Archive for June, 2012

SCOTUS RULES – OBAMA-CARE – A BULLET DODGED

Thursday, June 28th, 2012

Note in today’s Wall Street Journal

“Make no mistake, Roberts gave the conservatives a very big gift—a ticking time bomb that could explode in cases down the line,” said Nan Aron, the president of the Alliance for Justice, a liberal-leaning civil-rights organization in Washington. “The Commerce Clause undergirds the entire fabric of government and a lot of our laws.”

COMMERCE CLAUSE POWER ABUSE

AND THE OBAMA-CARE CASE

A Close Call Analysis

By

Jay B Gaskill

Attorney at Law

THURSDAY, JUNE 29, 2012

The Administration’s Health Care Reform legislation is alive. The Affordable Health Care act that became unaffordable is still the law of the land. The individual mandate has survived as a tax, thus preserving the essence of the law, and the Supreme Court, itself, from taking the rap for what would have been the most massive legislative repeal in history.  The real surprise of the day is that the swing vote was not Justice Kennedy, who still would not save the mandate in any form, but the conservative Chief Justice Roberts who voted with the court’s four liberals.

Obama-Care is still an expensive, bureaucratic mess, ripe for repeal or, at the very least, some major surgery.  But the patient is still alive…for now.

The Might-Have-Been Scenario…

Stop to consider what might have happened under a more prudent, conscientious and traditional administration. At the outset of the Obama-Care proposal, we might have actually had congressional hearings, a measure-by-measure debate and a careful consideration of individual reform measures.  Instead we were treated to the sorry partisan spectacle of a frantic effort to push through a package so comprehensive and poorly drafted that, even last month we were discovering problems that still need correction. The measure’s flaws prompted the administration to grant 1,200 waivers.  We started with a health care system that served 80% of us quite well; and we could have begun a careful and incremental process of extending care to the underserved in ways that would not degrade or damage the care enjoyed by the vast majority of Americans.  We could have (but did not), for example, lighten the load on our hospital emergency rooms (already mandated to take all comers without regard to patients’ means) by creating sliding-scale clinics financed by a combination of taxes and contributions.

The administration adopted a bulldozer approach. The well-meaning social engineers (the “we-will-make-the-world-a-better-place” set) had achieved fleeting two year hegemony over both legislative chambers and the executive branch. With no time for reflection, no willingness to give due consideration to the constitution, no patience to consider the public fisc or the prudential requirements of wise policy, they handed their fellow Americans a measure that neither the president nor the members who voted on it were actually able to read, let alone study.

We could (but did not) accomplish a number of rational, incremental reforms.

Why the Supreme Court Case was about Abuse of Power…

Background…

The great constitutional scheme on which our republic is based consists of enumerated powers of government balanced against enumerated rights in a specifically biased way:  The enumeration of rights was not intended to be exclusive – there are non-enumerated rights as well (such as privacy); but the short list of enumerated powers was intended to be exclusive – there were to be no powers given the federal government that were not enumerated in the constitution.

One enumerated power was granted by the so called “commerce clause” – congress shall have the power – “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”[1]

Put plainly, the commerce clause was originally designed to clear the path for free and unencumbered trade within the USA, overriding contrary state levies, tariffs and restrictions, because, after all, we were members of one union.  By the early 1800’s, the commerce clause was used to prohibit state monopolies over travel on interstate navigable waters.[2]

The Attempted Power Grab

In the Obama Care package, the administration chose to rely on a single enumerated power, the federal authority to regulate commerce in order to force all Americans to purchase insurance. There is a century of constitutional litigation here, well beyond the scope of this piece to summarize. But suffice it to say that this single grant of power has supplied the foundation of a huge expansion of federal sovereignty over states and individuals.

Note the restraint that previous administrations have shown. For example, under Jimmie Carter, the 55 mile an hour speed limit was not imposed using the raw Commerce clause power; it was imposed as a condition attached to the receipt of federal highway moneys.  In another example, national educational policy is not directly imposed on the states and their various educational institutions, but is attached as a condition to receiving federal aid. The arguments that were advanced by the current administration in favor of the insurance mandate represented a truly radical departure from constitutional tradition.

