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The standard history of the Great Depression holds that Herbert Hoover deepened the Depression by not doing enough, that Franklin Roosevelt’s spending improved the situation but that his attempt to balance the budget in 1937 sent unemployment back up to nearly the level of 1932. Then came World War II when all restraints were off and with the end of the war came untrammeled economic progress, with management and labor walking hand in hand under the rainbow of a benign government. Then, depending on how old your history professor is, along came Richard Nixon or Ronald Reagan or George W. Bush, who ruined everything. All that is necessary for the triumph of the Little Man is unrestrained Keynesianism with all dissenters locked away somewhere.
But there is a different way of looking at the story. That it is more realistic than the standard Keynesian myth is irrelevant for the millions of people – bureaucrats, lawyers and the rest of society’s snake oil salesmen – whose livelihood depends on this myth.
Even with the large deficits the Federal government was running, the net debt in the economy – individual, corporate, local, state and federal government – dropped steadily throughout the thirties, freeing up private and local government balance sheets to allow them to borrow more and reinvest. The importance of “deleveraging” is nothing new. Hoover’s first Secretary of the Treasury, Andrew Mellon, famously argued that the solution to the Great Depression was to “liquidate capital, liquidate industry, liquidate the farmers.”
The result, of course, was that Mellon himself was liquidated and policies were put in place to prop up failure. Deleveraging is still considered as a possible solution in every credit crisis, but while it is always proposed it is always ignored. One of the pre-TARP proposals was for the government to buy up bad debt and to liquidate it over time, allowing banks to create new debt without having to deal with the baggage of old debt. The argument for rejecting that idea was that there was no way to price bad debt, but that is downright silly. You just buy at a high enough price not to bankrupt the banks and a low enough price to keep Uncle Sam from losing his shirt. Then you provide a mechanism for the bank to share in recoveries above that amount. The real reason the idea was rejected is that it would have forced those in the executive suites to show just how bad the stewardship of their institutions had been. Heads would have rolled. TARP, like the President’s stimulus bill, was designed to save jobs, not create any.
The recession of 1937 had more to do with the social legislation of the New Deal – high taxes, social security (which was being taxed but not yet paid out), the Wagner Act which empowered labor unions – stifling the private economy. FDR accused capital of “going on strike” but he had induced the strike. Capital doesn’t go on strike unless it is facing an uncertain future. Today we have the same thing: Obamacare and the raft of regulations being churned out of Washington are big scary unquantified liabilities looming over the economy. Why pour your money into a hole in the ground when you have no idea how deep the hole is?
When World War II broke out, there was a sudden demand for goods of all types. But here was the kicker: people were earning money, but rationing prevented them for spending any of it. The post-war boom resulted from four years of pent-up demand, factories with enough resources to move into products which were in demand and the undeniable fact that the industrial capacity of the rest of the world was bombed flat, creating a foreign demand for American goods (and equally important, a lack of competition domestically).
The effect of these three elements wore off by the early 1970’s leaving Presidents Nixon, Reagan and Bush to try to muddle through within the paradigm created by FDR. As America lost its supremacy and then its industry, it fell into a position where the old paradigm no longer works. This week, Fred Barnes of The Weekly Standard called the Obama Administration “reactionary,” but the President is pushing the policies of the academic, political and media establishments. Reactionary they may be, but they think of themselves as progressive.
These reactionaries are encouraged to think of themselves as progressive since there is not yet a coherent body of ideas coalescing around the opposition. The Tea Party knows that something is very wrong, but they are a mass movement of middle class and working class Americans, the same people who in 1860 and 1930 knew something was terribly wrong with the framework of society, but had no intelligible body of ideas to deal with it. Tax cuts are not a complete public policy.
This is nothing new. When a paradigm has become obsolete, there is no full blown platform of ideas to replace it. Abe Lincoln was lucky to have the platform of the Whig Party which had been held up by the Democrats for twenty years, but even he flailed around with many issues. He was, after all, against emancipation before he was for it. FDR was a famous experimenter, borrowing concepts from Herbert Hoover, Benito Mussolini, Adolf Hitler, Teddy Roosevelt, Woodrow Wilson, Francis Everett Townsend, Huey Long and any other crank, tyrant or crackpot who had a vaguely attractive idea to flog.
