-By Gary Krasner
The debate over the debt crisis and the S&P downgrade of Treasury bonds last Friday revealed some remarkably ignorant claims from the left on economics. This tutorial, or polemic, addresses some of them. But before I delve into the conservative view, a new convert to it, David Mamet, may have hit upon a reason liberals have no practical solution to the crisis, or a viable alternative to free market capitalism, for that matter.
In his book, “The Secret Knowledge: On the Dismantling of American Culture”, Mamet argues that in the West’s abandonment of Israel, liberals do not care that Palestinian claims are insoluble, exaggerated, unjust, or skewed. To care about those salient details would require them to actually do something, which would end their enjoyable, responsibility-free position as sideline viewers.
An additional observation he makes is that as in any confidence game, the liberal “is flattered that he, in contradistinction to his benighted countrymates, has been chosen to advance the policies and the doctrines of Liberalism.” In endorsing them, he is one of the Elite, “one of those empowered to eradicate those historical evils entailed upon humanity because of the unfortunate delay of his advent.” Mamet quotes Obama from his victory address in Chicago in November 2008: “We are the people we have been waiting for.”
These two unflattering traits helps us understand why liberals have not gotten capitalism right. The first one explains why liberals find capitalism unnacceptable, yet have not come up with a better system that’s sustainable. The second one shows liberals to be overly concerned about themselves—-to be accepted into the herd of exceptional people—as measured by their expression of emotional engagement for the downtrodden.
That is why, as Mamet notes, the Left doesn’t evaluate the consequences of its programs. Their programs are INTENDED to help, thus they are good. The “analysis” stops there. Agencies of government have only one obligation—-to expand. And dissenters (i.e. conservatives) are vilified and shamed into silence. You want smaller government? You must be an evil, uncaring person. Or a racist, since the election of Obama as President. Mamet argues that the end stage of this trend is dictatorship.
Conservative self-analysis is more honest. Mamet writes that they ask, “What actually is the desired result of any proposed course of action? What is the likelihood of its success, and at what cost?” Whereas when liberals are challenged, they blame the failure of their programs on “underfunding”. The altruistic INTENT—-to create the idealic state—-is what matters to liberals. If someone is poor, give him money. Who’s money? Not the liberal’s. Remember, he’s just a sideline viewer. Someone else’s money. Or if there’s no money, print it. What are the economic, social and moral consequences for the giver (taxpayers); for the recipient, over a long period of time? For the nation? For the economy?
Liberal sensibilities cannot contemplate those questions. They leave it for the adults to deal with, then they use political demogoguery to bludgeon the adults for their efforts. Conservatives, Mamet realized, accept the “tragic view of life—-the adult approach in which choices must be made from finite resources. Some will lose and some will win. He considers this Western tradition to be based on the Bible’s view of Man’s imperfections and flaws. That there are no solutions—just tradeoffs.
Liberals believe the reverse is true—-that there are always solutions, and there are no tradeoffs or hard choices to make. Their solution is government. Outspoken liberal, actor Matt Damon recently said that the rich should pay more in taxes. He modestly suggested 6% more. As other liberals, he believes that if you earn more than what most people think you need to live well, then the government has the right to take the remainder of what you earned. Why? Because the government knows best what to do with your wealth. You may want to invest it in a neighborhood restaurant, or even give it to a worthy charity. But your judgment on where YOUR wealth should be sent is not as good as that of government bureaucrats and elected representatives. (Some of the people who get confiscated wealth are cronies of government.) The general public—-especially recipients of taxed money—-never object to this arrangement, until THEIR discretionary income is deemed taxable! Then all of a sudden, there’s moral outrage directed at the collectivist, confiscatory model.
Perhaps Mamet is right about these opposing sensibilities. After all, he was among liberals for a long time. At any rate, with that introduction, here’s my short, layman’s argument for the conservative, free market, small government approach.
Centralized, collectivist systems failed because they were stagnant and didn’t expand. Free market capitalist economies can also fail, if they don’t grow. They grow when wealth is created. Wealth is created when work is performed that yields products and services that people purchase. The people of Greece work less than the people of China. Their national debts and growth rates tell the tale. Most European nations have been living off the wealth they created during the prior couple of centuries. Now they realize the party is over.
Wealth is measured in profits. It’s the most important measure of HOW WELL a business supplies products or services. Profits are ALSO the appropriate incentive in investment and business performance. The increase in wealth and profits increases jobs and incomes. That’s how it’s been before Obama, and that’s how it will be long after this street organizer-in-chief is through demonizing innovators and risk takers who have the gall to expect profits to be their rewards! And it was hypocritical of Obama to criticize the opulent incomes of business executives, but not of Oprah Winfrey, Kobe Bryant, or George Clooney. Then in 2011, amidst record unemployment and the public taking reductions in wages, Obama raised the salaries of his top 20 White House aids by an average 48%, and Vice President Biden has been charging the Secret Service $13,000.00 per year in rent to house the agents in charge of his protection. These items were reported by Dick Morris, former advisor to President Clinton, because the mainstream media had not.
