported back in December of 2011 in my article 7 Deadly Cracks, over 100 cities in the US are currently near bankruptcy. Pontiac is simply the first of the mix to go over the edge. At the end of the article there is a statement almost presented as an afterthought, it says,
The city’s last resort? A default on city bonds, which is all but unthinkable because it would affect county and state bond ratings, Jukowski said.
“I think the powers that be would move heaven and earth to avoid that,” he said.
Sadly this is the part that is supposed to tell us, everything is going to be fine, it should instead be the most alarming. Why? Basically the stance from the city is, “yea we are screwed, we can’t pay our bills, we would never be able to cover our bonds at this point but since we would screw over the county and state if that happens they have to bail us out”. If that doesn’t raise your hackles, drink some coffee and read it again! If it still doesn’t up your blood pressure a few points you should just return to counting your accrued credit card points!
The reality is Jukowski is probably right, Michigan and Oakland County may very well have to bail them out. Then just like the banks lined up for TARP look for cities in similar situations to do the same. Of course since the majority of US States are near bankruptcy such bailouts can’t go on for very long until said states will have to either finally default on their debts or play the same game with the Federal Government. Turning to the federal government, it is on course to be in debt for over 20 Trillion Dollars by 2020 at which point debt will exceed 90% of our total GDP, so how long can that game go on? The answer is, not very long.
Pontiac is the canary in the coal mine, the defaults are coming. Of course government and media will down play the severity of the situation as other cities enter similar cycles. They will ensure the public that our sugar daddy, Uncle Scam, has it all under control and that it all will be okay. Older citizens who traditionally move their wealth to fixed income bonds will be the first to take it on the chin with a loss to their short term returns.
Big investors in municipal bonds are not stupid and they will dump them which of course will hurt all those so called “safe bond funds” in 401Ks and IRAs as well. Of course this is the minor part of the story, by the time mainstream America faces this reality, we will be on our way to a full scale re-basing of a collapsed dollar.
Many will see that as alarmism, but if the canary dies, the best course of action is head for the surface.
Recently in remarks from his latest speech Fed Chairman Ben Bernanke acknowledged that the Fed has done all it can do to prop up the economy and it is now up to the nation itself to rebuild the economy. You can see his speech here. My first thought when I heard this was thank God, my second was and for how long shall this last.
The reality is despite pumping billions into the economy by creating money out of thin air and increasing the nations debt nothing the Fed has done has worked. Unemployment grew, the housing market continued to falter and consumer confidence is still very low. In fact in spite of putting the country a couple trillion dollars into additional debt Chairman Bernanke is actually confused as to why it didn’t work.
He is confused! The man with the nation’s checkbook is “confused”!
You mean printing phoney money and increasing debt and getting nothing in return for it doesn’t make our economy stronger? I am personally confused by how long it took the Fed to stop messing around with the economy, at least for a little while.
Some people though are not happy about Mr. Bernanke throwing in the towel (at least for now as I predict QE3 will happen down the road). No they want Ben to continue to drop money from helicopters if necessary, anything but face reality. The following is an excerpt from a recent article on Seeking Alpha.
Those of us Democrats who were happy when Barack Obama reappointed Ben Bernanke as Fed Chair thought that we were getting the Ben Bernanke we knew — the student of the Great Depression and of Japan’s Lost Decade dedicated to doing whatever was necessary to stabilize the time path of nominal GDP, up to and including dropping bales of money out of helicopters.
Whatever happened to him?
I am sorry but WTF! I have a hard time understanding people that think this way. Something doesn’t work, harms the nation and we are just supposed to keep doing it? Please don’t take this as a political piece on my part, “those of us democrats” was a line used by the author, Brad DeLong, not me. Honestly I seriously doubt that the average Obama voter or the average McCain voter for that matter even considered Fed policy when voting much less understood it.
The sad fact is people will make this political but it is far from a left vs. right issue. Neither republicans or democrats in our nation seem to have much of an understanding about our underlying economic system. The truth is there are no helicopters of money to drop, only debt that is incurred and must someday be answered for.
I agree with Mr. Bernanke at this time, it is time to stop the propping up and bailing out, the problem is for the last three years that is exactly what the Fed did, the damage is now done and QE3 or not, it won’t matter the future is going to hold some very hard times for the US economy.
