How to Weaken the Welfare State

The difficulties Republicans are experiencing as they attempt to "repeal and replace" Obamacare remind us that the most difficult thing in the world is to cut a government program.

That is why the history of government domestic spending over the last century was described by Margaret Thatcher as a "ratchet effect." The best that conservatives have achieved is to stop government programs expanding, and when they are replaced by a liberal government, the progressives give another tug on the ratchet to increase the amount of free stuff.

Is there nothing we can do? Will liberals take their pipe wrenches to society and keep ratcheting away until the pipe breaks, as in Venezuela?

The fact is that our era is an age of neo-feudalism. Most people, most of the time, are content to be subordinate peasants, tugging their forelocks, and expecting in return to be protected by the lord of the manor from harm. In return for their loyalty to the Big House they expect to be taken care of. In the old days the lady of the manor went around the village handing out flannel. These days the lord of the manor hands out Social Security and Medicare to his grateful tenants.

For years, conservatives thought they would get to reform and reduce and "privatize" the welfare state, some day. But the nomination of Donald Trump ended that.

The old Republican Party was the party of the middle class and its culture of personal responsibility, to obey the law, go to work, and follow the rules, and for 30 years it failed to close the deal with the white working class that the Democrats cast out into outer darkness in 1971 when they decided that working class Archie Bunker was a racist, sexist bigot.

The reason the Republicans couldn't close the deal with the white working class is the that white working class decades ago sold themselves into welfare-state slavery with its labor unions, its pensions, its health care. It was great! But it couldn't last. And so the welfare state model imploded on the white working class. No longer could they walk out of high school into a well-paying life-time factory job. No longer was the welfare state a light burden on the workers, paid for by the middle class, for now the cost of the social benefits docks workers 25-35 percent of their wages. Once a slave, always a slave.

But Republicans hate all that stuff. We want to save for our own pensions. We want to direct our own health care. And as for education, we are slowly leaving the government education system for home-schooling. We want to privatize the welfare state, not enlarge it with the ratchet.

Too bad. Now Donald Trump has demolished the old Republican Party, and brought the white working class in by endorsing the working-class agenda. Restore the good old days of good jobs at good wages and no cuts to Social Security and Medicare.

So what are we libertarian conservatives to do?

I'd say that the key is to keep the market alive in pensions and health care. The principle is a simple one. It goes back to Ludwig von Mises back in 1918 and his dictum that socialism couldn't work because it couldn't compute prices.

But really his point is a much bigger one. He is saying that any attempt to subvert the market, by socialism or by the administrative state or buy special interest handouts, is bound to end in red ruin, because the market and its prices are nothing less than a daily reality check, and government programs are always and everywhere an attempt to ignore the reality principle.

That is why I keep reiterating my definition of government as: an armed minority, occupying territory, taxing the inhabitants thereof to reward its supporters. You can see that every act of government, and every promise of a politician can easily be fit onto this Procrustean bed. Everyone wants free stuff, a relief from the rigors of life, and everyone fights like mad to avoid the reverse experience, the horror of losing any of that free stuff and having to go out and get a job.

That is why government is always and necessarily a ratchet. There is always some new free stuff that can be conjured up and offered to the voters. And it is always electoral poison to withdraw any benefit from the ungrateful beneficiaries.

That is why Obamacare could be bullied through Congress, and why "repeal and replace" is going to be horribly painful.

But surely we can create some place, some niche of politics where we can create a space to say: OK, I'll pay my share of FICA taxes, but I want my pension from my savings and my investment. And OK, I'll pay my share of Medicare taxes, but I want to exchange my benefit for a market-based health care experience, where prices are public and ubiquitous, just like they are at Target's in-store medical clinics.

Yeah, imagine. Target has health clinics at its stores and a price list right outside! Last I checked, most everything was $99.

The benefit will be twofold. First, cranks like me will have the satisfaction of ordering our own lives without the company store owning our souls. Then, the fact of market prices for pensions and healthcare will possibly keep enough of a reality check on the government and its administrative state, and keep the whole thing from going Greek, or Soviet Union, or Venezuela.

