Roundtable 4 : Critical Elements of an Economic Plan

Posted By Elgin Hushbeck

This week’s Energion Roundtable question with Bob CornwallArthur Sido, Allan R. Bevere, Joel Watts, and myself is:

What are the most critical elements of an economic plan for the United States, and how should they be balanced? For example, consider deficit reduction, managing the size of government, creating jobs, maintaining social services, maintaining military strength, supporting current overseas military operations, reducing spending, and increasing taxes. Which candidate has a plan closest to what you prefer?

While most people from across the political spectrum would agree that the economy is currently the most serious problem facing the country, there are significant and even fundamental disagreements over the nature of the problem, how we got here, and therefore what to do about it.

I discussed how we got here in my book, and summarize this here.  Let me just state that how we got here is not as simple as “Bush’s fault.”  There is blame enough to go around and the key factor that triggered the financial crisis cannot really be tied to either party, and has already been reversed in any event.

As for the nature of the problem, I outlined that in my answer to the second question.  I believe that the core of the problem is that fundamentally Government is too big.  We have a spending problem, not a revenue problem.  This is not to say that nothing government does is of value.  But, for example, with taxes so high that people are leaving the state, and with a huge and growing deficit, one has to really wonder why California felt it needed to spend $8 billion dollars on a high speed-train that will almost certainly never get built.   But then this is from a state with Bureau of Electronic and Appliance Repair, Home Furnishings and Thermal Insulation.

Even when you have legitimate needs and concerns, such as with protecting the environment, Government has no sense of proportion or balance, and thus sees little difference in the legitimate concern of stopping a company from dumping raw waste into a river, and, what I would consider the misguided concern of turning off water to one of the major growing regions in California, causing an artificial drought because of the delta smelt. This latter act has costs billions, and more importantly is devastating countless human lives.

There are so many government programs, controlling so many aspects of our lives, overlapping, duplicating and even conflicting with each other that government has become an incoherent mess.  This is why California will waste $8 billion on a high speed train to nowhere that will never get built. The proposed route crosses the habitat of several species consider endangered. As such years and very likely decades will be consumed as the government officials pushing for the train will be fighting against the government officials trying to stop it for a variety of reasons. It will be to California what Jarndyce v Jarndyce was to Dickens’ Bleak House.

So the first key element must be a reduction in the size of Government. While there has been much talk and much wailing and gnashing of teeth about it, with the exception of defense and an individual program here or there, overall one constant for the last 100 years has been the steady growth of government.  What are lamented as major cuts are in reality only reductions in the rate of increase.

This is what is behind the firm stance not to make yet another “grand compromise” that raises taxes in exchange for cutting spending.  The last several decades are full of such compromises and history is clear that once the deal is struck and the taxes are raise, the pressure is off and the cuts never come. 

Second, there must be a move away from a top-down command and control that is the norm in government, to a more bottom up approach that allows for choice and competition and thus can take advantage of market forces.  I lay out the rational for this in my book, but the bottom line is that the economy is simply too large and complex for the government to manage.  And while often attacked and disparaged, this view comes from a basic belief that a free people if permitted will make better choices for themselves, than some distant government employee, no matter how well meaning.

Not everything lends itself to a bottom up approach, but in those areas, government agencies such as EPA, should be forced to consider the economic impact of the decisions.  In the case of the EPA ,for example, it is far too often making the best decision for a fish, mouse or even a fly, without any consideration of the impact on the lives of humans.  In fact, this has led some bureaucrats to act as if they are a law unto themselves, such as the EPA actions against the Sacketts where the Sacketts had to fight for years just to be able to have the right to challenge an order by the EPA to stop building their house.

Significant change is coming. On our current path, we will see a fiscal collapse in the next 3-10 years.  The CBO projections for next year show unemployment rising to 9%.  So, one way or the other, change is going to come.  We will choose it, or like Greece, it will be forced on us.

