Beyond Stage One Politics

Carolyn Phippen

Elizabeth Warren has made waves by recently announcing that the rich aren’t paying their fair share in taxes and that as part of a “social contract,” they owe the rest of society for the wealth they have accumulated. Social contract, the most recent buzzword of the left, apparently means that if you prosper in this land of relative freedom, then you owe a greater part of your wealth to a government that has apparently granted you the opportunity to be productive by providing you with things they have been given the responsibility to provide for all of us – roads, education, freedom from criminal interference, etc. Apparently, the social contract doesn’t require anything of those who choose to bleed society dry by taking its resources and producing nothing.

A number of years ago I was involved in an organization that dealt with foster-care issues for my state. At one point, those of us involved in this organization were asked to share why we chose to become involved. The most common refrain was a desire to “give back.” My response was nothing of the sort. I don’t do good because of what society has done for me; I choose to do good because of who I am and because I care about the suffering of others. Government has no real power to provide anything beyond what the productive in society produce and pay; not the other way around.

Our greatest gift is to live an honest, constructive life by doing our best to improve ourselves and those around us every day and to work hard to provide for ourselves and our families. The greatest destruction we can wreak is to allow a sense of entitlement to lead us to expect that others owe us a portion of their labors, especially a greater portion than we ourselves are willing to give voluntarily.

Bill Gates’ and Steve Jobs’ innovation increased the productivity of every single human being in every part of the world. What honest person can say with a straight face that they owe you some cash along with the myriad blessings that are ours because they chose to develop and utilize the brilliance of their minds? Using their God-given talents in a way that makes our lives easier and enables us to do things that just a decade or two ago were completely unimaginable is an incredible gift. To be given such a blessing and then respond with, “Well, we [may or may not have] paid taxes that paid for those roads and enabled thousands of individuals to get to work so they could make all of our lives easier, but could you throw in a couple bucks too?” just sounds kind of trashy.

Would we be a better society if those innovate, productive individuals had chosen to sit on the couch watching Oprah, collecting a welfare or disability check? I’m certain Jobs could have applied for and received disability during most of the past decade if he’d chosen that road. According to the thinking of Warren, had he made such a choice he wouldn’t owe us anything. Because of the fact that he instead chose to work hard, developing products that are sought after the world over and allowing phenomenal efficiency and personal enjoyment, he owes us a portion of whatever he makes. The very act of producing something everybody wants is apparently worthy of punishment. Hey, in the old Soviet Union nobody made anything anybody wanted but everybody there had a job; maybe this administration does have a jobs plan after all!

Carolyn Phippen

As the Arab Spring recently swept across many dictator-led countries and multitudes cheered for the reforms to soon be in place, I have to wonder how much of the reality is known to us and how much is no better than the cruel dictatorships of the past.

I recently engaged in a conversation with someone who has international commodities contacts, and he mentioned to me that he had received a request for a contract in Libya. He spoke with his supplier, who told him that only certain individuals are allowed to arrange contracts to bring this particular commodity into the country of Libya. If someone there was looking to buy, they were probably one of the individuals who had been buying for, I don’t know, 10, 20, 30 years. The contract they were requesting was worth between $250 million and $500 million, so even though Gadhafi is supposedly no longer in power, I had to wonder who the end buyer on this product could be and how closely he must have been connected to the old regime.

Like Russia and many of the countries that made up the Soviet Union, there is probably a good chance that those who will hold power in these newly “free” North African and Middle Eastern countries will be the same people who held the power previously with their dictator friends. If not, chances are it will be others just like them who are more interested in seeking control over the citizenry and the ability to drain them of their resources rather than fight for their freedoms.

Not long after the country of Czechoslovakia was freed through the “Velvet Revolution” of 1989, I was living there. Because the means of production had been in the hands of the “people” for the previous forty years (in other words, in the hands of the only rich people in the country – the Communist leadership, who certainly lived very differently from their working brothers), the decision was made to distribute ownership in industry in the form of vouchers. These vouchers could then be exchanged for stock in state-owned companies.

These vouchers were being handled by individuals who were used to having all necessities of life provided for them by the government and who, for the most part, knew nothing about investing and long-term financial planning. What they did know was that when the government fell they were on their own, and the reality of the situation for many was dire.

According to what I was told repeatedly, the events that then transpired make up the great tragedy. Those who had held power for the previous 40 years knew that most of these citizens who had lived behind the iron curtain had been shielded from witnessing economic realities and had limited resources (after all, the government gave you little more than what you needed to live, unless you were a friend to someone in power).

