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In An Odd Position

Posted by Dave on Wednesday, January 30, 2008 9:38:15 PM
Big government interference in the economy and the personal lives of individuals is inconsistent with liberty:  every decision made by the government is a decision that individuals and families can't make for themselves; every dollar taken by the government in confiscatory taxation is a dollar that individuals and families can't spend on their on their own prosperity; every favor endowed by the government on one group comes, ultimately, at the expense of another. 

With that in mind, I find myself in an odd position:  I am actually hoping that the so-called "stimulus" bill, passed by the House, gets loaded down with intrusive government programs and economic disincentives that would actually hurt the economy, such as extended unemployment benefits and other giveaways. 

I want to see a "Christmas tree" bill so laden with bad ideas that the whole thing comes crashing down, or at least delayed.  Filibuster and debate in the Senate, then rancorous debate in the House-Senate Conference Committee, maybe even a Presidential veto.  In the meantime, while the politicians alternate between back room deals and patting each other on the back for "doing something" and feeling our pain, the economy will correct itself and get back to growing and creating jobs and wealth.

The central theme of the "stimulus package" is government checks -- supposed "tax rebates".  The thinking is that the government can send us checks, and we'll go out shopping and cure the economy.  Never mind that that the total of the checks amounts to 1% of the economy, or that to pay for the checks the government must borrow money (thus providing a future liability that must be paid back, most likely with higher taxes), raise taxes (which would most likely fall on the richest Americans, those most likely to start job-creating businesses), or print money (causing inflation and a decrease in the actual value of the checks).  Never mind that the "stimulus" would amount to, as one economists put it, like taking a gallon of water out of the deep end of the pool and pouring it into the shallow end.  Never mind that a one-time, temporary "gift" would do nothing to influence behavior -- no incentives for someone to start a business, or for a business to invest in new equipment or research or hire more people.

So, in the meantime, I'll keep hoping for the Senate to do what it does best:  Talk.  Delay.  Load the bill down so it creeps glacier-slow through the legislative labyrinth.  In the meantime, the economy can cure itself and perhaps we can be spared such an embarrassment of a "cure".
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Keynesian Redux

Posted by Dave on Friday, January 18, 2008 6:32:32 PM
President Bush has joined Democratic presidential candidates and Congressional leaders in calling for a "stimulus" spending plan to head off a potential upcoming recession.  The plan calls for tax "rebates" for families below a certain income and some piddling business tax write offs.  This is an unfortunate return to Keynesian, demand-side economics proved to be ineffective in the "stagflation" days of the 1970s.  Rather than dealing with the barriers the government has erected that prevent more robust economic growth, the government will simply seek to take money from "the rich" to give to "the poor" to the tune of $140 billion or so:  it's Robin Hood on steroids.

Not only is this plan an application of failed economics, a blatant pandering to voters during an election year, and a misplaced redistribution of income, the idea of government checks is a one-time administering of liposuction where a change in diet is needed.  At its best, the plan is for American consumers to take the checks, currently proposed at $800 or so, and go shopping.  Great, a one-day shopping spree for the American economy.  That doesn't create new jobs, encourage entrepreneurism, or help families to build wealth.  It creates no long-term growth prospect for the American economy.  If we are heading towards a recession, it does nothing to fend it off.  It does one thing successfully:  it allows politicians to show that the "feel the pain" of the voters.

If actual economic growth is the goal (which it should be), then the government should act on the supply side, not the demand side.  Pro-growth economic policies that remove barriers to capital investment, job creation, and starting new businesses could be rolled away.  Most people who have a job work for a company or own their own business; reducing the tax rate on businesses provides them with more money to use to hire new employees, or invest in new equipment, or even provide a dividend to investors and shareholders.  Cutting taxes and removing regulatory barriers also encourages businesses to relocate from other countries into the US, further boosting economic activity.  Cutting the tax on capital gains increases the profit motive for new investment that spurs economic growth.

