One Side Must Lose (I)

49% of Americans believe the federal government has become so large and powerful that it poses an immediate threat to the rights and freedoms of ordinary citizens. In 2003, less than a third (30%) believed this.

--Gallup

Look at the chart. It’s at the foundation of our current political struggle. Two sides are fighting about the growth and size of government spending—unsustainable unless taxes go up on everyone—and what to do about it.

Yes, government held a larger share of our national wealth in World War II (1942-46), and yes, it surged to another peak during the Korean War (1951-54). But aside from those two wars, after government grew sharply under Herbert Hoover and Franklin Roosevelt (1930 to 1935), it then more slowly and steadily expanded from 1940 (10% of GDP) to 1983 (23.5%). These were the years of the “Blue Model,” the big government-business-labor consensus dominated by Democrats that had frayed by the 1970s.

Reagan’s 1980s “revolution” capped government growth and actually sent it into reverse, as the economy boomed under Reagan/Bush 41 (1984-93) and under Clinton, who mostly governed with a Republican Congress (1995-2001). Economic growth yielded a larger economy, which reduced government’s share of GDP. In a tougher economy, Bush 43 held government’s size steady at 20% of GDP until 2008. Now comes Obama, and the dramatic surge of government to 25% of GDP, even as revenue fell below its historical 18% of GDP average. That 7-8% gap is unsustainable. The gap must close.

Republicans want to return government spending to 20% of GDP or lower, close to the historic revenue collection level. Obama and the Democrats can’t say before the 2012 election what they know: taxes have to rise on everyone if we are to maintain a government that’s 25% of our GDP. The national elite realize Americans must pay dramatically higher taxes to cover the rising medical expenses of our aging population, as well as to sustain the balance of a progressive agenda held in check between Reagan’s 1980 election and Obama’s 2008 victory.

Obama’s “no retreat” insistence on raising taxes on those making over $250,000 a year is his indispensable first step to raising taxes on everyone, most likely with a European-style Value Added Tax (national sales tax), the tax that props up national health insurance in Europe. Only if Obama insists before the election on raising taxes on wealthy people can he then use his re-election to justify later tax increases on everyone (equity, after all).

Democrats must attempt an election-season tax increase. Republicans who want to trim government back to its historical 20% of GDP must say “No!” to any tax increase, including one on the “idle rich.” No room for compromise. It’s war.

Democracy + Capitalism

"the left doesn't want to be judged on the results of anything they do. They only want to be judged on their good intentions."

--Rush Limbaugh

Put another way, hold us to our words, not our deeds.

You’d think it’d be different, that the progressives with all the brains and all the folks dying to serve in Washington D.C. would be out there under bright lights saying “Judge us on our performance; we know and live good government!!” But that’d be wrong. The elite with brains, living at the top, leading a vast army of victims, including millions of bureaucrats organized into militant public sector unions, can’t be responsible for asking its victims to deliver!

How are liberals supposed to make the economy work, anyway? That’s what business does. Democrats are government, and government in capitalism only fixes the excesses; it doesn’t own the means of production. Democrats know, as we discussed earlier, that government doesn’t create economic development—it is a parasite living off business.

Here’s Bill Clinton, an admired former Democratic president, talking about about what being president means to him:

[Rick Perry]’s saying “Oh, I’m going to Washington to make sure that the federal government stays as far away from you as possible — while I ride on Air Force One and that Marine One helicopter and go to Camp David and travel around the world and have a good time.” I mean, this is crazy.

I mean, this IS crazy—being president is about the perks of the office?! What? It’s not about doing what you can to get the economy working, to create growth? Democrats don’t believe in job performance because they don’t expect to deliver (see Limbaugh, above).