I believe we need a government that will do far less, and what it does do it does so in a way that encourages freedom and choice; A government that seeks to foster competition, rather than erecting barriers to entry that ultimately that do little for the consumer, but do protect the well-connected few;  A government that when it does need to assist, does so in a way that encourages freedom and choice instead of government control and direction, and one that when it acts considers its impact on people’s lives. 

This would be a government much differs than we have now. As for which candidate has a closer plan to this, Romney at least begins to move in that direction.  Obama takes us in the opposite direction. In addition, Romney’s plan at least addresses the looming fiscal crisis.  Obama does not have a plan. While his intension may be good, government has already promised more than it can deliver, and there is no compassion in an empty promise.

Sep 9th, 2012
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The Truth in an Unscripted Moment

Posted By Elgin Hushbeck

One of the problems with modern conventions is that they are so scripted and staged that there is an air of artificiality.  This is not necessarily bad, but it makes judging a party somewhat like judging someone based on a first date.  You know that they are putting on their best face, and there is always the question of how much you see is real and how much is show.  This is doubly so with a convention; after all we are dealing with politicians.

This is why conventions have become so scripted, and why the unscripted moments that do occur can be so revealing. One such moment occurred on the second night of the DNC convention. It began when the platform committee removed long standing references to God (i.e. our God given potential) and to Jerusalem as the capital Israel.  When this became known a small firestorm erupted and this led to the unscripted moment when the leadership moved to have these two items added back to the platform.

This of course immediately raises the issue of which was the “real” position.  Platforms planks, while often largely ignored by the public, are closely scrutinized and often the subject of fights within the party, and so it is difficult accept that this was just an omission.  But the attempt to put them back in removed all doubt and made a bad situation much worse.

To restore them required a 2/3 vote of the delegates. When a voice vote was called by LA mayor Antonio Villaraigosa, not only did they not get the 2/3 majority ,it’s quite possible that they had 2/3 against.   Clearly caught off guard, Villaraigosa, apparently thought the delegates had not understood the question.  So he wanted a do over; this time outlining the positions more slowly.  Again the majority was clearly opposed.  Stunned and unsure how to proceed a number of seconds passed before Villaraigosa called for a 3rd vote, and again the delegates clearly voted no. But this time Villaraigosa was undeterred and simply declared the measure passed anyway, to the loud boos of the delegates.

As a result of this unscripted moment, three things are clear.  First the original removal of the God and Jerusalem is clearly the position of the convention delegates.  Second, when push comes to shove, Democrats will do what they want regardless of the vote.  Not that we should be surprised, for after all this is how health care reform was passed.  The people clearly opposed it, in polls and at the ballot box, But the Democrats just pushed it through anyway.

Lastly, while politicians are known for bending the truth, the reaction to this event by leading Democrats such as Debbie Wasserman Schultz  the chair of the DNC really casts a doubt on their truthfulness.       Before the vote her claim that this was simply a “technical oversight” might have been overlooked as simply political speak.  But her claim in the face of the loud booing, that “there wasn’t any discord” and concerning the vote that “it was absolute 2/3” put her in the league of Bagdad Bob, and was described by the normally supportive Anderson Cooper as being in an “Alternative Universe.”

This is key because in this election there is a lot in dispute. For example, Republicans claim Obama has weaken the work requirements, Democrats say he hasn’t.   Who to believe?  If the democrats will lie so blatantly when all one needs do is watch the video to see that are lying,  can we really trust them when the truth is buried in the details of the Welfare reform law and will ultimately only be settled by judges and complex legal arguments?

Sep 6th, 2012
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Roundtable Question 3: Capital Gains Taxes

Posted By Elgin Hushbeck

The debate sponsored by my publisher, Energion, has become a roundtable.  Joining Bob Cornwall and myself, in the discussion are Arthur Sido, Allan R. Bevere, and Joel Watts.  To all, welcome.  Also, if you have a question you would like the round table to address, these can be submitted to pubs@energion.com or via comments at Energion.net 

This week’s question is: Should the capital gains tax be changed (raised, lowered, eliminated)? In very general terms, how would this relate to your general view of tax policy?

