The latest wrinkles in the developing global economic crisis demonstrate again that the central bankers and treasury and finance ministers are fighting the current war by the methods of the last one; and that the people are smarter than the governments they have elected.
President Obama’s jobs plan consists of temporary payroll-tax cuts and public works that are, unlike the patronage-stained make-work boondoggles of the catastrophic $840 billion stimulus plan of 2009, “really shovel ready.” As the stimulus flew off the shovels of the Democratic congressional committee chairmen, unemployment grew by 2.5 million, despite the addition of 416,000 federal-government employees. The president went to great lengths to avoid the now-toxic word “stimulus” in his message, and professed to embrace many of the declared ambitions of the Republicans.
This is certainly a behavioral improvement on inviting Republican House Budget Committee chairman Paul Ryan as a special guest to an exposition of the president’s revised budget proposals and then berating him from the podium as if he were an errant schoolboy; or attacking the Supreme Court, gathered before him at the Capitol for the State of the Union message. This is part of the overall coarsening of debate, as the public loses respect for its elected leaders, and they ostentatiously lose respect for one another.
Almost the only real merit of the latest Obama effort is not one the administration seeks: Payroll-tax cuts will lead not to job-creating spending, but to a reduction in consumer-debt levels, the only mitigation that there has been in the money-supply increases implicit in the $3 trillion of accumulated federal deficits in the last three years. (Most of the deficit increase has been covered by virtual debt, as the Federal Reserve buys unsold Treasuries, 70 percent of them with electronically issued notes.)
The incentivized exhortation to go out and spend every cent and more that every family earned is another Maginot Line response to sluggish economic performance. Such spending would largely fuel imports of European and Japanese luxury goods and engineered products, and American job creation would benefit chiefly Dior and Chanel sales clerks and Mercedes Benz and Lexus showroom salesmen.
The people are doing what the government should be doing: reducing debt and spending less. The traditional resolution to such a public-policy discordance between the voters and elected officeholders is to throw the bums out, as was done in the Republican congressional victory of 1994, the Democratic “thumpin’” of the Republicans in 2006 and 2008, and the Republican “shellacking” of the Democrats in 2010. But this time-honored mechanism has stalled, as neither party shows much aptitude for grasping the nettles. These are that revenues have to be increased, spending reduced, the economy guided by fiscal incentives and deregulation back toward the job creation of value-added economic activity and away from the false paradise of service industries such as the law and consulting. (The latter are largely an immense surtax on the private sector, without the benefit of contributing to defined national goals such as defense or education.)
At the founding of the country in 1783, 90 percent of the workforce was engaged in agriculture. Now it is 3 percent, and per capita agricultural production has expanded exponentially. The work force migrated to urban manufacturing, which retains approximately the same dollar value as in 1950, with one-third of the number of workers. The Reagan era generated a net increase of over 18 million jobs (despite the disappearance of tens of millions of marginal jobs) and high annual productivity increases, mainly due to technological advances, and despite the constant plaintive whining of organized labor that these jobs were all for hamburger flippers and pizza deliverers.
The U.S. is still the world’s largest manufacturer, but it is almost all at the high end — aerospace, automotive, and high tech — which will not be directly assisted very much by payroll-tax cuts, in the present commendable public mode of debt reduction.
The political leadership that America and the world have been waiting for, prematurely announced in the Obama campaign in 2008, will apply what will amount to an actuarially updated means test to entitlements, will reduce income taxes to restore economic growth, raise discretionary consumption and transaction taxes to reduce the deficit, and incentivize increased domestic oil drilling and use of natural gas and other expedients that will reduce oil imports and not just enrich Al Gore and the other green fabulists. Health care will have to be addressed by increased competition, lower drug prices, capped malpractice awards, and catastrophic health insurance. If the chronically unemployed are sufficiently able-bodied, it might be possible to replicate some of the infrastructure and conservation workfare programs of the New Deal, or Eisenhower’s interstate-highway program, but not just jobs for the boys at union rates through the Democratic big-city bosses with ready shovels of taxpayers’ (borrowed) money.
The collapse of public education will require draconian remedies, probably starting with the decertification of the teachers’ unions, and not excluding restoration of corporal punishment for both negligent teachers and delinquent students. Both an economic and a moral necessity, for a serious administration and Congress, will be tort reform; drastic deregulation; the culling of currently admissible vexatious or frivolous litigation; restoration of the Fifth, Sixth, and Eighth Amendment rights of defendants that the Supreme Court has allowed the prosecutocracy to emasculate; abandonment of most of the failed drug war and renaming of what remains of it; and radical reform of the scandalously abused plea bargain.
