The Show weighs in ... with a Ph.D. in economics!

You have to figure a think tank is reaching the bottom of its barrel when it has to preface its "ideas" with claims of credentials.

RALEIGH — The latest increase in North Carolina’s unemployment rate should signal government leaders to stop pursuing policies that have no chance of improving the economy. That’s the assessment of a John Locke Foundation analyst with a Ph.D. in economics.

And what does the Ph.D. in economics propose instead of having the government involved in working toward economic recovery?

The best policy for government to pursue now would be to reverse course, Cordato said. "Instead of taking money out of the private sector for bailouts and government stimulus packages, instead of inflating the money supply, the government should get out of the way," he said. "Entrepreneurs need to see signs that it makes sense for them to save and invest. Those private-sector investments will create the kinds of jobs our economy needs to get back on track."

Riiiiiiiight. We've all seen the spectacular success of the government getting out of the way over the past decade so that greed can run unbridled.

PS This gentle blog post brought to you by a BlueNC analyst with a master's degree in communications from a prestigious university.

Comments

Economics

Um, on what economic paradigm do you base your view James?

You claim that the government is "involved in working toward economic recovery," and presumably that it should be, but what does that even mean? The private sector economy is, by definition, the antecedent of government because government derives all of its operating budget from taxation in one form or another. In other words, if there wasn't a private economy, there would be no government. Anyone can come to this conclusion quite easily from observing the fall in government revenue that accompanies any contraction in the economy.

The fact is, government cannot "stimulate" the economy by drawing blood from one arm and injecting it into the other. The economy is the aggregate of trillions of self-interested decisions made by billions of individuals around the world. It is an outgrowth of creative and productive energies that is almost entirely uncoordinated, spontaneous, and organic. To divert resources from this system by force and redistribute them in a way that makes the system more productive is a laughable fantasy. It takes an enormous deficit of humility to presume that one possesses enough knowledge to play mastermind of a system of complexity beyond human comprehension. As Lawrence Reed pointed out, there is no one on the planet that even fully understands how a common pencil comes into the possession of its user. (http://www.econlib.org/library/Essays/rdPncl1.html) An equally powerful analogy, or perhaps literal example of a truly free market in action, would be the amazing anarchist stem of information distribution known as the internet. The benefits of this system are self-evident: the division and specialization of labor in this decentralized system are what make modern life and modern standards of living possible. The only sound criticisms of this system, in my view, essentially stem from the myriad of restrictions that limit what we are possible of achieving peacefully and voluntarily.

Your faith in government to ward off economic downturns is quite ironic, considering the vast array of regulations and controls with which the government has saddled the financial sector in particular. In fact, the economist you dismissively quote accounts for the financial crisis by reference to the government interventions that caused it (although indirectly). Your suggestion that government "got out of the way over the past decade" is just flat-out wrong. A focus on a few regulatory provisions and ineffective government enforcement agencies is ignoring the forest for the sake of the leaves (and, if anything, only further demonstrates the naivety of trusting the state to police the very interests which own it). The fact is, the government has more control over the financial industry than probably any other, and the systematic malinvestment, which, in this particular speculative boom, manifested itself initially in the real estate market (and subsequently the securities market and others), is a direct result of a government-sanctioned monopoly of the money supply by the Federal Reserve banking cartel. If certain regulatory loopholes in the CDS and derivative markets had been closed the malinvestment would have simply found another risky investment avenue because there was a systematic drive towards over-investment and excessive risk-taking driven by an inflationary monetary policy and artificial interest rates. If artificially low interest rates were driven by relatively high consumer savings, a similar boom would have likely occurred (perhaps not funneled to the housing market in the absence of federal incentives and GSEs) but the bust we are experiencing would not be occurring because the underlying market fundamentals would be sound.

What we are experiencing is a natural market correction. Bad investments and debt must be liquidated and absorbed into healthy and productive economic sectors. Banks should fail. Insurance firms should fail. GM should have been in bankruptcy court years ago, and should have been broken apart and sold to more productive firms in order to satisfy its creditors. Instead, the economy is holding its collective breath, unsure of who will be saved by the state and who will not. Short-term and long-term planning is difficult enough when you are dealing with an ever-changing market, but there are significant signals (such as prices) which help immensely. But when the fate of TRILLIONS of dollars is not decided, in aggregate, by billions of individuals, but rather in an arbitrary manner by ~500 politicians in Washington DC (or in secret Federal Reserve meetings), planning becomes much more difficult.

