Throughout the presidential campaign, we will be treated to the same political-economic pabulum from the candidates that we get every four years. “Here’s how I will manage the economy. Here’s how I will achieve ‘growth.’ Here’s what I will do to make America great again.”
Since hope springs eternal, many Americans will go gaga over the pronouncements. They will convince themselves that if their particular candidate will be elected, happy days will be here again, economic prosperity will surge, and America will be great again.
Alas, I hate to rain on this parade, but it just ain’t gonna happen. That’s because the problem that Americans face is a systemic problem, not a personnel problem. If Americans want to be happy, prosperous, and free, they have to change their system of government. Changing the people within the government will accomplish nothing.
Suppose the United States had a federal governmental system in which everyone kept 100 percent of his earnings. That is, no income tax and no IRS. Whatever you receive in the form of salary, capital gains, or profits is yours to keep — 100 percent.
Now, before you say, “Utopian, Jacob! There you go again being idealistic,” don’t forget that that was the type of governmental system under which Americans lived for more than a century. Yes, believe it or not, the Framers brought into existence a federal governmental system in which there was no income tax and no IRS for more than a hundred years.
That was the principal cause of the tremendous upsurge in the American standard of living in the 19th century. When people were free to keep everything they earned, they began saving a portion of their income. That savings went into banks, where owners of companies would borrow it to purchase better tools and equipment for their businesses. Those tools and equipment made workers more productive. That increase in productivity led to higher wages and higher profits. By the time that the late 1800s came, the standard of living of the American people was the highest in world history and growing by leaps and bounds.
Now, suppose the federal government announced one day that it would begin confiscating one-half of everyone’s income. It would be fairly easy to see how this action would diminish people’s economic well-being, right? That’s pretty much of a no-brainer. If people’s standard of living is growing by leaps and bounds because they’re free to keep 100 percent of their earnings, much of which is going into capital, which thereby makes people more productive, then with everyone losing half of his income to the government seizure, it is easy to see that the confiscation is going to have a deleterious effect on people’s standard of living.
Now, let’s assume that the government uses the revenues it is seizing to hire people to work for the federal government, say, in the welfare bureaucracy and the warfare bureaucracy. In the process, let’s say, hypothetically, that the federal government induces 20 percent of people in the private sector to start working for the federal government, and let’s assume that that process goes on for several decades.
One day, a group of libertarians says: “We’ve got an idea. Let’s abolish the government’s seizure of half of people’s income. Let’s leave people free to keep everything they earn, just as our ancestors did.”
How would Americans statists respond? “Recession! The libertarians are going to bring recession to America! We need the federal government to confiscate more and to spend more. That’s the key to economic prosperity!”
In a sense, the statists are right about a “recession.” That’s because once the federal confiscation of incomes cease, those federal employees have to be laid off. That’s a “recession” for them.
But it’s not a recession for people whose income is being confiscated. Suddenly, they have a 100 percent pay raise. They’re now keeping everything they were earning. They start doing things with that extra money, such as buy and save.
So, what happens to those unemployed federal workers? They find new jobs in the private sector, which is now booming because everyone is now free to keep everything he earns.
Therefore, if America were to restore the nation’s founding principle of no income tax and no IRS, there would be a triple positive effect. One, the private sector would be booming by the fact that everyone is now keeping everything he earns. Two, the non-productive people in the welfare-warfare state bureaucracies would now become productive citizens, contributing to the overall level of capital accumulation. Third, the welfare-warfare bureaucracies, which would no longer exist, would no longer be engaging in actions that impede productivity and the growth of capital in the private sector.
Another big economic problem Americans are facing is that the cost of the federal bureaucracies, including salaries, welfare, planes, bombs, and other welfare-warfare expenses, far exceeds the amount of money being confiscated. Rather than raise taxes or reduce spending, federal officials have been borrowing the difference, adding to the mountain of debt that the federal government owes. When you add the amount of the debt to the unfunded liabilities that the federal government has incurred, such as Social Security and Medicare, there is no way that this trajectory can have a happy ending.
That’s why it makes no difference who is elected president. There is only one solution to the economic morass that Americans find themselves in — a systemic change that involves a restoration of the founding economic principles of our country, principles that involve a repeal of the income tax, along with the dismantling of the welfare-warfare state apparatuses it funds.