The Wrong "Road to 60"

Some Republicans are learning the wrong lesson from the filibuster-proof Senate of 2009-10. Grover Norquist is mapping out "The Road to 60" for the next two election cycles.

Social Security reform failed in 2005, on his view, because Republicans only had 55 seats in the US Senate and Democrats absolutely refused to countenance any reform. So Republicans are going to have to get to 60 so that they can ram reform down the Democrats' throats just like the Democrats rammed ObamaCare down Republican throats.

(My recollection was the Republicans couldn't even get Social Security reform out of the House in 2005.)

But this gets it all wrong. There is no point in reforming entitlements unless Republicans can forge a bipartisan majority with moderate Democrats. It would be a terrible mistake to craft a plan and ram it down Democratic throats. That would create a Democratic rejectionist movement and years of rancorous division.

Anyway, Republicans aren't going to need to get to 60 to pass entitlement reform. Back in 2005 Democrats never imagined that we'd be in a situation where states were going bankrupt, public pension plans were underwater, and the federal debt would be heading for 100 percent of GDP. They know, at least in a semi-conscious way, that their programs are in trouble.

When the Republicans start on Rep. Ryan's Roadmap and start to tentatively reform entitlements they will start be able to find Democratic votes. And if they can't find them in 2013 or 2015 they will find them sooner or later.

Republicans must understand that they are moving into a strategic advantage. If these entitlements go belly up it will be Democratic voters that will suffer most. The sooner the Democrats do a deal the better their voters will do out of it. The longer they wait, demagoguing the "cuts," the worse it will be for the "little people."

Democrats don't yet realize that their breakout effort in 2009-10 was a strategic blunder of monumental proportions. They have created issues that Republican candidates will run on for a generation. ObamaCare is going to kill them, because anything that goes wrong in health care will get blamed on ObamaCare and Democrats. And now that Democrats don't have the legislative power they had before the election they are trying to do everything by administrative ukase: instituting "death panels" at the Department of Health and Human Services and pushing carbon dioxide regulation at the Environmental Protection Agency. They couldn't have thought up a better way to creat Republican voters if they had tried.

The centralized administrative state has had an amazing run during the last century. But now it is running up against the reality that it is profoundly undemocratic and profoundly unjust. Democrats have no idea the trouble they are in. Not yet.

The Six Government Mistakes That Led to the Meltdown

One thing our liberal friends seem to be determined to do is to turn their faces away from the truth of the Great Recession.

No, Virginia and New York Times readers, it wasn't greedy bankers or even stupid borrowers. That is mixing up the symptoms for the cause. The cause of the Great Meltdown was government. In fact there were six, count 'em, six different government mistakes, according to Mark J. Perry and Robert Dell in The American.

1. Bank misregulation "incentivized (not merely “allowed”) the creation and highly-leveraged systemic accumulation of the highest yielding AAA- and AA-rated securities among banks globally. Mostly, these banks acquired securitized US mortgages."
2. Continually increasing leverage. "Creditors with the lowest cost of capital generally drive underwriting and leverage standards within the segment in which they compete. In the residential mortgage market, with government entities [Fannie and Freddie] historically being the low-cost providers of capital and the dominant purchasers and guarantors of loans and securities, it is reasonable to hold government accountable for system-wide leverage."
3. Abandonment of proven credit standards and the "enlargement of the riskier subprime and Alt-A mortgage markets by Fannie and Freddie." Government was forcing banks to make high-risk loans.
4. Creditor bailouts by "FDIC, Federal Reserve, Treasury Department, and Congress" starting in the 1980s. Creditors normally control business lending through a variety of devices. But when they are protected by, e.g., deposit insurance, they don't bother.
5. The increase in deposit insurance. It was not just FDIC but the "unchecked expansion of coverage up to $50 million under the Certificate of Deposit Account Registry Service beginning in 2003."
6. Low interest rates from 2001 to 2005. This encouraged the teaser rates on Alt-A and subprime mortgages that made "the rollover or refinancing of short-term instruments all the more precarious" in 2006 and 2007.

The rhetorical problem for conservatives is to boil this sophisticated analysis down into a sound bite. Because we really need to create a meme and a national consensus that government was to blame for the Great Meltdown. It needs to go something like this. Look, you can't fool me. Greedy bankers are always greedy bankers. The problem here is that greedy politicians encouraged greedy bankers and borrowers to become stupid greedy bankers and borrowers. "Government turned greedy bankers into stupid greedy bankers. And that's no error."

And there is no excuse for that.

A Century of Bad Faith

On the day after the Obama tax increase was averted, and the day after the $1.1 or $1.3 trillion omnibus spending bill was withdrawn in the Senate, it's time to think about what comes next.

Walter Russell Mead would like to create a Liberalism 5.0, and rescue the good name of liberalism from its betrayers. "Can the L-Word Be Saved?" he wonders. He would like to reform liberalism and learn the lessons of the last century.

But I think we need to grasp the profound bad faith that has been a part of liberals and liberalism almost from the start of what Mead calls Liberalism 4.0 in the late 19th century.

Obviously, the post-civil war era raised up new questions of power in society.

In the late nineteenth century, the rise of huge industrial corporations created yet another force that threatened to crush individual liberty; 4.0 liberals began to think about the state as a possible ally to defend individuals from unaccountable private power.

Yes, that's true, but I think it true to say that by 1910, when giant combines like Standard Oil had been broken up, and J.P. Morgan had personally, with the richest men in the US, bailed out the economy in the Crash of 1907, people of good faith should have concluded that the new giants of business were not robber barons but responsible servants of the market. After 1910 it was an act of bad faith to rouse up the common people against the power of the corporations. Take the BP oil disaster. Mother Jones has run an end-of-the-world cover story on BP's coverup. But the central fact about the BP oil disaster was that when President Obama said: "Jump," BP said: "How High?" and agreed to cough up $20 billion, sight unseen. That tells you who calls the shots between politics and business.

Again:

[T]he industrial revolution and mass immigration threatened to divide society into paupers and millionaires... A society including millions of impoverished urban workers from radically different cultural backgrounds could not be run exactly the same way as in the past; the situation grew even more complex as millions of African-Americans left Dixie for the big northern cities after World War I...

The development of a professional, bureaucratic civil service and the regulatory state were intended to preserve individual autonomy and dignity in a world dominated by large and predatory corporate interests[.]

Yes, but. Let's allow that some sort of emergency centralization was needed to manage the vast migration to the cities, and ward off the threat of revolutionary socialism. It has surely been obvious at least since the end of World War II that the heavy hand from the center is not really needed. The migrants to the city settled down pretty well, and didn't revolt despite the utter failure of centralized government in the Great Depression (spun by liberals as a stunning success). The capitalist system has rained down prosperity upon the once huddled masses, instead of impoverishing them as liberals prophesied. Instead liberals came up with more and more reasons to centralize society into the administrative state which, not coincidentally, gave more power to liberals.

(Yes, for one shining moment, liberals midwifed the civil rights revolution. But then they went back to patronage/clientage politics and the expansion of big government.)

Now think of the ways that liberals have brought a murrain down upon the people that trusted them with their vote.

Liberals told us that we needed a central bank. The result has been two gigantic financial meltdowns and the loss of 98 percent of the value of the dollar.

Liberals told us that we needed government operation of mutual aid and charity. The result has been the demolition of the mutual-aid associations and the conversion of labor unions into raw political pressure groups.

Liberals told us we needed government operation of old-age pensions. The result has been a bankrupt system and the conversion of the savings of the people into a political slush fund, for that is what the "surplus" of Social Security is used for.

Liberals told us that old people and poor people could not get access to health care without massive government management and taxation. The result is a corrupt and wasteful system that is already utterly failing the poor and will soon fail the ageing poor.

None of this is remarkable. we have always known that governments are incompetent and corrupt. But liberals said: Trust us, we will be different. We will staff government with a professional civil service and credentialed experts. Well, we ended up with a unionized civil service that loots government at all levels, and experts that cannot see further than the next government grant.

So I really wonder whether it makes sense, after this century of liberal bad faith, to resurrect the liberal concept. It's time acknowledge the truth, that liberal politics is a canard. For the last century it has almost always meant centralized power, incompetence, and corruption. The time has come to make a break with the failed past and open a new chapter in the story of democratic capitalism. We must acknowledge that the basic parameters of the market economy, its markets, its ethos of fair dealing, its culture of trust, need to he honored and respected and taught. And the educated elite that has refused to accept and honor the wealth-generating and trust-extending wonders of capitalism needs to be rusticated and its cruel fingers prized away from the levers of political power.

As we start the New Year in 2011, the lesson of the last two years of Obama/Reid/Pelosi is surely that liberalism is not liberal, and never can be. It is all about political power, corruption, and the culture of compulsion. And it always will be.

Let us proclaim this to the reverberate hills: Limited government is the system of government that limits the power of the political elite, whether that elite is a royal family, an aristocratic cabal, a business elite, or an educated elite. And we the people demand it.

Three Liberal Delusions

Liberals have erected an elaborate apology to justify the centralized administrative state run by liberals. They need this apology because at the heart of liberalism is a profound contradiction, writes Peter Berkowitz.

The paradox of American progressivism, old and new, is rooted in the gap between its professed devotion to democracy, or the idea that the people legitimately rule, and its belief that democracy consists in a set of policies independent of what the people want.

In order to deal with this contradiction, believing in democracy in the abstract, but determined to impose their agenda anyway, liberals have come up with three ideologies, says Berkowitz.

