America’s Matrix
November 20, 2013
“The Matrix … is the world that has been pulled over your eyes to blind you from the truth.” Morpheus
Language is a means by which we express ourselves, yet more recently it has become a focus of forces of disinformation to obfuscate the truth and manipulate people’s thought processes. The Nixon administration, responding to heavy lobbying by the beef industry, changed the definition of what constituted “sirloin steak.” They boasted that this would help consumers by lowering the price of this prized steak, which it did. What they did not tell the public was that what used to be called “rump steak” disappeared as it was now defined as “sirloin” and sold as such.
That administration also was the one that first gave us the term “stonewalling,” meaning to answer without answering; a technique now perfected by politicians and bureaucrats of all stripes whereby they pretend politely to answer pointed questions, but as an honest answer would reveal a truth that they do not want us to see they instead answer a question that they wished had been asked. Witness a House Education and Labor Committee hearing from June 23, 2009 where Rep. Tom Price of Georgia, a Republican who is also a physician, was questioning Christina Romer, then chairman of the president’s Council of Economic Advisers regarding whether under ObamaCare people would be able to keep a plan that they were happy with:
Price: You also mentioned, as other folks have, that the president’s goal–and it’s reiterated over and over and over–that if you like your current plan or if you like your current doctor, you can keep them. Do you know where that is in the bill?
Romer: Absolutely. And things like the employer mandate is part of making sure that large employers that today–the vast majority of them do provide health insurance. One of the things that’s–
Price: I’m asking about if an individual likes their current plan and maybe they don’t get it through their employer and maybe in fact their plan doesn’t comply with every parameter of the current draft bill, how are they going to be able to keep that?
Romer: So the president is fundamentally talking about maintaining what’s good about the system that we have. And–
Price: That’s not my question.
Romer: One of the things that he has been saying is, for example, you may like your plan and one of the things we may do is slow the growth rate of the cost of your plan, right? So that’s something that is not only–
Price: The question is whether or not patients are going to be able to keep their plan if they like it. What if, for example, there’s an employer out there–and you’ve said that if the employers that already provide health insurance, health coverage for their employees, that they’ll be just fine, right? What if the policy that those employees and that employer like and provide for their employees doesn’t comply with the specifics of the bill? Will they be able to keep that one?
Romer: So certainly my understanding–and I won’t pretend to be an expert in the bill–but certainly I think what’s being planned is, for example, for plans in the exchange to have a minimum level of benefits.
Price: So if I were to tell you that in the bill it says that if a plan doesn’t comply with the specifics that are outlined in the bill that that employer’s going to have to move to the–to a different plan within five years–would you — would that be unusual, or would that seem outrageous to you?
Romer: I think the crucial thing is, what kind of changes are we talking about? The president was saying he wanted the American people to know that fundamentally if you like what you have it will still be there.
Price: What if you like what you have, Dr. Romer, though, and it doesn’t fit with the definition in the bill? My reading of the bill is that you can’t keep that.
Romer: I think the crucial thing–the bill is talking about setting a minimum standard of what can count–
Price: So it’s possible that you may like what you have, but you may not be able to keep it? Right?
Romer: We’d have–I’d have to look at the specifics.
Now, in this fall of 2013, the Obama administration wants us to believe it was acting properly because the president was “essentially” seeking only to eliminate from the health care marketplace health plans that were in actuality abusing the public because they were “substandard.” Their goal, so they said, was simply to require that the health care industry give us “better health care coverage.”
Simply stated, the use of the term “substandard” is a clever, intentional lie that was chosen because, also being a pejorative term, it leads the listener to believe that the administration was only seeking to banish a market abuse. Note how this term has been picked up by most of the press and by both, major parties. But let us parse the term.
“Sub-standard” literally means what is below a given standard. So what was the “standard?” For individuals and for companies providing health insurance coverage for their employees, the standard was the coverage they would like to have commensurate with price. This obviously means that the “standard” will vary from individual to individual and from company to company. It is a reflection of the notion of freedom of choice, a tenet upon which this country was built. The Obama administration, however, found such a state of affairs unacceptable and believed that what would be better for society as a whole would be if individual preferences were made subservient to its plan for our society, so it set one, single standard for the entire country and got the democratically controlled Congress in lock step to adopt it. This law then outlawed perfectly excellent policies which were branded the “untermenschen” of the health care industry.
