Everything Not Mandatory Is Prohibited

Addison Wiggin – January 3, 2012

  • 40,000 new laws: The 5 rings in 2012
  • Stocks, gold, oil, gold stocks, all rally big: Amoss on why gold stocks remain a bargain
  • The $2.8 trillion pig in a python: Chris Mayer’s call on the end of the rally in U.S. Treasuries
  • More reader reflections on child labor laws… a challenge to “shape up and tell the truth”… and more!

   The sale, trade and distribution of shark fins are now banned in California.

Daily drink specials — i.e., happy hour — have been banned in Utah.

Volunteer Little League and Pop Warner Football coaches in Colorado must now undergo annual training. Georgia set new safety requirements for golf carts driven on streets.


Welcome to 2012 — Maybe the Mayans were onto something

It’s not that the 40,000 new laws — state and federal — that hit the books yesterday for the first time are outrageous… it’s the sheer quantity that’s alarming.

   With the extension of the payroll tax cut, a few more pages are added to the federal tax code, too.

We haven’t been able to unearth the new total… but as of July 1 last year, the Standard Tax Reporter — a database of the tax code maintained by the firm CCH — stood at 73,536 pages.

That’s equal to 62 copies of Atlas Shrugged. It is also nearly three times the size of the tax code in 1984 — when the total stood at a more “manageable” 26,300 pages.

   Yet the most-onerous new law signed with little fanfare on New Year’s Eve: The funding bill for the Pentagon in 2012… also subjects U.S. citizens to indefinite detention on the say-so of the president.

“With Americans distracted with drinking and celebrating,” writes George Washington University professor Jonathan Turley, “Obama signed one of the greatest rollbacks of civil liberties in the history of our country.”

According to Bruce Fein, a Reagan-era Justice Department official, Section 1021 of the law “empowers the military to detain for life without trial any American citizen captured in the United States whom the president maintains is ‘substantially support[ing]… al-Qaida, the Taliban or associated forces’ engaged in hostilities against ‘coalition partners’ of the United States.”

Unfortunately, “None of the key terms in Section 1021 are defined to constrain the president’s power to disappear Americans into dungeons at Guantanamo Bay or elsewhere.”

“The words can mean whatever the president, like Humpty Dumpty, wants them to mean. ‘Substantial support’ might be said to include any criticism of the United States government for flouting the Constitution in combating international terrorism.”


Apart from a movement in Montana to recall the state’s U.S. senators, both of whom voted for the measure, the reaction to the news was… well, “apathetic” seems an understatement.

   Major U.S. stock indexes have begun 2012 with a monster rally. The Dow and the S&P are both up nearly 2%, the Nasdaq and the Russell 2000 more than 2%.

Reading the news — always a dangerous thing — we see this is being attributed to a generalized euphoria about the world economy. To wit…

   Factory activity in the United States grew during December at its fastest pace in six months.

The ISM manufacturing index rang in at 53.9 — more than the consensus guess of economists polled by Bloomberg, and comfortably above the 50 dividing line between expansion and contraction. New orders and production drove much of the increase.

Similar figures are out from other points around the globe …

  • Manufacturing in Europe is still in contraction mode at 46.9. But it’s a modest improvement from the previous month’s figure of 46.4. Meanwhile, unemployment in Germany has reached a post-reunification low of 6.8%
  • China’s official manufacturing index is back in expansion mode at 50.3, up from 49 in November. That doesn’t square with a competing figure issued on Friday by HSBC, but no matter — it’s a new year, and it’s rally time!

   Crude oil is up 3.5%, back above $100 a barrel, at $102.37. Depending on whom you want to believe, credit goes to the bullish global manufacturing outlook… new tensions between the United States and Iran… or both.

   “I recommend and emphasize to the American carrier not to return to the Persian Gulf,” declared Iranian army chief Ataollah Salehi. “We are not in the habit of warning more than once.”

The USS Stennis was, indeed, in the Persian Gulf last week, and has since left. But U.S. carriers ply that waterway all the time.

“It’s pretty clear that we’re going to see some sort of military action against Iran’s nuclear infrastructure,” writes Michael Pento, “either by Israel, the United States or even NATO. Recent words from Israeli policymakers, U.S. military action and even signals from the markets made that abundantly clear.”

