Republican Proposals Reaffirm the Party’s Commitment to the Failed Welfare/Warfare State

In an attempt to emulate the electoral success they enjoyed in 1994, House Republicans presented their version of the 1994 Contract with America this past week.  The new document tagged “A Pledge to America” details in its 48 pages the legislative agenda House Republicans will pursue if elected to a majority this fall.  Among the worthwhile proposals put forth in the document are repeal of Obamacare and the immediate cancelation of all unspent stimulus funds.  Beyond that, the Republican’s campaign platform lacks creativity and courage, favors special interests, and reaffirms the Republican Party’s commitment to the failed welfare/warfare state.

Of course, no Republican agenda would be complete without the standard proposals for tax cuts.  If the Republicans take the House they promise to renew the Bush tax cuts and give small business owners “a tax deduction equal to 20 percent of their business income.”  Now, tax breaks are always a good thing because the private sector can allocate money way more effectively than government, but the Republicans really need to branch out from their uncreative, politically popular tax cut proposals if they are really serious about turning the country around.  What good is more money in your pocket if the cost of things continues to rise?  How about proposing a new monetary system to replace the Federal Reserve’s?  How about proposing one that serves all the people not just the banks?  Maybe we could get one that puts real restraints on the spendthrift tendencies of politicians?  You know, one that provides a sound currency, backed up by a scarce commodity, which would ensure real price stability not the type the Fed provides now where prices increase over time to benefit corporate America.  But, House Republicans dare not propose that because their benefactors on Wall Street would get upset and they themselves would be negatively affected because they wouldn’t have the Federal Reserve around to monetize all their deficit spending.

Next up, House Republicans are pledging to alleviate the burdens of federal regulations on business.  The idea is if regulations are light businesses will prosper, hire, and our economy will return to full health.  You can’t beat that logic.  But, Republicans draw a line in the sand.  Under their “Pledge”, they will only require “congressional approval of any new federal regulation that has an annual cost to our economy of $100 million or more”.  What is so special about $100 million?  Is that the monetary threshold where regulations are most effective in protecting special interests by hindering new players from entering a market while at the same time minimizing the effect on the profits of the same special interests?  It is bad enough that most federal regulations on business are unconstitutional.  At the very least, Congress should approve all regulations.  But if Republicans were really serious about producing a prosperous economy they would talk about repealing onerous regulations which stifle competition and only serve narrow special interests.

Their proposals to “stop out of control spending and reduce the size of government” in “A Pledge to America” are so ridiculous it is embarrassing.  House Republicans want to cut government spending to “pre-stimulus, pre-bailout levels”.  This, they claim, will save us $100 billion in the first year and put “us on a path to begin paying down the debt, balancing the budget, and ending the spending spree in Washington that threatens our children’s future”.  Question, weren’t we on a spending spree pre-stimulus – pre-bailout?  In the seven years preceding the stimulus and bailouts didn’t a Republican president and Congress increase the national debt by $5 trillion – almost doubling it?  I don’t understand how a mere $100 billion is going to help us eliminate a deficit that could be $2 trillion this year?  This proposal is a joke.

And in a real sign that they dig the welfare state, House Republicans are pledging to “reform” Fannie Mae and Freddie Mac.  They will end the government takeover, shrink their portfolios, and establish minimum capital requirements.  Again, Republicans claim their proposal will save the taxpayer money – as much as $30 billion.

However, according to the Congressional Budget Office, the government bailout of Fannie and Freddie could swell to $400 billion and if housing prices continue their downward trajectory costs could hit as much as $1 trillion.  In light of these massive losses for taxpayers, Republicans must be joking when they boast their reform proposals will save a mere $30 billion.  They sound like Democrats.  If Republicans want to renew American prosperity they should privatizing both Fannie and Freddie, end the implicit guarantee of federal bailouts, and let the free market handled mortgages.

Lastly, under their leadership the House Republicans promise that the warfare state will be safe and secure.  Well, they don’t say that exactly.  They cloak their speech with emotional words in an effort to make opposing them an unpatriotic act.  Instead they say, “When asked to provide our troops with the resources they need, we will do so without delay”.  So, does that mean Republicans are willing to give blank checks to the military industrial complex?  If it does, the Republicans will be spending all of their proposals savings and then some.  More importantly, as the party of war, how many more conflicts will they get our troops into?

A Pledge to America is a wonderful reminder of why the American voters rejected the Republican Party in 2006 and 2008.  Economically, all they really offer are tax breaks.  In foreign affairs, they offer more war.  If they are so concerned about restoring American greatness, they should be proposing: reform of the monetary system, huge cutbacks in every federal department and agency, and closing down bases and bringing the troops home to defend America.  But, it seems the Republicans lack the creativity and courage to do that.  They prefer instead to favor special interests and recommit to the failed welfare/warfare state.

Article first published as Republican Proposals Reaffirm the Party’s Commitment to the Failed Welfare/Warfare State on Blogcritics.

