Stimulus: Administrative vs. Incentive

The good thing about the Obama administration is that it gives the nation a clear experience of the difference between the two political parties.

Like the “stimulus” package. It clearly reestablishes the Democratic Party as the party of the administrative solution. Got a problam? Design a program and administer the people and resources needed through a bureaucratic, political process.

By comparison, here is Republican Newt Gingrich’s 12 Point Plan, which almost 100 percent pure incentive.

1. Payroll Tax Stimulus. Cut FICA, the tax on jobs.
   
   
2. Real Middle-Income Tax Relief. Reduce the marginal tax rate of 25% down to 15%.
   
   
3. Reduce the Business Tax Rate. Match Ireland’s rate of 12.5% on corporate income tax.
   
   
4. Homeowner’s Assistance. Provide tax credit incentives to responsible home buyers.
   
   
5. Control Spending. This begins with eliminating Congressional earmarks and wasteful pork-barrel spending.
   
   
6. No State Aid Without Protection From Fraud.
   
   
7. More American Energy Now. Explore for more American oil and gas, plus clean coal, ethanol(???), nuclear power and renewable fuels.
   
   
8. Abolish Taxes on Capital Gains. Match China, Singapore and many other competitors.
   
   
9. Protect Our Right to Vote in the Workplace. We must protect a worker’s right to decide by secret ballot whether to join a union.
   
   
10. Replace Sarbanes-Oxley. This failed law is crippling entrepreneurial startups.
    
    
11. Abolish the Death Tax.
    
    
12. Invest in Energy and Transportation Infrastructure.
    

Notice the difference between this plan and the president’s plan for admininstrative distribution of government handouts for this administered idea or that administered idea; this cash handout versus that cash handout? It’s the difference between an administrative world-view and an incentive world-view, between the notion that you must lay out the specifics of what you want to do, and the idea that you only need to lay out the incentives and people will respond positively and competently.

It all goes back to my Two Nations concept. We really are two nations here in the United States, between whom there is no understanding and no sympathy. Take any difference: Venture Nation versus Tenure Nation. Contract Nation versus Power Nation. The difference between conservatives and liberals is as clear as day.

Or take today’s example: Incentive Nation versus Administrative Nation.

Let's Be Serious, Mr. President

It’s sometimes hard to remember, but governments are instituted among men for serious reasons. The principal reasons are to secure peace at home and abroad and provide a platform for people to go about their daily lives and earn a living.

In the modern era, that means a functioning credit system. As long as the credit system is sound, then everything else will fall into place.

So when the Obama administration put off the announcement of Bank Bailout Part II, to clear the decks for Senate passage of the so-called stimulus bill, you could say that it demonstrated as clearly as can be where its priorities lie.

First of all we service the Democratic faithful with a trillion dollar bonus. Then we fix the economy. Thanks, Mr. President.

Mr. President: I am sorry to say this, but you are wrong. You are making a terrible mistake.

The only thing that is important right now is to finish the business of righting the credit system, to recapitalize the banks and to do something about the toxic debt. That’s what you need to restore confidence in the banks, and get the economy moving again.

But that’s not what the Obama administration has elected to do. And it speaks volumes.

There’s a lot of political hot air venting right now about bankers dealing themselves big bonuses. Although it is small potatoes, it is scandalous. What we have seen in the last year is that the big beasts of Wall Sreet aren’t as big and aren’t as smart as they thought. There’s a simple reason for this. The credit system is not a glorious triumph of the capitalist system. Not at all.

The credit system is a government program, and has been ever since the Federal Reserve Act of 1913.

What does that mean? It means that the government is responsible for the monetary and credit system, and the bankers are just subaltern clerks. It’s the government that mucked up the credit system with its foolish idea that it could shovel credit at low-income homeowners without creating an economy-wide housing bubble. Now it’s the government that must clean up the mess it made.

The fact that the bankers thought it was time to hand out bonuses shows how dumb they really are.

OK, so the bankers are dumb. But the Obama administration is dumber. It would rather focus on increasing Medicaid grants to the states, and building important universities and a thousand other pet projects than fixing the credit system that it broke with its Fannie Freddie catastrophe.

I can’t say that I’m disappointed. I am getting exactly what I hoped for when I voted for Obama.

I felt that it was time for a change from the seriousness of the Bush Administration. Democracy, we know, is the system where the people get what they want: good and hard. And what the people need right now is a four-year demonstration of the unserious nature of the today’s liberal Democratic oligarchy.

It looks like we are going to get just what the doctor ordered.

The How and the What

In government there are two ways of looking at things: how you do things—the process and the image—and then there is the what, the actual policies and ideas that you implement in law and regulation.

President Obama ran as a how candidate, according to Kimberley A. Strassel. He wanted us to judge him on the way he was going to do things.

It was all about how he was going to do it — with bipartisanship and ethics and a new era of "responsibility." Now comes the reckoning. President Obama is being judged not on the what, but the how.

