Tag Archives: unemployment

Minimum Wage’s Discriminatory Effects

by Walter E. Williams

As if more proof were needed about the minimum wage’s devastating effects, yet another study has reached the same conclusion. Last week, two labor economists, Professors William Even (Miami University of Ohio) and David Macpherson (Trinity University), released a study for the Washington, D.C.-based Employment Policies Institute titled “Unequal Harm: Racial Disparities in the Employment Consequences of Minimum Wage Increases.”

During the peak of what has been dubbed the Great Recession, the unemployment rate for young adults (16 to 24 years of age) as a whole rose to above 27 percent. The unemployment rate for black young adults was almost 50 percent, but for young black males, it was 55 percent.

Even and Macpherson say that it would be easy to say this tragedy is an unfortunate byproduct of the recession, but if you said so, you’d be wrong. Their study demonstrates that increases in the minimum wage at both the state and federal level are partially to blame for the crisis in employment for minority young adults.

Their study focuses on 16-to-24-year-old male high school dropouts, understandably a relatively inexperienced group of labor market participants. Since minimum wage laws discriminate against the employment of the least-skilled worker, it shouldn’t be surprising to find 16-to-24-year-old male high school dropouts its primary victims.

Among the white males, the authors find that “each 10 percent increase in a state or federal minimum wage has decreased employment by 2.5 percent; for Hispanic males, the figure is 1.2 percent.

“But among black males in this group, each 10 percent increase in the minimum wage decreased employment by 6.5 percent.”

The authors go on to say, “The effect is similar for hours worked: each 10 percent increase reduces hours worked by 3 percent among white males, 1.7 percent for Hispanic males, and 6.6 percent for black males.”

Even and Macpherson compare the job loss caused by higher minimum wages with that caused by the recession and find between 2007 and 2010, employment for 16-to-24-year-old black males fell by approximately 34,300 as a result of the recession; over the same time period, approximately 26,400 lost their jobs as a result of increases in the minimum wage across the 50 states and at the federal level.

Why do young black males suffer unequal harm from minimum wage increases? Even and Macpherson say that they’re more likely to be employed in low-skilled jobs in eating and drinking establishments. These are businesses with narrow profit margins and are more adversely affected by increases in minimum wage increases. For 16-to-24-year-old men without a high school diploma, 25 percent of whites and 31 percent of blacks work at an eating and drinking establishment. Compounding the discriminatory burden of minimum wages, not discussed by the authors, are the significant educational achievement differences between blacks and whites.

The best way to sabotage chances for upward mobility of a youngster from a single-parent household, who resides in a violent slum and has attended poor-quality schools is to make it unprofitable for any employer to hire him. The way to accomplish that is to mandate an employer to pay such a person a wage that exceeds his skill level.

Imagine that a worker’s skill level is such that he can only contribute $5 worth of value per hour to the employer’s output, but the employer must pay him a minimum wage of $7.25 per hour, plus mandated fringes such as Social Security, unemployment compensation and health insurance. To hire such a worker would be a losing economic proposition. If the employer could pay that low-skilled worker the value of his skills, he would at least have a job and a chance to upgrade his skill and earn more in the future.

Minimum wage laws have massive political support, including that of black politicians. That means that many young black males will remain a part of America’s permanent underclass with crime, drugs and prison as their future.

May 10, 2011

Walter E. Williams is the John M. Olin distinguished professor of economics at George Mason University, and a nationally syndicated columnist. To find out more about Walter E. Williams and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate web page.

Copyright © 2011 Creators Syndicate, Inc.

Gold as the Silent Witness

Dan Norcini writes:

I wanted to post some brief comments to let some of the newer readers understand why many of us believe that there is a war being waged upon gold by the Central Banks of the West.

Let me start this off by quoting from none other than former Fed Chairman Alan Greenspan more than 40 years ago:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard

What the former Fed Chairman was then saying was that absent a gold standard or some device for restraining the unlimited creation of fiat money, there was nothing to impede monetary officials from engaging in such activity to the extent that it would ultimately set in motion a process of inflation, which is really just another name for the erosion of the purchasing power of a nation’s currency by debasing it. Inflation was and is in essence, the transfer of wealth from one class to another.

Today we have the Fed engaging in the very process that Greenspan warned against back then. We also have the BOJ and the ECB effectively doing the same thing to an extent.

Unlike Silver, Gold is the main metal that most analysts and commentators look to when attempting to decipher whether or not inflation is a serious problem. That means the reference point of gold has become a target for Central Banks which want the world to believe that they can create unlimited amounts of funny money with absolutely ZERO impact on inflation levels. In other words, that they can conjure up wealth and produce prosperity with the electronic equivalent of a printing press and produce no serious inflationary impact by so doing.

A rising gold debunks their hubristic assertions to the contrary for it stands as a silent witness testifying against them. This is the reason the yellow metal is despised by so many Central Banks. It mocks their policies and displays their folly for all the world to see. Central Bankers, being the demigods that they are, will tolerate no rivals to their claims of economic omniscience. You see they have actually come to believe that it is their own wisdom and foresight which enables them to see through the fog that hinders and impedes our economic progress and that they are in a unique position to provide the rest of us with lasting prosperity. They attempt to do this by basically providing or withdrawing liquidity as they in their wisdom judge best and by the setting or manipulation of interest rates.

Those of us who believe that it is free market capitalism and the industry and efforts of mankind that produce wealth and prosperity would beg to differ but that is another story altogether. I would add that it is my opinion that the world would be better off without this plague of locusts that actually devour a nation’s wealth but the fact is that they are here.

While they are here gold will attempt to move in such a manner that it either blesses or curses their policies. Now we all would love to have our policies approved by the vote of the market but what about those times in which the market frowns on our course of action and refuses to smile upon it? Why this is but a simple matter – attack the messenger! If one can somehow manage to keep the price of gold under wrap so that it does not move sharply higher then one can attempt to make the claim that inflation is not a serious problem. The comments usually go something like this:

“Well Jerry, we are looking at the gold price and from what we can see, that while it is definitely higher, it is not soaring out of control. The market may be pricing in some gradual inflation but the action in the gold price is telling us that any fears of inflation getting out of control are definitely unwarranted. Besides, we all agree that some inflation is a good thing because the alternative is deflation and no one wants to see that”.

