We, the people, should control commerce

The hearts of progressives everywhere are racing as they contemplate the delightful prospect of a federal replay of the New Deal and Great Society, those overrated nostrums intended to solve major economic problems which they only made worse. In less than two months the sainted Obama Administration will take power, already in transition promising to stimulate our commerce with massive public works projects (including unprofitable and inefficient "green" energy) and doubtless more bailouts of companies "too big to fail." Preference will be given, of course, to those saddled with huge costs imposed by federal mandates, with expensive union pensions, "job banks" (money for not working) and top wages.

Hint: The initials are GMC, FMC And CMC.

The late great economist Henry Hazlitt, author of the remarkable volume, "Economics in One Lesson," advised economic policy makers to look not just at the immediate consequences of a given policy but the long-term consequences as well. Actually, one does not have to have a very long attention span to notice that the first bailouts of the credit markets have begotten still more in any industry or business whose bottom line is in trouble. This took only days and weeks, not years, to become evident.

A still longer term consequence has to do with how Americans view their commerce. Is it a multitude of transactions between willing buyers and willing sellers? Or is it a single entity waiting for the expert guidance of politicians to maximize the payoff to those most deserving of consideration, which always means the influential and the powerful?

A thoughtful article in the Wall Street Journal earlier this year debunked the false notion that there is such a thing as "the economy." When one considers the billions (yes, billions) of people who are buying and selling every day, 365 days a year, in a multitude of different markets and a great variety of ways, it leads the prudent person to scale down massive expectations. Commerce cannot be saved by government policy that intervenes on behalf of those not benefitting enough–whoever they are, whatever their resources.

Many who take this sober view of the possibilities of controlling the marketplace by political action consider themselves exponents of what has been called "laissez-faire" economics. Far from seriously quarreling with this point of view, I only hasten to mention that the United States Constitution authorizes Congress to "regulate commerce with foreign nations and among the several states, and with the Indian tribes."

Government, with its power to tax and spend, will always be the greatest single influence on commerce, particularly in this era of Big Government. For decades federal spending has accounted for about a fifth to a fourth of the nation’s total, not to mention that of 50 state governments and thousands of local jurisdictions.

Prominent economists of the past such as John Maynard Keynes and John Kenneth Galbraith argued that, given the massive influence government had even before the New Deal dwarfed all previous federal spending, it should intervene on behalf of socially desirable objectives, such as reducing unemployment, raising wages and redistributing wealth.

But government by nature is not a commercial enterprise. It does not compete in a free marketplace. It depends upon forcible collection of taxes and other revenues in order to ensure the performance of its basic functions, viz., insuring our safety inside and outside our borders and administering justice, civil and criminal.

Republican government was designed to be impartial among the many (fortunately) competing interests of our people. To regulate is to "control or direct according to rule, principle, or law." Rules, principles and laws are no respecters of persons. The object is the common good, not the good of favored groups.

Of course, this republican restraint is more easily advocated than practiced. But we Americans have been governed by principle to an extraordinary degree, and for that reason the majority of us still believe that the purpose of government is not to reward indolence or failure but to promote enterprise and provide no more than a ground floor for victims of circumstances beyond their control.

But as we are tempted once again to consent to massive controls over our commerce, here and abroad, let us remember, as Ronald Reagan said, "Government is not the solution to our problems. Government is the problem."

Primer: Repeat after me

It is not the government’s responsibility to save Chrysler, GM, or Ford. Looking back, it was not the government’s responsibility to save AIG, Citigroup, or any other financial institution. Looking ahead, it is not the government’s responsibility to save coal companies, homebuilders, retailers, manufacturers, or hot dog carts. It is not the government’s responsibility to “protect” jobs – even when those jobs are held by member of politically powerful labor unions.

It is not the government’s responsibility to “create” jobs – the only jobs the government has the power to create are government jobs, and the world doesn’t need more bureaucrats.

It is not the government’s responsibility to prevent foreclosures, where people took out loans they cannot afford to pay back.

It is not the government’s responsibility to make sure that everyone has high-speed internet and cable TV. For that matter, it is not the government’s responsibility to pay for anyone’s personal expenses, be they medical costs, gasoline, or pedicures.

It is not the government’s responsibility to address “income inequality.”

To be clear, it IS the government’s responsibility to provide an environment where people and businesses can – through innovation, effort, and personal responsibility – achieve success, be self-reliant, and have the opportunity to strive for ever-greater achievement.

The ingredients are a fair, predictable legal system; dependable property rights; low taxes; and light regulation. That’s all.

Instead of an automaker bailout

The right thing to do would start with putting all the companies in bankruptcy and reorganizing them into viable going concerns. Continuing with tough love from there, solutions should include...

