Power vs. Principle

The recent government takeover of General Motors and various financial institutions is distasteful to the business community and political conservatives. However, the nature of our national demographic means that this type of government intervention is more likely. Politicians will come under increasing pressure to meddle in the private sector to protect the financial well-being of the baby boomers as they reach their “golden years.”

If the speech given by Senator Lindsey Graham at the South Carolina Republican convention is any indication, then we will see more politicians willing to compromise principle to get reelected. Senator Graham vehemently challenged the delegates that “if you want to win, you’d better decide to moderate on issues to get something done.” Senator Graham went on to mention that because President Obama is such a likable guy that conservatives will have a tough time defeating his agenda.

So we already see the death of fiscal responsibility as there is no strident opposition to the Obama administration and influential members of Congress like Senator Graham have adopted the go-along-to-get-along mentality. If there isn’t the political will today to try to stop the taxpayer funded bailouts (with no union concessions) then how will there be any political will to ask for stewardship on any other issue that affects the boomer retirement hopes. Who will argue the other side for the future generations who have to pay for the government bailout of the pensions of the current retirement generation? The silence on government takeovers will allow the “likable” liberals to enact an agenda that erodes any hope of a resilient American economy in the future. Conservatives need to get the guts to answer the question, “What hill are we willing to die on,” and then stick to the principles of our founders.

The Rule of Law and Liberal Hypocrisy

This past week, President Obama cut a deal to save General Motors that cast aside the existing contracts between the company and the companies bondholding creditors. Normally these moves could only take place in a rightly constituted bankruptcy court. However, in the current economic environment, we have obviously suspended the rule of law in an effort to return political favors to labor unions while hiding behind the stalking horse of saving the economy.

While unions were given concessions for their investment stake in the company at a dollar-to-dollar basis, including preferred stock paying a 9% dividend, bondholders were told to accept equity stakes at ten-cents-on-the-dollar or get nothing. This level of government intervention into capital market contracts is growing almost by the day as the current administration, with no business experience, plays with taxpayer money to make politically driven decisions about whom to save in the recessionary economy.

As The Wall Street Journal reported today,

Even after nine months of extraordinary government intervention, the scope and complexity of the General Motors Corp. rescue present a thicket of conflicts unlike any seen before in Washington.

The federal government is likely within weeks to emerge as the principal owner of a storied U.S. corporation whose factories and products touch the lives of tens of millions of Americans. It will simultaneously serve as the company's regulator, tax collector, customer, pension backstop and lender.

The Obama administration is making up the rules as they go. The only hope to keep the federal government from continuing to become increasingly entrenched in the affairs of private enterprise is for state pension funds and other large institutional creditors to stand up and say enough of the Obama administration running roughshod over creditors’ rights.
At this point we have put significant taxpayer funds into dying business models. Why should the taxpayer expect anything different when we continue to see the Washington attitude of “it’s our money to use as we see fit, and we’ll do what it takes to maintain power.” The Obama administration seems to have added the sentiment, “So whatcha gonna do about it; we’re in charge now.”

Punishing a true stimulus

Recently, a bill was introduced by California Representative Henry Waxman that, if passed would effectively raise the marginal tax rate on oil and gas companies. What amounts to a punitive measure by a liberal member of the U.S. House is in keeping with the policy measures of an overly ambitious Democratic Party majority. The repeal of the Section 199 deductions for oil and gas companies will hurt our interests in three key ways.

First, a tax increase on oil and gas will pass through to consumers at a time when we can least afford to see consumer spending on goods and services erode further. According to the Bureau of Labor Statistics, we have seen the steepest drop in consumer spending since the beginning of the measurement. Further taxes on energy will only prolong this downturn.

Second, U.S. national security is undermined when we raise taxes on U.S. oil and gas companies. The issue of energy independence is not one where we have an option; we must allow our oil and gas companies use their resources for research and development for new sources of energy, not for tax dollars to be spent on government programs that have little or no return on investment.

Third, it is wrong for Congress to give money to industries that are struggling and pay for it by raising taxes on those that are healthy. Such measures move us philosophically backwards in encouraging companies to produce more profit through more efficient operations. Instead it seems that Mr. Waxman and The White House have decided that in order to support out-of-control spending and government intervention in dying business models they are going to tax everything they don’t like, even if it hurts the nation as a whole. In an effort to pay for “stimulus” by raising taxes on oil and gas companies, they are actually hurting a crucial underpinning of economic recovery; low energy prices.

