Imagine one morning you wake up and learn that The United States is under attack from multiple fronts, our defenses overwhelmed by a previously inconceivable force.  It’s not unlike 9/11, except on a much wider scale.  Your plans for the day have just been changed.

Different scenario:  You are woken out of bed by the carbon monoxide alarm in your house.  You can’t see or smell anything wrong, but it’s not a false alarm and without it, you’d meet a sad fate.

In the first scenario, the threat is so obvious that the need for taking some kind of defensive action, perhaps even an offensive one, is equally obvious.  Failure to do so could prove fatal.  In the second scenario, the consequences of inaction are every bit the same, but the threat can not be easily seen.  It has to be detected by other means.

The United States is currently engaged in a “hot” war with multiple fronts, thankfully not on our soil. Less thankfully, many of the citizens of Iraq and Afghanistan have woken up to the first scenario, and have been forced to act accordingly.  And although no one wants the war to continue any longer than required, losing the war is not an option.

Yet on American soil, like the carbon monoxide threat that can not be readily seen, another war is now underway.  It has many fronts, and the enemy force is organized, highly determined and well funded.  It is also a war that we can not lose.  This is the war on capitalism and free-markets.

In many respects, it is the more important war.

Consider first off that the terrorist forces that attacked U.S. soil in 1993 and 2001 recruit from regions of the world where poverty reigns.   To a David with a highly questionable economic future, a chance at greatness via a terrorist act against Goliath begins to look more appealing.  But the irony in what they are attacking is staggering.    The economic system which defines America — “the land of opportunity” — is exactly the system that could be bringing these economically hopeless people out of their despair. The opposite is also true, as Steven Malanga has written, “free markets are rare in starving nations“.

To whatever extent America weakens its most differentiating characteristics, we reduce our opportunity to be an example in how to best lift the world’s inhabitants out of poverty and into peace.

With wealth and poverty being opposites, if we lament the latter, we must look to promote policies and practices that have demonstrated track records of creating the former.   Likewise, free-markets and their resulting capitalism are inimical to war.   They are the best peace-plan ever devised. It bears repeating:  A truly free market between two trading partners makes both parties better off.  Once this virtuous circle is in place, there is a greatly reduced incentive to go to war, as both parties are made worse off.   Note that this precisely explains Russia’s reluctance to join in the chorus against Iran — they are huge trading partners.

Under a rising tide of concern over Obama’s push of our economy into a more socialist-leaning direction, we have George Soros greasing the skids, with the goal of de-emphasizing free-markets in matters of public policy.  This will be no small effort either, with a hoped-for endowment of $200 million.   This is more than the combined endowments of many of the more notable free-market organizations.

And the proverbial “carbon monoxide detectors” are going off with regard to the United States.   Exhibit A is the value of the US dollar, which has been meandering downhill like a nice “blue” intermediate ski trail with black diamond sections becoming more frequently interspersed.    Exhibit B is our exploding debt, which is finally catching more attention for what it is:  blatant inter-generational theft.

What’s truly mind-boggling about the efforts of Soros and his wealthy followers is that they decry the very system in which they became wealthy, the system in which they expand their wealth, in classic “I’ve got mine, close the gate” fashion.   Witness Michael Moore’s “Capitalism, A Love Story” — in some countries, attacking the native economic system with such a movie would get him killed.

This crowd simply doesn’t understand what free-markets and capitalism are.  They think our economy, with its ever increasing regulations, corporate cronyism and government-as-backstop is a free market.    Others have done a fantastic job at illustrating the ridiculous nature of such claims, very recently, Charlie Gasparino’s piece in the Wall Street Journal (expanded in his new book, “The Sellout“).   Two other recent and noteworthy books, Thomas Woods’ “Meltdown” and Thomas Sowell’s “The Housing Boom And Bust” also make the methodical, crystal-clear case that big, interventionist government itself was the primary cause for our recent financial crisis.

None of this would matter if the anti-capitalists didn’t have the full mind and ear of the legislative and regulatory arms of the federal government right now.   The damage that could be done in just one 2-year congressional term is incalculable.   Ronald Reagan’s “shining city on a hill” runs the serious risk of tarnish.

In the opening example of a sudden “hot” war in our backyard, we would all literally leap to our feet and do anything and everything required to defeat the enemy.   Yet surely and silently an enemy operates in our midst whose worldview can more easily lead to the “hot” war.   When will we leap to our feet to defeat it once and for all?

Sometimes the truth hurts.

