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February 23, 2010

KARL MARX DID NOT DIE

KARL MARX DID NOT DIE

9:30 AM PST 

Read Jay B Gaskill’s Lost Souls Coffee Shop, an allegory for the human condition.  More on the Bridge to Being Blog at http://jaygaskill.com/blog2/ .

 

And read Jay Gaskill’s new thriller, The Stranded Ones.  More on the Policy Think Site at   http://www.jaygaskill.com/TourTheStrandedOnes.pdf .

 

Welcome to the Policy Think Site: http://www.jaygaskill.com    

As Posted On

The Out-Lawyer’s Blog: http://www.jaygaskill.com/blog1   

The Human Conspiracy Blog: http://www.jaygaskill.com/blog3  

 

All contents, unless otherwise indicated are --

Copyright © 2003, 2004, 2005, 2006, 2007, 2008, 2009 & 2010 by Jay B. Gaskill

Permission to publish, distribute or print all or part of this article - except for personal use - is needed.

Forwarded links are welcomed.

Contact Jay B. Gaskill, attorney at law, via e mail at law@jaygaskill.com

 

Also posted on the Policy Think Site at  -- http://jaygaskill.com/KarlMarxDidNotDie.htm



Warning:  This piece is “inside baseball”, a commentary readily understood by that subset of Americans who have figured out that Karl Marx did not really die. There is no Marxist Lite.*

 

The (neo-Marxist) core political left has just aligned itself against both American liberals and conservatives. 

 

 

No, there was no official announcement.  And there will never be one – as long as we live in a free country.  For reasons that will become painfully apparent, Marxist true believers are not harmless, nor honest, nor extinct.

 

The root word out of which the liberal mind was formed is liberty.  The root word out of which the conservative mind was formed is conservation.  Both are historically legitimate voices in the American political dialogic.  Both wish to liberate people from real oppression and each wants to conserve liberty, justice and the values on which these were founded.  Both historically have abhorred totalitarian communism and fascism, and have rallied to the defense of the union when our homeland was attacked.

 

Authentic liberals and homegrown conservatives have much more in common with each other than with the latest iteration of the left.  The historians among us will recall that the blood-red, arch-left, the ruthless Marxists like Vladimir Lenin and Josef Stalin, held the liberals in contempt. 

 

Nothing has changed.

 

The true left is distinguished by a long term commitment to enforced equality, not as a form of liberation as liberals and conservatives might understand that term, but as a utopian condition to be imposed, as appropriate, by any means necessary.  Because the hard left’s real agenda is profoundly unpopular, not to mention profoundly unrealistic, its true believers always operate in stealth mode.  It remains an open question whether our current president is a member of the hard left, but few reasonable minds can deny that, during his formative period, he was surrounded by its representatives. 

 

While Mr. Obama’s real agenda is being sorted out, it remains puzzling for a number of observers that a national leadership Trifecta, consisting of POTUS, Madame Speaker and The Senate’s Major Domo, remains committed to a suicidal economic and political course – spending money we don’t have for objectives we can’t achieve, while ignoring popular sentiment, the counsel of a majority of working economists and a supermajority of small business owners. 

 

It makes one seriously wonder: Are these leaders really just badly misguided, or are they actually working for the ultimate defeat of the Great American Experiment?   

 

If you doubt me, then just ask yourself three questions.  Why has the left abandoned the term liberal in favor of progressive?  How can there possibly be an authentic populist movement that is rising up against the left?  Why would the liberal establishment risk burying the ‘golden goose’ of capitalism under an insurmountable mountain of debt, unless it was designed to be a final interment?

 

___

 

*There is no Marxist Lite. 

 

In all its forms, Marxism, as a social/economic engine, leads to economic collapse.  When it is implemented and run by brutal authoritarian bureaucrats (as in Stalin’s Russia) the collapse can be delayed for as many as 70 years and the resulting crater is deep because of all the bodies.  When it is implemented and run by incompetent elected politicians and subsidized by Keynesian faux money, the collapse can’t be delayed nearly as long because it’s no longer a closed system – people and enterprises move away or go idle, borrowed funds can be cut off, confiscatory taxation resisted.  The resulting crater is shallower and there are few, if any bodies.  But the failure track is the same. 

 

The flaws are the same:  (a) The quest for equality does not drive economic productive behavior; (b) Political manipulation of free enterprises to implement ‘more equal’ outcomes leads cumulatively and inevitably to economic collapse.  As one Eastern European worker said (of his soviet factory job): “I pretend to work and they pretend to pay me.” 

