Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and Forbes.com.
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values.
On Sept. 30, Senators Barbara Boxer (D-CA) and John Kerry (D-MA) unveiled their proposal for cap-and-trade (C&T) legislation. The Senate bill calls for a 20 percent reduction of U.S. carbon dioxide (CO2) emissions by 2020, and an 80 percent reduction by 2050 -- targets similar to those in the C&T bill passed by the House of Representatives in June.
The timing of this proposal is ironic. Scientists in the global warming alarmist camp have begun to change their tune. They are now telling us that the earth is likely to cool for a few decades before entering a prolonged period of rapid warming. This is an astounding admission; they have essentially demolished the man-made global warming theory.
Here is why: For years alarmists have insisted that CO2 warms the planet. Now they assert that rising levels of CO2 won't warm the earth for 30 or 40 years, but then will do so later on. Come again? Does CO2 warm the earth or doesn't it? Alarmists are finally conceding the main argument of global warming skeptics: Other forces -- particularly solar variations -- overwhelm the greenhouse effect. It's time to focus on those other factors instead of obsessing over CO2.
It is also ironic that the Senate bill was unveiled just one week after the G-20 declined to prioritize an international climate agreement at the upcoming Copenhagen meeting. The foreign heads of state who visited Pittsburgh are unwilling to cripple their economies by limiting CO2 emissions, although they surely won't object if President Obama and his congressional allies torpedo the American economy with C&T. (C&T would slam the American economy to the tune of $1,700 annually per family, according to a study performed by the Environmental Protection Agency -- a study that Team Obama squashed, until its release was obtained via the Freedom of Information Act.)
The bad news is that, in spite of the strategic retreat of scientists unable to deny earth's present cooling trend and the dim prospects for a strong international agreement in December, Congress may still pass C&T legislation. The progressive/environmentalist power base of the Democratic Party will rally behind such a bill. It will be joined by some odd bedfellows, e.g., powerful corporations like Goldman Sachs eager to make fortunes by establishing a market for buying and selling CO2 permits (a role for which Enron had the inside track when this scheme first surfaced in the 1990s). Also, nuclear-power companies and other utilities with no or low CO2 emissions would reap immense windfall profits from a C&T scheme. To the chagrin of anti-capitalist greens on the left and free-market economists on the right, C&T could end up being the most expensive corporate welfare bill in history.
On Oct. 2, The Wall Street Journal's Kimberly Strassel reported that three CEOs of giant utilities expecting to profit from C&T legislation have withdrawn from the U.S. Chamber of Commerce in protest of the Chamber's reasonable position that the government be transparent about the "science" used to justify C&T. While it's no surprise that many CEOs have no compunctions about ambushing their competition, it is reprehensible that they are willing to sell out the freedom and prosperity of the American people.
As reported by the Financial Times on Sept. 14, some Britons are already being fined for having traveled "too far," thereby exceeding government-mandated personal CO2 emission limits. That's what Americans will eventually face if Uncle Sam gets the proverbial camel's nose under the tent by passing legislation -- however minimal at the outset -- that incorporates the principle that the government may regulate our energy consumption and thereby regiment our lives.
The really bad news for the American people is that, even if we rise up in sufficient numbers to block draconian C&T legislation from being enacted, we will STILL be saddled with costly caps on CO2 emissions. That's because the EPA is now required to regulate them, because CO2 was officially designated as a pollutant earlier this year.
The EPA recently announced that it intends to start by regulating only the 10,000 or so industrial companies (such as utilities and refineries) that emit over 25,000 tons of CO2. This would cost jobs and drive up the price of electricity and gasoline for the rest of us. The EPA's target is arbitrary and illegal at the moment, since existing legislation mandates a threshold of 250 tons of emissions (a discrepancy that the Senate bill would eliminate by stipulating the higher figure).
There is a simple way out of this nightmarish mess. Instead of the Senate's bloated 821-page proposal, Congress should enact a one-sentence bill: "For legal purposes in the United States, carbon dioxide shall not be regarded as a pollutant." Sadly, with this Congress, we're a million miles away from such enlightened policymaking.
The price of gold has recently spurted to a new all-time high in terms of U.S. dollars. I'm neither an expert nor a market timer, but let me offer a few perspectives on this event.
To most people, including gold bugs, gold is an inflation hedge, preserving purchasing power at a time of currency depreciation. Today, unlike the gold bull market in the 1970s, gold is rising while consumer and producer prices are falling. Nevertheless, many economically knowledgeable market participants are getting out of Dodge -- that is, they are reducing their holdings of dollars now -- some to avoid potential losses from future dollar depreciation and some for other reasons.
The market price of things reflects how much people value them. For people to value a currency highly, they must have confidence both in the integrity of the currency and, in the case of a fiat currency, the political and financial viability of the government issuing the currency. Confidence in the buck is currently low because Washington's fiscal policy is profligate and out of control, and because Federal Reserve Chairman Ben Bernanke has stated that the Fed will create as many dollars as deemed necessary to prevent a depression. (For the record, there is no guarantee that monetary policy, inflationary or otherwise, can prevent a depression. It is possible to have a hyperinflationary depression.)
Market prices decline when sellers outweigh buyers. The dollar currently has lots of sellers. China, for example, is hedging its exposure to dollars by exchanging paper assets for hard assets, buying massive quantities of raw materials around the globe, while also encouraging its own citizens to diversify into gold and silver. There are recurring rumors that some Arab Gulf states, China, Russia, France, and maybe even Japan would like to replace the buck with a basket of currencies and gold for oil transactions. The Federal Reserve Note may become "the old maid" of the global currency markets.
Another important, but generally under-appreciated, factor affecting the price of gold is geopolitics. Eight-hundred dollars an ounce gold in January 1980 was, among other things, an emphatic no-confidence vote for the United States as a world power. Under Jimmy Carter, the United States appeared impotent and incompetent on the world stage. Soviet tanks rolled into Afghanistan, Iran held over 50 Americans hostage for 444 days, and everyone remembered how Carter had kissed Leonid Brezhnev. The dollar tanked and gold soared. When Ronald Reagan reasserted America's resolve and effectively stood up to Soviet expansionism, the dollar entered a prolonged bull market and gold a prolonged bear market.
Today, President Obama seems paralyzed in Afghanistan, clueless about Iran, makes unilateral concessions to the likes of Vladimir Putin and Hugo Chavez, and gold is at record highs despite overall price deflation. Nobody wants to hold the currency of a declining power; hence, until our president starts projecting strength, the dollar is likely to remain under pressure. Many foreigners love to gripe about American power, but when push comes to shove, they generally prefer the relative stability provided by a strong United States and a strong dollar.
Another major factor affecting the gold-dollar exchange market today is "the carry trade." This is a currency-trading technique whereby speculators (everyone from financial institutions to hedge funds to individual investors) borrow money at low interest rates in one currency, then sell that currency to buy another currency where they can earn higher interest rates, thereby profiting from interest rate spreads.
In recent years, the Japanese yen had the lowest interest rates, and therefore was sold to finance the carry trade. Incidentally, this policy was designed to prop up politically connected too-big-to-fail bankrupt banks, resulting in years of economic stagnation in Japan.
Uncle Sam and the Fed have adopted a similar program today. The Federal Reserve is keeping interest rates near zero, so currency traders are selling dollars (accentuating the already bearish trend in the buck) to buy other currencies in the search for yield. Since the Fed has insisted that it will hold interest rates at these amazingly low levels at least through 2011, many currency traders are selling dollars to buy euros, yuan, the Brazilian real, Canadian, Australian and New Zealand dollars, etc. (Note to amateur speculators: The carry trade isn't as risk-free as it seems. If there is a financial panic similar to last fall's, panic buying of the dollar might crush those who are "short" the buck.)
Incidentally, since one of the traditional arguments against buying gold is the fact that it pays no interest, today's super-low interest rates on dollar-denominated savings practically eliminate the opportunity costs of converting dollars to gold, further incentivizing a shift from dollars to gold.
This economist doesn't know the future, and this article isn't giving investment advice. Gold prices may continue to soar or they may get caught in a deflationary downdraft. I will, however, make one categorical assertion: Gold is warning us that our country is on the wrong track.
China, Russia, et al. are talking about shifting their monetary reserves out of U.S. dollars. Gold has hit $1000 per ounce, even though wholesale and retail prices exhibit a deflationary bias. The United Nations has called for a new world currency to replace the dollar. What's going on?
All of these phenomena are early death throes of Federal Reserve Notes. I balk at saying "the U.S. dollar," because a "dollar" is still defined in law as a certain quantity of silver or gold, whereas the U.S. currency that now circulates here and around the globe consists of nothing more than scraps of paper (actually, a linen-cotton compound) -- a "fiat currency." (Technically, Federal Reserve Notes aren't even money. Historically, "money" denoted coinage of metals prized in the commercial marketplace; therefore, only a currency redeemable in those metals is a genuine money substitute. Federal Reserve Notes s are fakes, nothing more than legalized counterfeits of true money substitutes.)
Whether Federal Reserve Notes survive -- that is, whether they continue to retain purchasing power and function as money -- for a few more years or a few more decades is unknowable. In fact, the Federal Reserve Note could strengthen against other currencies if the powers-that-be would trigger another financial crisis like last year's. (Isn't that a wretched option?) Inevitably, though, Federal Reserve Notes will become worthless, just as every other fiat currency in world history eventually ends up worth nothing more than what they are -- little scraps of material.
You may hear some politicians and commentators complain about the Chinese and others as they rebel against the dollar's status as the world reserve currency. You may say that the Chinese have no business stating that our government needs to stop its spendthrift, debt-bingeing ways. The fact of the matter, though, is that the Chinese have a right to speak out on these issues. After all, the Chinese are joined to us at the financial hip. They hold reserves of over two trillion Federal Reserve Notes, and close to one trillion of Treasury debt.
Put yourself in their shoes: If we held that much of a foreign currency, and we could see that the government of that country was in the process of debauching that currency by having its central bank flood the financial system with newly created reserves while the government's debt was exploding as a result of reckless, runaway spending, wouldn't you worry? Wouldn't you be tempted to feel resentful and indignant?
It is vital to realize that neither the Chinese nor the Russians nor any other foreign nation has put us in this predicament.
Who won the Cold War? That's a no-brainer. The United States prevailed while the Soviet Union collapsed, and the People's Republic of China dumped Marxism; capitalism (free markets and private property) triumphed over socialism (centrally planned markets and state-owned property); an ethos of individual rights proved to be more resilient and healthy than collectivist ideology; relatively small, democratic government clearly was demonstrated to help a society prosper far more effectively than elitist Big Government.
How ironic, then, that voices in Russia and China are mocking our current Big Government policies. Those whose countries took the tragic, impoverishing detour through Big Government hell, now react with scorn and derision as we Americans charge headlong down that same path. What an amazing spectacle it must be for them to see the victor of the Cold War borrow many pages from the losers' playbook.
To read a startling indictment of the American predicament, Google the words "American Capitalism Gone with a Whimper," the title of an article by Stanislav Mishin. The author writes, "the American descent into Marxism is happening with breath-taking speed."
This decline has happened because, according to Mishin, "the population was dumbed down through a politicized and substandard education" that produced millions of Americans who "know more about their favorite TV dramas than the drama in D.C. that directly affects their lives." Mishin also faults the widespread abandonment of Christ's religion in America, our loss of faith. This is the cultural backdrop for a political system that has culminated in Barack Obama's unprecedented "spending and money printing." Mishin believes that, under Obamanomics, "America at best will resemble the Weimar Republic and at worst Zimbabwe."
Earlier this year, reports Mishin, "Prime Minister Putin . . . warned Obama and UK's Blair, not to follow the path to Marxism, it only leads to disaster." Mishin has concluded that we are ignoring Putin's warning -- based on 70 years of suffering during the nightmarish Soviet experiment in central planning -- and he concludes:
The proud American will go down into his slavery without a fight, beating his chest and proclaiming to the world how free he really is. The world will only snicker.
When I first read this astounding diatribe, I thought perhaps it had been written as a satire, almost as a spoof of what some libertarian writers in the United States have written. After consulting with a Russian friend, I have concluded that Mishin wrote in complete earnestness. Either way -- satire or grim analysis -- what Mishin wrote is no laughing matter. Mishin's is one of many voices, foreign and domestic, warning us of the dangers of the faith that government can be omnicompetent and can meet all our economic needs.
Adding to the irony of a Russian warning the United States about the dangers of Marxism is the fact that this article appeared in the online publication Pravda.ru -- the contemporary version of the Soviet-era newspaper Pravda that served as the official Communist Party channel for pro-Communist, anti-American propaganda.
Another harsh indictment of our ill-advised embrace of Big Government occurred on June 1, during Treasury Secretary Tim Geithner's official visit to China. Speaking at the University of Beijing, Geithner assured a large audience of students that China's large holdings of U.S. Treasury securities were "very safe." The students laughed out loud. This reaction might have been unusually rude, but it was brutally honest. They didn't believe Geithner for one second.
When the ability of the United States government to repay its debts (or at least, without doing so in significantly depreciated dollars) is perceived as a joke, it is anything but a laughing matter for our country. The Chinese gave us a wakeup call, although we appear not to have heeded it.
The Chinese students see what is plain for anyone with eyes to see. For years, fiscal discipline has been eroding in Washington, but President Obama has increased government spending with reckless abandon as the leviathan government absorbs more and more of the private sector. With Uncle Sam's total financial obligations totaling approximately five times our GDP, there is no way those debts and promises can be honored. The most likely outcome will be Uncle Sam -- the largest debtor in human history -- paying off those debts in greatly depreciated dollars. Indeed, our one-trick Federal Reserve (Motto: When there's a bump in the economic road, inflate) already has begun to create vast sums of new dollars through the mechanism of "quantitative easing" -- the direct purchase of the bonds that the government issues to finance its massive spending agenda.
The Chinese students laughing at Geithner told us implicitly what Stanislav Mishin told us explicitly: It is runaway government spending, stemming from the socialistic error that the government can be all things to all people, which threatens us all with financial cataclysm, national bankruptcy, and the loss of our prosperity and our freedoms. From the perspective of the Russians and the Chinese, the joke is on us. But for all of us, America's plunge into the Big Government trap is no laughing matter. *
"[G]overnment, even in its best state, is but a necessary evil; in its worst state an intolerable one." --Thomas Paine
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values.
Barack Obama ran a brilliant campaign for president. Unfortunately for him, that strategic brilliance did not carry over to his campaign for healthcare reform. His push for greater government control of healthcare has struck a majority of Americans as radical, arrogant, and not so subtly lethal.
Obama is backtracking, trying to salvage some increase in government control. He dropped the proposal for government end-of-life counseling.
Hello, Mr. Smith ? I'm your government counselor. Tell me about yourself. How badly do you want to live? I'm sorry I can't come over and meet you in person, but I have thousands of clients. Can you help me out and tell me why you should have priority in receiving life-prolonging treatment?
Obama now claims to have dropped the "public option." He is playing word games here. His explicitly stated ultimate goal (shared with virtually all liberal Democrats in Congress) is to nationalize healthcare, and he is still working to increase government control of healthcare as much as is politically possible.
Obamacare is not "socialized medicine," as some critics claim, but this is a semantic technicality. My late economics mentor, Dr. Hans Sennholz, grew up in Nazi (national-socialist) Germany. He explained that the difference between socialism and fascism was that socialists seize ownership of businesses, whereas fascists let owners retain title to businesses, but wield dictatorial control over them. When it comes to healthcare, we see echoes of this in Obama's August 16 New York Times op-ed, in which he proposed that Uncle Sam regulate which people health-insurance companies insure, the generosity of those benefits, and the prices those companies charge.
The fundamental flaw in the proposed healthcare reform is encapsulated in Nancy Pelosi's assertion that the reform would mean "a cap on your costs, but no cap on your benefits."
Well, that would be grand. But that's not how the world works.
It is an elementary economic truth that price ceilings produce an excess of demand over supply -- i.e., a shortage. Shortages breed political rationing, as happens regularly in Canada, Britain, and other countries with government-provided healthcare.
The prospect of being at the mercy of government bureaucrats for access to healthcare can make one feel as queasy as looking into the barrel of Dirty Harry's .44 Magnum and hearing him taunt "Are you feeling lucky, punk?"
The purpose of cap and trade (C&T) legislation is to reduce Americans' consumption of fossil fuels -- coal, oil, and natural gas -- and to speed up the transition to alternate forms of energy, such as wind and solar power. The "cap" part would be a legislated limit to the quantity of carbon dioxide that Americans would be permitted to put into the atmosphere from the burning of fossil fuels. The government would then issue permits that it would sell or give (details are being worked out) to businesses who could then either emit CO2 up to the amount stipulated in their permit, or, if they can curb CO2 emissions below that amount, could sell or "trade" the permit to the highest bidder in the after-market.
The stated overarching goal of proposed C&T is to save the planet from human-caused climate change, which C&T proponents attribute to human emissions of greenhouse gases, primarily CO2 from fossil fuels. These proponents truly believe (despite considerable scientific disagreement) that such measures are necessary to save the earth. Others have a political agenda: If government can regulate energy consumption, then government has great control over economic activity and people's lives -- an irresistible lure to central planners, social engineers, utopian visionaries, and megalomaniacs.
Still others have economic incentives: companies that generate electricity from non-CO2 sources, such as nuclear and hydropower, would gain a windfall cost advantage against their competition; alternative energy businesses would stand to receive billions of dollars in additional subsidies; and Al Gore, who met behind closed doors with congressional leaders to plan the C&T strategy earlier this year, has reportedly invested millions of dollars in alternate energy companies and stands to profit enormously from C&T-generated government subsidies.
Opponents of C&T are more concerned about its massive costs -- both economic and political. In January 2008, candidate Barack Obama stated plainly that under his C&T plan, electricity prices would "necessarily skyrocket" as utilities using fossil fuels would pass along the costs of CO2 permits to consumers. Significantly raising the cost of power would not only hammer Americans' utility bills, but would make it more expensive for businesses to power their operations. This would shut down marginal businesses and leave the survivors less competitive against foreign businesses -- especially since China and India, for example, have announced they won't curtail CO2 emissions at all.
Indeed, from an economic standpoint, the C&T bill should be titled the "Raise the Cost of Living and Ship Jobs Overseas Act of 2009."
Even though studies cited by advocates of C&T show that American CO2 reductions would shave only a few hundredths of a degree off future temperatures, they still believe that this is worth the considerable costs. Thus, when the House of Representatives approved cap and trade legislation at the end of June, a majority rejected proposed amendments that would have limited the program's economic damage by suspending C&T if gasoline rose to $5.00 per gallon or unemployment reached 15 percent.
Most Americans aren't concerned about global warming and certainly don't want to get poorer (especially now, at a time of acute economic distress), so one might think that C&T legislation would be doomed. But this is where things get really interesting.
Originally, government was going to sell the CO2 permits, raising hundreds of billions in revenue. Now, though, congressional leaders are reshaping the program to give permits to various utility companies in exchange for their endorsement of the plan (and perhaps their lobbying dollars). So much C&T money is now slated to be given to Big Business that members of Team Obama admit that this program could become the largest corporate-welfare program ever.
So, will C&T pass in the Senate so that an eager President Obama can sign it into law? Probably not, if the bill is openly and deliberately debated. However, Senate Majority Leader Harry Reid may duplicate what House Speaker Nancy Pelosi did to get a C&T bill through the House -- rush it through before members could read it, and bestow billions in favors to "persuade" undecided members to support it. Despite the overall negative impact of such a bill, the special interests -- both environmentalists and corporations -- may still prevail.
The Obama/Pelosi/Reid axis will not initially get as much revenue or as deep cuts in fossil-fuel consumption as they would like, but if they can establish the principle that the government should decide how much energy Americans can consume, they will celebrate.
We the people, though, should reckon the cost to our liberty.
If this principle becomes law, we may face a day when a federal bureaucrat will grant permission to Al Gore to jet around to preach the evils of CO2 emissions while denying Joe Sixpack the right to fly cross-country to see his girlfriend once a month. Might we emulate the Brits, who currently are devising a "para-police" force to monitor energy consumption?
There is much at stake in the C&T debate. This is one of the major issues of our time. Become informed.
For those of you above a certain age, do you remember where you were on July 20, 1969? I certainly do. Just as many of us will never forget where we were when we learned about 9/11 or heard President Kennedy had been shot, many of us will always remember where we were on July 20, 1969, when Neil Armstrong and Buzz Aldrin became the first humans to walk on the moon.
Reminiscing about the first moon landing has triggered in me a flood of vivid memories about various milestones in "the space race" against the Soviets -- a race in which they took the early lead, but the United States caught up and surpassed them.
1957, the beginning: Standing in our driveway and watching Sputnik twinkle in the sky as it passed overhead.
May 5, 1961: Sitting on the gym floor with all my classmates and Mr. Grant in Longfellow Elementary School. We set aside all thought of running and playing as we listened on radio to history being made as Alan Shepard became the first American to journey into space.
January 27, 1967: Stepping through the front door into our living room and hearing the television blare the stunning report of the launch-pad fire that took the lives of astronauts Gus Grissom, Roger Chaffee, and Ed White.
