Can You Trust Conservatives
The wife of a liberal friend of mine recently asked some sincere questions trying to figure out conservatives, and so I thought I would address them. I will do the political question here and the more religiously oriented ones in the near future at my other blog, www.consider.org/blog. Her politically oriented question concerned the statement of House Speaker Boehner on Jobs. Given the very strong emphasis during the campaign focusing on “Jobs, Jobs, Jobs,” how is it now, after the election, when it was pointed out that the cuts the conservatives are proposing could result in the loss of jobs, he can say, “so be it.”
While at first blush, this may seem to be a contradiction, when considered in the larger context, it is not hard to reconcile. For many conservatives, as I detail in the added chapter of the paperback version of Preserving Democracy, the economic downturn was caused by government intervention which created the housing bubble. It was aggravated by a change in the accounting rules that went into effect Nov 15, 2007, and proved so disastrous that it was repealed in early 2009, unfortunately after it had done tremendous damage to the economy.
Since TARP, all the bailouts and the various stimulus plans did not address these root causes, they did not help. In fact the massive deficits they ran up combined with the uncertainty caused by the explosive growth in government over the last couple of years, only made things worse. Rather than getting things under control, Obama’s new budget increases the deficit even further to $1.6 trillion. This is ten times larger than the budget produced by the last Republican Congress just 4 years ago.
Thus, right or wrong, Conservatives believe that the unprecedented deficits threaten economic collapse. In such an environment, people are not focused on growing what they have but rather, are just trying to preserve it so they do not lose any more. People are reluctant make major purchases. Banks are reluctant to make loans. Investors are not investing in new companies. Existing businesses are reluctant to hire. In short, the economy cannot grow.
The focus here is not on the big corporations, those with lots of lobbyists, or with CEOs that hobnob with Obama and thus were able to siphon off large chunks of the TARP/Bailout/Stimulus dollars that Washington has been handing out. Rather, the focus is on all the small businesses across the country. Companies that do not live off the largess of the government. Companies that never saw, and will never see, a dime of stimulus money. These are the businesses that will need to create the jobs to get unemployment down. Yet they are struggling to make ends meet, assuming of course that they have not already failed. They receive no help from the government, but instead are only further burdened by the all the new regulations that the ever expanding government generates.
Given this background, Conservatives believe that a critical step in turning around the economy is to reign in the size of government and bring these deficits under control, so that confidence can be restored to the economy, so that it can begin to grow and create jobs again.
Conservatives do not believe this can be done with taxes, for two main reasons. First taxes would only further increase the burden on the economy dragging it down even more. This is especially true given that many small businesses are taxed in the income range that democrats consider “the rich.” In addition to this, the current deficit is so large that any tax increase what would be large enough to make a serious dent would kill any economic growth and throw us even deeper into economic problems. Second, the history of tax increases is pretty clear. They normally do not bring in as much as expected, and politicians just increase spending even more.
In short, Conservatives do not believe we have an income problem; we have a spending problem. Any real solution will have to focus primarily on cutting spending. This is why they not only ran on “jobs, jobs, jobs,” but also getting spending under control. For Conservatives these two goals are strongly linked.
Given this background, Boehner was asked at his weekly news conference about the possibility that federal jobs might be cut if they go ahead with the proposed cuts to the federal budget. He responded that,
“Over the last two years since President Obama has taken office, the federal government has added 200,000 new federal jobs, and if some of those jobs are lost in this, so be it. We’re broke. It’s time for us to get serious about how we’re spending the nation’s money.”
Democrats may consider this insensitive, but the fact is that we are broke. In 2010, the Federal government took in $2.2 trillion, yet spends $3.5 trillion. This means that we are spending nearly 60% more than we are taking in. Obama’s proposed budget for this year is even worse. Thus some federal jobs almost certainly will be lost as the Federal budget is cut, but the budget needs to be cut if we are to avoid the financial disaster that is looming, and if the private sector is ever going to recover. Thus Boehner’s statement was not one said out of insensitivity, but out of a concern for the larger problem, and the need to deal with it before things get much worse. Or put another way, the short term pain of federal jobs loss, is necessary for the long term gain of a strong and growing economy, and economy that can create the “ jobs, jobs, jobs” needed to bring down the unemployment rate.