So where are the new ideas going to come from? Despite the lack of a coherent policy, FDR kept the Government Printing Office busy grinding out new laws and regulations. Abe Lincoln had a legislative program which in its ambition and effect was even greater and more important than that of the New Deal.
But both of those Presidents had advantages we don’t have today. Abraham Lincoln and FDR both had advisors who were practical men of affairs. America had not yet strapped itself into the strait jacket of an academic elite coming from academic ivory towers and a business elite which has more in common with postal workers than entrepreneurs. The media was not yet a morass of unthinking scriveners who all say the same thing, but was a vibrant market of competing opinions.
If we are to climb out of the current dead end we find ourselves in, we have to rethink a great many things. New ideas won’t come from the left. All humans have a tendency to confuse self-interest with public interest, but the elites – those who have reached the top of the ladder of the current economic system – have the power to influence the future, which makes their confusion more dangerous than that of the average person. Since the left constitutes the bulk of the current elite, radical ideas will not be coming from them. This is made worse because the current elite, unlike the agricultural interests which dominated before 1860 and the industrial interests which dominated before 1930, have no vested interest in anything but keeping themselves on top. The cotton grower had to protect the environment in order to keep his fields productive, the industrialist had to build a useful product in order to find a market for his goods. The academic, the media and the day trader don’t have anything riding on the long term.
The left controls most of academia and the media and as both of those august institutions strive to prop up the current economic regime, they inevitably betray the neutrality and quest for the truth which is the reason they exist. These istitutions either have to be reformed or replaced.
It’s time to explore whether there are alternate ways to frame society which will keep the best of what we have, but leave behind those elements which benefit some of us to the detriment of everyone else.
Thomas F. Berner
Whenever the defense budget is under attack to produce major cuts, most people think of eliminating expensive advanced weapons programs such as the B-2 bomber, submarines, or even eliminating thousands of troops.Gary Schmitt and Tom Donnelly, in the August 15 issue of The Weekly Standard, do mention the possibility of saving a “few billion” dollars annually by better management of such programs as the military’s health care plan, TRI-CARE for LIFE, but they greatly underestimate the magnitude of what is possible.
The US Defense Budget of nearly$700 billion in FY2011, which does not include the roughly $35 billion to support the wars in Iraq and Afghanistan, does include $25 billion for the F-35 Strike Fighter Plane, Ballistic Missile Defense and the Virginia Class Submarine, the three largest US weapons programs today.These are juicy targets for desperate budgeteers.
A second priority is to reduce overseas troops and to reduce the number of troops on active duty in each of the services, especially in the largest (in terms of manpower), the US Army.
The trouble is, we may actually need these capabilities, and by the time we find out, it will be too late to recover such massive programs in any reasonable time.That’s not to say that the requirements justifying each of these assets is without fault; these are deservedly contentious areas worthy of discussion.Furthermore, almost all weapons systems experience huge cost overruns, thus diluting the original returns expected.
The administration, in 2009, already cut $400 billion from defense over the ensuing ten years; now it’s looking for another $500 – $600 billion over the next ten years.
It seems to me the administration wants to reduce our war-making capability.There is other low-hanging fruit to be examined, however, as is the case throughout all state, local and federal budgets:entitlements, retirement ages, and even health care.
The TRI-CARE for LIFE program is $50 billion of the US defense budget, about 12%, and applies only to military personnel and families in their peace-time capacity (medical care of wounded soldiers is not in this budget, and is quite small by comparison).It has been demonstrated that with proper incentives for patients and doctors alike, the claims paid by an insurer like TRI-CARE for LIFE could be cut in half, or more.In other words, the key to maintaining our military readiness, might be in encouraging military people, just like all other US citizens, to take better care if themselves. If this was done, and it has been done in test sites around the country, the total cost of medical insurance for the military could decrease from $50 billion to $25 billion, a savings of $25 billion a year, or $250 billion over ten years (to be sure, wellness programs require some time to build up savings, but this does not negate the argument).