Christmas Eve, 1968: In the same living room and on the same television set, I recall the profound feeling of eeriness, wonder, and mystery when Apollo 8 first passed behind the moon, completely removed from all contact with planet earth.
July 20, 1969: The crowning achievement -- Apollo 11's successful moon landing. I was in Mexico. In hushed anticipation, a group of us -- Mexicans and gringos alike -- gathered around a black and white television in the lobby of the Hotel Acueducto in Morelia to watch Neil Armstrong climb down the ladder of the lunar landing module and safely step onto the moon's surface. Awestruck, we applauded the surreal image on the television screen.
The next day, we took a bus trip. The driver stopped for a quick break in the center of a poor village. I was overwhelmed by the incongruity of two concurrent realities -- the shoeless, dirty vendors rushing out of their crude, primitive stalls to hawk their mysterious, unidentifiable, supposedly edible merchandise to us through the windows of the bus, while two men were walking on the moon a quarter of a million miles above us. It was disorientating. How could there be such poverty and primitiveness in one corner of planet Earth while another human society had achieved such wealth and technological advancement as to put people on the moon?
This was a defining moment in my life. My heart yearned to bridge the gap between the haves and have-nots. That desire impelled my youthful foray into socialism. Later, having learned socialism's shortcomings and fallacies, the quest that Apollo 11 had kindled in my heart in July 1969 culminated in my embrace of free markets as the best, though imperfect, way to uplift mankind from poverty.
The space program has provided other indelible memories. Nothing ever surpassed the intense, protracted drama of bringing the Apollo 13 crew home after nearly losing them in space. I doubt that the world has ever been more united in prayer than it was during those several days in April 1970.
In more recent years, the wonder of the space program seems to have diminished. Our strongest memories are of the Challenger and Columbia disasters. However, I think we are weighed down by something more somber and depressing than those two horrible, but isolated, tragedies.
When the dream of landing a man on the moon was fulfilled 40 years ago, there was a prevailing sense of hope and optimism. If we could achieve this, what couldn't we achieve?
Alas, like those who built the tower of Babel in Genesis, perhaps we made the mistake of thinking we could build a better world without God's guidance. Instead of reaffirming our country's Judeo-Christian roots and principles, we opted for a secular salvation. We placed our faith in Big Government, thinking that democratic politics could eradicate poverty, end injustice, and usher in a new age of Aquarius, or Peace and Prosperity, or Heaven on Earth, or whatever you wish to call it.
We erred. We were wrong. Forty years ago, we put men on the moon. Today, our streets, bridges, and electricity infrastructure are decrepit and decaying; our body politic is riven by distrust and hostility; we teeter on the edge of national bankruptcy and economic abyss.
Are we doomed? Never! The same spirit that overcame multiple "can't-be-done" obstacles can attain a better and brighter future for mankind. But only with the help of a merciful God. If we reconsecrate our lives to Him, just think what glorious heights we will be able to celebrate 40 years from today.
Wouldn't it be wonderful if, like Ebenezer Scrooge, we could have a preview of the future so that we could change our course if necessary? This can happen in real life. Such a dispensation was granted to me 35 years ago. It happened while I was studying literature at Oxford University in England.
At the time, I hadn't yet outgrown my youthful flirtation with socialism. The United Kingdom appeared to me to be about 30 years ahead of the United States on the path toward socialism.
Living for a while with a teacher and his young family, I saw up close and personal how bleak life under socialism would be. The government owned most of the primary industries. The economy was stagnant. The homeowners' monthly mortgage payments were adjusted upward to keep pace with inflation -- that insidious, impoverishing monetary cancer that crops up wherever government grows too large. The outlook for a middle-class family was hopeless. The overall atmosphere was suffocating.
This experience opened my eyes. More government control was not a desirable future for the United States, and I've been in the free-market camp ever since. And fortunately for the United Kingdom, in 1979 Margaret Thatcher became prime minister. She privatized many of the nationalized industries, reinvigorated the market economy, dispelled the economic gloom and stagnation, and revitalized a great country.
Today, a similar preview of the damage of an overbearing government can be gained by spending some time in Detroit, my hometown. Detroit was arguably the most prosperous city in the world in the 1920s. Today, however, whole neighborhoods are abandoned; still-occupied neighborhoods are in a frightful state of decay; some of the streets are so rough you would think that the military used them for target practice. Most startling is that the median sale price for a house in the once-thriving city of Detroit this January was $7,500. Yes, 75 hundred, not "thousand." You can buy two or three houses in Detroit today for the price of one new car.
What happened? What explains this sad decline? In the simplest economic terms, the ultra-low prices of houses in Detroit are explained in terms of supply and demand. Specifically, there is little demand. Few people want to live in this former boomtown. Why?
Here is what friends and neighbors told me over the years: Starting in the 1960s, governance in Detroit started to deteriorate. The mayor and the city council began to view government as a mechanism for redistributing wealth, primarily to one's friends and political constituencies. Detroit became known for abnormally corrupt politics, rife with nepotism and favoritism. Leaders appeared to care more about their own self-enrichment than about implementing constructive policies. (Let me say that Detroit's current mayor -- successful businessman and erstwhile Detroit Pistons star Dave Bing -- is highly respected for his integrity, and I wish him every success in improving conditions in Motown.)
Taxes were raised. Productive tax-paying citizens moved out of the city, commuting into the city to work. In an attempt to recapture lost revenues, the city imposed a tax on income commuters earned in the city limits. Consequently, many businesses uprooted and relocated, reducing tax revenues further.
Members of public employee unions -- close allies of city hall -- profited handsomely, even while the quality of municipal services declined. Detroit's once-respected public schools went into a tailspin -- a trend exacerbated by Uncle Sam's welfare policies which perversely promoted single-parent households, resulting in restless and undisciplined children.
Crime soared. The city of Detroit failed to discharge the primary function of government -- protecting the life and property of citizens. As a result of the lawlessness, more and more businesses fled, and the downward spiral accelerated.
The failures of Detroit's city government were compounded by misguided policies imposed by the federal government. Decades of Uncle Sam's costly meddling with the Big Three -- forcing these corporations to become healthcare agencies and retirement planners, in addition to the already formidable economic challenge of trying to survive in a highly competitive industry -- has brought down GM and Chrysler, two pillars of Detroit's economy. Now the devastation has rippled out to the surrounding counties, where many fine homes have plunged into negative equity and foreclosure in recent months.
Detroit's decline was not caused by natural disaster. There was nothing mysterious about it. Detroit is a casualty of the "government disease." Instead of bigger, more activist government solving problems, as its advocates had hoped, the foreseeable result was a government that has done what it should not do (e.g., redistribute wealth to political allies) and hasn't done what it should (i.e., defend life and property).
Detroit may be the most advanced case of "government disease" in the United States today, but signs of suffering are widespread. Compared to glistening, modern airports in cities like Shanghai and Bangkok, Los Angeles International seems like a Third World airport. The whole state of California is suffering from a Detroit-like exodus of thousands fleeing the economic devastation wrought by Big Government.
We should keep these self-inflicted tragedies in mind in considering whether to assent to the massive expansion of government that President Obama and his congressional allies are seeking. We don't want the whole country to share the fate of Detroit.
In the concluding paragraph of my article about President-elect Obama's constitutional philosophy, I opined: "Our Constitution has been terminal for a long time." President Obama's nomination of Sonia Sotomayor to the Supreme Court provides a timely opportunity for me to explain what I meant.
Liberals and progressives believe that the Constitution is a living, breathing document that should evolve with the times. They want Supreme Court justices to be flexible in interpreting the Constitution and adapting 18th-century language to 21st-century applications. Conservatives, on the other hand, are said to believe in "the original intent" of the Constitution. They oppose Supreme Court justices' creative interpretations of the Constitution.
It is unfortunate that the fundamental difference in constitutional philosophy -- what used to be called "loose construction," (favoring expanded government powers) vs. "strict construction" (favoring limited government powers) -- has been cast in these terms. The left cleverly has employed a winning straw-man argument -- a truism -- in asserting that America should not be trapped by the past. Of course we shouldn't. By contrast, paying homage to the Founding Fathers, and invoking their "original intent" of the Constitution, makes the right seem backward-looking.
If today's Americans knew their history better, they would realize how wise the Founding Fathers were, and that we depart from their principles of governance at our peril. Nevertheless, the Founders themselves would heartily agree with the left that times change, and so do constitutions. That is why they included a provision in the Constitution for amending it.
Constitutional mischief occurs when ambitious, impatient politicians appoint activist justices who willfully defy, disregard, and reinterpret the Constitution, rather than insist that it be changed lawfully, i.e., through the amendment process.
Conservatives rightly oppose such judicial activism. But the right's focus shouldn't be so much on trying to preserve an 18th-century worldview that -- for all its wisdom -- included treating women and racial minorities as less-than-full citizens. Instead, conservatives' main argument should be to insist that Supreme Court justices uphold the principle that all laws and policies conform to the letter of the Constitution. If 1780s vintage phraseology is ambiguous or opaque to modern usage, then amend the wording to make explicit its objective meaning; don't let nine people (actually, five) divine implicit, subjective meanings as if the Constitution were so many tea leaves. Such judicial malfeasance over many decades has led to laws, policies, and government programs that clearly contradict the plain language of the Constitution.
Here are some examples:
1) Article I, Section 8, Paragraph 5 of the Constitution grants Congress the exclusive authority "to coin Money [and] regulate the Value thereof." Article I, Section 10, Paragraph 1 stipulates, "No State shall coin Money; . . . make any Thing but gold and silver Coin a Tender in Payment of Debts." When is the last time your state income tax refund was payable in gold or silver coin? We all use unconstitutional money. (Eventually, we will suffer the pain of hyperinflation, just as the Founders did during the Revolutionary War due to the continental dollar debacle, despite our Founders' best effort to spare us that hell.)
2) The Tenth Amendment plainly states, "The powers not delegated to the United States [i.e., the federal government] by the Constitution . . . are reserved to the States respectively, or to the people." Article I, Section 8 enumerates the several powers of the United States government. No authority is given there for government programs in agriculture, education, energy, health, housing, etc. The Constitution was never amended to authorize these unconstitutional federal activities.
3) Both the preamble and Article 1, Section 8, stipulate that Uncle Sam is to perform only those few functions that provide for the "general welfare." There is no constitutional authority for "special interest" legislation, yet the latter comprises most federal action today.
Clearly, the plain language of the Constitution has not kept ambitious officeholders from expanding their powers. Those who have regarded the constraints of the Constitution as inexpedient have simply ignored them. This should alarm any Democrat or Republican who values liberty. If the Tenth Amendment can be bypassed today, who is to say the First Amendment (free speech, religious freedom, etc.) won't be trampled underfoot tomorrow?
The egregious examples of constitutional mutilation cited above are the fruit of the left's doctrine that the Constitution is a living, breathing document. There is grim irony in this. Treating the Constitution like a living, breathing document has rendered it a dead letter. A Constitution whose provisions can be selectively ignored is a weak guarantor of anyone's rights. We are no longer governed by the impartial, objective rule of law, but by partial, subjective and capricious men and women. Justice has given way to privilege; our constitutional republic has decayed into a dangerous democracy; the primacy of individual God-given rights has been supplanted by the primacy of government power.
Going forward, we may wonder which of the three branches of government is most likely to slow the expansion of government power by honoring the letter of the United States Constitution. President Obama and the executive branch? The Pelosi/Reid Congress? Hardly. And with one more Obama appointment, neither will the Supreme Court. Sad to say, there will be no brakes left to prevent a constitutional train wreck. *
"Too bad the only people who know how to run the country are busy driving cabs and cutting hair. --George Burns
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values.
In my recent article "Checkmate" I made the case that President Obama's grand strategy has outfoxed the opposition, dooming us all to a massive increase in the scope and power of Uncle Sam. Is the situation hopeless? Never! If Americans who believe in individual liberty and free markets rally to the cause, then we may some day look back on the current gloomy period as the Valley Forge winter of a new American revolution.
The Achillies' heel of Obama is most likely the hubris that is common to those who seek "nothing less than the total transformation" of a society ("of our economy," were Obama's exact words). In their consuming desire to be the Great Leader, such individuals shed restraint and grab impatiently for more power. In a society where people prize their individual rights and retain a residual distrust of Big Government, overreaching may prove to be Obama's fatal strategic miscalculation.
In recent decades, Americans have been like frogs in the chef's pot. Just as frogs don't realize they are being boiled alive when the heat is turned up gradually, we Americans have been lulled into passivity by the gradual, decades-long expansion of government power. If we don't wake up and jump out of the cauldron, we, like the frogs, will be doomed -- in our case, by losing our freedom and prosperity to socialistic Big Brother. Obama's bold power grabs are startling us, waking us out of our torpor, giving rise to tea parties, righteous indignation, and a renewed will to resist the encroachments of tyranny.
Let's get the "S" word out of the closet and into the open. I abhor name-calling, and have never labeled President Obama a socialist -- even after I heard through the grapevine that some Democrats were describing him as such at Washington cocktail parties. But since socialism is the specific term for government ownership of various commercial enterprises, it is impossible to not view Obama's agenda as overtly socialistic in tendency.
Consider: He clearly wants and is working for a government-run health-care system.
He has proposed guaranteed universal college educations for every young American.
He wants to create new "volunteer" service programs that sound suspiciously like a draft to compel young adults to work for government.
He has asserted greater government control over the auto industry by demanding (and securing) the ouster of General Motors CEO Rick Waggoner.
His Treasury Secretary is proposing new powers that would enable the government to nationalize banks, insurance companies, and other financial entities.
And now his Interior Secretary seeks increased taxation of American oil companies -- even though Big Oil has paid more in taxes to government in recent decades than they have retained in profits -- on the grounds that Uncle Sam receives a lower share of oil and gas revenue compared to governments in other countries. Well, of course other countries' governments derive a higher percentage of revenue from oil and gas production -- after all, the 15 or so oil companies that are larger than our largest, ExxonMobil, are all state-owned oil companies. The only possible way Uncle Sam could equal the share taken by those foreign governments would be to nationalize American oil companies. Obama won't go that far (yet), but he clearly intends to play central planner and radically restructure the domestic energy complex.
If Obama doesn't scale back his audacious power grab, the American people may turn on him. Where might such a tipping point be? I'll place my bet on cap-and-trade. Cap-and-trade is Obama's scheme to charge big bucks to companies for permission to use carbon dioxide-emitting coal, oil, and natural gas -- that will be passed on to the American consumer. If cap-and-trade becomes law, vast numbers of Americans of modest means will be angry if the costs of driving their cars, heating their homes, and paying their electric bills soar. They will feel conned when they realize that Obama's promise not to raise taxes on them referred only to direct, explicit taxes, and not to indirect taxes that raise their cost of living. Cap-and-trade is Obama's make-or-break issue. If he restrains himself from ramming a cap-and-trade program through Congress, then he may get most of the power he seeks; if not, he will be vulnerable.
Obama's other Achilles' heel will be his conduct of foreign affairs. He seems to believe that his personal charm is so forceful that he can talk enemies into beating their swords into plowshares. In doing so, he risks repeating the tragedy of Jimmy Carter whose Lennonist philosophy (that is, "Lennonist" -- not Leninist -- as in Beatle John Lennon's motto, "All you need is love") was rewarded with contemptuous aggression by the Soviets, the ayatollahs, and that ilk. If the response to Obama's apologetic America-debasing groveling is a lethal attack on American interests, especially a domestic incident, then the spell of the Obama personality cult will be broken, and support for his socialistic agenda will shrink drastically.
Either of Obama's Achillies' heels will hand the Republican Party a magnificent opportunity to present an alternative agenda that resonates with the American people. In my opinion, Republicans will win more support if they stop playing the party of Big Government to the Democrats' party of Bigger Government, and offer a clear contrast by making themselves the party of Smaller Government. We have to hope that they aspire to something more than simply being at the helm when the ship of state cracks up on the rocks of national bankruptcy.
In assessing Team Obama's semi-nationalization of the auto industry, a slight alteration of the famous verse by Elizabeth Barrett Browning encapsulates my reaction: "How do I (not) love thee? Let me count the ways."
1) The government takeover is unconstitutional.
The Constitution authorizes Uncle Sam to "regulate commerce," not to own and manage it. Even before the formal coup, Obama had already fired GM's former CEO. Now Team Obama intends to dictate to GM what kinds of cars it must build. Of course, the federal government is already well on its way to nationalizing the financial industry, the home mortgage market, health care, education, retirement, etc., so -- ho-hum -- why not the car industry, too?
2) Parts of the government takeover are illegal.
Contract law was trampled underfoot when the government placed unsecured creditors (read: the United Auto Workers) ahead of secured creditors (bondholders) in the pecking order of who gets first dibs on the remnants of the old bankrupt GM and Chrysler.
That the president bestowed largesse on Big Labor was no surprise. What was jarring was the blatantly, literally Marxist-Leninist flavor of Obama's denunciation of the ripped-off bondholders as "speculators." These "speculators" range from retired blue-collar workers to investment firms managing the retirement accounts of state and municipal employees, school endowments, and other such suspicious characters. Yet Obama views and portrays them in class-warfare terms-as greedy capitalists whose property should be expropriated and redistributed to labor. This is textbook Marxism.
3) The takeover unwisely and unjustly keeps UAW intact.
UAW has been a disaster for the people of southeastern Michigan. For decades it has been strangling the Big Three. Its "triumphs" have been Pyrrhic victories. Yes, UAW members received fantastic compensation, if they have managed to keep their jobs. Unfortunately, UAW, more than any other organization, has been responsible for hundreds of thousands of union jobs being vaporized by pricing them out of the market. Now this parasitic outfit has killed the goose that laid their golden egg. If the bankruptcy had gone through the usual legal channels, UAW could have been buried alongside the companies that it killed. Instead, Obama made UAW its partner in these two companies by sharing ownership with them.
4) It leaves Corporate Average Fuel Economy (CAFE) standards intact, too.
Second to UAW, what most crippled the Big Three was Washington's mandate requiring the automakers to manufacture cheap, fuel-efficient cars domestically, using high-priced UAW labor, in order to meet CAFE standards. This move made these politically correct cars automatic money-losers and, hence, company killers. Yet, already this year, the Obama/Pelosi/Reid axis perpetuated this error by mandating even higher gas-mileage standards for domestically, produced autos.
5) It has been and will continue to be costly for taxpayers.
Not only did Uncle Sam sink far more billions into GM and Chrysler than the companies' market value, but now Washington expects the "new GM" to build many electric cars. These vehicles will not be cost-competitive on their own merits. Team Obama's solution? $7000 tax credits for those who buy the product of Washington's central planning. And where will all that money come from? From us taxpayers, of course. Clearly, Obama wasn't kidding when he told Joe the Plumber that he wanted to "spread the wealth" around more evenly.
Another potential cost of more fuel-efficient cars is that, to the extent that they reduce fuel consumption, government revenues from the excise tax that we pay at the gas pump will fall. Already in 2009, the decline in this source of revenue has meant that Uncle Sam has insufficient funds for road maintenance. Additional government revenues are now required, which implied a tax increase.
6) It turns economic decisions into political ones.
For example, will Uncle Sam protect the taxpayers' investment in GM by buying GM vehicles, even if Ford and other domestically made cars are cheaper and better? That presents a major conflict of interest.
Will political clout rather than economic rationality determine which automobile factories remain open? Already, the blogosphere is filled with charges that Team Obama closed a disproportionately high percentage of car dealerships with Republican Party ties. Does anyone really doubt that this most partisan of presidents and congresses will play politics with the businesses that it controls?
7) Uncle Sam as hero?
As Team Obama rides to the rescue of GM and Chrysler, we should realize that earlier government interventions doomed those companies. Labor laws and fuel-economy mandates weakened them for years. The current deep recession that polished them off was due to the boom/bust cycle generated by the central bank and exacerbated by government meddling in the housing market, incompetent regulation, and Uncle Sam's too-close relationship with Big Finance. Sadly, most Americans don't understand government's culpability in precipitating the demise of these two corporate icons; on the contrary, many entertain the dangerous fallacy that our economic well-being depends on government.
Until we understand the counter-productiveness of government intervention, our country will continue to suffer unnecessary economic pain.
A few days before "Earth Day" (which happens to be the same day as Lenin's Birthday), Americans ideological greens and reds received a present they have been desiring for many moons: The Environmental Protection Agency -- egged on by the U.S. Supreme Court -- officially designated carbon dioxide (CO2) as a pollutant. That means that either Congress or the EPA is expected to produce a plan for regulating this common gas.
So opens a new chapter in regulatory absurdity, a veritable Pandora's Box of complications.
A generation ago, it was considered great progress against pollution when catalytic converters were added to automobile engines to change poisonous carbon monoxide to benign carbon dioxide. Now CO2 has been demonized.
The EPA's characterization of CO2 as a pollutant brings into question the natural order of things. By the EPA's logic, either God or Mother Nature (whichever creator you believe in) seriously goofed. After all CO2 is the base of our food chain. CO2 nourishes plants, plants nourish animals and humans, and plants and animals serve a variety of human needs. "Pollutants" are supposed to be harmful to life, not helpful to it, aren't they?