Someone, stimulate leadership

This week, I had the opportunity to hear an elected official holding statewide office address a group of business people on the state of the economy. In the room were owners of companies who never have the luxury of just looking at the problem, but who must get up every morning and figure it out and pray for provision. The government official gave grim news on declining tax receipts, oversized state government and stated that there was “no good news.” I kept waiting for the proposal, “So here’s what I’m meeting with leaders about…” There was none. I left confused, having admittedly missed the point.

Today, Peggy Noonan summed similar sentiments in The Wall Street Journal:

Politicians keep saying, "People have to begin to understand we're in bad shape," and "People should realize it's a crisis." I think they know, Sherlock. Do you? Our political leaders are like a doctor who rushes to the scene of a terrible crash, bends over a hemorrhaging woman and says, "This is serious, lady, you can't take it lightly." She looks up at him: "Help me, do something, I'm bleeding out!" The doctor, to the local TV cameras: "I hope she knows she's in trouble."

No longer can we afford to have politicians who castigate the others with whom they share power as a way to pass the buck. You were elected to work together to solve the problems that arise, not simply report the news.

Leadership is the willingness to say, “If it goes well, it’s time to credit everyone else. If it goes poorly, it’s time to look in the mirror.” Unfortunately, we’re not seeing many examples of that today because maybe the only safe thing in the economy is to keep accruing years on a government pension by being reelected. Getting reelected today seems to mean making sure you’re showing people the problems, not proposing solutions. Solutions are messy. If it doesn’t work, it’s easier to be on the outside passing judgment and placing blame.

The wonderful thing about the people in that room is that they will survive, and they will lead, even if the public as a whole never gives them accolades. They can’t afford to simply diagnose. They have to stop the bleeding and get the patient on her feet again. They will provide the examples of leadership for the next generation and maybe even the politicians.

We aren't likely to spend our way out of this

What the Democrats would have us believe is that they are on a crusade of economic statesmanship when really it is simple legislative consumerism designed to protect political turf. I believe President Obama is sincere when he says we are in a dire situation, but it seems that he has simply given Congress a license to continue to do what they do best; spend.

Why is spending really a concern? Why shouldn’t we fund all these initiatives out of the federal coffers? Why shouldn’t we just send our Congressman up the hill to get our share?

Because according to David M. Walker former Comptroller General of the Untied States, we can’t afford to do so. In an article published last spring in Politico, Mr. Walker wrote:

"The current federal fiscal policy has created a disconnect between today’s citizens and future taxpayers. Baby boomers and current retirees benefit from today’s government spending and tax policies, while our children, grandchildren and generations to come will be expected to pay the bill for today’s excess consumption.

From a broad perspective, many in Congress think that since the U.S. is currently the world’s sole superpower, we will always be able to borrow from foreign countries whenever necessary at attractive interest rates. Unfortunately, the government — like too many Americans — has become addicted to debt.

With a federal deficit in the billions, government appears numb to running large operating budgets every year, irrespective of the state of the economy or the existence of wars. The resulting deficits and related debt burdens are set to escalate dramatically when baby boomers retire in big numbers.

To put things in perspective: Absent meaningful reforms, income tax rates would have to more than double from today’s levels for the federal government to deliver on its promises and pay its bills."

In his March 15, 2008 editorial in The Wall Street Journal, South Carolina Governor Mark Sanford expressed a similar concern when he wrote, “Since 2000, the federal budget has increased 72%, to $3.1 trillion from $1.8 trillion. The national debt is now $9 trillion -- more than the combined GDP of China, Japan and Canada. Add in Medicaid, Medicare and Social Security commitments, and as a nation we are staring at more than a $50 trillion hole -- an invisible mortgage of $450,000 for every American family.”

These concerns were being voiced before we began to consider spending an additional $4 Trillion on “stimulus measures” in the form of industry bailouts, interest rate cuts and spending measures. The currently debated stimulus package is supposed to be the new and improved version of the economic stimuli we have had over the last 11 months that add up to $1 Trillion. We keep spending hoping that we can maybe return to the heyday of 2006 when anyone could get a house for nothing, everyone was comfortable and consumers had their wallets open. The risks that came along with that environment have come to roost. Are we really trying to get back to those “good old days?”

American consumers have already gotten the message and begun tightening their belts. Personal consumption is down by 3.5% and savings rates have doubled year over year to 2% (the 60 year average is 7%). If only we could get government to follow suit. Sales tax and income tax will be down, but state and local governments tend to lag in dropping tax receipts so they are just now figuring out that spending like it’s 2006 won’t work. State governments from both parties are looking to the federal government for a rescue. It seems like we’re determined to treat an economic hangover with more liquor.