Don't get caught up in some ideological tug-of-war to such a degree that you become unwilling to recognize the merits of the free market critique of our current predicament. The truth is, there are many people who call themselves advocates of the free market who are, in the archaic sense of the word, 'capitalists' who only want to preserve an economic order that reflects centuries of accumulated state privilege for the capitalist class. True advocates of the free market recognize corporate welfare and plutocratic protectionism via the legal system as the biggest restrictions on peaceful competition and individual liberty. This is why they are the only group, besides a few on the left, who have consistently opposed the bailouts of corporate America as not only ineffective and inefficient, but also immoral. They are also the only ones who predicted this crisis with stunning accuracy. (http://www.youtube.com/watch?v=6G3Qefbt0n4)

I write this because I've seen you attack the John Locke Foundation and free market ideology in general with little reason or substance on several occasions.

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"The natural wage of labor is its product." -- Benjamin R. Tucker
A liberal is someone who thinks the system is broken and needs to be fixed, whereas a radical understands it’s working the way it’s supposed to.

Little reason?

Free-market ideology is just that. Ideology. It has no practical value that I can see. It simply describes the business model behind human greed. There's nothing wrong with that, but there's nothing inherently important about it either. It is meaningless except as a philosophical ploy to avoid serious thinking.

More to the point, the idea that government cannot influence how (and how much) capital flows is absurd on its face. Whether the government should do that is a different question entirely, but the idea that it can't do that makes no sense.

For example, the US is dramatically behind a number of other countries in terms of investments in solar manufacturing. Singapore offers solar panel manufacturers zero corporate taxes for up to ten years of operations. Thus, it's not surprising that global companies are investing in new facilities there. Which means they are not investing in the US.

Government policy could alter that dynamic overnight ... drawing multi-billion dollar investments and creating a thriving domestic industry where little exists right now. Such policy would have strategic value far beyond its short-term cost. If you're suggesting that our government cannot influence that flow of global capital, you are wrong. If you're suggesting it shouldn't influence that flow of capital, you're not wrong, but you are misguided.

To my knowledge.

Missed the point

There's no value or inherent importance in understanding how civilization is made possible by the spontaneously-organized self-interested actions of billions of individuals? So-called "free market ideology" is nothing more than an understanding of economics - yet is something hardly trivial, especially when you claim the government needs to do X, Y or Z with respect to the economy.

I'm flabbergasted that you would refer to free market economics as a "philosophical ploy to avoid serious thinking." Oh the irony! A strong avoidance of serious thinking is the only way to arrive at the sort of fallacious arguments employed to apologize for "stimulus" measures and bailouts. The very economy that you so desperately want to "recover" is based on the principles that you apparently think are just some sort of political smokescreen. What is it that you think created this economy to begin with? Magic? Is that the sort of science you think is worth serious consideration? Is the economy just some ethereal being that we must please with sacrifices at the public alter in order to end the drought?

And of course the government can influence the flow of capital! Anyone can! What else would influence the flow of capital if not the individuals and institutional actors that constitute the economy? You've missed the point entirely. I already acknowledged the influence of government over capital it steals from individuals to fund its operations. What is not known, or even possible to know, is the precise effect of that intervention on the market. What would that money have been spent on if it had not been forcibly taken by the government? The economy is too complex to answer that question, so it is impossible to know what effect will result from a particular government intervention. This is true for all government interventions. Like a ripple in a pond, beyond the immediate, obvious or direct impact there are unforeseen consequences.

This is one of the fundamental problems of central economic planning - central planners cannot foresee the consequences of their interventions on the economy at large. Hence, central planning is impossible; as impossible as attempting design a rain forest ecosystem at the molecular level. Unlike central economic planners, individual economic actors base their decisions on personal knowledge of their own conditions, consumption needs, and skills. The economy is the aggregate of billions of people applying their small area of knowledge/skill to the things around them. On the other hand, central planners, who redistribute resources and restrict trade at gun point, cannot possibly possess the same knowledge of the individuals they are dictating. They are replacing localized knowledge with their own, by, for example, spending your money on your behalf. And they claim this will improve "efficiency." Hah.

