Archives for Ideology

As a newfound Tea Party supporter, I must regrettably put some distance between myself and Rand Paul, whom last week I referred to as “one of the new faces of the conservative movement” (along with Marco Rubio).  So, here I am, doing what Rand Paul refuses to do – I’m eating my words.

In a number of interviews, Rand Paul has taken issue with Title II of the 1964 Civil Rights Act; that’s the piece of legislation that desegregated private businesses open to the public (with an exemption for clubs requiring membership by design).  The day after winning the Kentucky primary, on The Rachel Maddow Show, when Maddow asked him, ”Do you think that a private business has the right to say ‘we don’t serve black people’?”

Dr. Paul answered with the following:

“I’m not in favor of any discrimination of any form.  I would never belong to any club that excluded anybody for race. We still do have private clubs in America that can discriminate based on race. But I think what’s important about this debate is not written into any specific ‘gotcha’ on this, but asking the question: What about freedom of speech? Should we limit speech from people we find abhorrent? Should we limit racists from speaking? . . . I don’t want to be associated with those people, but I also don’t want to limit their speech in any way in the sense that we tolerate boorish and uncivilized behavior because that’s one of the things freedom requires.”

Later, to Maddow’s question, “How about desegregating lunch counters?” Paul answered:

“Well, what it gets into then is if you decide that restaurants are publicly owned and not privately owned, then do you say that you should have the right to bring your gun into a restaurant even though the owner of the restaurant says, ‘Well, no, we don’t want to have guns in here,’ the bar says, ‘We don’t want you have guns in here because people might drink and start fighting and shoot each other?’  Does the owner of the restuarant own his restaurant?  Or does the government own his restaurant?  These are important philosophical debates but not a very practical discussion.”

Well.  As you would expect, this instantly became fodder for left-wingers like Joke Line - I mean, Joe Klein – of Time, Keith Olbermann (and the rest of MSNBC), and Anderson Cooper (and the rest of CNN), thereby strengthening their longstanding attempts to broad brush libertarian philosophy, the Tea Party Movement, the Republican Party and the Right largesse as “racist.”  Let’s stop right there and define our terms.

Defending Libertarianism (Again)

Statists may feign shock at the debate over proper size and scope of government in the private sector, but for libertarians, the discussion is not new.  In fact, the conversation occurs frequently in the minds of real libertarians, who understand and appreciate the freedoms people have from government intrusion.  The standard principles of freedom enjoyed today are upheld by the Declaration of Independence (“All men are created equal“) finalized federally with the 13th Amendment (“Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States”) and the 14th Amendment (“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”)

Our framers understood the importance of individual freedom, and, contingently, the restraint of federal powers.  Standing on the shoulders of John Locke and Jeremy Bentham, Thomas Jefferson, our first libertarian President, reiterated these principles in his First Inaugural Address, stating:

“Sometimes it is said that man can not be trusted with the government of himself.  Can he, then, be trusted with the government of others?  Or have we found angels in the forms of kings to govern him?  Let history answer this question.”

Jefferson offers more to the argument for the individual, though, as he prudently couched his disdain for federal powers three sentences later, saying:

“A wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.  This is the sum of good government, and this is necessary to close the circle of our felicities.”

This idea became known as the “Harm Principle,” and was promulgated specifically by John Stuart Mill in years to follow.  This principle is important in the context of Rand Paul’s comments.  Government is supposed to uphold individual rights, from both government and other individuals; otherwise, it serves no purpose.

While regrettable, additional legislation became necessary due to the reality of the law’s spotty application throughout the states.  It took nearly 100 years to properly adopt the intent of the 14th Amendment – equal justice under law – with regards to race relations.  The Civil Rights Act of 1964, and before it, Brown vs. Board of Education (1954) were painful but necessary pieces of our national history, ensuring that a minority is not to be oppressed at the will of the majority.  Libertarians understand that, if nothing else.

So while I appreciate his philosophical argument, I cannot endorse Rand Paul’s brand of libertarianism, because I think he has his founding principles all mixed up.  The guarantee of life and liberty comes before the pursuit of happiness, or as the author of that phrase also put it, the “circle of our felicities.”

