Of the Federal Reserve and Dreams of Success

 

Photo by Tyler B on Unsplash

It may be easy, but I think unfair, to fault the Governors of the Federal Reserve System.  Their task is more than they can handle, and yet they are required to do it.  More accurately, I should say that their tasks are more than they can handle, and yet they are required to do them.

When the Fed was created, more than a century ago, a big concern was that it would be dominated by the financiers of New York and the politicians of Washington.  Hence, rather than a central bank, it was born as a system of a dozen regional banks, with a limited focus, to offset the liquidity risk inherent in banking.

Over time the Fed has not stayed that way.  Today, the Federal Reserve is effectively the biggest bank in the world.  Financiers in New York have an outsized influence, but the influence of the politicians in Washington may be greater.  Otherwise, how could a federal republic tolerate a handful of people at a single agency having so much sway over the daily lives and future prosperity of the individuals, families, communities, and businesses in the 50 States of the Union?  Accountability to the elected cannot long be withheld.

A great problem has been that the elected do not refrain from giving the Fed more things to do.  Its one first task has lost its focus by becoming three.  By law, the members of the Board, joined by the presidents of the 12 Fed banks, are to conduct themselves “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

What if they cannot succeed?  Then we fault them for failures while still pretending that they can.  We hide the goal posts in fog.  What is “maximum employment”?  Can it be today’s 62% of the adult population when we began the 21^st Century at 67%?  What are “stable prices”?  Does “stable” mean that the price of food tomorrow will be the same price it is today, or is “stable” the Fed’s official goal that things will cost 2% more each year, so that my young son’s retirement will require nearly twice as much as mine does?  Then there is the third, often forgotten requirement, that interest rates be “moderate.”  For 10 years the Fed kept quiet about that legal mandate, keeping interest rates very close to zero, a huge transfer of wealth from savers to borrowers, Uncle Sam being the world’s biggest borrower.  Is it surprising that the federal government’s debt grew during those 10 years to $30 trillion and still swelling?

What is the Fed to do?  We cannot reproach its current team, because they cannot succeed.  No government agency, regardless of excellent economists and the best computers, can manage it all.  If you read the statements, they carefully admit, essentially, “we don’t know how to succeed, but the law says we have to do something, so we will try this and that and see how it goes.”

Meanwhile, it has not been going so well.  To paraphrase liberally from psychiatrist Anthony Daniels, we should not be so beguiled by the dreamy tasks we have placed on the Fed that we cannot bear to lighten the load merely because it is not working.  

Of More Money and Higher Prices

 

Photo by Shane on Unsplash

We have a new occupant of the Oval Office.  I did not hear his inaugural address, uncertain who would forget it more quickly, myself or its deliverer.  Inaugural addresses are highly forgettable literature, Lincoln’s first and second addresses (the second especially) the only ones that anyone can seem to remember, and worthy they are as exceptions to the genre.

I have been remembering the mountains of money that the government has been spending that it does not have, wondering where it is coming from even more than where it is going.  It is hard to find anyone who can tell you much with certainty about either.  The current attention is more focused on plans to spend yet another two trillion dollars that the government does not have on things that are not very clearly explained.  This would be on top of the most recent trillion dollars approved by Congress drawn from an empty well to be spent watering many a hidden garden.

I can understand the first round or two of multi-trillion dollar government expenditures.  Since government caused the collapse of a strongly growing economy by shutting down commerce and locking up the population, a strong argument can be made that paying these victims is not exactly a bailout as it is compensation.  To quote Will Rogers, if Stupidity got us into this mess, then why can’t it get us out? 

A serious problem seems to be that once you get into the game of paying people more to stay at home than they can earn on the job, how do you bring the game to an end.  The plan of the new Oval Office occupant seems to be to go into extra innings but continue serving spiritous refreshments well past the seventh inning.  How will the people get home safely once the game is over?

The classic formula for inflation is to have too much money chasing too few goods and services.  The kindling for a roaring inflation would appear to be carefully set. The Treasury and the Federal Reserve have been dramatically expanding the money supply, with the Federal Reserve supporting the market for the government’s electronic debt (not much money is printed on paper anymore) by purchasing gobs of Treasury securities from banks, paying the banks with electronic credits on their accounts held at the Federal Reserve, which the banks cannot find much to do with.  At the same time, many governors continue to issue orders to suppress the supply of goods and services.  As Elon Musk reportedly said last year, if you don't make stuff, there is no stuff.

If this worry is well-founded, then why have we not yet seen any inflation, government spending surges and the Great Cessation having been Federal and State policies for nearly a year?  A very good question, the answer to which may be found in the savings rate.  While a lot of electronic money has been going into people’s bank accounts, people have been shy about spending it.  The personal savings rate jumped in 2020 from about 7% to nearly 35%.  Worried people hoard more than toilet paper.  And a lot of things that people might spend money on, such as travel, suddenly were not available.  I was surprised last year when our car insurance company sent us a rebate:  insurance losses were down because people were traveling less.

The roads are a bit more congested these days, and the economy is showing strong signs of trying to recover.  Even the savings rate is coming down, dropping to about 13% as 2020 approached its close.  More activity is good, but what is the Federal Reserve going to do if more people spend more savings faster than more goods and services are provided?  How will the Federal Reserve respond to another couple trillion dollars of deficit spending to stimulate an economy that is already on a recovery trajectory and families continue draining their savings?  They could allow interest rates to rise, to encourage people to keep some of their money in savings accounts that have paid less than a penny a year per dollar saved.  Recent Federal Reserve comments, though, declare that is not on the table.

In the late 1970s, when Jimmy Carter was president, economists invented the term “stagflation,” as inflation was high and the economy was in the doldrums.  Joe Biden was a relatively new Senator back then.  Maybe he will remember those days.  That economic pattern served no one well.

Of Dysfunction and Governing the Nation

It seems that no more evidence is needed. The establishment press, normally loath 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.

(First published October 27, 2013)

Of Financial Crisis and Hopes for Better

Sitting by the hearth on a Sunday afternoon, comfortable and cozy, while the winter winds blow, it is easy to ponder how the changing of the year has come to be a time for leaving behind the failings of the past and embracing hopes for better in the future.  I reflect upon the general healthy recognition at this time that happiness in the new year is to some important degree connected with our own personal performance.  Success is not so much the luck of what happens to us as the result of what we do, hence our natural determinations to resolve to do better in some way or another.