Well, it’s one thing for liberals to talk to themselves about ethics rules and process, and blow clouds of smoke about Hope and Change. But the truth is that government is about force. In our case, it is $5.5 trillion a year of force budgeted or estimated in FY09 at all levels of government, according to usgovernmentspending.com.

So the bottom line is that, what with the gigantic amounts of money swilling around in government, almost anyone who has had something to do with government has got their hands dirty. That creates problems when you advertise, as President Obama does, that all can be fixed with the proper process.

His first full day in office, Mr. Obama imposed the "most sweeping ethics reform in history," barring officials from working on issues on which they’d lobbied in recent years. Then came the realization that a lot of really smart people hadn’t just sat around for years waiting for him to give them government jobs, but had used their expertise for private profit.

You see, it doesn’t matter if you have the most ethical administration in history. If you are shoveling government spending out the door then people are going to lobby big time for a chunk of it. And the senators and congressmen and former senators and former congressmen are going to be right in the middle of all the wheeling and dealing, using their experience and their contacts to help their clients get a piece of the action.

This is what our liberal friends don’t understand. They think that because they are rational and compassionate that their ideas on politics and government programs are rational and compassionate. Put in a proper ethics reform and a few more billion dollars and money will start to flow to the areas with the greatest need.

But they are deluding themselves, of course. Politics is a competitive struggle for power between powerful men and women. The medium of exchange in this fight is government spending for programs. It is ultimately civil war by other means. For all that the language of politics is about helping people, the truth is that it is all about power. And anyone who thinks differently is deluding themselves.

That’s why I say that the welfare state is cruel, corrupt, wasteful, unjust, and the people who believe in it are deluded.

Stimulating Hope and Change

How could it happen? How could all the promises about Hope and Change get buried in the dust of politics-as-usual so quickly? Is it really impossible for our political leaders to do anything without covering it in political chicanery and ethical lapses. Can’t we stimulate the economy without a christmas tree bill that shovels money at every liberal special-interest gropup in the nation?

My answer is: What do you expect when the government is handing out $5.5 trillion a year in goodies? Here’s the gory details from usgovernmentspending.com.

United States Federal

State and Local Government Spending

Fiscal Year 2009

Amounts in $ billion



Pensions: $891.1

Health Care: $958.2

Education: $873.7

Defense: $806.1

Welfare: $467.7

Protection: $325.0

Transportation: $247.8

General Government: $193.3

Other Spending: $403.6

Interest: $361.7

Balance: $24.3

Total Spending: $5,552.4

Gross Public Debt: $12,969.0

This isn’t rocket science. When government is spending all that money then inevitably the people in politics want to use that money to build political support. If you don’t want them doing that, then you must give them a lot less money to play with.

Now the question is: Did President Obama know all this, but just told the American people what they wanted to know? Or is he just naive, and believed that by introducing new ethics rules he would really clean up government?

It really doesn’t matter. But with every cloud there is a silver lining. By creating ridiculously high expectations for hope and change President Obama has handed conservatives and Republicans a much-needed helping hand. So let’s get the word out to the American people. Do you want government and a governing class that are less corrupt? Then you must start voting for people who will reform government by dismantling the vast patronage system we call the welfare state.

Because the welfare state is cruel, corrupt, wasteful, unjust, and the people that believe in it are deluded.

Welfare Reform, Part 2

Whatever happened to welfare reform? Last we heard, President Clinton had signed welfare reform in summer 1996 after vetoing two bills from the Republican Congress. Democrats had all predicted disaster. But by the year 2000 welfare rolls had dropped to 6 million—from a level of 13 million in 1995—and child poverty had gone down too. After that, silence.

Well, it turns out that, right under our noses, the incompetent Bush administration has been doing welfare reform part 2, and it’s working, according to Steve Malanga in City Journal.

The reason you haven’t heard about this new welfare reform push is that it was implemented in the 2005 Budget Reconciliation Act. These days you can’t reform anything in a regular authorization bill because the liberal moss-backs in the Senate will filibuster any reform of the welfare state. So you slip it in under the radar in the budget process where you only need 51 votes in the Senate.

The new reforms put the states back under the gun to move welfare recipients from welfare to work. Writes Malanga:

The federal government also tightened the definition of what counts in fulfilling the work requirement: no longer would spending time in psychological counseling or in traveling to job training do the trick. And the feds urged states to enroll more welfare recipients with physical or mental disabilities in job-training and job-placement programs.

In case some liberal states didn’t get the point, the Bushies spelled it out for them.

“Individuals who happen to have disabilities should be afforded the same opportunities to engage in work—to find work-related training, work experience, and employment—as those who do not have a disability,” the Bush administration’s Department of Health and Human Services wrote in its new regulations.

As is the common practice, Malanga tells the story of a welfare poster girl, Debra Autry, who had, in social-services jargon, “multiple barriers to work” and “been out of work and on public assistance from more than two decades.”

