Economic Laws are not Optional
As Republicans struggled last week to make even modest cuts and Obama proposes a $3.73 trillion Federal budget with a record high deficit of $1.65 trillion, one point often gets ignored. Many politicians delude themselves into thinking that the only pain that they really need to concern themselves with is the pain that will come from cutting. What they ignore is that economics laws are not merely abstract concepts nor are they optional. Economic actions have real economic consequences and simply ignoring them does not make them go away.
Currently the national debt as a percentage of GDP is rapidly approaching Greek levels, while the deficit, the amount of new debt we add each year, is ten times larger than just three years ago. Getting this budget under control will likely cause considerable pain, particularly for those federal employees whose jobs are cut and for those who depend on programs that are reduced or eliminated. But the failure to get the budget under control not only might be worse; it will be worse, considerably worse.
Politicians, the treasury and the Federal Reserve can play games that might mask the problems for a period of time, but they cannot do it forever, and in the end these games have their own negative consequences. An individual can mask financial problems for a period of time by borrowing money, but eventually the bills come due and when they do the situation only gets worse. The longer they mask the real problem, the worse things will be when time, and credit, runs out. Eventually they get to the point that they are not even masking the problems, they are simply borrowing more money to keep previous commitments, till finally they cannot even do that and it all comes crashing down.
Over the last three years the government has borrowed trillions, increased the annual deficit 10 fold, and doubled the money supply by simply printing vast amounts of money, all in an effort to mask the financial problems of the country. The best they can say for it is that the stock market is rising, but serious questions exist as to whether the rise is real, or if it is being artificially inflated by the Fed’s QE2 policy, i.e., is it just more masking.
All these actions will have economic consequences, and potentially drastic ones. At the very least, the money must be paid back, and that will burden future generations, because of our folly. But severe consequences may be much closer. It has been called, “a slow train wreck coming and we all know it’s going to happen.”
If Congress and the President cannot get the debt under control, market forces will take hold and the debt will be effectively reduced by inflation, and potentially hyper-inflation like this country has never seen. Inflation is already growing faster than expected, and fears of high inflation, resulting from all these government actions, continues to mount. If we go through a period of even high-inflation, much less hyper-inflation, the last three year could come to look like good times. And yet, looking at a record $1.65 trillion budget deficit for this year alone, Republicans are having trouble making significant cuts, and Obama wants to cut even less.
If they do not act soon enough, then market forces will “solve” this for them as they lose control of the economy. Currently the U.S. dollar is the reserve currency for the world, and that has allowed us some additional flexibility in dealing with these problems, but because of our debt there are growing calls from other nations to change this.
How long do we have? That is the scary part–no one knows. It could be a few years like some are predicting, or it could be already too late. At the rate politicians are going, it currently looks far more likely that their efforts will be too little too late. In short the politicans are playing a very dangerous game of economic chicken, and as usual the American people may be the big losers.
Self-Centered Bias
In an otherwise good article at Politico on How President Obama plays media like a fiddle authors John Harris and Jim Vandehei attempt to refute the notion that “the vast majority of reporters at mainstream news organization are liberals.” After creating a straw man of the conservative belief, they go on to claim that instead being liberal, “the majority of political writers might more accurately be accused of centrist bias.” To their great credit, Harris and Vandehei go on to define what they mean by centrist saying that,
the majority of political writers… believe broadly in government activism, but are instinctually skeptical of anything that smacks of ideological zealotry and are quick to see the public interest as being distorted by excessive partisanship. Governance, in the Washington media’s ideal, should be a tidier and more rational process than it is.
I have no doubt that this is what they really believe; yet it is a very revealing definition. Let’s start with the last part, that governance should be tidier and more rational. While no doubt true, how relevant is it? Is there anyone who believes that it should be messier and less rational? Yet the authors include this in their definition as if it somehow distinguishes them from those on the left and the right; as if only centrists want tidier and more rational government.
This is a great example of self-centered bias; a bias that views and judges everything through the self. They believe that they look at things objectively, rationally, and therefore, since others disagree, those others must not be looking at things as objectively or as rationally.
Much the same can be said about their middle claim of being skeptical of “ideological zealotry” and how this hurts the public interest. Again there is a self-centered bias here. What they want is in the public interest, so those who disagree must be pushing ideology. As a conservative, I have no doubt that Harris and Vandehei would classify much of what I write as ideological zealotry. But what makes what I believe, or for that matter, what a counterpart on the left believes, ideological zealotry, yet what political writers believe in the public interest and somehow not ideological zealotry?
Granted that excessive partisanship, i.e., putting the interest of one’s party ahead of the public interest can be a problem, but I believe it is vastly overrated. Conservatives oppose Obama, not because he is a Democratic, but because they disagree with his policies. Even when party concern is apparent, they are often backed up by more long term concerns. Thus while some on the far left are unhappy with some of Obama’s policies, they still support him, not because he is a Democrat, but because they believe the policies pushed by a Republican president would be worse. Again it is not ideological zealotry or partisanship, for most people it is simply who, given the limited choices, will come closest to what they want. This is the same, left, right and center. Yet Harris and Vandehei see the views of political writers as being somehow different and better.
