Of Stagflation and Economic Recovery

 

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Governments create inflation.  Since governments maintain a monopoly on money creation and exercise it constantly, the results of their policies are their own, whether they wish to own them or not.  Having said that, though government got us into this inflationary mess, more government is not going to get us out.  Yet, less government might.

The current administration—including the Federal Reserve—is in a tight spot.  Many repeatedly predicted that the unwholesome monetary and fiscal policies to respond to the equally unwholesome policies of dramatic economic shutdown of the 2020 Great Cessation would eventually lead to inflation.  So they have, even worse than what we saw in the 1970s.  The incoming Biden Administration persisted in blowing air into the inflationary balloon distended the year before.

This is not a partisan statement.  We have seen two Republican administrations doom themselves at the polls by engaging in ruinous economic policies because it was an election year.  Within memory of 2020 policymakers, the outgoing Bush Administration in 2008 mishandled the sure-to-be recession coming from the bursting of the housing bubble by panicking Congress into passing the TARP legislation, which fright drove investors to the sidelines.

True, the price rise from the 2020 massive fiscal and monetary stimulus did not appear as quickly as worriers, like me, expected.  Recipients of government largesse were not spurred to spend it as spontaneously as predicted.  Neither did negative real interest rates prod much borrowing, but it did punish savers.  While economic activity remained suppressed, people for a time sat on their money with little to do.  Eventually, puzzles all finished, people started coming out as 2021 wore on.  Congressional leadership called for more stimulus whilst the flood of funds from earlier stimulus at last began to flow.

The tight spot for the current administration is how to bring down inflation without bringing down the economy.  Of course, the economy will come down if they do not, because inflation eats away at the insides of economic activity.  Current White House leaders are sensitive about comparisons with the Carter Administration, yet there is talk of following the failed Carter example of trying to drive the economic car with one foot on the brake and the other on the accelerator.  That is the program for Carteresque stagflation, a stalled economy wrapped in continued high prices.

What we should have learned—and many have—is that the way to end inflation without getting into stagflation is not more government stimulus.  It is to end disincentives to business activity.  Reduce regulatory burdens and people will find ways to solve problems and get things done.  Inflation is caused by too much money chasing too few goods and services, stagflation impeding production of goods and services.  Reducing regulatory burdens and barriers to business activity addresses both problems by promoting productivity, innovation, and expansion, which increase supply at lower costs, reward creativity, and encourage new ideas in a virtuous economic circle.  It worked in the 1980s.  It can work 40 years later.

Of Marx and His Side of History

 

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Karl Marx was a bad prophet.  His record is abysmal.  Reality paved a road moving opposite to the predictions of Marx.  That is a serious problem for someone whose theories of economics, life, and the future boastfully rest upon assertions of inevitable fulfillment clothed in scientific jargon.

My friend, Alex Pollock, has frequently said to me that predicting the future is easy; having the predictions come true is the hard part.  Richard M. Ebeling, a professor at The Citadel, has done what many have not.  He has studied what Karl Marx foretold in comparison with what happened.  The differences are stark.  Ebeling reports, “Being blunt, every one of Marx’s ‘predictions’ has failed to come true.” (See Richard M. Ebeling, “How Marx Got on the Wrong Side of History,” June 16, 2017, Foundation for Economic Education.) To begin, Marx’s forecast of the progressive immiseration of the general population was exploded by the greatest increase in standard of living in the shortest period of time for the largest number of people in history. 

His prediction that mass production would render labor skills ever simpler and homogenous, rewarded with mere subsistence wages, compares poorly with the dramatic expansion of the complexity, variety, sophistication, and compensation of employment and employees in the nearly two centuries since.  I admit that I am not comparing Marx’s predictions with the reality in Marxist societies, where Marx’s predictions of employee drudgery and subsistence living have come too painfully close to fulfillment.

Indeed, perhaps only in such a view, where Marxist experiments have been tried, can one find any relevance of the Marxist concept of being on the “wrong side of history.”  The once oppressed residents of the former Soviet bloc are still trying to get caught up with their neighbors who did not spend decades living Karl Marx’s utopian nightmare.  That is to say, the idea that the Marxist conception of history having “sides” has only been demonstrated in the negative by regimes who have imposed Marxist prescriptions on what they call their “masses,” often within walls to keep them on the inside.