The first is John Rawls and Deliberative Democracy. John Rawls is famous for his Theory of Justice in which he sets up a contract theory of politics that justifies liberal politics.

According to Rawls, justice concerns the principles that free and equal citizens would adopt to govern themselves if they thought impartially, objectively, and rationally about their condition as human beings. It has two basic parts: fundamental and inviolable liberties, and an obligation on the part of the state to adopt "measures ensuring for all citizens adequate all-purpose means to make effective use of their freedoms" [emphasis added]...

But unofficially and in practice, Rawls's theory of justice, certainly as adopted by professors of practical ethics and applied to public affairs, is distinguished by more. It also purports to derive from "public reason," or the abstract principles and rules that structure public debate, substantive public policies and disqualify others. It's as if the rules of baseball told you not only how to play the game, but also who ought to win and who ought to lose.

Very convenient. It lets liberals decide what is legitimate and what is not. They know what the people would choose, "were it not for their poor education, combined with passions and prejudices corrupted by the imperfections of social life and the inequities of the market economy."

Then there is Richard Rorty and Pragmatism. This notion seeks to equate liberal progressive reform with justice itself. It is not so much pragmatic as picking up where the pragmatists like John Dewey left off, proposing democracy as a kind of civic faith: "democracy is neither a form of government nor a social expediency, but a metaphysic of the relation of man and his experience in nature." Rorty argues that:

the proper aim of American politics is nothing less than to embody in social and political life "a new conception of what it is to be human." And the utopian overtones are no accident. This new conception, Rorty reveals, rejects all claims to "knowledge of God's will, Moral Law, the laws of History or the Facts of Science." All the better, exhorts Rorty, to make "shared utopian dreams" the guide to pragmatic and progressive politics.

As with Rawls's ideas, Rorty is just providing a crude apology for the liberal faith. Liberalism is democratic because liberals call their program and their faith "Democracy."

Finally, Berkowitz calls up the "empathy" brigade, that we last saw justifying the liberal jurisprudence of Sonya Sotomayor. This Empathy, according to President Obama is "a call to stand in somebody else's shoes and see through their eyes." The problem is that we are only called to empathize with the eyes of a "wise Latina." White middle class men need not apply.

The problem with these three liberal delusions is not that it deludes liberals into thinking that theirs is the only true democratic thought. The problem is that it does not engage with the real problem, the daily clash with reality: what do you do when things do wrong?

Government is force, politics is power. It is OK to use government for things that require force, like wars and policing. But what about things that don't require force? How do you fix a Social Security system that is going bankrupt? How do you balance the need of senior citizens for health care with the need of young parents for education for their children? How do you balance the desire of some parents for a creative education for their children and other parents for a Three Rs education? Centralized administrative government by an educated elite wants to set up a permanent, one size fits all answer to any political problem, and thus has no answer for these questions. For the truth is that all economic activity is characterized by ceaseless change and adaptation to new and unexpected conditions.

That is why liberals today are flummoxed and in denial. There is no allowance in their system for the reality that, as soon as their comprehensive mandatory program for health care, or education, or welfare is in place, it is immediately overtaken by events. From that moment on, the program finds itself trying to catch up with events and never succeeding.

Now you know why liberals are forced into demonizing their political opponents as racists and haters. For it cannot be, it must not be that the failures of all those government programs mean that a whole century of centralized liberal government has been one long disastrous error for which ordinary Americans are about to pay the terrible price.

"Class Warfare in Moral Terms"

Why not tax the rich until the pips squeak? After all, there are desperately poor people that need the money. You need to "spread the wealth" as then Candidate Obama told Joe the Plumber in 2008.

Well, now President Obama has bowed to political necessity and urged Congress to continue the Bush federal income tax rates, including the 35 percent top rate that Bush passed, reducing the Clinton 39.4 percent rate, but not yet getting back to the 28 percent top rate in the Reagan 1986 tax bill.

President Obama apparently accepts the notion that, in practical terms, now is not the time to raise tax rates, not while the nation is struggling out of a severe recession. But once the economy is out of danger, why not cream the rich and make them pay?

First, the facts. At the American Thinker today, my "Incomes Taxes, Millionaires and Billionaires" makes the point that the richest one percent, at current rates, already pay about 40 percent of federal income taxes while the bottom 50 percent pay about three percent. How much is enough?

But that is just a practical argument. Let us argue the point in moral terms as William McGurn argues in "Billionaires on the Warpath." And what better way to do it than with the seven virtues, starting with prudence?

Prudence is the practical virtue, and prudence argues that we don't want to distort the economy with high rates targeted at the rich. You end up with the monstrous tax code we have now, because people keep coming to Congress to get special exceptions. I've been looking through the Revenue Acts of the 1930s and 1940s as the tax rates were soaring during the New Deal and World War II. It is staggering so see the dozens of exceptions and special cases starting to appear in the code. Because, of course, when Congress enacts high tax rates then economic interests of all kinds find themselves harmed and go to Congress for relief.

Temperance. We shouldn't have swingeing anything. Especially in today's economy, the rich are not aristocratic families with vast land-holdings that exist upon the sweat of serfs. The rich hold their wealth and make their incomes from building economic wealth in startups and the great corporations that shower products and services on the American people. Moderation in all things, even for the taxation of the rich.

Courage. We should be courageous in opposing the hateful class warriors that gin up envy against the rich. Envy, remember, is one of the seven deadly sins.

Justice. If justice means anything, it means one set of rules for all leavened with the yeast of equity, the understanding that inflexible rules can sometimes result in the most awful injustice.

Faith. If we have faith in our fellow humans we must believe that there is good in the rich, good in the middle class, and good in the poor. To tax anyone with penal rates is to lack faith in the human project. It is to say that we are monsters, and monsters must be eliminated.

Hope. High tax rates and big government are not the policies of hope. They are the policies of despair, that the poor can never thrive on their own energy and labor. Instead the rich must be bled so that the poor can receive a transfusion. Without the transfusion, all hope for the poor is gone.

Love. How can you love anyone when you sicc the tax collectors on them? Love means wishing the best for other people in their terms, not yours. Socialists think they know what is best for everyone according to a universal rule of equality of results, but never ask what other people might want for themselves.

What we want from the rich is not a pound of flesh, cut from them by penal taxation. We want them to contribute openly and voluntarily in a million acts of kindness and generosity to the general welfare of the American people. As well as create jobs, products, and services with their businesses and their economic ideas.

Oh, and one other thing. The problem with high tax rates is that they protect the today's rich from competition from tomorrow's rich. High tax rates make it very hard to get rich.

Olby's Indictment, Clause by Clause

MSNBC host Keith Olbermann has done us all a favor. In his rant last Tuesday, after President Obama's own presser rant, he has delivered a bill of indictment against President Obama. He--or his writing team--has detailed the specific ways in which the liberal base feels betrayed. For that, we owe him a huge debt of gratitude. It takes a true believer to locate the emotional pulse of the liberal base and report on its flutterings.

So here is Olbermann's bill of particulars:

• Rendition and domestic spying. Olby hits the "refusal of even the most perfunctory of investigations of rendition or domestic spying or the other crimes of the Bush Administration". Nothing has been achieved: any future administration can do the same.
• Afghanistan. Liberals don't understand why we are there.
• Continuation of Gitmo. Liberals don't get that either.
• Single payer and public option. Olby faults the president's "preemptive abandonment."
• Don't Ask Don't Tell. Olby faults "foot-dragging."
• Getting less than he could have. Olby feels that the president expects liberals to be happy that the president isn't John McCain and that he saved us from another Great Depression. Given those amazing achievements, the president expects liberals to forgive him for settling for less than he could have on health reform and taxes.

In Olbermann's rage we see the elected Democrats starting to pay the price of riding the Angry Left bronco through the mid 2000s. By fanning the left's rage about President Bush and his forward strategy against radical Islam the Democrats set themselves up for an expectations crisis once they got back to power. The beltway Democrats knew that Bush wasn't a rogue president. Almost certainly they were consulted as Bush developed the nuts and bolts of his response to 9/11, including Gitmo and rendition. But they acted as if they were "shocked, shocked" that these decisions had been taken, and showed up in force at Michael Moore's agit-prop Fahrenheit 911 mockumentary.

Now they are paying the price. You'd have to search pretty hard to find any of Bush's strategy that hasn't been reluctantly confirmed by the Obamis. And the clearly different directions they took, most obviously the "reset" strategy of open arms to thug dictators, has been a disaster.

For chaps like me that voted for Obama precisely because we wanted the Democrats to be confronted with reality on the War on Terror, all this is good news. The reluctant embrace of the Bush strategy was always likely. But the rage in the Democratic base is a bonus.

The idea that Obama could have got a better deal from the Republicans on taxes does have merit. Sean Trende of RealClearPolitics thinks that Obama could have got a better deal. He could have dared Republicans to walk into the coffin corner of voting for a cold Xmas for the unemployed while sticking up for millionaires and billionaires.

Either way, the Democratic base is livid. And that can only for good for a center-right nation that wants to curb the excesses of big government.

It Ain't WikiLeaks' Fault

It's great fun to run around accusing Julian Assange of espionage or, better still, of failing to use condoms. After all, that's what politicians do when they are not actually running for election. They run around accusing other people of the most frightful crimes and misdemeanors even as the government totally screws up everything it does.

Now, admittedly, failing to use a condom is one of the worst crimes in the liberal calendar.

