Of the Federal Reserve and Taking from Savers

Ben Bernanke has a blog. You can find it here, courtesy of the Brookings Institution. Of course, what would the former Chairman of the Federal Reserve Board write about, other than decisions he made as Chairman, and why people who take issue with them are wrong? One would expect no less, and reading the light he sheds on previous decisions—offered in Fedspspeak at the time that they were made—is surely the chief lure of Ben Bernanke’s blog. Allowed to communicate in regular English, not worried about how Fed Watchers might construe or misconstrue everything he says and does not say, Ben is more able to speak his mind clearly.

The former Fed Head chose for his first blog post a vigorous defense of price controls on interest rates. In the process Bernanke demonstrates the assumption that we are safe letting government economists control the economy—an assumption continually disproven by real-world experience.

In fact, as a result of entrusting much of our economic freedom in the United States to government economists, we do not have a free market for interest rates, at least not short term rates, and we pay for that every day. The Federal Reserve sets short term rates in this country, and so far the market has had zero success in moving rates from the near zero interest rate range that the Federal Reserve has decreed and maintained for some years. Keep that in mind the next time you wonder why you earned $1.73 in interest on your savings account last year.

If you borrow money—when you can get a loan—then you might consider yourself lucky. The biggest borrower of all, in the whole world, is the United States Government. Uncle Sam must be feeling very lucky, because he is paying comparatively little on the $18 trillion of U.S. Government debt, increased by another half trillion dollars last year.

If you save money, though, especially for your retirement—and if you have to live off of those savings in retirement—you might not feel so fortunate. By keeping interest rates lower than the market would set them, the Federal Reserve is daily transferring many billions of dollars from savers to the Federal Government. And you thought that only the IRS takes your money.

Let me illustrate with an example. For the last three months of 2014, all of the banks in the United States, all of them together, paid no more than $11 billion to people who had their money in banks. Is that a lot of money? It depends. When that is the interest paid on nearly $12 trillion in deposits, the answer is, no, that is not very much money at all.

Do not blame the banks, though. They are in the saving and lending business, too. Try as they might, with the Federal Reserve controlling interest rates, banks could not pay any more interest to depositors. If a bank did, it would have more money than it could lend as people shifted their deposits where they could get a better return. To pay interest on deposits, banks cannot get much more interest from the loans they make than the Federal Reserve price controls allow, and many relatively good loans present more repayment risk (banks do need to be paid back) than those low interest rates would cover. Low interest earned means low interest paid.

All the banks in the nation have a little over $15 trillion in loans and other assets, on which they earned last year about the same amount as they did five years ago, when they had $2 trillion less in loans and other assets. In an environment of low interest rates, banks have to concentrate their lending on the safest borrowers.

That is how the low interest rates controlled by the Federal Reserve are oppressing the economy. When savers and lenders can only get a few cents on a hundred dollars lent, they place their money with the very safest of borrowers, since they cannot afford to take any losses. Someone who has a really good idea—which like all good ideas may or may not succeed the first time—has trouble getting the money to give his idea a go and hire people to help him try.

Ben Bernanke claims that the Federal Reserve’s near zero interest rate policy—called ZIRP—has been stimulating the economy. If so, where is the stimulation? Why has the recovery been so weak? There has been stimulus, but it has gone primarily to support Federal Government spending and to pay down the debt of the largest and healthiest businesses that can trade in their higher cost loans for the Federal Reserve’s lending bargains. The biggest increases in bank loans have been in Treasury debt and deposits at the Federal Reserve.

Ben Bernanke, in his blog, reminds me of the story of the lawyer representing a client charged with stealing a car and returning it damaged. The lawyer says, first, that his client never had the car; second, that he returned it in perfect condition; and, third, that it was already irreparably damaged when his client took it.

Bernanke begins by explaining that the Federal Reserve does not set interest rates, or that at most its ability to do so is only “transitory and limited.” He pleads that the Fed can only affect short term rates “in the short run.” He does not explain how seven years of ZIRP can be considered the short run. Then he progresses in his blog to describe how the Federal Reserve “influences” interest rates and then how the “Fed’s actions determine” interest rates. His argument, after denying that the Fed can set rates, is that the economy has been so weak that the Fed has had to lower interest rates for the nation’s own good. Bernanke next argues that the economy has remained so troubled (he does not say, despite ZIRP) that the Federal Reserve has had no choice but to continue with ZIRP, concluding that it is the economy after all the forces the Fed to do what it does. Do not blame the Fed Governors, they had no choice but to continue doing what they cannot do because it has not done any good so far. I think you need to have a Ph.D. in economics to make such an argument.

