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Economics

The Reality Behind the 2012 Election

September 4th, 2012 // 2:18 pm @

In 2010 I wrote the following article about the upcoming 2010 election. Today the principles are the same, but with the bigger stakes of a presidential election. Here is what I wrote:

It’s the Economy

The economy is struggling, and it is driving the election. As so many have said since the Clinton campaign made it popular in the nineties, “It’s the Economy, Stupid!”  And many Americans believe the economy will continue to decline.

If it does, the Obama Administration has very few tools to respond.

The White House has based its entire economic policy on an ideological belief in government spending and intervention, but further economic downturn will require it to take serious action.

What can it do that it hasn’t already tried? How much more can it spend? And at what point will it accept that such spending isn’t delivering fixes to unemployment and the economy as promised?

If the government increases spending, promotes more stimulus, raises taxes or increases regulations (or all of the above, which is what it has done so far), it will run into major difficulty. So far none of these have fixed the economy… And the major issues fueling dislike of the Obama agenda are unemployment… the health care law and other increased government regulation, and  massive government spending.

Some economists, like Paul Krugman, say the problem is that the stimulus should have been much bigger in the first place—since now there is very little support for more government spending. The White House seems to agree, and it is preparing to raise taxes on big business.

The problem with this strategy is that very few small businesses have a lot of extra cash right now. Big business, in contrast, has a lot more extra cash than the whole of government stimulus.

Unfortunately, with the Obama Administration promising to end tax cuts to big business, these companies are unlikely to hire or spend their extra money. And if President Obama does raise taxes on big business, they are likely to simply hold their cash or spend it in other countries.

A lot of corporations are seriously considering moving more of their operations abroad to find more favorable environments for profit. Many have already made this move, taking jobs and money with them.

Some countries are aggressively advertising their low tax rates to lure international investors. For example, a full-page ad in The Economist reads: “Fact: the Gulf’s lowest taxes are in Bahrain. As are the region’s lowest living and operation costs. Which leaves more of the cake for you and your business.”[i]

A lot of nations are using similar campaigns to lure investment, while the U.S. is actively adopting policies which drive capital away.

Why would businesses which can afford to move stay in the U.S. to face more White House attacks and increasing taxes and regulations?

This not only won’t help our economy, it will increase unemployment, make credit harder to obtain for small businesses, and convince consumers to buy less.

In short, it will significantly hurt the economy. The Obama plan claims to help small business, but in fact its proposed policies will do the opposite.

One Harvard economist points out that our debt load is now even worse than that of Greece,[ii] which has just experienced major economic collapse and is being bailed out by international banks.

It’s the Economy

The impact on the elections is obvious. If a lot of Republicans win, they will have more influence to argue for more business-friendly policies.

But there is no guarantee they will do so. After all, the Bush Administration significantly outspent the Clinton Administration.

No matter what happens in the election, the Obama team needs to take a different route if they want to reboot the economy.

Two years into Ronald Reagan’s presidency, the economy was struggling and unemployment was above 10%.

Reagan pushed to cut taxes, reduce government spending, and, perhaps most importantly, sent out the message—over and over—that government needed to be reduced and that private business was the hope of the economy.

In retrospect, spending actually increased under Reagan, but his consistent message of promoting business, love for business growth and free enterprise, and the need to cut government and spending made business feel safe.

He spoke optimistically of business on all levels, and lauded the opportunities provided by free enterprise and free markets.

The result? Businesses hired and entrepreneurs went to work. Business boomed. Growth quickly soared to 8% (the Obama recovery was around 1%) and unemployment rates came down.

The 1980s became an era of economic boom, which grew into the roaring 1990s.

Too often the opposite message is coming from Washington.

The White House repeats its “unfriendly to business” message over and over, calling businessmen “fat cats” and telling young people to work for non-profits and not go into business.

It constantly promotes increased government spending and ever-expanded regulations which drastically increase the cost to start and build businesses.

It has publicly attacked the Chamber of Commerce, the ultimate small-business advocate, and in general it has sounded angry and dangerous to business.

Now, in the name of “helping small business,” it is increasing taxes on big business and people who succeed in small business—many of those above the $200,000-$250,000 threshold are small entrepreneurs.

And, as I said above, many big businesses which hold a lot of cash are making plans to take it abroad.

These realities are a serious problem…

It’s the Economy

Of course a lot of Republicans support Republican politicians and a lot of Democrats support Democrats. But President Obama was swept into office by independents, and now most of them no longer support his policies.

Independents are mostly for fiscal responsibility, lower taxes and lower levels than the current government intervention in the economy. Indeed, many of them supported Candidate Obama because they disliked the Bush Administration’s high-spending, over-regulating policies.