However the moniker “substandard” was adopted to hide a more insidious truth, one that became apparent when Obama was forced to run for cover and declared that he would change his mind and let those happy with their substandard policies keep them. Within a few days, and after a private meeting with Obama, both the insurance industry and their state regulators patiently explained that it is now impossible for them to offer the policies that had been cancelled. The reason for such impossibility is that unchanged from ObamaCare is its central individual mandate requirement. That is, ObamaCare seeks to fund both the subsidies that it authorizes and the coverage for the highest risk enrollees (those who are medically uninsurable due to pre-existing conditions) by mandating a compulsory list of gold-plated benefits and conscripting wealthier and healthy individuals who would never purchase such a policy to make overpayments.
In other words, the use of the term “substandard” is used to blind the electorate from the truth that ObamaCare is in reality a pure income redistribution scheme and always was intended to be so.
If you are ready to unplug yourself from the seductive matrix of Obama’s words, in the words of Morpheus……………. “welcome….to the real world.”
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© Richard L Wise and RLWise.wordpress.com 2013. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Richard L Wise and RLWise.wordpress.com with appropriate and specific direction to the original content.
American Exceptionalism and the Law
October 16, 2013
The Miriam-Webster dictionary defines exceptionalism as “the condition of being different from the norm.” As applied to a country, however, the term has its roots in the romantic writings of the eighteenth century German philosopher-historians Johann Herder and Johann Fichte. These thinkers de-emphasized the political state and instead emphasized the uniqueness of the people (“das Volk”). To understand the concept of “American Exceptionalism,” therefore, one must understand the historical and social milieu that gave birth to our nation and our system of governance.
Our “noble experiment,” as American democracy has been called, represented a radical departure from the top down approach to governance that characterized both the European and classical liberal approaches to governance.
European governance had its roots and traditions in centuries of monarchical rule, which, in essence, leaves development of laws and customs based upon the naked preferences of and deference to the ruler. While limits on such naked preferences were imposed through force during the seventeenth and eighteenth centuries, even under the resulting constitutional monarchies, the sovereign retained considerable power. Commoners lived and worked “by the leave” of the nobility. Culturally, commoners were not even permitted to think that they were entitled to common courtesies. The terms “please” and “thank you” were reserved for lords or one who was a similar hierarchical superior. “Please” is short for “if you please,” “if it pleases you to do this” — it is the same in most European languages (French: s’il vous plait: Spanish: por favor). Its literal meaning is an acknowledgement that “you are under no obligation to do this.” Similarly, as David Graeber noted in his book Debt: The First 5,000 Years, “In English ‘thank you’ derives from ‘think,’ it originally meant, ‘I will remember what you did for me’ … but in other languages (the Portuguese obrigado is a good example) the standard term follows the form of the English ‘much obliged’ — it actually does means ‘I am in your debt.’ The French merci is even more graphic: it derives from ‘mercy,’ as in begging for mercy; by saying it you are symbolically placing yourself in your benefactor’s power — since a debtor is, after all, a criminal.”
England began to diverge from Continental Europe in the development of its legal system. Rulers on the continent adopted top-down codes that were developed by philosophers and scholars and which became the Civil Law tradition. Under this tradition, the goal in arguing any case was to show that a core, primary principle was at play in the case that was presented to a judge. Civil Law codes thus reflected the classical liberal approach that the interests of society were paramount and thus individual choices were to be subservient to what the sovereign knew to be best for the people. As for private commerce, effectively everything was prohibited unless the sovereign expressly permitted it.
The Common Law tradition in England took the opposite approach. There the law grew in accordance with decisions of individual judges who sought to do rough justice or deal with what was the right result at the time. Innumerable exceptions and technicalities were grafted onto the various forms of actions or criminal laws; in the latter case this probably was due to the fact that, with over 170 crimes punishable by death, judges sought, for example, to find ways to avoid having to send a young lad to the gallows for simply stealing some bread. Thus the Common Law pursued an approach of distinguishing the present case from others and, thereby, began to highlight individuality.
