Willink's Econ Thread

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Re: Willink's Econ Thread

Postby Willink » Fri Sep 19, 2014 6:31 pm

Wanted to post this clip here because its *@%& hilarious

Can always count on CNBC for comedic relief, especially when it comes to stocks.

Here we have moronic hosts trying to yell at Bill Fleckenstein, hudge fund guy who manages 100 billion + in assets about the stock environment:


Talking head asks "have you misunderstood monetary policy" and good ole Bill lets out one the funniest laughs I've heard on TV in a while.

"If these markets continue to rise" :lol: :lol: :lol: :lol:

In reality, Fleckenstein has a much more nuanced view of monetary policy that the ignorant woman, namely; the Fed has created trillions of dollars since 2008, that inflation through this massive expansion of (mostly) digital money hasn't impacted "main street" as it exists largely in the excess reserves of banks, and, rather, it has manifested itself as massive asset-value inflations in stocks as a sort of "free gambling money" which has pushed the S&P and Russell 2000 to their upper bounds.

He further (and succinctly) notes that all these talking heads bemoaning losing money in the short term by not jumping aboard the happening train will likely be scurrying about come the next correction as these "un-missable" gains are wiped out, laughs at two month growth as the equivalent of a "rounding error".

To no surprise she completely misses the point of his response and keeps talking about the same point, which is why she is a good-looking TV host and he actually manages money.

There are two very important misconceptions by the media about investing. The first, is that if an advisor/manager has a conservative or negative view on the market then that means they are sitting in cash and have missed the rally. That is simply not the case. As I addressed in "Bulls And Bears Are Both Broken Clocks:"

"In the end, it does not matter IF you are 'bullish' or 'bearish.' The reality is that both 'bulls' and 'bears' are owned by the 'broken clock' syndrome during the full-market cycle. However, what is grossly important in achieving long-term investment success is not necessarily being 'right' during the first half of the cycle, but by not being 'wrong' during the second half."

The important point that Bill is trying to make is that even if he has missed some of the gains in the market, the devastation to investors during the completion of the full market cycle will completely eviscerate any potential short-term performance lag. However, this is why media driven advice has always led investors into taking on excessive risk that eventually devastates long-term investment returns.

The second misconception, and much more important to this discussion, is that having a "sell discipline" means that you are a "market timer." This also is a fallacy.

"Market Timing" is when an individual attempts to time market movements and is either "all in" or "all out" of the market. The reality is that while some investors may be successful in such an endeavor over a short term period, it is unlikely that they will be successful over the long term. Furthermore, most individual investors have neither the time, discipline, tools or skillset necessary to attempt such an operation.

Moreover, as investors we are SUPPOSED to "buy low and sell high." Without a "sell discipline" how would one accomplish such a task? More importantly, without selling high, how is one supposed to have capital with which to buy low? This does not mean "selling everything" which is what is often believed, but rather trimming back on winners, and disposing of investments that are not working. I like to call this "portfolio management" and am contemplating patenting what is apparently a novel concept. The problem with the majority of investment advice given today is that investors should only "buy and hold." This advice is fine as long as markets are rising, however, as discussed above; it is the completion of the full market cycle that leaves individuals wanting.
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Re: Willink's Econ Thread

Postby Willink » Mon Sep 22, 2014 4:23 am

On the way back from Bills game today got stuck in traffic so was listening to an audio lecture by Murray Rothbard about the history of communism, toward the end he went off on a hilarious (and informative) aside on the protestant piety movement and how it influenced American politics and the progressive movement, thought I'd transcribe it here b/c it's really informative and provides an additional lens by which to examine the 1830-1920s American political era:

I’ve got to talk about 19th century America and post-millenialism. It’s a
short course in American history, and it’s very important. In the early 19th
century, 1820s approximately, the [pietous] movement develops. Before
that, it’s too extreme to say Christianity died out in the United States, but
it almost did. In other words, most Christians were a Unitarian of some sort.
Christianity was sort of dying out, and I don’t know if it died out in Europe, but Europe pietism mostly begins around the same period. And in fact, the founding fathers were all deists—even George Washington.
He’s always held up as a great Christian; he’s not a Christian at all, he was a deist.

Actually, of the founding fathers, the only ones who were really Christian
were the older ones—Sam Adams and Patrick Henry, who were a little
older than the rest and were still Calvinist Christians. The others were all
sort of deists, which means that God is a great clockmaker, so to speak.
God created the world, created natural law, and then left, and then
everything runs by itself, sort of.

Christianity then is revived in the early 20th century in the United States,
and also in Europe, although I’m not going to make any dramatic
pronouncements about Europe, by pietism, which is a new form of
Christianity, I think brand new, through the revival movements, which
we’re now fairly familiar with.

In those days it was a big new thing. Where you arrive at Christianity
through a mystical experience or emotional, mystical conversion, with
revival meetings and rolling on the floor, speaking in tongues and so
forth and so on. You’re born again. Not just a regular baptism, but
another baptism, a baptism of the Holy Spirit.

A second baptism becomes necessary. With this new form of post-
millennial pietism, swept Protestantism, taking over almost completely,
especially in the north, especially Yankee country—I define Yankees as
being a cultural group who originated in rural New England, not so much
Boston or the cities, but rural New England, rural Connecticut,
Massachusetts, etc., and then emigrating. There were big migrants.
Heading westward into upstate New York, western New York, northern
Ohio, the famous Western Reserve area, northern Indiana, northern
Illinois. This is Yankee country. The Yankees were always compulsory
conformists, what one historian called Yankee imperialists. They wanted
to crush all dissent in one form or another.

It was the Yankee who originated the public school system in the United
States, for example—force everybody into public school and teach them
the correct doctrine. So the Yankees took to this like a duck takes to
water, this new form of pietism. Essentially, the new form of pietism was
as follows: Creeds are not important. Whether you’re a Presbyterian,
Methodist, Baptist doesn’t make any difference.

It’s all interdenominational, as long as you’re a Christian. Law is
unimportant. The bible is unimportant. The key thing is this personal
relation with God. And this is, by the way, the origin of the YMCA
movement, all the interdenominational movements, because divisions
between Protestant churches are unimportant.
Each individual then is sort of naked to his creator. In other words, a
personal relationship with God and Man, and the church is unimportant
too. Whether you’re a church member is really unimportant, and which
church you belong to is unimportant.

The Yankee wing, which is called Evangelical pietism, is different from
the southern pietists, which became sort of quietist types. You try to
achieve your born again conversion and that’s it. It has no political
implication. Evangelical pietists believe it’s part of pietism that you can’t
be saved unless you maximize the salvation of everybody else—this is key

It’s not just you like to have a missionary thing and bring everybody else
the word—more than that—it’s your divine duty—otherwise you won’t be
saved—to try to maximize everybody else’s salvation. So in order to do
that, in order to maximize everybody’s salvation, you have to eliminate
sin—temptation, occasions for sin, so forth and so on.

So very quickly, of course, they became big statists, because you use
the government as a shortcut to stamping out sin and trying to create the
conditions for this, to save individual souls by righteously stamping out
sin. So what you have from the very beginning of pietism, from 1830s
until 1920s, really, the whole 19th century, you have a situation where all
these guys were constantly spending their time trying to outlaw sin on
the local and state level in the United States—meaning anything which
interferes with your theological free will.

These were theological free willers. So that anything which clouds your
mind, so to speak, and interferes with your free will, should be outlawed.
This meant, in practice, demon rum, number one, liquor, liquor’s evil.
They broadened the definition of sin. One Catholic opponent of this said
they made sin where God did not.

So anything liquor is sinful, because liquor clouds your mind of
theological free will. Liquor is evil. Anything on Sunday except going to
church is evil and should be stamped out. So drinking liquor on Sunday
is probably the ultimate evil, it’s like a double-whammy.

There’s nothing more sinful than drinking liquor on Sunday. And the third
thing, of course, is the Roman Catholic Church, where everybody’s
enslaved agents of the Vatican, and the pope is the antichrist. So the
idea is to stamp out liquor, stamp out Sunday activity and stamp out

Now, they couldn’t stamp out Catholicism exactly, directly,
constitutionally. They tried their best. They tried to restrict Catholic
immigration in various ways, and once adults—they said, “Adult
Catholics are doomed, but you get the kids.” The famous cry of the
pietists was, “Christianize the Catholics,” and the way you do it is get the
kids in the public school system, prevent parochial schools, outlaw
parochial schools, get the kids in the public schools and then
Protestantize them, or pietize them.”