Listen to progressive Steve Kornacki, writing in “Salon” about the helplessness of our Democratic president:

the White House [believes] two grim realities: (1) The economy is not recovering and may soon slip into another recession; and (2) There’s very little that Obama can now do about it. . . The correlation between economic anxiety and the failure of presidents to win reelection is well-established. [S]ince he can’t enact policies that will generate economic momentum in the next year, Obama’s only recourse is to . . . convince swing voters that their anxiety [stems from] Republican obstructionism.

[Passage of Obama’s jobs plan is] beside the point. . . The goal here is to highlight Obama’s desire to do something with the GOP’s preference for doing … nothing. So [the] reelection strategy [is] redirecting swing voters’ intense anxiety, frustration and anger . . . onto the GOP. Obviously, there’s not much inspiring about this.

From Franklin Roosevelt forward, we looked to government to fix the economy for us. We used to believe in government. No longer. Top-down, “bright people will do it for us” doesn’t work as advertised. We need a working free market, millions of individual decision-makers, with smaller government helping from the sidelines, not doing economics itself.

Ronald Reagan was right. “Government is the problem.” Now we need the solution he reached for, but grasped only partially. We need government out of the way of working capitalism. We need democracy (in the form of elections) freeing up capitalism.

Solyndra green jobs ≈ “Soylent Green”

I remember vividly the horrifying futuristic movie, “Soylent Green.” It was filmed in 1973, starred Charlton Heston, and was set in 2022 New York City, population 40 million, a time when we had run out of food, including plankton from the ocean and were reduced to eating green wafers passed off as plankton but actually reprocessed human corpses.

I couldn’t figure out why name of the fraudulent green job producer—Solyndra—gave me an upset stomach. It’s subliminal. Soylent Green. Solyndra green.

European debt crisis foreshadows coming American revolution.

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"Whoever speaks of Europe is wrong. Europe is a geographical expression."
--Otto von Bismark

Facts about a Greek default: analysts note Greek debt is far above earlier national defaults, so ripple effects could be far more serious. Total Greek public debt is about $500 billion. By comparison, Argentina’s debt was $82 billion when it defaulted in 2001; when Russia defaulted, in 1998, its debt was $79 billion.

Charles Kadlec (picture), writing in Forbes, not only links Europe’s failing elite to their cousins in Washington, but also guesses any trans-Atlantic elite failure improves Republican (called “Tea Party”) prospects:

The looming Greek default and the nascent financial crisis in Europe is a symptom of . . . governing elite [failure]. At risk is the background consensus that supported the expansion of government to the point that public spending now accounts for roughly half of all economic activity among the 17 nations in the eurozone [up from 28% of Western Europe’s GDP in 1965].

A destruction of that consensus would imply a massive loss of power by the elites who for decades have declared that given the power, they could produce an economy with less risk and more fairness than free market capitalism. . . The promises broken during this adjustment will betray the fundamental belief by many in the wisdom of the governing elites and the benevolence of government.

The pending failure of the governing elites to deliver on their most basic promises is setting off alarm bells in Washington[, raising] concern that Europe’s failure will tarnish America’s governing elite, providing additional energy to the Tea Party’s call for restoring limited, constitutional government in the U.S.

Superpower of One (Part 2)

Look at the chart (again). Note how the European nations—Great Britain, Germany, France in the 1870 column—are all gone by 2010. Parag Khanna and Mark Leonard, two scholars at the European Council on Foreign Relations, may have never seen the chart. They nevertheless object strongly to all the current talk of a “Chimerica” world, dominated by a U.S.-China duopoly. Writing in the New York Times, Khanna and Leonard assert:

In fact, we live in a “G-3” world — one that combines U.S. military power and consumption, Chinese capital and labor, and European rules and technology. The United States, the European Union (E.U.) and China are the three largest actors in the world, together representing approximately 60% of the world economy — with the E.U. being the largest of the three.

Khanna and Leonard further maintain that Europe may have more in common with China than does the U.S.:

Europe, not America, is China’s role model for its state welfare systems, social democracy, low inequality, infrastructure, and commitment to sustainability. There are far more Chinese students in Europe than in America, and far more delegations of Chinese technocrats visiting European capitals.