What history has shown is that no one controls it, other than God.  From time to time God provides His prophets visions of future history, usually with invitations and cautions, invitations to actions that will bring progress and happiness, and cautions that if ignored yield destruction and sorrow.  Those prophecies have always come true.  In that sense, and that sense alone, to be “on the right side of history” is to be on the right side of God and His encouragements and warnings.

God our Father loves us and our freedom so much that He gives us room for our exercise of choice in creating our own history, disinclined to force what He wants or to prevent what He hates, ever offering counsel and eager to help when asked in faith.  History is littered with the ruins of societies that acted otherwise, when they reached a point described in scripture as being “fully ripe in iniquity.”

Of More Money and Higher Prices

 

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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 Good Banking and the New Year

 

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A year in retirement can give you perspective, particularly a year fraught with ample opportunity to do some good amidst challenge, risk, and danger of various flavors.  Such was the year behind us.  Does the year ahead offer any less?

Many such thoughts were brought to mind in a recent conversation with the chief financial officer of a community bank.  As you would guess, we discussed the outlook for banking.  I observed that the condition of the industry reminded me of the dot-com bust of 2000.  While the economy was in decline, hit a second time by the terrorist attacks of September 2001, the banking industry was thankfully in strong financial condition.  The dot-com bust had a securities market and Silicon Valley locus.

As in 2001, so also today, the banking industry is strongly capitalized, liquid with financial resources, well positioned to fund economic recovery.  Fortuitously, that position is matched by a host of potential customers, especially entrepreneurs eager to start up new businesses or expand ones that survived the government-led shutdowns.  Among those entrepreneurs are many people whose businesses closed not from bad business plans, but due to the Great Cessation of 2020.  That is to say, there are people who want to start new businesses who know how to run businesses, if government strictures will let them. 

Their problem is one of resources exhausted by trying to keep their businesses floating as the tide went out.  As the tide is coming back in, there is a ready supply of people who would like to have a go with a new boat.  Good bankers have always been in the business of finding and funding good risks. 

Banks grow as their customers and communities grow.  Good banking fosters and facilitates the generation, management, preservation, and application of wealth. 

Bad banking bleeds wealth, which is why failed banks should be allowed to fail, to end the drain on the economy and to make room for the productive work of good banks, new and old.  Good bankers do their work by insightful weighing of opportunities and risks, tailoring terms and conditions to such opportunities and risks.  Bad banking either mistakes opportunities, or it miscalculates or ignores risk, or both.  Which, by the way, is why governments should stay out of the business of banking (other than as prudential supervisors), as the history of government shows an atrocious record of missing opportunities and miscalculating risk, sometimes for the short-term benefit of government’s associates.

The other day I saw a happy video from the chief executive officer of a southwestern bank.  Her timely message was of gratitude to the bank’s customers for constant communication and support.  In return, she offered a reaffirmed invitation apropos to serving in a way tailored to customers’ financial needs.  Reach out to the bank, including its CEO, 24-7 for financial service.  In conclusion, she pledged the bank to “connect you with others in our community who can serve you best.”  Now, that is good banking.

Of the Spring of Relief and Re-Awakening

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We began this month with fasting and prayer “that the present pandemic may be controlled, caregivers protected, the economy strengthened, and life normalized.”  I see our prayers in the process of being received and answered, and I feel to rejoice that there is a God who hears and who receives our prayers of faith.  I have long known, from much personal experience, that He does.  I am seeing it yet again, as I believed that I would.  I expect that you, too, are seeing the signs of the Spring of Relief.

With each new set of hard data of what is really happening, the dire predictions from so many, that frightened so many, are revealing themselves to be well beyond the mark.  That is cause for general celebration (I do not understand why some are angered by it).  Sickness rates and mortality rates continue to decline, approaching levels consistent with seasonal experiences.  Those most vulnerable are becoming easier to identify and protect. 

The realized effects of the pattern of the disease offer growing cause for relief and hope for the many, even while we join in sympathy for those most afflicted by this flu strain, just as our hearts sympathize for all who suffer from the numerous ailments and sicknesses that are part of mortality.  No one of us is left unaffected by sickness for ourselves and loved ones.

