Of Majorities and Modesty

November 18, 2014 Leave a comment

Perhaps with some weeks enough dust has settled to allow a few reactions to the recent American elections, with more perspective than can be gathered from listening to reporters interviewing reporters. I will offer views that focus mostly on the results of the congressional elections, drawing upon experience from more than two decades of work in the Senate.

I do not, however, wish to minimize the importance of the elections for governors and state legislatures. In fact, I suspect that the next President of the United States will more than likely be a current or former governor than a Washington politico. Most Presidents, historically, have come from the state governments, which I find encouraging for our federal system. Moreover, judging from what we have seen, former Senators do not seem to make very good Presidents. I cannot name one to whom we can look with admiration for what he accomplished in the White House. There seems to be too much Washington blindness in them to govern effectively for our whole nation.

I am straying to an election yet to come, though. Back to this year’s results, I will begin with the view that we should expect, with the media-scorned Republicans holding the majority in both House and Senate, that the finger of blame for all problems—real or imagined—will be pointed at “Congress.” Disputes between legislative and executive branches will tend to be cast as exposing the nation to great danger as a result of congressional intransigence and/or “politics,” as if no real issues of policy—no questions of life, freedom, or wealth—are involved.

It is happening already. In one bizarre report I heard this week on a major network “news” report, some Amtrak railroad drawbridge in the northeast is over a hundred years old and prone to getting stuck when it opens to let ships pass. Amtrak wants a billion dollars or so to fix it, but, as the “news” story would have it, Republicans in the new Congress “are not looking for ways to spend money.” That was the story. Note the nothing new here. The bridge has been around for a hundred years and did not suddenly become prone to malfunction this November. But the election has now made it a story; a problem is arising, not because the President or the Democrats in Congress for several years did not seek to fix it, but because the new Republican majorities are not interested in spending money. The bridge is not the problem in the story, the Republicans are. Expect more of this kind of media “news.”

Second observation: in recent decades Congress has increasingly surrendered more and more authority to the executive branch, including to the regulatory agencies. The Senate, under the misleadership of Majority Leader Harry Read, has given up even more power and authority (perhaps in another post I will expound on lessons from the Senate of Rome, which by avoiding decisions paved the way for the Caesars—who were all too ready to make decisions). The Democrats retain full control of the executive branch. No small thing. In the remaining two years of the Obama Administration look for more aggressive activity from the White House and the regulators as they test just what they can try by regulation and regulatory fiat, without any detours to Capitol Hill. To quote Jacob Marley’s ghost, “Much!”

When it comes to big Republican plans to make major changes, the quidnuncs will be fed explanations of the thinness of the Republican majorities, along with the “responsibility” of Republicans to share power with Democrats that the Democrats failed to win at the ballot box. When it comes to work that needs to be done, the repeated common wisdom will be that the Republicans have the majority, so nothing should stop them from getting on with the job. There will be little mention that the President can veto what Congress passes, and that Democrats in the Senate will likely filibuster anything that the White House threatens to veto, saving the President the trouble—and political risk.

Yet, there are things that the Republicans, even with working but not overwhelming majorities in Congress, will be able to do. Most important, they get to set the agenda. They get to decide what issues will be debated, what hearings will be held, what will be put to a vote, even when they may not have the votes to break Democrat opposition in the Senate. It will be some relief that instead of the familiar series of proposals to curb liberties, raise taxes, or stifle economic growth and opportunity, the agenda will tend toward ideas of freedom and prosperity, though actual accomplishments will of necessity be modest against the strong opposition of the President and his media allies. I will take modest improvements over the calamitous policy fails of the past several years.

Filed under Barack Obama, bureaucracy, Congress, economic growth, elections, federalism, freedom, government, House of Representatives, media, politics, prosperity, Rome, Senate, taxes, Washington Tagged with , , , , , , , , , , , , , , ,

Of Unbanked and “Underbanked”

October 11, 2014 Leave a comment

Speaking of banks, as I did on this page a short time ago, there are those who are concerned that too many people in the United States are “unbanked” or “underbanked.” By the former they seem to mean those who do not use any banking services, particularly who do not have any bank accounts. By the former, they mean those who obtain some banking services from businesses that are not banks. The very existence of the terms, and the way that they are used by those who use them, implies that being “unbanked” or “underbanked” is a bad thing.

I will here disclose that I have worked for banks for nearly 10 years and for all I know may continue to do so for some time into the future. Whatever bias or color to my views that this condition provides I will nevertheless try to comment from a fair and factual point of view.

My first point, therefore, is that I am not prepared to assert that absolutely everyone should have a bank account. I can easily envision the value of a bank account for most if not all people, but I concede that they should be allowed to choose for themselves and that it would be terribly wrong to force people into banks. I acknowledge that there are some alternative providers of financial services who seem to please their customers, and I do not deny that banks can benefit from good competition. Banks have a long history of drawing upon the ideas and innovations of non-banks, just as non-banks have been eager to try their hand at successful new products and services that banks have pioneered. Bank customers have benefited the most from that process, as the variety and value of financial products have expanded, and the United States has led the world in the discovery of new and useful financial services.

Having said that, the nation cannot do well without a strong, vibrant, and prosperous banking industry. Our nation and people grow as we save financial resources and invest them in improvements for the future, whether new homes, new factories, or new ideas of how to do and make things better, faster, and cheaper. That is a major part of what banks do and are all about.

