Live by the State, Die by the State

There are two narratives out there about Margaret Thatcher.  The conservative line is that Maggie saved Britain.  The liberal line is that she divided the country and cratered manufacturing, wiping out the working class.

For a conservative view of the wipeout, let's turn to Brit-born John Derbyshire.

Mrs. Thatcher’s defeat of the frankly communist National Union of Mineworkers was a triumph for economic sense, but left mining towns and villages without work. Most of them remain in that condition today. As the grandchild of two coal miners from just such places, I know what has been lost.

The great virtue of John Derbyshire is that he tells it like it is, without shading his views in deference to the Zeitgeist.  That's what got him fired at National Review: saying something non-PC about race.

But he got me to thinking.  What did those miners think they were doing, joining a political strike against the government?  Didn't they understand that they were essentially engaged in civil war?  Didn't they get that, but for the left-wing press, they would have been tagged as rebels?  What did they think happens to defeated rebels in this sub-lunar world?

It's a bit rich to complain about your miseries after you've been defeated in a civil-war-by-other-means.

And the same goes for all those who worked for the failing nationalized industries in the 1970s.  What did those folks think would happen in the end, long after government had "saved" their jobs?   What did they think happened to the competitive qualities of their employer after he's been rescued by the government?  Did they think they could go on forever producing substandard products and services for their fellow Brits?

One of the great cruelties of our age is that lack of truth-telling from our educated elite.  And one of the failures on the truth front is the failure to tell people that when they get the government to bail them out they are forcing the rest of society to cut checks to them for doing, well, not very much.  A small business cannot survive at all not doing very much.  A big corporation cannot last very long without satisfying its customers. True, a government can go for quite a while by taxing and borrowing and spending.  But in the end it all collapses in inflation and default.

Our educated elite won't tell ordinary people just how much they risk by sucking on the government teat.  Because in the end a Pharaoh will arise that knew not Joseph, and will decide that it is too much trouble to continue the customary subsidies.  Anyway, he has other supporters he needs to look after.

What about the truth, from Deirdre McCloskey, that it is capitalism, not government, that brought us in 200 years from $3 per day to $120 per day?

There is no substitute for a robust independence and competence, in individuals, in families, in businesses, in nations.  When you work for years and years for some big corporation or government bureaucracy you get further and further from reality, where reality is the market wage you could earn if you got laid off tomorrow.

If you want to know why the ranks of people on Social Security Disability are expanding so rapidly, that's where you start.  With people who have been taking a paycheck for years at some long-established employer, but not really producing, not really keeping their skills up, not really making themselves useful and employable.

On the other hand there is capitalism and the market.  There is no doubt that capitalism is a stern taskmaster.  It operates by profit and loss.  If you can offer a product or a service to the market at a profit, you get to live another day.  If you can't, they you'd better think of something else.  But what alternative do you propose?  Do you propose to impose yourself on your fellow citizen and force them to support you, because this is such a cruel hard world?

Margaret Thatcher had an interesting take on earning a living, as she experienced it, growing up as the daughter of a shopkeeper.

For them [the critics] capitalism was alien and harsh: for me it was familiar and creative. I was able to see that it was satisfying customers that allowed my father to increase the number of people he employed. I knew that it was international trade that brought coffee, sugar, and spice to those who frequented our shop. And, more than that, I experienced that business, as can be seen in any marketplace anywhere, was lively, human, social, and sociable: in fact, though serious, it was fun.

Come on, fellahs.  The basic social contract is that we work to serve others, so that we may earn our own living from that service.  The alternative is the life of the robber, to hold up others and take their money.  But life is not so hard after all.  If you surrender to the rules of capitalism you can break through the seriousness of it all, and transform the struggle into fun.

And isn't that what the whole of human life is about?  It is a brave and resolute gesture against the awful truth, that we are just pond-scum living on the margin of a great rock in space, and that every one of us will soon return, dust to dust, ashes to ashes.

But meanwhile, let us live life as a glorious gift, and live and work and love, giving the grim reaper and our fears no more than a grudging respect.

Margaret Thatcher, RIP

Of the Great Three of the 1980s, Margaret Thatcher, perhaps, had the most distinguished ancestry.  Her father was a grocer.