It’s not that hard in my mind, really; I agree with Calvin Coolidge, our last libertarian President, who said at the 150th anniversary of the Declaration of Independence:  ”If all men are created equal, that is final. If they are endowed with inalienable rights, that is final.  If governments derive their just powers from the consent of the governed, that is final.”

What does this mean for the GOP?  Sunday morning, George Will (a libertarian think-tank) conferred this is indeed a problem for the Republican Party, and that Rand Paul is “frivolous.”  Additionally, the haphazard RNC Chairman Michael Steele said he is ”uncomfortable” with Paul’s views.  This forces one of two things: either all Republicans must denounce Paul’s point-of-view, individually or collectively; or Rand Paul must convincingly amend his comments, letting the world know this was merely a philosophical debate about the struggle between public and private sectors.

I do not believe Paul is a racist.  However, he has yet to convince America of this.  From the outset, I wanted to like Dr. Paul, but his “rookie mistake” was a pretty big one: displacing ideology with reality.  There is still time for Rand Paul to right his ship and explain his comments, but hiding in Kentucky won’t help him, or our cause.

“All, too, will bear in mind this sacred principle, that though the will of the majority is in all cases to prevail, that will to be rightful must be reasonable; that the minority possess their equal rights, which equal law must protect, and to violate would be oppression.”

~ Thomas Jefferson, First Inaugural Address

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Financial reform is looming, and for many, is confusing.  Don’t fret; as John Locke said, “What worries you, masters you.” So, relax, peace be with you, Selah, and Shalom.  Instead, let’s play a game called Three Card Monte.  It’s easy!  Ready?

It’s Fall 2007.  The Housing Market is beginning to crater.  Three cards are presented.  Joe Public is supposed to pick a card to place the blame.  One card represents the Federal Reserve and the Treasury, a complicit Congress and an oblivious President.  It’s marked with a ‘G’ for government.  Another card represents the investment banks and three complicit ratings agencies; it is plainly marked, again, with a ‘G’ – for Goldman Sachs.  The third card represents the Government-Sponsored Enterprises, or GSEs, namely, FannieMae and FreddieMac.  Guess what?  It’s marked with a ‘G’ as well.

The cards start to move.  Hard to follow?  Who’s to blame?  Wait – this is easy!  Our economic crisis began in the financial sector, which seized up due to the housing market.  Firms like Countrywide were handing out sub-prime mortgages like Halloween candy.  Eighty percent of those mortgages were held by Fannie and Freddie.

The cards stop, and it’s time to choose.  Joe Public chooses ‘G’ for GSEs.  And he chose… poorly.

It’s the Fall of 2008, and now that GSEs are off the table, we’re down to Two Card Monte.  This should be easier to follow than Three Card Monte, right?  When the cards start moving, though, they’re going pretty fast.  So, then-New York Fed Chairman Timothy Geithner calls a meeting, after which Bear Stearns and Lehman Brothers collapse.  Within a week, the number of investment banks on Wall Street shrink from five to three.  Who benefitted the most from the elimination of competion?  Of course, Goldman Sachs; their former CEO, Hank Paulson (who, by the way, is the third consecutive former Goldman CEO to be Treasury Secretary), drafts up a bailout bill to save our Union, and global markets with it.

What?  I thought we eliminated all the risk in investments!  The investment firms were acting within the bounds, albeit free from regulation in the derivatives market.  Then along comes a derivative instrument known as Credit Default Swaps, free from oversight.  Good idea, right?  They’ll help prop up the market.

Well, it turned out to be a terrible idea.  Exactly how can a firm bet on a loan in the short term and against it in the long term?  And with Repo 105, firms could freely shift its assets to liabilities on its balance sheet, and back again.  Just when Joe Public goes to pick the ‘G for Goldman’ card and put the blame on the banking industry, a Leviathan hand throws a new card on the table.  It’s the ‘H for Health Care’ card, and according government and the media, rising Health Care costs are to blame for all of our fiscal woes.