Like it or not, people are driven by their emotions. Some people acknowledge and accept that fact, others however live in denial. It is those people that you should be worried about as they tend to hide their emotions behind “logic.”
The biggest emotion that drives people is fear of loss. Fear drives the stock market for example. People sell when they are afraid of losing money, and inevitably this fear causes the very thing they feared. “Smart” people capitalize on this fear. It is why so many investors get rich when the market takes a downturn. They buy stocks when they are “on sale” because people are selling out of fear. Smart people also capitalize on people’s stupidity. People tend to buy stocks when they rising in price, often when they are close to peaking.
Unfortunately the market itself is a giant pyramid scheme. The basic definition of a pyramid scheme is when people buy something that has little to no value simply in the hopes of selling it to someone later for more than they paid for it.
Wikipedia says:”A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud”
While some people buy stocks for the dividend benefits, or for the benefit of having a vote in the shareholder’s meeting, most buy them simply to sell them someday for a profit. This system, and frankly our entire economy needs infinite growth to sustain itself.
Many people say the solution to this is that we need more jobs and to reduce taxes and reduce spending. They are right, but only half right.
First off, we do need jobs, but we need the right kind of jobs. It really won’t help the country to have a ton more telemarketers, brokers, and bankers. Why? Because they don’t produce anything. Just look at our import versus our exports. A 2008 estimate from wolfram alpha states that the United States imports 2.539 trillion dollars while only exporting 1.838 trillion dollars. If we picture every country in the world as an individual in a small economy, the U.S. is spending way more than it makes. If the U.S. were a member of tribe it would probably be expelled, because it is consuming much more than it is producing.
The reason of this is another pyramid:Maslow’s Hierarchy of Needs. If you have had psychology 101 you might remember this model. Maslow was a psychologist that proposed that we as individuals have stages of needs, conceptualized by a pyramid in which the lower level needs must be fulfilled (for the most part) before higher needs can be filled. The pyramid looks like this:
Maslow's Hierarchy of Needs - Click Image for Full Sized View
Take a look at that list and then look around at the economy. Which of these general categories are the most popular for people to both buy from and work in? Most of them like fancy cell phones, cars, art, video games, etc, are in the upper part of the pyramid. Obviously we will die faster without air than without art, yet most industries in America are geared toward these luxury items. Now I am not saying these things are not important, I myself am a programmer by trade. What I am saying is that when everyone decides to abandon the family farm and start work as an artist or a programmer, it puts more of a strain on our abilities to meet basic needs. The pyramid begins to look more and more inverted, until it at last, it topples. People seem to be wanting the upper stages more than the lower ones, even though the lower stages are necessary to survival.
What can you do about it? If you are employed in one of the upper tiers of this model, then find some way to invest in the lower level ones. Start producing at least a portion of your own food, water, energy etc. Perhaps try to invest in some companies that responsibly produce these things. These are just some ideas but the main point is that America, and frankly the rest of the world will need to produce more, consume less, and seek more efficient means in the future.
About the author:Jake Reed is programmer and creator of Survivalize.com which is a site dedicated to helping people become more prepared for whatever life throws at them.
This story comes from a town 14 miles from my home from a city of about 80,000 people. The contents of the story were not covered by any of the local newspapers and none of the local coin shops had any idea such a hearing was going on. But it is a very good demonstration that you can make a difference most importantly in your local area if you just show up. Below the article is my speech to the Nampa City Council.
On Tuesday, January 18th, the Nampa, Idaho city council met and on the agenda was a hearing for an ordinance proposed by the Nampa Chief of Police Bill Augsburger to closely scrutinize and regulate dealers in precious metals and semi-precious stones, either coin or jewelry.
The proposed ordinance called for the licensing of precious metals dealers, applying to jewelry stores as well as coin shops and would entail:
Owners and employees in such stores be licensed and have background checks with fingerprinting at the expense of the employer,
Bonds would be required as well as liability insurance in the amount of $500,000,
Every dealer shall keep a record of every article purchased, including photo identification, address and signature,
All records of purchase or sale at the end of the day will be transmitted to the Nampa Police Department, including the photo ID.
Few had knowledge of the proposal before it was presented before the council in detail by the police chief.
Needless to say, such an ordinance sounds rather Draconian and adds to growing fears of the possibility of confiscation by various governments in the event of economic crisis. In 1933, President Roosevelt signed executive order 6102, “requiring holders of gold to turn it into the Treasury in exchange for paper currency under penalty of ten years imprisonment and $10,000 fine.”
