Archive from March, 2010
18 Mar
2010
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Upgrading Social Security

This is the second of six policy proposals I have written for conservatives looking to accomplish our long-term objectives of more freedom and less government.

Enhance the credit rights of Social Security: Instead of each person collecting Social Security from the government, every participant should have a private account holding real Treasury bonds in his or her name.

Under the current system, FICA taxes go the IRS, which then makes them available to the government’s general fund. Under the new system, the money would go directly from your paycheck into an individual fund managed by a company such as PIMCO or Vanguard. The fund would be legally barred from owning anything other than U.S. Treasury bonds. Without stocks or corporate bonds, the system would have the same risk profile as the existing Social Security program.

It would actually increase security for ordinary Americans by placing them on a pari passu (equal) status with foreign investors such as the Chinese and Japanese, who together hold 20 percent of the nation’s sovereign debt. (Foreigners overall owned 48 percent of outstanding Treasuries as of Sept. 30, up from 41 percent as recently as 2004.)

The existing system subordinates ordinary Americans to the foreign investors and the big banks that dominate the Treasury market. If Congress doesn’t have enough money to pay interest to the folks in Beijing, Tokyo and on Wall Street, they’ll reduce the payout to Americans on Main Street — simply by raising the income tax on Social Security benefits. Democrats have done it before, and they’ll do it again.

Under my plan, a lot of the the money paid to recipients would be from the return of principle rather than interest income, so it wouldn’t be eligible to get taxed at all. People would literally get their own money back.

This proposal would necessarily increase the fiscal deficit on paper because Congress now steals more than $900 billion a year from entitlement programs to cover its profligate spending. The good news is that this would force the government to clean up its books, producing a transparency that would be welcomed by investors and credit analysts already concerned about the country’s unfunded entitlement programs.

This idea would also make Americans feel like stakeholders in their own country again. As direct owners of Treasuries, they would be more included to resist excessive spending and debasement of the currency. It would also provide a boost to the asset-management industry.

However, the most important thing is that it would give Americans the same rights as the Chinese, Russians and Saudis. While that’s obviously anathema to the Democrat Party, it should be a key priority for the Republican Party.

15 Mar
2010
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More money for government workers!!!

This is the first of six policy proposals I have written for conservatives looking to accomplish our long-term objectives of more freedom and less government.

Public-sector bonuses: Conservatives should promote a policy that gives all public-sector workers the right to identify wasteful spending and collect personal bonuses equivalent to one-third of the public spending saved, up to $100 million per individual. Because the bonuses would result from individual initiative rather than collective bargaining, none of the bonus money could be taken for union dues.

This idea, developed from a suggestion by Pittsburgh talk-show host Jim Quinn, would instill responsibility and initiative in a workforce plagued with a lack of accountability. It would also give civil servants the ability to defend their jobs and pensions from the small number of their corrupt colleagues who rob the system with impunity. The average government worker, after all, knows that pink slips won’t be distributed fairly when the axes fall.

If enacted, public-sector bonuses would win converts to the Republican Party from a group of voters who now resist conservatism because they fear losing their jobs. This would help split Democrat Party’s most reliable voting bloc.

Even more important, this idea will change the culture in Washington and state capitols across the nation: Once employees hear about a low-ranking DMV clerk or school administrators becoming multimillionaires by saving taxpayer money, it will inspire them to do the same. This will cause a wave of accountability, self-interest and responsibility to sweep the public sector. Government workers will start acting like everyone else in the economy, focused on the bottom line and efficiency, rather than just punching the clock until their pensions kick in.

14 Mar
2010
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Conservatism for the new decade

Conservatives need fresh policy ideas. Despite the movement’s new energy and passion, as embodied by the Tea Party, it’s still based on the simple concepts of lower taxes and less government. While these are fine goals, they are not strategies.

