The View From 1776
Thursday, June 28, 2007
Privileged Private Equity?
Free markets do a far better job of policing than socialistic lawmakers.
Liberal-Progressives’ politics of envy and class warfare, recently aimed at hedge funds and private equity groups, exemplifies the fairy tale nature of socialism.
As noted in Economic Class Warfare, hedge funds and private equity groups are not the product of privilege. Paradoxically they result from excessive Federal spending authorized by liberal-Progressives themselves. The financial world is flooded with excess liquidity, because the Federal Reserve, to fund Congressional spending, keeps pumping out phony money that fuels inflation.
Liberals in Congress have been pompously posturing, purportedly seeking regulations to protect the public, but in reality hoping to extort new taxes and open new avenues for class action suits by their money pals, the tort bar.
Today’s (June 28, 2007) Wall Street Journal reports that the capitalist free markets have swiftly imposed judgment, more exactly and decisively than intellectual planners ever could manage. Summarizing an article titled Market’s Jitters Stir Some Fears For Buyout Boom, Journal editors wrote:
Wall Street firms struggled to find buyers for several takeover-related debt offerings. Easy credit has been the driving force behind the rash of buyouts, and investors’ reluctance to buy risky debt could put the boom in jeopardy.
Capitalistic free markets are self-regulating, because lenders and borrowers are two different groups. Borrowers have to convince lenders that their projects are creditworthy. If results fail to meet projections, projects are curtailed or shut down.
In contrast, there is no separation in Federal spending between lenders and borrowers. They are one and the same. Consequently, Congress seldom is concerned whether a spending program makes economic sense. The only criterion is how many votes it can buy. Which means that spending as much money as possible, for as long as possible, is the driving force for Congress. Once instituted, those spending programs become, like Dracula, the undead.
None of this is to say that capitalistic businessmen are not sometimes as stupid as politicians. Deal-making in the financial community is faddish. Recently hedge funds and private equity groups have been the hot spots for placing institutional funds. Earlier fads have ranged from high-yield junk bonds to REITS.
Inflationary creation of fiat money by the Federal Reserve is the driver. When institutional investors have large amounts of money to invest, they aggressively seek deals, and Wall Street bankers are there to create the deals.
But, in the real-world, free-market arena, no species of project funding can continue expanding indefinitely. The financial community are always smashed to a halt when they overload the market with the latest fad deals. Credit scares or bankruptcies swiftly sober investors and deal makers.
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A Reader’s Vote for Fred Thompson
Former Senator Thompson has received unexpected, strong support from Republicans who are fed up with the tax-and-spend policies of the recent Republican Congressional majorities and eager to return to the Reagan and Jeffersonian view that government is the problem, not the solution.
America needs another Ronald Reagan
By: Slater Bakhtavar
The closer we approach the 2008 elections, the more I realize America needs another Ronald Reagan. Someone everyone knows, someone everyone likes, someone who is conservative and someone who can both win the election and manage to hold the Presidency for eight years. The next President should be very expressive and persuasive in front of the camera. He should emanate confidence, and appeal to women voters. He should be someone in the public eye and yet he should not be involved in the Washington mess. Fortunately, a candidate who exemplifies those profound qualities has emerged? Republican candidate Fred D. Thompson. Thompson has not officially joined the electoral race but he is already ruffling the GOP presidential field.
The conscipuous benefits for Thompson becoming the President are on the surface. One of his subtle advantages is that he is not a hidebound career politician and has enjoyed a competent career as a lawyer, an actor, and as a politician, of course. His career as a lawyer gives him credibility as a professional. His political career gives him knowledge of power and makes him appreciate federalism and the Constitution. His acting career gives him ?immediate face/name recognition? among voters. Moreover, as the long-running NBC television series Law & Order, that he was a star of, was especially popular among women, a Thompson race would smooth the gender gap which is prevalent in the GOP.
He is a lawyer, an actor and a former Republican senator from Tennessee. Thompson is a member of the Council on Foreign Relations and he takes part in researching national security and intelligence as a Visiting Fellow with the American Enterprise Institute. Thompson is a public speaker of the Washington Speakers Bureau, and an analyst for ABC News Radio. In addition, he publishes a blog and podcast daily on the ABC Radio web site.
Thompson was a senator from 1994 to 2003. His record in the Senate shows that he was on the right side of every significant issue. Being a Chairman of the Senate Committee on Governmental Affairs he voted for national-debt reduction, efforts to privatize elements of Social Security and other problems. He was strongly for the legislation in the interest of free enterprise. He opposed many tax measures and was against the growth in social-welfare programs. He sustained the ?decentralization and disfranchising of unconstitutional government programs? and an amendment to prohibit flag burning. Being, a strong conservative, he opposed partial-birth abortion, and cloning. Most importantly, Thompson was and up to this time is steadfastly supporting democratic initiatives in the Middle East.
What is astounding is that although being conservative Thompson is liked by people on both sides of the aisle. He is also well liked in the Senate, even though he has been out of it for several years. He exudes poise, buoyancy, confidence and leadership which people seek in a President, especially today. He has a realistic and trustworthy seize of national-security issues necessary for a President, predominantly in the light of the terrorism threat. Fred Thompson certainly cares about the future of the country and the people and he is clearly vigorous and active enough to make a Presidential run.