From my perspective, this is pretty easy. It should be at a minimum lowered significantly, with serious consideration being given to eliminating it all together.   This is because economic growth requires investment, and investment, as the legalese of many financial commercials make clear, involves risk and the past performance is not indicative of future results.  It is the threat of loss that makes capital gains income different than regular wages and salary income.  

There is another factor that goes to the heart of the question:  What is the purpose of a tax?   Is it to raise the revenue needed by the Government; or should a tax serve some other purpose such as a means of social control, or social engineering.   I would argue that its purpose should be to raise money. Unfortunately this has not been the practice, and the results have been, in my opinion, harmful.

The problem with using a tax for other goals is that government’s need for money can never be truly ignored, and can result in unintended consequences.   For example, tobacco taxes were seen as a way of reducing smoking.  But as it became clear that tobacco taxes were relatively easy to raise, it also became an easy source of revenue.  Now that smoking has declined, the end result is that, because of the demographics of smoking,  it becomes a very regressive tax feeding off the addiction of those least able to afford it.  In addition, as smoking declines, government programs dependent on smoking taxes for their existence suffer as a result.  In short, governments become addicted to smoking taxes as much as smokers are addicted to cigarettes.   

So for me the primary question concerning any tax is how effective is it in raising revenue.  Since I am also a strong believer in liberty, I want taxes that will raise the most money with the least impact. Finally I have one additional criteria, equity; but this is a somewhat different concern than that summed up in the common question of whether some are paying “their fair share.”   Rather I am concerned that any given tax is applied equally. As I detail in chapter 2 of my book Preserving Democracy, one of the greatest dangers in a democratic form of government is the ability of the majority to impose tax burdens on a minority, burdens that they do not share themselves.

So how does this apply to the capital gains?  I believe capital gains to be one of the least effective taxes, when it comes to raising money.  This can be clearly seen in the example from my book concerning the cut in the capital gains tax from 20% down to the current 15% enacted under Bush. As a result of this tax cut, the CBO projected that revenues would correspondingly fall from $186 billion over the following three years down to $147 billion.  Yet instead of losing $39 billion as projected, the cut in taxes stimulated such growth in the economy that the government actually brought in $216 billion, $30 billion more than had been projected before the tax cut. 

In actual fact, the government revenues increased even more.  This is because the by freeing up investment the economy grew, and as a result all government revenues, not just capital gains revenues, grew.

This is why capital gains taxes are so harmful, and why serious consideration should be given to eliminating them all together. A tax on capital gains is a tax on investment, which is ultimately a limit on economic growth.  Limiting growth mean fewer jobs and lower pay.  A study done by the American Council For Capital Formation found that if Capital Gains tax rates were raised from their current 15% back to 20%, the result would be a further job loss of 231,000 per year.  If, on the other hand, it was eliminated the Economic growth would be 0.23 percent higher, resulting in an additional 1.3 million jobs per year.  Again this is right in line with the historical evidence of what happened with previous cuts in capital gains taxes.

The study did find that a complete elimination of the Capital gains tax would “cost” the government about $23 billion per year in revenues. But with that many additional jobs being created, I believe this would more than be made up by the reduced need for government services, as people moved into the workforce and up the economic ladder.

So again this is a pretty easy question, and we should cut if not eliminate capital gains taxes.

Sep 4th, 2012
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Responding to Cornwall: Three Important Issues

Posted By Elgin Hushbeck

As I read through Bob Cornwall’s reply to this week’s question, I was initially struck by how much common ground there was, at least in terms of the issues themselves, and yet as I thought more about each one, the more that I could see that we differed considerably.

Income Disparity 

This is an area where I have been critical of my fellow conservatives, and I do think this is a problem that should be addressed. The key questions, however, are how and by whom?  While I do think that government can play a very limited role, frankly I think that their actions to date have only made the problem much worse.  For example, past government actions and threat of actions in regards to the salaries of CEOs basically resulted in CEO compensation being moved from direct wages to the much more lucrative stock options and bonuses that are now the source of much of the problem.

