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To protect the will of the people of Arizona for fiscal responsibility through true majority rule, any initiative that imposes additional taxes or spending must have support from a majority of qualified electors in Arizona. Currently, initiatives that increase taxes or spending can pass with approval from only a minority of qualified electors. In the past, big money, special interest groups have pushed higher spending and taxes. Arizona now faces one of the largest deficits of any state in the country. We must protect the will of the people and let a true majority of the voters decide.

This is the language for Proposition 105 in Arizona that many of us will be voting on come November. Those of you that do not reside in Arizona need not worry about voting, but should still consider the importance of this measure and perhaps propose it in your state.

Proposition 105, referred to as the Majority Rule Initiative, would essentially require a majority of all registered voters – not just a majority of those who vote – in Arizona to approve any increase in spending or taxation by the state. So, if there are 100 registered voters in Arizona, it would require 51 votes to increase spending or taxation – compared to the current system that if there were 100 registered voters in Arizona and only 60 of them voted, then only 31 votes would be required to increase spending or taxation.

This is, without a doubt, the most monumental proposition that we will be voting on in November. Should this proposition pass (luckily we will only need a majority of votes, not registered voters), it would dramatically limit spending and taxation in this state. Considering that Arizona averages turning out less than 41% of voters in even presidential elections¹, it is almost guaranteed that no measure will pass that increases spending or taxation unless it is absolutely necessary.

This would be a wonderful step towards limiting government, at least in Arizona, and will hopefully be replicated across these United States. So please, get out and vote for Proposition 105, this is one area where your vote can really make a difference. Now if we can only get the Federal Government to spend less . . .

“Economics isn’t chemistry. You can take any theory you’ve got. If people think it’s going to work, it will work. If they don’t, it won’t.” – Anonymous

While the American people deal with a present-day waltz of government intervention with the wealth they generate, it might be a good time to take a look at when this dance really picked up the beat. The year was 1971 and the president was R.M. Nixon.

The country was suffering from a disturbance of its industrial base, and consumer confidence by August 1971 was at a historically low 55%. Inflation was getting out of control, and unemployment spiraled toward double digits. Labor strikes at ports were causing supply disruptions throughout the country. The dollar was still backed by the gold standard of the internationally agreed Bretton Woods system, and thus pressure was on to devalue the currency. The economic picture was bleak, and Nixon,

who wasn’t one to act until the warning signs were breathing down his neck, decided to deal a heavy hand in swiping the problem away.

His solution to the suffering was worked out behind closed doors at Camp David with some of his closest advisors and consisted of three major parts:

1. Any foreign-owned US dollars would no longer be backed by the gold standard nor would be the base currency for international monetary dealings.

2. All prices, wages, and rents would freeze for three months.

3. All foreign goods imported would be subject to a 10% surcharge to be passed onto the consumer.

This move was widely lauded by economists throughout the world as a step in the right direction. They believed with these actions, the US dollar would strengthen, inflation could be curbed, and US goods would become more attractive to domestic shoppers because they weren’t subject to the tax. The 90 days of price wages would at least give the country a little bit of time to think over how it had come to this point. By 1971, high inflation had become part of the daily routine, with a lot of the cause coming from powerful labor unions and a slightly looser money supply. As unions demanded cost of living wage increases, the price of goods increased, causing the overall savings rate to skyrocket. Consumers became uncomfortable with the higher prices. Productivity had also decreased due to labor strikes and shortages. Stagflation was beginning to take hold. The disarray was palpable, and Nixon, never being shy in orchestrating himself as a leader and savior of the United States, decided that he must act. So what happened?

For starters: epic confusion. In Nixon’s speech to the nation, he stated that there wouldn’t be an overreaching bureaucracy in charge of enforcing the price and wage controls but that it would be up to the “voluntary cooperation of all Americans.” A few labor unions had it in their contracts, drawn up long before

Nixon’s plan, that a raise would take place somewhere in the middle of the 90 days of controls. Their “voluntary cooperation” was in question. In addition, many of the influential labor union leaders of that time saw the price controls as a business-oriented instrument at the expense of the working man despite its efforts to whip inflation. Strikes would continue despite Nixon’s protests. Productivity remained low.

So what was the outcome after the baffling 3 months of price controls in the fall of 1971? Very little. While the nation might’ve felt a little more confident in itself that it had sucker punched inflation by creating inefficient markets, supply, demand, and consumer confidence remained historically low.

The blatant heavy handedness of the republican Nixon administration distinctly parallels the current Bush administration with the exception being that Nixon preached that with government at the command, the economic crisis can be solved. Bush, Paulson, and most democrats and republicans alike preach that with government ownership, the economic crisis can be solved.

