The Problem with Helping the Little People

It's a wonderful notion, using the power of government to help the little people. Think of the long ages of Man, and how all the time the rich got richer and the poor got poorer. (Actually, everyone below the firstborn rich son got poorer).

Now with beneficial progressive legislation, we can help the little people.

Only the trouble with big government programs is that you always seem to end up benefiting the big boys as well.  Take state government pensions, as described by Walter Russell Mead.

The biggest scam going in American financial life may be the collusive effort by Wall Street, the political class, and public sector unions to use union retirement money to prop up Wall Street speculation.

Come again?  Here's how it works.  Government pension plans assume high returns:  Some states assume as much as 8.5 percent.  Well you can't do that with bonds, so the pension funds hire Wall Street managers to invest in risky hedge funds for a higher return.  And that means that the Wall Street guys charge higher fees.

Unfortunately the Wall Street hot-shots are not bringing in hot-shot returns.  Calpers, the California state pension fund has only delivered 3.4 percent return over the last 5 years.

But the state isn't off the hook, of course.  It is still obligated to pay the pensions.  Only now it doesn't have any money.  So it will raise taxes or cut services. Or both.

See how the little guy does in all this.  Government employees are already well paid, usually earning 25 to 50 percent more than equivalent workers in the private sector.  Then they have almost guaranteed lifetime employment.  The politicians benefit because they get to collect campaign contributions from the grateful government employee unions.

But the little guy, the guy without the bulletproof government job and lifetime job security:  he's the chap supposed to pay for this.  And he is the guy that has to do with less government services when the cuts come.

Then there is Medicare that goes to the richest Americans, and Social Security that goes to middle-class Americans like me that ought to fund their own pensions out of their own savings.  There is university education that is a gigantic middle-class subsidy--both for the middle-class students and the middle-class professors that get to do cool stuff courtesy of the average taxpayer, and the middle-class administrators that direct traffic to achieve nebulous diversity goals.

The problem with government is that, however it starts out, it always ends up tipping cash into the pockets of the powerful.  That's because the powerful have the money to get the attention of the politicians, and money is the mother's milk of politics.

It's such a blooming shame.

How the Left Screws the Poor

The Left is always saying "It's the right thing to do," writes Michael Walsh.  But what does it mean?  Usually, it just means that the Left wants it.

[T]here is in fact no moral basis for the Left’s bogus morality; it’s just its usual lust for power dressed up in Judeo-Christian trappings in order to seduce the gullible, the devotional, and the feeble-minded.

Actually, he's wrong.  The Left does have a moral basis for its program.  It is what I have called the Exploitation narrative.  In the general case, it says that because there is inequality there must be injustice, and the government must act to mitigate the inequality and the injustice.  In the specific case, it says that some people can't afford health insurance, so we must force everyone into a one-size-fits-all government program to ensure that everyone can afford health care.  It's the right thing to do.

On the other hand, he's right.  If you are a political activist with a lust for power, the Exploitation narrative gives you a carte blanche to rage against almost anything and propose an increase in government power as a solution.  You can't really tell whether the lefty in question is really fired by a rage for justice or a rage for power.  He would be saying the same things in either case.

The problem is that the Exploitation narrative doesn't lead to justice.  It leads to ObamaCare.  You may say that you want to help the people who can't afford health care, but you end up with Springtime for the Special Interests.  Jay Cost:

[T]he individual mandate represents an enormous transfer of wealth, completely independent of income or social status. It transfers resources from the healthy to the sick, from the young to the old, without regard to who has more money to begin with.

On top of that, the Obamis, in building support for ObamaCare have had to buy off a whole rainbow of special interests from the docs to the nurses to Big Pharma.
Medicare is like Obamacare too.  It takes money from the workers and gives it to the seniors, irregardless of wealth.  Some seniors are poor, but most seniors have carefully saved for their retirement, and are much richer than the young folks that pay the payroll taxes.
Then there is government education.  Guess which schools are the worst in the nation: the ones that serve the poor.  Guess who don't send their kids to the local schools: middle-class inner-city teachers.


You may start your fight against inequality with the best of intentions, but you end up servicing the special interests.


Now I feel personally that the Exploitation narrative has been rather overdone, certainly where it is invoked to de-legitimize the workings of the free market.  The free market is like democracy.  It is the worst system of economic cooperation you can imagine, except for the alternatives.  The free market is a mess, but it eventually works things out.  Even lefty Juergen Habermas in The Theory of Communicative Action agrees:

The market is one of those systemic mechanisms that stabilize nonintended interconnections of action by way of functionally intermeshing action <i>consequences</i>[.]

If the market will work things out, then we should be careful about applying the Exploitation narrative.  The Exploitation narrative should only be applied to the grossest kinds of exploitation, like slavery and serfdom. 

Once you start applying the Exploitation narrative to affordable housing and affordable health care, you enter a wilderness of mirrors, and you will probably end up comforting the comfortable and afflicting the afflicted.  Guess who made out like bandits in the affordable housing mania?  Wall Street, with big bonuses and bail-outs.  Guess who lost their shirts?  Ordinary American underwater homeowners.

Let's sharpen this idea further.  You should only apply the Exploitation narrative to naked injustice due to direct government policy.  Things like slavery, racism, monopolies, subsidies.  There may be reasons to help people with government programs, but the rectification of inequality is not a good reason.  That's not because inequality isn't a shame, and isn't unjust.  It's just that the record of government on inequality is miserable; it almost always gets it wrong and gets captured by special interests.