What is of abundant paramountacy is that Fred understands the everyday American and they understand him. He has stalwart bipartisan appeal and he is open for the efficacious advancements still he is a firm conservative. Fred Thompson has collected in himself the best leadership qualities of the past Presidents: tenacity of Harry Truman, perseverance of Franklin D. Roosevelt, charisma and charm of John F. Kennedy, and communication skills of Ronald Reagan. Thompson is expected to announce whether he is joining the electoral race sometime in July. All facts are telling he will join the game, however his decision cannot be predicted. Up to August, the voters should hold their breath waiting for his decision to come and repeat what Ronald Reagan once so eloquently said, “How can a President not be an actor?”
Slater Bakhtavar is president and founder of the Republican Youth of America and an attorney with a post-doctoral degree in International Law.
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Immigration Bill Postmortem
Robert Stapler’s take on the now apparently dead immigration bill.
The Flaunting of Power: An Open Letter to My Elected ? Representatives?
Do you feel your elected representatives represent just about anyone but you?? Do you hear an echo when you call up or write them to object; an echo that grossly distorts your message and flings it back horribly crippled?? Recently, and like many of you, I sent a terse message to my federal Senators and Congressmen clearly and emphatically stating my objections to their proposed Senate Bill S-1348.? It went something like this:
No to Senate Bill S-1348
No to amnesty or anything resembling amnesty for illegal-aliens
No to allowing illegal-aliens continued access to social services, welfare entitlements, and other citizen benefits
No to granting illegal-aliens any form of legal status; including driver?s licenses and social security numbers
No to further encouragements that result in the flouting of our laws and sovereignty
Close our border with Mexico now, without strings or granting any path to permanence
Pretty clear where I stand, huh?? Now, go to the end of this piece and read the response I got from one Senator and one Congressman.? I bet you got fed the same kind of weaseling mush.
As you can see from both legislator?s form-letters, they choose to lecture those of us who dare instruct them on what they see as bad ideas and ?false dichotomies?.? Congressman Cummings? response was a bit more, shall we say, politic, yet both have voting records (see here and here ) that make clear they do not stand with or for those they represent.?
Well, Senator Ben, dichotomy this!? I am perfectly aware of the legislation the Senate tried to pass and wants to resurrect.? It was shelved because we, the people, do not want it and made a great fuss to get it dropped.? Now, the President, Senate, and Congress are colluding to bring it back despite our wishes to the contrary.? No doubt the language will be changed to make it more palatable, but the substance will remain ?how do we keep the illegal-aliens here and keep the American people off balance?.
Where you say ?Americans want the President and Congress to come together to enact a comprehensive, workable, and enforceable system for immigration and border security ??, is flat wrong.? We don?t care whether you ?come together? or one party takes the lead.? Americans want the President and Congress to stop fooling around pretending we need more laws and just enforce those laws we have for this purpose.? Just stop the invasion.
When you invoke ?the American people?, it is clear you mean only those Americans you (Congress, Senate and President) have persuaded to support you; and include a large number who are not citizens.? What you really mean is this is what you, business, special interests, the media, and some elites want.? The vast majority of citizens are against this; including Republicans, Democrats, third-parties, and independents.? We are not against aliens and do not hate them for wanting to come here.? But, we will speak out to protect ourselves from lawless marauders and those who encourage them.
We do not need or want government providing a ?path to citizenship? tailor-made for bypassing the normal process of coming to this country through legal channels, entering only when granted permission, making a positive contribution, assimilating American culture, honoring liberal-republican principles, and ultimately assuring us they mean to be of us and not out to subvert or displace us.?? We are not unreasonable in wanting to screen the flow of new immigrants: their numbers, self-reliance, potential for assimilation, compliance with our laws and standards of conduct, and a desire to become good citizens.? No country can sustain an invasion of this size that does not subvert the host culture.?? Already we worry our culture is damaged beyond repair.? There is already a path to citizenship, but it requires applicants enter legally, obey our laws, and respect our sovereignty.? I would not give or hold out promises to people who willfully break laws and thumb their noses the way these do.? That is not the way to reestablish order, it only encourages greater disorder.? Whether or not we can or have the will to send them back is yet to be seen, but that is no reason to reward lawlessness and abuse.
People keep saying we can?t send 12-million illegal-aliens packing.? Yet no one has articulated a sufficient reason against it.? At least, not one the American people are buying.? For that matter, I have not heard a single reason given ? not one; only that it can?t be done.?? It has been done before, even by the U.S. government.? It has and can be done without being inhumane.? Yes, they will suffer some loss of income and lifestyle, but it was not an income or lifestyle to which they were entitled to begin with.? Nor will they be persecuted when they return to their country of origin.? If anything, they can count themselves lucky not being required to pay back an income and opportunity they purloined from more deserving aliens patiently waiting their turn.
I see no reason for ?bringing illegal-aliens out of the shadows? as Cardin proposes.? They are in the shadows precisely because they do not belong here.? As such, ?the shadows? is the proper place for them; and I would have them further marginalized until they choose to leave.
I agree with Cardin?s seeming objection to ?forgiving? illegal-aliens their trespass, but he goes on to set up a false dichotomy of his own by applying an internal granting of pardons applicable to citizens to what are invaders of our soil.? Never in the history of the world has there been a proposition of ?forgiving? a territorial invasion prior to either a) defeating the invaders and sending them packing or b) surrendering to them as conquerors.? Call it by any other name, it smells as foul.?