Given the choice, I would rather see the relatively disciplined members of our armed services and their families keep themselves in better shape eat better, take their meds, feel better, and see fewer emergency rooms and surgeons, and at the same time, hang onto our F-35 fighter planes.
First Socialism, Next Denial of Fundamental Constitutional Rights–What is Next? By John Russell Deane
What constitutes a clear and present danger? Would it be an Administration which moves us ever closer to financial disaster without any apparent plan to avoid it? Would it be an Administration that moves us ever closer to socialism? What about an Administration that proposes to take away fundamental freedoms guaranteed by the United States Constitution? I think all three constitute a clear and present danger.
I had intended to post a paper on another issue today until the Heritage Foundation brought to my attention a scandalous and insidious plan by the Obama Administration. Interestingly, the least transparent Administration in memory has pursued this criminal act in the name of transparency.
The First Amendment to the Constitution guarantees to all Americans the right of free speech. The Administration wants to take it away.
In order to prevent inappropriate influence on the awarding of federal contracts, those companies seeking such contracts are completely barred from making contributions to political parties, candidates for public office or any person for any political purpose. Violations are subject to prosecutions. While direct contributions from corporations to candidates continues to be prohibited, the Supreme Court in Citizens United v FEC, struck down limitations on corporate involvement in independent political broadcasts. President Obama severely criticized the decision, even during his State of the Union while the members of the Supreme Court sat a few feet away. In the House and Senate, the DISCLOSE Act was introduced by Democrat representatives in an effort to save the Union. It was defeated in the Senate. Not surprisingly, the legislation was supported by labor which retained its rights to participate in the political process. It was opposed by the business community.
Even though the Supreme Court and the Congress dealt with the rights of corporations, the Administration is circulating a draft Executive Order which not only seeks to counter the other branches of government, it seeks to go dramatically further. The Executive Order would require not only companies seeking federal contracts to disclose political contributions, even those legal under the law, it would require disclosure from officers and directors of the companies of personal political activity, not associated with the companies. Not only it this intended to intimidate corporations and their officers and directors who might want to engage in the political process, it is a clear violation of their First Amendment rights. Inasmuch as the disclosure must be made by the companies, the companies would have to gather personal information from their directors and officers.
These requirements would not apply to labor unions which negotiate very large contacts with the government and would not apply to those who receive federal grants. One does not need to back too far to remember ACORN which sought to subvert the election process using government funds. What about them? When asked about this draft Executive Order, the White House said it was intended to further transparency in government and would allow the taxpayers to “know where his or her money is going.” What the White House failed to mention is that the “money” being disclosed is not the taxpayer’s money. This is money that has been earned by individuals for services performed. It is their money.
If the government can require that certain people must report their personal participation in the political process to the government to make the federal contract process more transparent, what else might they do? Which of our rights is next?
For students of history, one not need to look too far in the past to remember when people saw proposed changes in the scope of their government and said it did not seem too much of an imposition. When their liberties were reduced a little at a time, they said it probably was good because it would help protect their security. When their fundamental rights were infringed, they began to object but they found it was too late.
Thomas Jefferson said “Constant Vigilance is the Price of Liberty.” We should spend more time listening to him. It would not hurt to be a member of the Heritage Foundation and listen to them as well.
Our visit to the former defense plant in western Ukraine was supposed to begin at 10:00, but was delayed until 11:00.It was a gray, cold day in a long series of gray, cold days that we had dubbed a “two sock day”, so cold that if you didn’t have two pairs of socks on, your feet would freeze.It was a meeting during which none of us took off our coats for the same reason. It was February, 1996, about five years after the money from Moscow had stopped coming.
