Tag: economy

The State Of The Race – Pre-GOP Convention Edition

When Mitt Romney chose Paul Ryan as his running mate, things were not looking up for the Romney campaign. Several polls (with highly skewed sample) showing Romney down big against Obama. The swing-state polls were not looking good for Team Romney either. And there were worries that Romney was not hitting back hard enough against a barrage of negative attacks from the Obama Campaign.

Now, just before next week’s Republican National Convention, Team Romney has reason to be happy. The polls are showing a major tightening in the race, and several polls are showing a narrow Romney lead. The Ryan pick has energized the Republican base. And Team Obama is looking increasingly desperate, and are about to make a major mistake that could cost them the election.

But first, let’s take a closer look at the polls. Fox News shows Romney with a narrow lead, while CNN shows an Obama lead of 2% – well within the poll’s 3.5% margin of error. Meanwhile, both the Rassmussen and the Gallup daily tracking polls show Romney and the President neck-and-neck. The national polls show an incredibly tight race.

The stage for the 2012 Republican National Convention

The stage for the 2012 Republican National Convention

The swing-state polls are more troublesome for Romney. Ohio is a virtual must-win state for Romney, but he’s lagging in the polls there. While the new bipartisan pollster Purple Strategies shows Romney with a narrow lead in the Buckeye State, a more recent poll from CNN/NYT/Quinnipiac shows Obama with a formidable 6-point lead in Ohio. Under all but a few highly unlikely scenarios, the path to the Presidency runs through Ohio, and Romney is going to have to improve his numbers there if he wants to win the White House. Look for Ohio to be the biggest of the battleground states once more in 2012 as it was in 2008 and 2004.

What makes the 2012 race especially interesting is that the number of swing states is increasing. At the beginning of this race, Wisconsin was not considered a serious swing state. In 2008, Barack Obama swept the Badger State in a 14-point blowout. But now, Wisconsin is very much in play. Democratic pollster PPP shows Romney with a narrow lead, a finding that’s supported by GOP-leaning pollster Rassmussen. Even the CNN/NYT/Quinnipiac poll shows only a slim 2-point lead for Obama in Wisconsin. Wisconsin appears to be shifting from a reliably Democratic state to a true swing state – Kerry only narrowly won Wisconsin in 2004, and Obama’s huge win there appears to have only been an interruption of the pro-GOP trend there. With Paul Ryan hailing from the Milwaukee suburbs, it’s possible that Romney could win Wisconsin, which would help pad out his Electoral College position in a tight race.

Romney’s Missouri Problem

But Romney has a big problem in Missouri, and its name is Todd Akin. Akin’s moronic comments about women being able to “shut down” a pregnancy caused by a “legitimate rape” was absolutely inexcusable, and led to massive condemnation by nearly every member of the GOP. Akin, whose campaign is being run by his family (a major mistake for any political candidate), insists that he can still win. The chances of that are slim to zero. And what’s worse is that Akin’s idiocy could impact Romney’s chances in Missouri as well as keeping the Senate in Democratic hands. Losing Missouri would significantly impair Romney’s chances of winning in this highly-competitive race.

This is the second election cycle in a row where the Tea Party has blown a Senate race. In 2010 Christine O’Donnell and Sharron Angle took winnable races for the GOP and blew them to hell. While there is plenty about the Tea Party that I like, they have not gotten it through their collective heads that picking a hardcore conservative who says incredibly stupid things on national TV is A Very Bad Idea Indeed™. It’s not about picking the most conservative candidate. It’s about picking the most conservative candidate that can win. If Harry Reid remains Majority Leader, it will be in large part due to the Tea Party, a fact that has to be taken into account when assessing the pros and cons of the Tea Party movement.

Obama’s Impending Blunder

But, there is a silver lining to the dark cloud that is Todd Akin. And that’s that President Obama is about to completely overplay his hand on social issues. The Democratic National Convention is looking increasingly like it will be a celebration of abortion. Sandra Fluke, the abortion-rights activist will be a headline speaker along with representatives of Planned Parenthood and the pro-abortion extremist movement. While Todd Akin represents one extreme of the abortion question, the Democrats are going to embrace the other extreme. This is a mistake for two reasons:

First, the American people care about jobs and the economy, not abortion and contraception. People are wondering whether they’ll have a paycheck next year and are trying to make the paychecks they do have stretch to pay for higher gas and food costs. The more the Democrats talk about divisive social issues, the more they carry themselves away from the mainstream of American politics today.

Secondly, for the voters that do care about social issues, they tend to be more socially conservative voters. Evangelicals may not be crazy about Mitt Romney’s Mormonism, but when contrasted with the Democrats celebrating the idea of taxpayer-funded abortion on demand, that’s only going to get the more enthused about voting against the Democrats.

Obama and the Politics of Division

But all of this plays into Obama’s strategy for 2012. Obama knows he can’t run on his record. Even Democratic strategists like James Carville realized early on that running on an “economic recovery” theme was not working with voters. So what can Obama do? He can try to make Romney toxic. He can’t run on himself, so he has to bring Romney down.

And that’s why you’ve seen a barrage of attacks against Romney on Bain, on Medicare, on his tax returns, etc. It’s a scorched-earth campaign designed to keep Romney’s poll numbers down far enough for Obama to maintain a narrow win. And while it’s been partially successful, it’s beginning to backfire on the President.

Obama’s appeal with independent voters was that he was a post-partisan, post-racial President. He’s no longer even trying to make that case anymore. Instead, he’s playing it like a typical Chicago politician. That does not make him very attractive in the eyes of voters, and that’s why he’s locked in such a tight race with Romney—while voters are not sure about Romney, they are equally if not more skeptical about President Hope-and-Change becoming just another political hack.

