Political Disaster as Opportunity

Nearly everyone familiar with American political history of the 19th century is aware that the Republican Party was founded in 1854, ran its first Presidential candidate in 1856 (John Fremont) and elected its first President, Abraham Lincoln, four years later.

Members of all political parties in the United States have accorded Lincoln a unique place in our countrys history. If Washington was our countrys first father, Lincoln has to be its second for saving the Union and opening the doors once again to a much-expanded vision of liberty and freedom for all inhabitants of this great land. While Lincoln fell tragically in1865, the Republic survived. A new breath of freedom issued forth as we struggled to wrest ourselves from the incubus of slavery and to use the benefits of strong economic growth to lift our people into an ever expanding cornucopia of economic progress.

Our progress, however, has not been a linear succession of triumphs. We have suffered many setbacks, but we have periodically leapt out of our dismal periods of seeming defeat to become a stronger and more abundant economy, a nation that has offered increased opportunities to all our people, and a beacon on the hill to many troubled peoples around the world.

Since those fateful years of Civil War, the American Republic has become a global leader, suffering much loss of blood and treasure in the process, in an effort to not only improve the livelihood of its own citizens, but also to offer a rays of hope to many enslaved masses whose strivings for liberty and freedom and opportunity have surged throughout the world. Those surges have repeatedly put immigrants on our doorstep. Immigration has a long, beneficial history in America even though some candidates now seem to revile it.

The recently concluded primary campaigns for Presidential nominations of both political parties have shown us to be angry and troubled, fearful over our future, no longer unified by the firm principles of our Founding Fathers or the great expositors of freedom and progress who have arisen to lead us from time to time. We are exhausted by the arguments and dispirited over the results. We are divided into balkanized factions, shouting our likes and dislikes, and largely intolerant of differing views as to our future. Unless one party sweeps the forthcoming fall elections, we are again likely to get a divided Congress. We may indeed face once more a Presidential succession that is bereft of a clear governing majority.

Some will see this an obstacle to a massive reform of the purposes and instruments of Federal governance. Others will see it as a margin of safety against relentless majoritarian and intolerant governance. If the electoral results do not produce a clean sweep, we will again be faced with a bitter political campaign two years hence. Such a campaign is likely to divide between policies that increasing the power of the majority to right alleged social wrongs, and broad based attempts to stop the avalanche of increased Federal interference in our lives, in the economy, and with our traditions of free choice and free expression. That is not a happy prospect.

It is now clear that the vital center of governance at the Federal level has collapsed, torn apart by extreme views on both the left and the right over the role of Government. Many will focus on the collapse in the Republican campaigns of the last two candidates to oppose Donald Trump. But we should not ignore the extreme left wing views of Bernie Sanders that won another state primary. Hillary Clinton may indeed become the Democratic nominee, but at this stage she hardly holds command over the hearts and minds of nominal Democrats or independents looking for a vehicle for their hopes and protection against their own fears. Trumps nomination campaign has already splintered nominal Republicans. Republicans are unsure of where their party is headed. Will Trump run from the Right of Clinton or from the Left. That depends upon the issue one uses to make a left-right comparison. Shades of 1860 once again.

Great political despair, however, can also produce a great political opportunity. The lack of central cohesion within both parties suggests an opportunity for a new party to emerge from the splintering of both traditional parties. This may provide a golden moment for coalescence around fairly clear values now widely held by thoughtful members of both existing political parties. Some will argue that a Third Party should now arise. We agree with that view, but we disagree on its timing. In our view, the best timing will emerge if and when Clinton wins the Presidency and perhaps the Democrats regain the Senate while the Republicans tenaciously hold the House.

Yet, even that outcome holds a threat since judicial appointments with no inhibitions to strong interventionism under a Clinton Presidency can change the character of our Supreme Court for more than a generation.

