Archive for the ‘Economics’ Category

Today in America terms like Communist or Socialist get thrown around regularly to describe the Federal Government under the Obama administration. There are some aspects of both Communism and Socialism that are apparent and undeniable in todays government, but neither term is wholly accurate. It is more accurate to use the term Fascist. The tendency of America toward Fascism did not start under Obama but has without a doubt blossomed. The progression toward fascism under Bush has been documented enough for 10 lifetimes by a multitude of other people, I am not excusing his administration from guilt just choosing to not drone on unnecessarily about a topic that has been covered ad nauseam.

8 Reasons Why Fascism Is The New American Way.

1. Mixed Economy – The transition of the economy of America from a Free Market economy to a mixed economy has accelerated under Obama. In a mixed economy private enterprise continues to produce the majority of goods and services but operate under such a heavy regulatory burden from the national government that production is essentially controlled by the national government. In a mixed economy the national government utilizes manipulation of monetary and fiscal policy in order to steer production and pricing, control competition, and intervene in the business cycle.

2. From the Wikipedia definition of Fascism “a totalitarian state that seeks the mass mobilization of the national community through discipline, indoctrination, physical training, and eugenics.”

Under the Obama administration calls for “bi-partisanship” are at an all time high. We are being led to believe by the national media that the ills of our nation are rooted in disagreement and gridlock. (Reminiscent of “third position” politics which claim to be syncretic or beyond the left right paradigm). When in fact the opposite is true. The Federal Government was designed to be slow and prohibit rash decisions by lawmakers, it was designed to prevent the tyranny of the majority as well. Despite this, the call to unite under one set of ideals continues to be drummed into the heads of the public. Eerily the Obama administration has chosen to focus on all of the categories outlined above. Indoctrination of the general public and students through media and education, physical training by the First Lady and her various programs aimed at American physical health, and eugenics through the continued support of abortion and pro abortion groups.

3. “The Ready Reserve Corps”- Fascist movements have historically used paramilitary forces to overthrow governments. I have documented and explained how it came into existence and why the Ready Reserve Corps is a paramilitary force. (Here)

4. Obama has expanded on the fascist tendencies of the Federal Government by implementing protectionist economic policies which restrict the free trade of goods and services. As a matter of fact a national Obama campaign ad brags about protectionist policies toward China. (Here) Obama has continued the interventionist economic policies of his predecessors as well by allowing monetary manipulation by the Federal Reserve.

5. Historically, Fascist governments have been known for publicly supporting the economic lower class (proletariat) while denouncing the economic upper class (bourgeois). Obama’s hostility toward the rich and the emergence of the OWS movement are not coincidentally in American politics at the same time. The OWS movement is clearly a wing of Obama’s domestic economic policy agenda. OWS was designed to galvanize the poor against the rich to facilitate Federal Government wealth redistribution (equality). In the past, Fascist have created this conflict between classes then used the hostilities to advocate their policies to “resolve” the conflict to “preserve the nation”.

6. Fascism is hostile toward capitalism. Capitalism is considered too competitive and results in enterprise that are indifferent to the success of the nation. In the eyes of Fascists, Capitalists have no goals other than the maximization of profit. They view the desire to maximize profits as individualistic and inconsiderate of the nation as well as the nations population.

The Obama administration has been unabashedly anti-captialist since taking office. There has been more anti-captialist rhetoric in his Presidency than during any other part of our nations history. The demonization of capitalism and private businesses has become such a crucial part of Obama’s  agenda that he now openly speaks negatively about American businesses in his speeches. He frequently references greed and profits at the expense of the poor as his major issues with American business. Both are qualifying accusations for being a Fascist.

7. Improved Social Welfare is another highly promised aspect of Fascism. Italian Fascism under Benito Mussolini promised a “social revolution”. This social revolution was mostly made up of a doubling of the number of workers who worked for the government and and an increase of welfare spending from 7% to 20% of the Italian budget. In Nazi Germany the Fascist government created the Volkswagen automobile with the aim to make an automobile cheap enough that every German citizen could own one.

Under Obama we are seeing our own social revolution. The size of the Federal Government workforce increased by 13% between 2007-2011 according to this article in USA today (which also references a very minor decline in Federal employment for 7 or 8 months between late 2011 and mid 2012). The size of Federal Government employment had declined steadily from 6,639,000 in 1968 to 4,127,000 in 2007 according to the US Office Of Personnel Management (here).