In a previous column, I advocated cutting the corporate income tax rate.  With economic indicators showing a slowing economy, the imperative is even greater for doing so.  Add in a cut on the capital gains tax, and now we're really talking.  Further cuts in income tax rates would also spur demand-side consumption, but would have the benefit of impacting future behavior as well.  Making the Bush tax cuts permanent would signal to the declining stock market that individuals and investors won't get hit with the biggest tax increase in American history that is currently scheduled to take place when the tax cuts expire in 2010.

A dose of free market capitalism is what this ailing economy needs to get back on its feet.  Unfortunately, our politicians seem to prefer junk science and fad diets instead of sound medicine.
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What It Takes

Posted by Dave on Saturday, January 12, 2008 12:34:48 PM
With the election swing in full tilt following the Iowa Caucuses and the New Hampshire Primary, and on the heels of contests in Michigan, South Carolina, Nevada, Florida, and elsewhere, every detail of each candidate is scrutinized.  We poke, prod, and parse the contestants and their statements, dig through their records, and cast aspersions on their sincerity and even their motivations.  The majority of the press coverage centers around polls and strategy:  who's up?  Who's down?  Who's the front runner?  So-called "conventional wisdom" changes from day-to-day, hour-to-hour, race-to-race (raising questions about calling it "wisdom").

Lost in the "horse race" coverage seems to be on what basis we choose a candidate for President of the United States.  To many, so-called "identity politics" seems to be the key -- voters want to identify with a candidate, so we get women voting for Hillary because she's a woman, Evangelical Christians voting for Huckabee because he "shares my values"; others want to support a candidate who "understands my problems".  Perhaps the most famous example of emotive, identity politics was Bill Clinton's famous "I feel your pain" insistence.

I believe we need to look past identity- or emotion-centered selection and think about what the Presidency ultimately is, and what makes a successful President.  An executive is different from a legislator or a laborer or an employee.  An executive is the face of the organization he or she leads, and is responsible for the direction it takes -- good or bad.  Supposedly, with the executive of a government or an organization, the "buck stops here" when it comes to decisions, direction, and success... or failure.

Keeping this in mind, I believe that there are three main areas on which the foundation to a successful Presidency lie:  Vision, Leadership, and Management.  These three criteria form the three legs of a stool; remove any one of the three, and the stool will fall.  While referring in this essay to the Presidency, they are relevant to the executive of organization -- business, church, non-profit, political, government, advocacy, and so on.

Vision
The President sets the tone, the direction of the country, the agenda.  As the campaign for President marches on, we have each of the candidates spelling out his or her platform -- telling us what each expects to accomplish, where each intends to lead the country.  This is the prime qualification for a President:  having the vision to see where the country needs to go, and what steps we need to take to get there.  Does the economy require less government intrusion or more?  Should taxes be raised or lowered?  Should we engage ourselves military to a greater extent or a lesser extent?  These are important questions, and if a particular leader doesn't have a good vision of where he wants to take his organization, chances are good that the destination will not be one noteworthy for success.

Probably the most time and effort of a campaign for the presidency is spent on what President George H.W. Bush called "the vision thing".  The internet supports this, as candidates can spell out their respective platform and positions directly to voters, unfiltered by the news media.  Detailed plans on taxation, health care, education, and nearly every other issue are available for each candidate at the click of a mouse.

What does the leader want to accomplish?  How are competing priorities ranked?  That is the question of vision.

Leadership
Great ideas, great tone, great direction is undoubtedly crucial for a successful Presidency.  However, position papers and platforms, tax plans and health care schemes are all worth nothing if a candidate does not have the ability to get them enacted.  Leadership is required to successfully enact a President's agenda.  Leadership requires successfully outlining the vision.  The people being led need to understand at least in principle where the President is wishing to go, and why it is important.  If a President is to follow the Constitution, few accomplishments are afforded to him without the support of Congress.  How he goes about securing that support bringing people on board and working towards a common goal is the question of leadership.  Trust and character are key.