** Eliminate outrageous and uncompetitive Union Contracts

** Eliminate the so called “pools” of employees who are being paid to do nothing

** Eliminate present management whose only skills are lobbying Washington for the “status quo”

** Provide retraining opportunities and relocation assistance for the redundant.

Obviously, the retiree pensions will have to be turned over to the PBGC, the underfunding of which will have to be made up by the Federal Government. But better to fund just the retirees than to try to prop up the whole dysfunctional edifice of the Big Three automakers.

Surviving employees of the reorganized entity (or entities) should be shifted to portable IRA’s and 401K’s for which they themselves are responsible for funding. Defined Benefit Plans are an albatross that no one can carry, including public entities such as City Governments.

The argument in favor of the $25 billion bailout purports to be “saving jobs”. But most of the money would go to the UAW to fund retiree health care. This will do nothing to make the industry more viable or save jobs, (many of which are people in the paid-not to work “job banks” anyway).

Any taxpayer funds for the Big Three are a misallocation of scarce resources and a waste. It is time to rationalize the industry through the bankruptcy courts and get on the road to real recovery!

Everybody wants some

Nearly five decades after John F. Kennedy inspired Americans to ask what they could do for their country, the new national sentiment seems to be, “Ask what your country can do for you.” In fact, it could have been an ’08 election slogan. How many times did we hear jubilant Obama supporters exclaim how the government was going to pay their mortgage and buy them gas? Unfortunately, they aren’t the only ones hoping to get a pocket full of newly minted change.

Unexpected voices have joined the entitlement choir. It isn’t just the grievance industry who wants politicians to redistribute the wealth from those who have earned it to those who have not. Middle class families and businesses of all stripes have come to feel entitled to other people’s money. They may criticize big government in the abstract but fiercely defend their government loan, farm subsidy, business incentive or government program. To borrow a line from Van Halen, “everybody wants some/ I want some too/ Everybody wants some!/ Baby, how 'bout you?”

The real legacy of the bipartisan accord between liberals and big government Republicans is not the $10 trillion national debt levied on the next generation, but the spread of government dependency to the formerly self-reliant.

Even the once tough pioneer-spirited state of Colorado has been seduced by Washington largesse. Only days after the election, several Colorado business leaders told the Rocky Mountain News how they would like the new president to spread the wealth around. Their Christmas list includes funding for individual homebuyers, money for the state, health care for their employees and, of course, subsidies for their industries. It reads like a conversation between Orren Boyle and Wesley Mouch of Atlas Shrugged.

They are not the only ones. After a $1 trillion bank and Wall Street bailout, Congress is talking about bailing out automakers and sending cash to the states. In the new state stimulus package, Congressman Ed Perlmutter is hoping for energy sector giveaways. Congresswoman Diana DeGette and Congressman-Elect Mike Coffman want cash for infrastructure. Of those interviewed by the Rocky Mountain News, only Rep. Doug Lamborn seems to understand that “giving aid to states and their taxpayers at the expense of placing an equal burden upon federal taxpayers” is a bad choice.

“There are severe limits to the good that the government can do for the economy, but there are almost no limits to the harm it can do,” observed Nobel laureate economist Milton Friedman. The government cannot produce jobs or wealth out of a hat. To give to some through handouts, bailouts, subsidies, and grants, it must take from others. The government burdens entrepreneurs, investors, and consumers, the true engines of a vibrant, free economy, through taxation and regulation and further weakens the dollar through debt spending.

Anyone who lived through the 1970's saw firsthand what government intervention can do. Nevertheless, a new poll shows 72 percent of Americans are looking to the new president to revive the economy. Some 44 percent of Republicans joined nearly all Democrats in this false hope. I’d be willing to bet that a significant percentage of these Americans expect to get a check, a program, a subsidy, or an incentive for themselves, their business or organization.

Proponents of limited government should be worried. We’re counting on the predictable failure of liberal government policies to pave the way for a conservative comeback like they did in 1980 with Ronald Reagan. There is a worrisome difference between then and now, however. Americans nodded when Reagan said, “In this present crisis, government is not the solution to our problem; government is the problem.”

Since then too many people have come to see government as their source of hope and have no qualms with being its object of charity. Is America already so far down the road to serfdom that we're forgetting what it was like to be free?

Krista Kafer is a Denver-based education consultant, frequent cohost on Backbone Radio, and regular columnist for Face the State.com, from which this is reprinted by permission.

Long melodrama of financial folly

To the extent we temporarily humble ourselves by taking a lesson from history, it might be possible to see the current economic tumult in a different light. Economic panics have occurred every few years; they usually last a couple of years and are followed by an even more manic run-up of the markets. The modern use of central banks to infuse money into the system often leads to inflationary price increases on the heels of responding to political demands for a cure to a recession. But, sometimes the cyclical fluctuations portend bigger events are in the offing.

