Freedom Line Blog

There were many fine speeches from last week’s Conservative Political Action Conference (CPAC) that deserved the attention of thoughtful conservatives. First among equals, however, was the address that Indiana Governor Mitch Daniels gave for Friday night’s Ronald Reagan Centennial Dinner.

The speech — written by Daniels himself — shows that the potential 2012 presidential candidate is not only a brilliant manager and a canny politician, but also an extremely sophisticated (and subtle) writer. In its defense of a prudent conservatism, the speech demonstrated that Daniels, not Barack Obama, is the great literary talent of 21st century politics. For unlike The One, Daniels speech was drenched in substance.

As such, the speech deserves no less than to be read in its entirety. Failing that, however, no passage deserves isolated quotation as much as Daniels’ definition and defense of fiscal conservatism, a masterpiece of dictional economy:

We believe it wrong ever to take a dollar from a free citizen without a very necessary public purpose, because each such taking diminishes the freedom to spend that dollar as its owner would prefer. When we do find it necessary, we feel a profound duty to use that dollar as carefully and effectively as possible, else we should never have taken it at all.

That’ll do, Mitch. That’ll do.

If you need any proof that the new generation of Republicans in Congress are breaking from the spendthrift ways of their forebears, look no further than this terrific idea, as reported by our friends at the Daily Caller:

With the 112th Congress in full swing, some members of the House’s conservative Republican Study Committee are making a renewed effort to establish a committee whose only purpose is to find programs to cut from the federal budget.

…

The idea is a throwback to the now-defunct “Joint Committee on Reduction of Non-essential Federal Expenditures,” started by former Virginia Sen. Harry Byrd in 1941. The bi-cameral committee slashed an (inflation-adjusted) $38 billion from the federal budget in its first four years. The committee cut and eliminated programs enacted under President Franklin Roosevelt’s “New Deal,” but was dismantled in 1974.

This proposal has two salutary effects. First, it has the potential to move conservatives from the abstract to the specific when it comes to spending cuts. Second, it puts skin in the game for Democrats — if they oppose the proposal it will give the lie to all of the vague pieties about deficit reduction that they’ve harnessed over the last year. This is a fight the conservatives in Congress should relish.

At The Daily Beast, Leslie Gelb discusses the other January 1961 presidential speech that should get more attention from Americans today.  It was delivered by outgoing President Dwight Eisenhower.

Here are the Gelbian nuggets:

(1)   Put the national interest ahead of politics

(2)   There are no quick fixes to crises

(3)   Balance is the best strategy

(4)   Beware of spending beyond our means

(5)   Guard against the power of special interests

The fifth point is best remembered as the warning against the military-industrial complex.  The fourth point seems especially pertinent today with a $14 trillion debt that will surely “mortgage the material assets of our grandchildren (while) risking the loss also of their political and spiritual heritage.”

The entirety of Ike’s farewell address can be found here.

That’s the question Reason’s Nick Gillespie puts to the Cato Institute’s Chris Edwards, as they look at which governors have been the best friends of lower taxes and lower spending in the past two years:

Yes, you read that headline correctly. The day of reckoning for spendthrift states and localities is on the way according to Meredith Whitney, a research analyst who accurately predicted the global credit crunch. In a startling piece in the UK Guardian, Whitney predicts that the number of sizable defaults to come in the next year could hit the century mark. The record isn’t pretty:

Detroit is cutting police, lighting, road repairs and cleaning services affecting as much as 20% of the population. The city, which has been on the skids for almost two decades with the decline of the US auto industry, does not generate enough wealth to maintain services for its 900,000 inhabitants.

The nearby state of Illinois has spent twice as much money as it has collected and is about six months behind on creditor payments. The University of Illinois alone is owed $400m, the CBS programme said. The state has a 21% chances of default, more than any other, according to CMA Datavision, a derivatives information provider.

California has raised state university tuition fees by 32%. Arizona has sold its state capitol and supreme court buildings to investors, and leases them back.

Potential defaults could also hit Florida, whose booming real estate industry burst two years ago, said Guy J. Benstead, a partner at Cedar Ridge Partners in San Francisco. “We are not out of the woods by any stretch yet,” he said.

Indeed we’re not. And don’t expect to see a robust private sector recovery as municipal governments crumble throughout the nation.

On Tuesday, we told you about the potent case for cutting federal spending being made by Nick Gillespie and Veronique De Rugy over at Reason. Because, as the new omnibus spending bill makes clear, Democrats are congenitally incapable of entertaining the idea of reigning in expenditures, the plan has become the target of criticism for The New Republic’s Jonathan Chait. His response is worth reading, as is Gillespie’s comprehensive rejoinder, but one of his central arguments stands out for its unseriousness:

Another way of putting this [the budget situation] is that, to maintain the current level of services in the federal budget, we would need to spend $5.5 trillion. Gillespie and de Rugy would propose instead to spend $4.2 trillion in 2020. That’s their prerogative. I’m sure they could find at least $1.3 trillion in spending that they don’t like. But the point is that you would have to eliminate a lot of functions of the federal government, and/or reduce a lot of social benefits.