Of course, it is true (although greens often ignore it when trying to ban such useful chemicals as pesticides, insecticides, Alar, PCBs, etc.) that "the dose makes the poison." Too much oxygen, for example, poses danger to human life. So, what is the "right," concentration of CO2 in our atmosphere? There is no right answer to this question. The concentration of CO2 in earth's atmosphere fluctuated greatly long before humans appeared on earth, and that concentration has fluctuated since then, too.
The current concentration is approximately 385 parts per million. Some scientists maintain that 1,000 parts per million would provide an ideal atmosphere for plant life, accelerating plant growth and multiplying yields, thereby sustaining far more animal and human life than is currently possible. Whatever standard the EPA selects will be purely arbitrary.
"Forget about the plants, Hendrickson," say the greens. "What we're trying to control is how warm the earth's atmosphere gets." To which I reply, "With all due respect, are you kidding me?"
As with a "right" concentration of CO2, what is the "right" average global temperature? For 7,000 of the last 10,000 years, the earth was cooler than it is now; mankind prospers more in warm climates than cold climates; and the Antarctic icecap was significantly larger during the warmer mid-Holocene period than it is today. Are you sure warmer is bad or wrong?
And how do you propose to regulate the earth's temperature when as much as 3/4 of the variability is due to variations in solar activity, with the remaining 1/4 due to changes in the earth's orbit, axis, and albedo (reflectivity)? This truly is "mission impossible." Mankind can no more regulate earth's temperature than the tides.
Even if the "greenhouse effect'' were greater than it actually is, the EPA and Congress would be powerless to alter it for several reasons:
1. Human activity (according to NASA data) accounts for less than 4 percent of global CO2 emissions.
2. CO2 itself accounts for only 10 or 20 percent of the greenhouse effect. (This discloses the capricious nature of EPA's decision to classify CO2 as a pollutant, for if CO2 is a pollutant because it is a greenhouse gas, then the most common greenhouse gas of all -- water vapor, which accounts for almost 3/4 of the atmosphere's greenhouse effect -- should be regulated, too. The EPA isn't going after water vapor, of course, because then everyone would realize how absurd climate-control regulation really is.)
Even if Americans were to eliminate their CO2 emissions completely, total human emissions of CO2 would still increase as billions of people around the world continue to develop economically.
Clearly, it is beyond the ken of mortals to answer the meta-questions about the right concentration of CO2 or the optimal global average temperature, or to control CO2 levels in the atmosphere. I feel sorry for the professionals at EPA who are now expected to come up with answers for these unanswerable questions.
However, I do not feel sorry for the political appointees, like climate czar Carol Browner, and the whole Al Gore, left-wing political fraternity, because it looks like they are about to get what they want -- the power to increase their power over Americans' lives and pocketbooks via CO2 emission regulations.
The big questions facing us regular citizens is whether Congress or the unelected folks at EPA will decide questions like:
Who will be forced to drive and fly less often? (If we quit using every gasoline-powered vehicle in the country, we still wouldn't reduce CO2 emissions as much as Al Gore wants.)
How much economic pain should be imposed on Americans for heating and cooling their homes? (Your 75 percent higher electric bill will fund President Obama's "green jobs" machine.)
Which businesses will need to move offshore to power their operations at a competitive cost? (This is nothing new. EPA regulations started to off-shore oil-refinery jobs decades ago.)
The impact of CO2 regulations will hurt us far more than CO2 itself ever could. We need a miracle, folks. Let's hope that someone nails shut the lid on this Pandora's Box before it swings wide open and infests us with a multitude of plagues.
The Intergovernmental Panel on Climate Change (IPCC) is widely regarded in the media as the ultimate authority on climate change. Created by two divisions of the United Nations, and recipient of the 2007 Nobel Peace Prize, its pronouncements are received as if they come down from Mount Olympus or Mount Sinai. The common presumption is that the IPCC has assembled the best scientific knowledge. Let's take a closer look at this organization to see whether it merits such uncritical deference.
The IPCC's February 2007 report stated: It is "very likely" that human activity is causing global warming. Why then, just two months later, did the Vice Chair of the IPCC, Yuri Izrael, write, "the panic over global warming is totally unjustified"; "there is no serious threat to the climate"; and humanity is "hypothetically . . . more threatened by cold than by global warming"?
IPCC press releases have warned about increased concentrations of greenhouse gases in Earth's atmosphere, yet Dr. Vincent Gray, a member of the IPCC's expert reviewers' panel, asserts, "There is no relationship between warming and [the] level of gases in the atmosphere."
A 2001 IPCC report presented 245 potential scenarios. The media publicity that followed focused on the most extreme scenario, prompting the report's lead author, atmospheric scientist Dr. John Christy, to rebuke media sensationalism and affirm:
The world is in much better shape than this doomsday scenario paints . . . the worst-case scenario [is] not going to happen.
Clearly, the IPCC does not speak as one voice when leading scientists on its panel contradict its official position. The solution to this apparent riddle lies in the structure of the IPCC itself. What the media report are the policymakers' summaries, not the far lengthier reports prepared by scientists. The policymakers' summaries are produced by a committee of 51 government appointees, many of whom are not scientists.
The policymakers' summaries are presented as the "consensus" of 2,500 scientists who have contributed input to the IPCC's scientific reports. "Consensus" does NOT mean that all of the scientists endorse the policymakers' summaries. In fact, some of the 2,500 scientists have resigned in protest against those summaries. Other contributing scientists, such as the individuals quoted above, publicly contradict the assertions of the policymakers' summaries.
To better understand the "consensus" presented in the policymakers' summaries, it is helpful to be aware of the structure of the IPCC. Those who compose the summaries are given considerable latitude to modify the scientific reports. Page four of Appendix A to the Principles Governing IPCC Work states:
Changes (other than grammatical or minor editorial changes) made after acceptance by the Working Group of the Panel shall be those necessary to ensure consistency with the Summary for Policymakers or the Overview Chapter.
In other words, when there is a discrepancy between what the scientists say and what the authors of the policymakers' summaries want to say, the latter prevails.
Here is a specific example. One policymakers' summary omitted several important unequivocal conclusions contained in the scientists' report, including, "No study to date has positively attributed all or part [of observed climate change] to anthropogenic [i.e., man-made] causes," and:
None of the studies cited above has shown clear evidence that we can attribute the observed changes to the specific cause of increases in greenhouse gases.
These significant revisions were made, according to IPCC officials quoted in Nature magazine, "to ensure that it [the report] conformed to a policymakers' summary."
Elsewhere, Rule 3 of IPCC procedures states: "Documents should involve both peer review by experts and review by governments." In practice IPCC sometimes bypasses scientific peer review, and the policymakers' summaries reflect only governmental (political) review. This shouldn't be surprising. After all, the IPCC is a political, not a scientific, entity. It is the "Inter-GOVERNMENTAL Panel on Climate Change," not a "global SCIENTISTS' panel."
Also, "consensus" is a political phenomenon, a compromise, whereas scientific truth is not subject to obtaining a political majority. (Actually, 31,000 scientists have signed a petition protesting the "consensus" that human activity is dangerously altering the Earth's climate. Consider that against the 2,500 scientists cited by IPCC -- many of whom publicly refute IPCC's press releases.)
To its credit, the IPCC debunks many of the alarmist exaggerations of radical greens. However, its scientific authority remains irreparably compromised by political tampering. When a U.S. State Department official writes to the co-chair of the IPCC that "it is essential that . . . chapter authors be prevailed upon to modify their text in an appropriate manner," the political character of IPCC is plain.
The sponsors of the IPCC, the United Nations, and liberal American politicians all share the goal of reducing Americans' wealth by capping our consumption of energy with a binding international climate change treaty. They are willing to resort to scientific fraud to further their goal. In the words of Al Gore's ally, former Under-Secretary of State Tim Wirth, "Even if the theory of global warming is wrong, we will be doing the right thing" by reducing Americans' consumption of fossil fuels. Keep that in mind whenever the IPCC is cited in support of a climate treaty.
The "greens" must be thrilled with the new Obama/Pelosi/Reid (OPR) troika in charge of the federal government. Three times already, the troika has blocked the development of domestic oil resources.
During his first week in office, President Obama rescinded his predecessor's executive order permitting drilling on the continental shelf and in the Green River Formation. Both areas contain abundant oil -- especially Green River (under Wyoming, Colorado, and Utah), which has recoverable shale-oil reserves three times the oil reserves of Saudi Arabia.
Several weeks later, Secretary of the Interior Ken Salazar unilaterally canceled 77 oil and gas leases in Utah, on the grounds that (I kid you not) someone might catch a glimpse of temporary drilling equipment from the national park that sits more than a mile away.
Next, on March 25, the House of Representatives passed the Omnibus Public Land Management Act of 2004 (S. 22) which, among many other things, adds two million more acres to the 107 million acres of protected wilderness already owned by the federal government. (In all, Uncle Sam owns 607 million acres of land.) The main purpose of this law is to prevent the exploration and extraction of oil and gas from these lands, which are estimated to have 300 million barrels of oil and 8.8 trillion cubic feet of natural gas under them.
In addition to increasing American dependence on foreign oil by thwarting such domestic development, the OPR/green alliance desires the imposition of expensive cap-and-trade rules to discourage utilities from using coal, which currently provides nearly half of America's electricity. As Obama candidly explained to the San Francisco Chronicle during his presidential campaign:
If somebody wants to build a coal-powered plant, they can [but cap-and-trade] will bankrupt them because they're going to be charged a huge sum for all that greenhouse gas that's being emitted.
Of course, this anti-fossil fuel agenda is nothing new for green Democrats. This group has long resisted drilling in a tiny sliver of the remote, desolate Arctic National Wildlife Refuge. And even the relatively moderate Clinton administration, after designating natural gas as its environmentally responsible fossil fuel of choice, conferred wilderness designation on the western lands that contained some of the richest targets for natural-gas exploration.
The super-green Obama administration plans to replace fossil fuels with alternative fuels. The last time we went down this road, President Carter managed to blow several billion dollars on failed attempts to produce economically viable synthetic fuels (remember "Synfuels?") and foisted the ongoing ethanol boondoggle on us. Corn-based ethanol, even 30 years later, still requires massive government subsidies, and is useless for achieving energy independence. It consumes nearly as much, and perhaps more, energy to produce it than it yields in our fuel tanks. It is also the least environmentally friendly fuel we use, increasing emissions of volatile organic compounds (VOCs) that cause smog, using up precious water supplies, and requiring the tilling of millions of acres of wildlife habitat.
Ah, but the good news is that the current generation of green leaders will take us to the fabled land of wind and solar energy. Apart from the daunting economics, it is likely that these energy sources will still require government subsidies several decades hence, as ethanol does today. Think of the environmental impact of these allegedly superior energy sources:
Solar energy requires vast territories for solar cells -- as many as 46,000 square miles would have to be covered by solar panels. One logical place for a "solar energy farm" would be the wide-open, sunshine-rich, sparsely populated Mojave Desert. However, Senator Dianne Feinstein (D-CA) already has nixed that possibility in the name of wilderness protection. As a frustrated Gov. Schwarzenegger lamented, if you can't put solar panels in the Mojave Desert, then where can you put them?
Wind energy also runs into the NIMBY (Not In My Back Yard) syndrome. Besides the legitimate environmental concern about the way windmills slice up birds and create low-pressure zones that explode the lungs of bats, environmentalists have started to block transmission networks that would tie the energy generated by windmills to the power grid. This reminds me of the congressman who voted for funding of a ship-borne weapon because the weapon is manufactured in his district, but then voted against funding the construction of the only ships that use that particular weapon in order to appeal to antiwar voters.
This green agenda is more than absurd, it is sinister. The real goal of greens is not "clean energy" but less energy. Energy is essential to economic progress, and many greens want to halt and reverse economic progress. Some radical greens have praised Fidel Castro for de-developing Cuba. Al Gore wrote in his book, Earth in the Balance, that U.S. policy should aim for slower economic growth. President Obama's chief science advisor John Holdren's top two environmental goals are to shrink the human population and to slow economic growth.
So here we are, in the midst of a severe economic crisis, and the ruling party is pursuing an anti-energy agenda that would further cripple economic activity. They seem oblivious to the fact that poverty is the most lethal environment for human beings. (Life expectancy in the United States declined during the Great Depression.) What a grim price we will pay for the green agenda. *
"He had delusions of adequacy." --Walter Kerr
Some of the quotes following each article have been gathered by The Federalist Patriot at: http://FederalistPatriot.US/services.asp.
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values.
Economic historian Burton Folsom's New Deal or Raw Deal? is a truly important book. Thoroughly researched, well organized and fluently written, this reader-friendly study of President Franklin Roosevelt's New Deal is "the real deal" -- a fascinating, illuminating study of the politics and economics of a key turning point in American history. Folsom, professor of history at Hillsdale College in Michigan, succeeds in making an old story come alive with superb narrative skills, crackling insights, vivid vignettes, and an ability to connect the dots like no author before him.
Having been fairly familiar with the Great Depression and New Deal, I confess that I didn't approach this book with much enthusiasm. However, once I started to read it, I was immediately hooked. It took only three paragraphs for Folsom to share the first of his many splendidly informative revelations -- specifically, this May 9, 1939, confession by FDR confidante and Treasury Secretary, Henry Morgenthau:
We are spending more than we have ever spent before and it does not work. . . . I say after eight years of this administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!
In succeeding chapters, Folsom proceeds to unfold the human cruelties, economic absurdities, and Depression-lengthening effects of FDR's efforts to impose central planning, American-style, through government programs like the National Industrial Recovery Act and Agricultural Adjustment Act.
One of Folsom's most effective techniques is to let primary sources and black-and-white data tell the story. For example, the portrayal of FDR's character isn't pretty. Roosevelt comes across as ruthless, mean, and egomaniacal. He took deceitfulness to a new level for presidents (forever changing the office for the worse) as typified by his denunciation of Herbert Hoover for running deficits, raising taxes, and attempting to "center control of everything in Washington" -- and then adopting those same harmful practices once he was elected. Partisans on the left may try to dismiss Folsom's treatment of FDR as a conservative hatchet job, but the weakness in that argument is that the most damning commentaries were not Folsom's opinions, but those of FDR's inner circle -- his thoroughly Democratic associates and even his own family -- told in their own words.
The most uncanny feature of New Deal or Raw Deal? is its timeliness. Although released before we knew that Barack Obama would be president, the book shows repeated parallels between the New Deal and the present administration, beginning with the personal similarities between FDR and Obama. Both were gifted with appealing voices, personal charisma, media savvy, and winsome oratory. The most significant parallel is their philosophy of governing. Indeed, Obama seems to be running plays taken straight from the FDR playbook. Examples abound:
In 1936, FDR stated that he wanted "to give" Americans "a greater distribution . . . of wealth;" in 2008, Obama famously told Joe the Plumber that he intended to "spread the wealth around."
FDR created the Federal Communications Commission, which politicized the granting of radio-station licenses to muzzle political opponents; Obama's allies have contemplated imposition of the "fairness doctrine," to accomplish the same objective.
FDR, according to his son, Elliott, politicized the Internal Revenue Service, using it to persecute political enemies, but persuaded the IRS to ignore the tax shenanigans of valuable political allies, such as young congressman Lyndon Johnson, the future president; Obama has sanctioned punitive taxes on business executives, but has shielded political allies from accountability for their millions of ill-gotten gains at Fannie Mae, etc.
FDR's political allies engaged in voter fraud, as have -- according to court decisions -- Obama's friends in ACORN.
The New Deal's economic burden fell most heavily on lower-income Americans due to its reliance on increased excise taxes on common consumer goods -- a mistake that Obama may repeat if he follows through on his cap-and-trade scheme, which would amount to an excise tax on energy.
Federal spending during FDR's first five years was greater than total federal spending under the 31 presidents who preceded him; total new federal debt under Obama may exceed the total accumulated under all 43 of his predecessors.
One of the most sobering lessons to be learned from New Deal or Raw Deal? is that government spending buys votes and sways elections. Folsom's research on FDR's reelection victory in 1936 shows that vote totals correlated highly with how much money various New Deal programs funneled into specific districts. Where no or little federal money was dispensed, FDR's Republican opponent, Alf Landon, often received more votes. In those districts, voters were influenced primarily by the dismal economic conditions that prevailed. But the more federal money that poured into a district, the more voters overlooked the general economic malaise and rewarded FDR's largesse with votes. Similarly today, the danger is that many Americans may continue to repay Obama's handouts with votes, even if they cause the economy to continue to sink.
New Deal or Raw Deal? is an eye-opening book. If you read only one history of the New Deal, make sure that this is the one.
The British economist John Maynard Keynes (1883-1946) turns out to have been something of a prophet. He once wrote that "practical men," as opposed to theoreticians, "are usually the slaves of some defunct economist." Ironically, the defunct economist who is influencing Barack Obama, his advisers, and his supporters in Washington is Keynes himself.
Like a ghostly presence, Keynes' ideas are hovering over us. The very notion of a government "stimulus" for the economy originated in Keynes' 1936 book, The General Theory of Employment, Interest, and Money. In it, Keynes spelled out his theory that government could offset the economic ups and downs of the business cycle with "contracyclical" policies -- that is, by running surpluses when economic activity is vibrant and deficits during slowdowns.
Keynes' theories lost some of their luster in the 1970s when the United States experienced "stagflation" -- the simultaneous occurrence of high unemployment and high inflation -- which wasn't supposed to happen according to Keynesian theory. Today, though, desperate to justify massive deficit spending, policymakers are resurrecting Keynesian ideas. This represents a triumph of hope over experience. Let's look at some history.
After the stock market crash in 1929, President Herbert Hoover -- a virulent foe of free-market economics, contrary to popular myth -- ramped up federal spending and ran large deficits in the hope of counteracting the economic downturn. The economy did not recover, so voters elected Franklin Roosevelt in 1932. FDR then proceeded to out-Hoover Hoover, running even larger deficits and jacking up federal spending even more. The depression persisted. Then Keynes' General Theory appeared in the winter of 1935-36, and FDR was delighted that the already-famous economist prescribed deficit spending as the correct anti-depression policy. FDR then continued running high deficits for another five or six years, but the economy still did not recover.
A more recent example is the just-ended presidency of George W. Bush. If deficit spending truly stimulates and improves economic activity, then after an eight-year period during which federal spending increased by 50 percent and the national debt doubled, the economy should be booming now. Oops. Deficit spending clearly is not the cure for our economic woes.
A related Keynesian myth haunting us today is the theory of a government "multiplier." This theory asserts that each dollar spent by Uncle Sam will be spent and re-spent numerous times, causing total GDP to grow by some multiple of that spending (a common estimate is 1.5 times). The absurdity of this theory is self-evident. First, does anyone believe that one becomes wealthier by going on a spending binge? Just as an individual can't spend himself into prosperity, neither can a country. Second, if government indeed has the magical power to multiply and increase economic growth, then why bother having a private economy? Why not embrace socialism and let the government be in charge of the entire economy? Because socialistic Big Government devastates countries economically.
Here some Keynesians might protest that the only reason they want increased government spending is to compensate for private citizens not spending enough, which they believe is the cause of depressions. This misdiagnoses the problem. What ails us today is not under-consumption, but oversupply. For example, housing prices are failing due to a glut of housing units. One estimate is that 10 percent of all houses built in the United States since the year 2000 are vacant, and this percentage may rise as foreclosures increase. Similarly, in the now-global automobile market, there appears to be manufacturing capacity of over 90 million units per year, which may be as much as 30 million units above actual demand.
Keynesians claim that this supposed under-consumption represents what they call "the paradox of thrift" -- that while saving instead of spending may be good for individuals, it is bad for the overall economy. True, lower spending leads to business failures and job loss. As painful as this can be for the individuals involved, though, this is not something to be avoided. In fact, it is absolutely necessary. Unnecessary, wasteful production must end. For example, fewer houses and cars should be produced, because we don't need all that have been and are being produced. It is not economically healthy for businesses to keep wasting scarce resources by producing things that people don't need. On the contrary, it is far better for society to stop wasting resources and to re-deploy them into businesses that produce more highly valued goods.
Let us hope that the ghost of Keynes with his fallacious theories does not linger long. If it does, our country will pay a frightful price in squandered wealth and delayed economic recovery.
The U.S. Treasury recently released its "2008 Financial Report of the United States Government." In case you had any doubts, our government's finances are in a terrible mess. According to the report, under generally accepted accounting principles (the ones that private businesses are required by law to use), Uncle Sam's total financial liabilities-explicit debts and unfunded obligations -- exceed $65 trillion. That's five times as large as our national GDP -- a GDP, by the way, that happens to be shrinking at an alarming rate.
I don't know about you, but I find those incomprehensibly large numbers disorienting. I feel like Alice when she fell down the rabbit hole and entered a realm of the absurd. Does anyone believe that the federal government will ever be able to scratch together an extra $65 trillion on top of the other trillions that Washington intends to spend every year? Not a chance. As I wrote last fall, "We're Broke."
So, how does the current administration propose to put Uncle Sam's fiscal house in order? What plan does it have to rescue us from outright national bankruptcy? For starters, President Obama has presented a budget with an estimated $1.7 trillion deficit for 2010. Far from pulling back from the brink, we are plunging headlong into the fiscal abyss. We'll never climb out of the hole by digging it deeper.