Imagine Fed Chairman Ben Bernanke testifying before Congress saying that the current rise in prices of many goods is only “temporary” and “relatively modest” if the gold price were soaring beyond $1650 and higher! Do you think anyone would take anything that the Chairman said seriously? Copper can soar higher and most will not notice it. Even if it does, it is generally explained as a positive because we are told it is a sign of strong economic growth ahead. Crude oil and energy prices can rocket higher and that can be attributed to geopolitical unrest among oil producing nations. Food can rise sharply and everyone notices that but such things are often explained away by citing weather conditions, supply constraints, etc. but a rising gold price? How does one explain that away?

The only reason that gold has a sustained price rise is because of a lack of confidence in the monetary system. It does not rise sharply because of such things as jewelry demand or industrial demand – it rises when fear, distrust, doubt, suspicion and uncertainty over Central Bank policy reigns. It rises when REAL interest rates are negative and investors understand the insidious process of currency debauchment practiced by these monetary authorities is underway. It thus cries aloud and issues a warning to those who can hear it and what it shouts displeases many Central Bankers because they are among those who while they despise its message, are all too keenly able to hear that message.

Thus the messenger, the prophet, the oracle, must be silenced or at the very least, his message blunted, toned down, marginalized, trivialized by whatever means possible. The mechanism employed to do just this is a subject for another time and place. Suffice it to say for now, without the efforts by the monetary officials of the West to discredit gold, it would be trading considerably higher. Even at that however, the ancient metal of kings refuses to go quietly and docilely into the night. It will yet have the final say.

What Friends of Freedom Can Learn from the Socialists — To Win Freedom! by Richard M. Ebeling

Richard Ebeling writes:

On March 14, 1883, a German philosopher living in exile in London passed away. When he was buried three days later in a modest grave where his wife had been laid to rest two years earlier, fewer than ten people were present, half of them family members. His closest friend spoke at the grave-site and said, “Soon the world will feel the void left by the passing of this Titan.” But there was, in fact, little reason to think that the deceased man or his long, turgid, and often obscure writings would leave any lasting impression on the world of ideas or on the course of human events.

That man was Karl Marx.

Advocates of liberty often suffer bouts of despair. How can the cause of freedom ever triumph in a world so dominated by interventionist and welfare-statist ideas? Governments often give lip service to the benefits of free markets and the sanctity of personal and civil liberties. In practice, however, those same governments continue to encroach on individual freedom, restrict and regulate the world of commerce and industry, and redistribute the wealth of society to those with political power and influence. The cause of freedom seems to be a lost cause, with merely temporary rear-guard successes against the continuing growth of government.

What friends of freedom need to remember is that trends can change, that they have in the past and will again in the future. If this seems far-fetched, place yourself in the position of a socialist at the time that Marx died in 1883, and imagine that you are an honest and sincere advocate of socialism. As a socialist, you live in a world that is predominately classical liberal and free market, with governments in general only intervening in minimal ways in commercial affairs. Most people—including those in the “working class”—believe that it is not the responsibility of the state to redistribute wealth or nationalize industry and agriculture, and are suspicious of government paternalism.

How could socialism ever be victorious in such a world so fully dominated by the “capitalist” mindset? Even “the workers” don’t understand the evils of capitalism and the benefits of a socialist future! Such a sincere socialist could only hope that Marx was right and that socialism would have to come—someday—due to inescapable “laws of history.”

Yet within 30 years the socialist idea came to dominate the world. By World War I the notion of paternalistic government had captured the minds of intellectuals and was gaining increasing support among the general population. Welfare-statist interventionism was replacing the earlier relatively free-market environment.

The socialist ideal of government planning was put into effect as part of the wartime policies of the belligerent powers beginning in 1914, and also lead to the communist revolution in Russia in 1917, the rise to power of fascism in Italy in 1922, the triumph of National Socialism (Nazism) in Germany in 1933, and the implementation of FDR’s New Deal policies in 1933, as well.

Socialism triumphed during that earlier period of the last decades of the 19th and early decades of the 20th centuries because while socialists advocated collectivism, they practiced a politics of individualism. They understood that “history” would not move in their direction unless they changed popular opinion. And implicitly they understood that this meant changing the minds of millions of individual people.

So they went out and spoke and debated with their friends and neighbors. They contributed to public lectures and the publishing of pamphlets and books. They founded newspapers and magazines, and distributed them to anyone who would be willing to read them. They understood that the world ultimately changes one mind at a time—in spite of their emphasis on “social classes,” group interests, and national conflicts

They overcame the prevailing public opinion, defeated powerful special interests, and never lost sight of their long-term goal of the socialist society to come, which was the motivation and the compass for all their actions.

The Lessons for Freedom

What do friends of freedom have to learn from the successes of our socialist opponents? First, we must fully believe in the moral and practical superiority of freedom and the free market over all forms of collectivism. We must be neither embarrassed nor intimidated by the arguments of the collectivists, interventionists, and welfare statists. Once any compromise is made in the case for freedom, the opponents of liberty will have attained the high ground and will set the terms of the debate.

Freedom advocate, Leonard E. Read, once warned of sinking in a sea of “buts.” I believe in freedom and self-responsibility, “but” we need some minimum government social “safety net.” I believe in the free market, “but” we need some limited regulation for the “public good.” I believe in free trade, “but” we should have some form of protectionism for “essential” industries and jobs. Before you know it, Read warned, the case for freedom has been submerged in an ocean of exceptions.

Each of us, given the constraints on his time, must try to become as informed as possible about the case for freedom. Here, again, Read pointed out the importance of self-education and self-improvement. The more knowledgeable and articulate we each become in explaining the benefits of the free society and the harm from all forms of collectivism, the more we will have the ability to attract people who may want to hear what we have to say.

Another lesson to be learned from the earlier generation of socialists is not to be disheartened by the apparent continuing political climate that surrounds us. We must have confidence in the truth of what we say, to know in our minds and hearts that freedom can and will win in the battle of ideas. We must focus on that point on the horizon that represents the ideal of individual liberty and the free society, regardless of how many twists and turns everyday political currents seem to be following. National, state, and local elections merely reflect prevailing political attitudes and beliefs. Our task is to influence the future and not allow ourselves to be distracted or discouraged by who gets elected today and on what policy platform.

Let us remember that over the last hundred years virtually every form of collectivism has been tried—socialism, communism, fascism, Nazism, interventionism, welfare statism—and each has failed. There are very few today who wax with sincere enthusiasm that government is some great secular god that can solve all of mankind’s problems. Statist policies and attitudes continue to prevail because of institutional and special-interest inertia; they no longer possess the political, philosophical, and ideological fervor that brought them to power in earlier times.