What to Watch for at the Republican National Convention

With that background on the state of the race, the question is what the RNC must do. And first and foremost, it’s got to introduce Mitt Romney to the American people. It seems odd to suggest that someone that’s run for President twice now is not well-known to the American public, but Romney has been largely unwilling to tell his own personal story. That needs to change at the RNC. Romney needs to embrace his personal narrative and give the American electorate a look at why they should vote for him over Obama.

And that’s why the Romney campaign needs to reject the media narrative on this race. The media says that Romney dare not run on his record at Bain—that’s a load of crap. Romney should not run from what he did, but should highlight the businesses that Bain saved from Sports Authority to Staples. The media says that Romney can’t run on his record at the Olympics—again, the media is acting as a wing of the Obama campaign. Romney can and should run on his record.

The American people don’t know Mitt Romney well yet, especially in contrast to a President who wrote two autobiographies before he even accomplished anything. (Even if those autobiographies were carefully-manipulated fictions.) Romney doesn’t need to spend that much time attacking Obama—Obama’s dismal economic record speaks for itself. What Romney must do is introduce himself to the American people and paint his vision of an American Comeback.

If he can do that successfully, watch the polls. Right now Romney’s numbers are moving the right way. If he does what he needs to do at the RNC, the poll numbers are going to start to diverge into Romney’s favor. The fundamentals on the ground favor Romney, and now that the election season is beginning in earnest, the Romney campaign has the opportunity to seize on those natural advantages and build them into a political wave. Romney definitely can win, and he’s in a position to do so as he heads into the week of the Republican National Convention.

Why Obama’s Attacks On Bain Capital Will Backfire

President Obama has unveiled his latest attack against Mitt Romney, focusing on Romney’s days with the private equity firm Bain Capital. But just as the Obama campaign was getting ready to launch their attacks, a curious thing happened: Mayor Corey Booker, the Democratic mayor of Trenton, New Jersey and a rising star in the Democratic Party threw a monkey wrench into the President’s attack plans on Bain Capital. Booker said on Meet The Press that:

I’m not about to sit here and indict private equity. To me, we’re getting to a ridiculous point in America. . . Especially that I know I live in a state where pension funds, unions and other people invest in companies like Bain Capital. If you look at the totality of Bain Capital’s record, they’ve done a lot to support businesses, to grow businesses. And [Obama’s attacks on Bain], to me, I’m very uncomfortable with.

Needless to say, the Obama campaign was furious with Booker, and he was later forced to recant his heresy, in a video that disturbingly resembles a hostage tape. But the damage had already been done, and Obama’s anti-Bain narrative appeared to be stillborn.

Despite this, the President has doubled down, saying that Bain Capital is “what this campaign will be about.”

Now, even former Obama supporter David Brooks is noticing just how poor a strategy the Bain attacks are for the Obama campaign. Brooks observes that Obama’s populism is painting him into a corner:

While American companies operate in radically different ways than they did 40 years ago, the sheltered, government-dominated sectors of the economy — especially education, health care and the welfare state — operate in astonishingly similar ways.

The implicit argument of the Republican campaign is that Mitt Romney has the experience to extend this transformation into government.

The Obama campaign seems to be drifting willy-nilly into the opposite camp, arguing that the pressures brought to bear by the capital markets over the past few decades were not a good thing, offering no comparably sized agenda to reform the public sector.

In a country that desperately wants change, I have no idea why a party would not compete to be the party of change and transformation. For a candidate like Obama, who successfully ran an unconventional campaign that embodied and promised change, I have no idea why he would want to run a campaign this time that regurgitates the exact same ads and repeats the exact same arguments as so many Democratic campaigns from the ancient past.

Brooks makes a very important point here: the Obama campaign is running a highly traditional Democratic campaign. They are using the politics of division to attract traditional Democratic constituencies: women (and by that mean single women), African-Americans, students, environmentalists, and the tony class of well-healed limousine liberals. The arguments that the Obama campaign have been making have all been targeted with a laser-like focus on bringing those elements of the Democratic base together in support of his campaign. Everything from the “war on women” to Obama’s pivot on gay marriage have been focused on that end.

But that’s a problem for Obama. Even he has privately admitted that he’s running against the Obama of 2008—but the Obama of 2008 managed to beat the tar out of John McCain and took a majority of the electorate in a decisive victory. He did it by convincing independents and even some squishy conservatives (like David Brooks!) that he was a moderate, post-partisan, post-racial, transformative figure who would get things done for the betterment of the country.

If Obama could rekindle that magic in 2012, he’d be doing very well for himself. But he can’t—because the 2008 magic was built on an image of Obama that has been dashed apart on the rocky shoals of his record. He can’t campaign as a post-partisan figure when he’s constantly blaming the “Republican Congress” as being a bunch of “obstructionists”—an argument that’s rather silly considering that the Republicans won because Obama pushed through an expensive and unpopular health care bill. He can’t run as a transformative figure when his signature “achievements”—ObamaCare and the stimulus—are not popular with the American electorate. Obama has a record now, and while he’s done his best to try to change the subject to something else, that record will be the issue in this campaign.