Being the astute politician that he is, Obama has already paid the politically obligatory lip service to the principle of fiscal responsibility by declaring his intention to cut the federal deficit in half by the end of his present four-year term. I sincerely hope he has more success in achieving this goal than his predecessor did. However, judging by the stock market's negative reaction to Obama's announcement, investors were less than thrilled by the prospect of a best-case scenario of $850 billion deficits three years from now. Such a deficit would still be nearly twice as large as any federal deficit that ever occurred before Obama's presidency, and while he inherited much of that spending, he has not been bashful about proposing massive new spending initiatives.
There is another problem with Obama's implied protection of reducing the deficit from $1.7 trillion to $850 billion: The numbers don't add up. Obama said that he would achieve this reduction through a combination of increased taxes on the incomes of the top five percent of Americans and reductions in military spending. That's impossible.
I just calculated a back-of-the-envelope estimate using 2006 figures, the most recent year for which I have data. There was approximately $440 billion of total income above the $250,000 threshold that Obama repeatedly cites as his target range. (Due to the collapse in the stock market and the precipitous decline in economic activity, the corresponding figure for the next few years likely will be significantly lower than $440 billion.) Even if Obama could somehow confiscate that entire amount, he would still be only halfway to his goal of trimming $850 billion from his budget deficit. Of course, no president could confiscate that amount, for the simple reason that if he tried, those taxpayers would quickly find ways to make that income disappear, either by simply not doing the work to generate that income or moving it offshore, disguising it, sheltering it in tax-exempt investments, etc. Even a partial move to capture those funds will, in true supply-side fashion, see that pie shrink, resulting in less-than-anticipated windfall for the government. As it turns out, the Obama administration has now stated that it plans to garner an extra $31.8 billion per year in higher taxes on "the rich."
Let's assume that the Obama administration succeeds in collecting an extra $31.8 billion in taxes from the rich (and never mind the coming loss in tax revenues due to corporate profits evaporating and millions of unemployed Americans no longer earning taxable incomes). The president and his team would need to trim more than $800 billion from the deficit. Since total military spending -- including expenses for Iraq and Afghanistan -- will be approximately $664 billion this year, Obama could theoretically abolish defense spending and still not achieve his budgetary goal.
The only possible way to rein in runaway deficits is to slash runaway federal spending. Neither party is making this case. The Republicans may not want government spending to increase as rapidly as the Democrats do, but how many Republicans have you heard calling for a reduction in federal spending? All we get from the minority party is the same old tired refrain -- tax cuts. I am certainly not opposed to tax cuts. Lower taxes are economically beneficial. They lead to increased economic activity and production, and therefore are to be desired. Politically, calling for tax cuts is the easy part, the low-hanging fruit. Economically, though, tax cuts are not enough. There is no way that we are going to grow our way out of a $1.7 trillion deficit with tax cuts alone. Radical spending cuts are needed, but they are off the radar screen. Without getting federal spending under control, we will continue our fatal freefall into the fiscal abyss.
A raw nerve was struck. Reports that employees of the insurance giant AIG -- the recipient of four federal bailouts totaling more than $170 billion -- were now receiving $165 million in bonuses, caused an explosion of public anger, even bloodthirsty rage. The death threats sent to AIG employees included lurid fulminations, such as recommendations that bonus recipients be "executed with piano wire around their necks," and "I'm looking for all the [executives'] names, kids, where they live, etc." Politicians vied to see who could feign the most apoplectic indignation, with Senator Charles Grassley (R-IA) getting swept up in the bloodlust by recommending that AIG employees consider suicide.
Let's take a deep breath, calm down, and analyze this startling turn of events.
Point number one: AIG, as a company, deserves no sympathy. Its over-investment in toxic derivatives is central to the global economic contraction that so far has vaporized $50 trillion of assets worldwide. AIG may be Enron on steroids, possibly the perpetrator of massive fraud. This is for a court of law to decide, one way or the other, and the sooner the better -- so that justice may be served and uncertainty dispelled. At the same time, some AIG employees deserve respect, if not gratitude. CEO Edward Liddy, for example, came on board six months ago to help clean up AIG's mess for a $1 per year salary and no bonuses. A number of AIG's recent bonus recipients have voluntarily returned the entire bonus that they are contractually entitled to receive. To characterize everyone at AIG as a greedy crook is ugly and unfair.
Point number two: Big Business in general and AIG, in particular, have alienated themselves from the American sense of fairness by paying generous bonuses to executives even when the company loses money. Most Americans accept bonuses as a well-deserved reward for success. What Americans find unfathomable is when executives think they deserve to be rewarded when the company goes into the tank on their watch. This latter-day version of golden parachutes is obscene to hard-working Americans of modest incomes who are footing the astronomical bill for the AIG bailout, and especially to citizens who have lost jobs and/or houses. Corporate America's boards of directors should voluntarily rectify this grotesque insult to middle America's values before the government presumes to dictate executive compensation.
Point number three: News flash! President Obama made an economic statement that I wish to endorse. This may be a rare occasion, since I believe in free markets and Obama often prefers government intervention, but I think the president deserves credit for stating:
The business models that created a lot of paper wealth but not real wealth in the country and have now resulted in crisis can't be the model for economic growth going forward.
Amen. Less than 24 hours before I read those words, I had made the same point to an audience of Christian college students. Capital needs to be valued and respected as a tool for lessening poverty, uplifting standards of living, and creating goods and services that bless one's fellow man. But if capital becomes a plaything to be packaged into exotic instruments of dubious security, and then sold to unsuspecting investors to generate commissions and fees -- an elaborate scheme to create "a lot of paper wealth" -- then something good and worthy has been corrupted into something ignoble and pernicious.
Point number four: As important as the previous points have been, by far the most significant aspect of this uproar is that it serves as a diversion from larger problems -- a convenient diversion for many politicians. How dare congressmen piously denounce the scandalous waste of $165 million in AIG bonuses after having wasted billions of taxpayer dollars in recent pork-laden spending bills? How dare the choleric Rep. Barney Frank (D-MA) try to lord guilt over all AIG bonus recipients (even those that returned the bonuses) when he himself thwarted needed reform at Fannie Mae and Freddie Mac, resulting in taxpayers being saddled with $5 trillion of liabilities. (Speaking of Fannie -- which, like AIG, was generous in contributing to Obama's political career -- why doesn't the president demand that his friend, former CEO Franklin Raines, return the tens of millions in bonuses that Raines received by cooking the books at Fannie?) How dare Sen. Chris Dodds (D-CT) -- dubbed by one wit "the senator from AIG" -- act indignant about AIG bonuses when he apparently undid congressional attempts to curtail such bonuses by slipping into the "stimulus" bill the provision that "There is an exception for contractually obligated bonuses agreed on before Feb. 11, 2009."
Without a doubt, AIG deserves criticism, blame, yes, even anger, for its role in bringing our economy to its knees. But let's not allow slick politicians to use AIG as a scapegoat that diverts our attention from the fact that many of our country's most powerful elected officials have done as much, if not more, than AIG in bringing about our present precarious predicament, and that those same politicians now threaten to drown us all in a deluge of ill-advised government spending. *
"I've just learned about his illness. Let's hope it's nothing trivial." --Irvin S. Cobb
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values.
[On January 8th] President-elect Barack Obama delivered a major speech on the economy. I didn't know if it had that legendary tingling effect on its listeners but reading the text in black and white, it reads like a manifesto on central planning. Obama's faith in Big Government is unmistakable:
Only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy.
Obama largely ignored government's central role in causing the current crisis -- totally ignoring the rampant government meddling via Fannie Mae, Freddie Mac, inflationary policies by Uncle Sam's monetary meddlers at the Federal Reserve, Community Investment Act regulators, and other interventionists. He did concede that, "Politicians spent taxpayer money without wisdom or discipline." He went on to declare:
Our government has already spent a good deal of money, but we haven't yet seen that translate into more jobs or higher incomes or renewed confidence in our economy. That's why the American Recovery and Reinvestment Plan won't just throw money at our problems -- we'll invest in what works.
He went on to underscore the need to make "smart investments" and to avoid spending money on "pet projects."
May I ask: Why are other politicians' programs "pet projects," but President-elect Obama's preferred programs are not? How can the incoming President know if his projects will be "smart investments," since they will take place outside of the profit-and-loss test of the marketplace? How can you know the future and tell us "what works"? How can Obama believe that he knows what is best for society, when no other central planner has ever been able to solve that riddle?
The contradictions in Obama's address were breathtaking.
"Government at every level will have to tighten its belt," he solemnly intoned, while requesting massive increases in federal spending. Obama acknowledged that taxpayer dollars have been spent "without discipline," but what is disciplined about trillion-dollar deficits? How can we get "our fiscal house in order" through floods of red ink?
Some may think that massive deficits might be a worthwhile tradeoff -- placing a heavier financial burden on the future in exchange for Obama's programs that "immediately jumpstart job creation and long-term growth." History, however, shows Obama's promise to be, well, unpromising. Sure, the President-elect's plan will create jobs for many Americans. Put a trillion dollars in my hands, and I could employ a lot of people too. But overall employment would stagnate. Roosevelt's New Deal created many jobs, yet the unemployment rate never fell below 14 percent during his first eight years as president. This is because government jobs are what economists call "acatallactic" -- that is, they are outside the economic marketplace. That's the place where workers have to produce what people in society most urgently want in order for the people's wealth to increase. Although government jobs may meet the objectives of central planners, they cripple overall employment. The larger the government programs, the more scarce resources (most importantly, capital) are diverted from the private sector into the public sector, which is inherently uneconomic and inefficient.
Rather than repeating the colossal mistakes of the New Deal, Obama should consider policies that have been shown to work. The recession of 1920-21 was the most severe deflationary episode of the last century, yet it was followed by an early and strong recovery. The difference between this relatively brief downturn and the Great Depression, which lasted from 1929 to 194l, was that government intervention was minimal and markets were allowed to adjust.
Employment is first and foremost a cost phenomenon -- that is, there will be a demand for labor at the right price. When consumer prices fell in 1920, wages quickly adjusted downward, too, which resulted in a rapid recovery of output and employment, with industrial production increasing a whopping 63 percent in only 22 months. During the early 1920s, under the leadership of Treasury Secretary Andrew Mellon, federal spending was cut almost in half. During the New Deal, federal spending and government deficits soared. It is clear which course of action produced better results.
President-elect Obama appealed to us to abandon "the worn-out dogmas of the past." There is no position more dogmatic than clinging to the unjustified belief that "only government" can restore prosperity to America. He said, "We can restore opportunity and prosperity." By this I wish he meant that he would give the private sector the opportunity to create the high levels of prosperity that only free markets can produce.
The President-elect is right: "It is time to finally change the ways of Washington so that we can set a new and better course for America." Yes, let's change from the broken paradigm of heavy government intervention and embark on the time-tested and better course of freedom and free enterprise.
What would you think if you heard a prominent physician being interviewed and the topic of discussion was the breakout of a serious epidemic, and then the physician started enthusing about how great this plague would be for his business? At the very least, you would regard such remarks as tactless and inappropriate. More likely, you would be repulsed by the lack of compassion, the gross selfishness, the ruthlessness of such an attitude.
What if you then discovered that the physician was part of a medical cabal that had unleashed the plague on the public? Would you not want, at the very least, to see them banned from the practice of medicine, and perhaps punished for having inflicted such cruel and unnecessary suffering upon so many innocent victims?
This ugly scenario is analogous to our political situation today. Leading Democrat politicians openly gush about how the current economic pain has opened the door of opportunity for them to expand the powers of the federal government. They openly celebrate what they perceive as a once-in-a-lifetime opportunity to enact sweeping new legislation, create new government programs, and assert ever-greater economic control over the American people.
Shortly after being appointed chief of staff to President-elect Obama, Rahm Emanuel told a conference of corporate CEOs how the new administration views today's wrenching economic crisis: "This crisis provides the opportunity for us to do things that you could not do before."
"You never want a serious crisis to go to waste," Mr. Emanuel declared with amazing candor.
This likewise reflects the view of Emanuel's boss. Obama himself recently stated, "This painful crisis also provides us with an opportunity to transform our economy."
The Democratic majority in Congress apparently shares the administration's view of the crisis. On Dec. 4, House Financial Services Chairman and a principal Democratic spokesman, Rep. Barney Frank (D-MA), enthusiastically predicted that 2009 would be the "best year" for new public policies since Franklin Roosevelt's New Deal.
Mr. Frank's statement is rich with irony. One irony is that he is one of the main culprits in having blocked Republican attempts to reform Fannie Mae and Freddie Mac several years ago. The result was this year's catastrophic bankruptcy of the two mortgage-lending giants, which was one of the key events that helped to plunge the country into its current economic woes. Barack Obama said in October that there would be time after the election to identify and punish those responsible for contributing to the country's financial woes, but instead of being punished for his malfeasance, Barney Frank is being rewarded with a lead role in reshaping economic policy.
There is a second irony in Mr. Frank's gushing adoration of the New Deal. If 2009 is to be the "best year" for public policy since the New Deal, it suggests that Mr. Frank celebrates both the current economic pain and the economic devastation of the Great Depression as being exactly what "the doctor" (i.e., Mr. Frank and his ideological soul mates on Capitol Hill) ordered -- lots of pain for lots of Americans, so that Frank and Company can initiate some radical public-policy surgery.
A further inference to be drawn from Frank's statement is that he views the New Deal as the high-water mark for good legislation in our country. Apparently, Frank does not regard the growth-stimulating tax cuts under Presidents Kennedy, Reagan, and George W. Bush as being as helpful to the American people as the New Deal. The tax cuts unleashed and led to vibrant growth in the private sector; the New Deal, by continually siphoning materials, labor, and capital from the private sector to the public sector, crippled economic activity and consequently imposed great economic hardship on Americans. Clearly, Frank favors legislation that enlarges the public sector over legislation that helps the private sector to thrive.
One of the many striking similarities between today's crisis and the Great Depression is that Democratic spin-masters are engaged in an all-out propaganda campaign to blame the 2008 financial panic on market behavior rather than on the government intervention that actually caused it. They are borrowing a page from the long-time strategy of New Deal apologists, who fallaciously attribute the Great Depression to "market failure," rather than on the radical government intervention that disrupted and suppressed.
What needs to be widely understood by Americans is this: If those in power have the same dislike for markets and the same exaggerated faith in government that FDR had, and if the New Deal is to be the model for legislation in 2009, then we shouldn't be surprised if we end up with similarly painful economic conditions.
"We the people" are seeking cures from economic doctors with a well-known history of malpractice. Heaven help us survive whatever remedies they may concoct.
Ready for some political and economic rock and roll? It's happening. In 2008, Americans were rocked by the beginnings of a deflationary credit collapse and Uncle Sam's extraordinary bailout/nationalization agenda. In 2009, Americans will be rolled. If you think 2008 was expensive, wait until you see what President Obama's band has in store for us.
In politics, people are policy. The band of policy players that President Obama has assembled gives some hints as to the chart-topping tunes we can expect to be hearing -- bigger, even more costly government, and a beleaguered private sector that will be hard-pressed to create new jobs.
Secretary of State Hillary Clinton's testimony during her confirmation hearings epitomizes Obama's priorities. Despite multiple risks to American interests around the globe, Clinton declared that her top priority was to place Americans under the control of multilateral global-warming agreements. Do Secretary Clinton and President Obama really believe that American interests will be advanced by curtailing our consumption of energy, thereby further slowing economic growth in the midst of a severe recession?
Joining Mrs. Clinton in putting growth-killing measures like carbon taxes at the top of this year's policy agenda are Secretary of Energy Steven Chu and environmental/climate "czarina" Carole Browner. Chu is a global-warming alarmist who has echoed Obama's rhetoric about reducing our consumption of coal (which generates half our country's electricity) by making it prohibitively expensive to burn. Browner, since serving as the heavy-handed administrator of the Environmental Protection Agency under Clinton-Gore, has more recently held a leadership position on a Socialist International committee dedicated to transferring wealth from the United States to much of the rest of the world.
Obama's Secretary of the Treasury (which includes the IRS) Tim Geithner, "forgot" to pay tens of thousands of dollars in taxes to Uncle Sam. It would seem inappropriate to most Americans to place such a person in charge of federal tax collections, but behold the zeal of partisans, who regularly rant about "the rich" and businesses not paying enough taxes, to make excuses for Geithner. Such an attitude is elitist and antidemocratic, a repudiation of the rule of law, but the partisans are willing to give this high-income American a free pass as long as he supports their plans to increase government control over Americans' wealth.
Geithner wasn't the only tax hypocrite tapped by Obama to serve in his cabinet. Another, of course, was former Senate Minority Leader Tom Daschle, who had been tapped by Obama as Secretary of Health and Human Services, until his tax "problems" became too much even for liberals to swallow. (Daschle has long favored socialized medicine. He was making $83,000 per month as a consultant in addition to his lavish Senate pension and his wife's lucrative income as a lobbyist. He believes in government transfers of wealth from rich to poor, as long as it isn't his wealth.)
Secretary of Labor Hilda Solis is solidly pro-union. She has sponsored legislation to deprive workers of secret ballots when voting on union representation. Her appointment underscores Obama's commitment to unions. The last time the rules of the game were tilted in labor's favor was during the Great Depression. Then, newly empowered unions crippled business activity and profitability, which consequently stifled job growth and increased unemployment.
Perhaps most disturbing of all is the appointment of Eric Holder as attorney general. As deputy attorney general in the 1990s, Holder worked on Bill Clinton's pardon of fugitive financier Marc Rich, whose debt to justice was apparently paid via generous contributions to the Clinton library. But the primary problem with Holder is his apparent view that American businessmen are more dangerous than Al Qaeda fighters. Consider: The "Holder Memorandum" of 1999 was designed to coerce businesses into forgoing rights to legal counsel, infringing their Fifth and Sixth Amendment rights. In contrast to his desire for American businesses to have fewer legal protections, Holder favors greater legal protections for captive Islamic combatants who seek to kill Americans.
President Obama has assembled a cabinet that shares his love of Big Government and concomitant antipathy for free markets. That same philosophy is embodied in Obama's stimulus plan, which has nothing to do with economics and everything to do with politics. Like FDR's New Deal, increasing government control of the economy will not stimulate economic growth. It will, however, stimulate and strengthen the Democrats' hold on power by channeling vast sums of money to Democratic special interests.
The Obama band is ready to roll, and we in the private sector are the ones who will get rolled. Brace yourself for the reverb.
The biblical parable of the 10 virgins (Matthew 25:1-12) is particularly relevant today. As you may recall, the five wise virgins behaved responsibly and prudently, making sure they had enough lamp oil for the midnight arrival of the bridegroom. The five foolish virgins, by contrast, diddled around, and didn't get oil. At the last minute, they asked their wiser sisters for some of their oil, whereupon the wise virgins, not wanting their own lamps to run out of fuel, told the foolish girls to go buy their own oil. When they did, they missed the celebration.
The parable illustrates that we reap the consequences of our choices, for good or ill, and we are responsible for our own success or failure. (Let me hasten to add that the parable's primary significance is theological; however, Jesus often couched his spiritual lessons in everyday terms that were easily understandable to his listeners.) In this parable, there was no socialistic redistribution of property from the prudent to the imprudent. The foolish virgins weren't charity cases, unable to fend for themselves. They simply didn't make the necessary effort to succeed. Each virgin got what she deserved.
Today, the "wise virgins" are those millions of Americans who are diligent, responsible, law-abiding, and financially prudent. They pull their own weight and don't impose a burden on others. They are the bedrock of society. Today, though, they are under siege.
Consider the deflating housing bubble. Think of how many times politicians of both parties have proposed federal assistance to bail out mortgage-holders. Many Americans who put little or no money down now owe more than the current market value of their house. While we surely sympathize with their unhappy predicament, why should they receive government assistance? Did Uncle Sam give special subsidies to those who were more financially conservative and deferred home ownership -- often deferring Hawaiian vacations or new cars -- until they could make a sizable down payment? Why should the tax dollars of wise homeowners bail out homeowners who took on more debt?
What about proposals to bail out borrowers with adjustable-rate mortgages for which the interest rate has reset higher? How is that fair to all the Americans who didn't bite on low teaser rates, but deliberately took on higher monthly payments at the outset so as to avoid the risk of rising interest rates?
The same unfair dynamic -- the prudent being forced to pay for the mistakes of the imprudent -- characterizes corporate bailouts. Those "wise virgins" who haven't bankrupted themselves (and whose pay incidentally, is generally lower) are expected to shoulder rescue packages for the economic elite -- for Wall Street firms, whose executives are at the pinnacle of the white-collar pay scale, and for the Big Three auto companies, whose UAW workers are near the top of the blue-collar pay scale.
Besides being financially prudent, today's "wise virgins" share other virtues. They are loyal patriots who cherish their citizenship, uphold our democratic principles, and obey the laws of the land. For this, they deserve respect and honor; instead they see widespread contempt for those values, as politicians and political activists cater to those who defy our laws and principles.
Patriotic Americans feel betrayed when politicians cheapen citizenship by fast-tracking the naturalization of recent immigrants before an election, and when activists register illegal immigrants to vote.