If over-leverage is what got us into this mess, then more spending and increasing leverage isn’t likely to be the long-term solution. Some of the stimulus might actually be worthwhile, but no one has the willpower to flow it in over time to see what actually works. What we are likely to be left at the end of it all is higher taxes, higher inflation, a weaker dollar and higher energy prices. The prevailing attitude seems to be, “As long as we get ours as the entitled society today, our progeny can figure all that out for themselves.”

The gift we have yet to open

In spite of the economic turmoil facing the world this Christmas, there are many blessings for which to be thankful. I remember Christmas when I was young and a sort of game my parents and grandparents used to play with us and with each other. On Christmas morning some gifts had to be reserved for last and invariably, they were always the best gifts; the biggest gifts; the gifts no one expected. Even as economies and governments stumble, we are reminded of a higher hope at Christmas that God’s plan has not failed despite our limited perspective of not having opened all the gifts.

God’s gift of His Son is in itself beyond our comprehension. That God would come to Earth as a baby is most difficult for our minds to conceptualize. That He would die to purify us from our sin is no less fantastic to our reason. That He would rise up from death is also an amazing gift of hope. These gifts foreshadow the gift that only Jesus could make possible through His willingness to sacrifice.

How often do we simply look at the packaging of the gift? It’s actually still somewhat politically correct to talk about Jesus as a baby, but the gift God gives us through His Son is so much more. The gift is a God who reaches out to us in the form of a servant; subjecting himself to the law He created so that in fulfilling the law and dying though blameless we might be able to open the greatest gift of an eternal relationship with God.

The gift of eternity in Heaven with Our Creator Father is the gift we look at under the tree and wonder what it holds while the giver smiles, knowing that it is beyond all we can ask or think.

Trampling Posterity

Who was Jdimytai Damour? He was a temporary worker in a Wal-Mart on Long Island, New York who was trampled to death by shoppers as he unlocked the door on “Black Friday.” His family must be in shock, that someone who showed up to work chasing the American dream was instead trampled by it.

In the current economy, it appears that the desperation of consumers to buy continues. Have we really become a group of people whose mindset is the ultimate in short-term? Have we really descended into a lack of manners in our conduct and an outlook of, “Have to have it now regardless of whom I have to trample to get it?”

We need look no further than government for the answer. Short-term thinking has ruled our nation from the highest levels. The attitude to often seems to be, “As long as I have my power, and as long as voters have what they want today, we’ll trample anything we have to, including the future financial stability of the nation to get it.” Legislative spending initiatives have grown at rates that no reasonable person could expect an economy to sustain. We have put our future at risk by avoiding the hard issue of reform of government-run entitlement systems of Social Security and Medicare/Medicaid which are threatened with insolvency. We have refused to balance our federal budget and continued to spend more than we make each year with no plan for repayment

The most recent example is the possibility of loaning money to automakers for the sole purpose of keeping people at work in a failed system. Thankfully, the U.S. Congress didn’t acquiesce at the auto executives’ first visit to Capitol Hill, but now the loans to a group of auto manufacturers who can’t seem to make money is being labeled as an economic stimulus. It is not economic stimulus to bailout the least efficient players in an industry. It would actually be a stimulus to give money to the successful companies and let the failed business models go by the wayside, but in either case the capital markets should make those decisions, not government.

A “loan” with no anticipated repayment is a “gift”. Our government seems to understand this well. If we aren’t able to repay our national debt, then why should we expect industries to be able to do so? Unfortunately, in the interest of providing gifts today, the future generations are likely to be trampled by the rush for short-term gratification of political interests.

Moral Hazard, Moral Bankruptcy

With the announcement this week that the federal government is putting even more money into Citigroup to keep it afloat and the sentiment in Washington leaning toward keeping the U.S. auto makers in business as well, it seems that there is no end to the amount of money we’ll end up printing in an effort to “stimulate the economy.” That notion of stimulating the economy probably helps the medicine go down as politicians describe why we’re undertaking these measures. However, let’s at least be honest about it; this isn’t actually going to stimulate the economy as much as it will pull our bacon out of the fire in the short term only to have another day of reckoning later.