But hey fellas, if you chaps in the State Department don't want everyone reading your cables for breakfast then you need to apply proper security precautions.

State Department cables are exchanged on SIPRNet, apparently. And about 3 million people have access. No problem, chaps. But clearly, it should be impossible for anyone to get their hands on 150,000 cables as WikiLeaks has done. How hard is this?

Now, admittedly, it was great fun to leak everything in sight when the media were busy embarrassing the hated Bush administration back in the 2000s. And it was only right to hit Vice-President Cheney in the keister. The liberal renegades in the State Department and their bribed apologists in the media were delighted to see the Bushies embarrassed. But didn't they think about the moment when some chap like Julian Assange would take advantage of the opportunity to embarrass a Democratic administration. For chaps like that, noble Democrats aren't much different from eevil Republicans. It's not unprecedented. Back in the 1940s we had Commie physicists getting their hands on US nuclear secrets and handing them over to Uncle Joe Stalin. Hello? Was anyone home back then?

What we don't want to do is make Julian Assange into a martyr like the sainted Rosenbergs. Prosecuting the Rosenbergs turned into a political bonanza for liberals and lefties, and they postured and pretended for years that the Rosenbergs were as innocent as fresh-laid snow and victims of eevil McCarthyism.

No. What we need is for a few heads to roll at the State Department and a few dozen inter-agency committees devising new methods of limiting access to State Department cables. Also, I dare say it wouldn't hurt to trigger an alarm when anyone starts trying to assemble a whole bunch of cables all at once. After all, who needs to set up their own private vault of State Department cables?

Market Says Ho Hum on Tax Package

The "framework" for a tax deal struck between President Obama and Republican leaders yesterday seems to satisfy neither the Democratic base nor the Republican base. So it probably represents the best deal that either side can hope for on December 6, 2010 in a lame-duck Congress.

The most telling reaction, of course, is from the stock market. On the buy-on-rumor, sell-on-news theory, we can assume that the market, that rose strongly last week and today is flat, thinks the package is so-so.

That is not good news for President Obama, who needs a pretty strong economy starting early in 2011 to get a decent economy in 2012 for reelection.

Of course, the tax package, which more or less extends the Bush tax cuts, doesn't do anything about the real big drag on the economy, which is ObamaCare.

The stage is now set for the political argument of the next two years. Should the economy be based on the privilege-and-subsidy state of the liberals, on the belief that ordinary people cannot get a fair shake without a heavy government leaning on the exchange relationships of employer and employee, producer and consumer? Or should it be based on a level playing field of low tax rates and low spending, on the assumption that capitalism is basically a win-win proposition where service and trustworthiness is repaid in a decent return on labor, on capital, on the consumer dollar, and on the investment of trust in the system?

This is the Great War that has raged since 1848, when the educated youth upped and declared that the whole thing stank. They declared that the bourgeois were exploiters and that students and workers were victims. Special interventions were needed to save the workers from a fate worse than death, and the educated youth were the only chaps with the moral standing to do it.

Now, more than ever, it is time to really evaluate what the century and a half of economic interventions has really delivered and what it can hope to deliver in the future. Or is big government just big government whether it is run by absolute monarchs or absolute politicians?

Now more than ever, it is time for the lovers of liberty to strain every brain cell and every sinew to persuade the American people first, that the liberal world view is wrong and second, that its politicization of everything is cruel, corrupt, unjust, wasteful, and deluded.

End the Fed?

Why do we have a central bank, asks Gerald O'Driscoll of the Cato Institute? It's not actually necessary for a modern financial system. The US didn't have a true central bank until 1913. Canada didn't have one at the beginning of the Great Depression, and its banks sailed through the crisis without failure (But the Canadians legislated one in 1935).

The simple answer is that a central bank is really convenient for the government. It helps to get the government out of a jam and it helps the government to market its debt.

In wartime, a central bank is invaluable, because it helps the government commandeer the nation's resources for the struggle. And in a financial crisis it can act as lender of last resort to help financial institutions facing liquidity problems, i.e., a run on the bank.

After the Bank of England got started in the 1690s, it became evident that there was another benefit of a central bank, provided it was combined with sensible government fiscal policies. Government debt became highly regarded collateral, and rock-solid debt is the foundation of a well-functioning financial system. That was the basis of Alexander Hamilton's successful launch of the US National Debt in the first Washington administration.

The problem is that the government abuses the advantages of a central bank. The ease of floating debt creates a temptation to float more of it. Then the day comes when market actors wonder just how solid the government's debt is. Then they start to demand higher interest rates. Then the government gets into a sovereign debt crisis. Then the government defaults on its debt. Given this vicious cycle, maybe it is best to get rid of the central bank and get rid of the temptation for bad behavior.

The thing about debt comes down to the old saw about banks. The bank will only lend money if you don't need it. When you are in trouble, the bank will demand outrageous guarantees and collateral.

Well, of course. Credit works when everyone knows you are good for it. That means that you keep your debt levels low enough that you can always meet your obligations, even in the middle of a financial crisis. Financial crises, large and small, occur when debtors get in a jam. The solution to financial crises is for every actor to keep debt and equity properly balanced and keep risk capital and working capital clearly separate.

(That's easy to say, of course. In real life, consumers and businesses make mistakes and they put off doing something about it. Then, all of a sudden, it's too late, you are underwater, and you are facing bankruptcy.)

OK, so what should we do about the Fed? In my view we need to limit the Fed to the one job that central banks do well, and that is acting as the government's banker.

But it is time to move away from the temptations. Lender of last resort? Maybe, but the financial system should not rely on that. Printing money? Maybe, but we have seen that central banks can't be trusted to maintain the value of money. There has to be a better way, and I suspect we will see another way develop with the new ETFs for gold and other commodities.

The one thing we must stop is the failed policy of goosing the economy with the central bank and easy money. That is pure inflation, and that is wrong. Economies that need goosing are economies that have been distorted by bad government programs. Getting the central bank to paper over the government's failed subsidies and privileges doesn't solve anything.

Warren, Tell 'em It Ain't So!

So now we know why Warren Buffet is such a goo-goo about the estate tax, and why he thinks it's such a good idea to keep it.

Any guesses?

It turns out, according to Jonathan Strong, that the life insurance industry, one of the strongest lobbies in Washington, DC, is against the repeal of the estate tax.

Now, why in the world would the life insurance industry care about the estate tax? Their job is life insurance, not railing about inequality and family dynasties, right?

Wrong. It appears that ten percent of the life insurance industry's revenues come from from people using life insurance to reduce their estate tax exposure. Life insurance proceeds don't count as part of an estate; thus the heirs get the money without paying a cut to Uncle Sam.

And wouldn't you know: Warren Buffet, presumably through Berkshire Hathaway, owns six life-insurance companies.

Really, the stench is getting unbearable. Another famous proponent of the estate tax is Bill Gates, Sr. He is a lawyer, and apparently notable as an estate-planning expert.

Estate planning is a phrase that means: rearranging your assets with an expensive lawyer so you can reduce your estate-tax exposure.

The joke about all this is that these days, unlike in the old days of the landed aristocracy, you don't need to worry about wealthy dynasties. The money accumulated by a successful billionaire entrepreneur usually gets dissipated in the next generation. Sometimes it gets dissipated early by his widow.

The estate tax does have the effect of making it very difficult to pass down a family business to the next generation, or worse, forcing the heirs to sell the business to Warren Buffet at fire-sale prices.

Oh, you didn't know that? Yes, it appears that one of Warren Buffet's specialties is buying family businesses on the cheap. It's a cosy little niche that exists because of the estate tax. Almost any family business worth a few million will have to be sold quickly in order to pay Uncle Sam's estate tax. And when you have to sell the family business quickly, chances are that you are not going to get a good price on it.

It's a universal law. Anything the government gets into ends up as a cesspool of corruption and crony capitalism. Because government is force, and politics is power.

Personally, I'm all in favor of the estate tax. But not at 55 percent. I'd say that an estate tax at a rate of five to ten percent would collect a nice little chunk of change but still keep family businesses going in the family. Alternatively, it would help heirs of a creative turn of mind become famous scientists and artists, as happened so often in the 19th century.

But an estate tax that low would put the noses of Warren Buffet and Bill Gates, Sr. out of joint. Not to mention the life-insurance industry.

He's Out of Ammo; She's Loaded for Bear

If you want to know how much trouble President Obama is in, look no further than his federal pay freeze. It's a gimmick, and it shows that he's out of ammo. The glorious days of 2009 when liberals seemed to be converting liberal shibboleths into government programs at a rate of a billion dollars an hour are over. All he's left with is a symbolic pay freeze and doing a deal on the Bush tax cut extension.

According to Rich Galen, the deal is tax cuts extension for unemployment benefit extension. That is not so good for Democrats because, compassionate though it may be, extending unemployment benefits will delay the return of the unemployed back into the labor force. That will delay the recovery. That will lower the chances for President Obama to get reelected. (On the other hand, the equity markets are up two percent today).

Then there is Sarah Palin. She's got another book out, America by Heart, and she's loaded for bear. I notice in her new book that she has stopped calling herself a commonsense conservative. "Commonsense Conservatism" was the line in her first book, Going Rogue. In the last chapter of her new book she calls for "Commonsense Constitutional Conservatism." Well now. What would that be all about do you think? I will tell you.

Sarah Palin is not the clueless trailer trash that our liberal friends want her to be. Instead she is a skilled elected politician who has done it the hard way, working up from city council to mayor to governor without friends in powerful places. She understands that it no longer enough to be a commonsense conservative. Not after two years of the Tea Party.