Ronald Reagan's father was the town drunk, and Karol Wojtyła's father was a sergeant in the Austro-Hungarian army. But Thatcher's father was a respectable grocer in Grantham, northern England, a Methodist and sometime alderman.

So Margaret Thatcher, grocer's daughter, united left and right: the Tory upper crust and the lefties both hated her.

Margaret Roberts graduated from a British grammar school, meaning a government school that emphasized academics, and went to Cambridge to get a degree in Chemistry.

When she decided to go into politics, it took her ten years to find a Conservative seat.  In those days, the local party ran the candidate "selection" and the old-school Tories didn't really like the bright young woman graduate.  But she eventually got to become the MP for Finchley, then a middle-class suburb of north London.  Twenty years later she was Prime Minister.

Looking back, it is remarkable to realize how well the left recovered from the debacle of the 1970s, the decade of stagflation, and how resolutely they determined not to learn the lessons of the Eighties.

The lesson was that it's all very well to want to fight inequality, but big government won't do the job for you.  That's because the only thing that government can do is take money from one person and give it to another.  It cannot build wealth; it cannot educate children; it cannot lead the poor out of poverty.  All it can do is tempt the voters with free stuff at election time and then govern by handing the lolly out to its supporters.

Oh, there are exceptions.  You can have a great reform and staff it with enthusiasts for a while. But eventually the enthusiasts leave for another gig and you are left with the time servers and the pension addicts.  Just as we have today in education and in local government.

The trouble with socialists, Margaret Thatcher said, is that "they always run out of other people's money."  The reason is that government doesn't produce anything; it doesn't produce or serve in response to market demand.  It merely takes money from people and goes through the motions of producing and serving.  You would too if you got your check whether you produced or served up anything of value.

The great achievement of the 1980s and Ronald Reagan and Margaret Thatcher is that they showed the world that hard money and market economics will usher in strong economic growth.

But the left could never accept that, because if you accept the Reagan-Thatcher achievement then the whole point of the Liberal Ascendancy, the rule of the educated class, is demolished.  Why, maybe parents could get together to educate their children, as home-schoolers do today.  Maybe people could save their own money for retirement.  Maybe charity and neighborliness could relieve the poor.

So the left has turned its face against the great reforms of the 1980s.  In Britain and in the US the parties of the left have swamped the country with new immigrants off the farm, and new immigrants have reliably voted for free stuff ever since the Irish tumbled onto the shores of North America from the coffin ships of the 1840s.

Now we are heading for a rendez-vous with reality, as the pathetic Obama economy stumbles along in a four-year misery of a jobless recovery.  Millions of Americans have given up and got themselves on disability.

But socialism, or identity liberalism, or progressivism, or whatever you want to call it, always runs out of other people's money.  That's because humans are social animals, not government slaves.  We thrive according to Adam Smith's invisible hand: we get what we want by doing things for other people, things that they are prepared to pay money for.  The whole point of big government is that the invisible hand won't do the job.  What you need to make a better world is force.

Of course, there is a sense in which capitalism confirms the jeremiad of Horkheimer and Adorno: "What men want to learn from nature is how to dominate it and other men."  But these pessimists miss the point about the nature of a social animal.  The point about social animals is that they don't merely dominate, and don't merely reduce their lives to a mechanical exchange of force.  They cooperate.  They pay attention to the needs of others, and act upon it.

Capitalism is the human adaption to the fact of cooperation beyond the face-to-face cooperation of the hunter-gatherer camp or the agricultural village.  It is cooperation based upon a radical expansion of the horizon of trust from blood kin to all the people in the world that demonstrate trustworthiness.

Of course capitalism doesn't end exploitation, and people suffer under capitalism as under any social system.  And capitalism is ruthless on people that don't want to make stuff for other people.  And its focus on specialization does tend to make people smaller.

But capitalism is like democracy.  It is the worst way of organizing the economy except for all the alternatives.

That's what Margaret Thatcher stood for and that is why we will always remember her.

Throttlebottom Obama Economy

Here we go with another sluggish employment report.  Yes, the unemployment is down to 7.6 percent, but the nasty is in the Household Survey employment numbers: Labor force down 496,000.  Employment down 206,000.