 

Make no mistake:  The current collapse is not a free market failure; it is the systemic failure of the political manipulation of free markets by Marxist Lite politicians whose errors were subsidized by speculative bubbles based on government supported, over-leveraged borrowing.  Karl Marx once quipped that a capitalist will sell you the rope to be used for his own hanging.  More apt is the observation that Marxist Lite politicians will buy into the bubbles that will bring them down.   

  

 

 

JBG   

February 22, 2010

THE FLUMMOXED ESTABLISHMENT & LEADERLESS TEA PARTY

THE FLUMMOXED ESTABLISHMENT

& LEADERLESS TEA PARTY

 

[This article appears on The Policy Think Site in htm format at this LINK: http://jaygaskill.com/ConservativeFireTruck.htm ]

 

Read Jay B Gaskill’s Lost Souls Coffee Shop, an allegory for the human condition.  More on the Bridge to Being Blog at http://jaygaskill.com/blog2/ .

 

And read Jay Gaskill’s new thriller, The Stranded Ones.  More on the Policy Think Site at   http://www.jaygaskill.com/TourTheStrandedOnes.pdf .

 

Welcome to the Policy Think Site: http://www.jaygaskill.com    

As Posted On

The Out-Lawyer’s Blog: http://www.jaygaskill.com/blog1   

The Human Conspiracy Blog: http://www.jaygaskill.com/blog3 

 

All contents, unless otherwise indicated are --

Copyright © 2003, 2004, 2005, 2006, 2007, 2008, 2009 & 2010 by Jay B. Gaskill

Permission to publish, distribute or print all or part of this article - except for personal use - is needed.

Forwarded links are welcomed.

Contact Jay B. Gaskill, attorney at law, via e mail at law@jaygaskill.com

 

 

CONSERVATIVE FIRE TRUCKS, TEA PARTY GOERS AND THE FLUMMOXED ESTABLISHMENT

 

Political liberals periodically go overboard - an inevitable development where spending other peoples’ money is concerned.  Then conservatives are needed to put out the fire. 

 

The reigning Washington elites, the ones who see history through a social-progressive lens, tend to accept conservatives as a necessary inconvenience to be briefly endured until the progressive train can get running again.  For them, it’s never quite the pendulum theory of political change - which returns things to the status quo ante.  Instead, it’s the “feast and digest” theory, epochs of steady progressive change followed by periods of digestion.  You hear this sort of thing all the time when liberals chatter behind closed doors - “They (read ‘the people’) weren’t ready for (insert a particular progressive reform here) yet.  The “yet” qualifier reveals the underlying assumption of eternal progress in the same direction punctuated by brief periods of conservative slowdowns while the “people” are brought on board through “education”.

 

The current generation of progressive liberals never been faced with the prospect of outright rejection of their broader program, and they have never been forced to consider that significant elements of the current left-liberal dogma might actually be wrong.  In the Tea Party rebellion, they face the prospect of a well informed (via the internet) populist movement that is completely out of tune with all of the left-leaning populist movements of the past.  As I predicted in my articles on the Coming Populist Reformation, we are seeing the first signs of a popular coalition of the productive-creative elements in society against the non-productive manipulative elements.  Nothing quite like this has happened before.

 

I believe that the reigning elites will attempt to “allow” the Fire Truck Conservatives to oust the current liberal clique and govern long enough to “responsibly” curtail some of the worst spending and borrowing excesses without fundamentally changing the fundamental power relationships. 

 

But there is at least a 60% probability that the current elites will fail to retain control of the situation.   This is much too big for control by the current elites, especially those who were “on duty” for some of the decades when the current fiscal and economic problems were neglected.

 

As of now:  All Western developed economies have backed into an unsustainable reliance on public and private borrowing, crippling entitlement costs and punishing taxes.  Consider the sheer scale of the problem: the multi-decade history of fiscal neglect, the staggering cumulative debt load, the crippling loss of productive capacity and the huge overburden of non-productive retirees, all of which circumstances are endemic in the US, the UK, Japan, Russia, Eastern and Continental Europe.  Europe can play with the notion of bailing out little Greece or Spain, and the US can toy with the notion of bailing out California or New York, but these are temporary, half-fixes mixed with magical thinking. 

 

No one will bail the USA or Russia or Japan or Western Europe because no one can. We now face gut wrenching change, including the end of need-based entitlements, the end of unfunded government spending, and the restoration of some traditional national and moral boundaries all accomplished in hard nosed, real world terms. 

