Strategerizing: Military intellectuals envision a 50-year “Long War” against al Qaeda consisting of counterinsurgency operations spanning Iraq, Afghanistan, Pakistan, the Horn of Africa, the Philippines and beyond, Tom Hayden discusses in The Nation. “Comparing al Qaeda in AfPak to al Qaeda in Iraq . . . illustrates both the pros and cons of building U.S. strategy in South Asia around a counterinsurgency campaign in Afghanistan,” Brian Fishman suggests in Foreign Policy. If Obama submits to Veep Joe Biden’s campaign to shift the focus from the Taliban in Afghanistan to al Qaeda in Pakistan, “as I suspect he will, is there any reason to think America won’t simply preside over the rebirth of al Qaeda? Probably not,” Thomas P.M. Barnett blogs for Esquire Magazine. “Al Qaeda is implementing its game plan in the South Asian war theater as a part of its broader campaign against American global hegemony that began with [9/11],” the organization’s “guerilla chief” tells Asia Times.
A Public Choice Primer
Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations, has an excellent primer on public choice in the August 3 edition of Forbes, “The New PC.” Shlaes is also the author of the 2007 book, The Forgotten Man: A New History of the Great Depression. Shlaes, who will be featured in the upcoming issue of Religion & Liberty, writes, “Government reformers view themselves as morally superior, but that is an illusion. They are just like private-sector operators, who do things that are in their own interest, not society’s…
It’s not working. The Bush-Obama strategy of throwing trillions at the banks to solve the mortgage crisis is a huge bust. The financial moguls, while tickled pink to have $1.25 trillion in toxic assets covered by the feds, along with hundreds of billions in direct handouts, are not using that money to turn around the free fall in housing foreclosures.
Foreclosure Fiasco: Obama Does Banks’ Bidding – Robert Scheer, The Nation
President Obama has officially begun the era of bigger big government by proposing to go on a multitrillion dollar borrowing spree that risks doing to the “full faith and credit of the United States” what excessive borrowing during the housing bubble did to private credit.
Under his budget plan for America’s future, spending will average 23.7% of GDP for at least a decade (a whopping 20% higher than in 2000-08).
Near-record deficits increasing at record rates will push the public debt of the U.S. beyond the economy’s plausible capacity to pay — 70% of GDP by 2012, heading quickly to 82% of GDP in 2019 and on pace to be astronomically higher soon thereafter.
The Avalanche
American families over the last year have already lost 8% of their net worth — in part as a result of inept government meddling, past and present. For many of the same reasons, they are also buried under a mountain of mortgages and private-sector debts gone bad. On top of that, if the president has his way, they will soon be hit with more than a 100% increase in public debt (from $8 trillion this year to $17.3 trillion in 2019).
Furthermore, the Treasury (and taxpayers) will soon have to begin repaying to Social Security more than $5 trillion in payroll tax revenues that the government had taken from the trust fund and spent for earmarks and other purposes.
Even without the Obama surge in debt — and taxes to pay it off — taxpayers face the prospect of 60% to 70% income-tax rates in the future to pay for $48 trillion in unfunded liabilities under existing entitlement programs. Now the president plans to burden the economy’s limited taxpaying capacity with a universal health care entitlement.
Foreigners purchased two-thirds of the Treasury debt sold during 2004-08 — and now own 50% of U.S. public debt.
Scholars at the Peterson Institute for International Economics warn that the “net foreign debt” position of the U.S. is becoming unsustainable.
Even if the bond rating of Treasury obligations is not formally downgraded for risk, foreign investors may start to resist buying more U.S. debt and, if the situation gets worse, may start withdrawing from the U.S. economy the trillions of dollars of capital they have already lent us. Then what?
The current level of private saving in the U.S. is grossly insufficient to make up the shortfall. In fact, Washington is doing nearly everything possible to prevent Americans from adding to their savings.
In theory, the U.S. government can always pay its debts by increasing taxes, but the problem with taxes — and ultimately with big-spending government — is that tax increases harm the economy disproportionately and quickly reduce the economy’s taxpaying capacity.
Before she became the chairman of the president’s Council of Economic Advisors, Christina Romer demonstrated in a research paper prepared for the National Science Foundation in 2007 that it costs the private-sector economy $4 ($1 of tax and nearly $3 of economic damage) to provide the government with $1 to spend.
In a research paper published by the National Bureau of Economic Research in 2006, former CEA Chairman Martin Feldstein concluded that the private-sector cost of an additional dollar of income-tax revenues for the government is $2.50 ($1 of tax and $1.50 of economic damage).