The adversaries are well entrenched in their positions, surrounded by high walls of special-interest groups and defended by armies of public-sector unions and lobbyists. While our numbers are vastly superior, we need more than simply a frontal assault to conquer their hilltop fortress. After all, they have grown stronger despite the legacy of Reagan and the 1994 Repubublican Revolution. And, they continue erecting their barricades even now, despite the elections in New Jersey and Massachusetts.

Just as the canon rendered castles defenseless, Republicans need a new weapon to defeat the pork-infested, yet heavily defended, Democratic castle.

Over the next several postings, I will discuss several specific policy ideas that I think would redefine the political landscape and make the Left’s position untenable. My ideas may seem radical or unconservative at first, but each is carefully designed to chip away at the masonry of the enemy’s reboubt. Some could become like tremors that break the stones free, while others would be like artillery, blasting away entire constituencies and voter blocs while leaving the Pelosis, Reids and Obamas of the world isolated and weak.

First, I will focus on why the established agenda of tax cuts is outmoded,. The in subsequent posts, I will list specific policy ideas.

So, first of all, what’s wrong with tax cuts?

The answer is that a growing number of voters no longer pay any income tax thanks to years of targeted tax cuts, credits and exemptions. The Tax Foundation found that only 68 percent of Americans paid federal income tax in 2007, the smallest proportion since at least 1950. That contrasts with levels over 80 percent when the Reagan Revolution swept America.

Data for 2008 and 2009 isn’t available, but the percentage of people who pay taxes will be even smaller because unemployment has doubled from 5 percent to 10 percent in the past two years. In other words, the natural constituency for Americans who will benefit from tax cuts has shrunk by about one-quarter from the Gipper’s glory days:

Source: The Tax Foundation

The second reason why lower income taxes are losing their luster is that many voters will face higher state and local taxes. Thirty-five of the 50 states plan to raise taxes or fees to cover their massive budget deficits, according to Stateline.org. Americans are about to get slammed by higher property taxes, sales taxes and fees on everything from vehicles to hunting and fishing licenses. Conservatives must offer a solution to the bigger problem of government waste rather than simply focusing on lower marginal income taxes.

The third reason is that many people believe the religion of liberalism, which says “the rich should pay more.” Never mind the fact that most truly wealthy have the ability to pay minimal taxes. Millions of people simply love the notion of a progressive tax because it sounds “fair” to them. No amount of logic will persuade them otherwise. As a result it’s best to change the message. Our agenda isn’t simply lower taxes. After all, it smaller government and more liberty. All of my posts in coming days will focus on those objectives.

12 Mar
2010
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Big Government Sucks!

Just a quick recommendation for bored denizens here on the Web.

There were two terrific articles online today:

1) On NRO – Our Subversive Founders, by Fred Schwarz.

2) On Mises.org – Politics Cannot be Fixed, by D.W. MacKenzie

Both make the common (and now controversial) point that big government is incapable of solving the problems of society, but do so from different angles: Schwarz, using the wisdom contained in the Federalist Papers; MacKenzie from the perspective of an economist.

Indeed, the more government tries to do without the objective guidance provided by the profit and loss system (which itself is facilitated by accounting), the bigger it gets.  This was the basic thesis of Hayek’s classic “The Road to Serfdom.”  It also finds expression in this statement by Ludwig von Mises:

no profit-seeking enterprise, no matter how large, is liable to become bureaucratic provided the hands of its management are not tied by government interference. The trend toward bureaucratic rigidity is not inherent in the evolution of business. It is an outcome of government meddling with business. [Bureaucracy (New Haven: Yale University Press, 1944)]

Great reads!

10 Mar
2010
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The Emperor’s “New” Clothes

There are few things more distressing than economic depression.  The nation (and world generally) have been mired in fear and doubt concerning our economic well-being ever since the cataclysmic market collapse of September 2008.  At that critical juncture, governments stepped in to “rescue” the economy, TARP and “Stimulus” being only more memorable legislative actions.

Here we stand, 17 months later, and economist Nouriel Roubini, who is widely acclaimed to have predicted the crash, is warning of a potential “double dip recession.”