What Romney Can Do

But Obama still is running neck-and-neck with Romney. Romney still can lose, and he can lose big if he fails to adapt to the changing condition of the campaign. All one has to do is look back at 2008 to see how this can happen: after picking Sarah Palin, the McCain campaign was riding high in the polls, even beating Obama in most polls. But then the wheels came off of the McCain campaign: the media savaged Palin and the campaign failed to use Palin’s natural political talent in an effective way. When Lehman collapsed, McCain first said that we was canceling a debate and running to Washington to play the elder statesman—which he did, but only half-heartedly. McCain failed to come up with an adequate response to the crisis, and never recovered. He went from running ahead of Obama to being shellacked by him. The rest, as they say, is history.

So what must Romney do? He has got to start shaping his message now: and while he’s done part of that with his ads focusing on the state of the economy. But it’s not enough to merely suggest that the economy is a bad state— Romney has to make an at least plausible plan for what to do about it.

Here’s why I ultimately think Romney’s Bain experience is relevant to this campaign: Romney needs to make a connection in the voters minds between what Bain did—taking dying companies and fixing them—and what needs to be done for the economy in general and government in particular. Right now the Romney campaign is doing a great job of reacting to the President, but sooner or later (when the voters start paying attention to the race), Romney will have to define himself.

And here’s why the President’s Bain attacks play right into that: they’re opening the door for Romney to make this argument. For every ad that the President cuts showing someone who allegedly lost their job, Romney should have ads prepared showing the people whose jobs were saved by Bain Capital. Romney has to know that Bain would be a major issue in this campaign—as it was in Romney’s prior campaigns. If the Romney campaign doesn’t have a response ready to go by now, they’re in trouble. They may not need to run those ads yet (better to keep their powder dry for when it’s needed), but they had better have them ready for deployment.

And those ads should support the larger narrative: this country needs a turnaround artist. This country needs someone who will make government more responsive, more efficient, and simply better. And yes, that means cutting a lot of dead weight from government, including making sure that workers who don’t pull their weight can be fired. Romney has to make the case that old way that government does things is not working. Indeed, that the government has become just like one of those failing companies that Bain used to deal with: it’s losing money hand-over-foot, it has a dysfunctional management structure, there’s a lack of leadership at the top, and its customers (the citizens) are not happy with what it’s doing. Romney has taken those kind of dysfunctional organizations and turned them around before: and that’s just what this country needs.

The President can talk until he’s blue in the face about “vampire capitalism:” in fact, the more the President goes on the attack the further away from the post-partisan ultra-cool figure of 2008 he gets. Romney can use that to his advantage if he’s smart enough and nimble enough.

The President is unwittingly providing the Romney campaign with a winning strategy for 2012, as David Brooks points out. Even some of the President’s backers, like Mayor Booker have figured this out. Luckily enough for Romney, the President doesn’t understand how he can be outflanked. The real question is whether the Romney campaign can be deft enough to take advantage of the opening that he’s been given. If he can, he can put the President in a defensive posture—exacerbating Obama’s tendency to become whiny and petulant. John McCain’s campaign failed to do this—if Romney wants to win, he’s going to have to learn from that failure.

Whether Obama realizes or not, his attacks are opening a door for Romney. The question is whether Romney will seize the opportunity to use that opening to craft a winning message for his campaign.

Rebooting America

Niall Ferguson has an excellent article in Newsweek on how American civilization can avoid a precipitous collapse. His advice boils down to a proposition that’s simple in theory, but difficult in practice: the United States must return to the system of values that made it what it is today.

Specifically, Ferguson identifies six “killer applications” that made the West stand out from the rest of the world from the 1500s through the end of the 20th Century. He identifies competition, the scientific revolution, the rule of law and representative government, modern medicine, the consumer society, and the work ethic as the factors that led success of the West for five hundred years.

The challenge that America faces, and Western nations face generally, is that at the same time we are turning our backs on those values, other civilizations have figured out that they can copy our success. India, which gained some benefits from its days as a British colony, is rapidly industrializing and developing its own transnational elite. The industrialization of China has transformed it from a Maoist hellhole to a unique hybrid of state oligarchy, crony capitalism, and small-scale free markets. Despite its lost decade, in 50 years Japan transformed from a bombed-out shell to a global powerhouse. Other Asian countries, from Singapore to Taiwan to even Communist Vietnam are combining their cultural work ethic with open markets to power a major economic boom. The 21st Century could see the world’s centers of economic power shift from London, New York, and Berlin to Mumbai, Beijing, and Taipei—and in many ways, this is already happening.

But the biggest enemy that the West faces isn’t other upstart civilizations—it is its own complacency. As Ferguson implies, the rise of the modern welfare state undercuts many of the factors that led the West to success in the first place. For example, a society with a cradle-to-the-grave welfare state will always be a society that has a lesser work ethic. The hard truth of the matter is that if you remove many of the risks of failure, there’s less incentive to work hard. If the state takes care of you no matter what, then why bother with hard work? This harm is not a theoretical one—we can already see it playing out across multiple sectors of American society today. The same is true of competition. Why should GM be truly innovative? They have already gotten bailed out by the government, and their main market is no longer the American consumer, but their government keepers. The Chevy Volt is not a vehicle designed for American drivers, it’s a vehicle designed to meet the artificial mandates of the United States Government. When the state picks winners and losers, the market will start being more responsive to the state’s preferences rather than the consumers.

America cannot simply keep going on like this. Ferguson is right—we’re heading for an “Oh, shit!” moment. The continuing collapse of the Eurozone is a preview of our own future. Greece is just further ahead on our same path.

Hard Choices

In theory, all we have to do is get everyone to embrace the values that made America strong and things will sort themselves out. After all, they did in the past. We survived the Great Depression, World War II, and the Cold War all in a row, didn’t we?