Certainly tracking purchases of precious metals would aid the government greatly if history repeats itself and confiscation again comes to America. When asked about why this is necessary, the police chief said, “I haven’t heard of any specific cases, but I don’t want to wait (until there is one.)”
This logic, if followed to it’s conclusion, would suggest that the police department and city government have a duty to track, scrutinize, license and tax any particular item for sale in order to protect from theft. Would it not be necessary to do this in order to aid in the recovery of any item of value owned by those within the city? Why should such an ordinance apply only to dealers in precious metals? Small items with high value such as iPods can be erased and sold already, some iPods worth more than their weight in silver.
The chief said his motivation is “protecting the people he serves.” Being able to recover “grandpa’s old watch” is essentially the goal he had in mind.
There was no statement from
him regarding the economic impact of this ordinance or how it might adversely affect customers of precious metals dealers, all but inevitable when government steps in to regulate and interfere.
After the proposed ordinance was presented by the chief, the public was allowed to speak for a short time on the ordinance. Six people spoke against the ordinance, among those were Wayne Hoffman, director of the Idaho Freedom Foundation, Paul Venable, recent Constitution Party candidate for Lieutenant Governor and yours truly, A.J. Ellis.
The ordinance was defeated with the suggestion by Nampa Mayor Tom Dale that if the council wants to accept the assistance offered by members of the public in drafting a reworked proposal that does more to protect privacy then they might revisit the issue and have another hearing.
I appreciate the chief’s good intentions in proposing this ordinance, but I would remind him of the timeless quote from C.S. Lewis,
“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.’
Tyranny may seem like a strong word for this sort of seemingly lesser intrusion by government, but the intent of Lewis’ statement applies perfectly and holds true nonetheless.
This goes to show us that although we often set our eyes on the federal or state level in fighting government invasion, we can have a large impact at the local level by keeping ourselves informed and simply showing up and speaking up against such things. It was largely due to the public show of displeasure that this proposal was put down for the time being.
Mr. Mayor and councilmembers,
My name is A.J. Ellis, I live near Marsing and I regularly come to Nampa to do business. I’ve bought and sold a small number of silver coins in Nampa at two different sellers in the past year and have an interest in silver and gold as it applies to economics and money.
Here’s why I believe this proposal will be detrimental to Nampa businesses and customers.
A. This will be a burden to the coin dealers and will cost them money. The extra costs that this entails will cause prices to rise and consumers will chose other cities to do their business in. I personally will choose to purchase such things elsewhere.
B. Not only will this reduce business to coin and precious metals dealers, but those customers purchasing those products will take their business to other cities. Many customers try to save trips by doing all their business at one time. Those that wish to purchase those goods without interference will choose a more favorable seller in a more favorable city, thus you will see how economic actions, however small will have effects on the particular system’s economy as a whole.
It may cause the smaller and weaker dealers to go out of business, thus losing tax revenue for the city and adding to the overall economic hardship that continues to plague us.
C. What rightful business does the city have to track and manage such a benign product as precious metals? This seems draconian and I believe that this will add to the fears of some, reminiscent of Franklin Delano Roosevelt’s executive order 6102 in 1933, which (according to Time Magazine during that year)
“required holders of gold to turn it into the Treasury in exchange for paper currency under penalty of ten years imprisonment and $10,000 fine”
I certainly do not say this ordinance equals such a thing, but it does seem reasonable to say that the tracking of such goods could increase the probability of control in the future. Many consumers wish to maintain the privacy of their transactions, to which they have a right unless they cause harm to others.
I believe that laws pertaining to the trade and sale of stolen goods are sufficient, some of these businesses already record the information and driver’s license of walk-in sellers, and as silver and gold have the possibility to become more prominent because of national events and actions, I ask that the effects of this ordinance be looked at in terms of the whole economic effect on the city and that our first obligation is to “do no harm.”
Fed Chairman Bernenke Wants to Remove the Reserve from Fractional Reserve Banking
James Bond, old 007 had the famous “license to kill” now it appears that Ben Bernanke wants to give banks an equal license to kill the American economy. Old chairman Ben wants to give banks a license to print money with out even the current 10% reserve standard. Currently a bank my only “loan” up to 90% of its cash on hand. I put loan in quotes because even that is misleading, (Read “The Real Truth About Money” via free download to understand why) as banks quite literally are already creating money out of thin air with each “loan”. Yet at least until now the fractional reserve system has applied some modicum of control in the otherwise insane “Monopoly Game” we call the US Economy.