Within a few weeks—or even a few days—many of us overcome such thoughts, abandon our resolutions to do better, and settle back into familiar patterns, including the narcotic belief that what happens to us is largely a matter of fate and fortune and little related to our efforts and actions.  Successful people are seen as more “fortunate” than others, who somehow owe something to the “less fortunate,” especially if we consider ourselves among the “less fortunate.”  How else could rational people conjure up the palpably false claim that it is fair to demand and take the property of more successful people and give it to those who have done little or nothing to earn it, who in fact have in many ways squandered their wealth and opportunities for success?

Had we as a nation embraced the principle that what a man or woman earns is his or hers to use or keep or share as he or she wishes, we would have avoided the weeks-long political soap opera called “the fiscal cliff.”  The misleading story proffered by the institutional media is that our nation is on the edge of economic calamity because Congress—meaning by implication the Republicans in the Congress—is unwilling to do its job.  In fact, there are important fundamental principles at the heart of the disagreement between congressional Republicans and President Obama, namely whether cutting government spending—mostly government give away programs—should be postponed by raising taxes on the “wealthy” and independent businesses, and moreover whether raising any taxes on a weak economy makes economic sense.  There is a growing gap in views over these principles.  But for the national cult of coveting there would not be one, but there is, and sooner or later it will be too wide to bridge.

Without this disagreement, we would address excessive government spending the same way that families do.  Families that spend more than they earn will either borrow (within their means to support debt), reduce spending, or earn more, or some combination of these.  Our government has almost exclusively relied upon borrowing (beyond our ability to support it without foreign help), has increased its spending, and has “earned” less. 

On this last point, keep in mind that governments do not earn anything; people do.  Governments take what people earn.  Government policies over the years have reduced economic growth below the growth of government, inhibiting the ability of people to earn, which in turn undermines what our government can afford.  This trend has not been getting any better and has brought us to economic crisis.  A refocus on economic growth, not government growth, is what is needed, but there lies the disagreement in Washington.

In that context, I take advantage of the year-end season of better rationality—however brief—to propose that the bells we sound for the new year ring out the old and destructive coveting for the fruits of others’ labors and ring in the determination to improve our own condition by our own labors.  I propose that for you and for me and for our society as a whole we commit to rely more upon ourselves and to unleash our creative powers for growth and prosperity.  In the same way we will increase our ability and willingness to help others, but we will do so as a healthy exercise of our free will.  Government cannot be generous, for there is no generosity in distributing other people’s money.  But the individual people who make up society can and will open their hands to those around them, as Americans have more than any other people for more than two centuries.  More productive ourselves, we will have more means to share and better judgment about how to share it—ennobling to ourselves and to those we choose to aid.

Of Taxes and the Tenth Commandment

It may be a commonplace to comment on popular culture’s war on the Ten Commandments, but it merits the effort.  At best they are treated in Hollywood and other secular Zions of pop culture as the Ten Old Fashioned Ideas.  Undeniably, Moses was after all just another one of those old white men, whom many with public microphones wish would fade from the contemporary scene (as long as they keep paying the bills).

Yet there seems to linger in the hearts and minds of most people in America who are not cultural trend setters an enduring if vague respect for Ten Commandment concepts such as the preeminence of God, the duties to parents, abhorrence of murder, the value of marriage covenants, the evils of theft, and that telling the truth is still better than lying.  These are basic concepts that even children have little trouble understanding.

I must confess, however, that as a child I had difficulty understanding the tenth commandment, “Thou shalt not covet” (Exodus 20:17).  “Covet” is not a word much found in a child’s vocabulary, or in anyone else’s for that matter.  It required explaining to me.  Then it was not overly hard to take in as an idea.  I did wonder, though, why it had an exalted place with the other nine commandments.  The gravity of theft, murder, blasphemy, lying, not going to Church on Sunday, and even dishonoring parents I could sense as a child, but why make such a big deal about coveting?  Very bad things happen from breaking those other commandments.  Sure, coveting, as explained to me, led to other sins, such as stealing, murder, lying and the rest, but where was the great evil in the thing itself?  You could go to jail for breaking some of the other Ten Commandments, and you certainly were on the high road to hell if you did.  Coveting might make you feel unhappy or dislike someone who had something you wanted—not good, but was it really so bad?

I have come to learn, with time and experience, that the answer is, Yes, it is very bad.  The Ten Commandments address, first, our relationship with God; second, our relationship with family; and finally our relationship with our neighbors and in the communities where we live.  Coveting is a powerful corrosive acid in community relationships.  It dissolves kindness and respect and love for our fellows, leaving an envy that has hate at its root. 

Indulged in, coveting insidiously works to separate us from those who have what we might want.  One need not act on the coveting, one need not steal, lie, cheat, commit adultery, or engage in other offenses for the wedge of coveting to work its evil within society.  Neighbors become cold, businessmen and workers become self-centered, helping hands become harder to find, envy and jealousy increasingly push compassion and cooperation aside.  The poor hate any richer than they, and those who are better off lose their pity and concern for those whom they might otherwise be quick to help and encourage.

I am not one who looks to our political leaders to be moral leaders, but I do look to them to be virtuous.  Morality must be a fundamental qualification for those to whom we give authority to make, execute, and judge the laws if we want our laws and their administration to be based upon virtue.  We do not and should not derive our morality from these people, but we should expect them to act morally in the exercise of the duties and powers that they derive from the people whom they govern.

It is more than irresponsible, then, that coveting has not only been accepted by President Obama but is in fact advocated for the nation to embrace as the defining element of our economic policy, one that begins with demands for higher taxes on “the rich.”  This national call to covet is dangerous to our community.  Look again at how the evil was described on Mount Sinai, keeping in mind President Obama’s call to soak the rich to support more government:

Thou shalt not covet thy neighbour’s house, thou shalt not covet thy neighbour’s wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbour’s. (Exodus 20:17)

All sharing in the tax burden is a necessary element of self-government.  Self-government does not work without all of the individual selves in society pitching in fairly.  But how else than a call to covet can we understand President Obama’s “not negotiable” demand that the United States, on the brink of renewed recession and economic trouble for millions, do nothing unless the government first takes ever growing shares out of the pockets of those he calls “the rich”?  He wants their money, and he wants the rest of the nation to covet their money in support of his plans for bigger government. 

