Politics, et Cetera

A publication from The Political Forum, LLC

Wednesday, January 2, 2013 

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They Said It:

Not only is a democratic people led by its own taste to centralize its government, but the passions of all the men by whom it is governed constantly urge it in the same direction.  It may easily be foreseen that almost all the able and ambitious members of a democratic community will labor unceasingly to extend the powers of government, because they all hope at some time or other to wield those powers themselves.  It would be a waste of time to attempt to prove to them that extreme centralization may be injurious to the state, since they are centralizing it for their own benefit.  Among the public men of democracies, there are hardly any but men of great disinterestedness or extreme mediocrity who seek to oppose the centralization of government; the former are scarce, the latter powerless.

Alexis de Tocqueville, Democracy in America, Book II, 1840.

 

MAKERS, TAKERS, AND THE OBAMA ECONOMIC MODEL.

Somehow we missed it, but it turns out that President Barack Obama was re-inaugurated in Washington last week.  Who knew?

Mr. Obama, as he is wont to do, took the opportunity to remind the people of this great nation what it is about them that makes them so great, namely Him.  He gave a grand address, rich with historical allusions and references to the Founders, all of which were intended to remind listeners that this country has, for more than 200 years, been building to a crescendo – which, of course, has now been realized by none other than Barack Obama.  It’s all been building to this, ladies and gentlemen.  This is it.  The time is now!  I am the event toward which American history has been headed since the beginning.  I am, after all, the change that you’ve been waiting for!  (And don’t you forget it!)

This, by the way, is right out of the book of left-wing political tactics.  As Hanna Arendt explained it in The Origins of Totalitarianism, both the Nazi’s and Bolsheviks pretended to have discovered the hidden forces that govern the history of man and then maintained they were not just an integral part of this “chain of fatality” but the end point.

As is always the case when Obama makes such a speech, he revealed more about himself than he likely intended to do.  He can’t help himself, after all.  He is who He is.  And who he is is a petty and small man, unforgiving, uncompromising, and unaware that the necessary, if unattractive, consequences of his politics and policy are obvious to anyone paying even the slightest attention.

In one particularly revealing passage, Obama demonstrated both his world-renown vindictiveness and forecast for the nation what it could expect – economically, politically, and socially – from his second term.  To wit:

The commitments we make to each other – through Medicare, and Medicaid, and Social Security – these things do not sap our initiative; they strengthen us.  They do not make us a nation of takers; they free us to take the risks that make this country great.

Mitt Romney is, of course, the author the “nation of takers” line.  He is also yesterday’s news.  Old hat.  Gone.  All but forgotten.  He ran for president for most of his adult life.  And then when he finally won the right to compete in a man-to-man contest, was out-manned by a guy who gets weepy about the rising price of arugula.  Soft and forgettable doesn’t even begin to cover Mitt’s place in history.  Wait another fifteen minutes and then ask your average American who Obama beat to win reelection.  Chances are pretty good that maybe one in five will remember that it was ol’ Mitt.

Not that any of that mattered to our illustrious President.  He had the chance to take a shot at Romney, whom he rather manifestly detests, and he took it.  We suppose it made him feel better to get that dig in, though we can’t for the life of us figure out what “the most powerful man in the world” thinks he gains from taking that one last swipe at the guy he beat; a swipe, incidentally, that only he and handful of us political junkies probably even noticed.

Of course, Obama’s pettiness and nastiness hardly constitute breaking news.  As we said, he is who he is, and anyone willing to see him for that has had ample opportunity to do so over the last five or six years.  What’s more interesting about this particular passage in the inaugural address is what it says about the Obama economic and social worldview, and what that means for the remainder of his presidency and for the future of American liberalism.

On a purely empirical level, what Obama said is just plain wrong.  Several near-immediate analyses of the President’s statement clearly demonstrated this fact.  This IS a nation of takers.  And it’s becoming more so every day.  And nothing that Obama or anyone else says is going to change this fact, which, for the record, was spelled out most concisely recently in the Wall Street Journal by Nicholas Eberstadt, the demographer we cited two weeks ago with respect to gender-selective abortion.  To wit:

A growing body of empirical evidence points to increasing dependency on state largess.  The evidence documents as well a number of perverse and disturbing changes that this entitlement state is imposing on society….

According to the latest data from the U.S. Census Bureau, nearly half (49%) of Americans today live in homes receiving one or more government transfer benefits.  That percentage is up almost 20 points from the early 1980s.  And contrary to what the Obama White House team suggested during the election campaign, this leap is not due to the aging of the population.  In fact, only about one-tenth of the increase is due to upticks in old-age pensions and health-care programs for seniors.