The meeting began with small plates of the traditional salo s’chesnikom and vodka.Salo is the fat from the shank of a pig, basically lard, which had a near- religious significance in Ukraine because salo was one of the main means of sustenance for Ukrainians during WWII.It is edible only when accompanied by garlic (chesnikom) and, especially, vodka.The vodka was poured time and again, un an increasingly demanding tone as the vodka began to take effect.The flow from aperitiv into lunch was seamless.The vodka was supplemented by several bottles of wine in case anyone was interested.
It was like this every day at the plant.The management team met in the morning when they were all reasonably sober, but things fell apart rather quickly thereafter.Nothing constructive was even attempted after lunch.Sooner or later, everyone drifted home, with no visible work being done.It had been like this for much of the time since the USSR had dissolved.Many workers had left, but many still came to the plant.Their monthly stipend had been reduced to a monthly bag of groats and a bottle of cheap wine from Moldova.
Our visit, to determine if we could be helpful to the plant in finding new business, was a failure.We met with more than 1500 plants and other businesses in Ukraine over the seven years from 1995 – 2002, and only found 100 with which we could work, and which would work with us.
The collapse of communism took a toll on men, especially.Women had been placed in the “less important jobs” such as retailing, food and banking.Now that defense plants were basically shut down, the women found themselves in charge of much of what remained of the economy, while men had little to do but drink.Many men died prematurely of alcoholism.The life expectancy of males in Russia (I assume much the same for Ukraine) dropped from 64 in 1990 to 58 by 1995, almost a statistical impossibility.Their useful lives had ended when the Soviet Union collapsed.Most of the older, and more senior managers, had little propensity or desire to learn how to function in a market economy.When the money stopped coming from Moscow, they tried to steal what they could from the system.They cheated their employees. Their employees cheated on expense accounts (whenever we arrived at a train station, there were always men asking for our ticket stubs so they could turn them in for phony expenses). What few orders came to the plant were only accepted after agreeing on the amount of the bribe.
Now we see President Obama is preparing to sell the government’s shares in General Motors for a loss of 11 billion dollars, a loss to the taxpayers, that is.We are spending far beyond our means, and everyone, including Standard & Poor’s, knows it can’t keep up forever.S&P has downgraded the long-term outlook for US credit as “negative”, a step down from “stable”.The main reason given by S&P is its lack of confidence in the government of the United States to work cooperatively toward a solution; in other words, a bet on partisan politics to a fault.
The US Government’s financial leaders, Secretary of the Treasury Timothy Geithner and Chairman of the Federal Reserve, Ben Bernanke, are playing a dangerous game, betting on the recovery of the country when the odds are even , or worse, that there will be no such recovery, only a bad case of inflation, or even hyperinflation.No one knows.The Germans didn’t know either in 1923 when suddenly the conversion rate of the German currency to equal one dollar leapt to 4,200,000,000,000 marks.At one point, prices doubled every two days.How much warning did they, the average citizens, get?
We already know from previous crashes that when there is a collapse in the US market, the collapse is huge.It would make sense for this government to do at least one thing to re-assure Americans that it is aware of the uncertainty and potential instability that exists; instead, every move of substance has been just the opposite, as if their goal was to destroy the American economy wholly and completely … and suddenly.
The more Americans rely on money from the government, mostly in the form of entitlements, the harder we will fall when the money stops coming from Washington.Can’t happen here?Please pass the lard.
As we have discussed in earlier papers, Congressman Paul Ryan exercised significant courage in proposing a Budget dramatic in its contrast to the Budget proposed by the Obama Administration. The Proposal is the first real attempt to deal with our massive $14.3 debt level and our $1.4 Billion budget deficit. No attempts at dealing realistically with our debt and budget deficit will come without controversy and significant pain. The Ryan proposal deals with a number of budget items. Nonetheless, there are many areas which could be addressed in the Budget which have been left out. First, nothing should be exempt from potential cuts, including defense. The Ryan Proposal is very similar to the Obama Proposal in avoiding cuts in defense spending. This a mistake. Second, we must put emphasis on the efforts of the House Ways and Means Committee to undertake serious reform of the tax code. Third, we need to look at alternative ways of reforming Medicare, reforms that are intended to accomplish the same goals but in a less controversial fashion.