The problem is that the theory and the practice of “rebooting America” as Ferguson calls it are two entirely different things. The self-absorbed Baby Boomer generation systematically turned its back on the values that made America what it was (and Jesse Jackson got Stanford students to attack Western civilization itself). We replaced competition with a radical and false sense of egalitarianism. We replaced the rule of law and representative government with an administrative state that has sweeping and largely unconstrained powers. We replaced modern medicine with the inane idea that health care is a “right” and that medicine should be free. We replaced the value of the consumer society with a parody of itself fueled by cheap credit. And finally we replaced our work ethic with a culture of entitlement. In short, we made a mockery of our own success. We chipped away at our own cultural foundation, slowly but surely undermining it.

But that was the past. The question is how do we go back? And that will be more challenging than anything this country has ever faced. How do we tell an entire society that all the things they’ve thought that they were entitled to they will have to earn from now on? We can’t make minor changes to our entitlement programs without huge controversy? How do we expect to start facing the difficult reality that those programs are fundamentally broken and can’t survive into the future?

To be pessimistic, I don’t see this country making those hard choice until that “Oh, shit!” moment actually comes. We will have to suffer a collapse before the body politic will embrace substantial reform. We will have to face something worse than a Greek-style debacle before things can get better. We are simply too attached to the status quo. In most circumstances, that’s a benefit—we don’t want a society prone to wild swings in the social status quo. Those seeking to change society rightfully bear the burden of persuasion to get people to change. But in this case, our status quo is unsustainable, and the body politic wants to cling to their comfortable illusions for as long as possible. They will not let go until all other avenues are exhausted.

But there is an optimistic side to all of this—if there is to be a collapse of the current status quo, the values that underpin our society haven’t been erased. America is still a land of innovative people. America is still a land with an incredible work ethic. America is still a nation, and will be so even if the state were to evaporate overnight. If tomorrow Washington DC were hit by a rogue asteroid and the entire federal government were to stop, America would not stop running. We would form voluntary organizations to take care of each other—it’s what we’ve always done. In fact, many of those voluntary organizations would be better off than they would be if the state could coopt them as it so frequently does.

Starting from the Ground Up

Can America reboot itself? It is possible, but it is going to require this country to make substantial sacrifices and be willing to make substantial changes. Our political system is not designed for that. Ultimately, if we want to look to Washington D.C. for change, we will never find it. The changes necessary to reboot America are not going to come from the halls of government, they will come from the people.

The fact is that culture influences politics much more strongly than politics influences culture. Washington can create some of Ferguson’s “killer applications,” such as enforcing the rule of law, but ultimately there can never be a law that creates a strong work ethic. The focus must be on instilling small-r republican values in the population—which requires strong families and a culture that rewards hard work, thrift, and the entrepreneurial spirit. We can create such a culture, but that takes time, and a willingness to shed cultural baggage from the failed counterculture of the 1960s. And it must come from the bottom up, not the top down.

And that’s the problem. We want easy solutions, and pushing our problems off on Congress is as easy as it gets. Finding out that we are personally responsible for America’s future success is a hell of a lot more daunting. But at the same time, it’s also an acknowledgment of something positive: that we are part of America’s success when it fails. And those values still exist, waiting to be unleashed.

It’s time to reboot America by first rebooting the American spirit, which is the fuel for the engine of American prosperity. We have the “source code” for America’s “killer applications.” It’s time we used it again by first getting government out of the way as much as possible and secondly by working on an individual level to restore our commitment to the culture that makes this country the world’s preeminent superpower.

Stimulus II: High-Speed Rail Bugaloo

As the old saying goes, “insanity is doing the same thing over and over again and expecting different results.” By that definition, President Barack Obama is frigging bugnuts.

This evening, President Obama called on Congress to pass the “American Jobs Act,” which is little more than another round of the same failed stimulus that was passed back in 2009. Since then, unemployment has hovered near double-digit levels, the economy has been limping, and our national debt has skyrocketed.

Instead of admitting what the majority of Americans can see with their own eyes, President Obama decided to double-down with more of the same. It was the same plans for “shovel-ready jobs” and high-speed rail, all to be paid with tax increases on the “rich,” of course.

Take the bizarre fascination with “high-speed rail.” It has been tried over and over again and it has never worked. It has always cost more than planned, required massive subsidies to work, and ended up being little more than a massive white elephant. emulating China’s failures is not the way to the future. Yet politicians keep pretending like the way to improve American infrastructure is to create a bunch of expensive high-speed rail lines. And even if China’s high-speed rail network makes sense for China, it doesn’t make sense in the slightest for the United States.

And then there’s the usual blather about “shovel ready jobs” and how if we just build a bunch of roads and bridges we can employ the millions of Americans who are just sitting idle. Now, I know that the President and most of the political elites know virtually nothing about manual labor, but if one is going to propose a jobs plan, it might be a good idea to learn about jobs.

President Obama needs to learn that not all “construction workers” are monolithic drones who can do anything that remotely resembles putting things together. You can’t take an unemployed sheet rocker or house framer and tell them to grab a shovel and build a bridge. Even in construction, the basic concept of division of labor still applies. There’s something vaguely condescending about the idea that all manual labor is basically interchangeable.

And finally, there’s the idea that taxing the “rich” will magically pay for all of this. Someone needs to inform the President (provided he would listen) about the concept of deadweight loss. It works like this:

Let’s say you take a million dollars from Warren Buffet. Had you not done that, Warren Buffet would have invested that million dollars in the hope of earning a nice return on his money. That million dollars would go to different companies, where it would pay for capital improvements, wages, new factories and offices, etc.

