Hey, Congress! You Are Asking the Wrong Question!

The brinksmanship in Washington has a lot of people upset (including me).  But the reasons differ depending upon where you sit and what relationships you have with the federal government.  Indeed, not everyone is upset.  A client told me he was in the middle of an IRS audit when the government shut down.  He wasn’t upset when the auditors vanished. 

A conservative friend of mine is upset with the direction of the Republican Party.  He quoted Napoleon over lunch.  In his view, Obamacare will collapse of its own weight and Republicans would be wise to let it.  “Never interrupt your enemy while he's making a mistake. That's bad manners,” quipped Napoleon.

However, Wall Street Journal economics editor David Wessel extols the virtues of Obamacare in an Op-Ed piece called “Obamacare – A Game Changer in the Making?” 

The Economist tries to elevate the debate a bit, pointing out “when you are brawling on the edge of a cliff the big question is not ‘Who is right?’ but ‘What the hell are you doing on the edge of a cliff?’ ” 

Meanwhile, Joshua Green asserts that “Republicans Are No Longer the Party of Business” in Bloomberg Businessweek.  Green starts with an anecdote about a Tennessee businessman whose company makes furniture.  He says, “It’s as if House Republicans are playing suicide bomber with the U.S. economy.”  People who make furniture are affected by a slow down in government-funded mortgages. 

None of them are asking the right question. 

Why is the government in the mortgage business?  For that matter, why are they in any business?

One could challenge a lot of things our government does.  The government is the largest landowner in the nation.  By some estimates it owns approximately $128 Trillion of real estate and mineral rights. 

Sell 10% of it and our debt problem vanishes.  Sell another 10% and no one pays taxes for the next three years.

The federal government also distributes between $10 Billion and $30 Billion in farm subsidies each year.  Originally intended to provide support to poor farmers who might again suffer the trials of the Great Depression and the Dustbowl, it now provides support to absentee landowners who are millionaires many times over.  The bottom 80% of recipients gets an average of $587 per year. 

Try to eliminate the subsidies and you’ll run into a buzz saw of mostly Republican congressmen who fight to protect the economic interests who send them back to Washington every two years.

Changing this paradigm doesn’t help to resolve the current budget and debt ceiling crisis.  However, it does go to the core of some foundational principles.

Americans take a lot for granted.  We expect the water from our faucets to be potable, the electric power grid to be reliable and the transportation systems to be safe.  We expect our military to be strong, our economy to be prosperous and our institutions to protect us from ourselves.

We have the luxury of those expectations because of the last 150 years of prosperity.  Yet, we have lost track of what got us here. 

The principles of economic freedom – predictable policy, rule of law, strong incentives, reliance on markets, limited role of government – are no longer on the minds of those who govern.  So, corporate interests have adapted.  In a world where lobbying for favorable tax and regulatory treatment can have a dramatic effect on your bottom line, big businesses benefit by focusing on Washington.  Interrupt that activity and the muddle that is the media somehow draws the conclusion that “Republicans Are No Longer the Party of Business”.

In the lingua franca of today’s political environment, the term economic freedom sounds conservative and Republican.  However, since WW II, the violators have come from both parties.  Starting in the 1960s, Presidents Kennedy, Johnson, Nixon, Ford and Carter approved a succession of laws, regulations and restrictions that violated the core values of the economic system that underpins our economic strength.  Perhaps no violation was more egregious than Nixon’s imposition of wage and price controls in 1971. 

An America that transforms itself from a free market juggernaut to a government that funds its favored interests will not maintain its economic leadership.  Instead, we will continue to be mired in the current slog of low economic growth rates and expansionist monetary policy. 

A reversal of that course will tread on the entrenched interests of big corporations who have benefited from the results of their influence on electoral outcomes.  Yet, that is what’s necessary to restore economic growth, the strength of the middle class and continued American hegemony.  The only question is…

WHO WILL LEAD?