According to a Library of Congress essay, the term “the American Dream” was first used by James Truslow Adams in his 1931 book entitled The Epic of America. In it Adams writes that the American Dream is “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. . . . It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

Fast-forward almost 80 years for Llewellyn H. Rockwell, Jr.’s October 11, 2010 article entitled “The Killing and Reviving of the American Dream.” Here Rockwell highlights many of the social trends brought about by the current economic downturn and their troubling impact on the American way of life. He notes that “Economics isn’t just about trade statistics, retail sales or GDP. It is the very pith of life.”

So what are the numbers telling us about our country and the American Dream? What has changed significantly over just a few years? Using Census data Rockwell points out the following changes have occurred:

• Reduced mobility — fewer people are moving
• Delayed marriage
• More people are working from home
• More people are going back to school or extending school
• There is a “Boomerang Generation” of young people moving back with their parents
• High youth unemployment is producing a “Sloth Generation”

Regarding the “Sloth Generation,” Rockwell notes that while many of these young people “have never held a job in their lives” he says that is not their fault “for the most part.” Instead, Rockwell lays the blame on government policies: “The economic crisis, child labor laws, socialized educational costs, minimum wages, and a government-imposed culture of prolonged adolescence have combined to deny opportunity to an entire generation.”

Given these trends, Rockwell suggests it is easy to see “how American living standards have been hammered.” He warns that the American Dream is disappearing:

We are witnessing the fall of the American dream, which has always been about having hope in the future. People do not have that hope as they once did. This is a striking fact of our times, one made even more devastating as we look at the economic fundamentals such as the unpayable public debt and the out-of-control spending in Washington and the states that continues to consume vast amounts of private capital.

Rockwell digs deeper and points out that these American Dream-killing trends actually go back several decades to what he calls “the turning point” — the “severing of the dollar’s last link to gold in 1971.” Rockwell argues it was that move that set the United States on the unsustainable path wherein we find ourselves today:

This is the event that set up the explosion of government growth, of credit addiction across the population, of massive malinvestment in housing and many other sectors, of the gutting of American savings, and, most seriously, of the loss of freedom to the national security state.

The consequences of these changes are very serious Rockwell continues:

Long term, our living standards have been eroded in fundamental ways that have a profound cultural effect. The American family once lived well on one income. Now, two incomes is the expected reality. That shift took place following the great inflation of the late 1970s. Many people saw this as the great news that the workplace was being opened up to women. More likely it was not a sign of liberation, but of a dramatic demographic adjustment required to maintain high living standards. And the state didn’t mind: it added millions to the tax rolls. One wonders if “liberation” is really the right word to use for this change.

Such adjustments are ongoing. The hidden tax of inflation combined with the growing regulation of labor markets, makes maintaining the illusion of high living standards ever more difficult. This explains Generation Boomerang, the delay in entering the workforce, the delay of marriage, unemployment among the young, the dashed dreams after graduation, and the advent of the phenomenon of the lifetime student. These fundamental indicators are not reflected in the GDP data, which count government spending as economic growth, and credit-fueled consumption as evidence of rising living standards.

After pointing out these symptoms of underlying problems, Rockwell lays the blame for them squarely on what he calls the “growth of the leviathan state.” It is the massive expansion in government power and reach that is strangling the American Dream:

In every case, we can easily trace these trends to economic realities, which in turn are profoundly affected by government policy trends and monetary policy in particular. Monetary policy is truly the hidden hand behind the strangulation of the American dream. It is the secret force at work that erodes our living standards, funds the growth of the leviathan state, and makes every sector of economic life dependent on rising debt.

But there are other factors at work here too. Antitrust law hobbles business as never before. Taxes drain productivity from corporations, small businesses, and households. Protectionism keeps the best products at the best prices out of the hands of consumers. Edicts issued by a thousand bureaucracies keep American enterprise constantly guessing about the legal climate. Patent mania has created a minefield for innovation in every sector from medicine to software. Imperial wars have drained away capital and labor resources from the private sector.

The leviathan state is the great enemy of American prosperity, the monster that devours wealth. Every bit of economic growth that we experience is due not to the presence of this leviathan, but to the ingenuity of American enterprise in getting around the barriers.

Understanding that last sentence is key to our economic success. But how do American entrepreneurs get around these barriers? Rockwell continues:

To understand how this works, imagine the US economy as a car on a racetrack. Private enterprise, in addition to building the car, provides the fuel, maintenance, and technical innovations that make it run. The government, meanwhile, is in charge of the track, and it puts tacks on the road, increases the sharpness of the turns, and adds speed bumps, as it burns with envy.