Currently banks can loan up to 90% of their deposits out for everything from consumer loans, to credit cards to mortgages. What Bernanke is now proposing is that they be allowed to loan out 100% of deposits if they so choose. Of course almost anyone with a desire for sound money is upset about this and the implications it has for inflation and debt but the elephant in the room is the question no one seems willing to ask, so I will do it here…
How would loaning out 100% of deposits even be possible? Wouldn’t it make it totally impossible to even run the daily needs of the bank if 100% of the money taken in was loaned out?
I mean just mull it over in your head a bit, could you loan out 100% of your money? Even at a good interest rate, even if no one defaulted, even if everyone paid you back on time? The answer is of course no. You would always have to have something in “reserve” to eat, pay bills and basically function. So how can a bank do it?
Simple, they DO NOT loan out money they create money when they loan it. When a bank loans you money to buy a house, say 200,000 dollars they make a journal entry that creates a new 200,000 dollars out of thin air, the mortgage (an account receivable) now becomes a bank asset. The bank now puts that loan due on the books and receives a monthly cash flow from it even though they paid no real consideration to acquire the loan.
In other words they still have the original 200,000 dollars and now they also have a account receivable for 200,000 new dollars plus interest. Seriously with banks paying account holders say 1% and loaning money at 5% do you really think that alone would pay for their marble floors and vaults let alone CEO bonuses and jet fuel?
This new proposal simply proves what people like me have been saying for decades, banks do not loan money, they manufacture it, banking today is basically legalized counterfeiting. I refer you to the Federal Reserve publication called “Putting it Simply” on page 6 it says in very clear language,
“Of course, they (banks) do not really pay out loans from the money they receive as deposits. If they did this no additional money would be created.”
This latest move by the Fed’s Boy Genius simply proves what many of us already know, the modern banking system is a scam. A scam where we are used as nothing more then ink and plate to print more of our own debt, debt the banks get to call and use like real money while we pay both for its creation and the interest it carries.
If you really understand this article then this should be a frightening conclusion, if we remove the reserve requirement and keep the current system banks not only could loan out 100% of their reserves, they in theory could loan out 110%, 150% in fact there would be no theoretical limit. In effect it would turn every bank into a micro version of the Federal Reserve.
In this video that aired on Bloomberg on Jan. 25, 2010. Notice how he laughs at the pea brain commentator who says, “May be now Obama will bring change into the government.
This video really isn’t about politics though, is is about the crumbling nature or the U.S. Economy long term. Also note that his forecast for the U.S. in the short term is relatively positive. He also calls on government to tell us the truth, though doubts anyone will. This video is a must watch if you want the truth about our economic situation.
The following is a short fictional account of a dangerous smuggler…
Scott peered down the road as he slowly drove his Ford F-350 toward the border checkpoint entering the United States into Washington state. A few slight beads of sweat on his forehead despite the relatively cool breeze that came through the open windows on the calm summer evening. He wiped his head with his sleeve and took a deep breath before he drew near the sign by the United States Customs and Border Patrol station. He held his passport, which ironically he only needed in order to return to the U.S. and was waved on by the agent directing oncoming travelers.
“Papers please,” Said the agent through the drive-up window as Scott handed him the required documents. The agent studied them for a moment and asked “Where are you headed?”
“Home, heading back to Oregon.”
The agent said “Please drive to the inspection area and turn off your engine.”
Scott complied, noticing that his passport was not returned to him. He sighed, started the truck and parked as directed.
Two agents met him there, one armed with an M-16 and assault vest and directed him to exit the vehicle for a search. There was not much he could do at this point but hope that his contraband was well-concealed.
One began to take items out of the bed of the pickup and place them on the ground. A sleeping bag, some luggage, even the spare tire.
“Unlock the luggage for us, please,” the agent said, pointing to a diminutive briefcase, slightly worn from extensive use.
“Do I have to? I mean, I’m always coming through here and I’ve never had any problems before,” said Scott, trying to get out of it without disagreeing too strongly with the agents bearing the State’s blessing and a monopoly on the use of force.
“Yes, please do so immediately,” the cheerless agent carrying the M-16 intoned.