Last Rites for The Rule of Law
Reading through Donald Rumsfeld’ recent memoir, Known and Unknown, only heighten my concern for the increasing problems of the growing breakdown of the Rule of Law, but not the ones Rumsfeld’s critics might think. The common myth is that the Bush administration ignored the law and instead, went it alone in cowboy fashion. Nothing could be further from the truth. While I knew the left’s view of the Bush administration was false, the amount of detail Rumsfeld provides on the administrations attempts to follow the law was impressive.
On the one hand this shows that the vast majority of the criticisms leveled against the Bush administration were purely political. Nothing shows this more than the fact that while Obama is basically continuing to follow virtually all of the contentious policies of his predecessor, e.g. the Guantánamo Bay detention camp is still open, the criticism have virtually disappeared.
I have no problem with those who had and continue to have substantive objections to the war and to these policies, and I have friends and family in this category. I have a lot of problem with those such as Senator Dick Durbin, who compared our troops with Nazis, to score a cheap political points, or for the legion of Democratic politicians whose very vocal objections vanished once Bush had finished his term. It is interesting to note that these objections were not automatically picked up by Republicans. It would seem they are much less willing to score political points at the expense of the men and woman serving in harm’s way.
Yet while reading Rumsfeld’s book, another more subtle problem emerged. It was not that the Bush administration ignored the law, quite the opposite. Rather, it was that the law was constantly shifting under their feet. The Bush administration made policy decisions based on serious analysis of long standing legal doctrines and precedents. Yet, as is so often the case with the Left, many opponents did not see the law as something to be followed, but as a tool to use against their opponents.
For example, the claim that people captured on the battlefield can be held by the military without access to the courts has a very long tradition. In fact, during WWII the US government held hundreds of thousands of those captured without any trial or legal review. The Idea that those caught fighting out of uniform could be put on trial before a military court and if found guilty executed was not only taken for granted, but confirmed by a Supreme Court decision. Nor were the reasons for this arbitrary.
One of the goals of the Geneva Convention is to protect civilians and therefore many of its rules encourage a sharp distinction between soldier and civilian. This is what is behind the distinction between the treatment of POWs, i.e., those whom, among other things, were caught fighting wearing a uniform, and those who were caught fighting out of uniform, as the latter could be easily confused as civilians.
Yet despite what the law and precedent had been, these were overturned in order to reach a political goal of opposing the Bush administration. What the law actually said, such as the requirement to be in uniform, no longer mattered. What the legal precedents were, such as in the Supreme Court’s 1942 ruling on the German saboteurs, no longer matter. The only thing that matters is what the current majority of the court says, and that is only good until the court changes its mind.
The Bush administration spent a lot of time trying to ensure that they were well within the law, and they were. But then the Court changed the law. I am sure it left some wondering after all the effort to follow the law only to have it changed, why did they bother. Unfortunately it is become an increasingly relevant, if dangerous, question.
Now we see the current administration ignoring the courts in some areas and in at least one case simply making their own ‘rulings’ on the constitutionality of laws, in essence picking and choosing which laws they want to enforce. This is not too surprising for whenever the Rule of Law breaks down it is always replaced by a different rule: whatever you think you can get away with.
Profits II
In part I, I addressed the left’s attack on the profits of ‘Big’ business. Yet the left has a far more fundamental objection to profits, even profits that would otherwise be considered reasonable. Profits result when the amount paid is greater than the cost. Thus from the left’s perspective, they are always inherently wasteful at best.
This is what is behind the push for single payer health care. Since government does not need to earn a profit, it should be able to deliver better health care for a lower cost. If everything were static, this would be true. Government could just do whatever a for-profit company was doing, and the money that was being earned in profits could be used by government to reduce costs, or to provide better health care. This is what is behind the complaint that it is wrong to profit off of other peoples’ illnesses. (Ignoring, of course, that Doctors, Nurses, and many other profit, i.e., get paid, in the process.)
The problem, however, is that the economy is not static, or at least it better not be, otherwise we would have a recession, or worse. A strong economy is a dynamic economy and the driving force for the dynamism is profit.
A clear example of this can be seen in the history of John D Rockefeller. While he is best known as the man behind Standard Oil, Rockefeller was a rich and successful man before he even got into the oil business. In fact, he would have met the left’s definition of someone who had all the money he needed. Thankfully, however, when someone at his church approached him with an idea about investing in the then emerging oil business, he did not say “why would I need any more money?” but instead decided to invest.