But maybe not. If the ratchet effect is a law of nature then maybe nothing can be done, that the ratchet of compulsion will slowly extend its force over more and more aspects of life until it throttles the air we breathe.

Every civilization ends in red ruin, with the barbarians killing the men and enslaving the women, and I fear that our own beloved civilization will prove no exception.

But at least we can dream that we are not just victims of history, where the arc of civilization tends in the end towards oblivion.

And surely there is something higher and better than the clunking fist of the welfare administrative state.

Political Power is Just Not That Useful Any More

Today there are a couple of items on Instapundit about social justice warriors doing their social justice warring. One such loser is proposing that St. Patty's Day is a celebration of whiteness. The other wants us to believe that milk is racist.

It's a challenge, isn't it, to find a new issue to protest. These chaps and chapettes are really scraping the bottom of the barrel.

Of course, the joke is on the SJWs. St. Patrick's Day was a way for the Irish-Americans, then a marginalized immigrant group, to march down Fifth Avenue in New York City right past the mansions of the Morgans and the Vanderbilts and show them that the Irish were not to be taken lightly. Now, we are told, St. Pat is a racist dog-whistle for the overclass.

In my view, the millennial SJWs are being led down a rabbit hole.

What these easily-led youngsters do not understand is that political power is not the be-all and end-all any more.

You can see the error getting started with Marx in The Communist Manifesto. Marx and Engels proposed in that remarkable document that the capitalist bourgeoisie was to the proletarian factory worker as the feudal nobility was to the peasant.

Good point, Chuck and Fritz. It was a pretty sensible prediction to make back then in 1848. Only it turned out that you were wrong, for a number of reasons.

The first reason, that needs to be repeated over and over, is that the bourgeoisie, then and now, is just not that interested in power, whereas the feudal nobility most certainly was. The difference is, of course, that the business of the bourgeoisie is business, the understanding, the manipulation and exploitation of the market and the consumer. The business of the feudal nobility was politics. They started out as the lords of their lands, almost independent of the kings and princes that ruled over them. And every Harry Hotspur fancied himself the equal of the monarch that ruled over him. In due course, with the rise of the absolute monarch and the taxation of merchants, the feudal nobility got taken down a peg or two. But they still believed in politics.

The point to grasp is that the nature of society has profoundly changed due to the industrial revolution and the rise of the market economy and global trading. Used to be that the foundation of wealth was land and its food-generating potential. The great feudal barons were land-owners. If you owned good rich acres and defended them against rival landowners you were rich and you were powerful.

But now the rich and the powerful are differentiated. There is now a political sector that specializes in power and politics, and there is an economic sector that specializes in invention and production and distribution and trading and consuming.

When Matthew Josephson (a rich kid) wrote The Robber Barons about the 19th century industrial magnates he completely missed the point. These men might have robbed, but they were also lowering the cost of steel by 65 percent, and the cost of illuminating oil by 90 percent. They were innovators, producing new products at low prices. And when they retired they created charitable foundations to give money away. And the beat goes on. When I bought my first personal computer in the early 1980s, courtesy of Bill Gates and his MS-DOS operating system, the price was about $1,600 and it seemed like a complete bargain compared with the $30,000 you would need to buy a minicomputer. But now I can buy a Chromebook for less than $200. Who cares if the Microsofts and Googles and Apples are robber barons? I still get a computer for $200 and very likely less.

So now we have Elon Musk, the king of crony capitalists. But he is in the middle of a reckless process of reducing the cost of launching a satellite from $360 million to $30 million, and the goal is $10 million per launch once his reusable rocket boosters are really up and running. No doubt he is an outrageous manipulator of the political system. But his dream is to get to Mars.

When the whole world is for sale it doesn't matter too much what race or gender the worker is. What matters is the price. For sure, if you are black or Hispanic you face speed bumps because people are hesitant to hire you. But then today people are probably hesitant to hire a white guy in tech, compared to an East Asian.

The fact is that the left today is the most remarkable reactionary movement in history. It is saying that power, political power, is the only thing in an age when the evidence is that political power is the problem and is on its way out.

I wonder if we will look back at the 20th century as the last hurrah of the age-old truth that political and military power, the ability to defend your borders and keep the pirates and plunderers at bay, was the important, indeed the only thing.