However under both systems, all real property belonged to the state, in the personification of the ruler. “Ownership” of land therefore was by a grant of tenure. As the king or Queen owned all land, lords were “enfeoffed” with the grant of a parcel of land in exchange for their reciprocal obligation to provide services, taxes, etc to the ruler, and these lords similarly made sub-grants to sub-lords upon similar requirements. Thus all ownership was “of” or “through” a superior lord. Obviously, under such a system concepts of “squatting” or “adverse possession” cannot exist. (Indeed, even in America today principles of “adverse possession” cannot apply as against state or federally owned land.)
America, certainly through the mid-nineteenth century, was effectively a third world country. The first settlers who came to these shores were, as described vividly by historian Peter Charles Hoffer in his Law and People in Colonial America, a “cold, tired, apprehensive assemblage of men and women … gathered on the western shore of the Atlantic, peering into a densely wooded wilderness.” Law then in the colonies rapidly began to change. Economist Hernando de Soto, in his book The Mystery of Capital, describes this succinctly:
Initially, colonists attempted to apply the doctrines of English property law to bring order. But English Common Law had not envisioned a society that was rapidly generating new forms of property access without an established and generally accepted titling system. …
Most of these colonists, however, had little comprehension of the technicalities of English law. Many did not know or care to know the differences between legal writs, law and equity and other subtleties. …
In matters ranging from domestic political autonomy to the use and distribution of land, colonists began to deviate in significant ways from English laws that had little or no logical relevance to the realities of colonial life. As Peter Charles Hoffer emphasizes, “In theory they were part of the king’s personal domain [and subject to all his laws], but fact preempted theory. Far from England, thinly populated, rich in natural resources, and occupied by men and women who knew their own minds and grasped a bargain when they saw it, the colonies edged towards self-government.”
Primarily due the lack of any reliable title records, ownership here began to be established through American concepts such as “squatting,” “cabin” or “corn” rights (building a cabin or planting corn), all of which evolved into our laws of “adverse possession.” American juries refused to convict the “holder” of such titles from killing the sheriff who came to evict them. As a consequence, land ownership in American evolved into “allodial” ownership that was free of any of the incidents of tenure that accompanied ownership in Europe.
The significant import of this development however was that laws and governance (a) followed from the will of the populace – that is, bottom up versus top down – and (b) as pragmatic responses to real life necessities. Thus, when the thirteen colonies thus broke with England, those principles were formally reflected in the establishment of a governance system that (a) derived its authority from the consent of the governed (i.e., bottom up) and (b) was established as a republic of reason (as opposed to naked, monarchical preferences). Further, checks and balances were created so that no branch of government could ever impose its will on the others and unbridled political debate was enshrined under protections of complete freedom of speech.
In the realm of commerce, this also created a culture of individualism and an enabling approach to business and invention; that is, everything was permitted unless it was specifically prohibited. Further, major internal policies, such as the Homestead Act of 1862, were adopted in response to and as a formalization of cultural changes that already existed among the populace, as opposed to rulers or philosophers determining what was best for society. The law here was thus the trailing, as opposed to leading, edge of change.
Continental Europe, and most of the rest of the world, is still guided by the dead hand of their historical roots. It is in our differentiation from those traditions and approaches, exceptionalism, if you will, that America stands apart.
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© Richard L Wise and RLWise.wordpress.com 2013. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Richard L Wise and RLWise.wordpress.com with appropriate and specific direction to the original content.
A Pox on Both Your Houses
August 10, 2013
Events of the past few months should, to any thinking individual, convince him of the disingenuousness and ineffectualism of the partisanship and ideological that pervades our political system, and which are two sides of the same corrupt, counterfeit coin.
As several prominent Republicans queued up to ridicule President Obama for his long-planned week on Martha’s Vineyard, especially in the midst of so much turmoil (as though there has been no turmoil for the preceding fifty-one weeks), Congress adjourned for a four-week summer “recess” after doing virtually nothing when it was in session. According to my count, Congress passed a mere fifteen laws in the past six months, which, at that rate, would make it the least productive Congress in history. (On second thought, in view of their collective lack of competence, perhaps that is a good thing.)
