Posted by: bmeverett | November 3, 2010

Some respectful advice for democrats

The 2010 mid-term elections are now behind us, but the consequences still lie ahead. Over the last two years, we’ve seen the results of one-party government. A democrat president with large majorities in both houses of Congress was able to do enormous damage in three one-trillion bites.

The first was TARP – the Troubled Asset Relief Program. Yes, I know, the TARP was passed under the Bush Administration in October of 2008. It was administered, however, under the Obama Administration. The idea was simple. The government would remove about $700 billion of low-quality assets, mostly bad mortgages, from the books of banks and other financial institutions, thereby strengthening their balance sheets and allowing them to resume lending. The segregation of these low-value assets would allow the government to dispose of them in a measured and careful way, rather than through panic sales by desperate banks. I didn’t much like this idea, but it was at least a coherent approach. Unfortunately, once the Obama Administration got its hands on the $700 billion, it decided it had much better ways to spend the money, such as bailing out the United Auto Workers. The TARP money is pretty much gone, and lots of troubled assets are still on the banks’ books.

On to bite number two – the $800 billion Stimulus Bill, which supplemented the political slush fund created by TARP. Most of the stimulus money has been spent already, and we’re not sure where it all went. The Administration has been reduced to statistical chicanery to find any benefit from the program. Instead of “creating” jobs as intended, the stimulus funds “saved” jobs. This argument brings to mind the old joke about the man sitting in Central Park beating a drum. When passersby ask what he’s doing he replies “Keeping the elephants away. Aren’t I doing a great job?”

Bite number three of course is Obamacare – the “insurance reform” that has thrown the entire health care industry into turmoil. The price of this mess is still unclear, but everyone will get hurt one way or another.

The republican resurgence in the House will probably bring an end to further mischief, although the still GOP lacks the power to undo any of the Big Three signature programs of the Obama Administration. So what now? As always, both sides promised to work together to address the problems we face. Given the chasm that separates free marketers on the right from central planners on the left, gridlock is probably the best we can expect on economic policy. The democrats, however, have it in their power to improve the economic outlook considerably with just one simple decision: they can stop trashing corporations. Beating up on Big Oil, Big Pharma, insurance companies, the Chamber of Commerce, “sinister corporate interests” and other favorite targets of the political left has been the “go-to” argument of the Obama Administration.

In his debate with Sharon Angle, Harry Reid made one of the most embarrassing speeches in the history of American politics. In response to a question about health insurance, Reid said, “Insurance companies don’t do things out of the goodness of their hearts, they do it out of a profit motive and they have almost destroyed our economy…. We need them to be forced to do mammograms.” Did Harry think he was revealing to the people of Nevada the previously hidden secret that companies are motivated by profits? Did he really expect insurance companies to raise capital so they could give it away “out of the goodness of their hearts”? Does he really believe that the profit motive has “almost destroyed our economy”? If the premise of Obamacare is that the insurance companies will be forced to give us things, then we are in really serious trouble.

Refraining from spouting this type of nonsense will require a great deal of will power for the democrats, but it’s essential for the economic recovery. Many people on the left would love to see the US transform itself into a centrally planned economy. How people can hold such a view in light of the experiences of the Soviet Union, Eastern Europe, Cuba, North Korea and other impoverished police states is beyond comprehension. Fortunately, the American people will never tolerate the loss of their freedom and standard of living. For the foreseeable future, investment in the US will be the task of the private sector and not the government.

The democrats, in their zeal for central planning are shutting down the market yet replacing it with nothing. The Administration has sent a couple of clear messages to potential investors. “If you invest, government wants the proceeds. Not sure how much of your earnings we’ll take, but we’ll let you know. You earn your money honestly anyway, so stop whining.” Also, “If you hire someone, we’ll make sure that employee places a real burden on your business. We’ll push him hard to unionize. We’ll insist on arbitrating salary disputes in his favor. You’ll have to take the risk for his health care or pay a heavy price if you don’t. We’ll give him more and more grounds to sue you.” Why would anyone invest under these rules?

Until such time as the democrats conclude that they can sell central planning to the American people, they need to recognize that we have to have some investment system. Market systems take voluntary capital contributions and invest them efficiently. Centrally planned economies coerce savings from the population and invest them inefficiently. The Administration’s current economic posture is giving us no investment at all. Cash is simply building up in corporate coffers, while near-zero interest rates discourage any individual savings. Boosting aggregate demand may or may not help in the short term, but putting the brakes on investment will guarantee economic stagnation indefinitely.

It’s really not much to ask of the democrats during these days of split government. They don’t have to kneel down to the right. They don’t have to eliminate income taxes, scrap the Department of Education, deport all illegal immigrants, ban abortion and gay marriage or do any of the other things near and dear to the heart of the Tea Party. All they have to do is to stop threatening and beating up the people who hold the key to new investment and therefore our economic growth. Is that really too much to ask of responsible adults?


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