Five by Five Reasons to Panic

Here are five reasons why President Obama won't win reelection next year, according to Jeff Reeves.

1. The Fed and Inflation
2. Persisting Unemployment
3. Voters Feeling Poorer
4. US Debt
5. Gas Prices

To counter that here is John Hawkins telling us about the five bad things that will happen when America goes bankrupt.

1. Life savings chopped by inflation
2. Taxes will skyrocket
3. Rioting and Violent Crime
4. Government entitlements will dry up
5. Reduced standard of living.

What's the difference between these two geniuses? Not much. They are just illuminating the Stations of the Cross, the road to economic Calvary that we are presently on.

The thing to remember about all the brickbats flying around--and I do my share of it--is that when the balloon goes up, it is ordinary paycheck-to-paycheck Americans that will suffer. The politicians? They will do all right, except maybe for a couple that get selected as scapegoats. The bankers and CEOs? Society needs them in fair weather and in foul. The mainstream media? They'll do just fine. The bureaucrats? Every government needs its bureaucrats. They'll still be there after the fall.

It is ordinary Americans that are going to get screwed by the coming tsunami: people with marginal jobs, people without powerful political protection. And it's a shame.

It is this understanding, that the people get screwed, that informs the conservative argument for limited government. Government is force, politics is power, government spending is waste, and government taxes are a theft of the labor of ordinary workers.

The only solution is limited government.

There has to be some government, for sure, but the smaller it is, the less it will waste, the less power that powerful people will have to boss people around, and the less that taxes will cut in on the incomes of ordinary people.

But what about the poor? What about the unfortunate? Conservatives say that the best way to look after the least among us is to remove the yoke of force, to take power politicians out of the social process of helping the helpless. In fact, the more that government does, the less that people do, and the more that social services are socialized the less that people are socialized.

A century ago the liberals told the working class that they were being screwed by the bosses. Give us your votes, they said, and we will give you what you deserve. Fifty years ago the liberals told women that they were being screwed by the patriarchy. Give us your votes, they said, and we will liberate you from male oppression.

Well, now the results are in. Life is great for the upper middle class of liberals. It is not so great for the white working class, where the number of married adults has plummeted from 83 percent to 48 percent in 50 years.

Who cares about that? We will. Because when the government defaults as the two chappies at the top are forecasting, then ordinary people will need their families and their neighbors again. Long before governments started throwing money around on social programs and long after they have stopped it, people dealt with the vicissitudes of life through social institutions, the mediating structures between government and individual like family, church, club, association.

The people that survive the panic will be the people with their own social safety net they will be the ones that scorned and mistrusted the supposed wonders of the government's social safety net.

Unlike the Union of Soviet Socialist Republics, which had four lies in its name, the government's social safety net has only three lies. For the government's social safety net is not social, not safe, and not a net.

Hopes and Fears

As President Obama begins his billion-dollar journey towards reelection there are two things he will want to remind us that really matter. First, there is the fear of another Republican presidency. We don't want to go back to that. Second, the hope for the future, to "pass on to our children a country that we believe in." He made all this clear in his April 13 speech at George Washington University. He attacks Rep. Paul Ryan (R-WI) for the pessimism of the Ryan Budget Plan.

I believe it paints a vision of our future that is deeply pessimistic. It’s a vision that says if our roads crumble and our bridges collapse, we can’t afford to fix them. If there are bright young Americans who have the drive and the will but not the money to go to college, we can’t afford to send them.

Who wouldn't fear an America like that? But there is hope.

The America I know is generous and compassionate. It’s a land of opportunity and optimism. Yes, we take responsibility for ourselves, but we also take responsibility for each other; for the country we want and the future that we share... We don’t have to choose between a future of spiraling debt and one where we forfeit our investment in our people and our country.

Let us think a little about how this business of hope and fear works. There is political hope and fear, economic hope and fear, and religious hope and fear. In China we would talk about the Three Hopes and the Three Fears.

At the political level, we talk about our fear of enemies. If you are a conservative, you fear Islamic extremism. If you are a liberal, you fear right-wing militias. Politicians are eager to lead us, to battle against the forces of darkness and lead us to the Promised Land. For conservatives that would be America, the last best hope of mankind on Earth. For liberals, it would be Peace and Justice.

At the economic level, we fear deprivation: hunger, homelessness, the Homeric horror of the man who is clanless, lawless, hearthless. But we hope for prosperity: a good job, successful career, and a nice little nest egg to ease the declining years.

In the soul, the depths of the ego, the fear is loneliness, the slough of despond, meaninglessness. We hope for salvation, for meaning, for a fullness of heart.