The reality of the epidemic has wonderfully been falling far short of the dire predictions, for which we are grateful.  On the other hand, the economic experience has been as bad or worse than predicted.  Here the real numbers are also coming in.  I recall one estimate from the first of the month, considered then by some to be high and exaggerated.  The anticipated dark cloud was that by May there would be 27 million Americans unemployed by the Great Cessation and other effects of the state-ordered shutdowns.  By Thursday, April 23, the number of Americans applying for unemployment had reached 26 million, a number that does not include those who remain employed but whose business and income are fractions of normal.  Of those who had work just a few weeks ago, today one in six do not.

No government in known history has ever done this to its own people.  As the Great Cessation was put in place by government action—not by the disease itself—it is an encouraging sign that government leaders are increasingly taking action to restrengthen the economy and to allow the most powerful engines of economic strength, the business operators and employees themselves, to begin the steps to return to the normal processes of enterprise.  This is only just beginning, and it needs to be encouraged. 

Will Rogers is credited with saying, “If stupidity got us in this mess, how come it can't get us out.”  Governments can block economic activity; they are poor at generating economic growth.  They lack expertise and incentives for it.  But they can repair some damage, and they can remove the barriers they erected, to which more government leaders—at local, state, and federal levels—are turning their attention.

These are all trends to celebrate, replacing anger and despair with gladness and hope, a Great Awakening for us in which to be engaged.  Bring it on.

Of Fasting and Relief

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To a physically empty room, but to a crowd of millions gathered electronically around the world, a prophet of God spoke reassuringly about times of turmoil.  Russell M. Nelson, Prophet and President of The Church of Jesus Christ of Latter-day Saints, was conducting a worldwide conference with the more than 16 million members of the Church.  Fewer than 10 people, presumably including the cameraman, were in the room, and all were practicing social distancing as urged by government officials. 

President Nelson has refused, however, to engage in spiritual distancing.  Quite the contrary, his work is aimed at bringing the hearts of people together.  In keeping with the great commandments to love God and love our neighbor, President Nelson called for a worldwide fast this coming Friday, Good Friday.  “Good Friday would be the perfect day to have our Heavenly Father and His Son hear us!”  As part of the fast, he counseled that we pray “that the present pandemic may be controlled, caregivers protected, the economy strengthened, and life normalized.”

This call was extended not just to members of the Church.  President Nelson invited all to join in.  Who would not be in accord with the focus of these petitions? 

This fast is well timed and well targeted.  Well timed, because during the Easter season, Christians from around the world are focused on the most important miracles that Jesus Christ performed on our behalf, His suffering and atonement for our sins—which no one else could do—and His resurrection from the grave, which no one had done before and because of which all of us will experience.  A worldwide devotional petition to the God of miracles for His help will at this Easter time give many, shut out from their houses of worship, a way to focus their faith on a very traditional Christian act, temporary self-denial of physical nourishment to emphasize spiritual nourishment and commitment to God and His work.  People may wish to do as latter-day saints normally do when fasting, take the money that would have been spent on the skipped meals and donate it to those in need, of which there are a lot more than there were a few weeks ago.

The fast is well targeted, because the call highlights the four most urgent areas in which we need divine help:  controlling the virus, blessing the caregivers, strengthening the economy, and returning life to normal.  I know of no one not acutely in need of one or more of these petitions.

The New Testament tells of when Jesus Christ was asked by a lawyer which commandment was greatest.  The ancient lawyer was hoping for an argument.  Instead, he received inspired teaching.  The Savior replied, love of God and love of our neighbors, explaining that from these two commandments come all of the others (Matthew 22:35-39).  In essence, all of the rest are commentary on these two.  This fast is all about those two commandments.

Consider joining us in this fast this Good Friday, to the extent that you can.  Let God our Father, who reminded us that He acts in accordance with the faith of His children, hear our prayers and witness our devotion.  He will surely welcome such a global expression on behalf of His children and their welfare. 

Of Bears and Working

Photo by Sandy Millar on Unsplash

I can support a cute idea like this.  One of our neighbor dads plans to take his children “on a bear hunt.”  Dad has planned ahead.  He asked neighbors who have them, to put a teddy bear in the window to be spotted by his children as they walk around the block. 