We’re now on the proverbial slippery slope. Where does it stop? It probably doesn’t stop soon. Will legislative bodies at the state and federal levels finally decide to be fiscally disciplined in spending on other measures in order to focus our economic resources on meaningful stimulus like tax cuts, or will we just spend to save the economy today only to raise taxes on our grandchildren to levels that douse any incentive they have to grow wealth? Will legislative bodies at all levels cut the pork out of the budgetary diet in order to save our economy, or will short-term thinking continue to pervade every aspect of government? Given the fact that we haven’t put aside other spending while in a two-front war, we probably won’t for this crisis either.

The government bailout of financial companies is disagreeable enough, but at least I can ascend to the point that we need bank solvency (which isn’t an economic stimulus; it’s a critical driver). But we don't need to make automobiles in the U.S. We need to let bankruptcy laws work. Taxpayers shouldn't be forced by their government to take risk in a failing auto manufacturing system when capital markets have decided that the risk is unpalatable.

As a capitalist society, we seem to have simply increased the moral hazard. In insurance, moral hazard is the prospect that someone insulated from risk may behave differently from the way he would behave if he was fully exposed to the risk. The common example is someone not locking his car because; after all, he has insurance if it is stolen. Our government, in providing rescue funds has most likely increased the behavior of risk taking in the future by insuring investors from loss. Actually, investors may be less prone to take risks since it appears that the beneficiaries from the current bailouts are executives, not investors.

Morally bankrupt may be a good definition for the current situation. Because of our lack of moral leadership and resulting attitudes on stewardship of resources, we continue to have legislative bodies in our nation with the attitude of, “Let's maintain our power as long as we can by giving people anything they want.” Where will it stop?

As our heirs figure out where we lost our influence as a nation, they are likely to ask, “Why didn't they make the hard choice to stop?”

The Morning After Election Day 2008

Last night, I stayed up to watch the speeches by both candidates for President. I was struck by the common tone in each man’s remarks. Both were magnanimous and selfless in their demeanor. Both gave me hope that statesmanship might still be alive.

This morning at breakfast, my children asked about the outcome; “Was it Senator McCain or Senator Obama?” (We had already corrected them throughout the campaign that both men had titles of respect and should not be referred to simply by last name despite what they heard in the media.) When they learned that the candidate we supported had not prevailed, I squelched any grumbling. I still had the words of both men in mind and reflected on their mutual rebuke of partisan rancor as I told my children that the election was over, that the nation had selected a new leader, that the man we had supported had asked us to support the President-Elect, and that the President-Elect had asked for our help.

My children don’t remember any election where there wasn’t continued animosity over the result. I’m not sure I do either. We teach our children to shake hands after a hard-fought game on the athletic fields and yet too often they watch adults behave badly in politics.

Both men made the case that we all have a responsibility in the effort to prosper our nation. No one knows how long the honeymoon will last, but at least for a brief moment we have the opportunity to encourage the next generation to do away with the idea that the losing side should bitterly throw mud at the winners while the winners gloat. Perhaps it serves as a reminder to us all that leadership means coming together for common purposes, even if our candidate doesn’t win.

The Washington Liberals? Really?

This week I received a mass email from an incumbent member of South Carolina’s Congressional delegation entitled “The Washington Liberals,” in which I was asked if I’d heard that he was the target of liberal attacks. Unsurprised that he would be, I read on as he discussed his agreement with the “Washington Liberals” that “this is a change election year.”

He noted that taxpayers were mad with Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid over the way they have “spent money hand over fist,” and over the fact that a “Democratically controlled Congress has kept us dependent on foreign oil and how their irresponsibility has led to this economic crisis.”

I’m certainly no fan of Ms. Pelosi or Mr. Reid. However, as a conservative, by this point in the email I must admit I was shaking my head thinking that the writer of the email was hoping to appeal to a mindset that may be dead. It is dunderheaded thinking that allows us to simply point the finger across the aisle and claim that all the problems have occurred in the most recent Congress, in which Democrats controlled both houses.

Spending money “hand over fist” was one of the primary reasons Republican leaders claim to have lost the majority in the 2006 election cycle. Ironically, this complaint on spending comes from a Congressman whose website proudly lists $700 Million in spending initiatives in the last budget cycle. Moreover, the failure to address looming energy issues has been a problem just as much in previous Congresses over the last decade when controlled by Republicans.

Everyone seems to agree that change is required. I think the change people seek is an environment where politicians admit that they may be as much at fault as the other party and then provide solutions.

Given the fact that most of the issues we face didn’t simply show up in the last two years, I think the proper approach for an incumbent who has served for the last seven years is to be more solutions-minded, showing that the experience counts for something other than having learned to simply shift the blame.