We cannot do it, we did what we had to do, and since it has not helped we cannot stop. I wonder how he reacted to those kind of explanations from his teenagers. Any responsible parent would reply, no, you cannot have the car, give me back the keys.

Of Banks and Over Taxed Regulators

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.

Of the Soviet Union and the European Union

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.

Of Incentives and Jobs

Remember the early days of the recession and its intensification by the policies of Washington? Remember how the politics of envy ended up causing more job losses as the demagogues in the White House and on Capitol Hill lambasted incentives employers offered to successful employees? Good thing that the politics of envy are now behind us, that we have all grown up and recognized how foolish it all is to feel better by pulling other people down. Then again, maybe my blog post from 2009 still has some relevance today.

Weird things happen when we decide by law who should have jobs and who should not and we order how people and businesses should spend money. I am not referring to the legality of telling people who receive money from the government how to live their lives and run their businesses. I am referring to the wisdom of it. And by “weird” I really mean “bad.”

On Friday a press release came across my desk, issued by seven travel-meeting-event industry trade associations. Their basic message was that the public beating up of companies over the meetings they hold and the incentive programs that they have for employees is killing the travel, tourism, and meeting industry and the people who work in it. They estimate that 200,000 jobs were lost in that industry in 2008, and a larger number of job losses are predicted for 2009.

Even the old communist governments figured out that workers respond to incentives. Under the power of incentives people work harder, smarter, and more creatively. They may even enjoy their work more. Sometimes incentives that take the employee out of the normal routine can be very powerful. If left to their own devices, businesses will experiment with different packages of incentives to guide their employees into the most efficient ways to accomplish company goals and objectives. Will they get it right? Often they will not. When they get it wrong, they try something else.

What is the best set of incentives, and should the incentives include travel and recreation programs? I do not know, and neither do you. No one has enough information, smarts, or involvement to know. You may know what works for you, but are you willing to say that others should be offered the same rewards or that you should be given the same incentive program designed by someone somewhere else or in some other line of work? Everyone meeting company goals gets a set of golf clubs. That may work fine for Harry, but how about for you?

While it may be lots of fun to rant about businesses sending employees to Florida for a weekend, do we have any idea how that might figure into the incentive programs in those businesses? If you take that option away, what other option will work as well or as efficiently? Again, I do not know, and neither do you.

Up until recently, I did not have to know or pretend to know. We left it for businesses and their employees to figure out. In view of the efficiency of our businesses–which efficiency continued to improve and lead the world even in 2008–American businesses have been getting the incentives much more right than wrong. When we decide to make those decisions for other people, especially when we try do so through government force, we can be pretty sure we will get it wrong. Who wants to explain to the 200,000 travel and tourism industry people who are in danger of losing their jobs why businesses should not be holding meetings in Williamsburg or San Antonio or Nashville? Step up now; a frozen turkey if you get it right.

(First published February 8, 2009)

Of the Rule of Law and the Separation of Powers

In the 1990s I was part of a congressional delegation to Argentina. At that time the Argentine economy was growing strongly and steadily, inflation was low, the currency was pegged to the dollar, convertible 1-for-1. Trade barriers were being lowered, commerce was booming. I recall asking Argentines what could possibly darken what seemed to be a very bright future. They were quick to reply: “Here in Argentina we have no rule of law. You can have no confidence in getting justice from the courts.”

That reminded me of Washington Irving’s observation on a European judge, from his famous work, The Alhambra:

It could not be denied, however, that he set a high value upon justice, for he sold it at its weight in gold.

Not long after that visit, the politics of income redistribution and confiscation threw the Argentine economy into turmoil, where it has remained.

I recently spoke with an economist friend of mine, who was waxing eloquent about the attractive monetary and tax policies in Bulgaria. I remarked that this would probably invite foreign investment. He replied, “No, there is no rule of law there.”

The point is that good economic policy cannot long survive inadequate legal safeguards. Many businesses that made major investments in China, attracted by a market of a billion people, have learned that the lack of a reliable legal and justice system in China has undermined much of the business value they thought to find. A similar story has been holding back investment and economic development in Russia.