At its most extreme, the proponents of the commerce clause power maintain that even passive behavior affects commerce (much as the flutter of a prehistoric butterfly might affect the timing of Lincoln’s birth.) This view converts the grant of a power originally designed to free the flow of commerce among the states into a truly comprehensive authority over every aspect of our behavior.[3] The continued expansion of power under the commerce clause would lead to truly staggering excesses because our every action can be viewed as potential consumer behavior. If the administration had actually won this part of the argument, the enumeration of powers structure of our constitutional system would be a dead letter.

The tension over the commerce power was evident during oral arguments.

“Tuesday’s two hours of Supreme Court oral arguments on Obama-Care’s individual mandate were rough-going for the government and its assertions of unlimited federal power. Several Justices are clearly taking seriously the Constitution’s structural checks and balances that are intended to protect individual liberty.

“ ‘Can you create commerce in order to regulate it?’ inquired Justice Kennedy, in the first question from the bench. To ask another way, does the Administration think it has plenary police powers to coerce individuals into economic transactions they would otherwise avoid?’

And the justice added –” ‘The government is saying that the federal government has a duty to tell the individual citizen that it must act,” he said, “and that is different from what we have in previous cases, and that changes the relationship of the federal government to the individual in the very fundamental way.”‘

Wall Street Journal 3-27-2012.

As it turned out, Justice Kennedy was still the swing vote on the lynchpin Commerce Clause issue, but Justice Roberts finessed the whole controversy by upholding the mandate under a separate federal power, the power to tax.  But the precedent holds.  Americans cannot be compelled by the federal government to make a purchase in order to further or restrain commerce among the states. The commerce clause does not reach passive behavior, nor can it be used to compel active consumer behavior.

The Bullet We Dodged….

From time to time, history unites the passionate and deeply motivated (we-pray-the-world-will-be-a-better place), and the well-meaning, determined social engineers, (we-will-make-the-world-a-better-place). These are combustible moments.

The last major push for social reform in the USA that represented the alliance of prayerful, well-meaning liberals and a major attempt at social engineering took place in 1920. After bitter public argument, the country banned beer, wine and booze.  In that fateful year, the income tax was generating almost 10 times the tax money received from that older cash cow, liquor taxes. But income-tax revenues paved the way for Congress to enact alcohol prohibition. Two constitutional amendments (the 16th and the 18th) were needed to bring this all to pass. [The income tax was enabled via the 16th Amendment, having been ratified 1916 as a prelude to prohibition.]

And that is the takeaway point.  Imposition of prohibition was a violation of the existing constitutional structure.  Therefore it had to be accomplished via a constitutional amendment (the 18th amendment, thankfully repealed under Teddy Roosevelt by the 21st Amendment). If the current administration’s constitutional theory supporting the Obama-Care mandate that all Americans be compelled to purchase insurance had been upheld, we would no longer need a constitutional amendment to enact prohibition or any similar regulation of personal behavior – should the country ever again find itself in the grip of reformist zeal[4]. If ever adopted, the administration’s constitutional theory will leave us with no further constitutional barrier, check or balance against the “we-will-make-the-world-a-better-place” impulses of the social engineers, except a few specifically enumerated rights like free speech.

I still am of the opinion that Obama-Care was an act of executive and legislative malpractice. It was and is an expensive mess.  Today’s decision has not averted a fiscal and health care administration disaster of epic proportions. But it still leaves open that task to the congress and president.

There is still time

One Vote…

To paraphrase Ben Franklin, “It’s a constitution if we can keep it.” We did…just barely, because justices Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan were outnumbered…by just one, carefully qualified vote.

It is sobering indeed to contemplate that we came so close to surrendering a major bulwark against untrammeled federal power. As Thomas Jefferson warned us, “The price of freedom is eternal vigilance.”

And to console Mr. Obama, Thomas Jefferson left the reminder that “No man will ever bring out of the Presidency the reputation which carries him into it.”

JBG

Copyright © 2012 by Jay B Gaskill, Attorney at Law

Forwards, links and quotations with attribution are welcome and encouraged.  For everything else, please contact the author via e-mail at law@jaygaskill.com.


