New Jersey Survival

Ask yourself this question: was the housing price bubble, which has burst, caused by (a) a Fed policy of too much liquidity, which caused artificially low interest rates, which in turn caused a great deal of malinvestment, or (b) a Fed policy of too little liquidity which caused high interest rates and a credit-starved economy? If you chose answer b, congratulations, you may have a future as a celebrated author, historian, and Wall Street Journal commentator.

Answer b is a theme of a truly ridiculous article by John Steele Gordon in the October 10 issue of the Wall Street Journal online entitled “A Short Banking History of the United States.” The article is an attempt to defend the Fed, its founding father, Alexander Hamilton, and the regime that it finances. (Gordon is the author of a book entitled Hamilton’s Blessing which sings the praises of a large public debt, something that Hamilton himself called a “public blessing.”)

Rather than faulting the Fed for creating yet another boom-and-bust cycle, Gordon blames the current economic debacle on “the baleful influence of Thomas Jefferson.” Jefferson was the foremost opponent of a bank capitalized with tax dollars and operated by politicians and their appointees from the nation’s capital — Hamilton’s Bank of the United States (BUS), a precursor of the Fed. Thus, despite the fact that the real blame for the current economic crisis lies squarely in the lap of the Fed and its ideological underpinnings — particularly the legends and myths surrounding Hamilton — Gordon attempts to convince us that opposition to politicized, centralized banking is the real problem. Anyone who believes this could easily be persuaded that up is down, white is black, and day is night. The purpose of the Fed, according to Gordon, is to serve as a sort of a monetary benevolent despot: “To guard the money supply … regulating the economy thereby.”

Right-wing statists like Gordon, like left-wing statists, have adopted the custom of smearing Jefferson as a slave owner not so much because they are appalled that he owned slaves, but because their objective is to denigrate his laissez-faire/limited-government political philosophy. Gordon includes the Jefferson slavery smear in his article, but fails to mention that his hero Hamilton also owned “house slaves,” which were brought into his marriage by his wife Eliza; he once purchased six slaves at an auction; and he supported the return of runaway slaves to their “owners” under the Fugitive Slave Clause of the original Constitution.

Indeed, nearly all of the “first families” of the New York City of Hamilton’s time — his main social and political circle — were slave owners. As Hamilton biographer Ron Chernow has written, during Hamilton’s time, “New York City, in particular, was identified with slavery … and was linked [economically] through its sugar refineries in the West Indies” (where Hamilton was born and raised). By the late 1790s slaves were “regarded as status symbols” by the wealthiest New York families.

Gordon spreads several other falsehoods about Jefferson in the leading paragraphs of his article. This in itself is telling, for it shows that court historians like John Steele Gordon fully understand the importance of Hamilton’s statist political philosophy in propping up the Fed and the regime that it finances. Gordon claims that Jefferson, a lifelong businessman, “hated commerce,” “hated banks,” and “may not have understood the concept of central banking.” He also argues that Hamilton, by contrast, had a “profound understanding of markets” because he worked as a bookkeeper for British slave-owning sugar-plantation operators and exporters as a teenager on the Caribbean island of St. Croix. This is nonsense on stilts, as the philosopher Jeremy Bentham is supposed to have said with regard to another spurious claim.

What Jefferson opposed was Hamilton’s mercantilist policies of government-controlled banking, corporate welfare, protectionist tariffs, heavy excise taxation, excessive public debt, and other interventions. Unlike Hamilton, Jefferson had read and understood Adam Smith’s Wealth of Nations and his Theory of Moral Sentiments, as well as the work of David Ricardo, Jean-Baptiste Say (who Jefferson tried to get to join the faculty of the University of Virginia), Richard Cantillon, and other economic theorists of that era. Hamilton was ignorant of or ignored all of this. His major intellectual influence was a propagandist for the British mercantilist regime named Sir James Steuart.

