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Rand Paul's Challenge to Students - Published in The Intercollegiate Review

"To better communicate our mes­sage, we must marshal the facts and have a deep understanding of the principles that informed our Found­ers. Policy battles are important, but if we don’t have a firm grounding in principles, politics becomes sport, with our focus narrowing to follow electoral returns, legislative vote tal­lies, and other short-term measures.

Without that foundation in prin­ciples, we can easily lose sight of our real goal: securing for ourselves and for future generations the freedom and prosperity that have always marked America’s greatness.

As students, you have a great opportunity to immerse yourself in America’s history and the principles of liberty. I am a proud Republican, but I am a conservative first. That is to say, my conservatism has always been more philosophical in nature than partisan. I am a Republican because I believe my party is the best outlet for the defense—and advancement—of the principles of liberty. I encourage you to dis­cover those principles yourself and become an advocate for them.

There is no substitute for studying history. When you look to history, you quickly see that debates about the proper role and scope of government are nothing new. Founders Alexan­der Hamilton and James Madison fought from the beginning about how the federal government would be limited. Madison, the “father of the Constitution,” was unequivocal: the powers of the federal govern­ment are few and defined; the power to tax and spend is restricted by clearly enumerated powers. That is a simple proposition too many Americans forget (or ignore).

I also encourage you to study what great thinkers have had to say about both individual liberty and personal responsibility. In school I read the great nineteenth-century Russian novelist Fyodor Dostoyevsky, whose brilliant narratives illustrate the importance of conscience and faith—the belief that if there were no God, everything would be per­missible. I also began to read a lot of free-market economists from the Austrian School, including Nobel Prize winner F. A. Hayek, Ludwig von Mises, and Murray Rothbard. With books like Hayek’s Road to Serfdom—a must-read for any conservative—these thinkers show why government intervention never works but in fact prolongs and wors­ens the problems it is intended to fix."

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Parents and adults need to be centrally focused on principles

It is PRETTY MUCH IMPOSSIBLE to try to attain some sort of focus on principles and rights in the community of children WHEN PARENTS AND AVERAGE ADULTS are caught in "the sport of politics" in the media and general conversation, and when adults themselves do not tend to make "arguments from first principles."

The man is a political

The man is a political genius.

What did you expect?

Have you listened to his father?

In the beginning of a change the patriot is a scarce man, and brave, and hated and scorned. When his cause succeeds, the timid join him, for then it costs nothing to be a patriot.

Indeed.

Indeed.

Rand Paul Holds Key To Debt Ceiling Dilemma....

Senator Paul - As another confrontation looms over the debt ceiling this month, you of all people should know that the $17.3 trillion government debt is in part an illusion and that it is actually more like $15.1 trillion...... Well below the $16.7 trillion debt ceiling level.

The Federal Reserve owns about $2.2 trillion of Treasury debt acquired via QE asset purchases. The interest income the Fed earns on these Treasury holdings now weighs in at about $100-$110 billion per year, which the Fed remits right back to the Treasury.

Senator Paul, this is debt that the government owes to itself! Can you explain to me why it should apply to the debt ceiling? The debt ceiling time bomb could be defused if Congress, the Fed and the Treasury would declare that the $2.2 trillion held by the Fed should not apply to the debt ceiling. This action would buy policy makers 2 to 3 years of breathing space to fashion policy geared to economic growth rather than austerity and playing a game of chicken over whether or not to raise the debt ceiling. You invoked Ronald Reagan several times in this article and in that spirit economic growth trumps austerity and debt ceiling brinksmanship.

However, don't take my word for it. Here is an article from July of 2011 by liberal Keynesian economist, Dean Baker...

Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse

http://www.cepr.net/index.php/...

More recently Congressman Alan Grayson (D-FL) picked up on the same solution to the debt ceiling time bomb, in a Reuters article in which he gave attribution to your father Ron Paul.....

Ending the debt limit crisis: Dear Ben Bernanke -- By Alan Grayson

http://blogs.reuters.com/great...