Forgiveness and granting a path to citizenship, even with penalties attached is amnesty and a travesty.? The penalties he proposes have, in any case, no teeth in them.? Illegal-aliens will have no reason to pay the penalties imposed; and, we can be certain, those too will soon be ?forgiven? and forgotten. His proposals still grant them a legal recognition and access to benefits they don?t deserve and, effectively, burden citizens and deprive those who come through proper channels.? The lesson that will be reinforced is that U.S. laws are so much paper without substance.? Supposing this could work is nonsense.?? Worse, it has been tried and proved self-defeating.
Cardin next made the point we need laws that can be enforced.? The laws we have are enforceable if we have the will to enforce them.? The way to fix it is to enforce laws we have, not enact more laws with no better chance of enforcement.? If he really meant to do something positive, he?d support funding of the border security measures President Bush promised us last Spring and insist they be implemented, pressure the executive branch and state governments to identify, roundup and deport criminals and absconders, enforce the laws against hiring illegal-aliens, increase the funding for processing and deporting criminal aliens, beef up our border patrols and authorize the use of armed force to meet force, stop punishing border agents for doing their job, disallow chain immigration, end the visa lottery, evict aliens who overstay with no possibility of renewal, make access to benefits conditional on proof of citizenship or valid legal residence, and end the automatic granting of citizenship to anchor babies (there should be a process for applying for each baby?s conditional citizenship that takes into account the situation of the parents, how they got here, and desirability of having the child and family as permanent residents).?? More than anything else, seal our border with Mexico.
What would work best is denying illegal-aliens the means to stay here so that they go home of their own free-will.? Failing that, roundup as many as we can and send them home.? The rest will get the message.? Regardless, any who behave as criminals or are disruptive ought to be deported immediately.
And, please, stop calling them ?undocumented workers?, ?temporary workers?, ?immigrant workers? and other such euphemisms meant to obscure this issue.
Robert W. Stapler (aka, your boss)
From: Senator Ben Cardin - Do not reply to this message [mailto:email@example.com]
?Sent: Monday, June 18, 2007 3:17 PM
?To: Stapler, Robert W.
?Subject: Re: Illegal Immigration
Dear Mr. Stapler:
Thank you for contacting me regarding comprehensive immigration reform.
Today, the nation is faced with an immigration and border security system that has serious flaws. Americans want the President and Congress to come together to enact a comprehensive, workable, and enforceable system for immigration and border security. The government must require that our laws are obeyed.
I reject the false dichotomy in the immigration debate between two choices that are unwise and impractical. One is to give all illegal aliens amnesty, which would be the forgiveness of an offense without penalty. Second is to deport the estimated 12 million illegal aliens out of the United States.
For two weeks in May and June the United States Senate debated a comprehensive immigration reform bill. The Senate voted on over two dozen amendments but failed to reach a final resolution on the bill.
Should the immigration bill be brought back to the Senate floor, I will use several principles to analyze the amendments and the legislation that are brought forward for debate and votes in the Senate.
First, we must restore the rule of law and enhance security at our borders. The government must immediately hire new border patrol officers and end the policy of “catch and release” which quickly turns detained illegal immigrants free. The government should require the use of a biometric entry-exit screening system for all land borders, so that we have an accurate record of who is entering and leaving the United States. The government should create a “smart” enforcement regime which will produce more efficient inspections and screenings, and allow us to target and tailor our limited resources to combat illegal smuggling of people and contraband. Congress should require “triggers” and benchmarks be met in the area of border security before probationary visas are issued and a new temporary worker program go into effect.
Second, the government must enforce the law. We must improve our interior enforcement of our immigration laws by the Department of Homeland Security’s Immigration and Customs Enforcement (ICE) bureau. We should toughen penalties for criminal aliens, gang violence, and passport, visa, and immigration document fraud. Congress must also insist that America’s employers follow the law and play by the rules when hiring and paying any immigrant workers. The government can begin to stem the flow of illegal immigrants into the country by making it harder to hire them. Employers should be required to electronically verify the identity and status of all new hires, and eventually of all current employees.
Third, our immigration system must reflect the American values of hard work and family. Immigration law should promote family reunification for legal immigrants who have patiently waited in line for visas, green cards, legal permanent resident status, and citizenship. Legal immigrants must remain at the front of the line, and undocumented workers and illegal aliens must go to the back of the line. We must reform our temporary visa program to meet the needs of the American economy while guaranteeing fair wage rates and labor protection for temporary workers. Temporary workers should have a limited stay in the United States, and U.S. employers must be required to advertise the job in the United States at a competitive wage rate before hiring a temporary worker.
Fourth, we must bring the estimated 12 million undocumented immigrants out of the shadows in order to establish the rule of law. Congress should reject giving amnesty to undocumented immigrants, and it should also reject the suggestion to deport all undocumented immigrants out of the country. Only a comprehensive immigration reform approach can begin to solve this pressing problem. Congress should enact a bill that gives temporary legal status - but not citizenship or legal permanent resident status - to undocumented workers who come forward, acknowledge they broke the law, pay a fine, and undergo a criminal background check. During this probationary status illegal immigrants would not be entitled to social services government benefits. Before applying for a green card, undocumented workers should have to wait in line behind those who applied lawfully complete certain English requirements, and meet additional criteria for employment in the United States.
I look forward to working with my colleagues in the Senate on the comprehensive immigration reform bill to address this critical issue for the American people.
From: Congressman Elijah Cummings [mailto:firstname.lastname@example.org]
?Sent: Monday, June 18, 2007 9:08 AM
?To: Stapler, Robert W.
