Lately world leaders have denounced the free market and the era of American capitalism. This is nothing new as it has happened for 25 years. You should note that during this period the United States has had the largest economic expansion in world history and has prospered because of it. Sadly, the leaders of the United States are now joining their foreign counterparts and are blaming low taxes and the free market for our current economic trouble.

I have two questions.

One, how exactly is it possible that our free market system takes the blame for the current economic crisis when the economic sectors that caused it were never free at all?

Two, how exactly do low taxes get blamed for our staggering debt accumulation when all the data shows that government revenue has increased because of them, and GDP growth has risen as well?

Of course none of these so called “leaders” can explain this phenomenon. Allow me to briefly tackle both questions.

The housing bubble that has now burst was a direct result of government intervention in the housing market. There was never a free market in housing, and therefore the free market cannot be blamed for its collapse. Government policies mandated loans be given, (at incredibly low rates set by the Federal Reserve) and then the same government advocated the sale and purchase of those loans by Fannie Mae and Freddie Mac. This created a disjointed market where one player (the government via Fannie and Freddie) had virtually unlimited funds to buy mortgage backed securities. This gave literally anyone the ability to make a loan, and never have to worry about getting it paid back to them since they were planning on selling that loan all along. They were selling to Fannie and Freddie. Soon, even they could not sustain their buying of these bad loans. Enter Wall Street, who had seen the money that was being made and joined the party. This was anything but a free market. There are many other examples besides just housing, but I have other things to do right now.

The government is currently pleading for us to go out and spend money, but of course no one is listening since it is beyond dumb to spend and spend when your already in too much debt. Naturally the consumer is retrenching. The government however is trying to fill that void with their own spending. Perhaps, had the government not taken all our money through a variety of taxes we would actually have it to spend. How can people blame low taxes when they aren’t even low when compared to the rest of the world? How can people blame tax cuts when they have increased government revenue by stimulating economic activity. All one has to do is read the publicly available government economic data. I know that’s not the best way to spend your free time, but its all right there.

If you want to live in a European style economic system you will be in for a rude awakening. In America, we live better then the rest of the world for a reason. It is not an accident. It is because we have embraced the free market, lower taxes, less regulation, and fierce competition while the rest of the world by and large has not. Now, that is changing due to our leadership and if it is allowed to continue we will suffer. We can always recover, but depending on the amount of damage it might take so long to do it that we end up dieing broke.

OK OK, I know what matters in life is the love of our friends and family, but for the country’s sake we need to think that money is everything.

If we do not get our economic footing back we will suffer incredibly for decades. Even if the government can somehow scale back some of its spending, their will still be massive obligations on the government budget. The only way this can be handled is by a vibrant growing economy that spends and invests wisely.

Without money, we can’t do anything. We can’t build roads, schools, solar farms, fighter jets, libraries, or outhouses. OK, maybe I threw outhouses in there, but you get the idea.

The fact is we cannot borrow trillions to pay for new things like national health care, when we cant even afford our current level of government programs. If we are to have a chance in hell of ever affording our current programs let alone new ones, we have to have a strong economy that grows at a good clip while providing stable well paying jobs.

Money is everything. Without it, we can’t protect ourselves, heal ourselves, or feed ourselves.

If you hope to make money long term as an investor it is vital you understand how the United States economy can be most effective. A book that I feel is a must read is “The End of Prosperity” by Arthur Laffer, Stephen Moore, and Peter Tanous.

This book provides a spirited straight forward explanation as to why low taxes and less government is the path to prosperity and why high taxes and big government are the noxious fumes that suffocate our economic growth.

It is extremely relevant given the “Tea Parties” that occurred a couple days ago that among other things protested out of control government spending. If you want to know what will happen to your state, your hometown, and your country if our Reagan capitalist boom model is jettisoned then take a good hard look at how messed up California is right now. This is discussed in the book, and clearly outlines how millionaires have left California at an alarming rate for several years to escape oppressive taxes. Once they left, the state lost major tax revenue so the government raised taxes even more thus facilitating an exodus that would make Moses proud. Now they have deficits that rival some countries total GDP!

Anyway, if you want to be educated on some basic economics or want to read why low taxes are the solution, pick this book up.