The definition of modern liberalism may be to believe that it would be a hardship for the federal government to get by on over $4 trillion a year. And if budget cuts are a non-starter under this rationale, it’s hard to see when they would be palatable to liberals (how much do you want to bet that national defense is the exception?)

Are we to believe that Mr. Chait is convinced that such bracing austerity would rip the national safety net asunder? And that every activity currently undertaken by the federal government is too sacrosanct to be pruned? There’s a mathematical equation for such worship of the state … and its product is Nancy Pelosi’s approval rating.

The folks over at Reason TV never miss a chance to make complex public policy simultaneously comprehensible and funny (how else to explain their decision to augment Nick Gillespie’s Ian Malcolm look with a chef’s hat?). Take a look at their new video on how to balance the federal budget and then visit the link where they explain their plan in detail. As a comprehensive look at how Congress could get the deficit mess under control without raising taxes, it’s a logical compliment to CFIF’s One More Vote campaign.

As the lame duck Congress prepares to take up the issue of what to do about the expiring Bush tax cuts, liberal pundits are busy proving to the American people that no journalism school in America provides economics education. A few points to make with your liberal friends as you argue economics the next time you join them for a non-fat soy latte made from fair trade ingredients:

• Extending the Bush Tax Cuts Won’t “Cost” Anything — Liberals can’t stop carping about the $700 billion “cost” of extending tax cuts for Americans making over $250,000 a year. This is preposterous. The absence of tax increases isn’t a cost to the federal government. If it was, then every dollar kept in private hands instead of transferred to Washington would be a cost. Private businesses don’t account for imaginary revenues as costs, and there’s no reason for government to either. This is just an excuse for not bringing expenditures into line with “revenues” (i.e. money confiscated from you).

• A Shortage of Tax Revenue Isn’t the Root of America’s Fiscal Problems — The class warfare rhetoric at the heart of the tax fight is a red herring for the real issue at hand. Virtually all taxes kill economic activity. Of course, some tax revenue will always be necessary to finance the basic functions of government, but beyond that baseline taxes are actively destructive. Thus the real choice when it comes to upper-level earners’ tax rates isn’t whether they should be soaked or not. It’s whether you think the federal government is doing too little (in which case taxes need to increase and more private economic activity should be killed) or too much (in which case spending needs to decrease).

• Income Inequality is a Meaningless Metric — Proponents of aggressively progressive taxation who are prone to ideological rather than practical justifications of their beliefs have increasingly been leaning on an argument that America suffers from growing income inequality. This is specious for two reasons. First, it presumes that there is an ideal distribution of wealth that exists free of merit. The more free an economy is, however, the more income is a function of how much value one creates in the marketplace. So do we want a nation of C students (socialized mediocrity) or a nation where the highest achievers get A’s and the lowest ones are held back a year (with generous welfare benefits, we should add)? Also, these numbers are absolutely useless from a statistical perspective. Samples of income tiers measure groups, not individuals. So when we say that the rich are richer and the poor are poorer than 20 years ago, we ignore the dynamism of the American economy — and the resulting fact that many individuals who were on the lower rungs of the economic ladder two decades ago have moved up, and many at the top have moved down. This interpretation also ignores the fact that the gap is less important than the actual numbers. If you have $200 and I have $100, are incomes are closer to parity than if you have $1 billion and I have $1 million. But in the latter scenario, we’re both better off individually and society (if it consists of just you and I) is better off as a whole. Now imagine extrapolating that analysis to an entire nation

• Virtually Every Number You See About Poverty in America is a Lie — For one simple reason: government calculations of poverty do NOT factor in benefits conveyed by government. To prove the point using an unrealistic example, a family of four making $40,000 a year but receiving $60,000 in government assistance, would still be captured in government statistics as making $40,000 a year, even though their actual income would be $100,000.

• Unemployment Benefits are NOT a Form of Economic Stimulus — From Nancy Pelosi to Nicolas Kristof, every empty head on the left seems to have the idea that unemployment benefits are a form of economic stimulus rattling around inside it. The idea is that because the poor have the greatest need for liquidity (and will thus spend the cash the quickest) unemployment greases the wheels of commerce. This is a basic Keynesian fallacy: thinking of the economy only in terms of consumption. But if this is true, why wouldn’t the road to recovery be paved with every American emptying out their bank account for a trip to Nordstrom’s? Maximum economic efficiency is achieved by putting money to the use that provides the greatest benefit relative to the cost to the individual. In some cases, this will be consumption. But in others it will be investment or savings. Unemployment benefits can be justified on humanitarian grounds, but not on mechanical economic ones (indeed, excess unemployment benefits drive up unemployment — not a surprise if you remember that you always get more of what you subsidize). Paychecks generally provide the basis for a sounder economy than food stamps.

