Subject: Down With Big Government, Big Business, Big Labor, Benishek on Social Security, The 97% Fallacy, Dr Dan asks for your help, Boskin on Economy, Rove on Obama
Date: Fri, 3 Sep 2010 08:08:23 -0400
Down With Big Government, Big Business, Big Labor
Recent example: Scads of liberals gleefully predicted that the financial crisis and deep recession would destroy Americans' faith in markets and increase their confidence in big government. Many conservatives gloomily feared they were right.
How to explain this? One way is to see the public's reaction as opposition to governance by an alliance of Big Units -- Big Government, Big Business and Big Labor.
In the 1930s, Americans supposedly lost faith in markets and rallied to government. But if you go back and look at public opinion polling then, you find something rather different. You find majorities grumbling about Big Government, scorning Big Business and opposing Big Labor.
The 1940s were different. Facing the threat of total war, Franklin Roosevelt transformed himself from "Dr. New Deal" to "Dr. Win the War." He fostered cooperation between Big Government, Big Business and Big Labor. Roosevelt was brilliant at selecting, from all these sources, the best men (and women) for jobs he considered important.
The result was a war effort that was brilliantly successful. America was the arsenal of democracy, vanquishing its enemies and inventing the atomic bomb. Big Unit governance gained enormous prestige and held onto it for a generation after the war.
The result was prosperity but also stasis. The Big Government of 1970 looked a lot like the Big Government of the 1940s. The same Big Businesses that dominated the Fortune 500 list in 1940 did so in 1970. The list of Big Labor unions remained pretty much the same.
Around 1970, these Big Units lost their edge. Big Government got mired in wars on poverty and in Vietnam. Big Business got hidebound and bureaucratic. Big Labor started to shrink.
Starting around 1980, the country began to revive. Big Government lowered taxes and deregulated transportation and communications. Entrepreneurs and investors replaced stodgy corporate managements with new companies and new products.
The conformist "organization man" Americans of the 1950s were replaced by non-conformist innovators, risk-takers and creators who made a new economy that central planners could never have envisioned. Bill Gates and Steve Jobs didn't wait for those at the top of Big Units to tell them what to do.
Big Business changed: The Fortune 500 list of 2010 doesn't look anything like that of 1970. Big Labor almost vanished: Most union members today are public employees.
The Obama Democrats, faced with a grave economic crisis, responded with policies appropriate to the Big Unit America that was disappearing during the president's childhood.
Their financial policy has been to freeze the big banks into place. Their industrial policy was to preserve as much as they could of General Motors and Chrysler for the benefit of the United Auto Workers. Their health care policy was designed to benefit Big Pharma and other big players. Their housing policy has been to try to maintain existing prices. Their macroeconomic policy was to increase the size and scope of existing government agencies to what looks to be the bursting point.
What we see is Big Government colluding with Big Business and trying to breathe life into Big Labor.
Some of this can be defended. The Obama Democrats are right in pointing out that the TARP financial bailout was the product of the George W. Bush administration, and they may well be right that it would have been disastrous to allow Citibank to fail.
But Big Unit policies are not a good fit for a country that has grown out of the wreckage the Big Units made of things in the 1970s. They freeze poorly performing incumbents in place, and they don't provide the breathing room for small units to start up and grow.
In the meantime, the Big Units are not performing as well as they did for Dr. Win the War. The visibly flagging economy and the slapdash stimulus and health care bills have left most voters ready to take a chance on the still reviled Republicans. The unanswered question is, will the Republicans have an effective alternative to Big Unit governance?
Contact: Trent Benishek
Phone: (906) 282-5755
Nation Needs "Forward thinking"; Bipartisan Plan to Preserve Social SecurityIRON MOUNTAIN, MI – Dr. Dan Benishek, the Republican nominee for Congress in Michigan's 1st District, today issued what he described as the "first of many" position papers, outlining in detail his views on Social Security.
In a statement released to all the district's newspapers, Dr. Benishek said, "I do not favor any reduction, freeze, or changes in the benefits provided existing retirees. This is a promise made to those over the age of 62 by their government, and it must be honored 100 percent. No ifs, ands, or buts. Period."
