Just Do It

Go ahead.  Do it. Go off the cliff.

That is almost the unanimous view of my conservative friends, despite the warning that it may trigger a new recession.

Why?

3 reasons.

First, there is almost a complete lack of faith in John Boehner's ability to negotiate with Barack Obama.  Spooked by the election results, he immediately signaled his willingness to roll over on taxes and several other Republicans have chimed in.  Grover Norquist is being treated as the Grand Wizard of the KKK.  Even Bill Kristol has gone wobbly.  And what will the results be?  Almost inconsequential for the budget.  Letting ALL of the Bush tax cuts expire runs the government for about 8 days.  The Democrats have proposed NO meaningful adjustments to entitlements.  Without that, we are getting nothing for our concessions.  Boehner simply is not up to the task.

Second, any tax increase will only be the start.  To understand this, you need to apply the addiction model to government.  Government is addicted to spending.  Addicts will say or do ANYTHING to get their next fix.  They always promise that they will quit tomorrow.  It is no different with government.  Obama will promise some token cuts to go into effect at some future date, or will promise to slow increases....if he can have his fix today.  He will pocket the money, but the cuts will never come or will be reversed out or will be managed by some budgetary accounting gimmicry.  And then they'll come back for another fix.  They always do.  They key to understanding this concept was Obama's assertions during the debates.  For years, he carped about the wars Bush waged that weren't paid for.  Then, in the debates he promptly asserted that half of the money "saved" (that we didn't have in the first place) from winding down the wars would  be used to "invest" in much -needed infrastructure.  Huh?  Setting aside the concept that the "stimulus" was supposed to be used for that purpose, how do we reallocate money we didn't have in the first place for other spending?

Third, assuming that we as a society have decided that Big Government is what we want, then we ALL have to share in the pain.  The "rich" and the middle class and the lower class.  We ALL need to share in this and feed Big Government because there simply aren't enough rich people to satiate the beast.  It is easy to tax YOU to pay for MY government goodies.  But if we ALL have to pay, perhaps we will make different choices at the ballot box.   Everyone needs to feel what it feels like to have government taking more of what they earn.  Then, if we are still happy with this state of affairs, so be it.  But we ALL need a dog in this fight.

In the final analysis, this should be an OK deal.  Obama would get most of what he really wants---higher tax rates and big reductions in the military.  The Republicans would get reductions in social spending.  What's not to like about this deal?

Unless we choose the fiscal cliff, we will get immediate tax increases and illusory cuts.

We might as well hold hands and jump together.

Catastrophe

I have slept little the last couple of nights - Monday night because of the anxiety over Tuesday's election, and tonight because of the reality of what has happened.  Charles Krauthammer tried to put a good spin on it and said this election was "unusual," that Romney was an "East Coast liberal" from a weak field of candidates and that "the future of the Republican party is bright."  I see this very differently.  Last night could very well have changed America permanently.

Think about the enormity of what has happened.  Obama was re-elected despite a moribund economy, persistently high unemployment, a chronic housing mess, youth unemployment at unthinkable levels.  Business formation is at historical lows.  And in the face of this, Obama promised more debt, choking regulation and higher taxes.  Overseas, our traditional alliances are in tatters, Iran moves ever closer to a nuclear weapon, Russia and China undermine us at every turn.  Horrifyingly, our embassy in Libya is overrun by terrorists and we do nothing.  Obama coldly explains it away as "not optimal."

And we rehired him.

I went to bed last night thinking about the last time I visited the neighborhood.  When I grew up, it was a fine, low crime, working class neighborhood of hard working Eastern European immigrants trying to scratch out a living so their children could have it a little better.  Today, it is crime and gang infested with burned out buildings and seedy stores.  Some things look vaguely familiar but the reality is that neighborhood I grew up in is gone.

So it will be after eight years of Barack Obama.   We may no be able to recognize the America we loved, the America of freedom and unbounded opportunity.