Those who had been high-ranking Communists and had access to massive government resources then went to these citizens and offered to buy their vouchers for far less than they were worth. Not knowing any better, many sold and were left with nearly nothing. Those who had held power in government for decades now morphed into “capitalists,” exercising their newly-found power through control of industries they had done nothing to build.

Let’s hope the changes taking place across the ocean this time are more than superficial, and result in freedom and prosperity for people who have been so long brutalized by savage dictators. Unfortunately though, with very few exceptions, history teaches us to expect little more this time around.

Carolyn

We all heard the news last week that yet another company on the President’s tour of success has declared bankruptcy. Solyndra, a solar panel manufacturer and, according to President Obama “a testament to American ingenuity and dynamism,” has sought bankruptcy reorganization.

In December of 2010, with less than one month’s reserves on hand, Solyndra sought to refinance by asking the Energy Department to subordinate $385 million of the $535 million guaranteed by the government. This would allow them to obtain an additional $75 million from outside sources. The Energy Department agreed, putting taxpayers behind new investors if things were to go wrong.

T.J. Rodgers, founder of Cypress Semiconductor and former Chairman of Sunpower, said on The Kudlow Report that on the day of President Obama’s visit to Solyndra in 2010 a secretary asked him what it meant that the President was there, visiting their competitor. He says that his response was, “Set your watch. That company will be out of business in one year.”

According to Solyndra President and CEO, Brian Harrison, “Regulatory and policy uncertainties in recent months created significant near-term excess supply and price erosion.” Regulatory and policy uncertainties? Huh, hadn’t heard that anywhere before. Looks like it might be a deeper problem than that, though.

According to Rodgers, the thin-film technology used by Solyndra is “lousy,” low efficiency and the cost per watt is double other technologies. He noted that the typical Silicon Valley startup is full of great ideas in a “crappy” building; Solyndra, on the other hand, built a palace which, according to reports, cost $700 million. The company also made the mistake of building their manufacturing facility in California, the worst state in the nation to manufacture, Rodgers added.

Solyndra’s cost per job amounted to $1.5 million, and now those workers are without jobs at all. Money well spent, or simply another attempt to override private markets and supplant them with an uninformed bureaucratic vision of utopia?

Rodgers, on the other hand, knows a thing or two about the solar panel business. In 2001, he invested $750,000 in SunPower, a solar panel manufacturer which uses a technology much more efficient and easier to manufacture than most others. Within a matter a months, Cypress Semiconductor, the company he built, had invested $168 million in SunPower, including the purchase of additional plants and equipment (Solyndra’s new plant alone cost $700 million . . . in this economy?). That company, by the way, is still around and growing despite management and R&D shakeups over the past couple of years.

Reminds me of the comment made by the Social Security judge, David Daugherty, who pretty much hands out Social Security Disability like candy (nearly 100% approval rate v. an average of 60%), “Some of these judges act like it’s their own damn money we’re giving away.”

Carolyn Phippen

Two weeks ago, Paul Krugman was calling for a fake alien invasion to stimulate our economy. I think he’s almost gotten his wish.

Estimates of damage from Hurricane Irene range anywhere from $13 billion to $45 billion. Think of all the jobs that will need to be filled. Better yet, much of the work that needs to be done will be paid for with borrowed government funds – it’s a Keynesian’s dream.

Rebuilding should keep people busy for a little while, and when they’re done up North they can head down to Mississippi and help the rebuilding effort still going on down there, six short years after Hurricane Katrina.

Of course, this is the same Paul Krugman who suggested that in order to replace the Nasdaq bubble of the late 1990s, “Alan Greenspan needs to create a housing bubble.” He saw this as the solution to the lack of corporate spending; “soaring household spending” was, to him, the answer. In other words, moving money around in the economy by creating artificial growth.

In fact, the White House is now defending the idea that government transfers through extended unemployment insurance actually lead to growth. The assumption is that without those transfers, no money would be spent by unemployed individuals and with the transfers, no incentives for less productive behavior are taking place. If both of those things were true, the Obama economic policy might be preferable to nothing. Unfortunately for Team Obama, they’re not.

According to Alan Krueger, Obama’s newly-appointed economic advisor, extended unemployment benefits (wealth transfers) increase length of unemployment and can lead to more layoffs. Studies have shown that the closer one is to the cut-off point for benefits, the longer time spent actually looking for a job.

As far as the White House’s claim that each dollar in unemployment benefits spending leads to $1.73 in short-term economic growth, false assumptions are made which equate each dollar in benefits with one dollar spent. For every dollar in additional unemployment benefits, only $.55 actually makes it into the economy because individuals tend to reduce their reliance on their own savings if the government will pay them and for married individuals, spouses tend to reduce hours worked when benefits are increased.