On the other hand there is the competing narrative of the Invisible Hand.  Since Adam Smith invented the concept, average daily per-capita income in the developed West has gone from $1-3 per day to $120 per day and more.  What about the US?  According to usgovernmentspending.com, GDP in 2011 was $15.6 trillion and population was 314 million.  That's $136 per person per day.

President Obama is conducting a national experiment to demonstrate what happens when you concentrate on the "the right thing to do" according to the Exploitation narrative and ignore the Invisible Hand narrative.  

What a surprise.  You get a stagnant economy and huge deficits that lead to sovereign default.  And guess what happens then?

It's the same the whole world over
It's the poor what gets the blame
It's the rich what gets the pleasure
Ain't it all a bloomin' shame?

Pity about that. 

Broken Models, Bad Faith

The upshot of the Great Recession, according to Robert Samuelson, is that the economic models are broken.  In the case of the US, the broken model is "consumer-led growth."

From the early 1980s until the mid-2000s, what propelled the economy was rising wealth - stocks, bonds, real estate - that encouraged households to spend and borrow more. Feeling richer, people traded up for better cars, homes and vacations. Everyone could afford or aspire to "luxury." Businesses responded by investing in more malls, restaurants, hotels, factories and start-ups.

Hmm.  I'd say that the story of the last 30 years has been two duelling models: the supply-side model of sound money and low marginal tax rates, and the demand-side Keynesian model of cheap money and big government stimulus.

Then there's the European Euro model, writes Samuelson.  It rested on two assumptions.

First, the success of the euro - the single currency used by 17 countries - would continue. The euro had delivered low interest rates in the countries that used it, causing housing and consumption booms in Ireland, Greece, Spain and elsewhere. These in turn fed the demand for exports from Germany and other countries. Everyone benefited.

Second, slow but steady economic growth sufficed to support generous welfare states. Tax revenue kept budget deficits at manageable levels.

So much for that model.

But I think that Samuelson is missing the point.  The economic models he is talking about are not really attempts to understand the economic system.  They are attempts to game the system.

The Keynesian demand-side model originated as an attempt to cut short the process of the liquidation of the malinvestments of the 1920s boom.  A little bit of inflation and a little bit of debt from excess government spending would be enough to re-prime the economic system.  It didn't work in the 1930s, probably because in addition to the inflationism, governments were anti-business, actively wrecking the economy.

The Euro model was an attempt by the European ruling class to nudge their individual governments into one central, sensible economic policy without going through the trouble of educating each electorate and reforming each big-government patronage system.  It didn't work.

It is only the supply-side model that doesn't try to game the system.  That is why is was such a success in 1981.  It assumes that the economy is a self-regulating system that will deliver growth, employment, and wealth if it is left to itself.

But people do not go into politics to leave things alone.  So they bend economics to their political will.  They get economists to gin up complicated ways of exploiting the economic system for political ends.

So we get the subsidy for mortgage credit in the US, to which the politicians added a twist, forcing bankers to lend to people without proper credit or equity.  We get the single currency in Europe, which would work fine if nobody cheated.

Half a century ago and more, Ludwig von Mises taught that cheap money always led to the crack-up boom.  F.A. Hayek taught that the government couldn't run the economy because it couldn't have enough information.  It was a "Fatal Conceit" to think that it could.

But liberals refused to listen.  Now they have wrecked the western welfare state economic model and it serves them right.

Unfortunately it is not liberals that will suffer most.  The people that will suffer most are the people that have built their lives on welfare-state benefits.  Because those benefits are going down in the future.  In some places they will go down a little; in other places they will go down a lot.

What we need is reform.  We need reform that will change the welfare state model to a welfare society model.  Instead of being passive recipients of welfare state benefits, counting only what they receive, citizens should become active participants in the creation of social capital, counting what they give.

State welfare is not social welfare.  State welfare is the government handout taken from taxpayers.  Social welfare is the freely given and freely received action of humans acting in social cooperation and assistance.

Is America ready for a social welfare society?

Liberals and Inequality

President Obama says that the rich should pay a little more in taxes to make it fair.  But liberal pundits are more direct.  They say that "inequality" is responsible for a number of social evils, and it requires a policy response.  Writes Patrick Brennan in NRO:

Nobel laureates, from our president to Paul Krugman and Joseph Stiglitz, all agree that high levels of inequality are a serious problem, if not the problem, facing our weak economy.

According to this liberal thesis, either the 2008 financial crisis and its attendant recession, or the sluggish recovery — and maybe both — can be attributed in large part to the high level of economic inequality in the United States. Further, in this view, inequality is an economic malady on its own, even in times of prosperity.

Brennan then goes on to show how these liberals are surely wrong.  The financial crisis may just possibly have been caused by inequality, specifically middle-income Americans trying to "catch up" with the rich.  But you don't have to find a reason like that.  Just good old cheap money will do it for you.

No it's pretty obvious what is going on.  If you want to justify government intervention you have to argue injustice; otherwise you will quickly find that you don't have a justification.

Here's how I look at this.  There are two competing explanations of the modern lifeworld.  One is the 200-year-old Invisible Hand.  It argues that the economy is basically just and the way to get ahead is to find something that the consumers want and sell it to them.  The other explanation is exploitation, from Marx in The Communist Manifesto.  It argues that the basic fact of human society is exploitation.  So political activists are called upon to fight for the exploited and against the exploiters and knock down the walls of privilege and injustice.

Back in 1850 the Marxians had a point.  Plantation slavery was still churning out sugar in Brazil and cotton in the American South.  And pauperized agricultural laborers were appearing in the city and working for starvation wages in the new textile factories and mines.  Something had to be done.

