##################################################################### CURING OUR SICK ECONOMY By Jarret Wollstein ##################################################################### SYMPTOMS The U.S. economy shows many signs of being very sick, and there are few signs pointing to recovery. * Bank failures and business bankruptcies are at the highest levels since the Great Depression. A list of failed and ailing companies reads like a ``who's who'' of American business: Eastern Airlines, Macy's, General Motors. * Unemployment, including ``discouraged workers'', is approaching 11% and is expected to go much higher. In Ashland, Kentucky over 2,000 unemployed workers lined up in freezing February temperatures to compete for 25 jobs at an oil refinery. Dan Lacey, editor of Workplace Trends newsletter, predicts that the nation's top 500 companies will cut over 4 million workers in the next 8 years. State and local government budgets are also being squeezed. New York is cutting over $1 billion in welfare. Maryland Governor William Schaefer has submitted a ``Doomsday Budget'' eliminating entire departments and laying off thousands. In Tennessee, school bus service has been discontinued for many rural areas. These figures only begin to convey the human costs of our sick economy: White-collar executives forced to take jobs at MacDonalds just to bring in some income for their families. Middle-class families evicted from their homes and forced to live in their cars. Welfare recipients ejected from welfare rolls without notice and reduced to picking through garbage for food. TRIGGERS The U.S. economy has been in recession since the Winter of 1988-89. Two recent major events triggered and aggravated the crisis. The Tax Act of 1986 crippled the real estate market -- the linchpin of our economy. This Act eliminated many tax deductions for investing in real estate, and increased capital-gains taxes on property. By early 1992, real estate prices had declined nationwide by 9.2%, and in some areas the decline has been over 20%. Construction has almost stopped, throwing thousands of workers out of their jobs. The Savings and Loan Crisis undermined confidence in our financial institutions, generated huge losses for taxpayers, flooded a weak market with vast inventories of real estate, and forced banks to cut off loans to thousands of companies. The government's inventory of unsold properties is now over a trillion dollars, and it grows every day as banks continue to fail. These events triggered the recession, but they were not the underlying cause of our economic problems. If our economy had been truly healthy, their impact would have been minimal. The real culprit is the cancerous growth of government. DIAGNOSIS For nearly 200 years America was the most prosperous society in the world. We had the highest living standard, the best schools and most productive industries. But that prosperity was a direct result of the freedoms that we enjoyed -- particularly freedom of enterprise. The Great Depression of the 1930s witnessed a fundamental change in the role of government. Blamed on the free market, the depression was caused by monetary controls and protectionism, and was actually made much worse by Roosevelts's New Deal. Before the New Deal, government was primarily a policeman, prohibiting force and fraud from the marketplace. The New Deal legitimized peacetime price controls, massive increases in government employment, huge rises in taxes, bureaucratic control of industry, and natio nal welfare programs. Since the New Deal, government has become the "Great Provider" which redistributes wealth, controls the most minute details of the economy, and takes as much of our income as it sees fit. Today there is no enterprise, no transaction, and no service, however humble, that government does not control. The state regulates what crops a farmer can grow in his own fields, how many hours office workers can be employed, and even the words that can be used to describe potato chips. Government dominates education, communications, transportation, banking, and manufacturing. In short, government now controls the entire economy. This massive increase in state control is far more than our seriously-weakened economy can bear. Enterprises of every size, from hot dog stands to large corporations, are being taxed and regulated to death. Here are a few examples: * In 1991, Florida enacted a 5% tax and $500 license fee for bingo games, a principal form of entertainment for many seniors. Since the profits at many tiny bingo clubs are less than $50 a week, the new taxes will put up to half of the clubs out of business. * In December 1991, Montgomery County, Maryland passed a construction tax which will increase the cost of building homes by at least $6,000, and the cost of building a small office building by at least $700,000. Already hard-hit by the recession, most Montgomery County builders have stopped new construction. HUD Director Jack Kemp estimates that nationally, regulation is raising the cost of the average house by 25 to 35 percent! * In 1990 Congress enacted a 10% ``luxury tax'' on expensive cars, boats and jewelry. As a result, in 1991 there were massive bankruptcies of boat builders, luxury