As for the issues of equality of opportunity vs. outcome, and the inherent problems of government attempting to enforce equality, see the discussion of this in chapter nine of my book Preserving Democracy.  In short, trying to enforce outcomes is impossible and the attempt comes at a very high cost to liberty. Unless stopped the result is totalitarianism.   Thus when it comes to income disparity as a political issue, I get very nervous.

Immigration Reform

This is a hot button issue for both the left and right.  More importantly, I believe the solution is actually quite simple and has the broad support of the American people, but it requires an initial step that the left refuses to accept:  Seal the border.  Under Reagan we tried the grand compromise of sealing the boarder in exchange for granting amnesty. The amnesty was granted, but the boarder was left open and now the problem is worse than ever.  As a result, most conservatives approach this issue with the attitude of “fool me once…”  They are no longer interested in promises or pledges; they want the boarder closed to new waves of illegal immigration.  (And no this does not mean 100%.)

If that were done with any sort of confidence, the rest, i.e., what to do with those already here; how to increase immigration quotas; creation of a guest worker program for those who want to come here to work, but who do not want to immigrate; etc., could all be solved fairly easily, or at least easily in terms of any government action, as these are areas where a broad bi-partisan support could be established.

This is one of the things that was so troubling about Obama’s recent actions on the Dream Act, as this was one of the very few areas where a bi-partisan consensus could have been built without first sealing the boarder. In fact, Senator Rubio had been working on a bi-partisan compromise on the Dream Act and was getting close.  While these things are never done until they are done, I was fairly confident that he was  going to succeed, and may very well have done so by now.

Then “President Obama swooped in with a DREAM Act-like executive order” which ended any chance at working out a compromise. Not only was it clearly unconstitutional (if for nothing else, it creates a new legal classification without any actual law to support it) and is almost certain to be overturned by the courts, such a ruling is unlikely until after the election. Frankly it is hard to see this as anything but a nakedly political move to short circuit Rubio’s efforts, lest a Republican bring about a compromise that Obama had failed to even seek.   After all, if President Obama was really interested in working out a solution, why not partner with Rubio to get something done?

Finally, there is a moral component to this issue that is often ignored on the left, which is the issue of justice.  It can be seen in the example of two students here on student visas.  Both want to live in America.  When their visas expire, one returns home and applies to immigrate back.  The other just stays here illegally.  Where is the justice in rewarding those who broke our laws while those who chose to follow the law, are left waiting in line?  I have heard more than one legal immigrant wonder why they put up will all the hassle of working with the INS, as things would be so much easier if they were willing to break the law.

Health Care

Again this is an issue where there is some agreement over the problem.  Despite claims that conservatives want to return to the old system, few were actually happy with system before ObamaCare, aka the Affordable Care act.  But, there is no agreement on what ObamaCare will do.  While Cornwall thinks that the Affordable Care act “is enough to fix a broken system” I could not disagree more.  We can get into the details later, but there is no doubt in my mind that ObamaCare will have (and in some cases already is having) a devastating impact on the health care system in this country.  It will result in more, not less, people without health care coverage, and the health care they do receive will be of lesser quality.  In the end there will be an even greater disparity in the delivery of health care in this country than before ObamaCare. 

This is before we even begin to consider our ability to afford the so called Affordable Care Act.  Like so many other programs, the cost of ObamaCare has already exploded way beyond the estimates used when it was passed.   In short, we simply cannot afford the Affordable Care Act and there is no compassion in an empty promise.

Aug 22nd, 2012
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The Big Three

Posted By Elgin Hushbeck

Week 2 of the debate starts with this question: What are the three most important issues a voter should consider this year in choosing a candidate to vote for at the federal level (President, Senate, House of Representatives)? Why are these issues critical?

First and foremost has to be the economy. The Democrats claim this was all Bush’s fault and that the current problems are simply because Bush messed things up more than they had thought. As I detail in my book, and summarize here, this is just false. Other Presidents have inherited recessions from their predecessors, but took actions that helped the economy turn around, including the previous President Bush.  President Obama’s actions made things worse. By massively expanding the role of the federal government, he has further stifled what was a struggling economy. The two prime examples of this are ObamaCare, and the Dodd Frank banking bill. But most levels of government have become increasingly burdensome on businesses. Moreover, the massive increase in the deficit, and the resulting debt, in and of itself are dragging down the economy.