The Iron Mountain surgeon's statement went on to say, "[I]t is unfortunate that Washington's political professionals have used the Social Security issue for political gain and — worse — have engaged in scare tactics with our elderly during elections. Given the projections on shortfalls in the Social Security system over the next few decades, the most irresponsible position is to turn a blind eye to strengthening the system for future retirees — especially those under age 55 — who will be entering the system. Congress needs to look honestly at solutions to preserve and defend this vital program."
"My sincere hope is that, after 27 years in public office, Gary McDowell has learned that distortions on Social Security do not serve the citizenry whose support we candidates seek to earn," Dr. Benishek observed.
"When I think about this issue, I think about my mother and father-in-law who, like so many of our elder citizens, depend greatly on Social Security for economic survival. I would not support any efforts to reduce their benefits or undermine the government's promise to retirees," Dr. Benishek concluded.
The president's plan to raise top marginal rates is holding back the very people who should be leading the economic recovery.
To buttress this position, the president and his supporters have repeatedly asserted that the expiration of these cuts will have little impact, because they affect only a tiny fraction of the wealthiest Americans, people who "can afford it."
Recently, for example, Vice President Joe Biden harshly rejected House Minority Leader John Boehner's assertion that the hikes would harm small businesses, saying that "he has created this myth that a tax cut for millionaires is actually a tax cut for small business. There aren't 3% of small businesses in America that would qualify for that tax cut." House Speaker Nancy Pelosi flipped the number around, saying that the planned tax increases would exempt "98% of American families and about 97% of small businesses."
The impact is far more severe than Mrs. Pelosi and Mr. Biden suggest. In fact, the sound bite about 3% of small businesses, which has been picked up by numerous pundits, is one of the more misleading statements in the long history of economic propaganda.
The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That's the number to look at, not the 3%. Would Mrs. Pelosi and Mr. Biden deny that the more successful firms owned by individuals in the top income-tax bracket are disproportionately responsible for investment and job creation?
It's clear that business income for large and small firms will be hit by the higher tax rates. And in point of fact, firms of all sizes contribute to the nation's prosperity. So it's a mistake to focus only on the impact of increased tax rates on small business. But will the higher rates actually cause a significant reduction in business activity?
Economic research supports a large impact. A pair of papers by economists Robert Carroll, Douglas Holtz-Eakin, Harvey Rosen and Mark Rider that were published in 1998 and 2000 by the National Bureau of Economic Research analyzed tax return data and uncovered high responsiveness of sole proprietors' business activity to tax rates. Their estimates imply that increasing the top rate to 40.8% from 35% (an official rate of 39.6% plus another 1.2 percentage points from the restoration of a stealth provision that phases out deductions), as in Mr. Obama's plan, would reduce gross receipts by more than 7% for sole proprietors subject to the higher rate.
These results imply a similar effect on proprietors' investment expenditures. A paper published by R. Glenn Hubbard of Columbia University and William M. Gentry of Williams College in the American Economic Review in 2000 also found that increasing progressivity of the tax code discourages entrepreneurs from starting new businesses.
Because marginal tax rate increases impede long-run growth, they should be avoided in good times and bad. But now is a particularly inopportune time to raise rates, as small businesses are still struggling from the recession. According to the ADP National Employment Report for July, goods-producing small businesses have reduced their total payroll employment by 117,000 jobs since January of this year, and they were still posting declines in July.
Taxes appear to be part of the story. When the National Federation of Independent Business asked small business owners in June to list the most important problem they faced, 20% named taxes, making that the second most cited concern after weak sales. The expectation of tax increases, such as those in Mr. Obama's plan, is on the minds of the people who should be leading the recovery.
The administration defends its desire to increase taxes by citing concerns about the deficit. Treasury Secretary Timothy Geithner recently asserted that "borrowing to finance tax cuts for the top 2% would be a $700 billion fiscal mistake."
The administration is right to view the deficit as a serious issue, but this sudden commitment to fiscal responsibility is bizarrely inconsistent. The administration professes deep concern about the $700 billion revenue loss from extending the tax cuts at the top, but apparently views the revenue loss of nearly $2 trillion from extending the tax cuts for the middle class as too inconsequential to mention. Nor has the administration's concern about the deficit driven it to reduce federal spending.
For those who are determined to tax the rich at all costs, and are therefore willing to accept the claims of the Obama administration without scrutiny, the tax hikes may well make sense. But the evidence is clear that lifting the top rates will hamper the business investment upon which our nation's prosperity depends. That affects all Americans, not just 3%.