It seemed to independents that Candidate Obama promised new leadership and a new direction for Washington. Many independents have been shocked and dismayed by the Obama Administration’s move to the left. But they could have supported this surprise if there wasn’t such a lack of new-era leadership.

For example, as an independent, I expected President Obama to be liberal. I closely read The Audacity of Hope before the election and I was clear that he would govern from the left.

But I also thought he would bring a new brand of leadership—a fresh, charismatic, Generation-X-style emphasis on American growth and vibrancy rather than old-line Washington politics.

Unfortunately for all Americans (left, right and independent), that did not occur.

Many independents feel abandoned by President Obama less for his liberalism than for his return to “Washington politics as usual.” This shift occurred within days of inauguration, and his popularity among independents has consistently fallen ever since.

We live in an era where the key to winning elections is to combine support from your base (liberal or conservative) with the support of independents. This is true nationally and in most locales as well.

For Democrats, who will get the bulk of Democratic votes no matter what, the goal right now should be to bring in independents by pushing through many tax breaks and finding ways to de-regulate business requirements…

It’s the Economy, Really!

The Democratic narrative seems to be that without the stimulus the recession would have been much worse.  But many independents don’t buy it. They didn’t like many of President Bush’s policies, but they are just as frustrated with the current administration’s strategies.

They believe the stimulus was a flop and health care and other massive regulations have seriously hurt the economy. They blame both Obama and Bush for the current economic mess. But since Bush is out of the discussion, their frustration is pointed at President Obama.

American independents aren’t the only ones who feel that the Obama Administration’s stimulus and massive spending/regulating strategy has worsened the economy.

Some international analysts, for example, say: “[The stimulus] has not worked. The whole thing has failed. And that is why America, of the big economies, is the one that is now teetering on the brink”; and “I think in Europe it’s very clear the direction the Europeans are going down, which is to basically start bringing public debts and deficits under control.

Obama is still worried about the polls….Personally, I think the best thing they could do is probably just sit on their hands in the U.S….”[iii]

If the plan is to spend more, tax more and increase regulations, then I agree—let the politicians sit on their hands and do nothing!

But what if, instead, they cut taxes, deregulated small business, changed the healthcare law to incentivize business investment, and extended an olive branch of friendship and thanks (yes, genuine gratitude) to entrepreneurs and business for their vital contributions to our prosperity?

Washington needs to reverse the bad-for-business policies accumulated since 1987—or at least during the Bush/Obama growth of anti-business policy since 2001. If this sounds impossible, we may be in for a very long period of economic struggles.

Conclusion: It’s the Economy!

The future of the economy depends on the willingness of small business to take risks and the willingness of big business to hire, spend and invest.

Until our national leaders are willing to cut government spending, lower taxes, reduce government interventions in almost every sector of business, and show more genuine friendliness to business, our economic problems will continue.

Whatever the results of the 2010 election, Washington has got to make friends with business. We simply must make those who spend their lives in business feel safe and excited about building, hiring, investing, growing and spending. Otherwise, more economic troubles are ahead.

We desperately need real leadership in Washington, leadership which will actually incentivize, promote and reboot the economy. The best case scenario would be for the Obama Administration to lead out in this direction…

This pro-business outline (cut taxes, significantly reduce regulation on business, get government spending under control, and make friends with business) should be the guiding principle to every voter in every election across the nation this year.

We need to pay little or no attention to political party and instead elect leaders who will help kick-start, encourage, and stimulate the economy. This is a true mandate, and our national future depends on it.

This is just as true in the 2012 election as it was when I wrote it before the 2010 election.

 


[i] The Economist, September 4th, 2010, page 27.

[ii] Niall Ferguson, Bloomberg Rewind, September 8, 2010.

[iii] Strictly Money, September 6, 2010. See a different perspective in “The odd decouple,” The Economist, September 4th, 2010.

 

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odemille 133x195 custom The Turning Point of the ElectionOliver DeMille is the chairman of the Center for Social Leadership and co-creator of Thomas Jefferson Education.

He is the author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Current Events &Economics &Government &Politics

Two-Decade Teens

August 13th, 2012 // 12:24 pm @

With more and more college graduates returning home to live with their parents, many adults are becoming frustrated with the rising generation.

In the book Slouching Toward Adulthood, Sally Koslow shows how this trend is the natural result of the last two generations of parenting.

The problem is not so much the slumped economy and high unemployment, although these are realities, but the fact that using student loans to get through college is now the norm, so when students graduate they are loaded with debt and many can’t afford rent.

