Monthly Archives: November 2012

Liberty vs. Equality

StampsKudos to Jeremy Truitt for his article on the psychology of liberals versus conservatives.  This is a difficult topic for a centrist, because our goal is to make each side think constructively about the other.  It’s much easier to write for one side and vilify the other – that’s why you see so much of it.

We will start with the caricatures, and then move on to a place of understanding. Conservatives, technically, come in two varieties – fiscal and social.  In the left’s imagination, the former are soulless capitalists, bent on exploiting workers and despoiling the planet.  The latter are uneducated zealots, who favor civil rights only for white Christian males.  Unfortunately, we do see the likes of Todd Akin every so often, and that reinforces the stereotype.

On the right, liberals are diagnosed with a pathological guilt that drives them to give money to a class of lazy freeloaders – that is, the ones who are not lazy freeloaders themselves.  We covered some of this material in Voting Your Self-Interest.  It boils down to whether you are willing to raise taxes on yourself, or on someone else.

The constructive way to look at liberals is that they are empathetic.  They want to help people less fortunate, and they expect government to be the vehicle for this help.  Conservatives are not insensitive to these needs, but they are skeptical about involving the government.  What liberals think of as a government function called “social justice,” conservatives think of as “charity.”  They are favorably inclined toward “Christian charity,” but they see it as outside the scope of government.

Fundamentally, the social goals of Liberty and Equality are at odds.  It’s easy to scrawl both of them on a banner – with Fraternité, for good measure – but they result in opposing policies and opposing world views.

America’s founders were preoccupied with Liberty.  At that time, the economy consisted of agriculture and trade, and inequality was due to hereditary land ownership.  Let a man clear his own land in the new world, and all would prosper.

Liberty means that whatever you make from your own toil, you can keep – no harsh taxes to King George.  It also means the freedom to fail.  If you make bad decisions, or don’t exert yourself, you get what you deserve.  If you are infirm, or plain unlucky – the church will take you in.

This is the world inhabited by conservatives.  It is not quite “every man for himself.”  It is more like self-reliance, the adult notion that you are primarily responsible for what happens in your life.

Within one hundred years, a third “factor of production” had developed – capital – and now we can say that a hereditary monopoly of capital is just as damaging as that of land once was.  If our government is to maintain the meritocracy envisaged by the founders, there are not many proactive policy options.  Attempts to level the playing field almost always have the character of an ad hoc redistribution of wealth.

This drives conservatives crazy.  They feel violated by high taxes, because it infringes their basic liberty.  They also feel, on the flip side, that receiving largesse from the government makes you its slave.  There is empirical evidence that once the government gets involved with “who deserves what,” it is on the fast track to dictatorship.

Liberals, on the other hand, can make a plausible case that “the system isn’t fair,” and intervention is required.  Inequality is stark in America, especially if you take a synchronic view.

So, here is the our impartial, centrist synopsis of the left-right psychological divide.

  • The right feels that Liberty is paramount, and inequality a tolerable side-effect.  They fear and distrust a government that treats the latter by infringing the former.
  • The left feels that inequality is a blight on America, and they expect the government to fix it.  They trust government to deliver some kind of Equality without unduly infringing Liberty, or the meritocracy.

It’s tough to thread that needle.  We hope you saw your own perspective here – and the other one, too.

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Day After Tomorrow

If you voted to retain President Obama, then you must accept his plan to reduce the deficit.  On the campaign, Obama said the fiscal deficit could be closed by cutting defense spending and raising taxes on the rich.  We hope this was only campaign rhetoric, and that he will now take serious action on reforms.

Last week, we covered the good scenario, in which legislation based on Simpson-Bowles is enacted. This week, we lay out the other scenario:

  1. The economy goes back in the tank, and unemployment becomes desperate.  Some economists say we are already in a double-dip recession.
  2. The president continues trying to create jobs through “Keynesian” government spending.  The parallels with FDR are strong.  This time, unfortunately, America is at the end of its debt capacity.
  3. The Fed dutifully continues to ease monetary policy, until inflation kicks in.  Chairman Bernanke must take care not to overshoot the inflation target.
  4. Taxing the rich and cutting defense fails to close the deficit.  America is already out of “primary balance,” i.e. we must borrow to survive.
  5. International creditors decide America is no longer a good risk.  Bond yields spike, and America no longer has enough cash to operate.
  6. Forced austerity ensues, sparking civil unrest.

This is a simple chain of events, and pretty much what has already happened in Greece, Italy, and Spain.  Unlike these Euro-zone countries, America has the advantage of controlling its own currency.  “Living like parasites on their monopoly of the dollar,” is how Vladimir Putin puts it.

Look for China and Russia to lead a movement against the dollar.  Historically, the bond crunch comes before the capital flight and the hyperinflation.

Jeremiah hopes the president will succeed, of course.  Otherwise – be prepared.  You can watch the bond yield here, on Bloomberg.   You can also check the bid-to-cover here.  Look for the 10-year to spike above 2.5%, or the bid-to-cover ratio to fall below 2.0.  When that happens, it will be time to join John McAfee in Belize.

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Mixed Emotions

As a centrist, Jeremiah is happy that the election resulted in split government.  As a fiscal hawk, he would have liked to see Republican control of the Senate.  Here are some of the good results:

  • Gay rights, abortion rights, and Planned Parenthood,
  • Decriminalization of marijuana,
  • Now the Republicans will have to listen to Sen. Rubio on immigration reform.