?Subject: Re: WriteRep Responses
Thank you for contacting me regarding immigration policy in the United States.? I appreciate hearing your views on this important issue.
I am committed to an immigration policy that welcomes legal immigrants, the source of much of our nation’s diversity, energy and economic success. Although it is essential that we enforce existing immigration laws, it is also important that those willing to work hard and follow the rules be afforded the opportunity to call themselves Americans. As we continue our leadership role in the world, it is important that we remain the land of opportunity.
The terrorist attacks of September 11th and recent plots against Fort Dix , New Jersey , and JFK Airport have exposed serious problems in our system of immigration . It is absolutely crucial that we secure our borders and better monitor the flow of people and goods into the country. Additionally, I recognize the need to address security problems that are created by illegal immigration, including drug and human smuggling. However, with more than 12 million people here illegally, enforcement alone will not solve the problem. “Amnesty” is not a solution, but the combination of strong border security, reasonable financial penalties, and a path to legal residency will allow us to regain our territorial sovereignty.
As you may know, the Comprehensive Immigration Reform Act of 2007, S. 1348, is being considered in the Senate. The House of Representatives has yet to consider any immigration reform legislation in the 110th Congress. Rest assured that I will work for the passage of reform that balances the needs of our industries with national security and upholds the principles reflected in our nation’s immigrant history. Please know that I will keep your views in mind as we debate these issues.
Again, thank you for sharing your views with me. If I can be of further assistance, please do not hesitate to contact my office.
??Elijah E. Cummings
?Member of Congress
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Tuesday, June 26, 2007
Hillary Clinton, Barack Obama, and all of the proclaimers of the social(istic) gospel are what the Apostle Paul warned against: false prophets seeking to divide and mislead.
For such men are false apostles, deceitful workmen, masquerading as apostles of Christ. And no wonder, for Satan himself masquerades as an angel of light. It is not surprising, then, if his servants masquerade as servants of righteousness. Their end will be what their actions deserve. (2 Corinthians 11:13-15)
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The Raw Deal
President Franklin Roosevelt’s New Deal was a stain on the fabric of civilized society.
Numerous posting on this website have described the depredations of President Roosevelt’s New Deal, which collectively qualify Mr. Roosevelt for the title of most destructive President in our history.
He was supremely an egotist, who fancied himself as someone without whom the nation could not function. Only he had the presumption to run for the office four times.
After less than thirteen years (he died at the outset of his fourth term in office), Mr. Roosevelt left a United States transformed into a socialistic nanny-state that upended the founding ethos of the nation. Instead of a Federal government with Washington’s power circumscribed by the police powers of state and local governments, he bequeathed us a monstrous, ever-growing Federal Leviathan.
In the Wall Street Journal, Amity Shlaes gives us an overview of a disastrous presidency. Journal online subscribers can access it here.
The Real Deal
By AMITY SHLAES
June 25, 2007;?Page?A15
The late Arthur Schlesinger, Jr. was a true liberal—a man who welcomed debate. Just before he died this winter, he wrote, quoting someone else, that history is an argument without end. That, Schlesinger added, “is why we love it so.”
Yet concerning Schlesinger’s own period of study, the 1930s, there has been curiously little argument. The American consensus is Schlesinger’s consensus: that FDR saved democracy from fascism by co-opting the left and far right with his alphabet programs. Certainly, an observer might criticize various aspects of the period, but scrutiny of the New Deal edifice in its entirety is something that ought to be postponed for another era—or so we learned long ago. Indeed, to take a skeptical look at the New Deal as a whole has been considered downright immoral.
The real question about the 1930s is not whether it is wrong to scrutinize the New Deal. Rather, the question is why it has taken us all so long. Roosevelt did famously well by one measure, the political poll. He flunked by two other meters that we today know are critically important: the unemployment rate and the Dow Jones Industrial Average. In his first inaugural address, Roosevelt spoke of a primary goal: “to put people to work.” Unemployment stood at 20% in 1937, five years into the New Deal. As for the Dow, it did not come back to its 1929 level until the 1950s. International factors and monetary errors cannot entirely account for these abysmal showings.
When I went back to study those years for a book, I realized two things. The first was that the picture we received growing up was distorted in a number of important regards. The second was that the old argument about the immorality of scrutinizing the New Deal was counterproductive.
The premier line in the standard history is that Herbert Hoover was a right-winger whose laissez-faire politics helped convert the 1929 Crash into the Great Depression. But a review of the new president’s actions reveals him to be a control freak, an interventionist in spite of himself. Hoover signed the Smoot-Hawley Tariff Act, which worsened a global downturn, even though he had long lived in London and understood better than almost anyone the interconnectedness of markets. He also bullied companies into maintaining high wages and keeping employees on their payrolls when they could ill afford to do so. Perhaps worst of all, he berated the stock market as a speculative sinner even though he knew better. For example, Hoover opposed shorting as a practice, a policy that frightened markets at an especially vulnerable time.
The second standard understanding is that the Brain Trusters were moderate people who drew from American history when they wrote the New Deal. If their philosophies were left wing, then that aspect ought to be treated parenthetically, the attitude was. But the leftishness of the Brain Trust was not parenthetical. It was central.