Huh?  Well, if you say so, we’ll play Three Card Monte again.  By Fall of 2009, it’s time to choose.  With all fingers pointing at Health Care, the choice is made, and the other two cards continue to rotate with little attention.

By the Spring of 2010, America has exhausted itself with Health Care, and a bill has passed into law.  Now that that’s off the table, there are only two cards are left:  We’re back to Two Card Monte.  Until, of course, something else comes along to distract Joe Public again.

The Game Is Rigged

Having trouble following two cards?  That’s the point.  In last month’s post, “Freedom’s Antithesis,” I coined the term “postmodern socialism” to describe the symbiotic relationship enjoyed by today’s statists at the expense of capitalism.  Here, we see the other side of the coin; “banksters” are working within bounds, but the game is rigged.  How else does a firm make a profit every single day trading day (63 total) for an entire quarter?  Goldman made no less than $25 million a day during a recession, but they weren’t alone; in fact, four firms had perfect trading quarters.

Banking analyst Matthew McCormick commented, “It’s statistically improbable to have three firms batting 1,000 and also pitching a perfect game. You wonder why the rest of America has some suspicion about proprietary trading.”

So, don’t feel bad for disparaging this kind of activity, because it’s not capitalism.  It’s postmodern socialism.

Invisible Hands

Whereas Adam Smith spoke of an “invisible hand” controlling economic movement, what we now see are “Invisible Hands;” one hand is financial, and the other is the Leviathan hand of government.  The federal government has allowed – in fact, enabled – Credit Default Swaps to go on this long, but why?  Surely, their intent was not to allow our economy to collapse… was it?

Who was it that allowed the deregulation of the derivative market?  Former Treasury Secretary Larry Summers, who is quoted as saying, “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”  Remember, it’s not capitalism.  It’s postmodern socialism.

It all boils down to two cards on the table; one card is for the banksters, and the other represents the Federal Reserve and the Treasury, this time, with an oblivious Congress and a complicit President and cabinet; Larry Summers is now the President’s top economic advisor, Timothy Geithner is now Treasury Secretary, and I’ve already discussed how the Federal Reserve has allowed the Treasury bond market to become a bubble, allowing bond purchases at 0.25 percent and sales back to the Treasury at 3 percent.  We’ve established who made money; who lost?  Look in the mirror.  While you were sleeping, Two Card Monte continued.

If you decide not to believe me, follow the money and find out for yourself.

Flash Crash

What exactly happened last Thursday?  The market tumbled dramatically, 999 points, and as quickly as it happened, recovered.  If you believe this was a result of a market glitch, or a “fat-fingered” mistake, you’ll never win Two Card Monte.  Was this “Black Swan” moment even committed in error?  Maybe not.

The Securities and Exchange Commission claims it cannot find a reason for the 700-point drop, now referred to as the “Flash Crash.”  What – or who – could cause such a dramatic dip in the market?  Furthermore, why?

So, sure, some investors made boatloads of money in thirty minutes of high-speed online trading.  Regulators could easily find out who made money during those moments of financial terror, but will they?  Would they want to?  Why not?  Is there something else happening here?  I’ll just say that the possibility exists that the market was used as a geopolitical tool.

Sounds crazy, right?  Well, with the EU negotiating a Greek bailout, the Euro risked implosion.  Before the Flash Crash, Germany would not agree to a $60 billion bailout; afterwards, Germany agreed to a $955 billion bailout.  Coincidence?  Turns out, that bailout may not stabilize the Eurozone, either.  As a result, the Euro as currency devalues next to the dollar.  Again, coincidence?

Regarding all this, I have many questions and few answers.  It’s not particularly my subject of study, but I’m learning.  Maybe we’ll find out someday, but not likely.  This is where large-scale collusion has taken us, though.  You can call it “doom-and-gloom,” or you can call it reality.  You can even call it Two Card Monte.  I call it postmodern socialism.

“If one rejects laissez faire on account of man’s fallibility and moral weakness, one must for the same reason reject every kind of government action.”

