Paul Krugman and the Ivy Fallacy

by Kevin D. Williamson

Paul Krugman has a notably sloppy column today, about which one could write words of criticism outnumbering the words in the article. (And, as it turns out, I have.) His argument is that Mitt Romney, and Republicans at large, do not really care about the equality of opportunity they are fond of celebrating. Because, as you know, conservatives hate the poor, their hatred for poor men being surpassed only by their hatred for poor women and poor children, which itself is surpassed only by their hatred of clean air and water. (If there were poor homosexuals, Republicans would hate them the most, but of course no Republican ever has encountered a poor homosexual.) Everybody knows this, if by “everybody” one means Paul Krugman and the voices in his head.

What is particularly irritating is that Professor Krugman’s opening gambit includes the Ivy Fallacy, the act of implicitly generalizing from the circumstances of elite institutions and the people associated with them to the general public. Professor Krugman’s opening data point:

At the most selective, “Tier 1” schools, 74 percent of the entering class comes from the quarter of households that have the highest “socioeconomic status”; only 3 percent comes from the bottom quarter.

Muppet News Flash: Nobel laureate economist sifts the data, engages in esoteric statistical regressions, and concludes that Princeton is expensive. Allow me to posit that attendance at our most selective, Tier 1 universities is not the best indicator of the general accessibility of the good life in these United States. But if you are the sort of person who finds it impossible to believe that one might achieve a satisfying and productive life without having attended Princeton—or, angels and ministers of grace defend us, without having secured a college degree at all!—then Tier 1 admissions stats are the first data point that leaps to mind, apparently. Tuition (just tuition) at Princeton runs about $148,000 for four years, or about 300 percent of the median household income in the United States, or 111 percent of the median price of a home in the Midwest. Four years of tuition at Princeton costs about as much as an Aston Martin Vantage, ownership of which, I am willing to wager, also is concentrated among the top quarter of wage-earners. Not every Tier 1 school is Princeton expensive, but they fall in the aggregate on the spendy end of the education market. It takes a special kind of economist to be surprised that very expensive goods are disproportionately consumed by the well-off.

It is because of this kind of thinking that the battle over affirmative action has been waged at places such as the University of Texas law school. Which is to say, it has been waged on behalf of the people who are the least likely to need intensive institutional help in life: If you are right on the edge of being admitted to UT law and do not get a little nudge to put you over, your next stop  is not Skid Row—it is UCLA. And that’s not so bad. I am not much worried about who goes to Tier 1 schools. I am worried about who drops out of high school and why. You can tell yourself a very pleasing story about the relationship between Tier 1 admissions and Head Start, food stamps, or your favor welfare program, but that is not the same thing as doing the intellectual work of figuring out the facts.

Professor Krugman is right to be concerned about the relative lack of economic mobility in the United States, which does lag behind many other developed countries on that front. But of course it is easier to assume bad faith on the part of the other side than to engage the other side’s ideas. As it turns out, even the running dogs of plutocratic privilege at your favorite magazine are concerned about the state of economic mobility. To care about improving the prospects of the poor is not the same as improving the prospects of the poor. (Merely to say that one cares is another degree of separation removed from reality.) So, what to do? Professor Krugman writes:

Someone who really wanted equal opportunity would be very concerned about the inequality of our current system. He would support more nutritional aid for low-income mothers-to-be and young children. He would try to improve the quality of public schools. He would support aid to low-income college students. And he would support what every other advanced country has, a universal health care system, so that nobody need worry about untreated illness or crushing medical bills.

Notice that Professor Krugman, when confronted with the high price of college, seeks not to lower the price but to increase the subsidy, i.e. to extract more money from taxpayers, including middle-class and poor taxpayers, and shunt it into the institutions from which Professor Krugman, his professor wife, and his professor colleagues draw professor paychecks. Confronted with the poor quality of public education, he seeks not to reform the system with choice and accountability on behalf of the poor but to fortify the position of his political party’s upper-middle-class financial benefactors. Because he cares about the poor so much that he is willing to have his friends and benefactors and colleagues accept more of your money on their behalf.

One might as easily write: If Paul Krugman really wanted equal opportunity, he would be very concerned about the inequality of our current system. He would support education reform that would bring more choice and resources to the poor instead of entrenching an overcompensated public-sector monopoly insulated from even the most rudimentary forms of accountability. He would support initiatives to reduce tuition at public universities. He would support entitlement reforms that helped the poor to build wealth across generations instead of consigning them to lifelong welfare dependency. He would support reforming a perverse and shameful welfare system in which only 35 percent of all transfer payments go to the poorest 20 percent of Americans. And he would support what every other advanced country has, a sensible immigration  regime, so that neither the social safety net nor the lower end of the labor market would be strained by the large-scale importation  of poverty.

Or he could save himself (and us) 795 words and just write “Republicans bad! Ooga-booga!” next time, which is what he has written amounts to.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Mr. Watts, Mr. Gingrich, and Mr. Deficit

by Kevin D. Williamson

Newt Gingrich has received the endorsement of J. C. Watts, a former member of Oklahoma’s delegation to the House and an influential conservative even after nearly a decade in political retirement. The endorsement speaks well of Gingrich.

Among other things, Watts had this to say:

When you consider where we are today, and you think about the good old days — of balanced budgets, entitlement reform, and paying down our national debt, getting tax relief — as a Republican majority, Newt Gingrich was the speaker. We haven’t seen things like that in the last thirteen years.

No, we sure haven’t. I am pleased that Watts put the balanced budget at the center of his case for Gingrich (even though the budget was not really balanced, once you account for the debt held by the so-called trust funds associated with Social Security and Medicare — it still was a good start).

But I wonder if Watts has considered all the implications of his argument. As speaker, Newt Gingrich superintended a real reduction in federal spending as a share of GDP: It was 21 percent in 1994, and down to 18.2 percent by 2000. That is, in my view, his most praiseworthy legislative accomplishment. But, as I argue in the current edition of National Review, the notional surpluses of the Gingrich era were the result of a double-barreled approach to fiscal balance, built in part on two significant tax increases. Gingrich et al. opposed those tax increases, but did not rescind them.

In 2000, the year of our largest notional surplus, tax collections hit nearly 21 percent of GDP. In 2011, they’ll be about 14.4 percent of GDP, according to the Congressional Budget Office, only about 70 percent of their 2000 level.

Economic conditions and tax policy are of course quite different in 2011 from what they were in 2000. Consider the longer-term picture: From 1994 to 2000, taxes averaged 19.2 percent of GDP, hitting a high of 20.6 percent in 2000. Even accounting for the surpluses, we ran a net deficit during that period, with the average annual deficit at 0.3 percent of GDP. In contrast, 2000–11 tax collections averaged 16.8 percent, a difference of 2.4 percent compared with the Gingrich era. The average deficit from 2000–11 was 4.2 percent of GDP. Put another way, the difference in tax collections during those two periods was 2.4 percent, and the difference in deficits was 3.9 percent. Spending increased during the post-Gingrich era, and increased radically in recent years: From 1994–2000, spending averaged 19.6 percent of GDP; from 2000–11, spending has averaged 20.8 percent of GDP. That’s a significant difference, but not an earth-shaking one. On the other hand, consider that from 2009–11, spending has averaged a much larger 24.7 percent of GDP, a level that would be sustainable at no level of tax collections in American history, including the years of World War II. 

As a share of GDP, Americans paid higher taxes in the Gingrich years than they pay now — significantly higher. Likewise, government spending as a share of GDP was substantially lower. So, my fancy new economic theory goes like this: higher taxes + lower spending = smaller deficits. Democrats might recall that the 1990s were not a time of Dickensian austerity or a national policy of Social Darwinism; Republicans ought to remember that the 1990s, despite the higher taxes, did not result in the Swedenification of America. For comparison, consider that the average tax level of the Reagan years was 18.2 percent of GDP, closer to the Gingrich years than to the present.

A balanced budget is the result of tax policies and spending policies. If Watts is calling for a return to the taxing-spending balance of Gingrich’s speakership, he is calling for a significant tax increase, which puts him at odds with the man he just endorsed. Practically speaking, anybody who is calling for a balanced budget who has not proposed something on the order of $1.5 trillion in annual spending cuts is calling for a tax increase. That does not mean that he is calling for a tax increase of the sort that Barack Obama and his congressional allies wish to see implemented. But it does mean that he is calling for a tax increase of some sort.

Gingrich, of course, is not calling for a tax increase, but for a very large tax cut. Which is to say, he wishes to return to the attractive fiscal outcomes of the 1990s without returning to the policies that produced them. This does not seem very sensible to me.

It bears repeating — daily — that taxing and spending is in the main the outcome of decisions made in Congress, not in the White House, which is why it makes sense to write about the Gingrich surpluses, rather than the Clinton surpluses. And which is why an intelligent Republican presidential candidate might want to begin his fiscal agenda with this guiding principle: “I shall be joined at the hip with Paul Ryan.”

A final thought: Those Gingrich supporters who dismiss Jon Huntsman on the grounds that he served as an ambassador under the Obama administration should take to heart this 2008 Associated Press report:

J. C. Watts, a former Oklahoma congressman who once was part of the Republican House leadership, said he is thinking of voting for Obama. Watts said he is still a Republican, but he criticizes his party for neglecting the black community. Black Republicans, he said, have to concede that while they might not agree with Democrats on issues, at least that party reaches out to them.

“And Obama highlights that even more,” Watts said, adding that he expects Obama to take on issues such as poverty and urban policy. “Republicans often seem indifferent to those things.”

Now, who wants to call J. C. Watts a RINO? Anybody?

Mafia State

by Kevin D. Williamson

A thought experiment in one act:

Scene: A small shop on a run-down block in the Bronx, present day. A Shopkeeper goes about his daily business. Enter Salesman.