Now, Roubini is no free-market economist.  The bits and pieces I’ve read by him suggest that he sees government spending as the cure for depression; in other words, he is an interventionist.

Frankly, I’m old-fashioned and can’t take the cult of personality around Roubini.  He’s no god; he’s only as good as his theory.  I don’t find his economic theory up to snuff, and I think he makes very poor policy suggestions. Nonetheless, it is telling that even such an esteemed interventionist as Roubini fears a second crash, despite the record levels of intervention.

As an alternative, I would recommend, for anyone who appreciates sound economic theory and the careful study of history, a brief section out of Murray Rothbard’s “America’s Great Depression.”  A taste:

If the Federal Reserve had an inflationist attitude during the boom [of the 1920’s], it was just as ready to try to cure the depression by inflating further. It stepped in immediately to expand credit and  bolster shaky financial positions. In an act unprecedented in its history, the Federal Reserve moved in during the week of the crash—the final week of October—and in that brief period added almost $300 million to the reserves of the nation’s banks… Instead of going through a healthy and rapid liquidation of unsound positions, the economy was fated to be continually bolstered by governmental measures that could only prolong its diseased state. This enormous expansion was generated to prevent liquidation on the stock market and to permit the New York City banks to take over the brokers’ loans that the “other,” non-bank, lenders were liquidating. The great bulk of the increased reserves—all “controlled”—were pumped into New York… The Federal Reserve also promptly and sharply lowered its rediscount rate, from 6 percent at the beginning of the rash to 42 percent by mid-November. Acceptance rates were also reduced considerably.

By mid-November, the great stock break was over, and the market, falsely stimulated by artificial credit, began to move upward again. Standard and Poor’s stock price monthly averages, which had climbed from 56 in mid-1921 to 238 in September 1929—more than quadrupling—fell to 160 in November, a one-third drop in the course of two months. By the end of the year, stock prices had risen by several points. The stock market emergency over, bank reserves declined to their pre-crash levels…

The total money supply, as gauged by member bank demand deposits adjusted and time deposits, increased slightly—by about $300 million—during the final quarter of 1929.

President Hoover was proud of his experiment in cheap money, and in his speech to the business conference on December 5, he hailed the nation’s good fortune in possessing the splendid Federal Reserve System, which had succeeded in saving shaky banks, had restored confidence, and had made capital more abundant by reducing interest rates. Hoover had done his part to spur the expansion by personally urging the banks to rediscount more extensively at the Federal Reserve Banks.

If we change the president from Hoover to Obama, update the years and the monetary figures to account for inflation, what is so different about today?

3 Mar
2010
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That Obama Recovery

From MarketWatch today:

WASHINGTON (MarketWatch) — Private-sector firms in the U.S. eliminated 20,000 jobs in February, the 25th decline in a row, according to the ADP employment report released Wednesday.

It was the fewest jobs lost since 22,000 jobs were added in January 2008.

In January 2010, a revised 60,000 jobs were lost, compared with the 22,000 originally reported, ADP said.

Month after month after month after month I’ve been blogging the unemployment numbers.  Today not only do we learn that the economy is shedding more jobs, but that the “only 20,000″ laid off last month was actually 60,000.  A rounding error at the BLS?

Unemployment as of Feb 5 was officially 9.7%.  Will it move back above 10% now?

And this trend of layoffs will continue if the president and Congress don’t start enacting pro growth policies, like cutting spending, reducing taxes across the board, and raising interest rates.  In short, extricating themselves from the workings of markets.  With 25 consecutive declines in payroll numbers, businesses are jittery.  Nobody except government officials believe in a “jobless recovery.”

Wednesday morning philosophy:

A “market” is what we call a group of individual humans who interact with the purpose of satisfying their desires through exchange.  The order arising from each individual seeking to maximize his “utility” was called by Adam Smith the “invisible hand,” and by F.A. Hayek the “extended order.”  Markets are self-regulatory by nature: that is to say, the people who engender what we refer to as a “market” are constantly shifting their tactics to attain higher levels of satisfaction.  When there is a meeting of minds between individuals or parties, a price is set, and the market is said to have “cleared.”  When government interferes with this clearing, it has positively acted against the well-being of the citizenry.