Palin understands that the fulcrum of the Tea Party movement is not specific issues but the general demand that we return to the concept of limited government, a government of laws rather than a government of programs.

How do you get limited government? You start with a constitution and a people that believe in it. For the last century, beginning with Progressives like Teddy Roosevelt and Woodrow Wilson, our liberal friends have advanced the idea of a "living constitution" that could be adapted to the times. The real meaning is, of course, that the constitution could be changed on the fly rather than the laborious process of constitutional amendment.

Notice that the "living constitution" theory means that the government can do anything. It reduces government to a pure contest of power. One year the government may change the constitution as the behest of the popular will, another year the government may change the constitution at the behest of the educated elite.

The result is what we have today. It is a government that can't say no, a government that has promised pensions and benefits to the people that can never be delivered and will result in a train wreck at some point. After the train wreck the liberal clients will find that the promises are worth nothing.

But now the people, through the medium of the Tea Party movement, are telling the progressive elite that they demand a return to constitutional government, a limited government not a living government.

Sarah Palin is one street-smart politician. And that is why she is now a "commonsense constitutional conservative."

Central Bankers are Useless

Wikileaks is all very well. But who needs to know that the Arab rulers in the Middle East are more pro-US than they like to let on, or that they are afraid of Syria and Iran. We knew that. We just didn't know the words they used.

We also know that good old Arthur Burns, Chairman of the Federal Reserve Board from 1969-74, was a pushover who let President Nixon push him around and inflate his way to reelection.

Now we have the old-fashioned equivalent of WikiLeaks to tell us.

It turns out that Uncle Arthur penned a diary in spiral-bound notebooks during his years in Washington, DC. His widow gave the notebooks to the Gerald Ford Presidential Library, and now we have Inside the Nixon Administration: The Secret Diaries of Arthur Burns edited by Robert H. Ferrell.

The diaries don't tell us anything new. We already knew that Arthur Burns was a pushover. It's made pretty obvious in bouncing titles like A History of Central Banking in Great Britain and the United States by John H. Wood.

In fact Central Banking shows pretty conclusively that 20th century central bankers were mostly completely useless bureaucrats. In the US there were only two that were any good. William McChesney Martin had his moment when he won the Fed vs. Treasury battle in the early Fifties by raising interest rates to end the accommodative policies during World War II. And Paul Volcker stopped the Seventies rot with bar-tight monetary policy to break the Nixon-Ford-Carter inflation.

The most useful commentary on monetary policy since the government gave us the Federal Reserve Board is that the dollar, worth about 1/20th of an ounce of gold in 1913, is now worth about 1/1400th of an ounce of gold. Here's another benchmark. When Uncle Arthur bought his spiral bound notebooks back in 1970 they cost $0.49. Today the notebooks cost $4.95. That makes today's dollar worth about ten cents in 1970 dollars. Thanks to our brilliant central bankers.

One of the justifications for our current policy of "mild" inflation is that it helps prevent meltdowns like the Great Depression of the 1930s and the frequent financial panics of the 19th century.

That's nice to know.

Diversity? What Diversity?

Everybody knows that liberals are all in favor of diversity. Except when they aren't.

For instance, in the light of the recent election, which party is the more diverse? Here's the way the Washington Post sees it.

The Republican Party's big gains in the House came largely from districts that were older, less diverse and less educated than the nation as a whole. Democrats kept their big majorities in the cities...

The Obama coalition remained intact. Democrats remained strong in areas with the party's core of minorities and higher-educated whites.

Republicans made big gains with the white working class, of course.

We've all been carefully taught to believe "diversity good," "minority votes good" by our liberal preachers, but what does it mean? It means that the Democrats do really well with people who get benefits from the government, but not so well with just about everyone else. In particular, writes Michael Franc, Republicans do really well with veterans.

How diverse is your party, honestly, if its voters are confined to the educated elite and its benefit clients in the inner city? Wouldn't it be much more broadly based if it had solid support in the great American middle class?

If you think seriously about the Democratic supporters, you have to be concerned. The black vote is up over 90 percent. That can only go one way, and that is down. And the Hispanic vote is notably driven more by economic status than by race. As Hispanics integrate into the great American middle class they start voting Republican. Obviously liberals will vote Democratic until the last government grant evaporates and the last abortion is performed, and good luck to them.

The Washington Post puts up a brave front, celebrating gains in Hispanic votes and hauling out demographer Ruy Teixeira: "Republicans do the best in areas that are typically not growing very fast and don't look like the present, or certainly the future, of the country," he says.

There's another way of saying that. People voting against the regime are people who are losing out in the Obama economy of stimulus and crony capitalism. Of course the losers are voting against the government. That's what they always do.

Politics always involves a lot of blind faith in your side, putting a shine on your party's prospects and painting a dark prospect for the other guys.

But is it really a glorious future for the Democrats if their voters are liberal experts and government beneficiaries? Surely the Democratic Party was built for better things than that.

Wall Street and Washington

Whenever the politicians create a scapegoat, you can guess one thing. The scapegoat isn't to blame. It's the politicians.

So when the politicians blamed greedy bankers for the mortgage meltdown, you had to know that the bankers were at worst the willing accomplices of the real greedy crooks. And they had to be the politicians.

So when you read about Charles Gasparino's Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street you know the real story.

There's only one thing to remember when it comes to figuring out Wall Street. It's the old, old line from Jesse Unruh, once Speaker of the California Assembly. "Money is the mother's milk of politics," he said. Unruh was talking about campaign contributions, but the same applies to government finance, only in spades. If money is the mother's milk of elective politics, then money is the very red blood corpuscles in the blood stream of government. Here's a story that tells it all. I got from The Merchant Bankers by Joseph Weschsberg.

After the Napoleonic Wars, in 1815, the Allies demanded an indemnity of 700,000,000 francs from the defeated French. How on earth would the French come up with that kind of money? Perfectly simple, said French merchant banker Gabriel-Julien Ouvrard. Don't borrow from the rich in France with a compulsory loan. Don't raise taxes. Float a bond issue in London. Everyone thought the guy was crazy. Why would the Goddamns pay for the indemnity? But it worked! Ouvrard got permission from the Duke of Wellington, the general of the Allied occupying army in France. He got merchant bankers Barings and Hope & Co to syndicate the loan and in 1817 the French sold a 350,000,000 franc bond issue in London. So they got Brit investors to cough up the money to pay the indemnity and got to pay back the Brits in installments.

This little story illustrates the reality of government finance. Governments need the bankers more than they need the armed forces, more than they need their supporters. Because it is the bankers, more than anyone, that keep them in business.

If you don't like the idea of Wall Street and Washington in bed together, then make the bed smaller. Cut the size of government. At least you'll know then that neither Wall Street nor government is comfortable.

The Emergent Democratic Minority

Now that the prophecies of an Emerging Democratic Majority by chaps like John Judis and Ruy Teixeira have been laid to rest, let's look at the more realistic idea of an emerging Democratic minority, which seems more likely.

Michael Barone takes a look at the demographics of the late election and notes the desertions of several long-term stalwarts from the Democratic rank and file.

The Jacksonians from Appalachia and the South who have been Democratic since the days of Andrew Jackson in 1828 seem to be definitely gone.

The Germans and Scandinavians from Minnesota, Wisconsin and Iowa are definitely on the move, in particular in Wisconsin.

The Rust Belt was a disaster for Democrats as industrial workers in trouble voted against big government.

The Hispanics are showing definite signs of movin' on up from liberalism, in Florida, in Texas, and in Nevada and New Mexico.

Even the Finns in upper Michigan are deserting the ship.

The only chaps still firmly in the Democratic camp are gentry liberals and blacks. My prediction is that blacks will start deserting the Democrats as soon as Barack Obama leaves the presidency and they no longer feel the need to defend their guy to the death.

That leaves our friends the gentry liberals as the core of the Democratic Party. I want to believe that gentry liberals are Democrats because they benefit disproportionately from Big Government. Just voting their pocket-books, don't you know. But the trouble is that I know too many liberals that don't work for the government. They are liberals because they believe.

The Mystery of the Missing Voter?

Now I've seen it all! Democrats are apparently shocked by the mystery of the missing voter. What happened, they wonder, to the hordes of Democratic voters of 2008 that turned out to elect Barack Obama? Writes Gerald Seib,

A popular theory of this year's midterm election holds that Democrats took a shellacking in part because big chunks of the party's core liberal base, discouraged at the path of the Obama administration, stayed home rather than show up to vote as they did in 2008.

Well, not exactly. According to a Wall Street Journal poll of 2008 Obama voters that didn't turn out this year, they are not angry lefties. No, the explanation is much simpler than that. Sure, they are mostly self-described as Democrats.

But they also were more likely to identify themselves as "not very strong Democrats" rather than "strong Democrats." And the largest share identified their ideology as moderate rather than liberal.

In other words, these are Americans that are not strongly connected to politics and not strongly motivated to vote.

That fact rather steps on the desire of many strong Democrats to rile up the Democratic base by doubling down on the liberal Obama agenda with a strongly partisan attack on the Republicans.

No, the voters that stayed home are momentum voters. They voted for Obama because they got swept up in the euphoria of Hope and Change. To bring them out again, the president is going to have to rile up the uncommitted.