Instead, the country has seen a long-term expansion in public reliance on “means-tested” programs—that is, benefits intended for the poor, such as Medicaid and food stamps.  At this writing, about 35% of Americans (well over 100 million people) are accepting money, goods or services from “means-tested” government programs.  This percentage is twice as high as in the early 1980s.  Today, the overwhelming majority of Americans on entitlement programs are taking “means-tested” benefits.  Only a third of all Americans receiving government entitlement transfers are seniors on Social Security and Medicare.

Of course, Obama is aware of this.  He has seen the numbers.  He knows as well as anyone what’s going on with food stamps and, indeed, has ramped up the federal government’s efforts to increase their usage.  He has spent his entire presidency fighting, tooth and nail, for more and more super-extended unemployment benefits.  The notion that this is not a nation of men and women defined by their greater and greater reliance on government is absurd, as even Obama surely knows.

Yet he insists that none of this makes us a “nation of takers.”  And there is a reason for this, of course.

Barack Obama, like most on today’s Left, does not see receipt of government aid as “taking.”  Indeed, he does not see government aid as anything that is in anyway undesirable.  It is an unmitigated and indisputable good thing.  Government aid is something to which Americans are quite literally entitled by virtue of their citizenship and their position in a deprived class.  And note, this deprivation is relative, rather than absolute.

Now, at first blush, this attitude toward government aid may seem unremarkable.  It may not appear different from the general attitude of the Left throughout the entirety of the last century.  But that’s not the case.  The difference may be subtle, but that doesn’t make it any less real.

The original American “welfare state” programs were intended to offer temporary relief from hard times.  Even the old-age entitlements – Social Security and Medicare – were structured to resemble annuities, rather than pure welfare.  You pay in; the government “invests”; you get back.  Even FDR, the godfather of the American welfare state, insisted openly and irrefutably that ongoing reliance on the government was bad, not just for the individual, but for the country itself.  He put it this way in his 1935 State of the Union address:

The lessons of history, confirmed by evidence immediately before me, show conclusively that continued dependence on relief [i.e. welfare] induces a spiritual and moral disintegration fundamentally destructive to the national fiber.  To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.  It is inimical to the dictates of sound policy.

Of course, this is not, by any stretch of the imagination, the belief of the majority on the Left today.  And certainly, it is not the belief of Barack Obama.  He believes that “relief” is a “right” and a blessing, no matter how long it persists, even in perpetuity.  Indeed, this is the sine qua non of his economic worldview.

You see, the Obama economy is very much shaped by the age and by his belief in the necessity and efficacy of government on a massive scale.  The Obama economy is, for all intents, the “service economy” on steroids.  The key players and the principal job providers are those that deal not in manufacture or creation of tangible goods, but those that deal in ideas, creative ventures, finance, and, most important, government services.  Obama and his fellow Leftists decry the decline of American industrialization and bemoan the “outsourcing” of good manufacturing jobs.  And yet their economic policies and priorities promote nothing except big banks, big IT companies, and big government.  Small business, manufactures, and start-ups, by contrast, are singled out for retribution.

In a recent essay, Joel Kotkin, the Distinguished Presidential Fellow in Urban Futures at Chapman University, noted the shape of the specific Obama service economy and the connection between this economy and its government advocates:

Whereas the old left-wing definition of “who rules” focused on large corporations, banks, energy companies and agribusinesses, the Obama-era power structure represents a major transformation.

This shift stems, in large part, from the movement from a predominately resource and tangible goods-based economy to an information-based one.  In the past, political struggles were largely fought over how to divide up the spoils generated by the basic productive economy; labor, investors and management all shared a belief in the ethos of economic growth, manufacturing and resource extraction.

In contrast, today’s new hegemons hail almost entirely from outside the material economy, and many come from outside the realm of the market system entirely . . . .

Apple, Google, Facebook, Amazon and Microsoft are far from “the workers of the world,” but closer to modern-day robber barons.  Through their own ingenuity, access to capital and often oligopolistic hold on lucrative markets, they have enjoyed one of the greatest accumulations of wealth in recent economic history, even amidst generally declining earnings, rising poverty and inequality among their fellow Americans.

Last year the tech oligarchs emerged as major political players.  Microsoft, Google and their employees were the largest private-sector donors to the president.  More important still, tech workers also provided he president and his party with a unique set of digital tools that helped identify potential supporters among traditionally uninformed and disinterested voters, particularly among the young.