car dealers and jewelry stores. Far from producing millions in new federal revenue, the tax has cost the government $5 in administrative costs for every $1 collected -- while simultaneously increasing unemployment and devastating entire industries. Even more onerous taxes and regulations lie just ahead. The 1990 Federal Clean Air Act (which will close many businesses without cleaning much air) will cost the economy over $40 billion a year. Compliance with the 1991 Americans With Disabilities Act will cost U.S. enterprises tens of billions of dollars a year. Senator Kennedy's National Health Insurance Bill would require a new national 7% business tax. If a bill like this passes, the U.S. will ex perience bankruptcy and unemployment levels surpas ose of the Great Depression. Sixty years ago, all taxes combined took less than 5% of the average American's income. Today taxes directly consume at least 35-40% of our income. But that is just the beginning. According to James Payne, Director of Lytton Research and Analysis, ``For every dollar that the federal government raises, an additional 65 cents is spent by the private sector on tax-related expenses, including time, telephones, cars and computers needed to comply with IRS rules.'' When you add compliance costs, over 57% average American's income is confiscated by government. When you also factor in economic regulations, government is reducing our standard of living by at least 70%! Taxes and regulations have become an intolerable social burden. We are locked in a vicious cycle. And every new tax and regulation only compounds the problem. But the only solution to social problems political leaders offer are more government programs, taxes, and regulations. Bit by bit, the liberty and entrepreneurial spirit of the American people are being crushed. Unless we stop this vicious cycle by reducing the power of government over our economy and lives, this deterioration will continue an erate. Periodic recessions will become permanent depressions. The freedom of every family and business will be trampled flat. Government compounds our social and economic problems because its primary tool is legalized force: Do what the government tells you or be put out of business or thrown in jail. Government management is management by threats and intimidation, commands and penalties -- rather than persuasion and incentives. How well would that approach work at your company? Command management is the system used by every failed socialist state in the world. It fails because people are not productive when they are threa harassed and dispirited. You cannot command creativity or compassion. When the orders of bureaucrats are substituted for the voluntary decisions of millions of individuals, economic deterioration and corruption are the inevitable result. A PRESCRIPTION FOR CHANGE Polls report that Americans want both better public services and lower taxes. We can have both -- by cutting government spending and privatizing inefficient public services at every level, from the corner post office, to neighborhood schools, to federal and state welfare programs. Government programs are no substitute for economic liberty. Tax-funded services sqander resources because they are protected from competition and the necessity of satisfying customers. Welfare programs consume 75% of ``monies for the poor'' in overhead costs, versus 5-15% for private charities. On the average, government schools cost 2-4 times more per pupil than independent schools, spend 10 times more on administration, and produce 8 times as many drop-outs and illiterates. Goods and services prod r the military routinely cost 10 to 100 times more than equivalent goods sold on the open market. The only real cure for our sick economy is massive and rapid privatization, deregulation, and tax reduction. To cure our sick economy, we must take back control of our incomes, our businesses and our lives. Economic freedom and individual liberty are inseparable. Business and commerce are simply manifestations of human action. When government exercises tyrannical control over commerce, it is exercising tyrannical control over our lives. To restore prosperity to our nation, we must rediscover the fundamental truth so well understood by America's founders: Prosperity requires liberty: to be productive we must be free. RECOMMENDED READING LIST America's Great Depression (Rothbard) ....................... $17.95 Better Government At Half The Price (Johnson)................ $5.95 The Coming Economic Earthquake (Burkett) .................... $24.95 The Great Reckoning: How the world will change in the Depression of the 90s (Davidson/Rees-Mogg) .............. $21.95 Healing Our World (Dr. Mary Ruwart) ......................... $14.95 For these and other books and tapes write: Freedom's Forum Books, 1800 Market Street, San Francisco, California 94102. Add $2.50 p & h for 1st book and $1.00 for each additional item. Additional (hard)copies of this attractive two-color pamphlet are available for 5 cents each (minimum order $1.00). Price includes shipping. This pamphlet is produced as a public service by the International Society for Individual Liberty. 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