Bringing that home, I would venture that concern for changing rules (or even lack of rules)—the substitution of arbitrary bureaucratic powers in Washington over objective rule of law—has been inhibiting more robust investment in the United States, a major cause for our current anemic economic recovery.

An ancient king in the Western Hemisphere, named Mosiah, warned, “because all men are not just it is not expedient that ye should have a king or kings to rule over you.” (Mosiah 29:16) Because men are not consistently just, freedom has historically rested upon rule by law rather than rule by men.

Fundamentally, that was the very reason for the American Revolution. Our revolution was based on the rule of law, an assertion of the rule of law, a response to violations of the rule of law by the English king and parliament. Most of the Declaration of Independence is a lengthy litany of violations of law by the English rulers. The Revolution was designed to take power away from man and men and rest it upon laws and rights, soon to be secured by a written supreme law embodied in the Constitution. Any erosion in the force and effect of the Constitution is an erosion of the rule of law and of the freedoms that rely upon law for their defense.

The Progressive Movement that thrived about a century ago, and found a major advocate in the federal government in President Woodrow Wilson, aggressively proposed an alternative to the rule of law. This program was the Rule of Experts. Their new view—and it really was a very old view though they dressed it up in modern-sounding rhetoric—was that there are Benign People, Experts, who know the process of modern government better than most people do, to whom we can safely yield governing authorities.

It sounds akin to the ancient theory of Divine Right of Kings, that the monarchs of the world are chosen by God and endowed with greater wisdom and perspective than the average man and woman. To their benign expertise and fatherly care was to be entrusted the governance of the rest of us.

The modern Rule of Experts people have much the same view, that these experts were endowed by their universities and other sources of expertise with ability far above that of most, and it would be wise to trust ourselves to their benign care. Not very democratic, and in fact these Benign Experts make no secret of their impatience with the Congress and other constitutional brakes on arbitrary authority.

As King Mosiah wisely pointed out that men are not always just, it is also appropriate to recognize that putting men in government does not make them any more reliably wise than the rest of us. The American Founders thought to address this problem by dividing political power among not only three branches in the Federal Government but also by embracing the federal system of dividing government with the States.

The current regulatory structure and program of the United States rest heavily on the idea that Benign Experts should be entrusted with authority for many of the big questions facing Americans and for many of the much smaller questions, too. That is certainly the structure of the Dodd-Frank Act, to offer one recent, prominent example among many.

Charles Calomiris, of the Columbia University business school, described the theory of the Dodd-Frank Act and related regulations this way:

The implicit theory behind these sorts of initiatives, to the extent that there is a theory, is that the recent crisis happened because regulatory standards were not quite complex enough, because the extensive discretionary authority of bank supervisors was not great enough, and because rules and regulations prohibiting or discouraging specific practices were not sufficiently extensive.
(Charles W. Calomiris, “Meaningful Banking Reform and Why it Is so Unlikely,” VoxEU, January 8, 2013)

This program of federal regulation has been imposed increasingly in contravention of the basic constitutional principle of separation of powers, by merging legislative, executive, and judicial authority in “independent” regulatory agencies. The unelected federal regulator today decides the details and specifics of binding mandates, identifies violators of those regulations, assesses guilt, and applies penalties.

Taken together our current regulatory system, by merging rather than maintaining the separation of powers of the Constitution, is eroding the rule of law. It is returning us to the age old practice of rule by men, with all of the potential for abuse of rights and freedoms, abuses that fill up most of the sadder pages of human history.

During the debate over the creation of the new financial consumer Bureau, Senate Banking Committee Chairman Dodd boasted that with this new agency people would no longer have to come to Congress for the enactment of new consumer laws. The Bureau would take care of all that.

There are serious operational flaws—too often overlooked—in the program of governance by Benign Experts. First, the regulators are not dispassionate umpires, limited to calling the balls and strikes. These umpires are also players in the game, the federal agencies each having their own set of particular interests and incentives that they take care of first.

