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Well, I finally went and did it – this past Tax Day, April 15th, I attended my first Tea Party rally on the Washington Mall.  I have defended this group for a while on this site, and wanted to go see it for myself.  Generally speaking, I was impressed with the common sense and cordiality of those in attendance.  Surprisingly, I made a liberal friend who could not be any more different than I am.  I got to hang out with some pretty cool family members as well.

The driving force of this movement can be summed up in one word:  Liberty.  Many times on this site I have quoted British philosopher Jeremy Bentham, who said, “Every law is an infraction of liberty.”  His American colleague John Stuart Mill, author of the source on the subject, On Liberty, went further in summarizing this into the harm principle of utilitarianism, saying, “The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others.”  This is the essence of the Tea Party Movement.  They want freedom, under a respectable rule of law, provided by a dual system of governance -the intent of our forefathers – conceived in our founding documents, namely, the U.S. Constitution and Declaration of Independence.  Americans react when these principles are threatened.

This Tea Party Movement closely resembles the caucus I was calling for leading up to the 2008 presidential elections, where libertarians and conservatives could converge.  At that time, I called this group the Sons of Liberty, notably, here, here, and here.  Historically speaking, I wasn’t that far off.  I’ll let you research that little tidbit for yourself, but in a nutshell, dating back to 1765, protests over Leviathan government are by no means a new occurrence in this country.

At the Tax Day rally, anti-Tea Party leftists made their way through the crowd to stir up the patriots protesting tax increases.  A Tea Partier with a megaphone charged back:  ”We believe in liberty; what do you believe in?”  The leftists answered with a deafening silence – collectively, of course.

So, what is the opposite of liberty?  A reoccurring theme at the Tea Party is the title of a recent Mark Levin bestseller, Liberty and Tyranny. Is tyranny the goal of the left?  Well, not intentionally, but the ideological divide between Republicans and Democrats, conservatism and liberalism, libertarianism and statism, whatever, all boils down to this fundamental struggle between freedom and control, or as Ben Franklin said, between liberty and security.  The aforementioned principle of freedom is the theoretical end state for those on our side of the argument; what is the eventual end state for the leftists in the struggle?

Struggle Displaces Utopia

To understand the rest of this post, you must believe two truths: one, that in any society, the public sector exists to benefit themselves, their interests, and their constituents; and two, those benefits will cost their opponents and opposing interests.  You will find this to be true with both benevolent and malevolent governments.

In America, the public sector is dominated by social justice champions, who are beginning to realize we can’t all be thieves; what they can scrape off the top is merely a fraction of other people’s labor.  We can’t all subscribe to that way of life.  A divisive political environment, driven by envy on one side and fear on the other, splits our society in half between the “makers” and the “takers.”  A vibrant private sector is necessary for the survival of the left, specifically, the Keynesian spenders of the largest public sector in our nation’s history and its constituents in the expansive welfare state.  This battle seems to be sustainable, as long as the lines between makers and takers are plainly drawn.

So, in an a way, this sustained struggle has displaced the socialist utopia for the left.  For this enigma I coin the term “postmodern socialism” to describe the relationship the dependent enjoy at the detriment of their self-reliant compatriots.  Perhaps perpetual struggle is the progressive agenda, after all; conflict keeps both parties vigorously fighting for to maintain their position.  Fear and distrust keep the private sector on its toes, so they work harder to generate income, from which the public sector takes a dividend.  That means more citizens can join the lazy collective, with the federal government handing out benefits (tax cuts, subsidies, welfare checks, bailouts, vouchers, etc.) to the less productive among us.  That’s what Obamacare does; it throws money at our health care problems and hopes the private sector will work harder and the indebted public will shut up.

But the backlash is growing against this culture of dependence.  Andrew Kohut in today’s Wall Street Journal states:

“There is growing concern about the size and power of the federal government.  The public is now evenly divided over whether federal government programs should be maintained to deal with important problems or cut back greatly to reduce the power of government.”