There is only one “ism” left to fill this vacuum in the face of collectivism’s failures. It is classical liberalism, with its conception of the free man in the free society and the free market, grounded in the idea of peaceful association and individual rights. If we keep that before us, we can and will win liberty in our time—for ourselves and our children.

The Hampered Market – A Case Study

The following article shows how taxation and legislation interfere with the desires of people and how these people must redirect their resources to achieve their desired ends. These diverted resources are resources that cannot be directed to more productive means thus lowering the standards of living for all involved. The concepts “specialization of labor” (also known as “division of labor”) and “comparative advantage” explains how people tend to specialize in their productive endeavors so that they can trade their surplus production with others. For example, a shoe maker can make better shoes than a bread maker and vice versa so they focus on their respective specialties and then trade with each other when they need the others’ products.

In the story below, this woman very well may rather spend her time doing something she is better at instead of growing tobacco but the high cost of buying manufactured cigarettes forces her to become a tobacco grower. This deprives the world of her productive talents in those areas that she is better suited. At the very least, it deprives her of her valuable time that she could have devoted to leisurely activities.

From NYTimes.com:

Now in Brooklyn, Homegrown Tobacco: Local, Rebellious and Tax Free

By MANNY FERNANDEZ

The cigarettes Audrey Silk used to smoke — Parliament Lights — are made at a factory in Richmond, Va. The cigarettes she smokes these days are made and grown in Brooklyn, at her house.

Ms. Silk’s backyard is home to raspberry and rose bushes, geraniums, impatiens and 100 tobacco plants in gardening buckets near her wooden deck. Inside her house, around the corner from Flatbush Avenue, in Marine Park, she has to be careful stepping into her basement — one wrong move could ruin her cigarettes. Dozens of tobacco leaves hang there, drying on wires she has strung across the room, where they turn a crisp light brown as they age above a stack of her old Springsteen records.

She talks about cartons and packs in relation to crops and seeds. Planted in 2009, her first crop— 25 plants of Golden Seal Special Burley tobacco — produced nine cartons of cigarettes. Ms. Silk would have spent more than $1,000 had she bought nine cartons in parts of New York City. Instead, she spent $240, mostly for the trays, the buckets and plant food.

But for Ms. Silk, 46, a retired police officer and the founder of New York City Clash (Citizens Lobbying Against Smoker Harassment), a smokers’ rights group, it is not just about the money. It is about the message. In the state with the highest cigarette taxes in the country, in a city that has become one of the hardest places in America to find a place to smoke, Ms. Silk has gone off the grid, growing, processing and smoking her own tax-free cigarettes from packets of seeds she buys online for about $2. She expects to produce a total of 45 cartons after planting two crops — the first in the summer of 2009, the second last summer — and estimates that she will have saved more than $5,000.

“It’ll make the antismokers apoplectic,” said Ms. Silk. “They’re using the power of taxation to coerce behavior. That’s not what taxation is supposed to be for.”

There are no federal, state or city laws prohibiting New Yorkers from growing tobacco at home for personal consumption. Still, Ms. Silk has kept her homegrown tobacco a secret for the most part since she planted the first crop, though she has offered cigarettes to her boyfriend and a few neighbors. This month, however, she changed her position on keeping quiet, after the City Council approved a bill banning smoking at parks, beaches and pedestrian plazas.

“The only way we’re going to win now, since you can’t reason with the irrational, which is the City Council or any lawmakers,” Ms. Silk said, “is you have to take the position of giving them the finger.”

Though she has become more vocal about her tobacco, she remains apprehensive. She said that she worried that antismoking advocates and the Bloomberg administration, which pushed to ban smoking in restaurants and bars, would make homegrown tobacco their next target. “We fear that the antismokers are so hysterical that if they start finding that people are doing this, they would craft a law to make it illegal,” Ms. Silk said. “I’m waiting for the black helicopters to start flying over my yard.”

Jim Johnson, the president of Seedman.com, the company based in Mississippi that supplied Ms. Silk with her seeds, was not surprised to learn that the Golden Seal tobacco had done well in the Brooklyn sunshine. He said that tobacco would grow anywhere there were about 100 frost-free nights, and that he even had customers in Alaska. Mr. Johnson said tobacco was “a very tough, resilient plant.”

If there are other New York City smokers growing tobacco at home, they appear to be keeping it to themselves. Ms. Silk does not know anyone else in the city who does so. But they are out there: Mr. Johnson estimated that last year, he had more than 1,000 tobacco-seed customers in the New York City region.

Ms. Silk sat in the house she shared with Bingo, her dog, and Albert, her parrot, and pulled a cigarette from a Parliament Lights pack. “Don’t let this fool you,” she said. “I put my roll-your-owns in here. I just saved all my old Parliament boxes.”

Ms. Silk was smoking loose tobacco she had bought. She is in a lull in production: she finished smoking her first crop and has been too busy to prepare her second. The delay works to her advantage. “If I want a better flavor,” she said, “the longer I can leave it, the better it is.”

Growing tobacco saves Ms. Silk money, but costs her time.

She has to plant the virtually microscopic seeds in trays indoors and then, weeks later, transplant them to buckets outside. She waters the plants daily until they grow to be about five feet tall, with big leaves that droop from the stem. “Like elephant ears,” Ms. Silk said of the leaves. “That’s why, when people joke around and say, ‘They’re going to think you’re growing pot,’ I’m like: ‘I’m sorry. There’s no one mistaking this for pot.’ ”

Then there is the processing: washing leaves in her kitchen sink, drying them over the downstairs tub, hanging them in the basement, storing some in boxes she keeps in a walk-in closet, removing the middle vein from each leaf, forming bricks out of about 25 leaves and feeding those bricks into a hand-crank machine for shredding. After planting her 2009 crop, Ms. Silk had to wait several months before smoking her first cigarette from it. The authorities, she added, should not be concerned that she might be illegally selling her cigarettes.

“I make meatballs,” Ms. Silk said, by way of explanation. “My recipe is a four-hour ordeal. My biggest loved ones do not get any. When I have to put a lot of work into something, I don’t share.”

The 100 plants from her second crop are not much to look at now: mostly bare stems standing upright in the cold. Still, her Brooklyn tobacco is a source of pride, as both a green-thumb accomplishment and a political statement. She has even named her garden in honor, or dishonor, of someone important in her life: not her boyfriend, her dog or her parrot, but her mayor.