Second, reliance on Benign Experts assumes an unproven, undemonstrated level of knowledge, insight, and forecasting skills. AEI President Arthur Brooks, in his book, The Battle, provides one of many examples of this flaw:

Federal Reserve economists were still forecasting significant positive growth and moderate unemployment in May and June 2008. They believed that economic growth in 2009 would be 2.4 percent, and unemployment would be 5.5 percent. What we experienced instead was negative growth, double-digit unemployment, and the destruction of at least $50 trillion in worldwide wealth. No one can get the numbers exactly right, to be sure. But getting them this much wrong certainly lends a whole new meaning to the expression ‘margin of error.’
(Arthur C. Brooks, The Battle, p.46)

It is not that regulators are dumber than the rest of the population, but they are no smarter either. The regulatory problems are increasingly too great for any designated group of humans to solve.

Third flaw, mission creep: power attracts power. Even if the tasks are too great, require too much knowledge, insight, foresight, and other skills in unachievable degree, the regulators still take them on, especially if the task increases the reach and influence of the agency.

I offer two examples from an example-rich environment.

Basel III capital rules started from a simple idea, that banks all around the world should be subject to the same capital standards. Capital (the financial cushion a bank carries against losses) is one of the three key elements of sound banking, the other two being liquidity and earnings. These international rules did not remain simple. Developed by an international team of experts from around the world, who labored on them for years, the rules number hundreds of pages, affecting the entire financial structure and business model of a bank, any bank. Congress was not involved and has no particular role in approving the rules. When exposed to public review they attracted thousands of comment letters expressing dismay that they are a bad fit for the U.S. economy. In the end, though, the regulators can go ahead with what they alone think is best.

A second example would be the Federal Reserve. One hundred years ago this year the Fed was created with a specific, identifiable, and rather narrow purpose, to provide liquidity for the banking system in times of financial stress. Before long, the Federal Reserve gained control of monetary policy and built up the practice of controlling interest rates. Later, it was given the task of promoting maximum employment. Under Dodd-Frank the Federal Reserve’s role in supervising banks and bank holding companies was expanded to supervising any financial business considered to be significant for financial stability. Each of these powers has drawn the Federal Reserve away from its narrow, objective task, to broad fields of subjective authority.

Perversely, this expansion of authority into more judgmental areas is eroding the independence of the Federal Reserve, making it yet one more political player in Washington, with responsibilities that far exceed human ability to fulfill, but which reach to every business and every home. The Fed’s prolonged policy of keeping short-term interest rates at or about zero has penalized all who save and live off of their savings, transferring trillions of dollars from savers to borrowers, the biggest borrower being the Federal Government, a policy decided by a small group of Washington experts.

I offer a partial but simple solution to point us back toward strengthening the rule of law and reducing our exposure to the rule of man and men, however expert they might be. Return the lawmaking and the policy decisions to the elected representatives. It is a messy process, but exactly the messy process that the Founders intended to preserve freedom from the encroachment of arbitrary and oppressive government. The regulators, which are theoretically part of the executive branch, should be left with the duty of implementing the laws and policy decisions that the elected and accountable representatives make.

If Congress were required to write the rules and mandates and delegate to the executive agencies only the execution, the mandates of government would be circumscribed by the limitations of a legislative body forced to be directly accountable for what it has wrought. It is easy for legislators to complain about bad regulatory decisions, when all too often these are decisions that Congress never should have delegated to regulators in the first place.

We would still have laws and regulations, but the laws might be more direct and specific, and perhaps fewer and surely smaller. We would probably not have Dodd-Frank Acts that number thousands of pages read by no congressman or Senator, containing a cacophony of half-baked ideas and multiple solutions to the same problem, all left for the regulators to sort out.

And legislators might recall this caution, from Thomas Paine:

Laws difficult to be executed cannot be generally good.
(Thomas Paine, The Rights of Man)

(First published February 17, 2013)

Of Self Determination and Carving Up the World

Woodrow Wilson unleashed some nasty asps of public policy on the world, the venom of which continues to work its misery on mankind. Professor Wilson as President pushed into practice the idea that American governance should be shifted from the people who elect Senators and representatives and entrusted instead to a cadre of wise men in the executive branch. Experts like himself, elite college professors and their best students, would know better how to manage the affairs of others than would the teaming masses of the nation left to make their own decisions.