As our government grows, our society is split in half, with 47% of Americans paying no income taxes, and 45% saying they are taxed “about right.”  Coincidence?  If this isn’t a “progressive” income tax, I don’t know what is.  The silver lining herein is the statistical fact that at least some of the people paying no income tax at all are unhappy with their situation.

But I digress.  My point is this:  the left now realizes that to maintain their culture of dependence, the struggle must continue.  As every dollar for the public sector comes from the private sector, a balance must be maintained in order to keep stealing from the top.  The left understands utopia for everyone cannot be achieved as a lasting societal model; who would be left to do all the work?  The leftists themselves?  Ha!

Looking Abroad

The former Soviet Union serves as an example of a socialist state that sought utopia but failed.  While it’s plainly obvious the lack of innovation will eventually destroy an authoritarian regime, it was the Soviet Union’s isolationism that predicated its collapse, and with it, the collapse of last century’s Communist model.  This is not to say freedom filled the void; many of the Soviet satellite states are still dealing with the lingering effects of their authoritarian instincts.  I once learned in school that it takes six months to convert an economy to capitalism, six years to convert a government to a democracy, but sixty years to change a societal culture towards freedom.  I cannot find the source for this thumbrule anywhere, but I need to make clear it is not my own.  Nevertheless, these countries sought utopia, but were left with tyranny.

While China is indeed a tyranny, it seems to have learned from the Soviet mistake of isolationism.  In contrast to the former Soviet Union, Communist China relies upon Capitalism abroad to survive, while imposing autocratic rule on its subjects at home.  Again, when I was in school, I wrote a paper theorizing the Internet in China would perpetuate the collapse of Communism and the emergence of a free society.  Hmm; guess I was wrong.

In fact, it seems instead of liberating China, our economic relationship may be socializing America; that is, we might be rubbing off on each other.  How could that be?  Again, under postmodern socialism, this is sustainable as long as there is constant struggle.

In the Communist Manifesto (and first in Das Kapital), Karl Marx, in his critique of Capitalism, wrote extensively on the division between Capital and Labor.  He called for an equalization, that is, an elimination of the division between those who make the money and those who keep it.  Surely, out of the millions of Communists in China, someone realizes the large rift between Chinese labor and American wealth.  We are indebted to them, and I believe the only reason they haven’t collected yet is that the problem is getting worse.  Wouldn’t you wait until your investment was fully mature before cashing it in?

So every time the United States increases its debt, it increases it’s risk of defaulting on it.  This is referred to as sovereign debt default, and yes, I’ve covered it before.  It is the greatest threat to the American way of life, and brings us closer to fulfilling the prophecy of former Soviet premier Nikita Khrushchev:  ”We can’t expect the American People to jump from Capitalism to Communism, but we can assist their elected leaders in giving them small doses of Socialism, until they awaken one day to find that they have Communism.”

Dissent Fights Back

Has the federal government become too swollen to maintain postmodern socialism?  Is our debt to large to reverse the course of history, to free ourselves from eventual indentured service to the Chinese?  The only way to do that is to look back at our history, how we came to be, and return to a “culture of independence.”  I submit this is the idea behind the “Take Our Country Back” signs at the Tea Party rallies.

Capitalism in America has spawned the highest standard of living in the world, so that people - that is regular, ordinary people, not business execs or “Wall Street fat cats,” to use the parlance of the President – have vehicles for toys, and not for mere transportation.  Now America is on the brink of decline, with half our population leaching off the productive half.  We face the prospect of having the tables turned on us, if we don’t get our debt in control.  As we veer off course, is it wrong to dissent?

As then-Senator, now-Secretary, Hillary Clinton screeched waaay back in 2003:  ”I am sick and tired of people who say that if you debate and you disagree with this administration somehow you’re not patriotic.  We should stand up and say we are Americans and we have a right to debate and disagree with any Administration.”