Being empty nesters, our home is more often host to grandchildren; few of many bears remain in our house.  Once we had dozens—of teddy bears.  We now have more than a dozen grandchildren, and I am fine with the trade. 

Speaking of trading, I suppose that we could put in the window a print out of today’s stock market, sliding deeper into bear market territory, responding to yet another attempt by the Federal Reserve to stimulate market confidence.  A more than casual observation might be that these government intervention moves can do more to spook investors than reassure them.  Usually declared while the markets are closed, the moves appear lately to be followed by a sharp market sell-off.  No criticism of their intentions, but when the 5 governors at the Federal Reserve (Fed for short) are pitted against the billions of people who make trillions of economic decisions each day, the Fed is frequently worsted.  No matter how good computers are, the economy is too complex for any of the models upon which any team of experts relies.   

So, no picture of the bear market for the window.  We do not wish to scare the children or their dad.

Fortunately, we did find a teddy bear in the house, left by our youngest (who still has lots of his stuff here).  The bear now sits on our front porch, awaiting discovery.  On his lap he holds a sign, one that our daughter gave us some years ago to announce the pending arrival of her first child.  The sign reads, “Grandkids welcome.  Parents by appointment.” 

No, the sign was not mandated by the CDC or the governor.  Humans need social interaction.  That fact is not apparent in the government orders to isolate people indefinitely.  Dad may not go to work, children may not go to school, so it is great to see fathers and sons and daughters taking pleasant walks.  At some point, someone is going to need to pay bills to buy things produced by somebody somewhere.  I wonder whether the complex models on which the governors rely are a match for the billions of human interactions in which their millions of citizens need to engage in order to live and be happy. 

Of Warming Planets and Cooling Economies

Did you notice when the Obama Administration paused in its ballyhooing about global warming?  President Obama and his officials had been busily hustling the warming of the planet and its attendant disasters—which they insist can only be fixed by increasing government control of our lives, from birthing to breathing.  The President was in Florida, blaming the future hurricane season—which has not yet happened—on global warming.  “The best climate scientists in the world are telling us that extreme weather events like hurricanes are likely to become more powerful.”  What President Obama did not mention—anywhere in his speech at the National Hurricane Center in Miami—was that the scientists predicted a “below-normal” hurricane season for 2015.  Was that mercy because of or in spite of global warming? 

Perhaps we should not blame the President for leaving that little item of information out, since for each of the last several years the cited “best climate scientists” (whoever they are) had predicted extraordinarily active and destructive hurricane seasons.  Since each season turned out to be unusually mild, the official forecasters have now changed their tune, putting themselves solidly in-sync with recent trends.  Do not put yourself at risk with a long investment on it either way. 

As for global warming, however, the President and those who say they agree with him insist that the debate is over (in either science or a free nation can the debate ever really be over?), meaning that it is unacceptable to disagree with them.  If you can’t say something calamitous, then don’t say anything at all.

Then, suddenly and quite unexpectedly, the global warming talk stopped.  There was a mercifully, if brief, moratorium on warming warnings.  Instead of predicted calamity, a real calamity was at hand that required some ‘splaining.  The most recent report on the nation’s economic growth was announced.  Not only had growth slowed, as measured by government number crunchers, the economy had actually declined in the first 3 months of 2015.  That seemed to come as a surprise to no one who is either without a job or working in a job that is something less than the job held before 2009.  But it was unwelcome news to the Administration that has been working on economic revival for going on seven years.

Instead of global warming, the Administration needed cold weather to blame for the decline in economic activity during January, February, and March.  The lead official White House explanative was, “harsh winter weather”.  I did not make this up, and you are not supposed to notice how convenient White House excuses are.  It was better that global warming talk was cooled for a moment lest people recognize the contradictions in the official propaganda and begin to wonder whether White House policies were working.

Winter weather is not a novel excuse for failed government programs.  The old Soviet Union blamed repeated crop failures on harsh winters (in Russia?  Who knew?).  The similarity in excuses used by the Obama White House and the Soviet Politburo is not accidental.  Central planners can survive only if they have at the ready a list of excuses of things beyond their control.  The list could be a long one, since in the end there is not very much about the economy that central planners can control, if control means making things go the way intended.  To quote the character Jayne Cobb, in Serenity, “what you plan and what takes place ain’t ever been exactly similar.”

