The previous post is not an endorsement of silly notions about socialism. "Socialism" is just a stupid cliche that ends conversations, a conservative analog to Godwin's Law. Talk-show hosts with little or no understanding of the fiscal policy dynamic use it to incite. Nor do I believe this is about "one-world government" or any other paranoid delusion. This isn't the Wizard of Oz. There is no man behind the curtain, just a few dozen politicians who range from the cowardly to the myopic to the self-interested partisans and a whole lot of sycophants. They're not dragging us into the waiting arms of the UN, they're dragging us down to at best muddle-through, and in the process they're going to bring a lot of the world economies crashing down alongside us.
¶ The Anonymous Conservative 6:58 PM
Thomas Jefferson once questioned the ability of one generation to bind another in a political context. I disagree him on this point; two plus centuries removed from the French Revolution we better appreciate the value of continuity in ensuring stability and freedom from violence. I think in a fiscal sense though his point is much more salient. It is unjust for one generation to ask another generation to pay for money spent before its time. This debt, set to reach 100% of GDP with no signs of slowing, was not incurred in the service of existential conflicts. A small fraction paid for the two conflicts in Iraq and Afghanistan; important as those might have been the economy seemed to be booming and they could have been paid for at least in part through the raising of revenues. This debt was grown by expanding entitlements, cutting taxes and refusing to make politically unpopular spending choices. This was a bipartisan effort. Presiding over its ballooning were Republican and Democratic Presidents, Speakers and Majority Leaders. It really began under Reagan, and while as a conservative he is of course in my pantheon in this instance his legacy led us astray.
As far as I'm concerned yesterday was the last chance to stop the madness. At present we have the third largest deficit in the OECD, behind only Ireland and the UK. We have no reasonable hope of sustained economic growth as the tax burden necessarily has to grow and interest rates are essentially at zero. The debt is expected to swell to nearly 150% of GDP by 2014. Yesterday a Democratic House debated a bill that used specious accounting to mask the fact that it is likely to cost $1.3 trillion over ten years, even if Washington goes through with politically unpopular Medicare cuts. Foreseeable Republican countermeasures are probably going to exacerbate the fiscal hit; a repeal of the mandate to purchase coverage (necessary to subsidize the requirement that insurance companies insure the unhealthy) is likely to send the insurance companies scurrying to Washington for a handout or to convince them to jack up their rates, which may give the Democrats cover for an actual takeover or something equivalent to one.
This was an act akin to national suicide. A new and unassailable entitlement expansion was rammed through using procedural loopholes, on a Sunday, by the slimmest of margins. Pelosi and some of her colleagues expect that by rendering several million more Americans reliant on the government for healthcare they have created a durable Democratic majority. If I had to wager a guess I would suppose she sold it by telling her colleagues that the next priority would be financial sector reform, where populism cuts against Republicans and seats may be salvaged. The end result is that what little chance we had to salvage our medium and long term fiscal situation is being squandered for a purely political advantage.
Raise taxes? Sure. Necessary evil. But you can't raise them to close the gap because you're going to need to raise them to pay for the entitlement obligations you just incurred. And how are you going to grow an economy against the backdrop of rising taxes? Lower interest rates? They're already essentially at zero. Our ability to provision long-term growth is virtually non-existent at this point. The states will of course shoulder much of the burden for this healthcare program, putting further strain on California, New Jersey and other states already on the brink of insolvency.
For the first time in my adult life I have zero optimism that this nation's fortunes will improve over time. The best we can hope for is a muddle-through that accepts 1-2% growth for a generation, punctuated by the failings of other states occasioned largely by our economic weakness. Demographics will accelerate this for us as the percentage of the population at work declines and the percentage receiving entitlement checks grows; this problem is even worse for Western Europe and East Asia.
As mentioned above there is no one single cause, just the mixture of political cowardice and political opportunism of this generation and the ones that preceded it. Democratic (and Republican) Administrations swelled entitlement obligations knowing they would not have to pay for them while Republicans pushed tax cuts uber alles. Interest rates were lowered to stimulate growth and then lowered again to keep it going. In time of plenty these actions don't seem objectionable, but now that the inevitable downturn finally occurred we find meaningful choices so curtailed that we can do nothing to get the economy going again. It is an economic, fiscal and foremost a political trap from which there is no escape.