Even more difficult, the Boomer generation tended to bring up their children with an attitude that left little room for the lessons learned from failure.

This was mixed with a strangely controlling approach to scheduling and achievement.

As reviewer Judith Newman wrote in People  (July 9, 2012):

“Recognize that channel-surfing, chips-snacking lump on the couch? It might well be your adult child. Koslow writes wittily about the infantilization of American youth as increasing numbers treat getting a job and moving out as just an option. The solution? Stop trying to inculcate our kids against failure, for starters.”

Over six million adult children now live with their parents, pay no rent, eat without limits from their parents’ fridge, and use the house, yard, cable and computers without paying for them.

Many consider their parents an ATM.

Moreover, very few of them are out actively seeking employment.

The irony, Koslow notes, is that most of these adults were raised in a culture where they were constantly told they were special.

The result is that they value having fun with friends, want to travel extensively, and look down on working for the money to pay for their lives, hobbies and interests.

Many of the generation see themselves as free spirits, but unlike the sixties generation they want the expensive yuppie lifestyles of freeloaders.

As Diedre Donahue put it in USA Today,

“The adults aren’t helping. Koslow believes parents often infantilize their adult children because it makes parents feel needed. The result: entitled but incompetent children and exploited but enabling adults.”

As if that’s not enough, the new generation of adultescents “…crave attention and often cash from parents, whom they frequently ask to help them move from place to place; create a mess; rack up debt…”

Then, all too often, they blame their parents for their plight, anxiety, and lack of opportunity.

Of course, this doesn’t describe the entire generation, or even a majority of them, but it does accurately depict far too many.

This new adultescent trend, as Koslow calls it, doesn’t show any likelihood of slowing in the years ahead.

If anything, it will likely increase.

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odemille 133x195 custom Egypt, Freedom, & the Cycles of HistoryOliver DeMille is the chairman of the Center for Social Leadership and co-creator of Thomas Jefferson Education.

He is the author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Culture &Current Events &Economics &Family &Generations

Losing the Battle

July 14th, 2012 // 4:29 pm @

Sometimes domestic politics can be so engaging that we miss the forest for the trees.

The Chinese government and government-run companies have been busy for a decade buying up oil, minerals and other natural resources in Asia, the Middle East, Africa, Latin America, and Central Asia, while U.S. firms face massive amounts of red tape and regulations from Washington when they try to compete for world resources.

This is creating a new split between the haves and the have nots—China has resources and the rights to resources around the world, while the U.S. increasingly does not.

Free enterprise is a better system than state-owned, authoritarian economics, but in this case Washington isn’t allowing free enterprise.

It’s more like a statist, authoritarian economy in Beijing versus an over-regulating, short-sighted bureaucracy in Washington. And totalitarian dictatorships are notoriously more effective than bumbling bureaucracies.

There is an excellent article on the topic in Foreign Affairs (July/August 2012): “How to Succeed in Business: And Why Washington Should Really Try,” by Alexander Bernard.

Bernard notes that the motive behind China’s state-owned purchases of resources around the globe isn’t to make money, but rather to “fuel the country’s economic rise.”

Certainly military might and political clout will follow.

Nor is China the only nation in the game.

India, Brazil, Russia, Britain, France and Germany, among others, are far more aggressive in tying up the world’s resources and contracts than U.S. companies.

Again, Washington’s regulatory scheme makes a reversal of this trend unlikely.

When our own government shuts down free enterprise, our corporations can’t compete with the biggest governments in the world.

Bernard writes:

“Among its peers, the United States is by far the least aggressive in promoting commercial interests…. China has managed to plant its commercial flag even in countries that are U.S. allies.”

In all this, the future of American wealth, prosperity, investment and jobs is drastically impacted for the negative.

We are failing to reboot our domestic economy because of our addiction to high regulation and high taxation, and the same things are causing consistent failure for U.S. commercial interests abroad.

Free enterprise works, but American policy has turned against it.

We are losing the battle, but losing the war.

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odemille 133x195 custom Egypt, Freedom, & the Cycles of HistoryOliver DeMille is the chairman of the Center for Social Leadership and co-creator of Thomas Jefferson Education.

He is the author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through Leadership Education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Business &Current Events &Economics &Entrepreneurship &Featured &Government

Common Wisdom versus Greatness in the American Election

July 14th, 2012 // 2:49 pm @

The common wisdom says that incumbent presidents run on their record, and that the state of the economy determines presidential elections.

According to the numbers, right now the common wisdom is wrong.

The economy is still sputtering, but 51% of voters in battleground states like President Obama’s handling of the economy while only 42% like Romney’s economic plans (CNN/ORC International Poll, June/July 2012).