[1] James Madison (1731-1836) is widely recognized as the principal author of the US constitution.  In 1829, Madison he wrote about the commerce clause: “Yet it is very certain that it grew out of the abuse of the power by the importing States in taxing the non-importing, and was intended as a negative and preventive provision against injustice among the States themselves, rather than as a power to be used for the positive purposes of the General Government, in which alone, however, the remedial power could be lodged.” – Letter to Cabell, February 13, 1829.

[2] …In Gibbons vs. Ogden 22 US 1 (1824) – “…when a State proceeds to regulate commerce with foreign nations, or among the several States, it is exercising the very power that is granted to Congress.” 22 US 200.

[3] Credit for promoting the constitutional case against the mandate when few took it seriously goes to Virginia Attorney General Ken Cuccinelli, Duke University law professor Walter Dellinger, and Georgetown University law professor Randy Barnett.

[4] What could be next on the government’s prohibition list? …Large containers of soda pop? …French fries?

BEWARE THE AMERICAN BUBBLE

Friday, June 22nd, 2012

Some portions of this essay first appeared on The Policy Think Site in February, 2010.  Needless to say, since then things have only gotten worse.

BEWARE THE AMERICAN BUBBLE

Political Analysis

By Jay B Gaskill

[] Also posted on the Policy Think site at this link – http://jaygaskill.com/BubbleReprise.htm

The behavior of the progressive left is beginning to make old fashioned liberals sound and vote more and more like conservatives.  Where are the old fashioned liberals? No, they are not all dead.  Think of the late JFK,

jfk

Sen. Daniel Moynihan and Sen. “Scoop” Jackson;

but also think of the not-so-late Gov. Andrew Cuomo, Sen. Joe Manchin, Sen. James Webb, Sen. Mark Warner, Sen. Joe Lieberman and Sen. Diane Feinstein.

Institutional and party loyalty goes only so far.  Members of the democratic party are being asked to endorse policies that will take the country down the road to failure, all in the name of ideology, by neglecting the basics and ignoring the clear and present dangers.  Issue by issue, and politician by politician, this is a bridge too far…especially now, when it is evident we are living in a bubble.

All bubbles burst.  It is a law of nature and economics.

Catastrophic failure wonderfully concentrates the mind – unless it causes its architects to adopt a “much more of the same” suicide pact.  We are broke and getting broker.  There is no politically easy fix.

The late John Maynard Keynes has become the poster child for the mischief that results when a somewhat useful economic theory becomes a hard core economic doctrine.  The current economic mess is just a warning of the catastrophe to come.  The current administration and a plurality of ditherers in the congress, blithely ignorant of the failure of thirty years of Keynes-inspired deficit spending, are on a suicidal course.

It would be a very good idea for the country to get off that train before the collision.

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[i] It still holds up very well.

Keynesian economic theory is a spectacular 21st century failure.  Theory has collided with mischievous political exploitations, and theory has lost the contest.  This sad outcome can be traced to three major economic factors, all of which now provide sufficient reasdons to discredit the entire edifice of Keynesian-derived policy:

[] the utter lack of fiscal discipline by popular democracies, whose politicians are ever seduced by the promise of a free (fiscal) lunch;

[] the profound impact of the world economy, the monetary effects of which are fully capable of swamping local currency and money supply policies;

[] the staggering incompetence of government bureaucracies when it comes to the creation of wealth-generating enterprises.

AVERTING 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 impossible dream 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.

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. Each succeeding administration – including Reagan, Bush I, Clinton, Bush II and Obama, was 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 has committed the USA to a course that is dragging us into a deep, dark, slippery-walled debt pit.  We could already be too deep for rescue before the end of President Obama’s first – and possibly only – four year lease on executive power expires.  The only real debate is about “Are we there yet?”

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 was 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.  As if we could really manage with a debt load that exceeds the annual GDP (as it now does).

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.  The private enterprise engine that created American prosperity can save us, but only if we are willing to save it.  If – for ideological reasons – someone does not believe in the essential validity and utility of a robust, healthy private enterprise system, then that same someone will be extremely unlikely to sponsor or even acquiesce in the measures needed to revive the patient.  To use the medical metaphor, the left occasionally sees the utility of a strong private, commercial system (much as an intelligent vampire sees the utility of a fat, healthy host) but is stuck on ineffective therapies, like bleeding the patient.