So, private profit-making businesses create wealth, profits, and consequently, jobs. Government doesn’t grow the economy through taxation, because wealth from taxes isn’t created. It’s only a transfer of wealth. It’s money taken from people who earn more of it, and given to people who earn less of it. If you scoop out a cup of water from one end of the pool, and pour it into the other end, did you increase the amount of water by one cup?!
So, taxation doesn’t help the economy. It’s net effect is a drag on it—-an expense. States today cannot even meet their overly generous pension and benefit obligations to public employees—-which 95 percent of it comes from tax collection. The government would have to borrow or print money in order to employ more people today. It now takes the taxes of about 3 private sector workers for government to afford salary and benefits of the average government worker.
Thus, it is wealth and profits which creates jobs. Not government. What passes for the future of liberal intelligence—-supposed wunderkind, Ezra Klein—-claims that it would stimulate the economy if we extend unemployment insurance—-that is, payments to people not to work. I phrase it that way because studies show those who get work seem to find it just a couple of weeks before their unemployment checks will end. Most of the money from unemployment insurance helps to pay for rent and utilities. That does not stimulate the economy. If it did, then Greece would have greater economic growth than China right now. Government payments to ANYONE—-whether it’s for necessary or unnecessary services—-is an expense. An outlay. Very little of it expands the economy comparable to the degree its expanded by wealth creators in the private sector.
If taxes doesn’t help the health of the economy much, would taxing the rich at least reduce the deficit? No. Obama and Democrats are wrong about that too. Do the math: In 2009, if you confiscated every dime of the $240 billion earned by the 8,274 Americans whom the IRS defines as “rich”, you would barely have enough money to cover government spending for 18 days. http://blogs.dailymail.com/donsurber/archives/39534
NOTE: Obama’s annual deficits average $1.5 trillion a year. The average annual budget deficit during President George W. Bush’s presidency was $250.7 billion: http://politicalticker.blogs.cnn.com/2010/01/30/cnn-fact-check-is-the-annual-deficit-under-obama-12-times-the-deficit-under-republicans/
But it never mattered what the top rate has ever been. The gross tax receipts from top rate payers has never exceeded 20 percent of earnings, because as the rate increases, the rich have managed their money in ways that avoids taking the full hit of the top rate. But as JFK and Reagan demonstrated, reducing the tax rates stimulates the economy, and thereby increases gross tax revenues despite that reduced rate. Ronald Reagan cut taxes, taking the top marginal rate from 70% down to 28%, and the amount of revenue to the Treasury doubled in eight years. Another reason revenue increased was because there was more money in the private sector for investment in business, which yielded more profits, which yielded more jobs, which yielded more Americans who paid taxes.
Liberals find it unfair that some people are so much richer than others. Yet the rich do pay a good share of taxes. Today, the top 1 percent of tax filers pay nearly 40 percent of the tax receipt. The top 5 percent pay 60 percent. Meanwhile, more than 43 percent of filers pay no income tax at at all. Many receive a check (or “tax credit”, which is a transfer payment from the top earners to the rest of us). Ironically, the rich would actually be paying more in taxes if we had a 3-tiered flat tax with no deductions—-something liberals oppose.
At this point, we may as well dispose of another liberal canard: That Bush’s “unpaid for” wars in Afghanistan and Iraq, the Bush tax cuts of 2001 and 2003, and the recession are all to blame for todayís deficits. But as Heritage.org shows, “one simple number explains it well: the budget deficit figure in 2007—the last Bush year prior to the recession. The tax cuts were in full effect, both wars were raging, and the recession had not yet struck, yet the budget deficit in 2007 was $160 billion, or about a tenth of Obamaís deficit this year.” http://blog.heritage.org/2011/07/28/the-truth-about-obamas-budget-deficits-in-pictures/
On the subject of defense spending alone, it accounted for 4% of GDP under GW Bush. During WWII, it accounted for 34%. According to Center for Arms Control and Non-proliferation, in 2007, the US spent $660 billion on defense. Europe spent $350 billion. If you tally all the continuing resolutions to pay for the wars in Iraq and Afghanistan, the amounts never exceeded 10% of the US budget during the Bush years,
So then what IS the cause of the mounting deficit crisis? As Republicans have argued, it’s (1) the drastic increase in discretionary domestic spending, (2) the growth in entitlement obligations, and (3) the poor growth in our economy. Other spending myths are addressed here:
http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/
On the latter point, why is government expanding at a record low of under 1 percent under Obama? Because Obama’s policies that affects business has discouraged private investment. He continues to villify and threaten to penalize the top 2 percent of income earners—-which includes those earning $250k and above, as well as the profits of thousands of small business owners and investors in that category. And even after S&P’s downgrade of US Treasury notes—-because our debt-to-GDP ratio is heading past 80% within 3 years—-Obama was out there proposing even more spending programs to supposedly stimulate private investment! This is insane. As the Wall Street Journalís editorial noted on August 8th, following the downgrade, debt-to-GDP has shot up over 40 percent since Obama took office. James Fitzgibbon, director of the Highlander Fund, notes that our debt-to-GDP ratio is actually 135%: “You have to add in Fannie Mae and Freddie Mac to the US Government public sector debt to get the correct debt balance of $20 trillion vs. a GDP of $14.8 trillion.” Obama is responsible for two-thirds of the national debt after just 2 years in office.