Shopkeeper: Good morning. May I help you?

Salesman: You know what? I was hoping I could help you. If you have a moment, I’d like to tell you about an exciting new product being offered by my company. It’s really outside-the-box, a market-defining ideation that could revolutionize your retail-experience metrics here at your store. Won’t take five minutes.

Shopkeeper: Well, since I don’t have any customers at the moment—

Salesman: Thanks! I really appreciate your taking the time. I’m sure I don’t have to tell you that things are still pretty rough out there in this economy. It’s hard to get anybody to listen to a pitch. But once they do: Ka. Boom.

Shopkeeper: I have to warn you, I’m notoriously cheap. Sales are down, taxes are up. You’re going to have a hard time selling me anything.

Salesman: No problem, Scrooge McNuggets. Because this is a product that sells itself.

Shopkeeper: Everybody says that in the movies. Do they teach you that at the Acme School of Salesman Clichés? Who do you work for, anyway?

Salesman: The Rutacanali Syndicate.

Shopkeeper: The, uh . . . 

Salesman: The mafia, that’s right. Only we don’t call ourselves that anymore. When Kentucky Fried Chicken went to just KFC, to get the “fried” out of their name, and AARP and NARAL 86ed “retired” and “abortion,” it was like, boom! We need to brainstorm some corporate-identity issues. We had an executive retreat, really workshopped some rebranding options.

Shopkeeper: Workshopped?

Salesman: Knowledge-sharing. A big brain-dump at some hideous Hilton conference room upstate. Listen, I know what you’re thinking. ‘Oh, my God. There’s some mafia goon here in my store, trying to collect money for a protection racket.’

Shopkeeper: . . . 

Salesman: And you are absolutely correct.

Shopkeeper: I’m going to call the police.

Salesman: In the Bronx? Good luck with that. Unless there are multiple shots fired, it’ll take them an hour to respond to the scene. And I only need a few minutes to pitch you. Just chillax, and I’ll blow your mind like John Wilkes Booth. I promise you’ll like what you hear. If not, no problemo. But I’m confident. Our product is that good.

Shopkeeper: And if I don’t pay up, what? You break my legs?

Salesman: See, that’s exactly why the rebranding. I brought this up with Corporate years before the restructuring. In our business space, there’s a whole new paradigm, and our business practices really have to be congruous with that new reality. Back in my dad’s day, yeah, breaking legs was corporate policy. It was the industry standard. But it was a dying industry, a victim of its own success: In all the major metro markets—New York, Chicago, Philly, Boston, Las Vegas—we were either a cartel, like the investment banks, or a monopoly, like the public schools.

Shopkeeper: Or the police.

Salesman: Exactamundo. But we don’t like to compare ourselves to competitors in the same business space.

Shopkeeper: Same business space?

Salesman: The market segmentation is kind of weird, but I’ll get to that. So, yeah, back in the bad old days, we were your basic old-fashioned, dinosaur-type corporation, horizontally and vertically integrated, totally disengaged board of directors just like playing golf all day or whatever, poor performance-review practices, no Six Sigma, no just-in-time inventory, God knows how many incompetent brothers-in-law on the payroll: Fat and happy for the moment, but totally unprepared for any kind of black-swan type market event. Not ready to evolve. And, of course, our customer-relations techniques were not exactly what you’d call best practices.

Shopkeeper: So you’re, what, reformed?

Salesman: No, mi amigo, we are reinvented. Had to. No choice. We’d always had a few fringe competitors: The Cubans, a few Latin-American narco guys, your occasional Yakuza start-up. But with the end of the Cold War—man! We were up to our 24-carat collar-pins in Russians, Ukrainians, those Balkan bastards. Now, the Chinese, the Koreans, your cross-market BRIC outfits, your big-time next-generation narcos. It’s a tough business. And the old business model, to be honest, wasn’t working. We had to innovate or die.

Shopkeeper: Verge of bankruptcy?

Salesman: No, I mean innovate. Or die. We called in consultants. Bain, in fact. You should have been in on that pre-meeting! You’re a businessman, I don’t have to tell you how hard it can be to get buy-in from a big, entrenched corporate culture in dinosaur mode.

Shopkeeper: Gotcha. So, a new kind of protection racket? That’s what you’re here to sell me?

Salesman: Yep-yeppity-yep. Best in the industry. Market leader. Total optimization. Nobody can touch our level of service and customer satisfaction. Here’s how it works. Now, you have a nice little shop here. It would be a shame if anything happened to it.

Shopkeeper: Acme School of Mafia Clichés?

Salesman: That was a joke. Sort of. Look, you do have a nice little shop here, and it would be a shame if anything happened to it. But you’ve got insurance for that. Place burns down, big whoop. Check is in the mail, you get a nice little vacation. And it would be a shame if anything happened to you, personally. And, while you’ve probably got life insurance to take care of your family, which I’m sure will be a great source of comfort to them as they grieve, between us, it’s not going to be a whole lot of comfort to you if you’re dead, or like crippled or maimed or something.

Shopkeeper: Very subtle, this sales pitch.

Salesman: So, we’re kind of like AFLAC. We’re a supplement. We cover the things your insurance doesn’t cover. Now, I’m guessing you get to work on the subway? On the six train?

Shopkeeper: I’m not exactly comforted by the fact that you know that.

Salesman: Well, the station’s right down the street. Not exactly Sherlock Einstein Hawking Holmes figuring that one out with my amazing powers of deducement. Okay, so your shop here is four blocks from the subway station. And on the other end of your commute, you’re what, five or six blocks?

Shopkeeper: About ten.

Salesman: Ouch. No fun in the winter. Brutal. Okay, so our basic package goes like this: For $19.99 a month, we guarantee the security of your shop, your home, and your person within a ten-block radius of your home or business. That’s the basic package, and we’re having a special, so we’ll waive the sign-up fee, which normally is $99. So it’s just the $19.99 a month, no contract.

Shopkeeper: Contract being a word with interesting connotations in your business.

Salesman: Rebranding! Anyway, what the basic package means is this: For your shop, it includes a guarantee of no burglary, no shoplifting, no vandalism—nothing. And we’ll cover up to $100,000 in damages if by some chance we whiff and miss something. The same is true for your home, with the exception of any crimes committed by people living in your home or in your building, if you’re in an apartment. We completely guarantee your personal safety to and from your car or any public transit on both ends of your commute. Unfortunately, we can’t do anything about the subway itself at the moment, but we’re working on it. And we have some upgraded packages available, too, for your family, for your car, if you have one. Vacation homes, et cetera and so forth. We can even make sure that your customers come and go securely: They won’t experience so much as a bum panhandling for change in front of your store. And there’s no con—no obligation—so, if at any time you’re unhappy with our services, you can cancel your membership, no questions asked. No questions asked being a kind of core competency for us. It’s not like a gym membership, where they keep dinging your checking account on the sly for six months after you’ve canceled.

Shopkeeper: I have to admit, that sounds pretty good. But . . . 

Salesman: But you’re hesitant about doing business with us. Totally understandable. Frankly and honestly and to be blunt, I don’t blame you. We have some real legacy issues that have to be dealt with, and I think it’s best to be totally up-front about those. We still have a long way to go when it comes to earning your trust.

Shopkeeper: This is surreal.

Salesman: Now, most companies in our space, what they do is they offer a free 30-day trial, or 90-day trial. But we don’t do that. That, frankly, cheapens the product. Our level of service is so high, our customer-satisfaction rating so strong, that we don’t feel the need to give away our product. But I have something better.

Shopkeeper: This is where the baseball bat comes out, I assume. The offer I can’t refuse.

Salesman: No, but these will hit you like a Louisville slugger: statements from actual customers. Your friends, neighbors, fellow merchants here in the neighborhood. Check this out.

Shopkeeper: Dr. Blanco? The dentist? My dentist is in business with the mafia?

Salesman: Another satisfied customer. You know that big, seven-foot plastic tooth out in front of his store?

Shopkeeper: How could you miss it?

Salesman: Criminals think the same thing. Or they used to. He used to have the worst time with that thing: taggers spray-painting graffiti on it, that kind of thing. Now, you’re a dentist, you have a big white tooth the size of Tyson Chandler out there, and it’s all painted up and disfigured: That’s bad advertising. Bad PR. Who wants graffiti on their teeth, right? Some kids actually hauled the thing away one time, and they found it all the way down in Mott Haven. Now, answer me this: You seen any graffiti on that tooth lately?

Shopkeeper: No, come to think of it. What did you do?

Salesman: We employ a full array of diverse, customizable fulfillment solutions. Let’s just say we maybe accidentally created some business for one of Dr. Blanco’s dental competitors across town. And check this out.

Shopkeeper: The Lacy Pink Hearts Stationary Shoppe? Mrs. Garfinkle?

Salesman: She used to have a heck of a time with shoplifters. Some people apparently will do anything for really nice letterhead. And she was afraid of walking to the bus at night. This neighborhood isn’t what it used to be. It’s vibrant, but it can be challenging.

Shopkeeper: So, what, you created some business for her, too? Condolence cards?

Salesman: Maybe some get-well-soon, hope-that-leg-was-set-nicely cards, yeah. It’s a question of how do we incent who needs incenting so that the deliverables get delivered, the deliverables here being peace and security and your basic island of sane calm here in the vast and turbulent urban sea. When we’re delivering the deliverables, you never notice us. That’s the cool thing about our product: You sign up, you pay your very reasonable $19.99 a month, and life just gets easier without you really ever having to think about it. We’re like the Apple of personal and commercial security. Seriously, you’ll wonder what you did without us.

Shopkeeper: Fulfillment solutions.