A healthy business environment is characterized by freedom from political manipulation, conditions that secure financial stability, enforcement of contracts, freedom from burdensome restrictions and permissions, decisions driven by market-determined prices and success-determined profits, all in an atmosphere in which creative innovation is sufficiently valued that the politicians are willing to allow it to “do its thing” without subsidy or penalty.

But each of these economically progressive ideas is alien, repugnant or misunderstood to a greater or lesser degree by almost all card-carrying members of the progressive left who are still well embedded in the Beltway bureaucracy and the media.  Yet these very notions are the ingredients of economic recovery.  Let me go further.  There is more than enough privately held investment money to start and sustain the American recovery.  But these potential investors will not risk it without a reasonable prospect of making a solid profit that won’t then be taken away from them by opportunistic politicians.

Because the current administration is being led by card-carrying members of the progressive left, recovery and prosperity will not take hold in the USA until there is a credible, decisive change of direction.  All of the sane, traditional liberals who have taken the time to study the national situation know this to be true, but social and party pressure has forced most of them to abide in silence.  This will change….

JBG

Copyright © 2012 by Jay B Gaskill, Attorney at Law

Forwards, links and quotations with attribution are welcome and encouraged.  For everything else, please contact the author by email – law@jaygaskill.com .


[i] {http://jaygaskill.com/KeynsianCollapse.pdf}

Dan Greenfied connects the Dots

Thursday, June 21st, 2012

I salute a kindred mind .. ,d’accord…

“What would be the quickest way to get a border fence between the United States and Mexico? If in the next election, 70 percent of Mexicans in America voted for the Republican Party, there would be a 100-foot-high concrete fence across the border, topped with poison-spiked barbed wire and at the foot of it, rabid dobermans prowling around. And it would be up, with the acclaim of the media, no matter who was in the White House.”

And

“Progressives tried to balance out the instability they created by importing alien traditionalists to battle their traditionalists. But the demographic growth of traditionalists, alien and native, leads us to two kinds of societies. The kind run by native traditionalists and the kind run by alien traditionalists. And which one it will be almost entirely depends on how much power the progressives have had and for how long. The longer the progressives have been in power, the likelier the country is to fall to alien traditionalists, who will have no mercy on them.”

The dots are always well connected by Dan Greenfield whom I’ve just quoted, from his piece, The Progressive-Traditionalist War . The analysis journalist, free-thinker Daniel Greenfield, is a must read.

See the post from which these excepts were taken at http://sultanknish.blogspot.com/2012/06/progressive-traditionalist-war.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+FromNyToIsraelSultanRevealsTheStoriesBehindTheNews

Or just go to his blog at http://sultanknish.blogspot.com/ .

JBG

DAVID BROOKS AND THE DEFERRED STRUCTURAL RECKONING

Friday, June 15th, 2012

DAVID BROOKS AND THE DEFERRED STRUCTURAL RECKONING

Analysis by

Jay B Gaskill

David Brooks has nailed it today with insight and clarity. The 2012 elections present a major decision branch that concerns the very structure of our economic life.

What Republicans Think by David Brooks, published: June 14, 2012 in the New York Times, is a valuable piece that should be carefully read by everyone who cares about this country’s future.

LINK – http://www.nytimes.com/2012/06/15/opinion/brooks-what-republicans-think.html?ref=opinion

Here’s a sample:

“…many Republicans have now come to the conclusion that the welfare-state model is in its death throes. Yuval Levin expressed the sentiment perfectly in a definitive essay for The Weekly Standard called “Our Age of Anxiety”:

“We have a sense that the economic order we knew in the second half of the 20th century may not be coming back at all — that we have entered a new era for which we have not been well prepared. … We are, rather, on the cusp of the fiscal and institutional collapse of our welfare state, which threatens not only the future of government finances but also the future of American capitalism.”

“To Republican eyes, the first phase of that collapse is playing out right now in Greece, Spain and Italy — cosseted economies, unmanageable debt, rising unemployment, falling living standards.”

This theme is the basis of two of my articles, yesterday’s Preparing for Post-Obama America, published on The Policy Think Site at http://www.jaygaskill.com/PostObamaAmerica.htm, and last summer’s The American Creative Surge and the Case For Renaissance Conservatism published at http://jaygaskill.com/ACS2011.htm.

The entitlement state has become a vampire organism that threatens the safety net itself.