What will the next administration bring?  One only has to look at the last four.  Obama is no Clinton.  He is not an accommodationist.  He is a true believer in a slightly toned down Marxist model.   Capitalism exploits workers.  If capitalists gain, workers lose.  And he applies that thinking globally.   America uses a disproportionate share of natural resources and exploits third world countries.  He is no believer in individual sovereignty.  In fact, I have challenged my liberal friends to show me that he has ever used the phrase "individual liberty" in any speech.   Crickets.

What will the next four years look like?  More Big Government. More spending.  More debt. More regulation.  The EPA is already preparing for its assault on any industry related to fossile fuels.   The DOL is already implementing union card check.  Taxes will go up.  Unconstrained, Obama would love to be at French levels, and without a distinction between ordinary income and capital gains-- for he has no concept of risk.  For Obama, earnings from capital are of a lower order than earnings from the sweat of your brow anyway.  We can expect a much smaller military--America's ability to project power will be a shell of its former self.  Obama will deliver on his promise to Russia and to liberals here-- more flexibility (translated- unilateral disarmament, especially of our nuclear forces).

Opportunity will shrink.  Faced with increased taxes, regulation, and less flexibility with their workforce, more business owners will simply opt out.  I spoke with one managing director of a private equity firm last week who told me privately that if Obama is re-elected, he will opt out.  He's made enough money.  It will simply not be worth it.  Atlas will begin shrugging.

As disturbing as Romney's loss was, I was even more discouraged by the loss of Robert Dold to Brad Schneider.  I was a supporter of Dold's, had gotten to know him over the past couple of years, and my daughter interned for him.  Dold was a sensible, moderate Republican, a business owner and good listener.  Schneider was basically an unemployed liberal drone (supposedly he had his own "consulting" firm that showed no income.  The 10th district was gerrymandered last go around and Dold lost by less than 3,000 votes.  Dold was EXACTLY the kind of sensible guy we needed in Congress and represented our district well.

How did this all happen?  I fear that we have reached the tipping point.  We have become Europeanized.  I truly fear that instead of the independent can-do people, we have become a passive "I want mine now" society.  Damn the next generation and damn the "rich."  I want mine now.  And as more and more Americans get accustomed to that government check, and there are fewer and fewer that actually create wealth, society begins to grind down.  That is precisely why Obama never even talks about a serious attempt to constrain entitlements, and why there was such a kerfuffle over Romney's 47% remark.  People will never vote to cut their own benefits.  And when the 47% inches toward 50%,  the insurer of those entitlements gets a permanent majority.

What will the next 4 years bring?  Much more government.  Much less freedom.  Almost imperceptible growth.  Business will tough and nasty.  We will have a smaller, less vibrant America.

Maybe permanently.

America in Trouble

"America is in trouble."  So opened Hedrick Smith at the Union League Club luncheon in Chicago that I attended last month promoting his new book, Who Stole the American Dream?  "We're not facing decline.  We're already in it," proclaims Mark Steyn in his book After America.  Although these writers come to the same conclusion--America is rapidly sliding toward collapse, the similarity ends abruptly.  They ascribe very different causes to America's malaise and suggest starkly opposing paths to attempt to arrest our decline.

Hedrick Smith (who's literary achievements include The Russians and The Power Game) claims that we have become two Americas (echo John Edwards?). "We are today a sharply divided country-divided by power, money and ideology," he claims.  Smith dates the beginning of this schism to the Powell Memorandum, written in 1971 by Lewis Powell before he became a Supreme Court justice.  In it, Powell warned the business community that it was under attack by consumer advocates, taxes, government regulation and trade unions, and that it had better wake up and smell the coffee.  Hence began corporate lobbying in a big way.