It turned out that the net effect of capitalism and democracy from those times has increased the daily income of the average European and North American from about $1 to $3 per head per day to the current $120 per head per day.  So, whatever the combination of Invisible Hand and exploitation and the political response, we did something right.

So the full-on exploitation theory loses some of its bite.  And if exploitation is no longer an explanation then the argument for a strong government loses its bite as well.  Maybe we could get along with a lot less government force.

Enter the inequality theory.  It provides an all-inclusive explanation for all economic ills.  And it requires educated experts to design and implement programs to correct inequality.  Thus it provides a moral justification for the Democratic Party and its over-under coalition: a ruling over-class of educated liberals extracting taxes from the rich 1% and giving it to the under-class of victims, less an appropriate finder's fee, of course.

The whole thrust of modern politics in the US--the red-state blue-state battle, the culture war, private vs. public sector--is an argument between faith in an Invisible Hand lifeworld and faith in an exploitation lifeworld.

In the Invisible Hand lifeworld if you study hard and work hard to get ahead you will achieve your goals and live a successful life.  In the exploitation lifeworld you need a community organizer to fight for your rights.

Everything else is noise.

Persuading the People: Patronage or Profits

How do you grow the economy?  That's the one-and-only question before the voters this November.  President Obama says that the private sector is "doing fine" and the solution is in government investment.

According to the president in his Ohio speech, reports to Daniel Henninger, the difference is between the Romney plan that wants to grow the economy "from the top down" and the president's plan, "an economy that's built not from the top down, but from a growing middle class."  Oh really, writes Henninger:

There is no theory anywhere in non-Marxist economics that says growth's primary engine is a social class. A middle class is the result of growth, not its cause. Barack Obama not only believes in class-based growth but has built his whole growth strategy around it.

Mitt Romney is running around talking about the "liberating power of the free enterprise economy" but who knows what that means, worries Henninger.  It still provides President Obama with a chance to confuse. "Team Romney should not underestimate the appeal of Mr. Obama's confused economic ideas if drilled daily into the electorate's soft clay."

But it is not the job of a politician to persuade the voters that profit or the free enterprise economy is good.  People have been trying to do that for decades with indifferent results.  Here is Robert Tracinski with a good college try:

A profit is simply the net creation of wealth. It means that the economic value you created from a business—the goods and services you were able to sell—have greater economic value than the resources you put into running the business and paying its workers. It is your profit, the extra money left over after you pay your expenses, that allows you to expand your business, prosper and yes, hire more people.

Seems pretty straightforward.  But it relies on a world-view that believes in Adam Smith's Invisible Hand.  There is another world-view, and it says that profit comes from exploitation, that this is a dog-eat-dog world and the only way to scratch a living is to attach yourself to a powerful patron and gather up the scraps from his table.

Mitt Romney is selling the Invisible Hand world-view and President Obama is selling the patronage world-view.

You may say that the science is in on this.  Profits create prosperity wherever they are allowed, and patronage creates poverty wherever it is tried, just like it did for the 50,000 years of the agricultural age.  But the fact is that lots of people believe the patronage line.  When people migrate from the country to the city they usually believe in the patronage world-view because that the the way the world works in the countryside.

People that believe in exploitation and patronage join unions and vote for politicians that promise to extract something from the greedy rich.  People that believe in the Invisible Hand vote for politicians that promise to lower taxes and government spending.

This is no time to persuade people that believe in the patronage world-view; it is a time to rally the people that believe in the Invisible Hand.

But what do you do about the folks like my single-mom hairdresser who is mostly worried about high gas prices?  She's never heard of "fracking," so she knows nothing about the revolution in oil/gas exploration that will bring gas prices down if only the Obami regulators would get out of the way.

For those confused folks in the middle, you just say that "Obama Isn't Working."  What a surprise; that is just what the Romney campaign is doing.

America Grows Apart

Liberals have been selling the notion, recently, that the Republican Party is growing more and more extreme.  E.J. Dionne, Jr. has argued that Republicans have been moving out to the individualist extreme, leaving community behind.

Now the Pew Research Center for the People and the Press has come out with its Trends in American Values: 1987-2012, and reports that the gulf between the parties is increasing.  Probably the biggest change is on Environment.  Back in 1987 there was a 5 point difference between Democrats and Republicans on the environment.  Today it is 33  points.  On Governmnent Scope and Performance the gap used to be 6 points; now it is 33 points.  On Social Safety Net it used to be 23  points; now it is 41 points.

Propping up E.J.'s argument, the gap has increased mainly because fewer Republicans (and to a lesser extent, Independents) believe that the "government should take care of people who can't take care of themselves" and that "there needs to be stricter laws and regulations to protect the environment."  In other words, Republicans have moved away from the New Deal and Sixties consensus.  Why?  Well, I expect that if you asked a Republican she'd say that the government can help take care of people who can't take care of themselves.  But after a point the government makes things worse rather than better.  Oh and by the way, the global warming movement is a scam.

But wait, you say. What about that female Republican?  Isn't the Republican Party the party of dead white males?  Er, no.  Here's an interesting take from the Pew poll.  In 2012 Republicans are 50% male and 50% female.  Almost perfectly representative of Americans as a whole.  It is the Independents and the Democrats that are unbalanced on gender.  Democrats are 41% male and 59% female, about the same as currently graduating college students.  But Independents are 55% male and 45% female.  Who would have thought it?

Overall, Independents tend to be economically conservative and socially liberal.  So that might explain why President Obama is in such a pickle this year.  Independents this year are not too exercised about social issues, but they are certainly interested in economic issues.