So the whole public school system, the real thrust of the public school
system was pietists, was Protestant pietists. All these guys I’ve hated for
years, like Horace Mann, the whole public school movement, their real
motivation was pietist. “I want to crush the Catholics and Lutherans,” the
German Lutherans in particular, who are formalists, liturgical Christians.

And you get them by getting the kids in the public schools and
Protestantizing them. In many cases, many jurisdictions in the United
States, for example, you could not be a public school teacher unless you
were a Protestant church member. This is going on on the local and
state level for 100 years. What happens is that the Catholics, as they
come to the United States, and the German Lutherans that come to the
United States, are horrified

First of all, the Germans, both Lutheran and Catholic, have marvelous
customs, charming customs. After going to church on Sunday, the whole
family repairs to a beer garden with a brass band and so forth, and here
they are in a beer garden minding their own business, and these WASP
fanatics descend upon them, “SIN! SIN! DOUBLE SIN! CRUSH! KILL!"

This conflict is going on for almost 100 years. These guys are hopped
up. So what you have then is the party system has developed in the
United States until 1896. From 1830 to 1896, the political party system
has a one-to-one correlation between pietists versus liturgicals. In other
words, those who believe the importance for salvation is the church—
joining the church, obeying the law, the sacraments or whatever. Total
conflict here.

Liturgical Christians consists of Catholics, German Lutherans and
old-style Calvinists, by the way. Those who are left, who hated the
revival movement and the pietists, became allied with the Catholics. So
what you have, you have a political party system with a one-to-one
correlation—the Whig Party and the Republican Party were straight
pietists, and the Democrat Party was liturgical, and never the ‘twain met.

So what you have is a total fantastic ideological conflict in the
Republicans and Democrats, everybody hating each other’s guts. There
were no independent voters, no floating vote. No Democrat would ever
vote Republican and vice versa. What they’d do is if your guy wasn’t
militant enough, he just didn’t vote, he just stayed home, and usually
elections were very close.

So the idea in the campaign is not to sell out to the masses. The
idea is to be as militant as possible to get your guys to vote. So on the
campaigns, the politicians were even more hardcore than they were the
rest of the time. It must’ve been a wonderful world to live in. And the
thing is, worse than economics says, these guys, the economic creed
was sort of a generalized consciousness from a religious creed.

In other words, the Republican leadership and the Whig leadership
would tell their people, “Look, just as you need big government on a local
level to stamp out sin and liquor and dancing and things like that, in the
same way you need government on an economic national level to stamp
out cheap foreign products and cheap foreign people, and increase
purchasing power by inflation, by printing more money,” and so forth and
so on, and high tariffs.

In other words, there was a direct relationship between the big state on a
national economic level and the local level. In the same way, the
Democratic leadership, laissez-faire liberals, would tell their people,
“Look, the same WASP SOBs that are trying to outlaw your liquor and
your parochial schools are the people who are trying to prevent, keep out
cheap foreign products and have special privileges, and decrease the
value of your savings through inflation.”

So this is how people got hopped up. This is why you have illiterates
writing books and pamphlets on gold and silver and banking. I can’t get
my own students interested in this stuff. There’s people writing
pamphlets, they’re all hopped up. The reason they’re hopped up is
because of the original religious motivation.

In this situation, unfortunately one of the black moments in American
history came in the Democrat Convention of 1896, when the Democratic
Party, the great liturgical, known as the party of personal liberty—by the
way, the Democrats were known as the party of personal liberty, both to
themselves and other people, and Republicans were known as the party
of great moral ideas.

And so the Democrats in 1896 were taken over by the extreme pietists in
one of the cataclysmic events, by various reasons. By that time, the
South, which was always of course Democrat since the Civil War,
southern pietism was transformed into Prohibitionism and
Evangelicalism, which it had not been before, and the mountain states
are created—you can imagine how many people were in Idaho.

There are no people in Idaho now; you can imagine how many there
were in 1890. These phony states were all created by
Republicans, they knew they were pietists. Most of these people were
pietists, and they vote Republican. And within the Democratic Party
there were pietists.

And so Bryant, one of the most evil people in American history, William
Jennings Bryant, was able to form a coalition between the southern
pietists and the mountain pietists to take over the party and kick out the
liturgicals, at which point the whole laissez-faire movement drops out. In
other words, the Democratic Party had been the political embodiment of
laissez-faire and libertarianism, liberalism. There was now no longer any
political party to reflect this. Both parties are now pietist, more or less,
and so this left a power vacuum for experts, intellectuals, progressives,
etc., to take over. The results we all know.

This is a lead into a couple of these progressive intellectuals I can’t
ignore, both philosophers and economists. The Progressive Movement
was a pure pietist movement. As a matter of fact, everybody who I
detest was involved in this thing. The Progressive Party Convention, for
example, in 1912, which was not the only Progressive Movement—they
were the extreme versions—Teddy Roosevelt was an old-time

He began his career as police commissioner of New York, smashing
saloons. This group consisted of the following people, the Progressive
Convention: Morgan Partners, who are extremely important—I can’t get
into all that—Morgan Partners, JP Morgan Partners, pietist ministers,
social workers, intellectuals, economists, political scientists, shrinks—
almost everybody you can think of was involved in this thing.

Roosevelt’s acceptance speech was called a confession of faith, and in
his speech was punctuated by him singing one of the pietist hymns,
“Follow follow follow Jesus’ way,” substituted the word “Roosevelt” for
the word “Jesus.” “Amen,” and finally Roosevelt wound up his famous
speech by saying, “As we stand at Armageddon, we battle for the

So there’s fantastic religious, pietist imagery here. What you have is all
these guys, all these progressive intellectuals, John Dewey,
all these people, every one of them it’s bing bing bing, they all grew up in pietist homes, they’re all rural New
Englanders or rural New Yorkers, whatever, all Yankees. Usually their father was a preacher or their mother was the daughter of a preacher. They usually kept a very strict sabbatherian home—nothing
was done on Sunday except praying, etc. And they wind up, they have
post-millennial pietism in the gradual sense—not the sense of killing
everybody immediately, which we talked about before, but gradually, sort
of evolutionary.

The government takes over and the government becomes God’s major
instrument. The great phrase, which Ely repeats, and all these guys repeat—Ely was the founder of the American Economic Association,
by the way, a great progressive statist intellectual. The phrase is,
“Government is God’s major instrument of redemption.” Through
government, through statism, through purging, crushing liquor and
bringing about equality and statism and government regulation,
everything, kingdom of God on earth is established gradually. And by
the way, Ely thought it was going to be pretty fast. It wasn’t so damn
gradual. He talked about in his lifetime perhaps the kingdom of God on
earth will be established by this method.

John Dewey, of course, is the classic example of atheists or secular
humanists. It’s little known, the fact that at the beginning of his life, he
was a Christian post-millennial pietist. In the 1890s he taught at the
University of Michigan, Christian sociology, etc., and talked in these

It’s very easy for these guys to become secularist. All they said was, “To
have a kingdom of God on earth, we’ll establish through government.”
Pretty soon God sort of drops out and you’ve got the government, why
worry about God? You have a gradual secularization. The post-millenials sort of die out. By 1920 they all died out because they all became straight people we know and love—social gospel ministers and
all the rest of it—people who are essentially non-theists.

Edit: see http://mises.org/daily/1679 and http://www.fee.org/the_freeman/detail/t ... lic-school for further elucidation of the religious motivations of the common school/public school movement
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Re: Willink's Econ Thread

Postby BF004 » Tue Sep 23, 2014 2:02 pm

Very interesting, Willink.

Makes a ton of sense. You can see a lot of ties from how deism is evident in our Constitution a lot more than any form of Christianity. Also, principals that would make secession from Brittain more appealing, more self sufficient citizens, less religious influence on government and oppression on it's citizens, less taxes and support from the government, allow the citizens to flurish on their own, the government's main intent was to protect and defend the US.

A poli-sci professor I had a long time ago said the US Constitition was a document written to tell us what the government can't do. It's intent was not to tell us what the government could do. Always liked that.
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Re: Willink's Econ Thread

Postby Willink » Tue Sep 23, 2014 3:46 pm

BF004 wrote:Very interesting, Willink.

Makes a ton of sense. You can see a lot of ties from how deism is evident in our Constitution a lot more than any form of Christianity. Also, principals that would make secession from Brittain more appealing, more self sufficient citizens, less religious influence on government and oppression on it's citizens, less taxes and support from the government, allow the citizens to flurish on their own, the government's main intent was to protect and defend the US.

A poli-sci professor I had a long time ago said the US Constitition was a document written to tell us what the government can't do. It's intent was not to tell us what the government could do. Always liked that.