 

This is one reason that no particular leader has yet surfaced to lead the Tea Party movement.  The situation calls for some very gutsy truth-telling. 

 

Pundits and bloggers are like war correspondents huddling below the line of fire, free to write whatever they choose with relative impunity.  But any putative Tea Party leader is required to stand up in the foxhole, exposing him or herself to sniper fire. 

 

The first leader wannabes to expose themselves to fire will take damaging hits.  We’ve already seen what the media was willing to do to the former Governor of Alaska just for looking like she might someday try to be such a leader.   As a result we have a bunch of second tier leaders waiting in the wings for the situation to “mature” and for someone else to take the early hits.

 

Meantime, most conservatives, facing the most dramatic opportunity and the most peril for decades, appear hesitant and unsure of the terrain. 

 

The current crisis is so serious that the social issues that normally fracture conservative groups are being selectively ignored, depending on the jurisdiction (as in Scott Brown’s Massachusetts race). 

 

When the dust starts to settle, it will be increasingly clear:  This is going to be about boundaries, coherence and character. 

 

Conservatives, as the traditional advocates and defenders of boundaries, are the natural ‘go to’ people when we need to contain debt, restrain borrowing and limit punitive taxation. 

 

California conservatives gave Arnold Schwarzenegger cautious approval in spite of his social liberalism because (it was hoped) he would be tough where fiscal boundaries are concerned.  That hasn’t worked out.

 

Today, for many conservatives, the question has become one of character: If a leader is squishy about boundaries and limits on social issues, can he or she be trusted to be tough where other boundary issues are concerned? 

 

Here’s the takeaway lesson:  Social liberals can be accommodated within a broad conservative resurgence, but they will need to be able to explain or demonstrate with clarity and coherence why and how their fiscal conservatism fits within an overall belief system supported by strong moral character. 

 

JBG

 

 

 

 

 

 

 

February 10, 2010

Lancing the American Bubble

LANCING THE AMERICAN BUBBLE

As posted in htm format -- http://jaygaskill.com/AmericanBubble.htm

 

Read Jay B Gaskill’s Lost Souls Coffee Shop, an allegory for the human condition.  More on the Bridge to Being Blog at http://jaygaskill.com/blog2/ .

 

And read Jay Gaskill’s new thriller, The Stranded Ones.  More on the Policy Think Site at   http://www.jaygaskill.com/TourTheStrandedOnes.pdf .

 

Welcome to the Policy Think Site: http://www.jaygaskill.com   

As Posted On

The Out-Lawyer’s Blog: http://www.jaygaskill.com/blog1  

The Human Conspiracy Blog: http://www.jaygaskill.com/blog3 

 

All contents, unless otherwise indicated are --

Copyright © 2003, 2004, 2005, 2006, 2007, 2008, 2009 & 2010 by Jay B. Gaskill

Permission to publish, distribute or print all or part of this article - except for personal use - is needed.

Forwarded links are welcomed.

Contact Jay B. Gaskill, attorney at law, via e mail at law@jaygaskill.com

 

 

The American Bubble?

 

Catastrophic failure wonderfully concentrates the mind – unless it causes its architects to adopt a 'much more of the same' suicide pact.  The late John Maynard Keynes is the poster child for the mischief that results when economic theory becomes economic doctrine.  The current economic mess is just a warning of the catastrophe to come.  The leaders of congress, blithely ignorant of the failure of thirty years of Keynes-inspired deficit spending, are on a suicidal course.  It would be a good idea for the country to get off that train before the collision.

 

It is time for new thinking.

 

If I am correct, later generations will lump Keynes' ideas in the same category of 'good intentions with bad consequences' category now occupied by the permissive child rearing theories of Dr. Spock. 

 

In 2008, I posted an article titled “The Great Keynesian Collapse”.  It still holds up very well and is linked below. 

 

Keynesian economic theory is a spectacular 21st century failure.  This can be traced for three major economic factors, all of which now operate to discredit the entire edifice of Keynesian-derived policy:  (1) the utter lack of discipline of popular democracies, whose politicians are ever seduced by the promise of a free fiscal lunch; (2) the profound impact of the world economy, the monetary effects of which are fully capable of swamping local currency and money supply policies; (3) the complete incompetence of government bureaucracies when it comes to the creation of wealth-generating enterprises.