Salesman: Exactly. And here I’ll let you in on a little trade secret: Because so many of your neighbors here have signed up already, we have a lot of resources deployed in this market segment. We can really leverage that. It’s going to be very, very high-service. Total cross-platform synergy, total integrated solution. War story: You know, back in the old days, no criminal would so much as pass intestinal gas in South Philly, because every mob grandmother lived there, and nobody let anything happen in that neighborhood. You’d just get crucified if you tried a little purse-snatching. You know what the safest big city in America is today?

Shopkeeper: Not Philly.

Salesman: Honolulu. But Honolulu’s like a weird outlier. You know what the second-safest big city is? El Paso. Right across the street from a warzone, and you’d never know it. Peaceful as feathers rustling on the wings of Hallmark-card angels floating above the beds of sleeping children on Christmas Eve. And that’s because all the cartel guys killing each other in Juarez go to bed at night in El Paso, and that’s where their moms and their wives and girlfriends are. It’s like that old cartoon with the wolf and the sheep dog, clocking in to work: “Mornin’, Sam,” “Mornin’, Dave.” They kill each other all day, but when they’re off the clock, they’re off the clock. We create your own private El Paso, a safe oasis.

Shopkeeper: This sounds great. And I’d love it if somebody could do something about the graffiti. But there’s a flaw in your business model, I think. You get more and more assets deployed in the neighborhood the more of us sign up. And, of course, you want to expand your market share. But think about it: What if everybody signs up with you? You essentially become the police department. And the police department doesn’t do much for us when it comes to things like graffiti, and vandalism, and vagrants, and general order on the streets. Your innovation contains the seeds of its own destruction.

Salesman: You know, the guys at Bain really helped us think through that, because we’d had the same thought processes. And that’s what I was saying earlier about the police and the business space. We’re in the same business space as the police, but we’re not in the same business. The police are in the business of solving crimes and punishing criminals. We do some of that, too, but the police have the deliverables all wrong. The deliverable is preventing crime. The police treat solving crimes and punishing criminals as ends in themselves, but they’re just means. And what those dinosaurs don’t get is that they’re not the only means. What you care about isn’t so much whether the guy who mugs you gets caught and does 28 days in the can and six months supervised release. You don’t want to get mugged in the first place. You don’t want your dog raped in the first place.

Shopkeeper: . . . 

Salesman: Right. You take the mafia, subtract accountability and competition, voilà, you got government. And crimes like vandalism are really hard to solve, and there’s no special reward for solving them, so they just basically ignore that. But you don’t want your property torn up or your neighborhood to go, as we say in the business, into the craptastic crapper. So what we do is partly the old Policeman Patty routine, walking the beat—on foot, for real: Like I said, it’s high-service. But we also use statistical analysis, both active and passive surveillance, vast databases, the whole range. We are the nightwatchman that the police used to be before they settled into being a, well . . . 

Shopkeeper: Paramilitary bureaucracy?

Salesman: I was going to say monopoly. But, that, too. They do like their toys. If we ran that kind of overhead and those capital expenses, Corporate would go nuts. And that’s what Bain really helped us understand: We’re not going to make the same mistakes as the police, because of two things. One, we have to earn your money—not like in the old days, where we could just demand it. Two, we have competitors. And that’s really where the police are victims of their own success: They just hijack your money through taxes the way we used to do with those nice-little-place-shame-if-anything-happened speeches. And they have no competitors, so they totally blow you off when it comes to anything less sexy than armed robbery or murder. That’s what really makes me rant. I mean, we’re out here busting our value-adding butts on fulfillment solutions, and these guys—did you know that the vast majority of the murders committed in this city are committed by people who already have been convicted or a felony or arrested for one? Nationwide, about 75 percent of murderers have a felony arrest record, with an average of four arrests. Or take the 9/11 hijackers: mostly here illegally, overstayed their visas, but the police did jack, because overstaying your visa is a small, unsexy crime. But what’s that mean? Here we are spending hundreds of billions or trillions of dollars and losing thousands of lives fighting wars around the world on the theory that this will prevent the next 9/11, when rudimentary law enforcement would have stopped the first 9/11. That’s the police: worst business practices ever. You get a medal for killing bin Laden but nothing if you just make sure nobody’s ever heard of him because he’s an obscure nobody who never did anything anybody would notice. Same goes for regular crime: Think of all the surveillance they do looking for drugs, and then think: They don’t do p-diddly in terms of surveiling the felons who commit basically all of the murders and serious violent crimes.

Shopkeeper: Thus creating a market opening.

Salesman: Bingo, bango, disco. Thank you. So, as we say in the sales racket, what’s it going to take for me to get you into this Buick?

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Governor Cuomo Backslides

by Kevin D. Williamson

New York’s fiscal situation is so dire that Gov. Andrew Cuomo was doing a pretty good Rick Perry impersonation there for a bit: cutting spending and generally behaving like a fiscal adult. Deroy Murdock voiced the pleasant surprise shared by many conservatives: “Cuomo’s performance thus far has advanced the cause of limited government in the Empire State far more than did his past three predecessors — the hapless David Paterson, the pantsless Elliot Spitzer, and the clueless Republican, George Elmer Pataki.”

Unhappily, that golden hour was not destined to last. Governor Cuomo is under pressure from union goons and other progressive groups, and probably from his own hereditary inclinations, to make the New York State tax code more “progressive,” meaning more redistributive and therefore more amenable to political manipulation. Rather than the current system, which applies a single rate to all taxable income — an arrangement that puts all taxpayers on the same side of the fight — the Left wants a graduated, class-warfare income tax. Putting taxpayers at odds with one another, rather than at odds with the tax-consumers, is a necessary step in the progressive divide-and-conquer campaign. And Governor Cuomo is obliging.

The deal being hammered out in Albany right now will be presented as an across-the-board tax cut for everybody in the state. And, technically, that’s true. The sneaky part is that the highest income group is currently paying a surcharge on top of the regular state income tax, and that surcharge was due to expire. Under the nascent deal, the top bracket will pay a lower effective tax rate than it is paying today, but not as low a rate as it would have had the surcharge simply expired. Basically, the surcharge has been reduced but made permanent.

As Capital Tonight puts it:

An overhaul of the state’s tax code will likely see five different brackets that will generate $1.9 billion in revenue for New York, a source with knowledge of the plan said.

The brackets under consideration are $40,000 and lower; $40,000 to $150,000; $150,000 to $300,000; $300,000 to $2 million and $2 million and higher.

There would be no change for those making less than $40,000, while the rate for those making $2 million and higher will decrease from 8.97 percent to 8.82 percent.

Those high earners would actually be in store for a larger cut if a surcharge is allowed to expire at the end of the month, but pushing this plan through now would allow lawmakers and Gov. Andrew Cuomo to claim they are slashing taxes for nearly everyone.

So, that’s a $2 billion tax increase, roughly, over current law — about half of what the progressives wanted.

Tax increases are not a categorical evil: Budgets have to be balanced, and spending has to be paid for. If you’re going to buy yourself an aircraft carrier, a highway, or a splendid little war in the Congo, you’re going to collect taxes to pay for it. What’s bothersome to me in this story isn’t the tax increase per se: It is first and foremost the revision of the tax code in a destructive way, and, secondarily, the fact that the additional revenue is going to be used not for essential and necessary services but for such Democrat-enrichment schemes as a stimulus-spending campaign and, as the New York Times puts it, “new programs to train poor urban youths,” i.e., using the unemployed to employ the unemployable through employment programs employing those who administer employment programs for the unemployed who are going to stay unemployed.

But long after the fiscal damage is done and the fruitless (at best) spending has been forgotten, the graduated tax system will remain as a cudgel in the hands of the political class.

Why should New York State have graduated income-tax brackets? Why should the country, for that matter? Here’s what Governor Cuomo has to say: “In New York under the permanent tax code, an individual making a taxable income of only $20,000 pays the same marginal tax rate as an individual making $20 million. It’s just not fair.” If Governor Cuomo were taking my writing course, I’d knock ten points off for question-begging. Why is a single rate inherently unfair?

A single rate is not only progressive, it is perfectly progressive: One’s income-tax liability is perfectly proportional to one’s income: At 10 percent, that means $10 on $100 in income, and $10 million on $100 million in income. Income taxes progress proportionally to income. What would be onerous would be a capitation tax, meaning that if government spending averages $25,000 per capita, then everybody owes $25,000 in taxes, regardless of income. (There is, in my view, an excellent moral case for precisely that kind of tax, but that’s an argument for another day.) Under a flat tax, if my income is 20 times yours, my tax liability is 20 times yours. I do not see how that is unfair, or why a tax liability 25 or 50 times as large would be more fair, or why the definition of “fair” necessitates that one’s tax liability be disproportionately increased relative to one’s income. Governor Cuomo has not made that case, probably because nobody ever has challenged him to do so. The “fairness” of graduated tax rates is just part of the intellectual weather, something that progressives present as though it required no argumentation or explanation. Conservatives should take the opportunity to force them to make the case — they’ll still get away with the robbery, of course, but maybe not the glibness.

Governor Cuomo deserves the thanks of his constituents for the good work he did in his first months in office, and he deserves the thanks of the nation for demonstrating the life expectancy of fiscal rectitude among Democratic governors: about the same the life expectancy of a robin, and there’s a long winter ahead before New York can expect to see another one of those.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Bailing Out the Bail-Outers

by Kevin D. Williamson

Next up on the bailout parade? The FHA, probably:

The Federal Housing Administration, which backs about a third of U.S. home loans, could require billions of dollars in taxpayer aid if the housing market continues to deteriorate, a Republican lawmaker said.

The agency, which provides liquidity by protecting lenders against borrower defaults, could follow in the footsteps of Fannie Mae and Freddie Mac, the mortgage companies that were taken into government conservatorship in 2008, Representative Jeb Hensarling said at a House hearing today.