All actions in a market are necessarily subject to the law of unintended consequences because man’s faculty of reason is imperfect.  If men were angels, i.e., endowed with perfect intellect, the “market” would exist in the Biblical “fullness of time.”  Under these conditions, the consequences of every decision made would be immediately discernible, and the global market, unfettered from the feeble minds of men, would exist in perfect homeostasis.  Economists refer to this imaginary scenario (or something akin to it…, likely without the biblical reference) as the evenly rotating economy.

If it is true that one individual or one party (e.g., a business) can influence markets in ways that are impossible to completely predict, it is all the more true for gigantic entities such as governments.  Not only does the size of the typical Western government dwarf the size of even the largest corporations, but they are also not subject to the legal and ethical restrictions that markets place on their actors.  For example, what company can pay its debt to itself?  Can imprison its debtors?  Can seize property at gunpoint?  What company controls the judicial system?  Reflecting on the nature of government should make one very wary of its power, and the inevitable and dangerous consequences that overreaching by legal fiat entail.

So 25 months of declining payroll numbers?  It’s no great mystery.  The United States government’s unprecedented interventions that followed the collapse of our real estate and banking sectors have spawned a new generation of problems that we, with our weak intellect, are only beginning to recognize.  Their first warning signs are right now slowly taking shape on the approaching horizon.

It was not until 1931 that the consequences of 1929’s and 1930’s interventions became evident for all; the country then realized it had an additional set of major economic complications to sort out, without ever fully coming to grips with the prior set.  The American who in 1930 sat contemplating the ancient riddle now suddenly found it translated into incomprehensible Swahili.

Our intellect may not be perfect, but it’s functional.  And this unique trait of man will soon bear down upon the second great economic collapse in a few short years.

2 Mar
2010
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Fatal Distraction?

There’s been a lot of commotion in the news media lately about President Obama’s so-called bipartisan healthcare summit, and the stunningly imperious suggestion that Congress use the reconciliation process to avoid Republican filibuster.  This evidently urgent healthcare “reform” now has a public approval rating of 44%, and a disapproval rating of 52%.   But as far as summits go, it was unremarkable.  Obama the ideologue would never compromise meaningfully with Republicans.  Republicans, meanwhile, had just won a Senate race in Massachusetts, and it would have been nonsensical to give into the president’s ever-more shrill demands for State directed medical care.

What the summit did accomplish, for a brief time, was to get the attention off the condition of the American economy.  For those who have not been paying close attention, there are very, very few signs of recovery.

The DJIA is stuck in the mid 10,000’s.  Gold is stubbornly high at ~$1,100/oz.  Despite mildly good news from some sectors, labor and real estate are worse than ever.   For all the billions trillions thrown at “rescue” efforts, the economy remains lifeless.  This translates to less tax receipts, more unemployment disbursements, and bigger deficits.  For example, New York faces a 5 year deficit of over $60 billion, while California has a 1 year, $20 billion problem.

The federal government’s balance sheet is in worse shape, with a record $1.56 trillion deficit for 2010.  TARP, all said and done, will lose an estimated $117 billion.  AIG, which was the recipient of more than $180 billion in tax dollars, lost $8.9 billion this quarter alone.  This was a marked improvement over last quarter‘s $61.7 billion loss, but a far cry from profitability.  Meanwhile, the Federal printing presses continue to keep interest rates far, far lower than market rates, giving us citizens the historical privilege of living through a rare (and feared) inflationary depression: the seasonally adjusted, annual inflation rate for January was 2.6%.  For those readers unacquainted with the finer points of economic theory, consumer prices are supposed to drop precipitously during depressions (and this measure excludes food, energy, and healthcare prices.)

That the Federal Reserve has managed to counteract these prevailing market forces and actually drive UP prices after financial sector paroxysm is, at least in my opinion, reason for genuine concern.