Moreover, there are a lot of things we do and a lot of places we go because we know that our ability to pay and get paid—to exchange things we value less for things that we value more (the reason we buy and sell things and use money to do it)—is secure, reliable, accurate, and relatively quick. That is our payments system, and banks created it and are at the center of it.

Americans also like the idea of becoming wealthier and expect to do so. If that seems a commonplace to you, recognize that it is not so in all parts of the world, where getting by from day to day is about the most to which people can aspire, for whom poverty is a way of life that they expect to bequeath to their children. To the extent that this miserable condition is becoming less the case in much of the world, that more people are beginning to believe that they can build and improve their wellbeing for themselves and their posterity, this new-found hope for accumulating wealth is attributable to the dispersion of principles of freedom and prosperity that Americans take for granted but which are new to much of the world. The global adoption of many American principles of prosperity has been a major contribution of the New World to the Old World and to all mankind.

Now get ready for the bold but true statement: you cannot get there and stay there without banks and the services that banks provide. Banks gather wealth, safeguard wealth, allow it to be used efficiently, and apply it to building the future. That is why governments pay so much attention to banks, and also why it is so harmful when governments try to capture banks and channel their services to the personal gain of themselves and their cronies. That is also why misguided bank regulations are harmful—even if in subtle but powerful ways—to the nation and its people.

Which brings us back to the agenda of the “unbanked” and the “underbanked.” In the United States, chief causes for people remaining “unbanked” are regulations that make banking more difficult and services more expensive; cultural barriers for people who come from societies where personal banking is either unknown or where the experience has been one of banks used by local governments to harvest wealth from people to enrich the governing elites and their cronies (much of Latin America, for example); and people who for whatever reason just do not prefer to use banks. The first cause regulators can solve but have largely been resistant to solving; the second can be overcome by time and experience and is showing signs of that; and the third cause is no more of a problem than people who prefer to rent rather than own their home, to eat eggs without grits, or who do not like the New York Yankees. I do not have to understand the personal preference to acknowledge it.

The concept of “underbanked” (that government needs to help banks figure out how to serve people who may get some banking services outside of banks) I fear may be a political device to harness American banks to serve the cronies of the “underbanked” advocates. We have already seen this game with the Community Reinvestment Act (CRA) regulations, adopted ostensibly to ensure that banks lend to their local communities (as if bankers, unlike other businessmen, need government regulation to notice business opportunities right under their own nose). In practice, CRA has been used to coerce banks into providing loans and even grants to and through poverty advocacy agencies that tend to prosper more than the people whom they claim to be helping. The folks who fret about the “underbanked” have marvelous formulas and plans for other people’s money to solve problems about which the people to be helped seem little concerned. I have never heard of any truly “underbanked” people themselves calling for the firm hand of government to get them into the banking system; if they want banking services, they just go and get them.

I have the haunting suspicion that the “underbanked” advocates would if they could use banks the same way found in the abandoned societies of the “unbanked,” where banking services came through the hands of people who knew better than others and always made sure to get their cut for their benevolence. That is not really banking, and that is symptomatic of why people flee those lands. The wealth creation of such captive banks seems to be for someone else. If it happens in America, where will the people go?

Filed under "unbanked", America, banking, benevolence, choice, Community Reinvestment Act, economic growth, exceptionalism, immigration, investment, money, personal finance, poverty, prosperity, Uncategorized, wealth Tagged with , , , , , , , , , , , , , ,

Of Banks and Over Taxed Regulators

September 27, 2014 1 Comment

Banks, who needs them? A quick question and a quick answer: a thriving, prospering banking system is essential for a thriving, prospering modern economy. Banks bring together the resources of savers and the needs of borrowers, particularly borrowers who seek funds to establish or expand businesses or families and individuals who use occasional borrowing to smooth out their income (good banking principles penalize people who would borrow in order to live beyond their means, but more on that at another time).

Banks also created and maintain the payments system, the means by which money is transferred quickly and accurately throughout the nation and even internationally. Bank services include as well a variety of wealth management tools by which individuals, families, businesses, and governments can store, grow, and make best use of their financial wealth.

Without banks, almost none of these services would be available. Many non-banks provide bank-like services, but they all come to find the need to rest their own services at some point on a bank.

Banking in the United States has grown with the nation, from very simple institutions in the eighteenth and early nineteenth centuries, to a wide variety of bank types, charters, and business models, as diverse as the financial demands of the customers of the largest and most diverse economy in the world. I once presented at a meeting in Chicago a list of about two-dozen different types of banks in the United States. We have national banks, state chartered banks, small community banks, larger regional banks, and very large banks with extensive national and international business products and services. All of these operate and compete together, with a body of customers behind each one who think that their bank offers the best available choice of services that they want. No other nation in the world has a banking industry like ours.

The recent recession and financial panic—and the inevitable politicizing of finance that came in its wake—have thrown much into confusion and imposed upon sound and prudent bank supervision harmful ideas born of reckless sloganeering and hubristic financial engineering. The complexity of banking—no more complex than information technology, communications systems, or modern manufacturing—has been superseded by even more complex bank regulation.

The rules governing banking are too much and too many to function reasonably. They have become more than the very human people in the multitude of bank regulatory agencies can manage. The disciplining role of markets and the valuable service of banker judgment have in large measure been replaced by bureaucratic procedures and the judgments of government officials. These officials have had little if any practical experience making loans, taking deposits and putting them to work, building financial wealth, or otherwise providing products to customers. Government officials cannot run businesses. Now, their government jobs have become so demanding and complex, that they will not be able to do their own jobs, either. Too much has been placed upon them.