Let’s look at Defense. While there are massive amount of defense funding that can be saved. This will not be easy. Often the programs that are pursued as Defense programs, did not begin at Defense. Former Secretary Donald Rumsfeld has pointed out that “$18 Billion in earmarks are shoved down the Pentagon’s throat every year. Congress wanted it, we didn’t want it. It didn’t have anything to do with defense capabilities.” How does this happen? Defense contractor gave $26 Million to congressional candidates in the last election and spend $150 Million annually on lobbying. They are already complaining about the potential of thousand of layoffs as well as other catastrophes that will befall the nation in the event of Defense cuts. They are not going to roll over and play dead.
What are some of the examples of serious cuts in funding? For a number of years, Members of Congress and defense contractors sought to sell the F-35 to each of the Services as a multi-purpose fighter. The Services did not want the plane but it proceeded anyway. Finally, the House, but not the Senate, responded to the claims of waste and voted to kill the alternative engine that was to be built in Speaker Boehner’s District. The Department of Defense has stopped the funding for the engine. They should go further. They should kill the F-35. Instead, they have cut the orders for the F-22, currently in operation and the most capable fighter in the world. Clearly, the F-35 is not designed as a replacement for the F-22 and, with only one engine, is not really a replacement for anything. Interestingly, General Electric seems to feel that even this de-funding decision will ultimately be reversed and, as a consequence, they are continuing to “self-fund the project through this crisis”. GE has been here before. Perhaps, they know something we do not.
How about the C-17 cargo plane which costs $300 Million for each plane and is not even wanted by the Air Force? This does not make sense. It would appear that there is no reason for keeping 80,000 military personnel in Europe. Clearly, there is no threat from Russia in terms of an invasion of Europe. Some 60 years after World War II, our presence in Europe is completely obsolete. Even our allies in Europe are cutting or considering cutting their defense budgets in recognition of the fiscal issues facing Europe. Our allies will not be pleased by cuts in our presence in Europe. These cuts will place greater pressure on their fiscal positions. In the end, however, we must watch out for ourselves.
The Debt Commission, appointed by President Obama, made a series of proposals for cuts in Defense spending. Congressman Ryan was a prominent member of this Commission. The Commission proposed $100 Billion in costs by 2015. Part of this was reducing our overseas bases by 1/3rd, saving $8.5 Billion. Why not 2/3rd of the bases for a $17 Billion saving in Defense spending?
The total Defense Budget is $700 Billion or 20% of the Federal Budget. Currently, $160 Billion is allocated for the wars in Iraq and Afghanistan. Another $50 Billion pays for the pensions and health care benefits of our military. The rest of the Budget goes for new equipment and foreign military assistance, including $5.4 Billion for foreign military financing. If it can be shown that the financing is for defense purchases from American companies and we ultimately have the financing returned by foreign countries, this could be a reasonable program. Also part of the Budget is the cost of overseas bases and non-core military operations.
These and other potential cuts in Defense spending are in addition to the savings that could be made in reducing fraud and mismanagement. Maybe, at some point, the Defense Department will be able to actually conduct an audit on their programs. In the meantime, we need to find savings wherever they are. Everything should be on the table.
Secession is in the air.Actually, it’s been in the air since before the Peace of Westphalia and the creation of the modern nation-state in 1636.The United States seceded from Great Britain in 1776.One of the most important secessions in the past 200 years was, of course, the Civil War in 1861 when 11 states seceded from the United States. Less well known is the fact that secession has been a serious issue in five of the fifty states in the US in just the past ten years.The proponents of secession have their reasons.
Hawai’i: There is a movement in Hawai’i seeking full independence from the US because of the “illegal” annexation of Hawai’i fromQueen Lili’uokalani in 1893 Hawai’ian secessionists received a boost when the US Congress passed its famous “Apology Resolution” in 1993, to atone for the heavy handed manner in which Hawai’i was annexed by the US at the end of the 19th century.
Alaska:the Alaskan Independence Party succeeded in putting secession on the ballot in 2006 in an effort to gain freedom from the United States.
