Michelle Obama received a standing ovation during her husband’s State of the Union address for her crusade against obesity. A worthy cause considering how yesterday’s “fat” has become today’s norm. Unfortunately, naked enthusiasm is not sufficient to bring good results. The first lady’s noble intentions are sabotaged by the socialistic bootlickers around her who are pushing the idea of a ban on the expansion of the fast food industry. Yes, there is an epidemic of obesity, but its epicenter is in Washington, D.C. It is the government that has to go on a diet, more so than the people who feed it. And we could start by financially starving the food fascists.

Why do some people think that it is legitimate for our federal or local governments to make our lifestyle choices for us? Why do such policies deserve the label “socialist?” I will let Tocqueville answer these questions for us. What characterizes socialists of all parties, according to him, is “a continuous, many-sided, incessant attempt to curtail . . . human freedom in every way; it is the idea that the State must not only direct society, but must be . . . the master of every man . . . that for fear of letting man fail, the State must always be beside him, above him, around him, in order to guide him, protect him, sustain him, restrain him.”

I personally have nothing to fear if all fast food places disappear tomorrow. My wife cooks delicious meals. Our daughter loves helping in the kitchen. I can prepare a hundred things from scratch. So we can do great without the occasional cheeseburger with fries. What we can also do without is a government treating us as drooling idiots. The government is not our mom, or schoolteacher, or boss. It is not our doctor or pastor. And it is not our friend. It is our servant. So please stick to the Constitution and do not violate our God-given rights to choose what to eat or how much to exercise.

President Obama said recently that he would rather be a great one-term president than a mediocre two-year term president. Hogwash! With his State of the Union address, the president made a desperate attempt to preserve his chances for reelection at all cost. The humiliating defeats of his candidates in New Jersey, Virginia, and Massachusetts have made it clear that the honeymoon is over. The independent voter is waking up with a bad hangover and starting to question the wisdom of his 2008 decision. And Obama is demonstrating willingness to compromise previously professed principles in order to hold on to an estranged and rather inconvenient but very useful partner.

In mid January I attended a seminar at the New York Federal Reserve Bank. The speakers were honest to admit that they were trying to steer the economy in uncharted waters. Had they updated their economic models and kept their eyes on long-term inflation targets, they could have tightened the credit markets and ended the speculative bubble before it had affected the global economy. Now, fears of inflation clash with depression warnings from economists like Paul Krugman. The specter of a “Double Dip” a la 1937 hangs over our central bankers and they cannot make up their minds on the right moment and rate of withdrawal from the stimulus. The president, however, may be running out of time.

Since the beginning of the financial crisis I have maintained that a return to the Keynesian philosophy of “spending our way out of it,” while bringing temporary relief, does nothing to solve our structural problems. Now Obama is trying on for size the mantle of a fiscal conservative. Has he learned his lesson in just one year? Should I open the champagne bottle and put my dancing shoes on? I’d like to give the president the benefit of the doubt, but I understand the logic of politics too well to be that naïve. The simple truth is that at the current stage of his presidency, it is politically expedient for Obama to appeal to the center-right even it means alienating his former “progressive” comrades.

P.S. But if Obama had been sincere in his first statement, he has nothing to fear from the 2012 election; regardless of achievements, guys with an excess of charisma don’t get labeled “mediocre.”

In That Which Is Seen, and That Which Is Not Seen, Frederic Bastiat helps us overcome our inability and/or unwillingness to consider the hidden costs of our actions. The classical example of the “broken window” explains why acts of vandalism do not create new jobs. Shifting our focus on the “unseen” may also help us understand why the net result in saving lives of the current system of Food and Drug Administration regulation is not a positive one.

Perhaps pharmaceutical corporations do not have much of an incentive to discover cures. After all, chronically ill people such as my diabetic wife make the best customers. They will buy your product again and again. Any drug manufacturer, however, can only make money if its products save and/or improve the quality of his customers’ lives. The huge investments necessary to succeed in that market create the right incentives for businesses to consider long-term outcomes above the possibility of making a quick buck. Concerns for reputation force drug companies to test carefully and to reject any new substance that could harm their patients, reputations, and profits.