We’re watching Pento’s forecast, and trying here to connect to the dots.

   The aforementioned defense bill signed by the president also tightens the screws on Iran.

Any foreign bank that carries out business with Iran’s central bank will be denied access to the U.S. financial system. Iran’s central bank is the primary conduit for the country’s oil revenues.

How exactly the White House intends to implement this remains fuzzy. But it makes Byron King’s call for $220 oil this year more and more plausible.

   After last week’s “panic liquidation,” to borrow a term from the Tocqueville Gold Fund’s John Hathaway, gold is back above $1,600 an ounce.

At last check, the bid on an ounce of the Midas metal is $1,606. And little of that gain can be chalked up to dollar weakness: The dollar index is down, but not much, at 79.6.

Silver is up 6.5%, back to $29.68.

   With the rally in both gold and stocks, the gold stocks are on fire today. The HUI index, which closed the year below 500, is back at 515.

   “There is incredible value in gold mining stocks,” observes Dan Amoss. “Yet for various reasons, the broader investment community remains blind to the opportunities in the sector.”

“Institutional investors’ lack of imagination and historical bias help explain this. This bias (i.e., ‘Gold mining stocks are risky and capital-intensive’) should gradually fade away over the course of the bull market. Growing cash flows and dividends will change opinions. Right now, the mining asset bases that will produce those future streams of cash flow and dividends are trading at ‘clearance’ prices.”

“The mining stocks are trading at historically low valuations relative to gold. Investing today, with an expectation of holding for a few years, is even lower than usual.”

   “Will 2012 finally be the year that marks the beginning of the end of the long bull market in Treasuries?” asks Chris Mayer rhetorically. “I think so.”

His call coincides with a report from Bloomberg that governments in the world’s leading economies will roll over $7.6 trillion of debt this year. That’s the G-7 nations, plus the BRIC countries. The vast majority of that total will come from Japan — $3 billion coming due this year — and the United States.

Uncle Sam has $2.8 trillion in Treasuries maturing during 2012. As of this morning, it can roll over that debt at very attractive rates: A 10-year Treasury note yields 1.94%, while a 30-year bond yields 2.97%.

“If investors are going to be so foolish as to lend the government money for 10-year terms at a rate of 2% or so,” says Chris, “it’s like free money. The problem is that interest rates don’t stay low forever and investors don’t stay dumb forever. Just ask certain members of the EU.”

“When doubts surface about your creditworthiness, rates don’t just slowly crawl upward. They jump — and then it’s game over pretty quickly.”

[Ed. Note: We’ll have some more “big calls” from our editors tomorrow. But we’ll remind you right now that time is slipping away if you want access to the widest array of guidance we offer.

Only two days remain in which you can join the Agora Financial Reserve — giving you “full buffet” access to nearly everything we publish. The one-time cost to join is less than you’d pay for a one-year subscription to every service separately.

“I’m a lazy investor,” writes Reserve member Keith G., “and your guys do all the work for me. I’ve found my investment philosophy is more inclined to some folks over others, and I’ve learned to trust them and follow more closely — Chris Mayer, in particular. I love the Friday rundown as well.”

“The Reserve is a most valuable source of information,” adds member Susan B., “and worth every minute of personal time, energy and money invested in this resource.”

“I have told [my friends],” says member Bob B., “that the Reserve has helped to open my eyes to what’s really going on in the world. The Reserve has also opened my eyes to countries, companies, industries, trends, etc., that I have never even thought about. Thanks.”

We’d love to receive a letter like this from you one day soon. If we’re consigned to live under 40,000 new laws and the ever-present threat of running afoul of the law for only expressing an unpopular opinion… well, the very least you can do for yourself and your family is make sure you have the resources to ride out whatever storms are coming. The Reserve makes that possible.

Please examine your invitation here. The offer expires tomorrow night at midnight.

   “I have a hard time remembering,” writes a reader after Jeffrey Tucker’s musings about how child labor laws stifle new generations of entrepreneurs, “but I think I was impeded by child labor laws as a 15-year-old.”

“They did not allow me to work on a parking, lot legally, not parking the cars, just collecting the parking fee, and in one case just being a night watchman. Later, my father took over the lease on that parking lot, and since I was not being paid, I think we got around that law that way.”

