Obama's Soft-Core Socialism
A comedian or satirist could not have come up with the recent scenario of Treasury Chief Timothy Geithner and other Administration officials suddenly trying to reassure corporate chieftains that the Obama Administration is pro business and loves free enterprise. A close and powerful Obama aide, Valerie Jarrett, sent Verizon CEO (and Business Roundtable chairman) Ivan Seidenberg a letter declaring: "While we may disagree on some issues, we have an open door and are always willing to consider input and ideas from everyone, including the business community." That's like Dracula saying he prefers bottled water to blood.
Consider the letter's condescending tone regarding the Administration's open door extending even to the "business community." The business community employs 110 million workers. Companies and the people who work for them pay most of Uncle Sam's taxes. They are the font of the innovations that enable us to enjoy an ever improving standard of living. Now the Administration deigns to entertain input from the business community! How wonderfully nice and tolerant of the Obamaites to do so.
No sooner had the charm offensive been launched than the government showed its true colors by defiantly reimposing a ban, which had been overturned by a federal court, on deepwater drilling in the Gulf of Mexico and by straight-facedly proclaiming that all the stimulus spending has saved or created upwards of 3.6 million jobs and is a huge success.
The truth is that not even the Franklin Roosevelt Administration was as hostile to and ignorant about free enterprise as this Administration is. Almost every action Obama officials take underscores their belief in the stereotype that businesspeople are mostly amoral, corner-cutting, consumer-shafting, pollution-loving menaces. The economy itself needs to be tightly controlled and rigidly guided by Washington mandarins because free markets are inherently and destructively unstable.
One hesitates to bring up the economics of Benito Mussolini and his ilk because fascism means ugly nationalism and racism, as well as mass murder and aggressive war. So let's label the economic part of that ideology as neosocialist, corporatist, statist or--to be sophisticated and use a French word--dirigiste.
Under the corporatist state, private companies exist but take their direction from government. Competition is seen as wasteful and destructive and therefore must be "managed." There is a basic hostility toward small businesses precisely because there are so many of them, making them harder to regulate and more apt to do things without government permission.
Statism certainly creates a facade of stability, but in the name of such harmony innovation is stifled. This, for instance, is what is damaging Japan. It is almost a cultural imperative there to not stand out. It's no coincidence that the most dynamic, successful post-World War II industry, automobiles, was the one that refused to take guidance from the all-powerful Ministry of International Trade & Industry. The result was a ferocious dog-eat-dog competition in the domestic market as numerous companies clawed for market share. That's why Japanese companies, once they got their products up to U.S. standards, were able to storm the American market when the energy crisis hit in the early 1970s.
The closest the U.S. came to adapting dirigiste economics was during the first two years of FDR's New Deal with the National Recovery Administration. The NRA had businesses set up industrywide cartels to regulate prices, wages and the rules of competition. Thankfully the Supreme Court threw out this fascist edifice early on.
Now, in the midst of another economic crisis (and one not nearly as severe as that faced three-quarters of a century ago), Washington is at it again, this time with a far more ideologically rigid President than FDR. Incrementalism and the velvet glove over an iron fist are Obama's preferred methods. Thus, it will take several years for surviving health care companies to become full-fledged vassals of the federal government, which will dictate what policies are offered and at what prices. The new financial "reform" bill is taking the same approach--its language is intentionally vague in order to give bureaucrats enormous discretionary powers.
On the housing front almost every new mortgage written is now being guaranteed by the federal government in one way or another. The irresponsible and slovenly practices that helped create the housing disaster continue: Recently the Senate turned down a proposal that the FHA require borrowers to make a minimum down payment of 5% in order to qualify for an FHA-guaranteed mortgage (currently the minimum is 3.5%).
If the Administration has its way, Washington's tentacles will extend over the entire economy.
The President tipped his hand early on in his presidency when he implored young people to pursue careers in government instead of in the private sector. He made it clear that those who enter private companies are succumbing to greed and selfishness, while those who become bureaucrats--"public servants"--are somehow more noble and more concerned with the public good.
But there's a bigger problem here than an intense dislike of commerce. The Administration thinks of large companies as being the business community. But they are only a part of it--and certainly not the most dynamic and innovative piece of it.
The contempt for small business was aptly summarized by Hillary Clinton back in 1993, when she was pushing her plan to nationalize health care. Told that her proposals would devastate small companies, she replied: "I can't be responsible for every undercapitalized small business in America."