An even greater beneficiary of the second term will be the administrative class, who by their nature live largely outside the market system.

The net effects of this type of economy, naturally, include a greater number of Americans without jobs and a greater emphasis on the growth of government, at all levels and across all professions.  On the private economy side of things, success is measured in terms of productivity and efficiency.  How much can be done with how little?  How much can be accomplished with how few workers?  This is the nature of technological change, of course.  But its impact on the workforce is both notable and hugely significant.  This is all the more relevant when small business, which is the overwhelming provider of new jobs in this country, is given short shrift.  The economy can, for a while at least, chug along, but it does so needing fewer and fewer workers.

On the public sector side of things, “austerity” is a completely foreign concept.  More is better.  Bigger is better.  The larger and more extensive is government, the more people who can be employed in government “service.”

In both cases, the cost of government has to rise significantly, either to provide benefits or to provide jobs.  And that, in turn, means that taxes have to rise, in order to pay for increased benefits or to pay for jobs, all without upsetting the debt markets or their herald, the credit ratings agencies.

Now, please note that in Obama’s worldview, there is nothing even remotely improper or distasteful at all about this.  Indeed, it may well be as close to an ideal situation as possible.  Sure, the rich get richer.  But they are the “right kind” of rich, those who will willingly give a good chunk of their massive fortunes back to the government in gratitude for their success.  The government, in turn, uses this money – and far more borrowed money – to hire those whose education, background, and skills make them suitable for “public service.”  It also uses the money to permit those who aren’t suitably employable to remain unemployed, but to do so with “dignity.”  Win-win-win.

Of course, to any observer outside of the cult of Liberalism, this is the Progressive welfare state in parody, i.e., a small handful of those lucky few in the creative and properly educated class are allowed to grow richer and richer, even as they “guide,” direct, and oversee the less productive classes, supporting expansive government and its various dependents out of their largesse.  Under their “enlightened” tutelage, the masses remain placated, while their own fortunes continue to grow.  This is the Progressive dream.  It is also, we should add, Progressivism in the death throes of its battle against reality and against liberty.

Last week, Walter Russell Mead, who has been writing for some time and in some detail about the inevitable collapse of the current “blue model,” which he calls “Liberalism 4.0,” offered these thoughts on the Obama economy and how it meshes with the winding down of the current Liberal era.

This view of the future sees a supercharged private economy pumping huge amounts into the system in a way that, unless corrected by sustained government action, polarizes incomes to an unacceptable degree.  It sees a handful of very large and very successful businesses—an information-finance-entertainment complex, perhaps, including everything from movie studios to investment banks to software firms—generating vast profits.  Top research scientists and a few other groups will also do well: the celebrity chefs, the famous writers and intellectuals who attract funding and publicity from the lords of the earth, and other clever, creative types.  Wall Street, Hollywood and Silicon Valley will anchor the vibrant, creative side of the American economy, but the rest of the country and the very large majority of the citizenry will live much less productive lives.

The people who work in the cutting edge firms, directly or as contractors, will do extremely well and live fascinating lives.  But the rest of the country will be cut off from wealth creation.  For 4.0 liberals, the programmatic consequences are obvious: tax the productive private sector in order to fund a dignified life for those in education, health care and especially for the large majority of the population without the skills or the creativity that would qualify them to join the productive minority . . . .

If this vision retains some of the essential features of the liberal outlook, it offers a darker and more elitist vision than classic American approaches have had, and it is a much more pessimistic philosophy than liberalism 4.0 was in its prime . . . .

From the standpoint of America’s blue meritocracy, this vision of the future is both humane and inevitable.  Economic development is disempowering the many and empowering the few; and there is nothing that can be done about that.  The only decent and fair thing to do is to make a trade.  The few will be taxed for the sake of the many, and in return the many will accept the wise guidance of the few.

In this vision, liberalism has accomplished its historic mission by bringing a true meritocracy into our midst.

Now, the problems inherent in this economic “plan” are manifold.  For starters, at some point in time, the rich – or at least some portion of the rich – will grow tired of giving so much of their money to the government.  At that point, the symbiotic relationship will break down.  Some of the rich will take advantage of globalism and outsource their businesses to foreign lands, just as Apple has essentially done.  Others will outsource themselves, taking their profits and their incomes out of the high-tax United States, just as LVMH’s head Bernard Arnault – France’s erstwhile richest man – has chosen to take his multi-billion dollar fortune out of high-tax Socialist France.  And finally, others will avoid much of their tax burden by donating the bulk of their incomes and fortunes to charitable trusts, which are managed by others on their behalf and in their interests, just as folks like tax-advocate Warren Buffett have done.