Pew compares "swing" voters ("either undecided, only lean toward a candidate, or favor a candidate but say there is still a chance they will change their minds") with Obama and Romney voters.  Their attitudes tend to be right in the middle between the partisan voters, but tend a little more towards Obama voters than Romney voters--except on the Social Safety Net, Immigration, and Government Responsiveness.

It is interesting that the Pew survey does not really ask questions about middle-class entitlements.  If they did, I wonder what they would find?  Pew asks questions about health care and finds that people are more concerned in 2012 about too much government in health care than in 2009 (with Democrats not concerned).  And of course everyone agrees with the motherhood-and-apple-pie notion that "the government needs to do more to make health care affordable and accessible."

But remember the big takeaway.  It's about Republicans.  Yes, they are certainly as white as a picket fence, but they are not male.  It's a 50-50 splitsville between male and female in RepublicanLand.  And don't you forget it.

Ann Romney's MS Story

I first became aware of Ann Romney's battle with multiple sclerosis when the left raised the issue of her expensive horses.  It turned out that she had started riding horses as a therapy for MS.  Imagine what would have happened to any conservative sneering at a Democratic wife's debilitating disease.

Today there's a long article by Katrina Trinko in NRO about Ann Romney and her MS story.  It's the usual "heart-warming" story that you expect to see all over the checkout stands at the supermarket.  Only you don't.

Is that because the women's magazines won't turn to presidential politics until after the conventions?  Or because the heart-warming story is about a Republican?  Or because the liberal women that run the women's magazines in Manhattan haven't heard of Ann Romney?

Who knows?  But I predict that when the women of America get to know about Ann Romney they will warm to her.  Because the story of Ann Romney's MS is the sort of story that women love.  It starts when her youngest son is in high school.  It involves Mitt Romney pitching in.  It involves Ann Romney moving to Utah, and various actions by her sons to provide support for her.  And then there is the horse story: how Ann Romney started riding in a desperate attempt  to have something to focus on.

And then there is the story of Ann Romney running a relay with the Olympic torch.

And then Mitt Romney nominated his wife — without telling her — to carry the Olympic torch, citing her as his personal hero. It would be an arduous task for her: Those who carry the Olympic torch run for a quarter-mile before relaying the torch to the next person. For weeks beforehand, Romney practiced, building up her strength.

“She was able to jog the whole thing,” remembers Josh Romney, who was there with her, running alongside his mom.

“I literally ran,” Romney says, describing how she carried the torch, with friends and some of her sons present. “My kids were all surrounding me,” she says. “And they were all crying because they knew what a miracle it was that I came [to Utah] barely able to walk and now [here] I was, three years later, torch in hand, the Olympics were a success, I was back on track, I was regaining my strength, and off I ran with this torch into the city.”

I know what you are thinking.  Doesn't the First Amendment forbid the publication of this sort of story that suggests, ever so sweetly, that evil Republicans are human too?

To which I answer: who knows?  If the Supreme Court can fling a decision like Citizens United into the faces of the progressive blogosphere, who knows what is allowed in America any more?

Ohio Speech: One Last Hurrah

Everyone seems to be disappointed in the president's June 14 speech in Cleveland, Ohio, from the press corps to Dana Milbank to Charles Krauthammer.  But I think it was interesting.  It reminded me, obliquely, of the great speech, the full-throated recitation of the liberal world-view, that Ted Kennedy gave at the 1980 Democratic Convention.

Not that the president's speech held a candle to Ted's old speech.

The president on Thursday ran through the liberal world-view, 2012 version, for the assembled liberal faithful.  He did not so much set out his plan for the future as paint a picture of how we got here.

The most important thing to communicate was the New York Times version of the last ten years.  Tax cuts and deregulation brought on the Crash of 2008.

Without strong enough regulations, families were enticed, and sometimes tricked, into buying homes they couldn’t afford. Banks and investors were allowed to package and sell risky mortgages. Huge, reckless bets were made with other people’s money on the line. And too many from Wall Street to Washington simply looked the other way.

Yeah.  Notice how "Washington" stands in for Fannie and Freddie and the Community Reinvestment Act and the young Barack Obama working with ACORN to bully banks into lowering their lending standards.

Then there was the liberal line on the auto bailout.

And when my opponent and others were arguing that we should let Detroit go bankrupt, we made a bet on American workers and the ingenuity of American companies -- and today our auto industry is back on top of the world. (Applause.)

Yeah.  And forget about how the auto bailout was really a crony capitalist bankruptcy in which the law was trampled on and senior creditors (read widows and orphans) got shafted and union auto workers sailed through almost untouched.  Which means that the Detroit problem has just been punted down the road.

Then comes the pivot to the wonders of Big Government. It doesn't do any good to pay workers lower wages or let corporations pollute, said the president.

I see an America with the best-educated, best-trained workers in the world; an America with a commitment to research and development that is second to none, especially when it comes to new sources of energy and high-tech manufacturing. I see a country that offers businesses the fastest, most reliable transportation and communication systems of anywhere on Earth. (Applause.)

Yeah.  Trouble is that we have gone from 1 percent GDP on government education to 6 percent in the last century and you can't really say that we have got six times the payback, Mr. President.  And as for reliable transportation, by which I presume you mean very fast trains, what is the problem with very fast airplanes?  But the bigger point is, Mr. President, is there a hope in hell that government will ever do more than make a complete dog's breakfast of everything it touches, from education to health care to pensions to welfare?

Then the president gets to the really dodgy part of the speech.  Medicare, Medicaid and spending cuts.