But that didn’t happen. The government took that million dollars. But that million dollars doesn’t get pumped directly into the economy. Instead part of it pays the salary of the government apparatchiks that process all the paperwork necessary to take the money, distribute it to the right agencies, and so on. Now, some will say that those salaries help the economy, and they do, but only to a point. Those bureaucrats don’t actually produce anything—they just push paper. That’s in contrast to someone who could take that money and invest it in something that would add value along the way. And it’s not just one layer of bureaucracy that the money has to get filtered through, it’s dozens or even hundreds. And each time, some of that million dollars gets lost.

And not only that, but the government does not spend money on what the best investment is. The government allocates money based on what the most politically well-connected want. When then happens is that money gets shoveled into politically-connected firms that quickly go best when the government turns the money spigots off. The failure of President Obama’s pet “green jobs” generator Solyndra is just one example of how government allocation of assets is not the way to build an economy.

So, by taking more money from Warren Buffet, the money has gone to government bureaucrats and the politically well-connected, but hasn’t produced any additional value. Had the government not taken the money from Warren Buffet, that money would have been invested prudently, and everyone would have been better off.

That’s why the idea of a Keynesian multiplier is a myth—government spending $1.00 does not magically produce $2.00 of value. But investing $1.00 in Apple in 1997 would produce way more than $2.00 today. The question is not whether the Keynesian multiplier exceeds 1, it’s whether it exceeds zero.

It may well be that building roads and bridges is a good idea—there are certainly valuable and needed infrastructure projects that constitute real public goods. (For example, the Stillwater Lift Bridge here in Minnesota is near collapse and serves thousands of motorists each day.) But why does it make sense to tax someone in California, send the money through Washington D.C. and then distribute it to local governments in Minnesota? That’s the problem of deadweight loss—government is not free, and while there are some projects that make sense to be done by government, those are few and far between.

President Obama’s speech tonight laid out yet another tired argument for “stimulus” spending that will fare no better than the already-tired arguments that he trotted out in 2009. Since then, the economy has suffered, leaving millions of Americans without the hope they were promised in 2008.

We need to change directions, and instead of empowering Washington D.C., we need to empower the American entrepreneur. We need to unleash America’s creative impulses and make it easier for Americans to start their own business and live their dreams. More of the same will not produce any different results. It is time for the President to end the madness and change direction.

Soaking The Rich… Again

Carlos Watson argues that the solution to our fiscal problems is to tax the living daylights out of the “rich” in the hopes of making up for a $5 trillion hole in our national finances.

That solution will not work.

For one, there aren’t enough “rich” people to make up for the current deficit. We could raise taxes to 99% and not came close—and then the rich people would either cease to be rich, or get their assets out of the country faster than you can say “Nancy Pelosi.” What you would have would be capital flight on a truly nightmarish scale.

In order to make up that kind of shortfall, you would not have to tax only the Bill Gateses or Warren Buffetts of the U.S.—you’d have to start taxing everyone who makes a decent living. Our professional classes are already taking a huge hit in this economy—engineers and lawyers are applying for $10/hour jobs because of the economic downturn. If we start taxing them, they will buy less, they will use less services, and the ripple effect will continue right on down the line. It will make the economy worse rather than better.

Taxing the “rich” isn’t going to solve this mess, nor is more government intervention. The sad state of our economy is due to too much government intervention and far too much debt, both public and private. In order to fix this mess we all need to start spending in line with our realistic priorities and not spending money we don’t have.

Taking more money from people with their heads barely above water and giving it to an irresponsible government is not a solution for this economy; it is economic suicide.

You Can’t Squeeze Blood From A Turnip

E.J. Dionne does what Democrats love to do, except when running for public office: call for a massive increase in American taxes. Again, he demonstrates the fundamental flaws in the Democratic understanding of basic economics:

He’s right that a large share of any increase should hit those who enjoyed the biggest income gains over the last decade. But in the end, no politician (with the possible exception of libertarian Ron Paul) is willing to cut the budget enough to contain the deficit without a general tax increase down the road.

Every budget analyst knows this, and every politician knows that it’s far easier to bemoan deficits in the abstract than to risk spending cuts or tax increases that hurt sizeable groups of voters. “There are no more low-hanging fruit,” says Tom Kahn, the staff director for the House Budget Committee. “The low-hanging fruit have already been picked. Any tax increase or spending cut is going to trigger opposition from somewhere.”

In an ideal world, Obama would come right out and say we’ll need broad-based tax increases. But that would be suicidal right now. Witness the reaction to his effort to put a 28 percent ceiling on deductions. His proposal would affect only 1.2 percent of taxpayers, yet even that idea is about to die in Congress.

Dionne is correct in one aspect: just raising taxes on the “top 5 percent” isn’t going to do anything. President Obama could raise the top marginal tax rate to 99% and still never get nearly enough money to pay for his additional proposed spending, no less the entire federal deficit. The idea that raising the top marginal tax rate from 36% to 39% will be anything more than a tiny drop in the bucket compared to Obama’s radical spending plans is ridiculous. Even combining that with removing payroll tax caps, limiting deductions, etc., won’t nearly be enough.

So, is a broad tax increase the answer? Dionne suggests yes. But that answer is self-evidently incorrect. Exactly what is going to be accomplished by adding to the tax burden of the American people in the middle of a recession that is precipitously close to becoming a depression? Where is the average American member of the middle class going to get the extra money to pay off Uncle Sam’s never-ending appetites? People are already cutting back on their spending—raising taxes would cause them to cut back even more. When the economy is already having problems with paradox of thrift, why would policymakers try for a plan that would reduce consumer activity even more?