“FHA is a disaster in the making and if we don’t do something it may become the next Fannie and Freddie,” said Hensarling, the fourth-ranking House Republican. “If the FHA was a private financial institution, likely someone would be fired or fined and the institution would find itself in receivership.”

As somebody once put it: FHA is the new subprime. And whatever’s below subprime, that’s where it’s headed. Why? Congress is authorizing the FHA to up the size of the mortgages it will back from  $625,500 to $729,750 (which many Republicans rightly opposed), and it’s doing the occasional near-billion-dollar deal, including building a hospital in Trenton, N.J. (Yes, you’re right, FHA stands for Federal Housing Administration, not Federal Hospital Administration. No, I couldn’t begin to guess how they justify that.)

So, a growing portfolio, increasing its risk exposure, expanding its operations: FHA must be flush with cashola, right? As it turns out . . .

Last month, an independent actuarial analysis concluded that the net worth of the fund stood a 50 percent chance of falling to zero or near zero, which could force it to seek taxpayer support for the first time.

Oops. A third of the nation’s mortgages may be insured by a fund with a net worth well below Herman Cain’s.

The Obama administration is going to spend the next week trying to convince you that today’s employment numbers are good news rather than bad news (Yes, bad news: Look at how many people left the job market). Always keep the housing market in mind when the Democrats tell you the sun is shining on the job market: What coordinates with mortgage defaults isn’t being upside-down or seeing a large drop in your home value — what coordinates is being unemployed. Housing continues to tank, and it is tanking hardest in those cities and states that had the worst reversals in the job market. Reports the Financial Times:

The worst house price falls were in those areas scarred the most by high unemployment and foreclosures. Three cities posted new lows since the first reading of the index in 2006 – Las Vegas, Atlanta and Phoenix.

“It is a bit disturbing that we saw three cities post new crisis lows. For the prior three or four months, only Las Vegas was weakening each month,” said Mr Blitzer. “Now Atlanta and Phoenix have fallen to new lows too.”

Hey, Barack Obama voters in Atlanta, Phoenix, and Las Vegas: Are you better off than you were four years ago? I think not.

But conservatives should remember to ask the follow-up question: Hey, constituents of Harry Reid, John McCain, and Saxby Chambliss: Are you better off than you were four years ago? Conservatives are focused, with good reason, on Barack Obama, but it’s Congress that writes the budgets, Congress that writes the regulations, and Congress that is going to have to take the lead in getting the economy back where it needs to be. And it’s Congress that just upped the FHA loan limits, which are now higher than Fannie Mae’s and Freddie Mac’s — something John Boehner never should have let see the light of day.

A republic, guys — not a bank, not an insurance company, not a hedge fund: a republic. If we can keep it.

Bailing Out the Bail-Outers

by Kevin D. Williamson

 

Next up on the bailout parade? The FHA, probably:

The Federal Housing Administration, which backs about a third of U.S. home loans, could require billions of dollars in taxpayer aid if the housing market continues to deteriorate, a Republican lawmaker said.

The agency, which provides liquidity by protecting lenders against borrower defaults, could follow in the footsteps of Fannie Mae and Freddie Mac, the mortgage companies that were taken into government conservatorship in 2008, Representative Jeb Hensarling said at a House hearing today.

“FHA is a disaster in the making and if we don’t do something it may become the next Fannie and Freddie,” said Hensarling, the fourth-ranking House Republican. “If the FHA was a private financial institution, likely someone would be fired or fined and the institution would find itself in receivership.”

As somebody once put it: FHA is the new sub-prime. And whatever’s below subprime, that’s where it’s headed. Why? Congress is authorizing the FHA to up the size of the mortgages it will back from  $625,500 to $729,750 (which many Republicans rightly opposed), and it’s doing the occasional near-billion-dollar deal, including building a hospital in Trenton, N.J. (Yes, you’re right, FHA stands for Federal Housing Administration, not Federal Hospital Administration. No, I couldn’t begin to guess how they justify that.)

So, a growing portfolio, increasing its risk exposure, expanding its operations: FHA must be flush with cashola, right? As it turns out . . .

Last month, an independent actuarial analysis concluded that the net worth of the fund stood a 50 percent chance of falling to zero or near zero, which could force it to seek taxpayer support for the first time.

Oops.

The Obama administration is going to spend the next week trying to convince you that today’s employment numbers are good news rather than bad news. But keep the housing market in mind when the president tells you the sun is shining on the job market: What coordinates highly with mortgage defaults isn’t being upside-down or seeing a large drop in your home value — what coordinates highly is being unemployed. Housing continues to tank, and it is tanking hardest in those cities that had the worst reversals in the job market. Reports the Financial Times:

The worst house price falls were in those areas scarred the most by high unemployment and foreclosures. Three cities posted new lows since the first reading of the index in 2006 – Las Vegas, Atlanta and Phoenix.

“It is a bit disturbing that we saw three cities post new crisis lows. For the prior three or four months, only Las Vegas was weakening each month,” said Mr Blitzer. “Now Atlanta and Phoenix have fallen to new lows too.”

Hey, Barack Obama voters in Atlanta, Phoenix, and Las Vegas: Are you better off than you were four years ago? I think not.

But conservatives should remember to ask the follow-up question: Hey, constituents of Harry Reid, John McCain, and Saxby Chambliss: Are you better off than you were four years ago? Conservatives are focused, with good reason, on Barack Obama, but it’s Congress that writes the budgets, Congress that writes the regulations, and Congress that is going to have to take the lead in getting the economy back where it needs to be. And it’s Congress that just upped the FHA loan limits, which are now higher than Fannie Mae’s and Freddie Mac’s — something John Boehner never should have let see the light of day.

A republic, guys — not a bank, not an insurance company, not a hedge fund: a republic. If we can keep it.

Is the Fed Pursuing Our Interest or Banks’ Interests?

by Kevin D. Williamson

The Fed signals that it intends to hitch our national wagon to Europe just as Europe is going over the edge, and the Dow jumps 4 percent. Maybe I’m missing something.

All that Bernanke & Co. did yesterday was to lower the dollar-financing cost for banks in Europe, where inter-bank lending is locking up — for good reason. But Europe’s problem is not its banks and their access to dollars. Europe’s banks are in trouble because European government bonds are in trouble, and European government bonds are in trouble because European governments are in trouble. European governments are in trouble because they spend too much money. The Fed can’t change that, and hasn’t tried.

The question is: What is the Fed thinking? Is it looking out for the United States, or is it looking out for the banks?

The generous interpretation of the Fed’s action goes like this: The Fed hasn’t really risked anything — it’s just making it easier for them to borrow from one another, because a European banking crisis would cause a 2008-style credit crisis worldwide. With U.S. economic indicators improving modestly, the main worry of U.S. policymakers right now is economic events outside our own borders. The Fed can’t work out the Europeans’ finances for them, but it can soften the blow to international credit markets, and thereby do a service to the American economy.

The ungenerous interpretation of the Fed’s action goes like this: Everybody knows the jig is up, but lo these many years after the 2008 crisis, trillions in bailouts later, the banks are still in weak shape, we haven’t really reformed our financial rules, there’s insufficient transparency to really know what kind of shape everybody is in, and the world’s biggest banks just got downgraded on Tuesday. We’re buying time and hoping for the best, and giving all our favorite bankers an extra little margin of error to get their acts together before the big kaboom gets heard ’round the world.

I’m open to either interpretation, and to other interpretations.

But here is what is beyond debate: Europe has not solved its fiscal problems. Europe shows no sign of being on the verge of solving its fiscal problems. Europe shows no sign that it wants to solve its fiscal problems. If Ben Bernanke is having “in for a penny, in for a pound” thoughts, he needs to think again: We do not have the resources to bail out Europe, and nobody has the resources to bail out the United States.

Congress should make it clear — today — that the Fed’s mandate does not extend to bailing out Europe’s banks and Europe’s governments. This is especially true after the secrecy and unaccountability with which it conducted the $7.7 trillion shadow bailout on top of TARP.

Market indicators suggest that investors are expecting interest rates to go lower and money to remain easy — even the ChiComs loosened up a little bit yesterday. And why had Beijing been so tight up until now? Inflation. In a poor country such as China, a little inflation can cause civil unrest. But rich countries aren’t any different, just richer. Years of low interest rates and loose money haven’t solved our fundamental economic problems, but they have created the potential for seriously disruptive inflation, and you’ll notice that gold prices and oil futures have been going up, too. That isn’t a sign of confidence in the dollar or the euro.

One of the big problems at MF Global (as at Lehman Bros.) was off-balance-sheet accounting, using various bookkeeping shenanigans to hide the fact that liabilities were dwarfing assets. The United States government does that both in the obvious sense — pretending that future entitlement liabilities don’t really exist — but in a more subtle sense, too: Wealth isn’t abstract numbers. Wealth is real stuff: food, oil, steel, houses, people performing useful services, etc. You can flood the world’s financial systems with liquidity and create the impression of economic activity, but that does not create one automobile, pair of shoes, or bag of coconuts. You can finesse the economic metrics, but that doesn’t make you any richer.

Government spending in the United States (at the federal, state, and local level) is about 40 percent of GDP, and we’re borrowing 40 cents of every dollar we spend. We’re spending the money now, with promises of future benefits that amount to (literally) more than all the money in the world, and promising to pay off today’s spending out of future taxes, as though the future is not going to want to spend the money on itself. That is not a program for stability. Not in Europe. Not here.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Of German Bonds and American Prosperity

by Kevin D. Williamson

The question I am asked most often is: What will it take to get the government to stop running up the debt? A Republican president? A Republican president with a Republican House and a Republican Senate? A Republican president named Ron Paul?