As Murray Rothbard wrote in an article entitled “A Future of Peace and Capitalism,”

Jefferson was very precisely in favor of laissez-faire, or free-market, capitalism. And that was the real argument between [Hamilton and Jefferson]. It wasn’t really that Jefferson was against factories or industries per se; what he was against was coerced [economic] development, that is, taxing the farmers through tariffs and subsidies to build up industry artificially, which was essentially the Hamilton program. Jefferson … was a very learned person. He read Adam Smith, he read Ricardo, he was very familiar with laissez-faire classical economics. And so his economic program … was a very sophisticated application of classical economics to the American scene … classicists were also against tariffs, subsidies, and coerced economic development…. The Jeffersonian wing of the founding fathers was essentially free-market, laissez-faire capitalists.

Compared to Jefferson, Hamilton was an economic ignoramus. His reputation as some kind of financial genius has been greatly exaggerated and fabricated, as the great late-nineteenth-century Yale sociologist William Graham Sumner wrote in his 1905 biography of Hamilton. In his Report on Manufacturers, for example, Hamilton presented the cockeyed notion that international competition would cause higher prices and protectionism would cause lower prices by causing domestic producers to compete more vigorously with each other. History had proven this to be an absurd idea long before Hamilton’s time.

Hamilton also condemned transportation costs, calling them “an evil which ought to be minimized” through protectionism. Of course, transportation costs also affect interstate trade, but Hamilton never voiced his opposition to them in that context. Hamilton was such a mercantilist that he even argued in favor of “a monopoly of the domestic market” by banning all imports altogether. It is little wonder that William Graham Sumner referred to Hamilton’s Report on Manufactures as a mass of economic confusion, just the opposite of a “profound and practical understanding of markets.”

Jefferson was not the only prominent opponent of Hamilton’s scheme to establish a bank operated by politicians out of the nation’s capital. James Madison also opposed the First Bank of the United States (BUS). The Virginia Senator John Taylor was as learned on the subject of political economy as Jefferson was, and immediately recognized the danger of imitating the Bank of England as a financier of mercantilist subsidies. “What was it that drove our forefathers to this country?” he asked. “Was it not the ecclesiastical corps and perpetual monopolies of England and Scotland? Shall we suffer the same evils in this country?” Hamilton’s answer would have been “why yes, we shall, for it is the surest route to accumulate power and wealth for myself and my fellow Federalists.” As Gordon wrote, “Hamilton wanted to establish a central bank modeled on the Bank of England.”

John Steele Gordon’s “short history” of banking is completely filled with falsehoods. Throughout his article, he blames Jefferson’s opposition to central banking for economic problems that were in fact created by Hamilton’s Bank of the United States.

As Murray Rothbard wrote in A History of Money and Banking in the United States (p. 69), as soon as Hamilton’s bank was established it

promptly fulfilled its inflationary potential by issuing millions of dollars in paper money and demand deposits, pyramiding on top of $2 million in specie. The Bank … invested heavily in loans to the United States government…. The result of the outpouring of credit and paper money by the new bank of the United States was … in increase [in prices] of 72 percent [from 1791–1796].

The BUS charter was not renewed after its first twenty years. Gordon blames Jefferson for this, but the above-mentioned economic instability that was caused by the BUS surely played a role. (And I’m sure Jefferson would have been proud to accept the credit for the demise of the BUS.) The BUS was revived after the War of 1812 (in 1817) and it immediately “ran into grave difficulties through mismanagement, speculation, and fraud,” wrote James J. Kilpatrick in his book, The Sovereign States. Consequently, “a wave of hostility toward the Bank of the United States swept the country,” which eventually led to President Andrew Jackson’s veto of the bank rechartering bill.

In 1817 the BUS quickly lent $23 million with a specie reserve of only $2.3 million. This flood of cheap credit created a brief economic boom, and then the inevitable bust, or depression, known at the time as the Panic of 1819. As Murray Rothbard wrote in The Panic of 1819, personal bankruptcies abounded, especially among farmers who had overextended themselves thanks to the BUS’s cheap credit; and there was for the first time large-scale unemployment in American cities, with manufacturing employment in Philadelphia falling from 9,700 employed persons in 1815 to only 2,100 in 1819. This was all Jefferson’s fault, says John Steele Gordon.

