Elite Responsibility and Societal Neglect

American elites (which I define as the upper-middle and upper classes) are a paradox: we preach bohemianism while living socially conservative lifestyles.  In our post-60s world, we refuse to share our social best practices—the very reason why we are elites, and people in lower classes are not—with those who most need it.

This is societal neglect.  It isn’t libertarian principle, respecting the choices of people who don’t harm others; it isn’t possible to make bad lifestyle choices in the lower classes and not harm a great many other people.  That requires money, which they don’t have.  But the neglect doesn’t stop at our refusal to preach good moral values.

In my grandparents day, upper-middle-class people had a social duty to help their communities—unlike today, where we simply donate to charities (in the case of many, though by no means all, conservatives) or vote ourselves higher tax rates (in the case of liberals).  Which is more likely to help poor people: volunteering in churches, schools, and local government, sharing social best practices with those who need it; or simply handing a check to a foundation or the tax collector, neither of whom can use the money as effectively as you can, and who may actively harm the people they claim to help (as in the case of the government)?

Would housing restrictions (and their deleterious effect on housing affordability for the poor) exist, if the people who populated local  government did so out of a sense of civic duty?  If they also volunteered in schools and churches, and built relationships with lower and lower-middle-class people?  Most of the American upper middle class lives in a bubble, with virtually no contact with lower classes.  The problem of our day isn’t gender or racial discrimination; it’s class discrimination, and voting for higher tax rates or paying gobs of money to charities does not compensate for that.

We elites need to admit that neither sending checks to foundations nor voting ourselves a higher tax burden substitutes for genuine community engagement; for volunteering in schools, serving in local government, in churches, and sharing social best practices in person.

Posted in Uncategorized | Leave a comment

Romney Should Run On Social Inclusion

It’s hardly a secret that Democratic policies lead to social exclusion, especially progressive policies.  Social democracy, in particular, requires a pool of “permanently unemployed” citizens to keep wages high in the protected employment sector and maintain exorbitant job security.

National Review Online ran an article last year on progressive critiques of the Earned Income Tax Credit that was very telling.  It quoted this paragraph from a study done by a progressive economist:

The EITC is intended to encourage work. But EITC-induced increases in labor supply may drive wages down. I simulate the economic incidence of the EITC. In each scenario that I consider, a large portion of low-income single mothers’ EITC payments is captured by employers through reduced wages. Workers who are EITC ineligible also see wage declines. By contrast, a traditional Negative Income Tax (NIT ) discourages work, and so induces large transfers from employers to their workers. With my preferred parameters, $1 in EITC spending increases after-tax incomes by $0.73, while $1 spent on the NIT yields $1.39.

As hard as it is to believe, this economist is actually proposing the government exclude some workers from the low-skilled labor market to maintain high wages in that market.  While conservatives often make this argument with respect to illegal immigration, this economist is saying the government should exclude native-born citizens already in deep poverty, and buy them of with a welfare benefit.

The left has always prioritized greater wages and benefits for most over reducing social exclusion for some.  In their view, people excluded from society should be made comfortable, but allowing them to work is unacceptable because it bids down wages.  Such a crude materialist view–that human beings are happy when materially taken care off, not when they feel included in society–is fundamentally inhumane.

In contrast, the GOP believes that jobs for all is preferable to the left’s vision of high wages for most, paid for by social exclusion of some and generous welfare benefits for those excluded.  Barack Obama, the first black president, raised the minimum wage in the depths of a recession in 2009, and the results today are stunning: black unemployment is significantly higher than other racial groups, and today poor black communities are as mired in poverty as ever.

Mitt Romney should run on this.  Republicans created the Earned Income Tax credit so poor people could work and support themselves.  Barack Obama, in contrast, weakened welfare reform’s work requirement, violating the Clinton/Gingrich bargain that allowed poor people back into society after being excluded by LBJ’s Great Society; even worse, he raised the minimum wage in the middle of a recession triggered, in many ways, by wages that were too high and a labor market that had overheated.  By delaying the necessary (and mild; usually estimated at 4-5%) fall in wages, Obama guaranteed a slow recovery and a high level of unemployment.

Romney will create a future for all.  Obama will create a future for some.

Posted in Uncategorized | Leave a comment

President Wilson Was a Suppler-Sider?

In the excellent book Taxation: The People’s Business (read it here, page 137) by Andrew Mellon, written in the 1920s (and found by Thomas Sowell in a recent column), I found the following quote from Wilson:

At the same time President Wilson in his

Message to Congress stated as follows :
“The Congress might well consider
whether the higher rates of income and
profits taxes can in peace times be effectively
productive of revenue, and whether
they may not, on the contrary, be destructive
of business activity and productive
of waste and inefficiency. There is
a point at which in peace times high rates
of income and profits taxes discourage
energy, remove the incentive to new enterprise,
encourage extravagant expenditures
and produce industrial stagnation
with consequent unemployment and other
attendant evils. “

This must be an accurate quote given who wrote the book, but it’s still pretty amazing.  There’s many more nuggets of wisdom in that book; Mellon is very articulate, more so than modern supply-siders have been in recent years.

Posted in Uncategorized | Leave a comment

Why is the American Center-Left Evil?

Anyone who’s ever spent time around Europeans knows that the American center-left is unique and special: it is evil and nihilistic, in a way the European center-left is not.  Europeans are often horrified at the idea of welfare policies that deliberately create dependency, at political activists that actively attack the family, at the American elites’ endless hatred of social trust (which is viewed as inherently racist).