In contrast with aspects of vision, reading a website, reading a position paper, or hearing a speech gives little insight into a candidate's leadership skills.  Rather, a person's record of accomplishment is really the only window to his leadership abilities. 

How effectively is the vision outlined?  How effectively are people brought on board with that vision?  Is the President able to move forward in enacting his agenda?  These are the questions of leadership.

Management
No President is an island; a President has to be able to build an effective team that he can trust that will follow his leadership and work towards enacting his agenda.  Any effective head of an organization has to be able to balance personal motives and personalities, putting people in positions to optimize their own skills and interests. 

If there's one thing that's certain about a Presidency, it is that something unexpected will happen.  Distractions can come in many forms, from a West Wing scandal to an impending financial crisis to an imminent threat to our security, there are many pitfalls to be encountered on the way to enacting one's vision.

Keeping a Presidential Administration focused and on task, regardless of any distractions, requires a successful President to be excel in management.  Knowing when and what to delegate versus when and how to engage is a skill that can't be taught.  Working relationships and playing upon personal motives is key.  Many of the details of the act of politics are management-related.  A successful President finds efficient, smart, well-qualified people and uses them to their fullest potential.

How effectively and efficiently does a leader assemble a team dedicated to enacting his vision?  How well are distractions handled?  How focused does a President remain when a crisis occurs?  How effectively are tasks delegated and personalities managed?  These are all questions of management.


A truly successful President excels in all three areas; even a momentary lapse in any of these areas can cause disaster.  Consider President Johnson:  he excelled in leadership and management skills, masterfully working the Congress to enact his Great Society programs; yet, his vision of enacting a welfare state was flawed, and as a result we have a legacy of 40 years of wasted money and failed policies.  President Reagan had a clear vision:  fight Communism (and win) worldwide, and decrease government interference on the domestic economy.  His leadership skills were equally impressive, as the "Great Communicator" was able to get much of his agenda enacted despite a Congress comprised mostly of political enemies; yet, a failure in his management skills led to over-delegation that ultimately resulted in the Iran-Contra scandal.

In any organization, a strong, focused leader who lacks the proper vision is doomed to wander, Moses-like, without direction.  A visionary with great focus and management skills is doomed to failure if none of his ideas are enacted, if no one follows his lead.  A charismatic leader with great vision will accomplish little if he is constantly immersed in minutiae or distracted by scandal.

It is the best combination of vision, leadership, and management on which we need to be focused this campaign season as we consider whom to elect the next President of the United States.
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Prolonging the Boom

Posted by Dave on Saturday, January 05, 2008 8:01:02 PM
The economic news lately has not been good.  The staggering credit market and faltering home sales have been a contagion infecting other areas of the American economy.  While economic growth hit a blistering 4.9% in the 3rd quarter of 2007, the unemployment rate reached a two-year high of 5.0% in December.  Profit growth has been slowing, oil has hit record highs of over $100 per barrel, and the value of the dollar has been falling relative to commodities and foreign currencies such as the yen and euro.  The stock market has responded to the dreary news with a downward turn.

I've long advocated a complete overhaul of our tax system, replacing our stifling, anti-growth, complex system with a fair, simple, pro-growth flat tax.  I still take that position, but I recognize the political reality that particularly in an election year, no large-scale tax reform has a chance of passage.  Short of a complete tax overhaul, there is an easy step that our government could take that would help reclaim the value of the dollar, boost the stock market, bolster economic growth, and result in job creation on a massive scale:  make a significant cut in the corporate income tax, currently at an unreasonable high of 35%, one of the highest among industrialized countries.  I propose cutting it roughly in half, to a rate of 20%.