Another one of Gordon’s false claims is that “The Civil War ended … monetary chaos when Congress passed the National Bank Act,” which would become the state’s monopolistic monetary regime until the creation of the Fed in 1913. In reality, the so-called Independent Treasury System that existed from the early 1840s to 1863 was arguably the most stable monetary system in US history. Modern economic scholars have evaluated the Lincoln regime’s National Currency Acts and have arrived at the opposite conclusion of Gordon’s. In an article entitled “Money versus Credit Rationing: Evidence for the National Banking Era, 1880–1914″ (in Claudia Goldin, ed., Strategic Factors in Nineteenth-Century American Economic Growth) Michael Bordo, Anna Schwartz, and Peter Rappaport concluded that this Hamiltonian system “was characterized by monetary and cyclical instability, four banking panics, frequent stock market crashes, and other financial disturbances.”

Gordon notes that “inflation took off in the 1960s” but does not blame the actual cause of the inflation — the Fed and its legalized counterfeiting operations. He concludes by praising the regime’s current plans to nationalize the financial markets by assuming stock ownership in banks and appointing the US Treasury secretary as the nation’s first financial dictator. He thinks this will finally, at long last, achieve Hamilton’s dream of a “unified and coherent regulatory system free of undue political influence.”

Of course, no government institution in the history of the world has ever been free of political influence, due or undue. This is perhaps Gordon’s most spectacularly stupid remark.

“Unified” or centralized regulation of industry has long been a goal of statists who favor regulatory dictatorship as opposed to a governmental regime that delegates “too much” regulatory power. Gordon himself bemoans the “conflicting” regulations on the banking industry that have been imposed by the Fed, and the FDIC, FSLIC, SEC, and other federal regulators.

The system of financial regulatory dictatorship that Gordon praises, and which is about to be forced down the throats of the American public, has been tried before in other countries. During one of its own periodic financial crises, Italian government officials complained bitterly, as Gordon does, of regulation that has been “disorganic” and “case by case, as the need arises.” The Italian regime altered its regulatory system so that it could pursue “certain fixed objectives,” just as Gordon argues for a “unified and coherent regulatory system.” This highly centralized or even dictatorial regulatory system, the Italians argued, would supposedly “introduce order in the economic field” and achieve the goal of “unity of aim” with regard to government regulation of industry.

All of the words in quotation marks in the preceding paragraph, except for the last ones, are the words of Benito Mussolini. The “unity of aim” phrase was from Mussolini apologist/propagandist Fausto Pitigliani. There is, after all, a very keen similarity between Hamiltonian mercantilism — or an economy directed and controlled by government, supposedly “in the public interest” but in reality for the benefit of a privileged few — and the economic fascism of Italy (and Germany) of the 1920s and ’30s.

[VIEW THIS ARTICLE ONLINE]

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Thomas DiLorenzo is professor of economics at Loyola College and a member of the senior faculty of the Mises Institute.

A statewide program that dispenses free help and advice to entrepreneurs and small businesses stands to lose its entire $1 million funding under Gov. Jon Corzine’s proposed state budget — and that cut will trigger an additional loss of more than $800,000 in matching federal funds.

Last year, the New Jersey Small Business Development Centers provided 22,000 businesses with courses, workshops and individual counseling, and those efforts would likely be cut in half if the legislature affirms Corzine’s cuts, said Deborah Smarth, associate state director of the SBDC.

The Legislature must approve a budget before the new fiscal year begins on July 1. Lawmaker are now wrestling with a Corzine budget that’s $500 million less than the current year’s and slashes outlays for municipalities, schools, hospital charity care, college scholarships, Medicaid, state parks and government jobs, said Jim Gardner, a spokesman for Corzine.

“The governor has expressed a willingness to be flexible regarding the allocation of budget resources, but the restoration of funds in one area is going to require offsetting cuts in another area to keep the budget in balance,” Gardner said.

If the SBDC loses the $1 million in state funds, the U.S. Small Business Administration, under its matching-fund rules, will cut is funding $831,000, to $1.74 million, from $2.58 million.