I think you might be overstating the actual impact of deism. I think people get a little overboard with the nature of religious freedom circa 1770's as well; historical reading of the period paints the picture notsomuch of some polity supporting an alturistic sense of freedom with regard to religion, but rather, as I think Tom Woods has put it, immense fear by various religious sects that other religious groups would capture the machinery of government and stamp out practices. The whole thing was borne more out of distrust between the puritans, Quakers, etc. From Wood's Politically Incorrect Guide to American History:

A Puritan on Virginians:

"The farthest from conscience and moral honesty of any such number together in the world"

Virginian William Byrd II on the Puritans:

"A watchful eye must be kept on these foul traders"

Puritans and Virginians on Quakers:

"[They] pray for their fellow men one day a week, and on them the other six"

Quakers on New Englanders:

"They are the flock of Cain"

Certainly, people weren't opposed to government and religion at local and even state levels, seeing as state backing of religion was rampart in the colonial era. See:

http://undergod.procon.org/view.resourc ... ourceID=69

With regard to the tax and nature of govt stuff, I think its more reflective of changing British attitudes than some newfound perspective on the part of Americans. Historically, pre-seven years war the British didn't tax or, for that matter, govern much at all in the colonies, with the latter relying on their own duly appointed colonial legislatures for direct governance beyond the limited interactions with Crown-appointed governors. Really the only direct restrictions placed on them were market-related, namely, the funneling of American goods into the mercantilism trade structure of the British empire as it pertained to overseas trade with non-British territories.

Gradually, those sort of apprehensions began to elevate once the British tried to get the Americans to pay for financing the above war, which in large part was initially funded by debt. Americans rejected the notion that the British parliament had the ability to tax them in leiu of their own elected legislatures possessing sovereignty in their affairs. This was the exact argument forwarded by Jefferson in the hugely influential A Summary View of The Rights of British America . Americans saw themselves, pretty enthusiastically at that, to be British subjects, but they believed that their government was rightfully articulated through colonial legislatures, not the British parliament, and that their allegiance was to the crown, not to the parliament back in London. Once George III submitted instead to the view of parliamentary sovereignty as articulated by Sir William Blackstone by taking such action as ignoring the requests of the Stamp Act Congress they opted to throw him overboard.

I think even using the term "the government" is a bit misleading as well, because in large part what constituted the "American public" was alien to the view of a consolidated "United States government", but rather very much saw themselves as Virginians, New Yorkers, etc, certainty as it pertained to the nature of their rights and their political relations with one another. The sort of wholly federalist constructed view we have today is a post-civil war societal attitude. This is especially evident in early Constitutional theory:


(To tie in to the last post, note again, quite hilariously, that the argument against section is articulated by what Rothbard amusing termed "Yankee imperialists" seeking to force "compulsory conformity". The same group actually favored succession themselves in response to growing anti-federalist influence in the immediate post-war era, especially during the Jefferson presidency):


For further detail on the nature of Constitutional debates, especially as it pertains to (what I think) is the misleading account of the attitudes about the Constitution conventions as a uniformly awesome thing rather than an amalgamation of lots of special interests I'd suggest this marvelous and overlooked article, The Constitution as a Counter-Revolution:


I'd also suggest chapter 5 of Albert Jay Nock's Jefferson which deals with the political and economic attitudes of Marshall, John Jay, etc whose views inform modern constitutional law:

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Re: Willink's Econ Thread

Postby Willink » Sun Oct 05, 2014 4:08 am

With Obama giving a speech this week on the economy at Northwestern this week, how about some performance numbers since the Obama/Bush bailout/stimulus monstrosity?

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Re: Willink's Econ Thread

Postby Willink » Thu Oct 09, 2014 8:20 pm

Some comments on world markets, and the sell-off going on right now:

http://www.foxbusiness.com/markets/2014 ... p-selloff/


As for the two violent selloffs this week: there is no mystery. Recall that Deutsche Bank warned late in the summer this would happen for one simple reason: there are just three more weeks of POMO left after which the Fed's balance sheet flatlines, and with it, the S&P500. The only question is whether those who "sell ahead of everyone else", manage to take the S&P far below "unchanged", as prior QE ends have done, proving once again that it is all about the flow not the stock, and as a result the Fed will once again have to resort to even more QE.

As I've noted before, this exact stock market behavior actually has nothing to do with any sort of real price discovery as would be expected in a "free market" but instead is wholly responsive to manipulations by Central Banks of monetary policy. Stock #'s now are mostly buoyed by liquidity floods launched through the Fed, as obviously observable by the disconnect between the "main street" economy and "wall street". Here's Deutsche Bank commenting on the current circumstances:

The risk sell-off we've seen in recent weeks frustrates us a little as the chart we've published most this year has pretty much predicted that tougher times would come around July. We've been paying it a lot of attention for over a year now but decided to wait until the autumn before we raised the warning flags. The chart in question (included in today's pdf) is the one showing the Fed balance sheet and the S&P 500 (as a proxy for risk generally). As you can see, since the Fed balance sheet was used as an aggressive policy tool post-GFC, the graph suggests that the S&P 500 is well correlated with the size of the Fed balance sheet with the former leading the latter by 3 months. Given that the Fed have recently signalled that they will likely be finishing expanding their balance sheet in October, 3 months before that was July. This is important as virtually all of the mega rally in the last 5 years has come in the Fed balance sheet expansion periods. The other periods have been more challenging for markets.


It's different this time... and not in a good way. Real intraday range volatility over the last 2 weeks is breaking out - at its highest in 3 years...

That has not boded well in the past...


Dow swinging wildly by 200+ doesn't bode well.

OTOH, US Economy has upticked past few months as well, most obviously (IMO) as a function of the rest of the world sucking horribly, especially Europe, who appear to have entered a triple-dip recession due to their moronic-debt-laden policies:

http://www.ft.com/intl/cms/s/0/f5b863e2 ... z3FS4GR2ho

Compared to European markets (lol), Japan (near-disaster mode) China (housing bubble is in process of deflating, massive credit malinvestment & it's massive distortion of copper markets) the Dollar is looking comparatively good. Gotta wait to see what the deal is with the Fed's QE approach (and Yellen's comments about delaying rate raises), once they tighten ship stocks are gonna freefall.
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Re: Willink's Econ Thread

Postby Willink » Sat Oct 11, 2014 7:41 pm

Exploring one of the worst pieces of American law, the 16th Amendment.

I did a lot of research on this subject back in the late 70's to the mid 80's. I saw the documents that are claimed to be in error which ratified the amendment and saw that they are in fact in line with ratification, and thus I think that the amendment was duly ratified legally. However, anyone who cares to read the decision by the Supreme court on it (240 US 1) will see that the 16th Amendment did nothing to change the Constitution except to require the Congress to tax income from all sources at the same rate. I also read the congressional record of the debates in the Senate before and after the amendment was ratified, and found them extremely satisfying. There was one senator who actually knew what they had done and proceeded to give an excellent dissertation on the taxing power. The government does not have the power to tax everything as "Income" that they want. They use the amendment as a cover for doing this though, convincing us that the amendment gives them the power to do anything to us.

The court system is supposed to be our relief against a corrupt legislature and/or Executive branch, but they have thrown in with them to oppress the people (see the "Federalist Papers"). Only someone like Ron Paul who has read the Constitution can do anything to change things.
The basic argument is that wages are not "income" within the meaning of the term. The first income tax was written and passed in 1893, and was challenged and was decided by the Supreme Court in 1894. The court in this decision (Pollock v. Farmers' Loan & Trust Co., 158 U. S. 601) decided that the law was unconstitutional because it taxed the total rents of a building without subtracting the capital portion of the rent. They declared that "Income" was only the profit portion of gross receipts. This is the crucial point, that only "Profit" is income to be taxed. This definition has been held to this day. The Pollock decision is a very important decision in US History. It caused the government to write the 16th Amendment in the first place.

This begs the question as to whether or not the 16th changed anything. According to the court in "Brushaber vs. Union Pacific" (240 US 1), no it didn't. There was a bit of humor expressed by the court in their decision at the stupidity of the Congress for thinking that the Amendment changed their powers to tax everything as "Income", because they wrote in the amendment that an income tax no longer needed apportionment ( which direct taxes needed). A tax on income being an indirect tax, never needed apportionment so this is really a stupid move on the part of Congress, which gave the impression that direct taxes no longer needed it. Not the case. The Court said that income taxes still needed uniformity, being an indirect tax.

