During Grover Cleveland’s eight years in the presidential chair, he confronted national problems nearly identical to those America faces today. There are numerous issues with striking similarities, but the three major ones stand out above all others are – the economy, paternalism, and foreign affairs.
Anders Zorn [Public domain], via Wikimedia Commons
The United States began its existence as an independent nation during a pitched battle over what direction the federal government should take and which party – the Hamiltonian Federalist or the Jeffersonian Republican – would rightly carry the banner of the American Revolution. This first ideological fight took place in President Washington’s Cabinet, which found itself torn between Secretary of the Treasury Alexander Hamilton and Secretary of State Thomas Jefferson. The philosophical clash that began in 1789 continues today.
Hamilton’s arguments prevailed during both the Washington and Adams administrations, but Jefferson struck back with a great victory in 1800 and stopped the Federalist onslaught. The nation was governed, for the most part, by Jeffersonian principles for the next sixty years, and, despite some historians’ beliefs to the contrary, Hamilton’s entire big government program was eventually repealed.
However with Lincoln’s election in 1860 – Old Abe being from the school of Hamiltonian thought – and the secession of the Jeffersonian South, the Republican Party re-instituted all of Hamilton’s ideas – a strong central government, a national banking system, fiat currency, high tariffs and internal taxes, direct aid to corporations, loose construction of the Constitution, and suppression of civil liberties, with little opposition. Continue reading
Politicians, pundits, and scholars have wrestled over a central question throughout American political and constitutional history: What role should the government have in the lives of ordinary citizens?
For Jeffersonian Conservatives, such as Grover Cleveland, the government has no business involving itself in areas outside its limited, constitutional role, and should never take a position as a “custodian;” the people should be free to pursue their own dreams without government interference, to rise as high and as far as their God-given talent, abilities, and determination will carry them. Success or failure depends on the individual.
Some liberals on the other side of the political spectrum believe the government should play a vital role in the lives of the people, from cradle to grave. They believe the lowly masses cannot take care of themselves. For Democrats, government must step in and take up the role of caretaker. As Nancy Pelosi said in 2011: “I view my work in politics as an extension of my role as a mom.”[i] This progressive viewpoint is known as government paternalism, and has been defined as “a policy or practice of treating or governing people in a fatherly manner, especially by providing for their needs without giving them rights or responsibilities.”[ii] Continue reading
“Recessions are common; depressions are rare,” writes Nobel Prize-wining economist Paul Krugman in a recent New York Times column.
Though historians judge otherwise, Krugman believes, “as far as I can tell,” that there have only been two depressions in American history, “the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-1931.” Current conditions, he notes, might just bring on the “third depression.”
Krugman may be an economist of note, but a historian he is not. He certainly cannot tell very much.
Major economic depressions, called “panics” in the 19th and early 20th centuries, occurred in approximate 20-year intervals throughout American history – 1819, 1837, 1857, 1873, 1893, 1907, and 1929. There have also been numerous recessions on a much smaller scale, especially in the 20th century.
Why do we have periodic panics and economic disruptions? They are simply economic storms, not unlike meteorological ones.
In a borrowed line from the Hollywood film, The Day After Tomorrow, Dennis Quaid’s character, Professor Jack Hall, explains the workings of a physical storm: “The basic rule of storms is that they continue until the imbalance that created them is corrected.” A great line that can accurately explain economic tempests.
Most of the depressions in our history have been caused by imbalances in the currency.
Too much cheap money and lax credit have been the chief faults in causing many economic storms, as is the case with our current mess. Too much money and too much credit cause reckless speculation, which leads to over-expansion and over-valuation. The economy can only take so much. Eventually the bubble will burst, as it did in the fall of 2008 with land and home values, causing millions to go under.
Two 19th century panics, in 1837 and 1893, can also be attributed to imbalances in the currency.
A massive panic struck in 1837, the first year of Martin Van Buren’s presidency. Andrew Jackson had waged war on the Bank of the United States, killing the renewal of its re-charter in 1832. To further weaken the bank, the president withdrew the government’s deposits, placing them in smaller state banks, called “pet banks.” These banks, flush with substantial amounts of cash, began loaning it to businesses and individuals as fast as possible. All the new money, along with cheap credit, led to wild speculation, mainly in land, causing the values to soar. When the bubble popped in 1837, it sent the economy crashing.
Van Buren faced mounting pressure by his Whig opponents to raise tariffs and taxes, as well as federal spending, particularly for internal improvements projects like roads and harbors. The president resisted and, instead, cut expenditures by 21 percent. The economy recovered, though not quite in time for Van Buren to be re-elected.
In 1893, the nation suffered the worst panic up to that time. The government, in 1890, had passed a law to purchase all of the domestic silver supply each year, up to 4.5 million ounces. To make the buy, the Treasury issued new Greenback notes, redeemable in gold. The new paper notes, along with all the new cheaper silver, flooded the country. The money caused a massive boom period that saw unemployment drop to just 3 percent. Every sector of the economy seemed to be doing well, even farmers.
With the over-expansion, namely in railroad building, the bubble popped in 1893, and by 1894 the unemployment rate reached 18.5 percent and the economy had contracted by nearly 10 percent.
But within two years of the economy bottoming out, President Grover Cleveland, called “the Ron Paul of his day” by economist Tom DiLorenzo, employed conservative policies and oversaw an economic expansion. By 1897, the year he left office, the economy had grown by 20 percent and the unemployment rate had been slashed to 14.5.
In both cases, 1837 and 1893, the federal government stayed out of the storm and allowed the economy to correct itself, making the crisis short-lived. This is the reason Krugman does not include 1837 and 1893 in his analysis of depressions. They were so short that they could not possibly qualify, at least in his way of thinking.