The economic understandings or misunderstandings of our members of government get reflected in our laws and regulations.   And at the end of the day, it is the economic understandings or misunderstandings of our electorate that determine which individuals serve there.    In this past election, in siren-song fashion, Barack Obama convinced a majority of voters to act on misunderstandings of how the economy works and became President.

The repercussions of such economic illiteracy are now being played out.    First there was last February’s massive “stimulus” bill.    Most recently there has been the take-no-prisoners battle to re-make the healthcare portion of our economy.    “Cap and Trade” looms in the not too distant future.   Obama remains determined to re-pay unions via passage of “Card Check”.  Calls for a second stimulus are rising even as majority of the first one’s dollars have not been spent.  The list goes on and on.   Elections do indeed have consequences.

One of the most fundamental fallacies being followed by Washington these days is the belief that in the face of a slumping economy, government must “stimulate demand”.  In the most basic of economic courses, the student is taught that “economic equilibrium” is achieved when demand equals supply, and that markets are always trying to move towards that state.   Many in Congress, and the many voters that put and keep them there, seem to think that demand equaling supply falls under the “Which came first, the chicken or the egg?” category.   They are sadly mistaken.

Who will defend the practice of “demanding” without first “supplying”?   We supply so that we can demand — supply must come first.  This truism renders any attempt to “stimulate demand” not just backwards, but practically immoral.

For example, who “demands” that they have gasoline for their car without first supplying their labor in some fashion in order to have money to pay for the gasoline?      And is it truly the government’s function to provide that job that will then pay for the gasoline?    If so, who supplies the government with that job that can then be dispensed?   Should the government command someone to provide the job by force?    We’re now only a couple steps away from slavery.     Note also that any consumable, such as food, clothing, shelter, or even healthcare, substitutes nicely in this line of reasoning.

“Creating jobs” is not described in the Constitution as a function of government.   Only a tortured interpretation of things like the “General Welfare” or “Commerce” clauses would begin to assign that role to government.    The moment we look to government to create a job, we fall onto a slippery slope:  Who decides what jobs to create?  How are they funded?  How do we evaluate job performance?    As a nation we are now collectively bruised and battered from falling down this slope for several generations.  It’s also worth noting that it is exactly when voters “demand” that the government “create jobs” using its redistributive techniques that we wind up with stimulus programs where the effective cost of those “created jobs” runs into the hundreds of thousands of dollars per job.    Indeed, if the $787 million February stimulus, according to The White House, “creates or saves” 3.5 million jobs (ignoring for now how we’d actually measure that), that works out to nearly $225,000 per job.

What is fundamentally not understood amongst an apparent majority of voters is that entrepreneurs and their financiers, (often being one in the same), create jobs.   They perform the vital discovery mechanism of demand assessment and supply a potential solution, risking their own resources to do so.   It is a truly virtuous circle, in which the entrepreneurs who best understand the needs and desires of their customers — their demands — are rewarded most handsomely.   Likewise, through the vital role of failure, bad assessors of demand are punished, and collectively we can all watch and learn what works and what doesn’t.

A critical point to realize about the above process is that no central orchestrator directs the entrepreneur as to what action to take.    They might do exactly the wrong thing.   They might also supply a solution for which there was no prior demand.   Yet this is precisely how things like the personal computer or iPhone came about.   There was no government program to initiate the demand of having a computer in one’s house, let alone in one’s pocket.

Unfortunately due to a general lack of understanding of this process, we’ve tolerated an increasingly hostile environment towards fostering supply, such as ever-escalating taxes, oppressive regulations and minimum wage laws that prevent employers from putting that first rung on the economic ladder closer to a reaching hand.

Getting back to the election, in the case of Barack Obama, another dynamic was also present:  Many voters became further enamored with the historic possibility of electing the first black President.  Yet with painful irony, these voters ignored Dr. Martin Luther ‘s historic plea to judge instead by the content of one’s character.    Had the philosophies behind Obama’s economic agenda (a major part of his “character” in this case) been more widely understood, a majority of voters would have realized that much of what he wanted to do (and indeed is now trying to do) has been tried before and has failed.   They simply would never have elected him because doing so would cause themselves great economic harm.    And sadly, as prominent economists like Thomas Sowell have noted, it is exactly these failed economic policies that have disproportionately harmed blacks ever since FDR’s New Deal,  accelerating through Johnson’s Great Society to today.   Voters should have rejected these policies in the same way that they reject being told that 2+2=5.  Fortunately our collective mathematical literacy has not yet caused us to re-write that fact (although Congress often makes valiant attempts).