There are two types of taxes, each needing a rule for applying. According to the Constitution, article 1, sec. 8, clause 1, direct taxes need apportionment and Indirect taxes need uniformity. A direct tax is one on the ownership of the thing being taxed and is not avoidable. Congress, in laying a direct tax, must declare how much is sought to be raised beforehand, then each must collect the money and send it to the Federal government in proportion of the total population that reside in the state to the national population (this is one of the two reason for taking a census, and one of the big causes of the 3/5ths compromise). For instance, if the state of New York had 10% of the national population, it was responsible to collect 10% of what the Feds wanted. If cars were being taxed, then only people who owned cars would have to pay the tax, which would be divided between each car in the state.

Indirect taxes, on the other hand were totally avoidable, and on an act being taxed. They are avoidable by merely not doing the thing being taxed. For instance if gas was being taxed, one could avoid the tax by not buying gas. Indirect taxes are to be uniform, that is, they are exactly the same geographically in the country. A person buying gas in Florida or Main or California will pay exactly the same amount of tax on a gallon regardless. The tax on "excess profits" on oil in the 80's was declared unconstitutional because Alaska was excused from the tax, thus making it not uniform.

The Pollack court decided that since congress failed to allow the taxpayer to subtract the return of capital portion of the rents before taxation, the income tax was unconstitutional. To this day, companies are allowed to reduce from the "Gross Proceeds" the capital expended in the attempt to earn the gross proceeds. From this we get "Gross Income", from which deductions (Congressional gifts) are deducted to arrive at "Net Income" which is taxed. Another aspect is that somehow a government privilege is involved.

This all being said, are wages "profit", or "Income"? We don't think so, mainly for two reasons. First it is not avoidable. We have to work to get money to live. The court has repeatedly said that working is a basic right and the source of all individual property. Rights cannot be taxed. The internal Revenue Code defines Gross Income as "All Income from whatever source derived, including wages ...". Not getting into the fact that this does not define "Income" for now, it appears to tell us that wages are income. After looking at it for a while, it's telling us that we can somehow get profit "from" wages. This appears to say that somehow we can get profit by receiving wages. However, it kind of implies that we can deduct from our wages the capital return portion from our wages to get the profit portion, which is the income portion. The IRS maintains that it is all profit because we have not paid any capital into the receiving of the wages. But didn't we? Have we not invested our time of life? Have we not invested our skills and mental effort? What portion of the wage is return of capital? All of it! There are many decisions of the Supreme Court to back this up, going back to 1795. The court said working is a "right", so congress cannot tax "working" either. Believe it or not, the commissioner of Internal Revenue challenged this concept in court and was laughed out of the courtroom. He didn't even appeal the decision.

I would refer anyone who wishes a good education in taxation to read the Pollock, Brushaber, and Eisner vs. Moccomber (252 US 189) decisions. There are many other very good decisions one can refer to as well. I just can't list them all here. I someone wants to find out something, let me know an I will go into my archives and find it if I have it. This is only one of the very good things we found out. I will write others soon. For instance, why do we call it a "return"? What are you returning? How about the 5th amendment? Or the Paperwork Reduction Act?

It is my opinion that Congress deliberately avoided writing a tax that complied with any law, Constitutional provision or moral judgement. Nothing about the tax is just in any way. Can we win in Court using any argument? I don't think so. Some of our compatriots were killed by the IRS in the early 80's fro standing up against them, so I don't recommend failing to pay them.

The historical context of the 16th and the Supreme Court decisions were clear that 'income' was not considered wages, salaries, ect. but that which derived from them (also infered in the IRC). The Pollock case pretty much made a certain 'income' of Pollock a direct tax that needed to be apportioned according to the constitution and therefor it was considered unconstitutioonal to tax it without this apportionment. Reading the 16th in this light; it was trying to end the confusion once and for all by taking the income that the Pollock case heard or for that matter any furture attempt to do likewise and put it back under the category of an indirect tax - which of course does not pertain to wages, salaries, ect. which are exchanges for labor. This is why when you read the 16th it talks about Congress being able to lay a tax on 'income' from whatever source derived without apportionment - the Pollock case made a certain income that was derived from some capital investment as a direct tax and therefore needed to be apportioned. Income cannot derive from labor it must be derived from the wages, salaries, ect. that are derived from labor. That is the link that is missing in the public consciouness and which is exploited by the State. The 16th makes so much sense in this light. And as you pointed out it is even more clear when we consider that it never got rid of the apportionment clauses in the Constitution. Many people assume that the 16th allows direct taxes to unapportioned - that was not its intent as is seen in the fact that the words 'direct' or 'indirect' are not in the 16th - but the word income.

I was wondering your thoughts on trying to get the 'employers' educated on that fact that everyone who works for them (unless they are part of the Fed's arm) are not 'employees' that are subject to the tax and therefore the 'employer' is not obligated to send in a W-2 which creates prima facia evidence and a presumtion of liabiltiy permissable in a court of law. Also when you fill out that W-4 you do the same thing. The IRS has made the businesses the tax collecters. If you try to get hired and refuse to sign that W-4 they think they can't hire you - but how can we convince them otherwise not to send in the W-2 because we do not have to be categorized as an 'employee' subject to the tax - it is so entrenched.

Anyway, the 16th is contitutional and if anyone has signed that W-4 and a W-2 is sent to the IRS you are presumed to be liable for the tax even if you are not. You were tricked into creating that liability.

You bring up some of the arguments that were used back in the day (1978-1988). the problems we had were the employers were told by the IRS that they were to "withhold as if the employee had filled out the W-4 claiming 0 allowances", and the employers did for fear of the IRS looking into their books. The IRS uses the fear for their enforcement kind of like Genghis Khan did. They don't usually need to take anyone into court as that would use up resources. They rely on fear to ensure compliance. I brought up the "derived from" argument up at my "audit" with some good effect, so this is one of the good arguments. It is found in the code itself which is good. The definition in the code of "gross income" is definitive in this respect (this clause defines "gross" rather than "income"). The IRS just does not know how to read very well.
The case of Brushaber vs. Union Pacific, 240 US 1 is the main case on the 16th Amendment. It's very good showing what was intended by it. The kicker is that the 16th did not do what the congress intended, and the court seems to be laughing at them for the mistake. Another good passage to read is the House debate on this both in 1913 and 1916. One representative had it down pat and gave an excellent dissertation of US taxing powers. This is the best one since Pollock. Other cases worth reading are Boyd (1978 I think), Merchant's Loan vs. Smitanka, Adkins vs. Children's Hospital, Miller vs. US, and a few more that I can't recall at the moment ( I do not have my notes with me). The bottom line is that there is no shade of the current tax that is constitutional, ethical, or legal. It even violates the Privacy Act and Paperwork Reduction Act. The Consitution demands that Congress lay and collect the tax. We lay it on ourselves and the President collects it. I have been unable to find one aspect of it that is legal.

From Chodorov's book from 1954:

THERE ARE taxes and taxes. All are alike in two respects: they are compulsory and they are part of production. "Taxation, says the Encyclopedia Britannica, is "that part of the revenue of the State which is obtained by compulsory dues and charges upon its subjects."
Nevertheless, the "compulsory dues and charges" are usually divided into two major categories: direct and indirect. The reason for the classification is the method of collection; but the effect of direct taxes on public affairs makes them different in kind.
Indirect taxes are so called because the government does not get them directly from the payer; they are collected for the government by manufacturers and merchants, who recoup their outlay from their customers in the price of goods and services. All indirect taxes are added to price.
The most important of these indirect taxes are tariffs and excise levies. Tariffs are paid by the importer, who transfers the charge to his customer, who in turn adds the cost to the price he charges the next processor, and so on down until the ultimate consumer absorbs the original importer’s outlay, plus all the profits that have accrued to each handler. Excise taxes, like those paid on tobacco and liquor, are collected through the sale of stamps and licenses. Sales taxes are likewise found in the price of goods.

Indirect taxes are mere money raisers; there is nothing in the character of these taxes that involves any other purpose. In levying them, the government does not call on any principle other than that the citizen must pay for the upkeep of his government, in proportion to the amount of goods he consumes. It is as if the government were saying to the citizen: "Sorry, old man, but we need money with which to carry on this political establishment, and we don’t have any other source of money but you; we will, however, ease the pain of payment by hiding these taxes in the price of the goods you buy." The government does not question the right of the citizen to his property. The citizen need not pay these taxes; he can go without.

This alternative does not apply to direct taxes. The principal direct taxes are those levied on inheritances and incomes. (Another is the tax on land values, which we shall disregard because it has no bearing on the thesis of this book.) Except for payroll deductions, which is a device employed by government for the easy and certain collection of taxes on wages, direct taxes are paid directly to the government. They are not charged against the consumer in price, although, as we shall see later, they affect his standard of living even more materially.