In order to keep the car travelling forward at a fast rate, private enterprise has to innovate constantly, adding horsepower, tack-proof tires, and drivers that are ever more skilled. Private enterprise can never rest in its efforts to overcome the ever-intensifying demands on the car and driver. All the while the Federal Reserve stands by to tempt the car’s crew with engine-destroying fuel available at zero price.

Rockwell concludes that the “sad reality” is that there is no “easy way for freedom to triumph today.” Ultimately, “all forms of government intervention, domestic and international” will have to be ended. Rockwell argues that corporate socialism (and all bailouts), the “gargantuan military industrial complex,” and the systems that provide “social security and medical benefits” will have to stop. Rockwell writes:

These three systems of socialism are a main cause of the American bankruptcy. They are absolutely unsustainable. A consistent application of the principle of liberty must take aim at these programs, across the board, with no exceptions.

Rockwell concludes that the resurgence of interest in classic free market economic books “by dead people like Bastiat, Mises, and Hayek” are changing people’s minds. This interest is important since ideas are the “most potent weapon in the struggle between freedom and power.” Since a government’s power “always depends on at least the tacit consent of the governed,” such a renewed interest in free markets, liberty, and limited government is shifting the balance of power to the people and away from big government. Rockwell leaves with a final encouraging thought:

Changing minds can bring a long-lasting victory for freedom, for ourselves and our descendants. Even in the midst of the biggest economic disaster in 70 years, we’ve never had more opportunities to enlighten not only this country but the entire world. It all depends on the actions and choices we make today.

Let us take heart. Let us enlighten ourselves with a thorough understanding of our Constitution, our history, and a consistent view of liberty. Let us share this truth with others. And together, if we follow through, we can rebuild our country and revive the American Dream.

Image credit: federico stevani

Nearly two years ago former Panamanian Securities and Exchange commissioner David Saied penned an article that challenged many core beliefs held by the economic elite within the United States. This article, published by the Ludwig von Mises Institute on September 10, 2008 and entitled “America’s Economic Myths,” addresses six false assumptions  that have become accepted as fact by many whom Saied identifies as “mainstream economists and so-called experts.” Let us examine these six economic myths in light of the truth.

The first three myths addressed by Saied involve inflation and energy. (Regarding inflation, Saied clarified that he employed the popular notion of inflation as “the general rise in prices” instead of the correct “expansion of the money supply” definition.) The final three myths cover consumption and were created by the attempts of Keynesian economists to influence public policy.

Myth #1: “High oil prices are due to America’s dependence on foreign oil.”

Saeid argues that the country of origin does not determine the price of oil but economic factors — like supply, demand, labor, and production costs — are what drive the price of oil.

The high price of oil has nothing to do with its origin; the price of oil is determined in international markets. Even if the United States were to produce 100% of the oil it consumes, the price would be the same if the worldwide supply and demand of oil were to remain the same. Oil is a commodity, so the price of a barrel produced in the United States is basically the same as the price of a barrel of oil produced in any other country, but the costs of labor, land, and regulatory compliance are usually higher in the United States than in third-world countries. Lowering these costs would help increase supply. Increasing supply, whether in the United States or elsewhere, will push prices lower.

Regarding dependence, Saied points out that importing something doesn’t mean you depend on it and he uses a local supermarket analogy to explain. In a sense, we import food from our local supermarket for our own consumption. That transaction makes the supermarket an exporter to us. That being the case, Saied argues that the exporter depends on the customer more than the other way around. In short, the overarching reason why we import something is because we can purchase it for less than we can produce it ourselves.

Regarding the high price of oil, Saied concludes that the central bank’s financial policies are to blame:

Most, if not all, of the higher price of oil can be explained by the expansion of the money supply or the debasement of the dollar. The foreign producers are not at fault; our national central bank is the culprit.

Myth #2: “Inflation is caused by rising oil prices.”

This statement is simply false, Saied argues. Again he lays the blame on the central bank’s policies:

If the money supply were to remain constant, then an increase in the price of one good, such as oil, would cause a decrease in the price of other goods. If more money is spent on oil, then less money will be available to spend on other goods. This will in turn cause a drop in the demand for other goods, which will subsequently cause a drop in the prices of these goods. The reality is that inflation is always a monetary matter, caused by the increase in the money supply due to the interest-rate-easing policies of central banks.

Myth #3: “Current inflation is being caused by the increased demand of millions of new consumers in China and India.”