The root of this whole problem was bad policy. We let everyone get over-leveraged, homeowners, banks, and even the government. Now, instead of tightening their belts, our “leaders” in Washington D.C. are trying to find every inventive new way they can to spend even more money. Dionne is also right in that just nibbling away at the margin will not do it—we have to re-evaluate the massive and virtually uncontrolled growth of government.

Raising taxes and having government “invest” that money will not work. Government is subject to the political process, which virtually guarantees waste. If anyone thinks that Congress will rationally allocate money based on the national interest, then they have a fundamentally irrational faith in government unjustified by facts or common sense.

Raising taxes is simply not the answer. In a time when the American people are cutting back, losing their jobs, and losing their homes, it is grotesquely irresponsible for government to demand even more of their hard-earned money—they don’t have the money to give. The argument that somehow the government will spend its way out of this recession is completely unjustified. Those who think that we should follow the example of FDR had better hope the Europeans start slaughtering each other so we can bomb them to rubble and then help them rebuild—it was World War II and not the New Deal that finally ended the Great Depression. We do not have the ability to spend our way out of this—and all Dionne would have us do is feed the beast more.

What needs to be done? For one, we need to re-evaluate our view of what government does. Nearly all of our current problems can be traced to government intervention. Fannie Mae and Freddie Mac could cook their books because they (and everyone else) knew that they were “too big to fail” and if anything went wrong, Uncle Sam would bail them out. For all the talk about how it was deregulation that caused this mess, the reality is that the less heavily regulated industries are doing better than the most heavily regulated ones. The idea that banks were living in some kind of libertarian paradise and government wasn’t watching everything they did is completely wrong. The banking industry was, and is, heavily regulated. The problem was that the big players (Countrywide, for example) could “buy” Congress and get them to pass laws and rules favorable to them.

The answer is to make sure that this kind of capture can’t happen again. The best way to do that is to make sure that Congress can’t rewrite the rules to line their own pockets. That means not only tougher ethics reform in Congress, but also preventing Congress from being able to screw around with the nation’s economy. Everyone treats this as a demand problem—but it’s really a supply problem. If Congress could only do so much to regulate the industry, there would be no incentive for companies to spend billions on influence peddling. There would be no point to doing so—even if they wanted to, Congress couldn’t stack the deck in their favor.

That means restricting the power of government, except in making sure that companies act transparently. The government does have some need to interfere with the market, but what we are seeing now is when government substitutes the “wisdom” of someone like Tim Geithner for the judgment of the market—quite literally making Geithner the one who gets to make all the rules. Even if Geithner were an unqualified genius, this sort of concentration of power is dangerous.

What we need is less government, not more. What we need is the development of the private sector, not more reliance on government employment. What we need is less of a tax burden, not more. We need a government that does a few things and does them well, not a government that tries to do everything and ends up failing more often than not.

Dionne is wrong at the core of his argument—the level of government spending is unsustainable, and we can never raise taxes enough to cover the difference—and if we tried it would further depress the economy. We cannot keep hoping that the same top-down solutions will work. We cannot just assume that substantive entitlement reform is off the table.

This nation is at a crossroads. We can either continue to spend our way into bankruptcy or we can start looking at alternatives. Raising taxes only makes things worse. We cannot blindly put our faith in government, but must look back to the basics of what makes our economy strong: hard work, a government that promotes opportunity, and a government that is small but effective. The more we stray from those basics, the harder things will be in the future.

Weapon Of Mass Wealth Destruction

Bloomberg has a deeply critical piece written by Kevin Hassett arguing that Obama has declared “war” on American business. This may seem like hyperbole, but the evidence bears it out:

Imagine that some hypothetical enemy state spent years preparing a “Manchurian Candidate” to destroy the U.S. economy once elected. What policies might that leader pursue?

He might discourage private capital from entering the financial sector by instructing his Treasury secretary to repeatedly promise a brilliant rescue plan, but never actually have one. Private firms, spooked by the thought of what government might do, would shy away from transactions altogether. If the secretary were smooth and played rope-a-dope long enough, the whole financial sector would be gone before voters could demand action.

Another diabolical idea would be to significantly increase taxes on whatever firms are still standing. That would require subterfuge, since increasing tax rates would be too obvious. Our Manchurian Candidate would have plenty of sophisticated ideas on changing the rules to get more revenue without increasing rates, such as auctioning off “permits.”

Now, Obama is no “Manchurian Candidate”, but he is doing everything he can to bring the economy into depression. His policy goals will continue the already unprecedented destruction of American wealth that has resulted since his elections. The markets, looking ahead to the Obama Administration, have reacted with panic. They see the future wealth-destroying effects of higher taxes, more government intrusion into the markets, a socialized system of health care, and a reckless “cap and trade” system that will push energy prices sky-high.

The markets are seeing Obama clearly for what he is: a weapon of mass wealth destruction.

If Obama wants to restore the economy, he would restore the engine of American prosperity: American business. Yet through higher taxes and more unnecessary and unneeded regulations, the Obama Administration has already put itself out as strongly anti-business. Small business owners are already trying to do whatever they can to get through the next four years, and that means continuing to stockpile rather than sell and cutting as many jobs as we can.

I have always said that liberalism will always fail because its premises are wrong. Obama has barely started to enact his agenda, and already the results speak for themselves. Into Year Two of the Obama Recession, it’s going to be very hard for the left to blame the previous President for the bad economy—not that they won’t. But the reality will be that Obama’s policies will not create wealth, they will destroy it. We will all suffer due to this reckless experimentation. What we are seeing in the markets is a clear-headed response to Obama’s policies—and the markets will continue to sink unless this nation changes its current, disastrous course.