~ Ludwig Von Mises

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As we move into the new decade, and the second year of the Obama Administration, we are beginning to get used to the taste of his specific flavor of universalism, which necessitates a ubiquity unforeseen in previous Administrations.  A takeover of the health sector.  Cough into your sleeve.  Detroit, do this.  Bankers, do that.  Don’t worry, Congress, go ahead and hold your health care committee meetings without those pesky Republicans (and outside the Constitution).  Security breaches are a systemic failure, and they are all my fault, while, simultaneously, they are no one’s fault, and no one will be held accountable.  Ignorance is Strength.  Long Live Big Brother.

While America wanted a break from the informal and idiomatic George W. Bush, this is not what they foresaw when casting their votes in November 2008 (for the record, I went a long way, both in distance and in study, to vote the way I did).  Americans seem more and more unimpressed with the Democrats, as indicated in polls.  Where some saw a mandate, most did not, so consequently, for this Administration, a backlash is coming.  Will the Obama Referendum be in 2010?  Or will it be delayed until 2012?

Furthermore, is the Republican Party serious enough, that is, do they deserve the Majority again?  The real mantle of opposition to Obama’s ubiquitous universalism has been the budding Tea Party Movement, no longer complacent in pleading Nolo Contendere.  Keep in mind, this movement is less than a year old.  The singular critique of the Tea Parties is that they are oppositionists only.  Wrong.  These critics - some of them,  smart people – lack wisdom, and fundamentally misunderstand the relationship between law and liberty.

To describe how I see this relationship, I’ll start with eighteenth century British philosopher Jeremy Bentham, who said, “Every law is an infraction of liberty.”  His American colleague John Stuart Mill went further in summarizing this into the harm principle, 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.”  The Constitution captured this idea in its “General Welfare and Common Defence” clause, that is, in some way or another, Americans are obliged to help their fellow citizens, with the government’s assistance.  However, all of the new proposals to further provide for ”welfare and defense” are massive in scope and effect, and stand in opposition to the Constitution’s idea of freedom.  In fact, most of the Democrat’s new proposals violate both individual liberties and economic freedoms.  In addition to dismantling these proposals, Tea Party candidates must explain which existing laws make sense, and which programs we can and cannot afford.

Government’s Role in Lowering the Debt

It’s now common knowledge the national public debt is growing at unsustainable rates.  But what to do?  Simply stated, from the government’s point of-view, the options to lower the federal debt are:

1. Raise taxes to raise revenues.  As Democrats control all levers of power in the federal government, the 111^th Congress has developed a couple of clandestine ways to “soak the rich” without admitting their intentions.  More on this in a minute.
2. Cut spending to lower deficit.  While this addresses the problem itself, neither Republicans nor Democrats have the willpower to do such a thing.
3. Print money to devalue the currency, thereby lessening the full impact of a large public debt.  Billion becomes the new million, trillion the new billion, and so forth.  Through an ingenious methodology, we are currently deploying this strategy along with the aforementioned hidden tax hikes.

New hidden taxes are coming:  taxes on medicine and health service companies, a value-added tax on every level of production, and a dreaded carbon tax for our largest companies, and all oil companies, that would effectively tax everything.  Then we have the not-so-hidden taxes, such as the “Cadillac” health care tax, a proposed increase of the Carried Interest tax rate, excise taxes for political opponents (and exemptions for union bosses and fence-sitters, the largest of which are now affectionately known as the “Cornhusker Kickback” and the “Louisiana Purchase;” Blue Dogs are indeed “For Sale” on Pennsylvania Avenue), and the vengeful return of the Estate Tax in 2011; a sick unintended consequence of this is, for the benefit of your immediate family, it’s much better to die this year than the next.

My favorite, though, is Obama’s proposed tax on the banks, those firms that were forced to take TARP funds, had their bonuses capped, repaid outstanding TARP funds with interest, are now being taxed to make up the difference of the TARP funds unpaid by other firms.  These same firms are being asked to make loans, again, to high risk homebuyers and small businesses.