What is the incentive of an FDA bureaucrat to release in a timely manner (or at all) an effective drug? None. He gets no bonuses or other benefits for approving more good drugs. Yet, with each new substance he sets free on the market, he increases the chances that people will get hurt, his career ruined, and his name covered in shame for the rest of his life.

Yes, the FDA is saving thousands of lives. That is, Which Is Seen. That Which Is Not Seen by our domestic economophobes is the fact that the FDA saves those lives by killing hundreds of thousands and letting millions more suffer unnecessarily. Oh, and let’s not forget the biggest beneficiaries of government regulation—the established giant pharmaceutical companies get insulated against competition by the astronomical costs of developing new drugs.

“The natural progress of things is for liberty to yield and government to gain ground,” wrote Thomas Jefferson. It is a natural trend even in functional constitutional democracies where the vast majority claims to value liberty. The explanation of this phenomenon is quite simple: economophobia. Most people go though their lives in blissful ignorance or stubborn denial of the fact that we live in a world of trade-offs. An example of this is the unqualified support that most of us give to the Food and Drug Administration. We simply refuse to acknowledge the fact that choosing more safety means killing more people.

In the vastly influential Free to Choose, Milton Friedman asks that we put ourselves in the position of the decision-makers at the FDA. We have the terrible job of controlling one of the largest American markets and deciding who should live and who should die. What incentives shape our behavior? We evaluate the probability of allowing a bad drug to reach the market versus the probability of delaying or banning a good drug. Which mistake would we rather make?

Now it becomes obvious that the FDA’s legal mandate to decide which drugs should be made available to patients in the United States has created a skewed structure of incentives where concerns for safety vastly outweigh concerns for efficacy. Since we don’t want to enter history as those approving the next “thalidomide,” we would be extra careful with all new drugs. What’s wrong with that? Nothing, unless we count the lives that could be saved by all efficient drugs whose approval we delay for extra testing. We would do anything to increase the chances that some Elixir Sulfanilamide will not kill a handful of people under our watch since their tragedy will be observed by all through the media. We may be very decent fellows yet we would gladly sacrifice any number of unseen fellow Americans for the safety of a few and our own comforts.

Some time ago, in a pitiful attempt to attract public interest, economist Paul Krugman pointed a finger at his deceased colleague Milton Friedman, whose opposition to Food and Drug Administration regulations had supposedly endangered the safety of Krugman’s salad. Personally, I am happy when there is no bigger news than E. coli or shark attacks, since the risk from both combined are much smaller than the danger I face every time I cross the street. And we could let such sensation-seeking slide when it comes from economically ignorant journalists. But Dr. Krugman does not work for the media and should know better. Public ratings are not the proper concern of the economist. Truth is. You can learn that from Dr. Friedman. And the truth in this case is summed up in the most fundamental lesson we teach our students—No Free Lunch.

There is nothing novel about Krugman’s sentiments against corner-cutting producers and merchants, as we can see from the French philosopher Turgot’s warnings in the 18th century:

“To expect the government to prevent such fraud from ever occurring would be like wanting it to provide cushions for all the children who might fall. To assume it to be possible to prevent successfully, by regulation, all possible malpractices of this kind is to sacrifice to a chimerical perfection the whole progress of industry; it is to forbid them all new experiments.”

Fact: FDA regulation of drugs slows down innovation and prevents life-saving medicines from reaching the sick. This kills millions of Americans (many more than would ever die from unsafe drugs in the absence of bureaucratic control) according to testimonies of Nobel Prize-winning medical researchers.

Do I want my salad safer? Yes. Am I willing to pay for it through higher taxes and prices so that the FDA can check every bag of spinach? Maybe I am. That is only because I can afford it. Putting additional billions of dollars in the FDA means having to spend billions less on other really important issues. If we want more FDA—fine. As long as we are aware of the following: For the rich to have safer salad, millions will not be able to afford salad at all. As an economist I understand my colleague’s self-interested lobbyism as something natural. But I cannot stand a hypocrite. Dr. Krugman, at least have the decency to tell your fans that you want your salad’s safety to be paid for by the poor.

“For the grossly impudent lie always leaves traces behind it, even after it has been nailed down, a fact which is known to all expert liars in this world and to all who conspire together in the art of lying,” wrote Adolf Hitler in his 1925 autobiography Mein Kampf. Those were the days when politicians across the globe discovered the first weapon of mass destruction. Dictators and elected leaders used mass media to greatly enhance the impact of their lies. Stalin, Hitler, and FDR admired, envied, and learned from each other in a race to consolidate power in the face of great economic, political, and military challenges.