Really, that's going to be almost impossible, absent a big turnaround in the economy. Think about the average uncommitted young woman voter. In 2008 she found herself all excited by Candidate Obama because all her friends were excited. But now she and her friends are looking for work and not finding it. They are discovering, for the first time in their young lives, that politicians will say anything to get elected. They are discovering that politics really doesn't transform their lives with Hope and Change. What is it going to take to get those young voters back to the polls? A strong economy, that's what. But even so, they are not going to be marching to the polls in battalion strength like they did in 2008. You only get to do the euphoria experience once, when your side is out of power and half the electorate is groaning for release from the evil corrupt in-party.

What President Obama needs is a Morning in America feeling, like the feeling that Americans felt in 1984 when the economy had emerged from four years of inflation and recession. The big question is whether Obama's economic policies will deliver that. After all, his policies are the exact opposite from President Reagan's policies in 1981-84. Instead of hard money, he is backing "quantitative easing." Instead of spending cuts, he favors big spending increases. Instead of tax rate cuts, he wants to increase tax rates on the most productive Americans.

It's a great experiment, and we will see what works by 2012. And then the missing voters of 2010 will get to decide whether they want Four More Years, or whether they think it is Time for a Change.

The Meaning of the Secret Donations

Our friends at The New York Times are shocked, shocked to discover that the US Chamber of Commerce has been laundering "secret" donations for corporate special interests.

Specifically, according to a Times editorial, the Chamber has received secret donations from the insurance industry and from Wall Street.

Secret donors spent at least $138 million on the midterm elections, according to the latest figures, and 80 percent of that secret money supported Republican candidates. What will those donors get for their money, and who will they get it from?

Yes, it is very annoying that corporate interests are secretly spending money to oppose the Obama administration. Who would have thought it?

But the Times is missing the point. The reason that these corporate interests are laundering their money through the Chamber of Commerces is that they are afraid. They are afraid of what the Obamis would do to them if they came out and honestly admitted, with their contributions, that they are dead set against Obama and all his works.

Let's put it this way. The reason that many Democrats want Nancy Pelosi to continue as Minority Leader in the House is that she is a great fundraiser. Now why do you think that the lovely Nancy has such a reputation as a fundraiser? Charm? Personal beauty? A winning sales pitch? Or is it just naked threats to pay up or get thumped?

Here is a story that might illuminate the issue. Right after the 1994 elections Speaker-elect Newt Gingrich is reported to have told his people to put the screw on all the corporations. They hadn't contributed much in the runup to the elections, but now they had better learn which side their bread was buttered.

The fact is that the secret contributors to the Chamber were afraid. They were afraid of the consequences if it became known that they were contributing to Republicans.

And that, I suggest to my liberal friends, convinced of the enormous power of big corporations, is not good. Nobody, not progressives, not pro-lifers, not corporations, not unions should be afraid to contribute openly to the candidate of their choice.

As for me, I live for the day when government employee unions feel the need to hide their contributions to Democrats, because they are afraid to face the wrath of the permanent-majority Republicans.

State Winners And Losers

The US Bureau of Economic Analysis released its numbers on state GDP (called Gross State Product or GSP) for 2009 yesterday. The numbers are now up on usgovernmentspending.com. So now we can see the winners and the losers in the Great Recession.

Here are the top winners:

State	Growth Rate
Oklahoma	6.6%
Wyoming	5.4%
North Dakota	3.9%
Alaska	3.5%
Louisiana	2.5%

Looks like the energy states were doing best. Now here are the big losers:

State	Growth Rate
Nevada	-6.4%
Michigan	-5.2%
New York	-4.3%
Arizona	-3.9%
Indiana	-3.6%

Looks like two housing-crash states and two deep-blue basket cases. But Indiana?

Head on over to usgovernmentspending.com and take a look.

What Do the Soros Guys Want?

I'm confused. After President Obama has rammed just about all that a lefty president could ram through Congress and the federal bureaucracy in the last two years, the rich-bitch progressive funders at the Democracy Alliance, George Soros, proprietor, are all bent out of shape. Says Soros:

"We have just lost this election, we need to draw a line," he said, according to several Democratic sources. "And if this president can't do what we need, it is time to start looking somewhere else."

I would think that the Soros brigade would realize that now is not the time to go soft on the president. After all, he and Pelosi are the front rank in the battle to stop repeal of ObamaCare and the federal takeover of the financial system, etc.

Actually, my confusion goes even deeper. These liberal moneybags, that style themselves the "progressive movement", are working to do what? Further empower the government employee unions to loot the government? I'd say that the big problem right now for genuine progressives is that the government administrative tail is so large and expensive that it is impossible to do anything.

Well, I shouldn't be surprised. Every liberal I check on knows all about the Koch brothers, how they are the top-down funders of the Tea Party movement, and how that is bad for America. But they seem to be wholly innocent of the influence of George Soros, who seems to be much more influential on the Democratic side. Scratch a liberal these days and she is worried about the peons working like indentured servants for Wal-Mart. Maybe so, but have you liberals checked to see how many people line up for Wal-Mart jobs whenever Wal-Mart opens a new store? And how the lines are much longer when Wal-Mart opens near a liberal city like Oakland or Chicago?

And what is all this about a progressive "movement?" How can we be talking about a genuine movement when it is composed of people who like the current administrative state and just want more of it? These are people who are part of the ruling class and want more of it.

The way to think about this is to think of it as religion. Religion is about faith, faith in the meaning of life and faith in the way things work. These liberal progressives are members of the church of liberalism. They believe in the Articles of Liberal Belief and they believe that what we need is more liberalism. The only trouble is that the mass of the American people are not co-religionists. They do not worship at the church of liberalism. No re-messaging or re-focus is going to change that. Here's a SEIU honcho:

"People are determined to help build a progressive infrastructure and make sure it is there not just in the months ahead but one that will last in the long term," said Anna Burger, the retired treasury secretary of SEIU. "Instead of being pushed over by this election it has empowered people to stand up in a bigger way."

Progressive infrastructure? Does Burger not realize that liberals already have a massive progressive infrastructure in place from the liberal media to the schools to the foundations to Hollywood to their own Democracy Alliance?

Really, this is good news for conservatives. These chaps are like Tory "ultras" in the 19th century. They are like southern segregationists in the 1950s. Their whole project is running on the rocks of unaffordable programs and pensions, and they are proposing to reinforce failure.

Bring It On.

The Content of His Character

The story of each great ethnic group in America has been remarkably similar. It starts with oblivion, continues to alarm and discrimination, then to ethnic power politics and pride, then arrival, and finally assimilation.

African Americans have traveled this road in full Technicolor, for they arrived in North America not as indentured servants but as slaves. There were not mere scuffles about them, but an outright civil war. Like the Irish, blacks have chosen the path of ethnic pride, expressed in monolithing voting and corrupt political machines. Like the Irish, blacks have finally elected one of their own as president.

Martin Luther King famously looked forward to the day when Americans would be judged on the content of their character, not on the color of their skin. Everybody interpreted that as an appeal to whites to judge blacks by their behavior not their race.

But there is another side to this, the question of how blacks judge their own kind by the content of their character.

In the climb from egregious discrimination ethnic groups tend to exhibit a strong sense of solidarity. They support their own kind, no matter what, in the battle for survival. But there comes a time when they obtain real power and are no longer the weaker group in the battle of political power. There comes a point where the group gets to go through the equivalent of the Temptation of Christ. They have the power to rule the world, but will they have the character to say: get thee behind me, Satan.

In the famous trial of O.J. Simpson for the murder of his dead wife's lover, a black-majority jury in Los Angeles County in 1995 voted to acquit the famous football player. But in a black majority congressional district in New Orleans in 2008 the voters threw out their Representative accused of corruption, William J. Jefferson (D), the first black to represent the district since Reconstruction.

Now we have the case of Rep. Charlie Rangel (D-NY), convicted by the House ethics panel of corruption on November 16, 2010. Will the House vote to expel Charlie, as they would a white congressman? Will the black voters of Harlem vote Charlie out of office as the voters of any white suburban district would already have done?

Because when the day comes that blacks routinely judge their own leaders on the content of their character then blacks will truly have arrived as One Hundred Percent Americans.

Compared to that, the election of a black president is mere bagatelle.

The New Republican Majority

Reviewing the 2010 battlefield, RealClearPolitics' Sean Trende notes two significant facts:

1. Dems have lost rural and "Jacksonian" voters. A hundred years ago, the core of the Democratic vote was rural voters, farmers that hated capitalism and finance, particularly the finance capitalists that held their mortgages. These folks, along with the rough-and-ready Scotch-Irish from Appalachia, are gone for the Dems.
2. Dems are losing suburban and white working class voters. These folks have been the real pivot point in the electorate in the last generation, leaning towards Reagan, then Clinton, then Bush, then Obama. Now they are clearly moving away from Obama and the Democrats.

Isn't it convenient, then, for Republicans that suburban voters and the white working class are being absolutely hammered by the Great Recession? And isn't it convenient that Obamanomics really has nothing to say to these hard-hit folks?

Then there are the young voters. You have to feel sorry for the young voters. There they are, having voted just like the trusties in their government educational custodial facilities told them, and now they are utterly screwed. Do you think that maybe in two years they might be ready to vote for real Hope and Change in freedom instead of Hope and Change in big government?

Yeah. How dumb can you be, imagining that big government is going to create Hope and Change? Government is force, baby. And government is the cockpit of the special interests, all of them opposed to Change.

Think, think, think. That's the order of the day. The door is open to create a big new majority coalition. So let's all think about how to appeal to suburban voters, white working class voters, and young voters.