Today, thousands of regulations, uncounted yards of red tape, and millions of bureaucrats later, we all live within a shrinking sphere of personal liberty, with diminishing control of our lives, permitted to make few decisions without someone we do not know having a major say in so much of what we have and do. Increasing numbers of our neighbors have effectively been rendered wards of the state, unable to manage their own lives without dependence upon a myriad of government programs that punish individual initiative and grind up families. Today, the most reliable predictor of poverty in America is being a single mother. Lured into the web of sweet-sounding sticky federal, state, and even local programs that promise help, these government victims are rarely delivered from poverty, and neither are their children or their grandchildren. This is surely not what Woodrow Wilson intended, but it is surely what his model of governance by experts has delivered. Obamacare is one of the most recent and obvious examples of this machinery of misery.

Yet it can be argued that nothing that Woodrow Wilson bequeathed has worked more harm than the destructive principle of “self determination,” imposed by Wilson and his international experimenters at the negotiations to rearrange the world after World War I. Of course, he did not act alone, but Wilson did much to make the world safe for World War II. Self determination worked its evil by institutionalizing perpetual turmoil in eastern Europe and the Balkans, as bickering and unstable micro-states created a power vacuum tempting for fuehrers and commissars to fill.

The concept of self determination can seem appealing as long as you do not pause long enough to consider how it might actually play out in practice and over time. The basic idea—and it does not go very far past this basic idea—is that every group of people has the right to find its own place in the sun, either with its own government or subject to another, whichever the group might wish.

It was this idea that Russian boss Vladimir Putin invoked to cloak his grab of Crimea. The people of Crimea had a vote (carefully monitored by Russian troops) in which over 95% said that they wanted to break away from Ukraine. And then they decided, almost the next day, that they wanted to become a part of Russia. According to the Russian Government, this was all very legal and in keeping with international law. It was self determination. Who could object? It was more than faintly reminiscent of the nearly unanimous votes in the nations of eastern Europe a generation ago—when occupied by the Red Army—in favor of communist regimes closely allied with the old Soviet Union. More self determination.

I wonder whether Professor/President Woodrow Wilson thought of how his principle of self determination would have worked in American history? What if Wilson instead of Lincoln had been President in 1861? Did self determination apply to the people of the southern states who wished to leave the Union?

I also wonder how dedicated Vladimir Putin really is to the principle of self determination? If it applies to Crimea, does it also apply to the people of Chechnya, who seem to be eager to be out of Russia? Are there other minority populations in Russia yearning to breathe free?

How about elsewhere in the world? Is self determination a universal principle worthy of universal application? Are Turkey, Syria, Iraq, and Iran ready to let the Kurdish minorities carve up their countries and realize their dream of a new Kurdistan? How about Muslim minorities in southern islands of the Philippines? The Tamil populated northern Sri Lanka? The Sunni-majority communities in Shiite majority Iraq? The multitude of tribal groupings in virtually every country of sub-Saharan Africa? Are all of the many minorities of China content with being governed by Beijing?

When would the bloodletting of self determination ever end? It has not ended yet, whether used as a justification for aggression or as a means of sustaining discontent. It is a ponderous legacy.

Of Obama and Ethelred the Unready

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)

Of Plumber Joe and Community Organizer Barry

I first published this before the 2008 presidential election. In the years since, President Obama’s community organizer background has faithfully exerted itself.

It took a real life example to give life to the key difference between the two candidates for president. When Plumber Joe met Barack Obama campaigning in his neighborhood, Joe asked the would-be president, why do you want to tax my small business? Actually, more precisely, Joe wants to buy the plumbing business he has worked at, and Obama wants to raise taxes on it, and Joe asked Obama, why? At first, Obama equivocated and mumbled something about getting some tax breaks to offset the tax hikes. When Joe refused to buy into that sleight of hand trick, Obama fessed up. Obama admitted that he wanted to spread the wealth around. In other words, he said that Joe would be making too much money, so Obama wanted to take from him and give to someone else.

Why would Obama want to do that? Because, unlike Plumber Joe, who has a real job, Obama’s career experience came as a “community organizer” (when he was known in Chicago as Barry). Taking money from people and giving it to others is what community organizers do. Barry the Community Organizer now wants to organize a big community, of over 300 million people, and he wants to keep spreading the wealth around. Community organizers like to do that, because they like to get the credit for being compassionate and generous, compassionate and generous handing out other people’s money.

