Wednesday, June 13, 2012

Remedy

Three very different columns from three of the top media institutions: Tomasky at the Daily Beast, O'Driscoll at the Wall Street Journal, and Kotkin at Forbes. Tomasky offers up a "fool proof plan" (the irony is dripping from the phrase) for Obama to win the upcoming Election and Save the Nation, O'Driscoll addresses the looming (let's get real: it's not looming, it's here) crisis in the EU, and Kotkin pokes at the Golden State. The common thread? Tomasky's plan is that of a child, ignorant of the realities facing the United States, the EU, and the world at large.

The essence of his plan is simple and limited:
Obama should go to Congress and say: “I offer you the following deal. I will extend all the Bush tax cuts for one year—yes, even for the wealthiest Americans. One year. In exchange, I’d like you to agree to fund the initial, startup $10 billion for the Kerry-Hutchison infrastructure bank, and the $35 billion I asked of you last September in direct aid for states and localities to rehire laid-off teachers and first responders. Then, after I am reelected, my administration and I will take the first six months of 2013 to write comprehensive tax reform, and Congress will then have six months to pass it, and we’ll have a new tax structure that we’ve both agreed on.
Tomasky believes that this is actually a meaningful plan, that it will lead to Good Things, one way or the other. He imagines that it would remove the idea of economic uncertainty from the discussion, that somehow a year-long extension of tax rates creates certainty in the business world. Moreover, he imagines out-of-control government spending is not the problem that we all know it to be. In one moment, Tomasky talks of promoting certainty, in the next he essentially argues uncertainty is not a problem:
My idea doesn’t deal directly with budget sequestration, and the huge cuts that are supposed to kick in January 1. Maybe Obama can propose that those be deferred for a while as well. Or maybe he is better off just leaving that to the senators who are allegedly working on it now. It might muddy things up.
Oh, and he also takes it as a given that the American public is six ways stupid, that it will simply accept a one-year extension of tax cuts (which Tomasky clearly believes must last no longer) as equivalent to a new spending initiative (the highly-touted Infrastructure Bank, which will cost the taxpayers far more than is being projected) and a huge Federal giveaway to the States. In short, his plan is to maintain the status quo on taxes, toss in some additional spending, and make a promise of potential future cuts in spending at some later date (when Obama may or may not be in office and such cuts may or may not be made). But of course, that's just for a year. The real meat of the plan hits after that year with an increase on top marginal rates, the progressive panacea for all that ails the world: tax the snot out of the so-called "rich." But as should be crystal clear by now, the "rich" being targeted are not members of the "landed aristocracy," the "filthy rich" as it were, but rather that top tier of income earners who have the misfortune to be hard-working and successful with incomes of $250k or so a year. Take that, American Dream.

Luckily, we have an available case study for the kinds of policies Tomasky thinks are brilliant and effective: California. Kotkin, in his piece, takes a snapshot of the current situation in that great State, a very disheartening snapshot:
California’s “progressive” approach has been enshrined in what is essentially a one-party state that is almost Soviet in its rigidity and inability to adapt to changing conditions. With conservatives, most businesses and taxpayer advocates marginalized, California politics has become the plaything of three powerful interest groups: public-sector unions, the Bay Area/Silicon Valley elite and the greens. Their agendas, largely unrestrained by serious opposition, have brought this great state to its knees.
What's missing from California? Simple, the independent middle-class, the group from which springs the upper-middle class and the "rich" being targeted by fools like Tomasky and Obama. They're being driven away or beaten down. California is a model for the consequences of "success by fiat" policies, of a government that believes prosperity can be ordained. And in that respect, it is joined by the leaders of the EU, who believed welfare states could exist under the same economic umbrella as productive ones, who thought nothing of fiscal responsibility in the whole, but left it up in the air, as some sort of dopey choice in government "style."

As O'Driscoll notes, that vision is unwinding quickly, with Greece's exit from the EU seeming to be a foregone conclusion and Spain's collapse seeming imminent. The latter's situation has been dire for a while, but the truth has only recently been "recognized" by political leaders:
The Spanish government has finally admitted that it does not have the funds to recapitalize its banks. EU finance ministers have reportedly committed up to 100 billion euros ($125 billion) for that effort. Experience with banking crises in general suggests that early estimates of losses will prove to be too low. Political leaders start with denial and then offer only belated recognition of the size of banking problems... 
Spanish banking problems are not the end, but only the beginning, of European banking problems.
This is all a consequence of the failed leadership in Brussels, of policy wonks (technocrats) who believed they could fashion a currency--the Euro--out of "whole cloth," to use O'Driscoll's words (I prefer "sackcloth," for I mourn such stupidity as a matter of course). And with that currency, they believed economic prosperity could be achieved and maintained throughout a loose union of disparate nations via control of just the currency in the beginning, followed by control of the specific economies under its umbrella in the future (ha!).

In the beginning--circa 2001-2003--proponents of the Euro imagined grand results: huge economic growth in member-states, a viable alternative to the dollar, and--for the truly "visionary"--a currency that would actually supplant the dollar as the backbone of the world economy along with the rise of EU as the lone economic "superpower." Like the dreams of the Asian Tigers, these aspirations have been dashed on the rocks of reality, for the dollar remains the go-to currency when there is worldwide panic.

The only way out for Spain--and the EU--is to turn to those few nations whose economies remain strong--i.e. Germany--and beg for salvation. Niall Ferguson and Nouriel Roubini--two men whose opinions I deeply respect--offer a way out for the EU. And indeed, the gist of their plan is for Germany to share in the debt rung up by it's careless--and clueless--neighbors. But their assumption is that the EU is worth saving.

It's not.

It was poorly conceived from the beginning; it created the incentives for fiscal irresponsibility in nations like Greece, Spain, and Italy by opening a floodgate of government bonds backed by the Euro from nations who could not realistically justify all of the new debt, absent an ever-booming economy. Fiscal responsibility was an afterthought, at best.

And such is the case in California, which--like Spain--teeters on the brink of financial insolvency. And as Greece and Spain (and other nations) threaten the EU as a whole, so do California's policies threaten the U.S. But not because California cannot be saved. It can be, easily. But rather because the current Administration and its cadre of high-minded progressive and liberal supporters believe those polices are not the problem but--somehow--are the solution.

Tomasky's dopey plan represents everything that is wrong with the solutions being offered up by the Administration and its supporters: despite the "compromise" on taxes, it's a gimmicky answer to long-term problems, far-reaching problems that addresses nothing but apparent symptoms. It's political theater and the longer such views are seriously considered by political leaders, the longer proper answers will be avoided.

The remedy is simple on its face, complicated in it's actual nature, apparently harsh in it implementation, yet remains the only real road to prosperity and away from serfdom: fiscal responsibility, also know as fiscal sanity. But it requires something that may be well nigh impossible: an admission from the technocrats that they don't have all the answers, that "success by fiat" is impossible, that a "command and control economy" is a dead end. A simple remedy, but one that history tells us may never come.

Cheers, all.

1 comment:

  1. "And with that currency, they believed economic prosperity could be achieved and maintained throughout a loose union of disparate nations via control of just the currency in the beginning, followed by control of the specific economies under its umbrella in the future (ha!)."

    Gee, that sounds familiar. Substitute "states" for "nations," and we see the same game playing out yet again. The dollar is failing slower than the euro only because the US got nationwide "control of the specific economies" early in the game. California is America's Greece, when it comes to financial issues... although there are plenty of other states on the U.S. PIIGS list.

    ReplyDelete