But the reason earlier depressions did not last long is because the president overseeing them did not use a Paul Krugman remedy – massive government spending. Krugman, a Keynesian economist, is so convinced that using government spending as an effective economic stimulus that he criticized Obama’s spending plan as too small. Krugman wanted a stimulus bill twice as large as the $787 billion plan passed in the early part of 2009 and is, even today, pushing for more government spending.
Earlier Americans believed in using laissez faire methods rather than spending. President Martin Van Buren used retrenchment – the cutting of taxes and spending. President Grover Cleveland, in 1893, stopped the inflation, reduced tariffs, and sliced expenditures.
By contrast, FDR used the Krugman solution, and as a result, the depression worsened and lasted until the 1940s. In fact, the Great Depression did not abate until after the war. It was not until Congress cut personal and corporate taxes in 1945, and discontinued price controls in 1946 that the economy revived. True economic growth began producing surpluses, which had not happened since 1930, and brought unemployment down to less than 4 percent.
The nation faces two choices – the Roosevelt-Krugman-Obama remedy, or the policy of Van Buren-Cleveland-Ron Paul. Let history be the judge.
It seems every time Democrats are out of power and seeking to regain the White House, the United States just so happens to be in the “worst economy since the Great Depression.” Barack Obama has been no different. Yet its funny how Democrats conveniently forget about the Carter years, when we experienced double digit inflation, unemployment rates, and interest rates, forcing us to drag out the old misery index. We haven’t quite reached that point as of yet.
But there’s little doubt we are in a tough spot and certain sectors, like the banking and housing industries, could very well end up in the worst shape since the 1930s. And without the right dose of medicine we could slide into a new depression.
Senator Obama’s prescription, however, is a recipe for disaster. Major tax hikes and massive doses of big government spending have only served to drag out, and even worsen, economic distress. And we need only look at the Great Depression and FDR’s New Deal to see why Obama’s plan will take us down the same road.
First, it must be noted that, despite the best efforts of academia, the New Deal did not get America out of the depression; quite the opposite. It actually made it worse, or as Amity Shlaes writes in The Forgotten Man, the federal government “made the depression great.”
FDR ran for president in 1932 against the hapless incumbent, Herbert Hoover. Roosevelt stuck to more traditional Democratic campaign themes, relentlessly attacking the Hoover administration for overspending and not balancing the budget. FDR promised a return to these basic policies, the bedrock of Democratic economic thought for more than a century.
But once in office, all that went out the window, an all-to-familiar Democratic scene. FDR set out to implement his New Deal for the American people, and the government was quickly transformed. A host of new programs were enacted and new bureaucracies created to administer them. Washington assumed a wealth of new powers, all to fight a global depression that put one in four workers in the United States out of a job.
Did it succeed? Hardly. An unemployment rate of 25 percent during the depression’s height never dipped below 14 percent during the 1930s and continued to hover around 10 even after the military buildup began in 1941.
How did the mighty federal government fail so miserably?
Both Hoover and FDR committed a major economic no-no by raising taxes in the midst of an economic downturn. Under Harding and Coolidge the top rate had been sliced to 25 percent from Wilson’s wartime rate of 70, when the nation was in the midst of a serious recession after the end of World War One. Hoover raised it to 63 percent in 1930, then FDR upped it to its record level of more than 90 percent. Corporate taxes, excise taxes, and estate taxes all went through the roof.
New taxes were also placed on both workers and employers with the implementation of Social Security in 1935. This caused a crippling blow by placing additional burdens on workers, who needed all the money they could earn, and employers who now had to budget more for each worker, limiting the capital that could have been used in production or to hire additional hands.
According to Jim Powell, in FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression, the federal government also enacted a new anti-trust law, the Robinson-Patman Act in 1936 and launched 150 anti-trust lawsuits, further hampering business. The National Industrial Recovery Act kept prices high and actually jailed people for trying to cut them. And, like a good, modern Democrat, FDR more than doubled federal spending and issued more an unprecedented 3,728 executive orders, all in the name of fighting a national emergency.
With all this government intervention, is it any wonder the economy struggled to regain its footing? Now Senator Obama just might be following in FDR’s footsteps, as his “change” message seeks government solutions for all of our economic ills. But in this instance, “change” means “socialism.”
Barack can’t say this, however. So, much like FDR’s campaign rhetoric, Obama, moving to the center since gaining the nomination, now offers a few popular, and even sound, fiscal policies. One such proposal is a middle class tax cut to those making under $250,000, the new Democratic definition of rich. This “tax cut” will apply to 95 percent of Americans, but since more than 30 percent pay no federal income tax, the only way that could work is by giving out checks every spring to those who did not earn the money. Like earned income tax credits, its simply another welfare program in which the Democrats are using to buy votes.
Another recent Obama proposal is a “net spending cut,” which he does not bother to detail with any specifics, probably because there are none. There can be no net spending cut while proposing a national health care plan, a “green” jobs program, increased education spending, and other expensive goodies.
This tactic of campaign in the center but govern on the left has become standard Democratic jargon, right out of the Clinton playbook, in order to gain voters in a skeptical Middle America. But like Clinton, Obama will not deliver on any of these center-right proposals. Bill Clinton during his 1992 run promised to “make the rich pay their fair share” and not to raise middle class taxes. But once in office, Clinton gave us the largest tax hike in American history. Obama and the Democratic Congress will likely follow suit.
Most of the Obama plan is not change, just more of the same. He favors a near-doubling of the capital gains tax to 28 percent. At a time when we need more capital pumped into the economic system, a President Obama will take more of it out to feed the federal appetite. This will only serve to restrict investment and reduce federal tax revenue. But, as he stated in a debate with Hillary Clinton during the primaries, it’s a matter of “fairness.” In addition, he has also proposed lifting the cap on Social Security taxes, taking another serious bite out of the investor class.