Joe has worked hard as a plumber. Joe has saved and prospered. Now Joe wants to own his own business and provide work for other employees. The employees, these plumbers, would provide plumbing services and get paid by their customers. Barack Obama wants to take some of that money—O.K., a lot of that money—and spread it around to people who would get their money from Barack, people who have not been as “lucky” as Plumber Joe.

Lucky? My guess is that it was not luck that made Joe work hard over the years and save his money to be in a position to own a business and provide real jobs to other people. Under a President Obama, Joe and others like him would become unlucky.

John McCain has been trying to point out for weeks that the change offered by Barack Obama is a big time return to the tired old tax and spend politics of the big government politicians. John McCain is not the most eloquent campaigner, and the mass media has been doing its best to bury his message anyway. McCain finally found a real life example, and that is the most eloquent statement of all. At the last national debate, on a stage that the mass media could not ignore, McCain introduced us to Joe the Plumber (who by the way did not ask for all the attention and is a bit embarrassed by it), and McCain asked, why raise his taxes? Why raise anybody’s taxes going into an economic downturn?

If you do not raise the taxes, you cannot keep spending other people’s money and winning praise for your compassion and generosity. And that is the point of this election.

(First published October 16, 2008)

Of Demagogues and Big Problems

One of the common tricks of demagogues, as cheap as it is common, is to denounce in high dander something for being “Big,”—“bad” because it is “Big.” Some of the recent targets have been Big Banks, Big Pharma (the drug companies), Big Oil, Big Insurance, and Big Business in general. The target is apparently chosen for its relation to the prescription that the demagogue already has in mind. Invariably the prescription involves granting more power to the demagogue, sometimes ceded from the freedoms of the targeted Big, but not infrequently taken from the liberty of the people who are somehow harmed by the Big, who are to be somehow made better by being less free.

Obamacare is one example, Big Insurance, Big Pharma, and Big Medicine all denounced to some degree in the effort to generate popular support to pass the legislation. In the end, as more and more people are recognizing, it is individual choice that has been lost, personal freedoms to choose doctors, medical plans, and available treatments (along with substantial sums of money) that have been taken, passed on to big bureaucracies identified by the demagogues.

Demagogues on left and right and even in the middle resort to this device of denouncing Big Bad, because it resonates with many people who do not consider themselves “Big” anything. We all can feel intimidated by something in our lives and experiences bigger than ourselves, making us all potentially susceptible to the demagogue’s pandering. It is also a favorite device of demagogues, because it does not require much thought or creativity to make the anti-Big speech. It seems almost required that the demagogue at some point refer to the Big Target as “Goliath” and modestly identify himself or herself with “David.” That tired jape is now getting to be about 3,000 years old, but demagogues think that their audiences just cannot get enough of it.

To be sure, there are some cases where being big is a good thing and some things that can be too big to be good. It all has to do with why they are big and perhaps how they got that way. Big savings are usually good. The Grand Canyon is big and magnificent, and I would say that the Empire StateBuilding is, too, at least as I behold it. On the other hand, big debts are to be avoided, big pits can be dangerous, and the L Tower in Toronto is an eyesore in my estimation (though I will acknowledge that others could be fond of it).

Government can be too big or too small, depending on what it does with our rights and freedoms. There are governments too small to promote and protect freedom, while there are many—most—that are too big, and ever increasing at the expense of individual rights, freedoms, and opportunities. That includes governments that are big enough to help their cronies become bigger by robbing the competition and the public. Businesses that are big because of government favor would be better for everyone if they lost the government favor and let competition, efficiency, and customer choices determine how big they should be.

Some are just big because they grew that way. Is Microsoft or Apple too big? I do not know, and neither do you. Exposed to the full discipline of the free market they will be the right size, and so will their competitors. What is the right size for banks in the United States? I do not know, and again neither do you nor does anyone else. The more that they are exposed to market forces, the sooner we will get the best answer, which I expect will be along the lines of “many sizes and shapes” in order to match the many sizes and shapes and needs of businesses, families, and individuals who rely on banks for financial services. Free competition in open markets has the power to right size commercial enterprises.

A word of caution. Part of the success of the war on Big consists in making the listeners feel small and helpless—unless rescued and led by the fearless demagogue. Besides belittling most people, the demagogue’s device diverts attention from the fact that just about everyone is part of something Big, a Big that may eventually be the demagogue’s next target. Maybe your church will one day be considered too “Big.” Or maybe the industry in which you happen to work will become a “Big” target, the town or region where you live, your race or your ethnic group, your savings and investments, the cars or trucks that you drive, your appetite, your use of water, the size of the lot of your house, the wealth of your nation. All of these, and many others, have already been used by demagogues in their Big harangues. The demagogue’s insatiable appetite for power never has enough targets. He or she is always looking for more.