Not good.  You don't want to get the unemployment rate down by shrinking the labor force more than the shrinkage in the number of jobs.  Not nohow.

And how now about that Keynesian policy mix of deficits and cheap money?  Liberals should have learned from Ronald Reagan, who did the opposite, with tight money and domestic spending cuts, and started a 20 year boom.

This isn't rocket science, liberals.  It certainly isn't climate science.

Look.  Keynesian economics has its point.  When the economy is truly contracting, then it's a good idea to keep government spending going and loosen the credit strings.  But as soon as the credit system turns the corner and the economy starts to improve then it is time to cut government spending.  Because all government spending is waste.

Yes, I know.  There are some wonderful things that government does.  But in the end it all comes down to distributing free stuff to your political supporters.

Supply-sider economist Alan Reynolds has a good piece on the difference between the PIIGGS countries (Portugal, Ireland, Italy, Greece, Great Britain, Spain), the BRIC countries (Brazil, Russia, India, China), and the MIST countries (Malaysia, Indonesia, South Korea, Thailand).

All PIIGGS have two things in common. First of all, government spending grew dramatically — from an average of 43.2% of GDP in 2007 to 52.6% by 2010... [Second,] The highest income tax rate was recently increased in every one of the troubled PIIGGS except Italy[.]

 What about the other nations, the BRICs and the MISTs?

Government spending is frugal in these countries, averaging 32.1% of GDP in the BRICs and 27.4% for the MIST group...  Rather than raising top tax rates, all but one of the BRIC and MIST countries slashed their highest individual income tax rates in half; sometimes lower.

In the PIIGGS countries, governments are struggling with sluggish growth; in the BRIC and MIST countries growth is good.

So what's the lesson, according to Reynolds?

 What works, these successful economies discovered, is (1) to prevent government spending from growing faster than the private economy that supports it, and (2) to reduce rather than increase the highest, most damaging tax rates. 

Really, you wonder.  What is so hard about this?

I will tell you want is so hard.  It's no secret.  Governments all over the world, since the dawn of time, have operated like pirates and plunderers, looting the fisc to pay off their supporters with free stuff.  From time to time this looting gets out of hand, taking more from the economy than the economy can stand.

So you get a government standing around wringing its hands about greedy bankers and the rich paying their fair share.  Because all politicians know is taking money from the moneybags to give to their supporters.

When we look back at the Obama administration we can only hope that this was the moment that liberals, after suffering devastating losses in 2014 and 2016, finally abandoned their pedal-to-the-metal faith in the wonders of stimulus, cheap money, and government "investments."

If there is any divine justice in this world then liberals should be kept out of power for a generation.

Because the people that suffer from this monstrous policy are, of course, not the greedy bankers and insurance companies and Big Oil, but the rank-and-file Democratic voter that puts their faith in the charismatic leader promising free stuff.

But don't hold your breath.

Democrats: End of the Big Push

You remember World War I.  The Brits developed a term they called the Big Push.  The Battle of the Somme was a Big Push.  The great offensive in Flanders in 1917, featuring the Battle of Paschendaele, was a Big Push.

The point about Big Pushes is that, after a while, they peter out.  It doesn't matter how many millions of soldiers, or millions of shells, or thousands of tanks you have.  In the end, the whole thing peters out: people are exhausted.

Now in my view we have just seen a ten year Big Push from the Democrats.  It was one last effort to unite the party and defeat the wascally Wepublicans and put them in a permanent minority.

Maybe it started in the rage of 2000 when the "stupid" George W. Bush beat the Democrats by a hair.  Maybe it started after the humiliation of 2004 when Karl Rove pulled out an astonishing increase in the Republican vote to win the election over a slightly less astonishing increase in the Democratic vote.

It was certainly going at full blast in the 2006 midterms when Democrats achieved astonishing message discipline to damn the Republicans as extreme and corrupt, and the Democratic rank-and-file advanced over the political battlefield under cover of a 1,000 gun artillery barrage from the mainstream media.

The roar of battle continued with the 1,000 barrel gun-line firing non-stop through the 2008 election and 60 million Democratic hearts beating as one for America's first black president. With the solid seven  point victory of 2008 it seemed natural to keep on rolling ahead, demolishing all resistance and push stimulus, Obamacare, and Dodd-Frank right down out-of-touch Republican throats.