At first glance this myth appears to be true because the demand for oil has increased significantly with the industrialization of India and China. However, Saied correctly points out that these new consumers are also new producers which means that they generally produce more than they consume “because most workers have to produce more than what they earn in wages (if not, they lose their jobs).” So India and China’s increased production has increased the supply of goods worldwide which has lowered prices for many items, particularly items produced in China. In aggregate, this increased production offsets their increased consumption so, while oil prices may rise, other prices fall by an even greater amount. Saied notes, though, that there is one factor that can alter this scenario temporarily:

[T]he only way these new workers can increase their consumption beyond what they produce is through credit. Thus we return to the real culprit behind inflation: credit expansion due to central banks’ intervention in the financial markets.

Myth #4: “Consumption is the most important element of the economy.”

Again this myth is not true. Investment is key to the long term success of the economy. Saied explains:

Consumption is indeed important in a free economy: particularly the freedom of consumers to buy their goods in unhampered markets. However, key to long-term economic growth is investment (savings), which is the opposite of consumption. Public policies that promote consumption — such as low interest rates — do so at the expense of savings. Less savings means less investments; an economy that does not save or invest will consume all of its resources and eventually end up bankrupt.

Myth #5: “Excess consumption is a feature of the free-market capitalist system.”

This myth is simply not true. Excess consumption is caused by a disincentive to save. Again, Saied points largely to the central bank as creating an environment in which excess consumption is encouraged.

Excess consumption is mostly caused by central bank’s artificially low interest rates, which promote lower savings and higher consumption than would naturally occur. Currently, the real interest rates of savings accounts are negative. Thus it makes no economic sense to save. Since these same policies cause price increases, it makes sense to consume as much as you can immediately, before prices rise. Therefore we see that excess consumption is being caused by government policies and not by the capitalist free-market system.

What does the phrase “real interest rates of savings accounts are negative” actually mean? It means that the low levels of interest earned on one’s savings or investments (the dividends paid) are less than the rate of inflation. Put another way, the purchasing power of money sitting in a savings account is reduced over time as the dollar, in this case, becomes worth less in real terms — in effect, the low rate of interest paid on one’s savings fails to offset the inflation loss thus he cannot even reach “break even” status with his savings and/or investments. When this happens, the act of putting money into “savings” becomes a costly activity and so, in an effort to preserve their purchasing power, consumers buy more than they need before prices increase due to their money losing more value.

Myth #6: “Federal Reserve interest-rate policy can help the economy.”

Saied points out that to keep target interest rates low the Federal Reserve (“the Fed”) must, in reality, create money “out of thin air.” A fancy way of describing this intervention is to say that the Fed is “adding liquidity to the money supply.” Fancy term or not, though, the result is the same: more money is created without assets to back up that new money. Saied explains:

Many believe that this artificial injection of liquidity creates economic stimuli and promotes growth. However, even though it creates an apparent bonanza, these monetary injections must eventually be “paid back.” This payback happens by means of higher prices, the so-called inflation.

This increase in prices occurs because our money is actually worth less now than it was before the Fed’s “liquidity increase.” This reduction in purchasing power causes a problem for consumers because they are now worse off than before the Fed intervention.

A second problem also is created by the Fed’s intervention. Fed-induced below-market interest rates encourage excessive debt accumulation through unwarranted borrowing. The problem is further compounded by the low savings rates explained above. Saied points out that this whole scenario encourages “people to withdraw money, lowering the market supply of funds.” The results is an “eventual credit crisis, which follows the boom period that was caused by artificially low interest rates.”

Saied concludes that the current financial crisis should have pushed interest rates higher but Fed intervention prevented a free-market correction from occurring. Fed interventions have serious costs and, as noted above, produce other problems that prolong a financial crisis. Furthermore, many libertarians and strict-constructionists point out that there is no constitutional justification for such interventions by the federal government.

Free market proponents tend to argue that Fed intervention prolongs economic suffering and endangers the American Dream. Given these outcomes and the likely unconstitutional nature of such actions, the Fed’s manipulation of our economy must be vigorously opposed. Sadly, the widespread acceptance of the above economic myths, especially when propagated by supposed defenders of the free-market system, hampers efforts to build the public support necessary for a return to free-market principles.  However, when free-market advocates effectively challenge these myths and their false assumptions, the American people will be able to see the wisdom of implementing serious economic reform — the kind that yields real free-market solutions capable of producing recovery and long-term economic prosperity.

Image Credit: Michelle Meiklejohn

Economics Professor Walter E. Williams of George Mason University provides a very simple explanation for the complex interaction of scarcity and cost and, specifically, the idea that we can get something for nothing. In his Townhall column entitled “Something for Nothing,” Dr. Williams identifies scarcity as existing “whenever human wants exceed the means to satisfy those wants.”