Similarly, after ballyhooing incessantly that Obamacare needs to be repealed and funding for it denied, just prior to going into summer recess Republicans rushed to join with their Democrat counterparts who at least ostensibly, vigorously support the law, to praise Mr Obama’s “reinterpretation” of the law so as to exempt Congress and staff members from having to pay for their own medical coverage as we lesser citizens have to do. You may recall that in 2010, amidst much fanfare, Congress boasted that since Obamacare was good enough for all other citizens, it should apply equally to those in Congress, and both parties amended the law so to provide. Not so fast! As the consequence of that commitment was about to become a reality, members of Congress and their staff began to freak out. Under present law, they will lose the subsidies that they presently receive under the Federal Employees Health Benefits Program, or FEHBP, which picks up about three-quarters of the average premium, while correspondingly, because they make too much money, they would not qualify for subsidies under the Obamacare-mandated exchanges. Recognizing that it would be a horrible injustice for Congress to have to abide by the laws to which the rest of us are subject, at Mr Obama’s request with Congress’ blessing, the Office of Personnel Management decreed that the provision in the 2010 law (and which begins with “notwithstanding any other provision of law”) was not intended by the Affordable Care Act to change the subsidies granted in the 1959 law that created the FEHBP. Voila, taxpayers will continue to chip in $4,900 for individual and $10,000 for family coverage for millionaire Senators and the affluent professionals who are chiefs of staff, legislative directors and the like.
Charles Beard (a historian with whom I have little agreement) liked to argue that the American revolution was less about “home rule” that it was about “who rules at home.” While that point is debatable with respect to our Revolution, it is clear that partisanship and ideology are mere proxies for a bedrock thirst for power by small minded, self-centered individuals.
George Washington warned us that “Government is not reason, it is not eloquence, it is force; like fire, a troublesome servant and a fearful master. Never for a moment should it be left to irresponsible action.” We have consented to making it our master. Unless we all discard such foolishness and concentrate only on what empirically is shown to work, we shall reap the whirlwind.
Of course that’s just my opinion; I could be wrong…………………….
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The Wisdom of Madisonian Governance
September 14, 2012
The constitutional structure of the United States is unique among democracies in its having established not only a bicameral legislative body, but also in its mandating that certain matters should be either the province of one of the bodies or must begin in one body only. This division and allocation of areas of expertise and authority are a sound, logical recognition that the interests and costs of differing issues should be allocated on the basis of what is in the long-term, best and most sustainable welfare of our nation.
While every man’s vote should count equally, our Founding Father’s recognized that those casting a vote do not have equal wisdom in their decision making. For that reason, matters of a more federal concern, such as treaties and trying impeachments, were allocated to the Senate for approval where each state has an equal vote. On the other hand, matters relating to raising revenues were required to originate in the House of Representatives and required House approval. This latter requirement was a recognition that wealthier states, who likely would also be more populous, should have more say in revenue matters as it would be they who would be asked to shoulder a disproportional part of the bill.
The supreme wisdom of this governance structure becomes apparent when contrasted with the recent Latinization of the Euro, a direct consequence of the European Union’s theory of governance as reflected in the Maastricht Treaty, the founding document of the euro currency area. Under that treaty, there is only one governing body, with all countries treated as equals, much like our Senate. Thus, each country’s vote is treated as though there were a uniform level of wisdom and fiscal responsibility across the continent.
Because the euro area was set to collapse if the European Central Bank (the “ECB”) did not agree to engage in large-scale acquisitions of government debt from Spain and Italy and others similarly situated, the ECB’s governing council voted last week, over strenuous German objections, to proceed with such bailouts. Specifically, it authorized the ECB to purchase unlimited quantities of short-term national debts.
Germany lost this determination because it holds only one of the seventeen votes on the counsel. On the other hand, Germany’s population of 81 million out of the 333 million within the euro area, or roughly a quarter of the citizens, means that the debtor nations have prevailed at the ECB with the prospect that Germany’s responsible austerity will be rewarded by its funding the profligate practices of other members.