There could also be a growing coalition even within Democratic Senate to coalesce with some part of the House to find a common ground that will preserve our Union and preclude a massive move to overwhelming Federal power. Lets look at the issue agenda that a new party would have to address and from which a centrist bond must be forged. We focus on the following six issues.

Trade Policy; Taxation; Migration; Personal Liberty and Responsibility; National Defense and Budgetary Thoughtfulness.

Each of these arenas of contention contains a potential center. Each also needs national and local leadership to arrive at the center.

Trade policy: What dominates the extremes today is the pernicious notion that our trade agreements have resulted in unfairness. Contrary to populist opinion, growing international trade has been a net benefit to the American economy. Opening our borders has indeed created strong pressures to reduce some traditional manufacturing jobs. At the same time, it has created a wealth of opportunity for the more highly skilled and the more flexible in our work force. We need to encourage and reward those traits in our future labor force. As the global economy expands, there will be new soft spots in which other still extant manufacturing firms will want to move to take advantage of the expanded global supply chains that now exist. Some jobs will be lost, but some jobs in higher paying industries such as finance, technical services, programing, health care, etc., will grow. That is what a dynamic economy dictates. The key question is not whether growing international trade helps everyone, but how far expanded trade can improve our growth rate. We will return to this issue below

Taxation and Regulation: To supply the expanding fiscal needs that we have for various social services, (health, social security, education, environmental services), it is absolutely necessary to totally reform our tax system. We are punishing ourselves with a taxation system no one understands and depresses economic growth. It is a very simple issue. Growth comes from the bottom, not the top. Increased regulation is restraining new, small firms whose resources are not sufficiently large to cope with the hugely enlarged regulatory state we have erected since the end of World War II. What is necessary for expanded economic growth is to reduce, even abolish the corporate tax, and make it easier for new businesses to get started. Regulation and taxation, as we currently deploy them, are job killers and job movers. Large corporate mergers that take advantage of the economies of scale to lobby and to fight regulation are not job creators. They are job destroyers as they end duplicate jobs and services. Further, our global income taxation code insures that even more, large corporate firms will want to change their tax domicile. We have sowed the dragons teeth by allowing our corporate tax rates to rise relatively and absolutely as compared to other industrial nations. We are insuring ourselves lower corporate tax collections without incenting new business formation. In short, we are becoming our own worst enemies.

The resentment of growing inequality of wealth and income has put a hood over our political vision. We are getting the governance we deserve. The strong and large can fight, but the weak and small cannot be born and grow. We are in an endless cycle of job reduction and job movement overseas. It is an illness of our own making. We need to focus on improving economic growth and lessening the barriers to new business formation. To put it symptomatically: we need to stop hurting ourselves. If we are digging a hole out of which we are facing increasing difficulty to climb, we need to stop digging! Flatter taxation, replacing the corporate income with a lower, more efficient consumption tax, reducing the scope of rule making authority of our regulators and reducing the scope of ad hoc intervention in the economy are measures that will increase economic growth. An economy that is growing at 4% a year in real terms will generate far higher tax revenues. We can have a win-win growth and tax policy. Increase measures for growth and we will get more benefits from the growth we generate. Trade, better taxation systems and lowering the amount and extent of regulation and rule making authority can become a virtuous circle.

For those whose concerns are growing inequality, stop shooting yourself in the head and the foot. Move away from more mandates that increase costs to business and deter growth. Move away from arbitrary rule making that can confronted only by larger firms with large legal and lobbying staffs. Regulation is a prime source of slower growth and increased political corruption. We know there is a degree of correlation between the ease of doing business in a country and its rate of growth.1

Immigration: the false claims and rabid hysterics that have emerged in this primary campaign are shameful. First, some obvious points. Net immigration enhances growth. It is not a deterrent to growth. Second, net immigration is turning toward zero or maybe has now become negative. Three, immigrants are not the major source of welfare and health cost growth. That is simply baloney, as a quick look at the stats will tell you. Domestic safety and security are the first responsibility of the President. We need to protect our borders, but not bar entry to highly motivated individuals and families that wish to come here and work, invest, create new opportunities not only for them, but also for existing businesses. If there is one thing a new political party needs to implement, it is to create a secure, but not an impenetrable border. We need both skilled and unskilled workers to work in jobs that are difficult to fill with our existing work force. Instead, some zealots railing against income inequality want to raise minimum wages and make it even more difficult for young people to get jobs and job experience.