Those most harmed by all of this are bank customers. For the moment, bank profits are up, but that is because their losses are down as they recover from the recession, not because services to customers are expanding. As a result of government interest rate policies, depositors earn almost nothing on the money that they place in banks. The expanding oversight involvement of bank regulators makes it dangerous for banks to offer new services to customers; the risk of breaking any of thousands of pages of regulations has become too great. It takes almost half an hour to open a new bank account, something that used to take minutes. Fewer credit-worthy borrowers today qualify for mortgages than just a year ago, before new regulations went into effect. The number of banks has been declining in recent years, dropping at the rate of nearly one for every business day, week in and week out. Only one new bank has been opened since 2010. We have fewer banks today than the nation had in 1893. A stagnant industry is less able to evolve to meet changing customer needs and preferences.

For the good of all of us who rely upon banking services, and for the sanity of financial regulators, we need to return to the principles of good banking. We need to restore a system of supervision that is measured, not by how much banker judgment it takes over, but by how it adds value to the ability of banks to serve customers. Government agencies—and the laws that they administer—that are derived from a founding document that begins with the words, “We the People,” should do nothing less, and nothing more.

On another day I would like to share some thoughts about how banks are being goaded to become their own enemies.

Filed under banking, BCFP, bubbles, Dodd-Frank Act, economic growth, government, interest rates, markets, prosperity, statism, wealth Tagged with , , , , , , , , , , ,

Of the Soviet Union and the European Union

April 8, 2014 Leave a comment

Do you remember when the Soviet Union disappeared? Do you recall how and why? I hope that Vladimir Putin does. An accompanying question that needs to be considered is, why is Ukraine so attracted to the European Union?

To answer the first question briefly, we have to turn our attention to the final days of the old USSR, then led by Michael Gorbachev. Russia, the largest member of the 15 “Republics,” was led by Boris Yeltsin. Under Yeltsin’s leadership, Russia chose to withdraw from the Soviet Union. He said that Russia was weary of carrying the burden—economic, military, and otherwise—for the others. Russia just left, and after a brief try there was nothing that Gorbachev could do to make Russia stay. Without Russia, there was not much left to the Soviet Union, and the other members said “enough,” too. The Soviet Union was gone with hardly a whimper and little lamented except by the class of privileged communist leaders.

The word is that current Russian President, Vladimir Putin, wants to put the band back together, that he wants to reassemble the old Soviet Union, with the coercive influence of the Russian military as his chief tool. Not that he wishes to recreate the communist paradise of Lenin and Stalin. His vision reportedly reaches back to the great days of the czars—though presumably without the trappings of monarchy and royalty. Putin is through and through a Russian, so he wants to recreate a Russian Empire. Continuing along the path that he has set out, the path of creating an empire of the czars after the mode of the Caesars, he is unlikely to succeed. Been there. Tried that. Did not work.

It is hard to understand why Putin would choose that model. Why would he want to deal himself and the Russian people a losing hand? The Russian-dominated Soviet Union, assembled by the Red Army, failed. It did not fail because the Soviet leadership did not try hard enough, or was stingy in expending resources, or showed too little military muscle, to hold it together. It failed because—as Yeltsin recognized—it was costing too much to hold it together, draining too much life from Russia. The USSR was a bankrupt model (morally and financially) for building an empire, especially for keeping an empire. There were not enough hands to hold on tight to everything and everyone.

Perhaps Putin figures that without the burden of communism a strong Russian government could hold and control successfully where the commissars could not. In other words, he would reject the model of Soviet communism and embrace the model of a modern non-communist authoritarian regime, like the Third Reich. That one did not work so well, either.

There is a model available, tried and tested, that would work. It would unleash the power and greatness of the Russian people and at last make the most of the amazing resources of the Russian land. The results would exceed by far even the exaggerated dreams of czars and commissars. Does Putin have the vision?

I refer to the model of freedom, only briefly known to the Russian people, only occasionally offered in limited experiments, experiments that were always wildly successful, surprising only to the governmental leaders who tried them and then abandoned them, frightened by the successes. Applied boldly, we would see a Russian miracle that would change not only Russia but the world—all for the better. Free men and women, operating in free markets, protected by the rule of law enshrining individual rights, erected on the foundation of a constitutionally limited government, would be a model offering limitless growth and prosperity. Moreover, the variety of peoples and cultures in a land as vast as Russia could be recognized and accommodated, attracted and joined together, within a strong but genuine federation, united by the ties of thriving national markets, reassured by the rule of law supported by a just and independent judicial system to safeguard fundamental rights.

A dream? Perhaps it is, but a realistic one. This offers the answer to the second question. Why is Ukraine attracted to the European Union? Does not the European Union offer just such an option? Is not the economic prosperity and individual freedom—and room for national expression—found in the European Union obviously different from the offering of today’s Russia and the memory of the old empire? Is it not fear of the specter of the czars and commissars that haunts Ukrainians?

Was not the creation of the European Union once just such an impossible dream as a truly free and just Russian federation? For hundreds of years the fathers and mothers of the peoples of the European Union made war, large and small, upon each other, French against Germans, Germans against Austrians, Austrians against Poles, Poles against Germans, and round and round again. Today such wars among these same people are unthinkable.