My own deficit plan would strengthen Medicare and Medicaid for the long haul by slowing the growth of health care costs -- not shifting them to seniors and vulnerable families. (Applause.) And my plan would reduce our yearly domestic spending to its lowest level as a share of the economy in nearly 60 years.

Yeah.  And I've got a bridge to sell. Are we talking about the death panels here, Mr. President?  And what exactly does "yearly domestic spending" mean?  I suppose it means so-called "discretionary" spending, including everything except Social Security, Medicare and Medicaid.

The president's speech is an odd creature, and I suspect reflects the hand of the president himself more than his handlers.  I suspect that the president thinks of himself as quite the Hyde Park political philosopher.

I also suspect that,  once the Romney campaign has finished with it, the Ohio speech will turn out to be another big Obama blunder.  Because I think that the president really doesn't know how his liberal bromides sound when they go in the ears of an ordinary moderate voter.

The Welfare State End-game

How will it all end?  Will we reform the welfare state and prune it back to a pragmatic level of entitlement?  Or will we go over the cliff?  The trouble is that a nation can go over the cliff and still not reform its welfare state.

Look at Argentina.  It went over the cliff in 2002, with a huge devaluation of over 50 percent.  Then it got the populist Nestor Kirchner.  But the politics of the last ten years has been relentlessly left wing, with intrusive regulation and now expropriations of corporations.  Greece is heading the same way.

We are learning is that welfare states cannot trim their entitlements, particularly their employee salaries and their pensions.  "Austerity" sends people into the streets.  In the US the conservative Tea Party is all for reducing government, but not Social Security and Medicare.

Sorry Tea Party.  Government spending pretty well is Social Security and Medicare--apart from education and welfare.

In today's Wall Street Journal Daniel Henninger talks with a young Italian woman.  Her best friend has a degree in electrical engineering, but "he is working for nothing in a hotel."  Other young Italians have already left for Brazil--or China, or Australia.  Henninger pleads with European voters to vote for salvation.

Would a European electorate, if given an honest chance to choose self-salvation rather than the bleed-to-death choices they've been given the past two years, vote to save themselves?

 I doubt it.  I expect European voters to vote for their entitlements.  That is what the French just did.  They voted for "growth" in government rather than austerity.  Voters vote their pocketbooks, right up until the day that the government closes the banks and devalues the currency.

What you can get voters to do is vote against some minority that is looting the public fisc.  So in Wisconsin last week the voters voted for the guy, Scott Walker, that was taking it to greedy government employees.  Voters will vote also against greedy bankers and greedy CEOs.  What they will not do is vote to trim their own benefits.

Why should they?  Most beneficiaries are older people like me, getting government pensions and health care.  They are cultural Keynesians, for Keynes (the childless homosexual) said that "in the long run we are all dead."

Today's European seniors are different from Keynes, of course.  They are childless heterosexuals.  And  they will all be dead in the short run.  So who cares?

The Malinvestments of the Previous Boom

The Austrian theory of the business cycle goes something like this: A recession is the period of adjustment for liquidating the malinvestments of the previous boom.

In other words, when you get an unexpected increase in the economy, people pile on, and make investment and consumer decisions that assume the good times will roll on forever.

It wouldn't matter if they just plowed their extra income into foolish projects.  Then, when things go south they would just adjust to the reduced income.  But typically, they borrow money to fund their projects.  Borrowing money is a way of anticipating your future income.  But what happens if your future income is not as large as you assumed?  The answer is simple: it is retrenchment, losses, poverty, and bankruptcy.  And because you fail to make payments on your debt you imperil your financial counterparties, your bank and your bondholders.

The Federal Reserve reports that Americans lost 40 percent of their family wealth between 2007 and 2010.  That is telling.  It says that the decisions that Americans made in the 2000s about the future were wrong.  The investments they made in houses, especially, turned out to be malinvestments, because they ended up not having the income to service their mortgages.  So it turns out that we are a lot worse off than we thought in the heady days of the real-estate bubble. (But there is hope.  The Wall Street Journal reports that foreigners are snapping up high-end apartments in Manhattan and Miami.)

So now we turn to the question of "stimulus" and Keynesian economics.  The Keynesians recommend that the government borrows and spends in order to jump-start the economy.  There is a point to that.  If you have foolishly let your car battery run down, then getting a jump-start will get your engine going again, and hopefully recharge your battery.  But if there is no fuel in the tank, then it doesn't matter how long you crank the starter, you ain't gonna get the car to start.  Eventually you will exhaust the battery on the other side of the jump-start cables.

That's the problem that southern Europe is facing.  It just can't go on paying all those government entitlements when the economy lacks the fuel to crank out the GDP and tax revenue that the government needs.

And that's the problem in the US as well.  President Obama wants to borrow money and forward it to state and local governments so they don't have to lay off government workers.  The problem is that today's government workers are very highly paid.  Writes Josh Barro for Bloomberg: "San Jose spends $142,000 per FTE on wages and benefits, up 85 percent from 10 years ago."

So the question is: Do you think that helping the city of San Jose continue to pay its full-time employees an average $142k per year is going to help the US economy?

Honoring an Eagle Scout

We old 'uns are always worrying about the young generation.  But the truth is that the vast majority of young people are nothing to worry about.  It's we, the old ones, with our power, our corruption, and our hypocrisy, that are responsible for ruining the future.

On Sunday I was privileged to attend an Eagle Court of Honor at Troop 171 in Seattle, where four young Americans, including a former neighbor, Kyle Piddington, were awarded the rank of Eagle Scout.  It's easy to forget that behind all the hoodies and the baggy pants of today life is going on as usual and regular middle-class kids are going on scout camp-outs and getting socialized from boys into men.