In foreign policy, the same leadership will promote regional alliances, especially of the moderate Muslims in the Middle East, and the defensive coalescence of China’s natural East and South Asian rivals: India, Japan, Indonesia, South Korea, and even Russia.
These are not particularly insightful comments, and make no pretense at originality. But no one is saying any of it, except, in monetary terms, Ron Paul and, to a slight degree, Rick Perry. (Paul is also defending the late Osama bin Laden, while Michele Bachmann rails against the preventive government inoculation of schoolgirls.) It may be that instead of just capping and disposing of Mitt Romney’s long-sought status as the frontrunner, the Perry campaign will oblige Romney to appear more forceful, and not just the clichéd author of the Massachusetts health-care plan, who induced acute nervous incontinence in Seamus, his family’s dog, by transporting him from Boston to Montreal on the roof of the family car.
And if Perry realizes soon enough that just being a caricature of a swaggering Texas blowhard may not propel him into the White House, he may become less abrasive, stop accusing the Fed chairman of treason for his good-faith errors, and denigrate a little less dismissively the generally respected and still salvageable institution of Social Security. Perry described this, a bit gratuitously, as a Ponzi scheme. It is the U.S. economy that is a Ponzi scheme, having outsourced tens of millions of low-paying jobs while acquiescing in the entry of millions of unskilled peasants (and then truckling to them politically); and borrowing trillions of dollars from China and Japan to buy trillions of dollars of manufactures from China and Japan that it formerly made for itself. America’s condition is aggravated by a foreign policy that has destabilized its allies with helter-skelter promotion of democracy while appeasing its enemies; legitimizing the infamies of the United Nations; and plunging into open-ended wars for fuzzy objectives with indiscernible exit strategies.
The U.S., in Lincolnian terms, has for 20 years been doing “all that may achieve and cherish” a status of laughing stock “among ourselves and with all nations.”
It cannot be much consolation that the supreme crisis of federal Europe is at hand. All the southern countries, which have never had a hard currency in 3,000 years, even under Pericles, Augustus, or Charles V, signed a false prospectus on entry into the Eurozone, and were overpaid in deutschmark-backed Euros. Too few people work and too many take state benefit, though in Italy so many are in the grey economy — working while on benefit — that the country has been able to sustain an apparently insupportable level of public debt because the economy is actually greater than it seems, and goods-and-services taxes produce more revenue than would be expected from Italy’s ostensible GDP. Multiple defaults are inevitable, starting with Greece, and instead of trying to bankroll an impossible defense of bankrupt national systems, there should have been an early insistence on debt restructuring and an entrenched defense of the German and French banks that are about to plunge into unfathomable depths of negative shareholders’ equity by their bad loans to fiscally unfeasible countries.
Let the equity-holders go to the wall, but save the legitimate creditors and depositors. Some compromise is going to have to be made between the necessity of more people working longer in much of Europe, and Germany helping the distressed countries more than its demagogic opposition wishes. It is only by keeping the weaker members in the Eurozone that the Euro can retain a less-than-robust value that will facilitate German exports, and it is about time the German opposition was challenged on its myopia, not to say hypocrisy, in these matters. If Greece, Italy, Spain, and Portugal departed from the Eurozone tomorrow, the cost of a Mercedes Benz in New York would increase by $75,000.
Europe, too, needs leadership, especially in Germany, whose ancient dreams of continental leadership are now, unsuspectedly, closer to being realized than they ever were under Bismarck or the Hohenzollerns or Hitler, and would be welcomed by most of the nationalities that formerly resisted the advance of German influence with fierce courage. Helmet Kohl’s pursuit of “a European Germany, not a German Europe,” could produce a largely benign version of both.
The condition of geriatric, debt-ridden, factionalized Japan is now too parlous to bear serious examination. But all the pillars of the West are vibrating disconcertingly except the multi-resource economies of Canada and Australia (and Australia is contemplating an ill-considered carbon tax that could bring down its government from one week to the next and replace it with a better one).
The West—understood broadly, to include Western and Central Europe, North America, Japan, and Australia—accounts for over 60 percent of the world’s economic activity, is now the economic sick man of the whole world (apart from Sub-Saharan Africa), optimistically contemplating a composite 2012 economic-growth rate of under 2 percent. It is splendid and long wished for, that India, the Palestinians, Brazil, Israel, Turkey, and even Russia, as well as China and Indonesia, should be racking up growth rates of between 4 and 10 percent, but there is no reason for the West to falter as it is doing. Its sickness is very curable, and the cure requires only the elevation of leaders who see the extent of the problems and of the solutions. The U.S. must lead, and the necessary agents of radical change must be on the horizon somewhere, difficult though it is to conjure from a Republican candidates’ debate, much less a major presidential address.