When an economy transitions from agriculture to industrial or, as might be the case today, from a post-industrial to an information economy, we often bear witness to major depressions or hyper-inflation, followed by war and revolution. It's when a tsunami hits instead of "surfs up!'.

After WWII we had severe recessions in 1948, 1953 and 1957. After WWII, billions of $$ of public debt were being monetized by the Fed, interest rates had been suppressed and the gold standard was being diluted. This had all followed cyclical expansions in 1924, 1936 and 1955. The Great Depression and WWII were obviously big punctuation marks in a long narrative.

Now, I would argue we crossed a big divide in the 1957-58 time-frame. Not only was this when the Salk polio vaccine would become generally available but, society would, also, begin to shift gears from the patriarchal, republican Eisenhower post-war years, to a more modern era characterized by John F. Kennedy, television and a man on the moon. But, there is one background story that needs telling.

In 1958, AT & T, America's largest employer and pension plan trust decided, for the first time, to make investments in the stock market rather than just hold US securities and bonds in their portfolio. In this same year, Lehman Brothers,(the same major Wall Street investment bank that recently failed in the 2008 financial meltdown) launched the biggest IPO in mutual fund history. In the months that followed Lehman sold 16 million shares, using a nationwide network of 640 brokerage firms. It is interesting that this mutual fund had originally been a private fund created by Lehman and 28 wealthy Ford executives after the death of the anti-semitic Henry Ford.

Thus began Society's lurch towards the use of the stock market to underwrite pension plans. The concrete began to set-up in the mid-1970s with the enactment of ERISA which turned over billions of dollars of pension and health benefit dollars to the labor unions resulting in everything from the financing of Las Vegas to today's investments in real estate, hedge funds and the stock market.

All of this has pivoted on two countervailing forces, that often work in tandem. First, was the freeing of the U.S. from the gold standard and the enabling of the Federal Reserve(eg. Allan Greenspan) to expand the money supply, and influence the economy through monetary policies. The second has been the ever-increasing concentrations of wealth in the upper 5% tier of society and the pensions of the Fortune 500 and labor union dominated organizations. These forces live by virtue of credit fueled by low interest rates and an ever-increasing money supply. Recession only slows the steady advance of inflation that leads to $50,000 automobiles and $500,000 homes. . The enthusiasm for the coming of this modern manic-recessive, bi-polar world was best expressed by Sumner Slichter, a Harvard economist who wrote in the fall, 1957, Harvard Business Review that creeping inflation was not to be feared because rising prices reduced the impacts of panics(recessions), wages would steadily increase and technological progress would advance. He brought music to the ears of the political establishment who felt it also contributed to a vibrant trade union movement.

Unfortunately, when the masses are at the heights of delusion and mania there always seems to be one odd fellow who wants to play the role of Cassandra. It was best expressed by Malcom Bryan, a past president of the Atlanta Federal Reserve Bank and an adviser to the American delegation at Bretton Woods (which set in motion the elimination of the gold standard and government's massive meddling in economic affairs). Here is classic Bryan:

"So, the proposal (Slichter's ideology), is on the one hand, that we take from the naïve or the trusting and, on the other hand, that our defalcations be effected on the installment plan, lest doing the job all at once, we might be caught at it. Let us be clear what is being asked, when we are now urged to a policy of either intentional or connived-at-inflation, is that we sell our honor. What altar of expediency is high enough and what bribe is great enough to absolve us from such perfidy? If this language be deemed unduly pungent, what other language shall be used? I believe that no greater delicacy of expression is warranted if we speak out of one side of our mouths to give ingratiating reassurances and out of the other side of our mouths to plan the undoing of men we have enticed and are enticing.

The integrity of our conduct is critical. Even if we ignore past savers(pensioners) in money forms, which would be a great scandal, we at least have a responsibility, binding in conscience, to present and future savers(pensioners) in money forms. If a policy of active or permissive inflation is to be a fact, then we can rescue the shreds of our self-respect only by announcing the policy. That is the least of the canons of decency that should prevail. We should have the decency to say to the money saver(pensioner), "Hold still, Little Fish! All we intend to do is to gut you!""

The short term injection of trillions of dollars of government-created money into the global economy to ward off recession will have long term unintended inflationary consequences. The effects we are experiencing today are the culmination of decades of decision-making that pushed us over the precipice onto a slippery slope; that we now find ourselves on the precipice should be no big surprise. Government offers us only a branch to self-arrest our fall into the chasm. If the characters in the drama were moral it would be a 'tragedy' in the classic sense. But, these individuals are amoral at best and therefore, it is comedic, a farce, a melodrama complete with villains. The popcorn on the table is being spilled on the floor with the peanuts. You have just finished the first act of a very long opera.