The demand cannot be explained on grounds of “fairness” or financial value.  One part of the population is singled out to pay for an outsized share of government spending, including promised subsidies to some of the rest.  The rich, for now defined by the President as those with incomes of $250,000 or more, currently earn 22% of all income but pay 45% of all federal income taxes.  No fairness in raising that share even higher.  But neither would Obama’s plans do much to pay for government budget deficits.  His so-called “Buffett Rule” would drink in some $47 billion more over the next ten years, or just under $5 billion a year.  The federal government, however, is currently spending $4 billion a day more than it collects.  That is, soaking the rich will pay for a little more than one day of the federal deficit.  Not a financial policy that will bridge the government budget gap.

What is going on here, other than a destructive and cynical effort to gain popularity by stirring up the many with envy of the income of a few?  This short-sighted strategy is working to undermine our national community, just as surely as Moses warned 4,000 years ago.  Already it has brought us to a month long national financial emergency, at the very time of Christmas when virtues of generosity, tolerance, kindness, and unity would better occupy the public attention.  The theme of peace on earth and goodwill to men is replaced by a manufactured national crisis over how to pitch class against class with sentiments of envy and hatred led by America’s chief executive.

By the way, I am not aware of any religion that condones coveting.  But even if the fear of God does not make you slow to covet, objective love for the nation as a whole and the integrity of the society should cause you to recoil from a political platform based upon feeding the fires of envy.

Of the American Revolution and the Counterrevolution

One of the comments that I have heard following this year’s national election is that it did not settle much.  Barack Obama was president before the election and he will now be president for another term.  The Democrats held a small majority in the Senate before the election, and they will have a small majority in the Senate afterwards.  The Republicans controlled the House of Representatives before the election, and they will control the House in the next Congress.

I acknowledge the point and the extent of its validity, but I am careful not to overvalue it.  This time was different, if not yet different enough. 

The reigning governing system is nearing its end.  Barack Obama and his companions embody in the 21^st Century the old wizening counterrevolution in America begun by Franklin Delano Roosevelt, now well into its senility.  The FDR counterrevolution has been the prevailing doctrine of governing in the United States since the (aptly named) Depression.  Even Republican presidents—with the exception to some degree of President Reagan—have governed within the terms and context of the FDR counter-American revolution, rarely taking issue with its basic theme of government as the ultimate source of solution to people's problems.

I like the analogy that Senator Phil Gramm used to offer in illustration of how Republicans get co-opted into the FDR approach.  Imagine, he would say, a great big piece of paper blown by the wind getting caught on the top of the dome of the U.S. Capitol, blocking out all sunlight below.  The typical solution from the Democrats would be to create an artificial sun inside of the dome to illuminate the room.  The typical Republican response has been to argue for a smaller artificial sun, one involving the private sector.  The real solution—seldom mentioned—is to remove the big piece of paper.

Today, the great piece of paper to be removed is the fundamental contradiction that lies at the heart of the FDR welfare state:  robbing Peter to pay for Paul’s votes.  For over 70 years Democrats and Republicans alike have been bidding against each other to gain Paul’s support, until the day is at last in sight when there will not be enough left to take from Peter to honor the promises to Paul.  The looming national fiscal crisis in over-promised Social Security, Medicare, and a host of government give-away programs is at last acknowledged by the public, even if its full import remains for most hard to grasp as real.  Still, more and more people suspect that all this has about played out.

Against much public vilification by the media propagandists, some are challenging the FDR counterrevolution, getting outside of the context of the tired debate that for decades characterized the contest between Democrats and Republicans.  They are explaining that government cannot create wealth, and redistributing wealth destroys it.  Defeating Barack Obama and his FDR policies this year would have been an important milestone, because more than any other recent president Obama fully embodied the FDR approach to governing, and more than any other presidency its abuses have been apparent.  At the same time, more than any time in the past 70 years political leaders and would-be political leaders have been challenging the FDR counterrevolution.  Mitt Romney chose one of those leaders, Paul Ryan, to be the Republican candidate for vice president.

In the event, we fell short, but we made progress.  As I said, this time was different.  To begin with, President Obama’s margin of victory was materially smaller than four years ago, 50%-48% of the vote in 2012, while in 2008 it was 53%-46%.  Similar narrowed margins were the pattern in the various states.  Moreover, notably few other Democrats were able to sail to electoral victory in Obama’s wake.  In 2008 along with President Obama 7 more Democrat Senators were elected and 20 more members of the House of Representatives.  Four years later it looks like Democrats will pick up only 2 Senate seats and 4 seats in the House.  In all respects, a very narrow victory.  Mitt Romney came close to being elected president, a point that media propagandists have been busily trying to bury in their efforts to make it feel like Obama won in a landslide with a mandate to continue on with his policies of impoverishment.

What the election has not changed are those policies.  President Obama’s economic program is just as much a failure today as it was before the election.  The vote on November 6 did not make it any better.  Neither have the problems changed, except that they continue to grow.  With each day, the federal deficit and federal debt deepen and America’s ability to manage that debt declines.  Each day brings us nearer to the day when we as a nation will be unable to pay that debt.  Economic performance as a nation remains weak and wobbly, while Administration apologists preach that weak is the new normal for the United States of America.

Governing will prove even more difficult for President Obama.  At least now he can truthfully blame the previous administration, the Obama first term administration.  He spent those years avoiding the most significant problems, pushing them off until after November 6, 2012, while creating new ones with his healthcare, regulatory, energy, and environmental policies.  The problems are a gathering storm.  There is not enough money left to run the welfare state, and the willingness of investors—foreign and domestic—to lend Uncle Sam money to pay for it is four years closer to an end. 

Foreign policy does not look very good either.  National weakness, economic or military, is provocative.  It encourages those who mean us harm.  Iran is heading toward crisis, without a comprehensible U.S. policy to deal with an unstable violent regime approaching the production stage of a nuclear arsenal.  The unanswered, mishandled, and covered up failures against the terrorist attack on the U.S. mission in Benghazi, Libya, will invite others.  With dread we await the realization of what President Obama meant when he told the Russians that he would have more “flexibility” after the election.

I acknowledge and applaud those who worked so hard to bring an end to a misrule that now will continue to inflict hardship on the nation and the people.  We came close to turning back the FDR counter-American Revolution in its naked manifestation.  We all need to keep on working for something a lot better, to restore the American revolution of 1776.  We are gaining ground.