Trump's Budget: More for Defense

President Trump's FY18 Budget Blueprint came out this morning.

And the numbers are up on usgovernmentspending.com. You can compare the Trump FY18 budget numbers for 2018 to Obama FY17 budget numbers for defense here.

Well, you can't see the whole budget but just the "discretionary" portion of the budget. And the message is simple. There is $54 billion more for defense and $54 billion less for everything else.

Let's see. $54 billion in a $1,065 billion discretionary budget? That's a change of about five percent. Or one percent over the whole $4 trillion budget. Yay!

But, of course, it gores a bunch of liberal sacred cows:

Agency	FY18 Change in $ billion
Agriculture	-4.7
Commerce	-1.5
Defense	+52.4
Education	-9.2
Energy	-1.7
Health and Human Services	-12.6
Homeland Security	+2.8
HUD	-6.2
Interior	-1.5
Justice	-4.0
Labor	-2.5
State and Intl Aid	-10.9
Corps of Engrs	-1.0
EPA	-2.6

It's all in Table 2. 2018 Discretionary Overview by Major Agency, in the Trump Budget Blueprint.

All this is in "Budget Authority," which is not the same as actual spending, or "Outlays." And it represents $1,065 billion out of a $4,000 billion budget. The remaining $3 trillion in "mandatory" spending is yet to come.

And with the rest of the budget will come the all-important Historical Tables on which the data in usgovernmentspending.com is based.

What about the mandatory spending? Right now, FY18 spending for Social Security is budgeted at $1,031 billion and Medicare at $608 billion. President Trump says he is not going to touch them, so that's all right. Then there is Medicaid at $568 billion and I don't know what will happen there, what with Trumpcare and all.

I suppose all liberals all over the nation are going to be screaming their heads off at this budget. Why is this?

The answer is that the programs that liberals really love are the regulatory programs that employ liberals to order the rest of us around. Most of the federal budget consists of handouts of free stuff to middle-class people that cannot be touched. But where liberals really live is where the power lies. And for the last 100 years, power issues from the arbitrary rules and regulations of the administrative state. To make us safe. To save the planet.

I am always amazed at how we manage to scream and yell about the tiniest things in politics. Wow! A cut of $2.7 billion at the Environmental Protection Agency! It's the End of the World!

If only.

But I tell you what intrigues me. It's the $4.0 billion cut at the Department of Justice. There is nothing about this in the one-page summary for the Department of Justice in the Blueprint. There is a cryptic note about "mandatory spending changes involving the Crime Victims Fund and the Assets Forfeiture Fund." So what is going on?

Could it be that the Trumpists are taking the "negative spending" from fines and asset forfeitures away from the Justice Department and putting them into the general revenue -- you know, taxes -- that goes direct to the Department of Treasury.

If I were president, I would eliminate all "negative spending" where individual agencies get to keep monies like fees and fines and Medicare premiums instead of the money going to the Treasury.

In my administration all money collected by the Feds would be general revenue, and all money would go through the Treasury.

Why Personal Debt is Different from Government Debt

This morning I got an email from a reader who asks about the prudent limit of personal debt vs. government debt. He writes:

it would be reasonable for a couple with annual income of $115,000 to carry debt of $400,000 on a home mortgage, $30,000 in car loans and $15,000 in credit card and $10,000 still owed on college loans for a total debt of $455,000. It could therefore be said that their debt is 4 times their annual income. If we look at our national debt of 16 trillion and our federal annual income from taxes and other sources at an estimated 4 trillion then the ratio of total debt to annual income is 4 times; the same as my household example.

Now I disagree with this, on the grounds that personal debt is very different from government debt. But first of all I must set forth my fundamental belief about debt, that I got from Walter Bagehot's 19th century classic about the credit markets, Lombard Street.

Bagehot proposes two things needed to avoid a credit crash.

First, people with debt must be able to service their debt. Obviously, if people do not pay their interest then the whole credit system goes upside down.

Second, debt must be properly collateralized, so that it can be liquidated when a borrower fails to service the loan. This is a confidence issue.