The chart does fail to treat the E.U. as a single, and therefore powerful, economic unit. But should Europe be treated as unified, given that European unity is under such stress? Here’s Janet Daley of The Telegraph (U.K.):

we are up against the unavoidable contradiction of the European federal project. . . The imperatives of federalism . . . come bang up against the basic principle of democracy: that elected governments should be answerable to their own electorates. . . Federalism cannot allow democracy to disrupt its objectives, and democracy will not permit federalism to ignore its anger and frustration.

[German Chancellor] Angela Merkel . . . cannot commit herself to endless bail-outs and the under-writing of infinite Mediterranean debt, just as the Greek government cannot deliver the European Union’s austerity measures—because the people of both these countries do not wish it. The irresistible force has met the immovable object[, meaning Europe must choose] between abandoning [democracy], or [abandoning] the euro.

If the E.U. hangs together with its euro—not certain—any “G-3” today would certainly include Europe in place of Japan. But the “eclipse” that Arvind Subramanian sees in our future will in any case embrace the rise of India (on the chart by 2030) and Asia, not just China, with the region gaining at the expense of the West including Europe, not just the U.S.

Superpower of One (Part 1)

China’s power is changing the world. Look at the above chart. It’s based upon Eclipse, a new book by Arvind Subramanian of the Peterson Institute for International Economics. Subramanian writes China will account for over 23% of world GDP by 2030, with America accounting for less than 12%. China will dominate trade, with twice America’s share of imports and exports, outpacing the U.S. not only because its own economy will grow faster, but also because its neighbors will grow faster than America’s neighbors.

Subramanian’s assumptions are actually conservative, projecting China’s per-person income will grow by only 5.5% a year over the next two decades, 3.3% slower than the past 20 years. Subramanian has found that after Japan, Hong Kong, Germany, Spain, Taiwan, Greece, and South Korea developed to a stage comparable to today’s China, they all grew faster than 5.5% per head over the subsequent 20 years.

Whatever China’s growth rate, the U.S. is already making room for the world’s single Superpower. Word comes that, as we wrote earlier, the U.S. has decided not to sell Taiwan the advanced F-16 fighters the island feels it needs. Many in the U.S. believe Taiwan should be able to buy the F-16s. Sen. Richard G. Lugar (R-IN), ranking Republican on the Senate Foreign Relations Committee for example, earlier called for the F-16 sale, saying Taiwan’s defense needs are legitimate, and its “existing capabilities are decaying.”

One sign of how sharply the U.S. is breaking with its previous defense of Taiwan’s right to peaceful reunification with China comes from the Financial Times (U.K.). The paper reports that last week, a “senior US official” warned that Tsai Ing-wen, the Taiwan Democratic Progressive party (opposition) leader who was visiting Washington, had sparked concerns about “stability” in the Taiwan Strait, an area the official called “critically important” to the U.S. “She left us with distinct doubts about whether she is both willing and able to continue the stability in cross-Strait relations the region has enjoyed in recent years,” the official said.

The “senior official’s” on-the-record comments constitute blatant U.S. interference in Taiwan’s internal affairs. An election in which Tsai is the leading candidate against current Taiwan leader Ma Ying-jeou is just 4 months away. By openly siding with China-friendly Ma against Tsai while simultaneously declining to sell F-16s to Taiwan, the U.S. is letting China know that whatever tensions China’s rising power brings to U.S.-China relations, they will no longer revolve around Taiwan.

The Father of Globalization

Keith Tantlinger, recently honored in a Telegraph (U.K.) obituary, developed the technology that launched containerized shipping. That means Tantlinger helped redraw the global economic map. Partly because of Tantlinger’s invention, Asia became the world’s workshop, pouring finished goods into retail markets worldwide. Containerization did for shipping and Asia what Henry Ford’s assembly line did for car production and the U.S.