Something Wicked This Way Comes – Doug Casey

From Conversations with Casey:

(Interviewed by Louis James, Editor, International Speculator)

L: Doug, a couple weeks ago we talked about mass riots spreading beyond the Middle East, and you were right. Yemen, Bahrain, and Libya – hundreds reported dead in Tripoli. But I see on Google News that some very brave individuals have organized protests in Moscow and Beijing. And now we have tens of thousands protesting in Madison, Wisconsin, citing the successful uprising in Egypt. There are counter-protesters in Wisconsin, fears of violence… talk of the governor calling up the National Guard. Is the spirit of revolution in the air?

Doug: On a deep level, there is a common thread running through these events. But, in bankrupt Wisconsin, the pro-union forces trying to hold on to artificially high wages and benefits have nothing in common with the hungry, oppressed, miserable people who took to the streets of Egypt. It’s fashionable for all sorts of people with a grievance to call those Egyptians “freedom fighters” and identify themselves with them. I’m a freedom-fighter, you’re a rebel, he’s a terrorist. The semantics are used to muddy the distinctions, not to clarify.

To a fair degree the Egyptians really are freedom fighters – they actually did oust a tyrant – but they are just going to replace the old boss with a new boss. It’s not been a radical revolution – at least not so far. The odds are that the new boss will be every bit as bad as, or worse, than the old boss, regardless of whatever window dressings of reform he uses to gain international acceptance for his regime.

Back in Wisconsin, it’s completely disingenuous – actually ridiculous and shameful – for unionized state employees to label themselves freedom fighters. These are the people who most directly slop at the trough at the public’s expense. They’re minions of the ruling class. They’re not trying to overthrow an unjust situation, they’re rioting to maintain it.

L: So, what’s the deeper, connecting thread?

Doug: Economic hardship. It seems to me that the driving factor behind these protests spreading in the Arab world – and what pushed them from inevitable to imminent – was rising commodity prices, especially food prices. Food prices are also rising rapidly in the U.S. Many fruits and vegetables have doubled, and bread is up 50% over the last year. Cotton has tripled over the last two years. That’s going to make clothing more expensive. The difference is that most Americans don’t live hand to mouth, not the way most Arabs do. But nonetheless they don’t like to see their standard of living drop, and they’ll strike out as well. As we just discussed in January, it would be most prudent to prepare for chaotic times ahead.

L: Oppressed Middle Easterners take to the streets out of hunger. Wisconsin union members take to the streets because their entitlements are threatened. Both relate to the rising costs of real things resulting from the global currency crisis, which is part of the larger train-wreck of the old economic world order.

Doug: Yes, and with modern communications, widespread public sentiment can be mobilized with speed never seen before. But you know, it’s a bit similar to what happened back in the ’60s – although for different reasons. We had simultaneous riots in Europe – mostly in France, but also in Germany and Italy. In Paris, they were tearing up the cobblestone streets to throw rocks at the cops. You had the race riots in Detroit, LA, and Washington, DC, among other U.S. cities, and later, anti-war protests. At exactly the same time, you had the Red Guard and a huge conflagration in China. Three major centers of world civilization erupted in civil unrest at once. But those riots were strictly political. Today’s riots are economic, and that’s much more serious. Political riots are generally for sport. Economic riots are the real thing.

I’ve no doubt that with the economic, social, and political forces at work in the world today, we’ll see more unrest, lots more. But it’s going to be much more violent, and much more dangerous than it was in the ’60s, because the world is much less stable.

L: And more countries have nuclear weapons. If more U.S. puppets fall in the Middle East, that’s going to be really bad for Israel, which is surrounded and outnumbered by foes who have no interest whatsoever in reaching a peaceful accommodation. If pressed hard enough, Israel could go nuclear, the threat of which has not stopped individuals from shooting rockets into their midst. I know you don’t like making predictions, but does your guru-sense tell you that’s likely to actually happen soon?

Doug: Nobody knows, of course, but the odds favor new leaders in most of the Arab countries – and most of the Muslim world. Israel is opposed to any change, because they have an accommodation with the old governments. The same is true with the U.S. Israel and the U.S. are like a nasty dog and his bad-tempered master – although I’m not sure which is which. Sometimes the master kicks the dog, sometimes the dog bites the master, but they still work together.

Anyway, now both the U.S. and Israel are going to have to cut new deals with new governments. I suspect the new governments will be less inclined to be U.S. stooges, and more likely to be actively anti-Israel.

Meanwhile, bankrupt state governments in the U.S. could precipitate chaos there, before the balloon goes up elsewhere. We are in uncharted waters, in which anything can happen – and probably will. The key is that most people in the world live on less than $3 a day, most of it goes to food, and food prices are exploding upwards. As is fuel.

L: I remember the terrible events in New Orleans when civil order broke down just a couple years ago. Most Americans seem to be ignoring that embarrassing event, and have long forgotten the Watts riots and Kent State. How do you get such people to consider the facts without sounding like Chicken Little?

Doug: Good question. When the going gets rough, it often turns out that civilization is really just a pretty veneer that lies on top of a fetid cesspool. The fact of the matter is that many – actually most – people suffer from serious psychological aberrations that rise to the surface if you push the right hot buttons. Losing what they have, and going hungry – especially when they see thieves like most politicians and their pals making billions – won’t sit well with the masses. It’s going to push a lot of hot buttons.

I don’t like thinking about rioting and martial law and all of that unpleasantness either; people get hurt, property is destroyed, and so forth. But at this point, a good dose of that looks almost inevitable. What we’ve seen in Tunisia, Egypt, now Bahrain, and Libya – it’s not just a flash in the pan. It’s the start of something big.

L: It’s a pity to see so much human energy being unleashed, creating powerful forces for change, at a time when it’s unlikely that that power will be used for good. So few people have any grasp of basic economics – they have no idea where prosperity comes from. So few people understand that human rights are individual rights and that entitlements are not rights… These people are going to ask for Big Brother to take them in hand, and Big Brother is going to give them what they ask for, good and hard.

Doug: You’re quite correct. The logical next step, as we mentioned before, is a new Robespierre – or a whole slew of them. But you know I always try to look at the bright side, and the good news is that a lot of despotic states are going to be overthrown. Others that are not overthrown will be discredited – also very good. This comes at a time when many of these states are on the ragged edge of collapse anyway – their days are numbered, even without this force precipitating their collapse.