Of Struggling Economies and Finishing the Job

The Obama Administration is having trouble keeping the economy down.  In spite of all the battering that the economy has taken from Obama policies, it keeps showing signs of life—weak, hesitant, surely not robust, but they are there, like the weak patient who wants to get out of bed and shuffle downstairs to sip some chicken soup.  Instead, the Administration, like some 18^th century doctor, wants to try some more blood letting to get the bad humours out of the system. 

People want to do things.  Businessmen have new ideas that they want to have a go at.  Men and women like to build, grow, and develop their lives.  No one needs to tell them to do it.  You just need to get out of the way.  The most productive, the most energetic, the most inspired, the hardest workers will do it best.  We can still remember when the economy was like that, when the news was full of new products, new ventures, new growth, and new jobs.  That is the light America shines to the world and what despots throughout the world hate about the American experiment.

President Obama came to power with a different vision for America, what he thought was a mandate to spread the wealth around, to take from those who succeeded the most in economic activity and growth and find ways in which he and his administration could give it to those who were less productive—or not even productive at all.  In other words, his plan was to tax success and reward failure.  So far, it has worked as designed, even if he has not yet finished with his efforts.  We are getting less of the success and more of the failure.

The trillion dollar “stimulus” plan was a good example.  President Obama and friends hit the economy with a special trillion dollars of new Washington spending that went to support cronies and fund new projects that soon added to the landscape littered with failed businesses.  The “stimulus” plan added to the deficit and became a seemingly permanent part of federal largesse, but it failed to add to the economy.  In fact, it made legitimate businesses compete for funds and customers against those who enjoyed government subsidies.  Hard to do.

The housing market makes up about a quarter of the economy, when you include people who build houses, furnish houses, maintain houses, and so forth.  That market was in full decline as the housing bubble burst in 2007 and kept deflating.  But eventually all the extra air comes out of economic bubbles (if you do not keep pumping new air into them), the crashing market reaches bottom and starts to recover.  The Obama Administration has made sure that it stayed on the bottom a long time.  Normal economic crashes and recoveries look like a “V” on a graph charting their progress.  The housing market under the Obama Administration looks like an “L”.  Note the tiny turn up at the end of the letter.  That is what the Administration’s friends would try to convince us is the recovery.  And they would like to divert our attention from the several thousand pages of new mortgage regulations that will go into effect in the next several months to whack the housing markets again.

Sure, mortgage rates are incredibly low, but that is not a healthy sign.  Have you tried getting a mortgage lately?  The paperwork, already a mountain, has become overwhelming.  And do you think that those rates would be so low if there were a real recovery in demand for houses and mortgages?  There is more (or less):  many people who qualify for mortgages today will have trouble qualifying in the future under the new rules.  The Obama Administration’s new consumer Bureau has been putting off those rules until after the election, but they are promising to issue them by the end of the month.

The summers of 2009, 2010, 2011, and even 2012 were each supposed to be the “Summer of Recovery” with the “green shoots” of new economic activity showing life each spring.  Yet each year those summers saw instead new economic setbacks as the green shoots wilted.  Sometimes the damage came from threats of new tax policies that would raise rates but give “tax breaks” to people who spent their income in ways approved by the Obama Administration and the tax code.

Businesses were threatened with new carbon taxes and other innovative and contorted ways to penalize any use of carbon dioxide, part of the air that we as humans produce with every breath.  Even a Congress with heavy majorities of legislators from President Obama’s own party choked on that idea.  Not to be deterred, the Obama Administration just imposed restrictions by fiat through the Environmental Protection Agency—all part of the war on carbon, which includes the energy industry as its victims.

The business climate remains in turmoil, as waves of new regulation and Obama campaign promises to bail out new favorites in the economy continue changing the rules and make business planning impossible.  Who would take a risk at trying something new when Obamacare and other employee regulations make it hard to know what the expense will be for new hires?  American businesses are sitting on somewhere between one and two trillion dollars in funds, waiting to know when it would be safe to invest them.  Employers are trying to put some of that cash to work, but they are being very cautious in doing so, not what the words “free enterprise” bring to mind.

The Obama Administration and its apologists call the recent unemployment report “good.”  The unemployment rate went up, above the level when President Obama came to office; 5 million people are long-term unemployed, up by 200,000 from the month before; and the economy has 4.4 million fewer jobs than at the peak of its last growing period before Obama took office.  The excitement apparently comes from the net increase of 171,000 jobs in the past month, above the experts’ predictions of 125,000.  Watchers have learned to lower their expectations for this administration, so that they greet with cheers any signs of life above their reduced standards.  Maybe for President Obama that continued anemic performance is good, but America can do better.  America has done better, much better.  We cannot afford to lower our vision. 

Our future and the future of our children and grandchildren must not be crippled by looking at 2% economic growth as being “good” or even acceptable.  If we want a better future for our children and grandchildren, in fact if people my age want a secure retirement, we need to get back to an America where 4% annual growth or better is the norm.  The social welfare state is expensive, not the least of which being the cost it exacts from the future to pay for the promises of today.

Fortunately, the economy still refuses to die, in spite of all the beating that it has received at the hands of the Obama Administration, but the economy is not well.  Let’s not give the Obama team another four years to try to finish it off.

Of Government and Getting What We Deserve

There is a theory that I believe but I am not sure how to prove (this side of the final judgment) that over time people tend to get the government that they deserve.  This idea comes to mind when I hear complaints in the public media about the Congress.  You have certainly heard them.  They come in various flavors, but they are the same soda:

• Why can the Congress get nothing done?

• Congress is unable to rise above partisan politics.

• The people in Congress seem so out of touch with the rest of America.

• Congress avoids making tough decisions.

You could surely add to this list.  The underlying theme is that the Congress is not doing its job.

These comments are a frustrating alloy of truth and silliness.  There is a lot that is right and wrong with the current Congress.  Who put these men and women on Capitol Hill?  With the exception of a handful of Senators appointed by their governors to fill temporary vacancies, and the few dozen congressmen who by order of the Supreme Court must be elected in districts where there really is no democracy (I refer to those from districts mandated by the courts to provide only minority representation), all of these congressmen and Senators were elected—by the people whom they represent.

I mention that to refer to both sides of the coin.  We, the people, put those people there.  The other side is, we the people can send them home.  That is a weighty responsibility, one that we cannot discharge faithfully by just complaining.  We cannot do our legislators’ jobs for them and be involved in all of the minor details of all that they do, but we can and must hold them accountable for the sum of what they do and for the general tone and direction of their actions.  To be successful we need to have a clear idea of what we want our representatives to do and be well educated about what they are doing—not just what they are saying.