As noted in a commentary by Peter Boone and Simon Johnson in the NYT.com’s Economix blog,
“Unemployment in Spain is now around 25 percent and in Greece it is at 24.4% (with unemployment for young people aged 14 to 24 now at 55 percent). Both Portugal and Ireland have made progress implementing their austerity programs, but they are not growing and their debts remain very large (gross general government debt is projected by the IMF’s Fiscal Monitor to be 115 percent of GDP next year in Portugal and 118 percent of GDP in Ireland). The current Italian government is well regarded, but there are large political battles ahead and it is also burdened with big debts (to reach 124 percent of GDP in 2013).”
This bodes ill for the euro. Obviously, the debtor nations will have the incentive to make as few concessions as possible in exchange for such bailouts. Worse still, once the debtor-camel gets its head into the ECB’s tent, the ECB’s leverage to obtain more concessions for future bailouts evaporates. According to the traditional wisdom of sound banking, “If you owe the bank a hundred thousand dollars, the bank owns you; but if you owe a bank a hundred million dollars, you own the bank.”
Madison recognized that those states who will provide more of the funds for government should have greater input into the decision to raise such funds than those who not only will be providing a much smaller share, but who in fact turn out to be the recipient of those funds. The European Union has based its approach on the theory that all nations are deemed equal in their w and responsibility.
My money is on Madison.
© Richard L Wise and RLWise.wordpress.com 2012. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Richard L Wise and RLWise.wordpress.com with appropriate and specific direction to the original content.
The Philosopher King and the Empiricist
September 3, 2012
If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts, he shall end in certainties. –Francis Bacon, essayist, philosopher, and statesman (1561-1626)
Let me try to simplify the choice we have to make in analyzing the two principal candidates for the presidency. Unquestionably we have two, highly principled men. For me, however, the core consideration is not their philosophy of what should be done, their personal views on life or even what their specific policies may be. All candidates once elected invariably move towards the center. All candidates make promises that they do not, and perhaps even never intended to, keep. The central issue, it seems to me – as a long-time admirer of Coach Belichick – is how each adjusts to the challenges of reality that appear to conflict with their stated “positions.”
This analysis, I submit, requires us to focus more on the core, essential methodology of a man rather than on the veneer. The strengths and weaknesses of platitudes that may appeal to one constituency or another do not become apparent until tested in the fiery crucible that reality’s challenges present. This should therefore cause one to assess the choice that a candidate must make when his philosophy conflicts with empirical results.
Historically, there are but two choices: top down or bottom up. Thus, one may start with the premise that one’s principal approach, one’s fundamental tenets, are reflective of the truth. Thus contradictions between expected results and reality is a consequence of not being within a frictionless environment, of having to compromise in order incrementally to achieve partial victories, and thus only minor adjustments are necessary. Under such an approach, ultimate success, and hence happiness, will be achieved only by perseverance in the fundamental overarching, central plan.
The alternative approach is one where a person may still hold a fundamental belief in the correctness of his beliefs, but elects to put them aside for a time because his “being right” is viewed as less important than solving a dangerous threat to everyday happiness. Such individuals’ hard wiring is simply to focus on “what works” when faced with life’s challenges. One may categorize such an approach as “flip-flopping” on one’s principles if one is inclined to be mean-spirited, or one may view such changes as a reflection of inner confidence and humility resulting from an acknowledgment that they will never be able to understand the full panoply of existence. I grew up with World War II veterans who hated guns and killing, who throughout their lives were pained by the men they had killed, but who nonetheless knew that they had to do what they did. They resigned themselves to being most imperfect men having to deal imperfectly with forces beyond their control.
Thus in most cases when one must choose between two morally and caring upright men, I find their stated positions to be less relevant than their methodology in responding to failure.
This, of course, brings us down to the present two candidates.
I do not think there is much disagreement about whose words are more appealing. Mr Obama surely presents a warmer, more caring and empathetic view of how we may wish reality eventually to be. Even Mr Romney’s Republican supporters acknowledge that there is an issue with his being less “likeable” – whatever that may mean – than Mr Obama. Moreover, Mr Obama is clearly the better orator; a man who engenders passions of hope in most of us. Thus, those who support Mr Obama and who are not mere sycophants generally acknowledge that he has made many bad decisions and mistakes in dealing with both foreign and domestic policy, but assert that as he is extremely bright – a conclusion that should be obvious – he has learned from his mistakes and his resulting experience, combined with the fundamental correctness of his basic philosophy, give him credentials that Mr Romney cannot duplicate.