The theme is this: When people have nothing else to fall back on, suddenly, it’s the government that can provide us with the answers. Two of Nixon’s unrealized programs (partly unrealized due to America’s then-pitiful economic health) were a universal minimum income and universal health insurance, ideas that, while quite noble in theory, sound decidedly socialist and ripe for failure.

Admittedly, the problems and solutions for 1971 are different from today’s, however, it remains that there’s only so much the government can do to alter the will of the marketplace. The government longs for optimism in the markets. Why should an efficient, optimistic market take instructions from the inefficient unmotivated government? In turn, this bailout should immediately help the large companies, while alienating 300 million consumers.

When government has taken their cut off the top, and the people are outraged; careful now.

There are no shortages of economic fallacies among the mainstream media. Political pundits are so eager to opine on every possible issue despite of their own intellectual shortcomings. These pundits often epitomize the intellectuals who only judge on what is seen.

Few have been as appalling on the issue of oil prices as Bill O’Reilly. O’Reilly has engaged in a hyper populist crusade against Big Oil, speculators, and their alleged price gouging. For months he has been decrying the record profits of big oil and their incessant exploitation of the little guy.

After President Bush announced that the ban on offshore drilling would be lifted, oil prices dropped immediately. Bill asked, how can this be? No additional oil has entered the market. This obviously can’t be simple supply and demand. No this must be price gouging.

This is an issue that has become increasingly frustrating for me. In order to end it once and for all, I am going to present the simplest and most easy to understand analogy.

Price are not determined by how much supply is currently in the market, they are determined by how much supply is expected to be in the market.

How can this be?

Suppose Elton John is coming to town. You love Elton. I mean you really love Elton. There is nothing more you could want than to see him rock out. The problem is that all the tickets are already sold out.
You are desperate so you approach a ticket scalper to remedy your situation. He offers you a ticket at $100 a piece. You know that this is a little steep- only a few days ago prices were $85 from the scalper and a week ago $50 from the actual concert venue,. But demand is high and supply is getting lower and lower and you reluctantly agree.

Right before you hand over the money your best friend calls you and says, “Guess what! The Rocket Man is going to release 5,000 more tickets tomorrow at $50!”

So what do you do?

Do you buy the ticket at $100 or $50? The very instant that you received the price information the market price for tickets dropped. Tickets went from $100 to $50 in an instant- even though no additional tickets have entered the market that night. The supply remained unchanged and the market price changed even though no tickets have even been printed yet! How can this be?

It happened because prices are not determined by the physical supply of goods, but by the expected supply. It didn’t matter that the tickets had not yet entered the market; you knew they would and therefore reasoned accordingly.

Oil is much the same way. When a ban of offshore drilling is lifted, it signals to the market that supply will increase. Speculators will want to avoid losing money and bet that the market prices will began to drop and firms that purchase future contracts will do so at a lower price.

It always comes back to the fundamentals: supply and demand. It always comes back to seeing what is the unseen…

Thank you Bastiat.

Over the past century, there has been an unprecedented shift in power from the states to the federal government. The idea of 50 relatively autonomous states under the blanket of the federal government has completely been thrown out the window. Go to another state and you will see that there are tremendous differences in the people; their ideologies, their “typical” jobs, their culture, and even their demographic make-up. Yet, you will always find that one relative constant: all of them have essentially the same laws, income taxes, and government services. Now, how does it make sense for the same set of “one size fits all” rules and regulations to apply to 300 million people who are all incredibly diverse in their needs and wants.

It doesn’t.

It breeds inefficiency. If there is one way to describe the federal government, it would be inefficient. If you are a congressman from a state, and a potential project is being talked about in congress, you will push your hardest for it to pass… even if the costs outweight the benefits. The reason for this is you are really only paying 1/50th (for simplicity sake, I’m assuming all 50 states are the same size tax revenue wise) of the cost. This may not seem like a huge deal, until it happens over and over again and all 50 states are doing it. The bottom line is there is absolutely no incentive to reduce spending since all the costs are spread around.

Imagine how much more efficient and strong our economy would be if each state could specialize in the needs and wants of its citizens. This was the original idea of the whole 50 state system! It allowed for each state to set its own rules that fit its own people. It was a brilliant idea, and it still is. The idea that we could have 50 states each competing with each other economically and ideologically for people, and competition drives efficiency. For example, states would have incentives to actually reduce spending, not only because they are paying the whole 100%, but also, the more they save, the more they can reduce taxes or provide services to its citizens.