In the summer of 1927, a group of future New Dealers, mostly junior professors or minor union officials, were received by Stalin for a full six hours when they traveled on a junket to the Soviet Union. Both Stalin’s Russia and Mussolini’s Italy influenced the New Deal enormously. The Brain Trusters were not, for the most part, fascists or communists. They were thoughtful people who wrote in the New Republic. But their ideas were wrong. Their intense romanticization of the concept of the economy of scale ignored the small man. One of the New Dealers from the old Soviet trip, Rex Tugwell, even created his very own version of Animal Farm in Casa Grande, Ariz. As in the Orwell book, the farmers revolted.
The third familiar story line in the received wisdom about the New Deal is that, while it may not have been perfect, it did inspire the American people and tide them over. Here the emphasis is wrong. Roosevelt’s radio voice may have inspired—yes. But the New Deal hurt the economy, and that mattered more. At some points Roosevelt seemed to understand the need to counter deflation. But his method for doing so generated a whole new set of uncertainties. Roosevelt personally experimented with the currency—one day, in bed, he raised the gold price by 21 cents. When Henry Morgenthau, who would shortly become Treasury Secretary, asked him why, Roosevelt said that “it’s a lucky number, because it’s three times seven.” Morgenthau wrote later: “If anybody ever knew how we set the gold price through a combination of lucky numbers, etc., I think they would be frightened.”
The centerpiece of the New Deal, the National Recovery Administration (NRA), was perverse. The premises of its codes were ones anyone would reject outright today—the concept that price cutting caused deflation, for example. Everyone, even Roosevelt’s own agonized advisers, understood this. The poet Ogden Nash wrote a poem that captured the inanity—its title was “One from One Leaves Two”:
Mumblety-pumbledy my red cow
?She’s cooperating now
?At first she didn’t understand
?That milk production must be?planned
?She didn’t understand at first
?She had to either plan or burst
A think tank produced a report of 900 pages in 1935 concluding the NRA “on the whole retarded recovery” (that think tank was the Brookings Institution). Some of the great heroes of the period were the Schechter brothers, kosher butchers who fought the NRA all the way to the Supreme Court and won. Their case was not only jurisprudential but also based on common sense—management from above was killing recovery. The Schechter case is as important to history, as, say, the Gideon case that Anthony Lewis wrote about in his great book about the right to counsel, “Gideon’s Trumpet.” Where is the “Gideon’s Trumpet” for free marketeers?
The fourth rule we learned is that Roosevelt’s call to “bold, persistent experimentation” was, on balance, good. But this conviction ignores the cost of uncertainty, as the economic historian Robert Higgs first pointed out. Today we know that unknown unknowns are inherently destabilizing. Roosevelt, a man of impulses, changed policies routinely. He moved from supporting big business to attacking it to supporting it again, many times in his presidency.
On some days, as Anne O’Hare McCormick, a Maureen Dowd of her time, wrote during FDR’s second term, Roosevelt was the personification of “the Dutch householder who carefully totes up his accounts every month and who is really annoyed, now that he is bent on balancing the budget, when Congress can’t stop spending.” Other days he was a big spender.
Uncertainty caused markets to freeze in fear; so did investment—the old New Yorker cartoons of the plutocrats in the salon were true. Yet Roosevelt counterattacked by compiling lists of the wealthy to prosecute—his administration prosecuted the Alan Greenspan of the day, Andrew Mellon, until Mellon died. Roosevelt’s administration pushed a plan for an undistributed profits tax to eat the essence out of companies. Policies like this caused the most unnecessary part of the Depression: the Depression within the Depression of the late 1930s.
The final line in the traditional story is that Roosevelt’s government offices were somehow better than their private sector counterparts—when it came to utilities, for example, we learned that only the federal government could electrify backward rural areas. This is a false memory, for there was a company that already planned to light up the South, Commonwealth and Southern. David Lilienthal of the Tennessee Valley Authority set out to gut it, and succeeded. But the battle over electric power was also, literally, a power struggle between coequals, not a contest between a good policeman and a sinning company.
The most useful economic philosophy for understanding what went on is not Keynesianism. It is the public choice theory of James Buchanan and others, which says that government is a competitor that will annihilate what comes in its path.
So why has it taken so long to revisit this period? The first reason is that the Great Depression was a disaster. From the Crash to the Dust Bowl and the floods, it all felt like a permanent Katrina, and Americans suspended disbelief. But the reality was that the depression did not mean permanent Katrina—indeed, we see now that that downturn was the exception in the century, not the rule.
The next reason we hesitate is World War II. War always trumps economics. New Deal critics were right on the economy, but they were wrong in their estimations of Hitler. To write sympathetically about the Liberty Leaguers is seen, even today, as siding with the appeasers. The incredible rightness of FDR’s war policy obscures the flaws in his prior actions.
The Cold War also played a role in delaying examination of the 1930s. Nearly all writers today—whether they write policy or history—make a point to avoid being classed with Sen. Joseph McCarthy and the House Un-American Activities Committee. But that fear of being labeled as a red-baiter prevented the necessary discussion of the counterproductive policy of the 1930s.
In the Cold War, there was also the assumption that Europe certainly, or even the U.S., might conceivably go communist. The premise therefore was that safety nets—from Social Security in the U.S. to codetermination in German boardrooms—were necessary to prevent such an event. Bismarck’s social democracy and Roosevelt’s New Deal were therefore glorified as justified.
In the past half-century, we have learned that much of our capital comes from the private sector, not the public sector, and that most of our growth inheres in the private sector. After the 1980s and 1990s we know that markets can do much of the work that Roosevelt believed only government capital could do.