Since TARP takers were the bane of Wall Street, some found ways to get to public funds outside of TARP; let me quickly describe the clandestine method our government is using to manipulate the stock market.  As you know, the federal interest rate is now 0%.  It doesn’t get any lower that that.  Large investment firms, namely Goldman Sachs, can conveniently buy 10-year Treasury Bonds at zero percent, and sell them back to the federal government at market value, reaping a 3% interest rate.  Goldman has been able to earn roughly $1 billion per quarter through this money laundering scheme.  So while some banks did not take TARP money, almost all are benefiting from taxpayer funds.  Some predict this too shall pass, and we will see a subsequent collapse of this Treasury Bond market bubble, with taxpayers, again, left holding the bag.

Give Me One Reason

People need incentives to put money into the economy.  Our government could stimulate an economy by tapping into this basic human instinct, or what Milton Friedman called letting loose “animal instincts.”  Need some ideas?  Put natural gas pumps at every gas station in America.  Build nuclear power plants.  Drill, baby, drill.  Or, simply, cut taxes.

Why is it so hard to understand, that higher taxes only hinder economic growth?  The final lines of an Income Statement are “Income Before Taxes,” then “Taxes,” then “Income.”  Businesses must reconcile what happens in those final lines in the lines that come before it.  That’s why jobs move overseas; it’s cheaper to ship goods to and from locations of cheap labor than to stay in the States.  Businesses have no incentives, but rather, disincentives, in the private sector, thereby killing jobs.  This is what I honestly believe.  When we collectively punish the rich for simply making money, everybody suffers.

The proverbial “rich” in this country currently have an incentive to leverage their capital towards start-up venture capital firms, where innovation is born.  Venture capitalism depends on its low Carried Interest Tax rate of 15%.  A bill to do away with the low rate by matching it to the Income Tax rate, H.R. 1935, is currently in the House Ways and Means Committee.  This is… incremental, activist, collective – yes, all of the above - and it’s set to destroy incentive, and with it, innovation.

Government could instead promote free market, common sense solutions with lower taxes, lower subsidies, less exemptions, and go after comprehensive entitlement reform.  Insetead, we take our eye off the ball by focusing on Cap-and-Trade (another tax) and the Health Care Bill (yet another tax).  Neither of these proposals will create American jobs; indeed, they will do the opposite.  For where there is a redistribution of wealth, there is also a redistribution of poverty, and when you kill wealth, you kill jobs.

Business has a role in economic recovery; it’s called Production.  But with so many unknowns in health care, taxes, employment, and regulation, how can they do that?  Production does not occur without innovation.  Policies that destroy capital also destroy innovation that thrives off it.  (See Soviet Union for details).  Supply and demand, as you know, sets a price.  There is also the price of doing business, required for a company to stay in business.  When the price of doing business exceeds the price set by the free market, the company goes out of business… or at least, it used to.  Government interference (bailouts, stimuli, etc) distorts the market place, as do set wages.

Like a fair price, a fair wage is set by supply and demand.  Although it’s a statistical fact that a higher minimum wage drives up unemployment, wages, high and low, are also subject to government intrusion.  Can you name one piece of our economy that is not?  The sickening part:  federal officials don’t understand that obscene taxes, aimed at “obscene” profits, shrink the entire economic pie, and in turn, their tax revenues.  I turn my attention now to the central planners in an Administration with virtually no business experience who are trying to recovery a stillborn economy.

Demand-Side Fallacies

There are essentially two schools of thought when developing economic solutions:  supply-side and demand-side.  I favor a supply-side approach, as best described by Arthur Laffer (see the Laffer Curve for details).  In a crisis, letting people keep more of their earnings will stimulate the vital and solvent pieces of the economy, encourage investments, and create jobs, while letting entities that would otherwise collapse (i.e., GM) go ahead and do so.  A demand-side approach, on the other hand, attempts to control the economy by stimulating demand with increased government spending, and lots of it, to save projects deemed worthy by the federal government (i.e., GM).

John Maynard Keynes, the foremost proponent of demand-side economics, believed government could induce “aggregate demand” with any sort of publicly funded job, famously stating the government could pay individuals to bury jars of money to stimulate the economy.  He went a step further suggesting the private sector would also benefit, as it would consequently employ people to find said jars.  These kinds of jobs – such as building crosswalks for humans, or turtles (I’m not making that up) – are not based on actual supply and actual demand, but instead, central planners’ interpretation of the economic forces.