Perhaps technology has advanced to the level that people will begin to see they can conduct their lives without the dead hand of the state trying to tell them what to do, and taking most of what they produce for the privilege.

L: Perhaps. The time may not be far off when the very idea of the nation-state itself will be discredited, and human society will evolve to a – hopefully – better form of organization.

Doug: I’d love to think so. I think that as technology continues to advance and liberate the individual, the disappearance of the state is inevitable, even if it’s not imminent. But whether things get better after the crash or not, I’m increasingly convinced that what has long been inevitable for the whole world is now becoming imminent. We are in the early stages of a major upheaval. In other words, distortions in the way the world works have been built up to a level where the old order could easily collapse. I’m quite serious when I refer to the coming Greater Depression.

L: Just as we all knew the Soviet Union had to collapse from its internal problems – tyranny and economic stupidity – but weren’t sure when. Now, decades of economic mismanagement and bad decision-making in the global arena must eventually be liquidated. But how do you know the bill is coming due?

Doug: Well, timing is always the problem. If you wait long enough, absolutely everything that is possible will happen. I suppose that’s why we have time itself – to keep everything from happening at once [chuckles]. But we have to think about what’s likely in the course of a single lifetime, so we can benefit from foresight – or be punished for guessing wrongly.

Consider that several other U.S. states are looking at “union-busting” legislation such as Wisconsin’s. Unions can no longer pretend to be vehicles to protect the workers; they are really nothing but cartels that reward their members at the expense of everybody else. And, unlike the federal government, the states can’t just print money. They have to tax people directly to pay for things. Now they have two choices: raise taxes or default on past promises.

Raising taxes is very hard to do during a depression. People who feel their standard of living is slipping just won’t stand for it. Taxes were a major cause of the French Revolution and the American Revolution.

The riots in the ’60s weren’t about this type of thing – entitlements and taxes – but remember, in the ’60s, few states had sales taxes, and where there was one, it was usually only one percent, or two, max. Now, sales taxes regularly run six, seven, eight, even ten percent. In addition, real estate taxes have gone up tremendously, as have state income taxes, of which there were also fewer back then. So these governments are already straining their ability to tax, and they know that if they raise taxes again, it will destroy much of what’s left of their economies.

L: But they can’t really default either – that would get the politicians thrown out of office just as quickly.

Doug: Default would hurt bondholders – generally older people who are very active voters. Also, pension funds, insurance companies, and banks would see a large chunk of their assets wiped out, which would be another body blow to struggling state economies. Not being able to print money, they won’t be able to keep paying their debts, so they’ll be forced to lay off more and more government employees. State and local governments are truly between a rock and a hard place, just like the U.S. government. But the U.S. has the option of destroying the currency to put off the hour of reckoning, and that’s what they’ll do.

L: Well, if the governments have to fire a bunch of employees, that’s a good thing. But it will add to the unemployment burden, unless they scrap unemployment benefits too, which would also get the politicians tossed out of office.

Doug: Well, most government employees just push paper, and stop things from happening. It would be cheaper and better to pay them not to work, so they won’t do actual damage – or give them unemployment compensation. Unfortunately, though, they’ll just fire a few employees, or cut their wages and benefits a bit. What they need to do is totally abolish whole departments – each state has hundreds of them, making the lives of businessmen miserable and expensive. They won’t do that, so the bureaucracy will just grow back if there is any recovery. Rather, the reduced number of employees will slow down approvals even more, slowing business even more. And that will further open the door to corruption.

Actually, it would be therapeutic to see some of them end up like Mussolini. It’s certainly a good thing to see action toward recovering the money Mubarak stole. The same should be true in the U.S. Everybody in high office emerges very wealthy from a small salary – it’s all stolen money.

But at this point, there is just no way out. It’s like jumping off the top of a 100-story building – it’s an exhilarating ride until you get to the bottom. That’s exactly where, not just the U.S., but the whole global economy is.

L: I guess so… You could spread your arms and try to slow the fall, or if you were an experienced sky-diver, you could try to angle your descent toward one side or the other, but it’s not going to change what happens when you hit the street.

Doug: That’s exactly right. In the real world, actions have consequences. Economic causes have effects, and the piper can only be put off from payment for so long. I don’t think he can be put off any longer.

L: When, exactly, do you think the bill – and its ever-accumulating interest – will come due?

Doug: I’m not going to put a date on it, but it’s starting. The next ten years are going to be the most interesting decade in centuries. The events that are now under way – economic, financial, social, technological, political, and military – have the promise of being the biggest thing in a very, very long time.

L: Okay, but, with all due respect, you were full of doom and gloom back in 1980 – said we were going to tip over the edge, but we didn’t.

Doug: I was, and I did say that – and we could indeed have gone over the edge back then. It was a very close thing. Fortunately – or unfortunately, if you consider the much, much larger bill now coming due – they papered it over. And things actually got better, due to two things: one, many individuals produced more than they consumed, and saved the difference; and, two, we got many improvements in technology. But financial and economic affairs are much worse now than they were then.

L: You don’t believe it’s possible to paper it over this time? Doesn’t it make you uncomfortable to say, “It really is different this time!” – at least a bit?

Doug: Sure it does. Famous last words. But, in fact, it really is different this time, as anyone who searches the news for phrases such as “unprecedented,” “record deficit,” “record bank failures,” etc., can see. It’s a judgment call, obviously. But we have to make judgments if we’re going to succeed, or even survive. Sometimes you have to call for a change in a major trend – which is risky. But not nearly as risky as getting trampled by the mob after it actually changes. I’m not afraid to leave the mainstream. In fact, I far prefer it, whether I’m right or wrong.

L: How can you be so sure there’s no possible way to paper this over again? Mugabe trashed his currency and is still in power. Life goes on in Zimbabwe. Couldn’t multi-trillion-dollar deficits become the new normal in the U.S.?

Doug: No, that’s not possible. It would destroy the currency. It’s bad enough when you do that in a nothing/nowhere country like Zimbabwe, where subsistence farmers can keep on scratching a living out of the dirt with sticks and stones, if they have to. But it wipes out most of the economy above the subsistence level, as just about everyone has their savings in the destroyed currency. If you do that to the Canadian dollar, say, it would be a disaster – but mainly for people who live in Canada. And plenty of Canadians have assets in other countries. But if you do it to the U.S. dollar, it wouldn’t just be a disaster in the U.S. The U.S. dollar is the world reserve currency. Few Americans have assets outside of the U.S. Foreigners hold, maybe, eight trillion U.S. dollars. All the central banks of the world have mostly dollars. People all over the world have dollars in their pockets and bank accounts. When Bernanke destroys the dollar it will be a worldwide catastrophe. And that will happen all the faster if the feds bail out the states – which is a possibility with someone like Obama in charge.