Income and inheritance taxes imply the denial of private property, and in that are different in principle from all other taxes.

The government says to the citizen: "Your earnings are not exclusively your own; we have a claim on them, and our claim precedes yours; we will allow you to keep some of it, because we recognize your need, not your right; but whatever we grant you for yourself is for us to decide."

This is no exaggeration. Take a look at the income-tax report that you are required by law to make out, and you will see that the government arbitrarily sets down the amount of your income you may have for your living, for your business requirements, for the maintenance of your family, for medical expenses, and so on. After granting these exemptions, with a flourish of generosity, the government decides what percentage of the remainder it will appropriate. The rest you may have.
The percentage of the appropriation may be (and has been) raised from year to year, and the exemptions may be (and have been) lowered from year to year.1 The amount of your earnings that you may retain for yourself is determined by the needs of government, and you have nothing to say about it. The right of decision as to the disposition of your property rests in the government by virtue of the Sixteenth Amendment of the Constitution, which reads as follows:

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration."2

The amendment puts no limit on governmental confiscation. The government can, under the law, take everything the citizen earns, even to the extent of depriving him of all above mere subsistence, which it must allow him in order that he may produce something to be confiscated. Whichever way you turn this amendment, you come up with the fact that it gives the government a prior lien on all the property produced by its subjects.

In short, when this amendment became part of the Constitution, in 1913, the absolute right of property in the United States was violated.

That, of course, is the essence of socialism. Whatever else socialism is, or is claimed to be, its first tenet is the denial of private property. All brands of socialism, and there are many, are agreed that property rights must be vested in the political establishment. None of the schemes that are identified with this ideology, such as the nationalization of industry, or socialized medicine, or the abolition of free choice, or the planned economy, can become operative if the individual’s claim to his property is recognized by the government. It is for that reason that all socialists, beginning with Karl Marx, have advocated income taxation, the heavier the better.

To quote Ron Paul:

Why do you oppose the income tax? Because I have a right to the fruits of my labor, and government does not. If you concede the principle of the income tax, you concede the principle that the government owns all of your income and permits you to keep a certain percentage of it. God-given rights to our life and our liberty don’t come from government.

Highlighting the fact that taxes when taken generally simply destroy production by individuals in an effort to send the fruits of said labor right back to the entity which created notes out of thin air in the first place:

Modern states all have paper currencies, a debt money system. All forms of government money represent debt. Modern governments would not and could not exist without both the power to create debt money and the income tax system.

The purpose of modern paper currencies (all forms, including digital computer symbols) is to transfer wealth to the government without payment by the government. The Federal government creates modern “money” out of nothing and “pays” it into circulation for something. In other words, the government gets money (any amount of it) and passes it into the “economy” for goods and services. This is the same as saying that the government actually pays for nothing. It transfers wealth and production to itself for free. It pays not one penny.
Why then the income tax? The purpose of the income tax is to conceal the fraud that massive wealth is being transferred to the government without payment. This cover-up conceals the fact that since the Civil War and Abraham Lincoln’s “greenbacks,” paper money is the means of financing all wars and all means and methods of suppressing human liberty.
The vast wealth of governments comes from the creation of money, not from income tax. Why would governments need our income tax if they can create any amount of “money”?
The answer is, of course, they don’t need our income tax, but they have to have the income tax system to cover their money creation fraud. In other words, the people must believe that their income taxes are necessary to support government. All must pay their “fair share.”
So important is the income tax system as a cover-up that it is regulated by threat, coercion, mass brainwashing and a whole system of witchcraft called the tax code. Remember, governments have to conceal their greatest secret, their money machine.
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Re: Willink's Econ Thread

Postby Willink » Wed Oct 15, 2014 4:42 pm

10Y treasuries down to near 1% and DOW getting hammered, same time Europe stocks again point at being in a clear recession.

VIX up 26.99 so hopefully market continues to knockout these $#!! inflated asset prices.
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Re: Willink's Econ Thread

Postby Papa John » Wed Oct 15, 2014 9:39 pm

I just read the 16th Amendment post. No doubt, it poses a threat to personal property rights, especially now that our country seems to be falling victim to liberal economic ideology.

I am fancying myself more of a Libertarian these days.

I enjoyed reading the post, but I feel as though the final passage that you quoted contained some ambiguity.

In the third sentence, the author makes this proclamation (which I don't disagree with):

Modern governments would not and could not exist without both the power to create debt money and the income tax system.

And then proceeds to present this question:

Why would governments need our income tax if they can create any amount of “money”?

Is this question not answered by the quote that precedes it?

FYI I do not disagree with the premise of the passage, but I am very interested in some elaboration on this "income tax conspiracy."
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Re: Willink's Econ Thread

Postby Willink » Thu Oct 16, 2014 4:52 pm

Papa John wrote:I just read the 16th Amendment post. No doubt, it poses a threat to personal property rights, especially now that our country seems to be falling victim to liberal economic ideology.

I am fancying myself more of a Libertarian these days.

I enjoyed reading the post, but I feel as though the final passage that you quoted contained some ambiguity.

In the third sentence, the author makes this proclamation (which I don't disagree with):

Modern governments would not and could not exist without both the power to create debt money and the income tax system.

And then proceeds to present this question:

Why would governments need our income tax if they can create any amount of “money”?

Is this question not answered by the quote that precedes it?

FYI I do not disagree with the premise of the passage, but I am very interested in some elaboration on this "income tax conspiracy."

Like I think he mentioned above, Fed can't just issue a dictum claiming that X percentage of income is actually property of the state. When undertaken under the guise of income taxation, it greatly expidites such a process under the guise of "constitutuionality". Also keep in the mind that even though rates on the whole have fallen over the past few decades, revenue (given GDP + population growth) hasnt slowed nearly as much, and even 33% is still 33% higher than American citizens paid from roughly 1770-1912, when (virtually) no attempt was made to claim the product of ones labor on the part of the federal government. When income taxes were sold under Woodrow Wilson, it was "only for the rich", and would result in "cheeper goods and tarrifs" for average Americans. The top rate was 1%. Like most government finance related schemes (see the federal reserve, for example) it was subject to massive unconstrainted mission creep.
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Re: Willink's Econ Thread

Postby Willink » Thu Oct 16, 2014 5:58 pm


Nice look at rigged HTF on EDGX this morning.


:lol: :lol: :lol: :lol:
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Re: Willink's Econ Thread

Postby Willink » Thu Oct 16, 2014 7:47 pm

Papa John wrote:
FYI I do not disagree with the premise of the passage, but I am very interested in some elaboration on this "income tax conspiracy."

I'd add two part of it's "conspiratorial" aspect runs back to have courts have handled it. For example, tax protesters have claimed that the 16th violates the 13th Amendment in that it obligates citizens undue burdens definable as "involuntary servitude" (that is, beyond incriminating oneself, being forced to "do the job" for the Fed, that is, tabulating earnings et all for tax purposes).

Turn to the legal perspective on such an argument:

That argument was ruled to be without merit in Porth v. Brodrick, United States Collector of Internal Revenue for the State of Kansas.

Why of course the federal government would rule in it's own favor. It's argument forwarded in given reference material, for example:


Utilizing the language of the ordinance of 1787, the 13th Amendment declares that neither slavery nor involuntary servitude shall exist. This Amendment was adopted with reference to conditions existing since the foundation of our government, and the term 'involuntary servitude' was intended to cover those forms of compulsory labor akin to African slavery which, in practical operation, would tend to produce like undesirable results. It introduced no novel doctrine with respect of services always treated as exceptional, and certainly was not intended to interdict enforcement of those duties which individuals owe to the state, such as services in the army, militia, on the jury, etc. The great purpose in view was liberty under the protection of effective government, not the destruction of the latter by depriving it of essential powers.

:lol: :lol: :lol:

So, lets just move the goalposts and make up some stupid definition of servitude at odds with common sense. Note that even the second portion trying to claim conscription as a "duty owed the state" runs at odds with the foundations of American law, seeing as the Americans didn't even have a standing army at the initial ratification of the Constitution, let alone would agree to the notion of conscription. This is the hilarity introduced to law by the progressive movement-era judges.

To highlight the absurdity of supreme court gymnastics to wit, see the legal challenge to SS (quoting John Attarian's definitive history of the passing and consideration of the legislation) in which the govt brief was obliterated yet Supreme Court ignored the entire argument despite being given a near-point-by-point refutation of its legality:


(Also a great look at how the Govt has been lying to the public about SS literally since its inception). If you have any doubts, here's FDR literally pointing it out:

As he told a visitor who complained that the payroll tax was regressive:

I guess you're right on the economics, but those taxes were never a problem of economics. They were politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politican can ever scrap my Social Security program.