Assembling such a federation takes time, patience, and skill. It may be too tempting for an impatient Putin to rely on his military muscle to make an empire. Perhaps for a brief time he could succeed by force to reassemble much of the old Soviet Union as a greater Russia. The greater challenge, the one that has proven impossible, is to hold such an empire together by force.

Such empire of force would very soon prove ungovernable, with rebellions large and small flaring up constantly. The brutality exerted to try to hold it all together would make the task of unity even harder and progress nigh impossible. It would drain away, once again, Russia’s strength in an unending effort, just as it eroded the strength of the USSR. Maintaining greater Russia by force has always proven a burden far greater than its worth, in the long run a losing effort that has collapsed in a weaker and vulnerable Russia. World War I was one example, the end of the Cold War yet another.

The people of Russia—along with its neighbors—can have a better and brighter future. A Russia built on individual freedom, free markets, free peoples, would unleash a new era of prosperity. Russia would become a beacon of wealth and success, with all Russians participating. Instead of Russians leaving to find their future, they would return to their homeland. If Japan can prosper on islands scarce in natural resources, imagine what free Russia could do, rich in resources, harnessed efficiently by the discipline of the markets.

Instead of an empire of force, a free and flourishing Russia would draw its neighbors to it as the European Union beckons to them today. No longer facing Russian fists, neighboring nations will come knocking at the door, eager to associate with Russia voluntarily, attracted by opportunities for betterment.

Of course, that is the theory. In practice, the more that Russia seeks the path of freedom and abandons the chimerical lure of military conquest, it will succeed. Russia would then achieve its real greatness in the world, the only way that it ever really could.

Filed under communism, economic growth, European Union, federalism, freedom, markets, military, prosperity, rule of law, Russia, socialism, statism, Ukraine

Of Obama and Ethelred the Unready

March 22, 2014 1 Comment

As the troubled year of 2009 was approaching its final weeks I wrote a commentary, reprinted below, reflecting on how President Obama’s unreadiness for the job of President was endangering our soldiers abroad and weakening the economy at home. As we have witnessed a recovery that month after month remains so anemic that many Americans are not experiencing much of a recovery at all, as our retreat from world affairs encourages aggression by adventurers in Russia and elsewhere, and as the Obama Administration plans to return our Army to levels not seen since before World War II, it seemed to me appropriate to reprise my musings of November 2009. I also have to wonder whether the Nobel committee, which was so excited to award the peace prize to Barack Obama for promises to reduce American influence in world affairs, still considers its decision and the policy that it celebrated to have been wise and fortunate for the world.

Arguably the worst king of England was Ethelred the Unready. He was unready to rule his kingdom, he was unready to promote its prosperity, he was unready to repel the invader. The chief manifestation of his unreadiness was his inability or unwillingness to recognize reality. Reality eventually caught up with him—as it always does—and with his kingdom—as it always does for those subject to unready rulers.

The current President of the United States, Barack Obama, may be working hard to earn himself the title of Obama the Unready. The evidence is accumulating.

For months, the novice commander-in-chief has been at a loss to know how to respond to the urgent recommendations of the field commanders in Afghanistan. They have been pleading to increase the troop levels. The added troops are needed to respond to increased enemy activity. Unwilling to say yes or no, the President vacillates while American soldiers die because they are stretched too thin. He seems to have forgotten that American soldiers under President Clinton were similarly sacrificed in another poor corner of the world—Somalia—only because Clinton did not provide enough troops to do the job. Rather than decrease casualties, insufficient troop strength increases casualties, soldiers who would not die if given enough support to overwhelm the enemy. This week the White House announced that President Obama is still unready to decide on troop strengths for the mission in Afghanistan. Unfortunately, the Taliban is not waiting for him to make up his mind.

Also this week, President Obama gave a little speech about the economy. It was hard to miss the sense of frustration and perplexity in his remarks, made quickly as the Nobel laureate left town to seek more praise from his adoring foreign fans. He admitted that unemployment remains high, despite his economic program. He admitted that employers are reluctant to hire new people. He just does not seem to know why. His solution is to call a conference of economic talkers in December to talk about it. He remains unready to do something about his economic plans and government policies that are making it riskier for employers to take on more employees. Faced with half a trillion dollars in new taxes (many focused on small businesses), higher health care expenses from the trillion dollar “reform” program, new environmental plans to cool off the globe by cooling off economic growth, and dozens of other new plans to make it harder for businessmen to succeed, businessmen are reluctant to hire new people that they will later have to let go. All the while, the natural tendency for the economy to recover is weakened.

Consumer spending remains suppressed, while the Obama Administration and its friends in Congress pursue policies that make consumer credit more expensive and harder to get. Congress this year, with the Obama Administration cheering on, passed new credit card laws that make it difficult for lenders to have riskier borrowers pay higher rates. The result is that everyone gets to pay higher rates. Predictably, consumer credit declined by 15% in September and shows little sign of getting better. As we approach the holiday season, so important for the success of retailers, the Obama Administration and its Congressional allies are busily making it tougher for banks to run their debit card programs. Expect more debit cards denied at the checkout lines. Also expect the pace of store closures, already growing faster than swine flu, to continue to grow. Seen any empty storefronts at shopping centers lately? Be ready to see more, even as President Obama convenes his economic talk show in December.