Welfare spending in America has increased by 41% in Obama’s tenure in office according to this study done by the CATO institute (here).

America even has its own form of Volkswagen now! It’s called the Chevrolet! Also, dont forget about “cash for clunkers”! In true Fascist nature the Obama administration sought to put a newer more reliable vehicle in as many driveways across America as they could.

8. Corporatism was a key part of Italian style Fascism and it has been promoted by other groups of Fascists as well. This quote taken from Wikipedia by Oswald Mosley of the British Union of Fascists described Fascist corporatism this way, ” it means a nation organized as the human body, with each organ performing its individual function but working in harmony with the whole”. Italian fascists fostered the creation of a large number of state owned businesses by promising to protect the lower class and small businesses from the greed and profit mongering of big business.

Mussolini blamed “super capitalism” and excessive consumption for an economic peril in which bloated business will inevitably fail and seek the assistance of the government in which it had chided away from previously. At which point he was of the opinion that the state was obligated to the “bureaucratization of the economic activities of the nation”.

Our nation has seen historical increases in partnerships with private enterprise. Farming out work to private businesses is not an undesirable activity but once a business becomes married to the income it receives from Government and ceases to operate outside of government contracts, is it still an independent business or is it just another entity of the government? This is a question that is not easily answered but Fascist Corporatism is at the center of a transfer from Capitalism to Fascism and should be monitored closely. The government takeover of GM was a very large stride toward Fascist Corporatism in America outside of military hardware production.

The case can also be made that Fascist Corporatism is being carried out in stealth. With the bailouts, tarp funds, and QE I,II,III being performed under Obama one can easily say that the Federal Government is attempting to gain control of the funding mechanism for most businesses in America by purchasing the major lending institutions. Recently an audit of the Federal Reserve showed that $16 trillion ($16,000,000,000,000.00) of “stimulus” was handed out instead of the reported $800 billion. That is 20 times more than reported. A vast majority of these funds were dumped into lending institutions. (Data here)

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Gresham’s Law

Posted: September 21, 2012 in Economics

Some food for thought on this finally Friday.

“When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.”- Sir Thomas Gresham


And now a modern nod to Gresham’s Law in regard to gold/silver vs. the US dollar.

“We would go further however, and argue that gold could be characterized as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies. In describing gold as such we refer to Gresham’s Law – when a government overvalues one type of money and undervalues another, the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation.”- Deutsche Bank Analysts Daniel Brebner and Xiao Fu
As I get ready to post this the “ask price” of gold at http://www.apmex.com is $1,782 per ounce.  Compare that to right around $600 per ounce on this same day 5 years ago. What has changed in five years? The debt. The amount of dollars in circulation and the expected performance of the dollar in the future. We are seeing inflation and currency devaluation exponentially push the value of gold upwards. The graph shown below (courtesy of the American Precious Metals Exchange) illustrates the upward price trend of gold in the last 30 years. If you haven’t been able to understand my rantings about the Federal Reserve and their monetary policies, maybe this chart will get you to begin understanding.

 

 

 

 

 

 

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“Listen to me now: No president, not me, not any of my predecessors, no one could have fully repaired all the damage that he found in just four years”- Bill Clinton

Clinton also described Obama as “a man who is cool on the outside but who burns for America on the inside”, also Clinton stated that Obama has “laid the foundation for a more modern, more well-balanced economy.”

There a few problems with these statements uttered by the somewhat revered former President at the DNC recently.

Praiser’s of President Clinton’s words need to keep in mind that President Obama did not “find” these problems, he did not “inherit” the problems either. Obama spent a fortune of other peoples money and lots of his own to get the office of the President. The man didn’t fall out of the sky and into the oval office, he worked hard to get there. To say that he simply “inherited” or “found” the issues facing America when he took office implies that he was out of touch, uninformed, and frankly not ready for the Presidency. All of which were criticisms leveled by Republicans toward Obama that were vehemently denied and fought against by Obama supporters.

This type of rhetoric isn’t new to politics and Clinton knows this. Bill Clinton was openly blamed for 9/11 by many neo-conservatives who claimed that he gutted the military and made it possible for those terrorist acts to occur. They claimed that George Bush had inherited an America with weak national security. Clinton received a lot of blame through the first four years of  the Bush era from Republicans, the rhetoric was used as a crucial part of his re-election campaign in 2004.