“One’s first job may be the most important. We should not be interfering with kids getting that first job. Only half our children are working. How can they ever be good citizens if they don’t learn how to hold a job? Kids are not worth the minimum wage. You can hire illegals at the minimum wage and they are very good employees. Kids are not as good. So they lose out.”

“Every job is very valuable to the employee. I eat at Subway a lot and I see how those employees really get into it. Some then become managers. Others go off and start businesses. That is how to grow an economy. Not by forcing people to stay on the sidelines.”

   “Personally,” writes a reader from Malaysia, “I am not necessarily against child labor, as in some poor areas of the world the child must work to help feed the family or perhaps educate just one sibling out of five or more. There is no alternative facing these unfortunate families.”

“Some child labor jobs in Asia are barely ‘OK,’ and some are frighteningly terrible and those who know and have daughters would agree with me. Let us keep our eyes wide open here.”

“No doubt in the U.S. this would not (openly) happen, but your readers should understand there is a very dark and very painful side to child labor. In a fairy tale world, child labor would have the nice kids doing ‘nice’ jobs, instead of focusing on education (which builds discipline, let me assure you… long hours of study with no pay), which is a personal investment in themselves and their future families. The alternative of working, rather then getting educated, will just ‘dumb down’ the nation.”

“In the Third World, education is paramount to all…that’s why siblings are sacrificed in the work camps, factories or much worse (I am talking child prostitution and organ extraction here, to be very frank) to enable just one kid to go to school.”

   “It appears,” writes a third, “you have not been in contact with many of the nation’s human resources types in big business recently.”

“It is my understanding that due to the unprepared grads of high school and colleges entering the job market, most companies hire only through contract outfits because the quality of the new hires is so poor re attitude, cooperation and incentive that they prefer to try out the applicant and pay extra to do so. If the contractee has the stuff after a year (some big outfits wait two years), a permanent position may be offered.”

“It appears that our new ‘culture’ of ‘Look at Me’ is so pervasive that many young people look upon a job as just the paycheck, the money they deserve for doing nothing but show up, often late and never prepared to do the work. This attitude is not just in the undereducated, but also in the educated.”

“It is more than credit and cash problems that is causing business to leave our shores. When the mass of people entering the workforce is so blase re duties et al., business cannot prosper. The new American Way is be slothful, play games and sing ditties but never think, never organize your work for good outcomes and be resentful of any direction!”

   “I have been a subscriber to several of your less-expensive services,” a reader writes, “and get angry when you only tell half-truths. I would actually spend more if this wasn’t so. Maybe I would take it all!”

“You see, what gets me pissed off is when you say which predictions were correct and don’t mention your bad calls. In Friday’s 5, you mention Byron getting subscribers out of Molycorp but don’t mention [another rare-earths stock] down 75% or buy Japan-sell U.S. Treasuries. These birdbrain ideas are not ever mentioned. There are many more.”

“Shape up and tell the truth in 2012.”

The 5: We’re looking at a spreadsheet of Byron’s recommendations. The rare-earth stock you mention is down 27% from the time he recommended it, not 75%. It’s not that we don’t mention the losers, we just prefer to herald the winners. And as you surely know, there’s a lot more to successful investing than simply picking stocks.

“We’re in the midst of a 24-36 month development play,” Byron responds directly to this reader via email, “which I’ve said and explained on MANY occasions.”

“Yes, the 2011 market took share prices down into the deep bargain basement… for our RE plays and for many other companies as well. Indeed, toward the end of 2011, the selling wipeout took many companies’ share price into the depths. I discussed that as well, in the weekly updates.”

“Of course, I wish that the share price levels had not fallen as much as they did. Still, at current prices, I think it’s as good a time as any to buy more shares in the RE plays.”

“Looking ahead in the ‘heavy’ RE space, there’s just not enough physical product to go around. There will NOT be enough product… not for a long, long time… if ever. So prices are solid. And prices will steadily strengthen over the next couple of years. Companies in this tiny niche sector ought to do very well.”

“I expect that one of these days, we’ll sell the ‘heavy’ RE guys and book a nice gain. We’re not there yet. But if you can handle the risk level and price movements of small-cap shares in the resource space… then there’s a lot of potential gain out there.”