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 Presidents and Training for the Job, 2015

More and more I have been struggling for the words to express my concern over the frightening incompetence of the current President of the United States.  Barack Obama's economic blunders deepened and prolonged the recession and bequeathed to us the most anemic recovery of modern times.  Most of us have been seriously harmed by those policies, some more than others.  Unfortunately, the extent of his economic errors are obscured by the benighted economic management in Europe, which amazingly is managing even to underperform ours.

President Obama's politics have yielded the opposite of what he publicly promised:  division in place of unity, secrecy and deception in place of open government, exclusion of those who disagree with him in place of inclusive embrace of open debate, privilege for the few in place of opportunity for the many, racial bigotry for political gain in place of a "post racial" society, rule by breaking laws and ignoring the Constitution in place of rule of law.  I am sure that you could easily lengthen the list.  Again, these perfidies have been to some degree obscured by congressional Democrat leaders far too willing to compromise their duties of office and the rights of the legislative branch of government, all to cover up and support the Obama Administration's outrages on the nation and the political institutions of the Republic.

Most frightful of all, however, is President Obama's dangerously bungling foreign policy.  No friend of the United States is safe from this Administration's blunders.  Vladimir Putin, the boss of a second rate economic and military power—albeit one with a formidable nuclear arsenal—has been able to engage in 19th Century military adventures of invasion, conquest, and territorial acquisition against little more than vacuous bully talk from Obama, the emptiness of which has produced similarly pitiful responses from the leading Powers of Western Europe, derision from Moscow, and fear among America's friends only recently escaped from the Soviet Union.  China commits aggression against India and the Philippines, threatens Japan, and toys with close relations with Russia to isolate the United States, while openly engaging in cyber attacks on the U.S. government and American industry.  Islamist barbarians increasingly brutalize Muslims, Jews, Christians, and humanists alike, undeterred by inchoate responses from Obama, who asserts leadership while failing to lead, other than with his transparent policies of pusillanimity and indecision.  American allies in the Middle East feel abandoned or betrayed, while enemies are emboldened; the best counter strategy that Barack Obama is able to envision is a plan that might delay but will not prevent the nuclear arming of the mullahs of Iran—committed to the incineration of Israel, the more Jews killed the better.  Each day seems to extend the list of foreign policy failures.

While considering the consequences of an amateur in the Oval Office, I came across a brief note I wrote during the 2008 presidential campaign.  It might be immodest for me to point out how correct my warnings proved.  I can make no claims to perspicacity, as all of this was rather obvious.  No self congratulations are in order.  It is too dangerous a world to trust the Presidency of the United States to one whose inexperience is only matched by his hubris.  This is what I penned August 25, 2008, just before Barack Obama received the nomination of the Democrats:      


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

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

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

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

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

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

Of Majorities and Modesty

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

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

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

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

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

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

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

Of Unbanked and “Underbanked”

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

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

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

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

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

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

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

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

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

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

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 Claiming Good and Doing Bad

A very good book was published this month.  Ostensibly, it is about our economy and the recession.  It is actually about much more.  It is the first book about the current American economy written by a philosopher, and it is perhaps the best book I have read yet about all the recent unpleasantness.  Some might say that the economic trouble still continues, more like a long, slow convalescence from a serious illness than a healthy recovery.  For many whose financial condition stagnates, for those who have replaced a full-time job with one or two part-time jobs, for graduates who have a degree in hand but no work in the field for which they have trained, and especially for the millions who remain out of work, talk of an economic turnaround can seem like a mockery.

For those and others, Infiltrated, by Jay W. Richards, can help make some sense of what hit us.  The book does not suggest that there was a massive conspiracy to drive our nation into economic turmoil.  It explains how turmoil came nevertheless as national policymakers followed the prescriptions of people who claimed to be doing good but tried to cheat the laws of economics and markets to impose what they might call “benevolence” on the rest of us. 

It was their idea that in order to help more people own homes lenders should ignore such things as ability to repay a mortgage, strong history of employment and steady income, and having some equity in the value of the house so there would not be an incentive to walk away if prices dropped.  They also agitated for the government to expand its guaranties for mortgages to people with poor credit histories and loans where lenders cut corners.  And they badgered builders to keep building more houses. 