You can see that both notions applied to the real estate crash of 2008. In reports of the developing crash you heard a lot about "counterparty risk," the worry that the other party in a financial transaction was solvent. This applied both to the risk that the other party might stop servicing the loan, and also that the loan could not be liquidated by selling the collateral. Just as Bagehot wrote.

Now I believe that personal debt is not the harmless act we are taught to think it is. Personal debt is, in fact, a high-risk bet on the future. The family that takes out a big mortgage is betting that it will still have a job in 5-10 years, or that the price of its home will still be high enough in 5-10 years to liquidate the debt if the family had to sell. Obviously this is not true during a crash when home prices decline and jobs are scarce.

In fact, I believe that a family home is an equity play. If you need to get money to buy the home then the investor in your home ought to have an equity share, rather than be a simple creditor. Same thing with student debt. A student has no clue what kind of income he/she is going to earn in the future; nor does the student have any way of liquidating the debt, because there is no collateral. Student debt is an equity play; people financing students should be equity partners in the student's future earnings.

National debt is a horse of a different color. The national debt is in fact the ruling class betting the whole country on its policy. Normally, of course, the national debt is accumulated in a war, where the bet is pretty obvious. Win the war, and the government pays off the debt. Lose the war, and the government repudiates the debt and impoverishes the people.  The other big use of government debt is in the wake of a financial crash. The same principle applies: the government bets the whole country with an increase in debt to avoid a total credit collapse. You can see that on this view government should be running surpluses except during war or financial panic.

(By the way, the $700 billion TARP bailout was the least of the government's actions to rescue the economy. The total bill of bailouts and guarantees was more like $20 trillion. See my TARP bailout.)

When the government diverts a flood of credit to keep insolvent borrowers afloat after a crash it may rescue the borrowers and the credit system, but there is a cost. The cost is what we have seen in the Obama economy, with growth struggling along at 1-2 percent per year. The same thing happened after the Crash of 1873, the Crash of 1929. Moreover a ton of distressed borrowers after 2008 struggled along in their underwater houses, did not move to a better job opportunity, could not use their home equity to start a business. But this cost is better than the alternatives of wholesale debt default or hyperinflation.

So my opinion is that both high personal debt and high government debt are bad. There is far too much personal debt out that that is not properly collateralized and this debt puts the whole credit system in peril, and government debt is not debt at all, but a kind of national equity play. In my view we should convert a lot of debt, personal and governmental, into equity, where the investor is knowingly betting on a high risk proposition.

Is the current government debt dangerously high? No, but it makes it harder to pay for entitlements and more likely that government will default on its debt to pay Social Security and Medicare, and default on Social Security and Medicare with monetary inflation.

Could government have got out of the Great Recession with a bigger and better stimulus program? I doubt it. Government spending goes to powerful and politically connected interests. If their plans and projects were so brilliant they would not need government credit and subsidies. So it is likely that most stimulus spending is crowding out more beneficial uses of the nation's treasure to pay for the wasteful plans of the rich and powerful.

The go-to book on crashes is Reinhart and Rogoff's This Time is Different. They argue that government typically increases national debt by up to 100 percent after a financial crash. And they also point out that governments default on their debt all the time. In the Great Depression the US government went off gold, giving holders of US dollars a haircut, and it reset the interest rate on war bonds from World War I, giving widows and orphans a haircut. They argue that whenever a government gets to a debt of about 100 percent of GDP it is getting into dangerous territory. Note that The New Yorker thinks that Reinhart and Rogoff are all wet.

Anyway, my view is that personal debt is too high, and insufficiently collateralized when you can get 100% mortgage loans. Government should not borrow except for wars and crashes, and the high rate of government spending makes it harder to fight wars and recover from financial crashes.

We ought to convert a lot of the present personal debt and government debt into equity and recognize the real risk in many financial transactions.

Oh No! 14 Million Will Lose Their Insurance!

Considering that the Congressional Budget Office is the very incarnation of the expert-led administrative state, it is amazing how they manage to provoke end-of-the-world headlines.

Apparently, under Ryancare, 14 million Americans will lose their health insurance.

Oh wait.

