Browsing the blog archives for January, 2011.

The Folly of the Freeze

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In his State of the Union address, President Obama proposed a five-year spending freeze to address the ballooning deficit. Some conservatives might consider this to be a baby step in the right direction, but I reject it outright. There are several fundamental problems with the proposal.

First, Obama assumes that current spending levels in various government agencies are appropriate, more or less. But current levels evolved from previous profligate Congressional spending, most notably that in the last Congress. If Republicans accept the notion of a freeze, then they are passing on an opportunity to reassess the entire budget.

Second, like most budget freeze proposals, Obama’s proposal exempts a big chunk of the budget. In reality, the President’s initiative addresses only nonsecurity, discretionary spending, about 15% of the total budget. This is more about symbolism than substance because total spending is guaranteed to rise.

Finally, the notion of a freeze ignores the historical pattern that underlies budget deficits. Liberals are constantly calling for more spending, whether to turn around a struggling economy or–as Obama put it–to foster innovation and competitiveness. The net effect over time has been a constant and substantial growth in government. Tax increases are never enough to solve the problem because more spending lies around the corner.

The truth is simple. The national debt is a spending problem, not a tax problem. The only way to resolve it is to CUT spending. In the absence of a sophisticated agency-by-agency proposal, perhaps a 20% across the board cut might make sense for starters. Members of Congress could propose further cuts in some agencies and possible increases in others AFTER the new, lower agency baselines are implemented.

In the end, it’s all about CUTTING, NOT FREEZING. This is real change we can believe in.

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What Schumer is not telling you

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New York Senator Chuck Schumer is calling for legislation that calls China on the carpet over its currency manipulation practices. According to Schumer, “we are fed up with your government’s intransigence on currency manipulation. If you refuse to play by the same rules, we will force you to do so.” It is true that China’s manipulation of the RMB (yuan) exchange rate unfairly penalizes American firms. Frankly, it is nice to see a Democrat point out Obama and Geithner’s inability to address this issue during the past two years. But aside from the political grandstanding, there are several things Schumer is not telling you.

First and foremost, while the Chinese currency situation contributes to U.S. economic problems, it is hardly the sole cause of the current predicament. The housing crisis is the real boogieman, and it resulted from years of U.S. government interference in the housing market. During the past two years, Obama’s incessant attack on business, wealth, and success in general has stymied the recovery altogether.  I believe the President’s constant manipulation of U.S. business activity has done more harm than China’s currency exploitation. We can’t blame poor economic policy on Hu Jintao.

Second, China is not the only nation guilty of self-promoting financial intervention. In fact, the Chinese and others have complained about the uptick in U.S. interference in global markets. The Federal Reserve’s ongoing plan to purchase $600 billion in bonds will weaken the dollar relative to other world currencies. Brazil’s Finance Minister Guido Mantega referred to this action as throwing money from a helicopter. He was right.

Finally, the U.S. debt to China is exceeds $1 trillion and continues to grow. Our increased debt finances China’s exports to the U.S., but this is not Beijing’s fault. We’ve created this mess on our own. Recent “stimulus” packages and big spending programs only fuel the fire.

The point here is that Obama, Schumer, and the Democrats—and even some Republicans—have taken action over the past two years that has stifled the U.S. economy. They’d like for you to focus on the RMB exchange manipulation—as if China is solely responsible for the current state of the economy—but this is only one part of the overall problem.  Schumer might be right in this instance, but it’s high time for some intellectual honesty. If we are going to demand that China respect a relatively free and open global market, then we must do the same.

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The problem with “the people”

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I’ve grown tired of the left’s flippant use of “the people.” New York Representative Louise Slaughter provided us with the latest example over the weekend in light of the Arizona tragedy. Arguing that conservative politics is somehow responsible for the behavior of a lunatic and that an FCC clampdown is in order, Slaughter remarked: “No one owns the airwaves…They are owned by the people.” This kind of statement not only sounds plausible at first glance, but even conservative.

But here’s how you can determine what leftists really mean when they make such grandiose statements. Just substitute GOVERNMENT for PEOPLE, and it’s easy to understand. Let’s follow her example.