Environmentalism: Often by Executive Order, we are creating very difficult conditions for new business in the form of increased restrictions by the EPA and other environmentally empowered regulators. The caricature is the believers versus the deniers, of anthropomorphic sources of environmental degradation. Despite this Presidents claim, there are scientific questions yet unanswered. Unfortunately, our current President, has made the issue of Science in the argument over global warminga litmus test of over expanding regulation. Sadly, there are many scientific questions still to be answered. The argument that if we wait to do more, we will have more to do is a sophistry of the first order. If the President doesnt know this, he ought to. And his successors in the Democratic party ought to be wised-up as well Other countries who are vast sources of environmental degradation have to Walk the Walk not just Talk the Talk. If we are truly confronted with global warming caused by human agency, then we must understand the costs as well as the benefits for imposing severe restrictions on the US economy. Setting a good example for the rest of the world is not a costless demonstration project. Ranting that Science has proven its case is a complete distortion. The dialogue must shift to costs and benefits.

Personal Liberty and Responsibility: There are many false issues floating about this campaign, such as abortion rights, gay rights, gun laws, and the war against drugs. The common element is human behavior and whether there should be some limits on what residents in America can or cannot do. What is most evident in the campaigns on both side of the aisle is that Federal prescription dominates the field. The issues of abortion and gay rights have some common elements. One of them is our tax law. The question that any citizen should deal with is whether budget policy should fund abortion. Abortion rights are comingled with the issue of whether a woman should have the right to control her own body. But that is not where the rubber meets the road. It is over who pays for that right for those who do not have the income to pay for an abortion themselves. That is a question of externalities. What costs are imposed upon society by bearing children that might not otherwise be born if abortion costs are publicly subsidized One never hears that issue at all. Rather than spending fruitless hours on whether women have a right to abort a pregnancy, we need to shift the argument to the costs of unwanted children

The argument over gay rights is another question of equality under the law. The issue is very simply whether or not a family unit, under our tax and benefit laws, must be a man and a woman Why not just deal with the question of what constitutes a household for tax and benefit purposes and skip the unresolvable religious question of what marriage is or is not. Governments are not well prepared to treat philosophic or religious issues and the US has a long-standing prohibition for mixing up the two.

Gun laws involve another issue of rights. As they are now dealt with, fundamentally it is an issue of public safety versus constitutional rights. The science here is squelched. Everyone abhors mass shootings. They impose both personal and social costs. That seems to dictate a close connection between who uses weapons and under what conditions we can we demonstrate that the purchase of a gun and its misuse are intimately connected. The Government spends a lot on research for what may seem quite unusual investigations. The gun laws issue is loaded with statistics. We ought to be able to tell the true connection between purchased weapons and mass shootings from the data. Notice, we have focused on the so-called copy cat mass killings. Criminals usually dont buy guns so the real issue is public safety, particularly for our police. Furthermore, the issue of the existing stock of weapons is usually obscured. Without closing that loop, gun laws usually prove to be both inadequate and inadequately enforced. This is the time for clarity on what must be done to promote public safety and what the costs of doing just that may be.

Finally, we come to our drug laws and the continuing Governments war on drugs. One would think that given our history and experience with the prohibition of alcohol and the intimate connection to crime that Prohibition created could shed light on current policy. If we were truly focused on crime, we would change our drug policy entirely. Our war on drugs has created a very wealthy criminal class and the suborning of foreign country politicians. Narco States are direct consequences of our drug laws. Narco States pose geopolitical threats to our safety. The first step is to recognize what our current drug policy has created. It certainly has not restrained the use of drugs in the U.S.