The past three years have shown us Paul Krugman and the left’s version of economic growth – government jobs, government “investment” and government wealth transfers with weak economic growth and stubbornly high unemployment (but hey, we’ll all have that “free” healthcare soon!). Forget business investment, product development, innovation, increased efficiency; no, this moving money around thing is just working so well.

See my article about the national debt published in August 2011’s edition of Smart Girl Nation, entitled President Obama’s Bank of China.

Carolyn Phippen

“It’s the rich people, the people that got businesses, and that’s why all of this is happening, because of rich people. So we’re just showing the rich people we can do what we want.”

Oh, the dangerous rhetoric of . . . our president?! Oops, maybe it’s not such a smart idea to demand an end to “dangerous” speech when yours sounds just the same as so many mayhem seekers around the world. I’m racking my brain, just trying to come up with a time when I heard rioters say that they were destroying other people’s property and causing utter chaos because the government wouldn’t stop its out of control spending. Anyone? . . . Anyone? . . .

Here’s the explanation of Dave Ramsey – the guy who’s built a business helping people get their finances under control – putting the Washington debt debate in terms the average guy can understand:

If their household income was $55,000 per year, they’d actually be spending $96,500—$41,500 more than they made! That means they’re spending 175% of their annual income! So, in 2011 they’d add $41,500 of debt to their current credit card debt of $366,000!

And S&P was the only one of the three rating agencies to downgrade our debt?

Carolyn Day

With the debt ceiling debate finally over in Washington, it’s time to take a serious look at where our economy is headed and what are realistic expectations for job creation and growth.

The US federal government has borrowed $4.5 trillion, most likely the biggest Keynesian experiment in the history of the world in a peacetime economy, and economic growth apparently hasn’t been much stimulated. Stephen Moore made this point on The Kudlow Report recently. The response of Dean Baker, echoing once again the tired excuse for failure that has become the mantra of the left, was that things would have been much worse without all that “stimulus.”

Baker makes the assumption that the alternative to borrowing and spending (moving around) $4.5 trillion would have been to do nothing. He then went on to say that the current slowdown in the economy is precisely because government spending has slowed down.

Maybe I’m confused, but I thought the purpose of stimulus was to actually trigger growth, not to simply keep money moving around in the economy. The problem is, that’s all Keynesian economic stimulus actually does.

The theory is based on the idea that deficit-financed funds injected into the economy by government (after being taken out through the purchase of government bonds in the first place) will stimulate growth down the line. In tough economic times, individuals horde money just like the left is accusing large corporations of doing. The US savings rate is at its highest point since the late 1990s, even with high inflation. (Nearly 30 percent from 2010 – 2011). The effect then remains the same as if the original investor had simply placed his money in a bank account; only now our government has new, massive amounts of debt we all get to pay back.

Here’s a hint for Baker: There are other alternatives. A relatively straightforward comparison can be made between Ronald Reagan and Barack Obama. The policy differences between these presidents couldn’t be more stark, nor could the effects of their policies on the growth of the US economy.

Reagan began his presidential term with high unemployment (10.8 percent in 1982), double-digit inflation, a poverty rate that rose significantly (33 percent) through the late 1970s into the early 1980s, a 10 percent drop in real-median family income during that same period, and a Dow Industrial Average that was down 70 percent from 1968.

During the seven year Reagan recovery, the economy grew by nearly a third, private sector employment increased 20 percent, real per capita disposable income grew by 18 percent, the poverty rate declined every year from 1984 through 1989, and the stock market more than tripled from 1980 to 1990.

If we compare the first seven quarters of recovery under Obama with those of Reagan, here is what we find, from Peter Ferrara:

…While the Reagan recovery averaged 7.1% economic growth over the first seven quarters, the Obama recovery has produced less than half that at 2.8%, with the last quarter at a dismal 1.8%. After seven quarters of the Reagan recovery, unemployment had fallen 3.3 percentage points from its peak to 7.5%, with only 18% unemployed long-term for 27 weeks or more. After seven quarters of the Obama recovery, unemployment has fallen only 1.3 percentage points from its peak, with a postwar record 45% long-term unemployed.

One more illustration:

Carolyn Phippen

Does anyone remember how just a few months back, the Democrats and the media kept referring to the Republicans as the “Party of No”? Democrats had been frustrated with the conservative ideal of limited government, translating into less government spending and fewer regulations. Now, frustrated with John Boehner’s unwillingness to continue the out-of-control spending of this administration that would increase the debt $4.9 trillion between 2010 and 2016, the president asked just yesterday if they (Republicans) can “say yes to anything?”