One of the sillier comments I hear is the suggestion that we should “throw them all out.”  Is that true?  Is every single congressman and Senator doing a bad job?  Even a basic review of congressional action should tell us that is not the case.  On nearly all of the most important issues there is in fact quite a divergence of views and actions.  Again, our inescapable job is to figure out what is the right policy and look carefully at how our elected representatives are conducting themselves with regard to it.  We should weed the garden, not plow it under.

There are many policies and many issues from which to choose.  Let me suggest two.  The first would be the Constitution.  What have been the actions of our own particular representatives with regard to supporting and defending the Constitution and the rule of law?  Our current President has been active in undermining the Constitution and disregarding the rule of law, so this is not a theoretical issue.  What have our representatives been doing to combat voter fraud, to make sure that the executive branch does not spend money that has not been appropriated by Congress, or to prevent bureaucrats from telling law abiding people how to spend their money, run their businesses, freely express their opinions, or observe their religion?  There have been many other assaults on the Constitution by people in Washington.  As voters, we should be mighty touchy about any of those efforts and reluctant to vote for people who do not share our sensitivity about the importance of the Constitution and our rights as citizens.

The second issue I would suggest is economic growth.  We will never really get out of this recession (that feels depressingly like the 1930s) unless we place a top priority on getting the economy growing.  We cannot solve our budget deficit and federal debt problems without economic growth.  People forget that the few years that we had a balanced budget in the 1990s did not come by government action.  Congress and President were in fact surprised by the surpluses.  They came about because the economy grew more strongly than expected.  We should support those legislators who act like they understand that economic growth creates jobs and that economic growth is created by private initiative.  We should support those legislators who consistently vote to remove barriers to business creation and innovation and defeat those who do not.  Those barriers include higher taxes and increasing government involvement in business decisions and operations.

All of this will take work on our part.  We cannot expect to have legislators who work for what is right and wise unless we do our work to find and support those who do.  There are many of them in the House of Representatives and in the Senate today.  We need more of them.

I believe that people eventually get the government that they deserve, and I yet believe that we deserve better than we have and that the time has come to get better.

Of the G-20 and Running the World

When you think about it, it is ridiculous.  In fact, it would be pitiful, if they were not so serious and did not have the power to do seriously bad things.  I am referring to the leaders of the Group of 20 (G-20) nations, who recently met in Mexico, thinking that they run the world.

If the question were put to you, “Who runs the world?” there could be several correct answers, but none of them would be this group of people, or any subset of them.  Nevertheless, because they think that they do run the world, and because they act on that belief, they do a lot of things that not only do not work but that make things worse.  Then they gather again and try something else, much of which is designed to clean up the mess caused by their previous foray in hubristic action.

The world is a complex place, with billions of people each doing complex things and interacting with each other in complex ways.  Then the planet itself does a lot of complex things.  Take the weather, for instance.  With computers and a hundred years of scientific study, weather forecasters have succeeded in the ability to predict the weather with a passable degree of accuracy two or three days out.  Beyond that, the accuracy of forecasts declines to about 50-50 (flip a coin) and drops from there.  The ability to change the weather, after a lot of work and investment, remains elusive. 

You have to be very smart, or think that you are, to convince yourself that you can in any significant way control the economy of your own nation, let alone of the world together.  The Russians, who are very smart people, tried it for 70 years with less than success and with the death and misery of tens of millions of their people.  The communist Chinese gave it a go, too.  Lately they have been reluctantly recognizing that there might be a better way—though they act like they are still not so sure.

Consider how many of the most serious problems facing mankind today are caused by people like these G-20 government leaders who fancy that they run things.  A few examples:

• The economic malaise in the United States.  The U.S. economy has just passed through a very deep recession, caused by government programs that encouraged people to buy houses that they could not afford, investors to invest in the mortgages used to buy those houses, banks to take government investments in their capital that they did not need, and people who could afford to pay their mortgages to walk away and leave the keys on the counter.  To solve those problems, the U.S. government spent a trillion dollars it did not have, increased rules and regulations on businesses that could otherwise create new jobs, “created” a quarter of a million new jobs at the cost of eliminating a million jobs in the private sector, and threatened investors and small businessmen with stiff tax increases.  Economic activity remains in the doldrums.

• The second economic recession in Europe.  The European economy went into recession about the same time that the U.S. economy did, for rather similar reasons.  It then weakly recovered, briefly, and then went back into recession when the promises that the governments of southern European countries made over decades to buy votes at last became more expensive than they could borrow money for—let alone pay for.  Now, every couple of weeks Greece, Italy, or Spain goes into economic crisis, the rest of the European leaders make empty promises to solve the problem, followed a couple of weeks later by new crisis and another round of promises.  That has been going on for about a year, while economic activity heads south.

• The availability of energy.  From the gasoline that we put in our cars, the electricity that lights our houses, to the natural gas that warms our offices and homes government rules affect the availability, price, distribution, and supply of energy.  The United States imports enormous amounts of oil from unstable countries that use the money we pay for it to threaten our people at home and abroad.  Meanwhile, we have more than enough supplies of coal, natural gas, and oil located in oil shale and oil sands and off our own shores to meet all of our needs now and for the foreseeable future, but government efforts to run the energy business prevent us from using them.

These are just three groups of examples of many.  Once again I call on the wisdom of William Tecumseh Sherman, the great Union general of the Civil War, who famously refused to run for President of the United States with the assertion that if nominated he would not run, if elected he would not serve.  He gave his friend and colleague, U.S. Grant, who did not make such a refusal, a piece of excellent advice:

My opinion is, the country is doctored to death, and if President and Congress would go to sleep like Rip Van Winkle, the country would go on under natural influences, and recover far faster than under their joint and several treatment.

(William T. Sherman, letter to General Ulysses S. Grant, February 14, 1868, in William Tecumseh Sherman, Memoirs of William T. Sherman, p.922)

If someone should ask you, “Who runs the country?”, the correct answer is, “no one.”  Plenty pretend to, and many others wish to, but none do and none can, and we would all be better off if they would stop trying.  Our nation’s founders would have recoiled in horror at the question, because they intentionally created a nation that no one could run.  Why else have three branches of a federal government, one of which is divided into two separate houses, and state governments take their share of governmental authority?  They had seen Europe and knew of Asia where people for thousands of years had royally messed things up by trying to run their countries.