My guess is that none of these is sufficient. The government will continue to borrow money for as long as the market remains willing to lend it money. Which is why Germany’s failed bond auction is of interest. From the Financial Times:

Germany saw one of its poorest debt sales on Wednesday in what was seen as a failed auction by many market participants amid fears the eurozone’s debt crisis is spreading all the way to Berlin.

Marc Ostwald, at Monument, said “I cannot recall a worse auction … If Germany can only manage this sort of participation, what hope for the rest. Yields are at completely the wrong level.”

Germany is suffering because of pan-European problems, not because of specifically German problems. But when Europe’s most solid economy is having a hard time raising money in the marketplace, that should be a wakeup call.

When governments take bonds to market and the market doesn’t want them, governments have two options: One, stop borrowing money. Two, raise interest rates in order to make bonds a more attractive investment. The ability to borrow money is the thing that makes being in politics fun and rewarding, so No. 2 is the go-to option.

In the United States, we have historically low interest rates right now. We’re also monetizing a great deal of debt, which is an invitation to inflation, and governments also raise interest rates to fight inflation. So there is good reason to suspect that interest rates will go up in the future. (No, I’m not guessing when or by how much. If I could forecast that with any accuracy, I’d have Lloyd Blankfein skimming the bubbles off my Moët-filled swimming pool.) But we do have some historical precedents to consider. As recently as June of 1984, interest rates on 30-year Treasury bonds went to 13.44 percent. To do a little thought experiment: What would happen if it suddenly cost Washington 13.44 percent to finance our deficit spending?

At an interest rate of 13.44 percent, it would cost just a little over $2 trillion a year to finance our current $15 trillion or so in debt — not counting future borrowing. Total federal revenue in 2010 was also just over $2 trillion. Which is to say that if financing costs should return to what they have been within recent memory — hardly a historically unprecedented level — then the cost of financing our debt could equal or exceed all federal revenues combined. If you’re in a position necessitating that you borrow money just to pay interest on your current debts, you’re in a pretty weak credit position, and so there will be pressure for interest rates to go even higher. A government isn’t a household, but to use the household comparison: If your income is $5,000 a month and the minimum on your credit cards is $5,500 a month, you’re going to have a hard time getting new loans.

In that situation, we could cut all federal spending beyond debt service to $0.00 and still not be able to pay our bills. No turkey on our national table that Thanksgiving.

There are two ways of looking at American prosperity. One way is say: Wow, Americans are only 5 percent of the world’s population, but they get to divvy up nearly 25 percent of the world’s economic output — lucky Americans! The other way is to say: Wow, Americans are only 5 percent of the world’s population, but they produce nearly 25 percent of the world’s economic output — lucky world! Thanks, Americans!

Both are valid. But however you look at it, it is absurd that a country with 5 percent of the world’s population and a quarter of its economic output cannot responsibly manage its public finances. As we count our blessings this week — and our national cup truly runneth over — it is worth keeping in mind that American prosperity is neither random nor accidental, nor is it a fixed state of affairs. This didn’t just fall out of the sky: We are prosperous in no small part because we had good ancestors — and we should work to be better ancestors ourselves, that future Americans may continue to count the prudence of their forefathers among their many blessings.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Newt’s Right: Put the Kids To Work

by Kevin D. Williamson

From Williamson’s Political Dictionary, Vol. 1: newt, [noot; nyoot] v., to put one’s foot in it while putting one’s finger on it.

The usual half-wits (and quarter-wits, and hemidemisemi-wits) are having a great deal of fun with Newt Gingrich’s characterization of child-labor laws as “truly stupid,” a comment that launched a thousand Dickensian exaggerations. Never mind that Newt Gingrich was undeniably correct, even if he does have a knack for saying the right thing in a way that makes it sound wrong.

The former speaker is working from the radical notion that if we lower barriers to work-force participation then we might reasonably expect to see higher levels of work-force participation, and that if we erect barriers to work-force participation, we might reasonably expect  to see less of it.

Here are a few truths that rarely are spoken: About half of Americans will not really benefit from a four-year college education, and we should not waste the time and resources to put them through four (or five, or six) years of undergraduate work at a satellite campus of Mediocre U. And let us not overlook the fact that one of the most precious resources being wasted is the time, energy, and money of millions of 18-to-24-year-old Americans who could be making better use of their youth. The evolution of the bachelor’s degree into a general professional license has resulted in the massive misallocation of human capital (and financial capital) that mostly serves the economic interests of a very narrow and parochial special-interest group: college faculty, staff, and administrators, a reliably overpaid and underworked population of sinecure-clingers insulated from economic realities by our baroque education-funding system and protected by such medieval institutions as tenure.

Gingrich was right to say that the real value of a first job isn’t the money one earns but the lessons one learns: how to show up on time, how to be honest, how to be dependable, how to take direction, how to separate one’s personal life from one’s professional obligations, etc. Having fewer 16-year-olds working as part-time janitors does not mean that you will have proportionally more of them fine-tuning their Harvard admission essays. Having more 16-year-olds working as part-time janitors does not mean that we will have proportionally fewer rocket scientists and Ezra Pound scholars down the road. Most of our young people aren’t headed down that route.

One of the most dangerous and destructive tendencies in American public life is the upper class’s habit of generalizing its own desires, tastes, approaches, and interests onto the body politic at large. Thus did (for example) Governor Reagan help transmit the Hollywood elite’s culture of at-will divorce to the middle and lower classes. Unlike the rich and famous, the women and children of the middle and lower classes are not protected by vast amounts of money and social capital, and therefore were poorly positioned to endure the havoc that no-fault divorce wrought upon American family life, a development from which the nation probably never will recover. (Oops.) Our elites seem to be imagination-challenged, and they can never quite realize that other people are making their life choices while consulting a very different menu of options. This class blindness is the source of Karl Rove’s sputtering horror at the idea of his children “picking tomatoes.” It is also the source of Barack Obama’s managerial liberalism, which implicitly holds that if the poor ignorant wretches in the non-elite classes would only make the same life decisions as Barack and Michelle Obama, then they would get (roughly) the same outcomes. But that is not the case.

There is a relatively small minority of high-IQ Americans who form what Charles Murray famously called the “cognitive elite.” There is a larger group, but still a relatively small one, of very driven people who are attracted to a particular occupation early in life — those people who always knew that they were going to become doctors, truck drivers, teachers, boxers, newspapermen, farmers, automobile mechanics, what have you, and take the necessary steps to do so early in life. But there is a relatively large group of young people who are of average or below-average IQ, have no particular skills, and no clear path set for them early in life. Early work experiences are critical for people in this group, both because they instill necessary habits and provide necessary experience, and because having a variety of early work experiences provides a richer range of options. The more work experiences one has early in life, the more likely one is to encounter an occupation that matches one’s talents and interests.

In the course of doing a little reporting on long-term unemployment in New York (see “Keeping Blacks Poor,” National Review, February 2010), I learned some depressing stuff:

There’s not much other work to be had in the Bronx, where unemployment is currently at about 13.1 percent. Much of the Bronx is young and black or young and Hispanic. Nationally, the unemployment rate among blacks rose to 16.2 percent in the year-end numbers, while the rate for whites fell to 9.0 percent. For black youths, the numbers are startling: 50 percent for 16–19-year-olds, 26 percent for 20–24-year-olds. A study from the Community Service Society of New York puts actual work-force participation among black men 16–65 years of age in New York City at about 50 percent, and the number for young black men nationwide is just 40 percent.  Never mind the jobless recovery: For a great many black Americans, it’s been a jobless eternity, in good times and in bad. Why? 

One of the factors that stood out in my interviews was lack of early work experience. These perennially unemployed thirtysomethings hadn’t lost jobs at factories or been the victims of outsourcing: They had never had a real job of any kind. In many cases, many of the men in their families and circles of acquaintance had never had a long-term job of any kind, either:

At 35 years old, C has never held a job. His friends, acquaintances, known associates (C is a little foggy on whether he’s on probation or parole, but he’s got some known associates): no jobs, never really had them. His father? Do not ask C about his father. In fact, the only people C can think of who have jobs are women: His mother worked, the mother of his children works. He did know a woman who was dating a taxi driver once. C says he would like to work but is more of an independent businessman. He describes the informal work he has done as “this and that.”

There are always economic tradeoffs, of course. But the alternative to work for a lot of teen-agers is not lacrosse or volunteering on the Obama campaign or putting in a couple extra hours of study for the SAT. If you want to say that as a general rule we’d prefer to keep teen-agers away from work during the school year because we want to emphasize academic achievement, fine: But you should have the intellectual honesty to admit that you are simply elevating the interests of one group of young people over those of another. It’s a lot like the minimum wage: You may think that putting a floor on wages is worth the tradeoff of higher unemployment for low-skilled workers and permanent unemployment for the least-skilled workers, but you’re still making a trade. (And maybe you’re not the person best situated to judge the economic interests of people you’ve never met and about whom you know nothing?)

Gingrich’s suggestion that young people be employed doing manual labor at the institutions charged with educating them is characteristically insightful and bold — meaning that he’s already walking it back a little bit, because All The Right People are aghast that somebody, somewhere, may not be dreaming of seeing the leaves turn in Princeton.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Ten Things to Keep In Mind for 2012

by Kevin D. Williamson

 

Between the candidates’ debates and my conversations with the Occupy Wall Street protesters, it seems to me that there is a persistent, dangerous disconnect between our political conversation and reality. On the right, we’re still too focused on taxes, rather than on the spending that drives taxes. On the left, they’re . . . the Left, still, unfortunately for them.