 

Avoiding the Great American Collapse

 

Following the huge deficits generated by the WW II economy, fiscal sanity and economic progress gradually reestablished themselves during the Eisenhower years and, briefly, during the first three years of the brutally truncated Kennedy administration.

 

The great fiscal watershed was the administration of Lyndon Johnson.  Following JFK's fiscally cautious approach to Keynesian economics, LBJ wholeheartedly bought into the notion that the USA could finance a major cold war military engagement and a major domestic spending commitment simultaneously - via deficit spending. 

 

The Vietnam War and the Great society set the stage for the later collapse of Keynesian economic theory in much the same way that an intoxicated teenage driver in an ultra-safe Mercedes sedan sets the stage for a highway disaster.  The padding, the crush zones, the airbags, the seat belts, the safe brakes and all the rest are mere illusions in the hands of a reckless teen – or a master politician. 

 

This was the beginning of the modern American economic fantasy, the notion that the US economy could forever spend its way into eternal prosperity using unearned funds borrowed against an imagined brilliant future whose exponential growth would always carry the debt load like a thoroughbred racehorse carries a 120 pound jockey.

 

Note for future reference: No racehorse has even been able to finish the Kentucky Derby while carrying a dead elephant on its back. 

 

The Nixon administration muddled through without repudiating the LBJ-Keynes bargain, but did not greatly aggravate its effects.  After a brief transition under President Ford, the grand LBJ Keynesian bargain suffered its first major collapse, resulting in the Carter recession, a period of rampant inflation and dismal economic performance.

 

Every succeeding administration - Reagan, Bush I, Clinton, Bush II and Obama - have been seduced by the perverse Keynesian notion that we can continue to borrow against a bright future, while all the time relentlessly ruining that future beyond recovery by digging a debt crater so deep that no sunlight can reach the bottom.  The current administration seems committed to a course that will put us in deep in that dark, unscalable pit before the end of its first – and  possibly only – four year lease on executive power. 

 

All of the post-Eisenhower GOP administrations played the Keynes game, too, succumbing to a dangerous trade-off: “Please fund our defense and security priorities and we'll look the other way when your domestic 'social justice' priorities are met with borrowed money”.  This is what is meant by two cooperating elites.  Bargains like these explain more than any other single factor why the Tea Party movement is so threatening to all current federal office holders.

 

Think about it from a common sense perspective for a moment.  Virtually 80% of elected federal officials actually think it is reasonable to discount worries about annual deficits as long as they represent an arbitrary 'acceptable' percentage of overall civilian spending for goods and services (the GDP).  As if these new deficits aren't adding to a mountain of unpaid indebtedness.   As if they aren’t placing us in the path of fiscal collapse when, inevitably, fewer and fewer willing lenders are available. 

 

This is exactly like a family ignoring its practice of always borrowing and never repaying because “it's only a little bit at a time”, while continuing to redefine “a little bit”. 

 

Yes, we Americans will soon face some heavy lifting.  But our nation's full recovery is possible, but only when the borrowing addiction is broken. 

 

New thinking starts with study and reflection.  The private enterprise engine that created American prosperity can save us, but only if we are willing to save it. 

 

Food for thought and discussion:  Follow the links to four articles on this developing topic below.

 

The Great Meltdown [2008]

 http://jaygaskill.com/TheGreatMeltdownOf08.htm

 

The Great Keynesian Collapse [2008]

 http://jaygaskill.com/KeynsianCollapse.pdf

 

Recovery 09

 http://jaygaskill.com/Recovery09.htm

 

Guide to Recovery

 http://jaygaskill.com/GUIDEtoRECOVERY.htm

 

 

Stay tuned….

 

JBG

February 03, 2010

AMERICA AT RISK - CHINA, INC. PART THREE

AMERICA AT RISK

China, Inc. Part Three

 

Read Jay B Gaskill’s Lost Souls Coffee Shop, an allegory for the human condition.  More on the Bridge to Being Blog at http://jaygaskill.com/blog2/ .

 

And read Jay Gaskill’s new thriller, The Stranded Ones.  More on the Policy Think Site at   http://www.jaygaskill.com/TourTheStrandedOnes.pdf .

 

Welcome to the Policy Think Site: http://www.jaygaskill.com    

As Posted On

The Out-Lawyer’s Blog: http://www.jaygaskill.com/blog1   

The Human Conspiracy Blog: http://www.jaygaskill.com/blog3 

 

All contents, unless otherwise indicated are --

Copyright © 2003, 2004, 2005, 2006, 2007, 2008, 2009 & 2010 by Jay B. Gaskill

Permission to publish, distribute or print all or part of this article - except for personal use - is needed.