Instead, the American founders created a system where each person would run his own life.  The leaders in government were to run the government, that for the most part was to stay out of people’s lives and keep foreign governments at bay should they have any thoughts of trying their hand at running the lives of Americans.

That vision of the founders has been fading.  Today, make a list of the things that you can do that do not involve some sort of authority or permission from government.  It will not be a long list, and it has not been getting any longer in recent years.  Then ask yourself if life has been getting any better.  If it has, congratulate yourself on your power to overcome.

Of Business Losses and Government Help

In recent days JPMorgan Chase bank announced that it suffered $2 billion in trading losses, and Washington is all a-twitter.  You would think that a government that runs deficits of one and a half trillion dollars would hardly notice any event of $2 billion, but the chattering classes who think that they should have some role in running everything are all chattering about it and how it clearly demonstrates the need for more regulation, i.e. more need for them to be involved in running private businesses.

Mind you, JPMC’s $2 billion loss is a lot of money to you and me, but this does not particularly affect you and me.  JPMC suffered the loss, and given the size of the bank and its earnings (it usually makes somewhere in excess of $4 billion each quarter) it will little affect its bottom line.  JPMC is not asking anyone else to cover its losses, other than its own shareholders, and they will not feel it much if the bank continues to be as well run as it has been.

Ah, but perhaps you are thinking that JPMC got some of that TARP money so involved in the financial panic.  That is true, JPMC was one of the banks whose arms were twisted hard by Treasury Secretary Paulson to take a forced government investment.  Those TARP investments spooked regular, private sector investors, who immediately ran for the sidelines, and the financial crisis was on, propelled (as most are) by bad government efforts to “fix” things.  JPMC did not want the money or need the money and in a few months paid it all back—with substantial interest—as quickly as Congress and the regulators would allow them to.  It reminds me of the elderly gentlemen who finally yielded to family cajoling to take a ride in a stunt plane.  Afterward he thanked the pilot for the two rides, his first and his last.  TARP was such a bad deal for those who received the investments (except for the couple of financial firms that might really have wanted it), that I do not think that any would want a second ride, perhaps not even again at gunpoint.

The recent loss by JPMC, in any event, was one well covered by the bank’s earnings in other of its many lines of business.  Curiously, I do not hear the chattering classes get exercised when each quarter Fannie Mae or Freddie Mac announces several more billions of dollars of losses, losses that they do ask for the Treasury Department to make whole.  Maybe that is because the regulators already run Fannie and Freddie.  Actually, there was a little bit of noise in the past few days when Fannie Mae announced that it had actually turned a profit for the last quarter, the first time in years.

One thing that disturbs me in all of the Washington humbuzzah over JPMC’s trading loss is the implicit notion that there is something wrong about a business losing money on an investment, something wrong enough to call forth a government role.  It seems to me that losses are just as much a sign of a normal market as gains are, that healthy markets have a good share of both.  Nobody seemed to lose money during the housing bubble, no matter what they did, but that was hardly a sign of a healthy market place.

What markets do when they are allowed to is reward good business decisions and punish bad ones, with gains and losses providing some of the most effective means of helping businessmen and their investors understand truly which is which.  JPMC made some bad business decisions and lost money, and the counterparties to those trades made good ones and earned money.  What role can government play in all of that other than to mess it up?

To get government involved in this process rests upon at least two preposterous notions.  First, it suggests that it is somehow the role of government to make sure that businesses do not lose money, otherwise, why all the fuss?  That, of course, was the Soviet business model that did so much to create modern Russia.  Second, and following on the first mistaken notion, it supposes that government officials will know better how to avoid business losses.  Anyone really believe that?  Share with me your examples, and I will pass them on to the Federal budget planners.

Of Abraham Lincoln and Another Birth of Freedom

On the 203^rd anniversary of the birth of Abraham Lincoln—to our national embarrassment a day no longer celebrated as a national holiday—I once again picked up a copy of the compelling lecture by Walter Berns, commemorating the bicentennial of Lincoln’s birth.  Delivered on February 9, 2009, at the American Enterprise Institute, Berns’ lecture concluded with these words:

We say that a man can be known by the company he keeps.  So I say that a nation, a people, can be known and be judged by its heroes, by whom it honors above all others.

We pay ourselves the greatest compliment when we say that Abraham Lincoln is that man for us. 

(Walter Berns, “Lincoln at Two Hundred:  Why We Still Read the Sixteenth President,” AEI Bradley Lecture, February 9, 2009)

Berns offers a compelling statistic as a measure of the nation’s recognition of Lincoln and his greatness:

            More has been written about Abraham Lincoln than about any other president or, for that matter, any other American.  The amount is prodigious:  no fewer than16,000 books and goodness knows how many journal articles.

Abraham Lincoln was president for slightly more than four years, assassinated one month after his second inauguration, when the Civil War was not quite over but its end was in clear sight, Robert E. Lee having surrendered the rebels’ largest and most successful army just a few days before.  Soon after his first inauguration the war began. 

What are the grounds for asserting and recognizing Lincoln’s heroism, having fought a war and not quite finished it?  Because he did fight the war and persevered and put in place what was needed for its inexorable conclusion in the victory of the United States.  I do not say victory of the North, but rather victory for the whole nation.  North, South, and all of the later states of the West and all of their people and their descendents were blessed by that victory.  So was the rest of the world, for that victory showed that a free people could triumph in self-government, having rejected the tyrannies of Europe and overcome the challenge of anarchy offered by the rebels of the old South.  The United States has done a lot of good for the world since then, all of which would have been impossible but for that victory.

Lincoln’s immediate predecessor, the Pennsylvania Democrat James Buchanan, opposed the rebellion of the South but refused to do anything about it.  He dithered and dallied as state after state fell into rebellion and even seized U.S. Army and Navy supplies and facilities while doing so.  Berns quotes how then Senator William H. Seward mimicked Buchanan’s near traitorous dereliction of duty with the impotent formula, “the states had no right to secede, unless they wanted to, and the president had the duty to enforce the law, unless someone opposed him.”

