debt crisis

The “Jobs Speech” That Obama Should Have Given

The following actions will restore jobs by giving confidence to America’s businesses, will ensure robust economic growth over the long haul, and will ensure that future generations are not burdened with crushing debt:

  • Social Security, Medicare, Medicaid (and the expansions known as Obamacare) should be phased out. By the time today’s youngest workers are ready for retirement, those programs would no longer exist. The ability of individuals to enjoy comfortable, healthy retirement years would depend on their assiduous prudence, financially and physically. (I am not a stranger’s keeper, and vice versa.) Private financial institutions and insurers would be allowed to compete across State lines for the savings and premiums of newly empowered individuals. States and municipalities would maintain any “safety net” for the truly needy (including those who cannot afford the care associated with serious illnesses and disabilities). Profligate grants of aid, leading to higher State and local taxes, would be  punished at the ballot box and by emigration to locales where income and property are not targets of opportunity for demagogic politicians.
  • All other activities of the federal government that are not authorized by the Constitution should be phased out within ten years. That is to say, all “independent” agencies (especially including the Federal Reserve) would be abolished, along with every department but Defense, Justice, State, and Treasury. Any legitimate functions of the other departments and agencies would be folded into the four that remain, and those four would be thoroughly cleansed of illegitimate functions.
  • The preceding actions would negate most regulatory authority. That which remains would revert to Congress, which would no longer be able to delegate law-making to the executive branch, and which would have to make law strictly within the four corners of the Constitution. Specific targets for termination: regulation of resource extraction, “anti-discrimination” programs that in fact discriminate in favor of certain classes of individuals, environmental regulation (except for truly major environmental threats, and only then as authorized by an amendment to the Constitution), anything having to do with “global warming.” the Food and Drug Administration, and federal involvement in occupational licensing.
  • The streamlining of the federal government would be accompanied by a sale of all assets not required for the execution of constitutional functions. Thus would land and buildings become available for private use, personal and commercial.
  • The federal budget would be in balance — at a much lower level — within a decade. A tough balanced-budget amendment would keep it there. Such an amendment would cap federal spending at 10 percent of GDP, with a minimum of 6 percent of GDP going to defense. There would be an exception for a war (or wars) authorized by Congress, if the combat deployment of more than one-fourth of the personnel of the U.S. armed forces. Then, federal spending could exceed 10 percent of GDP, but only to the extent of the additional costs of the authorized war (or wars). Federal revenues would have to match spending in every 10-year period, plus or minus 1 percent of GDP.

By taking immediate steps to initiate these changes, we will be telling Americans — individuals and businesspersons — two important things. First, they are at long last free in their “pursuit of Happiness.” Second, because they are free, they do not have to worry about government changing the “rules of the game” capriciously or swooping in to take away what they’ve earned.

Only with such freedom and certainty can Americans, once again, confidently strive to make better lives for themselves and, in so doing, help their compatriots to make better lives.

So, What Now?

The title of this post echoes the title of a post by Victor Davis Hanson. I don’t agree entirely with Hanson’s diagnosis of America’s economic woes and prescription for curing them, but he points in the right general direction. If I were king, this is what I would do to put the U.S. back on the track to long-term economic health:

  • Social Security, Medicare, Medicaid (and the expansions known as Obamacare) would be phased out. By the time today’s youngest workers are ready for retirement, those programs would no longer exist. The ability of individuals to enjoy comfortable, healthy retirement years would depend on their assiduous prudence, financially and physically. (I am not a stranger’s keeper, and vice versa.) Private financial institutions and insurers would be allowed to compete across State lines for the savings and premiums of newly empowered individuals. States and municipalities would maintain any “safety net” for the truly needy (including those who cannot afford the care associated with serious illnesses and disabilities). Profligate grants of aid, leading to higher State and local taxes, would be  punished at the ballot box and by emigration to locales where income and property are not targets of opportunity for demagogic politicians.
  • All other activities of the federal government that are not authorized by the Constitution would be phased out within ten years. That is to say, all “independent” agencies (especially including the Federal Reserve) would be abolished, along with every department but Defense, Justice, State, and Treasury. Any legitimate functions of the other departments and agencies would be folded into the four that remain, and those four would be thoroughly cleansed of illegitimate functions.
  • The preceding actions would negate most regulatory authority. That which remains would revert to Congress, which would no longer be able to delegate law-making to the executive branch, and which would have to make law strictly within the four corners of the Constitution. Specific targets for termination: regulation of resource extraction, “anti-discrimination” programs that in fact discriminate in favor of certain classes of individuals, environmental regulation (except for truly major environmental threats, and only then as authorized by an amendment to the Constitution), anything having to do with “global warming.” the Food and Drug Administration, and federal involvement in occupational licensing.
  • The streamlining of the federal government would be accompanied by a sale of all assets not required for the execution of constitutional functions. Thus would land and buildings become available for private use, personal and commercial.
  • The federal budget would be in balance — at a much lower level — within a decade. A tough balanced-budget amendment would keep it there. Such an amendment would cap federal spending at 10 percent of GDP, with a minimum of 6 percent of GDP going to defense. There would be an exception for a war (or wars) authorized by Congress, if the combat deployment of more than one-fourth of the personnel of the U.S. armed forces. Then, federal spending could exceed 10 percent of GDP, but only to the extent of the additional costs of the authorized war (or wars). Federal revenues would have to match spending in every 10-year period, plus or minus 1 percent of GDP.

These actions would tell Americans — individuals and businesspersons — two important things. First, they are at long last free in their “pursuit of Happiness.” Second, because they are free, they do not have to worry about government changing the “rules of the game” capriciously or swooping in to take away what they’ve earned.