Obama has also relentlessly attacked corporations as “unpatriotic” for moving production overseas, yet has proposed no solutions to the sky high tax rate of 35 percent, the second highest in the world, and the crippling regulations that border on the ridiculous and cost corporations billions per year. And since Democrats are big fans of anti-trust, we might expect the Obama Justice Department to go after these evil, “unpatriotic” job-creators, the way Bill Clinton did. Like Hoover and FDR, Obama has proposed new tariffs at a time when the free-flow of goods is essential for economic growth. Sky-high tariffs are tantamount to higher income taxes during a recession. Not a good idea.
Obama has recently stated that he opposes a federal spending freeze, which John McCain supports, and he has plans to spend nearly a trillion dollars in one of the largest expansions on record. But like FDR’s attacks on Hoover, Obama has lambasted the Bush administration for running a $500 billion deficit.
Yet the actual deficit is over $600 billion, when you add the surplus Social Security revenue that is spent every year as general funds. The government never counts this as debt, so as to make the number much lower than it actually is, but rest assured it is added to the National Debt. Analysts are even predicting the deficit to be in the neighborhood of $1 trillion by 2009, without any new spending. That, coupled with Obama’s spending spree, and our fiscal problems quickly become nightmarish.
Are we to believe that Obama can institute this massive spending plan and balance the budget by taxing only those making over $250,000 a year? It can’t be done. He is either lying about his tax plans, which is a good bet given his track record, or he cares nothing about the deficit or the debt, also a possibility. And its probably both.
But despite the fact that all this has been placed in the public eye, Obama still leads in the polls, albeit by the slimmest of margins. It is difficult to believe why 48 to 50 percent of Americans are backing a candidate who is using fancy slogans and slick speeches to promote socialism. They are voluntarily enslaving themselves to government. This is not America, the “empire of liberty” our Founders envisioned. Let us hope enough Americans still believe in the ideals of the Revolution to halt the most dangerous candidate and the most perilous campaign in our history.
Since the economic meltdown began, we have been treated to an overwhelming dose of Big Government in recent weeks. President Bush has already signed two bailout bills totaling over $1 trillion and the Fed has been busy pumping hundreds of billions more into banks and mortgage companies in the hopes of staving off disaster.
But where will all this money come from and when does the madness stop?
And none of this has been lost on the presidential candidates, as they have gotten in on the act. Barack Obama promises massive increases in government spending and has no plans to scale back his proposed spree one bit. He is still planning big tax hikes and big programs despite the problems.
McCain, rather than being the Anti-Obama, has joined the chorus, also proposing government solutions to the crisis. His $300 billion plan for failing mortgages sounds like something right out of the socialist playbook. And with his support of the latest bailout, at a pork-filled $850 billion, McCain has now lost all credibility on his opposition to overspending and earmarks.
With these two, it seems that limited government and the republican ideals of the Founders are dead, maybe forever. This financial crisis puts us on a dangerous slippery slope, to the dark valley of socialism.
During the 19th and early 20th centuries, the American economy also endured financial panics, as they were called then, in approximate 20-year intervals – 1819, 1837, 1857, 1873, 1893, and 1907. The Fed was created in 1913 to end this “boom-bust” cycle, which we know hasn’t happened. But even though many of these early depressions were severe, they did not last long, precisely because American statesmen let the market regulate itself and did not interfere with an infusion of government bailouts.
But since Woodrow Wilson and the Progressive Era, the ideas of laissez faire capitalism have been shelved, with the exception of the Harding-Coolidge years when a harsh post-World War One recession was overcome in months with a hands-off approach.
During the severe economic crises of the 1920s and 30s, various governments responded in a variety of ways, all using government power to some degree. Let’s briefly examine two – Germany and the United States.
After World War One, Germany was in a state of financial chaos. The Allies imposed a massive reparations plan that would require the Germans to pay for the total cost of the war, with installments lasting until 1989! The German economy was buckling under the pressure. So in the hopes of alleviating the strain, and to make their payments, the German government, under a new, and foreign, republican system, cranked up the printing presses. As a result, hyperinflation set in.
Whereas the German Mark was pegged at 4 to 1 against the dollar in 1921, by 1923 it was several trillion to 1. People were literally using a wheelbarrow full of money to buy a purse full of goods. Lifetime savings were wiped out. There are stories of German families actually burning paper currency in wood stoves because it was cheaper than using the worthless money to buy firewood. These conditions allowed tiny fringe parties, like the little-known Nazis, to gain widespread support.
When the global depression hit in the late 1920s, the United States responded, initially, with the opposite approach, by tightening up its money supply in what the late great Nobel laureate Milton Friedman calls “the great contraction.” By FDR’s first year in office, the Fed had pulled a third of the money out of circulation, and that coupled with the massive New Deal programs, which further hampered the economy with higher taxes and oppressive regulations, its little wonder the economy struggled throughout the decade to regain its strength. A crisis that started in 1929 continued to see unemployment at nearly 10 percent on the eve of Pearl Harbor, despite a major military buildup.
Government stepped in to tackle the problems in both countries, and in each instance government failed.
Our current mess is not so much a financial crisis but a crisis of stupidity. It is not, as the leftwing press headlines, a failure of capitalism. Borrowers stupidly took out mortgages that they could not afford and banks and other lending institutions stupidly loaned the money, in many cases pushing prospective homebuyers into even bigger houses. Now the government is stupidly intervening in the hopes of cleaning up the mess, a mess it has a part in. Washington is asking hardworking taxpayers to step in and pay for the stupid on Wall Street and the irresponsible on Main Street.