Not to forget swine flu, the Obama Administration was eager all year to pump up the worry about a swine flu epidemic, in hopes that it might frighten people into supporting healthcare legislation. In the meantime, the Obama Administration’s health officials, who are heavily involved in development and distribution of vaccines (lawsuits that plague the medical industry have driven most vaccine manufacturers out of the business), were ready to promise but unready to deliver swine flu vaccine. Expect more of the same, of promises that do not meet actual needs as government becomes even more involved in regulating healthcare. Service and speed are what most people look for when they are sick, but service and speed are not what government programs are known to provide—any government program.

It should be no surprise that President Obama is not ready for the growing challenges of being President. Like Ethelred, Barack Obama had little training for the job. Governing has not gotten easier in the thousand years since Ethelred disgraced the throne of England. It is not getting any easier for Barack Obama. Fortunately for America, we do not invest all power in a king.

(First published on November 13, 2009)

Filed under banking, Barack Obama, Constitution, economic growth, environmentalism, global warming, government, healthcare, interest rates, jobs, markets, national defense, national security, personal finance, statism, taxes, Uncategorized

Of Panic and Complacency

March 8, 2014 2 Comments

I wrote the following a few days after the election of Barack Obama in 2008. I was not in despair then, and I do not despair of finding some value even today in the thoughts expressed just before the dawn of the Obama Administration.

First of all, do not panic. Second, do not take it easy.

This is in line with another piece of advice I came across a few years ago (attributed to Austrian statesman, Clemens von Metternich): “Let us not consider ourselves victorious until the day after the battle, nor defeated until four days later.” Well, it has been more than four days since the November elections, and I believe that it is safe to say that the Republicans were defeated.

There are other things, however, that are not safe to say. It is not safe to say that the Democrats won an overwhelming victory. In fact, their margin of victory was fairly narrow, less than 7% separating the Republican and Democrat candidates for President, a number that only looks large when compared with closer recent Presidential races. Senator Obama’s percentage of victory was a little less than George Bush’s (the father) over Michael Dukakis, 6.7% versus 7.8%. The Democrats also picked up significant gains in their numbers in the Senate and House of Representatives, but in both cases they fell short of the overwhelming victories for which they had hoped. The results of the election were neither overwhelming nor underwhelming—just whelming.

It is also not safe to say that President-elect Obama and the Democrats do not mean to do what they said they wanted to do during the election. They plan to raise taxes. These higher taxes will be felt by everyone, but they will fall most heavily on businessmen and entrepreneurs, exactly the people whose efforts we need to restore economic growth. So as Obama and his team work to spread the wealth around, there will be less of it to spread, and less and less as time goes by. There are many other like-minded plans of the change team arriving in January.

Elected with the embarrassingly undisguised support of the mass media, the new leadership will continue to rely upon the media, this time to hype the “mandate” from the voters and to try to cower the remaining Republicans in town into timidity. The early effect of this can be seen in the hushed conversations of “people in the know” trying to convince themselves that Obama is really more moderate than he appears, that he will try to “govern from the center.” Maybe that will be true, but there is nothing either in Obama’s brief but clear far left voting record or his statements during the election to support the theory.

There remains powerful virtue in the Constitution (which the President-elect considers to be a flawed document), in which we can take comfort. The founding fathers wisely diffused power, because they were rightly afraid of what concentrated political power would do to individual liberty. While it is frustrating to new politicians in Washington, there is not a lot that one man can do—for good or ill—in our system of government, and that should be more of a source of solace than of worry.

We need not buy into the slogans that we should rise above partisan politics (which usually means that the other party should keep quiet and become politely ineffective) in order to wish the new President and the congressional leadership well so long as they propose to do good. Neither do we need be devotees of political parties in order to speak up when policies are proposed that will make things bad. In the land of “We the People,” it is our job not to be complacent. It is our job to remind the authorities in government who they work for. Otherwise, as we approach the holiday season in 2009, things will be much worse than they are already today.

(First published November 16, 2008)

Filed under Barack Obama, Congress, Constitution, economic growth, elections, government, investment, media, politics, socialism, taxes

Of Washington and the Life of the Nation

November 22, 2013 1 Comment

Washington, D.C., is a strange place. I speak from experience. My whole working career has been in Washington. In many meetings with people visiting Washington I have explained to them that Washington is not America. Few have been surprised by the remark. In many visits away from Washington (and in connection with my work I accept nearly every invitation to leave town and be among those whose lives too many in Washington try to run) I am ever and powerfully reminded how different the rest of America is from Washington. I have not been surprised. Kansas City is much closer to America than Washington ever was or will be.

In support of the point I offer a few painful examples. I see one each day that I drive into the city. Looking at the cars around me I note that very few are more than a few years old. At the same time I am impressed by how many of the cars are foreign luxury models. It is typical, when paused at a stop light, to notice that many of the surrounding cars are BMWs, Mercedes, Lexus, Acuras, Audis, and not an insignificant number of Jaguars, high end Range Rovers, and Porsches. I also see a lot more Prius cars and other hybrids. This is not to say that there is anything inherently wrong with driving any of these or any other late model high-priced cars. I merely note it as very different from what I see when paused at a typical traffic light in other cities and towns in America.