It was the success of the Bush administration’s ability to convince its base that Bush wasn’t a bad President and that he just needed four more years of work that has inspired this very same propaganda by the Obama administration. It worked once, why couldn’t it work twice?

The next fallacy in Clinton’s statements was that he said Obama has “laid the foundation for a more modern, more well-balanced economy”.

It is the tendency of central planner types to assume that they are solely responsible for the growth and success of the economy. I find the hypocrisy of this mindset to be so blatant that I can’t conceive of how it is missed by so many. Think back to the much vaunted comments made a while back by Obama claiming that “you didn’t build that, somebody else did”. His comments set out to remove the individualism of America to remind us that government has an important role to play. He didn’t say that business didn’t accomplish anything, he said that business didn’t accomplish anything without some form of government assistance. But apparently in the mind of Bill Clinton this isn’t a 2 way street. Government is crucial to the success of business, but businesses and business people are not crucial to the success of  the economy and/or the government. If Obama has “laid the foundation” for this “more modern, more well-balanced economy” then all of the reinvestment, cost cutting, and entrepreneurship of Americans and American businesses  has absolutely no effect on the future of our economy.

The success or failure of the economy moving forward is the sole ownership of Barack Obama if you are willing to accept these remarks as the truth. After all, if you built a brand new house and 3 years later the house collapsed due to a bad foundation you would probably call the guy who laid the foundation and demand restitution. Obama should and will be held to the same standards, if we are willing to forgive Obama for his first lets say 2 years (which is an arbitrary number decided upon by the excuse makers) because he was busy digging out of a hole then from those 2 years forward it is all his. If they are willing to say it took 2 years to dig out of the hole then they are saying that the hole was dug out of in 2 years, right? So around late 2010 early 2011 President Obama’s term began fresh, clean and unimpeded by his predecessor. I am holding every single one of you to that.

If you are willing to put a lot of faith in the words of Bill Clinton and praise him for his wisdom then you had better be willing to own up to what that “wisdom” entails. If you are Barack Obama and you are willing to let him march out into public and speak on your behalf and convince America that you are the best thing for the future because you have “laid the foundation for a more modern, more well-balanced economy” then you had better be willing to take responsibility for the words that he speaks on your behalf.

In my estimation, if President Obama is responsible for the “foundation” of the future economy we are screwed. The foundation he has laid is based on the Federal Reserve continuously pumping more money into the economy to keep it from seizing and collapsing a practice which risks monetary inflation. The foundation he has laid is based on the Federal Reserve mandating that rates be held artificially low for an open ended amount of time to encourage lending of easy money which can lead to the gambling and irresponsible investment behavior blamed for the housing collapse in 2008-2009. The foundation that he has laid is based on the Federal Reserve, a consortium of privately owned banks, buying our national debt and using it as a backer for printing more money (monetizing the debt) risking hyperinflation.  The foundation he has laid is based on buying up failing businesses and interrupting the business cycle to “save” jobs. The foundation he has laid is based on an ever increasing number of unemployed workers, an increasing number of people collecting welfare, and persons claiming disability (a common trick for the long term unemployed who can no longer collect unemployment benefits is to go onto disability).

Thank you Bill Clinton for clarifying for all of us who is responsible for the “more modern and more well-balanced economy” that we have to look forward to.

