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Thursday, September 6, 2012
Economics/Business ... Politics ...

The philosophical contrast behind the Presidential election candidates and their parties this year is about the sharpest and widest that I’ve seen in my almost 6 decades. My interest in Presidential elections goes pretty far back, right to the Kennedy-Nixon contest in 1960. Never has there been so much disagreement between the Democrats and Republicans on what direction to take the nation.

Although nothing in this world is black and white (life and politics are still ultimately shades of grey — but this year the dark grey is VERY dark, and the light grey is VERY light), I think it’s fair to say that Barack Obama and the Democrats will continue to emphasize a large government apparatus with extensive intervention into all aspects of the commerce and economic doings of our nation. Mr. Romney and the Republicans are calling for a smaller government with a shrunken role in economic regulation and taxation. The winner will arguably have a mandate from the public to pursue their favored philosophy of political economics (although thus far the race looks like a dead heat, and the winner may emerge as in 2000 more because of luck than from public consensus, regarding just how socialist or capitalist our nation should be).

So, I will try to make as clear and plain an explanation as I can of the underlying arguments for and against Mr. Obama’s views versus Mr. Romney’s plans.

Let me first go to bat for the Republicans. They like to talk about opportunity and reward for initiative, for the freedom to do as you will with the money and resources that you own, for the chance to work hard and get rich even if you now have little. They want open markets and unregulated business — at least on paper (more on the reality of what they ultimately wind up with later on). They don’t want government doing much more that basic defense and local law enforcement functions; as such, they promise very low taxes. They don’t think that government bureaucrats should be spending taxpayer money trying to preserve endangered species or reducing environmental pollution or equalizing student performance across socio-economic groups or fostering health care availability for lower-income families or insuring economic security in old age.

They say that if taxes are radically cut, along with business regulations and red-tape paperwork and mandatory re-distribution of wealth from the haves to the have-nots, our economy will boom like it’s never boomed before. They don’t deny that a huge chunk of the benefits of such a boom will go to those who are already rich (and maybe another chunk will wind up in the hands of a small sliver of the population who will become newly rich in the process). But they assert that we need these rich people to even get richer, as it is the rich and not the poor and middle class who have the wherewithal to create new products, businesses and jobs. Under the GOP lazziez-fairre dream, the economic pie will grow so fast that even the crumbs that fall to the masses will be a feast, compared to what the masses struggle and fight for today under our increasingly socialistic system.

The Republicans don’t like to say it too loudly (give Paul Ryan credit for being the exception here) but they are in fact arguing that we need to cut down the economic safety net(s) for the unfortunate and unlucky, which our nation has built up over the past 7 or 8 decades. They would argue that these safety nets were put up with good intentions, but like many things, they have backfired. Despite doing some good, these programs are being exploited more and more by the not-so-unfortunate and not-so-unlucky, they cost a lot of money, and as they are expanded by unavoidable political forces over the years to cover more and more of the population. As such, they help to “dumb down” the masses and take away their incentives. I.e., incentives to go into business for yourself as a way to better your family’s lot, incentives to do some homework and take some measures to set up your own financial safety net, and incentives to find the most efficient ways to do these things. As such, the public “gets lazy”, there is less and less entrepreneurial spirit, less and less public spirit, less and less moxie applied to finding better ways to obtain things like health care (and even more important, less and less incentive to reduce the need for health care — perhaps that helps to explain the growing obesity and diabetes crisis in America).

I know a few “true conservatives”, and if you listen to them and let them get this far, this is where they pull you into their confidence; this is where you are invited to become one of them. This is where they profess sympathy and get a bit sad and ironic: hey, the intentions behind Medicare and Social Security and health care reform and labor union protections and public housing programs and the clean air and water acts were all very noble. But in the real world, they wind up doing more harm than good. If we get rid of them, sure, some people will suffer, some people will “fall between the cracks”. But the economic boom that will follow will make it easier for our private charities to raise enough funds to help such people, at least the “truly needy”. In the end, though, the situation will provide the greatest good for the greatest number, even though for some lucky few, that good will be a lot bigger than the good that most will receive. As the economy keeps on booming, becoming “set” in the world will depend more and more on talent and virtue, versus what we see now — i.e., the rich get rich with a lot of luck and political guile, involving some not-so-virtuous conduct.

Then they start citing history (I give the conservatives much credit here, they make much better use of history in their arguments than the liberals do). They point to the old Soviet Union and even modern Cuba and North Korea as nightmare examples of stateism run amok. And recently, they started throwing in Greece along with Venezuela. In these states, there were no more rich to hog up the good things in life. But there was increasingly less and less of the good things in life being produced, as the citizenry and workforce became more apathetic and dis-engaged and prone to alcoholism. And as to what good things did remain, well, they certainly were not shared equally in the worker’s paradise. Instead, the big cars and fine wines and fancy clothing and vacation houses in warm and pleasant places were reserved for the ruling elite, the handful of people who by luck and ruthless lack of virtue, clawed their way into the government leadership positions.