The concept of scarcity is complicated by many factors including the constraints of time and the laws of physics — after all, we cannot occupy two places at the same time. However complicated it may be, Dr. Williams reduces the issues down to a simple thought: “Scarcity means there’s no free lunch. Having more of one thing requires having less of another.” He explains these ramifications using an example of reading his “free” column when you could have chosen a different activity for that time slot:

You’re reading my column for a zero price but you’re not doing so at zero cost. You have to sacrifice something. There are zero-price services such as “free libraries,” “free public schools,” “free transportation” and free whatever. It doesn’t mean that costs are not being borne by somebody.

Dr. Williams continues with another example that our government has used to make taxation more palatable — the notion of an “employer portion” of payroll taxes. He continues:

A congressional hoax that’s flourished for seven decades is the Social Security hoax that half of the Social Security tax (6.2 percent) is paid by employers, the other half (6.2 percent) paid by employees. The law says that if you are self-employed, you get to pay both halves. The fact of the matter is whether you’re self-employed or not, you pay both halves of the Social Security tax that totals 12.4 percent. Let’s look at it.

Suppose you hire me and our agreed-upon weekly salary is $500. From that $500, you’re going to deduct $31 as my share of the Social Security tax and you’re going to add $31 as the so-called employer’s share, sending a total of $62 to the IRS. Here’s the question: What is the weekly cost for you to hire me? I hope you answered $531.

The next question is: In order to make hiring me profitable, what must be the minimum dollar value of my contribution to your total output? If you said $531, go to the head of the class because if the value of my contribution to total output is only our agreed-upon salary of $500, you’re making losses hiring me and you’re going to be out of business soon. Therefore, if I am producing $531 worth of value per week, it is I who’s paying the so-called employer as well as the employee share. The reason why Congress created the fiction of the employer share was to deceive us into thinking that we’re paying fewer taxes than we in fact are.

So, the next time a politician says he wants to give you something from the government, remember that what he is “giving” you costs someone else. Put another way, “government has nothing to give anyone except what it first takes from someone else.” The same can be said whenever the government wants to levy more taxes on businesses or corporations. In order for these entities to remain profitable (and remember, they are in business to make a profit) they must ultimately shift these costs onto the consumer in the form of higher prices. It’s that simple.

For additional insight from Dr. Walter E. Williams, see his book entitled More Liberty Means Less Government: Our Founders Knew This Well.  On the “something for nothing” issue, though, Dr. Williams sums up his column with the following warning:

The bottom line lesson is that if you think you’re getting something for nothing, or somebody else is paying for something you receive, you’d better give it another look.

As Americans, we would be wise to heed Dr. Williams’ warning. Either way a tax still costs us personally whether it comes directly out of our pocket or from what would have been in our pocket if the government had not intervened. We cannot get something for nothing, therefore, let us reject government bribes that herd us into the high-tax slaughterhouse of the American Dream.

On August 28, 1963 from the steps of the Lincoln Memorial, Martin Luther King gave his famous “I have a Dream” speech. This brief speech became a defining moment of the American Civil Rights Movement and was part of the 1963 March on Washington for Jobs and Freedom.

Some notable passages from Martin Luther King’s speech are included below:

In a sense we’ve come to our nation’s capital to cash a check. When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men, yes, black men as well as white men, would be guaranteed the “unalienable Rights” of “Life, Liberty and the pursuit of Happiness.” It is obvious today that America has defaulted on this promissory note, insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked “insufficient funds.”

But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. And so, we’ve come to cash this check, a check that will give us upon demand the riches of freedom and the security of justice.

The marvelous new militancy which has engulfed the Negro community must not lead us to a distrust of all white people, for many of our white brothers, as evidenced by their presence here today, have come to realize that their destiny is tied up with our destiny. And they have come to realize that their freedom is inextricably bound to our freedom.

We cannot walk alone.

I have a dream that one day this nation will rise up and live out the true meaning of its creed: “We hold these truths to be self-evident, that all men are created equal.”

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character.

This is our hope, and this is the faith that I go back to the South with.

With this faith, we will be able to hew out of the mountain of despair a stone of hope. With this faith, we will be able to transform the jangling discords of our nation into a beautiful symphony of brotherhood. With this faith, we will be able to work together, to pray together, to struggle together, to go to jail together, to stand up for freedom together, knowing that we will be free one day.

Let freedom ring from Stone Mountain of Georgia.

Let freedom ring from Lookout Mountain of Tennessee.

Let freedom ring from every hill and molehill of Mississippi.

From every mountainside, let freedom ring.

And when this happens, when we allow freedom ring, when we let it ring from every village and every hamlet, from every state and every city, we will be able to speed up that day when all of God’s children, black men and white men, Jews and Gentiles, Protestants and Catholics, will be able to join hands and sing in the words of the old Negro spiritual:

Free at last! Free at last!

Thank God Almighty, we are free at last!