As an aside, I am grateful to the people who buy and drive a Prius or other model of hybrid, because they subsidize my purchase of gasoline. Their cars do use less gasoline (though not enough less to compensate their owners for paying so much more for their cars), leaving more for people like me who drive regular gasoline-consuming vehicles. That reduction in gasoline demand helps reduce the price.

The Prius drivers might be offended were I to tell them, however, that I am entirely unimpressed by their conspicuous token of environmental sensitivity. Their purchase and operation of a Prius, after all, is very likely more harmful to the environment than is my more conventional automobile. First of all, they pay $10,000 or more extra to buy their hybrid, and if the price system works at all efficiently that means that making a Prius or other hybrid consumes far more in resources than making a conventional car. Second, the hybrid car fans and their coteries in the D.C. area have convinced the masters of the highway networks to create special less-traveled commuter lanes that the hybrid drivers are permitted to use, meaning that they reduce the efficiency of the highway infrastructure. So, to the Prius drivers of the world I say, thanks for the subsidy, but save your enviro lectures for when you are looking in the mirror.

The automobiles of the nation’s capital region are a sign of an even more painful reality of how Washington is different from the rest of America. It is also the wealthiest part of the nation, by far. On April 25, 2013, Forbes magazine published an article about the richest counties in the United States in terms of average income (Tom Van Riper, “America’s Richest Counties”). Six of the ten richest counties are in the Washington, D.C. region, including the top two and one more out of the top five. While recession lingers in the rest of the nation, Washington and its suburbs are doing rather well, with unemployment down to 5.5%, well below the national average.

I will also say that I am not opposed to wealth and wealthy people. I wish all of the world to be wealthier and rejoice that it is far wealthier today than people of just a few generations ago could have dreamed. But we could all live so much better still. I ache that the policies of governments around the world stifle economic growth and development and hold so many of their people down in poverty. The poor nations of the world are not poor because their people are less talented and intelligent than others, but because their governments are so oppressive and have been for generations.

Therein lies my beef with the wealth of Washington and its environs and the key to its estrangement from America. That wealth is hard to explain from the perspective of value added to the rest of the nation. Washington is basically a one-company town. Unlike other one-company towns, however, it produces little that adds enough value to the lives of others that would allow it to prosper in open competition in free markets. The product of Washington instead is forced upon the rest of the nation, whose productive income is confiscated to keep the Washington wealth-eating machine going.

Try to name an economic product or activity that is not somehow subject to special handling by or permission from someone in Washington or controlled from Washington. After the Dodd-Frank Act, for example, all financial activities have become more subject to direction by Washington bureaucrats than ever before. Today, a bank has to pay more attention to its regulators than it does to its customers. Who gets the best attention out of that arrangement? The same is true for energy producers, communications firms, health care providers, and you can continue the list. All that special handling comes with a toll, payable in taxes, or borrowed from the financial markets, or layered upon private incentive and individual initiative. Today in Washington the most convincing argument for new rules and laws is to announce that something is “unregulated.” When you regulate liberty, how much liberty survives? How much of America survives?

Next year, 2014, will mark the 200th anniversary of the burning of Washington by the British in the War of 1812. The curious thing about the burning of Washington was that it did not make a lick of difference. The rest of the nation went on about its business, little harmed or even affected. The same was true during the Revolutionary War when the British occupied Philadelphia. Rather than end the war it did nothing to bring the British victory. In America the nation was not run by its government, and in fact government was mostly irrelevant to the daily life of the people. That was very different from European experience, where nations were so dominated by their rulers that capturing the capital was tantamount to beheading the country.

Washington is strange to America. That can be tolerable, but only if it is smaller and less significant. Let the real nation draw its life from the people and live where they live their lives without direction from their rulers. Let us have a Washington whose disappearance would not mean much to the rest of the nation.

(First published May 18, 2013)

Filed under America, banking, Dodd-Frank Act, economic growth, environmentalism, exceptionalism, federalism, freedom, government, poverty, productivity, rule of law, socialism, statism, taxes, tyranny, Washington, wealth

Of Dysfunction and Governing the Nation

October 27, 2013 Leave a comment

It seems that no more evidence is needed.  The establishment press, normally loathe to criticize the federal government, has at last become even fond of proclaiming that “Washington is dysfunctional,” although they do so as if announcing something worthy of being “news.”  The Senate has not passed a budget in some four years.  The House of Representatives regularly passes budgets that the Senate will not even consider.  The President—who has no budget-proposing role under the Constitution—proposes budgets that are routinely disregarded while declaring his intent to govern without the Congress.  At the same time, people feel more alienated from their government than ever before, in ever increasing numbers considering the nation headed in the wrong direction, regardless of the party in control of national policy.

In the most recent demonstration of the Washington breakdown, the Congress this year failed to pass the annual appropriations bills before the current ones expired.  Or, better said, the House passed appropriations bills, the Senate demurred, and the President announced that he would veto any appropriations legislation that offered either more or less than what he wanted.

The establishment press, amplifying executive branch efforts to promote panic and stampede the public, announced that “the government would shut down,” and yet 83% stayed open.  Some prominent public operations (that do not require any appropriations to operate) were closed at the President’s bidding, like the Lincoln Memorial and the various veterans and war memorials, but the President seemed to have enough money to travel to various campaign-style rallies to complain about the government shut down.  There was national confusion and consternation.

Perhaps what is news is that there is, at last, general agreement, and the President has helped demonstrate, that the federal government has become dysfunctional, by which we may mean, not doing what it needs to do.  I also notice that this condition has not been getting any better.  In addition to the recent, visible indicators, I would offer some longer-term measures.