Conservatives and liberals should, but do not currently share a commitment to the recognition of reality over ideology.  When facing a massive, systemic failure, the solutions are necessarily structural in nature, including the conceptual structure of the assumptions on which the failure was erected.

Here is the underlying reality in a nutshell:

One can only transfer resources from the productive to the non-productive elements in society to a limit, at which point the choice becomes very stark: Reverse the trend or implement it via strong authoritarian measures.

I grew up with and still cherish a liberalism that shared several core principles with conservatives, among them that –

(a) Equality before the law is the proper status of all citizens of the republic, a cherished right, but equality in one’s circumstances, abilities or achievements is not a right at all, just an outcome.

(b) Marxism is a pernicious doctrine, the source of much evil.

I am personally persuaded that we are witnessing the large scale collapse of “Marxism Lite” which has led to the current crisis in Europe and the looming crisis in the USA.

JBG

Except for the David Brooks pull quote, this essay is Copyright © 2012 by Jay B Gaskill. As always, forwards, links and quotations with attribution are welcome and encouraged.  For everything else, please contact the author via email at law@jaygaskill.com.

Preparing for Post-Obama America

Wednesday, June 13th, 2012

Preparing for Post-Obama America

A Political & Policy Analysis

By

Jay B Gaskill

Also at this link- http://jaygaskill.com/PostObamaAmerica.htm

IMAGINE waking up into the world where Barak Obama is no longer president of the United States.  You survey the state of the union and this is what you discover:

ü  That the national debt exceeds our gross domestic product;

ü  That our ongoing deficit, the annual debt service alone for which, if not checked will immediately exceed the federal government’s total interest expense for 2012 ($272 billion); the debt service is a growing sum that already exceeds the combined budgets for Human and Health Services, including Medicare/Medicaid (88 billion), Homeland Security (47 billion), NASA (19 billion) and Agriculture (19 billion) by about 99 billion;

ü  That the US   private economy (the breadwinner sector) is stuck on stagnant;

ü  That combined unemployment and underemployment exceeds 14%;

ü  That we are experiencing rapidly increasing energy price inflation;

ü  That emboldened enemies and adversaries throughout the world are circling like sharks, drawn to the smell of American blood in the water.

As I write this, the commentariat is buzzing with the belated bad news that average Americans have lost 40% of their net worth during the period between 2007 and 2010. This was mostly due to the decline in the value of a typical household’s main asset, the house and land of a primary residence.  It was a “paper” loss for most householders – the subset of owners who have no plans to sell right now.

The underreported news is that the actual losses had already taken place over a period of several decades. This was the period when American production of real goods and services began to hollow out; when investment money migrated to stable, non-productive assets as a safe haven, particularly to American real estate; and when fewer and fewer Americans worked in authentic, economically viable, profit-making enterprises.

An asset bubble was inevitable – because for those same years, the American dollar was the world’s reserve currency. The real estate bubble collapse was the inevitable outcome.

There is a reason we all use the term “paper” value.

There has been a steady erosion of the American standard of living, measured by real income in constant dollars against real goods and services.  Most of the impact has fallen on the middle class.  The statistics are subject to manipulation and reinterpretation, but the members of the loosely-defined middle class, even when still employed, have lost about 15% in real income over ten years.  This is dire for those who families and individuals who were operating on the edge, noticeable for those with a slight prosperity buffer, and troubling those who qualify as comfortably wealthy.

The USA has been living on borrowed time and money for three decades – blithely enjoying the illusion that all is well; after all, most of our portfolios looked pretty good… on paper.

Moreover, we were assured that, whenever those paper assets have dramatically fallen, we need only to wait it out until things come back.  This is how the day of reckoning was postponed for so long that the eventual adjustment will be brutal.

We are close to that brutal moment.  The scope and severity of the inevitable reckoning has been amplified by a factor of five because of the acceleration fiscal recklessness during the last three years.

This is why that no American president will be able to get through the first nine months of the first post-Obama term without aggressively and proactively attacking these vexing challenges; if they are ignored, that same president will get credit for an economic catastrophe of unprecedented severity.

How much time will the next president have?  If nothing significant is done to repair the debt imbalance, a credit/fiscal crash will probably take place sometime in the first 18 months of the next presidential term.