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Pump, pump, pump it up!
Pump that bullshit economy up!
Keep, Keep, Keep it afloat!
Keep that false economy afloat!
Ben Bern-yank-me, the chairman of the Federal Reserve, reminds me of a cheerleader chanting this cheer as he relentlessly pushes the print button on the printing press. Please don’t confuse the wild look in his beady eyes with anything resembling a spark of monetary responsibility. This guy is nothing but a puppet on a string for the Obama administration.
The latest announcement from The Fed is nothing more than a propping mechanism intended to temporarily keep the economy from collapsing and aid Barack Obama with his re-election efforts. From the beginning, this administration has been thick as thieves with the banksters. The fascist back scratching favors that Obama did for them are being returned with repeated rounds of “quantitative easing” from the central bank. This disgraceful disregard for the economic future of our great nation is, in my opinion, bordering on treason.
Here is a little analogy that I came up with to describe the state of the economy and what QE can do for it:
The stew (economy) is on the stove. The pot is there (able workers with a desire to work), the stove top is there (factories and manufacturing facilities), the flame is lit and burning.
Unfortunately, the stew has been scorched because of poor kitchen management (systemic issues with Congress and the office of the President). The meat (jobs) and potatoes (profits) are shriveled and burned beyond recognition. But don’t worry the sous chef (Bernanke) has a gallon of milk (QE) he is going to pour in and create “liquidity”. All of this milk should magically cure the charred meat and shriveled potatoes!
No matter how much milk he pours into that pot, there will not be an edible stew. The basis of that stew is ruined. The pot needs to be scraped clean and new meat and potatoes need to be added. The recipe for stew does not need to be changed, stew has been delicious and essentially the same for a few thousand years. What needs to change are the kitchen help (Congress) who keep walking by and taking a spoon full of the broth out for tasting, never intending on putting more broth in which results in the stew scorching. The chef (the President) thinks he is being clever and can fool the customers. After the stew was scorched, the chef walked into the restaurant and announced to the patrons, “we are proud to introduce our new improved stew” and talked of its deliciousness as the patrons scrunched their noses and spit the stew back into the bowl. The chef ordered his kitchen help to distribute free bread (health insurance, low interest loans, welfare) to the customers and convince them that the stew was actually appetizing now with the bread. The stew is a poor product and the bread will only pacify the paying customers for so long. The chef knows that his stalling tactic will not solve the problems that his kitchen has, but it has bought him a little more time.
It is easy to imagine that a restaurant with this type of kitchen management would go out of business very quickly. So why is it so difficult for people to understand this same logic applies to government?
With every round of QE we take one more step toward an irreversible fiscal disaster brought on by unchecked expenditures by the Federal Government, crushing debt, and inflation caused by reckless monetary policy. The measures being taken by Obama and his administration are temporary measures and are not intended to help a recovery or foster growth, these measures are intended to slow the collapse to a “manageable” speed. Mark my words, if Romney is elected this thing will unravel at record speed as he assumes office….just as it did to Obama when he took office. Obama’s stall tactics have succeeded in keeping the economy from falling apart for 4 years, he will pull the plug on it as he exits. On the flip side, if Obama is re-elected we will begin to hear him call for austerity. It will go over with the entitlement crowd here in the US just as well as it went over with the entitlement crowd in Greece. Obama, who is prone to placating to the welfare warriors, will attempt to jack taxes on the 50% of Americans who still pay them and alienate the small businesses of America even further with heavy taxation, fees, etc.
In my opinion, by 2016 America will be much, much different than it is today, and that will hold true regardless of which one of the two evils gets elected.

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This list appeared on the blog “The Economic Collapse”, link (here).
I am going to use this list as inspiration for coming posts. Although many of these are self explanatory there are some that need to be expanded on.

The following are 40 statistics that will absolutely shock you….

#1 During the time Barack Obama has been in the White House, median household income has fallen by 7.3 percent.

#2 Back in 2007, 19.2 percent of all American families had a net worth of zero or less than zero.  By 2010, that figure had soared to 32.5 percent.

#3 According to the Federal Reserve, the median net worth of American families dropped “from $126,400 in 2007 to $77,300 in 2010“.

#4 According to the Pew Research Center, 61 percent of all Americans were “middle income” back in 1971.  Today, only 51 percent of all Americans are “middle income”.

#5 Back in 1970, middle income Americans brought home 62 percent of all income in the United States.  In 2010, middle income Americans only brought home 45 percent of all income.

#6 The unemployment rate in the United States has been above 8 percent for 42 straight months.

#7 The percentage of working age Americans with a job has been below 59 percent for 35 months in a row.

#8 In June, the number of Americans added to the food stamp rolls was nearly three times larger than the number of jobs added to the U.S. economy.

#9 Approximately 53 percent of all U.S. college graduates under the age of 25 were either unemployed or underemployed last year.

#10 Since Barack Obama entered the White House, the number of long-term unemployed Americans has risen from 2.7 million to 5.2 million.

#11 Today, the average duration of unemployment in the United States is about three times as long as it was back in the year 2000.

#12 According to a report that has just been released by the National Employment Law Project, 58 percent of the jobs that have been created since the end of the recession have been low paying jobs.

#13 According to the Center for Economic and Policy Research, only 24.6 percent of all of the jobs in the United States are “good jobs”.