Regular readers know that Paul Krugman, Tom Friedman, and Joe Klein regularly jockey for the status of political pundit I most despise. Well, Dr. Krugman pulled into the lead with his stunning endorsement of “death panels” as the royal road to America’s fiscal health on yesterday’s edition of “This Week with Christiane Amanpour”:

H/T: NewsBusters

The Center for Individual Freedom yesterday lauched its OneMoreVote.org initiative designed to stop the reckless spending  in Washington.  The campaign was featured in Politico’s “Playbook, MSNBC’s “First Read” and The Hill’s “On the Money”:

Politico’s Playbook:

OUT TODAY: “The Center for Individual Freedom (CFIF) is announcing the launch of the ‘One More Vote’ campaign and website: OneMoreVote.org. The initiative is a grassroots-driven, online enlistment of activists across America focused on pressuring Congress and the administration to enact fundamental spending and budget reforms. … The One More Vote campaign name and concept is a nod to the Balanced Budget Amendment reform effort, a measure that fell just one vote short of passage. On Twitter: @OneMoreVoteCFIF.”

MSNBC’s First Read:

Per a source, “The Center for Individual Freedom (CFIF) is announcing the launch of the ‘One More Vote’ campaign and website: OneMoreVote.org. The initiative is a grassroots-driven, online enlistment of activists across America focused on pressuring Congress and the administration to enact fundamental spending and budget reforms.”

The Hill’s On the Money:

 More from fiscal hawks this week…

The right-leaning Center for Individual Freedom launches on Tuesday the “One More Vote” campaign, seeking to require supermajorities in both the House and Senate for passage of any budget that projects a deficit, any tax hike and any debt limit increase. The name is a reference to the balanced budget amendment, which fell short of Senate passage by one vote in 1997.  http://bit.ly/9agHwr

If you haven’t already joined this growing movement, please do so here.

That’s the conclusion of former Federal Reserve Chairman Alan Greenspan, who, in an op-ed published today in The Wall Street Journal, warned that “perceptions of a large U.S. borrowing capacity are misleading,” and “an urgency to rein in budget deficits” can’t come soon enough.

Greenspan notes that public debt has soared out-of-control in the last 18 months, from $5.5 trillion to $8.6 trillion.  Yet, “the typical symptoms of fiscal excess,” notably inflation and a drastic rise in long-term interest rates, remain “remarkably subdued.” The former Fed Chairman writes that such a phenomenon is “regrettable, because it is fostering a sense of complacency that can have dire consequences. … Beneath the calm, there are market signals that do not bode well for the future.”

Greenspan isn’t the first person, nor will he be last, to warn that the nation’s “current federal debt explosion is being driven by an inability to stem new spending initiatives” and that merely “incremental change” in fiscal policy “will not be adequate.” Indeed, everyday Americans concerned about the U.S. debt crisis and who have never before engaged in the political process are literally taking to the streets demanding a policy of fiscal restraint.

If only the Obama Administration and Congress would listen.   As Greenspan put it, the United States “is in need of a tectonic shift in fiscal policy. … Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis.”

With apologies to John Derbyshire, that’s the conclusion it’s difficult to avoid reading the latest from Derb’s National Review colleague, Kevin Williamson. In a piece entitled “The Other National Debt“, Williamson looks at all of the extra liabilities that don’t make their way into the conventional tally of a $14 trillion national debt. His conclusions are hair-raising.

On state and local debt:

Beyond the official federal debt, there is another $2.5 trillion or so in state and local debt, according to Federal Reserve figures. Why so much? A lot of that debt comes from spending that is extraordinarily stupid and wasteful, even by government standards. Because state and local authorities can issue tax-free securities — municipal bonds — there’s a lot of appetite for their debt on the marketplace, and a whole platoon of local special-interest hustlers looking to get a piece. This results in a lot of misallocated capital: By shacking up with your local economic-development authority, you can build yourself a new major-league sports stadium with tax-free bonds, but you have to use old-fashioned financing, with no tax benefits, if you want to build a factory — which is to say, you can use tax-free municipal bonds to help create jobs, so long as those jobs are selling hot dogs to sports fans.

On exploding public pensions:

States aren’t going to be able to make up those pension shortfalls out of general tax revenue, at least not at current levels of taxation. In Ohio, for instance, the benefit payments in 2031 would total 55 percent of projected 2031 tax revenues. For most states, pension payments will total more than a quarter of all tax revenues in the years after they run out of money. Most of those pensions cannot be modified: Illinois, for instance, has a constitutional provision that prevents reducing them. Unless there is a radical restructuring of these programs, and soon, states will either have to subsidize their pension systems with onerous new taxes or seek a bailout from Washington.

And — the death shot — entitlements:

The debt numbers start to get really hairy when you add in liabilities under Social Security and Medicare— in other words, when you account for the present value of those future payments in the same way that businesses have to account for the obligations they incur. Start with the entitlements and those numbers get run-for-the-hills ugly in a hurry: a combined $106 trillion in liabilities for Social Security and Medicare, or more than five times the total federal, state, and local debt we’ve totaled up so far. In real terms, what that means is that we’d need $106 trillion in real, investable capital, earning 6 percent a year, on hand, today, to meet the obligations we have under those entitlement programs. For perspective, that’s about twice the total private net worth of the United States. (A little more, in fact.)

These numbers underscore the need for real change, quickly advanced. Keep your eyes fixed to CFIF, where we’ll soon be unveiling a campaign to corral the runaway spending.