A great example of government intervention causing unforeseen and undesirable consequences is the housing bubble and ensuing financial crisis. Instead of a simply cursory reference "greed" (acting on personal values - a universal trait) in analyzing economic phenomenon, free market economists have shown that government interventions (especially artificial interest rates) are a necessary factor for any speculative boom. Oh, but let's just ignore those "ideologues" who use "economics" to predict such calamities.

As for the solar manufacturing example, I think it's a great idea to eliminate taxes to spur growth. Why divert resources away from productive individuals who are satisfying the desires of consumers? It's really no shock that reducing taxes results in a more robust industry. You've only confirmed my point. If you are suggesting that government take money from some people and dump that money in a particularly politically amiable industry, however, I would strongly disagree. It is the act of "planning out" who should get what money that causes economic distortions. Refraining from engaging in the process is a good idea.

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"The natural wage of labor is its product." -- Benjamin R. Tucker
A liberal is someone who thinks the system is broken and needs to be fixed, whereas a radical understands it’s working the way it’s supposed to.

I didn't miss your point. I just disagree with it.

You said:

The economy is too complex to answer that question, so it is impossible to know what effect will result from a particular government intervention. This is true for all government interventions. Like a ripple in a pond, beyond the immediate, obvious or direct impact there are unforeseen consequences.

The alternative to intervention in the face of complexity is to do nothing. In my solar example, doing nothing would leave our nation continually dependent on foreign technology. If that's a choice you'd like to make, go for it. I disagree with that choice.

What's odd is your assertion that we could create incentives for solar manufacturing without "taking money from some people." That's where you ideology hits a big pot hole.

You say you're fine with cutting taxes on solar manufacturers. But in doing so, you're effectively shifting the burden of funding public infrastructure (think public education, which I'm sure you're against) to other industries and individuals. In other words, you'd be subsidizing a nascent solar industry.

What you're arguing is intellectually interesting to me, having been raised in a Libertarian family, but in practical terms, it has almost no value. For that reason, I see no reason to argue that free-market ideology should have primacy over any other human construct. Governments, like free markets themselves, occur in every part of the world, including the most primitive cultures. Human beings seem to have a natural instinct to band together to create structures to help maintain order and the common good.

Why should free-market ideology trump common-good ideology? It shouldn't ... and it doesn't. Free-market ideology is an extremist view held by a minutely small percentage of the human population. If anything, free-market extremists have had disproportionate influence on public policy over the years, in the same way that Christian extremists have disproportionate influence on the practice of religion in the United States.

The alternative to

The alternative to intervention in the face of complexity is to do nothing. In my solar example, doing nothing would leave our nation continually dependent on foreign technology. If that's a choice you'd like to make, go for it. I disagree with that choice.

Individuals act in the face of complexity every day, and in aggregate that action results in the production of virtually every good or service you have ever used. Individuals, unlike governments, possess the localized and dispersed knowledge that is necessary to ensure this aggregate function. Individuals (acting in concert or alone) have price signals and, of course, intimate knowledge of their own values upon which to base their choices.

In the context of solar energy development, not taxing a businesses is the manifestation of a government which is "doing nothing" with respect to a particular aspect of the economy. On the other hand, if funds were taken by government (which is inherently alienated from consumer demand and only restricted by society's tolerance of its parasitic behavior) and redistributed to a different industry, that would be an example of government intervention. It would be impossible to claim that such an intervention was a "success" unless "success" is defined in purely ideological terms. Even in utilitarian terms of economic efficiency (which is still tainted by ideology), the "invisible man" of the transaction - the man who would have otherwise received and spent the money on the basis of his own knowledge/preferences - is totally ignored and cannot be accounted for.

Certainly a lower tax revenue does put pressure on government services. But unless you hold government services as ends to be sought for their own sake due solely the fact that they are provided by the government and not a private economic actor (ie: the value of the services to the consumer isn't as important as the warm and fuzzy feeling you get from the thought of government providing them), the issue of "shifting the burden" for funding those services is only a dilemma in the sense that society continues to cling to the idea that government must rob somebody to pay for them. You wouldn't consider my choice to patronize one supermarket over another to be "shifting the burden" to some other customer to help pay the other supermarket's rent. I don't want to stray too off topic on the issue of government services, but I wonder how it is even possible to calculate how much money "we" "should" be spending on public schools - 15% of GDP? Why not 90%? Would you not laugh at the idea of putting the same question to voters in the form of a ballot initiative with respect to car manufacturing? The idea that anyone other than the actual consumers of a service can have the requisite knowledge to "manage" the system is a quite arrogant notion.

