'76 Blog

For 500 years the Ottoman Empire had dominated the Middle East and the Balkans.  Their domain stretched from the Atlantic to the Persian Gulf and Indian Ocean, from the Sahara to the Crimea.  Their vast armies several times besieged Vienna and for centuries plundered southern Russia for slaves.   But by the end of the 19th century they were called “the sick man of Europe”. What caused the collapse of this mighty empire? Turkish sultans ruling from Constantinople realized that to keep up with the West they needed to modernize. Lacking the productivity and economic dynamism of Europe, they borrowed from western banks in an effort to bring their military and civilian infrastructure to western levels.  By 1881 Turkish debt to the West exceeded £200 million, forcing the government into bankruptcy. A council was set up to manage the debt, but six of its seven members were agents of Western banks.  All revenues from government monopolies and tariffs were turned over to this council to repay the foreign debt.  The result was increased penetration by Western financial interests in the affairs of the Ottoman Empire.  Power gradually transferred from the sultan to western financial interests.  The Sultan was forced to lift tariffs on British imports, especially British cloth mass produced more cheaply in the mills of England.  This destroyed local cloth manufacturing and further crippled the economy of the Middle East.  This massive debt allowed the West to justify seizing other Ottoman assets like banks, irrigation projects, public utilities, and even entire provinces within the Ottoman Empire.  Egypt, an autonomous Ottoman province, owed £68 million to English creditors by 1876.  To recoup their investment the British government seized Egyptian shares in the Suez Canal and forced Egypt to make further capitulations.  The governor of Egypt, Ismail Pasha, was forced from office and the country was run by Western (primarily British) banking interests.  Soon Egypt was transferred from the Ottoman to the British Empire.  Other provinces, like Yemen and Kuwait, soon followed.  What had been for many centuries the greatest empire in the world, became so burdened with debt that they dwindled away with hardly a whimper.  Unable to pull themselves out of the spiral of ever-increasing red ink, they were relegated to economic dependency and semi-colonial status. What can be learned from the Ottoman experience of debt and dissolution?  The United States is now deep in debt to China.  If (and when) we default on that debt, what assets will China seize?  Our government is now the principle shareholder in General Motors.  Will the Chinese seize GM, or even the IRS?  Will they control our banks and utilities?  Will they control our entire economy in order to insure repayment of our debt?   Will they force our president from office and appoint a council of Chinese bankers to rule in his place?  Will America be relegated to economic dependency and colonial status?  How did we get ourselves in this situation, and is there any way to get ourselves out?

Why did England have such powerful economic growth in the 17th and 18th century, while France languished?  Why did England lead the way in technological achievement, advancing into the Industrial Revolution, while France remained mired in the past and oppressed by poverty and tyranny?  And what's the relevance of their contrasting experiences for us today? Perhaps the contrast was due to England’s limited government.  The Magna Carta forced the king to call Parliament if he wished to levy a tax, however Parliament usually demanded a voice in government, so the Stuart kings of the 17th century preferred to rule without them.  This kept taxes low or nonexistent, and enabled the English to accumulate vast amounts of capital, which they invested and built wealth.  Near the end of the 17th century the Stuarts kings were replaced in a bloodless revolution.  The new monarchs agreed to an English Bill of Rights, which limited royal power and granted even greater political and economic freedoms.  Assured of low taxation, of their rights as freeborn Englishmen, and of a free market economic system which rewarded hard work and thrift, they began to accumulate wealth.  Soon London became the financial capital of the world.  Their merchant ships spanned the globe, and their financial sector provided capital for world markets.  By the 18th century wealth continued to accumulate, helping to catapult Britain into modernity, allowing then to be at the cutting edge of innovation, building the factories which became the industrial revolution, and exporting their products world-wide. Across the channel their French neighbors were ruled by absolute monarchs.  There was no Magna Charta, no Parliament to control the crown’s taxing and spending powers.  The Bourbon monarchs of the 17th century, Louis XIII and Louis XIV, squeezed every centime they could out of the French people to build spectacular palaces and massive armies.  They also forced the Protestant minority, which was most of their entrepreneurial class, to convert to Catholicism or leave France.  These Huguenots emigrated to Holland, England or the 13 colonies in America, where they blessed their new homelands with their knowledge and skills.  Rockefellers, DuPonts, and Gettys settled in New York, where they built fortunes free of the taxation and persecution they experienced in France. The Bourbon monarchs of the 18th century, Louis XV and Louis XVI, continued their heavy taxing and spending policies until their entire system collapsed into the chaos and bloodbath of the French Revolution.  Dickens’ Tale of Two Cities confirms this comparison of London and Paris. While England was busy investing, creating and producing, France was beheading their population and setting government price controls on their commodities, which further decreased productivity.  When farmers hoarded their grain, rather than selling it at government imposed prices, they too were executed.  Who would go to the trouble of producing a crop, if forced to sell it at a loss or forfeit one’s life.  In their hunger and fear the French sought the personality cult of a strong leader, Napoleon Bonaparte, who promised them “liberty, equality and fraternity”, but actually brought more tyranny, then marched them to their death across Europe. What lessons can be learned from 17th and 18th century England and France?  Low taxes, limited government, and free markets produce wealth and freedom.  High taxes, government-controlled markets and charismatic leadership produces hunger, suffering, and tyranny.  If we do not learn from history, we are doomed to repeat it, but one thing we learn from history is that we usually don’t learn from history.