In the simple community all these hopes and fears are mixed together: we do not differentiate between the political, the economic, and the religious. They are all integrated in our minds. Thus is it that the modern politician, tugging at the ancient chords of memory, frightens us with hobgoblins that threaten our safety, our economic wellbeing, and our sense of meaning, and promises to lead us to peace, to prosperity, and make sense of the meaning of it all.

But the question is: what business has the politicians to talk about prosperity, when that is an economic function? And what business has he to talk about the meaning of life, or even the meaning of America? That is for moralists, for writers, for preachers.

Here we have the Great Question. In our articulated, differentiated world the politician seeks to enfold all of life into the political. But we know that when the political is folded into the religious the result is holy war. And we know that when the political is folded into the economic the result is, at best, crony capitalism and, at worst, the economic disaster of Maoist China.

Thus the Great Hope. We believe in the Greater Separation of Powers, to keep political power out of the economy and economic power out of politics. We believe in keeping moralism out of government and government out of morality.

We believe in an America where a politician that promises prosperity would be laughed out of court. What, after all, does a politician know about creating a business, and building prosperity? He knows nothing except shilling after votes. What does a politician know about morality, who taxes Peter so he can pay Paul for his vote?

Let the politicians stick to politics, defending us from enemies, foreign and domestic. Let the businessmen and the workers stick to products and services. Let the writers and the moralists stick to their appealing entertainments and their glorious visions. Let the moralists criticize the politicians and the businessmen. Let the politicians curb the businessmen when they cheat and steal. And let the rest of us keep the politicians on a very short leash and stop them short when the affect to moralize and imagine that they can manage the economy.

We're Winning

The tropes that the president used in his deficit speech Wednesday were the kind of tired talking points that you expect when you go to a liberal dinner party--any time this past 20 years.

You know how it goes. The debt problem started in the 1980s. Then "our leaders came together three times during the 1990s to reduce our nation’s deficit" so that in 2000 the nation's finances were in great shape. But then "we lost our way in the decade that followed. We increased spending dramatically for two wars and an expensive prescription drug program -– but we didn’t pay for any of this new spending."

Actually he's right. And the reason is that Republicans, following thinkers like Irving Kristol, have come around to the view that they shouldn't be the tax collectors for the welfare state. Our view is that welfare state spending all goes to Democrats, so let the Democrats raise the taxes to pay for it. On this view, the Bush 41 tax increases were a disastrous mistake, and the Bush 43 tax cuts a brilliant move.

Because now Obama is stuck with an unaffordable welfare state and he is the guy that has to start reining it in. Only he won't do it.

Now we learn that the supposed spending cuts agreed between the House Republicans and the president, the $38 billion, are in fact a mere $300 million or so. This is supposed to be an embarrassment to the Republican leadership and so it is, but it merely raises the stakes. At some point we have to cut spending and that means that the Democrats are going to scream blue murder.

Of course the centerpiece of the president's speech was the Medicare paragraph.

We will change the way we pay for health care -– not by the procedure or the number of days spent in a hospital, but with new incentives for doctors and hospitals to prevent injuries and improve results. And we will slow the growth of Medicare costs by strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services that seniors need.

He's talking about the payment commission that will set rates for procedures. It's one of the "death panels" that Sarah Palin was talking about. At least the president is consistent. He believes in the liberal myth of administrative centralism, the reduction of social cooperation to bureaucratic rules and ukases.

Ninety years ago, an Austrian economist, Ludwig von Mises, showed by administrative centralism does not work. It cannot compute prices. Prices are the means by which we allocate resources, by which any society allocates resources beyond the boundaries of the family household. If you suppress prices, in a socialist state or in a government bureaucracy, you cut yourself off from knowledge about the use of resources. Then Mises' student F.A. Hayek extended the analysis. He wrote that the man in Whitehall (the seat of British government) could never make decisions that out-performed the millions of ordinary consumers and businesses making day-to-day decisions about millions of products and services. The government bureaucrat just couldn't know more than the millions of economic actors.

Our liberal friends have tried now for nearly a century to deny these dicta. That's because the logic of government power is always the power of the politician to allocate resources to favored political clients and away from less-favored clients. But every political act in the economic sphere is a net loss to society, because it is almost certain a less-than-optimum decision when compared with the decisions of producers and consumers. So the president's policy of administrative centralism is bound to fail.

President Obama made a mistake in making his speech yesterday. Any poker player could tell you why. His shrillness was a "tell" that he is losing the argument.

In fact the president is already behind the 8-ball. To get out of the present deficit spiral the federal government is going to have to implement some pretty severe spending cuts, and spending cuts are bound to fall on the president's own supporters.

But first the president wants to get reelected.

We're not actually winning, not yet. But the president is on defense, and Republicans are moving the ball downfield.