Deregulation did not Cause Financial Crisis, Welfare Did

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

Henry Hazlitt – Economist/Journalist (1894 – 1993)

If only Alan Greenspan, George Bush, and the rest of the economic imbeciles in Washington that gave us the Great Recession would have heeded the words of the great Henry Hazlitt, as a nation we would not have produced so much phony wealth which in turn has caused so much pain.  Leftist wholeheartedly support this view.  As a matter of fact, the current occupier of the Oval Office is fond of constantly reminding Americans that it was George Bush and his Republican Congress from 2001 to 2006 that implemented the policies that caused the worst financial and economic crisis since the Great Depression.  But, while Obama and the left are correct about who caused the crisis they are way off the mark about what the guilty parties actually did to bring it about.

Obama and his ilk claim the cause of our current troubles was the deregulation of the financial services industry in the late 1990s and early 2000s.  Now, they have to be careful because the major deregulation legislation of this time frame was signed by one their own – President Bill Clinton.  I am of course referring to the law which repealed the Glass/ Steagall Act.  Enacted during the Great Depression, Glass/Steagall prohibited commercial banks from owning investment banks, and vice versa.  It was meant to safeguard commercial banks against failure by making it illegal for them to participate in investment bank practices like securities trading and stock and bond underwriting.

It does seem more than coincidental that the most severe economic crisis since the Great Depression has taken place shortly after the repeal of Glass/Steagall.  And to the shallow statist mindset that is all that matters.  But Obama and the left are wrong; repeal of Glass/Steagall did not cause the current financial crisis.  In the first place, as Conn Carroll of the Heritage Foundation has pointed out, Glass/Steagall was “steadily weakened” from the 1970s on by the “complex new financial reality” of the times and by waivers from regulators that made mergers routine – the 1998 merger between Travelers and Citigroup essentially repealed the law once and for all.  Thus, the erosion of the law over 30 some years without any major financial crisis is an indication that the ultimate repeal of what was left of the law in 1999 did not cause the troubles of today.

Next, by looking at which institutions brought on the financial carnage one can conclude that Glass/Steagall’s repeal was inconsequential.  Bear Stearns, Lehman Brothers, and Merrill Lynch all went belly up as investment banks without commercial bank divisions.  The granddaddy of them all, AIG is an insurance company with no commercial banking division.  Washington Mutual was a savings bank that went bankrupt because of the many sub-prime mortgage loans it made that went bad.  Lastly, Fannie Mae and Freddie Mac did not fall under the jurisdiction of Glass/Steagall and their bailouts are on target to hit $1 trillion at the rate home prices continue to fall.  So in reality Glass/Steagall would not have prevented any of these firms from causing so much trouble for the economy.  Further, it has been argued with a lot of validity that the repeal of Glass/Steagall has actually benefitted taxpayers in this crisis.  It has reduced their losses that would have been incurred by direct government bailout by allowing Bear Stearns to be purchased by JPMorgan Chase and Merrill Lynch to be scooped up by Bank of America.  All things considered equal, the repeal of Glass/Steagall has been a blessing in disguise for our economy.

Lastly, it is ridiculous to believe that the repeal of Glass/Steagall would cause bankers and investors to become so reckless and irresponsible with their resources that they would risk their economic viability.  It just wouldn’t happen.  Knowing that they could lose everything, their robust salaries and benefits, personal wealth, good name of their companies, and their own professional reputations most CEOs take great care to honor the fiduciary responsibilities they are given.

But, some obviously do not.  As we have seen it was not on account of the repeal of Glass/Steagall.  Those that gambled with others’ money to get rich quick did it because of statist government policy not libertarian deregulation.

The simple fact is that the Great Recession was caused solely by irresponsible welfare policies of Washington.  These welfare policies specifically targeted homeowners and banks.  Undeterred by the dot.com bubble and ultimate crash he caused in the 1990s, Alan Greenspan kept interest rates too low for too long again in the early 2000s after 911.  At the same time, President Bush stated that he was about to “use the mighty muscle of the federal government” to make homeownership more available for more Americans.  He got Congress to spend up to $200 million a year to assist first-time homebuyers with down payments.  He pressured mortgage lenders to make sub-prime loans because “Corporate America has a responsibility to work to make America a compassionate place.”  Lastly, he caused immense moral hazard by getting Fannie and Freddie to guarantee all the junk loans being made, again to the tune of potentially $1trillion.

The banksters that closed the deals all along the financial food chain knew that if their get-rich quick scheme ever failed, Alan Greenspan and his Fed and the full financial resources of Uncle Sam would be there to catch their fall.  This precedent was set in the 1930s with the Reconstruction Finance Corporation, the savings and loan bailout of the 1980s, and as recently as 1998 when Greenspan’s Fed bailed out hedge fund Long-Term Capital management.  Sure enough, the banksters were correct as Greenspan’s protégé Ben Bernanke and treasury secretary Hank Paulson frightened Congress into appropriating over $800 billion toward the Troubled Asset Relief Program.