When Obama villifies and penalizes successful businesses (like the oil companies), investors or skilled professionals (except ultra wealthy hollywood actors and producers), you will get little growth, more unemployment, and a decline in real wages. That, in turn, will cause Keynsian liberals to spend money that doesn’t exist, leading to crushing debt and inflation, which further reduces the real value of people’s assets—-rich and poor.
(The US has the highest capital gains taxes in the world, and one of the highest corporate tax rates, and we’re the only nation that let’s companies get taxed twice—once on profits made abroad, and then on domestic taxes. Today, there’s far greater incentives for a business to be in Canada than the U.S., with greater competitve advantages.)
As I said, revenue from increasing tax rates, or soaking the rich, amounts to a drop in the bucket to affect the deficit. Moreover, it fuels uncertainty for potential investors. In December 2010, Obama said the economy is too fragile to kill the Bush tax cuts. But then 6 months later, he said that the fragile economy needs “revenues”—his new term to refer to taxes without actually uttering the word!
While the “new” moderate Obama said through one side of his mouth in his January 2011 State of the Union speech, that we must “live within our means”, and freeze domestic discretionary spending, he said in the other side of his mouth that government must “invest” in dozens of projects, including the old standby, our crumbling roads and bridges. Apparently the nearly trillion dollars that Obama spent on crumbling roads and bridges almost two years ago had no effect. Maybe it was because he referred to it as a “job stimulus”, as opposed to his new term: “investment”?!
And the jobs allegedly created and saved by the economic stimulus law—-costing upwards of $821 billion—-that President Barack Obama signed on Feb. 17, 2009, cost at a minimum, an average of $228,055 each, according to data released on Feb. 23, 2011 by the Congressional Budget Office (CBO). That’s almost a quarter of a million dollars to create one minimum wage job! That’s how efficiently government “creates” jobs.
The last U.S. president that tried to spend his way out of a recession—using printed or borrowed money—was Franklin Roosevelt. And all that had accomplished was to turn a simple recession into a decades-long depression. The New Deal—-Roosevelt’s “stimulus plan”—-delayed our recovery.
How? When government becomes a player, it chases away private investment. Who would want to start a business in a field in which your competitor is getting government subsidies or tax breaks, or is in partnership with the government, or is bailed out by government? (Obama, for example, essentially forced non-unionized auto workers to pay for the pensions of unionized GM workers.)
And the new regulations and mandates, which always follows government investment, creates economic uncertainty. The only thing that finally created economic growth and put people back to work was World War II. Thanks to the New Deal’s huge influx of government dollars into the economy, the stock market hadn’t returned to it’s pre-depression highs until well into the 1950s.
Roosevelt’s Secretary of the Treasury Henry Morgenthau Jr. admitted that the New Deal had failed in it’s mission in testimony before the Democrat majority-run House Ways and Means Committee on May 9, 1939:
QUOTE
We tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrongÖ somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promisesÖ I say after eight years of the Administration (Franklin Roosevelt from 1931-1939) we have just as much unemployment as when we startedÖ And an enormous debt to boot!
UNQUOTE
References:
1. Burton Folsom Jr New Deal or Raw Deal? How FDRís economic legacy has damaged America. New York: Threshold Editions, 2008.
2. Morgenthau Diary, May 9, 1939, Franklin Roosevelt Presidential Library.
3. Richard K. Vedder and Lowell E. Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America. New York: Holmes & Meier, 1993.
C.S. Lewis wrote in ‘Miracles’: “What we learn from experience depends on the kind of philosophy we bring to experience. It is therefore useless to appeal to experience before we have settled, as well as we can, the philosophical question.”
I think David Mamet’s assessments are correct with respect to the way liberals and conservatives approach issues. Our opinions and facts we accept or reject, are affected by our sensibilities and biased by the system of beliefs we start with. We filter facts (i.e. reality) through that screen. Usually to reinforce our preexisting beliefs. Only when we try filtering those same facts through another theory or philosophy do we begin to understand another’s perspective. I hope I provided that other perspective for liberals.