The propaganda machine in the Soviet Union cemented a deep suspicion against private enterprise in the heads of several generations. The ministry of Goebbels in Nazi Germany unified the nation against an imaginary racial foe. One of the most remarkable successes of the American government propaganda in the early 1930s was persuading the general public that the New Deal has ended the age of unbridled, monopolistic, abusive capitalism to usher in a new era of recognizing the needs and protecting the rights of wage laborers and consumers.

The traces of this colossal lie are obvious a lifetime later. American “progressives” hail the longest-serving U.S. president as a hero of the workers’ movement. At the “conservative” side of the political spectrum we keep hearing how Roosevelt’s programs were “anti-business.” What most of the New Deal fans and their equally passionate opponents do not realize is that, regardless of announced intentions, FDR’s acts have institutionalized the symbiosis between big business and big government.

Regulation of the American financial markets has produced unintended consequences that few of us like. It has segmented the market, restricted entry, and dampened competition leading to the creation of financial giants. Why should we be surprised today that those institutions have acted on the assumption that the government will back them should they make too big of a mess? Unless “We the People” treat with proper, traditional, deep suspicion the ambitious plans of any politician to increase regulation of Wall Street, Main Street, or the healthcare industry, we run the risk of a future administration asking our children to bail out yet another gang of losers that have grown “too big to fail.”

The idea that government should do as little as possible beyond securing the inalienable rights of its citizens is much older than Adam Smith and Thomas Jefferson. From the Taoists in ancient China who saw poverty as a direct result of government interventions to the Physiocrats who advised the absolute monarchs of France and Russia to let their people be governed by natural law instead of artificial restrictions, there were always people who understood the link between freedom and prosperity. In the early 18th century, the greatest pre-modern economist, Richard Cantillon, clearly explained how government regulation disturbs the natural harmony of the market.

Cantillon saw that the most disruptive interventions are those that mess with the national currency. The new money enters the economy in a step-by-step process, and Cantillon observed that an increase in the money supply has a significant impact on relative prices and living standards: “[I]n England the price of Meat might be tripled while the price of Corn rises no more than a fourth.” This may benefit the butcher but it also hurts the baker since the latter gets fewer pork chops in exchange for his bread.

There is no telling how the trillions of “stimulus” dollars will affect you or me in the next months and years. Making our printing presses work overtime changes consumption patterns and velocity of money as explained by Cantillon: “A river which runs and winds about in its bed will not flow with double the speed when the amount of water is doubled.” If most of the new money enters through the banks, it lowers interest rates. If a big chunk of the funds goes first to consumers, demand for goods increases “according to the inclination of those who acquire the money.” This leads to higher demand for loans by businesses and higher interest rates. In the new and exciting world of Obamanomics, nothing is certain except this—if the world’s confidence in our money gets seriously damaged, the resulting monetary disorder will bring a collapse that could easily eclipse the Great Depression.

P.S. I hope that I am wrong and that the next generation will have as much fun with my inflation warning as we have today with Al Gore’s global warming forecast. Happy New Year!

I write this letter to offer a deal that you will find impossible to resist. It has been a tough year for my country and the world. As a good boy I did my best to help everyone. Unfortunately, because of malice or ignorance, some people resist the good changes I have planned for them. Banks won’t loan. Our middle class sleeps late on Black Friday. Christmas shoppers have started doing the math before touching their credit cards. Businesses do not expand. The Taliban won’t turn their swords into plowshares. Even some of my congressmen insist on reading the healthcare bill before voting on it.

But worst of all is that kid down the block—I hope he tops your Naughty List. The boy has been recycling his dad’s beer cans since the Fourth of July picnic in order to buy a pair of Christmas shoes for his sick mom. Now he has decided to petrify the money in a college savings account. If only there was an economics teacher to explain to the ungrateful brat how imprudent his behavior is in times such as ours. Because of his hoarding, the local shoe store will lose business. Its owner won’t have enough money to buy new snow tires from the boy’s father. Since dad won’t be able to afford his Bud Light, the son will lose his only source of income.

