October 26, 2008

Who Should We Trust on Economics?


If John McCain loses this election, chances are the chief reason will be the concerns we all have about the economy and the current financial crisis. Arguably, McCain's instincts to return to Washington to work on the "emergency" bailout bill were noble. They're certainly in tune with his overall perspective on every issue: Country First. However, Obama's decision to stay as far as possible from the negotiations paid off. The press and the rest of the Democrats falsely, but successfully, laid the blame for the crisis on Pres. Bush and the markets. Obama and McCain were neck-and-neck when the crisis broke, but Obama opened and held a lead as events developed.

As much as everyone is fed up with the Bush Administration, let's consider which party and which presidential candidate is better equipped to deal with the ongoing economic problems we face. There are essentially two ways of looking at society and the economy: from an individualistic standpoint or a collectivist one. Remarking on the Joe the Plumber phenomenon, Jonah Goldberg writes on National Review Online:
"Who knows what it will do for McCain in the end, but the Joe the Plumber phenomenon is real. At the rally, supporters carried handmade signs reading “Phil the Bricklayer” and “Rose the Teacher.” Wurzelbacher symbolizes an optimistic, individualistic vision of America sorely lacking — until recently — in McCain’s rhetoric.

Barack Obama, in contrast, has offered the most rhetorically eloquent defense of collectivism since Franklin D. Roosevelt. In his biographical video at the Democratic convention, he proclaimed that in America, “one person’s struggle is all of our struggles.” In his acceptance speech, he artfully replaced the idea of the American dream with the century-old progressive nostrum of “America’s promise.”

But the two visions are in opposition: the former individualistic, the latter collectivist. We each have our own idea of the American dream. Joe the Plumber’s is to own a small plumbing company; yours might be something else entirely. In America, that’s fine, because the pursuit of happiness is an individual, not a collective, right."
The two parties embody these competing visions of economic policies, although imperfectly. The Republican ideals are those of individual effort, risk taking, and the freedom to win rewards or suffer failure. This is the view of the individual in control of his/her own destiny and responsible for what he/she makes of opportunities. The Democrat view is that most people are not able to fend for themselves, and it is the responsibility of society to take care of them through government actions. The individualist view leads to a desire to keep taxes down and the sphere of government actions limited. The collectivist view leads to a desire to add new government programs, expand existing ones, and seek an ever higher share of the "national wealth" to promote "fairness."

There certainly are exceptions to the party breakdown on this point. John McCain has hardly been a staunch supporter of limited government and the individual in economic policies. It's impossible to argue that George W. Bush has been keeping the size and role of government in check. There probably are some Democrats who support minimizing the government's interference in markets and letting people keep what they earn, but I am unable to come up with any examples of prominent figures in the Democrat party today.

The collectivist view calls for government to "create jobs." The individualist view sees that real jobs only come from private enterprise. The visible jobs "created" by government spending are more than matched by the less visible jobs lost or not created in the private sector.

The ultimate outcomes of these two competing visions are easy to see, if we look. Low taxes and economic freedom are always associated with growth, jobs, flexible adaptation to changes, and rising standards of living. High taxes and extensive government regulation of economic activities are always associated with slow/no growth, misallocations of resources, high unemployment, and stagnation. Taken to its limits (i.e. Marxism), the collectivist view destroys the private sector and even leads to complete breakdown of society and famine. These results are consistent, wherever they are tried: the stagnation of European socialism; the growth of tax-cutting European states; the perpetual economic failures of communist governments; and the improvements even there when markets are allowed to work.

The American economy is still the envy of the world, but that is not our birthright. It is the result of our sustained commitment to economic freedom and individualism. That system is threatened today. As a result of the bailout much of the banking system is effectively nationalized at this point. It is imperative that these companies be returned to private hands as soon as practical. Otherwise the banking system will become just another political honey pot, used to reward favored groups. Meanwhile, the main causes of the crisis, the quasi-government/quasi-private Fannie Mae and Freddie Mac are not dead, and the political forces that created them are still in place. We need to drive stakes through the hearts of these companies now to make sure they are never allowed to re-awaken and repeat the activities that brought us to the brink of financial ruin.

Frankly, I don't know if we can trust John McCain to make the right economic decisions going forward. However, it is completely clear that Barack Obama and potentially large Democrat majorities in the House and Senate are sure to make the wrong decisions for our economic future. We can at least hope that McCain will counter some bad policies.

Obama's history shows a consistent desire to ally and align himself with far left people and groups. His proposed "tax cuts" are nothing but income transfer plans, welfare checks to those who don't work paid for with confiscatory taxes on those who do. He, like many Democrats, speak as though all private income rightfully belongs to the government. His appetite for massive, new government programs to solve all society's ills is insatiable: national healthcare; new alternative energy schemes; new payments to the UN; a new Dept. of Peace and Non-Violence; and more. He has shown hostility toward free trade in talking of "renegotiating" NAFTA and opposing the free trade agreement with Columbia. It's widely agreed that the Great Depression was precipitated in part by the protectionism of the Smoot-Hawley Tariff Act.

Free market capitalism is not just the most efficient mechanism for organizing a society and generating wealth. It is also the most moral, because if you want something from someone else you must offer something of value in return. Obama's rhetoric is full of class warfare clich├ęs and denunciations of "trickledown economics." He is set to sweep into office promising only "change" with a crisis to justify whatever he defines that change to be, and a huge partisan majority to enact his visions. Based on what he tells us of his plans and what we can guess he is not telling us, this would be extremely bad.
Another cross-post from DLMSY.

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