With an eye on 2012, here are ten important but sometimes counterintuitive facts to keep in mind:

1.      There is no austerity.

2.      There was no deregulation.

3.      You can’t trust Republicans on spending.

4.      Wall Street loves Democrats.

5.      People who voted for Barack Obama on civil-liberties grounds are fools.

6.      If you aren’t for massive entitlement reform, you’re for massive tax hikes.

7.      But taxing the rich won’t close the deficit.

8.      The housing bubble was largely a political creation.

9.      Well-meaning politicians are just as dangerous as self-serving ones.

10.  There’s no way out of this jam without big cuts to popular programs.

The real debate isn’t whether to cut, only what and how much and when. (My preferred answers: almost everything, a lot, now.)

The Bankers’ Panic Starts in 3, 2, 1 ...

by Kevin D. Williamson

 

The banks still aren’t alright:

Wells said delinquencies of more than 90 days in its main portfolio of consumer loans – including mortgages and credit cards — rose 4 per cent to $1.5bn, the first increase since 2009. Early stage delinquencies in its retail business remained flat at 6.13 per cent after falling for three quarters. The bank increased its provision for consumer-banking losses for the first time in two years.

“The economic recovery has been more sluggish and uneven than anyone anticipated,” said John Stumpf, Wells chief executive. [Editorial note: Not anyone, chief.]

Citi said the percentage of mortgages that were 90 days delinquent rose for the first time in almost two years — from 3.87 per cent in the second quarter to 3.88 per cent in the third. John Gerspach, chief financial officer, said the bank was seeing “re-defaults” on mortgages that had been modified to make them more affordable. “We could begin to see increased delinquencies and net credit losses,” he said.

About this, a few thoughts:

1.      We are going to have a mortgage and credit-card delinquency problem for as long as we have an unemployment crisis. Being upside-down on the mortgage is not why borrowers default: Unemployment correlates strongly with mortgage defaults.

2.      Frank-Dodd is not going to bring stability to the financial-services sector. It does all of the wrong things and few of the right ones.

3.      We have some very weak state finances, in California, Illinois, and New Jersey, for instance. But the credit-default market thinks that the biggest U.S. banks are even weaker than these basket cases.

Politicians promise the moon on the economy, and it is fair to hold them to the standard they set for themselves. Barack Obama, in particular, must be judged harshly when one considers the difference between his economic promises and his economic delivery. But in the real world, we have to keep in mind that public policy is only one factor affecting growth, employment, trade, etc. — an important one, to be sure, but not the only one. We’ve seen some good ideas coming out of the Republican leadership: Ryan’s entitlement-reform proposals, Ron Paul’s $1 trillion in cuts, Rick Perry’s energy-liberalization program, and more. Getting even one or two of those done would be a real career-making achievement for any president or congressional leader. Government can’t fix every economic problem, or even most of them, but it can fix its own finances and rationalize regulation. It is imperative that it do so.

We have a lot to do, and the time available for doing it diminishes daily. The banks aren’t really the problem, but a symptom of a larger and deeper problem that has been afflicting the U.S. economy for decades.

Let’s Give Wall Street a 70 Percent Pay Raise

by Kevin D. Williamson

It is time for the myth of Warren Buffett’s secretary to die a quick death. If it is true that Mr. Buffett pays a lower effective tax rate than does his $60,000-a-year secretary — and I am not sure that it is — that is anomalous. The average effective tax rate for people making more than $10 million a year is nearly 21 percent; the average effective tax rate for people making $60,000 a year is 8.4 percent. If anything, the people who should be complaining about Buffett’s tax rate are those lowly $1 million–$10 million guys, who do pay a higher rate on average: 24.5 percent.

Warren Buffett is of course a poor example. He is the second-wealthiest man in the country, the third-wealthiest man in the world. There is a very large difference between his gross income and his taxable income, largely as a result of the fact that he gives away so much money. As Arthur Laffer points out in the upcoming issue of National Review, we could remedy that by taxing gifts from billionaires at 50 percent. But then we’d simply be transferring money from philanthropic purposes to government purposes. I’m not sure I agree with everything the Gates Foundation does, but I suspect that its money is put to better use than it would be if it were channeled into the Department of Education or Medicaid.

Here are the average effective tax rates by quintile:

Does that look like the rich are paying lower rates than the middle class? No, it doesn’t, and they’re paying those higher rates on much higher incomes, making their total tax burden very large.

Some people are scandalized, or pretend to be scandalized, by the fact that private equity investors, fund managers, and other financial types pay a tax rate of 15 percent — the capital-gains tax — instead of the much higher personal-income tax rate. But it is not as though billionaires get some special break on investment income: Everybody pays the same 15 percent rate on long-term capital gains: you, me, the teacher with a bunch of good stocks in her retirement account, everybody. If you want to argue that we should tax investment income at the same rate as salaries, fine, you can make that case. But you can’t make the case, in any honest way, that we ought to tax investment income one way for a politically favored class of people and another way for a politically disfavored class of people.

So what would happen if we taxed, say, carried-interest income at the personal-income rate? What you would very likely see is even higher salaries for finance professionals. Why? Because they can count money, and their after-tax income is more relevant to them than their pre-tax income.

Let’s say I’m Joe Wall Street, and I’m a man of simple tastes. I can get by on $850,000 a year. I get my income in the form of carried interest, so I pay the 15 percent capital-gains rate. That means I need $1 million a year to get my $850,000. What happens if you tax my income like it is a salary instead of a capital gain? If I work on Wall Street and live in New York City, then my take-home pay goes down to about $520,000, as Intuit figures it. But even though I am a man of simple tastes, I can’t live on $520,000. I’m not moving to Long Island and drinking wine out of a box. I want my $850,000 — and, since I have skills that are in high demand, I can command that price in the marketplace. If you’re taxing my income like it is salary, then Evil Fund X has to pay me about $1.7 million a year to produce that $850,000 in income. So my notional salary is up 70 percent to get me back where I was.

And you know what? If you’re going to treat that income like salary, I am probably going to want it paid to me as salary. Whereas before I had a personal stake in the performance of my company, now I’m just a paycheck-collector — fund’s up, fund’s down, I get my $1.7 million before taxes. All you have accomplished is to encourage me to demand a 70 percent raise, diminish my incentives, and transfer $700,000 from the private economy — where investments create profit, jobs, etc. — to the government, which will use it for whatever whimsical purposes it dreams up this year. You can get a lot of monkeys high on cocaine for that extra $700k: ten times the coked-up stimulus monkeys. Congratulations.

The middle class is not suffering because there are rich people working in finance. The middle class (and, lest we forget them, the poor) is suffering because there has been long-term stagnation in their real household incomes, in some cases a decline. Higher taxes on financiers will not bring higher salaries to Joe in accounts receivable or Bob in H.R. or Sam on unemployment. To maintain otherwise is flat-Earth thinking.  

 

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Default Is In Our Stars

by Kevin D. Williamson

It’s not getting better:

 

Officials in Berlin told The Telegraph it is “more likely than not” that investors will suffer fresh losses on holdings of Greek debt, beyond the 21pc haircut agreed in July.

The exact level will depend on findings by the EU-IMF “Troika” in Athens.

“A lot has happened since July. Greece has fallen back on its commitments, so we have to assume that the 21pc cut is no longer enough,” said one source.

Finance minister Wolfgang Schäuble told the Frankfurter Allgemeine that the original haircuts were “probably” too low, saying banks must have “sufficient capital” to cover greater losses if need be. Estimates near 60pc have been circulating in Berlin.

The shift in German policy has ominous echoes of last year when Chancellor Angela Merkel first called for bondholder haircuts, setting off investor flight from Ireland and a fresh spasm in the EU debt crisis.

It’s not just the Europeans, of course. U.S. banks are sitting on tens of billions in Greek debt, but the whole thing is one big knot of pain: French banks hold a ton of Greek debt, and guess who holds a lot of French bank debt? U.S. banks, that’s who, with Morgan Stanley alone facing some $39 billion in exposure. As usual, Goldman Sachs is thought to be ahead of the curve — it helped to restructure the Greek debt, and apparently got good and scared by what it saw. 

But keep in mind: This isn’t Europe’s problem. This is your problem, Sunshine:

 

The latest round of American financial assistance came Thursday with a promise by the Federal Reserve to swap as many dollars for euros as European bankers need. In the short run, those transactions won’t have much impact because the central banks are simply swapping currencies of equal value. If the move helps avert a wider crisis, it could help spare the global economy from another recession.

But over the long term, consumers could feel the impact of central bankers flooding the financial system with cash, according to John Ryding, chief economist at RDQ Economics.

“This is a lender of last resort function,” he told CNBC. “With the dollar injections that the Fed has done, it’s like giving a patient medicine with really bad side effects.”  Ryding said the bad side effect in the U.S. has been inflation, which has picked up to 3.8 percent year over year.

The bailouts never end.

Mitt Romney Is Still Wrong about China

by Kevin D. Williamson

I certainly hope Mitt Romney is as insincere as he appears to be. The alternative is that he really does, as he says, “see eye to eye” with Donald Trump on the question of China. In case you’ve forgotten Trump’s position on China, it is:

“Listen, you m—–f—–s” (and he didn’t say “muffins”) “we’re going to tax you 25 percent.”

If Romney sees eye to eye with Trump, he’s seeing eye to eye with Barack Obama as well. As I noted earlier:

The administration has been stepping up the anti-China rhetoric for a year now, and Treasury secretary Timothy Geithner underwhelmed the G-20 meeting in Gyeongju, South Korea, in late October with non-credible demands that each country adopt policies to keep both trade surpluses and trade deficits “below a specified share” of GDP, with his preferred target being about 4 percent. The Indian delegation responded with whatever the Hindi is for “Get the hell out of here!” — or, as finance minister Pranab Mukherjee, New Delhi’s man at the G-20, put it, “Protectionist policies are not acceptable.” Japan’s representative called the plan “unrealistic,” apparently ignorant of the fact that “unrealistic” is the defining adjective of the Obama administration. The Germans denounced Geithner’s proposal as a move toward a “command economy,” demonstrating a fine Teutonic flair for the obvious. Too protectionist for the Indians, too authoritarian for the Germans — that’s our economic policy.