The Case: The Court under the Gun Again

Helvering v. Davis originated on November 12, 1936, when George Davis, a stockholder of Edison Electric Illuminating Company of Boston filed suit in the US District Court for the District of Massachusetts, alleging that Title VIII's taxes were unconstitutional and asking that the company not be required to pay them. The District Court upheld the taxes, but the Circuit Court of Appeals reversed that decision. Internal Revenue Commissioner Guy Helvering asked that the case to determine the validity of the taxes go to the Supreme Court.

So far, the Court's strategy of winning by losing had worked. But if it invalidated Social Security, that could revive Roosevelt's Court-packing campaign. Indeed, some of his circle were hoping that it would do so (Alsop and Catledge, The 168 Days, p.214)

Mendacity and Duplicity: The Administration Brief
The questions to be decided, it stated, were whether the tax on employees was at issue; whether SS's taxes were valid exercises of the taxing power; whether a SS taxpayer had standing to question the old-age benefits; whether providing them was valid under the "general welfare" clause; whether Titles VIII and II, taken together, were an exercise of powers not granted by the Constitution; and whether the taxes violated the 5th Amendment, which forbids depriving individuals of "life, liberty, or property, without due process of law" and taking private property for public use "without just compensation".

The brief then described the act. Title II's old age benefits, it stated, "are gratuities (not based on contract, but based on a Congressional direction expressly subject to amenmdent or repeal [Section 1104])." The administration was contradicting its public record. Hadn't Secretary Perkins told the committees that benefits would be paid "as a matter of contractual right"?

The taxes under Title VIII "are not earmarked for any special purpose"". Moreover,

"These are true taxes, their purpose being simply to raise revenue... The proceeds are paid unrestricted into the Treasury as internal revenue collections, available for the general support of Government."

Yet the administration's testimony had it that the purpose of the taxes was to build up a fund to pay old-age annuities. Explanations of SS to the public had said the same thing. Congress and the public had been told, too, that payment of taxes would give the worker an "earned right" to benefits. But if they are "true taxes" - as they are, being federal levies - then they are neither "contributions" nor "insurance premiums".

Obviously, the motive for claiming that Social Security's levies are "true taxes" was to be able to argue that they were valid exercises of the taxing power, which was done. The brief also argued that a taxpayer could not attack the expenditure of Treasury funds unless revenues were earmarked for a specific purpose - which the act, it argued, did not do. It invoked routing Title VIII revenues into general revenue and then putting them in the Old-Age Reserve Account by appropriations. While this gives prima facie support for that view, the spirit of the law and of all testimony and promotion was that the revenues were for a specific purpose.

The government then argued at length that indigence in old age was a national problem, that private charity and state governments could not cope with it, and that old-age benefits were therefore valid expenditures to promote the general welfare. Since the titles were valid separately, their combination was valid too.

The administration denied that Titles II and VIII together were an invalid regulation of employment. As to the charge that the titles in combination created a "scheme for compulsory insurance invalid under the 10th Amendment", the brief denied this in a passage flatly contradicting the testimony to Congress, the promotion of SS after passage, and Roosevelt's own campaign speeches:

"Whether or not the Act does provide an insurance plan within the accepted meaning of the term "insurance" is a doubtful question. It is to be noted that the correlation between taxes paid and benefits received is far from complete....Some of the taxpayers receive benefits greater than the amount of taxes paid with respect to them. On the other hand, some taxpayers will receive benefits smaller than the amount of taxes paid...Moreover, the Act creates no contractual obligation with respect to the payment of benefits. This Court has pointed out the difference between insurance which creates vested rights and pensions and other gratuities involving no contractual obligations."

The administration then contrasted World War 1's War Risk Insurance for servicemen - with its policies which, "being contracts, are property and create vested rights" - with pensions, which are "gratuities". They involve no agreement of parties; and the grant of them creates no vested right. The benefits conferred by gratuities may be redistributed or withdrawn at any time in discretion of the Congress. The contrast was clearly meant to include Social Security benefits among gratuities. Not possessing the legal properties of insurance, SS was constitutional.

The government's summary declared flatly that the act "does not constitute a plan for compulsory insurance within the accepted meaning of the term "insurance"". Arguing before the Court, Assistant Attorney General Robert Jackson reiterated that:

"these benefits are in the nature of pensions or gratuities. There is no contract created by which any person becomes entitled as a matter of right to sue the United States or to maintain a claim for any particular sum of money. Not only is there no contract implied but it is expressly negated, because it is provided the Act, Section 1104, that i may be repealed, altered, or amended in any of its provisions at any time. This Court has held that a pension granted by the Government is a matter of bounty, that the pensioner has no legal right to his pension, and that they may be given, withheld, distributed, or recalled at the discretion of Congress"

Yet for two years, officials had been telling Americans they would get benefits "as a matter of right". Either the brief and Jackson's argument of the rights talk was false. They could not both be right. Whether or not Social Security "may properly be designated as old-age insurance" was, the brief declared, "completely immaterial". The law involved a valid use of the taxing power and valid spending of money for the general welfare with no regulatory aspect, so it was valid "whether it be labeled as insurance or not". Yet Eliot didn't deem the insurance label "immaterial" when drafting the bill, or when helping the Ways and Means Committee to semantically cleanse it.

Enter one of the greatest supreme court asskickings in US history administered by Edward McClennen:

Oral Argument: Mendacities Unmasked

Some of the mendacities of the administration's position were exposed by Edward McClennen, arguing before the Court on Davis's behalf on May 5. He exploded the claim that the Social Security tax was levied simply to raise revenue for general use; rather, "there can be no question in anyone's mind but what this levy was made to provide old-age benefits." For one thing, taxing the smallest wage earners in the country and exempting all income above $3,000 a year was a peculiar way to "raise general revenue". Rather, the tax was levied on those incomes because the workers getting them "would be the ones who were going to have the security of an old-age benefit".

Also, McClennen asked, if the idea was to raise general revenue, why not tax laborers exempted from the Social Security tax? Why, for the obvious reason that this idea of old-age benefits was one that was to be limited to the same classes of people". And although men over sixty-five were certainly suffering in 1937, Social Security didn't start paying out any benefits until 1942. If the idea was to provide out of the general revenue for these needy elderly, why the delay? Obviously, because the money raised under Title VIII was meant to create a reserve fund for paying benefits.

He added that the Social Security Act was essentially the proposal of the President's Committee on Economic Security, which, he rightly noted, had been created to propose legislation for economic security, not revenue. Its report discussed, not raising revenue, but rather the different subjects addressed by the Social Security Act. McClennen quoted the report's assertion that the best way to provide for the old age of the young was with "a contributory system of old-age annuities".

In the oral argument, however, the Justices pursued none of this.

The Decision: Let It Slide, and Take off the Heat

On May 24, by a vote of 7-2 [LOL], the Supreme Court found Social Security constitutional. Justice Cardozo wrote the opinion for the majority. He was joined by Justicies Brandeis, Stone, Hughes, Roberts, Van Devanter, and Sutherland.

The twelve-page opinion is curious reading. Its first three pages or so describe Titles II and VIII and follow the government's brief almost verbatim. Thus, the brief on Title VIII:

"Title VIII imposes two distinct types of taxes, each beginning in the calendar year 1937.

It imposes upon employers, excise taxes with respect to having individuals in their employ, measured by wages paid during the calendar year [Section 804]. It also imposes upon employees, income taxes measured by wages paid to them during the calendar year [Section 801]..

The proceeds of both taxes are required to be paid into the Treasury of the United States as internal revenue collections, and neither tax is earmarked in any way. Section 807"

Now, the Helvering v. Davis opinion:

Title VIII, as we have said, lays two different types of tax, an "income tax on employees" and "an excise tax on employers." The income tax on employees is measured by wages paid during the calendar year. § 801. The excise tax on the employer is to be paid "with respect to having individuals in his employ" and, like the tax on employees, is measured in wages. § 804...The proceeds of both taxes are to be paid in to the Treasury like internal revenue taxes generally, and are not earmarked in any way. § 807(a).

This was followed by about a page and a half of description of Davis's suit and its treatment so far, then a half-page on Cardozo's own view that the Court should simply,y dismiss the case, and then another half-page reporting that the majority of the Court disagrees.