So I offer this:  We are, in fact, Americans.  We have the right to be proud of where we are, and how far we have come.  And, we have the right to debate and disagree with this Administration.  There’s no reason to apologize for that.  It’s time to tell this government, “No thanks, with God’s help, I can do it myself,” and displace dependency with self-reliance once again.

“The end of law is not abolish or restrain, but to preserve and enlarge freedom.”

~ John Locke, Two Treatises of Government (1698)

After three months of deliberation, President Barack Obama (The Decider, v2.0) is surging an additional 30,000 troops into Afghanistan.  This was an understandably difficult decision for the most left-wing anti-war President in recent history to make, so I commend him for having the political courage to do so, and I’ll even compliment his due diligence in deciding, because he’s right:  strategy comes first, and if we don’t have the right objectives, we shouldn’t be there at all.  For all of us, I hope he’s found the right strategy for success.

Shortly after his speech, the President will be whisked away to Copenhagen, Denmark, to champion our global war against global warming, a debate currently embroiled in the controversial deletion of emails.  The findings in said correspondence did not support the money-making conclusion that “climate change is real.”  I’ll leave the science to another post, but I’ll come back to the green scheme later in this post.

You see, everything at this point in our history comes down to the bottom line.  If it did not, then what is Peter Orszag, Director of the Office of Management and Budget, doing in the War Council photo above?  This post will address the multiple facets of our debt problem, and my next post will concentrate on more specific solutions to draw down the debt.

In my last post, where I wrote about the Tea Party movement, I quoted Ludwig von Mises, saying you can’t have both capitalism and socialism.  I used this premise to support the market over business.  Like Ayn Rand, though, I believe America is a mixed economy, and as such, is an ideological battlefield between capitalistic and socialistic policies.  Former Chairman of the DNC, Dr. Howard Dean, believes the debate between capitalism and socialism “is over,” and goes so far as to root for the other side while speaking in Paris, of all places.  Of all places…

Europeanization of America

So, where are we headed?  It seems like we are incrementally shifting towards something unforeseen since our founding.  While incrementalism was not a common term in the early 1800’s, it was certainly understood by President Thomas Jefferson, who said, “Experience hath shewn that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.”

Dr. Dean and his leftist ilk are deliberately accelerating the Europeanization of our nation.  Europeans are quite comfortable with bits (and sometimes chunks) of socialism sprinkled hither and yon.   Their collective apathy is indeed the root cause of their lower levels of productivity and lower standards of living compared to the United States.  Jefferson also warned about this degraded state of existence, saying, “When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as Europe.”

Consuming an elixir of corruption, apathy, and socialism will have long-term consequences.  At best, we are beginning a jobless recovery, due to our lack of Homeland Production.  We are still losing more than 100,000 jobs a month; we would have to create 100,000 jobs a month simply to keep up with new entries into the job market.  At worst, we are entering a double-dip recession caused by our over-spending, as our President recently warned us.  Funny he should bring it up, since he leads the biggest spending Administration in American history.  That’s like having your friendly neighborhood drug dealer warn you about your crippling addiction to crack cocaine.

We aren’t Europe, yet.  In Europe, locals sit at their coffee shop, in a state of beautiful ruin.  The buildings and streets were built centuries ago, and civilization lives on top of ancient achievements.  In the United States, so-called “business professionals” walk on fairly-new streets into fairly-new buildings constructed by the toil of workers who earn a fraction of what they do.  If the businessman errs, he moves to another management position; if the construction worker makes a mistake, he’s out of a job.  I see this disparity and understand how it fuels populist sentiment amongst the left.  Their solutions, like those in Europe, however, are government-based.  I believe only the private sector, through innovation and production, can save us, and they can only do that if government gets out of the way.  Therein lies the rub.