Let me re-emphasize this. Almost everyone with net worth around the world tries to keep much of it in dollars. There are trillions of dollars outside the U.S. – far more than inside, and the people holding them are going to be impoverished. They won’t be able to invest or to spend. A collapse of the dollar would lower the standard of living of a lot of people around the world, basically overnight.

This is really, really serious, and there’s no way out. We are going to go through the meat grinder.

If we were to somehow stumble through this one – I would be fascinated to see how – and manage to move ahead in some semblance of the way things were pre-2008, I very much doubt it would last long. And I’m very sure it will just make the ultimate reckoning day that much more catastrophic.

I hate to say it, because I know the human cost will be enormous, but I think the odds greatly favor this being “it.” I only hope to not be very adversely affected by it – and to have the right to say “I told you so”… although it will be unwise to draw that to anyone’s attention after it happens. [Chuckles]

L: Hm. Well, even if there was some way to gain a reprieve for a few more years, it’s still going to be ugly. The 70,000 people protesting in Wisconsin show that the so-called jobless recovery is a lie. Improving the bottom line by laying people off is not the same as increasing the top line, and increased government spending is not real GDP growth. Even if we manage to struggle on this way, the minimum payments now due the piper are going to keep things dicey. That means that the risk of social/political collapse remains, even if we avoid economic collapse.

Snow Crash could be starting right now.

Investment implications?

Doug: Nothing we haven’t said before: we’re headed out of the eye of the storm, so you better rig for stormy weather – the worst you’ve ever seen.

L: Specifically…

Doug: Buy gold – lots of gold, even though it’s no longer cheap. To capitalize on the likely next bubble, buy gold stocks. Given the trouble in the Middle East, the right energy stocks are also good to invest in. Short anything that won’t do well in economic hard times, including the whole financial sector – and the retail, consumer, and construction sectors. Use those investments to build your cash position so you’re ready to take advantage of the spectacular investment opportunities all of this turmoil is going to cause.

And do not – do not – forget to diversify yourself out of your country of residence. If you have the means, and have not done so yet, buy a “vacation” home. Make it in some nice remote place where you’d enjoy spending time in any event, but where the people live close to the earth and don’t depend on the modern global economy. Also, make it in a place where hungry masses from unsustainable cities are unlikely to show up on your doorstep.

L: And if the sky is not falling?

Doug: Then you still make a bundle on the volatility ahead and end up with a nice vacation home you can sell if you decide you no longer need it for insurance.

But remember, nothing lasts forever. Few governments last as long as that of the U.S. has – and it’s showing clear signs of terminal decay. Don’t kid yourself, thinking, “It could never happen here.” Europeans have an advantage over Americans; they remember fighting each other much more recently, and know full well it certainly can happen there.

L: Okay, Tatich. I guess I’ll add the gun shop to my stops when I head down to my local coin shop to buy gold – time to load up on ammo again.

Doug: Sure, why not? You can always sell it later if you don’t use it. Cigarettes too, even though I know you don’t smoke. And alcohol, even though I know you don’t drink.

L: I’ll feel like a Y2K fanatic, but I guess there’s room in the attic.

Doug: Sounds trite, but it’s better safe than sorry, and it won’t hurt to prepare for the worst and hope for the best.

L: Sometimes old wisdom is the truest wisdom.

Doug: Indeed. We’ll talk more next week. This business with the labor unions in Wisconsin is interesting – we should talk about labor unions.

L: Good topic. I look forward to our conversation.

Doug: ‘Til next week then.

Robert Wenzel on the Global Riots

Robert Wenzel writes:

The world is exploding with protests, riots and in some cases revolutions. Behind this disruption of the status quo is the reaction against government attempts to force people against the natural order. In Egypt, Tunisia, Libya, and the like, it is pure revolt against totalitarian control. In Greece, Ireland and Wisconsin it is protests against the fact that governments can’t do the impossible, i.e. pay out more plunder than they take in (in one form or another). In Greece, Ireland and Wisconsin, the protesters clearly want the impossible. They want the plunder that isn’t there.

But at the core, the fundamental problem with all these upheavals is there is no indication that the people in any of these situations understand what makes for a growing prosperous society. In Greece, Ireland and Wisconsin, the protesters are clearly self-centered, who have no clue that they would live in a much better society if the governments simply ended their positions and stopped taxing the people. This would result in the people hiring the government employees in the private sector, where the incentives would result in a growing society.

In the revolutions of Egypt, Tunisia and Libya it is not clear what will replace the totalitarians. There is no indication that the masses understand the destructive nature of government control.

From Wisconsin to Libya, the teachings of Hayek, Mises and Rothbard are still not generally understood. Until they are, protests, riots and revolutions may simply just set the stage for future protests, riots and revolutions, as one government plan is replaced by some other government plan that won’t work in the long run. Nothing will really change until the people truly understand the importance of the rule of law, private property and free markets. Until Hayek, Mises and Rothbard are on the lips of revolutionaries the way Marx and Guevera and are now, the revolutions shall continue.

10 Things That Would Be Different If The Federal Reserve Had Never Been Created

From EconomicCollapseBlog.com:

The vast majority of Americans, including many of those who believe that they are “educated” about the Federal Reserve, do not really understand how the Federal Reserve really makes money for the international banking elite.  Many of those opposed to the Federal Reserve will point to the record $80.9 billion in profits that the Federal Reserve made last year as evidence that they are robbing the American people blind.  But then those defending the Federal Reserve will point out that the Fed returned $78.4 billion to the U.S. Treasury.  As a result, the Fed only made a couple billion dollars last year.  Pretty harmless, eh?  Well, actually no.  You see, the money that the Federal Reserve directly makes is not the issue.  Rather, the “magic” of the Federal Reserve system is that it took the power of money creation away from the U.S. government and gave it to the bankers.  Now, the only way that the U.S. government can inject more money into the economy is by going into more debt.  But when new government debt is created, the amount of money to pay the interest on that debt is not also created.  In this way, it was intended by the international bankers that U.S. government debt would expand indefinitely and the U.S. money supply would also expand indefinitely.  In the process, the international bankers would become insanely wealthy by lending money to the U.S. government.