National Defense: We live in a dangerous world. We have States equipped with growing nuclear prowess. This is a Federal problem to be surenot one to be dealt with separately by our 50 States. Second, we have non-State actors who threaten our safety. We have proven the efficacy of a volunteer army, but we need to insure that our military equipment is adequate and modern, sufficient to deal with small wars, and terrorism. With the smallest Navy since 1916, it seems that we are not providing sufficient equipment for our volunteer forces to cope with a very complex world. Further, the scope of global terrorism has expanded sufficiently to require much larger volunteer services (Army, Navy, Air Force, Coast Guard, and the intelligence support needed by these services). Since terrorism represents a global threat, we need to be in constant and direct communication with many countries, but we need to be perfectly clear to our allies concerning our willingness and capabilities to deal with threats. It does not seem prudent for the President to put public limits on the extent to which the Commander in Chief is willing to go to counteract terrorism anywhere in the World. Finally, once committed, our military commanders must be given the wherewithal to complete their mission. There is considerable controversy between the Parties and between their presumptive candidates. The public needs to know where these candidates stand on the use of force and the equipment needed to successfully deploy that force in our defense.

The Federal Budget: The Federal Government now consumes a substantial portion of overall economic activity. Promises made to potential political supporters grow exponentially with each election cycle. That is how voters are recruited. But all government budgets have inherent limitations. We can always prescribe a level of benefits and Federal activity that will exceed even the most expanded budget. There are always tradeoffs and the notion that expanding the Federal budget is good for the economy is simply another one of the chicken in every pot arguments that fail sound economics.

We are now well beyond the issue of whether we will have an expanded national health care systems or increased social security. The evidence is that the majority of the voting public wants both and wants more not less. There are only two courses: expand them to meet continually rising demands or begin a slow but steady process of replacing parts of each of these programs with privately funded mechanisms. There is no right answer, except real answers require total candor. Both Parties need to come clean. They need to tell it like it is. How much is required and who pays

When you listen to the debates, what you hear is invective and obscure funding mechanisms that fail to answer the question. It often revolves to some philosophic issue of what rights people possess. This is hypocrisy. Another fallacy is that the rich can pay for the poor, obscuring how an improperly instituted taxation system destroys growth and therefore limits Federal resources.

Fundamentally, we get a Government we cannot afford. It is time for some serious truth telling by our national politicians. Politicians win elections by promising voters benefits — even when the same politicians cannot clearly spell out who will pay and how much taxation will be required. The source of the problem is not the budget. The source of the problem is our electoral system that rewards a slice and dice approach to elections. The real solution is to change our electoral system, particularly at the Federal level.

IT IS TIME FOR TERM LIMITS

When politics is no longer a way of life, no longer a permanent occupation with benefits determined by the current office holders, we will have cut the umbilical cord between promising more than we have and the continued electoral success of incumbents. We can argue about the extent of the term limits in the House and the Senate, but a rational approach might be one term in the Senate (6 years) and two terms in the House (four years). Cut off from using other peoples money, rational politics will be right around the corner.

Its time to turn the corner. Then, one can ask, what about the term of the President Maybe a single 6-year term would work there as well The existing parties and their enlarged political structures will surely tell us that term limits wont work because experienced hands will be needed at all times to prevent misguided legislation. Based upon the record that statement on its face must be false.

The Founding Fathers had a very different conception of politics–citizen legislators that had their own (other) occupation. They were right about a new birth of freedom. I think they were also right about citizen-politicians. We need to de-professionalize politics. Politics should not be a permanent occupation. Professional politicians have added only an expanding level of debt and an insufferably long debate about what to spend that debt on! They have produced little else for their voters. Its time to change the system. To do that, we will need a new party!

 

 

 

 

 

 

  1. See John Cochrane WSJ Growth Oped, The Grumpy Economist (johncochrane.blogspot.com) May 4, 2016. []