#14 In 2010, the number of jobs created at new businesses in the United States was less than half of what it was back in the year 2000.

#15 The average pay for self-employed Americans fell by $3,721 between 2006 and 2010.

#16 According to U.S. Representative Betty Sutton, America has lost an average of 15 manufacturing facilities a day over the last 10 years.  During 2010 it got even worse.  That year, an average of 23 manufacturing facilities a day shut down in the United States.

#17 At this point, one out of every four American workers has a job that pays $10 an hour or less.

#18 While Barack Obama has been president the velocity of money has plunged to a post-World War II low.

#19 According to one recent survey, 85 percent of middle class Americans say that it is harder to maintain a middle class standard of living today compared with 10 years ago.

#20 Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.

#21 There are now 20.2 million Americans that spend more than half of their incomes on housing.  That represents a 46 percent increase from 2001.

#22 Over the past decade, health insurance premiums have risen three times faster than wages have in the United States.

#23 Health insurance costs have risen by 23 percent since Barack Obama became president.

#24 As I wrote about yesterday, back in 1980 less than 10 percent of U.S. GDP was spent on health care but now about 18 percent of U.S. GDP goes toward health care.

#25 In a previous article, I noted that 62 percent of all middle class Americans say that they have had to reduce household spending over the past year.

#26 Family budgets in America are being stretched to the breaking point.  Today, 77 percent of all Americans live paycheck to paycheck at least part of the time.

#27 While Barack Obama has been president, U.S. home values have fallen by another 11 percent.

#28 More than three times as many new homes were sold in the United States in 2005 as will be sold in 2012.

#29 The United States was once ranked #1 in the world in GDP per capita.  Today we have slipped to #11.

#30 Since Barack Obama became president, the number of Americans living in poverty has risen by 6.4 million.

#31 The number of Americans on food stamps has grown from about 17 million in the year 2000 to 31.9 million when Barack Obama entered the White House to 46.7 million today.

#32 Approximately one-fourth of all U.S. children are enrolled in the food stamp program at this point.

#33 It is being projected that half of all American children will be on food stamps at least once before they turn 18 years of age.

#34 It is estimated that child homelessness in the United States has risen by 33 percent since 2007.

#35 Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, approximately one out of every 6 Americans is on Medicaid.

#36 As I wrote about the other day, it is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

#37 It is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.

#38 The number of Americans receiving federal housing assistance increased by a whopping 42 percent between 2006 and 2010.

#39 At this point, well over 100 million Americans are enrolled in at least one welfare program run by the federal government.

#40 Amazingly, more than half of all Americans are now at least partially financially dependent on the government.

OBAMA 2012! FORWARD!

We are in the middle of what is the worst drought since the Dust Bowl of the 1930s. This act of mother nature, has been exacerbated by poor farming practices. So are the farmers to blame for the new Dust Bowl that is quickly approaching?

Many farmers are subsidized by the Federal government and paid to not grow crops. As a matter of fact, the USDA is reporting that more applications for this “conservation” program are at an all time high. (Story here)

Others receive Federal dollars that cover their bottom line which then allows them to grow crops purely for profit. As discsussed time and again here, profit is not an issue itself, but merciless greed with profit as the driving motive is highly dangerous especially so when government is subsidizing such behavior. (All that you have to do is look at what merciless greed and government subsidies did to the housing market) Still yet some farmers are given subsidies to grow crops to be used for fuel, without going into detail about how insanely inefficient this is, it is simple enough to say that we should not be burning possible food as fuel, it is ludicrous. (I will save the rant about ethanol fuels for another day)

The real issues at hand here are that consumer demand does not necessarily determine what is grown, the commodities and futures market determine what is grown, or government mandates as I previously mentioned. I understand that speculation in the commodity futures market helps maintain steady prices year round but what has been going on is purely gambling. The speculated prices are driving the farmers to grow what will make them the most money right now with no regard to potential failure in the future.

With the main motivating factor behind farming becoming profit and the fact that farmers are guaranteed to get paid through subsidies regardless of whether crops are successful or not, there is little regard for the land itself. The same crops are grown year after year depleting the soil of nutrients to the point that harsh chemical (petroleum based) fertilizers must be continuously dumped onto the land so that crops will even grow. Methods implemented after the first dust bowl in the 1930s such as crop rotation have been thrown to the wayside in favor of government funded profit farming. What has resulted is a wholesale erosion of the topsoil and fertile farm ground that had made America the breadbasket of the world. We are faced with dry, malnourished, crevice filled, cracking psuedo soil. The formerly substantial farm land of the midwest is now an oversized junkie hooked on Federal dollars and fertilizers.