Every single year, hundreds of billions of dollars in profits are made lending money to the U.S. government.

But why in the world should the U.S. government be going into debt to anyone?

Why can’t the U.S. government just print more money whenever it wants?

Well, that is not the way our system works.  The U.S. government has given the power of money creation over to a consortium of international private bankers.

Not only is this unconstitutional, but it is also one of the greatest ripoffs in human history.

In 1922, Henry Ford wrote the following….

“The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.”

It is important to try to understand how the international banking elite became so fabulously wealthy.  One of the primary ways that this was accomplished was by gaining control over the issuance of national currencies and by trapping large national governments in colossal debt spirals.

The U.S. national debt problem simply cannot be fixed under the current system.  U.S. government debt has been mathematically designed to expand forever.  It is a trap from which there is no escape.

Many liberals won’t listen because they don’t really care about ever paying off the debt, and most conservatives won’t listen because they are convinced we can solve the national debt problem if we just get a bunch of “good conservatives” into positions of power, but the truth is that we have such a horrific debt problem because it was designed to be this way from the beginning.

So how would America be different if we could go back to 1913 and keep the Federal Reserve Act from ever being passed?  Well, the following are 10 things that would be different if the Federal Reserve had never been created….

#1 If the U.S. government had been issuing debt-free money all this time, the U.S. government could conceivably have a national debt of zero dollars.  Instead, we currently have a national debt that is over 14 trillion dollars.

#2 If the U.S. government had been issuing debt-free money all this time, the U.S. government would likely not be spending one penny on interest payments.  Instead, the U.S. government spent over 413 billion dollars on interest on the national debt during fiscal 2010.  This is money that belonged to U.S. taxpayers that was transferred to the U.S. government which in turn was transferred to wealthy international bankers and other foreign governments.  It is being projected that the U.S. government will be paying 900 billion dollars just in interest on the national debt by the year 2019.

#3 If the U.S. government could issue debt-free money, there would not even have to be a debate about raising “the debt ceiling”, because such a debate would not even be necessary.

#4 If the U.S. government could issue debt-free money, it is conceivable that we would not even need the IRS.  You doubt this?  Well, the truth is that the United States did just fine for well over a hundred years without a national income tax.  But about the same time the Federal Reserve was created a national income tax was instituted as well.  The whole idea was that the wealth of the American people would be transferred to the U.S. government by force and then transferred into the hands of the ultra-wealthy in the form of interest payments.

#5 If the Federal Reserve did not exist, we would not be on the verge of national insolvency.  The Congressional Budget Office is projecting that U.S. government debt held by the public will reach a staggering 716 percent of GDP by the year 2080.  Remember when I used the term “debt spiral” earlier?  Well, this is what a debt spiral looks like….

#6 If the Federal Reserve did not exist, the big Wall Street banks would not have such an overwhelming advantage.  Most Americans simply have no idea that over the last several years the Federal Reserve has been giving gigantic piles of nearly interest-free money to the big Wall Street banks which they turned right around and started lending to the federal government at a much higher rate of return.  I don’t know about you, but if I was allowed to do that I could make a whole bunch of money very quickly.  In fact, it has come out that the Federal Reserve made over $9 trillion in overnight loans to major banks, large financial institutions and other “friends” during the financial crisis of 2008 and 2009.

#7 If the Federal Reserve did not exist, it is theoretically conceivable that we would have an economy with little to no inflation.  Of course that would greatly depend on the discipline of our government officials (which is not very great at this point), but the sad truth is that our current system is always going to produce inflation.  In fact, the Federal Reserve system was originally designed to be inflationary.  Just check out the inflation chart posted below.  The U.S. never had ongoing problems with inflation before the Fed was created, but now it is just wildly out of control….

#8 If the Federal Reserve had never been created, the U.S. dollar would not be a dying currency.  Since the Federal Reserve was created, the U.S. dollar has lost well over 95 percent of its purchasing power.  By constantly inflating the currency, it transfers financial power away from those already holding the wealth (the American people) to those that are able to create more currency and more government debt.  Back in 1913, the total U.S. national debt was just under 3 billion dollars.  Today, the U.S. government is spending approximately 6.85 million dollars per minute, and the U.S. national debt is increasing by over 4 billion dollars per day.

#9 If the Federal Reserve did not exist, we would not have an unelected, unaccountable “fourth branch of government” running around that has gotten completely and totally out of control.  Even some members of Congress are now openly complaining about how much power the Fed has.  For example, Ron Paul told MSNBC last year that he believes that the Federal Reserve is now more powerful than Congress…..

“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”

#10 If the Federal Reserve had never been created, the American people would be much more free.  We would not be enslaved to this horrific national debt.  Our politicians would not have to run around the globe begging people to lend us money.  Representatives that we directly elect would be the ones setting national monetary policy.  Our politicians would be much less under the influence of the international banking elite.  We would not be at the mercy of the financial bubbles that the Fed has constantly been creating.

There is a reason why so many of the most prominent politicians from the early years of the United States were so passionately against a central bank.  The following is a February 1834 quote by President Andrew Jackson about the evils of central banking….

I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out.

But we didn’t listen to men like Andrew Jackson.

We allowed the Federal Reserve to be created in 1913 and we have allowed it to develop into an absolute monstrosity over the past century.

Now we are drowning in debt and we are on the verge of national bankruptcy.

Will the American people wake up before it is too late?

60 Minutes Story on Staggering Unemployment plus The Solution

The following video is tough look at how bad the economy really is across the country right now.  The solution to cure unemployment is here in one of our previous posts. Wouldn’t it be nice if the politicians really had our best interests at heart?  If they did they would do what we suggest.  But, as you may already know, government is the problem not the solution.  Their constant interventions in the economy (manipulating the money supply, strangling regulations, etc., etc.) are what created this mess in the first place.