Ironically, economic illiteracy also kept Obama’s opponent, John McCain, from being able to convincingly articulate an alternative to Obama’s vision of a bigger, more activist government.   So perhaps it is fair to say that more economically literate voters had no horse in that race.   But it’s also fair to say that an economically illiterate mainstream media fanned the flames in Obama’s favor, recklessly avoiding any kind of challenge to his audaciously hopeful plans.  As the saying goes, “hope is not a strategy.”

So will 2010 be the year that voters snap out of it and send the likes of Nancy Pelosi, Barney Frank, Maxine Waters, Christopher Dodd and the rest of them packing?   With incumbent reelection rates in the mid-90% range, it would be fair for Congress to think the voters have approved of their actions so far.    To the voters we say,  “we have met the enemy, and it is us.”

Perhaps you’ve caught MoveOn.org’s recent satirical ad that goes after the health care insurance companies, staring none other than Will Ferrell.   I’ve loved Mr. Ferrell’s movies, but man, as Laura Inghram might say, “Shut Up & Sing!” Let’s examine a few quotes…

“So why is Obama trying to reform health care when insurance companies are doing just fine making billions of dollars of profit?”

I’d like to know exactly how MoveOn.org would like to see the health insurance industry operate in the absence of profits.   Of course, this is not a theme unique to MoveOn.org and their (sadly) many supporters.    The briefest time spent with Google will reveal numerous people and organizations decrying “profit-driven health care”.

The most elementary Economics 101 (albeit, not of the Karl Marx variety) stresses that profits provide the all important signaling mechanism to potential suppliers as to where the demand is, or equally importantly, where it is not. Without the profit mechanism, some other telegraphing mechanism would have to be substituted instead.    MoveOn.org’s implied solution is that that mechanism should be politically rooted.   It’s back to the question of “who decides?”   Should individuals decide what product/price offering works best for them, or should a bunch of government bureaucrats do it for them?

But if MoveOn.org feels so confident that the profits within the health care industry are too large, it’s a glaring admission that they could either provide a similar service for a lower price and are choosing not to do so, or that competition within the industry is lacking.  Again, Economics 101 says that in the presence of a robust free market, no competitor will sit back and watch other market participants enjoy outsized profits.

Don’t we already have a robust free market in health care?   A simple example will prove the negative:  In search of a good deal, I am free to cross my state border and purchase a car, no small purchase at that, and then drive the car back to my home and register it.   No one cares, and similar transactions happen across the country every day.   One could even say, to use a frequently used phrase in the health care space, that the cheaper out-of-state dealers help keep other dealers in my state “honest”.

Will someone in the MoveOn.org camp tell me why I can’t do this with health insurance, and what the rationale is behind that policy?

Yes, I know that each state has its own laws mandating the particulars of policies sold in their state, so each state couldn’t possibly regulate the offerings of the companies serving all of the other states according to their own mandates.   But who asked for this mess?   Why shouldn’t I just go shopping for a policy that fits my needs, as dictated by me, from whoever wants to sell it to me, wherever they exist?   Isn’t that exactly how we buy every other product?

Making just this one change would unleash a torrent of price and product competition that would vaporize the supposed outsized profits almost overnight.  I’d also welcome the education as to why this wouldn’t cost almost nothing, in stark contrast to the other wildly expensive plans out there.   Furthermore, any group of people from MoveOn.org would always be free to join into that market competition with their own lower-cost/lower-profit company.

If anyone’s angry with insurance companies, letting them truly compete with each other would seem to be a great way to vent that anger.    Let them beat each other up as you watch!   Great theater!    America’s a country that hasn’t yet outlawed boxing (where the stated goal is to render your opponent unconscious — talk about a need for medical care), so why not let the companies really duke it out?

“Eighty percent of the American public support the public plan…”

Wow.   If that were true, wouldn’t that overwhelming majority have forced its will on the other twenty percent of us by now?    Wouldn’t all these crazy town hall meetings and such indicate that statement’s a little off?   Last I checked, big government had only a 60 seat majority in the Senate, not 80.

But this is the crux of MoveOn.org’s ad.   They want viewers to lobby congress for a strong public insurance option.    So where are their ads decrying the profits of internet service providers, or railroads, or software companies, or household and personal products, which on average make higher rates of return than insurance companies?   Should Congress authorize the creation of public companies to keep Cablevision or Procter & Gamble honest?   Just who does Amtrak keep honest?

“What’s so American about competition?”

Exactly.  Anyone can play this game.  Go for it MoveOn.org.   Forget the public option.    There’s a huge hole in the marketplace right now that you can fill.    Between George and your 5 million members, you should have a lot of resources at your disposal to create a great company that by your figuring would attract a ton of customers.    And it would be free to ignore typos.