If the airwaves are owned by the people, then why does she seek to restrict the rights of various individuals to speak their minds? And who would decide when someone’s speech is out of line? You guessed it–the government. The implicit assumption here is that the government is merely an extension of the people, but a cursory look at the current fiscal mess provides clear evidence to the contrary. As a force, the government moves in its own direction, sometimes with “the people” and often against them. Giving additional power to the government in hope that its application of that power will necessarily reflect the will of the people is folly. This is why the founders established a system of limited government with specific enumerated powers.

Slaughter makes another implicit assumption that is common to the left, the idea that vigorous political debate can spark uncontrollable violence. Put a different way, she assumes that many Americans just aren’t up to listening to the arguments the day and making their own decisions. Whether the issue is social security, healthcare, or regulation of the media, socialists lack confidence in each individual to make his or her own decisions. This is the ultimate justification for big government.

So what’s the best way to ensure that “the people” have their say in the battle over the airwaves? Just let them decide what to watch or listen to on their own. When some conservatives complain about the language and adult content in many of today’s sitcoms, the left tells them to change the channel. Why isn’t this advice good enough for talk radio or Fox News?

In a strict sense, “the people” really don’t own the airwaves anyway. Radio and TV frequencies merely exist; they are not owned by anyone. In a nutshell, the government’s role is simply to maintain an organized system so that multiple broadcasters down fight over the same frequencies in the same market. Arguably, even this could probably be done more effectively by the private sector.

Capitalists are free to use the airwaves to the extent that they can do so profitably. The most popular TV shows and radio personalities win, and those with smaller followings struggle to survive. Once again, capitalism serves the needs of “the people” best. Unfortunately, it doesn’t serve the needs of the left.

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The Bolivian Crisis

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Bolivia’s president Evo Morales is a minor league Hugo Chavez. Like Chavez, he is leading his nation down the socialist road to ruin.

The Morales regime has promoted the typical left wing solutions to an economic downturn: price controls, hikes in the minimum wage, subsidies for popular commodities, and the like. Collectively, these measures remove incentives from the private sector, thwarting initiate and innovation, and promoting price inflation, unemployment, and social unrest.

Morales finally figured out that his hefty subsidies were a boon to smugglers and tried to cut them last week. He changed his mind after fuel prices spiked by 80% and union riots all but shut down the country. Morales can’t even seem to satisfy Bolivia’s hard left. Large sums of foreign direct investment have left the nation. Without oil to fall back on, Bolivia’s economy is sliding into the abyss.

So why should we be concerned about a small South American nation like Bolivia? Well, there are lessons for us. First, socialism—especially the heavy-handed version seen in Bolivia and Venezuela—always stunts economic growth. Sure, other factors are involved as well, such as education levels, culture, and natural resource reserves. But all other things equal, free markets promote growth and centrally planned markets stifle it. This is why Bolivia’s neighbors Peru and Chile have grown substantially in recent years.

Second, violence is an inherent component of Marxist ideology. Wealth in market economies is allocated based on economic contributions. Doctors earn more than street sweepers because they perform a task with a higher market value. Wealth in socialist economies is allocated (or at least controlled) in significant part by government. Getting a raise in a market economy is all about working harder or smarter. Getting a raise in a socialist economy is all about securing government favor, which encourages collective disruptive action. The nature of the disruptions vary among countries, whether it’s the murderous regime of North Korea or the destruction of private and public property in anti-government protests in Europe.

Finally, what we are seeing in Bolivia is an amplified version of what we are experiencing in the U.S. Unlike nations like Bolivia, we have the good fortune of starting with a strong, established market-driven economy (more or less). The steps we’ve taken toward socialism in the last 2 years—bailouts, GM, Obamacare, and the like—may not be as drastic as in other nations, but they have been substantial enough to stunt an economy that should have already been well past the current recession. But don’t kid yourself. The welfare state in the U.S. is costing taxpayers more and more. When the day of reckoning finally comes, those in the recipient class won’t go down without a bitter fight. And if you think this can only happen in the developing world, just ask the Europeans.

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