Tantlinger, who died last month at 92, was born in Orange, California in 1919. He graduated in mechanical engineering from the University of California, Berkeley, and during World War II worked for Douglas Aircraft designing tools that built B-17 bombers.

Tantlinger patented several dozen container-related inventions. His most important design feature was the slotted eyelet at each corner of the container into which a lock, called a twist-lock, could be dropped, which stabilized stacked containers. By 1957, the container ship Gateway City had taken its first shipload of cargo along the U.S. East Coast. But major progress in containerization only came after 1965, when the American Standards Association adopted a national standard based on Tantlinger’s design that did away with the many competing designs copied from Tantlinger’s invention.

Hoobama

“History doesn't repeat itself - at best it sometimes rhymes.”

--Mark Twain

Is there a “rhyme” to the presidencies of Barack Obama and Herbert Hoover, as we earlier suggested? Consider the most significant parallel. Hoover ended a major sweep in U.S. history, the 1865-1933 post-Civil War domination of American politics by a Northern, business-friendly Republican Party. That era lasted 70 years. It’s possible that Obama is the president who will end the era of Democratic big government, which began with Franklin Roosevelt’s election in 1933, a period of now nearly 80 years.

Republicans before Hoover, whatever you felt about them, delivered business-led growth with rising prosperity. When Republicans produced a Great Depression instead, they were finished. Democrats before Obama were willing to be measured by government-led job creation. Once the job growth stopped, why elect Democrats?

Hoover: Great Depression. Obama: Great Recession.

Hoover’s political troubles had become obvious by 1930, two years into his presidency, when the nation threw out a Republican House and replaced it with Democrats. In 2010, two years into Obama’s presidency, America replaced a Democratic House with Republicans.

Hoover, with 14 months to go before the end of his term and very worried about his prospects for re-election amidst horrible economic conditions, launched a new program historians now call the “Hoover New Deal of 1932.” It consisted of 9 separate projects to spur economic growth.

Obama, with 14 months to go before the next election and very worried about his prospects amidst poor economic conditions, launched a new program called the “American Jobs Act.” It consists of 15 separate points to spur job growth.

One of Hoover’s projects was the Reconstruction Finance Corporation, a government institution that by providing loans to financial institutions, aimed to spur growth. Hoover provided the Corporation with $2 billion, which would be $27.5 billion today.

One of Obama’s “Jobs Act” points is creation of a National Infrastructure Bank, charged with financing job-growing projects. Obama plans to provide the Bank $10 billion.

Hoover’s “little New Deal” didn’t work. Here’s why Obama’s “American Jobs Act” seems doomed, even if it could get past a Repubican House. As Milton Friedman has taught us (via Wikipedia and James Pethokoukis), consumer choices regarding consumption— and recall that consumer spending accounts for roughly 70% of economic activity—are determined not by current income but by the consumers’ longer-term income expectations. Friedman’s key conclusion is that transitory, short-term changes in income have little effect on consumer spending behavior.

And as CNBC’s Larry Kudlow has observed about the “American Jobs Act’s” impact on hiring:

while more than half of the president's new package is called "tax cuts," the reality is that these are temporary tax cuts. . . just for one year. . . Businesses like to look ahead at least three to five years for their employment planning. And they're already worried about the tax and regulatory mandate costs of Obamacare, which has become a great deterrent to job creation.

We already know temporary tax cuts don’t work. Obama in 2011 seems lost in the economic hard times. Like Herbert Hoover in 1932.

Big Government Apologist David Brooks No Conservative

“He who is not with me is against me.”

--Jesus (Matthew 12:30)


New York Times’ house conservative David Brooks knows government doesn’t work, but chooses to defend it anyway. Such writing groups him with the enemy, assuming we are waging a revolutionary struggle against big government.