Our current rate ranks us 2nd among industrialized nations in highest corporate tax rate, trailing only Japan and tied with France.  Even the Nordic welfare states Finland and Sweden have lower rates than the United States (both are at 28%); Slovakia, which has implemented a flat tax on individuals and businesses, has a rate of 19%.  Ireland, whose economy is booming, cut their rate to 12.5% and has watched exports and job creation soar while inflation has declined.  Note that in countries like Ireland and Slovakia that have cut corporate tax rates, corporate tax revenue has actually increased.  That's the supply-side nature of cutting marginal tax rates, as businesses boost output, relocate, and face less incentive to manipulate balance sheets, put off investment, or outright cheat tax collection agencies.

According to US government figures, the corporate income tax brought in $354 billion dollars in 2006.  A cut of 35% to 20%, would reduce that collection by about $150 billion in static terms, i.e., absent any supply-side growth effects.  This number is important, as it basically represents the minimum amount of money that instead of being soaked up by a wasteful, inefficient government, would be in the economy creating jobs, investing in infrastructure, raising salaries, or returning to stockholders in the form of dividends and capital gains.  But unlike an infusion of government spending via some sort of government program, this money would have forward-looking impacts.  There would suddenly be a much bigger incentive for businesses to locate or relocate in the United States.  For some, it would provide the needed incentive to start a business.  And unlike a sudden surplus of government cash, this would increase the value of the dollar and stifle inflation.  The stock market would rise, probably dramatically, further incentivizing investment in America.  Government revenues would rise, decreasing the budget deficit and the addition to the national debt.  American business would be more competitive.  In short, we'd see an economy back on the rise, a dramatic comeback.

In objective terms used to measure the economy, the past several years have been a boom, and looking back over the past 25 years, the American economy has been humming along like a well-oiled machine with only 2 hiccups.  We're coming up on a potential third hiccup; taking some free market capitalist medicine would stave off any downturn and prolong the American boom.  We should cut the corporate tax rate now.
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To Whom Does America Belong?

Posted by Dave on Thursday, January 03, 2008 1:51:42 AM
John Edwards has been in the news a lot lately as his polling numbers in Iowa have been on the upswing; his rhetoric, however, has been steadily slouching towards hysteria.  The man of the $400 haircut and the $6 million house is railing against the "rich" and the "corporations" (make that "greedy corporations").  A recent E.J. Dionne article included the following quotes:  "The richest Americans are getting richer... How much money do these people need?"  He followed that with:  "America doesn't belong to them.  It belongs to us."  He's attacked "corporate greed", "glorification of corporate profit", and accused corporations of "hav[ing] a stranglehold on the American economy".  But that's just the beginning -- the evil corporations have even worse plans in store for you, because they are "killing the middle class, killing American jobs, and ... stealing your children's future".  Well then.  All in a day's work, I suppose.

Interesting charges, these.  Yet it strains credibility and seriousness to hear them coming from someone who is, well, so rich himself and so extravagant in his lifestyle.  Last time I checked, corporations tend to employ people and produce goods and services for which people willingly trade their hard-earned money.  Quick quiz:  which "kills" more jobs:  a company like Microsoft that employs thousands and provides a return for its stockholders, or an ambulance-chasing lawyer making millions on malpractice suits against doctors for failing to perform C-sections, basing the claims on junk science?

As for "glorification of corporate profit", isn't that the responsibility of a corporation to its shareholders?  As long as fraud and coercion aren't involved and laws aren't broken, "corporate profit" should be glorified!  I'm willing to bet that Edwards's own investment portfolio is filled with stocks in (yes) corporations who (gasp!) glorify profits.  As lucrative as $60,000 speeches on poverty to public universities are, it is doubtful that his honoraria are being deposited in a checking account at the local credit union.

So, how much money does any one individual need?  I have no idea, but I certainly know that it isn't my business (and I'm wondering if a farm worker in Iowa struggling to pay the rent might think the same thing when thinking about a $6 million owned by the candidate posing the question).  Again, as long as fraud or coercion aren't involved and laws aren't broken, I don't really care how much money someone accumulates, particularly if they accumulate it by providing a product or service that enriches the lives of others.  Sam Walton built an empire worth billions by providing stores in which no person is required by law to shop -- people shop at Wal Mart willingly.  Microsoft Windows has a competitor who offers its software for free; further, it has created many millionaires in its tremendous rise to the top of the software food chain.  I would rather billions of dollars be in the hands of Bill Gates for him to invest or donate to charity than confiscated by the government; I know whom I trust to spend it more wisely.