Mr. Hassett is director of economic policy studies and a senior fellow at the American Enterprise Institute, where Mr. Viard is a resident scholar.
While campaigning all over Michigan's First Congressional District, I have seen so much energy and passion from people who have had enough of Washington's taxing and spending.
With your help, I can win.
Here are five ways you can connect with my campaign:
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By connecting to the campaign and with each other, you will help me win in November and tell Washington you have had enough.
415 S. StEPHenson, Iron Mountain, MI 49801
Summer of Economic Discontent
The administration's 'summer of recovery' has fizzled in almost every way imaginable. The growth rate is less than half what it was at this stage after the 1974-75 and 1981-82 recessions
The Obama administration's "summer of recovery" has morphed into a summer of economic discontent amid anxiety over the weakening economy. The greater than 4% growth and less than 8% unemployment envisioned by the president's economic team are nowhere to be seen. Almost everything that is supposed to be up—the economic growth rate, the stock market, bond yields—is down. And almost everything that is supposed to be down—unemployment-insurance claims, new mortgage delinquencies—is up.
Sometimes a weak early recovery gathers strength after a year or so, as in 2003 when the second round of the Bush tax cuts helped double growth to 3.8% from 1.9%. But there are serious headwinds to stronger growth: household deleveraging, unresolved toxic assets, and most government economic policies headed in the wrong direction. While the base case outlook is still slow recovery, a double-dip recession or a Japanese-style lost decade is more plausible than a few months ago. This explains why Federal Reserve Chairman Ben Bernanke felt compelled last week to reiterate that the Fed will use more of its (in my view, weak) ammunition should the economy falter further.
These weak backward-looking data were accompanied by big downdrafts in forward-looking financial markets. The Dow Jones Industrial Average lost over 4% and the tech-heavy Nasdaq over 6% in August—partly retraced yesterday—and the 10-year U.S. bond yield, at 2.47%, was back to its lows of March 2009. Real GDP growth slowed from 3.7% in the first quarter to just 1.6% last quarter.
Worse yet, much of the growth in the first half of 2010 was due to inventory-rebuilding; real final sales grew at only about 1%. Consumers are cautious, saving and paying down debt. The surge in government spending is abating. Global trade, dependent on growth abroad, is slowing: Japan is stalled, China slowing, and despite Germany's strong quarter, eurozone growth is projected to be only half America's modest rate through 2011.
The one bright spot has been the rebound in business capital spending. Businesses are flush with cash and profits have been solid. But the weak core durable goods report, the manufacturing downshift, and continued uncertainty about the economy and the Obama administration's economic policy have many forecasters reducing capital expenditure projections.
The sluggish growth is particularly disconcerting compared to the usual strong growth following deep recessions. The chart nearby shows the average real growth that occurred in the first four and first 12 quarters following the severe recessions of 1974-75 and 1981-82. Compared to the 6.2% first-year Ford recovery and 7.7% Reagan recovery, the Obama recovery at 3% is less than half speed. The unemployment rate would now be 8% or lower at those higher growth rates. If the Obama recovery continues at 3%, the president will be running for election in mid-2012 with a cumulative GDP recovery shortfall of 4.5% (relative to Ford) to 8.4% (relative to Reagan).
President Reagan won re-election with 49 states. President Ford came from 30 points back to lose narrowly to Jimmy Carter, and would have won easily were the election a few months later. What does this say about an Obama second term? With little discernible improvement in the economy from the president's $862 billion in fiscal stimulus, citizens are revolting against the explosion of spending, deficits, higher taxes, government bailouts and economic micromanagement, and seem poised to put an exclamation mark on it in the November elections.
Not surprisingly, the left is frantically calling for a second "stimulus" and demanding tax hikes for the "rich"—a.k.a. our most productive citizens and small businesses. The rehashed ideas include such nonsense as massive infrastructure spending financed by a national infrastructure bank, an old Carter idea; yet more aid to the states; and even that worst of ideas, "general revenue sharing," which would force citizens to pay future federal taxes to fund the debt used just to send revenue back to their states.
These ideas would do a lot more harm than good. To paraphrase Benjamin Franklin, we have the best economic system among the advanced economies, "if we can keep it." That will require fundamental policy changes, not doubling down on the failed big government experiment of recent years.