I do find it ironic that this argument’s reliance on experience is diametrically opposite what Mr Obama asserted in the last election commended him for the office of president. Nonetheless, it illustrates the “top down” approach to governance. It requires one to conclude that four years is not enough of a sample by which to judge Mr Obama. It further requires one to evaluate the candidates on what they say, versus on the basis of what they have done. Clearly, Mr Romney comes up short on the basis of that analysis.
On the other hand, if we judge each of the candidates on the basis of what they have accomplished, what they have done, Mr Obama appears to be the Lilliputian in such contest. Mr Obama has no comparison to Mr Romney’s unbridled successes at Bain Capital, as a Bishop in his Church, in reorganizing a bankrupt US Olympic committee, and in governing a state controlled by the opposing party. Thus supporters of Mr Romney naturally assert that four years is enough time for us to see what Mr Obama can do, and urge voters to choose by focusing more on what a candidate has done than on what he may promise.
Supreme Court Justice Oliver Wendell Holmes was fond of saying that “when you go to court you don’t get justice, you get law.” Any experienced practitioner will tell you that because this is not understood by the newly-minted lawyers who show up in firms every fall thinking that they understand the law, their work product can easily be torn to shreds. This is because law schools do not turn our lawyers, but rather only law students. And whether one aspires to become a lawyer, a doctor, an engineer, programmer, mechanic, chef or whatever, one learns that there is a “black art” that must be mastered if one is to become successful in one’s trade; that is, techniques that one can only learn empirically from daily exposure to the subtle nuances of reality and which enable one to form a dowser’s sixth sense how to address a given situation. As the great pianist Artur Schnabel observed, “The notes I handle no better than many pianists. But the pauses between the notes — ah, that is where the art resides.”
In reflecting on Republican monetary policies of the recent past, Mr Romney acknowledged that “we let the nation down.” That statement is reflective of his businessman’s empirical approach to problems, and of his faith in the supremacy of what works over his own personal predilections and ideology. Mr Obama’s approach, befitting his professorial roots, is that of Plato’s Philosopher King: that in the long run, his ideology will be proven to be the best for us.
Those are the choices that are ours, as will be the consequences of that choice.
Let us be careful what we wish for.
© Richard L Wise and RLWise.wordpress.com 2012. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Richard L Wise and RLWise.wordpress.com with appropriate and specific direction to the original content.
Reflections on Mr Obama’s Economic Philosophy
August 30, 2012
I have often commented laconically that the older we get, the more we become like ourselves. We all have tendencies and predispositions, and in part through trial and error, over time we settle on approaches which seem right to us. And this is true both in our personal and professional lives.
A corollary of this rule is that, over time, others who have had the opportunity to observe an individual’s actions, words and decisions have the ability better to discern just who that individual really is. Whilst I am (thankfully) for the most part shrouded in obscurity, the president of these United States lives and operates at the other end of the visible spectrum. Hence each of us has the opportunity to gain increasing insight into what makes Mr Obama tick with each new rise of the sun.
It is with this perspective that I now must comment upon Mr Obama’s press conference of a few weeks ago. The Republican’s are jumping all over his ill-advised comment that “the private sector is doing fine.” However what concerns me far more is the context in which he made that statement, for it reveals a fundamental macroeconomic philosophy that is both frightening and, to my mind, antithetical to fundamental American culture. I say this in conjunction with the observation that, as a purely technical matter, Mr Obama’s statement put in context is also completely correct as a matter of basic 101 macroeconomic theory.
To explain this apparent contradiction, I must regrettably restate briefly some of the fundamental principles of the “Grim Science” (i.e., economics). (To the extent that the two paragraphs that follow are accurate, it is due to the profound teaching of distinguished Professor Carsten Kowalczyk; to the extent there is any inaccuracy, it reflects my own limitations.)
