STAFF NEWS & ANALYSIS
The Problem of Leviathan
By Staff News & Analysis - June 03, 2013

IRS woes grow with report of conference spending … The Internal Revenue Service, already under fire after officials disclosed that the agency targeted conservative groups, faces increased scrutiny because of an inspector general's report that it spent about $50 million to hold at least 220 conferences for employees between 2010 and 2012. The report by the Treasury Department's inspector general about conference spending is set to be released Tuesday. The department issued a statement Sunday saying the administration "has already taken aggressive and dramatic action to reduce conference spending." – AP

Dominant Social Theme: The system is working and will purge the excesses …

Free-Market Analysis: For some, congressional action regarding the current scandals besetting the Obama administration are proof-positive that the system works. But for others, the plethora of troubles under scrutiny in Washington, DC is proof of a larger problem, which is that the system itself is dysfunctional.

The IRS scandal in particular is troubling, but if one takes the proverbial step back it can be seen that the IRS issue is merely symptomatic of larger troubles. The basic problem is not the IRS so much as the revenues it collects.

By funneling some US$4 trillion into government coffers, the IRS is contributing to substantial mispricing throughout the economy. And this does not even account for Federal Reserve inflation, another kind of tax.

When businesspeople cannot provide goods and services because of general mispricing, then economies begin to fail. Ludwig von Mises, the great Austrian economist, warned of such dysfunction in his book Socialism.

Of course, Mises believed that his analysis of the problem anticipated the reactions he was sure would follow. But analyzing a particular feature of a failing company (as investors know) or country and predicting an accurate timeline are two different things.

Countries that rely too heavily on government do indeed gradually topple, though often not as quickly as one would expect. It has taken Europe's system a great deal of time to unbalance and the US is functional as "empire" despite its current level of dysfunction.

Given what is taking place throughout the West today, however, one might be forgiven for deciding that the timeline for what Mises predicted is imminent. Here's more from the article:

The White House and the agency were on the defensive before the report on conference spending. Agency officials and the Obama administration have said the targeting of conservative groups was inappropriate, but the political tempest is showing no signs of ebbing. Three congressional committees are investigating, a Justice Department criminal investigation is under way, President Barack Obama has replaced the IRS' acting commissioner and two other top officials have stepped aside.

The chairman of one of those committees, Rep. Darrell Issa, R-Calif., also released excerpts of congressional investigators' interviews with employees of the IRS office in Cincinnati. Issa said the interviews indicated the employees were directed by Washington to subject tea party and other conservative groups seeking tax-exempt status to tough scrutiny. The closest the excerpts came to direct evidence that Washington had ordered the screening was one employee saying that "all my direction" came from an official who the excerpt said was in Washington.

The top Democrat on that panel, Rep. Elijah Cummings of Maryland, said none of the employees interviewed have so far identified any IRS officials in Washington as ordering that targeting. The conference spending included $4 million for an August 2010 gathering in Anaheim, Calif., for which the agency did not negotiate lower room rates, even though that is standard government practice, according to a statement by the House Oversight and Government Reform Committee.

Instead, some of the 2,600 attendees received benefits, including baseball tickets and stays in presidential suites that normally cost $1,500 to $3,500 per night. In addition, 15 outside speakers were paid a total of $135,000 in fees, with one paid $17,000 to talk about "leadership through art," the House committee said. IRS spokeswoman Michelle Eldridge said Sunday that spending on large agency conferences with 50 or more participants fell from $37.6 million in the 2010 budget year to $4.9 million in 2012.

We can see from the above that the IRS scandal in particular is being treated in a serial fashion. It is to be presented as an aberration rather than part of a larger pattern. But surely it is not.

The government's fiscal year begins Oct. 1 the previous calendar year. On Friday, the new acting commissioner, Danny Werfel, released a statement on the forthcoming report criticizing the Anaheim meeting. "This conference is an unfortunate vestige from a prior era," Werfel said. "While there were legitimate reasons for holding the meeting, many of the expenses associated with it were inappropriate and should not have occurred."

Again, such statements have little to do with the reality of the current dysfunction in Washington and throughout the West. Governments are too big, mispricing is pervasive and economies cannot recover from perpetual central bank inflation. In such environment corruption and entitlement postures flourish.

It is impossible to root out these difficulties because the real difficulty is the system itself, including Congress. All three branches of US government are obviously corrupt, bloated by the revenues that Fedgov extracts and determined, one way or another, to protect those revenues.

After Thoughts

A nation thus divided against itself cannot stand.

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