My own sense is that there is a final reason we have all paused at the New Deal—a generational one. To insult the New Deal is to insult the Social Security that we, our parents, or grandparents receive. The Baby Boomers have a reputation as being selfish. But their reverence in regard to Social Security, not to mention Medicare Part D, is overly unselfish, and comes out of misplaced filial piety. Younger Baby Boomers and the generations after them will doubtless pay higher taxes because of our current unwillingness to criticize entitlements. Americans owe them as much as we owe senior citizens.
After all, the argument of markets has its own powerful morality. It is immoral to cause unemployment by pretending that a big government policy is morally necessary. When Andrew Mellon and Calvin Coolidge put through their tax cuts in the 1920s, they made the efficiency argument that supply-siders make today: lower rates could yield, they posited, higher revenues. But they also had a moral argument: high taxes were wrong, confiscatory and illiberal, in the classical sense. You can acknowledge this without being a Roosevelt-hater.
Schlesinger, who so often contributed to these pages, has already issued the invitation. It is more than time that the rest of us took him up on his offer.
Miss Shlaes, a Bloomberg columnist and visiting senior fellow at the Council on Foreign Relations, is author of the just-published “The Forgotten Man: A New History of the Great Depression” (HarperCollins), from which this is adapted.
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A cornerstone of liberal-Progressive economic theory turns out to be fatally flawed, bringing the whole structure crashing to the ground.
As noted in Krugman and Friedman - Part Four, Keynesian economic theory, now refurbished as neo-Keynesianism, dominates liberal-Progressive-socialist thinking in the United States. Mr. Krugman is one of its fiercest proponents.
Like Keynes, he has been consistently wrong in his predictions, most notably in proclaiming that tax cuts in the first term of the present Bush administration would not revive the economy and, in any event, would not lead to creation of new jobs. Only government spending can revive the economy, according to liberal-Progressive orthodoxy.
In Krugman and Friedman - Part Four, reference was made to Milton Friedman’s Theory of the Consumption Function, which flayed and butchered Keynes’s analysis. From that opus came the prediction of conditions that became horrific reality in the 1970s stagflation.
Professor Friedman not only discredited Keynes’s predictions of consumer behavior, but also, in effect, eviscerated the entire Keynesian theory.
Keynes regarded savings as the villain that produced and sustained the Depression. The economy, he theorized, had fallen into equilibrium at a low level with insufficient activity to produce full employment, because people weren’t spending enough money and businesses weren’t investing enough in new production. The gap would have to be filled by Federal spending that, in the view of his chief American acolyte, Harvard’s Alvin Hansen, would be necessary forever.
It’s not hard to see why Keynes’s theories appealed so mightily to American liberal-Progressive-socialists. It conformed so nicely to the socialist theory that only they were qualified to plan and to manage the whole economy. Individual workers and individual businessmen couldn’t be depended upon to respond to market forces and create greater production and more jobs That was a job for the nanny-state that would provide security, not opportunity.
Confident that Henri de Saint-Simon’s 1820s socialistic theories had been validated, hordes of brash young Ivy Leaguers poured into Washington eager to join the New Deal and save America from the capitalists.
Unfortunately for the nation, they and Keynes were dead wrong. The New Deal prolonged the Depression for eight years, with unemployment remaining in double-digit percentage levels. In 1939, unemployment was still almost 17% of the workforce, nearly four times today’s level.
Extorting tax revenues from investors and businesses, with marginal rates as high as 90%, and transferring the proceeds to individuals was not the same thing as saving and investing, without which no economy can grow.
A crucial problem was that a cornerstone of Keynes’s theory - the villainous role of savings - was dead wrong.
As Henry Hazlitt noted in his 1959 The Failure of the “New Economics”: An Analysis of the Keynesian Fallacies, Keynes theorized that the “propensity to consume” (Milton Friedman’s target) was quantifiable as a law of economics, so precisely so that Keynes reduced his law to a single calculus equation, which he called the consumption function.
The point was to support his contention that, as incomes increased, people consumed less of the increase and therefore saved more, with dire consequences for economic activity and employment.
In A Guide to Keynes, Harvard economist Alvin Hansen wrote:
Keynes most notable contribution was his consumption function…the behavior patterns of the community are such that a gap exists (which gap widens absolutely as real income increases) between the amount the community wishes to consume and the output the community is capable of producing.
Mr. Hazlitt points out that neither Keynes nor Hansen supplied any proof for the consumption function calculus equation. They would not have found substantiation in statistics reflecting actual behavior, which proved to be the opposite of Keynes’s predictions.
As one of many possible examples, Mr. Hazlitt records that between 1944 and 1955, national income increased 83.5%. According to Keynes’s economic “law” of consumption, savings were supposed to increase at an even faster rate. In fact the actual amount of savings fell from $36.9 billion in 1944 to $17.1 billion in 1955. In recent years, while our economy has grown at stupendous rates, consumers have actually had negative savings.
Nonetheless, with gory entrails hanging out of its disemboweled gut, the decaying beast of Keynesianism remains an object of worship for liberal-Progressive-socialist, who are as eagerly grasping as ever for theories to justify their assuming complete management of the economy.
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Monday, June 25, 2007
Economic Class Warfare
Democrats remain true to form: tax and spend the nation into recession.