For that reason, I see no reason to argue that free-market ideology should have primacy over any other human construct. Governments, like free markets themselves, occur in every part of the world, including the most primitive cultures. Human beings seem to have a natural instinct to band together to create structures to help maintain order and the common good.

You're right, the free market system of economics and its violent, parasitic counterpart, the state, both exist in human society. Free market "ideology" is nothing more than the recognition of the general principles which underlay peaceful, voluntary, and mutually beneficial human relationships, coupled with an understanding that the institution of government is the precise opposite of all of these things. If you can't see a reason for preferring freedom over slavery, peace over war, voluntarism over compulsion, diversity over uniformity, creativity over conformity, and cooperation over exploitation, you've simply had your head in the sand. There's just no denying that the principles of a free market are the only path to prosperity - every deficiency and inequality of our current economic system is directly linked to that social disease named government.

Yes, of course human beings have always worked together to achieve mutually beneficial outcomes! It's called the free-market. Then who comes along? A criminal element which relies on violence to achieve its ends. This criminal element, in its institutionalized form, is the state. What is the 'common good'? Human beings are quite limited by our biological makeup insofar as we are not able to see into the brains of our neighbors to discover their desires, needs, or what is "good" to them. The only way of discovering the "common good" is by mutual cooperation, not some dictatorial ruling class elites which hands down edicts of what is "the common good." If you and I agree to work together on a project, it's fair to say that working on that project is a good that is common to both of us. You're appeal to a "common sense ideology" is ironically nonsensical because the common good (which, as far as we know, may change every second) can only reveal itself through voluntary cooperation and by consumers (individuals) own actions.

Your last paragraph is pure argumentum ad populum.

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"The natural wage of labor is its product." -- Benjamin R. Tucker
A liberal is someone who thinks the system is broken and needs to be fixed, whereas a radical understands it’s working the way it’s supposed to.

And then there's the national debt.

How would you propose to deal with that? How much would you "invest" (of someone else's money, with no regard or knowledge of what they might use it for) in the development of electric cars? Can you quantify the need for electric cars? Do a telephone survey? Examine the burnt shell of a tortoise? How much? 10 billion? A trillion? (keeping in mind that you don't want to pay "too much," whatever that means in the context of spending money earned by others)

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"The natural wage of labor is its product." -- Benjamin R. Tucker
A liberal is someone who thinks the system is broken and needs to be fixed, whereas a radical understands it’s working the way it’s supposed to.

Actually, what we quite often see

So-called "free market ideology" is nothing more than an understanding of economics

here are free market ideologues exhibiting a lack of understanding of economics.

Government and private business are inextricably linked in this country, and have been since its birth. If you look at the various treaties with the Barbary states and the Whiskey Rebellion Proclamation, you'll see that our government has constantly tried to balance the desire to both help and restrict merchants.

It's not an easy balance to maintain, and there are always unforeseen consequences, but that has been a reality of American business throughout its history. And American business has prospered in that symbiotic environment well beyond any historic comparisons.

When James describes free market ideology as a "philosophical ploy", what (I believe) he is pointing out is the fact that we have never had a "hands off" government, and nearly every time a free market proponent tries to present an example of the success of their theory, you can find the fingerprints of the government helping that business along. Ergo, you guys have to spend a great deal of time fleshing out your theory, because you can't produce irrefutable proof that it is more than just a theory.

Exactly

n/t

Yes, it's called state capitalism

Of course we've never had "hands-off" government - we've also always had problems that are the direct result of government intervention in the market. This only goes to prove my point: our economic system is prosperous and liberating as a direct result of and roughly proportional to the lack of government. That's what has set the United States apart from most other nations, and has resulted in our relatively high standard of living. Hmm, the more limited the government, the greater the prosperity.