Forwarded links are welcomed.

Contact Jay B. Gaskill, attorney at law, via e mail at law@jaygaskill.com

 

 

This is the third and last in a series of articles. 

See China Inc. One at http://jaygaskill.com/ChinaInc.htm

& China Inc. Two at - http://jaygaskill.com/ChinaInc2.htm .

 

CHINA, INC. PART THREE

This piece is posted in htm format at this link: http://jaygaskill.com/China3.htm

 

The global economy changes everything. 

 

AMERICA, INC. AT RISK

 

Countries behave more and more like corporations whose rise and fall depends crucially on the international (read external) markets for goods, services and borrowing[1]. When China’s market manipulation and lending actions are seen through this lens, certain startling insights follow.

 

You can file them under the ‘predatory behavior’ category.

 

When a large business, seeking monopolistic dominance, floods a competitive market with dramatically under-priced goods for the purpose of burying competitors, anti-trust principles are invoked:  This corporate behavior is called predatory pricing. [See the Wiki-primer at http://en.wikipedia.org/wiki/Predatory_pricing .] 

 

When a country like China does this to the American manufacturing sector, we just say it’s part of the ‘global economy’.  After all, there is no super country to enforce anti-trust norms.

 

When a large corporation offers weaker governments special incentives that have the effect of inducing dependence and constraining policy decisions, we call it ‘influence buying’ or, in extreme cases, ‘bribery.’ 

 

When the current Chinese regime, acting through its agents and puppets, becomes our principal creditor by gradually acquiring one trillion dollars of US debt and policy makers are intimidated, we just say it’s part of the ‘global economy’. 

 

After all, aren’t we big enough and adult enough to take care of ourselves? 

 

But when the best the American government can do is to reduce annual borrowing at the margins (i.e., reduce an annual deficit from the trillion dollar category to the merely multi-billion dollar category) we remain hostages; our creditors still hold they keys to our next payday. 

 

The looming danger should be apparent:  Fewer and fewer lenders are available, except for the ever ‘generous’ Chinese.

 

‘MIS-UNDERESTIMATING’ CHINA, INC.

 

The current Chinese regime can be counted on to compete with us ruthlessly and unfairly.  Its current regime will never lift a finger to prevent or ameliorate the demise of the USA as an economic, geopolitical and cultural force in the world, even if that outcome causes temporary economic distress in China itself. 

 

All the while, the regime will present to us a bland, amiable face, concealing the world’s oldest functioning governing arch-bureaucracy, the world’s most mature predator civilization, and a deep internal turmoil that threatens – always – a clique of frightened post-communist, communist rulers, hiding-in-plain sight.  This is an acutely dangerous phase in China's history.

 

Any other view of modern China represents suicidal naiveté.

 

 

PREDATOR – PREY ANALYSIS

 

America is a wounded animal, capable of lashing out, but all too vulnerable to predators.

 

All civilizations are inherently predatory, China and the Western democracies included.  Modern, intelligent predators are capable of cooperating.  The secret here is to avoid becoming prey or indulging in prey behavior. 

 

Consider a pride of lions.  The weaker, slower prey are always taken first.  We were an ideal target for the Chinese planners.  We have fallen to a trap exploited by a fellow predator civilization with a cultural predisposition for very long term thinking - not a  virtue that immediately comes to mind when one thinks of Americans. 

 

Now we Americans are in a life-death struggle, but it is not primarily a military confrontation.  [Please note-  any predator needs to retain and be prepared to use teeth.] 

 

We have taken a dramatic hit in the first phase of a protracted economic confrontation.  We are fully capable of losing in this struggle because we have disabled ourselves to a dangerous degree.   Before I outline the measures that specifically apply to China, we need to take up the more urgent question of self-repair.

 

 

THE ELEPHANT IN THE ROOM

 

For the moment, our current politicians seem blithely unaware of the sheer scale of the transition that will be required to save the USA from the most brutal correction we have ever experienced, the Great Depression included. 

 

Every annual deficit increases a total national indebtedness.   A single surplus is like a touchdown the last minute of the game when your team is 30 points behind –not much to cheer about.

 

At the end of WW II, the national debt was 90% of our Gross Domestic Product (the aggregate measure of our internal economic activity).   As we rapidly approach that number (on our way to passing it) we need to keep in mind that two things were dramatically different then: 

 

(a) We dominated world trade.