Georgia:In 2009, the Georgia legislature voted on a conditional secession should the US Congress restrict the ownership of firearms or ammunition; with the recent declaration by Secretary of State Clinton that the US will ratify the UN Small Arms Treaty, Georgia may soon be tested on this point.The UN treaty is a multi-lateral agreement whereby American guns will be subject to confiscation, more bureaucratic licensing requirements, gun registry and more restrictions in the buying and selling of guns.
South Carolina: the Third Palmetto Republic is a movement today to secede from the US in an effort to become independent of an over-controlling Washington and big companies that, together, control the US to the detriment of South Carolinians, unable to stand up to the leviathan of DC and big business.
Texas:In 2009, Texas Governor Rick Perry said, “Texas is a unique place.When we came into the union in 1845, one of the issues was that we would be able to leave if we decided to do that … My hope is that America and Washington in particular, pay attention.We’ve got a great union.There’s absolutely no reason to dissolve it.But if Washington continues to thumb their nose at the American people, who knows what may come of that?”
In a 2008 Zogby poll, 22% of Americans believed :”any state or region has the right to peaceably secede and become an independent republic.Secession from the US is unlikely in any state or region today.The work of President Obama and his administration, however, will invigorate secessionist movements that spread to other states.
Secession of any state is not going to happen as concurrence at both state and federal level is required. Let’s take a peek at a hypothetical secession, however.
If a state were to secede, it would immediately seek a treaty with the US.The seceding state might propose as follows:
“Article 1:We will continue to look to the US to provide us with national security, and to that end, we agree to pay our fair share of the US defense budget and NATO.Our National Guard will be maintained as in the past and may be called up by the President of the United States to serve the United States wherever and whenever required.
Article 2:We agree to support the budget of the Department of Homeland Security on a fair share basis for all customs issues, Coast Guard support in our waters, so long as this Department upholds the existing laws of the United States pertaining to counter-terrorism, illegal immigration, illegal narcotics, and illegal arms trade.
Article 3:We agree to continue to pay our fair share of the Department of Transportation, including federal highways and air transportation.
Article 4.We agree to continue to pay our fair share of Native American affairs.
Article 5. We will look to the US State Department to represent us in all affairs foreign to our state and the United States, and to that end, we will pay our fair share of the cost of the US State Department, US foreign assistance, the UN, and the World Bank Group.
Article 6.We will introduce a new currency, pegged to the price of gold (rather than let US inflation work its way into the local economy).All trade with the US will be done in our own currency.
Article 7.We will adopt, temporarily, US laws the first day of our independence with the exceptions that our state supreme court will be the court of last resort for our citizens and other legal entities based in our state; federal US judges must leave our state.
Article 8.All US Medicare, Medicaid, and Social Security payments to our citizens will cease on the day of independence, we agree to continue support of these programs at their current levels, though we reserve the right to change the terms of these entitlements in the future.
Article 9.We hereby declare that we are in no way responsible for repayment of any future debt incurred by the United States.
Article 10.Trade between our state and the US will be free and without customs and border controls, though all foreign trade with the US will be carried out with our own currency which will start out, on independence day, at one unit of our currency for one US dollar.
Article 11: We will maintain a small embassy in Washington to represent the interests of our state on matters of trade and finance (especially our contribution to the US budget).
Article12.Articles 1- 11 represent the full extent of our agreement with the United States of America.During the first year after our independence, we will systematically and cooperatively eliminate all US support of, and involvement in, taxation of our citizens, our schools and universities, hospitals, housing, laws and courts, agriculture, veterans affairs, commerce, small business support, the governmental affairs of our state, environment, parks, forests, energy, labor and elections.US laws related to gun control and human life no longer apply in our state.On our independence day, we will relinquish our current congressional and senate seats in the US Congress and our electoral votes for the US presidency”
Imagine the uproar.
In a not unrelated event, fifteen months after Lithuania declared its independence from an “indestructable” Soviet Union in March of 1990 (which secession was triggered by forty years of Soviet oppression economically and politically), the Soviet Union itself collapsed.