The president and Congress would have to implement serious spending reductions, real entitlement reform focused on substantially slowing the growth of benefits per recipient, and no tax hikes. President Clinton made a major move back to the political center—to his own and the nation's benefit—when Republicans won control of Congress in 1994. In partnership, they balanced the budget and reformed welfare. But recall, President Clinton's major big-government initiative—HillaryCare—was defeated. For President Obama to get to a similar place after the midterm elections, he would have to partner in "repealing and replacing" his signature initiatives.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
Obama's 'Come Home America' Speech
A dangerous world needs stronger U.S. leadership.
By KARL ROVEAt times Tuesday night, it sounded as if President Barack Obama didn't know what kind of speech he wanted to give. Was it a foreign policy address aimed at assuring a world-wide audience of America's resolve in the war against militant Islam? Or was it an election stump speech to confirm to voters that the economy is job No. 1 for this president and his party?
The speech's best moments were those praising the commitment, courage and sacrifice of America's military. The president powerfully said that "our troops are the steel in our ship of state," and all who serve join "an unbroken line of heroes that stretches from Lexington to Gettysburg; from Iwo Jima to Inchon; from Khe Sanh to Kandahar."
For someone who had been such a vocal war opponent, he was generous in acknowledging what our troops accomplished—defeating "a regime that had terrorized its people" and helping "Iraq seize the chance for a better future." Because of our troops, he said, "Iraq has the opportunity to embrace a new destiny, even though many challenges remain."
Mr. Obama's was not the confident voice of Harry S. Truman promising to protect Europe and Japan against "outright aggression and . . . the threat of further armed attack." Nor did the president sound like the determined Dwight Eisenhower explaining America's commitment to South Korea's transition to democracy after the Korean War by saying, "We may not now relax our guard nor cease our quest."
Instead, Mr. Obama's address was more reminiscent of Sen. George McGovern's plea in the 1972 presidential campaign to "Come home, America." It sounded like he couldn't head for the Iraq exit door quickly enough.
Imagine if after World War II, America had left Europe in the face of the aggressive Soviet threat. What would Asia look like now if, following the Korean War, the U.S. had set a quick date for withdrawal from the peninsula?
Tuesday might have been better spent visiting not just Fort Bliss but other military installations as well to honor all the services. Then Mr. Obama could have given an Oval Office address when the new Iraqi government is formed, pairing progress on security with political success.
Mr. Obama suggested that a trillion dollars had been squandered to no good purpose in Iraq and Afghanistan over the last decade. Are removing murderous regimes that were threats to peace and stability, catalyzing change in the Arab Middle East by expanding democracy, dealing a brutal blow to al Qaeda, protecting the American homeland, and diminishing the threat of transnational terrorism really of so little value to the president?
About Karl RoveKarl Rove served as Senior Advisor to President George W. Bush from 2000–2007 and Deputy Chief of Staff from 2004–2007. At the White House he oversaw the Offices of Strategic Initiatives, Political Affairs, Public Liaison, and Intergovernmental Affairs and was Deputy Chief of Staff for Policy, coordinating the White House policy-making process.
Before Karl became known as "The Architect" of President Bush's 2000 and 2004 campaigns, he was president of Karl Rove + Company, an Austin-based public affairs firm that worked for Republican candidates, nonpartisan causes, and nonprofit groups. His clients included over 75 Republican U.S. Senate, Congressional and gubernatorial candidates in 24 states, as well as the Moderate Party of Sweden.
Karl writes a weekly op-ed for the Wall Street Journal, is a Newsweek columnist and is the author of the forthcoming book "Courage and Consequence" (Threshold Editions).
Email the author atKarl@Rove.comor visit him on the web atRove.com. Or, you can send a Tweet to @karlrove.
All issues pale compared to the question of U.S. leadership. America can either shape the world's agenda, or wait for direction from international organizations.
Suggesting that only by withdrawing from the world can a president "jump-start industries," reform education, and make "tough decisions" about issues at home leaves the impression that Mr. Obama has little interest in being commander in chief, that his real passion is domestic issues and his goal to mold America into a European-style social democracy.
Presidents can simultaneously pursue international and domestic agendas. In dangerous times, it is vital that the president use America's power to shape the world.
Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of "Courage and Consequence" (Threshold Editions, 2010).