Paying off Obama’s 10-year string of deficits that add up to $9.3 trillion with income tax increases of $9.3 trillion over 10 years would cost the private sector $23 trillion (Feldstein) to $37 trillion (Romer).
In effect, American families would over time lose an amount greater than an entire year of GDP — a blow far more severe than the damage being done to them by the current recession.
Dubious Direction
It is irresponsible stewardship for Obama and Congress to go on a borrowing spree that puts America in the same unsustainable position as an overstretched boomer with too much debt and too little income and whose only option is to refinance at higher costs just to pay the interest.
The responsible alternative is for Washington to spend less — a lot less. Otherwise, the next Washington-created bubble to burst may be the full faith and credit of the United States.
Christian and Robbins are, respectively, the executive director and the chief economist of the Center for Strategic Tax Reform (cstr.org) in Washington, D.C.
Obama’s Plan For a Debt-Ridden Future – E. Christian & G. Robbins, IBD
June 2 (Bloomberg) — Imagine a novel of more than a thousand pages, published half a century ago. The author doesn’t have a talk-radio show and has been dead for 27 years.
As for the storyline, it is beyond dated: Humorless executives fight with humorless public officials over an industry that is, today, almost irrelevant to the U.S. economy – - railroads. The prose itself is a disconcerting mixture of philosophy, industrial policy, and bodice-ripping: “The wind blew her hair to blend with his. She knew why he had wanted to walk through the mountains tonight.”
In short, you would think “Atlas Shrugged” might be long forgotten.
Instead, Ayn Rand’s novel is remembered more than ever. This year the book is selling at a faster rate than last year. Last year, sales were about 200,000, higher than any year before that, including 1957, when the book was published.
Some assumed the libertarian philosopher would fall from view when the Berlin Wall fell. Or that at least there would be a sense of mission accomplished. One Rand fan, former Federal Reserve Chairman Alan Greenspan, wrote in his memoir that he regretted Rand hadn’t lived until 1989 or 1990. She’d missed the collapse of communism that she had so often predicted.
But “Atlas Shrugged” is becoming a political “Harry Potter” because Rand shone a spotlight on a problem that still exists: Not pre-1989 Soviet communism, but 2009-style state capitalism. Rand depicted government and companies colluding in the name of economic rescue at the expense of the entrepreneur. That entrepreneur is like the titan Atlas who carries the rest of the world on his shoulders — until he doesn’t.
Back Ache
You get the feeling plenty of Atlases are shrugging these days, in part because their tax burden is getting heavier. It’s interesting to compare sales of “Atlas Shrugged,” provided by the Ayn Rand Institute, to Internal Revenue Service distribution tables.
In 1986, a year when “Atlas Shrugged” sold between 60,000 and 80,000 copies, the top 1 percent of earners paid 26 percent of the income tax. By 2000, that 1 percent was paying 37 percent, and “Atlas Shrugged” sales were at 120,000. By 2006, the top 1 percent carried 40 percent of the burden.
Yet President Barack Obama has made it clear he would like to see the rich pay a greater share. Anyone irked at that prospect can find consolation in Rand’s fantasy, in which the most valued professionals evaporate from the work place because of such demands.
Sounding Weird
The hard-money monologue of Rand’s copper king, Francisco d’Anconia, used to sound weird. Who even thought about gold in the early 1990s? Now, D’Anconia’s lecture on the unreliable dollar sounds like it could have been scripted by Zhou Xiaochuan, or some other furious Chinese central banker:
“Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’”
Other “Atlas Shrugged” characters are likewise relevant: Orren Boyle of Associated Steel, one of the corrupt businessmen, is so skilled at anticipating what government will do that he could have taught Jeff Immelt a few tricks. Wesley Mouch, the Washington fringe-character-turned-politician who unexpectedly makes his way to center stage, recalls Timothy Geithner at Treasury in his early days.
Game of Pretend
Rand knew that government tends to drive the most- productive economic figures away even as it pretends to utilize them. Today’s shortage of primary care doctors serves as an example. Various administrations, Democratic and Republican, have tried to nudge more medical students into primary care. Young doctors simply haven’t complied. That is in part because of the higher compensation of specialties. But it is also because the great charm of being a primary care doctor — autonomy to work in a range of areas — has been removed.
Rand foresaw this: “Let them discover the kind of doctors that their system will now produce,” says one of her characters. “It is not safe to place their lives in the hands of a man whose life they have throttled.”
Long before managed-care existed, Rand was describing doctors’ frustration with it.
Most compelling is Rand’s understanding of how politicians’ lack of imagination can kill economies. Of all American governors, Arnold Schwarzenegger of California is the one who most resembles Rand’s outsized characters.