Their plans horribly miscarried, and yet those people have even more control over us and our economy today and are more able and determined to try again.  The recession, rather than educating and deterring them, has made them bolder.

I am reminded of what the late Louis Rukeyser, the very popular host of the PBS program Wall Street Week, wrote in the 1990s:

            Washington has been taken over by an impregnable mob of short-sighted, power-hungry megaclowns.

They try their worst to micromanage every detail of the economy, but succeed only in whipping the markets back and forth, up and down in spastic patterns.  They despise the gentler forces of a free market, which would moderate swings far more predictably.

(Louis Rukeyser, 1993 advertisement for his financial newsletter)

The people to whom I refer and whom Richards exposes in his book do not like the markets.  They trust themselves more and think that you should trust them, too.  They seriously do believe themselves smarter than the markets, and that is the problem.  No one, other than God, is smarter than the markets.  A large part of economic history, the tragic part, is a chronicle of the disasters caused when a small coterie of people are able to enforce their wishes and preferences on the rest of us in contravention of economic reality.  It never works. 

That was the story of the Great Depression, and it was entirely the story of communism, where whole societies were based upon the now well-proven fallacy that any group of people, no matter how smart or well intentioned, can gather sufficient data and know and understand enough to run a national economy.  It is just far too complicated, with billions of economic decisions being made by millions of people all day and all night long.  The markets make it all work, because the markets are the sum combined total of all of those economic actions and decisions interacting with each other.  No human five-year plan for economic control has escaped failure.

What is worse, as well intentioned as such people may start out, all too often, as Richards’ book exposes, their efforts not only fail to do what they set out to do, they fail to stay virtuous and instead  become enlisted in the service of private gain at the expense of the rest of us.  The Soviet system might have worked pretty well for the party owners of the dachas along the Black Sea but only by impoverishing the workers their leaders claimed to be serving.

Do not let yourself be put off that Richards is a philosopher.  His book is remarkably readable, one that you can take with you to the beach and actually enjoy, and feel that you have learned something—a lot—in the reading.  Richards mixes real life narrative with hard facts and good research, unified by sound reasoning to expose a nasty and growing problem in American government today.  The problem is a big part of why government is expanding and becoming more intrusive in all aspects of our lives, including our financial affairs, education, healthcare, energy use, the products we buy, the food we eat, and the entertainment we enjoy, and even the breath we exhale. 

That is to say that the story told by Jay Richards, in Infiltrated, is actually a longer story, a story that began long before the recession, and continues afterward, a story that is bigger than his book.  The recent economic events and their painful aftermath illuminate Richards’ core message, the human wreckage caused when some people are able to harness the coercive force of government to impose their personal notions of “benevolence” on the rest of us. 

Roger Kimball, writing in 2011 in The New Criterion, warned that such efforts are “intoxicating, addictive, expensive, and ultimately ruinous.” (Roger Kimball, “Liberty versus benevolence,” The New Criterion, February 2011, p.6)  Richards offers several well-described examples, well illustrating the truth of Kimball’s observations. 

A valuable lesson for policymakers and for the people they would govern:  the more discretion you give to government, the more you create the opportunity for abuse of that discretion for private gain.  Europe in the 18th century was lousy with the practice.  Our forebears sought to escape it and fought a revolution to get out of its grip.  The men who threw the tea into Boston Harbor were acting in protest of the partnership between the British Crown and the British East India Company. 

Beware the public-private partnerships.  Jay Richards explains how some public-private mortgage partnerships went bad, very bad, for the partners and for all of us caught in the dust and debris of their collapse.  I am reminded of the warning by former Congressman Dick Armey, that when you enter into a partnership with the devil, you are always the junior partner.

I conclude with the words of New York City Democrat Congressman Bourke Cockran, delivered 110 years ago:

That Government only is good, that Government only is great, that Government only is just, which has neither favorites nor victims.

(W. Bourke Cockran, speech given before the National Liberal Club of England, London, July 15, 1903, in W. Bourke Cockran, In the Name of Liberty, p.190)

Our government should be that government.

Of Hope and Just Getting By

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

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

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

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

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

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

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

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

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

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