In a Wall Street Journal article (online subscribers can read it here), Sarah Lueck reports that,
The campaign to raise taxes on wealthy hedge-fund and private-equity managers got a big boost Friday, with the new endorsement of several leading congressional Democrats. The broad attack appears set to snag managers of venture-capital firms and real-estate partnerships as well… The bill is the second time in two weeks that prominent lawmakers have gone after the rapidly growing financial sector. A week ago, the top Democrat and Republican on the Senate Finance Committee introduced legislation that would boost taxes on publicly traded financial partnerships such as Blackstone Group LP, which began trading Friday.
Democrats will paint the carried-interest bill, like the Blackstone legislation, as a narrowly targeted attempt to close an unjustified loophole benefiting a small group of the U.S. economy’s most spectacular winners. Republicans will seek to cast it as a broader bid by Democrats to attack the shape of a tax code they argue has fueled growth and stock-market gains throughout the Bush years. In particular, they will cast Democrats’ goal as wiping out the preferred tax treatment for capital gains that has benefited a swelling “investor class” as stock ownership has proliferated.
Liberals apparently have yet to learn from repeated experience:
The chief sponsor of the House bill, Michigan Democrat Rep. Sander Levin, said he wasn’t convinced by industry arguments that lower tax rates are necessary to continue the economic growth fostered by the industries.
The facts of history are that every tax increase has slowed economic growth or pushed the economy into recession. Every tax reduction has strongly boosted economic growth and created millions of new jobs.
The political game, however, is played by pandering to poorly informed voters: soak the rich and use their money to buy votes with benefits handouts. The average voter can’t connect the dots between that and the ensuing business recession and job layoffs.
Washington Post columnist E. J. Dionne, Jr., sets out the liberals’ Joseph Goebbels-style approach. In ‘The Left’ Moves Front and Center, he refers to the new taxation target as “the privileged role of hedge funds.”
What liberals won’t acknowledges is that the huge growth of hedge funds and private equity groups like Blackstone has nothing to do with privilege. It’s strictly a product of the massive over expansion of the money supply engineered by the Federal Reserve to accommodate unstoppable growth in Federal spending. When the world is awash in liquidity, individual citizens and institutional investors (who pool small amounts from not-so-rich individuals) look for places to invest their funds, and hedge funds and private equity groups have been the most attractive home for those funds in the last few years.
Unfortunately, both Republicans and Democrats have been guilty of stoking the Federal spending engine.
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George Gilder on Intelligent Design
Information-technology guru George Gilder explains why Darwinian materialism is an unsatisfactory paradigm of the world.
Barton Bennett drew my attention to a Jerusalem Post interview with Mr. Gilder that is published on the Discovery Institute website.
A few excerpts:
Darwinism is a materialist theory, according to which ideas are mere epiphenomena of material forces. Indeed, Darwin did not understand genetics. He actually imagined that inheritance was conveyed by chemical reactions ? that the chemicals blended between the two parents in some way. In information theory, which is really the basis of most of my own analyses, chemical blending can?t carry information. The key rule in information theory is that it takes a low entropy ? a predictable carrier ? to bear a high-entropy message. Now, even DNA can?t explain the larger question [of the meaning of life on earth]. Because, for example, we share a very high percentage of our DNA with the tulip and the garden slug.
As for ?survival of the fittest? ? random mutations and natural selection ? it, too, explains very little. What random mutations and natural selection can explain is the way bacteria adjust or respond to antibiotics. This is a demonstrable case which can actually be studied. What it shows is that bacteria change, but do not improve. And if a bacterium happens to change, it does so in a way that nullifies the effect of a certain antibiotic. Then it multiplies, according to the rules of natural selection, and you get a bacterium with that change. But that bacterium doesn?t evolve into some more complex, multicellular creature.
I said that intelligent design allows the possibility of God. It doesn?t specify God, or dictate God, define or put God in a box, but it does show that the universe is hierarchical. And hierarchy points to a summit. The summit remains enclosed in fog, but this doesn?t exclude the possibility that behind the fog is a divinity that we, through our faith, might worship. The hierarchy itself orients us to aspire and to aim for higher levels of being, consciousness, complexity and intelligence, rather than seek to follow our animal natures down into a pit of futility and degradation…. A belief in God is essentially a belief that good will prevail, rather than entropy and futility and evil, which is the message of much of 20th-century literature and art.
The greater good [contemporary writers and artists] proclaim is pleasure ? that the pursuit of pleasure yields pleasure and therefore is good. I believe that pleasure is an epiphenomenon of the pursuit of good, rather than being something that can be directly pursued by the indulgence of your appetites.
I?m a religious person. So are the Darwinians religious people: They believe in an anti-religion of materialism that liberates them to pursue pleasure any way they wish. It?s the highest purpose of their existence. They thus believe in a random, futilitarian universe where ? if they?re existentialists ? they might imagine that occasionally a heroic human being could assert some purpose above the froth of randomness, but in general, we?re all doomed to decay and destruction. That?s pretty much the philosophy, and it?s debauched a whole century of intellect. I think we?re going to transcend it in the 21st century.
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Atheists, agnostics, and those simply unchurched perceive God in a very different way from Christians.
Sunday’s sermon at the Black Rock-Long Ridge Congregational Church (North Stamford, Connecticut) was delivered by Rev. Dan McCandless. His text was Matthew, Chapter 6.
The picture Jesus gives us of God and His relationship with us is far removed from the impression held by too many people.