We Need Real Jobs

Bob Herbert writes in The New York Times that that what America needs to recover from the recession are more jobs. On that point, he’s absolutely right. The problem is that the jobs he would choose to create won’t do anything to help the economy. Like a good Times columnist, his preferred solution is more government intervention:

What Americans need is new employment on a massive scale, and one of the most effective ways to get that started is to invest extraordinary amounts in the nation’s infrastructure, to rebuild America in a way that creates a world-class platform for a sustainable 21st-century economy.

President Obama’s stimulus package is just a first step in the government’s effort to stabilizing the hemorrhaging economy. It contains infrastructure spending, but nothing comparable to the vast amounts it will take to make the desperately needed improvements.

Funds spent on those improvements, which will have to be made sooner or later, are also cracker-jack investments in putting people to work. The idea that the government is spending trillions on wars, bank bailouts, tax cuts, and so on, while still neglecting its infrastructure needs — and at a time when Americans are desperate for jobs — is mind-boggling.

Here’s the problem with that line of argument. What we need is not a bunch of make work jobs. Exactly what would Mr. Herbert’s plan look like? Should we take an unemployed financial analyst from Manhattan, hand him a shovel and have him dig a ditch or fix potholes on I-95? Is that really an effective use of his skills? Of course it isn’t&madash;it’s a waste of human capital.

We do need to fix infrastructure, but don’t kid yourself that doing so will make a bit of difference in job growth. Unless we want to start building roadways to the moon, there’s just no reason for millions of people to pick up shovels for all those “shovel ready” projects. What stimulus infrastructure spending produces is very limited and not terrifically effective.

Here’s where the standard argument about government jobs comes in: “but you’ve built a road!” they exclaim. Great, you have a road. Does that mean anyone will use that road? Sure, that road would be nice for all the trucks that aren’t going anywhere to take all the goods that aren’t being produced, but here in the real world just building a road produces a strip of concrete that may or may not get used. “If you build it, they will come” is a line from a movie, it’s not a theory of economics.

So, what do we really need? We really do need jobs, and we really do need infrastructure fixes. But those are two different problem with two different solutions.

If we want to get out of this mess, we need to tear down walls rather than build them up. The first bill that President Obama signed into law was an act that dramatically expanded liability for employers. You want to create jobs? Try not hobbling the people who create them.

Instead, Congress continues to punish American small businesses at every turn with higher taxes, more regulation, and expanded liability. If you’re a small business owner, now is the last time that you’re thinking about expanding your business. Yet now is also the time when we most need new job creation. Congress and the President continue to put policies in place that harm job creation, then they wonder why the economy is swirling the tubes. Then their solution to the problem is to punish the creators more with even more regulation while lavishing more and more money on the irresponsible.

If job creation is the goal, then Congress should start making it easier for small businesses to start and become big businesses. There are a number of ways to do this. For one, President Obama could sign an Executive Order today that nullifies regulations that harm small businesses—it wouldn’t solve all the problems caused by over-regulation, but it would certainly help. He could then push Congress to pass regulation that would shield small businesses from the biggest liability-increasing laws like the Lily Ledbetter Act. If you’re going to punish business for their excesses, at least punish the people with the deep pockets rather than tilting the playing field more and more against the little guy.

The next step is an across-the-board cut to the corporate tax rate to 25%. The U.S. has the highest corporate tax rates in the developed world—even Sweden has a lower corporate tax rate. Alternately, small businesses (with 25 or fewer employees) should not pay corporate taxes at all. While small businesses can elect to become Subchapter S corporations that make their income exempt from federal taxes, that rule puts more hurdles in their way. Why bother making small businesses jump through the hoops of a Subchapter S election rather than simply getting rid of all the headaches? Small businesses should not be punished with either double taxation or having to elect to go Subchapter S—the process should be as simple as possible.

Forget bailing out the Big Three auto companies. They’re dinosaurs. It’s like giving a bailout to the horse-drawn carriage industry in 1920. Somewhere in a garage an American inventor is coming up with the next revolution in transportation, free of the restraints of conventional thinking. I’d rather throw a few hundred grand to a hundred garage labs than a few billion to the dinosaurs. If just one of those innovators pans out, a new industry is born. HP, Apple, Microsoft, and even Google started not as the product of giant government R&D programs, but in garages and college campuses. You want the most bang for your stimulus dollar? Then give it to the little guys with the big ideas, not the big guys who are too constrained by their own bureaucratic inertia to revolutionize American industry.

We’re not going to fix America’s problem by repairing bridges and digging ditches. Most of our infrastructure problem should be solved by just shifting our priorities. Yes, it’s nice to have millions for the arts. But we also have to fix bridges, and we have to start making rational choices about how we spend our money. If we want to repair American infrastructure, we should do that, but it should be done in as apolitical a way as possible. That means saying that we are not going to spend millions on bike path or “community centers” that only help a small number of people. Instead, we’re going to fix the big problems like failing airports, falling bridges, and chemical plants that might as well have a “BOMB ME” sign painted on them. That means insulating these decisions from Congress, who have every incentive to put the needs of their campaign contributors above the public good.

If we want to fix the economy, we can’t follow Herbert’s single-minded focus on government as the solution to every problem. The reason why things are so bad is that our private-sector is failing. Neglecting the real engine of growth—private-sector, small-business jobs—is only going to make this recession turn into a full-blown depression.