In a letter last month to Corzine urging the $1 million be restored, James Kocsi, SBA’s district director for New Jersey, said the SBDC provides education and technical assistance that supports SBA loans, which totaled $585.5 million last year. Kocsi said the 11 SBDC counseling centers, mostly located on college campuses across the state, “have a direct relationship to the SBA’s ability to help small businesses to obtain loans and to win federal contracts.”

Smarth said the SBDC helps small businesses expand and create jobs, “and it doesn’t make sense to cut back on this at a time when we may be in a national recession and job growth is faltering.”

She said SBDC clients range from entrepreneurs hiring their first employee, to companies with scores of workers and millions of dollars in revenue. In the past three years, the legislature has doubled its funding of the SBDC, to $1 million, from $500,000, “so we were shocked to be cut out of the budget,” Smarth said. “We return more than our budget to the state in job creation, retention and taxes.”

Smarth argued small businesses are a significant job-creation engine, and figures from the federal Bureau of Labor Statistics support that view.

Nationwide, employment at firms with fewer than 5 employees grew by 786,954 workers between 2001 and 2007, an 11.4 percent increase. Firms with more than 1,000 workers lost 1.2 million jobs during that time, a decline of 8.9 percent.

New Jersey’s middle class takes it in the neck one more time.

Remember stagflation? Prices go up, money is inflated but wages are stagnant.

Bureaucracy : An administrative system in which the need or inclination to follow rigid or complex procedures impedes effective action: innovative ideas that get bogged down in red tape and bureaucracy.
We need leadership in Trenton, not bureaucracy! 

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With the economy in a tailspin, more people are finding they must choose among necessities. For many, that means going without electricity.

The number of utility shutoffs in New Jersey due to lack of payment rose by 15 percent last year, jumping to 175,581 from 143,300 in 2006, according to the state Board of Public Utilities. An additional 20,316 households had gas service terminated in 2007, about the same number as the year before.

“Electric bills have shot through the roof,” said Jim Dierterle, state director for AARP, the senior-advocacy group. “The double-digit increases for the past three years has pushed lower-income folks to the point where they can no longer pay their bill in full.”

And with customers facing yet another sharp increase in electric bills next month, consumer advocates said it is likely the volume of shutoffs will jump once again.

“The crisis is going to worsen as some folks will have to make difficult choices between keeping their lights on and buying food,” said Jim Jacob, executive director of NJ Shares, an organization that helps people in need pay their heating and electric bills.

Theresa Bell, a 40-year-old part-time consultant who lives in Hasbrouck Heights, said she struggles to pay her electric bill, which ranges between $100 and $200 per month, even though she lives in a small studio apartment.

“It’s extremely hard,” she said. “I try to shut things off when I’m not home, but it still adds up.”

Bell was able to avoid having her power shut off only by taking advantage of a state program that provides one-time assistance to customers who previously had a good payment record.

The rise in utility shutoffs comes at a time when energy costs have been on a record run, leading to historic gasoline prices, increasing food prices because of higher transportation and production costs and spikes in the cost of heating and powering homes and apartments.

Since 2002, the cost of electric power in the state has more than doubled for residential customers, going from 5.06 cents per kilowatt hour to 11.3 cents, effective June 1.

Under state law, customers who fail to pay their electric bill must be given a written notice of termination 10 days before shutoff. Certain elderly and low-income customers cannot have their service shut off during the winter months, from Nov. 15 to March 15, and that provision also applies during extreme heat waves.

Beyond that, utilities vary in how quickly they shut off power to delinquent customers. Public Service Electric & Gas, the state’s largest utility, typically does not shut off service unless payments are more than two months late.

At the Times >>>>> http://www.nj.com/news/times/index.ssf?/base/columns-0/1209960311324240.xml&coll=5&thispage=1

It’s like watching a car wreck in slow motion.

What the Democrats are doing to the state’s economy, I mean. Pieces are flying off in all directions. In terms of taxes and regulation, New Jersey was once a relative haven, a cheap place to do business. But for most of this century, we’ve been slowly losing high-income residents and high-income jobs. James Hughes and Joe Seneca of the Bloustein School of Planning and Public Policy at Rutgers have been documenting this in a series of depressing reports about the state’s economy.