… and the not so good:

  • Bitter partisanship,
  • Rep. Pelosi,
  • The continuing belief that money grows on trees, someone else will pay, and the gravy train will never stop.

For Jeremiah, the debt crisis is paramount.  Many on the left, like Paul Krugman, have sounded especially vindictive.  This is not encouraging.

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Defying Gravity

Here is yet another NYT article demonstrating that socialists do not understand the law of gravity.  This seems more like a religion than a school of economics.  The author believes that workers, in Greece and elsewhere, “deserve” a certain wage and a certain standard of living.  These will be set by the government, and agreed by – you guessed it – those same workers.

The fact is, wages are falling in the formerly rich world because our workers are not competitive with workers in Asia.  Jeremiah’s thesis, contrary to the author, is that living standards are inevitably linked to economic value in the real, global economy – not nominal wages, and not the local socialist government.  Here is a point-by-point debunking of Mr. Tilford’s arguments:

  • Income has not magically “accrued” to the those at the top – they earned it.  On the bright side, the rich are no more immune to competition than the proletariat.  Better redistribute their wealth while they’ve still got it!
  • A steady decline in investment or “unfair” returns to capital?  Which is it?  Maybe it’s capital flowing to more productive parts of the world.
  • A “structural shortage of demand” and “recovery in consumption” are obvious appeals to Keynes, but how much debt-financed stimulus is required?  How many willing lenders remain?
  • A rise in the share of national incomes accounted for by wages, in real terms, can only come from increased competitiveness.  Monetization and redistribution are palliative measures, not solutions.
  • Executive remuneration is already linked to whatever the owners of firms believe is their best risk-adjusted return.  The idea that governments should meddle in how private firms pay their employees, including their executives, shows a basic ignorance – let’s say “mistrust” – of how capital markets work.
  • Jeremiah has no quarrel with redistribution, per se, except that it in practice it usually turns to graft and bloat.  In Europe’s case, agreed, the VAT is regressive.
  • Taxing investment returns, once again, assumes that all investors are fat cats.  They’re not.  They’re ordinary people trying to save for a rainy day, a new house, or retirement.
  • The author asserts that competitiveness is a zero-sum game.  We should all beg off austerity and print money instead.  Oddly, the world’s creditor nations complain about that being a zero-sum game.

Mr. Tilford’s arguments are socialist dogma, but he is right about public opinion.  Voters will associate structural reforms with declining living standards – correctly, because declining standards are inevitable.  If a Chinese worker can do the same job as a Greek worker, then the two will ultimately share the same living standard.  What’s unfair about that?

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Rise Above

Jeremiah is old enough to remember President Ford’s ridiculous “whip inflation now” campaign, complete with W.I.N. buttons, so he is cynical about this.  In every exposition we have read, the subtext is – “rise above” Speaker Boehner’s resistance to raising taxes on the rich.  Not exactly a formula for compromise, nor a credible answer to the debt crisis.

Anyone with a working calculator knows that another 2% from the top 2% won’t make a dent in the deficit.  A meaningful compromise would look something like this:

  • Rep. Boehner accedes to taxing the rich (symbolic).
  • Rep. Pelosi stops selling ObamaCare waivers (graft).
  • Freeze congressional salaries and reduce government headcount.
  • Cut, cap, or means-test backdoor spending in the tax code.
  • Trim some fat from ObamaCare.  Democrat proposals here.
  • Repeal the Alternative Minimum Tax.

We could go on, cribbing ideas from Simpson-Bowles.  By the way, raising revenues without raising rates is indicated in that reportTalking Points is mocking Rep. Boehner for making this subtle distinction.  In fact, the break from a doctrinaire tax-pledge position is to be welcomed.

Since the American public is now willing to be ruled by bumper stickers and cheesy slogans, we will publish the doomsday scenario next week.

 

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Tax the 2%

The president’s latest tax proposal involves raising taxes on the top 2% of income earners.  Senator Schumer (D-NY) worries that an income of $250,000 is not exactly “rich” in his state.  House Speaker Boehner (R-OH) says it’s unfair to target a single group, especially since most of them are small business owners.

These 2.5 million families earn a total income of almost $1 trillion.  To see what that looks like, check out this chart from the census bureau.  Raising their taxes by 2% would net an extra $20 billion, which is what the government spends in two days.

This debate over two days’ worth of government spending is clearly not constructive.  Like Sen. Schumer, not all democrats are on the president’s side.  Among Republicans, a few – like pundit Bill Kristol – have called on Speaker Boehner to back down.

You know what’s going on.  This is a lot of noise over a side issue, so that somebody can claim a moral victory – a “big stick” contest.  Meanwhile, Simpson-Bowles is gathering dust, and the fiscal cliff is getting closer.

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One-Party Rule

While we’re doing magazine covers, here is the latest from Newsweek proclaiming the end of the Republican party.  That top line reads, “GOP:  you’re old, you’re white, you’re history!”  As you know, Jeremiah dislikes racism in any form.  The conclusion, however, seems to be correct.  We have often written about how the GOP is out of touch with modern America.

No one will mourn the passing of the religious right, but we should be a little concerned about this new monopoly of power.  Jeremiah has been advocating for more political parties, not fewer.  America lacks the diversity of parliamentary politics, and it lacks a proper role for the opposition party.  So, if President Obama has indeed conquered the Republicans, then we are down to one-party rule.

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