Moreover, just about every problem in our economy can be directly linked to government action. Just look at some of the most troubled sectors of the American economy: investments/financial services/banking, airlines and mass transit/infrastructure, medial insurance, medical care, housing, pharmaceutical drugs, education, energy, etc. What do these sectors have in common? High levels of government intervention, subsidization, and regulation. The more intervention, the worse that service or industry becomes with high prices, shortages, and inefficiency. On the other end of the spectrum? The internet, electronics (cell phones, computers, servers, etc), supplements, local/organic food, (last two currently under assault) the black market (marijuana is cheap, abundant, and high quality), etc. In other words, all the areas of great economic growth, high efficiency, low cost, and consumer satisfaction (especially the last product).

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"The natural wage of labor is its product." -- Benjamin R. Tucker
A liberal is someone who thinks the system is broken and needs to be fixed, whereas a radical understands it’s working the way it’s supposed to.

Oh my.

I'm finally getting your point, though I'm not sure you want to make the case that the internet and computers are shining examples of the free market in action.

Yet I do have one serious question:

Let's say you have suddenly fallen from grace, the victim of a hit-and-run driver. You lose your job because you can't work. You are bankrupt from medical bills. You are mentally disabled from the accident. And the bank forecloses on your home. Your mother and father are dead, you have no surviving family. And finally, you live in a state run by free market extremists.

What do you want us to do with the living, breathing sack of bones that used to be Dr. Quigley?

Now let's say it's fifty years from now and the poor soul I've described above is your very own flesh-and-blood grand-daughter.

Same question.

Okay, let's look at some of these:

Just look at some of the most troubled sectors of the American economy: investments/financial services/banking, airlines and mass transit/infrastructure, medial insurance, medical care, housing, pharmaceutical drugs, education, energy, etc.

According to 2008 BLS numbers, over 13 million Americans (out of the 145 million working) are employed in the Education Sector. That's 9% of our total workforce. Over 18 million Americans are employed in the Health Care Sector. That's 13% of our total workforce. Not only do those employment figures signify incredibly successful industries, their contribution to our overall economy is incalculable.

Um, pharmaceuticals and energy? Did you really mean to put those two in the "struggling" category? The pharmaceutical industry is (by far) the single most profitable industry in this country, pocketing about 18% of its $30 billion in gross revenues. No other sector can touch it. Energy has done extremely well during this recession (check your portfolio), and the biggest kick in their pants came (is coming) from consumers trending towards efficiency. Which is the industry's own fault, because it fought against regulation that would have stabilized crude oil prices.

I know you won't agree with me on this, but the banking and finance sector was imperiled the minute Congress passed/Clinton signed the repeal of Glass-Steagall, and doomed when Congress passed/Bush signed Gramm-Leach-Bliley, both of which were deregulatory in nature and contributed greatly the disregard for risk that got us into this current mess.

As far as the airlines are concerned, they were originally almost exclusively subsidized and controlled by the government, but massive deregulation in the 1970's allowed them to prosper and expand. For a time. But they bought too many horribly expensive planes and then came sobbing back to Uncle Sugar for help. Which they got, and then immediately began acting foolish again. If it were up to me, the U.S. airline industry would be totally controlled by the state.

Government regulation solves some problems and creates others. It creates its own reality, and business adapts to such. But to posit that the absence of government involvement will automatically increase production and prosperity is merely a speculation, and one that requires the speculator to ignore centuries of economic reality.

Look even closer

The Internet started as a government program, as were nearly all the early developments in computing. Cellular telephony? The US sucks in comparison to countries that regulated their way to the front of the line.

Exceptionally well written.

I certainly agree with the following;

The truth is, there are many people who call themselves advocates of the free market who are, in the archaic sense of the word, 'capitalists' who only want to preserve an economic order that reflects centuries of accumulated state privilege for the capitalist class. True advocates of the free market recognize corporate welfare and plutocratic protectionism via the legal system as the biggest restrictions on peaceful competition and individual liberty

Unfortunately the natural market correction you say we're experiencing isn't due to natural causes and the vast majority of people being affected had no part in creating the current debacle.

Stan Bozarth

I completely agree

The correction is only a part of the "natural" market insofar as the fake economy on Wall Street was just completely disconnected from reality and unsustainable. How did it get like that? Not because any "free market", that's for sure.