Sounds like an Ayn Rand nightmare, versus her capitalist paradise. Yes, it certainly is true that in highly socialized economies, only the “party apparatchiks” and “power cult members” get to live large, whereby in the USA, even the hoi poloi get their occasional vacation cruises and fancy restaurant outings. And all but the poorest of the poor still seem to have a right to an I-phone and big screen TV. Trickle-down does happen, and the Republicans say you ain’t seen nothing yet. So point me to the Romney-Ryan lever in that voting booth!

But hold on a minute. Last I remember, President Obama is not calling for a 5-year plan for a commanded economy, even if he occasionally tries to pick economic winners before they even run the race (e.g. Solindra). Obama and company certainly are backing a high degree of government involvement in the economy, admittedly (ask those Chrysler bondholders who got shorted). What could rationally justify that?

Well, all except the most politically tendentious economists entertain the notion that market forces don’t always efficiently distribute available resources. They admit that market players don’t take long-term views; producers, sellers and buyers seek “maximization” in the short run. And further, the market mechanisms in an unregulated capitalist system don’t figure in all of the social side effects such as pollution and global warming and possible future wars caused by resource exhaustion. The economic term for such effects is “EXTERNALITIES”. In such instances, it may be worth the carrying cost to have government there to help INTERNALIZE the long-term negative effects, through taxes and regulations.

Austria philosopher Josef Hayek made an economic argument against “central planning”; i.e. that a group of bureaucrats in a central office cannot process all the information that an autonomous open-market process can develop and mindlessly adjust to through the constant interaction of “massively parallel de-centralized information objects”. I.e., many, many buyers and sellers each seeking to maximize their satisfaction. Thus, central planners will inherently get things wrong in terms of distributing what is available in the most efficient and net-satisfaction-maximizing way possible. According to Hayek, state interventions to enforce equality of outcome or even equality of opportunity go astray over time because of such “information blindness”. But does this argument apply in an era of cheaper and cheaper information technology and processing capability?

And hey, there’s just a gut feel problem with the GOP’s “cruel to be kind” rationale. Is it really best that people be entirely responsible for their own security, and if they don’t succeed, then let them die? Can we really hope that private charity will be a sufficient safety net?

Furthermore, there is the possibility that high concentrations of wealth in and of themselves cause economic sclerosis — because rich families become so rich that their incentives turn away from commerce and technical / organizational / marketing innovation, towards political protection of their accumulated wealth and interests. They themselves begin to support large, complex state apparatus which serves to protect them against new innovators and traders. This certainly does put a drag on the economy, and requires consumers whose welfare is de-maximized to “chip in” for these state mechanisms via their tax dollars. I don’t think you will be surprised to hear that big corporations and other major financial interests do this via lobbying, huge campaign contributions, and now unlimited PAC advertising.

Sometimes, stateist measures to spread wealth have helped to support new innovators and create the potential for new traders and entrepreneurs to challenge the old, vested interests that would otherwise control the economy. E.g., the union movements in the early 1900s put some initial drag on economic growth, but by increasing the distribution of wealth, they laid the foundation for the economic boom that occurred from 1948 to approx. 1972. Unfortunately, the union movement had its own sclerosis, and its increasing inflexibility (e.g., bureaucratic work rules severely limiting what any particular worker can do for his or her employer) helped to foster the decline in American manufacturing employment in the 1970s and 80s.

The “old rich” at some point do NOT need the poor; they can become content with an economy much smaller than is possible with current technology and available resources. So long as the existing economy is directed to supporting their needs and wealth and security, they will use their resources to protect the status quo, at the cost of the welfare of “the 99 percent”.

To reiterate: Don’t the capitalists, especially the big, well-established ones, sometimes WANT government regulation as to avoid booms and busts, and lower their surprises and potential for new competitors to arise? Don’t they want social back-stops (i.e., bail-outs) given their arguments about “too big to fail”? Don’t they appreciate the “slow down” in change that government buys for them?

The bottom line here: big government isn’t going away, even if the current GOP anti-government boosters succeed. It’s more a question of how and what the continuing big government will do regarding the economy. I believe that Obama and the Democrats would do more to share economic wealth and create a more dynamic and diversified economy, in the long run.

Albeit, even the Democrats give in to political funding pressure and sometimes support the interests of the established rich, by supporting government mechanisms that serve the purposes of big, established businesses. Look at all that was done for the “too big to fail” financial industry by both the Bush and Obama administrations. And think about how GM is morphing into “Government Motors”. There will be plenty of economic hypocrisy to go around no matter what the outcome of this fall’s election is. I just hope that “we won’t be fooled again” . . . not too much, anyway.