¶ The Anonymous Conservative 5:51 PM
It has been vogue to predict our relative decline for a good fifty years now. I don't think that's reasonable: if we go down the rest of the world goes down with us. China is an export-driven economy with an underdeveloped domestic market. Their economy, perhaps their government as a whole, would not survive an American economic cataclysm. The EU is beset by many of the same structural problems we now face, and what is for us a looming demographic imbalance is for the EU a ticking time bomb. In the larger Asian markets, especially China and Japan, it's a ticking economic H-bomb. No, this slide is likely to be an absolute decline, and the rest of the world's economic fortunes will decline accordingly. Perhaps not the 1930's, but in breadth and duration it could come close.
Conventional economic wisdom seems to have reached an endstate. The Keynesian prescription, explicated (perhaps amended) by the suddenly prescient Hyman Minsky, of deficit spending as an economic catalyst is simply impossible when we're already running a trillion plus deficit and nothing is moving. The tax cuts mantra is virtually DOA; in the mind of none but a college libertarian is there enough leeway in the present tax burden for cuts to jumpstart the economy, even if revenue concerns are ignored. There are no meaningful spending cuts to be found as the budget for even the bare bones untouchables (Medicare, Social Security, Defense, Debt Service) exceeded revenues by $200 bn. Regular medicare and social security obligations are projected to expand in the near term as the number of new retirees accelerates.
Against this we juxtapose a broken tax system. Tax credits undermine the predictability of tax receipts; refundable credits mean that millions of Americans receive more from the government than they pay in taxes, even without cash and non-cash entitlements. They also undermine the corrective check on spending provided when the majority of the people actually feel the tax pinch from the spending priorities they elected people to enact. Yes people pay myriad state and local taxes and the total burden may still be fairly high, but the explicit link between FICA and the federal budget is severed. Avoidance and evasion limit the sting of taxes on the "filthy rich" who were caricatured to get tax increases on the wealthy enacted, leaving the considerably more popular assortment of professionals, managers, near-retirement white-collar and union laborers and dual-wage households to actually foot the bill. So between lower-middle and lower classes who pay minimal federal taxes and the upper-upper class that pays a modest sum, you have a squeezed middle and upper-middle class, many of whom are already stung by the demise of job security and the collapse of the housing market.
In summary, too few taxpayers paying too little money to fund an inflexible and expanding federal budget. If we cannot fix the structural disparity we will be forced to borrow to service debt. That is the epitome of a Ponzi scheme.
Against this backdrop, instituting a healthcare overhaul is not merely problematic, it is madness. Even if one accepts the absurd claim of deficit neutrality, the bill's proponents admit "neutrality" is achieved by passing on additional Medicare costs to cash-strapped states, many of whom are on the brink of insolvency. Long-term entitlement promises are the single greatest problem we face on the outflow side of the budget ledger. Substantially increasing those entitlement promises is going to balloon our liabilities even as the political will to increase revenues seems at a low ebb. It is at once a cross between an American Beveridge Report, Britain's attempt to provision comfort while turning a relative decline into an absolute one, and a nakedly partisan attempt to build a durable center-left voting base.
Republican attempts at repeal will probably be worse than the cure. They will not kick people off Medicare for that is political suicide. More likely they will simply repeal the mandate that able-bodied Americans must pay for health insurance or pay a fine. Insurance companies will lack the funds of the healthy to subsidize the care regulators will force them to provide to the sick, and either costs will spiral upward or the insurance industry will run hat-in-hand to Congress. Or both.
There are no good answers to the present economic situation. There are certainly no easy ones. Be suspicious of any politician who promises you more spending without significantly increased taxation or less taxation without drastic spending cuts. That's a recipe for making our version of Japan's lost decade last a lot longer than that.