Lincoln came to office with a singular focus from which he refused to be distracted, to meet foursquare the national emergency, that is, to unite the nation and preserve that unity.  And he knew why.  He knew what the United States meant for freedom, for Americans, and for all people everywhere.  In his Gettysburg Address, Lincoln reminded his countrymen that the war was a test whether our free nation “or any nation so conceived and so dedicated, could long endure.”  The answer must not be allowed to be anything other than “Yes.”

As another mark of greatness, Lincoln knew that this was not about Lincoln.  As the war progressed, he fully expected to be defeated in the election of 1864 by the candidate of the Democrats, former Union General George B. McClellan, on a platform of ending the war by negotiating a truce with the South.  Lincoln pressed Generals Grant and Sherman to win the war before Lincoln’s likely successor could surrender. 

Moreover, Lincoln repeatedly pointed the nation away from himself and to who it was who fought the war.  At the new National Cemetery at Gettysburg, he reminded the nation that it was “the brave men, living and dead” whose national sacrifice had consecrated the war effort, far above the poor power of speeches by political leaders to add or detract from it.  Later, as the end of the war could be seen approaching and the end of his own life near if unseen—soon to be added to the many others who paid the price of preserving self-government—Abraham Lincoln again pointed the people to those who fronted the battle.  His second inaugural address could have been a moment of triumph and self congratulation against great odds.  Instead he asked the nation “to care for him who shall have borne the battle, and for his widow, and his orphan”.

Lincoln was great because he rose to the challenge of the times without shirking or excuse and sacrificed all that he had to fulfill the promise of the Declaration of Independence that all men are created equal, which principles were given force through the Constitution.  The force of those constitutional principles was correctly interpreted by the southern slave holders as leading to the inevitable end of slavery, confronting them with the acceptance of the end of their “peculiar institution” or rebellion.  They chose rebellion and anarchy, and Abraham Lincoln rallied a nation to refuse to walk away from that challenge to liberty for all.  

Today again we face a rather divided nation facing freedom-threatening dangers, not the least of which is impending national bankruptcy.  Fortunately, our nation is less divided than the press would have us believe (opinion poll after opinion poll shows large majorities who support the principles of the Declaration of Independence and the Constitution).  This time, however, we have a president who not only avoids the national fiscal crisis but feeds it.  To distract attention from that irresponsible policy he seeks every opportunity to encourage division and create new divisions. President Obama seeks to divide the nation by income, by race, by class, by religious belief.  He indicts whole industries and groups of people one by one as in effect enemies of the nation, whether it is the energy industry, pharmaceuticals, banking, health insurance, or Catholic leadership.  The solutions that he promises all boil down to “vote for me” in a media-supported national cult of personality.

Every cult of personality throughout history has ended badly for its people and their fearless leader.  The current one does not look to be changing that historical trend.  And yet, we still have the power to elect our leaders, and the year of national election has begun.  It may not be too late. 

As I ponder the birth, life, and service of Abraham Lincoln, I choose his example, because he rejected the cult of personality but instead gave his life for individual freedom and self-government.  I have hopes that the policies of dependence on government and the surrender of freedom will be rejected so that the American experiment will witness yet another “birth of freedom—and that government of the people, by the people, for the people” will continue to be a beacon and example around the world.

Of Presidential Czars and Constitutional Crises

In this age of crisis, one after another, it would not be surprising if you did not notice that the United States has entered into a constitutional crisis, brought on by recent political moves of President Obama.  The resolution of the crisis will affect the balance of power and authorities in our government, which balance was created by our Founders to protect the freedom of the people.

That balance has worked very well for some 200 years, although elsewhere I have noted that American children no longer seem to use a phrase that was common when I was a child.  In those days not so very long ago a child would commonly defy the intimidation or bullying of another by retorting, “This is a free country.”  Our freedom has been eroding.  It is in serious danger yet again.

Let us pause a moment to reflect upon our written Constitution.  It is a miraculous document, created by people who had only a few years before risked their lives, their fortunes, and their sacred honor to throw off monarchy and tyranny and create a nation where the rights of the individual were not only respected but guarded.  One of the first acts under the Constitution was to add to it a Bill of Rights, as if the Founders wanted to underline that the Constitution was all about personal liberty and preserving it.  Each and every item in the Bill of Rights, our first ten amendments to the Constitution, is a further limitation on the power of government over the rights of the individual.

Americans of various religious faiths, including those who disavow the existence of God, have over the last two centuries recognized the inspired nature and deep wisdom of the Constitution.  Many see and acknowledge even the hand of God directly manifested in its inspiration and promotion (see Doctrine and Covenants 101:80).

The Constitution is based upon the dread, born of painful experience, of entrusting men and women with the power of government over the rest of us.  It takes little historical research to find endless examples of how that power has been abused in nearly all times and places of the world.  Yet anarchy is no less a curse, one with which our Founders were also acquainted.

To balance and counter the two dangers, of tyranny and anarchy, the Founders relied upon a system of government that divided power.  No one would have a monopoly or even a predominance of power.   To begin with, the power of government overall would be strictly limited (and the Bill of Rights limited it even more), all but essential government powers remaining with the citizenry.  Then government power was divided between State and Federal authorities.  The power of the Federal government was further divided between three separate and equal branches of government.

The Founders did not believe in efficient government.  Rather, they believed that an inefficient government was needed as an efficient means of preserving the rights of the citizens.  While dividing authority among three branches, it was intended that neither branch could operate without the eventual cooperation of the others.  As had been seen in the English battles between king and parliament, tyranny and oppression resulted when either branch was able to rule without the consent of the other.

The United States has similarly suffered when weakness of president or congress allowed the other branch of government to operate without adequate check or balance.  The weakness of President Andrew Johnson allowed the tyranny of carpetbaggers with Congressional approval to oppress the people of the broken South following the Civil War, promoting poverty and racial hatred that lasted there for a hundred years.  The tyranny of the Franklin Roosevelt administration turned a deep recession into a Depression that lasted for a decade, disappointing people all around the world in the value of democracy and encouraging the dictators in Italy, Japan, Germany, and the Soviet Union who brought us World War II.

The first two years of the Obama Administration witnessed another period of weakened Congressional power, with a Congress all too ready to do the bidding of the President.  A willing Congress passed on to the executive branch control over the healthcare system, the financial system, and added trillions of dollars to government debt, only narrowly refusing to give bureaucrats authority to control the carbon dioxide that all humans exhale.

In the elections of 2010 the electorate voted to restore the balance by electing a congress that would object to the excesses of the executive branch.  That is precisely what the new members of Congress, with uneven success, have been trying to do over the past year.

