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?