Facing Down the Debt

Our enormous debt is a product of our varying degrees of taxing and spending.  Today’s tax-and-spend levels are not equivalent to our new reality.  Accounting systems such as mark-to-market, or its zombie equivalent, mark-to-model, created an illusion of vast wealth for the better part of a decade, with deregulation of the Security and Exchange Commission’s (SEC) Generally Accepted Accounting Principles (GAAP) supported by both parties.  When the financial sector collapsed last year, exposing our frayed economy for what it is, America faced some harsh choices, and decided to launch a $700 billion Bank Bailout. 

This $700-to-800 billion range is a reoccurring dollar amount in current history: The recent Stimulus Package was $787 billion (of additional debt).  The amount of American currency in circulation is roughly $800 billion, and according to the Congressional Budget Office (CBO), the Health Care Bill currently up for debate will cost $829 billion over ten years; we’ll see what happens to the final amount after it’s merged in Committee for final scoring.

Two $800 billion figures scare me more than any, though.  The CBO states that in ten years, the cost of servicing our debt – that is, the interest on our debt – will be $800 billion a year.  Also, as of September 2009, we owe China $798 billion in debt.  These two numbers thrust us into insolvency faster than any others.  There are only two ways to draw our numbers down:  tax more and spend less.  Neither of these options are particulary palatable, but our current solution – printing more money – carries it own consequences.

Interest-on-Debt: Entitlement spending drives our debt, plain and simple, and puts American sovereignty at risk; the Social Security and Medicare Trustee Reports show the combined unfunded liabilities of these entitlements has reached $53 trillion, and account for about 5% of GDP and roughly 40% of the Federal Budget.  Outyear projections for these programs are frightening.

As the federal government spent $3.5 trillion this year, but only collected $2.1 trillion in revenues, our deficit reached an all-time record of $1.4 trillion, at 11.2% of GDP in 2009.  As Niall Ferguson points out, the CBO projects this deficit percentage will decrease to 9.6% in 2010, 6.1% in 2011, 3.7% in 2012, and steady out above 3% for the foreseeable future.  But these are just deficit percentages, pushing the total debt amount to unsustainable levels: in dollar terms, the total debt held by the public (which includes foreigners) rises from $5.8 trillion in 2008 to $14.3 trillion in 2019 – that is, from 41 percent of GDP to 68 percent.

These increases put us in a precarious situation, and threatens our AAA Bond rating, which we’ve held since our first scoring in 1917.  If Moody’s were to degrade our Bond Rating to AA – which it threatened to do last year – it would cause a devastating run on the market.  But some are still buying our debt on the promise we’re good for it…

Our Mandarin Problem: As China holds roughly 6% of our debt (or one-quarter of all foreign owned debt), it’s feared they own us, but there’s an old saying: If you owe the bank $100 thousand, the bank owns you; if you owe the bank $100 million, you own the bank.  Ask yourself: why would China buy up so many of our Treasury bonds during an economic crisis?  One reason is they seek to dominate us in the long term, but the more likely reason is that we are codependent on each other, as they depend on American businesses for Chinese employment.  Also, China accrues roughly $50 billion a year in interest from the United States, according to the Council of Foreign Relations.

Only time will tell what will become of Sino-American relations.  It’s interesting, though, to look at history to see that civilizations approaching insolvency usually cut their military budget first, weakening themselves, and eventually allowing themselves to be conquered.  The Pentagon’s present Budget slashes defense spending from its current 4.8% of GDP to 3.2% in 2015, and 2.6% by 2028, aligning us more with… Europe, of course.  Is America incrementally going the way of the dodo?

Why We Waste

As the Berlin Wall fell in 1989, $22 billion worth of American money for foreign aid flowed freely into Russia, to assist in building the new democracy.  A curious thing happened, though:  it all disappeared.  We knew that a lot of that money went straight into the bank accounts of the oligarchs, and not into its intended institutions, but we turned the other way, assessing it another unforeseen cost of democracy.

How could public officials casually waste so much money?  More broadly, why is the public sector so much more inefficient than private industry?  The answer is simple:  It’s not their money. President Ronald Reagan had a sign on his desk that read:  “There is no limit to what a man can do if he doesn’t mind who gets the credit.”  Similarly, there is no limit to how much we can collectively waste if we don’t mind which individuals get the bill.