(b) Our national debt was not held by our enemies.

 

In the current and following fiscal years, the national debt will be comparable to the percentage of GDP in WW II.  Moreover – without a sharp course correction - it will exceed 100% of GNP within the current president’s tenure.  

 

Yes, there are differing estimates, but the reality of the trendlines is starkly clear.  Whatever the details, there is a consensus of recognized experts that the current course is unsustainable, that a debt to GDP ratio exceeding 60% will permanently cripple the economy and that the current debt structure (half of which is held by “foreign interests”) is dangerous.

 

The Heritage Foundation’s charts are available at http://www.heritage.org/research/features/budgetChartbook/Debt-and-Deficits.aspx . 

 

The National Research Council’s recent report is summarized at: http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=12808 .

 

But federal policy makers are still in a denial bubble.  Remember the refrain, “We’re passing the debt crisis on to our grandchildren” ?   We are the grandchildren. 

 

Here is the real elephant in the room:

 

For the last three decades the US enjoyed a consumption economy one subsidized by growing indebtedness.  We now must become a production economy characterized by debt reduction.  The longer this transition is delayed, the greater (and more brutally destructive) the inevitable correction.

 

To understand the alarming seriousness of our predicament, just imagine one scenario: 

 

All foreign creditors are suddenly unable or unwilling to loan the US any additional money and the subset internal creditors (think of the constellation of US interests willing to put money into T Bills) shrinks radically.  This would effectively end additional borrowing to fund federal spending.  Debt service fop the remaining debt would be the single largest item in the so called ‘discretionary spending’ sector of the federal budget.  The pending bankruptcy of the entire suite of under-funded entitlement programs, Medicare, Medicaid and Social Security among them, would instantly materialize, and most other federal programs would quickly collapse.  If the fed attempted to monetize the shortfall by issuing more fiat money, rampant inflation on the scale of the banana republics (or pre-Nazi Wiemar Germany) would swiftly ensue.  The Chinese regime would then be in a position to buy America or calmly watch our downward spiral from the sidelines, ready to move in a pick up the pieces.

 

I do not exaggerate when I say that this is exactly the kind of scenario that generates a World War.

 

THE TOUGH LOVE REMEDIES

 

We are credit addicts, beguiled by the impossible dream that incomes will always catch up with undisciplined spending.  Our credit & consumption spree lasted three decades. It was subsidized by foreign investors who bought into a succession of financial bubbles, all of which were driven by a perversion of the American Dream.

 

Unless we act decisively, the next sound will be the American Bubble, the plop heard round the world.

 

The real American Dream was as simple as it is durable:  Work hard in a free country and eventually you can earn a place among the well off middle class”. 

 

The perversion of that dream was as complicated as it was evanescent:  Get on board now with the current fad, borrow if you have too, but you too can be rich!  Hurry!  Get yours now!

 

We are addicts to fantasy, to unearned wealth.  We need to break the addiction.  Our first priority:  Wean ourselves from Chinese debt and under-priced Chinese goods, then foreign debt, then all but a tiny carry-over debt that is periodically retired in full, cycle to cycle.

 

This is not rocket science.  It is just very difficult to implement. 

 

There are three broad categories of solutions, all of which are well known.  What is currently lacking?  Leadership and political will

 

Step One.

Radical fiscal discipline. 

 

Eliminate all budget-forcing elements.

 

Global warming advocates speak of the “climate forcing” effects of human activities. 

 

Here are the ‘budget forcing’ equivalents:

 

(a) Defined benefit entitlements. Instead of committing to a fixed dollar amount, government entitlement programs insist on meeting ‘needs’ by providing supplemental money in the form of cost of living adjustments and non-capped benefits.  All this is hidden in a budget system that puts most annual appropriations outside regular scrutiny, relying on stealth accounting devices like the non-existent social security trust fund.

(b) Built-in cost of living adjustments for salaries and wages of federal employees.

(c) Inflation-adjusted year-to-year appropriations. 

(d) Routine spending beyond realistic revenue projections.  The failure to link general appropriations to real-time payment, allowing under-funded appropriations to create instant political constituencies for their continuation.

 

Fixed Dollar Amount Solutions: 

 

(a) Flat line all entitlements, colas

(b) Eliminate all under-funded appropriations.

(c) Create robust overspending auto-correct mechanisms.  Notwithstanding salaries, wages and purchase reserves, all department and agency budges are corrected on a month-to-month real time basis, with instant pro-rata salary, wage and benefit reductions to achieve zero deficit balance.