First they had Autry cleaning out government offices, but she didn’t like that. So she got a job at a Revco drugstsore (later bought out by CVS).

[S]he enrolled in the company’s program to learn how to become a pharmacy technician and eventually began working in that position, which typically pays between $25 and $30 per hour.

Well, that’s nice. Think of that: a former welfare recipient earning $60K a year. But there’s more.

Autry’s hard work inspired her children. Her daughter just earned a degree as a physical therapist, while one son is in college and another is working full-time. “I was on welfare because there were no jobs that interested me,” she recalls. “But once I had to go back to work, I realized there’s a future if you want to better yourself. It was the best decision I ever made.”

Don’t expect to be reading much about this in the New York Times, old chap. After all, this is another success of the Bush administration, and we wouldn’t want people to get the wrong idea.

Unfortunately, we are not yet home free on welfare. Writes Malanga:

Ominously, Democratic foes of welfare reform have gathered power both in Congress and in President Obama’s cabinet.

No doubt. No doubt there are careers, power, and the love of beautiful women at stake.

Like I say. The welfare state is cruel, corrupt, wasteful, unjust, and the people that support it are deluded.

It's Not As Bad As That

With President Obama safely inaugurated, the experts are looking at GOP prospects and they are painting a gloomy picture. Both Michael Barone and John J. Pitney see a gloomy short-term outlook.

Barone notes that Republicans are doing dismally with black and young voters and are even losing the educated voters in the affluent suburbs.

Pitney worries that Democrats have a lock on congressional districts that are black, Hispanic, New England, and New York.

So how do Republicans have a chance?

They have a chance because things will change. Republicans are losing because voters are fed up with them, particularly upscale, educated voters that are influenced by upscale media. The upscale media has been running hard against Republicans ever since 1998 and the disgrace of Bill Clinton. (Plus there is also the fact that many educated voters work for the government.) On top of that, President Bush asked Americans to have patience while he solved the problem of Iraq. Who needs patience?

But Republicans are not running for office in the springtime of Obama’s adminstration. They will be running in 2010 and 2012. In 2010 they will be running against the first two rookie years of Obama. And in 2012 they will be running against four years of Obama. Given that the early signs are that Obama aims to govern as a patronage president, handing out goodies to the Democratic faithful, you couuld build a case that many swing voters are going to swing against the president and the Democrats in the near future.

After years of media drumbeat the voters now believe that the Democrats are the center-left middle-class party and the Republicans are dominated by the right. Well, they would, wouldn’t they? That’s all they’ve heard for ten years.

In fact, it’s probably more accurate to say that the Democrats are a center-left party that would like to be leftier. And the Republicans are a center-right party that would like to be more libertarian. But as we get into the Obama administration it will be easier and easier to make the argument that the Republicans are a center-right party that works for the middle class and that the Democrats are a bunch of corrupt left-wing loonies that sneer at the middle class behind their back.

When Republicans start to make that argument hit home then all of a sudden upscale voters will start listening to Republicans again and New Englanders will stop looking down their noses at them.

And all of this is assuming that the advancing recession doesn’t cause significant hardship and anger and prompt a broad political realignment.

Be of good cheer! When the other guys are in power then there is everything to play for, and the only way is up.

New Deal Put "Great" in Depression

You can’t say this often enough. The New Deal prolonged the Great Depression. If you want a book-length treatment, a good one is Amity Shlaes readable Forgotten Man, now out in paperback.

And today there’s a good article in the Wall Street Journal by Harold L. Cole and Lee E. Ohanian: “How Government Prolonged the Depression.”

The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR’s policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.

Then the authors talk numbers.

Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.

Let’s put that in a table, to make it all even more clear.

Total hours worked per adult 1929 1930-32 1933-39 Private and public sectors 100% 82% 77% Private sector only 100% 82% 73%

It’s not very pretty is it? And the reason is pretty simple. In the NRA, the government operated a wage-and-price control program to keep wages and prices up. You may remember the wage-and-price controls of the 1970s. It was different from the NRA in that it intended to keep wages and prices down, not up. The result? Inflation, big time. Not surprisingly, the NRA had the opposite effect. It kept deflation going. Fabulous job, guys.

Cole and Ohanian mention another disaster: the recession within a depression of 1937-38..

The downturn of 1937-38 was preceded by large wage hikes that pushed wages well above their NIRA levels, following the Supreme Court’s 1937 decision that upheld the constitutionality of the National Labor Relations Act.

You see, in 1935 the New Dealers passed the Wagner Act that mandated monopoly rights for organized labor. Not suprisingly, workers organized into labor unions in autos and steel racked their wages up substantially. And that impoverished the rest of the country.

This is not rocket science. When the government sets up privileges and monopolies for favored special interests, fixing prices, setting barriers to entry, mucking around with the relations between worker and employer, the people suffer. These special interests could be evil bankers, or they could be honest working stiffs. They could even be hard-working teachers in inner-city schools. The result is still the same. The people suffer.