The bottom line is that Government is going bankrupt, it cannot even meet it current promises much less the increased promises of the future. The cities in California such as San Bernardino are just the tip of the iceberg. The state of California not only has a huge and growing deficit, it also has over $500 billion in unfunded pension liability. Social Security and Medicare are both in the hole and going bankrupt. The federal deficit is over $1 trillion each year. The Federal government cannot borrow enough to meet its needs and so has been printing so much money that the last time I checked we had tripled the money supply. Unless changed, I believe within the next 3-5 years, maybe 10, these financial bills will come due, and when they do we will look back at 2007-12 as the good old days.

Whether you like Ryan’s plan or you hate Ryan’s plan, at least he has a plan. Obama has none. The closest Obama comes to anything that might resemble a plan is his proposal to let the Bush tax cuts expire for those making over $200K, but that is not a plan. He has had four year now to produce one, and the only thing he has done is throw stones that those who are actually trying to solve the problem. Yet more promises of hope and change in the future will not cut it.

While the domestic problems overshadow foreign policy, things are hardly better there. Some key issues are the arbitrariness of his actions; his intervention in Libya vs. his lack of support for the protests in Iran. His insulting of friends such as Great Britain, Poland, and Israel, while reaching out to enemies. His cluelessness about the so called Arab Spring and support for the rise of the Muslim Brotherhood in Egypt. His apparent desire to reduce America’s leadership role in the world, without regard for who will take our place? China? Russia? The UN? I think, like the Presidency of Carter, once the economic problems are well behind us,  the Foreign policy problems caused by Obama will still confront us for decades.

The third area is hard to exactly label. Part of it is faithfulness to the office, part is integrity, part is just plain honesty. In any democratic system, a large part of its functioning is the sense among those in power that they are part of something bigger than themselves, that being elected is more than getting the power to do what you want. While the checks and balances in the Constitution go a long way to establish our government in the end they are just words on page. To be effective, those in power must see them as something to be followed, not something to be gotten around.

To be clear this is not a completely an us-vs-them issue and, as in all areas, there are saints and sinners in both parties. But that said, President Obama, Majority Leader Harry Reid and Minority Leader Nancy Pelosi have repeatedly shown a callous disregard for any of the conventions of democratic government. When Pelosi was Speaker of the house, for the first time in our countries history committees were meaningless as were open debates, and amendments were not allowed. Bills were written under her control, and submitted on a take it or leave it basis. For whatever faults they may have, when the Republicans regained control, they restored the House back its normal functioning, (or dysfunction?) .

The Democrats in the Senate under Reid have been little better. In violation of the law, they have refused to even submit a budget, much less pass one in four years. Bill after bill has been passed by the House and come to the Senate where Reid refuses to even bring them up for a vote.

But the worst and most dangerous offender has been President Obama, who has shown an increasing disregard for the law and the Constitution. When I wrote in my book that Obama intended to ignore Congress and rule by Executive order, I never envisioned he would go this far. While many examples could be sited, I will just state three. The first is his unwarranted claim of executive privilege. (He claims he and his staff were not involved in Fast and Furious. Even if they were, Executive Privilege does not apply in cases of criminal wrong doing). Second the use of “recess appointments” when the Senate is not in recess. Third the creation new laws such as with his granting waivers to children brought to the country illegally and thereby creating a new class of people beholden, not to the law or government, but to him personally.

That individual politicians would abuse their power is not surprising and examples can be found on both sides. What is most disturbing about the current Democrats in office is that they, as a party, defend such actions. When it became clear that Nixon had violated the law, Republicans went to the White House and asked him to resign. Where is the outrage from Democrats? Given their acceptance of the abuse of power, just as long as it is from other Democrats, how can they be trusted with control over the government?

Aug 20th, 2012
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