Jan 24

On August 30, 2005, the world lost a great mind, that of Jude Wanniski.

Jude Wanniski

As one of the earliest and most passionate promoters of what would be called “supply-side economics”, Jude would speak to anyone who would listen.  Indeed, in the lead up to the Iraq war, where he was beating the drums about former weapons inspector Scott Ritter’s reports that we would not find any weapons of mass destruction, his unorthodox views cost him friendships.    Jude was ignored, and the Bush presidency became tarred with the events of the Iraq War.  This  served to greatly knock Bush’s focus off of what should have been the nail in the coffin for big government.   It set the stage for a wordsmith like Obama to sweep into power, promising utopia on earth, created by government.   It seemed like the limited-government movement would be back by a generation or more.   Or so we thought…

The first chapter of Wanniski’s 1978 masterwork, “The Way The World Works”, describes Wanniski’s “Political Model” and opens with this summary:

“The political model holds that the electorate is wiser than any of its component parts.

Civilization progresses in a political dimension through the ability of politicians to read the desires of the electorate.  Neither the press corps nor other “opinion leaders” influence the electorate, except in the sense of broadcasting the political menu.  Their influence instead bears on the politicians, who look to opinion leaders for help in ascertaining the wishes of the electorate.  The decline of a nation state or political unit is a sign of repeated failure of the political class to read the wishes of the electorate.  Emigration is a sure sign of relative political failure.  At the extreme, the electorate resorts to revolution, thereby adjusting the political framework and raising to power a new political class better able to read the desires of the electorate.  Modern nation states have built into their political frameworks various safety values that can bring about urgent corrections in the avoidance of violent revolution or war.”

Barack Obama, as he continues to provoke and escalate what could virtually be called a cold Civil War, ignores Wanniski’s sage observations to his steady demise.  Rather than stepping back and acknowledging that Scott Brown’s recent win in Massachusetts’ special election for the late Ted Kennedy’s senate seat is but the latest attempt of the voters to say “No!” to his overreaching agenda, he instead doubles down and promises an even stronger fight.

When Wanniski talks of emigration, it is easy to think of places like Mexico, from which thousands of citizens try to flee each month.   But it should be just as easy to think of California, or New York, or Michigan, all laboratories of big government and all reaping the failures of the policies they have sown.   To now have the voters of Massachusetts emigrate en masse from their tradition of sending a Democrat to the Senate, a seat held by over fifty years by a Kennedy, is nothing short of cataclysmic from a Democratic pollster’s vantage point.   The volume of this message to Obama should cause more hearing damage than Spinal Tap’s amps cranked up to eleven.

As for Wanniski’s talk of revolution, one only needs to look to the followers of Ron Paul and the morphing of that into the Tea Party movement.   Now referred to as “astro-turf” at the peril of the accuser’s reputation, after shocking swings of the voting pendulum in Virginia, New Jersey, Westchester County New York and now Massachusetts, it should be clear that this is one Party that is going to give a wicked hangover to resolute defenders of Big Government.

Come November, we’ll learn whether or not Congress has swung far enough to override a Presidential veto on a Wanniski-style supply-side tax cut.   Simply allowing the Bush supply-side tax cuts to become permanent, rather than expire at year’s end, would substitute nicely.    In the meantime, Obama would do well to head Wanniski’s even larger message:   that no matter how smart of an administrative team he tries to assemble and maintain, it is no match for the collective wisdom of the electorate.    If he realized the latter, he would drop his populist class-warfare and instead pursue an agenda of individual empowerment, rooted in personal liberty.   Doing so might be his only hope for winning a second term, possibly against Scott Brown.

Jan 19

As someone who spent fifteen years at various major Wall Street firms, and nearly my entire twenty-four career to date having a discretionary bonus as a major (and often predominant) form of my compensation, I thought I’d chime in on the recent commentary.

Let me start of by saying that as I’ve written before, failing firms need to be allowed to fail.   Poor management needs to be separated from capital so that capital can find a better steward, and the genuine threat of failure is vital to ensure that proper risk management and operational caution is exercised at every step.   Likewise, I’d agree that for a company to be on the public dole and pay non-contractual, discretionary “bonuses” to any employee would be reprehensible.   That said…

In the fall of 2008, a group of supposedly very smart people decided that our financial system was on the brink of “collapse”.   Never mind for a moment that the long term demand for banking, capital raising and investment management would exist regardless of what particular firms were around to provide those services.  Hundreds of billions of dollars were assembled and in foie-gras style, crammed down the throats of companies that didn’t ask for it (just like the geese).