Only with such freedom and certainty can Americans, once again, confidently strive to make better lives for themselves and, in so doing, help their compatriots to make better lives.

This — not speeches, laws, regulations, taxes, spending, debt-ceiling compromises, etc. — is the stuff of a brighter future, a future that fulfills the promise of the Declaration of Independence.

The “Forthcoming Financial Collapse”

I have written before about my membership in a Google Group

whose active members are retired scientists, engineers, mathematicians, and economists — some in their upper 80s — who worked on defense issues from the 1940s to the 2000s….

Most members of the group were government employees and/or employees of government contractors. Their attraction to government service — and its steady and rather handsome paychecks — derives, in good part, from their belief in the power of government to “solve problems,” and in the need for government to do just that. It is only natural, then, that many members of the group hold an unrealistically exalted view of the power of quantitative methods to “solve problems,” while holding naive views about the machinations of government, human nature, and history. (The pioneers of military operations research in the United States, by contrast, were realistic about the relative impotence of quantitative analysis of complex, dynamic processes.)

Here, for example, is a recent communication from one of the group’s older members:

A political scientist and former Foreign Service Officer friend proposes the following which, if valid, may complicate the U.S.’s capability to handle the forthcoming financial collapse of our country.

His formulation is as follows: (1) The World Trade Center attacks grievously damaged our self-confidence but did little but material damage. (2) On the other hand, the collapse of Lehman Brothers had impacts across the financial world and among the Central Banks of many countries. In effect, the U.S. was the instrument inflicting damage and loss on both trading partners and creditors.

Do we agree that the second is the more serious. What may be the dimensions of the impact?

If I were to reply, this is what I would say:

Your message is provocative in more than one respect. I won’t get into the material effect of the 9/11 attacks, except to say that the assessment that they caused “little material damage” seems to ignore the economic after-shock and the value of 3,000 lives lost. But I am more concerned with the policy implications of your friend’s formulation, and with what you call “the forthcoming financial collapse of our country.”

I have trouble with your friend’s formulation because it involves an irrelevant comparison. On the one hand, there was a deliberate attack on the U.S. by a foreign enemy. On the other hand, a major investment bank failed, in large part because of investments in bad securities that were issued pursuant to policies of the U.S. government (sub-prime mortgage loans and low interest rates). These are not mutually exclusive events, and should be considered separately in devising appropriate government policies (including a hands-off policy). I am sure that your friend would prefer fewer bank failures, but not at the cost of more terrorist attacks.

I turn now to government’s role (or lack thereof) in securing our economic future. Let’s begin with the collapse of Lehman Brothers. Lehman was allowed to fail because government officials didn’t want to send a “signal” that a bailout would be an automatic reward for failure. But those same officials, in their panic, reversed course with respect to other financial institutions and bailed them out. The bailouts didn’t really help credit markets (as they were supposed to) because — quite reasonably in the aftermath of a government-caused financial panic and recession — the bailed-out institutions (and others) have been slow to lend, while individuals and businesses have been slow to borrow. What the bailouts mainly did was to reinforce the view that government (i.e., taxpayers) will bear the costs of foolish endeavors — which only encourages banks (and other businesses) to undertake more foolish endeavors. The price for those endeavors will come due at the bursting of the next bubble, whatever it is and whenever it occurs.

If there is any lesson to be taken from the comparison offered by your friend, it is an old one that most Americans seem not to have learned: The real job of government is to protect citizens from foreign and domestic predators. Government does that badly enough (though I would rather have it done by government than by private parties, namely, warlords). Government is even worse at other things, like intervening in economic affairs, the unseen cost of which — in forgone economic output — dwarfs the amount spent by governments (at all levels) on defense and law-enforcement. This comparison is apt because we could better afford to pay for the protective services of government, were it to butt out of our economic affairs.

This brings me to “the forthcoming financial collapse of our country.” I assume that you refer to the huge obligations incurred by the federal government in the form of Social Security, Medicare, Medicaid — and the promised expansion of these by what has become known as Obamacare. These obligations, which now consume about 10 percent of GDP, will consume 25 percent of GDP before the end of this century. Add to them the cost of other governmental functions and the regulatory obstacles that government throws into the path of economic growth, and you do have something like an economic disaster in the making — but it may occur in slow motion (as it has for the past century), rather than in the form of a dramatic collapse.

One result of the slow-motion disaster could be a “sovereign debt crisis,” namely, the inability of the U.S. government to sell its debt except, perhaps, at very high rates of interest. In the alternative, the government, acting through the Fed, would simply “print money” in an effort to inflate its way out of the problem. But that would only make government debt less marketable while further stifling economic growth by creating great uncertainty in capital markets. The bottom line is that the “forthcoming financial collapse” — or its slow-motion equivalent — is of the government’s making, and can be averted only by getting government out of the business of running the inter-generational Ponzi schemes that we know as Social Security, Medicare, and Medicaid.

The real strength of the “country” is its people and their voluntary social and business arrangements. It is not government, which — contrary to the views of “progressives” — stands in the way of progress and prosperity.

Related posts:
The Commandeered Economy
The Price of Government
The Mega-Depression
Does the CPI Understate Inflation?
Ricardian Equivalence Reconsidered
The Real Burden of Government
Toward a Risk-Free Economy
The Rahn Curve at Work
How the Great Depression Ended
A Moral Dilemma
Our Miss Brooks
The Illusion of Prosperity and Stability
Society and the State
The Price of Government: More Evidence
Experts and the Economy
I Want My Country Back