The 5 encore: As for “buy Japan-sell U.S. Treasuries”… you’re referring to our New Trade of the Decade. Last we checked, eight years remain.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. Another new development for 2012: The new-and-improved Laissez-Faire Books website is up and running. As always, when you click to the bookstore via The 5, you get 20% off your purchase. Enjoy!

In honor of the grand reopening of Laissez-Faire Books, we reprise its raison d’etre:

What Is Laissez-Faire?

by Jeffrey Tucker

The latest data show that book sales are way up this season. So much for the prediction that books will be killed by technology. On the contrary, technology has enabled the great literature of the ages and the present to be put in the hands of everyone. I can’t think of a better time to begin refurbishing Laissez-Faire Books (founded in 1972), because it is the market that laissez-faire celebrates that has made all the literature we love more accessible than ever.

Addison Wiggin, president of Agora Financial, and I were discussing the various challenges ahead of us as we infuse new life into an old and venerable institution. He drew my attention to a point that I’ve overlooked. Most people don’t know the term “laissez-faire.” They don’t know how to say it (that very day, I was introduced for a speech, and the host mispronounced it) and they don’t know what it means. Once in common circulation, this term has not been in common use, even in libertarian circles. So we have some work to do, in helping people even understand the name of the bookstore at lfb.org.

The pronunciation in English is lay-say-fair. Its French origins date back to the late Renaissance. As the story goes, it was first used about the year 1680, a time when the nation-state was on the rise throughout Europe. The French finance minister, Jean-Baptiste Colbert, asked a merchant named M. Le Gendre what the state could do to promote industry.

According to legend, the reply came: “Laissez-nous faire,” or “let it be.” This incident was reported in 1751 in the Journal Oeconomique by the free-trade champion Rene de Voyer, Marquis d’Argenson. The slogan was codified finally in the words of Vincent de Gournay: “Laissez-faire et laissez-passer, le monde va de lui même!” The loose translation: “Let it be and let goods pass; the world goes by itself.”

We’ve rendered this in the form you see on our masthead: Leave the world alone, it manages itself. You could shorten it: Let it be.

All these renderings express not only the idea of free trade — a main subject of dispute in 18th-century European politics — but also a larger and more-beautiful vision of the way society can be permitted to work.

This idea can be summed up in the phrase “laissez-faire,” or in the doctrine of what was once called simply liberalism, which today is clarified as classical liberalism. This idea is this: Society contains within itself the capacity for ordering and managing its own path of development. It follows that people should enjoy the liberty to manage their own lives, associate as they please, exchange with anyone and everyone, own and accumulate property and otherwise be unencumbered by state expansion into their lives.

In the centuries that have followed, millions of great thinkers and writers have elaborated on this core idea within all disciplines of the social science. Then as now, there stand two broad schools of thought: those who believe in state control of one or many aspects of the social order and those who believe that such attempts at control are counterproductive to the cause of prosperity, justice, peace and the building of the civilized life.

These two ways of thinking are different from what is called the right and the left today. The left is inclined to think that if we let the economic sphere be free, the world will collapse, which advances some theory of the disaster that would befall us all without government control. The right is similarly convinced that the state is necessary lest the world collapse into violent, warring, culture-destroying gangs.

The laissez-faire view rejects both views in favor of what Claude Frédéric Bastiat called “the harmony of interests” that make up the social order. It is the view that the artists, merchants, philanthropists, entrepreneurs and property owners — and not the cartelizing thugs of the state — ought to be permitted to drive the course of history.

This view is now held by millions of thinkers around the world. It is the most exciting intellectual movement today, and in places where we might least expect to find it. There are institutions in every country devoted to the idea. Blogs and forums are everywhere dedicated to the conviction. Books are pouring out by the week and the day. The revolt against the state is growing.

The growth of the idea of laissez-faire in our times is infused by a digital energy. But the idea itself is not new in world history. Though it is mostly associated with 18th-century British thought, it is a view of society that has much-deeper roots in the Christian Middle Ages and early Jewish thought. Nor is laissez-faire somehow a Western idea alone. The deepest roots of laissez-faire actually trace to ancient China, and even today, the thoughts of the masters offer a fine summary.

