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October 4, 2017 | How to Starve the Washington Beast

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

POITOU, FRANCE – You’ve heard us say more than once: We’ve never met a tax cut we didn’t like.

But we never met a tax cut like the one Team Trump is now proposing…

The idea of a tax cut is to let people keep their own money. They spend, they invest. They do not waste money on boondoggles and bamboozles, like the government does.

Instead, they do win-win deals that move the economy forward. We don’t necessarily get what we want, but we get what we deserve.

How Government Works

Our first career was in the public interest sector.

We joined a conservative pro-taxpayer advocacy group called the National Taxpayers Union. It was a tiny, hole-in-the-wall organization – so small we quickly rose through the very thin ranks to become its executive director… at 26 years old.

That experience was instructive; from it, we got our distrust of Washington and our abiding cynicism towards politics.

The government doesn’t function the way most people think. And it certainly doesn’t function the way it is described in the high school civics books.

As the great Italian economist Vilfredo Pareto explained back in the 19th century, it doesn’t matter what you call your government or what you put on paper in terms of a constitution.

What happens is this: Smart people – Pareto called them the “foxes” – go where the power is. They figure out how to control it… and how to use it for their own benefit.

The few find ways to exploit the many, in other words. That’s how government always works.

Same Old Hustle

Few people had any illusions about it in the days of the Pharaoh or the Roman Empire… or in the era of kings and queens.

Rulers had whips in their hands; they didn’t mind laying the lash on the backs of their subjects.

But at least the latter knew where they stood. They understood, too, that they should hide their wealth when the tax collectors came knocking… and make themselves scarce when the feds needed soldiers.

Then, with the rise of democracy, it became harder to see what was really going on. The nature of government became hidden in myth and balderdash.

“We” elect our leaders, is the popular delusion; they do what “we” want.

We have a government “of, by, and for the people,” is how President Lincoln put it, after killing a half million of them.

“Government is all of us,” said a famous jackass.

How does it really work?

Facts fade by the square of the distance from their source.

So, the voter in Montana has little idea of what plums are hidden in Obamacare… or what exactly a 19-year-old from Helena is supposed to be doing in the Hindu Kush… or why U.S. sugar growers need to be protected from competition from Brazil.

“The people” have no idea how their laws or their sausages are made: They have no idea what is in them.

This allows the foxes to get away with grand larceny… and even murder. All they have to do is bamboozle the masses with patriotic slogans, economic claptrap, and flimflam solutions to problems and challenges that, often, they caused themselves.

The New Deal, The Great Society, Hope and Change, Make America Great Again – it is all the same old hustle.

Starve the Beast

Back in Washington, at the National Taxpayers Union in the 1970s, we saw the dots. And we connected them.

America had the largest, freest, most dynamic economy in the world. But now, the foxes were moving in.

The feds were getting more and more bossy. More agencies. More regulations. More laws and more taxes.

Back then, consumer price inflation was rising… as the feds financed more and more of their programs with printing press money. How could this be stopped?

“Starve the beast,” was the idea.

If taxes could be cut… and contained… the federal government would be deprived of resources. The feds could be brought under control.

That was our mission at the National Taxpayers Union. We showed the public how money was wasted. We called for tax cuts to limit the waste… and control the growth of government.

And we were making progress…

Indexing the tax bands for inflation, for example, saved people from “bracket creep,” which raised their taxes automatically.

Meanwhile, conservatives were learning how to use the debt ceiling to slow the growth of federal borrowing.

Reagan Revolution

But then… Ronald Reagan appeared. He was our Jan Sobieski. He was our Spartacus. He rode out from California with an army of knights, all in shining armor.

He promised not only to cut taxes… but to trim the government itself.

And after Reagan was elected, we thought – briefly – that the battle had been won. A major tax cut was enacted. The beast hadn’t been tamed. But he was on a leash… and on short rations.

But wait… something went wrong. Taxes were cut. But the beast didn’t starve. Instead, he grew fatter, sassier, more aggressive than ever.

What happened?

In a few words: We were betrayed. The Reagan team learned that “deficits don’t matter.”

They didn’t matter politically. And they didn’t seem to matter economically either. The feds could run up as much debt as they wanted.

President Reagan added more debt than any president since FDR.

Did the dollar drop?

No.

Did inflation go through the roof?

No.

Did the stock market crash?

Nope again.

Just the opposite: Stocks soared. Inflation declined. The dollar was stronger than ever.

How was that possible?

Tune in tomorrow…

Regards,

Signature

Bill

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October 4th, 2017

Posted In: Bill Bonner's Diary

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