What is the incentive for a farmer to take care of his land if he will be paid regardless of success or failure? Or paid to not even grow crops under the USDA’s conservation program as discussed and linked to earlier.

Is this not just welfare for farmers? We call it a “subsidy” just as we call welfare “assistance”, it’s just a matter of semantics. Substantively farm subsidies are welfare. What is the incentive for the farmer to do the right thing? Very little. What is the incentive to do the wrong thing? Money and quite a bit of it! But back to the point….

Dying crops, and low supply of needed crops are serious threats to American prosperity but not the only threats. Rivers across the land are drying up including the Mighty Mississippi. (Story here) It is safe to assume that reservoirs, wells, and water tables are going dry from lack of replenishment as well.

When this new dust bowl is at full throat and we see a mass failure of crops coupled with skyrocketing prices at our stores due to shortages of supply and a lack of clean drinking water, there will be panic. But should there be?

For decades America has had an overabundance of food. So much so that we have experienced an obesity epidemic. Americans are notorious for throwing away tons of food per year. As a result it has been difficult to imagine that this could ever change. The practices of canning, drying, freezing, and freeze drying were relegated by society to be the activities of paranoid people. Why stockpile food? Why store and preserve food? There is a ready supply just up the street at Wal Mart!

Government policies have reflected this disdain for preparedness. The Department of Homeland Security classifies anyone with stores of food to be potential terror suspects. The very people who should be encouraging preparedness among the populace have discouraged it at every turn. Laws against home gardening and practices such as rain water collection have furthered the issue of unpreparedness to ridiculous levels. This is such an epidemic that if you buy 6 cans of green beans at the store the cashier asks if you’re “filling your fallout shelter” with a smirk. The arrogance about what we have is obscene and our nations consumerism mindset needs adjusted.

Policies, laws, and practices have created a very unfavorable circumstance for a new dust bowl to occur in. The people of the United States are ill prepared and unexpectant. I fear that as a result many will go hungry. Unfortunately at this point the best thing that we can do is pray for rain in the fall and snow in the winter and put some food and water in the pantry.

I started writing this several months ago when gas prices started rising again and everyone was complaining about the oil companies and their huge profits. The topic was spotlighted again when President Obama made his recent remarks that apparently credited the mere existence of roads for all successful businesses in this country. His comments added a new angle to the favorite trump card argument of every Big Government type, “what about the roads?”. Enjoy.

Most people that I talk to aren’t aware that there is a Federal excise tax imposed on every gallon of clear diesel or gasoline purchased by consumers in this country, there are also variable state, county, and municipal fuel excise taxes. This excise tax is not a sales tax. It is also quite sizable…..

“The United States federal excise tax on gasoline is 18.4 cents per gallon (cpg) and 24.4 cents per gallon (cpg) for diesel fuel. On average, as of April 2012, state and local taxes add 31.1 cents to gasoline and 30.2 cents to diesel for a total US average fuel tax of 49.5 cents (cpg) per gallon for gas and 54.6 cents per gallon (cpg) for diesel.” – courtesy of Gas Price Watch.com (emphasis added)

These excise taxes supposedly exist for the purpose of building and maintaining roads. They are essentially usage taxes that are intended to fund the roads and infrastructure that your vehicle needs to operate on.

If you have ever argued with a big government type about the elimination of income and property taxes they immediately whip out their go to argument, “what about the roads?!”. Clearly, they are not educated in the way that the taxes they advocate are intended to be allocated.*

I assume that if you read this blog regularly and were not previously aware of this fuel excise tax, you are most likely not shocked to hear of its existence. (After all, isn’t everything taxed?)

Now that you know the Federal, State and local Governments in America make money off of every gallon of gas sold you have to question why Big Government types argue for federally mandated higher MPG standards for cars when higher MPG’s mean less fuel used. Logically if less fuel is bought then less fuel tax is collected.

Isn’t this a direct contradiction?

I have to ask these people, “What about the roads?!”.