In his latest column, Brooks rebukes (mildly, politely) Obama-type efforts to create green jobs. Brooks instead recommends a different approach, one more in line with conservative thinking:

[In Boulevard of Broken Dreams,] Josh Lerner of Harvard Business School [endorses] government efforts to set the table for entrepreneurial activity[--]building an underlying context for innovation: funding academic research, establishing clear laws, improving immigration policies, building infrastructure and keeping capital gains tax rates low.

Brooks’ recommendation follows his earlier writing that under past and present administrations, government has

sucked resources away from the most productive parts of the economy — innovators, entrepreneurs and workers — and redirected it to the most politically connected parts. The byzantine tax code and regulatory state has clogged the arteries of American dynamism.

Such writings suggest Brooks “gets it,” that in the words of Ronald Reagan, “Government is the problem.” Not so. Brooks is an open defender of government. In the column quoted above, Brooks also writes, “The United States became the wealthiest nation on earth primarily because Americans were the best educated.”

That is quite a statement. Now we have American exceptionalism reduced to elite private and public high schools like Radnor on Philadelphia’s Main Line, where 93% of graduates go on to college, and elite universities like the University of Chicago. Brooks graduated from Radnor and the University of Chicago.

I think Brooks truly believes our educated elite, mostly running the U.S. since Stanford engineer Herbert Hoover became president in 1929, is responsible for our wealth. Canadian-born Brooks, 50, the same age as ex-University of Chicago faculty member Barack Obama, didn’t arrive in the U.S. until well after our educated elite had taken over.

I don’t agree with Brooks that education is “primarily” responsible for our success. The educated elite, after all, are the folks who cannot bring us out of our current economic mess, and who—contrary to Brooks’ most fervent wish—must be removed from power. I go with conservative Thomas Sowell’s rebuttal of the importance of education:

How [is it] possible that transferring decisions from elites with more education, intellect, data and power to ordinary people [leads] consistently to demonstrably better results? One implication is that no one is smart enough to carry out social engineering. . .

[E]xperience trumps brilliance. Elites may have more brilliance, but those who make decisions for society as a whole cannot possibly have as much experience as the millions of people whose decisions they pre-empt. The education and intellects of the elites may lead them to have more sweeping presumptions, but that just makes them more dangerous to the freedom, as well as the well-being, of the people as a whole.

Brooks does want change. But he instructs us that change

can’t be done without leadership from government [take that, Reagan]. Just as the Washington and Lincoln administrations actively nurtured an industrial economy, so some future American administration will have to nurture a globalized producer society. [emphasis added]

So much wrong here. Washington saw the need for roads and Lincoln supported railroads, though privately built and run. It’s dishonest, however, for Brooks to associate either with the all-intrusive state we face today, marching toward cradle-to-grave socialism.

And it’s also dishonest for Brooks to talk about “administrations” as if big government’s been around since Washington. While the federal government did provide land for state-run agricultural colleges under Lincoln, neither president, for example, could ever have imagined the current federal government’s intrusive role in directing public and even private education from preschool (Head Start) through graduate school.

George Washington, father of big government? It’s a stretch too far.

Zero Job Growth

When it comes to jobs, it looks like the Obama presidency may be stuck with the Peggy Noonan-coined sentence, “He made it worse.” No job growth whatsoever in August. June and July job growth numbers lowered by a combined 58,000 jobs. That means over the last three months, job growth has averaged only 48,300 a month. It needs to reach 200,000 a month to generate real economic growth.

The chart below shows what should be Obama’s minimum job growth and unemployment rate targets: the totals for January 2009, the month he took office. He has 13 months, until the October 2012 final pre-election jobs report, to hit those targets. It is going to be difficult. As the chart states, Obama will have to average 187,000 new jobs a month, every month, for 13 months. By comparison over the previous 13 months, job creation has averaged only 92,300 a month, less than half the 187,000 average he needs, starting now.

“He made it worse.”