This is the wrong approach. The federal government must stay out of the crisis and allow the market to correct itself. These troubled banks and mortgage lenders must be allowed to fail. Taxes on capital gains and retirement plans, as well as other government restrictions on success, must be ended. Only then can the economy regain its footing on a sound basis, not one propped up on a house of cards.
As Newt Gingrich has recently written, we are like someone who continually mops up water as it pours in from a leaky roof, but will not fix the roof, or even admit there’s a problem. If this isn’t stupidity, I don’t know what is.
The future of U.S. trade policy is likely to be a central issue in the 2008 presidential campaign, as the question has already appeared in almost every debate this election season. And it couldn’t come at a better time, as the economy may be entering a very serious slowdown and our current trade policy is a main culprit.
For the past quarter of a century, the United States has been in a free trade frenzy, cutting every conceivable deal that can be made, regardless of what it does to our industrial base and our workers or whether or not our “partners“ live up to their end. This process has been greatly accelerated under George W. Bush, as he has attempted to extend NAFTA throughout the Western Hemisphere. And when that failed, he has quietly been assembling all the pieces one at a time.
And what has Bush’s free trade policies gotten us? Over three million manufacturing jobs lost; a deficit with China of more than a $1 trillion since 2001; and a monthly trade deficit of $62 billion, as of February 2008, double what it was when he took office in January 2001. Today our deficit is running over $700 billion a year.
What does a trade deficit mean? I’ve heard many economists say it doesn’t really matter that much but it does. In fact, before he retired, Alan Greenspan had become very concerned with the rising trade deficit, calling it “unsustainable.”
Running a deficit in trade simply means we are importing more than we export. As these foreign goods flow in, our dollars flow out to pay for them, and a lot of that is borrowed from the very ones we buy from. Over $5 trillion has flooded the world market since 1992. China, for example, holds several trillion dollars in U.S. currency reserves, threatening to dump them on the world market if we attempt any retaliation, which would totally collapse the dollar. But the dollar is slowly devaluing precisely because we have so much of it in circulation here and abroad. It’s simple economics, the law of supply and demand. Trillions flowing out and that coupled with the Fed’s loose money policy, there are simply too many dollars in circulation.
To his credit, Bush has acted on a few occasions to institute corrective action when industries are imperiled by these trade deals, but its usually too little and at the first sign of resistance he bails. Remember the steel tariffs that were supposed to last 3 years? After a little more than a year of European barking, the president removed them. So his “protectionist” measures seem to be more politically-motivated than any true desire to aid American manufacturing.
In a move reminiscent of this, his administration, last week, imposed a 5 percent tariff on imported cotton socks from Honduras that will remain in effect from July to December of this year. Since passage of the much-touted Central American Free Trade Agreement, Honduras, following the path of other nations that have seen their tariffs dropped as a result of American generosity, began dumping socks into the U.S. market, an increase of nearly 100 percent over the past year that severely hurt the textile industry, which has already taken a serious beating from China.
American sock manufacturers requested a tariff of 13.5 percent and felt the 5 percent rate was much too low. The executive director of Made In USA Strategies called the action “pitiful.” I would agree but it is good to see that some action has been taken though free traders are likely to scream protectionism, the new dirty word.
Protectionism, however, is as American as baseball and apple pie. Academic economists rail against protectionism and mercantilism but Britain dominated the world economy using these practices for more than a century. America did likewise, eventually surpassing Britain in economic output by the turn of the 20th century. Both nations lost their lead and began a slide downward only after dumping protectionism for a policy of free trade. In fact, the great Asian economies of today – the emerging Asian Century – were built, and are growing, with protectionist policies. Yet the only argument free-trade economists have in response to these facts is that our great economic boom from 1860 until 1945 occurred despite protectionism!
And if protectionism does not work, why then does the GATT rules allow exceptions for developing countries to impose tariffs and other restrictions? Why is it that foreign nations scream the loudest when we impose protectionist measures if such measures only hurt ourselves? The fact is protectionism does work and global free trade is not about building strong national economies. It’s about global socialism.
Ronald Reagan, the great conservative, used real protectionist methods to great effect, particularly against Japan. He slapped tariffs on motorcycles to save Harley Davidson as well as imposing import quotas on steel, machine tools, and cars. These actions did not hurt the American economy but helped strengthen it and save those vitally important industries.
But many elites in this country, of both parties, are in favor of uninhibited free trade. Victor Davis Hanson, famed military historian, recently wrote that “a traditional [classical] liberal position would be to defend free trade that lowers prices and increases choices for poorer American consumers — while helping foreign economies catch up with the United States.” Helping foreign countries catch up! Sounds a lot like socialism to me. We transfer our wealth, technology, and jobs to poor foreign nations out of the goodness of our hearts while we get nothing but some cheap junk! Perhaps Professor Hanson should stick to military history as a profession.
In the current presidential campaign both Democratic candidates have expressed concern over free trade policies and a desire to re-negotiate agreements that have not been in America’s best interest. But as we have seen recently, both the Obama campaign and the Clinton camp have tried to re-assure our trading partners that it is only political rhetoric and no change in American trade policy will be forthcoming under a new Democratic administration.
Bill Clinton acted in precisely the same manner, supporting fair trade in his campaign in 1992, vowing to “stand up for American workers by standing up to countries that don‘t play by the rules of free and fair trade.” But during his administration Mr. Clinton negotiated NAFTA and the GATT treaty which have been very harmful to American workers and the overall economy. Furthermore he promised to “reevaluate” Most Favored Nation status for China, a designation that Congress had to approve each year. But after re-naming it Normal Trade Relations, so it didn’t sound so threatening, Clinton made it permanent in 2000, undoubtedly a payoff for all the illegal money that poured into his re-election campaign in 1996.
