Saturday, July 17, 2010

Man Behind the Green Curtain

Charles Krauthammer is warning conservatives to curb their cockiness. He sees Obama succeeding in his first two years the same way Reagan did in his:

Just as President Ronald Reagan cut taxes to starve the federal government and prevent massive growth in spending, Obama's wild spending -- and quarantining health-care costs from providing possible relief -- will necessitate huge tax increases. The net effect of 18 months of Obamaism will be to undo much of Reaganism. . . The next burst of ideological energy -- massive regulation of the energy economy, federalizing higher education and "comprehensive" immigration reform (i.e., amnesty) -- will require a second mandate, meaning reelection in 2012.

The Obama-Reagan parallel Krauthammer sees is one I suggested in October 2008 and again in February 2009.

But will the parallel continue? Krauthammer says Obama is looking forward to another burst of energy after his 2012 re-election, a victory Obama’s midterm election defeat will help bring about the same way Clinton won re-election in 1996 after Democrats’ 1994 midterm election defeat moved Clinton toward the center. Yet Clinton didn’t have a transformative second term. And neither did Reagan, for that matter.

But will Obama even win re-election, much less enjoy a post-election energy burst? Reagan swept to re-election in 1984 because the tax cuts he put in place, along with Fed Chair Paul Volcker’s successful fight against inflation, turbocharged domestic growth.

Obama, by contrast, seems to be frustrating business—and therefore economic growth—by running up the debt and starving credit markets, increasing regulations, and raising taxes (rescinding Bush tax cuts). Obama’s anticipated midterm election defeat will lead to a one-term presidency unless he (like Clinton before him) changes course. And if he changes course, he’s a different person than the president Krauthammer tells us to fear. Obama can change and win. He can stay the same and lose. He can’t—in contrast to growth-generating Reagan—stay the same and win.

As we believe, only business creates growth and jobs. Adam Smith taught that restraining government allows the free market to flourish. Government ever since has been on the defensive, forced to use crises of capitalism to win back control over the economy. When Roosevelt became president during the Great Depression crisis, he shifted the balance away from business and toward government.

Subsequently, the big government-big business-big labor “Blue Beast“ (“blue” as in “blue state,” i.e., Democrat) delivered economic progress from World War II until 1964-65—the last time until today liberal Democrats had total political control. In 1966, inflation-based economic troubles began that didn’t end until Reagan’s time.

The divided government that, except for Reagan’s first two years, has characterized most of the time since 1966 had two legs: Republicans, who were right about business driving growth and creating jobs, and Democrats, who were right about using government to help the environment, women and minorities, especially blacks. When Republicans failed to provide growth and jobs in 2008, the balance shifted sharply toward Democrats. Now Democrats and Obama face two huge problems:

1. They have failed to get the economy working through government intervention, making business-based growth once again the more viable option, and;

2. Their success in ending racial inequality, personified in Obama’s election, has pulled away the moral authority used to justify big government, thus exposing the ineffective, over-compensated, often corrupt, business-destroying operation behind government’s green curtain.

It’s the economy, stupid.

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