The bottom line: Whenever American borrowing becomes too difficult to sustain, the time for staged, careful adjustments will have run out. That will be an emergency in which 2008 crash will look in our collective rear view mirror like a minor fender bender.  The suddenly needed dramatic “revenue enhancements” in the form of hastily added taxes will crush any recovery.

In the context of the inevitable European (and likely Chinese) economic difficulties, a full-on depression is not out of the question.

We are facing a trap. Dramatically cutting government expenditures will drive up unemployment and depress consumption.  But dramatically expanding the US money supply will only slightly ease the debt burden and most certainly will ignite dangerous and debilitating inflation.  This is the classic fiscal trap, ramped up to the scale of a bad disaster movie.

Unfortunately this is reality, not a Hollywood production.  Fortunately, there is a way out. Our post-Obama president will have one big play, and it will need to work the very first time.

Before addressing that necessary set of coordinated moves, let’s take a moment to review the dilemma of British PM Margaret Thatcher, who faced strikingly similar challenges.

Thatcher served between 1979 and 1990, during a deep recession in which the English economy was crippled by decades of post-war socialist bureaucratic mismanagement. The national debt overhang was more than the UK’s GNP.

On taking office, Thatcher began to administer her brand of tough love, and ever so gradually, the economy responded. In 1982, UK inflation fell to an annual 8.6% from 18%.  But unemployment remained stubbornly high and economic reforms were stalled. The UK was then essentially in the same trap I’ve just described – crippling debt and no government ability to drive investment without setting off further inflation.

Enter the discovery of North Sea oil.  During the 80’s the Thatcher government was able to deploy a 90% tax on North Sea oil recovery, using the revenue from that source (i.e., using real, not fiat or borrowed money) to rebalance the debt-crippled economy and help defray the costs of reform – in which sclerotic public industries were privatized, one by one, freeing up new economic activity. By 1987, unemployment was falling and the economy was in a strong recovery with low inflation.

Here are some numbers for GDP and public spending under Thatcher from 1980 to 1990:

GDP up 23.3% / Total government spending: up12.9% / Law and order spending:  up 53.3% / Employment and training spending: up 33.3% / Health spending: up 31.8% / Social security spending: up 31.8%.

When the national debt exceeds the entire annual gross domestic product, as it currently does, we will not succeed in persuading a cohort of young adults to support a huge overhang of unproductive elders, unless we have a system in place that will reduce that debt load to a manageable level in their lifetimes.

This country’s debt load becomes unsustainable by definition when we cannot afford to pay the debt service without unacceptable sacrifices. The president who assumes office after Mr. Obama will have a very short period to adjust federal spending and revenues enough to reach fiscal balance – I estimate it must be done – within two budget cycles at most. The problem will be how to maintain essential services when that drastic belt tightening is done, while guiding the economy into a sustained period of real growth and high employment.

This is a tall order and one that will require real money from the sale of real goods and services to fix.

There is good news: The productive, profit-making “breadwinner” core of the US economy, the ultimate source of our real wealth, is currently so overburdened by a web of regulatory restrictions, petty tariffs, fees, taxes, and bureaucratic second-guessing, that the  cumulative political load on commerce is worthy of a third world economy. But the federal government has the power, the tools and can quickly acquire the expertise to so substantially lift this load that an investment and growth surge will result.

And we have a big ace in the hole to assist in the transition:

  • Within US territory and control there is an immense reserve of marketable energy resources (by far the largest in the entire world). This includes the largest known deposits of oil shale  in the world that, according to the Bureau of Land Management, holds over 2 trillion barrels of recoverable oil, far exceeding all of OPEC’s reserves, and enough for at least 200 years at current demand levels.
  • o The USA is the Saudi Arabia of coal. …Which can be converted to natural gas, oil and eventually, to gasoline.
  • We have enough natural gas both to meet our own needs and to be a major exporter. As Hoover scholar, Victor Davis Hanson has reminded us, “America will soon again be able to supply all of its own domestic natural-gas needs — perhaps for the next 90 years at present rates of consumption. We have recently become a net exporter of refined gas and diesel fuel, and already have cut imported oil from OPEC countries by 1 million barrels per day.”