Firms like Goldman Sachs and JP Morgan have since been pretty clear that although they were sweating it, word of their demise had been greatly exaggerated.   At last Wednesday’s assembly of the Financial Crisis Inquiry Commission, Lloyd Blankfein of Goldman reminded his inquisitors that they had raised substantial amounts of fresh capital, and could have raised more,  prior to having the TARP money put to them, and JP Morgan’s Jamie Dimon stated in a CNBC interview shortly thereafter that they did not need TARP funds to ensure their survival.

It should be no surprise that in the volatile markets of 2009, containing one of the most ferocious upside moves in stocks ever recorded, Wall Street firms were fantastically profitable.    Most of the major Wall Street TARP recipients have paid back their cramdowns with interest, and yet there’s a lot of money left over.  But in an age of record-breaking deficits and politically-stoked class warfare, a demagoguing President Obama eying the money pot has the courage to say “We want our money back, and we’re going to get it”.    Why does he think it’s his money? I’ll also take the bet that you will never hear Obama utter those words to General Motors.   But I digress.

There are sorry parallels between what’s happening with employees of Wall Street firms and the minority communities that are the supposed beneficiaries of affirmative action, another quasi-bailout program with terrible unintended consequences.   Although filled with the best intentions for helping any particular needy minority individual, every person in these groups created solely by skin-color (thus perpetuating the need to categorize ourselves as such — take note of your upcoming census) must now face the occasional (or not occasional) silent wondering of their fellow students or co-workers:  “I wonder if he’s here only because of his skin color”.   That any member of such a targeted group might possibly endure that kind of unspoken criticism is disgusting.

Isn’t the same now possible towards employees in the banking industry?   “Yeah, the new neighbors both work on Wall Street.   I wonder if they’d be buying that house if it wasn’t for TARP?  We so bailed them out, and look at them now.” And a possible response:  “But we didn’t ask to be bailed out, and our departments made money.  We’re not investment bankers — we’re computer programmers.   Not to worry, with our 80 minute commutes and 50-70+ hour work weeks, we won’t see you too often.” I’m not sure it’s equally disgusting, but it is artificially divisive nonetheless.

I like to say that “honest achievement is the root of self-esteem”.   By stuffing money into the Wall Street firms, by having a Federal Reserve that can keep rates so low for so long that it’s hard for banks to not make money, but then railing about it when they do, our government has once again used its power to fracture civil society that much further.   It has now sown the seeds of doubt about that achievement, and with it, the self-esteem.

But what would Obama do with the money anyway?   It would get thrown into the vortex that is our Congress and spent on grand designs that can not work. By contrast, the voluntary spending and investing of Wall Street bonuses is for many regions of the country one of the primary economic engines, with ripple effects literally worldwide.  Ask the waiters at the Manhattan steak houses what they think of Wall Street bonuses, or the car dealers, or the home improvement contractors, or the real estate agents.    Ask them if they’d rather have some derivative scrap of a nanny-state program, fought for by political gamesmanship, or a bunch more customers fueled by Wall Street bonuses.

Obama’s problem is that he can not get away from the Wall Street vs. Main Street rhetoric.   When will he and his disciples own up to the fact that it’s all the same street? Something tells me that Obama and his staff, let alone much of Congress, have never read Leonard E. Read’s short but brilliant classic, “I, Pencil”. It’s never too late.

The more Obama and his ilk pursue the sort of vindictive, utterly unpredictable legislative and public-relation campaigns against Wall Street’s top earners, the more these earners will simply pull a John Galt and say, that’s it, it’s not worth it.   They won’t retire.  They’ll simply form or join private organizations that will do everything the public organizations do, but with the exception of not playing in the public arena.   And if we can assume that there is at least some correlation between compensation and talent, then by extension, returns in which the general public can participate will go down, while a separate caste of privately-accessible returns will increase in scope.   Civil society’s splintering will be furthered once again.

One of my most lasting lessons from college was an ex-Westinghouse executive-turned-professor describing the concept of a big company holding up a “price umbrella” for other smaller, more aggressive companies to get under.   Here we have our government calling out a supposed price umbrella.  So by extension, there would seem to exist an opportunity for one or more companies to swoop in and steal all of the customers being over-charged by these overpaid Wall Street types.   It isn’t happening.

In a recent column, John Tamny wrote the following:

So far, however, “discount” investment-banking firms and traders have yet to reveal themselves in a substantial way. That said, if what Wall Street’s myriad critics say is true about its employees being overpaid, it seems there’s a very real and enriching opportunity for these same critics to put up or shut up. If investment banking and trading are really as easy as they suggest, here’s their chance to prove it.