The rest is much of the same: a great deal of descriptive material, most of it closely following the brief, and little argument. The arguments, mostly in five pages, maintain that Title II's benefit scheme does not conflict with the Tenth Amendment. Just over two of the five pages are actual argument, making five points: that Congress may spend money to promote the general welfare; that the concept of the general welfare changes with the times (Willink:LOL MUH LIVING DOCUMENT) and that the Depression has made indigence in old age a national problem; that Congress didn't conjure the judgement that old-age benefits would promote the general welfare out of thin air (Willink: actually, they did) but drew on an extensive administration report on economic security, plus hearings; that whether or not Title II's old-age benefits were wise is matter for Congress to decide, not the Court; and that the concept of general welfare is for Congress, not the states, to decide (Willink: also a false assertion based on progressive-era redefinition of the supremacy clause). The first two of these, occupying about three-quarters of page, draw heavily on the brief, using similar language. The twelve pages consist of almost nine pages of description, including six lifted directly from the brief; about a page on odds and ends; and roughly two pages of constitutional argument, of which three quarters of a page is largely from the brief.

The bulk of the Helvering v. Davis opinion, then, is simply a cut-and-paste assembly of extracts, mostly merely factual, from the administrations brief, often with only minor changes. Of actual independent argument, the opinion contains next to nothing.

Regarding whether Titles II and VIII together were an invalid old-age insurance scheme, Cardozo merely notes Davis's argument that they dovetail so as to justify concluding that Congress would not have wan ted to pass one without the other and the government's opposing position that Congress could spend the revenue as it willed. "We find it unnecessary to make a choice between the arguments and so leave question open [Willink: because we are #$%! incompetent]". The Court ducked the entire issue. Why?

Moreover, Cardozo evaded McClennen's exposure of Social Security as a program of forced contributions for old-age benefits and rebutted only his final, utterly ungermane argument: that Social Security was regulating the internal affairs of Massachusetts. One who has read only the Helvering v. Davis opinion would get the misleading impression that this was McClennen's main objection.

The majority of the majority -Hughes, Roberts, Van Devanter, and Sutherland - were conservatives, the latter two consistently. Hughes, Roberts, and Sutherland had been scathing critics of the New Deal. Why did they then concur in such a sketchily-argued opinion that mostly just regurgitated the administration's own brief? Is it plausible that that found it an adequate expression of their views on the constitutionality of the contributory federal old-age benefits?

Only McReynolds and Butler dissented; Cardozo noted that they deemed the act's provisions "repugnant to the Tenth Amendment". But they wrote no opinions. Did these two stalwart opponents of Social Security really have nothing to say about it, or were they anxious not to give the Court's critics anything to work with? Here is the key to the mystery. The Court was in enormous danger, and the justices knew it. In saving Social Security, the Court saved itself.

This was seen at the time. The Washington Post editorialized that the Supreme Court's approval of the Social Security Act

has driven another nail in the coffin of the President's plan to enlarge the court's membership...It removes the last flimsy argument for the appointment of additional justices who could be expected to reflect the President's viewpoint.

The Court pack failed. Certainly the Social Security decisions prevented its revival. All the evidence - the Court's earlier retreat; the mendacity of the brief, the Court's evasion of McClennen's exposure of Social Security's true purpose; its perfunctory opinion, so derivative from the brief; the acquiescence of most of the Court's New Deal opponents; and the silence of the dissenting rump - indicates that the decision was not reached on its merits. Rather, the Court found Social Security constitutional for political reasons, to take off the heat.

Given all that, the issue of Social Security’s constitutionality, far from being settled, remains wide open. Somehow I doubt that the Framers, who after all meant the Constitution as a fetter on expansive government and not a blank check for it, intended the Constitution to authorize a tax-devouring engine of dependence on the State like Social Security. The purported constitutionality of Social Security rests on sloppy argument, willful evasions of reality, and, ultimately, frightened submission to one of the worst acts of tyrannical bullying in the federal government’s history. Here again the reality of Social Security is radically at variance with the myths. The case for holding this program inviolate collapses accordingly.

I'd suggest the complete version of the work above is quoted from for anyone interested in the history of SS as a program, how it was falsely sold to the American public (and the Court), and the consequences of such a decision we see today. For all the talk of "class warfare" in some of the other threads, SS as a piece of legislation is clearly designed as an instrument of engendering that sort of attitude, between taxpayers and those promised "earned benefits" by way of SS as evidenced by the FDR quote above.

See http://mises.org/pdf/asc/essays/attarian.pdf
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Re: Willink's Econ Thread

Postby Papa John » Mon Oct 20, 2014 10:02 pm

has driven another nail in the coffin of the President's plan to enlarge the court's membership...It removes the last flimsy argument for the appointment of additional justices who could be expected to reflect the President's viewpoint.

Coincidentally, I just finished reading an article regarding FDR's attempts to reform the Supreme Court.

Of course he had no respect for America’s institutions so just weeks after he was inaugurated for the second time in January 1937 Roosevelt launched his attacks against the Court. On February 5, two days after hosting the Justices of the Supreme Court at a White House dinner, Roosevelt announced a plan to change the Court. He had an opening to fill but could not find a reliable stooge to appoint so he felt he had to take things into his own hands. He proposed that he be allowed to add an additional member for each sitting member who was over seventy.

“Coincidentally” the Court’s most conservative members were over seventy at the time. The plan would add an additional six members to the Court and their presence would ensure Roosevelt’s socialist schemes would be judged Constitutional.

I guess the plan itself was enough to intimidate the Court into passing at least one piece of socialist legislature.

The Court felt they had to pass one of FDR's Socialist proposals in order to prevent many more of FDR's socialist schemes from passing in the future. . :messedup
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Re: Willink's Econ Thread

Postby Willink » Thu Oct 23, 2014 1:54 pm

Papa John wrote:
I guess the plan itself was enough to intimidate the Court into passing at least one piece of socialist legislature.

The Court felt they had to pass one of FDR's Socialist proposals in order to prevent many more of FDR's socialist schemes from passing in the future. . :messedup

I don't think the court itself was particular anti-socialist, or that FDR even was concocting socialist schemes intentionally. Judging by the ad-hoc scatter-shot manner in which he put together legislation it seems more likely he just literally had no idea what he was doing and threw as much $#!! at the wall as possible in the hopes some of it would stick.

The one case that really sticks out to me (and one of the two very clear cases of purposeful manipulation of the economy for political purposes, which IMO ought to be an impeachable offense in itself [the other being Nixon defaulting on Bretton-Woods and then causing huge inflation for election season]) is the bank runs at the start of his presidency caused by FDR failing to appoint Treasury staff or enunciate his gold policies, almost certainly done on purpose to create a crisis situation:

Nevertheless, the so-called banking crisis was largely over on the night of
FDR’s November 8, 1932, election. Nationwide bank failure rates had
dropped to less than two dozen per week of mostly tiny country banks, deposit
levels were rising, and what remained was a modest cleanup operation
for the residue of insolvent banks in the hinterlands.
This adjustment process had now been heavily politicized, meaning
that banks sinking into insolvency would receive capital injections from
the RFC rather than closure notices from state and federal banking supervisors.
But the key point is that there was no significant liquidity problem
in the US banking system. The Federal Reserve, bank regulators, and
discriminating depositors had already done their jobs and had quietly
and systematically moved massive amounts of deposits to sounder

The conventional FDR bank rescue narrative thus cannot explain the
fact that during the ninety days between Election Day and February 3,
when FDR went aboard Vincent Astor’s yacht for a ten-day vacation he had
not yet earned, there were no bank runs of any serious import. The proof
for this is the daily reports of the comptroller of the currency, which didn’t
note any material currency hoarding until early February.

In fact, during the three-month post-election period there were only two
instances of a citywide banking suspension for even a single day anywhere
in the country. Likewise, currency outstanding had fluctuated around $5.5
billion for most of 1932, and even in the week ending February 8, 1933, had
only risen by a negligible $8 million per day.

By contrast, partisan historians have created the false impression that
there was a rising tide of money panic by cobbling together inconsequential
anecdotes from the low-level bank failure noise still in the countryside.
Thus, the governor of Nevada declared a bank holiday in November, but it
was owing to the insolvency of a single bank chain that had only $17 million
of deposits, or less than a few hours’ worth of funds-clearance activity
at the Chase National Bank or even the big Chicago Loop banks.

Likewise, scattered rural bank failures in Missouri, Tennessee, and Wisconsin
and in midsized cities in the interior farm-industrial belt including
Chattanooga, Memphis, and Little Rock were simply a continuation of the
slow grind that had gone on for years. Some of the noise was even downright
clownish, such as Huey Long’s instantly declared state holiday in
honor of the 1917 suspension of diplomatic relations with Germany, in order
to give a major Louisiana bank time to raise extra cash.