Economic growth is depressed and has been declining for decades; employment is also down, with millions leaving the work force.  Government welfare rolls have expanded dramatically, suggesting that a very large portion of the population is either not able to take care of itself or has surrendered its responsibility to do so.  The federal balance sheet approaches ever closer to insolvency.  To avoid being gloomy and doomy, I will not recount dismal education trends, eroding family formation patterns, the precarious condition of national infrastructure, or our worsening international relations (with allies and opponents).

Yet, the federal bureaucracies are far larger, taxes—visible and hidden—are higher, red tape has become ubiquitous, and federal subsidies have fallen behind promises even as they outdistance the ability of the federal government to pay for them.  If government is the solution, then why is more government not making things better?

How could this happen?  Have we as a nation lost our ability to govern ourselves?  Have “partisan politics”—as though something new rather than part of our national intercourse since 1796—frozen the ability to consider, set, and follow national priorities?  Have the problems of modernity exceeded the ability of policymakers to resolve them?

A case could probably be made for each and all of the above explanations.  I think, however, that they are all symptoms of a more fundamental problem, one recognized long ago, at the founding of the nation.

As early as 1787 the Founders recognized that a central government would not work for the United States.  Even with just the original 13 states and 3 million people, the nation was too vast to be governed in detail from one capital.  That is why they created a federal system, under which the few, truly national concerns—such as national defense, trade, international relations, national standards of measures and sanctity of contracts, preservation of freedom and the rule of law, together with the means to fund these activities—would be handled by the national government.  All else was reserved to the States.

Note that I did not say given to the States.  Remember, the States and the people in them created the national government.  The States and the people in them gave to the national government its authority and power.

Today, the United States stretches across a continent and reaches to the isles of the sea, with over 300 million inhabitants.  It is even more impossible than ever to govern from a single capital, by a centralized government.  We all have seen the evidence, in addition to the growing dysfunction of Washington.  Everyday, people all over the nation struggle with rules made by the federal bureaucracies, rules that are often nonsensical where people live and work and play, rules governing the volume of water in our toilets, the content of our children’s food, the gasoline in our cars, the content of our communications, the form of our financial affairs, and many other elements of daily, personal life.  Even worse, they have become too vast and complex to be administered faithfully or complied with loyally. 

We could fault the executive branch bureaucrats who make them or the Congressmen and Senators who write the laws, but these people are no smarter or dumber than the rest of us, and just as well meaning.  They just have an impossible job.  No one can know enough to run so many things from Washington.

Consider the big issues that seem to have Washington all tied up in knots—in turn afflicting all the rest of us.  The new national healthcare systems are breaking down even as they get started.  National rules for farmers have Congress stuck over who should get subsidies and who should not.  National tax plans designed to take from some to give to others divide the people into winners and losers.  Environmental regulations impose costs on some in order to subsidize someone else.  National education programs follow each other in rapid succession, each with a new and high-sounding name, none of which do much to stem the continued decline in education.  And ever present with all of these national rules are unintended consequences that were not and probably could not be foreseen but which crush people’s businesses, destroy jobs, and disrupt lives.

These are all issues that the Founders never intended for the national government, issues that if governments should address at all should be left to State and local governments, where decisions can be made closer to the people who have to live with the results.

We have at hand a better, competent government, or at least its blueprint.  It is found in the structure of our Constitution that created a federal system.  Our Constitution is the recognition that only through a system that keeps governing as local as possible can a great nation exist in union and harmony.

What we are seeing play out before our very eyes is that our nation not only should not be governed by a central authority, but that it cannot be.  The sooner we recognize that and return to the federal plan of the Founders the happier, and the sooner Washington will be able to function as it should for the benefit of all rather than frustration for all.  The task is too big otherwise and doomed to failure.  It will not be a pleasant failure.

Filed under Barack Obama, bureaucracy, Congress, Constitution, deficit spending, economic growth, education, environmentalism, federalism, freedom, government, government spending, healthcare, House of Representatives, international relations, jobs, media, national defense, personal finance, personal responsibility, politics, rule of law, sanctity of contracts, Senate, statism, taxes, trade, unity, Washington, welfare

Of Hope and Just Getting By

October 23, 2013 Leave a comment

Working in Washington, D.C., and living in the D.C. suburbs as I do, I am fond of saying that I eagerly accept opportunities to get away from the Capital region and spend time in real America. That has always been a bit of an overgeneralization, expressing a usually correct but not unerring description. Washington is not real America, but there are parts of this nation that have already gotten ahead of where the smart people of Washington have been able to take the nation. Those places are not what I mean when I refer to real America.

Our large, industrial states are examples of misrule by those who assume that their ability and right to rule, and the inexhaustibility of the wealth of their cities and states, are given and immutable. Wrong on all assumptions. These states, once beacons of progress, growth, and development, are wastelands of decline: economic, social, moral, and even demographic. Millions of people—those who could—have been leaving these states for decades.

The recent bankruptcy of Detroit is a prominent symbol of where this misrule leads. At its prime a bustling metropolitan center approaching two million in population, Detroit has been steadily falling from its prime to a dilapidated city of barely 700,000 who remain to wonder where have the productive people gone, and what is to be the future?