Of course, we all know that what everybody really wants is “new programs or the NFL season getting resolved,” but unfortunately for this president, somebody has to grow up and do the things that no one really wants – stop spending money we don’t have and can’t afford to borrow. That requires a whole lot of saying, “No!” to politicians who are accustomed to winning reelection by the very act of spending our money foolishly.

In 2009, 51% of American households paid no income tax; one out of every three dollars earned in the US goes to “pay for or comply with federal laws or regulations,” and this is before the implementation of new health care and financial services regulations; and “social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960.”

Maybe Steve Wynn has it right when he complains that Obama keeps making speeches about redistribution and punishing successful businesses that don’t do what he wants them to do. Maybe we need to slow down entitlement spending to a sustainable level, like that advocated in 2009 by Obama, when he said that long-term economic recovery couldn’t be attained without reforming costly entitlement programs.

Just last week Moody’s acknowledged that having access to more money by raising the debt ceiling will not assure a continuation of the AAA rating for the US; the deficit must also be reduced. In order to just get transfer payments down to pre-recession levels, “wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion.”

The key is job growth and reduced spending. The party of Obama would like to raise taxes, thus stunting growth, and keep spending at record levels. It should be obvious at this point that the stimulus did nothing to change our fortunes or, as an economist at a liberal think tank claimed in 2009, to have “caused a sharp change in the path of the economy, which had been in steep decline.”

All we’ve done is to have kicked the can a little further down the road, something our president claimed would end with him. So yes, if the options are between supporting the Party of No Solutions or the Party of No More Spending, sign me up for the latter, along with the rest of the 49% who are paying the bill.

What is with the hysteria surrounding the debt limit? Why are the Democrats refusing to have a discussion regarding the issues surrounding the debt ceiling and fiscal austerity?

It is a fact that all things being equal, a growing economy brings in more taxes than a stagnant or shrinking one. It is a fact that reducing tax rates stimulates growth and leads to greater tax receipts (courtesy John F. Kennedy). It is a fact that we cannot continue on the current path of fiscal irresponsibility (courtesy Barack Obama).

If we want our federal government to have access to more money (I’m not sure I do), then reducing taxes to a point where optimum growth will occur is the best way to achieve that goal, not raising the debt ceiling so we can borrow more every time we max out the national credit card. I concur with John F. Kennedy,

Our practical choice is not between a tax-cut deficit and budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve . . . a budget surplus.

The next step would be to get spending in line. We all know that no matter how much money the treasury has, it spends more. Tax rates could be raised to 90%, 100% even, and not only would our federal government spend every dime of it, but they would certainly borrow against it to finance even more great projects to buy votes . . . ah, rather, to serve the people. I recently wrote about the idiocy of such a plan, entitled The Rich, Taxes, and Government Debt.

The most powerful tool of the politician has become our tax dollars. Our money, taken by the force of law, is spent to buy votes and power, and often in ways that work against the interests of those paying the bill. It only seems fair (the President’s ears should perk right up now) that those who are going to be on the line for this new spending (taxpayers) have the right to require some fiscal responsibility from those doing the spending.

President Barack Obama, in May of 2009, warned that the current level of deficit spending was unsustainable and would lead to skyrocketing interest rates for Americans and have a “dampening effect on our economy.” Of course, that was when it was George Bush’s spending.

Thank goodness we (or some of you, rather) elected a fiscally responsible president; one who did more deficit spending in his first three years in office than all presidents before him combined; one whose budget proposals will not only double our national debt within the next decade, but quadruple the net interest costs of carrying that debt (as a result of those increased interest rates, coupled with increased debt); one whose tax and spend philosophy will cause us to spend more money on interest payments than on “education, roads and all other nondefense discretionary spending combined” within eight years. Yet each year in office he has preached the virtues and necessity of decreased federal spending – 2009, 2010, and again in 2011 – and despite the soothing words, reality bears out a less than soothing picture.

According to budget analysis, “90 percent of the rising long-term budget deficits are driven by rising spending, and just 10 percent of the rising deficits are caused by falling revenues” and our President has admitted that our federal government has a spending problem, yet he is asking Congress for an increased ability to borrow without any limitations on their (and his) ability to continue spending recklessly.

How about this:

In the 1980s and 1990s, Washington consistently spent $21,000 per household (adjusted for inflation). Simply returning to that level would balance the budget by 2012 without any tax hikes. Alternatively, returning to the $25,000 per household level (adjusted for inflation) that Washington spent before the current recession would likely balance the budget by 2019 without any tax hikes.

Simple, really, and the easy part is the President claims to already agree with me.