If Democrats in the 2007 General Assembly were devious for passing Gov.Ritter's infamous property tax hike without voter approval, the current cropplunges to new depths. In an act of sheer arrogance, this year's Democrat majority poked taxpayersin the eye just for spite. Recall that the aforementioned property tax hike increases the burden onlocal property owners while reducing the state's obligation to fund K-12education. Recall also that Colorado's constitution says that no "tax policy changedirectly causing a net revenue gain" can be enacted without a vote of thepeople and that this policy change increased property tax revenues by $117million in the first year alone. Finally, recall that crafty Democrats hinged permission for their tax hikeon 174 separate, previous votes by taxpayers in all but four of the state's178 school districts.  Never mind that those voters were repeatedly assuredby school and state officials that their taxes would not increase as aresult. Not satisfied that the Colorado Supreme Court slipped this nonsense througha previously undiscovered loophole in the state constitution, Democratsadded arrogance to insult by swiftly passing bill to now prevent any ofthose 174 school districts from reconsidering. That's arrogance, plain and simple. For 13 years after voters adopted the Taxpayers Bill of Rights (TABOR), theDepartment of Education and local school districts reassured property ownersthat they could loosen revenue limits on their local schools without makingthemselves vulnerable to a tax increase by the legislature. They took this position not because CDE or local school boards are staunchdefenders of TABOR but because they were following state law. Then in 2007, the legislature unilaterally decided to change the law, toimpose an immediate tax increase on property owners - and to retroactivelychange the result of those 174 local elections, all the while arguing thatit was precisely those elections that permitted the tax hike in the firstplace. As a result, property owners in those districts are now paying higher taxes‹ not so their schools can receive more money, but so the state can take themoney it previously spent on K-12 education and spend it on social welfareprograms instead. However, the four districts that never waived their school's revenue limitsremain exempt from the legislature's shenanigans.  In those districts, thegrowth of local property tax revenues is limited and the state must provideany additional money necessary to fully fund those schools. A reasonable taxpayer - or school board member - in one of the schooldistricts now being soaked by the state might see this disparity and decidethat the local school district should reconsider its decision to waive allrevenue limits.  After all, it's one thing for property owners to permitlocal school to "keep the change" and quite another to permit the state toraise taxes, too. Now thanks to Senate Bill 291, which was opposed by every Republican at thestate capitol, districts that loosened the tax limits under the old law areforbidden from reinstituting those limits now that the law has changed.  Ifthey do, the state will punish their children by withholding funds fromtheir school. This from the party that claims to do everything "for the children."  Inreality, the Democrats do everything "for the government" and aren't aboveusing your children as hostages in their extortion racket. It's hard to imagine how the state's constitutional mandate to provide a"thorough and uniform system of free public schools" could be interpreted toallow one school to be penalized solely because of the way its residentsvote. However, Colorado Democrats have already proven that they will ignore theconstitution when it's inconvenient and that the state supreme court can becounted on to back them up. Mark Hillman served as senate majority leader and state treasurer.  To readmore or comment, go to www.MarkHillman.com