Here are some examples:

Lao Tzu (6th century B.C.): “The more artificial taboos and restrictions there are in the world, the more the people are impoverished…The more that laws and regulations are given prominence, the more thieves and robbers there will be…”

“The Sage says: ‘I take no action, yet the people transform themselves, I favor quiescence and the people right themselves, I take no action and the people enrich themselves…’”

Chuang Tzu (369-286 B.C.): “I would rather roam and idle about in a muddy ditch, at my own amusement, than to be put under the restraints that the ruler would impose. I would never take any official service, and thereby I will [be free] to satisfy my own purposes.”

“There has been such thing as letting mankind alone; there has never been such a thing as governing mankind [with success].” The world “does simply not need governing; in fact, it should not be governed.”

Pao Ching-yen (4th century A.D.): “Where knights and hosts could not be assembled, there was no warfare afield…Ideas of using power for advantage had not yet burgeoned. Disaster and disorder did not occur…People munched their food and disported themselves; they were carefree and contented.”

Ssu-ma Ch’ien (145-90 B.C.): “Each man has only to be left to utilize his own abilities and exert his strength to obtain what he wishes…When each person works away at his own occupation and delights in his own business, then like water flowing downward, goods will naturally flow ceaseless day and night without being summoned, and the people will produce commodities without having been asked.”

These early beginnings of the idea began here but can be traced through thinkers of ancient Greece and Rome and through the Middle Ages, until the notion swept the world in the 18th and 19th centuries, giving rise to unheard-of prosperity, liberty and peace for all. In the 18th century and in large parts of the world (other than the English-speaking world), laissez-faire has been called liberalism or classical liberalism, a doctrine of social organization that can be summed up in the words of Lord Acton: Liberty is the highest political end of humankind.

To be sure, the notion of liberalism was already corrupted early in the 20th century. As Ludwig von Mises wrote in his book Liberalism (1929), “The world today wants to hear no more of liberalism. Outside England, the term ‘liberalism’ is frankly proscribed. In England, there are, to be sure, still ‘liberals,’ but most of them are so in name only. In fact, they are rather moderate socialists. Everywhere today, political power is in the hands of the anti-liberal parties.”

That remains true today. And the revolt against this is often termed “libertarian,” a word that has long been associated with a primary concern for human liberty. In current understanding, it refers to a tightening and radicalizing of the old liberal view. It asserts the inviolability of property rights, the primacy of peace in world affairs and the centrality of free association and trade in the conduct of human affairs. It differs from the old liberal view in dispensing the naive view that the state can be limited by law and constitutions; it imagines the possibility that society can manage itself without a state, defined as the one institution in society that is permitted the legal right of aggression against person and property. Libertarians are consistently against war, protectionism, taxation, inflation and any laws that interfere with the right of free association.

Libertarianism came of age in the early 1970s with the writings of Murray Rothbard and, later, with the founding of Laissez-Faire Books and the work of Robert Nozick and Tibor Machan. Libertarians are not necessarily anarchists or anarcho-capitalists, but the main strain of thinking in the libertarian world today revolves around the idea of statelessness as an intellectual benchmark. This view is not utopian or far-flung; it is only the hope for an ideal in which theft, murder, kidnapping and counterfeiting are not legally sanctioned by the state.

Nor is such a society historically unprecedented. Rothbard wrote about Colonial America as an example of a wildly successful experiment of society without a central state. Medieval Europe made the first great economic revolution without recourse to the power of the nation-state. David Friedman has documented anarchism and competitive legal orders in medieval Iceland. Other writers go so far as to say that given how we conduct our lives day to day, relying on the productivity of private institutions and associations, we never really leave anarchy.

As Mises says, liberalism/libertarianism/laissez-faire is not a completed doctrine. There are so many areas remaining to be explored and so many applications to make both in history and in our time. The most-exciting books of our time are being written from the vantage point of human liberty. The state is on the march, but the resistance is growing.

It is my great honor to be involved in the Agora effort to revive Laissez-Faire Books as the international distribution and publishing house for the greatest ideas of our time. It is a debilitating thing to watch the state on the march, but it is a source of joy to know that ideas are more powerful than all the armies of the world. Reason, literacy and relentless work for what is right and true will eventually lead the idea of laissez-faire to victory.

rspertzel

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