The big test will be the goal-line stand when the welfare-state beneficiaries realize that the cuts are real and the unions and the community organizers put them into the streets to demonstrate their rage. Then we shall see.

Obama "Doesn't Have a Plan"

By now, conservatives should understand what liberals meant back in the mid 2000s when they said that "Bush didn't have a plan" on Iraq. Back then liberals were incensed that Bush's Iraq War wasn't tied off neatly with a liberal-style government in Baghdad six months after the Iraq invasion in 2003 so we could all get back to politics as usual here in the United States and talk about health care and inequality.

Who knows what the Bushies thought? But they clearly understood that the United States needed a buffer state to stop the expansion of radical Iran. They executed on the consensus in the Ruling Class in 2000 that we needed "regime change" in Iraq.

Back to Obama. To conservatives, it looks like President Obama doesn't have a clue. He is doing nothing to solve the entitlement crisis. In fact, so far in his presidency he has made it worse.

But from the perspective of the president and the Ruling Class, the concerns of conservatives mean nothing. For President Obama personally, his horizon is election and reelection. All of his current economic policy is directed at getting over the finish line in November 2012 without having to put on the brakes--which he will surely have to do immediately if he does get reelected. And as far at the liberal Ruling Class is concerned, the reduction of America to a universal centralized administrative program is not a bug, it is a feature. Everything the Ruling Class backs, ObamaCare, cap and trade, clean energy, net nuetrality, Pell Grant expansion, all this merely advances the chains for centralized bureaucratic management by an educated and evolved elite. Of course there is an unfunded deficit of $100 billion on health care. But over the next decade the Ruling Class will set up the administrative structure to share our national resources so that health care is fair and it is effective and it is equal. What's the fuss?

The fuss is, of course, that conservatives don't want an America run as a patrimonial estate by a liberal ruling class. We want an America which is, in the largest sense, creative, dignified, and free, in which the powers of the state, the economy, and the moralists are limited, an America in which you are allowed to do most things without permission, where you are allowed to keep the honest product of your labors, and in which you are allowed to ponder and develop the meaning of life, all within a social life of families and free associations.

From the conservative perspective, therefore, it looks as though Obama "doesn't have a plan." In other words, with Obama in charge there is no way to get there from here.

And make no mistake. After the president's speech on deficit reduction tonight, to conservatives it will still look as though he "doesn't have a plan."

America's Class Divide

Conservative policy supremo Charles Murray has a new book coming out about the class divide in America, between the upper-middle class, the 20 percent at the top that is doing fine, and the 30 percent at the bottom that isn't. Reportedly titled "Coming Apart," you could say the book is a sequel to Murray's book about social programs, Losing Ground. There's a great video of Charles Murray delivering the numbers here. Murray has limited his story to white America. Because the story he has to tell is not about race.

Here's the basic message. Back in 1960 about 88 percent of the top 20 percent of 30-49 year-olds was married and about 83 percent of the bottom 30 percent was married. Now it is 83 percent and 48 percent. That's right. Less than half of the working class is now married, but there's hardly been a change in the top 20 percent.

Rick Lowry of National Review extracts the rest of the details from Murray's talk.

• "In 1960, births to single mothers in the working class were just 6 percent; now they are close to 50 percent."
• "In 1960, 1.5 percent of men in the upper middle class were out of the workforce; it's 2 percent now. In 1968, the number for working-class men hit a low of 5 percent; even before the spike in unemployment after the financial crisis, it was 12 percent in 2008."
• Today, "Among the upper middle class, 42 percent say they either don't believe in God or don’t go to church. In the working class, it's 61 percent."

The next thing to do is to decide who's to blame. Well, we conservatives know what to do about that.

But the bigger question is: how do we change the culture so that all Americans can participate as full social members in American society? When you have a big chunk of the bottom 30 percent not married, not working, not contributing to society, you have a society that is not very social.

But then, we conservatives would say, what do you expect? Administration and bureaucracy, the basic logic of the welfare state, are not the characteristics of society, they are the characteristics of an army.

Budget Fear and Trembling

Yes, we know that a cut of $38 billion is nothing. But it is a start. And President Obama "the follower" is promising deficit reduction on Wednesday.

But it is counterproductive to go for the jackpot in one throw of the dice. Think what would happen if Republicans got all they wanted right now. Here's what would happen. The current crisis would recede; the alarm bells would stop clanging. Politics would go back to normal.

The fact is that the beneficiaries of government spending will only agree to cuts when they are frightened--or at least when the American people are frightened enough to harden their hearts against the usual rhetoric about women and minorities hardest hit.

The only way to get real reform of government spending and real reform of entitlements is to maintain the fear, the real fear of government default. Only in a climate of fear will the politicians reform the government.