I recently returned from spending several days in such a place, mixing with, talking with, associating in the daily lives of the ordinary people living there, people with whom I had lived as a wide-eyed teenager a generation before. I am not referring to the urban center of the state. The region I visited has been for 150 years a mixture of industrial and rural economies, and as I recalled, a happy mix. Now the villages and towns are actually smaller than in my youth and shrinking. The number of productive enterprises is fewer and those that remain, smaller. The schools have remarkably fewer students and struggle with how to keep their programs going with declining enrollments. The largest employers are the instruments of government welfare services—as well as a couple of new state prisons—and the local hospital network.

The people were friendly and pleasant, yet something did not feel right. I understand the wisdom that “you can never go home” if you expect to find all the same. I expected change. New technologies were present, hand-held electronic devices ubiquitous, a fair number of new cars, if not the foreign luxury models so common in Washington. It was not, though, a happy place of happy people. Why?

It was only near the end of my stay that I recognized the ailment. The region has become a land of small hope, particularly small hope of progress. People there were not living their lives to get ahead, to advance, to build a better future (I cannot recall seeing a single new house in the several days of my visit, though the dump north of town is working on its third mound). Most of the people in these formerly vibrant communities, with what I remember as bright expectations for the future, were now living their lives to get by, just to get by, to get on from day to day, holding on to what they have.

Taxes are high, so it is not easy to keep what you earn. Regulation makes it hard to do anything new. For those reasons, businesses have been leaving, and so have the talented youth. Talk with the people about their daily lives, and not long into the conversation the problems of wrestling with this or that regulation or working with some officious government apparatchik will come up. And yet so many of the people expect the solution to their problems to come from some new government program or service rather than from their own effort.

I say “most” of the people are so ailing. There are a few exceptions, and interesting ones. Two religious groups seem to be growing—and not the establishment churches, whose places of worship, grand and beautiful buildings, eloquently testify to bygone days of prosperity but now show signs of neglect. The two groups are the Latter-day Saints, whose Church was founded in the area nearly two hundred years ago and whose membership is growing steadily, and the Amish/Mennonites, who in recent years have moved in strong numbers to take advantage of neglected farm land. There are also some very prosperous farm businessmen, also gathering up land and putting it into obvious productivity. Finally, I would mention the growth of mini-wineries, although this latter movement seems after about 25 years to be approaching maturity.

Hope is an essential ingredient in happiness. Hope comes from the belief that a desirable future is attainable, so much so that it draws out extra effort to realize its promise. Genuine hope in your own effort can be contagious, and those who have it can help revive communities. You cannot do much to give hope without that personal effort, but hope comes naturally with that effort and the opportunity to keep the fruits of one’s efforts. Our nation’s founders were filled with hope and with it created the greatest nation on earth.

There is no hope, though, in just getting by. In the end, you cannot get by if getting by is all there is to your hope. No future there, only decline. For hundreds of years people have been leaving their lands where they struggled to get by and have been coming to America, to them a land of hope and the freedom that feeds hope. When I leave Washington to look for America, that is what I am looking for. I hope to find it ever.

(First published July 20, 2013)

Filed under abundant life, America, bureaucracy, civilization, economic growth, exceptionalism, freedom, future, government, hope, immigration, life, poverty, productivity, statism, taxes, Washington, wealth

Of Presidents and Training for the Job

October 22, 2013 Leave a comment

There are some jobs you just cannot safely do without proper training and experience. Flying an airplane is one that comes to mind. Driving a bus is another. I would put being President of the United States in the Twenty-First Century on the list, too.

President of the United States was a tough job in the days of George Washington. It was even a challenge in the days of Millard Fillmore. It has not become any easier in recent years, and next year it will be a very big job. Considering the global responsibilities of the United States, with several irresponsible oil-drunk regimes threatening peace and freedom (ours and other’s) around the world, can we afford to enroll our new President in a foreign policy on-the-job-training program?

Economically as well, there is little room for error. So far we have gone through a year and a half of the housing market bust without falling into a recession. But our economic growth is anemic. A small false step or two can put us into a full-blown economic decline, exploding banking and financial markets that will then take years to recover. It is important that economic policy next year be led by someone who understands economic growth and how to promote it. The formula for growth—low taxes and steady prices—is well known to those who have learned the lesson; we do not need a novice who does not have enough experience to know that you cannot tax and spend your way to prosperity. We cannot afford his experiments with our jobs and livelihood.

That is why it is breathtaking that a major political party is on the verge of nominating for President someone so inexperienced as Barack Obama. I am unable to recall a single nominee for President, by any major party, less prepared for the office than Barack Obama. Really, there is the challenge for you. Name a nominee—Republican, Democrat, Whig, Federalist—less prepared than Obama.

Barack Obama likes to liken himself to Abraham Lincoln. I cannot claim to have known Abraham Lincoln or assert that he was a friend of mine, but I do say, Barack Obama is no Abraham Lincoln. Even liberal exaggerations of Obama’s undistinguished career cannot make it compare favorably with the long and grueling life experiences that schooled Lincoln for the White House.

In short, Obama does not have the training for the job. It may be that the Democrats’ talent pool is so thin that he will be nominated. But the job of President is too important—to all of us—to be extended to someone so unready.

(First published August 25, 2008)

Filed under Abraham Lincoln, banking, Barack Obama, bubbles, deficit spending, economic depression, economic growth, elections, George Washington, inflation, interest rates, jobs, national security, recession, taxes

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