Furthermore, 41% of national voters believe Obama has a clear plan for improving the economy while only 27% believe Mitt Romney has one (Fox News Poll, July 2012).

In short, President Obama’s numbers aren’t great, but Governor Romney’s are worse. And 68% of Americans blame George Bush, not Barack Obama, for the poor state of the economy (Gallup Poll, July 2012).

Why is the common wisdom failing?

Analyst Juan Williams had it right on Fox News Sunday when he said that a majority of Americans see Mitt Romney as “a rich guy.”

It’s a rich guy versus a cool guy, and cool will always win in the American electorate.

Many Republicans and conservatives have criticized Mitt Romney for not having an effective plan to fix the economy.

Leaders from the Right—as different as Rush Limbaugh, Bill Crystal, George Will, and The Wall Street Journal—are concerned that Romney is doing little to establish himself as a serious leader on the issues.

They argue that he seems caught up in responding to attacks by Barack Obama and alternatively attacking Obama.

To have any chance in November, Romney needs to make real gains by September.

He may have little chance of being seen as cool, but he has every opportunity to go all in: To use his strengths and provide real leadership and a vision of what America can be and how he’ll lead us in the direction of American greatness over the next four years.

The common wisdom says, “It’s the economy, stupid!”

For the entire post-World War II era the common man has selected the candidate who seemed the most cool, the most likely to lead.

But both of these actually boil down to leadership.

Candidates must have strong, effective plans to take us in a moving and positive direction in the future, and they must be able to articulate this.

In 2008, Barack Obama very effectively presented a vision of a better America, a nation of change, a new era of unified cooperation in Washington, and a citizenry acting on the chant of “Yes, we can!”

Critics say that after inauguration he failed to deliver on these promises, but nevertheless he projected a moving vision and rallied a majority of voters behind it.

So far, neither candidate has done this in 2012.

If neither candidate can effectively articulate a great vision of the future, the incumbent will most likely win the election­­.

For this reason, the Obama campaign may be waiting to promote any sweeping grand vision of American leadership.

Why risk it if they’re winning anyway?

Thus the ball is in Romney’s court.

If Romney rolls out a great, Reaganesque vision of America, the Obama team will have to do the same and we’ll have a great debate in 2012.

Right now the high vision of the campaigns is, “We can’t go back to the failed policies of Bush,” versus “We must repeal Obamacare and Barack Obama or our economy will fall off a cliff in the next four years.”

Neither of these reach the level of a high debate.

They effectively speak to the base of each party, but the base was always going to vote for its candidate.

The real issue is independents, and neither side has effectively spoken to them.

President Obama is ahead in this battle because he has reached out in petite visions to special interest groups from Latinos to same-sex groups to women.

As Jimmy Fallon said in a late night comedy sketch, “President Obama said Americans need someone who will wake up every single day and fight for their jobs. Then he said, ‘But until we find that guy, I’m still your best choice.’”

We are experiencing a mini-campaign, focused on negative bantering about the small things.

Even the one big topic of debate, health care, is being discussed in micro-terms: about pre-existing conditions, adult children on their parents’ insurance, etc.

No candidate has yet taken bold leadership on the grand scale, to capture the American mind and propel the nation on a powerful, compelling journey toward the future.

The hottest days of summer are still ahead, and the American voters deserve a real debate on the biggest questions.

The opportunity for real leadership is here, and the voters are watching, hoping, for someone to step up and show us what leadership really means in the 21st Century.

Americans sense that our challenges are going to increase, and that it’s time for another great American leader like Franklin Delano Roosevelt or Ronald Reagan.

Note that neither FDR nor Reagan were the great leaders they became before they were elected, but they were both openly and clearly committed to a great vision of America’s future.

The election of 2012 will go to whichever candidate stands up and projects the image and agenda of greatness.

If neither candidate does this, voters will probably just stick with the incumbent.

In short, it’s common wisdom against common wisdom: cool versus the economy.

But Americans don’t want to follow the common wisdom, they want to be led by greatness toward a truly great vision of the future.

They want to be touched, moved and impressed.

They want to rally behind a great leader.

They want to believe that their vote will make all the difference, that the president in 2013 will take bold steps that put America on the path to greatness.

The nation is ripe for a candidate who exudes great plans, a great vision, and great leadership.

Right now either candidate could rise to this need, and the best-case scenario would be for both to step it up and embrace American greatness.

Whoever does this most effectively will win the election.

Both candidates are avoiding risk right now, but what we need is a leader who leads, who goes all in and stops thinking about winning the election and invites us to an America that wins the 21st Century.