Mr Obama was talking about Gross Domestic Product (GDP). This term refers to the sum of all goods and services produced by a country in a year (or other designated period). There are differing ways of calculating this number, but the most common and direct way is the product approach, based on expenditures. Prior to Keynes, GDP was calculated as the sum of (a) consumption, plus (b) investment, plus (c) all exports minus all imports. Formulaically, GDP = Consumption + Investment + (Exports – iMports). [Note: Historically, imports are represented by the letter “M” to distinguish it from the letter “I” which is reserved for investments.]
After Keynes, this formula was refined, as it was recognized that there are really two, very different types of consumption: private sector consumption (namely what people and companies spend) and public sector consumption (namely what the government spends). This was because economists’ principal concern was whether the people in a society were better off, happier, and thus what the government spent was technically outside of (or, to use the economists’ term, “exogenous to”) that calculation. Thus today’s formulation of GDP is: GDP = Consumption (private) + Investment + Government consumption + (Exports – iMports).
For those of you still awake, what all this means is only that, under classical (and accepted) macroeconomic theory, government spending is one of the four components of GDP. Thus, GDP is directly related to increases and decreases in government spending.
Let me now return to what Mr Obama was trying to say. Mr Obama was commenting upon the measly 1.9% growth in GDP this past quarter. What his point was that because his approach had “created 4.3 million jobs over the last 27 months, over 800,000 just this year alone,” the problem was not with private sector consumption (“C”) Rather, the problem is with the decrease in public sector spending (“G”). “Where we’re seeing weaknesses in our economy have to do with state and local government—oftentimes, cuts initiated by governors or mayors who are not getting the kind of help that they have in the past from the federal government and who don’t have the same kind of flexibility as the federal government in dealing with fewer revenues coming in.”
Let me translate this: Mr Obama is saying that as a matter of first policy priority, in order to increase GDP the federal government should borrow or tax more so it can then finance more hiring by state and local governments. Spur the economy by growing the size of government.
While Mr Obama is correct as a matter of introductory macroeconomics, it is reflective of his apparently never having taken, or taken seriously, more advanced economic courses, or any course in microeconomics. (As a matter of fair disclosure, let me state that I believe macroeconomic theory to be a failure and have observed that it is generally followed only by governments that are controlled by elitist central planners. For those of you unfamiliar with the term “central planning” – and I know that his will offend my liberal colleagues – it is the economic philosophy followed by the communist approach to growing an economy.)
While it is true that because government spending is a major part of GDP, more government spending will increase GDP on a dollar-for-dollar basis. The problem is that government spending adds no lasting, sustainable expansion of the economy. It is temporary. Look, for example, at the lesson of the stimulus, where hundreds of billions of dollars was gifted as aid to the states, but whose effect has now has now faded. Thus, this approach is no different an approach than that of so many CEO’s of private companies who lawfully “cook the books” in accordance with proper accounting principles to give the impression that things have gotten better, or that they have done a better job turning around a company, so that they may claim entitlement to higher compensation. Mr Obama is similarly attempting to cook the books of GDP calculation so as to get elected for another four more years.
More specifically, local government layoffs are not the result of falling state revenues. Those revenues have actually increased by around 6% over the past two years according to the Census Bureau. Rather, because the cost of benefits that governments are paying their own workers is increasing far faster than their revenues, they have had to lay off workers to pay for rising pension and health care costs.
And it gets worse. Look at those states, such as California and Illinois that refuse to follow Wisconsin Scott Walker’s lead and alter the benefits that they pay or reform collective bargaining. In essence, Mr Obama’s suggestion is that Congress needs to tax Americans from every state more, and borrow more from China, in order to send money to states that have been the most spendthrift.
In summary, Mr Obama’s lack of any private sector experience, and his adherence to simplistic macroeconomic theory, has resulted in his view our current economic woes can best be solved by having our government control and regulate our production. While such an approach may have worked well for post-war Korea and for China, it is just not in accordance with American culture. But Mr Obama has already demonstrated, by his ramming Obamacare down our throats despite the overwhelming objection of the American public, that his vision for America is not one that need be in harmony with our cultural hard wiring.
Of course that’s just my opinion, I could be wrong……………
© Richard L Wise and RLWise.wordpress.com 2012. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Richard L Wise and RLWise.wordpress.com with appropriate and specific direction to the original content.
Curse of Cassandra 