Americans who play by the rules believe in the principle of one person, one vote; so when ACORN and others mock that principle by engaging in large-scale voter registration fraud, and neither the Justice Department nor the nightly news condemns such actions, what are they to think? What are they to think of President Obama's attempt to include several billion dollars for ACORN in his so-called "stimulus" package? What are they to think of Obama's astounding decision to transfer control of the next national census from the Commerce Department to his White House Chief of Staff Rahm Emmanuel? Is the "fix" on for 2012?
The ultimate insult to law-abiding Americans is the vigorous effort by some partisans to give felons the vote. Is there really a political upside to being "the party of felons" and granting lawbreakers the same political prerogatives as those who obey our laws?
2008 was a tough year for those who play by the rules, and 2009 may be even tougher. Congressional liberals have held hearings about nationalizing the private retirement accounts of today's "wise virgins" to help guarantee retirement income for their unwise counterparts, who, for whatever reason, have not saved enough. The president-elect wants to give tax credits (i.e., free money) to low-income workers. He overlooks the fact that their incomes are lower either because they aren't working as many hours as higher-income Americans or their labor produces less value. Obama wants more productive workers -- mainly, those who made good use of 13 years of free education and continued to acquire skills, either through higher education or on the job, that create more value for their fellow citizens -- to subsidize unproductive workers who didn't expend a comparable effort. (Does anyone in Washington realize that such policies precipitated the Fall of Rome?) If this is social justice, then our ethical compass is broken.
How long can our society endure if Washington continues to abuse "wise virgins" and make the prudent pay for the mistakes of the imprudent?
George W. Bush had the misfortune to become president when two long-term trends that predated his presidency reached historical tipping points, First, decades of militant Islamic ferment culminated in 9/11. Second, a combination of a decades-long buildup of debt, reckless financial practices (abetted by government policies) established in the1990s, and habitual inflationary policies by the Federal Reserve System, finally culminated in the great financial panic of 2008. Twice Bush reaped what he had not sown and, fairly or not, those historical events are what he will be remembered for. Of course, this is not to say he hasn't made mistakes.
We are all armchair quarterbacks when it comes to the war in Iraq. I didn't see how any president in a post-9/11 world could adopt a passive response to that attack. Whether toppling Saddam was the best possible alternative is something we can never know. What we do know is that Bush merely carried out the official U.S. policy, adopted under his Democratic predecessor, of removing Saddam Hussein because of his potential for providing weapons of mass destruction to terrorists. (In response, the not-so-loyal opposition twisted the CIA's incompetent intelligence-gathering into vicious charges of "Bush lied," rather than stimulating bipartisan efforts to shore up our intelligence capacities; like the far left's pro-Viet Cong cheerleaders in the 1960s, they embrace Saddam as more trustworthy than Bush; cynically, they repaid our troops' sacrifices by prematurely declaring the war lost.) What we also know is that there have been no terrorist strikes on American soil since 9/11. Yes, it looks like we will have to play whack-a-mole with terrorists for a long time, but does anyone seriously believe that this wouldn't be the case if we had allowed Saddam to continue his sadistic, terrorist-financing rule?
If Bush were a lesser man, he could have declared victory in Iraq once Saddam was captured and brought the troops home. Many politicians would have done so. Bush did not. He refused to break faith with two groups of people -- the Iraqi population, who would have suffered massive bloodshed, and the American military, whose great sacrifices would have been for naught. Bush's willingness to accept vilification rather than break faith with those most directly affected by the war showed great character.
In the economic realm, Bush has been a major disappointment. When government expenditures soared to finance the war, he never once proposed that Uncle Sam reduce other spending by even a token amount to help pay for it. His "compassionate conservatism" has helped bankrupt the country. He was the first president to preside over a $2-trillion budget and also the first to preside over a $3-trillion budget. A 50 percent increase in federal spending and a near-doubling of the national debt in only eight years is neither conservative nor compassionate.
On the positive side, Bush's strategic tax cuts during his first term were his greatest economic achievement. They strengthened the economy. However, he allowed federal spending and deficits to soar out of control due to his own spending initiatives and his refusal to veto any of the pork-laden bills passed by the Republican-controlled Congress during his first six years in office. Thus, Bush must share the blame, both for his own party's self-destruction and for the flood of red ink that he leaves behind.
To his credit, Bush tried unsuccessfully to rescue Social Security as well as Fannie Mae and Freddie Mac from their collision courses (one still pending, the others already past) with bankruptcy, but Congress foiled him. By 2008 he was the lamest of lame-duck presidents, resigned to being unable to stop the political tide, and so he meekly went with the flow and signed on to the massive bailout scheme favored by Democrats and Wall Street insiders.
Bush has been likened to Truman (unpopular war) and Hoover (gigantic financial panic), but I think the most striking parallels are with the other president from Texas, Lyndon Johnson. Bush is the first president since LBJ to have created a new federal entitlement (the Medicare prescription drug benefit). Like LBJ, Bush conducted a "guns and butter" policy -- waging an expensive, unpopular military war while massively increasing domestic spending. Like LBJ, Bush's runaway spending has sown the seeds of stagnation and inflation. Future stagnation, the "War on Terror," and the financial collapse of 2008 will comprise the legacy of our 43rd president.
Right now, it seems unlikely that anyone will ever long for "the good old days" when Bush II was president, although what happens in the future may alter our perceptions. If Barack Obama tries to conciliate Islamic militants and they, in turn, inflict a devastating strike on an American city, or if, in his zeal to be the second coming of FDR, Obama drives the economy into a second Great Depression, then the American people might gain a new-found appreciation for the presidency of George W. Bush. *
"Why has government been instituted at all? Because the passions of men will not conform to the dictates of reason and justice without constraint." --Alexander Hamilton
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values.
I've already explained the problematical economics and ethics of a federal bailout for the Big Three (see "A Bailout for Detroit" in the December issue of the St. Croix Review). The demise of the pillar of metro Detroit's economy saddens me -- I'm from there; in fact, I was once a janitor for Chrysler. If there can be any profit from this pending tragedy, it will be if we learn what caused it and avoid repeating those fatal mistakes in the future. With that objective, I'll present my two cents worth on where the responsibility lies, and then I'll offer an outside-the-box alternative to a taxpayer-funded bailout.
The Big Three are terminal because their labor costs are too high. Toyota, Honda, or Volkswagen can manufacture automobiles profitably in the United States because their labor costs are lower. The difference is 100 percent due to the United Auto Workers and the above-market compensation packages that its monopoly bargaining power has extracted from the Big Three for years.
I don't buy the endlessly repeated refrain of condescending know-it-alls that the Big Three's troubles were caused by stupid and irresponsible management choosing to produce high-priced gas guzzlers instead of low-priced, fuel-efficient vehicles. If management is "stupid," then why have GM and Ford consistently earned profits in their foreign operations? In "green" theology, SUVs are a cardinal sin, but from an economic standpoint, if you want to know why the Big Three has produced them, put yourself in management's shoes for a moment. First, a lot of Americans preferred to buy gas guzzlers when the economy was booming and gas prices were low, and it has never been considered poor management to provide what customers want. Second, confronted with a $2,000 per-unit disadvantage against their competitors -- due to labor and legacy costs imposed on them by UAW -- the Big Three have been noncompetitive in low-price, low-markup cars, and their only hope of earning a profit domestically has been to build larger, high-markup vehicles. UAW is the culprit here, having painted the Big Three into a dangerous corner that has turned lethal.
Let me emphasize that my gripe is not with the rank-and-file laborer, but with the union brass. When I worked at Chrysler, I developed a great fondness for many of my co-workers. They were decent, upright, salt-of-the-earth, true-blue Americans. Sadly, the rank-and-file autoworkers have been betrayed by their own union bosses. In recent decades, the union has destroyed hundreds of thousands of UAW jobs by pricing them out of the market. Aren't unions supposed to help workers? How are they helping their members if they kill off their jobs? Such cannibalism puts the lie to hollow rhetoric about the "solidarity of labor" and reveals the stone-cold heart of unionism, its utter selfishness and destructiveness.
We see that same ruthless selfishness now in UAW's refusal to make any concessions, even as they warn that "millions" of jobs that depend on the Big Three will be lost if the companies aren't saved. This smells of blackmail. UAW is playing a giant game of chicken with Uncle Sam -- "We (UAW) refuse to accept less compensation, so if you (Uncle Sam) don't bail us out, you will cause an economic disaster in Michigan." Huh? If UAW really cared about its home communities, it has long had it in its power to preserve the economic viability of the Big Three by accepting wages comparable to those paid to Americans who make Hondas and Toyotas in the States. Instead, it refuses to help save its own communities. This is the bitter reality of unionism.
That having been said, it's time for a "hail Mary" pass in a last-ditch effort to rescue the Detroit auto industry, and here I'm going to flip-flop and sound pro-union. I propose that ownership of the Big Three be transferred to UAW. The current shareholders are already largely wiped out. Compensate them by giving them warrants that they can cash in if the Big Three return to profitability under UAW ownership.
It's time for UAW to do the heavy lifting. Let it decide what is a "fair" wage for its members. If the union members set their own wages, that would end the poisonous adversarial relationship that currently exists between management and labor, and that has culminated in UAW throttling the Big Three -- the geese that have laid the autoworkers' golden eggs. The union can quit wasting energy hating management for denying them "what they deserve," and could pay themselves whatever they want. Let them run the show.
That would be most illuminating and educational for other workers, unionized or not. Maybe, just maybe, a crash course in economic reality would impart the lesson that a worker is better off working 40 hours per week at $40 per hour compensation than zero hours per week at $70 per hour.
If the Big Three want to be saved, let them save themselves instead of asking us (the taxpayers) to subsidize their current compensation structure. If they try to save themselves, I truly hope they succeed.
[Written December, 2008.]
Washington's $700 billion bailout plan is making a lot of people unhappy. The Troubled Asset Relief Program (TARP), as the implementation of the Emergency Economic Stabilization Act of 2008 has come to be known, seems to be morphing unpredictably.
Originally, TARP was supposed to help stabilize financial institutions by buying from them what are euphemistically termed "impaired assets" -- that is, gobs of unmarketable, even worthless, financial junk. This plan was abandoned within days. Shortly after TARP was unveiled in September, $250 billion of capital was "injected" into banks, sometimes by purchasing shares of stock, other times via loans. On November 12, Secretary of the Treasury Hank Paulson, who was placed in charge of TARP, announced that the focus of the program was shifting to an attempt to facilitate consumer loans. What Paulson will do tomorrow is anybody's guess.
Meanwhile, as Paulson and associates tinker with TARP, the stock market has sunk to new lows and the economy continues to deteriorate. In fairness, we can't say that we weren't warned that this might happen. President Bush plainly stated on television that things would get worse before turning around. Secretary Paulson told us that the $700 billion rescue bailout plan might not work.
Now the critics are calling for Paulson's head. Among other things, they say he's incompetent. This is both true and untrue. As top banana in a hugely successful investment bank, Paulson showed himself to be highly competent. He is not an incompetent person or financier. That said, he has proven incompetent to find a way to use $700 billion to stabilize the American economy. Well, surprise, surprise. Yes, Paulson is "incompetent" in this regard, but vilifying Paulson for not being able to save the economy makes no more sense than condemning him because he can't flap his arms and fly. Nobody -- from the eminently wise Paul Volcker, to Nobel Prize-winning economists, to the world's greatest genius -- could fix this economy, even if they were given ten times the money placed at Paulson's disposal.
Last week, I asked my Economics 101 class why they thought Paulson was having such a hard time pulling us out of our economic tailspin. A hand went up and a young man said something like: "Because he doesn't have enough knowledge to know how everything should fit together." Bingo! That's it in a nutshell.
Any economy, but especially one as large as ours, involves millions of people, billions of daily decisions, and countless individual assets, contracts, obligations, abilities to pay, etc. What is the "right" price for each asset? Which contracts and obligations take precedence; what is everything worth, and what companies are most worth saving? Answer: Nobody knows, and nobody can know. This is the fatal flaw in socialism. Socialism doesn't work -- it can't work -- for the fundamental reason that only a market pricing mechanism can bring supply into balance with demand and rationally coordinate the economic activities of millions of persons.
To use an analogy, the difference between central planning and a market-based economy is comparable to the difference between the Frankenstein monster and Fred Astaire. Nobody planned or built Fred Astaire -- his grace, coordination, and fluid motions came naturally. That's the way a market economy works, with prices continually adjusting so as to coordinate the actions of millions of people. By contrast, when Dr. Frankenstein tried to artificially construct a man, assembling the different parts and patching them together, he produced something hideous. It resembled a man (two arms, two legs) but the creature's movements were slow, clumsy, pathetic, and ultimately destructive. Such is the nature of a socialist economy, where necessary adjustments are slow, supply and demand are uncoordinated, production is herky-jerky, and economic progress is pathetic.
Socialists don't understand that you can't make economic activity be coordinated; you have to let it coordinate itself through market prices. This is Socialism 101, and it is why Paulson and any eventual successors will not be able to put the fallen Humpty Dumpty of the American economy back together with top-down planning. Only markets developing themselves from the ground up can accomplish this.
TARP is doomed to fail. There is a sliver lining in this wretched political experiment, however: As Americans see TARP degenerate into a spectacle of corporate lobbyists trying to grab what they can from the government pinata, resistance to future bailouts will grow. And as they see that government planning solves nothing, producing nothing but political inequities, maybe, just maybe, they'll be willing to support market-based solutions.
Human nature has a blind spot. We often detect external flaws faster than internal ones -- seeing the speck in our neighbor's eye sooner than the beam in our own, to use the biblical metaphor.
This same tendency exists at the national level. Such blindness can be fatal, as Ralph Waldo Emerson warned when he wrote, "A nation never fails but by suicide." In America today, we readily perceive the dangers posed by international terrorism, hostile foreign regimes, uncontrolled immigration, the global narco-gangsters, etc. It is the threat within that seems to be off the radar screen.
The fall of Rome and other dominant civilizations manifest similar pathologies -- imperial overreach, runaway spending, erosion of money's purchasing power, personal debauchery. At the most fundamental level, national suicide follows moral decay. Hard work, thrift, deferring self-gratification, self-reliance, the individual virtues that enable people to prosper and civilizations to thrive -- fade away. They are supplanted by self-indulgence, borrowing from the future to live it up today, refusal to accept personal responsibility, and wanting something for nothing, even at the expense of innocent others.
Sad to say, there are signs of such rot, such weakness of character, all around us today. Our nation is drowning in debt. Our culture is increasingly ignoble and hedonistic -- people would rather read about Brittany Spears and Paris Hilton than Michael Monsoor and Ross McGinnis (two Congressional Medal of Honor winners who gave their lives in Iraq). Many Americans are afflicted with a sense of entitlement, believing that "society" owes them a living and that they shouldn't have to work to improve themselves. Millions want to feed at the government trough rather than put forth the necessary years of effort to succeed on their own. They demand ever-larger handouts from Washington -- that is, from their fellow citizens who pay taxes.
So widespread is the insidious belief that individuals have an inherent "right" to government support that politicians are locked into a permanent search for ways to confiscate more wealth from more people. Private property -- the basis for so many other human rights, and the indispensable prerequisite for social prosperity, indeed, the very key to our country's economic success -- is under siege and our future at risk.
Anecdotes illustrating this moral rot abound. The most memorable I ever heard was during the Whitewater scandal, when the possibility was raised that Bill Clinton had defrauded the American taxpayer. At a public presidential appearance, a woman called out from a crowd "Don't you worry about Whitewater, Bill, just keep our welfare checks coming." Translation: "Steal if you want, Mr. President; just give me my own little piece of something-for-nothing."
Recently (on October 17, to be exact) radio talk-show host Sean Hannity asked callers to say why they favored Obama for president. What followed was a depressing succession of people saying that Obama would give them more money, free health care, and other goodies. Totally forgotten was Democratic President Kennedy's appeal, "Ask not what your country can do for you . . ." In its place was the piggish attitude, "I want it. Promise to give it to me and my vote is yours."
As pathetic and demoralized as such me-first attitudes may be, individuals like those aren't the crux of the problem. The real culprits are their enablers: Educators who fill their minds with the notion that political taking, rather than economic service to one's fellow man, is a legitimate way to profit; "intellectuals" who scorn property rights and define "justice" as government redistribution of wealth, clergymen who confuse socialism with Christianity; and especially the demagogic politicians who pander to them. The pied pipers of this ethical plague, not the mice they mislead, bear the primary responsibility for the culture of thievery that is corroding the fabric of our republic.
Indeed, our outrage should not be directed at the poor dupes, but toward the rich and powerful, and their congressional allies, who use government to enrich themselves. Congressmen pontificate about helping the little guy, and then give subsidies to millionaire farmers. They publicly commiserate with the middle-class family who can't afford mortgage rates adjusted up to 8 or 9 percent, and then approve when the Fed and Treasury Department arrange 2.5 percent lines of credit for wealthy Wall Street firms. They lament Joe Lunchbucket's economic challenges, then dole out billions of dollars of earmarks and corporate welfare to their country club buddies. Who can blame the small fries for wanting relatively modest handouts when they see all this?
Congress is leading the assault on private property, and reaping a windfall from it. The gold-plated health insurance and retirement plans, the all-expenses-paid vacations, the millions in cash that pass through campaign accounts and PACs . . . "public service" pays well these days. Since they oversee a trillion-dollar political market for stolen goods, it shouldn't surprise us that members of Congress skim a relatively modest commission of a few million for themselves.
The U.S. Congress is becoming as corrupt as the Roman senate, which kept transferring property from the productive sector of society to the unproductive sector, until finally the productive sector collapsed and Rome herself fell. We aren't at that stage yet, but there isn't much time left to wake up and confront the moral rot that threatens to sink us.
When an author argues that there is no God, that's his personal business, something between him and the Creator. But when an author, in addition to denying God, asserts that monotheism is a net negative for the human race, rebuttal is in order.
In recent years, atheistic authors have claimed that monotheism is a blight, because such faith engenders war. While it is true that the histories of Judaism, Christianity, and Islam include many episodes of intrafaith and interfaith violence, only someone with an unbalanced knowledge of history could fall prey to the error that monotheism has made the world a meaner, more violent place.
War has been part of human history, both before and after the emergence of monotheism, and both where monotheism prevails and where it does not. Wars are generally fought over territory and wealth, even where differing religious beliefs are involved.
Is religion a major cause of war? Not for the United States. Not one American war -- Revolutionary, 1812, Mexican, Civil, Spanish, World Wars I and II, Korea, Vietnam, Iraq -- was fought over religion. Furthermore, blaming monotheism for the world's violence at this juncture in history is willful blindness. In the 20th century, brutal, tyrannical regimes inflicted more than six times as many fatalities as did wars. (Google "R. J. Rummel democide" and click on the "20th century democide" link.) 20th century aggressors and tyrants -- the three most murderous being Mao, Stalin, and Hitler -- were predominantly atheistic.
Authors who condemn monotheism seem oblivious to how much their own comfortable, free lives owe to the historical impact of monotheism. The pre-monotheistic worldview was pagan. Paganism exalted nature above all, and taught human subjection to nature. Paganism was fatalistic; it inculcated resignation to a static social order. To the pagans, individual lives were unimportant, cheap. The welfare of the collective, which in practice was the welfare of the ruling elite, was supreme. There was no theory of individual rights opposed to this arrangement. If you were born a drone, you lived the life of a drone, and if the rulers decided that your life should be forfeited to the sun god or in some military campaign to obtain booty for the rulers, then your fate was sealed.
The Judeo-Christian tradition's greatest contribution to the human race has been to liberate the human race from the stifling and deadly paganism that preceded it -- and that is trying to defeat it today. Monotheism impelled the search for scientific knowledge to tame the natural world. Judeo-Christian teachings gradually imbued human thought with ethical values that spawned the doctrines that all men are created equal, that they have inalienable rights, and that rulers are not above the law. The free market -- based on that premise of God-given rights -- has lifted masses of people out of poverty for the first time in human history. All three monotheistic faiths teach their followers to be charitable to those in need. In fact, the widespread calls we hear today about helping the less fortunate, even when made by unbelievers, are cultural echoes of our monotheistic traditions. It is hard to imagine how much poorer and less free we would be today if not for the leavening influence of monotheistic teachings.
That having been said, there is a problem with monotheism: monotheists. We who profess monotheism and know that we shouldn't sin, sometimes give in to sin and do things to our fellow man that our faith teaches us are wrong. In the case of a minority of fanatics, the sin of self-righteousness drives them to aggression against those who don't share their religious sense. This is because the limited human mind is incapable of fully comprehending the Deity. We each grasp small portions of this one infinite Supreme Being, and then make the mistake of concluding that we are qualified to impose that imperfect view on others.
It is worth noting, however, that the antidote for such self-righteous aggression is found in the very Bible that atheists find so unbelievable. The Lord Jesus directs us to get the beam out of our own eyes. The apostle Paul tells us to work out our own (not the other guy's) salvation.
Those who bash monotheism are justified in exhorting monotheists to do a better job of practicing what we preach. In turn, I urge them, too, to practice what we preach (again, not in terms of how to relate to the Deity because that is each person's private business -- but in terms of how we relate to each other, since that is public business). After all, wouldn't everybody prefer to live under rules like, "Thou shalt not kill," "Thou shalt not steal," etc., than help to protect individual lives? Can atheists think of a better formula for peace than the Lord's Golden Rule given in the Bible: "Do to others what you would have them do to you" (Matthew 7:12)?