The trigger for the pre-election panic, in fact, did not occur until the
morning of February 14, when the governor of Michigan capriciously declared
a one-week bank holiday owing to a funding crisis at Detroit’s
second-largest banking chain. The Guardian Trust Group consisted of
about forty banks controlled by Edsel Ford and included Goldman Sachs
among its principle stockholders.

It was another of the late-1920s banking pyramids that had been organized
with a modest $5 million of capital in 1927 and had grown to a $230
million holding company two years later, through a spree of mergers and
stock swaps. These maneuvers elevated the stock price from $20 per share
to $350 at the 1929 peak.

Unfortunately, the bank’s principle assets consisted of loans to insiders
to buy the bank’s own stock and loans to both real estate developers and
homeowners in the red-hot Detroit auto belt. Propelled by a population explosion
from 300,000 to 1.6 million in the previous three decades, the volcanic
price gains in the Detroit real estate market eclipsed the current era’s
Sunbelt booms by orders of magnitude.

Consequently, when auto production dropped by 75 percent and triggered
mass layoffs, and the Guardian Group’s stock price plummeted by 95
percent, the bank’s loan book became hopelessly impaired. However, what
might have been embarrassing investment liquidation for Edsel Ford and
his cronies became a national headline when the Guardian Group crisis
turned into a brawl between Henry Ford and his despised erstwhile partner
and then Michigan Democratic senator, James Couzens.

Senator Couzens was the Tyler Winklevoss (he and his twin brother were
involved in the origins of Facebook) of his day and believed that he had
been bilked out of his share of Ford Motor Company by Henry Ford. He
could not abide a move afoot to have the RFC ride to the rescue of Edsel
Ford’s mess, so he mustered his considerable weight as US senator and put
the kibosh on the deal.

President Hoover unhelpfully got himself in the thick of the brawl. However,
he did quickly recognize that the Detroit headlines were becoming a
catalyst for a financial panic that was already brewing due to a complete
breakdown of transition cooperation and FDR’s studied silence on his
prospective financial policies.

Indeed, the increasing flow of hints and leaks from FDR’s radical brain
trusters—such as Columbia professor Rexford Tugwell and secretary of
agriculture designate Henry Wallace—that the incoming president would
depreciate the dollar and pursue other inflationary schemes had already
begun to trigger a run on gold and currency. Therefore, on February 18
Hoover penned an eloquent private letter to FDR outlining the peril from
these developments and the urgent need for a reassuring statement from
the president-elect outlining his policies with respect to gold, currency,
banking, and the budget.

Thereupon began a continuous series of blunders, whereby FDR and his
incipient government brought the banking system to a state of paralysis
and panic by the time he took the oath of office fourteen days later.
During that crucial period, FDR remained completely radio silent, and did not respond
to Hoover’s letter for ten days—belatedly offering the “dog ate my
homework” prevarication that his secretary had neglected to mail his response.
On the day of Hoover’s letter, the Democratic silver block in the
Senate delivered a nationwide radio address entitled “The Enlarged Use of
Silver and Inflation.” On the following Monday the nation’s greatest banking
statesman, Melvin Traylor, who was chairman of one of the great
Chicago Loop banks and had been a leading candidate for the Democratic
presidential nomination in 1932, told the Senate Finance Committee in a
private session that “a firm statement from the President-elect against inflation
is the only thing which might avert a general national panic.”
The next day the Federal Reserve Advisory Committee, consisting of
leading bankers from each reserve district, sent FDR a unanimous resolution
urging a clarifying public statement. That same day it was announced
that Carter Glass had turned down the Treasury Department post and, as
the Baltimore Sun story made clear, there was no secret as to why: “If satisfactory
assurances had been given the Senator that the new Administration
under no circumstances would accept inflation as a policy, his answer
would have been different.”
Instead, Roosevelt announced that an unknown Republican locomotive
manufacturer, William Woodin, would become treasury secretary and the
basis for his selection was quickly evident. Notwithstanding daily entreaties
from Hoover’s redoubtable and increasingly desperate treasury
secretary, Ogden Mills, the response was a complete stiff-arm: “On each
occasion Mr. Woodin insisted the new administration would take no action,
accept no responsibility, until March 4.”
According to an insider chronicle written at the time, by February 24
FDR and his inner circle had already embraced a purely cynical outlook.
By their lights “the national banking situation would undoubtedly collapse
in a few days. The responsibility would be entirely with President Hoover.”
In fact, that same day Professor Tugwell, who was clueless on monetary
matters, leaked the administration’s secret plan to place an embargo on
gold exports, suspend gold payments to domestic citizens, and implement
measures designed to inflate farm and industrial prices to James H. Rand.
The latter was a leading industrialist and outspoken agitator for dollar depreciation
through the nationalistic Committee for the Nation which he
chaired. By Monday morning February 27, Tugwell’s leak spread far and wide in
the financial markets. The panic was on.

As Professors Nadler and Bogen noted in their classic 1933 history of the
banking crisis, the “gold room” of the New York Federal Reserve Bank soon
became a center of pandemonium: “As the panic week [February 27 to
March 3] progressed, long lines formed to exchange ever larger amounts
of gold there, until finally the metal was being carried away in large boxes
and suitcases loaded on trucks.”
During the next five days approximately $800 million, or 20 percent, of
the US gold stock was withdrawn by citizens, earmarked by foreign central
banks, or implicitly purchased by speculators who took out a massive short
position on the dollar. The lessons of the British default of September 1931
were still fresh, and as the smart money took aggressive actions to defend
itself, the knock-on effect was almost instantly felt.
As Wall Street historian Barrie A. Wigmore noted in his magisterial history
of the Great Depression, owing to the gold hemorrhage “the lender of
last resort [i.e., the Fed] for the banking system was in doubt. Frightened
depositors lined up for cash, the only working substitute for bank deposits.”
Wigmore’s point is dispositive. What financially literate citizens knew at
the time, and was never grasped by postwar Keynesians, is that Federal Reserve
currency notes were then required by statute to be backed by a 40
percent gold cover. The public therefore realized that only a few more days
of the panicked gold drain could cause a sharp constriction of both the
hand-to-hand currency supply and the banking system overall.
Accordingly, the daily currency figures provide ringing evidence of FDR’s
culpability for the crisis. By February 23, the daily increase in currency outstanding
had risen from the $8 million early February level to about $40
million, and then in the crisis week soared to nearly $200 million on Monday
and hit $450 million on Friday, March 3, the day before the inauguration.
All told, the great bank teller window run and currency-hoarding crisis
caused currency outstanding to rise from $5.6 billion to a peak of $7.5 billion.
Yet $1.5 billion, or nearly 80 percent, of this gain occurred during the
last ten days before FDR took office; that is, in the interval between the day
Carter Glass said no and the morning FDR took the oath.
Barrie Wigmore’s work consists of seven hundred pages of massive documentation
and only occasional viewpoints and judgments. But on the
question of culpability for the banking crisis he left no doubt: “Roosevelt
exacerbated the crisis. If he had handled the ‘lame duck’ period differently,
there would have been no Bank Holiday . . . the banking system was unusually
liquid prior to the bank crisis, and [the] recovery from it was unusually
rapid . . . [proving] that the peculiar circumstances of Roosevelt’s
transition were the cause of the crisis.”
Four days after FDR officially closed the nation’s 17,000 banking institutions,
the Senate approved, after seventy-five minutes of debate and no
written copy of the bill, the Emergency Banking Act, which empowered the
secretary of the treasury “to re-open such banks as have already been ascertained
to be in sound condition.”
But there was no New Deal magic in the bill at all. It had been drafted by
Hoover holdovers and was a content-free enabling act which required no
change whatsoever in bank procedures in order to obtain a license to “reopen,”
and included no standards for review or approval by the Treasury
In fact, the legislation was the first of many FDR ruses. Once Hoover had
been implicitly saddled with the blame for what appeared to be a frozen
banking system and prostrate economy on March 4, FDR simply moved
along to another topic, having had no intention of closing or reforming any
banks. Accordingly, with such dispatch as would have made Internet-era
number crunchers envious, the White House began opening banks the
next Monday (March 13th), and by Wednesday 90 percent of the deposit
basis among national banks had been reopened.

After that aside (courtesy of David Stockman), here is a nice article on how inflation kills savings:

http://www.peakprosperity.com/blog/8822 ... ing-savers
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Re: Willink's Econ Thread

Postby Willink » Sun Oct 26, 2014 6:09 am

Daily dose of comedy, thanks to Hillary Clinton:


The notion that "business create jobs" is "trickle-down economics". I guess they just fall from the sky, or Washington. Entrepnures are just some urban legend, like slenderman, or ghosts.
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