Interesting don't you think, that two liberal progressives are endorsing libertarian Ron Paul's idea for a solution to the debt ceiling dilemma? Isn't that kind of cross pollination what you were alluding to in this article when you wrote...

"We must stand for something so powerful and so popular that it brings together people from the left and the right and the middle."

You could change the entire nature of the political debate in the wake of the government shut down and sequestration battles by promoting this policy. I believe it would be a winning strategy for 2014 and 2016.

Ed Rombach

That would only encourage more borrowing.

Cancelling the debt held by the Fed is in itself a good idea, but not while the government is controlled by big spenders. They'll say "O look, the debt isn't as bad as everyone thought, we can afford to run bigger deficits." Or, worse yet, people will draw the lesson that we can get rid of our debt by letting the Fed buy it all up and then canceling it.

I don't see any "debt ceiling time bomb," I see a great opportunity to further publicize the debt problem, if not actually achieve some spending cuts. It would be foolish to give up that leverage.

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

The Debt Ceiling is indeed a Time Bomb.....

The debt ceiling is indeed a time bomb because if it is not raised, or if the debt held by the Fed is not cancelled, (my preference), it does not mean default. It does mean that the Treasury will be forced to go to an immediate balanced budget cold turkey. If so it means that the government will have no choice but to cut about 18 cents of every dollar it currently spends. Picture a game of musical chairs with 100 contestants and only 82 chairs left for them to sit down on when the music stops playing. The likely consequence will be a relapse into recession which ironically will put the federal budget back into deficit due to collapsing tax revenue. At that point the government will be forced to raise taxes and/or cut more spending to bring the budget back into balance again. This policy strategy is an economic blueprint for a downward deflationary spiral with no end in sight. Be careful what you wish for.

Ed Rombach

Nah

"It does mean that the Treasury will be forced to go to an immediate balanced budget cold turkey"

...which would be a wonderful thing.

"If so it means that the government will have no choice but to cut about 18 cents of every dollar it currently spends. Picture a game of musical chairs with 100 contestants and only 82 chairs left for them to sit down on when the music stops playing. The likely consequence will be a relapse into recession which ironically will put the federal budget back into deficit due to collapsing tax revenue. At that point the government will be forced to raise taxes and/or cut more spending to bring the budget back into balance again. This policy strategy is an economic blueprint for a downward deflationary spiral with no end in sight. Be careful what you wish for."

Nah, that's Keynesian mythology. Cutting spending won't cause a vicious spiral into oblivion, it will cause a brief recession followed by a resumption of growth at a higher rate than before.

The market directs resources toward profitable enterprises. When government spends, it takes resources away from those profitable enterprises which have been chosen by the market, and redirects them toward unprofitable enterprises chosen by politicians, which stifles production and makes everyone poorer. If government spending is reduced, some of the unprofitable enterprises being supported by that spending will go bankrupt. Their employees will be out of work, and their capital will be sitting idle - but only temporarily. If the market is allowed to function, that idle labor and capital will be quickly redirected toward new and profitable employment - increasing total production and making everyone richer.

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

Nullify the Debt!

"Cutting spending won't cause a vicious spiral into oblivion, it will cause a brief recession followed by a resumption of growth at a higher rate than before."

Perhaps so, as was the case with the depression of 1921, but perhaps not as is currently the case with Greece and Spain. Why risk throwing the economy back into recession? That aside, the economic recovery, weak and tepid as it is, is nevertheless throwing off enough new tax revenue to cause the budget deficit to shrink rather rapidly. The CBO forecasts that the federal budget deficit will shrink to $514 billion for FY 2014, or 3% of GDP, down from $680 billion in 2013. At that rate the budget will be in balance within 3 years. However just the clarify my thinking, are you saying that you reject Ron Paul's recommendation to in effect nullify the $2.2 trillion of US Treasury debt held by the Fed as explained in the following two links below?

http://bit.ly/1bGsaa5

http://reut.rs/1bcLWw1

Ed Rombach

...about that

"perhaps not as is currently the case with Greece and Spain."