In 2010 there was a pushback, as Americans elected a Republican House in the biggest pickup in seats since 1938.  But the Democratic army didn't flinch, and kept fighting shoulder to shoulder right through a four point reelection victory for President Obama in 2012.

But now the Big Push is over.  You can feel it.  It is not just the sequester, it is not that the Dem troops are exhausted.  It's just that the whole Democratic coalition just wants some leave and some rest and relaxation.  They are just tired of the constant coordination of messaging.  They just want to enjoy life again.

The Obama campaign team, of course, is breaking up, now that reelection is over.  And Obama himself, no longer disciplined by the goal of reelection, will unwind his intensity.

The Democrats and their willing accomplices in the mainstream media did a bang-up job of selling the American people on the notion that Bush was a fool, the Iraq War was a disaster, and the Crash of 2008 was Bush's fault.  After all, Bush was not a great communicator, the Iraq War was a mess as all wars are, and the Crash happened on Bush's watch.

And then they did a bang-up job selling the American people on the idea that Mitt Romney was an unfeeling rich guy that didn't care about people like them.  You gotta give them credit for putting that one over, given that Mitt Romney is in fact a man who has given his life to serving others, as a man must do in the Mormon church.

But now all that is history.  The Big Push is over, Obama is reelected, the economy is limping along, and Obamacare is hanging like a black cloud over the nation.

Remember this: Social Security and Medicare worked because everyone got a piece of the action.  It's called Kristol's Law.  If you want to help the poor you must deal in the middle class.

But Obamacare just helps the supposed 30 million without health insurance.  People that already have health insurance are going to get a haircut.  And the 30 million without health insurance don't go without health care.  They just don't have insurance, probably because they don't have assets that need to be protected from health care costs.  If you don't have assets, then you don't need health insurance.  So there's a real chance that almost everyone will be really pissed of at Obamacare by 2016.

Nobody knows whether the political current has changed, or whether it has merely paused.  All we know is that the Big Democratic Push of 2002 to 2012 is over.  We are entering a new era.

The Economy: What Should Obama Have Done?

Obviously, all is not well with the economy.  The recovery from the Great Recession has been agonizingly slow.  But why?

In the American Spectator Peter Ferrara puts it all down to Keynesianism.  But I think that is too simplistic.

There are three analyses out there that claim to account for the failure of Obamanomics:

1. Not enough stimulus.
2. Not enough tax and spending cuts.
3. Don't be so impatient.

Reason One is the Keynesian response, that government spending (and cheap money) kick-starts the economy, and the Obama stimulus wasn't enough.  Conservatives like Ferrara say that Keynesianism didn't work in the Great Depression and it won't work today.  But in fact it did work, for a while, with 12 percent real GDP growth in the election year of 1936.  The only thing was that after the stimulus was removed, in 1937, the economy crashed into the Recession within a Depression.

The real point of Keynesianism is to borrow money to keep things going, in the hope that the economy will recover and lift all boats.  It's a short-term thing, for a year or two.  Obviously, it hasn't worked out over the longer term, as in four long years of subnormal growth.

Reason Two is the supply-side response, that government spending and taxes add up to nothing more than a burden on the economy.  So the sooner you remove the burden, the better.  Also, the tax system naturally tends towards increasing complexity and carve-outs for special interests, so the sooner you chop that stuff away the better.

The only caveat is that you probably don't want to cut spending until the economy has clearly turned the corner.  We do not mean here that unemployment is back down to 6.5 percent, as the Federal Reserve currently proposes.  We mean that you don't start cutting spending until the risk of meltdown has clearly ended.  In the current context, that would be about January 1, 2010.

Reason Three is the argument of Reinhart and Rogoff in This Time is Different.  They argue that after a major banking crisis it takes about six years for the economy to shake off the doldrums.  That's because it takes that long for all the underwater debtors to de-leverage, either by paying down their debts or by going broke or a combination of the two.  You can't have a vibrant economy when a ton of people have questionable credit: counter parties can't exactly be sure how "sound" they are, and the debtors themselves are constrained by their lack of equity.