60 Minutes Video

Anarcho-capitalism Works

An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West

This paper was written while Terry Anderson was a National Fellow at the Hoover Institution, 1977-78. While retaining responsibility for any errors, the authors wish to thank Jon Christianson, Murray Rothbard, and Gordon Tullock for their valuable comments.

by Terry L. Anderson and P. J. Hill

Department of Economics, Montana State University


The growth of government during this century has attracted the attention of many scholars interested in explaining that growth and in proposing ways to limit it. As a result of this attention, the public choice literature has experienced an upsurge in the interest in anarchy and its implications for social organization. The work of Rawls and Nozick, two volumes edited by Gordon Tullock, Explorations in the Theory of Anarchy, and a hook by David Friedman, The Machinery of Freedom, provide examples. The goals of the literature have varied from providing a conceptual framework for comparing Leviathan and its opposite extreme to presenting a formula for the operation of society in a state of anarchy. But nearly all of this work has one common aspect; it explores the “theory of anarchy.” The purpose of this paper is to take us from the theoretical world of anarchy to a case study of its application. To accomplish our task we will first discuss what is meant by “anarcho-capitalism” and present several hypotheses relating to the nature of social organization in this world. These hypotheses will then he tested in the context of the American West during its earliest settlement. We propose to examine property rights formulation and protection under voluntary organizations such as private protection agencies, vigilantes, wagon trains, and early mining camps. Although the early West was not completely anarchistic, we believe that government as a legitimate agency of coercion was absent for a long enough period to provide insights into the operation and viability of property rights in the absence of a formal state. The nature of contracts for the provision of “public goods” and the evolution of western “laws” for the period from 1830 to 1900 will provide the data for this case study.

The West during this time often is perceived as a place of great chaos, with little respect for property or life. Our research indicates that this was not the case; property rights were protected and civil order prevailed. Private agencies provided the necessary basis for an orderly society in which property was protected and conflicts were resolved. These agencies often did not qualify as governments because they did not have a legal monopoly on “keeping order.” They soon discovered that “warfare” was a costly way of resolving disputes and lower cost methods of settlement (arbitration, courts, etc.) resulted. In summary, this paper argues that a characterization of the American West as chaotic would appear to be incorrect.

Anarchy: Order or Chaos?

Though the first dictionary definition of anarchy is “the state of having no government,” many people believe that the third definition, “confusion or chaos generally,” is more appropriate since it is a necessary result of the first. If we were to engage seriously in the task of dismantling the government as it exists in the U.S., the political economist would find no scarcity of programs to eliminate. However, as the dismantling continued, the decisions would become more and more difficult, with the last “public goods” to be dealt with probably being programs designed to define and enforce property rights. Consider the following two categories of responses to this problem:

continue reading…

How Capitalism Saved the Miners in Chile

From WSJ:

Capitalism Saved the Miners
The profit = innovation dynamic was everywhere at the mine rescue site.
By DANIEL HENNINGER

It needs to be said. The rescue of the Chilean miners is a smashing victory for free-market capitalism.

Amid the boundless human joy of the miners’ liberation, it may seem churlish to make such a claim. It is churlish. These are churlish times, and the stakes are high.

In the United States, with 9.6% unemployment, a notably angry electorate will go to the polls shortly and dump one political party in favor of the other, on which no love is lost. The president of the U.S. is campaigning across the country making this statement at nearly every stop:

“The basic idea is that if we put our blind faith in the market and we let corporations do whatever they want and we leave everybody else to fend for themselves, then America somehow automatically is going to grow and prosper.”

Uh, yeah. That’s a caricature of the basic idea, but basically that’s right. Ask the miners.

If those miners had been trapped a half-mile down like this 25 years ago anywhere on earth, they would be dead. What happened over the past 25 years that meant the difference between life and death for those men?

Short answer: the Center Rock drill bit.

This is the miracle bit that drilled down to the trapped miners. Center Rock Inc. is a private company in Berlin, Pa. It has 74 employees. The drill’s rig came from Schramm Inc. in West Chester, Pa. Seeing the disaster, Center Rock’s president, Brandon Fisher, called the Chileans to offer his drill. Chile accepted. The miners are alive.

Longer answer: The Center Rock drill, heretofore not featured on websites like Engadget or Gizmodo, is in fact a piece of tough technology developed by a small company in it for the money, for profit. That’s why they innovated down-the-hole hammer drilling. If they make money, they can do more innovation.

This profit = innovation dynamic was everywhere at that Chilean mine. The high-strength cable winding around the big wheel atop that simple rig is from Germany. Japan supplied the super-flexible, fiber-optic communications cable that linked the miners to the world above.

A remarkable Sept. 30 story about all this by the Journal’s Matt Moffett was a compendium of astonishing things that showed up in the Atacama Desert from the distant corners of capitalism.

Samsung of South Korea supplied a cellphone that has its own projector. Jeffrey Gabbay, the founder of Cupron Inc. in Richmond, Va., supplied socks made with copper fiber that consumed foot bacteria, and minimized odor and infection.

Chile’s health minister, Jaime Manalich, said, “I never realized that kind of thing actually existed.”

The profit = innovation dynamic was everywhere at the mine rescue site.

That’s right. In an open economy, you will never know what is out there on the leading developmental edge of this or that industry. But the reality behind the miracles is the same: Someone innovates something useful, makes money from it, and re-innovates, or someone else trumps their innovation. Most of the time, no one notices. All it does is create jobs, wealth and well-being. But without this system running in the background, without the year-over-year progress embedded in these capitalist innovations, those trapped miners would be dead.

Some will recoil at these triumphalist claims for free-market capitalism. Why make them now?

Here’s why. When a catastrophe like this occurs—others that come to mind are the BP well blowout, Hurricane Katrina, various disasters in China—a government has all its chips pushed to the center of the table. Chile succeeds (it rebuilt after the February earthquake with phenomenal speed). China flounders. Two American administrations left the public agog as they stumbled through the mess.

Still, what the political class understands is that all such disasters wash away eventually, and that life in a developed nation reverts to a tolerable norm. If the Obama administration refuses to complete free-trade agreements with Colombia, South Korea and Panama, no big deal. It’s only politics.

But that’s not true. Getting a nation’s economics right is more important than at any time since the end of World War II. Chile, Colombia, Peru and Brazil are pulling away from the rest of their hapless South American neighbors. China, India and others are simply copying or buying the West’s accomplishments.

The U.S. has a government led by a mindset obsessed with 250K-a-year “millionaires” and given to mocking “our blind faith in the market.” In a fast-moving world filled with nations intent on catching up with or passing us, this policy path is a waste of time.

The miners’ rescue is a thrilling moment for Chile, an imprimatur on its rising status. But I’m thinking of that 74-person outfit in Berlin, Pa., whose high-tech drill bit opened the earth to free them. You know there are tens of thousands of stories like this in the U.S., as big as Google and small as Center Rock. I’m glad one of them helped save the Chileans. What’s needed now is a new American economic model that lets our innovators rescue the rest of us.

Write to henninger@wsj.com