Smith asserts that this lobbying effort ushered in a series of legislative changes that enabled a well-heeled plutocracy to tilt the tables, disempower the middle class and enrich itself at the expense of the vast majority of Americans, who struggled while their standard of living eroded (Smith could be thought of as an intellectual supporter of the Occupy movement, if such supporters exist).  He spins the narrative that expounds on the familiar villains of the Left: rich people that have too much legislative influence and thereby get themselves unwarranted "tax breaks" (notwithstanding that we have the most progressive tax code in the developed world), the bankers as the sole cause for the housing crisis, the high cost of imperial overstretch, rapacious CEO's plundering companies and shifting jobs overseas, and the rise of the Radical Right.  He dismisses global competition as overblown and does not consider the wage effect of hundreds of millions of Chinese and Indians on world labor markets.  There is no mention of government's role in the housing crisis.  Nor does he even mention the effect that teacher's unions have had on our abysmal education system.   Smith is a good writer, but I found his lack of balance astonishing.  It seemed to me primarily a tome of Obama talking points.  He concludes with a set of recommendations for the future that few could disagree with:  renew manufacturing, buy American, create a more efficient military, push innovation and science.  But he is silent about the corrosive effect of a growing government.

Not surprisingly, Mark Steyn also concludes that America is in trouble, but fingers an entirely different cause.  While Smith's posits that America's slide is caused by class warfare--the "rich cabal" grabbed the handle of government and drained wealth from the middle class, Steyn indicts the growth of the federal government.   The insatiable taxing and regulating nanny state have drained wealth and ambition from our nation. "America has been thoroughly unbalanced: thanks largely to distortions
driven by government, we have too much college, too much 'professional servicing'--accounting, lawyering, and other activities necessary to keep the fine print in compliance with the regulatory state.  All of these are huge obstacles to making productive use of even our non-borrowed money and to keeping America competitive with the rest of the world."  In Steyn's view, it is the bloat of government that is grinding America down--- the explosion of "entitlements," taxes, and the regulatory burden of the feds.  America's drive to innovate has been replaced by the higher value of multiculturalism.  He cites the downgrading of NASA as a prime example, as it recently killed manned space flight and substituted as part of its mission to recognize Muslim contributions to science. Huh?
"To boldly go where no diversity outreach consultant has gone before!," he intones, "What's 'foremost' for NASA is to make Muslims 'feel good' about their contributions to science.  Why, as recently as the early ninth century Muhammed al-Khwarizimi invented the first hoary quadrant!"

In  a previous generation, government did some good big things--putting a man on the moon, defeat Nazis, construct and interstate highway system.  Now, not so much.  "The bigger government gets, the less it actually does.  You think a guy like Obama is going to put up a new Hoover Dam (built during the Depression and two years ahead of schedule?).  No chance.  Today's Big Government crowd is more likely to put up a new regulatory agency to tell the Hoover Dam it's non-wheelchair accessible and has to close."

For Steyn, the demons aren't the rich, but the government class-- the faceless bureaucrats that regulate us, tax us, and force us to comply, often with rules and regulations that nobody actually voted on, but were promulgated by some 20 something lawyer in the bowels of the Department of Labor.

"Edwards was right about the "two Americas," but not about the division: in one America, those who subscribe to the ruling ideology can access a world of tenured security lubricated by government and without creating a dime of wealth for the overall economy; in the other America, millions of people go to work every day to try to support their families and build up businesses and improve themselves, and the harder they work, the more they're penalized to support the government class in all its privileges."

America is in trouble, I believe.  While Smith makes some valid points--China has become an economic threat due to its currency manipulation, its intellectual property piracy, and its product dumping--he completely misses many factors in our slide.  Globalization, our failed education system, and the ever intruding government.  Steyn is closer to reality. Each day, government makes hard work and risk taking less and less enjoyable and less and less rewarding, choking the vibrancy that made this nation great.

Pity the poor entrepreneur, slugging it out while a legion of regulators and taxing authorities torment him or her.  Pity the poor working stiff, hustling in a tough, boring job, making $45,000 a year, while his neighbor gets to stay home and enjoy a total benefits package worth almost as much.

It a few days, we will have an opportunity to choose whose thesis is correct.  If we vote for Obama, it will be Smith's and we will continue to policies of taking more from "the rich," downsizing our military, empowering unions and regulators, and growing government.  If we choose Romney, the results are less clear, but we will at least put a brake on hurling headlong into an ossified Euro-nanny state, drowning in its own debt and stuck in perpetual stagnation.