When Bush, Greenspan, and their legislative accomplices on the Hill launched this massive welfare program for banks and homebuyers after 911, they did not take into account the words of Henry Hazlitt.  They only considered the immediate effects for two groups in society.  Even years later, when Bernanke and Paulson informed the president of the enormous economic catastrophe that our country was about to face and they pressured him to sign off on government bailouts for their banking buddies, Bush was said to have remarked “How did we get here?”

We got here because of government intervention into the economy not deregulation.  Unfortunately we are going to stay here because Obama is doing exactly what Bush did before him – provide cheap money and encourage borrowing through government funding (tax credits for first time homebuyers) and guarantees.  Maybe that is why Obama and the left are so keen to blame deregulation for the crisis.  They use it as a smokescreen to hide the failures of the welfare state in the past and the failures we will experience in the future.

Article first published as Deregulation did not Cause the Financial Crisis, Welfare Did on Blogcritics.

Obama’s Policies Hurt the Working Class

Upon taking office President Obama proclaimed that if his $800 billion stimulus package passed into law the unemployment rate would not surpass 8.5 percent.  The measure passed and so did the unemployment rate – past 8.5 and all the way to almost 10 percent unemployment.  One could argue that government spending to stimulate the economy has done more harm than good.    After all, in total Uncle Sam has “invested” over $3 trillion! into the economy in an attempt to grow jobs only to see the unemployment rate continue to rise.  It’s as if all the spending has actually done more harm to workers than good.

Now, I am sure that Bush, Paulson, Bernanke, Obama, Geithner, and all the members of Congress who have supported the government’s spending spree had the best of intentions in mind.  It seems logical that if you put more money in peoples’ pockets, they would spend it on consumer goods, and this in turn would lead to more jobs and an end to the recession.  Right?  Not so fast.  What usually seems like a logical government intervention is not necessarily the case.  Most of the time, these schemes contain many unintended consequences.

Take Obama’s “Cash for Clunkers” program for example.  The scheme used cash incentives of up to $4,500 to get folks with old cars to trade them in for a new, fuel efficient model.  Dealers accepting the trade-ins were required to scrap them. The boondoggle was meant to stimulate car sales, benefit Detroit’s unionized workers and take energy inefficient cars off the road.  Everybody was supposed to win – automakers, workers, and our environment.

Did that really happen?  Automakers did make money during the program, but are still struggling.  The jury is out on whether the environment benefitted since it is very possible that more fuel efficient cars encouraged their new owners to actually drive more miles.  And as far as workers are concerned – it seems like they were the biggest loser in the “Cash for Clunkers” government giveaway.  Because of Cash for Clunkers nearly 700,000 used cars were traded in and subsequently destroyed.  This has led to a used car shortage in America and the statistics bear the facts.  According to Edmunds.com data, used car buyers paid $1800 more for their cars in July than they paid a year earlier at this time.  That represented a 10.3 percent increase year over year.  With lower demand caused by a sluggish economy you would expect prices for all cars to be falling.  But, the shortage in used vehicles caused by Obama’s program was actually big enough to not only cancel out price drops but increase prices substantially.  Of course those hurt the most by this development are college students, the elderly on fixed budgets, and the working class because these folks rely on the availability of cheaper used cars as an alternative to higher priced new models.  Obviously, Obama didn’t intend for this to happen.  But, the fact remains that his program has put many people in a financial bind.

Another Obama backed government intervention that is exhibiting unintended consequences is the Credit Card Accountability, Responsibility and Disclosure Act of 2009.  Heralded by Obama as necessary legislation to protect consumers (workers) against abusive credit card company practices, the act caps late fees, eliminates inactivity fees, and requires credit card companies to jump through more hoops when raising interest rates.

Again, this all sounds good on the surface, but like any law there is a lag between the legislative process and when the law actually goes into effect.  Consequently, credit card issuers prepared ahead of time for the new law by raising interest rates to nine year highs of about 15 percent.  Additionally, they cut average lines of credit by 11 percent overall.  Again, at a time when Americans are not borrowing, you would think lenders would be dropping rates and expanding credit limits to entice consumers to spend.  But, Obama has found a way to actually make it financially harder for consumers to use their credit cards.  And again the working class is the most negatively affected since it can least afford to pay higher rates on credit card balances and will find it harder to make ends meet with lower lines of credit.

Statist always claim that the reason small government proponents loath government programs is because they are cold-hearted, hateful, racist, or just plain selfish.  Naturally, that is a gross oversimplification of their motives.  One reason libertarians and to be fair some conservatives object to government programs is because they usually favor some groups over others and because all have unintended consequences.  At an emotional level it is easy to support government help for the dispossessed.  But when you clear away the name-calling and look below the surface, and apply rational thought to proposals, the old saying, “if something seems too good to be true, it is” comes shining through.  After having spent $3 trillion on this recession with little to show for it, you’d think Washington would figure that out.

Article first published as Obama’s Policies Hurt the Working Class on Blogcritics