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?