 

 

Adopt 100% discretionary annual budgeting.

 

At present most of the federal budget is tied down by so called “non-discretionary spending”, which essentially means that the congress has abrogated its ongoing spending authority where all entitlements, like social security, are concerned.   Every appropriation needs to be freshly considered every fiscal year.  No entitlement is sacred.

 

Practice Zero Minus 2% Budgeting.

 

Local governments and some larger private businesses are familiar with so called ‘zero based budgeting’ which requires that the affected agency, department or section start the budget process from scratch each fiscal year with a justification for the continuation of last years’ budget. In the Beltway mindset, it is a given that all existing appropriations have earned a permanent place at the trough, including a cost escalator for inflation.  This model radically differs.  Zero is a true zero, the actual absolute amount from the prior year, less 2%, must be justified: (a) what get even that sum, and (b) why not get 2% less.

 

Step Two

Make the Transition to a Real Budget Surplus, Debt Retirement Model.

 

In addition to iron fiscal discipline, the present circumstances require us, not only to stop borrowing to fund the federal government (a radical idea in the current Beltway brain), it demands that we begin immediately to pay down the federal debt. 

 

This requires us to face an unpleasant reality:  Chronic deficits have almost buried us in not-repayable debt.  Merely curtailing the accumulation of deficits will not work.  Those who propose that we ‘grow our way’ out of our debt load have misjudged the sheer scale of the problem.  Consider for  moment, that a responsible American government actually began to generate small budget surpluses.  At ground zero of this noble effort, the total debt would be roughly equal to our entire gross domestic product, about 12 trillion dollars.  Any token debt repayments would probably not exceed the debt service.  How much growth in our GDP can we reasonably count on?  Take a number, say 4%.  Assume we have stopped the debt growth in its tracks by not borrowing at all.  To bring the ratio of outstanding debt to GDP below, say 40% (from unthinkable to horrendous, to awful, in other words) would require that we grow the Gross Domestic Product by about 150%.   That would take us roughly 9 and a half years.  And that assumes an unprecedented level of fiscal discipline coupled with a sustained growth rate, with no intervening recession. 

 

But it could be done.

 

 

Step Three

Achieve Sustained Economic Growth

 

This project requires a set of insights that some on the left, including the Chinese post-communist, communist leaders now dimly understand – an improvement over their former block-headed puzzlement.  Economic progress starts with innovation, is propelled by risk-taking and sustained by reward.  Every failed economic model in the last 80 years shares one fatal flaw: development killing bureaucracy.

 

The liberal mindset at its very best is the human charitable impulse made public policy.  The conservative mindset at its very best is the creative impulse made public policy.  Excessive bureaucracy kills both.  

 

I am persuaded by the subset of economists who hold that economic progress is primarily driven by profit-making business progress.  It follows that the next cohort of leaders capable of extricating the US from its economic malaise will have cut their teeth in intimate, ground level contact with the business community. 

 

Several lessons emerge from a study of business-led economic recoveries.  Here they are:

 

LESSON ONE

 

Don't differentially burden achievement, as measured by the most rigorously honest metric available, profitable earnings.  When governments punish behavior, the behaviors tend to abate. When politicians punish profits, there are fewer and fewer profitable enterprises.

 

About three years ago I witnessed a remarkable interview of an arch-liberal public figure (still in office, inhabiting one of those safe urban seats) who was being questioned about the economic wisdom of burdening the business economy with too many costly social programs.  His reply was remarkably candid.  I paraphrase:  “We've learned that we need capitalism in order to have wealth to redistribute.  And in recent years, we've learned that the private economy can tolerate a lot more that we thought it could.” 

 

Three years later, we can now add, “...and now you've found the limit by running a train well past it.....”

 

LESSON TWO

 

Government spending dries up capital available for business development.  [I won't outline the evidence here.  I invite my fiscally conservative friends in both parties to remove your ideological blinders and study the issue.  Some relevant links include: http://online.wsj.com/article/SB10001424052748704471504574440723298786310.html and http://www.house.gov/ryan/speeches_and_editorials/2010speechesandeditorials/12710roadmap.htm ]

 

LESSON THREE

 

Bureaucracies unreasonably  delay and constrain business development.

 

Obvious?  not to our current political leaders.  Some starting links: http://www.enterpriseworks.org/pubs/IRG%20Discussion%20Forum.pdf and http://www.aei.org/article/101387 .