Job One is jobs, jobs, jobs. And we know how to do that. Cut government spending and cut income tax rates.

Then there is education. We have to help the majority of Americans escape from the liberal model of education that prepares people for jobs in the Peace Corps and a career in environmental regulation. We need to reorient education towards the dominant learning method among humans and especially among average people: learning by doing.

I say "we" but I mean "they". The conservative policy on education is that it should be driven not by educrats and edu-theorists but by education consumers: students and parents. Let us empower ordinary people to supervise their ordinary education and empower them to decide when it is time to get out of school and into the "real world" of work and training. For many people, I suspect, the moment to leave full-time education is about age 13.

Crisis is opportunity. The Obama meltdown creates the political opportunity of the century. We conservatives care about the suburban voters and the white working class. We care because we understand what a century of liberal government has done to the ordinary person, and we want ordinary people to have a free and prosperous life liberated from the dead hand of government.

Let's listen to the surburbanites. Let's listen to the white working class. Let's work with them to build an America we can all share and be proud of.

Populist Darling or Embarrassment?

You tell me. Is Sarah Palin's reality show on TLC a brilliant effort to reel in the white working class? Or is it jumping the shark, as former supporter Jennifer Braceras believes?

It's the old, old question in politics. How folksy can you get without becoming a caricature of folksiness? Democratic politicians are required to show that they are just like you and me. That goes back to Thomas Jefferson who went to his inauguration in plain clothes. Writes Ron Chernow in Alexander Hamilton:

Jefferson eliminated the regal trappings of the Washington and Adams administrations and brilliantly crafted an image of himself as a plain, unadorned American... For two weeks after his inauguration, Jefferson stayed at his boardinghouse near the Capitol and supped at the common table.

So what are we to make of Sarah Palin's folksiness? Put it this way. Suppose you were Sarah Palin and you were planning a presidential campaign. You know that a campaign is all about image dusted with a little fairy dust of issues. You know that voters really aren't interested in wonky discussions of the details of health care. You have succeeded in numerous public debates and candidate forums down the years by avoiding the policy details and appealing directly to the emotions of the voters. You've been a successful elected politician since 1992, rising from city councilmember to mayor to governor. You've been savaged by liberals for being a hick and an embarrassment. What would you do?

I'd say that the thing to do is to play up your folksiness. Talk non-stop about "common-sense conservatism." Appeal to the great unwashed middle with down-to-earth media events. And hope that it all comes together.

I keep thinking about the white working class, and in particular the white working class woman. A couple of weeks ago I wrote about the white working class. It's had a pretty hard go because the Democrats have forsaken it for liberal women and minorities. And the Republicans just don't seem to get the white working class. Now here is Sarah Palin doing reality shows, hauling nets, piloting fishing skiffs, in the middle of her family. Yes, it's all rather récherché and hard to take for the educated classes. But what does it say to the working classes?

The question the pollsters always ask the voters is: Does the candidate care about people like me? What do you think?

It Can Only Get Worse

There are two practical political reasons for the Obama administration's QE2 policy. Reason one is to re-float the underwater debtors, the folks with underwater home mortgages. Until they are breathing again, the economy is going to be in trouble. The other reason is to gun the economy for the 2012 elections.

Why not? That's what Richard Nixon did in August 1971 when he took the US off the gold standard. The result was that the M2 money supply that had risen 6.5 percent in 1970 went up at the rate of 13.3 percent in 1971 and 13.0 percent 1972. In 1973, after the elections, M2 was ratcheted back to a 6.6 percent increase and we got the 1973-74 recession.

Here's what I wonder. Are the Obamis cranking the printing presses too early? Back in the 1970s the Nixon administration imposed wage and price controls in 1971. That kept the inflation under control for a while with consumer prices increasing by 4.4 percent in 1971, 3.2 percent in 1972. Then prices exploded by 6.2 percent in 1973 and 11.0 percent in 1974.

The thing to remember is that we don't have wage and price controls to make things look good in the runup to the election. Nor do we have the financial repression of the post-war years in which investors could not escape from dollar investments, and were screwed with interest-rate ceilings on bank deposits. And by going for broke a full two years before the election, the Obamis are risking big-time inflation well before the voters go to the polls.

Here's my judgment. The Democrats have lost the Mandate of Heaven; they have lost the luck o' the Irish that always made things work out for them. President Obama is a Mrs. Gummidge of a president, and everything goes contrairy with him. Things are going to get so screwed up that the 2012 election will make the 2010 election look like a cake-walk.

And here is the worst of it, if you are a Democrat. Democrats are going to be disproportionately hurt in the next few years. Whether it's social spending, green subsidies, public pension defaults, government employee layoffs, it's going to hurt Democrats more. But that strikes at the very heart of the Democratic project, which is patronage, pensions, jobs, and street money for the Democratic supporters. The very best that can happen is that Democratic supporters will lose heart and stay home. More likely is a massive Democratic split, a fight over the remaining spoils.

The worst of the worst, from the Democratic perspective, is Gov. Chris Christie. He is showing that a big fat roly-poly Republican governor can make hay over dissing government employees. He is publicizing the union official that wished for his death. He is publicizing the schools superintendent who is getting his contract renewed before state salary caps kick in. Nobody has ever succeeded in doing this successfully before. And if you can do it in New Jersey you can do it anywhere.

Things are going to get worse, and it's going to be the worst for the little people. Remember? Democrats fight for the people against the powerful.

When the Patronage Has to Stop

Why is it that the old industrial mid-west, from Pennsylvania to Wisconsin, was the center of the lurch to the Republican Party in the recent mid-term elections? I have a theory on that.

Politics is the process of bribing the electorate. You offer them goodies in return for votes. In the old agricultural era, the only voters were the landlords, the descendants of the warrior class that conquered and occupied the land. Kings and princes had to keep the support of the landed aristocracy with privilege and gifts. The result was that the rich paid almost no taxes and the poor paid a lot.

In our modern era the opposite is true. Now we have the mass of the people voting and they demand patronage from the politicians in return for their vote. The social-democratic parties are the masters at this game.

But there is a problem. Patronage politics is not a stable self-correcting system. That's because the supporters are ravenous for rewards. So the politicians have to keep offering new bribes at every election, for the old bribes are not counted as bribes by their recipients but as their "rights."

What happens when the money runs out and the politicians can no longer keep the payments coming? You get the industrial mid-west.

The industrial mid-west was center of post-WWII unionized manufacturing. The idea was that prosperity was a combination of big manufacturing corporations, big labor unions, and government adjudicating between the two. The reality was that the big corporations promised enormous benefits to their employees through defined benefit pension plans and retiree health benefits that would be paid out of profits ten, twenty, thirty years in the future. Unfortunately when the future arrived there weren't any profits, or at least, not enough to provide the promised benefits. So now the big corporation, big union model lies in ruins. The patronage promised by the politicians, the lifetime employment, the fat pensions, all is vanished into air.

If you are a sensible, practical person, and all the promises of the politicians turn out to be so much hot air, then there is only one thing to do. You must move on, admit that your investment in the political patronage system was a failure, and start over. That is what the folks in the industrial mid-west have decided to do.

But that raises a question. Why haven't the voters of California and New York joined in? The answer is that the big-government patronage model is still working for them--just. But in ten years or so some presidential candidate will be talking to his rich supporters about the bitter clingers. Only this time they won't be the bitter clingers of western Pennsylvania, devastated by the hollowing out of unionized manufacturing. They will be the bitter clingers of the huge government sector that collapsed in the budget cuts of the 2010s.

The GOP and Minorities Canard

They'll have to come up with another one pretty soon. Just when the cognoscenti wrote off the Republican Party as a hopeless collection of angry white guys, it was 2010 and Republicans started electing black, brown and female candidates to office up and down the ballot.

It's not just that Republicans are electing young, interesting candidates, writes Michael Medved, although they are.

The Democrats, in other words, have become a party of shop-worn retreads while the GOP bench is full of next-generation leaders of potential national stature, including Governors Chris Christie of New Jersey, Bobby Jindal of Louisiana, Tim Pawlenty of Minnesota, Rick Perry of Texas, Mitch Daniels of Indiana, Senators John Thune of South Dakota, Scott Brown of Massachusetts, and many more.

First of all, Republicans are electing Hispanics.

After the recent elections, skeptics can no longer deride the GOP as an all-white party of grumpy old men. Marco Rubio, 39, became the new Senator from Florida while fellow Latino Republicans Bryan Sandoval in Nevada and Susana Martinez in New Mexico became the nation’s only two Hispanic Governors. Jaime Herrera, age 31, captured a Democratic Congressional seat in Washington State, while Raul Labrador did the same in Idaho. Two more Hispanic Republicans-- Bill Flores and Quico Canseco—knocked out incumbent Democrats in Texas.

Then you have South Asian Americans and African Americans.

In South Carolina, Indian-American Nikki Haley won for Governor while black conservative Tim Scott beat Strom Thurmond’s son (among others) for a Congressional seat. Alan West, an African-American Iraq War hero, trounced an incumbent white Florida Democrat.

Charles Krauthammer has described the 2010 election as a "reset," that gets the party strength back to 2004 before GOP fatigue set in. But the 2010 result seems to go further than that. It seems to be knocking the predictions of an enduring Democratic majority out of the ballpark. Especially when you add into the mix the entry of conservative women into the mix. Yeah, it's true that conservative women like Sarah Palin, Sharron Angle, and Christine O'Donnell don't get no respect. But here's a prediction. You ain't seen the last of conservative women in the political arena. The déclassée ladies from State U ain't gonna take the derision of the liberals lying down.

