HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
Why we are Having Problems and How to Resolve Them.
Part III: Definition of the Problems.
In Parts I and II of this series, I briefly reviewed the financial history of the US. In this note, I will discuss the reasons I believe the Great Depression and our current financial mess are more severe and prolonged than the financial crises and panics that occurred regularly prior to 1913.
Income tax: The power to tax is the power to destroy. Those who wrote our Constitution prohibited taxes not apportioned to the states based upon population. The XVI Amendment, ratified in 1913, allowed the direct taxation of incomes.
The basic reason for taxes is to raise money to run the government. But in practice, politicians can use taxes to penalize their opponents and reward their supporters. The ability to tax incomes is even more pernicious, because it can be used for social engineering and the redistribution of incomes. Moreover, the current tax laws are almost infinitely complex and change almost yearly, making intelligent planning impossible. The tax code is more than a million words and an order of magnitude longer than the Bible.
The higher the taxes, the more people cheat and the less they work. At one time, the highest marginal income tax rate was 90% (that is not a misprint). One subscriber to this letter is a retired physician and very sophisticated investor. He did so well in the precious metals bull market of the late 70s that he closed his practice for 7 months rather than keep just a dime of every dollar he earned from seeing patients.
People know how to spend and invest their money better than the government: The higher and more complex the taxes; the greater the drag on the economy.
2) Inferior quality political leaders: This applies to the majority of our leaders of both parties over the last half-century. The XVII Amendment, also passed in 1913, took the election of US Senators from the State Legislatures and gave it directly to the people. Since the 1960s, more and more states hold primaries to determine candidates for office, including President.
When the framers of the Constitution had finished their work, someone said “Dr. Franklin, what kind of government do we have”? “He replied “A republic—if you can keep it”.
In a republic, people (hopefully) choose the wisest and most honest to represent them. These people then get together, in what used to be called smoke-filled rooms, and determine the best people to represent them.
Washington would never have subjected himself to our present-day election process. George Marshall, in my opinion, the greatest American of the 20th century, like Washington, would not subject himself to the political process. One of Marshall’s hand-picked protégé’s, Dwight Eisenhower, was the last President to go straight to the top.
Madison was short, with a squeaky voice. Andrew Jackson had a fiery temper (see below). He truly understood democracy and how to build an empire, but had the habit of shooting at anyone who bad-mouthed him (or his wife). Lincoln was not a handsome man, and his wife would have been a liability. McKinley’s wife had “spells”, which from my reading were either petit mal seizures or hysterical episodes. None of these people would be elected to high office today.
Now, the only people who make it to the top are “sanitized”, they have never said or done anything that could prevent them from being elected. They have never accomplished anything either!! To paraphrase Earl Warren, “I never did anything of importance in my life that didn’t make somebody mad”.
My recommendation: Return to being more of a republic.
One more thing: No more salaries for political office. The people who wrote the Declaration of Independence and the Constitution did it “on their own nickel”. It would abolish the professional politician. Many would say this might restrict political office only to those who have been successful in their personal/business life—exactly my point.
The Federal Reserve (also established in 1913): I talk about the virtues of gold, the vices of paper money, the support of poorly run banks, the artificial manipulation of interest rates, in almost every letter; so will not spend any more time on this subject.
Government Intrusion and Over-regulation: Roosevelt used the Great Depression as an opportunity for government to intrude into areas previously considered private. I have alluded to over-regulation in many recent letters, noting, for example, that the federal government considers the welfare of a sand lizard more important than the development of energy resources on 650,000 acres of land. Detailed regulations, with their attendant expenses for implementation, were being formulated should a dairy farmer experience a milk spill.
Wall Street Journal (9/27/11): “As Federal Crime List Grows, Threshold of Guilt Declines. For centuries, a bedrock principle of criminal law has held that people must know they are doing something wrong before they can be found guilty…
This legal protection is now being eroded as the US federal criminal code dramatically swells. Today not only are there thousands more criminal laws than before, but it is easier to run afoul of them…What once might have been considered a mistake is now sometimes punishable by jail time”.
Barron’s (9/26/11, I have summarized). Sackett v. EPA. The plaintiffs claim the government has gone wild. The Sacketts purchased a 0.63 acre parcel near a lake. After obtaining permits, the Sacketts, who own an excavating business, brought in gravel to fill about half an acre.
In a few days, they were notified by the EPA they had violated the Clean Water Act (CWA) by filling in wetlands. They were ordered to remove the fill, replant the land and wait 3 years before applying for a CWA permit. In general, it takes $278K (RMD comment: that is more than a quarter-million dollars) and 28 months to get one. They requested a hearing, and were told in order to get one they first had to refuse to honor the order and show up in court to defend themselves. But refusing to comply would expose them to fines of $32,500 per day.
Wall Street Journal (9/30/11). “Bank of America (BAC) is laying plans to charge millions of customers a $5 monthly fee to use debit cards…The industry says it needs the fees to recoup revenue it will lose because of new regulations (the Dodd-Frank Bill)”.
Bank of America also plans to lay off 30,000 workers due to the costs of implementing the new regulations.
I have many more examples of what I consider totally non-productive, foolish regulations that are killing our businesses but will stop. My point is that government must get out of the way.
In the next issue, I will wrap up this topic by providing scenarios of how our current financial crisis might play out, and how you can protect your wealth.
RMD
Re: Andrew Jackson’s personality: Although I purchased Jesse Ventura’s book I Ain’t Got Time to Bleed: Reworking the Body Politic From the Bottom Up when it came out in 1999, I didn’t read it until earlier this year. (The title is from his line in “Predator”).
If he had been born 200 years ago, Ventura might have been named Andrew Jackson or Daniel Boone or Davey Crockett or Sam Houston, the kind of person that built this country, who wouldn’t be intimidated one bit if one of our present-day bureaucrats said “You can’t do that”.
This is from a subscriber in response to the Interim Bulletin sent 2 days ago.
“Bob, I like your financial analysis, but your statement about winning the Vietnam War in 30 days is ludicrous”
MT, MO
RMD comment: I appreciate feedback, especially when you disagree. It helps me improve this letter. One of my favorite sayings is “You never learn anything from listening to yourself talk”
Thirty days was an exaggeration to make a point. I should have suggested you read This Time We Win: Revisiting the Tet Offensive (Robbins, Encounter Books, 2010). It quotes Ronald Reagan, “It’s silly to talk about how many years we will have to stay in the jungles of Vietnam when we could pave the whole country and put parking stripes on it and still be home by Christmas”.
My mother is 92 years old and still lives independently (She’s tough, a Women Marine from WW II). I have recently been given the Power of Attorney for her property,
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