Rockefeller approached the oil business, as a businessman seeking to make a profit. He did not just ask, ‘how can we do this?’ he asked ‘how we can do this better?’ While all businesses exist to make a profit, it is the paradox of business that if profit is a business’ sole goal, it will not be in business long. This is because customers want goods and services, not for the business to make a profit. Thus to make a profit, a business must provide goods and/or services that customers wants to purchase, at a price they can afford, and still have money left over for profit, all while doing a better job than the competition.
This is not an easy task, and it is why most businesses fail. More importantly, it is a never ending task. Even if a business succeeds, what they are doing that makes them successful will soon be copied by others and perhaps even improved upon. Thus to remain profitable, businesses must constantly be searching for new and better ways to deliver their goods and services at a cheaper cost. Those that don’t will begin to lose market share, and may even go out of business. This is why some business giants of the past are no longer around.
So when Rockefeller entered into the oil market, his goal was to provide the best product he could at the lowest price. He built better refineries and developed his own delivery system. He also spent money on research to discover what to do with all the gunk left over from the refining process. As a result, he developed over 300 by-products from what used to be thrown away or dumped into rivers.
Today we mainly know the results of his effort in that he became one of the richest men in America. But he did not become rich because people just wanted to make him rich. He became rich because of the vast improvement his work and investment brought about. For example, prior to the changes he brought to the oil business, only the rich could afford to light their homes at night. When Rockefeller drove down the cost of oil “from 58 cents to eight cents a gallon” suddenly millions could afford the new luxury of having light at night.
This is the dynamism that the profit motive brings to the economy; a dynamism government simply cannot match. Government does not innovate, it regulates, and regulation kills innovation. While the profit motive drives businesses to deliver ‘the best at the lowest cost,’ government had little concern for cost.
In fact, the driving force for government is in the opposite direction. Government agencies that do seek to drive down costs are ‘punished’ with lower budgets, because “they did not need the money.” It is the rare bureaucrat that wants to see their budget cut. On the other hand, agencies that are inefficient and wasteful often have their inefficiency rewarded with increased budgets.
The profit margin is vital for creating a dynamic and growing economy, an economy that is constantly seeking innovations that will deliver the best goods and services at the lowest price.
Attacks on the profit motive are nothing less than attacks on the very thing that has so vastly improved our standard of living.
A Proposal
Considerable turmoil had emerged in Wisconsin over the cuts and changes Governor Walker has proposed for union state workers. At the core is the belief that unionized public employees have created an unsustainable situation. While most people understand the problems that business monopolies cause, they fail to realize that a union is really nothing more than a monopoly for labor.
For capitalism to work effectively there must be choice and competition. This is what spurs the innovation and creativity that bring about the best value for the consumer. Unions have, for the most part, failed in the private sector because they restrict this innovation and creativity. Instead of looking to increased productivity, unions restrict choice for the employers so they can use threats and intimidation to force increases in paid and benefits. As such, they ultimately priced themselves, and their companies, out of business.
This is bad enough when used with private businesses, but even here the market’s ability to self-correct can work. Unlike private companies, however, governments cannot go out of business. In addition, unions in places like Wisconsin can force people to join, and then use the money they collect to become a strong political force. In short, they can work to put those who are politically obligated to the union, in a position to negotiate with the union. When this happens who represents the people who have to pay the bills?
The result is that whereas government employees once were paid less that the private sector, but were compensated with somewhat better benefits and security, now both their pay and benefits far exceed the private sector. According to the US Bureau of Labor statistics report, public sector workers get paid a third more than private sector workers, while getting over two thirds more in benefits.
Those defending the status quo, claim the study was not a fair comparison and while they make a few good points there are some serious problems with their claims. One problem, for example, is that while government employees tend to be better educated than the private sector is this because they need more education to do their job, or is this yet another way to inflate their salaries? It also ignores the productivity of the private sector vs. the public.
So given this, here is one proposal. As long as public sector employees are making more on average than private sector employees, ban any further net increases to wages and benefits, including cost of living increases. This would then over time bring public sector payrolls back into line with the people who must pay the bills. This calculation should put productivity into the mix. That way if federal workers were more productive, then their higher pay would be warranted. It would also give the public sector much more of a stake in the health of the private sector that must pay the bills.
This is not meant as a total solution, but it would be an important step in bringing the runaway and stifling cost of government under control. After all, it boils down to a simple question: why should public sector employees get more than those who must pay the bill?
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.