Much of what is wrong with Romney’s born-again China hawkery was spelled out in this editorial:

China is, to be sure, a particularly brazen and impenitent currency manipulator. The renminbi is probably undervalued by at least 15 percent, though estimates vary greatly. China keeps its currency artificially weak to keep employment high in its export-driven economy. Another way of saying this is that China keeps the standard of living artificially low for its workers in order to prevent unemployment, and Mr. Romney promises to retaliate by lowering the standard of living of U.S. workers by raising the prices they pay for imported goods. Beijing’s long-term strategy is to allow the renminbi to rise, gradually, over a long period of time, as China makes the transition from being a poor exporter to a higher-wage economy more driven by internal demand. In the meantime, the United States receives a subsidy from China in the form of lower prices for consumer goods made there. 

Yes, China manipulates its currency. So does the European Union. So does the United States — that’s what we pay Ben Bernanke for. So does every country that has the ability to do so and finds it in its interest to do so.

China is not the reason that manufacturing began to decline in the United States in the second half of the 20th century. The United States was an uncontested manufacturing powerhouse in the 1950s in no small part because Germany and Japan had been bombed to smithereens, along with much of the rest of the civilized world, while potential global competitors in much of Europe, Latin America, and Asia were suffocating under socialism in various forms. That is no longer the case.

The United States is a country with an average household money income of some $50,000 — we are not going to be the world’s leader in low-margin injected-plastic manufacturing. That is not going to happen, and we should not be eager for it to happen.

If I thought Mitt Romney were just being a Machiavellian calculator, I might be a little more kindly disposed to him: I am all for Machiavellian calculators in the White House, provided they are ruthlessly pursuing our national interests. But I half-suspect that Mr. Romney half-believes what is coming out of his mouth, which is worrisome. If he really intends to slap a 25 percent tariff on Chinese goods, he is embarking on a dangerous and destructive path. If he is just sucking up to Donald Trump . . . I honestly do not get why Romney, and Rick Perry, and Sarah Palin, and others feel the need to kiss that particular ring. It is a mystery.

Here is something that is not a mystery: China will soon be the world’s second-largest consumer market, and India will be fourth or fifth in a decade or so. We Americans excel at making high-end stuff: Technology, aircraft, industrial machinery, etc. It’s easier to sell high-end stuff to rich people than to poor people. China’s trade imbalances with the world at large are well on their way toward being sorted out, and have been for some time, and the fact that the United States continues to have a large trade deficit vis-à-vis China is at least as much a reflection of policy decisions in Washington as of those in Beijing. (And it is worth remembering that about half of our trade deficit with the world at large is from a single product: oil.)

The only thing that will raise wages in the United States is real long-term investment in productive capital. That’s it. Romney is better placed than most to appreciate that — I think. I’m skeptical of the cult of the businessman, whether your businessman is Romney, Herman Cain, Donald Trump, or Ross Perot. The United States of America is not Bain Capital, and it is not a pizza chain. If you really think that being a fabulously successful businessman is a knock-’em-dead qualification for being president, keep this face in mind:

Easy Questions

How a Republic Becomes a Bank

by Kevin D. Williamson

Pres. Barack Obama has proposed another half-trillion-dollar stimulus bill, although the word “stimulus” currently is in bad odor. He promised that it would be “paid for,” by which he apparently means that he will demand that Congress figure out a way to “pay for” all of the additional special-interest spending and special-interest tax-cutting he wants to do. That Supercommittee had indeed better have a very large red S on its collective chest.

The president’s speech, as a technical rhetorical performance, was, unsurprisingly, superb. As a matter of public policy his program is, unsurprisingly, wretched.

The most despair-inducing aspect of his proposal is the further transformation of the United States of America from a republic into a bank. He promised that the infrastructure bank he proposes would, of course, be managed by angels:

The American Jobs Act will repair and modernize at least 35,000 schools. It will put people to work right now fixing roofs and windows; installing science labs and high-speed internet in classrooms all across this country. It will rehabilitate homes and businesses in communities hit hardest by foreclosures. It will jumpstart thousands of transportation projects all across the country. And to make sure the money is properly spent, we’re building on reforms we’ve already put in place. No more earmarks. No more boondoggles. No more bridges to nowhere. We’re cutting the red tape that prevents some of these projects from getting started as quickly as possible. And we’ll set up an independent fund to attract private dollars and issue loans based on two criteria: how badly a construction project is needed and how much good it would do for the economy.

Those criteria aren’t criteria; they are aspirations. Deciding “how badly a project is needed” and “how much good it would do for the economy” through the political process is a guarantee that we will be building bridges to nowhere and that the process will entail boondoggles and earmarks. This is a certainty, and the president knows as much, but he believes that Americans are in the main rubes; they fell for this shtick before, and they may well fall for it again. But who precisely will be empowered to make those decisions about benefit and necessity? Given the president’s personnel choices, which range from union radicals to bilious anti-capitalists to Marxist crackpots, there is little reason to expect an independent advisory board to make intelligent decisions. To believe that it would make apolitical decisions is to indulge in fantasy of the most childish kind.

Is our national infrastructure crumbling? If it is, somebody should face a firing squad: We appropriate hundreds of billions of dollars for highway and transportation maintenance. Under the Recovery Act, we spent about $200 billion on infrastructure projects through the tax-subsidized Build America Bonds program alone. There were many other initiatives, as you may recall. Bond debt owed by states, cities, school districts, and the like is at very high levels — around $3 trillion — and much of that money has been used for infrastructure projects. In Texas, for instance, practically all of the growth in statewide bond debt in the past decade has come from highway spending.

Federally, the Department of Transportation was given $73 billion to spend in 2010. That is not an insignificant amount of money. But such direct appropriations are in many ways preferable to the “infrastructure bank” idea, because appropriations are relatively transparent, and because they are reflected on the national ledger. Loan guarantees, which is what the infrastructure bank is about, are a way to keep federal spending off the books — it isn’t spending, and it isn’t even really a loan, just a loan “guarantee.” But sometimes things work out poorly: We had a half a billion dollars in loan guarantees on a single politically favored firm, the solar-equipment company Solyndra, which famously went bankrupt last week. Fannie Mae and Freddie Mac are in the loan-guarantee business, and their toxic assets have become ours. If we are to spend money on federal boondoggles, we should at the very least demand that Congress go on record with a vote, instead of hiding our exposure behind a phony financial construct.

Practically every tentacle of the federal government is now involved in the loan-guarantee business — for politically favored farmers, for politically favored business owners, for politically favored classes of citizens, etc. Andrew Jackson nearly blew a head gasket fighting against the arrogations of a government bank; Barack Obama is giving us a bank government, which is a far worse thing, and to be resisted.

 

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Ghost in the TelePrompTer

by Kevin D. Williamson

 

Ladies and gentlemen, the president of the United States . . .

Mr. Speaker, senators, members of the House, distinguished colleagues, legions of the unemployed, my fellow Americans:—

Let me begin by saying—Wait, legions of the unemployed? Is somebody messing with my TelePrompTer? Can I, uh, wait . . . okay—sorry. Yes, sorry, let me begin by saying, “I’m sorry.” Really, truly, sincerely sorry. About this. About all this. But, hey, it’s not like I don’t have some skin in the game, here. Quite a bit, in fact: I’m guessing that if unemployment goes up much in the next ten to twelve months, I’m, uh, basically done. That’s all she wrote, as I might say if I were trying to be folksy. Would that help? Folksiness?

Look, I don’t know what you want me to do. I gave a speech. I gave several speeches. Beautiful speeches. I’m here to give a speech again. You know how beautifully I speak, especially compared to George W. Bush. Remember him? Remember that guy? Awful times, right? But it’s okay. I’m here. I’m in charge. And I’m speeching, er, speaking, giving a speech, as it were. Let me be clear about that.

You know, you learn a lot on this job. There’s no real preparation for it. I mean, there’s some preparation you can get, like being a governor or a mayor, or an executive in charge of a large enterprise of some sort. Uh, yeah. But, you know, as things turned out, I didn’t. And I think I may have made a little strategic error, here, to the extent that I’ve in a way conflated the significance of giving a speech with the significance of actually doing something about the thing you’re giving a speech about. It’s mostly a communication problem, meaning that I’ve done a lot of communicating about the problem, the problem of unemployment, but my communication hasn’t been effective, at least not in the sense that might show up in the unemployment data, or, for that matter, in your paychecks and bank accounts. But I have made it very clear: I am opposed to unemployment. Unequivocally so. I have a vision, and in my vision unemployment is very low, especially around October and  November of next year. That’s my vision. Now, some people don’t share that vision. Because they like unemployment. Or something. I’m pretty sure my vision is mine, and shared by the members of my party, and of course the top experts I was in grad school with and that guy over at the New York Times who always writes what I’m already thinking. That’s our vision. A vision for America.

Except . . . and let me be clear, I’m putting it all out there, since, really, at this point I don’t have much left to lose that I’m not pretty darned likely to lose next year, anyway. So, I’ve decided to set aside the proposal I was going to make, which was—surprise!—extending the payroll-tax cuts, some make-work spending on stuff I’m still going to call infrastructure and clean energy, but which I’m sure as heck not going to call “stimulus” anymore—lesson learned!—and extending unemployment benefits, and more or less the same stuff I’ve been doing for a while now, but more so, or still more so, or, compared with the original stimulus, less so, but less in a way that is more on top of the more we did before, if you get my meaning. No?