This is why America is center-right.  It’s why successful Democrats are center-right.  Democrats took Congress in 2006 not because they were liberal, but because the Clinton people had pulled the party to the right.  When Obama crushed Hilary in 2008, he killed the future of his party.  But thanks to the administrative state and the nature of patronage, Obama-appointed bureaucratic nihilists will damage society long after he’s left the White House.

It is a failure of our political system that we cannot root the nihilist left out of our government.  It is, frankly, a sign that we do not enjoy a democracy.

Posted in Uncategorized | Leave a comment

Why Republicans Ran Deficits

There is a lot misunderstanding of why policymakers refused to cut government spending or tighten monetary policy during the early 2000s–despite Republican majorities in Congress and a Republican president.  Partly this was the Bushites’ idea that Republicans could copy Democrats and buy off voters with a Republican New Deal (i.e. Medicare Part D and other spending), which Republican voters like myself so rightly resented.  But other factors were at play as well.

In 1997, much of Asia suffered a debilitating financial crisis.  In the years that followed, their governments made a conscious decision to self-insure against future crises by building up foreign exchange reserves, which they did by suppressing domestic demand and manipulating their currencies to engineer large trade surpluses.

This presented a problem to U.S. policy makers: Foreign nations were manipulating their currencies in an attempt to force exports into the United States. U.S. policymakers believed they not only had to accept this, they had to encourage it–or else the U.S. would fall into a deep recession.  Anything that might lessen the growth of imports–cuts in government spending, higher Fed interest rates, tighter mortgage regulation–would spark that recession (why they believed this is story unto itself, but they did).

They were mistaken, and badly so.  By encouraging imports and the trade deficit to grow, they ultimately created the 2008 financial meltdown.  But even more importantly, there were policy options that would have let the U.S. cut it’s budget deficit and raise interest rates without a recession.  They were virtually unknown at time, but they did exist.  In essence, the government could have offset the interventions foreign governments were making in our economy with tax policy.  Foreign governments were artificially lowering labor costs by manipulating their currencies and suppressing demand–that’s how they created such large trade surpluses–and if we had lowered labor costs ourselves–say, by cutting employer payroll taxes or the corporate tax rate–we would not have had to dance to their tune.

Posted in Uncategorized | Leave a comment

How The Government Creates Inequality

I’ve been reflecting lately on the nature of inequality.  As conservatives, we believe that some level of inequality is good for society.  I submit that the current level of inequality is neither natural nor the fault of private sector actors.  The government created the present level of inequality by manipulating markets and excessively spending.

I can think of a number of ways the government distorts the income distribution (taxation not among them):

  1. Government spending and the trade deficit.  Government policies (especially government spending) drive trade deficits.  Trade deficits suppress wages for the lower and middle classes (there are two ways for the market to adjust: either savings must rise, or wages must fall, and in our Keynesian world, the government does everything it can to discourage savings).
  2. Monetary policy.  The Fed fights inflation by taxing manufacturing; when it raises interest rates, the dollar appreciates, imports become cheaper, and the tradeables sector shrinks.  Since low-skill high-paying jobs are concentrated in the tradeables sector, this increases inequality.   A different dynamic happens in recessions; the Fed lowers interest rates to bid up stock and housing prices, which encourages upper-middle-class and upper-class people to spend more; this bids up the cost of living, and also increases inequality.
  3. Crony capitalism.  This creates inequality between the politically well-connected and everyone else (as opposed to simple inequality between income classes).  Frannie Mae and General Motors represent very different forms of inequality, and both arise from crony capitalism.
  4. Consumption bubbles.  This is a superset of #1, #2, and #3.  The government’s tendency to blow up consumption bubbles is very bad for inequality, since it encourages government spending, trade deficits, and crony capitalism, all at the same time.

Given the structural problems represented by our bloated federal government, does anyone really believe that fighting the symptoms with redistributive taxation and scapegoating the private sector will solve anything?  Better to fix the underlying structural problems.  And while I tend to think the phrase “shrink the size and scope of government” has become a terrible partisan cliche, that does seem to be the inescapable conclusion.

Posted in Uncategorized | Leave a comment

The Dirty Secret of Inequality: The Middle Class

Discussions on income inequality always drive me insane.  Inequality is a serious issue, but the dirty little secret is that the wealthy aren’t the problem (and increased personal savings, not redistribution, is the answer).  The upper-middle-class (and, to some extend, the middle-middle-class) is where all the money is.  This is why President Obama is resisting Democrats like Chuck Shumer, who want to raise his 250,000-and-above limit on tax hikes to one-million-and-above.

“The wealthy” are not responsible for the distorted price structure in our economy, or its nasty effects on the poor.  The middle class is; it went into debt, created a huge trade deficit, and responded to stagnant wages (an unavoidable side effect of trade deficits) by borrowing even more (creating the housing bubble).  All of this had a nasty effect on the standard of living of the lower-middle-class and the poor, neither of which benefitted much from the national borrowing binge.

There are two camps on how to solve this problem: one is to increase the middle-class saving rate (the conservative position), possibly by privatizing Social Security; the other is to redistribute the “excess” purchasing power through taxation (the left-liberal position).  The middle-class is very powerful in most developed countries, and liberals are hesitant to discuss this in public; that’s why they scapegoat “the rich”.  Conservatives, on the other hand, have a much more positive message; why we aren’t shouting it from the rooftops is a mystery to me.  Americans may be suspicious of class warfare, but if it’s the only game in town they may go for it.

Posted in Uncategorized | Leave a comment