A second major problem with this economic system is that it is economically, spiritually, and creatively crippling.  Sure, the United States has a global lead in IT and other creative fields at present, but with half the population essentially abandoned to government dependence, it seems likely that the spirit of innovation and creativity will soon dry up, to be replaced by a sense of entitlement and apathy toward labor of any sort, creative or otherwise.

Great Britain provides a glimpse into how this this plays out in the real world.  In the span of three generations, it went from dominating the globe and possessing an empire on which the sun never set to an economic basket-case incapable of much more than supporting its dependent classes.  A year-and-a-half ago, you may recall, Britain was beset by a series of riots, the ultimate cause of which turned out to be boredom.  A huge segment of the British population is unemployed and unemployable.  And they found an excuse to riot.  So they did.  At the time, we quoted everyone from Tocqueville to Alasdair MacIntyre to explain the dissolution of will, energy, and aspiration among the British working classes.  Perhaps the most poignant quote of all, though, came from the inimitable Mark Steyn, who put it this way:

The London rioters are the children of dependency, the progeny of Big Government: They have been marinated in “stimulus” their entire lives.  There is literally nothing you can’t get Her Majesty’s Government to pay for.  From page 205 of my book:

“A man of 21 with learning disabilities has been granted taxpayers’ money to fly to Amsterdam and have sex with a prostitute.”

Hey, why not?  “He’s planning to do more than just have his end away,” explained his social worker.  “Refusing to offer him this service would be a violation of his human rights.”

Why do they need a Dutch hooker?  Just another hardworking foreigner doing the jobs Britons won’t do?  Given the reputation of English womanhood, you’d have thought this would be the one gig that wouldn’t have to be outsourced overseas.

While the British Treasury is busy writing checks to Amsterdam prostitutes, one-fifth of children are raised in homes in which no adult works — in which the weekday ritual of rising, dressing, and leaving for gainful employment is entirely unknown.  One tenth of the adult population has done not a day’s work since Tony Blair took office on May 1, 1997.

As we noted then, these are truly stunning numbers:  Some 20% of British households have no working adults.  None.  Zip.  Zero.  Zilch.  Another 10% of adults haven’t worked in 15 years.  That’s shocking, to put it mildly.  What’s more shocking is that this type of chronic indolence didn’t exist 50 years ago.  The post-War state created it.  These are the children of the welfare state, conditioned to expect something for nothing and not to expect ever to have to earn their own keep.  It’s what they’re “entitled” to, after all.  As we also noted in that piece:

This is the way it ends, gentle reader.  The welfare state collapses upon itself in a fit of bureaucratic stupidity, libertine debauchery, and financial impoverishment.  Short of mustering the unforeseen will to change the course of the seemingly inevitable, all the social welfare paradises of the West will eventually meet the same fate, to some extent or another, with some degree of resistance or another.

If you’d like to get a little sense of how this has already begun playing out in Obama’s America, take a look at black Americans, who have been devastated by Obama-nomics, yet trust his leadership unreservedly.  Last fall, David Lynch of Bloomberg summed up some of what this president has done to those he purports to represent:

[There are] millions of . . . African-Americans whose tenuous hold on prosperity has slipped since President Barack Obama reached the White House.  The recession and anemic recovery, while painful for most Americans, have been especially punishing for blacks, stripping jobs, homes and wealth from people who have historically lagged.

“These groups have been very, very hard hit, not only in the recession, but in the recovery that followed,” says economist Gary Burtless of the Brookings Institution. “Things have been very grim.”

Today’s 14.1 percent black unemployment rate is almost twice the 7.4 percent white rate, and the racial gap — after narrowing from 2005 to 2009 — has widened since the recession’s June 2009 end.  At Obama’s inauguration, 7.1 percent of whites were jobless compared with 12.7 percent of blacks.

Amid a fitful economic recovery over the past three years, black households’ median annual income fell 11.1 percent, more than twice the 5.2 percent inflation-adjusted decline suffered by white households, according to an analysis of Census Bureau data by Sentier Research.