To those critics:  Please “put up” and prove your case.   Then spend the profits any which way you’d like, if they haven’t been confiscated first.

Jan 04

There’s no telling what legislative debacles await our country over the next year, until the new class of 2010 is sworn in and Obama’s ability to implement his remake of America comes to a screeching halt.   In the meantime, we can suggest a few resolutions for Congress and our President, or at least aspiring candidates, to consider:

We will not give away that which we do not own. As we come out of the Christmas season, we must realize that while Congress loves its adopted role of Santa Claus, it is not a role that is found in the Constitution.    Adopting this resolution would nearly single-handedly restore the government to its original limited purposes, as prior to “giving” something to anyone, Congress must first take it from someone else.   And in one fell swoop, government would become dramatically cheaper as well.

Alas, there are not nearly enough elves in Washington or anywhere else to create all of the “toys” that society has lobbied for.  But even if somehow there were, why have we tolerated a bunch of politicians and bureaucrats determining who is naughty and nice, delivering stimuli, redistribution and favors to the latter, and coal (not even “clean coal” at that) into the stockings of the former?

We will not “triangulate” our national security. Ah, imagine the calculus that screamed in the backroom meetings about Afghanistan…. How many votes do we lose if we stay? Who do we gain if we appear tough?   How blatantly can I ignore my field generals?  Osama bin Laden is on record that 10 million dead infidels, which includes both conservatives and liberals — the enemy does not care — would be an acceptable goal for their cause.  Meanwhile, we offer full Constitutional courtroom rights to self-admitted wartime terrorists.   Just what are we thinking?

We will make the “death tax” permanent. Could there be a more blatant act of class warfare and demonstration of the Politics Of Envy?   Wealth accumulated through a lifetime of work and saving, wealth on which taxes have already been paid, is taxed again because supposedly the government can redistribute the wealth more efficiently that those that created it.   How is it that we tolerate the transfer of wealth from those with the best track record of creating it, to the entity with the best track record of squandering it?

We will repeal Obamacare. Or whatever it’s ultimately called.    In a spectacularly stupid tactical maneuver, the Democrats have both a) followed a path of ramming through legislation that no poll can describe as being wanted by the American people, and b) structured the financial pain of the plan to come before the supposed gain.   This sets up a massive opportunity for those running in the 2010 elections (and probably 2012 as well) to run on a campaign cleanly targeted against the Democrats and tapping into the public’s disgust for government waste and overspending by selling the repeal of Obamacare as a cost-cutting measure.

Furthermore, if they have the spine not displayed for the last several elections, they’ll aggressively market a health insurance reform plan centered around Health Savings Accounts, true nationwide competition between insurance companies, malpractice reform, and directly addressing the uninsured.  In other words, a plan that will cost a tiny fraction of Obamacare, but more importantly, will actually be successful in driving down the rate of inflation in medical spending.     Why?  Because where HSA’s are being adopted, that’s exactly what’s happening.

The bottom line on Obamacare is that it simply can not work, because there are no elements in the plan that give any incentives to individuals to seek less medical services.  Indeed to the contrary, it will dramatically increase those demanding medical care without correspondingly increasing the supply of service providers.    The existing on-the-road-to-bankruptcy plan that is Medicare is being held up as a model to emulate, which would simply be laughable if it weren’t so outright dangerous.    But hey, this is consistent with the rest of the Obama administration’s thinking:  Identify the cause of a major sociological problem and then do more of it.

We will not sit idly by as a politically active minority transforms the character of our country. In other words, the giant that is a nation that still leans conservative will not stay asleep any longer.   It is obvious what happens when that takes place:  It sets up the stage for a demagogue like Obama to tap into a fawning national press corps and sweet-talk himself into office, promising the world (or “change”) to any and all supporters/worshipers along the way.

Instead, we will vote in record numbers and shut down the attempts to overturn the defining characteristics of our society, namely, limited government centered around freedom in all forms.    We will no longer watch the irony of formerly communist countries like Estonia racing towards freedom while we race away from it.   We will return to our global role as a country that leads by example, one that recognizes God-given liberty as the most effective way to improve the condition of mankind.

Lastly, we will actively encourage and support politicians who support the above. We will donate our time and resources to ensure that they are elected to office and hold them accountable for promoting true change in the form of reducing the size and role of government in our lives.    Likewise, we will have the courage to tell those who promote the opposite, in no uncertain terms:  You are wrong.

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