What about Obama?  Let's give him the benefit of the doubt.  The Great Recession was worse that the 1980-82 recession because of the banking and real-estate meltdown.  So it's misleading to task him with the stunning growth of the Reagan years.  But almost everything Obama has done has retarded the recovery.  Here would be my list of stimulus policies:

1. Immediate cut in individual and corporate income tax rates followed in about two years by cuts in deductions and credits.  Temporary cuts in the business side of payroll taxes.
2. Immediate cuts in crony-capitalist spending followed by real entitlement reform in a couple of years.
3. A "bad bank" to take up all the underwater mortgages, and thus get the banking system healthy.
4. Programs to float the underwater mortgages as quickly as possible.  That would be by both encouraging people to abandon their underwater houses instead of hanging on like grim death, and also to sweeten the pot by writing mortgage principal down.
5. A general pruning of government spending.

Notice what we are doing.  We are changing the rules now, and cleaning up the garbage later.  We are recognizing that, after a big financial crisis, we are poorer and can't afford the luxury of all those big government programs.  Something has to give.  And we are doing positive things to repair the credit system.  A credit system is healthy when a) nearly all debtors are making their payments, and b) nearly all debtors are above water.

Note that Obama is pretty well 0 for 5 on this program, although he has done some muddy things to write down mortgages (good) while hindering the banks from foreclosing on non-performing loans (bad).  It's not surprising that the result is a F grade for economic policy.

If we had a mainstream media worthy of the name we would know all this, and the whole nation would be demanding a practical and pragmatic economic policy.  But we don't, so the economy suffers.  

In the long term, it probably doesn't matter.  The American people will eventually turn against Obamism, not because they understand the president's mistakes but because they will know that it didn't work.  

But we could have saved a lot of suffering with better policies to get us out of the worst economic crisis in just about anyone's lifetime.  So far.

When the Ruling Class Gets It Wrong

What do you do when you are ruled by an upper crust that is getting it wrong, and doesn't know what to do?

Our ruling class has messed up the financial system, has messed up the health care system, has messed up the education system.  But they don't know what to do about it, except keep on keeping on.

That's the reality of life today.  Our ruling class, from liberal to semi-conservative, believes in a top-down administered society.  The ruling class sets up programs, from pensions to banking to health care, using the ideas from the best minds available, and then goes on to the next gig, on the assumption that they have solved the problem in question.

But the basic problem of human existence is that you can never just set up things and then go on to the next gig.  Human life is a constant adaption to changing conditions, whether it is life as a hunter gatherer, an agricultural worker, or an industrial mass-production worker.  Someone has a bright idea, and everyone adapts.  But the bright idea is not the answer to everything; it is not even the answer to one thing.  Pretty soon people realize that the new idea, while good on the whole, has created some unexpected problems.  So we need to change and adapt.

But the problem with government is that the Stage 2, the unanticipated consequences, are almost impossible for government to deal with.  The system is already in place.  The ruling class has gone onto the next gig.  What do you mean there is something wrong?

The problem is that politics and government have a very small bandwidth.  Whereas millions of consumers and thousands of producers can make daily adjustments in their behavior, a national government is a committee of 535 people.  And its laws direct the government bureaucracy to produce uniform decisions based on a rulebook of regulations.  Forever.

People in government respond to all problems as a loss of control.  Soaring health-care costs are due to out-of-control insurance companies.  Financial crises are caused by greedy bankers or reckless speculators.  What's needed is a more rigorous system of control, to make sure that the bad actors don't go rogue.  So we get Sarbanes-Oxley when a couple of corporations start cheating when things go south.  We get Dodd-Frank when the government's subsidies of home mortgage lending put the whole economy underwater.  We get Obamacare when people respond to the natural incentives to their first-dollar health insurance by treating health care as a free resource.

But what do you do about it?  Here we are marching to disaster, and nobody is doing anything about it.  The truth is that there is nowhere for all of us to hide from the march of folly.  When the bust-up comes we will all suffer the consequences.  And we will all be called upon to help those utterly devastated by the collapse and the turmoil.

I guess that the only thing to do is to keep your ship ship-shape, with the masts properly stayed, the rigging properly renewed, the sails new, the hull caulked, the engine properly maintained, the food well protected.