¶ The Anonymous Conservative 7:24 PM
I'm sick and tired of the vilification of Graham, of the Maine Street Republicans, and every Republican who has ever extended a hand across the aisle. This silly emphasis on ideological purity cost us NY-23 and is likely to exact far greater cost in 2010 if it isn't checked now. I am fiscally and socially conservative (so is Graham for that matter), but I refuse to delude myself into thinking that even a bare majority of Americans share my views on most issues of consequence. I accept that politics is the art of the possible. Don't like abortion? Sure you can stand outside a clinic or a senator's office holding blood-drenched signs, or you can treat women contemplating the procedure as real people and treat measures to restrict the practice as incremental gains toward a larger, greater goal. For each incremental gain, each woman convinced to carry to term, is a life saved. Now a vote for or against this or that bill may not be a life or death issue, but when you swap a vanilla Republican for a mainstream Democrat the only message that you're sending is that purity is more important than efficacy. Politics is the art of the possible, and if Lindsey Graham honestly believes that he can leverage his vote for the inclusion of measures that mitigate the potential damage of certain bills I'm willing to defer to his judgment. For all that he has done personally and for what he has done politically he has earned that. A political scene not dictated by Bill O'Reilly's Talking Points or Keith Olbermann's Worst Person in the World award has a lot more to offer us going forward. To the extent that Lindsey Graham, Olympia Snowe and the Jim Webbs of the Democratic Party can effect this, they deserve our encouragement and support, not puerile insults.
¶ The Anonymous Conservative 8:49 AM
A hypothetical, using nice round numbers. Bob grosses $250,000 a year. Bob works 75 hours a week and forgets the names of his children. Bob lives in a state with a moderate burden of sales and income tax, so with a little creativity in his accounting his total tax burden amounts to roughly 40% of his salary, or $100,000. He is left with $150,000 to spend as he sees fit. Enter crusading politician. "In this time of skyrocketing deficits, the rich need to pay their fair share." Presto chango, Bob's total tax burden after his raised federal and state income taxes reaches 60%. Bob's spending power has declined to $100,000 and he contributes $150,000 to the local, state and federal tax coffers. Had Bob made less, say, $150,000 instead of $250,000, said politician's anger would have been limited and his tax burden would have been just 50%, leaving him with $75,000 of spending money and the various tax authorities with another $75,000. Let's say, hypothetically, that he could make that $150,000 while working 40-50 hours a week and having time to coach Little League. An additional $75,000 may be worth the extra hours and the abandonment of non-economic activities. An additional $25,000 may not be worth the extra effort (and this is to speak nothing of those on the margins of different tax brackets, who may net more by grossing less). Bob decides against the additional work, and both he and the tax collector are poorer relative to the original state of affairs. This is the essence of the Laffer Curve, namely that steeply progressive taxation incentivizes evasion and disincentivizes the earning of additional income, with the perverse consequence of causing a decrease in tax revenue.
(Author's note: I'm not attempting to argue for the validity of the Laffer curve in all it's glory; indeed I think Arthur Laffer and John Maynard Keynes were the two most destructive economists of the Twentieth Century for they preached that people could have something for nothing. In limited circumstances and in the hands of people who understood the doctrine and the math this was correct, but in the hands of simpletons and the economically illiterate their respective theorems begot fiscal incontinence.)
Said politician is not immune to this obvious economic truth, even if he has little recollection of the 1970's. Progressive taxation as a means of raising revenue is predicated on the presumption that the rich man believes it his duty to sustain the pace of his work, even in the face of obvious economic disincentives to do so. Of course politics aside few if any hardworking rich men believe this to be the case. They may labor for reasons other than money, for the building of a business or professional satisfaction or for myriad personal motivations. But the abiding motivation is to earn money, and when that motivation is removed he will limit his efforts and establish a new balance between the pursuit of wealth and the non-economic activities that he limited or abandoned in his previous pursuit of wealth.
¶ The Anonymous Conservative 7:59 PM
I abandoned this for a long time for various reasons. I can't vouch for the regularity of my contributions, but when I have something worth saying and the time to say it I will post.
¶ The Anonymous Conservative 2:23 PM
In this the day of creeping (perhaps galloping) statism it has become fashionable to rediscover the Randian canon; indeed the belle of the objectivist ball is selling books at a torrid pace. Populist tea parties mix conservative and libertarian shibboleths. I resist the temptation, however, for reasons I will now outline.
Libertarianism is the flirtation of almost every collegiate conservative. It is undoubtedly appealing; like other utopian schemes it has a plug and play answer for virtually every policy question of consequence. It allows one to remain "progressive" or at least neutral on most social issues, which tend to inflame and ostracize to a greater extent than, say, fiscal policy.
And yet in many manifestations it is fundamentally incompatible with conservatism. For the same reason Whittaker Chambers wrote Ayn Rand out of conservatism, some British conservatives balked at Margaret Thatcher's economic policies. Conservatism is, among other things, the predisposition toward the settled, the anti-ism. In the language of Jonah Goldberg it is "but a partial worldview." Conservatives have a tactical alliance with libertarian economic policy, but it is ephemeral and when free market fundamentalism runs afoul of efficacy and of social imperatives it must, for the conservatives, give way.