For cosmetic political reasons the Administration will in the coming weeks try to portray itself as the friend of small enterprise, proposing a bunch of tax credits and other goodies. But these things will be mere Band-Aids for the hemorrhaging these entities are experiencing. Most are taxed at personal rates; thus the higher tax levies coming in January from the expiration of the 2003 tax cuts and the expenses incurred as the new health care stipulations go into effect will drive many companies with tiny profit margins off the cliff.
Small business' woes don't stop with taxes. Bank regulators and examiners are continuing to apply de facto mark-to-market accounting to institutions making loans to small businesses, which inhibits lending. And, of course, all companies face crushing new regulations soon to spring forth from the thousands of pages in Obama's health care and financial reform bills. The health care legislation was specifically designed to make life harder for single practitioners and small clinics. The Administration figures it's much easier to control an industry in which medical personnel and concerns are herded into larger entities.
Rhetoric and smiles to the contrary, this Administration remains resolutely statist and, when it comes to free markets, clueless.
We Can Tear Down This Welfare State wall
If you grasp Obama's fundamental statist economics then you'll appreciate the face-slap that noted national security strategist/political pundit Charles Krauthammer recently delivered to Republicans who are giddy over the prospect of outsize gains in November's election. In a column entitled "Obama's Next Act" Krauthammer bluntly concludes, "For Obama, [those elections] matter little." Why? Because Obama has achieved his goal of putting this country on the trajectory to a bankrupting, innovation-smothering, western-Europe-like welfare state.
Obamacare alone ... has put the country inexorably on the road to national health care and, as acknowledged by Senate Finance Committee Chairman Max Baucus but few others, begun one of the most massive wealth redistributions in U.S. history."
And, sadly, there is much more. The financial reform bill "will give the government unprecedented power in the financial marketplace." Whether it will prevent future financial crises is, from a government power standpoint, beside the point.
"But Obama's most far-reaching accomplishment is his structural alteration of the U.S. budget. The stimulus, the vast expansion of domestic spending, the creation of ruinous deficits … are not easily reversed." Which means huge tax increases--including a value-added tax--are in the offing to prevent a Greece-like financial collapse.
If Obama gets a second term, Krauthammer warns, look for "massive regulation of the energy economy, federalizing higher education [the process has already been started with the nationalization of the student loan program], 'comprehensive' immigration reform (i.e., amnesty)." Here's the reason Obama is so serene about his party taking a midterm drubbing: "If Democrats lose control of one or both houses, Obama will have an easier time in 2012, just as Bill Clinton used Newt Gingrich as the foil for his 1996 reelection campaign."
Sobering stuff. But Obama's victories are reversible if Republicans use imagination and get back their ideological moorings. Whatever Obama may think, most Americans hate his binge spending and won't tolerate any big tax boost. This deep, intense feeling could provide the political opening to do things in the U.S. that should have been done years ago. The flat tax, for instance, would enormously reduce Washington's powers, as well as stimulate private-sector growth. Prior to the economic crisis, almost half the lobbying in Washington revolved around manipulating the tax code. Complexity is a major source of power and contributors.
Putting in personal 401(k)-like accounts (with proper rules about diversification) to replace Social Security for people under the age of 50 would phase out another gargantuan source of Washington's political power. Unlike the tepid ideas originally bandied about by George W. Bush, these accounts should receive the majority of an individual's payroll taxes and the matching contributions from employers. That would mean payment for current and about-to-be beneficiaries would have to come out of general revenues. This is going to happen anyway because there is nothing in the Social Security trust fund except a bunch of nonmarketable Treasury IOUs--the money has been spent.
The same approach could be taken with Medicare: enact the equivalent of Health Savings Accounts for younger workers. As for current beneficiaries, they could be given the choice of staying with Medicare or going into an HSA-type system in which a couple's account would receive, say, $10,000 a year for noncatastrophic expenses and in which all catastrophic illnesses would be covered, with reasonable caps on the amount that beneficiaries would be liable for each year.
There would also be genuine popular support for more free enterprise in the rest of health care. Entrepreneurs would do here what they've done everywhere else in the economy--create more supply, more cheaply, to meet demand. Innovation would flourish. There are a number of ideas to help bring this about: the freedom to shop nationwide for health insurance, allowing the same tax treatment for individuals and companies buying health insurance, tort reform and removing the restrictions on individuals and small companies pooling together to purchase less costly insurance.
Krauthammer's grim picture need not come to pass--nor will it if free-market activists take his warnings to heart.
forbes.com |