And you keep telling the world that it doesn't have to be like this.  We know how to keep an economy on an even keel.  We know how provide for the poor.  We know how to protect the environment.  And we know how to do it all without big government.

So why don't we just do it?  Because we are all too human.  We believe in a world of good and evil, and we are eager to punish the evildoers identified by our leaders, be they bigots, greedy bankers, Marxists or union thugs.

Maybe we should stop searching for villains and just get to work.

Jack Kemp and Minority Outreach

Let's get back to the days of Jack Kemp, says Larry Kudlow, and reach out to minorities.

Nobody, in my lifetime, in either party, has reached out with a message of hope, growth and opportunity to minorities better than Jack Kemp. 

While Jack Kemp reached out to middle-class whites with tax rate cuts, he reached out to minorities with goodies like Enterprise Zones in big cities.  You got big tax breaks if you moved a business into an Enterprise Zone.  With that sort of policy, Kemp could reach out to black liberal pols like Charlie Rangel and race-based interest groups like La Raza.

But that misses the point.  Great: Jack Kemp could get blacks and Hispanics to buy into free stuff, Republican style.  But did it do a blind bit of difference to move blacks and Hispanics off the Democratic plantation?  Not at all.  The fact is that the overwhelming majority of black and Hispanic voters respond to free-stuff and racist identity politics.  Maybe Republicans can peel off a few percent of the vote to make a difference in a close election.  Nothing wrong with that.  It just doesn't change the politics of America.

The fact is that blacks and Hispanics think in terms of patronage politics.  They think in terms of attaching themselves to a powerful patron and dining off the scraps from his table.  They experience themselves as weak and helpless in the brutal business of the city, like every newly-arrived immigrant group in the US for the last 150 years.

Typically, after a generation or two of struggle, the immigrant group rises into the middle class and its members begin to experience themselves as competent and responsible selves.  Then they find that the Democratic Party doesn't do it for them; they say, like Ronald Reagan, that they didn't leave the Democratic Party, the Democratic Party left them.

Thus the Religious Right came over to the dark side when the Dems went anti-religion, and now working-class white men after the Dems decided that working-class whites were the ones to pay the price for centuries of racism.

The strategic problem for conservatives is that liberal politics amounts to a cunning plan (whether deliberate or not) to keep "women and minorities" in a permanent dependency status, sucking on the government teat forever.  So it seems that they will never rise to a competency, and come to believe that the government is a wasteful cesspool of corruption.

So what should conservatives do?  Well, one thing would be to wreck the finances of the welfare state. That's the subtext when David Stockman, Reagan's Budget Director, rails at Republican policies in his new book, The Great Deformation: The Corruption of Capitalism in America, excerpted in the New York Times. He even takes off after Ronaldus Magnus:

The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy.

Gosh, you'd almost think the evil Republicans wanted to crash the government's finances!

But maybe it's working.  After all, President Obama, like a deer in the headlights, has kept the entitlement state going full speed ahead towards the icebergs of Greece and Egypt, without a thought of shaving a bit off the government fisc to make room for growth.  Without a course correction, Captain Obama will crash the welfare state, and women and minorities will be hardest hit.

Make no mistake.  A rising middle class of African Americans and Hispanics needs economic growth.  Newcomers to the economy need newcomer opportunities.  They need spaces left by the established classes, leads in the ice, into which they can rush and grow and thrive.  Think of the Jews creating the movie industry.

The problem is that newly arrived immigrants have never believed in the capitalist road to economic competence.  They always believe in the charismatic leader, the FDR, the Hugo Chavez, the Barack Obama.  And very often they keep on believing in face of the evidence.

But there is hope.  Usually, by the middle of a second term the "low-information" voters are ready for a change.  Things just don't seem to be working out for them, and they get restless.  With Obama safely reelected we are now reading that black leaders are starting to get restless about black unemployment in the Obama economy.

And in the end, the folks that believe in a miraculous political solution to their problems give up on politics and go back to work.

Jack Kemp was a great guy, and a great supporting actor in the Reagan era.  But the fact is that he couldn't turn his Kempism into a presidential campaign.  That may tell us something about the politics of minority outreach.