Okay, so this is it: Armageddon. Really, is this the prepared text? I don’t think this is the prepared text. Okay, whatever. So, since the speeches aren’t really working, here’s what I’m going to do.

First, I’m putting a cap on federal spending. I’m not talking about any baseline shenanigans. I mean that I will veto any spending bill that goes one thin dime beyond what we spent this year. I’ll leave it to Congress to figure out how to do that. Yeah, Paul Ryan: I’m a big-picture president, now. You can figure out the details, tough guy. Good luck with that Medicare reform.

Second, I’m raising your taxes. Sort of. Since I’ve deleted Nancy Pelosi from my iPhone contacts list, I have a strange feeling of liberation. So, I’m asking Congress to pass the Simpson-Bowles tax plan: Cut the rates, eliminate the deductions, net tax increase, but I can make it look like a tax cut. I’m really that clever. In fact, if nobody has any use for Jon Huntsman — and I’m pretty sure nobody has any use for Jon — he’s got basically the same idea, so I’m going to put him in charge of it, and that’s the closest he’s going to get to the White House. You guys want bipartisanship? He’s still a Republican, and it’s too late to kick him out. So, there you have it. But we’re not doing this Bush-style: no “sunsetting” the changes so we have to fight over them every couple of years. This is one and done, at least as far as I’m concerned.

Third, I’m calling for the repeal of Sarbanes-Oxley and Frank-Dodd. I know: counterintuitive, right? Instead, we’re going to impose stricter old-fashioned capital requirements and limits on leverage, with the particulars specific to each class of financial firm — banks are one thing, insurance companies are another. You guys like simple, straightforward regulation, right? It doesn’t get much simpler than that. And speaking of things financial, we’re selling the Fannie and Freddie portfolios on a ten-year schedule, and then we’re closing them down.

Fourth: Lisa, Tim, Hilda, Steve, Rebecca, and Lisa — did I already mention Lisa? Well, Lisa twice, then. You’ve served your country honorably. Really. A fine crew. But you’re fired. It’s a bottom-line issue, guys. It’s not like you were going to keep your job in a Romney administration, and God knows what Perry would do with you. “Treat you pretty mean,” I believe the saying is. Also . . . Ben? Ben, I can’t fire you, you know, but keep that CV fresh, is all I’m saying.

So, now, I’ll pretend to take your questions, and try not to roll my eyes . . .

Kill the USPS

by Kevin D. Williamson

The pending default of the United States Postal Service is our national fiscal crisis in miniature: a collection of self-interested government employees working desperately to save their salaries and benefits, with the actual service provided by the agency — if, indeed, “service” is the right word — a distant second, if it is considered at all.

We ought to close down the USPS. It was a government agency created to solve a problem, and today that problem is solved, and we no longer need a centralized federal monopoly to facilitate intercity communication, the delivering of parcels, etc. News stories reporting the travails of the USPS invariably note that the agency has been ravaged by e-mail, but this gets things precisely wrong: E-mail has relieved us, nationally, of the burden of maintaining a postal service for delivering letters. The emergence of private couriers, FedEx, UPS, et al., have likewise rendered USPS’s delivery services obsolete. Letters and other “household to household” mail accounts for less than 10 percent of USPS’s volume, most of which is junk mail.

Funny thing about junk mail: The average American household receives more than 40 pounds of it a year (and God help you if you ever give Restoration Hardware your mailing address!), and more than a third of that goes directly into the trash, unread. At Chez Williamson, I’d estimate, the junk:mail ratio runs at least 50:1 by weight or volume. Whereas my frontier ancestors no doubt looked forward to the arrival of the mail, for me it is a chore: sort through five pounds of rubbish for the odd freelance paycheck or wedding invitation. Since Social Security deposits went electronic, even the aged have lost their main reason for looking forward to the mail delivery. Which is to say, the United States Postal Service is now the opposite of a service — it’s a nuisance. If we are forced to bail it out, at the very least we should force it to change its name to U.S. Department of Distributing Worthless Woodpulp, Filling Up Landfills, Destroying Untold Acres of Woodland, and Keeping Surly Postal Clerks Fat.

Like our public-school systems, and other government enterprises such as General Motors, the USPS is not so much being crushed by the expenses of its current personnel as by its retirees. It has a $5.5 billion retiree payment due, it’s running up against its $15 billion debt limit, and it doesn’t expect that it will even make payroll next year. It has cut costs significantly, reduced its headcount, etc., but it is still in the business of selling a product that nobody wants. It has a monopoly on a now-worthless service: Call it the curse of Lysander Spooner!

All of which is excellent news, really: We, as a society, have solved a problem, and no longer need (if we ever needed it) the government monopoly to provide this service for us. Hurray for us!

But the USPS doesn’t see it that way. It’s an “independent” (ho, ho!) federal agency, but the regular ol’ federal agencies, you can be sure, would act exactly the same way. Let’s imagine, for a moment, that some ingenious scientist suddenly cooked up a cheap, plentiful, inexhaustible source of energy that could be easily mass produced and impose no externalities on the environment. The world would celebrate — except at the Department of Energy, where they’d be working around-the-clock to figure out how to save their jobs. Likewise, vast swathes of the government exist either to solve problems that already have been solved or that will be solved shortly, one way or the other. USDA programs created to save the family farm have long outlived the era of the family farm and merrily make payments to gigantic agribusiness consortiums. The Rural Electrification Administration was created by FDR, who could always picture himself saying, “Let there be light!” But the lights have been on in the sticks for a long, long time, and still the agency’s offspring, the Rural Utility Service, chugs on and on, never to pass away. Until quite recently, we were still paying the emergency tax to fund the Spanish-American War of 1898. We haven’t sent a blimp into battle in God knows how long, but the nation maintains the National Helium Reserve near Amarillo, Texas, presumably for the strategic imperative of making our enemies talk like Mickey Mouse.

And that brings us back to the Mickey Mouse outfit in question, the United States Postal Service. USPS had a good run, neither snow nor rain nor gloom of night and all that. Job well done! But the job is over, and it is time to move on. It is time to either shutter the USPS or fully privatize it and let nature run its course.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Round and Round It Goes . . .

by Kevin D. Williamson

A critic writes:

 

Williamson still wants to pretend, in his words, that “capital investment is where growth and jobs come from.”

It isn’t. It never has been, and the sooner we recognize that America’s prosperity came from labor gaining the purchasing power to support other people working and producing goods and services for consumption, the sooner we will be able to pry away the usurers’ death grip on the revenues labor’s work created in the first place and the sooner we will get our economy back on the right track.

And where might labor purchasing power come from? The wealth fairy? Say’s what?

Quick question for Mike Maneval: Why does the guy operating the high-tech cotton combine make more money than the guy picking cotton by hand? 

The Burden

by Kevin D. Williamson

There are about 12.4 million local-government employees in these United States, with a monthly payroll of about $51 billion. There are about 4.4 million state-government employees, with a monthly payroll of about $19.4 billion. And there are about 3 million federal employees, with a monthly payroll of about $15 billion. (For detailed figures, the Census: The federal numbers are from 2009; it’s worse now.)

More than 50 million Americans are on Medicaid. More than 100 million Americans receive health-care benefits at public expense, either through entitlement programs such as Medicaid and Medicare or through benefit programs for government employees.

So that’s a public sector of about 20 million government employees administering a welfare state with at least 100 million clients (and here I’m just combining Social Security and Medicaid, to avoid double-counting). Another way to say that is that 40 percent of the U.S. population is living at the expense of the other 60 percent (and it probably is more like half and half). More than a third of working-age U.S. adults are unemployed, and the central government is the largest employer. Economically speaking, we’re a fighter with one hand tied behind his back.

I recently spoke with a charming young woman who is a Ron Paul supporter. She said Representative Paul’s ideas have “universal appeal.” I asked her why, if his appeal is universal, he is so unpopular. She responded: He hasn’t had a fair chance to get his message out. Earlier this week, I spoke with a charming older gentleman, who is a former member of Congress. He said the solutions to our national fiscal problems are obvious. I asked him why, if the solutions are obvious, implementing them is so unpopular. He said it was a question of educating the American people. Both of these explanations are preposterous.

The American people are excruciatingly well educated about the relevant fact: the checks hitting their bank accounts, monthly or fortnightly. They will not be educated out of them. A generation ago, they might have been shamed out of it, but shame is now impotent. They will not willingly give up those checks, and there will always be a Barack Obama out there to profit by pretending that pillaging half of the country to bribe the other is a kind of moral crusade, rather than a lightly disguised form of armed robbery. Bear in mind that most of this money does not go to help the poor: This is not a country in which 40 percent of the people are poor. Government workers are routinely overcompensated, often lavishly so. This is not government inefficiency; this is corruption, on a scale that is vast and grotesque.

Pres. Ronald Reagan was fond of citing this passage, misattributed to Alexander Fraser Tytler, Lord Woodhouselee:  “A democracy cannot exist as a permanent form of government. It can only last until the citizens discover they can vote themselves largesse out of the public treasury. After that, the majority always votes for the candidate promising the most benefits from the public treasury with the result that the democracy always collapses over a loose fiscal policy, to be followed by a dictatorship, and then a monarchy.” And here we are, at the inflection point — not at the brink of becoming undemocratic, but at the brink of becoming a deeply dysfunctional democracy with a loose fiscal policy indeed.

Some 35 cents out of every dollar in take-home pay in this country comes in the form of a welfare benefit, and about 10 percent in the form of government salaries: The total burden is about 45 percent of personal income. I propose we make that a standard metric for judging the seriousness of small-government programs: Reduce that burden, and you’ll have done something worthwhile.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.