Greece and Spain aren't recovering because the governments there continue to support unprofitable enterprises, both public and private. At the same time, prices are largely fixed in those countries, so even when an unprofitable enterprise is allowed to fail, the market is prevented from reallocating resources properly. For example, fixing wages well above the market rate in Greece had led to catastrophically high unemployment. But if wages were allowed to fall, that labor would find profitable employment. It's the same across the board. Wherever you see factors of production sitting idle, it's because the government is preventing the price of those factors from falling to the level where they could be profitably employed (i.e. the market price), and so they sit there unemployed.

It's not spending cuts that have caused prolonged recession in those countries. To the contrary, if they want recovery, they need much larger spending cuts coupled with deregulation and sound money.

"Why risk throwing the economy back into recession?"

Because recession is a good thing, as I've explained. A recession is nothing but the reallocation of resources from unproductive use to productive use. And on the other hand, the parasitic policy of continually taking from profitable enterprises to support unprofitable enterprises will eventually kill the host. It is unsustainable. And the longer you delay the necessary adjustments, the larger those adjustments will have to be, and the more painful the transition. Remember what your hero Keynes the Dimwit had to say on this: when asked about the long-run unsustainability of his policies, he quipped that we'd all be dead in the long run. LOL, well, the long-run has arrived. These Keynesian policies must be abandoned soon or we're finished.

"At that rate the budget will be in balance within 3 years."

LOL...sure thing.

"However just the clarify my thinking, are you saying that you reject Ron Paul's recommendation to in effect nullify the $2.2 trillion of US Treasury debt held by the Fed as explained in the following two links below?"

Yes, as it would encourage more borrowing/spending. And FYI, Ron shares my view about spending and recession, as he's explained hundreds of times over the years. He's an Austrian, aka he understand economics.

Have you ever read any of the free market economists Rombach? You really should..

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

Falling Wages, Falling Deficits & Cognitive Dissonance

"Greece and Spain aren't recovering because the governments there continue to support unprofitable enterprises, both public and private."

You’re making a general kind of statement without supplying any supporting evidence. Show me your data.

"At the same time, prices are largely fixed in those countries, so even when an unprofitable enterprise is allowed to fail, the market is prevented from reallocating resources properly. For example, fixing wages well above the market rate in Greece had led to catastrophically high unemployment. But if wages were allowed to fall, that labor would find profitable employment."

According to this article, http://bit.ly/1jruNkQ, from 2009 to mid 2013, real wages per worker in Greece and Spain have fallen 22% & 7% respectively.

"Remember what your hero Keynes the Dimwit had to say on this:"

FYI... Keynes is not my hero.

"At that rate the budget will be in balance within 3 years."
LOL...sure thing."

In 2011 the budget deficit was $1.3 trillion and by fiscal year end 2013 it had fallen to $680 billion so do the math. At that rate of decline, the budget will be almost in balance within three years.

"It's not spending cuts that have caused prolonged recession in those countries. To the contrary, if they want recovery, they need much larger spending cuts coupled with deregulation and sound money."

I agree with you about deregulation and sound money but I am more in favor of cutting taxes than cutting spending.

"Yes, as it [Nullifying debt held by the Fed] would encourage more borrowing/spending. And FYI, Ron shares my view about spending and recession, as he's explained hundreds of times over the years."

Talk about cognitive dissonance! You are rejecting Ron Paul's proposal to cancel debt held by the Fed and simultaneously claiming that he agrees with you. Seems like a conundrum to me.

Ed Rombach

First, a general point.

Economics is not an empirical science. You cannot infer causal relations from mere correlations in economic data. Only economic theory can explain causal relations: and those relations are never quantitative. They take the form of conditional statements: e.g. if supply increases, ceteris peribus, price will fall. Such a statement cannot be proved or disproved with data. Data can be useful for illustrative purposes, but it can never prove anything.