The Eagle Scout ceremony is shocking in its unashamed conservatism, with flags, bush shirts, badges, God, country, character and moral straightness.  And it is also shocking in its familism.  Each honoree is eulogized (from the Greek: "good words") by an adult, and is enrolled in the rank of Eagle Scout with mother and father behind him.  Mother puts the Eagle Scout ribbon on, and the Eagle Scout pins mother, father, and a mentor.  Each Eagle Scout gets a US flag that has flown over the US Capitol.  Cue George M. Cohan and "It's a Grand Old Flag."

Those of us that have read Judith Rich Harris's Nurture Assumption, which argues that the most important influence on children is first of all their genes, and then their peers, and only then their parents, often wonder how to socialize young people: to counter the Lord of the Flies barbarity of their peers with something healthier than our appalling schools.

Scouting stands as an obvious and unassuming answer.  It puts boys under the guidance of adults, immerses them in a rough-and-ready moral order complete with ritual and responses, and combines teaching with play.  The boys start out as beginners, and end up as leaders.  We are talking about real leaders, of course, with real responsibility for their charges, poles apart from the "community organizer" style of leadership that is often celebrated by our political culture.

But the biggest takeaway for me was the realization that Scouting puts boys of all ages in a single group, and counteracts the instinct of children to socialize only with their age cohort.  Thus a 12-year-old can go out camping with 18-year-old gods, by right of membership.  And the 18-year-old has a responsibility of care for the young ones.

In my own boyhood I recall with particular relish "fagging" for a school prefect.  It usually meant toasting bread and brewing coffee in the afternoons for the Olympian gods.  And it also allowed the young to take certain liberties with the senior boys: a cheeky remark was not amiss.  When you consider that my particular god grew up to become Sir Howard Stringer, head of CBS News and then Sony Corporation, you can understand the privilege I enjoyed in the humble role of servant.

It's a delight to get a chance to talk to young people once they can converse like adults.  Kyle, the Eagle Scout that I came to honor,  responds like a politician to the usual questions from adults, with confident and intelligent sound bites.  Last year he set up a Facebook page for kids at his high school to help each other with homework.  And his father reports that he spent many hours teaching kids through their homework problems.  Why not?  Studies show that you remember 90 percent of what you teach.  Kyle is going to Cal Poly in the Fall and intends to major in Computer Science.

The trouble with our modern society, with its Big Media, Big Politics, and Big Business, is that it marginalizes all the important things, like family and civil society.  It's good to be reminded that under the radar, outside the camera frame, kids like Kyle Piddington are doing fine.

Who's The Extremist?

You don't often get a liberal and a conservative having a civil discussion about politics, but Hugh Hewitt had E.J. Dionne Jr. on his show to discuss E.J.'s  new book, Our Divided Political Heart: The Battle For The American Idea In An Age of Discontent.

Dionne argues that conservatives have gone extremist in the last ten years, abandoning the "compassionate conservatism" of the early 2000s for a radical individualism.  I've taken strong exception to E.J.'s argument here.

Of course Hewitt and Dionne disagreed about conservatism and liberalism, but their disagreement is illuminating.  Dionne says that the Tea Party is partly a throwback to the John Birch Society, that there is a "Bircher kind of strain within the Tea Party."  Hewitt hates that: "They're just different."

But Dionne is right.  Any conservative populist movement is bound to have similarities with the John Birch Society, and liberals are bound to try to link any new conservative trend with the conspiracy theorists of yesteryear.  Just look at the Wikipedia entry on the Birchers.  The problem with the John Birch Society was that they started looking for Reds under the beds, and that allowed liberals to turn them into a laughingstock of conspiracy nuts.

On the other hand when Hewitt raises the question of reading the left-wing crazies out of the liberal movement, Dionne won't do it.

[S]omeone on your side, and it might be you, has to do to your left wing, the Occupy people, the SEIU and the rest of the radicals what Buckley did to the Birchers. You must throw them out, or your party will die[.]

 That's when Dionne says that he doesn't think that the left has changed, and therefore there is no call to curb the crazies.

Actually, I think that Dionne is right, but for the wrong reasons.  It is true that conservatives have changed their political stance in the last ten years.  We have not really changed our beliefs; we just don't believe that we can get to where we want to go by compromising with liberals.  To Dionne the death of "compassionate conservatism" means that today's conservatives are all radical individualists.

I think they [the Tea Party] emphasize our individualistic side, which is very much part of us, the individual liberty side, to the exclusion of that side of us which both believes profoundly in community, and sees it as essential to preserving liberty.

This, of course is the fundamental divide between conservatives and liberals.  Liberals believe that community means government.  Conservatives believe that community ends where government begins, because government is force and the whole point of humans as social animals is the attempt to reduce force in intersubjective relations.  More government equals less community: that's what conservatives believe.

As David Cameron said in 2005, "There is such a thing as society.  It's just not the same thing as the state."  Talk to your liberal friend about that.  You'll find they just don't get it.

Americans Still Love Big Government

Don't get too excited about Wisconsin, people.  The problem Wisconsin exposed is a split in the Democratic Party, writes Michael Gerson.

The voters of the Badger State do not object to the idea of an activist, generous state government. The problem for Democrats in Wisconsin and elsewhere is that state and local budget debates unite conservatives while dividing voters who believe in active government.

One the one side are the public-sector unions that just want More; on the other side are the progressives that want the things that government delivers: "parks, libraries, public safety, education, support for the homeless and such."

This, it seems to me, rather misses the point.  The Democrats are united on Big Government.  They want unions and workers' "rights" and they also want big government and its public services. They are united because they all experience themselves as consumers of government--as government workers and as consumers of government services.

