Tuesday, December 28, 2010

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.

Monday, December 27, 2010

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.

Friday, December 17, 2010

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.


[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.

Thursday, December 16, 2010

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.

Tuesday, December 14, 2010

"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.

Thursday, December 9, 2010

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.

Wednesday, December 8, 2010

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?

Tuesday, December 7, 2010

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.

Monday, December 6, 2010

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.

Thursday, December 2, 2010

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.

Wednesday, December 1, 2010

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."