This brings us to their first and most revealing statement; that political writers, “believe broadly in government activism.” One of the key distinguishing differences between liberals and conservatives is over the role of government. Conservatives for a number of reasons push for limited government, and seek solution in a market place governed by choice and competition. Liberals, for a number of reasons, push to control the market place and seek solutions in government. As such, Harris’ and Vandehei’s claim that “the majority of political writers… believe broadly in government activism” would place them solidly on the liberal side of the spectrum.
So how can they label this centrist? Because a self-centered bias would naturally place one in the center, being neither left nor right, but looking objectively at the evidence; as if those on the left and the right somehow do not seek to look objectively at the evidence. This self-centered bias is reinforced by the size of the political spectrum and the number of people in the United States. Except possibly for the most extreme of the extremes, those on the left can find plenty of people who are further left than they are, and those on the right can find those further right. So to some extent virtually everyone has some claim to being “in the center.”
When we look at the current political make up, the Democratic Party is generally on the left and the party of Government activism, while the Republican Party is generally on the right and is the party of limited government. So if Harris and Vandehei are correct, and “the majority of political writers… believe broadly in government activism” is it really any surprise that conservatives see the major Media as tilted toward the Democratic Party; especially given that they label this as centrist? Yet Harris and Vandehei wrote this to refute claims of a liberal bias.
So Obama may be playing them like a fiddle, but the simple fact is that they are more than ready to be played, and will remain so at least until they open their eyes to their own bias.
Judicial Activism?
In a lawsuit brought by 26 states, a Florida judge ruled President Obama’s health care law unconstitutional. A post by Stephanie Cutter, Assistant to the President and Deputy Senior Advisor, quickly labeled the ruling an act of “judicial activism.” For many conservatives, this sounds very strange, yet this is a perfect example of the difference between liberals and conservatives when it comes to the courts and the Constitution.
The Constitution is the basis for the federal government. It defines the structure of the federal government and enumerates what it can do. The tenth amendment states that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.” In other words, if the Constitution does not delegate a power to the Federal government, the Federal government does not have that power.
At the core of this discussion is the key provision of ObamaCare that requires individuals to purchase health insurance. Article 1, Section 8, Clause 3 says that Congress has the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” So the question really boils down to: does the power to regulate interstate commerce include the power to force individuals to purchase Health Insurance?
On the face of it, this would seem pretty clear cut. No. How can someone not doing something, i.e., not purchasing health insurance, be deemed to be engaging in interstate commerce? This is particularly true in that currently you cannot even purchase health insurance across state lines. So if you cannot purchase health insurance interstate, how can failing to purchase health insurance be deemed to be interstate commerce? The mandate falls on everyone living in the United States, but in what way is simply living in the United States a form of interstate commerce?
If looked at another way, if the government can pass a law making it illegal not to purchase health insurance, then would there be any limit on what they could do? There wouldn’t? Why not pass a federal law making it illegal not to purchase a place to live, or requiring everyone to purchase a gun or purchase anything the current government wants you to purchase?
At its core, this issue comes down to the question: Do Constitutional limits on the federal government have any real meaning? In short, do they actually limit anything? Conservatives say yes. The Constitution is the governing document and must be followed, or, if need be, changed. Liberals effectively say no. They see the Constitution as a “Living Document” that needs to be understood in a fashion that conforms to the current needs of society. Of course, whatever they want to do is automatically seen as the current need of society that can supersede Constitution.
As a result, liberals and conservatives have different definitions of ‘judicial activism.’ To the conservative the job of a judge is to rule based on what the Constitution says. Judges who ignore the Constitution and rule based on what they think the Constitution should say are activist judges. To the liberal the job of a judge is to adapt the Constitution to their understanding of the needs of society. Judges who ignore their understanding of the current needs, and rule based on what the Constitution actually says are activist judges.
Thus, the White House blog critical of the ruling does not claim that it conflicts with what the Constitution says, but rather “decades of Supreme Court precedent.” The claim is at best questionable, but either way, the White House does not point to the commerce clause itself, but rather court rulings that have expanded the notion of interstate commerce into new areas, that hitherto and not been considered either interstate or commerce.
So the bottom line for this question is do Constitutional limits on the federal government actually limit anything, or can they be ignored at will? Sadly, until this is decided by the Supreme Court, we won’t really know, but that is a different problem.
Profits Part I
One of the constant complaints from the left for over a century has to do with the whole notion of profits and it shows no signs of letting up. Be it the Big Oil companies gouging consumers at the pump, Big Pharma gouging people for drugs they need to keep them alive, or Big Insurance denying health care to the patients who need it so that they can pocket huge profits, a consistent theme from the left is the denunciation of profits.