If these guidelines for social interaction hadn't been given to us by divine commandment, human beings would need to invent them. But which approach would be more likely to instill obedience -- obey these rules because you are accountable to God, Who will judge you, or do these things because Andy Atheist says that is what nice people do? Personally, I'd rather trust the peace and prosperity of future generations to monotheists, who recognize a higher authority than human will, than to atheists, who do not. *
"If an American is to amount to anything he must rely upon himself, and not upon the State; he must take pride in his own work, instead of sitting idle to envy the luck of others. He must face life with resolute courage, win victory if he can, and accept defeat if he must, without seeking to place on his fellow man a responsibility which is not theirs." --Theodore Roosevelt
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values. Editor's note: Some of these articles were written before the Presidential election.
Global stock markets have been plummeting. Where the bottom is, nobody knows. There will be gut-wrenching zigs and hopeful zags along the way; they will be of larger magnitude and -- in our digital age of instant response -- will occur with greater rapidity than ever before. Perhaps we are near the bottom. Remember, "the darkest hour precedes the dawn," although it will take somebody smarter than me (and future historians) to pinpoint when the bear market ends.
What are stock markets telling us? I think they are signifying that we are broke, that, collectively speaking, the United States of America is bankrupt. How can that be, when so many businesses are profitable and so many Americans are gainfully employed and making ends meet?
I think we are financially bankrupt in at least two ways. There is way too much leverage and way too much debt in the financial system. Leverage and debt are two-edged swords. When used in moderation, they can be constructive; when used to excess, they become destructive. Both the leverage created by financial institutions and debt (and here I include the implied debts of Uncle Sam's massive unfunded liabilities) have soared -- leverage into the hundreds of trillions and debt into the tens of trillions of dollars -- and the financial system is now tottering under the burden of that dead weight. Sooner or later this unsustainable mountain of leverage and debt will utterly collapse; whether that collapse is imminent or can be postponed, I know not.
Our real bankruptcy, though, is not financial, but political. George Washington once said, "government is like fire -- a handy servant but a dangerous master." Indeed, government (like debt and leverage) is useful when under control and dangerous when out of control. By trying to be all things to all people, Uncle Sam has led our nation into bankruptcy. But let's not place all the blame for our predicament on government and politicians. We are at fault, too. "We, the people" have repeatedly voted for those who have expanded government.
Today, we are living through a gigantic crisis. As you may have read before, the Chinese character for crisis is comprised of the characters that denote danger and opportunity. That is exactly what we face here -- great danger and great opportunity.
The danger is that we will demand more and more government programs to take care of us, even though it is Big Government that has bankrupted us. Bigger government was the policy of Hoover and Roosevelt during the Great Depression. As the economic factors of production (resources, labor, and capital) were diverted from the private sector to the public sector, the depleted private sector inevitably stagnated, producing a vicious cycle: the greater the private-sector stagnation, the greater the apparent need for more government intervention, and since government planning is inherently inefficient, the more sluggish the overall economy remained.
The opportunity we now have is to renounce the errors of our ways. We can forsake our debt addiction -- the bad habit of enjoying things today while paying for them later. We can relearn the lesson that capital is an economy's lifeblood, precious and limited in supply, and therefore that it is to be invested wisely in wealth-creating enterprises rather than used to just create more financial paper to generate commissions for financial gamesters.
Most importantly, we can reject the demoralized desire to get something for nothing through the political process. We have made a false idol out of government. Government doesn't create the wealth that raises standards of living; profit-seeking individuals and businesses do. To use a biological analogy, the private economy is the host, and the government a mere leech on that host. We need to understand that it is not within the power of government to create wealth sufficient to guarantee our retirements, to pay for our health care, or to give everyone a house or an income, because in trying to do so, government slowly bleeds the productive economy -- the private sector -- to death.
So which will it be? Will Americans seize the opportunity to return to free markets, and return to the ethos of self-responsibility and voluntary charity for those in need? Will we rediscover the value of thrift and deferring present gratification? Will we insist on sound money and renounce counterfeit paper "wealth" that is being vaporized before our eyes? Will we reject the seductive ethos of "something for nothing," reaffirm the sanctity of private property, and get government out of the destructive business of redistributing wealth? Or will we live dangerously, and beg Uncle Sam to do anything -- even nationalize everything -- as long as he takes care of us?
From what I can see, the American people want more government. Most of us prefer the devil we know -- Big Government -- to the great unknown -- free markets. How ironic and tragic that we would defeat socialism in the Cold War and then voluntarily put the chains of socialism on ourselves.
It saddens me when I see a member of my profession go over to "the dark side," that is, to politics. Politics replaces voluntary action with compulsion, private contract with coercion. Government intervention imposes distortions, inefficiencies, and extra costs on society. In essence, politics is "anti-economics" a nullification of economics, so for an economist to argue for more government control over private economic decisions and transactions, is anomalous, pathetic, and an abandonment of economic truth.
We see frequent examples of economists mutilating economic principles during an election year. The latest example is an article, "The Great Debate," by Alan Blinder, Princeton professor, former vice chairman of the Federal Reserve System, and adviser to Democratic politicians. In his article, Blinder uses misleading terminology, meaningless statistics, and common economic fallacies to hype Barack Obama's campaign for the presidency.
Blinder wastes no time in misleading his readers. In his opening paragraph, he writes, "McCain wants more tax cuts for the rich; Obama wants tax cuts for the poor . . ." Fact: McCain wants to retain the Bush tax rate cuts, not enlarge them. Like Democratic President John Kennedy and Republican President Ronald Reagan, McCain favors non-punitive marginal tax rates because they enhance economic growth and job creation. Fact: even with the Bush reductions in marginal tax rates, the tax rate on the rich is significantly higher than on the non-rich, and the rich's share of total income tax payments has increased. Fact: Obama can't give tax cuts to the poor, because the poor already pay zero federal income tax; what Obama proposes are tax credits, i.e., a negative income tax whereby the Treasury would mail checks to low-income Americans.
Blinder proceeds to assert that "the United States economy has grown faster, on average, under Democratic presidents than under Republicans" since 1948, then cites figures -- data which I do not dispute -- to "prove" his point. In doing so, he commits a historicist fallacy that my first-year economics students can see through. Just because two facts exist concurrently doesn't mean that there is a cause/effect relation between them. For example, ever since Alaska and Hawaii joined the Union in 1959 and 1960, respectively, the federal budget has rarely been balanced and national debt has exploded, but that surely doesn't mean that the solution for our country's fiscal woes is to expel those two states from the Union.
Policies, not parties, determine differences in economic performance. Kennedy's tax cuts gave a boost to the economy. That stimulus was blunted by Johnson's unsustainable "guns and butter" policies, which spawned an inflationary period that hobbled economic performance under Nixon, Ford, and Carter. Only when Reagan cut taxes and defended the dollar was prosperity established as a long-term trend again.
Blinder concedes: "presidents have limited leverage over the nation's economy." Indeed, economic conditions under a president are often largely predetermined by events that happen before a president is even elected. Blinder also concedes that Federal Reserve policy often has more impact on economic growth than do presidents. I would add that Congress, which has the constitutional power of the purse, has more control over fiscal policy than presidents do, and during many years when Republicans were in the White House, Democrats controlled Congress, which further erodes Blinder's partisan thesis.
Blinder's other main argument is that "when Democrats were in the White House, lower-income families experienced slightly faster income growth than higher-income families -- which means that incomes were equalizing," and that the opposite happens under Republican presidents. Again, no clear explanation of economic cause-and-effect ensues. Are presidential policies the cause of these statistics?
The two primary causes of poverty in America are not finishing high school and teenage girls becoming unwed mothers. How do presidents control those variables? Another nonpolitical factor in statistical income disparity is that the last few decades have seen marvelous technological breakthroughs and unprecedented growth in new businesses. The result? Huge numbers of new millionaires and more than a few billionaires. Average incomes inevitably are skewed toward the rich in such an era, regardless of which party holds the White House. And the good news is, if we look at absolute rather than relative levels of income, all quintiles are experiencing rising incomes.
It is Professor Blinder's right to shill for Obama if he so desires, but a more candid, economically credible pro-Obama argument would be: my candidate wants to redistribute wealth from rich to poor to reduce income inequality; he wants to increase all sorts of federal spending. If Congress enacts his program, the short-term effect will likely be a boost to economic growth. In the long run, though, such booms generally wear off, and overall growth will slow as it has wherever and whenever government has absorbed a larger share of a country's economic activity.
It is sad to see economic principles abused in such a tortured subservience to political expediency. In this election season, when an economist speaks, caveat lector -- let the reader beware.
It's finger-pointing time, folks. Whose fault is the ongoing financial crack-up that has hurt, angered, and frightened so many people? There is plenty of blame to go around, and the American people deserve to know the culprits. Simple justice, though, demands that the innocent not be condemned with the guilty. Already there is one innocent that has been unfairly maligned as a cause of the debacle -- the free market.
The current crisis began with a real-estate bubble that morphed into a financial house of cards. The real-estate bubble was generated by the expansionary credit policy of the Federal Reserve System. The Fed, having been created by Congress to act as Uncle Sam's banking agent, and the Fed's policies, are emphatically not free-market phenomena.
Neither are Fannie Mae and Freddie Mac. Congress gave Fannie and Freddie a privileged status that had these effects: first, enriching their top executives along with key congressional allies (time for some ethics hearings on Capitol Hill!); second, becoming the dominant player in what historically had been a private market for home mortgages; and third, sticking the American taxpayers with hundreds of billions of dollars of bad mortgage debt. Thanks, Uncle Sam.
That having been said, the Wall Street titans that have headlined the financial crisis this year (Bear Stearns, Lehman Brothers, AIG, etc.) were not created by government. However, the problems in the financial industry have resulted from a political failure, namely, improper regulation.
Liberals repeatedly accuse conservatives of being ideologically opposed to regulation. What nonsense! Neither "free markets" nor "deregulation" mean "no rules." On the contrary, they assume the rule of law. What they oppose is excessive, stifling, and costly overregulation. The Latin root of "regulation"-- regula -- means "rule" and also connotes regularity, that is, predictability and constancy as opposed to arbitrariness and privilege. No market can function without clear rules of the game, and no true defender of free markets is dogmatically "anti-regulation." That would be absurd.
The crisis today isn't due to an absence of regulation, but the presence of mistaken regulation. For example, the Clinton administration, invoking the Community Reinvestment Act, imposed new regulations that penalized lending institutions if they didn't lend "enough" money in low-income neighborhoods, regardless of the credit-worthiness of the borrowers. This regulatory regime undermined the traditional, market-based practice of risk-assessment that is the primary fiduciary duty of lending institutions. Regulators forced lenders to abandon financial prudence in subservience to a political goal, and then compounded the risk by allowing the proliferation of zero-down and no- or low-documentation mortgages. These regulatory blunders have come back to haunt us. They are responsible for the current wave of mortgage defaults and foreclosures, which in turn have torpedoed mortgage-backed securities and the many layers of financial derivatives based on them.
Another instance of regulatory failure occurred in 2005, when Republicans sought to diminish the risk of an eventual collapse of Fannie and Freddie by imposing stricter capital standards on them. That attempt was blocked on a party-line vote by Democrats.
What kind of rules does a market economy need to function well? In a society of free people, the primary rule is that one person's freedom ends when it intrudes on another person's rights. Thus, the right of free speech doesn't include the right to yell "Fire!" in a crowded theater. Similarly, we have a right to seek profit, but not if our actions would wreck the entire financial system and ruin others.
We need rules against dangerous excesses -- things like giant investment banks leveraging shaky debt instruments by a factor of over 30-to-1 or creating hundreds of trillions of dollars worth of financial derivatives. In 1998, the firm Long Term Capital Management (LTCM) shook the foundations of our financial system when its $1 trillion portfolio of derivatives started to implode. That was our warning that we needed rules to protect innocent people from the fallout of a financial nuclear explosion. Sadly, we didn't heed that warning. Firms far larger than LTCM have created over $100 trillion in derivatives, threatening the viability of our country's financial structure. Why was this permitted?
We face a financial cataclysm, not because of market failure, but due to political failure. Government interference with free markets, combined with government's failure to perform its primary function of protecting the people, has brought us to the brink. In the desperate attempt to postpone the day of reckoning, the only solutions being proposed are additional government interventions, even partial nationalizations, and less reliance on markets. When things continue to worsen, please, just don't blame "free markets." They no longer exist.
The biggest bailout plan (so far?) will continue to be revised in an attempt to win approval of a congressional majority. The goal of the Emergency Economic Stabilization Act of 2008 is to put the brakes on the unwinding of the largest debt and leverage bubble in history in the hope of preventing a crash.
Nobody feels good about this extraordinary proposal. It is terribly expensive, it expands government power tremendously, it strikes many as being terribly unfair for rescuing fat cats, it is supported even by some who acknowledge that it may not work, and it is (at best) the lesser of two evils.
The partisan politics of the bailout negotiations have been fascinating. A majority of congressional Democrats favor the bailout, even though polls show most Americans dislike it. A majority of Republicans have resisted the bailout. This is a very high-risk strategy, because if the financial system collapses before Election Day, the public probably would take it out on the party currently in the White House, thereby guaranteeing a Democratic triumph in the November elections.
One particularly cynical aspect of the bailout negotiations was the Democrats' request for 20 percent of any profits that the Treasury might make on the eventual sale of assets that they would purchase under the plan; those profits would go to groups that serve as slush funds and lobbyists for Democratic special interests. The profits would go there instead of back to the Treasury. Republicans naturally balked at agreeing to fund the Democratic political machine as a condition of trying to rescue the country.
The heart of the plan is to allow the Treasury to purchase bad mortgages from various financial institutions -- financial instruments that nobody knows how to value, for which there are no market prices, and indeed, for which there is no market at all. Few financial experts, however, believe that the Treasury can save all the banks and other financial companies that are choking on these depreciated, possibly worthless, assets. Officially, there are 117 banks on the FDIC's "in trouble" list, but private estimates say it's more like 1400 banks. How will Treasury decide which firms to save? Will there be a merit system, or will it all boil down to who has the best personal connections and most influential lobbyists?
Economics teaches us that policies have costs as well as benefits. While preventing the financial system from collapsing is something that most of us would prefer, the bailout plan will interfere with markets from correctly pricing assets that are currently mispriced. That is, in an effort to prop up floundering financial institutions, the Treasury interventions are designed to keep housing prices from falling. But housing prices got way out of balance in recent years, stretching beyond the affordability of many Americans. The negative side of falling housing prices is a lot of pain to homeowners, particularly those who would end up with negative equity, as well as the financial institutions holding mortgages and mortgage-backed securities (MBSs). That is a huge negative, because the MBSs are spread throughout the global financial system, which is tottering as falling housing prices erode the foundation of the huge financial house of cards resting on them. But if the market prevails, with all its merciless short-term pain, the outcome will be more affordable housing prices -- a boon to younger Americans just entering the workforce.
The original wording of Treasury Secretary Paulson's proposal included a provision that would make his office's decisions unreviewable and irreversible. At this moment, I don't know if that language remains intact. It probably doesn't, but just the fact that someone would dare to propose that an unelected official and his team would have sole discretion over the use of $700 billion of taxpayer monies is incredible. It would utterly banish the "checks and balances" principle of our representative system of government. I rarely agree with Speaker of the House Nancy Pelosi, but when she told, "60 Minutes" that the proposal asked for "czar-like powers," she was spot on.
What, exactly, should Uncle Sam do? I am asked that question frequently these days. The short answer is "I don't know." Neither does anyone else. I'm not sure that King Solomon, with all his legendary wisdom, could solve this problem. The policy-makers certainly will try to preserve the existing system, even though the system is full of financial rot, such as excessive debt and leverage. On the other hand, the market -- that is, all of us as buyers and sellers -- will ultimately assert itself, correct the excesses, the price assets rationally, as surely as water finds its way to the sea. All this economist can do is sit back and watch this extraordinary drama unfold.
It was bound to happen. In this "Year of the bailout," why shouldn't Detroit get into the act? The financial community has maintained a death-watch over GM and Ford for months as they hemorrhage floods of red ink. Bankruptcy is viewed more as a matter of "when," not "if."
On August 5, John Dingell, the powerful Michigan congressman whose district lies in the heart of "Big Three" country, acted. Dingell has proposed a government "loan" of $25 billion to the Big Three, ostensibly to speed up the transition to manufacturing alternative-fuel cars.
Question: If it's just a lack of capital that is preventing the Big Three from making the transition to a profitable future, then why aren't private, profit-seeking lenders issuing loans to them? For that matter, since the stock prices of GM and Ford are so depressed that the two companies combined are priced at less than $17 billion, then why doesn't some deep-pocket value investor like Warren Buffett just buy them?
The reason nobody in the private sector wants to invest in GM or Ford, or to buy privately owned Chrysler, is that their business models aren't viable. Their cost structure -- particularly their cost of labor -- is prohibitively expensive. The consensus is that, regardless of what kind of fuel their cars use, the Big Three simply can't compete with lower-cost producers. Cars can be profitably made in the United States with labor compensation packages in the $40-$50/hour range (Honda, Toyota, and Nissan have demonstrated that) but not when labor legacy costs and compensation packages total over $70 per hour, as they do at GM.
The Big Three have been surviving by selling off assets and shrinking their operations. What they clearly must do to avoid shrinking to nothing is to reduce their labor costs. And if GM and Ford continue to operate at a loss, how would they ever repay the government's "loan?" Answer: They wouldn't; thus, what Dingell calls a "loan" is a euphemism for a bailout.
This bailout is economically destructive. Without the companies correcting their fundamental problem of too-high labor costs, giving them more money would amount to throwing good money after bad. It also ignores the basic economic truth that the bigger a money-losing company is, the better it is for society if it shuts down. That may seem counterintuitive, so let's think it through:
When a corporation suffers chronic losses, it means that society's limited supply of factors of production are being used uneconomically -- that, on a net basis, the company is extinguishing wealth. The larger the company, the more assets are being employed uneconomically. The sooner the unprofitable company folds, the sooner its assets can be reallocated to economic production that earns a positive return -- that is, that generates rather than destroys wealth for society. In the case of a potential GM liquidation, its erstwhile employees and manufacturing plants might even be used for making cars, but at lower salaries and wages.
There are ethical problems with a Detroit bailout, too. To subsidize the Big Three under any circumstances is bad enough. Why should Congress rescue these particular businesses when Congress allows thousands of other businesses to fold all the time? It is manifestly unfair to transfer wealth from millions of Americans who earn far less than their blue-collar and white-collar counterparts to those higher-paid workers.
Despite the economic and ethical problems with a Big Three bailout, politically there is an excellent chance that it will happen. Given the immense financial clout of the unions, any political leader who opposed such a bailout would be pilloried as an enemy of America's workers. That, of course, would be a misrepresentation. A bailout of the Big Three would do nothing for most American workers, but would help only a minority of workers -- the elite, the aristocrats, of the American blue-collar workers, who make far more than most of their fellow workers.
If the Big Three receive a bailout, it will be due to the immense power of unions. For decades, the unions have extracted premium wage packages from their fellow Americans through unnecessarily high-priced autos. Now that it appears they have finally killed the goose that laid their golden egg (i.e., the domestic car companies), unions like the UAW will continue to siphon money from fellow Americans and fellow workers into their own bank accounts. The only difference is that the government, rather than Ford and GM, will collect the money for them.
A Big Three bailout would be a travesty. It would be another sad instance of special-interest politics trumping economic rationality in America. And guess who is going to pay the bill? *
"The ultimate result of shielding men from the effects of folly is to fill the world with fools." --Herbert Spencer
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. This article is republished from V & V, a website of the Center for Vision & Values.
High fuel prices have produced a tectonic shift in the United States' political landscape. Recent polls indicate a strong surge of support for Uncle Sam lifting government restrictions against domestic drilling for oil. Blocking the development of domestic energy resources was a luxury we used to be able to afford. At current prices, though, the calculus has shifted. The reasons for proceeding full speed-ahead with domestic drilling are compelling. They include:
1) Compassion toward relatively poor Americans. Those who oppose domestic oil production often are those who claim to champion "the little guy." They can prove the sincerity of their professions by permitting increased domestic production of oil, thereby exerting downward pressure on the market price of the fuel that consumes a growing share of Americans' incomes.
2) Reducing the merchandise trade deficit. For years, politicians left and right have decried the United States' enormous trade deficit. Since imports of oil now account for more than half of that deficit, one of the most effective policies for reducing it would be to produce more oil domestically.
3) Creating more jobs, especially high-paying blue-collar jobs. Why does the party that aspires to be known as the friend of labor suppress the creation of thousands of high-paying jobs for American workers?
4) Showing more respect to the rest of the world. There is something pathetic about the president of the United States traveling to Saudi Arabia to plead for them to increase production while we refuse to increase our own. Liberals are uncomfortable with any manifestation of American exceptionalism, yet aren't we practicing exceptionalism when we expect the rest of the world to produce our energy for us?