[T]he assessment by the CBO... said most of the immediate increase in the uninsured would occur as a result of doing away with the individual mandate. "Some of those people would choose not to have insurance because they chose to be covered by insurance under current law only to avoid paying the penalties, and some people would forgo insurance in response to higher premiums," explains the CBO summary.

Ah so! What we have here is sensible Americans without significant assets that sensibly understand that they get nothing from health insurance. So why sign up?

But wait! These people are free-loaders, deadbeats, that are trying to weasel their way out of paying their fair share of the nation's health care costs.

So? What about people on Medicaid? What about geezers like me on Medicare? When is the nation going to get into a tizzy about us failing to pay our fair share?

After all, this is the welfare state. The whole principle of the welfare state is to hand out free stuff to the people in exchange for their vote.

Very well. But two can play at this game. If you ruling class grandees aren't handing out the free stuff to me, directly, in cold hard cash, then why in tarnation should I submit to your evil tax and compel regime without a peep? Just so you can get the support of some other freeloaders and get elected once again?

Because if I am a white working class deplorable without significant assets then the sensible freeloader thing for me to do is to skip health insurance, dump myself in the ER when I get sick, and then declare bankruptcy when the bills come due.

People do that, all the time. I had an acquaintance down the street that had run up tons of bills on credit cards and dumped the whole thing in bankruptcy with the help of a friendly attorney. But he got to keep his car, because people need a car to get to work. And, of course, he didn't have a home mortgage, he rented.

More and more, I am liking the idea of Donald Trump. Instead of throwing up his hands and saying "Oh no! 14 million uninsured!" he is saying that we need to let the sucker "implode." Really, that is what we are paying for when we vote for a president. Genuine brass balls, Queens edition.

The cunning in that kind of strategy is that the freeloaders need to be afraid before they are willing to deal. It is easy to demand your entitlements when everything is copacetic. But when the writing is on the wall, and the whole health care system is going down the tubes, we welfare-state freeloaders are likely to be willing to compromise on half a loaf instead of the whole entitlement loaf we are used to demanding as our "right."

But here is a question. I'd have to think that the people losing out on Ryancare were never going to vote for a Republican anyway? So I wonder how much of a downside occurs if the 14 million become uninsured.

Maybe the difference is that the losers get angry and actually get out and vote.

Deep State? What Deep State?

My man Kevin D. Williamson had some fun Sunday with the eternal need for culprits and demons. First it was "neocons," he explained -- not to mention Jewish bankers, etc. Now it's the Deep State, the criminal cabal deep in the heart of the intelligence community and the federal government.

But the next day, Monday, he wrote about how almost all corporate execs are patsies for the liberals. Apart from the fact that they all went to the same schools as the liberals, there is the unfortunate fact that, as William H. Whyte wrote about The Organization Man in the 1950s,

the capitalists are not prepared to offer an intellectual defense of capitalism or of classical liberalism. They believe in something else: the managers’ dream of command and control.

So those eevil corporate CEOs, who the left has never ceased anathematizing, are part of the Deep State as well!

The truth is worse than that. First,

Liberals believe in an elected administrative state, with top-down command and control.

Lefties believe in a revolutionary administrative state, with top-down command and control. and finally,

Corporate CEOs believe in a corporate administrative state, with top-down command and control.

So everyone agrees, right?

Well, I don't. I think the top-down argument is bollocks, as the Brits say.

I take my text from people like Deirdre McCloskey, who argues that the unprecedented Great Enrichment of the last 200 years came not from top-down administrative ukase but from innovation from below.

Or from Matt Ridley, whose Evolution of Everything makes the same point, only follows the Eisenhower doctrine of making the problem bigger.

The point that McCloskey and Ridley are making is that nobody can stop the world and make it comfortable for themselves and their progeny forever. The world changes; the rules change; and you'd better be ready to change with it, or you are toast.

In other words, the top-down command and control culture is utter folly. There is no way you can run the world, or the universe, from the top. While you are focusing your executive energy on one problem the world will be coming to an end from the host of problems that you and your crack assistants have neglected.

The rise of Trump is a prime example of the folly of top-down thinking. Here we had coastal liberals living in their coastal bubble and making the rules for the rest of us in our own best interest. Everything was under control with the lightworker President Obama.