Are the "rich" truly "getting richer"?  In most ways I know of measuring, we all are.  Our standard of living continues to rise as technology provides gains in productivity and produces goods and services that make our lives easier and better.  Looking at economic growth and job creation over the past 25 years, if corporations and other evil "rich" entities are exerting a "stranglehold" on the economy, then if a stranglehold is wrong perhaps we don't wanna be right.  Gross Domestic Product has increased by 427% over the past quarter century in a surging economy that has created nearly 50 million new jobs according to the US government's Bureau of Labor Statistics and Bureau of Economic Analysis.  Average hourly wages have increased by nearly $10.50/hour.

I don't know exactly who the "them" is to which Edwards claims America "doesn't belong", nor do I know exactly comprises the "us" to whom it does.  Is the line of demarcation for who "belongs" and who doesn't based on political ideology?  On salary?  Wealth?  Vocation?  Religion?  Perhaps Mr. Edwards should add two items to his reading list:  the Declaration of Independence and the Pledge of Allegiance to the Flag.

From the Declaration, he would learn that "all men are created equal", and that the purpose of government is to secure and protect the rights of each of us to "life, liberty, and the pursuit of happiness".  The Pledge would remind him that we are "one nation, ... indivisable" -- there is no "us" and "them", America belongs to us all.
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Out With The Old, In With ... Nothing!

Posted by Dave on Wednesday, January 02, 2008 9:37:05 PM
The advent of 2008 saw the end of an era of government interference with the free market on trade and commerce:  the last agricultural tariffs between Mexico, Canada, and the United States were ended when the clock struck midnight and the book was closed on 2007.

NAFTA, the North American Free Trade Agreement, means many things to many people.  It has been blamed for everything from US job losses to the very end of US sovereignty.  The facts, however, show that it has been a boon for the US economy as it has increased the market for American goods and services in Canada and Mexico, increased choices for American consumers, and decreased prices for American families.  It has also decreased the intrusiveness of the American government on the free market.

Since the implementation of NAFTA and the gradual phaseout of agricultural tariffs, American farm exports have increased by $7.3 billion.  Yes, imports have increased as well, by $6.7 billion.  Both numbers represent positives for American consumers, as the purchased imports mean that consumers exercised individual choice in the marketplace.  Overall, trade between the US, Canada, and Mexico since the implementation of NAFTA has increased from $297 billion in 1993 to $883 billion in 2006.

Of course not everyone wins with economic growth, technological progress, and removal of barriers to trade; the rise of the automobile resulted in the dramatic death of the market for horseshoes and wagon wheel makers, and the removal of government-imposed trade barriers has removed the taxpayer-funded protection of various domestic producers.  An article in the Houston Chronicle detailed the decline of Texas-based winter vegetable farmers.  However, to those that would decry these small-by-comparison downsides, the question should be:  if a business can't compete without government assistance, then shouldn't it be allowed to fail?  If we can get less expensive winter vegetables from Mexico, we have more money to spend on other products and services, and overall efficiency of the economy increases.  Certainly increased government interference is not the best path to a more efficient, prosperous, robust economy.

As the election year continues, we continue to hear attacks on the free market from both the right and the left, with calls for increased government taxation of imports to "level the playing field" or promote "fair trade".  Demagoguery of pending trade deals with Columbia, Peru, and Central American nations is par for the course, with dire threats of economic malaise marking the debate.  Lost in the rhetoric, however, is the fact that those same gloom-and-doom scenarios were brought forth during the debate on NAFTA.  Tens of millions of jobs and hundreds of billions of dollars in trade later, the conclusion remains:  free market capitalism works, and works best when freed from the shackles of government taxation.



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