The black middle class is disappearing, falling back into poverty.  The nation’s first black President has virtually destroyed black America, economically speaking.  And yet no one accuses him of indifference or even hostility to black America, as they would a conservative president with a similar record.  Some people think this is because of his race.  We’re not so sure.  It is far more likely, in our opinion, that Obama gets a pass on the harm that his policies have done to blacks economically because he has both promised and delivered the government assistance necessary to compensate for the lost economic vitality.  He “cares,” you see.  Never mind that he cares only about providing strictly material sustenance and nothing else.  He cares.  And that’s enough.

A third and perhaps the most significant problem with the Obama economic model is that it is, in pure economic terms, self-defeating.  The collusion of business and government is, in the short term, productive for both.  Over the longer run, though, it is destructive to both.

In his analysis of the Obama economic model, Walter Russell Mead notes that contemporary liberals rationalize the dreariness of most Americans’ economic prospects by clinging to the myth of egalitarianism:

[L]liberalism has accomplished its historic mission by bringing a true meritocracy into our midst.  No longer do accidents of race or gender block the path of the talented to the heights of power; hardwired into the social structure by the shape of the economy and legitimized by equal access, a radical inequality of power and status will indefinitely persist.  Liberalism now has nothing to do with attacking or eroding the power of the liberal elite; as long as that elite carries out its duty to share with the masses and accepts that its children must in turn earn their own place in the elite rather than simply inheriting one, the elite has no further need to democratize.  The long job of social evolution, the fight against entrenched power going back to Magna Carta is over.  It has done its job, it has brought us into the golden age of absolute and permanent meritocracy.  The best now truly rule.

This is, of course, nuts.  Worse than that, any semblance of meritocracy will all but disappear in less than one generation’s time.  Call it what you will – progressive capitalism, corporatism, interest group liberalism, rent seeking/extracting, corporate-federal collusion – the results are always the same.  Big business thrives.  Big government thrives.  And small business, which is the ultimate reservoir of creativity and innovation, gets crushed.  Contemporary liberals know this.  In a recent piece for The New Republic, William Gaston, a Brookings Institution scholar and former adviser to President Clinton made that clear:

The Obama administration will need to recognize the fervent opposition of small businesses to its priorities, while taking advantage of large corporations’ willingness to cooperate . . . .

Small businesses typically hire through family and local networks, while big businesses draw from a national labor pool.  Small businesses focus mainly on the domestic market, while big businesses are just as concerned about overseas sales.  Corporations have sizeable cash flows and access to credit markets, which gives them a cushion against adversity and added costs; small businesses often operate much closer to the margin and are acutely sensitive to policies that threaten to drive up costs.  Corporate CEOs can hire experts to help them cope with added regulatory burdens and can spread the costs over a large workforce; small business owners must deal with these burdens by themselves and have few ways dilute their impact.

All of which is to say that Big Business and Big Government can and, in the Left’s opinion, should cooperate to make things as hard on small business as possible.  On all of the important issues of his presidency – health care, financial services reform, energy policy, and now guns – this has been the approach of the federal government under Barack Obama administration:  Enlist the help of Big Business – guys like Walmart, PhRMA, Goldman Sachs, and Bank of America – and use their influence to advance the cause of bigger government, while allowing them to use your influence to kill the competition.

To date, the plan has been remarkably successful.  But there is one hitch:  when you kill the competition, you . . . well . . . kill the competition.  And it is competition that creates a thriving, efficient, and prosperous private sector.  Particularly in the era of globalization, lack of domestic competition will doom American business and will doom the Obama economic model as well.

This is a mixed blessing for those of us who are fortunate enough to be in an industry that is currently among those favored by the current administration.  There is money to be made and wealth to be accumulated in the short term.  But in the long term, taxes, regulation, and rent-seeking will combine to overwhelm the smaller investors, banks, financial services firms, and, alas, research providers.  When that happens, the economy itself will give way, done in by the burden of debt, the strain of regulation, the cost of the welfare state, and the stagnancy of a less-than-competitive business environment.

What will happen then is anyone’s guess.  For our part, we find ourselves hoping it will happen sooner rather than later, so as to provide for the rehabilitation of the country and its free enterprise economy before the spirits of independence, ingenuity, and ambition have been entirely sapped by the administrative state and the Obama economic model.

Copyright 2013. The Political Forum. 8563 Senedo Road, Mt. Jackson, Virginia 22842, tel. 402-261-3175, fax 402-261-3175. All rights reserved. Information contained herein is based on data obtained from recognized services, issuer reports or communications, or other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness, and we are not responsible for typographical errors. Any statements nonfactual in nature constitute only current opinions which are subject to change without notice.