The latest wrinkles in the developing global economic crisis demonstrate again that the central bankers and treasury and finance ministers are fighting the current war by the methods of the last one; and that the people are smarter than the governments they have elected.
President Obama’s jobs plan consists of temporary payroll-tax cuts and public works that are, unlike the patronage-stained make-work boondoggles of the catastrophic $840 billion stimulus plan of 2009, “really shovel ready.” As the stimulus flew off the shovels of the Democratic congressional committee chairmen, unemployment grew by 2.5 million, despite the addition of 416,000 federal-government employees. The president went to great lengths to avoid the now-toxic word “stimulus” in his message, and professed to embrace many of the declared ambitions of the Republicans.
This is certainly a behavioral improvement on inviting Republican House Budget Committee chairman Paul Ryan as a special guest to an exposition of the president’s revised budget proposals and then berating him from the podium as if he were an errant schoolboy; or attacking the Supreme Court, gathered before him at the Capitol for the State of the Union message. This is part of the overall coarsening of debate, as the public loses respect for its elected leaders, and they ostentatiously lose respect for one another.
Almost the only real merit of the latest Obama effort is not one the administration seeks: Payroll-tax cuts will lead not to job-creating spending, but to a reduction in consumer-debt levels, the only mitigation that there has been in the money-supply increases implicit in the $3 trillion of accumulated federal deficits in the last three years. (Most of the deficit increase has been covered by virtual debt, as the Federal Reserve buys unsold Treasuries, 70 percent of them with electronically issued notes.)
The incentivized exhortation to go out and spend every cent and more that every family earned is another Maginot Line response to sluggish economic performance. Such spending would largely fuel imports of European and Japanese luxury goods and engineered products, and American job creation would benefit chiefly Dior and Chanel sales clerks and Mercedes Benz and Lexus showroom salesmen.
The people are doing what the government should be doing: reducing debt and spending less. The traditional resolution to such a public-policy discordance between the voters and elected officeholders is to throw the bums out, as was done in the Republican congressional victory of 1994, the Democratic “thumpin’” of the Republicans in 2006 and 2008, and the Republican “shellacking” of the Democrats in 2010. But this time-honored mechanism has stalled, as neither party shows much aptitude for grasping the nettles. These are that revenues have to be increased, spending reduced, the economy guided by fiscal incentives and deregulation back toward the job creation of value-added economic activity and away from the false paradise of service industries such as the law and consulting. (The latter are largely an immense surtax on the private sector, without the benefit of contributing to defined national goals such as defense or education.)
At the founding of the country in 1783, 90 percent of the workforce was engaged in agriculture. Now it is 3 percent, and per capita agricultural production has expanded exponentially. The work force migrated to urban manufacturing, which retains approximately the same dollar value as in 1950, with one-third of the number of workers. The Reagan era generated a net increase of over 18 million jobs (despite the disappearance of tens of millions of marginal jobs) and high annual productivity increases, mainly due to technological advances, and despite the constant plaintive whining of organized labor that these jobs were all for hamburger flippers and pizza deliverers.
The U.S. is still the world’s largest manufacturer, but it is almost all at the high end — aerospace, automotive, and high tech — which will not be directly assisted very much by payroll-tax cuts, in the present commendable public mode of debt reduction.
The political leadership that America and the world have been waiting for, prematurely announced in the Obama campaign in 2008, will apply what will amount to an actuarially updated means test to entitlements, will reduce income taxes to restore economic growth, raise discretionary consumption and transaction taxes to reduce the deficit, and incentivize increased domestic oil drilling and use of natural gas and other expedients that will reduce oil imports and not just enrich Al Gore and the other green fabulists. Health care will have to be addressed by increased competition, lower drug prices, capped malpractice awards, and catastrophic health insurance. If the chronically unemployed are sufficiently able-bodied, it might be possible to replicate some of the infrastructure and conservation workfare programs of the New Deal, or Eisenhower’s interstate-highway program, but not just jobs for the boys at union rates through the Democratic big-city bosses with ready shovels of taxpayers’ (borrowed) money.