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odemille 133x195 custom Egypt, Freedom, & the Cycles of HistoryOliver DeMille is the chairman of the Center for Social Leadership and co-creator of Thomas Jefferson Education.

He is the author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Culture &Current Events &Economics &Featured &Government &Leadership &Politics

Types of Capitalism

July 7th, 2012 // 8:52 pm @

There are two major types of economies: market and command.

Within these two branches there are a number of subtypes, including various command-style economies such as socialism, communism, fascism, collectivism, authoritarianism and totalitarianism.

The market-economy subgroups are sometimes more confusing to people from free societies, because most of us have been trained to evaluate politico-economic issues in binary mode where we narrow any debate down to only two sides (e.g. socialist or capitalist, democratic or totalitarian, good or evil, free or not free, etc.).

That said, we live in an era where the various subtypes of market economics are in conflict.

During the Cold War the world was divided between two great camps, with market economies of all types firmly allied against all command economies, but in the post Cold War and post 9/11 world this has dramatically changed.

There are forces supporting each of the various subtypes of market economy, and often these are pitted against each other in ways unthinkable before 1989.

Differentiating between these subtypes is important for anyone who wants to accurately understand what it happening in today’s world:

  • Mercantilism: the law gives preference and special benefits to the sector of the economy owned by the government.

 

  • Corporatism: the law gives preference and special benefits to the sector of the economy owned by big corporations within the nation (sometimes referred to simply as “Big Business”).

 

  • Capitalism: the law gives preference and special benefits to the sector of the economy owned by big capital (including big corporations like in Corporatism, but also wealthy foreign and multinational corporations and non-corporate institutions, wealthy foundations, wealthy trusts, non-profit entities, wealthy families, monied foreign investors, and others with mass amounts of capital).

 

  • Keynesianism: the law gives preference and special benefits to companies and institutions (corporate but especially non-corporate) that are so big that they care more about their public image for societal responsibility and promoting social justice than about profit(s), market share or stock value.

 

  • Free Enterprise: the law gives no special preference; it protects equal rights for all individuals and entities and leaves initiative and enterprise to private individuals, groups, businesses and organizations that are all treated equally and with minimal legislation by the legal code.

All of these subtypes are market-based, though according to Keynes himself Keynesianism “seeks the goals of socialism through market means.”

For the last three generations these five subtypes of market economics have all been lumped together under the label of “capitalism.”

While this is technically inaccurate—because capitalism is a subtype rather than the whole of market economics—it is the way the word “capitalism” has been used by most people.

By this definition, capitalism is synonymous with “market economics” and is a label for the entire market-style model.

So we have two definitions of “capitalism” in the current usage: one a title for the whole market field of economics (we’ll call it capitalism Type 1), and the other a specific type of market economics where preference is given to those with large amounts of capital (capitalism Type 2).

These are frequently confused in our contemporary language.

Supporters of freedom get understandably frustrated when anyone questions the superiority of Type 1 over command economies, but it is vital to understand how Type 2 differs from free enterprise.

Adding to this confusion, corporatism is not the same as Type 2 capitalism.

Corporatism doesn’t include capitalism Type 2 at all, but capitalism Type 2 always includes corporatism as part of what it calls “capitalism.” (Corporatism is to Type-2-capitalism what apple is to fruit.)

In short, Type 2 capitalism is much broader than corporatism, as shown in the definition above.

Again, this is confusing to most people, but understanding the details and nuances of how these words are used is extremely important.

Note that the American founders dealt with many similar language challenges, such as when Madison spent Federalist papers 10 and 14 explaining the important differences between democracies and republics, or when he used papers 18, 19 and 20 to elucidate the differences between federations, confederations, national and federal government.

Without such clarity, the Constitution would have been confusing to many Americans who were deciding whether or not to ratify it.

There are numerous similar examples, and part of being a free people is taking the time to understand the nuances of economic and political freedom.

And note that few things are more essential for free people than clearly understanding what type of economic system they want.

Based on the definitions above, consider these three conclusions:

1. All of the market subtypes are better than all types of command economies. Even the market approaches with the least freedom (Keynesianism and mercantilism) are significantly better (with more freedom, opportunity and prosperity for more people) than the command system with the most freedom (collectivism).

2. On the subject of the five subtypes of market economy, free enterprise is significantly better (with more freedom, opportunity and prosperity for all), than mercantilism, corporatism, capitalism Type 2, and/or Keynesianism.

 

3.  The United States today has far too much mercantilism, corporatism, Type 2 capitalism, and Keynesianism and not enough free enterprise.

 

Category : Blog &Economics

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