Without getting too technical (both for the sake of reader confusion and for the sake of my own) the proper role of government in the arena of corporate finance is to ensure fair dealing and transparency. To the extent that an unregulated market in various forms of complex debt instruments requires opacity to operate, the fortunes of a great many who did not know themselves at risk will be reliant on the skill and altruism of a tiny cabal treading in virtually uncharted territory. We cannot decline to act merely because the theoretical or quasi-quantitative precepts of a universalist ideology say otherwise.
The issue of gay marriage is not one that excites particularly strong feelings in me. Maybe I'm ambivalent, maybe I have a subconscious fear of being on the wrong side of history. But witness the libertarian programme (of course this varies by exponent), which in many instances calls for the state to absent itself from the business of marriage entirely, presumably by dismantling the set of protections and incentives it offers to married couples. The predisposition toward the settled that I referenced earlier presupposes that this edifice exists for reasons; whether we once took pains to enumerate them and have simply forgotten or whether they were simply so intuitive we deemed explication unnecessary is immaterial. Now this is not to say that the reasons a given policy is deemed "settled" are everywhere and always valid ones; they can be overtaken by changing mores, by technology or by events. It is to say, however, that in addressing an institution as old as civil marriage we can fairly be said to owe it to ourselves to attempt to discern them before we adopt such fundamental legal changes.
Let's look at some more plug and play. Some libertarians advance the belief that road construction and maintenance could be privatized. To a degree, sure. Toll roads in a number of locales offer low-volume alternatives to busier free roads, and so consumers can pay for the luxury. To attempt to privatize every road, or even every main road, would be to create huge transaction costs, both in the cost of collection and in the lost time of the consumers. Yes, the technology exists to collect tolls automatically, but this offends that second of libertarian bogeymen, privacy. And local roads provide still greater problems. The simpler solution is to add this to police and defense as legitimate government functions. Even for small-government conservatives, it's the appropriate one.
This is not to say that libertarianism doesn't advance important ideas. One does not have to embrace the "legalize it all" solution to recognize that contemporary drug policy is problematic. Likewise the demolition of various sacred cows underpinning the welfare state, such as the monetarist attack on the prevailing interpretation of the Great Depression, laid the foundation for the so-called Reagan Revolution. Milton Friedman was integral in the transition to a volunteer armed forces, and the contemporary educational imperatives of limiting or ending affirmative action and advancing vouchers and school choice are ideas that owe much to libertarianism. But the gap between libertarian-as-skeptic and libertarian-as-utopian, hats that can occasionally be worn by the same people, seems too great to bridge.
For more emphasis on the libertarianism-as-utopianism phenomenon, read Brian Doherty's Radicals for Capitalism. He discusses the cult of Ayn Rand and denunciations of this or that libertarian thinker as "socialist" by his peers for heretical opinions, occasionally expressed before the party line has been set down. Such denunciations mimic the old Marxist obsession with decrying this or that heretic as a "petty bourgeois" thinker.
So yes, consult Brink Lindsey on trade, read Friedman and Hayek on the superiority of free markets and free societies, and listen to libertarian ideas. But view them through a conservative prism, and when you can't reconcile the two tendencies remember that one is at heart a partial, pragmatic programme and the other a universalist, utopian one.
¶ The Anonymous Conservative 12:03 PM
I have returned to the States, probably not to the blog
I just returned after seven or so months in Iraq (just under eleven months of total mobilization time), where we fared no worse than a decent firefight and a small IED. I am not really inclined to return to politics right now as I am rather cynical. I like Bush but with reservations; I like McCain personally with few reservations and politically with plenty of 'em. Obama strikes me as Jimmy Carter part deux, a well-meaning and intelligent man unprepared for the challenges he will almost certainly face. Hillary, for what its worth, may be a pragmatist but she is not nearly as savvy as she is thought to be and in truth an Obama White House may be marginally less threatening. Perhaps something will annoy me or inspire me enough to warrant comment, but until/unless that happens this site will likely remain dormant. I thank you for your attention and your patronage and I wish you the best.
¶ The Anonymous Conservative 6:13 PM