So given President Clinton’s track record, and seeing the current campaigns employ similar tactics with regard to trade, we can’t realistically expect any different from Hillary or Barack. Most of the Democratic Party, because of Bill Clinton, is now tied to free trade.
John McCain, however, is steadfast in his support of free trade and unapologetic in its defense. The Republican nominee has voted in favor of every free trade deal proposed in Congress and has a 100 percent free trade rating by the Cato Institute’s Center for Trade Policy Studies.
In a Republican debate last fall in Michigan, McCain made some very outrageous remarks regarding U.S. trade policy. “I’m a student of history,” he boasted. “Every time the United States has become protectionist…we’ve paid a very heavy price.” What price have we paid, Senator? The years of our highest protectionist policies have also been the years of our greatest economic growth.
The Senator continued the history lesson. “The Smoot-Hawley Tariff Acts in the 1930s were direct contributors to World War II.” This is another laughable liberal talking point. Al Gore made a similar remark to Ross Perot in their 1994 debate on NAFTA. But it is a totally false assertion and is really nothing more than fear-mongering to suggest that a tariff passed more than eight months after the stock market crash in 1929 and nearly a decade before Hitler invaded Poland caused the greatest war in world history! Oh, and by the way Professor McCain, Smoot-Hawley was only one bill, not a series!
During the same debate McCain got into an exchange with Ron Paul on economics, which is not advisable given the fact that McCain has already stated on multiple occasions that the economy is not his strong suit. He dished out some advice that he should take himself. “Everybody is paying taxes and wealth creates wealth. And the fact is that I would commend to your reading, Ron, Wealth of Nations, because that’s what this is all about.” Senator McCain has obviously not read Adam Smith’s major work for if he had he would not have the views on trade that he espouses.
For instance, McCain told an audience in Des Moines in December that he would “open every market in the world to Iowa’s agricultural products.” But how can you do this? Through negotiations of more free trade deals? That is precisely what we’ve been doing! Politicians have promised open markets in exchange for access to ours but that is not what has happened. Many foreign nations have continued to keep their markets closed to American products. Adam Smith wrote of his solution in The Wealth of Nations, which McCain obviously has not read. “Revenge in this case naturally dictates retaliation, and that we should impose the like duties [tariffs] and prohibitions [quotas] upon the importation of some or all of their manufactures into ours….”
Senator McCain has had several opportunities to vote for bills in the Senate that would impose Smith’s policy of retaliation for closed markets but chose not to support them. For example he voted against a bill that would have imposed sanctions on Japan for restricting American automobiles and car parts in 1995. In 1999 McCain told the National Press Club why such a policy was wrong. “Embracing protectionism here to retaliate for it elsewhere is akin to a murder-suicide pact, and we should resist the temptation whether the product in question is bananas or sugar or steel.” So much for Adam Smith and The Wealth of Nations.
This is precisely why true conservatives cannot listen to a guy who says economics is not his strong suit.
The fact is our industrial base, the great “arsenal of democracy” that won both world wars, is steadily deteriorating. It is eroding because we are not protecting it and are leaving it vulnerable to foreign predators. Today we could not duplicate the industrial might unleashed during World War II. All the industrial losses at Pearl Harbor could be replaced in just a few days! The American army, built to take on Germany and Japan, would eventually reach 90 divisions. By contrast, the Soviet Union would build 350 divisions to fight Hitler. The U.S. industrial economy, however, could produce enough materials to build and fully equip 1400 divisions! More could be produced in a month in the United States alone than could be produced in Russia in one year! It would not pay to fight America. But could we do this today? Not even close!
Senator James Webb of Virginia, former Navy Secretary under President Reagan, has recently expressed to World Net Daily editor Joseph Farah his concern that our industrial capacity has eroded to the point that it will be difficult to maintain our naval strength, a situation Webb calls “pretty precarious.” This is truly a scary thought. Adam Smith would agree and recommend imposing a “burden” on foreign imports that might threaten an industry “necessary for the defence of the country.” Mr. McCain would not. But how can you stake your campaign on protecting the country from terror but when it comes to protecting our industrial base then you say it is wrong? It makes no sense to me.
Webb is also concerned about China and our reliance on that Communist nation to fund much of our debt. “We basically have allowed the country [China], which potentially is our greatest strategic adversary, to also become our banker. That’s an uncomfortable situation to be in.” But certainly not for McCain. In the Dearborn, Michigan debate, he had this to say about the situation with China: “It sounds like a lot of fun to bash China and others, but free trade has been the engine of our economy. Free trade should be the continuing principle that guides this nation’s economy.” So we will just stand by and let them overtake us! Good strategy, Senator!
But Webb is right and McCain is dead wrong! Our current fiscal troubles would be like a family who owns a large home, with a great pool, immaculately furnished, dressing in the finest attire, driving the latest expensive model cars, owning many “toys” like boats and ATVs, and taking extensive vacations every year, but being in debt up to their eyeballs, including multiple credit cards maxed to the limit. So, in reality, how wealthy is this family? Not very! Their wealth is false, being debt-driven and financed. They are one catastrophe away from bankruptcy.
Our nation is in the exact same boat. Our economic growth is not real but false. We borrow huge sums of money every year from foreign nations, like China, to buy goods they manufacture and export to us. We have become a consumer collective and little else.
Whereas we were once the world’s greatest creditor nation, now we have become the globe’s leading debtor, all because we listened to a bunch of politicians tell us it was good for us! And many of these are like John McCain, not understanding history or economics.