This is the 21st Century. We can’t play with the handbook of the 1930s. If we want a 21st Century economy, we have to look beyond the top-down centralized approach and start looking at the economy in the same way we look at the Internet. Instead of a “central server” in Washington, we need a “cloud” economy that spurs innovation. Centralized networks are slow, inefficient, insecure, and costly. Distributed networks are fast, resilient, efficient, and effective. Our economy is the same way. If we’re to build a better future for ourselves and our children, we have to concentrate not on centralizing economic power, but putting it back into the hands of the people who create jobs that last.

Atlas Is Shrugging

The U.S. economy shed 598,000 jobs in January, the worst job loss since 1974. There is no doubt that the U.S. economy is in a state of crisis. Our government is only making it worse.

It is more than mere coincidence that this huge job loss occurred in the same month that President Obama signed the Lily Ledbetter Fair Pay Act into law. The Ledbetter Act basically means that employers can be sued for “paycheck discrimination” years after the events occurred. In Ms. Ledbetter’s case, the alleged discrimination happened so far ago that the supervisor involved had not only left the company, but died. This Act, instead of making things “fairer” for employees, puts a massive burden on employers who now have to worry about lawsuits stemming from events decades old.

This is what the business environment will be like under the Obama Administration. There will be more regulations and those regulations will be written by representatives of big industries and radical special interests. There will be higher taxes on everything from corporate income taxes to personal income taxes to the estate tax, and there is a strong possibility of a carbon tax that will raise prices on every single good that needs shipping. The web of regulations, higher taxes, and the way society is treating the very idea of entrepreneurialism is making American business falter.

The result: more lost American jobs.

This “stimulus” bill will not help. It will give hundreds of billions to political contributors, and barely anything to American small business. Big business, the ones with the lawyers and lobbyists, have already gamed the system. The Democratic Party has no room for the interests of American small business, even though their employees are half of the American workforce. The situation for American small business will be dire: not only will there be more taxes, more regulation, and more self-righteous condemnation from Washington, but the credit markets are still tight. Unless you’re in a field that will be the recipient of government spending, like health care or road construction, forget hiring employees, you have to cut expenses to the bone right now.

American jobs are being lost because we are punishing the people who create them.

President Obama and the irresponsible Congressional Democrats are pushing this recession into a depression. Their wrong-headed pro-government economic policy is turning America into a banana republic. It is crucial that they be stopped.

Atlas is shrugging, and the world is at the brink of tumbling right off.

‘Shovel Ready’ BS

Popular Mechanics has a great piece on the myth of “shovel ready” infrastructure projects:

The programs that would meet the bill’s 90-day restriction are, for the most part, an unappealing mix of projects that were either shelved after being fully designed and engineered, and have since become outmoded or irrelevant, or projects with limited scope and ambition. No one’s building a smart electric grid or revamping a water system on 90 days notice. The best example of a shovel-ready project, and what engineers believe could become the biggest recipient of the transportation-related portion of the bill’s funding, is road resurfacing—important maintenance work, but not a meaningful way to rein in a national infrastructure crisis. “In developing countries, there are roads that are so bad, they create congestion, because drivers are constantly forced to slow down,” says David Levinson, an associate professor in the University of Minnesota’s civil engineering department. “That’s not the case here. If the road’s a little bit rougher, drivers will feel it, but that’s not going to cause you to go any slower. So the economic benefit of those projects is pretty low.”

That might be acceptable to people focused purely on fostering rapid job growth‹but, ironically, such stimulus spending could fall short on that measure, as well. “In the 1930s, when you were literally building with shovels, that might have made sense. That was largely unskilled labor. Today, it’s blue collar, but it’s not unskilled,” Levinson says. “The guy brushing the asphalt back and forth is unskilled, but the guy operating the steamroller isn’t. And there’s an assumption out there that construction workers are interchangeable between residential and highway projects. But a carpenter isn’t a whole lot of help in building a road.”

It’s ironic given the I-35W bridge collapse being used as a symbol of America’s “failing infrastructure”—that collapse was the result of a design flaw that should have been spotted in the design phase. And what is our reaction to such problems? Push through a bunch of projects in a hurry rather than perform the sort of painstaking design that needs to be done before a project is truly “shovel ready.”

There is some wisdom to spending on infrastructure, but let us be honest. It won’t make a dent in the unemployment rate unless you believe that you can take a stockbroker and put her into a bulldozer and call that good enough. It won’t stimulate the economy because the money will go to government contractors who are the least affected by the economic slowdown. And what stimulus it does produce won’t be likely to come about until well after the slowdown is past. Justifying this sort of spending on the grounds of economic stimulus isn’t realistic.

If we want to spend money on infrastructure, we should do it right. That means assessing our needs in a realistic manner, spending only on projects that will make a real difference, having a realistic plan to build these projects, building them right the first time, and having a competitive bidding process to make sure that money isn’t being funneled to campaign contributors.

This bill is not about stimulus. It’s about the Democratic Party looting the future to pay off their political supporters. It is nearly 100% pure pork that will saddle the future with at least another $1,000,000,000,000 in debt—not counting interest. Even the Congressional Budget Office finds that the “stimulus” bill will just shift the costs to future generations. We can’t rob Peter to pay Paul and expect to get away with it. Recent history should demonstrate all too well why such ideas don’t work.

We need a real stimulus package, not an act of wanton irresponsibility. If President Obama were to demonstrate real leadership, he would tell Reid and Pelosi to stop playing childish partisan games and send him a bill that is nothing but stimulus and no pork—and if they refuse, he should veto it. We need real infrastructure repair, not political cronyism. The only shovel that’s ready to go is the shovel needed to clear out all the B.S. surrounding this bill.