While “Big Oil” does currently make billions in profits, profit is not a standalone concept. For example, a one million dollar profit may seem large, what if this profit came on an investment of one billion dollars and after many years of losses? Then there is number of people who get the profit. While one million might fine for one owner, what it must be spread among 100 stockholders or a thousand or more? Then there is the whole concept of reinvestment.
Yes, oil companies do make a lot of money; they also invest a lot of money, do all the work, bare all the risk, and yet make significantly less on a gallon of gas than does government. Whereas oil companies earn about 10 cents per gallon, the Federal Government gets 18.4 cents and then there are the state taxes and sales taxes on top of that. Then there is the income tax on the profits that they do make. What is left after taxes, they then either reinvest back into the business or pay out to their stockholders. When President Obama put his “boot on the throat” of BP and successfully pressured them into not paying dividend following the Gulf oil spill, it was not the fat cats who suffered but millions of average workers and retirees in Britain.
As for the Health Insurance companies, there are two facts that are often ignored. One is that a number of health insurance companies are already Not-For-Profit, and those that are For-Profit, their profits, according to a report on ABC News, “represent a miniscule percentage of the $2.5 trillion Americans spend every year on health care.”
As for Big Pharma’s profits, normally the focus is on the cost to manufacture drugs, which is often a fraction of the sale price. What is often ignored is the literally billions spent to develop these drugs, a large part of which come from their profits from previous drugs. If the companies were really raking in the huge profits critics claim, then their stock prices should be sky high. Yet they aren’t. Investors in Pfizer, for example, have lost 25% over the last 10 years.
In fact, rather than making too much, pharmaceutical companies may be making too little. This is a real concern for while recently developed drugs are quite expense, it is the profits from these drugs that fund the current research into new drugs. If those complaining about high drug profits had gotten their way in the past, then we would not have the problem of the high cost of the medicine, simply because the medicine would never have been developed. With all the attacks on drug company profits, it is probably not too surprising that the “drug pipelines are thinning.”
While the left may see profits as wasteful at best and perhaps even evil, they are what drive the economic system that has brought the highest standard of living in human history. Removing the profit motive will not make things better; they will make things worse, and probably a lot worse. More on that in Part II.
State of the Union
Obama’s State of the Union speech while delivered well was a triumph of symbolism and platitudes over substance, which was mirrored in the seating arrangements of the members of Congress. It may have been all nice, warm and fuzzy, but ultimately it was meaningless. The seating arrangements were supposed to reflect the new civility and willingness to work together. Yet there is a reason that members of both parties don’t just “work together to solve the nation’s problems.” It has nothing to do with them not getting along.
The simple fact is that, except of a few hyper-partisan members, they all get along pretty well. The problem is not that they don’t get along, or even that they don’t work together, but that they don’t agree on what should be done. These are not just partisan disagreements, but are in fact honest difference of opinion on what should be done.
Most liberals really do think that a larger federal government will be able to make people’s lives better; that the solution to the problems with schools is to be found in more federal spending on education; that the solution to the problems with health care is to be found in more federal control over health care, and for many this means a single payer system; that the solution to virtually every problem be it energy, the environment, failing inner cities, or unemployment, is to be found in more federal control and spending. To pay for this they believe that taxes on the rich are too low, and that the rich should pay more.
Most conservatives, on the other hand, really do think that the federal government is already too large and that it is either causing or exacerbating these very same problems; that the solution to the problem with schools is to be found in less government control and more choice for parents; that the solution to the problems with health care is to be found in more choice and competition that would allow for innovation; the solution to virtually every problem be it energy, the environment, failing inner cities, or unemployment, is to be found in less federal control and spending, and more freedom and competition. They believe the taxes are already too high and that, along with burdensome regulation are stifling the economy.
When one side believes that government must increase to solve these problems and the other believes that government is already too big and must decrease to solve these problems what is the middle ground? There is none. The closest is perhaps Obama’s call in his speech for a budget freeze, for government to remain the same. But that is akin to no action rather than a solution. In addition just what does he mean by a budget freeze, when at the same time he is calling for increased “investment” in a whole range of areas i.e., expanding federal spending? Does he really want to freeze, or to invest?
This was the real problem with Obama’s speech. While delivered well and each section for the most part sounded ok, as a whole it was a little incoherent, which was best summarized by his somewhat confusing reference to a sputnik moment, a single event that drastically changes everyone’s perceptions. But just what single event does he see as his sputnik moment? His reference seemed to invoke a sputnik moment without a sputnik!
In short his speech strove for great heights, but somewhat fell flat. He clearly intended this speech to be central to his attempt to redefine is presidency and gain control of the debate. But ultimately he failed. It was not a bad speech. In fact it was a pretty normal State of the Union speech, but it was not the speech he had hoped for. If the speech is remembered at all, it will likely be remembered more for the seating arrangements of Congress than for anything he said, with the possible exception of that confusing sputnik reference.