Now I'll respond in detail:

"You’re making a general kind of statement without supplying any supporting evidence. Show me your data."

I claimed that recovery is being retarded by the continuation of policies which misallocate resources. There are two components to this claim. First, that those governments are in fact causing resources to be allocated differently than how the market would allocate them (aka misallocating them). Surely, you're not denying this? So you must be questioning the second part of my claim, which is that the market allocates resources more efficiently than the government, so that total production is retarded when the government allocates resources instead of the market. And why is that? Well, if we're talking about a socialist government, then it faces the socialist calculation problem (See: Mises, Economic Calculation in the Socialist Commonwealth). But if we're talking about an interventionist government in a somewhat free market (as in Europe), then the problem is more one of incentives. I'll elaborate further if necessary.

"According to this article, http://bit.ly/1jruNkQ, from 2009 to mid 2013, real wages per worker in Greece and Spain have fallen 22% & 7% respectively."

I said that fixing wages above the market rate causes unemployment (this is one of those conditional statements based on economic theory, not an inference from data correlations). The fact that wages have fallen considerably and there's still unemployment does not disprove my claim. Wages could still be above the market rate, right? You don't know what the market rate is, do you? And neither do I. No one could possibly know. But, economic theory tells us that unfettered markets clear, and so if the labor market is not clearing, it must be due to some intervention (e.g. unions or wage controls) preventing prices from falling enough to clear the market. If you'd like further elaboration on this point, let me know.

"FYI... Keynes is not my hero."

Maybe not consciously, but the views you're espousing are distinctly Keynesian. The idea that cutting government spending will cause a downward spiral in employment and aggregate demand and so forth (which we could call a negative multiplier effect) is just the inverse of the Keynesian argument for fiscal stimulus. Both rest on the broken window fallacy (See: Hazlitt, Economics in One Lesson).

"In 2011 the budget deficit was $1.3 trillion and by fiscal year end 2013 it had fallen to $680 billion so do the math. At that rate of decline, the budget will be almost in balance within three years."

I wasn't questioning your math, I was questioning your assumption that the deficit would continue to decline at that rate.

"I agree with you about deregulation and sound money but I am more in favor of cutting taxes than cutting spending."

Cutting taxes without cutting spending does not reduce the scale of the misallocation, it just shifts it around a bit. Instead of taxpayers financing the waste, the bond market (or dollar holders, if the Fed monetizes the debt) finance the waste. That's no improvement.

"Talk about cognitive dissonance! You are rejecting Ron Paul's proposal to cancel debt held by the Fed and simultaneously claiming that he agrees with you. Seems like a conundrum to me."

You need to read more carefully. I agree with Ron Paul and you that cancelling the debt held by the Fed is a good idea in principle. I'm just saying it is unwise currently, because of the sort of government currently in office, and the incentives that cancelling the debt and creating room for more borrowing under the debt ceiling would provide them. And I said Ron agrees with me about spending: as in, he agrees with me that massive spending cuts are a good idea, and the sooner the better. You might recall that his budget proposed $1 trillion in cuts in year 1.

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

Michael Nystrom's picture

And the bankers would kill him, Ed

Nice to see you around these parts.

The only way to make sense out of change is to plunge into it, move with it, and join the dance. - Alan Watts

Hey Michael!

What up? My take on canceling the $2.2 trillion of QE Treasury debt held by the Fed is that it would be an opportunity to teach the public about the nature of the current monetary system. If the Treasury issues debt only to have the Fed subsequently buy it back in the secondary market, it's functionally the same as if the debt wasn't issued in the first place and the government just spend fiat money into existence.

Here's a riddle for you... Where does the money come from to pay federal tax obligations and to purchase government debt at regular Treasury auctions?

Ed Rombach

Imagine

To the Ran haters...
Imagine how the senate would be without him?

"You only live free if your willing to die free."

self-bump

.

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."