◊   posted by Jim G @ 9:17 pm      
 
 


  1. Jim, I am not sure I can speak to the philosophical contrast between the Republicans and the Democrats. But I did watch carefully most of the main speeches and have some impressions of the groups from these speeches. (I missed Michelle Obama’s due to unforeseen circumstances much to my regret and also missed Biden’s talk.)

    I heard Ann Romney’s talk. I don’t know what it is, but I always like Republican woman for some reason. They seem down to earth and have a good sense of the needs of regular people. For some reason I like Republican woman, and I liked Ann Romney and her speech.

    Regarding Paul Ryan’s speech: I think I did actually hear Paul Ryan talk about working with the Democrats; but his comments were lost on me as he himself has been one of those who has been least cooperative when it came to working with the Democrats; he seems to have no interest in cooperation when it comes right down to it. I also find it difficult to listen to what he has to say as his hometown is (ballpark figure here) about half the size of the suburb I live in, and the suburb I live in is not a really large city.

    I hoped that Mitt himself would have a good speech. Well, it was good on theory and ideals but very short of the *how* of things getting done. A serious lack there. That disappointed me.

    Clinton, of course, was the usual excellent orator that he always has been. I tho’t he did not “talk down” to his audience but spoke as if they understood what he was saying—and, of course, they did. He was very specific regarding each topic he addressed, did not deal in ideals or theory but actual facts. The word that comes to my mind regarding Clinton’s speech is “magnificent”.

    As to Obama’s speech: I tho’t he could hardly top Clinton—and, I don’t think he did. Yet, his speech was a very good one. I looked at the clock at one point, thinking, man, this will be a l-o-n-g talk; the next time I looked at the clock 30 minutes had gone by, and I had not checked the clock in between. (I was wrong, I said to myself.) I revised my idea that perhaps Obama’s speech would not be too good. In general I was impressed that Obama has felt the weight of the presidency. That in itself is a good thing to learn. (There have been some presidents who did not seem to feel that weight—two come to mind immediately, Reagan and GWB, both Republicans.) Obama in another speech was the first one president I have heard to actually say the words, “I made a mistake and have learned” that many of those in Congress have no interest in anything but gaining some power; they have no interest in doing what may be right for the country. (There’s a first and a wonderful thing to hear when someone says, I have made a mistake and learned from it.) This comment was in regard to Obama’s speaking of presuming that he would be dealing with a Republican party that would actually want to help the country improve instead of simply fighting over who has the power.

    Another thing I noticed about the two groups: The Republican party in the hall, that is the delegates and others who attended the convention, were almost exclusively White males. I did see the camera pick out one Black male and one Black female. That was IT when it came to diversity as far as I could see. Most of the women I saw at the GOP convention were wives of candidates; then too there was Condilezza Rice—another Republican woman I like.

    The Democrats had a wide diversity of groups: Hispanics, Blacks, Asians, “Arab-Americans” (who so identified themselves with a sign they held up), Native Americans (there was a first I don’t think I’ve seen before, but I may be wrong), and women (the camera panned to an older women who obviously was seriously interested in the Democrats succeeding in this election; I liked her). There were also a *lot* of Veterans—both younger and older, military from WW II also. Another group I saw in numbers were teachers. (YES!) Compared to the GOP convention, the Democrats really had a diverse group, while (I hate to say it) the GOP had white, rich males for the most part.

    And how can I pass up a comparison of what the two candidates’ wives wore? I tho’t Ann Romney’s dress was lovely, fit her beautifully, was most appropriate. And as to Michelle Obama’s dress—absolutely the same: A lovely color (how *did* the designer get that rhubarb color?); the dress fit her beautifully, and her entire outfit was most appropriate. A tie on that one, I say.

    While the GOP talks about wanting everybody to be able to go into business for themselves and make all the money they possibly can, the actual fact of the situation is that there is only so much room for individual entrepreneurs, especially those that make mega-bucks. The fact of the matter is, as I see it, that there is only so much room for those who will make it to the “top”. Isn’t that the idea of making it to the “top”? The “top” only has a very few. So it seems to me that there is an inherent flaw in that idea. Meanwhile, the rest of the “regular people” (like me for one) end up working for the “top”. Yet, all the while, the “top” insists that everybody can be on the “top”. I find myself asking two questions: Then who will work for those at the “top” if everybody is at the “top”? And: What’s wrong with that picture?

    Now for the remaining two months, I fully intend to ignore all ads for candidates, all phone calls asking for my opinion (usually made by the group they do not purport to be), and simply go to vote on November 6. MCS

    [Mary, don’t worry — like me, you don’t live in a swing state! The DNC and RNC could care less about us. Jim G]

    Comment by Mary S. — September 7, 2012 @ 2:31 pm

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