Meanwhile the white working class was dying of despair in the coal belt and the Rust Belt. Who knew?

Actually, Obama knew. When he talked about "bitter clingers" back in 2008 he was talking about exactly that, the factory towns where the jobs left 20, 30 years ago and never came back.

But he didn't do anything about it. Because he believed that the answer to America's problems was top-down race politics, top-down healthcare politics, and top-down financial politics. The plight of the white working class came way down the list. And anyway nobody in the liberal activism world cared about the white working class.

Never mind that the despairing white working class is the victim of the previous generation's top-down welfare state class politics which won working-class votes by giving the white working class free stuff, and then cast them off when liberals switched from class politics to race and gender politics.

So yeah. The Deep State notion misses the point. It's not just a few liberal bureaucrats that are the problem. It is just about everybody, because there are very few people in this world who honestly and consistently vote for and believe in the bottom-up notion of evolution and innovation.

The reason is quite simple. Nobody can get their heads around the notion that, sooner or later, their life, their family, their tribe, their civilization, their species, will be over. Surely there must be eternal life to take care of that.

But Steve Bannon believes just that, at least as far as the admininstrative state is concerned.

The reclusive mastermind behind President Trump’s nationalist ideology and combative tactics made his public debut Thursday [at CPAC], delivering a fiery rebuke of the media and declaring that the new administration is in an unending battle for “deconstruction of the administrative state.” 

Yay.

Can Trump Save the White Working Class? Or America?

Who is right? Is it the globalist elite that tells us to abandon the nation state and submit to the fierce tides of the global economy?

Or is it Trump, who promises to invigorate the national economy and national spirit and Make America Great Again?

The short answer is: Neither.

I'd say that the global elite is right that the global economy is going to transform everything, no matter what local populists say. On the other hand I'd say that a global administrative elite is not the model that any wise Latina would choose to govern the world of the future.

I'd say that President Trump is right to propose a regulatory rollback and tax-rate cut. And I dare say he is right to halt the crony capitalist trade deals. But we are never going to get the white working class back to the good old days of graduating high school and getting a job-for-life at the unionized steel plant down the street.

Moreover, while it is true that the globalist vision of global governance by a wise and evolved bureaucratic elite is rubbish, it is also true that today's nation states will one day go the way of the German Empire. And the Soviet Union. And the Ming dynasty.

We all like to rag on the alt-right, but they are right when they say that migration equals invasion.

Who do you think the Lombards were? They didn't always live in Lombardy in northern Italy. They were migrants that invaded across the Alpine passes. Or the Vikings. They were running all over northwest Europe for about 300 years from 800 to 1100. When they had finished Britland had a Viking monarchy by way of Normandy -- because the Normans were Vikings that the Franks allowed to settle in northern France.

Or North America. There was a migration! It utterly wiped out and swept aside the inhabitants of North America and substituted a migrant culture from northwest Europe. Hello USA!

So what about today's migrations out of Africa and the Middle East into Europe, and out of southern and central America into the United States?

Let's look at the record of northwest European migration of the last half millennium.

Where Europeans encountered nomadic or early agricultural cultures they generally wiped them out; and it helped when European diseases wiped out the original inhabitants. When the Europeans encountered Africa, where the diseases killed Europeans, or where the Europeans encountered the great civilizations like India and China, the Europeans dominated for a century or two, but eventually retreated. India is still India today; China is still China.

The histories of India and China are salutary. India has suffered successive invasions from the Asian steppe, yet every time has lived to tell the tale. China has suffered successive times of troubles, including the Yuan dynasty from Mongolia and the Manchu dynasty from Manchuria. But Chineseness has always succeeded in the end.

And even the end of the Roman Empire was not really the end. The Franks and the Germans thought of themselves as inheriting the Roman Empire and carrying it on. That is what curious notions like the Holy Roman Empire of the German Nation were all about.

Let us just say this. The rise of migration in recent decades coupled with the aging of the left's welfare state and the decline of metal-bending manufacturing has put everything in flux and created a feeling that things are not copacetic, and that Something Must Be Done.

What is the right response, culturally, economically, and politically?

That's a good question, Senator.