President Obama is getting frustrated with the situation.  With the new year he has announced that he is going to try to govern without the Congress.  At a speech in the wealthy Cleveland suburb of Shaker Heights, President Obama said the following, “when Congress refuses to act, and as a result, hurts our economy and puts our people at risk, then I have an obligation as President to do what I can without them.”  Then to emphasize that he means what he says, he announced the appointment of Richard Cordray, the former Attorney General of Ohio, who was defeated in the last election, to be a new federal financial consumer czar, without Senate confirmation.  The Senate has refused to confirm Cordray, but President Obama plans to install him in office anyway.

The appointment confirmation process was one of the protections of the Constitution to limit the power of the President.  The Constitution carefully and explicitly divided the power to give government authority to unelected officials, placing with the President the ability to nominate but requiring that Senate approval be gained before the nominee could take office.  As I can testify from personal experience, it is a frustrating process.  The Founders must have assumed that the Senate would from time to time refuse to consent to some nominees, in which case the President could not proceed, the authority of the government would not be extended to that man or woman.

The Founders were also practical people.  They knew that there would be times when government posts needed to be filled when the Senate was not in session.  So the Constitution allows the President to make temporary appointments without Senate confirmation, but only when the Senate is in recess.  This practical element of the Constitution was not intended to get around the normal procedure requiring in effect President and Senate to agree before giving powers of government to unelected officials unaccountable to the people whom they would govern.

The problem for President Obama is that the Senate has refused to approve the nomination, but they also refuse to go into a recess.  What to do?  President Obama’s solution is to declare on his own that the Senate is in recess and appoint Cordray anyway. 

Hence, our constitutional crisis.  Can the President give governmental power over the people to anyone that he wants without Senate consent?  The Constitution says no, and the President says yes.  Normally, we would all take comfort in the reassurance that the courts will enforce the Constitution, but court decisions of recent decades have shaken confidence.  This presidential act of hubris is surely headed for the courts.  If the justices fail to do their duty, then the powers of unelected federal bureaucrats (unaccountable to people or Congress) will grow, and individual liberty will be significantly eroded.  For now, I am pinning my hopes on the judicial branch rising to the emergency.

Of Public-Private Partnerships and Public Corruption

One of the popular phrases in Washington that makes me cringe every time that I hear it is public-private partnership.   This is a foreign concept, alien to the Declaration of Independence and the Constitution.  The Founders fled from the institution.  It had a rich history in Europe, and our Founders hated it, because it tended toward abuse (as it does today).  They had been methodically abused by it.

One example, the infamous British East India Company was a public-private partnership that engaged in colonization in America and elsewhere (perhaps most notably, India), harnessing the colonies with oppressive collars of monopolies that forced the colonists to do business only through the Company that enjoyed the privileges and powers of the Crown.  Those privileges were used to underpay the colonists for what they produced and sold and overcharge them for what they bought.  Fortunately for America, the Founders became champion smugglers, taking advantage of a land with an extensive seacoast and rich with usable harbors.  The smuggling was fortunate also for Britain, for without it the new British colonies in America would have been strangled in their cribs.

The Boston Tea Party was a colonial revolt against monopoly powers exercised in the name of the British Government by the East India Company.  That this revolt took place in Boston was not unusual, as the power and influence of the Crown-endorsed Companies were stronger in Virginia and other places to the south than they were in New England.  The New Englanders were less accustomed to it and therefore felt its oppressions more keenly.  Crown companies had much less of a role (but were not unknown) in lands settled by freedom-seeking Puritans and Pilgrims.  The Jamestown Colonies were from the beginning Company expeditions.  But the Virginians and many other Americans grew increasingly weary of those public-private partnerships and the corruptions that they fomented.  The wide lands of North America encouraged a freedom that the public-private partnership of Crown and Companies was not able to stifle.

It took royal favor to create the public-private partnerships, and the maintenance of royal favor to continue them.  No surprise, then, that such favor had to be funded by steady payments from the partnership to the government officials possessing power to control the royal favors.  In exchange, government discretion, including the judging of right and wrong, was all too often influenced by what favored the partnership rather than what favored justice.

This was how public-private partnerships were corrupting on a personal level.  They were also corrupting to the State, corrosive of freedom.  In no small degree British freedoms from the King have been built by the power of taxation controlled by Parliament.  With great skill over centuries British Parliaments wielded the power of managing the government purse to win new freedoms from the British Kings.  Since there is money to be made by using government power in public enterprises, however, sovereigns can find ways to cash in on that value and avoid the accountability that comes with having to seek new taxes to pay for their programs.  In the great conflict between the Parliament and King Charles I, the King was long able to avoid resorting to Parliament and acceding to its demands for freedom by funding his operations through the sale of royal privileges to and by reaping revenues from the companies and other public-private partnerships.  He carried it too far and eventually lost his head, but the American Founders did not fail to learn the lesson.

Neither did our modern Presidents, many of whom have revealed a fondness for public-private partnerships as a means to extend government programs and influence, even to the exclusion of congressional and public oversight.  Franklin Roosevelt loved creating government-sponsored monopolies, even while giving many speeches against the evils of monopolies.  Today our economy is riddled with public-private partnerships, large and small, and they as always tend toward abuse. 

At the heart of the recent financial recession was the housing bubble supported by two of the greatest public-private partnerships in American history, Fannie Mae and Freddie Mac.  Created to promote government housing policy without using taxes or appropriations—and thereby escaping public accountability—their government privileges allowed them to borrow all the money they needed at prices little above government rates and use that advantage to drive competition out of the middle of the housing markets that they occupied.

When the housing bubble at last burst, the Treasury’s TARP used a public-private partnership with banks (most but not all of whom were unwilling partners) to push investors out of the banking markets and turn the financial crisis into a financial panic.  Once in office, the Obama Administration embraced TARP, to which they added a trillion dollar stimulus package that accelerated our budget deficit crisis.  The Obama stimulus package was lousy with public-private partnerships, a significant reason why it failed so miserably to stimulate our economy, destroying one or more jobs for each one that it promised to create through government favor.

The Faustian bargain at the core of the public-private partnerships corrupts all involved and touched by them:  the government that creates them, the partners who sell their souls for the advantages, and those disadvantaged by the whole unfairness.  Former Congressman Dick Armey—a foe of public-private partnerships—has often warned that when you partner with the devil, you are always the junior partner.