 

 

LESSON FOUR

 

Government imposed employment requirements retard job growth.

 

See these links among many others, http://www.cato.org/pubs/tbb/tbb-0508-25.pdf and http://www.infoplusacct.com/laborburden.html .

 

 

OUTLINE OF THE CHINA-SPECIFIC SOLUTIONS

 

Assume that the  US works overtime to restore a vital,productive, debt paying economy. In the meantime we need to address the China issues because China is a bureaucratic, authoritarian state on the make.   

 

China needs clear boundaries from us.  Jimmie Carter's impotent railing at the Soviet Union is not the model to follow.  Our opposition must be bright line, to be sure, but in every instance it should be linked unflinchingly with real-world concrete consequences. 

 

Here's a short list to be followed by an economic war plan.  

 

We oppose, prudently to be sure, but resolutely and effectively any Chinese territorial expansion, especially Taiwan. 

 

Remedy: Military alliances in the Teddy Roosevelt tradition.  We can afford to be polite in our rhetoric, while leaving no doubt whatsoever about our bottom line.  We have a time window during which no Chinese regime, whatever its rhetoric, would dare entertain a military solution to our resolute defense of the democratic status quo.

 

We oppose Chinese intimidation of functioning democracies, especially Taiwan, but also Hong Kong.

 

Remedy: Economic support via a selective, pro-democratic trade policy.  [More below].

 

We fight back against Chinese intellectual property and industrial secrets piracy.

 

Remedy: Pierce the government-corporate veil, attach assets, selectively devalue indebtedness. [More below.]

 

We prevent Chinese predatory pricing.

 

Remedy: Anti-democracy import surcharge. [More below.]

 

We face down Chinese predatory lending.

 

Remedy: Selective borrowing freeze. [More below.]

 

DISCUSSION

 

Conservatives have been just as naïve about free trade dogma as the liberals were about the immortal golden goose.  The golden goose has lymphoma and free trade has become an open door to predators.

 

There are several concrete economic actions that the USA could put in place within the next four years:

 

Trade

 

We selectively deny free trade benefits to identified non-democratic regimes, especially China. 

 

This would be accomplished via congressional legislation that binds the president. It would be accompanied by several findings, among them that Taiwan and, on a selective basis, Hong Kong-originated enterprises are presumptively exempt as long as these regions remain democratic in fact.

 

Otherwise, all Chinese enterprises are considered agents of the regime, whatever their pretensions to the contrary.

 

Based on compelling, dramatic evidence presented in open hearings, Chinese goods are determined to be tainted by employment abuses, slave labor, child labor, comprehensive health and safety violations, repression of free speech and religious practices

 

Based on a similar body of evidence, Chinese commercial enterprises are found to have collectively benefit from comprehensive and systematic theft of intellectual property and trade secrets.

 

A reparations-surcharge is applied across the board on all non-expect goods from Mainland Chinese sources, their agents and surrogates.

 

Predatory lending.

 

Based on appropriate congressional abuse findings, as above, all further borrowing by the US government, and all its agencies, including the fed, from Chinese mainland sources is forbidden.  A separate debt-repayment surcharge is attached to all Mainland Chinese-sourced imports on a dollar-for-dollar basis, that is, for every dollar paid for an import, an additional dollar is charged and applied to retire a dollar of existing federal indebtedness to Mainline Chinese lenders.

 

Private lawsuits, including class action suits, for product contamination and related liability issues are authorized against Mainland Chinese enterprises directly against the Chinese government on a collective-control-equals-collective-responsibility basis.  A collection procedure is established to attach Chinese assets and for further surcharges on Chinese goods. [See my 2008 proposal, China Syndrome - http://jaygaskill.com/ChinaSyndrome08.htm ]

 

Caveats and exceptions.  Not all our strategic partners are perfect democratic countries. But they are partners and they do not hold us hostage as massive creditors.  A presidential exception, limited in scope is an essential safety valve. 

 

Make no mistake.  Doing these things amounts to a declaration of war, a trade war to be sure, but a real war, one that will call us for a time to the same level of dedication and endurance our grandparents went through in WW II.  What do we have to lose?   They think we are already defeated.  All we have to lose is our soft chains, our prey status.  And we gain a brilliant future for our children, the restoration of the American dream.

 

Thank you, China, for waking us up before it as too late.

 

JBG



[1]               In a forthcoming article: The dynamics of international finance will inevitably cause the traditional Keynsian economic remedies to fail at the national level.


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