But John McCain’s hero, Theodore Roosevelt, certainly did. TR didn’t think too highly of free traders, who he believed were nothing more than “professional counselors who have confined themselves to study in the closet” but the “actual working of the tariff has emphatically contradicted their theories.” Doesn’t this sound like a perfect description of those academic economists showcased almost daily on the cable news networks? “These forty odd years have been the most prosperous years this nation has ever seen,” TR wrote, “more prosperous years than any other nation has ever seen. Every class of our people is benefited by the protective tariff.” To Senator Henry Cabot Lodge he wrote in 1895, “Thank God I am not a free-trader. In this country pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fibre.” If only McCain believed as TR did.
Listening to these “professional counselors” explain why free trade is good is to hear how consumers benefit from cheap imports. That seems to be the overriding consideration. But should it be? What does it matter if we have cheap foreign imports but lose our major industries and the bulk of our good paying manufacturing jobs? And, as Adam Smith noted, industry is vitally important to national security and should be protected. Our Founders understood this well, as did the great statesman Henry Clay. “If the governing consideration were cheapness, if national independence were to weigh nothing; if honor nothing; why not subsidize foreign powers to defend us; why not hire Swiss or Hessian armies to protect us? Why not get our arms of all kinds, as we do, in part, the blankets and clothing of our soldiers, from abroad?” Would anyone logically want to see our nation defended by foreigners? The answer is obvious.
“No athlete ever consumed his way to an Olympic medal,” writes Pat Buchanan, “and no nation ever consumed its way to greatness or prosperity.” But that is America’s attitude today, a materialistic society, increasingly narcissistic, with no regard for the future. This mindset has turned us into economic slaves, for we are but a colony, as Buchanan has written, a “colony of the world.” For the empires of old, colonies served several purposes, but the main reasons were for a source of raw materials and a market to sell manufactures. We fit this bill perfectly.
We must soon begin to reverse the trend or all may be lost. And we must do it smartly. Blindly, and stupidly, throwing up a bunch of high protective tariffs to try and correct the problem might make it worse. Tariffs are not the only means available to us. Reagan used quotas and other import agreements to great effect. Enforcing anti-dumping laws already on the books would also be a great help.
But we also have to aid our business community, not denigrate them. Corporations outsource for a variety of reasons, but the main two are high taxation and over-regulation. U.S. corporate tax rates are an outrageous 35 percent, higher than those in Europe, and unnecessary regulations are extremely costly and burdensome. We should slash corporate taxes in half and rid the stranglehold of regulation. This would give corporations more incentive to invest here.
A traditional 20 percent revenue tariff would bring in hundreds of billions in much needed funds, which could be used to cut corporate taxes and eliminate them altogether on small businesses. Higher tariffs should be imposed on a case-by-case basis. To help corporations stay home, taxes on capital gains, dividends, and savings should be abolished. This would greatly increase investment.
These policies would allow us to create new, high-paying industrial jobs here at home where they are sorely needed. I refuse to believe as McCain does that these jobs aren’t coming back. They can with the right policies in place but will continue to leave our shores with the wrong ones. We’ve seen this for far too long and its time to elect a president who will, in Warren Harding’s words, “prosper America first.”
This week we received more disturbing news on the current state of energy prices, as the price of a barrel of crude reached an all-time high of $118.00 on futures trading. At the same time our so-called friends, the Saudis, announced that they have placed on hold any plans to increase oil production, which would help bring down the price. Gasoline also reached an average national high of more than $3.50 a gallon, and many are expecting it to reach more than $4.00 a gallon, with $5.00 a possibility this summer in certain parts of the nation. Politicians in Washington are searching for answers but as usual are clueless.
Yet the solutions to our problems are not in some fantasy utopian world, where we can all run our cars on some mysterious clean-burning fuel, but in the past when we did whatever was required to strengthen our economy and benefit America. And in those days we never listened to extremists tell us it was beneficial to dismantle our economy on flimsy science.
American economic power skyrocketed in the decades after the War for Southern Independence. Before the war, the United States was a second-rate power but by the end of the century America dominated the global economy, producing nearly a third of the world’s manufactured goods, as well as taking a leading position in mining and agriculture.
How did the United States transform itself in such rapid fashion? Well there are several factors, including the imposition of a protective tariff and the lack of oppressive taxes and regulations. But an often overlooked reason was the availability of cheap energy. Industrialization and robust economic growth require vast amounts of energy. And the man responsible for supplying most of it in the 19th century was John D. Rockefeller and his Standard Oil Company.
Rockefeller has been labeled by most historians, along with other entrepreneurs of his day, as a “robber baron,” a shrewd, cruel capitalist concerned only with enriching himself at the expense of the poor, working classes. Although this was true for some, it was not the case with Rockefeller. He was a superb businessman and incredibly efficient, seeking to make high quality petroleum products cheap and readily available for every American. He did it the right way, with brains and brawn, the way America was meant to be.
There are, according to Burton Folsom in his book The Myth of the Robber Barons, two types of entrepreneurs – political entrepreneurs and market entrepreneurs. A market entrepreneur is someone who uses the free market to build his business. Good old American hard work! This would be what we call a self-made man. But a political entrepreneur is a businessman who cannot make it on his own and seeks government aid, such as subsidies, and legal protection, in the form of anti-trust laws, to gain an advantage. These were the real robber barons.
Rockefeller was definitely in the former, a great market entrepreneur. He was nearly obsessed with making energy cheap and available for everyone, using good business practices and the free market. But his sole concern was not just cheapness but quality as well. To one of his partners he wrote, “Let the good work go on. We must ever remember we are refining oil for the poor man and he must have it cheap and good.”
Before the age of electricity, homes were illuminated with kerosene lamps. Five years after the war, in 1870, kerosene cost 58 cents a gallon, an expensive commodity, but with Standard Oil controlling 90 percent of the market, and Rockefeller’s incredible efficiency, he lowered the price to just 8 cents per gallon by 1880. “Hope we can continue to hold out with the best illuminator in the world at the lowest price,” he wrote another partner. This greatly benefited the poor in America, and enabled them to illuminate their homes.