We all get upset when the other guys use fear. Liberals hated it when conservatives chanted that "The Russians are Coming." Conservatives hated it when, back in the 1960s, liberals forecast "a long hot summer" if important social programs weren't passed. But the truth is that nothing happens unless one side or the other gets afraid.

We know how this works from recent history. Back in the early 1990s national politics was defined by the budget deficit, and Presidents Bush and Clinton used the fear to raise taxes. Speaker Gingrich used the fear to cut spending. But in 1998 the budget went into balance, and people breathed a sigh of relief. And they signed on to more spending. And more and more spending until the mortgage meltdown of 2008. Now we are back into a budget fear cycle, and the American people are afraid enough to agree to spending cuts.

Rush Limbaugh this morning is skeptical about the MSM mantra that Speaker Boehner cleaned President Obama's clock. They are just ginning up their base, he warns. But I think that some different is happening. The Democrats need to lower the expectations of their base. They need to lead them, at least for now, into a tactical retreat and still the voices calling for an all-out dog-fight. Then, after another couple of skirmishes, maybe they will call for a strategic retreat.

The number one priority for a general is to keep his army together and avoid a decisive defeat in which his army is routed and falls apart. In such a defeat a number of formations will become so disorganized that they cease to exist.

But Republicans should not seek a decisive battle yet. Democrats are too strong for that. Maybe after a year or two of dispiriting retreat and demoralizing desertions: maybe then there will be the chance for a decisive battle on the right ground that favors a big Republican win.

Chris Matthews Doesn't Get It

Discussing the Ryan Budget Plan on April 6, 2011 Chris Matthews illustrates America's big problem in the coming months and years. It's the liberal blind spot. Liberals cannot imagine an America in which the government is not paying for Medicare and the other entitlements. Here's Matthews talking with Mark Halperin and Chris Cillizza. He asks:

Why would the government stop paying the bills of Medicare patients?

He just cannot imagine it. He knows how the world works.

The government will provide the health care for seniors it has promised to provide them, or we will be out of business. The people won't elect them any more. And the government that comes along, the president who says I'm not going to pay the health care of seniors which we promised to do is in big trouble.

You see the problem here. Chris Matthews cannot imagine an America in which the government can't afford to pay for Medicare. And why should he? He's lived his entire life in a world in which the government has paid on its obligations.

But if you step out the warm glow of the present you find that governments are always reneging on their promises. Right now there are a ton of books out there that go through the history in gory detail. There is Carmen N. Reinhardt and Kenneth S. Rogoff in This Time is Different. There is John H. Wood and A History of Central Banking in Great Britain and the United States. Not to be left out is Transferring Wealth & Power from the Old to the New World: Monetary and Fiscal Institutions in the 17th through the 19th Centuries edited by Michael D. Bordo and Roberto Cortes-Conde. A more popular financial history is Niall Ferguson's The House of Rothschild.

These authors tell the story of the many, many government defaults in the past few centuries. Reinhardt and Rogoff are perhaps the most direct. When government debt payments get to about 10 percent of GDP, they argue, then chances are the government will default.

Let's look at our own governments with debt at about 120 percent of GDP (including state and local) and interest payments at about 2 percent of GDP. No problem, you say.

But suppose things change. For instance, right now in 2011 the Feds are paying $206.7 billion in interest on a debt of $15.4 trillion. That is a mere 1.34 percent interest.

Suppose that average interest rate goes up to about 7 percent in a couple of years when the debt is $17.8 trillion. Why then interest payments on the federal debt will go to $1.2 trillion. At that point we are talking about real money. But what happens if the government can only roll over its debt at 12 to 13 percent interest, as happened to Greece recently? If that happens the government will be looking at a interest bill of about $2 trillion a year crowding out Medicare at $500 billion and Medicaid at $350 billion.

I will tell you what will happen. Politicians will start making back of the envelope calculations about who they can afford to piss off. Do they piss off the government workers? The unemployed? Or to they short the geezers and fiddle around with Medicare?

I'll tell you what I think. When the government starts defaulting and people start demonstrating in the streets the politicians will figure that the geezers can go eat the paint off the walls. They will be worrying about civil unrest and riots in the inner cities. They won't be worried about seniors and their hip replacements.

You can understand the reluctance of liberals like Chris Matthews to get out of the liberal bubble, do a bit of reading, and find out what actually happens when a government defaults. It misses the point to say: "the president who says I'm not going to pay the health care of seniors which we promised to do is in big trouble." The president who says that is not saying it just because the mood takes him. He is saying it because he is already in trouble so big that the rage of 50 million seniors doesn't seem all that much of a problem.

In fact, of course, those seniors won't be angry when the balloon goes up. They will be frightened, and they will be desperately hoping against hope to retrieve something from the financial catastrophe of a government default.