5) Increasing national security. Who benefits the most from today's astronomical oil prices? Ideologues reflexively point the finger at "Big Oil," but the major beneficiaries are the House of Saud -- the sponsor of Wahhabism -- and such mischief-makers as Venezuela's Chavez.
6) Keep taxes on middle class Americans from being raised. If fuel prices stay high, don't be surprised if Congress proposes new, costly Federal energy assistance programs for poorer Americans. Shades of agricultural subsidies and food stamps! Once again, the American taxpayer will take it on the chin twice -- first, by having to pay more for gas and heating oil as a result of government's suppression of domestic production; second, by tax dollars being channeled to those hurt most by those unnecessarily high prices.
The following objections to a pro-drilling policy are weak and clearly untenable under present circumstances:
1) Oil and gas wells are not aesthetically pleasing. True, but neither is human hardship. Are well-to-do "green" sentimentalists willing to see an occasional derrick in exchange for millions of poorer Americans gaining critical relief from high fuel costs?
2) An accident could occur. No fooling. But if we are going to outlaw risk, why not ban driving? Automobile accidents claim over 40,000 American lives annually. The environmentalist assertion that oil companies won't take sufficient precautions to prevent oil spills is a prima facie absurdity. Oil is valuable, and if American oil companies are half as greedy as their critics claim they are, then they will strive mightily to prevent spills which hurt them in two ways -- loss of valuable product and incurring the huge cost of cleanups. Those fearing oil spills should take heart from the fact that a thousand oil and gas wells were smashed by Hurricane Katrina, yet no spills occurred. Technology has improved.
3) Oil company profits are "obscene." Why discriminate against oil companies? We don't think twice when other businesses -- cell phone, beverage, retail, software, etc. -- earn greater profits when they provide more of what people want. If you really resent oil company profits, you should favor opening up drilling to all corners, because increased production puts downward pressure on prices and increased competition squeeze profit margins.
4) Increased drilling won't boost supply right away. True, but pointless. It is because people accepted this myopic premise years ago that we are in our present predicament. Let's do a better job of planning ahead. Future oil prices will be lower with increased supply than without it.
5) We need to develop alternative energy sources to replace oil. Okay, but what will we do if those technological breakthroughs don't occur as early as we hope? We will need affordable energy regardless, so it would be prudent to increase the supply of oil, just in case we find ourselves still needing it.
The time for drilling is now. Let's get on with it.
Thrift used to be a virtue in America. In Asia, thrift remains a way of life -- for example, it is estimated that the average Chinese family's thrift rate is 30 to 40 percent -- which helps explain the rapid growth rates there.
A century ago, the sociologist Max Weber credited the so-called "Protestant work ethic," combining thrift with hard work as the engine of America's economic preeminence. How times have changed! While many Americans are thrifty, many are not. The political divide of blue-state and red-state Americans is replicated in an economic division between red-ink and black-ink personal finances.
The gross totals of debt in the United States are, well, gross. Private debt owed by Americans is nearly $14 trillion -- approximately the size of our Gross Domestic Product. Corporate debt exceeds $6 trillion. Uncle Sam's official debt is $9.4 trillion. If one includes unfunded liabilities for Social Security, Medicare, and who-knows-what, then you can add several more multiples of GDP to our total national indebtedness.
What explains this mountain of debt? Primarily, it reflects an attitudinal shift, the gradual supplanting of the ethos of deferring present gratification by an ethos of "enjoy now, pay later." This ethos, so evident in the spectacle of millions of Americans drowning in nearly a trillion dollars of high-interest credit card debt, is manifest at the macroeconomic level in our country's public polices. The massive debt of the federal government is the costly result of special-interest politics, enabled by the evolution of our political system from a constitutional republic, strictly limited in its powers, to a nanny-state democracy that redistributes wealth and tries to be all things to all people. Voters like politicians who spend money to their benefit, but detest politicians who tax them, and so all the political incentives lead toward deficit spending and ever-increasing debt.
The federal government is partly to blame for corporate debt, too. By imposing multiple taxes on businesses, including up to 35 percent of corporate profits, Uncle Sam and state governments have decreased the ability of businesses to self-finance improvements and expansions. Combined with the policy of making business debt tax-deductible, federal tax law has increased the incentives for businesses to borrow.
On the individual level, besides the credit-card junkies, many Americans have more debt than savings, primarily due to mortgages on their houses. How many Americans realize that a 30-year mortgage on a house at 6-percent interest results in eventually paying the lender more than twice the sales price of the house? In China, by contrast, 80 percent of houses are paid for in cash, freeing those homeowners from having to pay a significant portion of long-term income to a lender.
One reason why so many Americans buy houses on credit is, once again, the incentive created by tax laws. Those laws discourage savings by taxing interest, dividend, and capital-gain income, and encourage borrowing by making mortgage debt tax-deductible. But there is an additional, more insidious factor: inflation. The ongoing depreciation of the dollar, caused by ever-increasing government spending and the replacement of a gold standard by fiat money, discourages thrift while encouraging debt. After all, why save dollars, if those dollars are going to lose purchasing power? And why not go into debt, since you will probably be able to repay those debts with cheaper dollars?
There are signs, though, that America's debt burden has reached a critical stage. As U.S. debt has escalated, domestic economic growth has become increasingly sluggish, despite surging global growth and marvelous technological breakthroughs. Each dollar of debt in 1960 produced 64 cents of GDP growth, but four decades later, each dollar of debt generates only 15 cents of GDP growth. We're getting less bang for our borrowed buck than ever before. The marginal productivity of debt is trending toward the point of accomplishing absolutely nothing.
All debts eventually are settled. The honorable way is for debts to be repaid with money that has retained its purchasing power or assets of comparable worth. There are two dishonorable ways of retiring debt: repudiate it outright and default on repayment, or repay it with depreciated currency. Since the federal government is the largest single debtor and authorizes a Federal Reserve-controlled money monopoly, it will determine which of the three approaches to debt will prevail. Of these three, I see no possibility of Uncle Sam ever having the political will to repay debts the honorable way; nor do I anticipate outright repudiation, which would plunge the world into depression, maybe even war. That leaves the entrenched decades-long trend of dollar depreciation as the most likely course. The government will continue to overspend, the Fed will continue to inflate, and dollar-holders will continue to repay debts in depreciating dollars until creditors no longer accept those shrinking dollars.
Debt and its Siamese twin -- dollar depreciation -- likely will continue in the U.S. until the whole financial system and monetary regime arrive at some cataclysmic denouement.
News of the passing of Russian author Alexander Solzhenitsyn on August 3rd brought me a flood of memories. Although I never met Mr. Solzhenitsyn, he had a profound effect on my life. He also had a great impact on the world. The adage "the pen is mightier than the sword" was rarely truer than in the case of this man.
Solzhenitsyn entered my life during graduate studies in literature at Oxford. In January, 1974, my tutor, the great Miltonian scholar Archie Burnett, assigned Solzhenitsyn's One Day in the Life of Ivan Denisovich as my first-week assignment. Less than two years earlier, I had considered myself a socialist, maybe a Communist. After reading this book, I forever closed the door on my youthful flirtation with Big Government.
The novel -- a microscopically detailed account of the miserable daily grind of inmates in Soviet penal labor camps -- was autobiographical. The author had spent eight years in such a camp. His offense? After fighting in the Red Army for several years in World War II (and serving well, having received two citations for bravery), Solzhenitsyn sent a letter to a friend that included criticisms of Stalin's strategy. In the suffocating police state that was the Soviet Union, Communist Party hacks monitored people's mail -- even letters written by decorated patriots -- and treated any indiscreet comment about Stalin as a "crime against the state."
The sheer power of One Day . . . is unforgettable. The vivid word pictures painted by the author make it obvious why he won the Nobel Prize in literature. Solzhenitsyn's genius in storytelling lay in his willingness to let events speak for themselves. His narration was calm, understated. Here was unvarnished, unembellished truth, relentlessly yet matter-of-factly exposing unspeakable cruelties routinely committed by an inhuman regime. Thousands of those labor camps (dubbed "the Gulag Archipelago" by Solzhenitsyn's trilogy of the same name) were still in operation in the 1970s and 1980s, but that didn't stop many liberals in the West from remaining active apologists for the Soviet Communists.
Solzhenitsyn was a polarizing figure everywhere. In his native country, he received honors for Ivan Denisovich and several other stories that Soviet leader Khrushchev regarded as conveniently anti-Stalinist. However, after Khrushchev was deposed and replaced by Brezhnev, Solzhenitsyn and his dedication to truth-telling caused him to be deemed a threat to the Soviet system, and he officially became a "nonperson," his works unpublishable in his own country. Thankfully, though, a couple of manuscripts (notably, his novels The First Circle and Cancer Ward) found their way to the West, where they were published and highly acclaimed. After he won the Nobel Prize in 1970, and with the help of western diplomatic pressure, the Soviet rgime deported Solzhenitsyn from his beloved Russia in 1974.
In the West, Solzhenitsyn became a hero to anti-Communists while enraging liberals. One liberal professor stridently told me that Solzhenitsyn belonged in an insane asylum -- a telling remark, since the Soviets themselves used insane asylums as a preferred place of imprisonment for dissident intellectuals. But for those of us who were not infatuated or deluded by Soviet propaganda, Solzhenitsyn was an invaluable fount of information about Soviet Communism. He opened our eyes to reality, writing and telling us about the USSR's economic backwardness -- of most hospitals lacking hot water, of widespread shortages, of awards being given for new factories that didn't even exist. He wouldn't let the West forget about the ongoing violations of every human right by the secret police, nor about the horrors of the gulag. Like some biblical prophet, he warned us that evil, when left unhandled, only grows more aggressive, and that we needed to resist and withstand evil, not appease it. Ronald Reagan took that message to heart, boldly calling the Soviet empire "evil" while pursuing policies that bravely and consistently countered Soviet aggression until the evil empire imploded.
Despite his anti-Communism, Solzhenitsyn wasn't a conservative in the American sense -- far from it. My master's thesis explored his economic beliefs, which were anything but free-market. Alexander Solzhenitsyn shared Adam Smith's initials; like Smith, Solzhenitsyn's father died before his birth, so they were both single children raised by devoted mothers, and like Smith, he was a great writer. However, when it came to trusting the "invisible hand" in economics, Solzhenitsyn did not.
Alexander Solzhenitsyn was a Russian nationalist, an orthodox Christian, a traditionalist who favored an authoritarian government exercising a dominant role in his country's economic life. Most importantly for the world, though, he was a courageous, principled man, who stood up to evil and prevailed. In doing so, he helped us to do the same. God bless you, sir, and thank you. R.I.P.
After lying dormant for more than 22 centuries, the modern Olympic Games were launched in 1896. Held in Athens (of course!), the first modern Olympiad attracted the largest crowd ever to have assembled for a sporting event. The athletes were truly amateurs -- so much so that, when I was in college, I threw the discus far enough to have won the gold medal at the 1896 Olympics. Don't be impressed. My toss only qualified for third place at an intramural track meet at a small college. Today, many high-school girls throw the discus farther than I did.
The greatest film ever made about the Olympics was Chariots of Fire, the last G-rated movie to win the Oscar for Best Picture. This stirring story about the 1924 Olympics and the intersecting athletic careers of Jewish Cambridge student Harold Abrahams and Scottish Christian-missionary-to-be Eric Liddell had a difficult time finding financial backing due to the Christian-Jewish themes. The project was rescued when a Muslim, Dodi Al-Fayed (who died with Princess Diana in that tragic car crash), bankrolled the film. Chariots of Fire is undoubtedly the best movie ever made about the Olympics.
Geopolitical affairs have often obtruded on the Olympic ideals of peace and global fellowship. The Games were canceled during both world wars. One of the most memorable Olympics was in 1936, when American track star Jesse Owens, a black man, won four gold medals in Berlin -- exploding Hitler's dogma of Aryan supremacy.
Who was the greatest Olympian of all time? Jim Thorpe, Nadia Comaneci, Carl Lewis, Katarina Witt? How about Abebe Bikila? The Ethiopian was one of only two marathon runners to win gold twice. In 1960, Mr. Bikila ran barefoot, breaking the heart of the sports shoe companies seeking endorsements. He won again in 1964, only 40 days after undergoing an emergency appendectomy. What a lion-heart!
In 1964, the blond, handsome American swimmer Don Schollander won gold and graced many magazine covers. In the 1970s, one of my dates mentioned that she had a husband (those 1970s sure were different!). Marlin, the husband, became my close friend. In 1964, he had shared Schollander's national swim record, and his blondness and good looks, too. Marlin might have won gold, but he bypassed the Olympics to join the navy and see the world. Can you imagine an athlete making that choice today?
The 1968 games were memorable for the black power gesture of two American sprinters on the winners' podium and the amazing feat of Bob Beamon, who smashed the world long jump record by more than a foot, becoming the first human to break both the 28-foot and 29-foot barriers.
The 1972 games were the saddest, as Arab terrorists murdered Israeli athletes in their quarters in Munich. By violating the Olympic Games with those cold-blooded murders, the perpetrators lost much sympathy for the Palestinian cause.
The decades-long rivalry between the Free World and Communist Bloc reached its climax at the 1980 Winter Games. The victory of the American hockey team, consisting of young amateurs, over the mighty Red Army team symbolized the triumph of liberty over tyranny. The guttural chant "U-S-A" never sounded so sweet. (Now that the cold war is over, is that pounding, in-your-face chant appropriate when an American athlete beats some postal clerk from Paraguay or Timbuktu?)
Besides the geopolitical undercurrents that have conflicted with the Olympic ideal of global brotherhood, the Games' lofty aspirations have been vitiated by doping scandals and corrupt judging. The International Olympic Committee itself has compromised its own ideals by opening events to professionals already earning millions for playing their sports. Nevertheless, the noble ideals of the Olympics -- striving to achieve one's best in a spirit of genuine brotherhood and charity -- endure. Many more Olympians honor those ideals than fall short of them.
One of the great experiences of my life was attending the opening ceremony of the 2002 winter games in Salt Lake City with my daughter as guests of the Olympic Committee. Karin had composed the torch relay song, "Carry the Flame" (recorded by Aretha Franklin), which captured the Olympic spirit, reminding each of us of our opportunity to be all that we can be. I'll never forget how the crowd enthusiastically welcomed all the athletes at the Opening Ceremony -- Russian, French, Islamic, every single one. The Olympics provide a vivid demonstration that individual human beings can harmonize beautifully when politics doesn't intrude.
As we observe the 2008 Olympic Games in China, let us all embrace the Olympic spirit. May the spirit of true brotherhood and sisterhood prevail -- let us feel unselfish joy in each other's accomplishments. May the Olympic Games inspire us to build a future in which the whole human race coexists as one family, working peacefully and cooperatively to achieve humankind's maximum potential. *
"Nothing is more essential to the establishment of manners in a State than that all persons employed in places of power and trust must be men of unexceptionable characters." --Samuel Adams
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. This article is republished from V & V, a website of the Center for Vision & Values.
Economic growth in the United States is sluggish, and there are several reasons to be pessimistic about macroeconomic performance in the balance of 2008, if not beyond. The adjective "macroeconomic" is crucial. We should never forget that, even when major sectors of a country's economy are experiencing hard times and macroeconomic statistics are gloomy, there are always great opportunities for entrepreneurs and investors to be found in various microeconomic niches.
Another point to understand is that markets know far more than any mere economist. Inevitably, the next bull market in stocks will be born and economic activity will improve, even while economists, with our foggy crystal balls, continue issuing dismal prognostications. That being said, it seems to me that the piper now needs to be paid for decades of economic mistakes and that painful economic corrections and adjustments will continue for the foreseeable future.
Here are some of the economic chickens now coming home to roost:
1) The housing bubble bust may weigh on us for years. While housing prices rose from 1998 through 2005, between 1.25 percent and 3.25 percent of GDP consisted of spending financed by homeowners withdrawing equity from their houses. This debt-financed spending splurge was painless as long as prices of houses continued to soar. However, now that home prices are deflating, home equity credit has contracted. It was 3.125 percent of GDP in 2005, 2 percent in 2006 (the most recent year for which I have figures) but certainly far lower today. Housing prices, on average, have fallen 15 percent from their peak already, but in spite of lower prices, the inventory of unsold new homes has continued to rise, now standing at an 11-month inventory. The mortgage delinquency rate rose to 6.35 percent in the first quarter of this year, the foreclosure rate doubled in one year to almost 2.5 percent, and according to the Census Bureau, approximately 10 percent of houses built since 2000 remain unoccupied.
To give some historical perspective on the size of the housing bubble, residential property in the United States hovered around the same real value for the century spanning 1890 to 1990; however, housing prices doubled in real terms. If those prices return to anywhere near their historical average, then the 15-percent decline so far is just the beginning.
One enormous effect of the shaky housing market is that the mortgage-backed securities derivative crisis in the financial industry continues unabated. In fact, the financial crisis has gotten worse. Investment analyst Porter Stansberry asserts that Fannie Mae and Freddie Mac, the two giant federal mortgage agencies, already have negative equity (i.e., are technically bankrupt) and that their stocks will fall to zero.
2) Decades of Congress obstructing the development of domestic energy resources has produced $4 per-gallon gasoline. Among the casualties: Ford and General Motors may be mortally wounded, and prices of many products are rising to cover increased transportation costs. These higher costs are likely to eat into corporate profits and lead to low stock prices. Thus, Americans have been put in the uncomfortable position of watching the prices of their primary assets (homes and stocks) fall while the prices of the things they need to buy (food, fuel, miscellaneous consumer products) rise.
3) The cost of the Iraq war. This isn't a comment about the ethics or geopolitics of the war. The economic fact is that the huge spending on this war has weakened and will continue to weaken the dollar, just as previous wars had inflationary consequences.
The stock market, which tends to discount (anticipate) the future, is floundering now. Besides the economic conditions just described (none of which, alas, is amenable to a quick fix), the market may be foreshadowing political problems.
Monetary policy is paralyzed. The Fed has been checkmated. It can't raise interest rates to defend the dollar, because higher rates would aggravate the housing decline and related financial crisis. Nor can it lower rates to stimulate activity, thereby weakening the dollar and causing the dollar-denominated prices of oil and other essential commodities to rise.
The outlook for fiscal policy is also discouraging. The next Congress may be controlled by a veto-proof majority of radical anti-capitalist re-distributionists. Neither presidential candidate has a plan to rein in the rapid growth of federal spending, which has been cannibalizing the private sector. Both candidates pay homage to global-warming mythology and advocate imposing cap-and-trade ceilings on fossil-fuel consumption -- a folly that can only raise energy prices even higher. Neither candidate seems willing to let free markets make the painful adjustments needed to correct past mistakes.
In sum, the economic outlook for the coming months is dicey. Appropriate advice for most Americans would be Warren Buffett's two rules of investing: 1) don't lose the money; and 2) pay special attention to rule #1.
In what has become an annual ritual, the wizards of Congress are going after the leaders of Big Oil again. This is political theater at its most cynical. It's the modern version of the Salem Witch Hunt. The rapid rise of gasoline to $4 per gallon is a pain in the patootie, and somebody needs to be blamed, but why blame the American oil companies?
For some folks, Big Oil's guilt is inherent in the simple fact that these companies are big. Everyone knows that big is bad, right? (Except for Big Government, of course, because people in government are honest, pure, and noble, unlike people in the private sector.)
Just how big is America's Big Oil club? Well, the biggest of the big -- ExxonMobil -- is ranked only around 20th of the world's largest oil producers. Exxon owns a modest 1.08 percent of the world's proven petroleum reserves.
The oil producers which are larger than Exxon are all state-owned entities -- that is, the governments of Saudi Arabia, Kuwait, Venezuela, Mexico, etc. Not only are those producers foreign (meaning they lie outside of Congress' jurisdiction and therefore won't be called on the carpet to account for the pain Americans feel at the gas pump), they are notoriously corrupt and inefficient. (Gee, maybe not everyone who is in government is so pure after all.) These nationalized operations are plagued with mismanagement and inferior engineering. The results are subpar recovery rates and the premature decline of their oil fields -- a major reason why global supply is struggling to keep pace with demand.
If those vast foreign oil resources were managed by America's Big Oil -- the real professionals of the trade -- the global supply situation would be much improved. The problem, for all of us who long for lower fuel prices, isn't that American Big Oil is too big, but that its share of the global petroleum market is too small.
But aren't Big Oil's profits obscene? True, ExxonMobil is earning more dollars than any private-sector corporation in history. That is hardly surprising, considering how voracious the American thirst for oil and gasoline is, and ExxonMobil is our largest supplier. Nevertheless, Big Oil's rate of profit is unexceptional. The industry average for American oil companies last year was 8.3 percent -- while American cigarette and beverage companies' average profit margins were 19.1 percent, pharmaceutical companies' 18.4 percent, and American manufacturers' 8.9 percent. (Who said U.S. manufacturing can't compete?) American banks, insurance companies, telecom services, health care, and media companies routinely have higher profit margins than the oil industry, so why aren't the CEOs in those markets called on the carpet by Congress and threatened with special punitive taxes?
What is obscene is not Big Oil's profits, but Congress' verbal assault on those profits. The amount of money that Congress has taken from Big Oil through taxes over the past 20 years exceeds Big Oil's profits. Yep. Big Oil did all the work, Congress shamelessly helped itself to the lion's share of their profits, and now Congress threatens to take more. Big Oil spends virtually all its profits on developing additional supplies of oil. Does Congress really want to divert money from producing more oil? How will reducing the supply of oil help the price of gas to fall?