Missing Gene
Yet Schwarzenegger seems to be missing the Rand gene. His policies are all pain and no growth. As the Randerati have been quick to note, California’s uncompetitive treatment of film production is driving Hollywood out of California. Yet Schwarzenegger moved disappointingly late to sign legislation that would even begin to address that problem.
Rand’s persistent heroine Dagny Taggart lectures a public official, but substitute Schwarzenegger for the official and the dialogue still makes sense:
Dagny: “Start decontrolling.”
Schwarzenegger: “Huh?”
Dagny: “Start lifting taxes and removing controls.”
Schwarzenegger: “Oh no, no, no, that’s out of the question.”
Dagny: “Out of whose question?”
In short, it’s time for all of us in policy land to tip our collective hat — though she detested collective anythings — to Ayn Rand. Politics today is proving dramatic enough to change even literary tastes.
(Amity Shlaes, senior fellow at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.)
Rand’s Atlas Is Shrugging With a Growing Load – Amity Shlaes, Bloomberg
Onetime presidential hopeful and current Republican congressman Ron Paul has an interesting piece of legislation wending its way through the US capitol. HR1206 calls for “a complete audit of the Federal Reserve and removes any significant barriers towards transparency in our monetary system” says Paul’s website.
This bill now has nearly 170 cosponsors, with support from both Republicans and Democrats. Senator Bernie Sanders has introduced a companion bill in the Senate S 604, which will hopefully begin to gain momentum as well. I am very encouraged to see so many of my colleagues in Congress stand with me for greater transparency in government.
Congressman Paul continues:
Fundamentally, you cannot defend the Federal Reserve and the free market at the same time. The Fed negates the very foundation of a free market by artificially manipulating the price and supply of money – the lifeblood of the economy. In a free market, interest rates, like the price of any other consumer good, are decentralized and set by the market. The only legitimate, Constitutional role of government in monetary policy is to protect the integrity of the monetary unit and defend against counterfeiters.
And indeed, continues:
Instead, Congress has abdicated this responsibility to a cabal of elite, quasi-governmental banks who, instead of stabilizing the economy, have destabilized it. It took less than two decades for the Federal Reserve to bring on the Great Depression of the 1930’s. It has also inflated away the value of our currency by over 96 percent since its inception. It has invisibly stolen from the poor and given to the rich through this controlled inflation, and now openly stolen through recent bank bailouts. It has predictably exacerbated the very problems it was meant to solve.
All of which we’d have been quite likely to dismiss out of hand, were it not for its relevence in light of an excellent essay from historian Simon Schama in last weekend’s FT, on the central-bank hating tendencies of President Jackson, and more broadly, the long and rich seam of bankphobia than cleaves through American history:
Jackson, who was in the White House from 1829-1837, was a new brand of politician in American life. No one would confuse him with the Virginian gentlemen-planters who had dominated high office in the early republic. He had been Indian fighter, scourge of the British and darling of the frontier crowds. But what really got his dander up was the Bank of the United States, the institution granted the monopoly to print paper money. The “Monster”, he declared at the height of his presidential knock-down battle with its president Nicholas Biddle, “wants to kill me but I will kill it”.
And destroy the Bank of the United States Jackson did, vetoing the Senate’s renewal of its charter in 1832 and running for re-election as the champion of People v Monster. The result of the liquidation of monetary regulation was predictable: wildcat speculation. Two months after Jackson left office in March 1837, the second of the great American financial meltdowns was under way (the first was in 1819). Another swiftly followed in 1839 under the administration of Jackson’s hand-picked successor, Martin Van Buren. On the eve of the civil war, Jackson’s wish for monetary decentralisation had come true beyond his wildest dreams There were 7,000 local currencies circulating in the republic and an epidemic of counterfeiting. It took Lincoln’s Banking Act of 1862, born of a desperate need for dependable credit to fight the war, for a modicum of monetary order to be salvaged from what Biddle had accurately prophesied would be monetary anarchy.
Jackson tapped into a pulsing vein of American insecurity about the moral character of money.
In fact, in the unstable conditions of America in the 1830s, the paper of the Bank of the United States was by far the most dependable medium of transactions from Maine to Louisiana. But Jackson was convinced that unless the Bank perished, American democracy would always be infected by its machinations. What was at stake was the battle of rural and urban values for the economic soul of America. In some ways this was almost as momentous as the struggle between the slave south and the free north for it went to the heart of what America was supposed to be: a place where simplicity and transparency ruled in small moral communities, or a self-energising machine of unlimited economic growth and power: Field of Dreams or Citizen Kane?
Interesting times we live in.
America has a long tradition of central bank antagonism. (FT Alphaville)