So this is what I have in mind for the next year. My friend Ben and I will keep interest rates close to zero so there is little incentive for people to save. Every penny that does not get spent immediately shall be punishable by an inflation tax. We shall push for legislation encouraging credit companies to develop new products for preschoolers. And we shall vivify the global economy with an unlimited amount of IOU dollars, hot from our printing presses. I believe that such measures will strengthen our consumer confidence, keeping you and your Chinese elves in business.

Now you probably wonder what I want in return. Not much. I have it all—money, power, prestige, a hypoallergenic puppy for my daughters, an organic vegetable garden for the wife, two feet of snow for Christmas in the midst of global warming. Some nice Norwegian people even gave me a prize for peace and goodwill. I have just one regret–can you get me the Olympics?

Yours truly,

B.O.

The major cause of the current financial mess is perverse policy. It is undeniable that the national (and global) economy would have been in much better shape had there been more transparency in the financial sector. But the collapse of the real estate market that spilled over to other sectors is not a result of the deregulatory acts of Clinton and Bush. Stricter oversight may have mitigated some of the consequences, but it would not have prevented the bust because the artificial boom was a bastard child of a government-sponsored scheme to make credit cheaper and more accessible than market conditions dictated.

Bureaucracies have a vested interest in producing economic crises. Just as the shareholders in the military industry grow wealthier when a war breaks out, the “shareholders” in the government agencies grow more powerful with each recession. When the downturn is especially sharp as was the case of 2008, the fearful populace is eager to rally behind anyone who promises protection against the greedy capitalists. It’s an easy way out to develop a victim mentality, to blame others for your own mistakes, and to ask for benevolent bureaucratic regulation of market exchanges. But the price we pay for a government pacifier, a diaper, and a lullaby may be too high.

As a big fan of Bulgarian Football Club Levski I put all my money in the bank that sponsored my team in the early 1990s. The bank collapsed but I did not blame my government or my team. I sucked it up and learned a valuable lesson—don’t keep all your eggs in one basket. At that time my father’s modest retirement funds disappeared in a financial pyramid. He also learned his lesson. Most Bulgarians did. And if Americans believe they are exceptional and should be protected from everything by their government, they’d better hear Turgot:

“Thus, with obvious injustice, commerce and consequently the nation are charged with a heavy burden to save a few idle people the trouble of instructing themselves or of making inquiries to avoid being cheated. To suppose all consumers to be dupes, and all merchants and manufacturers to be cheats, has the effects of authorizing them to be so, and of degrading all the working members of the community.”

A recently developed Marxist hypothesis says the current crisis can be explained by a large-scale attack on the American working class that began in the 1970s. Presumably, at that time our labor market got saturated. Malthusian population increase, immigration, outsourcing—all contributed to the weaker bargaining power of the American “proletariat.” Wages stopped rising for the next 30 years or so while profits (stolen “surplus” value) went through the roof.

Capitalists were stuck with too much money and too much output (the orthodox Marxist theory of “overproduction”) since stagnating wages could no longer buy what their “labor power” produced. This is when giant global corporations and financial institutions conspired against the “productive” workers. Abusing the pathological stupidity of the masses raised in a consumerist culture (created through advertising), a pack of loan sharks “pushed” a staggering debt on the American poor.

Such explanation conveniently ignores the high degree of social mobility in the United States and the fact that the very few among us who get stuck in poverty for more than a few years are still among the richest people in the world. Unfortunately, it also contains the potential to resurrect through the Consumer Financial Protection Agency, a bankrupt idea on how to “help” the borrowers. During the mercantile era, the British Parliament imposed price ceilings on interest rates—supposedly to vivify trade. This is when John Locke argued that such policies are counterproductive. Lower interest rates benefit the borrower but such gains are offset by the loss to the lender. Usury laws also restrict the supply of credit thus slowing the rate of economic growth.

We may not like a market outcome such as high rates of interest on particular loans but those are simply proportionate to the risks of default, not a result of exploitation. As economist Richard Cantillon pointed out in early 18th century, only lenders and borrowers are capable of determining their fears and needs. Trying to dictate price levels never solves anything. The free formation of market prices (including those in international trade and interest rates) is the only mechanism for the transmission of information between market agents that leads to efficient allocation of resources and economic prosperity.