{ http://www.nationalreview.com/articles/285197/oil-rich-america-victor-davis-hanson } In a later piece, Hanson added that “…3 to 4 million jobs will follow from new gas and oil production alone. That figure is aside from the greater employment that would accrue from reduced energy costs. Farmers, manufacturers, and heavy industries could gain an edge on their overseas competitors, as everything from fertilizer and plastics to shipping and electric power would become less expensive.”{ http://www.nationalreview.com/articles/294693/second-oil-revolution-victor-davis-hanson}

THE ONE BIG PLAY

The One Big Play left to the post-Obama president is a set of coordinated moves beginning with the preparation of public opinion for major adjustments.

  • The deregulation piece, with a special emphasis on the energy sector, is an urgent priority because of the lead times (for example, oil shale recovery and extraction technology is complicated), the nature of the opposition (environmental and global warming arguments will need to be met head on) and the revenue generating issues (one doubts that the US  could get away with anything like the 90% North Sea oil extraction tax, for example), but the potential gain for federal revenues, private sector jobs and the general economy provide a compelling argument to get this part done ASAP.
  • The other deregulation measures are equally complicated but can be attacked by a clear, overarching mandate, using the same “commerce clause” authority to remove regulations that was used to impose them in the first place.  For example, in the context of a streamlined Environmental Impact Report requirement, more narrowly focused on public health concerns, an Economic impact Report could be imposed applying to any prospective new regulation that could potentially hurt commerce or employment. {More on this concept is posted in 3 articles at: http://jaygaskill.com/Breakout1.0.htm and http://jaygaskill.com/Breakout2.0.htm and http://jaygaskill.com/BREAKOUT3.0.htm.}
  • The fiscal normalization piece will necessarily address every element of the problem, starting with a comprehensive freeze on all new spending, including COLAS, then proceeding to a general reduction of all federal salaries and staffing levels, mitigated and refined by a function-level review of tasks and priorities. The Paul Ryan proposals or some variation will be a starting point, but, in my opinion, no one inside the Beltway has yet publically come to grips with the true severity and scope of the task.  Entitlements may or may not be the third rail of politics, but walking on that hot rail is child’s-play compared to dealing with the consequences of delay and denial.  I suspect that a large number of otherwise smart staffers and elected officials will be shocked to learn how little time actually remains to fix this.
  • The public opinion piece calls for a calm, bright-line exposition of the nature of the problem and the clearest outline of the necessary solutions that is humanly possible.  Because actions speak even when words are ignored, I am personally convinced that the new president needs to start the public education process with several dramatic, concrete actions, including an immediate, substantial, across-the-board reduction in executive salaries, POTUS and staff to lead the pack, followed by the congress and all agencies and bureaus.  And that is just to get everyone’s attention, and to convey, as nothing short of such a startling measure can do, that this time the leader of the freest country in an un-free world means business.

Then the heavy lifting begins. The deregulation and energy boom piece follows naturally, enabling the administration to end with an optimistic flourish – showing that there is a realistic point to all this sacrifice, that America will be back, stronger than ever.

WHAT IF BARACK OBAMA IS THE POST-OBAMA PRESIDENT?

Neither rhetoric nor charm can change reality. The policy issues, the nature and scope of the coming crisis, and the optimum line towards national recovery will not have changed a bit by January 20, 2013. They are the “reality on the ground”.

If you are persuaded in spite of all this that this incumbent president will rise to the occasion and salvage a renewed American from this mess, then I salute you; for your optimism far exceeds mine.

This challenge the United States will soon face is every bit as serious as WWII and the Great Depression. Some our best contemporary leaders are not up to it.

Our most realistic prospect of success is with a change of teams; fresh eyes on the problem; a president with an understanding of the business system; a leader endowed with the sturdy willingness to take on entrenched forces that have brought us to this pass.

The rest is up the willingness of American people and their elected representatives to do what it takes.

Sadly, nothing in this incumbent president’s performance has so far led me to suspect that he is or can become the leader we need, or that he is willing and able to do what so obviously must be done.

God save America.

JBG

Copyright © 2012 by Jay B Gaskill, attorney at law

This was first published on The Policy Think Site and the linked blogs.

As always, forwards, links and quotations with attribution are welcome and encouraged.  For everything else, please contact the author via email – law@jaygaskill.com.