Rockefeller was able to do this through the use of “vertical integration,” for which he is often criticized. This practice is not monopolistic but effective at cutting costs, which lowers prices. For example, oil in those days was shipped in wooden barrels, manufactured by coopers. Standard Oil paid nearly $3 a piece for them. Believing he could do it cheaper, Rockefeller bought vast tracts of timber land, built his own barrel-making operation, and cranked them out at just .96 cents. This is true efficiency and helped bring prices down. He did not engage in these practices to further enrich himself and try to control more of the market, as is sometimes alleged.
By controlling the product, in this case oil, from the time it left the ground until it was sold in stores, Rockefeller was able to cheapen it for the common man but also for American industry, which boomed during this period. This is not a coincidental parallel. The availability of cheap energy, and with a protective tariff guarding the gates against foreign predators, America’s economy employed millions of American workers and soon became the envy of the world, producing the material that won both world wars.
But what are we doing today? The exact opposite of course. Yes the oil companies have made record profits during this period of high prices. In fact, of the top Fortune 500 companies in 2007, three oil companies – ExxonMobil, Chevron, ConocoPhillips – ranked in the top five, pulling in some $70 billion in profits.
But consider what they are up against. They are prohibited from drilling in ANWR (Arctic National Wildlife Refuge) in Alaska, where there is a oil reserve of some 10.5 billion barrels, enough to end our imports from Saudi Arabia for two decades. They are also restricted from opening up drilling in much of the Gulf of Mexico, where there is thought to be a vast reserve as well. New reserves have also been found in the Dakotas and Montana, with no plans to drill.
At the same time, no new refineries have been built since the early 1970’s. This is very important because it is in the refining process where the supply of gasoline and diesel is controlled. Refineries are now at full capacity. There is only so much they can do. Current technology also exists to produce gasoline and diesel from coal, where we have a 500 year supply. But as you might guess, there are no plans to invest in this new technology either.
And let’s not forget, these same oil companies who are making record profits are also paying record taxes, to the tune of tens of billions a year!
With all these restrictions, oil companies have little available at their disposal to increase supplies and bring down prices. We are now paying the piper for the environmentalist tune we have been singing for more than thirty years.
Today our economy runs on petroleum. Always has and always should, for the foreseeable future. As long as energy has remained cheap, our economy has excelled, but let energy prices inflate and our economy slows and sometimes slows dramatically. The surest way to grind our economy to a halt is with inflation in the energy sector.
And yet even this very week we see environmentalist wackos trot out their other scare tactic, the fact that we are almost out of oil. This is known as the peak oil theory. But this is far from the case. Estimates on global oil reserves vary but they are thought to be around 12 to 16 trillion barrels, whereas the planet has consumed just one trillion barrels to date, according to Nansen G. Saleri of Quantum Reservoir Impact in Houston, Texas. There is plenty of fuel for our economy, we just need to find the will to go get it.
We also must stop listening to these environmental extremists, who cling to unproven theories, and do what needs to be done. We need new drilling and new refineries, along with new nuclear power plants to free up coal for other purposes. While we are busy bankrupting ourselves and listening to screwball environmentalists in Washington and New York City, China and Russia, our chief global rivals, are scrounging the globe for every available energy reserve. They are gaining the high ground while we talk about creating new “green collar” jobs and putting sod on roofs to “green” our buildings. How laughable! China is even making inroads in the Gulf of Mexico and the Caribbean, gaining closer ties with Cuba to tap reserves right under our noses.
But while our rivals look to build their economic futures, doing whatever is in their nation’s best interest, our country, led by the Bush Administration, is intensely focused on the idea of ethanol production as an oil substitute. Corn-based ethanol is subsidized by the government at $2 billion per year and this folly is already having a negative impact on our economy. As more and more farmers are switching their fields from wheat production to corn, food prices are increasing, by 11 to 25 percent last year depending on the commodity.
And because of this asinine policy, for the first time in American history we actually had to import grain last year. Corn prices are also increasing because we are burning it up for fuel. This is also causing shortages for other uses as well. The Breadbasket of the World is now in decline, all because of a ridiculous, unproven theory put forward by nutcases like Al Gore and Leonardo DiCaprio. Our current policy is even having a global impact, as world food prices rose nearly 85 percent, causing food shortages and even riots in some countries like Mexico. It will only get worse.
The upcoming election in November will determine the fiscal policy of this country for the next four years. Of the three “major” presidential candidates, no one is talking about the real issues at stake. We face major economic problems and neither the Republican or Democratic candidates seem to want to confront these issues with any degree of seriousness. We need a president who will embrace America First policies, like our forefathers in the days of Rockefeller, and put this nation on a sound financial footing. If not, our future looks very bleak.
Even though I am not a huge fan of George W. Bush, I always took great offense at those who attacked him and Dick Cheney for crafting policy that would enrich their oil buddies at the expense of the American taxpayer, charges often without a shred of proof. But as the price of crude and gasoline soar to new heights, I’m beginning to think those folks were on to something, even though they couldn’t prove a thing. For the Bush administration has done next to nothing to alleviate the growing problem of rising fuel costs, a threat that could swallow up the middle class and destroy any economic growth we might now be experiencing. The Bush silence on this issue is deafening.