The fundamental concept behind the free market is that no transaction occurs unless it benefits both parties. This is a concept that is violated over and over in our country. People are paying taxes for services that they do not want and they are not receiving services that they are willing to pay for. Under the “original” concept of the United States, the taxpayers actually had a voice… which today has been reduced to the faintest of whispers. Sure we can determine the President, our congressmen, but can we really drive our politicians to change? I would argue we have very little impact, because of how un-localized our voices are. The more local and specific your voice is, the stronger it is. A single voice among 300 million is quite miniscule, but a single voice within a single state is magnified by about 50x.

To be honest, I’m getting sick of everyone talking about how “Washington is broken”, because it reminds me of just how far we have fallen away from the original founding principles of the country. I’m not angry that Washington is broken, I’m angry that people aren’t questioning when Washington became the sole decider of all things American. When is the last time you heard someone say “Albany is broken” or “Phoenix is broken” or “Olympia is broken”. Chances are it has been a long time. In fact, state capitols have become such a figurehead name and they don’t even have any importance in the grand scheme of everything (to test this, try naming all 50 capitols… I had enough difficulty naming 3). Well, at least relative to their intended importance set forth by our founding fathers.

I love the idea of the United States of America. Fifty states all operating independently but under one united entity. But, I fear that over the past century the fifty states are no longer operating independently under one entity, but they have become one entity. Being united is great, but not when it comes as a Washington mandate.

The bad economist only notices what is seen. The good economist sees what is unseen. Bastiat’s timeless observation of the problem with popular economic reasoning is sadly still so very relevant today. This point can best be illustrated by presenting a most extreme example where nearly everyone only saw what was seen and fatally missed the unseen.

Hurricane Katrina was a devastating moment for all Americans. We saw one of our most beloved cities suddenly underwater, with our fellow compatriots struggling and suffering. We sympathized with the stragglers who failed to leave the town in time and all the anarchy that ensued. Many of us sent charity and many even volunteered to try to help mitigate the crisis.

We all hated one thing: the exploiters- the people who took advantage of this tragic incident in order to line their pockets.

None were probably more disdained than the individuals that sold water to these helpless refugees for obscene prices; sometimes 10 to 20 dollars a bottle. Many wanted them arrested. Many called for laws to prevent this sort of price gouging in a time of crisis. How in a just society, these well-intentioned individuals ask, can we allow this to happen?

My question: How in a just society can we not allow this to happen and indeed encourage it?

My first question I would ask to these well-intentioned kind hearted individuals would be: How much money would I have to pay you to drive to New Orleans to deliver water? Say you from Arizona. That is some 2000 mile more or less. How much would it take you to load your car up with water and deliver it to the people most desperate? Perhaps $1,000, maybe $2000, maybe even $10,000?

Perhaps they would respond nothing, I would do it out of my own good will. Ok fair enough, then I might ask, did you? The answer 99.999% will be no, they didn’t.

As any economist will tell you as the price of a good rises it attract suppliers into the market. When the prices raise fast and high, it attracts many suppliers into the market.

Given the market circumstances of the New Orleans during this time, the price was high enough to attract individuals from Alabama and other bordering states to load up their pickups and deliver a good that was in extraordinarily desperate need. The sufferers of Katrina were not concerned with paying $15 dollars a bottle, their mind was much more preoccupied with survival. These evil price gougers provided water in area where charity and government failed. After all, logically, if the people had a choice between $15 bottles and the free water given out by charities and the government why would they choose to pay $15? The answer is simply that they didn’t have that option. The charities and government had failed to reach everyone in need of this good. Therefore the sad reality is that these people would not have had water had these evil price gougers not contributed to the desperate demand.

Price signal demand. They allow suppliers to know how much and where a product should be supplied. Furthermore, they ration goods. Suppose a law was imposed to limit the price of water to $2.00. What type of incentives does that create? What are the possible unintended consequences? What would the rational individual do? I know what I would do: buy up the shop. I would purchase as many as I could possible afford and carry. I would buy more than I could possible need as a precaution. Many might say that “no no people will realize this and only take what they need”. But this statement is a truly ignorant understanding of human nature. The tragedy of the commons is true everywhere: where there are fixed prices, there are invariably shortages. Thus in a short amount of time only the first few consumers have purchased all the available water leaving nothing available for the others.

The high prices of water motivated individuals to action, to supply a good desperately shortage and allowed that good to rationed to the most amount of people.

Its easy to sit back and criticize but I wonder how many of you actually did anything to alleviate the suffering. The evil price gougers provided a service that was desperately demanded. The price gouger benefited as well as the hurricane victim. It was mutually beneficial. I can assume that is more than you did.