Some people imagine God as a sort of accountant who spends His time keeping a ledger of our good deeds and our misdeeds. Others see Him as an iron-fisted lawgiver who vents His anger to force us to submit. Still others see Him as a detached Creator who is no longer interested in us as individuals.
Others envision Him as a genial, white haired grandfatherly type, who is just a nice fellow who no longer has any real power to affect our lives. A sort of agnostic, scientific view has God as an impersonal force whom we can’t explain and can’t understand, but who is obviously there because of the orderly nature of the universe.
That is not what Jesus had to say in the Sermon on the Mount, in which God is depicted sixteen times as a father who cares deeply about each of us.
God sees us:
But when you give to the needy, do not let your left hand know what your right hand is doing, so that your giving may be in secret. Then your Father, who sees what is done in secret, will reward you. (Matthew 6:3-4)
He hears us:
And when you pray, do not keep on babbling like pagans, for they think they will be heard because of their many words. Do not be like them, for your Father knows what you need before you ask him. (Matthew 6:7-8)
He forgives us:
For if you forgive others when they sin against you, your heavenly Father will also forgive you. (Matthew 6:14)
He provides for us:
Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more important than food, and the body more important than clothes? Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? Can any one of you by worrying add a single hour to your life?
“And why do you worry about clothes? See how the flowers of the field grow. They do not labor or spin. Yet I tell you that not even Solomon in all his splendor was dressed like one of these. If that is how God clothes the grass of the field, which is here today and tomorrow is thrown into the fire, will he not much more clothe you?you of little faith? So do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ For the pagans run after all these things, and your heavenly Father knows that you need them. But seek first his kingdom and his righteousness, and all these things will be given to you as well. Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own. (Matthew 6:25-34)
These pictures of God as a loving father emphasize the highly personal and experiential nature of of our Christian life. People who put their trust in God and seek His direction through Jesus Christ will tell non-believers that doing so makes a real, happy difference in their lives. It imparts a solid sense of purpose and meaning to life.
Non-believers scoff at this, even mocking Christians as mentally unbalanced people who “hear voices in their heads.” We should pray for them to experience the joy and serenity in their lives that comes from looking to God for guidance to do the right thing in our daily lives.
Confirmed atheists say that their reason tells them to accept life, indeed the entire cosmos, as a meaningless coincidence of random variables, that things and life just happened to evolve as we see them today.
We confidently proclaim the Gospel, knowing that even hardened atheists feel a deep-seated sense that something is missing in their lives. We wish them well, we wish them an eye-opening experience such as the Apostle Paul had on the road to Damascus.
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Saturday, June 23, 2007
The Main Constitutional Check and Balance
Diversity of economic and other interests, expressed at the state level, was to be the principal Constitutional means of preventing dictatorial power at the Federal level. Those checks and balances were destroyed by Franklin Roosevelt’s New Deal, which imposed socialistic collectivization upon the nation under programs modeled on Mussolini’s Fascist state corporatism.
The Scottish Enlightenment & America’s Founding
Madison’s Famous Argument
By Robert Curry
The smaller the society, the fewer probably will be the distinct parties and interests composing it,...the more easily will they concert and execute their plans of oppression…Extend the sphere, and you take in a greater variety of parties and interests; you make it less probable that a majority of the whole will…invade the rights of other citizens.?????
James Madison, The Federalist No. 10
No. 10 is often cited as the single most important statement of American political thought,?and?the quoted passage is?the most famous argument?Madison presents?in No. 10.?
Despite a mountain of scholarly writings?generated?in the course of?the last century?analyzing the argument, its roots in the Scottish Enlightenment have gone largely unnoticed.? It fell to Samuel Fleischacker to point out?that Madison’s argument is?taken from Adam Smith.? He makes?it?clear that?Madison’s argument?is?an extension of the argument Smith offers in The Wealth of Nations for the advantages of a multiplicity of religious sects.?
Stated briefly?Madison’s argument?is this: a multiplicity of factions in an extended republic makes each faction less dangerous than it would be in a small society.?In Wealth, Smith argues that a multiplicity of sects makes it difficult for any single religious group to become large enough to threaten the whole society.? As Fleischacker observes: Smith’s analysis of what happens to religious sects when left alone by government follows…the logic of the market: competition?[benefits]?society.? And just this logic underlies Madison’s analysis of factions.??
For Smith and for Madison,?in economics and in faith, their answers?have?the same?logic: the free market and freedom of religion, instead of mercantilism and?a religious establishment. This is also the logic of Madison’s argument for how society will function in a free republic.???
Fleischaker even makes a persuasive case* that?in addition to borrowing Smith’s logic?Madison alludes?directly?to Smith in the penultimate paragraph of No. 10.? In that paragraph, Madison?writes: ...a religious sect, may degenerate into a political faction in a part of [the nation]?but the variety of sects?dispersed over the entire face of it,?must secure the national Councils against any danger from that source.
In considering Adam Smith’s argument for the disestablishment of religion as the basis of?Madison’s?argument in No. 10, we do well to remember that Madison’s views on religious freedom are central to his thinking.? As Garry Wills writes: As a champion of religious liberty he is equal, perhaps superior, to Jefferson—and no one else is in the running.? We know that?the depth of?Madison’s thinking on religious freedom was?gained during his?years at Princeton, where religious freedom was practiced and defended.???There he was mentored by?John Witherspoon, a champion of religious freedom, a Scot,?and a student of Adam Smith.?
* The impact on America:?Scottish philosophy and the American founding in The Scottish Enlightenment, ed. Alexander Broadie.