“When business decisions for expansion are made, they’re just not being made in New Jersey,” said Seneca when I spoke to him yesterday.

The primary source of job growth in recent years has been in government, not private industry. And that represents a death spiral. Public employment creates higher taxes, which in turn discourage private employers from locating or expanding in New Jersey.

Don’t worry, though. The Corzine administration’s doing something about the business climate: It’s making it worse. That Family Leave Act the governor signed recently will raise payroll taxes and will also force employers to grant leave to workers for up to six weeks at a time.

And then the other day the Department of Community Affairs adopted new affordable-housing guidelines that put a burden on businesses not seen in any other state. If you want to construct a store or office complex in New Jersey, you can be required to construct or finance housing nearby. Democrats are even pushing for a statewide 2.5 percent tax on all commercial construction to fund that home building scheme.

This anti-business environment began with the first major action Jim McGreevey took in 2002. He raised the corporate income tax. The small increase in revenue doesn’t make up for the jobs that will go to lower-tax states.

“All we’re looking for here is a billion more,” said Assemblyman Joe Cryan at that time. Cryan has since risen to state Democratic chairman thanks to the attitude embodied in that quote.

To get that billion, McGreevey had to tax corporations through an “alternative minimum assessment” even in years when they had no profits.

By 2004, a CFO Magazine survey of corporate tax officials showed New Jersey to have “the least fair and predictable” tax system in America. But McGreevey was just getting started. He proposed a so-called “millionaire’s tax.” The Democrats got it through the Legislature with the false claim that it would cost the typical taxpayer in the over-$500,000 bracket a mere $846 annually. The actual average cost was $29,000 a year.

Rich people can do math even if Democrats can’t, and that tax chased some high-income retirees to Florida and wealthy Wall Streeters to Connecticut.

Just in case any of those rich guys had any thought of moving to the beautiful northwestern section of New Jersey, McGreevey also pushed through the Highlands Act. Theoretically, the bill was supposed to protect the unspoiled wilderness. But shortly after it was adopted, I visited a guy who owns a strip of land fronting on the highway in a commercial district of Mount Olive. He wanted to build an office park there but was prohibited by the new law. Other states dream of attracting such businesses because of their clean, high-paying jobs and their role in reducing property taxes for homeowners. Not Jersey.

When Wall Street whiz Jon Corzine took office in 2006, he had a chance to change the anti-business climate created by his predecessor. And he had a promising start, by which I mean he kept promising to do so.

As for keeping those promises, no dice. His pledge to “call a special legislative session to deal with property taxes” led to a systematic process of rejecting any ideas that would cut the cost of government. A low point in that effort came when Corzine appeared at a rally of public employees outside the Statehouse and pledged to protect the workers against seniority and pension reforms that might be part of any property tax reform proposal.

To his credit, Corzine did eliminate McGreevey’s alternative minimum tax. Other than that, his administration has been as anti-business as McGreevey’s, though he at least has toned down the rhetoric.

As for his latest moves in the area of family leave and affordable housing, that stuff might sound nice, but it makes New Jersey even less competitive, says Hughes.

“Pennsylvania will make the argument that New Jersey is not business-friendly,” Hughes told me. “It’s a business climate effect other states will use against us.”

And it’s a business climate that never would have developed if not for a deliberate policy of the past two Democratic administrations.

As I said, this has been like watching a car wreck. But there’s one difference: This is no accident.

Paul Mulshine may be reached at pmulshine@starledger.com. To comment on his column, go to NJVoices.com.

For months, Gov. Jon Corzine and lawmakers have pitched increases in New Jersey Turnpike tolls to pay for big road projects and slice the state debt.

But tolls probably will go up within a year anyway for another reason: to keep the New Jersey Turnpike Authority from defaulting on its bond agreements.

The only way, it seems, to solve a problem in NJ is to hit hard working people with another tax increase, another toll increase whatever…is this the way Corzine solved problems in his real life occupation? I don’t think so…we never would have heard of him because he would have been fired his first month on the job.

I have a great idea…stay tuned.