This is how our financial sector bailouts were handled.  This is how the Stimulus Bill has been managed, and how the aforementioned global warming scheme was operated.  If there is a perceived crisis, our government is willing and able to leverage taxpayer funds in its general direction.  Humans, being what they are, see free flowing cash and stand ready to siphon some off the top.

Government interaction will not save us, but their inaction – that is, getting out of the way – could assist recovery by giving the private sector a shot at their goals.  As legendary UCLA basketball coach John Wooden once said, ”Never mistake activity for achievement.”  Doing more in terms of taxation, legislation, and regulation is not worth the time or the money if it doesn’t actually achieve anything.  I’ll offer some real solutions in my next post.

As the national unemployment rate approaches ten percent (its highest levels in 26 years), its painfully obvious that certain states suffer disproportionately, for various reasons.  According to the United States Department of Labor, by state, the three highest unemployment rates are:  Michigan, with 15.2% unemployment; Rhode Island, with 12.4% unemployment; and Oregon, with 12.2% unemployment.

At the same time, these three states have relatively high minimum wages:  Michigan and Rhode Island have minimum wages of $7.40; Oregon has a minimum wage of $8.40.  Only one state, Washington, has a higher minimum wage, at $8.55; incidentally, their unemployment rate is ninth in the nation, at 9.3%.

Conversely, the three lowest unemployment rates in the nation are:  North Dakota, with 4.2% unemployment; Nebraska, with 5.0% unemployment; and South Dakota, with 5.1% unemployment.  Coincidentally, these states have their minimum wage statutorily set at the same level as the federal minimum wage.

In fact, if you access the Department of Labor’s data online, you will find a correlation between high minimum wages and high unemployment.  Of course, other metrics are involved in causing particular states to have higher unemployment than others; Michigan is suffering its own plight with the collapse of the American automobile industry.  Along with the success of their respective private businesses, higher tax burdens also help determine the economic health of states.  From the data, though, the case can be made that a higher minimum wage contributes to higher unemployment.

That being said, today, 24 July 2009, our federal minimum wage has undertaken another 70 cent hike, from $6.55 an hour to $7.25 an hour.  This is a result of legislation passed over two years ago during Madame Pelosi’s First 100 Days agenda; remember that?  Of course, being against a federal minimum wage initially tends to rub people the wrong way; it is assumed I am against the working class largesse.  A minimum wage increase, however, is detrimental to the health of our economy in two distinct ways:

First, it guarantees that less people will be employed.  Let’s say an employer has within his budget $500,000 a year for labor.  If he or she were to hire employees at yesterday’s $6.55 minimum wage, at 40 hours a week for 50 weeks out of a year, he could employee 38 people; at today’s $7.25 minimum wage, he can only employ 34 people.  It’s basic math; no matter what the job is worth, four people will become unemployed in that particular scenario.

Second, a minimum wage increase lowers our overall standard of living.  Consider the fact that those who were making 70 cents an hour more than minimum wage are making nothing but minimum wage today.  Consider who actually makes minimum wage:  teenagers and part-timers.  Less than one percent of wage earners work for minimum wage, and only one in five workers earning the federal minimum lives in families below the poverty line.  Sixty percent of minimum wage earners work part time.  Consider the entities that employ workers for minimum wage:  restaurants and department stores.  To pay its workers, the price of its goods has to rise.  The cost-of-living goes up, and I would argue, disproportionately affects the working class more, as their wages will be the last to follow the correlated inflation of the price for goods and services.

Each state has its own associated cost of living and issues concerning employment.  Why each state is not given the right to set its minimum wage – below that of the federal government’s – is beyond me.  Trust me when I say that ten dollars goes a lot further in rural Texas than it does in Arlington, Virginia.  This kind of deregulation would require support for state autonomy, though, an idea considered archaic and adverse to the change this nation most recently elected into office.