Sometimes there is a kernel of something genuinely amiss in the demagogue’s Big complaint. Often, when you boil down the genuine substance of any of the complaints to the hard facts, it is hard to discover what is the Big Deal—at least in the problem. The Big Deal is to be found in the solution, which is what the demagogue is really after. Were the Popes in Rome really controlling the lives and governments of England in the time of Henry VIII? No, but the solution of confiscating Catholic Church properties and awarding them to the King’s cronies was a very Big Deal. The Nazi demagogues in Germany played the same game with their own people, the German Jews, and with their property and possessions.

The demagogue’s solutions, resting upon emotion and panic, seldom solve anything and often lead to more problems. The Climate Wars—one year the coming ice age, the next year global warming, today just climate “change”—is an example we have all seen unfold, inflicting untold billions of dollars of costs while enriching favored cronies, but which in even the most enthusiastic promises of the demagogues will do little to affect the climate in reality in our lifetimes.

The next time you hear a public figure fume about something being Big, carefully inquire into and focus upon what he or she is after. You may be a target just Big enough.

Of Elections and Consequences

I wrote the following just a few days before Barack Obama was first elected President, in 2008. I am tempted, reading it 5 years later, to congratulate myself on how insightful I was, but, frankly, Obama’s policies were so old and tried and failed, that he made it easy. See for yourself:

Elections have consequences, real, life-affecting consequences. One of the more unfortunate aspects of the mass media attitude toward elections is their approach to them as if they were some kind of game. The running score that they keep of the latest polls, their up-to-date electoral college count, the fixation on who “won” the latest debate, all demonstrate a sentiment that the election is some kind of sporting event, where we all root for one side or another, and when the game is won and the season is over we all go back to business as usual. That is not only wrong, it is dangerous.

After the election in November is over, it will not be back to business as usual. America’s standard of living, our economic welfare, our health, safety, and national security will all be affected. Electing Jimmy Carter meant economic and social malaise, it meant the loss of allies in several parts of the world, it meant civil war in Central America and the rise to power of the Ayatollahs in Iran. It meant a toxic economic brew of high unemployment, high inflation, and high interest rates. It meant increased crime in our cities. It meant an underpaid and undersupplied military, with Navy ships coming into harbor trading ammunition with those leaving port because there was not enough ammunition to go around.

Barack Obama is not quite as good or experienced as Jimmy Carter. His leading economic proposal is a whopping tax in the face of an economic downturn. Presidents Hoover and Roosevelt tried that in the 1930s, which turned a recession into the Great Depression. And Obama lies about his tax increase. He lies that it would not affect 95% of the population. The severe recession that it would cause will affect everyone, even the non-tax payers who are promised a tax cut by Obama.

Obama’s plan for a camouflaged government take over of health care will mean that health services will be provided with the same efficiency of the U.S. Postal Service. That means that sick people will have reduced access to medical services. It means that incentives to develop new medicines and new treatments will melt away. If government runs health care, as Obama wants, that means that political muscle will determine health care priorities rather than patient demand setting the priorities.

Obama’s foreign policies are right out of the Jimmy Carter briefing book. That means betrayal of our friends, appeasement of our enemies, and adventurous use of the military in places and causes that mean little to the national security of the United States. It means preparation always for some other war but inadequate commitment to fight the war we are in (he’s eager to send more troops into Afghanistan, but unwilling to win the war in Iraq). It means further design of the next weapons system, but never deployment of it, a return to starving our military of what it needs to do the job with least loss of life and maximum success. It means that the most important issues for the Obama military will be social engineering of the armed forces rather than a focus on their increased effectiveness and efficiency.

Voting in a republic like the United States is a serious matter. It is not a game. It means far more than bragging rights over whether our team won the World Series. It means that we are responsible for our electoral choices, with a full understanding that the people we elect will mean a difference in our lives and the lives of our families. It is a truism that people get the government they deserve. I firmly hope and believe that the American people deserve better than Obama. I know that my children do.

(First published October 5, 2008)

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