After the case was opened, the agent rummaged through it placing items on the ground as he searched Scott’s belongings.
“Well, what do we have here?” as he held up for all to see,the dangerous contraband Scott hoped now vainly to hide. In his gloved hand a box of Kinder Eggs he held.
“You know these are prohibited!” exclaimed the official “Kids can choke on these, and you have been suspected of smuggling them in for about 6 months now.”
“Oh come on, it’s a chocolate egg with a toy inside! It’s not like we need the FDA to nanny my own kids for me, I think the kids I give them to are smart enough to avoid dying from a Kinder Egg. Millions of Canadian kids avoid death by Kinder Egg all the time!”
The agent bristled, “You’re about one word away from a ride on the taser train, shut up and follow me to the holding area. You, ” he said speaking to his partner, ” escort him inside.”
Scott flinched as the armed agent grabbed his arm and pulled away slightly. Almost instantly he was hit by the first agent’s taser and went down writhing and clutching his side. “They’re for my kids!”
“That’s assault on a federal officer! Cuff him and take him inside!” said the functionary of the State, rather offended by this one’s display of contempt of cop.
“But what does that have to do with money or economics?” you might ask.
Well, the power of government has been used to the detriment of liberty and economic prosperity and that certainly bears significance. The federal Food and Drug Administration without representation or the consent of the people have told Americans that they’re too stupid to make a rational decision regarding the products they buy and what they let their kids have. This decision was handed down on high by a federal bureaucrat a la government fiat under the auspices of “protecting the public.”
From the Customs website, “CBP has been entrusted with enforcing hundreds of laws for 40 other government agencies, such as the U.S. Fish and Wildlife Service, the U.S. Department of Agriculture and the Centers for Disease Control and Prevention. These agencies require that unsafe items are not allowed to enter the United States. CBP officers are always (emphasis original) at ports of entry and assume the responsibility of protecting America from all threats.
The products CBP prevent from entering the United States are those that would injure community health, public safety, American workers, children, or domestic plant and animal life, or those that would defeat our national interests.”
Looks like these 40 government agencies know what’s best for the collective…
In a truly free market, unsafe products become unpopular or used with caution. Certainly some may fall victim to improperly used products, but that’s no change from our current system as this happens with or without a paternal agency telling us what we may or may not have.
This is especially true with the advent of the internet and websites that review products, spread ideas and give consumers a chance to share positive or negative feedback about a product or service.
Kinder Eggs are not the only things that have been banned from importation, or even citizens from bringing into the country personally. The popular Australian spread Vegemite is not allowed into the U.S. because it “contains folate, a B vitamin approved as an additive for just a few foods, including breakfast cereals,” reports The Age in Australia.
If products that are more desirable or less expensive and manufactured in other countries are banned or taxed this will only harm a nation’s economy because producers are also consumers. If the same product can be imported much cheaper than it can be made at home, then the importing country’s consumers benefit from whatever attribute that enables the exporter to produce his product cheaply.
I was listening to a local radio advertisement encouraging people to buy products made within the state because those dollars will stay in Idaho which will work to maintain our public works and “maybe help you keep your job.”
The idea of buying locally for the purpose of local taxation bothers me, but what about the consumer? If it costs more to produce the product here because of labor, climate, resources, etc. and the same product costs less to produce elsewhere for the same reasons, to buy locally does not help the producer much at all. The producer had to pay more to produce his product because he had more obstacles to overcome than the cheaper and less local competitor, he does not see more profit because of it.
Certainly there are health reasons to buy locally. Most of the time you know where the product comes from and how it’s made, so my statement is limited to products that are known to be the same in a free market.
As Frederic Bastiat in his treatise on the subject (this essential work on trade and the law is free to read here and also available via the iBooks app for iPod) argued that we “spurn the gift of God by nature” with protectionist tariffs levied for the purpose of encouraging local producers. All this does is waste more resources by forcing ourselves to overcome more obstacles to produce the goods we consume rather than trading with those that must overcome fewer obstacles to produce the same product. The extra money saved can be spent on other things, thus encouraging other industries as well.
Whatever one thinks about real free trade, it’s easy to see how seriously our government takes it’s job of protecting us from ourselves from the dangers of Kinder Eggs and Vegemite. So whenever you happen to be in Canada, buy a Kinder Egg and find out.
I’ll end with a quote from Bastiat, “When goods don’t cross borders, soldiers will.”