The trouble is the average American moderate and independent.  These honest folks are all in favor of big government; they just don't want to pay for it.  So when it looks like government workers are the big rich guys, getting free pensions and health care, it is easy to stir up resentment against them.  Conservatives have been railing for ten years about the princely wages and benefits that government workers get, anywhere from 25 to 50 percent more than equivalent workers in the private sector.  It was only a matter of time before some politicians found a way of capitalizing on this injustice.

When the good times were rolling the moderates and independents were quite happy to vote for new programs.  But now that budget cuts are threatened they think that the government workers should take up the slack by ponying up more for their benefits.

The question is how to get to a more worthy politics, one in which people aren't mere freeloaders eager to cash in on "free stuff" one day and railing enviously against the current winners in the Free Stuff Sweepstakes the next.

America is supposed to be better than that.

Rush Limbaugh's Scott Walker Takeaway

Radio host Rush Limbaugh has a reputation as a blow-hard.  It's undeserved, of course, as are most of the cruel characterizations put out by our liberal friends.  On the contrary, Rush Limbaugh is one of the most acute political analysts in the USA.

Said Rush this morning: The Scott Walker achievement means that there is a fairly simple and easy way of dealing with state budget problems.  All you have to do is stop union collective bargaining on government employee benefits and then unilaterally force government employees to contribute a bit more to their pensions and health care.

Hey, what could be more practical?  What could be more compassionate?  And the public employees will still be earning about 50 percent more than they could get in the private sector and they will still be working with civil-service protections and be pretty well sitting in lifetime jobs.

Of course there is still the problem that these folks will still be operating a school system that stinks, especially for the poor.  They will still be operating social services that stink.  They will still be getting paid whether or not they produce anything of value.   So they will still have, I would say, a pretty cushy deal.

The other thing, of course, is that politicians all over the nation will be looking at the Scott Walker experience and be telling themselves that you can take on the government employee unions and win.  But you had better have real cojones down there between your legs.

By the way, could we just mention Scott Walker and his courage and coolness under fire?  For nearly 18 months this man has been subjected to the most outrageous abuse.  Liberals, Democrats, and union members--and of course their willing accomplices in the media--have occupied the state capitol, tried to stop the operation of the state legislature by absenting themselves, abusing the recall election process, using every intimidation tactic in the book short of actual violence.  And it started at the top with President Obama putting in an ill-judged remark about union-busting.  And now, instead of letting himself go with triumphant rage, he merely calls for unity and says that Wisconsin should heal its wounds and get back together after the divisions of the last year.

There is class, and then there is class.

Wisconsin Proves It

There are only three themes in politics.  There is "We the people are getting screwed!"  There is "They the rebels must be destroyed!"  And there is "Death to the invaders!"  The remedy in each case is simple: War!

You can see this dynamic perfectly illustrated in the Wisconsin Recall War that reaches a decision today, Tuesday June, 5, 2012.  The government employee unions in Wisconsin for years had obtained remarkably generous wages and benefits for their members.  They got this by tireless lobbying and campaigning, using the money extracted by payroll deductions for union dues.

But when Gov. Scott Walker (R) ran on a platform of reducing union power and then immediately began to put his program into action, the unions and their supporters were outraged.  They were determined to fight.

Of course they were.  That is what politics is all about.  It is civil war by other means, a battle for the spoils of office, the opportunity to use the power of the state to reward your political supporters and punish your political enemies.

Whenever your opponents steal a march on you then you mobilize your supporters and tell them that they have been royally screwed, that they are the people and your opponents are powerful barons intent upon destroying every good thing.  So the unions in Wisconsin mobilized their supporters with mammoth demonstrations, and Democratic state legislators attempted to intimidate the governor and Republican legislators by decamping to the neighboring state.  Then they collected petitions and demanded recall elections.

Of course, this response to a cruel world is nothing new.  It was cunningly depicted over a century ago by Anthony Trollope in Phineas Finn.  He describes the political views of Mr. Bunce, the landlord of the hero Phineas Finn.

Mr. Bunce, “a thoroughly hard-working man, doing pretty well in the world... had joined a Trade Union”.

He longed to be doing some battle against his superiors, and to be putting himself in opposition to his employers;--not that he objected personally to Messrs. Foolscap, Margin and Vellum, who always made much of him as a useful man;--but because some such antagonism would be the manly thing, and the fighting of some battle would be the right thing to do.

This is the whole point of left-wing politics: to put yourself in opposition to something: corporations, low wages, the Pentagon, the Catholic Church.  Of course, conservatives play this game too.  We rail against unions, big government, community organizers, and liberal professors.  They are communists and socialists trying to wreck the United States and American exceptionalism.

The question is: what can political action, the mobilization of "civil war by other means" really achieve in this world?  The left has always railed about the futility of war.  They were against the Cold War and are now against the War on Terror, because war never solved anything.  So far so good.  But the left is anxious to prosecute domestic moral equivalents of war, such as FDR's war on economic royalists, the War on Poverty, or conjuring up  threats like the "war on women" and the "war on gay marriage."  Of course they do.  Politics is civil war by other means.  Every political struggle is a war.

The problem with politics, of course, is that the bigger government gets the more it is likely to create victims of government force, people with a grievance about money taken from them in taxes or given to the other guy rather than to themselves.  And that just creates new causes for civil war.

Today's recall election in Wisconsin is just a battle in our ongoing "civil war by other means."  The winners will rejoice and the losers will determine to fight another day.