Women have spent the last century getting into the public square. The first thing they experienced was politicians offering the services of big government to liberate them from the hardships and the drudgery of the ages. With that liberation women could have careers just like men!

Well, it didn't turn out quite as promised, because most women aren't particularly interested in the greasy pole of careerism, and they aren't that excited about trashing their families and short-changing their children. So now women, led by conservative women, are trying to work out a culture that honors women as women rather than trying to turn them into men but without all the aggression.

It's a new era. You could call it post-racist, post-sexist, and definitely post-liberal.

And in this new era, big-government liberalism is turning out to be on the wrong side of history.

Bernanke Tries to Float Homeowners

If you want to boil national economics down to one issue, it would be this: When debtors get underwater, it messes up the economy.

The reason for this is simple. Modern capitalism runs on credit (means faith). The faith that runs the credit system is that the other guy can make his responsibilities.

A bubble is a situation where a lot of people borrow money to buy assets which subsequently plunge in value. So these plungers end up underwater. If they were to sell their now-depreciated asset they would still have to find extra money to pay off their debt. It doesn't take a genius to figure out that the economy is going to be in real trouble when millions of people are in this position, and are frozen in place hoping that, if they keep servicing their debt, things will turn out OK. The capitalist economy needs to have people freely trading and producing, not cowering in fright.

In other words, for capitalism to work, people must be able to cover their losses.

So now you can see what Ben Bernanke, Chairman of the Federal Reserve Board, is doing with his "QE2" money printing. He is trying to float the boats of the millions of people with upside-down mortgages. Once those boats are floating again then the millions of folks can sell their houses, they can move to new jobs. They can start to live again.

The cost of all this of course is enormous losses for the widows and orphans that own dollar-denominated assets. Because the whole idea is to devalue the dollar. You devalue the dollar and home prices rise. Home prices rise and underwater homeowners get to breathe again. Homeowners get to breathe and the economy recovers.

We've done this several times since the government asserted complete control of the credit system in 1913 with the establishment of the Federal Reserve. We did it in the 1930s. We did it during and after World War II. We did it in the 1970s when the US went off the Bretton Woods system. We did it after the Plaza Accord in 1985. We did it after the Mexican meltdown in 1994, the Long-Term Capital Management failure in 1998, the tech bubble in 2000, and the real-estate bubble in 2007-08.

Some day soon, it's going to be time for sensible, practical Americans to admit that the government has made a right mess of its constitutional right and duty to "coin money, [and] regulate the value thereof".

Once we've admitted that, then it will be time to do something about it.

Blacks Stay Home in 2010

You could have seen this one coming. "Black Americans voted with their feet in the 2010 midterm elections".

Yep, that's one of the reasons that the GOP did so well. Minority voters weren't quite as enthusiastic as they were in 2008. Writes black conservative Lurita Doan:

But why is this surprising? Consider: unemployment is greatest among African Americans, with the Bureau of Labor (BLS) statistics reporting in Table A-2, unemployment of 29% for Black American adults... [I]f you consider that BLS reported that for Black Americans between the ages of 16-19, the unemployment rate is a stunning 48%, this kind of disenchantment with an administration that promised so much, but delivered so little, should be expected.

And if minority voters aren't convinced by the unemployment numbers there's the clear signal from the defeat of reformist Mayor Fenty in Washington DC by the teachers union. Democrats care about teachers; they don't care about kids.

There's really only one way forward for blacks, now that we've had our First Black President. That's the good old Anglo-Saxon Protestant way symbolized by freshman Rep. Tim Scott (R-SC), who won the predominantly white 1st Congressional District in South Carolina. What does Tim Scott believe, asked Zev Chafetz?

What, I asked, would be his message if he is sent by the party to evangelize among African-American Democrats? “Faith in God,” he said. “School choice and vouchers. And private enterprise. I want people to know that the American Dream is still alive and well, and I’m living proof.”

African American Scott was an indifferent high-school student but a businessman mentor and Bible study in college "gave me confidence that I could think my way out of poverty."

Here's my prediction. The real importance of the Barack Obama presidency is that it will free African Americans from their faith in an earthly savior. They will turn to faith and self-reliance. They will return to the party of Lincoln and in another generation you will not find a more staunchly Republican group than middle-class blacks.

One thing you can learn from Bible study is this: "put not your trust in princes." Prince is an old-fashioned word for politician.

ObamaCare: The One Thing Needful

Many people are wondering: Why? Why did Nancy Pelosi and Barack Obama push through ObamaCare in the teeth of opposition from the American people and why did they sacrifice their majority in the House to do so?

The answer is simple. If you are a Democrat you believe that you only get a chance to enact progressive legislation once in a generation. You know you'll pay for it but one thing keeps you going. You know that, whatever the cost at the next election, the new social benefit you enacted will never be repealed.

Obviously this Democratic faith will endure until it is refuted by the facts of experience. Obviously, one fine day, a glorious Democratic progressive legislative achievement will get repealed by a Congress and signed by a president elected to do just that. And that will be the end of liberalism as we know it, for liberalism is the idea that you make society more equal, more dignified, and more just with gigantic government programs like Social Security, free education, and government health care.

The great political question of the next five years is whether in fact the American people really want the Republicans to repeal ObamaCare. If the American people want that then they will know what to do. All they have to do is elect a Republican Senate in 2012 and a Republican president. That's all it takes.

If the American people do that then it will be the end of the liberal dream. Because the American people will have demonstrated that it is possible to repeal a glorious government entitlement.

Will Republicans get to do this? Well, there is one thing to keep in mind. When Democrats passed Social Security most people didn't have a pension. When Democrats passed Medicare most old people didn't have health insurance. But today, in 2010, most people already have health insurance and they report that they are pretty happy with it. ObamaCare is extending subsidies to the 30 million without health insurance. Obviously, the rest of the American people are going to have to pay for that. They are going to have to pay for it in higher taxes and/or in higher health insurance costs and/or reduced access to health care.

I ask you: what do you think that the American people think about that? And what do you think the American people are going to do about that?

The Hard Road Ahead

The results of the mid-terms were good, but not great. Even so, as usmidtermelections.com shows, it was about the second best showing for Republicans since 1900.

But clearly, union muscle helped Democrats in California and Nevada to get Barbara Boxer and Harry Reid over the finish line and back into the Senate.

What we can understand on the morning after is the hard road ahead. For sure, the voters rejected Obama and the Democrats. Now we have to get back to work.

But the long-term prospects are favorable. Let's look at three reasons for liberals to tremble.

There is no more money The big idea of liberalism was to construct a rational system to deliver vital social services that people on their own would not provide to their fellow citizens. But the trouble with this plan is that when you hand any problem to government it just ends up as a patronage program. And you end up promising more loot to your supporters than you can possibly deliver. That's what we have in America today: a huge bloated government that pays a ton of people a lot of money to do nothing. Eventually government will renege: on its promises, on taxes, and on its debt.

Meaningless lives The big idea of liberalism was to liberate people from the yoke of necessity so they could live intelligent creative lives. There's just one problem with this. If you take away the struggle of life, the grind of work, the obligations to loved ones, then you are left with nothing but dust. For the ordinary person to make a difference, they must work, and marry, have children and raise them. Off in the corner some talented genius will come up with an original creative work. Good for him. But society cannot be organized for the benefit of the occasional talented genius. Sure, it works pretty well for elite liberals: selective universities, interesting sinecures, opportunities to help the powerful. But when the ordinary people are reduced to beneficiaries of compulsory government programs, forced to government schools, government pensions, government health benefits, what's the point? You end up as an eternal teenager playing with grownup toys, but denied the dignity of living as a free citizen who can make a difference.

Established church of liberalism The big idea of liberalism is that there should be a wall of separation between church and state. To view this in a larger perspective we could say that we need to keep a distance between the moral/cultural sector of society, the realm of hope and faith, and the political sector, the realm of rules and force. Liberals fail to understand that a secular established church of liberalism is just as much a breach of the separation of church and state as the old established churches of Christianity. The problem is that when you combine church and state the state ends up dominating the church. The spiritual fervor of the religious community withers away and the only thing you have left is the power principle of politics. All the great government programs amount to the legislation of liberal morality. There's a moral case to look after the old folks. But should we legislate support and force everyone to support old people? There's a moral case to make sure that every child gets an education. But should we legislate morality and force everyone to support a government child custodial system? There's a moral case to relieve the poor. But has a government poor law that legislates morality and forces people to support government poverty bureaucrats ever resulted in anything but misery for the poor?

We will see liberals stumbling and bumbling all over the place in the coming years. They will use every trick in the book to preserve their power. But it won't work. Because liberals amount to a corrupt aristocracy that has forgotten that an aristocracy is supposed to be the rule of the best, not the rule of the best-connected.

If that isn't enough, there is the problem of the economy. Since the Obama administration doesn't believe in cutting spending, and will have a problem getting any tax increases, it has resorted to a policy of inflation. That is what "QE2" means. By the spring of 2012 this policy should be delivering significant inflation and some new asset bubble.

The American people will not deal kindly with the president that has screwed up the economy for four straight years.

To Lead the White Working Class

Yesterday we looked at the Seven Habits of the Working Class, as tabulated by Henry Olsen. Olsen got his info from Patrick Muttart, "former chief of staff to Canadian prime minister Stephen Harper."