And yes, it is terrible and ironic that the people who are going to suffer the most had nothing to do with this - but that's what happens when an economy is manipulated from the top down. If we are going to "bail out" anyone it should be the lowest people on the totem pole who, it is claimed, would be so devastated if AIG or some other Wall Street behemoth went into bankruptcy. Clearly a bailout of the big boys has nothing to do with the long-term or short-term well being of the little guy. If we want to help the little guy just cut them a check directly, and if we are looking out for the long term why would we want these business around anyway? Break em up and sell them to their creditors like everyone else.

In fact, the most desirable market reaction to this whole debacle would a permanent and fatal distrust of investing in Wall Street entirely. I hope that no working class individual ever gets duped (or forced by the government) into putting money in that casino ever again.

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"The natural wage of labor is its product." -- Benjamin R. Tucker
A liberal is someone who thinks the system is broken and needs to be fixed, whereas a radical understands it’s working the way it’s supposed to.

Come on down to New Hanover County...

Just as soon as our County Commissioners can finish the deal they made with Titan Cement (without the knowledge of or agreement with the citizens of the county) there will be 160 new jobs here. Yep, folks can work at mining limestone out of 1000 acres of our most valuable wetlands, eliminate the natural filtration of ground water into our aquifer, and probably assist in helping encourage saltwater intrusion into our water supply. Those not mining the limestone can work at crushing it and superheating it while releasing clouds of pollutants, including mercury, into our skies and our water.

Peripheral jobs will be created...caring for sick people, picking up the carcasses of dead and deformed wildlife, and trucking bottled tap water from NY so we'll have something to drink.

But, there will be the jobs...and the tax revenues...and to hell with the future.

If we want full employment we need to un-employ the morons who got us into this mess. Let's start with Congress and work our way on down.... We could also send a few of the really big cheats and liars to jail...and create a few more jobs watching over them while they break rocks or something their skills and integrity allow them to do without harming others .

Stan Bozarth

Apologists for all types of economic theories and/or big

versus small government usually argue their points as if we live in a world where all business owners, management, boards of directors, etc., are ethical, most often have the best interests of their customers and stakeholders at heart, and are not disproportionately greedy or dishonest. ...where elected officials will actually listen to their constituents and do what's good for their nation and the citizenry rather than themselves and those who fill their pockets with cash and their egos with praise.

Our current economic problems are the result of about 16 consecutive years of inept and dishonest government that also ignored, actively condoned, or participated in the excesses of unscrupulous financial institutions, other businesses (Health Care Insurers, Big Oil. Hedge Funds) for example) that have grown rich on the backs of the citizenry, and others that shipped our jobs and manufacturing industries overseas without regard for anything but short term gain. That's just the short list.

Do foolhardy consumers and borrowers have complicity? Of course, but the underlying cause is unethical, undisciplined, and irresponsible practices and policies by both business and government.

Why is it that consumer groups are having to actively lobby Congress to get them to actually enact policy that would make it illegal for credit card companies to "bait and switch" customers or charge 30%+ interest rates? I challenge any member of Congress to show me any members of their constituency who want to pay usurious interest rates or to be led astray by unethical marketing programs.

Why is it that Congress won't (not can't) enact health care legislation that would allow the vast majority of our citizens to enjoy the same benefits they enjoy? Why is it they choose to perpetuate a system that pays people like the CEO of United Health Care $5 Million a month?

Why is it that Hedge Fund managers pay 15% tax on their SBillions and working people pay more?

Finally, why is it that those in government or big business that really screw the nation or it's citizenry are rarely punished?

My bet is that if tomorrow 30 million citizens appeared in Washington DC with pitchforks, torches and buckets of tar, Congress would, rather than hanging it's head in shame and doing something, call out the troops and threaten to gun us all down.

All the economic theories and arguments are just vapor without having people of good will and integrity in the majority in our government and business leadership positions.

That being the case, barring some miracle, we're well and truly screwed!

We are in a steep slide towards economic and social disaster.

My opinion.

Stan Bozarth

I have an example of this

...to be led astray by unethical marketing programs.

recorded on my answering machine right now. The message begins with a deep-voiced male saying:

"This is a message from the VA Department...", and it goes on to describe a 5% mortgage refinancing option for those qualified for VA loans. The thing is, this message is not from the government or the Veteran's Administration, it's from a private company that has a "VA Department" that targets veterans. But when many folks hear this, they assume it's from the VA itself.

While this probably (barely) meets the legal requirements of truthiness, the "intent to deceive" is glaringly obvious and should be recognized as such.