But humans are not just political animals, determined to contest every insult and right every wrong, even unto the death.  Humans are social animals, that cooperate for mutual benefit.  Whatever happened to that idea?

Whose Emerging Majority?

Early in the new century, John B. Judis and Ruy Teixeira argued that the Democrats were entering on a new era of dominance, becoming The Emerging Democratic Majority.  The new majority would center around the educated, the minorities, and the youth.

On the contrary, argues Sean Trende in The Lost Majority, under the two party system the future is always up for grabs.  That's because there is always some demographic group wavering in the middle between the two parties.

James Piereson proposes a more grandiose vision in The New Criterion.  He calls it the Fourth Revolution.  He looks at a 50 year Democratic dominance starting with the election of Thomas Jefferson in 1800, a 50 year dominance for Republicans starting in 1860, and a 50 year dominance for Democrats starting in 1932.  Each of these periods of dominance came to grief when the political case for the dominant or "regime" party collapsed.

Right now there is an impasse between the two parties because the support for the "public sector" party, the Democrats, is about equal to the support for the "private sector" party, the Republicans.

This impasse between the two parties signals the end game for the system of politics that originated in the 1930s and 1940s. As the “regime party,” the Democrats are in the more vulnerable position because they have built their coalition around public spending, public debt, and publicly guaranteed credit, all sources of funds that appear to be reaching their limits.

I have been arguing something similar, and from a more negative viewpoint, that nothing will change on the entitlements front until the federal government runs out of money.  Republicans may have been warning for the last generation that entitlements will bankrupt the state, but the fact is that, for today's beneficiaries, it makes no sense to reform.  Most of the beneficiaries, like me, are senior citizens.  We will probably be dead, or nearly dead, when the crash comes.

The discouraging thing about the welfare state is that, from Greece to Argentina, an over-extended welfare state does not reform its entitlements honestly.  It can't because the beneficiaries will take to the streets.  The only thing it can do is devalue its currency and default on its debt.  That has the effect of reducing entitlements (and screwing creditors) but doing it by the back door in a coup de main.  You wake up one morning and find that your bank account is worth 50 percent of what it was worth yesterday, and the government has unilaterally cut the interest rate and the principal owed on its sovereign bonds.  They already did that in Greece.

Many people have criticized the president for his Obamacare as a reckless expansion of entitlements.  But to the president, it is a solution to the health care crisis, because it buries all health care decisions in a heap of bureaucratic procedures and "death panels."  It hides the decisions to ration health care.  And it may be that most Americans really don't care how bad their health care is as long as it is "free."

If there is really to be a revolution and a fundamental reform of the welfare state it will happen because a majority of the American people want an honest system that is based on freedom and un-coerced social relationships.  The trouble is that everyone wants freedom in the abstract; they just don't want to have to pay for it.

But one thing, surely, we have learned in the 20th century.  Big government is always unjust, because it always reduces society to a power play between powerful interests, and reduces politics to a question of rewarding your supporters and punishing your opponents.  We have seen that played out in spades with the Obama administration as it has openly rewarded friends, from green energy companies to labor unions, without regard to the national interest, and done corrupt bargains with special corporate interests in order to get its legislation passed.

The point of human society is that it softens the natural war of all against all into mutually beneficial cooperation.  Society is nothing if is does not reduce the need for and the compass of force.  That means that government must be limited, because government is force, and politics is civil war by other means.  This is surely not that hard to understand.

Signs of Life on Jobs

Yes, I know.  Everyone is throwing themselves on the floor about the uptick in the unemployment rate from 8.1 to 8.2 percent.  And the number of jobs in the establishment survey is only up 69,000.

But the reason the unemployment rate did an uptick is that people are reentering the labor force in strength.  The labor force number went up by 642,000 last month, which is very good news.  It means that people are getting out there and looking for jobs.  Employment went up by 422,000, which is also very good news.  But since it didn't go up as much as the labor force, the unemployment rate went up.

What is going on?

This is another case where liberals have been sending the wrong message for decades, and now they are getting snake-bit by their own misdirection.  The thing is that in the early stages of a recovery, as people start to judge that jobs are available, they will come into the labor force and start looking.  Since they probably won't find jobs right away, they will raise the unemployment rate.  This is good.  But in the Nancy Pelosi playbook, when Republicans are in charge, you rail about a "jobless recovery."  So what do you do when the same thing happens in a Democratic administration?  You tell me.

In the subpar Obama recovery, one of the reasons that people have not got back to work is that the 99 week extended unemployment benefit makes people put off looking for a job.  We've heard recently that a lot of people are running out of their extended benefits, and are thus "forced" back into the labor force.  Maybe that is why people are returning to the labor force.

Liberals have done a lot of misdirection on economics over the years, from Keynesian stimulus, to lifetime employment, to union thuggery, to first-dollar health benefits to "price gouging" to "vampire" capitalism.  They have encouraged millions of Americans to have unrealistic ideas about the economy.

Well, mark down 2012 as the year of the return to reality.  All the liberal economic myths are coming home to roost and the liberals find themselves in a replay of Hitchcock's The Birds.  And they don't know what to do.

The simple truth is, of course, that every government intervention harms the economy and privileges some special interest over the common interest.  And that starts with cheap money and every single government subsidy and corporate goodie, and it ends at the mortgage interest deduction, Social Security and Medicare.  Sure.  Don't touch My Medicare!  But some poor slob or slobette is working 40 hours a week so that well-to-do seniors like me can get subsidized health care.  Talk about fairness.

As Bill Clinton said in another era:  Everything that should be down is up, and everything that should be up is down!  But Bill Clinton and his team were a much better political team than President Obama and his lot.  And it shows.