The seven habits included: Hope for the future, Fear of the present, Pride in their lives, Anger at being disrespected, Belief in public order, Patriotism, and Fear of rapid change.

I wrote that conservatives differs with the white working class on two of those factors: Fear of the present, and fear of rapid change. Conservatives tend to be competent people that expect to come out all right in the future, but the white working class understands that it is economically marginal; that is why the white working class has, sensibly, voted for a big government safety net.

If conservatives want to get the support of the white working class we have to demonstrate that we have concrete, practical plans to provide a social safety net that is better than the government safety net provided by big government. That may not be hard to do in the near future because liberals have spent all the money and the welfare state will have to renege on its promises. It's a Fram oil filter problem. Do we renege now, or do we renege later?

Now let's look at another factor: Anger at being disrespected. Let's look at Olsen's take on that:

This is the flip side of their pride. Working-class voters are very cognizant of their status in American life. They rarely occupy executive positions in their jobs and are consumers rather than producers of ideas. They feel keenly this relative lack of control over important features of their lives, and resent being ordered about as if they were merely pawns in someone else’s grand plan. They particularly dislike having their lives belittled as unsophisticated or inferior to the lives of educated or wealthy folk.

Attention, liberals and President "Bitter Clingers" Obama! Yep, when liberals go around talking about "facts and science and argument" and people not thinking clearly when they are scared, the white working class is liable to ask "are you talking to me, boss?" There couldn't be a clearer demonstration of President Obama's little problem with the voters. It's the liberal presumption that liberals are more intelligent than ordinary people and that the most intelligent should rule.

OK, so President Obama and the liberal Democrats are impossibly patronizing and elitist. But what about conservatives and Republicans?

I have two words for you: Sarah Palin.

Say what you like about Sarah Palin (and liberals certainly have--thanks, liberals) but Sarah Palin is a successful politician whose shtick is pitch-perfect for the white working class.

If the white working class is now up for grabs, and the Democratic Party is hopelessly elitist and condescending, which conservative politician would be the perfect foil for 2012? Which conservative politician would be most likely to hammer out a platform that speaks volumes to the white working class?

OK, put it another way. Which politician will infuriate the liberals and provoke them into saying snobby and mean-spirited things that will speak volumes to the white working class and uncommitted moderates in general?

Yep. Sarah Palin.

What the Working Class Wants

In a powerful article on the failures of Obamism Henry Olsen lists the seven cultural indices of the white working class.

• Hope for the future
• Fear of the present
• Pride in their lives
• Anger at being disrespected
• Belief in public order
• Patriotism
• Fear of rapid change

Looking at that list, conservatives can say that we align automatically on most of them, but on two we have a problem: Fear of the Present and Fear of Rapid Change. For it is on those two items that the working class clings to the government welfare state. And it is there, it seems to me, that conservatives can and should work to prove to the working class that a non-government welfare state will help them and give them a better life: opportunity as well as security.

Let us bring this down to earth. If conservatives want to reform Social Security we must erect institutions that demonstrate to the working class that their savings won't be at the mercy of Wall Street. If we want to reform health care we must demonstrate to their satisfaction that the new system really will be safe and secure for them: that they won't be chucked into a second-rate nursing home for the last years of their lives. If we want to reform education then we have to persuade the working class that they will be able to afford a privatized system, one that values hands-on work as well as academic work.

Conservatives have a once-in-a-generation opportunity to develop a governing philosophy that converts our limited-government notions into practical ideas that communicate to the working class and also deliver for them.

It is not an accident, of course, that Sarah Palin almost seems to have been sent from central-casting to be the leader that can connect between conservatives and the working class. But you could say the same of Governor Chris Christie (R-NJ) or even Governor Mitch Daniels (R-IN).

Meanwhile I am still holding out for an 80-seat Republican pickup in the House of Representatives tomorrow.

Watch Obama Split the Democrats

One of the consequences of a liberal mainstream media is that people are always quick to see potential Republican party splits. Everybody knows that the social conservatives hate the libertarians, and that the liberal RINOs from the Northeast hate the southerners. But what about the Democrats?

Here are a couple of items that came over the transom; they indicate that things aren't exactly copacetic in Dem-land.

Here's Kevin DuJan, a dyed-in-the-wool liberal and supporter of Hillary Clinton. He ain't happy. He really isn't happy. Here is a quote from "An Open Letter to Rush Limbaugh and his listeners."

I don’t think even you understand just how much damage Obama has done to the Democrat Party — to the point where formerly lifelong Democrats like myself, and everyone here at HillBuzz.org, are actively working to expose the party and literally burn it to the ground for the good of the country.

None of this is being reported in the media, but a Civil War in the Democrat ranks has been raging since May 31st, 2008…a date every Hillary Clinton supporter knows well, because that was the date of the Democrat Rules & Bylaws Committee Meeting where Howard Dean (then-DNC Chair), Donna Brazile, and scores of other Kool-Aid slurping Obama flunkies took off their masks and revealed the full extent of the Leftist coup that had taken over the party. This was the day when the DNC took delegates Hillary Clinton won in Michigan away from her and handed them to Obama (despite the fact he wasn’t even on the primary ballot in that state, because he removed his name when his campaign realized he’d come in third in that race).

In other words, Obama stole the Democratic Party from the Clintonites and they ain't gonna forget any time soon.

It doesn't take a rocket scientist to realize that folks like Kevin DuJan are going to be all over the place after the earthquake on November 2.

But here's another indicator. It's purports to expose Obama's governing strategy after the midterms.

The White House plans to test Republicans’ unity and political resolve on three controversial issues: repealing the Bush tax cuts, implementing the deficit commission’s findings, and pushing immigration reform. Obama’s team says that these issues will make for good policy—and good politics, forcing Republicans elected in swing districts to choose between placating Democrats and independents and risking a possible Tea Party challenge in 2012.

Huh, asks Stephen Spruill? Aren't those issues that will unite Republicans and split the Democrats? Republicans are united on continuing the Bush tax cuts, and some Democrats are wavering, particularly the Democratic Senate class that's up for reelection in 2012. The Deficit Commission would be a problem for Republicans if the Democrats ran Congress next year. But they won't, so Republicans can pick what they want to implement. And, of course, they have Rep. Ryan's roadmap which is chock full of strategic ideas for spending restraint. Immigration is great for Democrats when they use it to ramp up the enthusiasm of the Hispanic vote. But it is poison for just about everyone else, including the black vote and the white working class.

I know. You are saying, how dumb can President Obama be? Surely he won't deliberately split his party right down the middle. Maybe he won't.

But we come back to the big hit on the Obama crowd from back in 2008. These guys only know urban politics. David Axelrod is a campaign consultant that has done Deval Patrick in Massachusetts as well as Obama.

The question is pretty simple. Can these Obama guys dig out of the hole they have got themselves into? Can they unite the Democrats and split the Republicans? The portents aren't too encouraging for Democrats.

The Lie of Liberation

The central theme of the left since Rousseau has been the theme of liberation. Liberals are going to liberate the secular from the judgment of the Church. They are going to liberate workers from the exploitation of the capitalists. They are going to liberate women from the exploitation of patriarchal marriage. They are going to liberate blacks from the legacy of slavery. They are going to liberate gays from--well it used to be the closet and the fetters of middle-class morality but now it seems to be that liberals are going to liberate gays into the joys of gay marriage.

It's all a lie.

Liberals promised to liberate us from the rigid judgementalism of the pulpit. Now we have the rigid criminilization of--get this--recycling. Some liberation, liberals.

Liberals promised to liberate the workers from the exploitation of the bosses. So they smashed the authentic safety net built up by the workers in the 19th century, the benefit clubs, the friendly societies, the mutual-aid associations, the labor unions, and replaced it all with a system of government welfare of liberals, by liberals, for liberals. And it's broke. Some liberation, liberals.

Liberals promised to liberate blacks from the legacy of slavery. Special privileges would accrue to blacks: affirmative action, multiculturalism, diversity: quotas by any other name. Now something like 70 percent of black children grow up in a single-parent home. The black family, that persevered through centuries of slavery, Jim Crow, and discrimination, has been blasted to smithereens. Some liberation, liberals.

Liberals promised to liberate women from the sins of the patriarchy, to liberate them from unhappy marriages into the joy of personal fulfilment and career. Is that really what women want? To be turfed out of their homes and neighborhoods into the rat race of government health care and education employment? To leave their pre-school children in day care? To dump the fathers of their children for government benefits? No wonder conservative women report higher levels of happiness than liberal women. Some liberation, liberals.

Liberals promised gays to liberate them from the shadow of the closet and the stigma of marginalization. First gays were to be liberated from the confining rules of heterosexual fidelity, free to love who they chose. Then gays were to be offered all the joys of marriage because, after all, if you loved someone you ought to be able to marry them. What a lie. What a double lie. There is no law and no liberal cultural bullying that can liberate gays from the fact that homosexuality is a marginal "life-style." It is not, and can never be, the mainstream of life, however you dress it up. Some liberation, liberals.

The facts of life, said Margaret Thatcher, are conservative. And the facts are that every group that liberals have seduced with the promise of liberation has ended up, or looks to end up, like the proverbial victim of the one-night stand. Used and abandoned.

The lesson of history is clear. When the politician comes calling with a seductive story about your horrible exploitation and the wonderful vision of liberation available in return for your vote, don't believe him. All he wants is your vote so he can get his hands on the levers of power. He'll toss you a bone or two, but eventually he'll tire of you and go onto another lover.

And what will you do then, poor thing?