It is true that infrastructure spending can facilitate private sector success.  President Eisenhower did just that with the Interstate Highway Act of 1956, which improved transportation and commerce in the United States.  Today’s supply chains are admittedly dated and could use rehabilitation.  Think food:  the average meal travels 1500 miles to get to your plate.  The success of this supply chain was contingent upon $30/barrel gasoline, not $130/barrel.  I have supported infrastructure spending in the past, particularly in my post “Think iGovt.”  Insomuch, I argued for simple, well-thought, easy-to-read legislation that garners a consensus, and accordingly, the trust of the American people.

That’s not what happening, though.  Our central planners are passing unilateral legislation, upon which they depend on trust in themselves, and not their constituency.  They will never have enough information to control aggregate demand or aggregate supply by themselves, and therefore, will inevitably commit misalignment errors.  Renowned Austrian economist Friedrich von Hayek exploits this fundamental demand-side fallacy in his novel, The Fatal Conceit, by saying, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

I would contend that the idea that government knows best has grown to a dangerous level, in which admittedly smart men cannot distinguish economic freedoms from economic securities, although more sinister ideas are purposely proliferated by the progressive American Professoriat, who revel as the lines between government and private sector continue to blur.  Where does it end?  Should we have a run-off, splitting the nation into free and independent states and socialized states, as to see which economic system works best?  From my perspective, we answered that question in November of 1989, when the Berlin Wall fell.  (Again, see Soviet Union for details.)  How quickly we forget.

Misalignment of supply and demand created the Tech Bubble of 2001, the Housing Bubble of 2007, the Wall Street Bubble of 2009, and is currently inducing the Government Bubble of 2010.  Keynesian economists order “Full Speed Ahead,” with no fuel in the federal coffers.  Our debt is simply out-of-control, and someone someday will have to pay for these errors.  Fundamentally, government has no incentive to spend time, money, or energy wisely, as they are consuming public funds, instead of their own private funds, in doing so.  No worries for these central planners, since they won’t be in positions of power when the fecal matter hits the rotary device.

So, what now?

What will happen if, I mean when, this Health Care bill passes?  I guess it’s not a done deal yet.  The Obama Referendum of 2010 may be happening sooner than November, with tomorrow’s election for Ted Kennedy’s Massachusetts Senate seat undecided.  If the Republican, Scott Brown, wins the seat, the Health Care legislation is doomed.  If the Democrats refuse to seat Mr. Brown in time for the vote, or use reconciliation (51 votes) to push it through, it could be a point de bascule resulting in more than just protest.  Physically speaking, revolution means to return to an original state of being.  Let’s go.

As for me, I’m tired of repeating myself here, and if you read this far, you probably are, too.  I’ll be posting more in the future, but I may divest myself of this tangled mess of psycho-socio-politico-economic-historic issues for a while, at least until I feel more encouraged to say something different.  For sure, no more of these “series.”

Maybe instead I’ll talk about Appalachian music, to include (but not limited to) guitar tonality, flatpicking versus fingerpicking, the genius of Bela Fleck, and the importance of Earl Scruggs and the three-finger-roll.  Maybe I’ll discuss running trails in the D.C. area, and how old men on recumbent bicycles are incredibly fast (and always incredibly happy).  Maybe I’ll explore various theories on why urban gas stations are so dilapidated and disheveled as compared to those in rural areas.  Maybe I’ll talk about my wife and son, and the different meals I’ve been eating lately; you’re missing out.  Maybe I’ll talk about how it feels to apply for jobs for the first time in ten years, or the meteoric rise to prominence of my Wrangler denim shirt.  Who knows?  As for this subject, I’ll come back to it when I’m ready, because ultimately, the American people will get what they want.

“Every citizen should be a soldier.  This was the case with the Greeks and Romans, and must be that of every free state.”

~ Thomas Jefferson

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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.

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