They obviously don’t see that supporting Federally mandated higher MPG standards will reduce the government excise tax revenue thus depleting funds available for road work and repair. Unfortunately in this scenario there are likely just as many cars on the road as before, but there is less money coming in to maintain the roads. This inevitably leads to the unchecked degradation of infrastructure.

This same consequence can of course occur naturally in a free market as well. Let’s assume MPG standards are not artificially set by the Federal Government. We can also safely assume that the price of fuel will fluctuate as a result of supply and demand and other market factors.

When fuel prices trend upward the demand for inefficient vehicles goes down. As more fuel efficient vehicles take to the streets the consumption of gasoline goes down. (additionally due to higher prices people will car pool, drive less often, etc., further reducing consumption) As the consumption of gasoline goes down the tax revenue from fuel excise taxes goes down as well.

In this scenario, the reduced tax revenue for road maintenance is offset by the fact that less cars are on the road traveling less miles. As a result, less maintenance and construction is required due to less wear and tear.

The major difference between the government regulated MPG scenario and the free market MPG scenario is that:

The reduction of consumption is artificial when Federally mandated MPG standards are imposed – The market did not influence auto makers and buyers to have higher MPG’s, government regulation did. This can negatively effect the price of vehicles as well as artificially diminish tax revenue for road construction and maintenance.

Vehicle Prices:

With MPG mandates imposed on auto manufacturers the price to produce a vehicle goes up artificially. The automaker is required to invest more dollars into each unit it produces in order to meet the new mandates. To recoup these additional costs, the manufacturer must raise the selling price of each unit. In some cases the new high MPG vehicle may be a flop because the market does not demand it, in which case the automaker suffers a huge loss from manufacturing a vehicle that nobody will buy. (See the Chevrolet Volt)

Without MPG mandates if the market demands vehicles with higher MPG’s then the producers are capable of selling vehicles at a higher price that the market is willing to bare because they are supplying a demand for higher MPG’s. Higher demand with lower supply means that each unit is worth more (scarcity). This increased price per unit justifies the additional expense of each unit on behalf of the producer. (See the Toyota Prius several years ago as an example)

Excise Tax Revenue: The MPG mandates cause excise tax revenue to decline as described earlier in the post.

To combat the diminishing tax revenue resulting from lower consumption and better MPG’s the government in all of its wisdom is mulling creating a mileage tax. That’s right not only will you be taxed for buying your car, owning your car, and buying your fuel; you will get the pleasure of being taxed for driving your car! Eventually the mileage tax will lead to a limit on miles that can be driven. Because once the government tracks how much of something you are doing, they ultimately want to be able to tell you to do it less or face the consequences.

What is the point of all this?

My point here is that when you advocate less tax there are “intellectuals” who quickly attempt to paint you as a hypocrite over issues such as the funding of public roads. The goal is to claim that you take advantage of what you rail against, as a result your argument is invalid in their eyes. It is the typical strategy of discrediting the messenger and avoiding the message.

Typically, the people who rush to call me a hypocrite because I want less tax but drive my vehicle on the road are the same people seeking to limit the funding of roads through unnecessary and harmful Federal mandates such as higher mpg standards, mileage taxes, etc.

Aren’t they the hypocrites?

Yes they are.

What’s more troubling about the Federal Excise Tax on fuel in particular is the blatant disregard for making prudent spending decisions and complete lack of financial oversight. (Surprised?)

As usual government takes your money for one purpose then just uses it for whatever the hell they want, mostly funding the bureaucracy. According to Wikipedia, in 2007 Transportation Secretary Mary Peters stated that 60% of federal excise tax collected went toward the funding of road projects. The remaining 40% went toward earmarks. (I could not find statistics from the current administration)  The following are a couple of earmarked projects from the 2005 Highway Funding Bill.

– $8,000,000 to build a parking garage at a hospital in Harlem, New York

– $223,000,000 for the “bridge to nowhere” in Alaska.

The above examples are just a drop in the bucket of Government waste and fraud. I believe it has become clear that Government will not keep itself in check. Without the vigilance of the public to keep them honest and responsible the Federal Leviathan will undoubtedly continue on its path to totalitarianism….but at least we will have roads.

For a stunningly comprehensive analysis of the downfalls of Federally controlled road projects click here.

* I do not believe that government agencies are either the best or cheapest method of building and maintaining roads. When private firms compete for the work the taxpayer benefits drastically.

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