Come to think of it, maybe Congress really intends to reduce the amount of energy that Big Oil produces. After all, for decades it has been Congress' bipartisan policy to forbid development of the extensive petroleum reserves that we know are offshore and in Alaska. Just last December, the political powers-that-be imposed a moratorium on developing the oil resources in Wyoming, Utah, and Colorado. There is more oil there than in all of Saudi Arabia. The catch is that it is trapped in shale rock, which means it is going to be expensive to recover, but economically viable in a world of $100-plus-per-barrel oil prices.
When congressmen grill oil executives, you are witnessing a classic political sleight of hand. Congress wants to get your attention fixed on Big Oil so you don't stop to think how irresponsible Congress itself has been in blocking the development of domestic oil deposits.
This drama reminds me of Shakespeare's classic tragedy, Othello. The villain, Iago, poisons the mind of Othello against his innocent wife, Desdemona, by pouring lies into Othello's ear. Today, congressional Iagos -- themselves guilty of thwarting American energy independence -- are poisoning the minds of gullible Americans against the very oil companies that reliably supply us with essential fuels, and would be producing even more (resulting in lower prices) if Congress weren't blocking them from doing so. When it comes to energy, Congress is the problem and Big Oil is part of the solution. The longer it takes Americans to perceive this, the longer our energy woes will continue.
"Cynical politics" may be a redundancy, but it is hard to imagine a more cynical political issue than global warming (GW). In his 1992 book Earth in the Balance, Al Gore called for a "wrenching transformation of society." Leftists, with their elitist penchant for social engineering, didn't need any convincing. The challenge for Gore was the inconvenient truth that, in a democracy, a would-be central planner needs to get the masses on his side, too. To do that, he borrowed a strategy encapsulated in H. L. Mencken's statement:
The whole aim of practical politics is to keep the populace alarmed by menacing it with an endless series of hobgoblins, all of them imaginary.
Apocalyptic GW became Al Gore's hobgoblin of choice.
Gore needed the scientific community to back up his assertions and the media to spread the word. Enlisting the help of the media was easy (apocalyptic fantasies are sure ratings winners), but getting enough scientists on board was trickier. When Gore started his GW campaign in the early 1990s, a contemporary Gallup poll of scientists showed that only 18 percent thought there was any evidence to support Gore's theory. Even a survey conducted by Greenpeace found only 13 percent of climatologists willing to declare GW "probable."
Nevertheless, Gore repeatedly claimed that (literally) 98 percent of scientists agreed with him, and he exhorted reporters to ignore skeptics. Right from the outset, the GW cult (like other illiberal movements, such as Communism and fascism) had to resort to the "big lie" technique to make it appear that the science of GW was settled.
As senator, and then vice president, Gore used his power to channel money toward those who "played ball" and away from those who doubted GW. The latter found that grant money dried up, promotions were denied, and even jobs were terminated. Gore's colleague, Colorado Senator Timothy Wirth, became Undersecretary of State for Global Affairs in charge of promoting GW theory and international agreements to address the alleged problem. Wirth was quoted as bragging that he could change a lot of minds with a billion dollars per year of State Department money. Indeed, recent estimates are that $50 billion has been spent promoting the GW theory (mostly governments and international organizations using tax money) and less that $1 billion to question it. Advantage: GW.
This is richly ironic. GW fanatics routinely accuse skeptics of having been bought off by Big Oil. They expect Americans to disbelieve private-sector scientists while trusting government-funded scientists (i.e., virtually all the scientists on the GW bandwagon) as if, a priori, government funding is holy, but private funding corrupt.
The Kyoto Protocol -- which called for the developed nations to curb their CO2 emissions -- was the international front of Gore's GW agenda. For the last seven years, Gore's media allies have denounced George Bush for "killing" Kyoto. Poppycock! The history is this: after the Clinton administration signed Kyoto, the senate voted 95-0 against implementing Kyoto's provisions because they were slanted so unfairly against the United States. Clinton then signed an executive order barring the executive branch from enforcing any part of Kyoto. Bush didn't kill Kyoto; he inherited a corpse. (Factoid: since Kyoto was written, greenhouse emissions in the countries that adopted it increased 21.1 percent on average, while U.S. emissions increased only 6.6 percent; yet, the United States has been singled out as the irresponsible global citizen. That's politics!)
Kyoto's agenda wasn't to save the world, but to shackle economic activity in this country through curbing energy consumption. It's easy to understand why foreign economic competitors would want this, but why would Gore and American liberals want to do this to the American people? The answer is simple: the lust for power and importance. Remember: control energy and you control people.
There are signs that Gore's movement is losing credibility. An English judge ruled that Gore's award-winning film An Inconvenient Truth may not be shown in U.K. schools without disclaimers and the inclusion of opposing opinions, on the grounds that it is a work of political propaganda, and not scientifically sound. Various scientists on the political left who formerly endorsed the GW dogma now repudiate it. Remarkably, 19,000 scientists have signed a statement urging our government not to take any rash, costly actions to curb CO2 emissions.
Unfortunately, taking rash, costly action may be the eventual outcome. Last week, the Senate considered setting limits on CO2 emissions through the colossally expensive and grandiloquently named "Lieberman-Warner Climate Security Act." Fortunately, this destructive proposal doesn't have enough support to pass now, but it raises the possibility that Al Gore will get the last laugh after all. What an irony it would be if, even as scientific support for his GW theory crumbles, his years of propagating the "big lie" of the GW hobgoblin were to cause Congress to impose the "wrenching transformation of society" that he has long yearned for.
A recent International Monetary Fund research report listed the countries expected to suffer the worst currency depreciation -- that is, the worst inflation -- this year. Zimbabwe (a mind-boggling 300,000 percent-plus), Venezuela (25.7 percent), Bolivia (15.1 percent), Nicaragua (13.8 percent), and Argentina (9.2 percent) are the top five. What do these countries have in common? You could reply in two ways: 1) they are poorly governed; 2) they are leftist governments, which is simply another way of saying that they are poorly governed.
Indeed, it is difficult to think of any economic indicator that exceeds inflation as evidence that a country is poorly governed. Leftist governments -- defined here as regimes unfriendly to private property, private enterprise, and private profits; regimes that constantly seek ways to redistribute wealth from the economically productive members of society to favored political constituencies; and regimes that reject free markets and instead expand government control over economic activity -- invariably cripple production while increasing government spending. The inevitable result is inflation.
This is no mere academic discussion. It was less than 30 years ago that inflation in the United States was in the 13-14 percent range. Today, resurgent inflation in the United States is officially listed as 4 percent, but for many Americans, it feels much worse. Is it possible that we might break into the IMF's list of the top-five inflation-plagued countries in the next year or two? To answer that, we should ask ourselves if we have sound governance or poor governance. Sadly, examples of the latter seem to be proliferating. The following are some examples:
In just eight years, U.S. federal spending has ballooned from $2 trillion to $3 trillion -- a 50 percent increase at a time when the average private income increased only 28 percent.
At 35 percent, the United States now has the second-highest corporate profits tax in the world -- absolute insanity in a time of intense global competition when Congress should be doing everything in its power to help domestic employers compete against foreign companies.
At a time when formerly Communist countries in central and eastern Europe have adopted flat-rate personal income taxes less than 20 percent, and are booming as a result, the United States clings to an outdated Marxian, growth-retarding, class-warfare, graduated income tax, and at least one presidential candidate wants to raise those rates even more.
Last fall, Congress decided that financial institutions were making too large a profit on student loans, so they mandated lower returns on such loans. As a result, many private lenders have dropped out of the student loan market entirely, and Congress is now trying to bail out such lenders by empowering the Department of Education to purchase student loans directly from private lenders. Where will the Department of Education come up with the necessary funds? From higher tax revenues, of course.
Congress recently passed a $307-billion farm-subsidy bill. President Bush tried to get Congress to limit subsidies to those making no more than $200,000 per year, but Congress rejected that proposal, paving the way for subsidies to those with annual incomes over $2 million. Some senators solemnly intoned that they were doing this to prevent bankruptcies. Apart from the fact that the centuries-old trend is toward fewer agricultural producers (i.e., farm bankruptcies) as a result of improved efficiencies and economies of scale, and in spite of the fact that many farm prices are at multi-year highs, we should ask why Congress, instead of the marketplace, should decide which businesses survive and which do not? Central planning, anyone?
Congress' recent denunciation of private oil producers include comments that perhaps Congress should "socialize" these companies, or at least increase taxes on them. Apparently, some members of Congress subscribe to the school of thought popularized by that eminent political philosopher, Jane Fonda, who has long felt that the cure for Big Oil's alleged oligopoly is to create a federal monopoly. Does anybody seriously believe that monopolies are good for consumers? And another question: if Congress confiscates more profits from Big Oil, who will make up the resulting reduction in spending on discovering and developing oil reserves?
Congress is currently working on a multi-trillion-dollar plan to impose a cap-and-trade system on carbon dioxide emissions. The Wall Street Journal and others have already explained what a colossal boondoggle this would be, but the fundamental question is this: Why, at a time of record energy costs that are imposing great hardship on many Americans, does our government want to make the use of hydrocarbon energy sources even more costly?
If you keep your eyes and ears open, I'm sure you will discover other ways in which our government is seeking to expand its own reach while making Americans poorer. We are on a leftward course already, and we may accelerate our march in that direction after the November elections. If we do, don't be surprised to see inflation get worse and the United States appear near the top of the list of the world's most inflation-prone, poorly governed countries.
Thank you, Rahm Emanuel! Mr. Emanuel, a Democratic congressman from Illinois and former senior policy adviser to President Clinton, published several election-year policy proposals on the opinion page of The Wall Street Journal.
The timing of Emanuel's article was magnificent. The Democratic nomination campaign had degenerated into neurotic angst over whether the eventual nominee would have different biological plumbing or more skin pigmentation than any previous nominee for the U.S. presidency. Most of us could care less if the president is a purple neuter as long the policies advocated are acceptable, so Emanuel performed a public service by focusing on substantive rather than symbolic issues.
Although Emanuel's proposals were standard Democratic talking points -- winking to the labor unions, proposing increased government spending on education, health care, and alternative energy sources -- his proposals were clear and straightforward. His essential political philosophy -- shared by Clinton and Obama -- can be summarized in one word: "more," as in, "more government." Indeed, from an economic standpoint, the elemental political choice is always between more or less government. Do we want more government control over our lives and livelihood or less? More government spending and programs or less? More government power over us or less?
One of the salient features of Election Year 2008 is how strongly and consistently the Democrats present the case for more and how the Republican Party has failed to provide voters an alternative by making the case for less. The one exception, of course, has been Ron Paul, whose libertarian ideas won intensely enthusiastic but numerically limited support.
The Democrats are politically smarter than the Republicans. Experience has taught them the political foolhardiness of over-reaching. Many Democrats still have socialistic biases, favoring government control over market forces and government redistribution of wealth, but they have toned down their rhetoric and taken their overt socialism underground. They have become the modern American version of Britain's old Fabian socialists, content to expand government control in gradual increments rather than in a rapid, convulsive revolution. Democrats today are far too clever to say that if they could have their way, government would take care of everything for us, but you know where their heart is by the fact that on any economic issue, they will invariably come down on the side of "more."
If Republicans or libertarians ever want to amass popular support for "less," they will need to emulate the Democrat's gradualist strategy. That means presenting an agenda less radical than Ron Paul's. Such a suggestion is anathema to libertarians, but the political reality is that only a small percentage of Americans are true believers in the polar ideologies of socialism on the left or libertarianism on the right. The adherents of those philosophies will have to settle for modest successes -- either more government or less, not total government or zero.
The libertarians continue to marginalize themselves and render themselves ineffective by continuing to let the perfect be the enemy of the good. If they ever hope to win national elections in the United States, they will have to advocate incremental steps toward less government, instead of an overnight demolition of it. They might start by proposing to first freeze federal spending, and then, when people see that it did not precipitate the end of the world, propose cutting spending by two percent per year. They might call for privatizing a few tasks currently performed by government that could be handled by private firms as a first step to a broader privatization. Instead of placing expiration dates on tax cuts, as the Democrats forced President Bush to do, those who believe we need less government should propose that various government spending programs expire at year-end unless re-examined and reauthorized.
Of course, the main reason why the philosophy of less isn't championed by John McCain and most Republicans today is because they simply don't believe in it. The dominant wing of the Republican Party in the last 50 years has been comprised of those who want more government, though usually not as much as the Democrats want -- "Big Government Lite." *
"Don't expect to build up the weak by pulling down the strong." --Calvin Coolidge
The Politics of St. Paul?
In Romans 13:1-7 the apostle Paul writes:
"[A ruler] is the minister of God to thee for good" (v. 3);
"Wherefore ye must needs be subject . . ."(v. 5);
". . . pay ye tribute [taxes]" (v. 6).
St. Paul seems to be saying that God ordains human governments and that Christians should honor and obey the government under whose jurisdiction they live. Many Christians conclude from these verses that Christians should accept whatever government and laws their country has. Other Christians, while accepting the need for government and lawful behavior, question whether Romans 13 commands us to submit to human governments unconditionally. They ask: Is rebellion ever justified? Reform movements? Civil disobedience? Tax protests? Change?
Based on scriptural texts, Paul appears to be a quintessential conservative - not in the contemporary American sense of favoring a smaller government, but in the more traditional political sense of not wanting to disrupt the established order. Indeed, contemporary progressives reject Paul's unwillingness to challenge the social status quo. In his epistles, St. Paul tells servants to treat their masters well and vice versa. There are no appeals for "social justice," equality of status, or redistribution of wealth. In addition to the famous passage in Romans, Paul exhorts Christians to pray for all in positions of authority (I Timothy 2:1-4). These are not the writings of a political dissident.
Before categorizing Paul as a political conservative, let us consider another possibility: Perhaps he was apolitical. Like his Lord and Savior, Jesus Christ, Paul's life was devoted to a spiritual mission - the advancement of the heavenly kingdom that is not of this world. His objective was to reform and reconstruct the architecture of the thought, soul, and heart, not the superstructure of civil government. Paul was an evangelist for God and His son, not a political philosopher or activist. He was too busy being a spiritual radical to get involved in a political movement.
Indeed, Paul had to take great care that the fire of the Holy Spirit that burned in men's hearts not be conflated with the flames of political passions. Many Jews were still looking for a militant Messiah to lead them in revolt against the hated Romans. Paul must have known that if the followers of Jesus became a political movement challenging the authority of Caesar, the Roman army would crush, if not annihilate, the nascent Christian movement. Out of love for his Lord and his fellow man, Paul would not lead his flock to certain slaughter. His apparent cautiousness was not due to personal timidity or concern for his own safety. This faithful apostle bravely endured repeated hardships in the service of his Lord:
Five times received I forty stripes save one, thrice was I beaten with rods, once was I stoned, thrice I suffered shipwreck, a night and a day I have been in the deep . . . In weariness and painfulness . . . in hunger and thirst . . . in cold and nakedness (2 Corinthians 11:24, 25, 27).
Ultimately, this "great lion of God" (as the novelist Taylor Caldwell characterized him) was martyred for his faith.
It is significant that Paul's statements about honoring government occur in his letter to the Roman church. Certainly Rome, as home to Caesar and capital of the Roman Empire, would be particularly diligent in monitoring potential rebels. What if Roman authorities were to intercept Paul's letter? In that case, his statements about honoring government would contradict any charge that Christians were somehow disloyal to the emperor. At the same time, Romans 13 conveys messages that were opaque to the pagans but transparent to Christians.
The chapter begins, "Let every soul be subject unto the higher powers" (v. 1). While Roman authorities might have assumed that Paul was writing about Caesar, Christians knew that "the higher powers" were divine - that God is the sovereign to whom one owes fidelity. And when Paul writes that a ruler "is the minister of God to thee for good" (v. 4), doesn't this imply that he is speaking of rulers who are just and good - those who uphold God's rules protecting the sanctity of life, marriage, property, reputation, etc.? Yes, we should pray for all who are in positions of authority, for benign and just rulers, that they continue to be so, and for corrupt or unjust rulers, that they mend their ways and govern better.
Here is a jarring thought: If Christians are never to rebel against unjust government, then America's Founding Fathers were wrong to rebel against the English crown and parliament to establish a republic where most people's God-given rights were given greater protections than anywhere else on earth.
This leads us back to those controversial, fundamental questions about which Christians of good conscience may strongly disagree: What is the proper scope of government? To what extent should Christians "turn the other cheek" and "suffer it to be so now" by accepting the status quo, and when is challenging and changing laws and government justified? Is it possible that Paul's contributions to the scriptural canon were not essentially conservative, but so profoundly revolutionary on a long-term basis, leavening human thought until, centuries later, Christians' hearts and minds were filled with the unshakable conviction that it was a human right to throw off unjust governments?
Here is one point on which most Christians may agree: Governments often adopt policies that don't seem right, and we disagree on which policies those are. But all of us can take heart from that glorious promise that St. Paul gave us in that same letter to the Romans: ". . . all things work together for good to them that love God . . ." (Rom. 8:28). Amen.
The UN, EPA, and the Latest Climate Change Folly
When writing about the IMF last week, I mentioned that bureaucracies tend to do everything possible to perpetuate themselves. So it is with the United Nations and the Environmental Protection Agency.
The UN long ago found common cause with redistributionist national governments on the subject of climate change/global warming, spouting an alarmist theory of impending disaster unless we Americans slow down on economic growth and the governments of richer countries give more of their taxpayers' money to the governments of poorer countries. Thus, predictably, the UN's Inter Governmental Panel on Climate Change has just issued its fifth assessment report in which it continues to sound the alarm about warming caused primarily by increased concentrations of CO2 in the atmosphere. It also states that developing countries need between $70 and $100 billion per year to make needed changes - money that the developed countries are expected to supply, even as they shrink their own GDPs.
The EPA has been progressively expanding its reach, successfully positioning itself as a ubiquitous presence in our lives and establishing itself as one of the most powerful agencies of the American government. Its latest gambit involves attempting to regulate emissions of bovine flatulence - a major source of methane, a gas that traps much more heat than CO2. The EPA initiative has far-reaching implications, since the only way to reduce the amount of gas emitted by cattle may be to curtail our consumption of beef by reducing the number of cattle in existence.
There are multiple flaws in the alarmist position. Let's cover just a few:
1) The climate change gurus can't forecast the future. This goes beyond the problem that the alarmists have as a result of their dozens of computer models not conforming to real-world historical data and all contradicting each other like some sort of scientific Tower of Babel. The inescapable problem is that much of the climate is a "coupled, nonlinear, chaotic system," meaning that it may not be possible to predict it with accuracy.
2) Not only can we not "prove" that earth will warm or cool over the coming decades, we don't even know what the net gains and losses of either alternative would be. Maybe (I don't claim to know) warmer would be better on a net basis, maybe cooler would be better (although based on the history of the last 2000 years, I lean toward warmer).
3) Not only can mere mortals not predict the future climate, we cannot control it with present or near-term technology. The UN report warns "that the problem will become increasingly difficult to manage." This belief that humans can somehow "manage" the climate is what Friedrich Hayek called "the fatal conceit" on steroids.
Look, the alarmists themselves already have sabotaged their own theory. A number of them in recent years have started to hedge their bets by suggesting that the current 17-year stretch of non-warming may continue for several decades. They avoid mentioning that manmade CO2 emissions are likely to continue to increase over that period. That pretty much nullifies their thesis that CO2 is the primary driver of climate change. Essentially, they are conceding the skeptics' point that other factors have greater impact on global temperatures than CO2.
Over 20 years ago, the George Marshall Institute published a study showing that all of the small increases in global temperature from 1900 to 1990 could be attributed to increases in the sun's energy output. Over the course of earth's history, changes in earth's orbit around the sun, changes in the tilt of the Earth's axis, and changes in albedo (reflection of light from the planet, due partly to cloud cover) have driven changes in terrestrial warmth. As for the atmosphere's greenhouse effect, by far the major portion of that is attributable to the primary greenhouse gas - water vapor (which even the UN and the EPA aren't foolish enough to propose regulating). As for the minor share of the greenhouse effect due to global warming, since humans account for only about four percent of total global CO2 emissions, it becomes apparent that we humans are, in terms of our impact on climate change, a monkey on an elephant's back - we're not the driver, we're just going along for the ride.
We need to remember how hyper-politicized the IPCC and EPA are. They have their agendas. I was interviewed about climate change for a Voice of America broadcast a few weeks ago, and, since I'm a skeptic, was asked if I had received money from fossil fuel companies. My reply was that I haven't, but how horribly biased it is to ask skeptics if they receive oil money, but not to ask alarmists if they receive government money. Why this presumption that private money is corrupt but government money is pure and noble? What a naive, unrealistic, perhaps deluded assumption that is. Billions of government dollars have been spent advancing the alarmist scenario/agenda. The alarmists bring to mind something H. L. Mencken once wrote:
The whole aim of practical politics is to keep the populace alarmed by menacing it with an endless series of hobgoblins, all of them imaginary.
Don't let the hobgoblins scare you. *