Yet just recently the president signed a massive, do-nothing “energy” bill, running over 1,700 pages and providing some $14.5 billion in tax breaks and other incentives, an act Michael Economides, writing in the Houston Business Journal, labeled “worse than no legislation at all.” This bill, which our good friends at Citizens Against Government Waste say adds another $66 billion in federal spending, does absolutely nothing to lower the price of gasoline, a serious energy problem plaguing everyone. Which forces us to ask the question: Does Bush actually want to lower the price? It doesn’t seem like it to me. The president even stated while signing it that it is “not going to solve our energy challenges overnight.” So Mr. Bush, what are you going to do about our current problems?
The Energy Policy Act might provide some long term solutions, but we need relief now! For starters, the president should do everything within his power to lower the ever-increasing price for a gallon of fuel. This should include pumping out the Strategic Petroleum Reserve to add supply to the market, which Illinois Governor Rod Blagojevich has recently advocated. Critics of this idea within the administration argue that the reserve should be saved for emergencies, like disruptions in overseas imports. Yet oil is continually being added to the reserve as we speak, rather than being pumped out of it, and prices continue to rise. A repeal of the gas tax would also greatly aid consumers.
Bush should also work to break up the OPEC cartel rather than fully supporting it. We’ve done quite a lot for our friends in the Middle East (as well as Mexico) and it’s high time they paid up! Yet instead of confronting Kuwait or Saudi Arabia, our president is seen walking hand-in-hand with the now deceased Saudi King Faud, a sickening sight! This was one argument for leaving Saddam Hussein in power in Iraq. While there, he posed a significant threat to the Saudis, as well as to the entire region. But he did not dare move on anyone with the U.S. defense umbrella in place and most of his offensive capabilities smashed during Desert Storm and the continuing Allied air patrols over the no-fly zones. We could always use that as leverage when we needed it, but no more.
And while on the subject of Iraq, why should we have liberated them free of charge? We have spent hundreds of billions of dollars and have lost over 1800 of our brave soldiers with another 13,000 wounded to secure for the Iraqi people at least the possibility of living in a free and democratic society. There is nothing wrong or immoral about being repaid with oil. America is always generally concerned with human rights abuses around the world and we usually end up paying in either blood or treasure (or both) to help fix it, but have you ever noticed that no one is ever concerned with our problems? The Iraqis, along with the people of Saudi Arabia and Kuwait, ought to be down on their hands and knees thanking us profusely for liberating their region of a dangerous tyrant and should gratefully offer to repay us in kind!
As far as long term solutions go, opening up ANWR was a good start, but a beginning only. We should stop listening to environmental extremists who know nothing about the environment or oil production and open up other closed areas for drilling as well, like the oil rich Gulf of Mexico. Though it takes years to accomplish, we have the technology and the resources to end our dependence on foreign oil altogether. Remember, before the age of environmentalism, the United States was an oil exporting nation!
But instead of using some of these solutions, the president signs a bill that does not address any of our current woes. Maybe he doesn’t think they are problems at all. But plenty of middle and lower income working families certainly think so. Fuel inflation will devastate economic growth and progress, something that Bush obviously does not want to see happen. So let me give you some friendly advice, Mr. President. If you want to see the American economy boom, then work to lower the cost of fuel and the results will amaze you!
Last week the House of Representatives, following the action of the Senate, and using a variety of arm-twisting and brow-beating tactics, passed yet another free trade package that promises to be a boom to the U.S. economy. CAFTA, or Central American Free Trade Agreement, would open the American market to six Latin American nations – Costa Rica, Honduras, Guatemala, El Salvador, Nicaragua, and the Dominican Republic. In essence this is an extension of NAFTA, which has been far more damaging to our economy than advertised and this new deal will be no different.
President Bush has been behind this effort for years. At first he wanted a Free Trade Area of the Americas (FTAA), a NAFTA-style pact that would stretch from the Arctic to Argentina, but that did not have much of a chance of passage so he convinced enough numbskulls in Congress to go along with this scaled-down version. It seems as if the free trade fools are going to attempt to put it in piecemeal. And now they have another piece of their destructive puzzle in place. With three million manufacturing jobs lost under the Bush administration, you would think they might have learned something by now.
But like his father, Bush is convinced that free trade is the path to American prosperity. He has not learned, or has not wanted to learn, that NAFTA, which his father pushed but Clinton enacted, did not achieve it and will never achieve it. Regardless of what one thinks about Ross Perot, and his giant sucking sound analogy, he was exactly right about free trade with Mexico, where we saw a trade surplus disappear almost overnight and millions of jobs shipped south of the border. This trend has continued under GATT and will only get worse under CAFTA. Free trade might look wonderful on paper but can never work in the real world and the realities of political economics, where the nation, and not just the consumer, is taken into consideration.
Yet we get the same drivel from the administration every single time a deal like this is put forward. As Bush declared in a statement on CAFTA’s passage, “CAFTA helps ensure that free trade is fair trade.” How can it Mr. President, when our workers here in this country are put in direct competition with workers making a fraction of American wages; where there are no environmental and safety standards and regulations; and where American production can so easily be undercut. The agreement, continued Bush, “will level the playing field and help American workers, farmers and small businesses.” Yeah, just like NAFTA! The only help this agreement will give is to the many large corporations, a major portion of GOP campaign cash I might add, who are standing by ready to uproot more factories and move them to Latin America. This, coupled with millions of immigrants, both legal and illegal, pouring into the country to take more American jobs, its no wonder our wages are stagnant and have seen no real rise in decades. American workers lose again!
But the administration assures us that the markets of these six nations will be wide open for consumption of American goods duty free, products such as agriculture crops and even manufactures like tractors from Illinois, we are told. Yet the standard of living in these nations is very low. How many tractors, or Dell computers, or Ford automobiles, for that matter, can the folks in the Dominican Republic really buy? Not many! Most of them don’t have two dollars to rub together at any one time. Pitiful situations to be sure, but not our mission to resolve, as some have argued.
But to make matters worse, as well as more irritating to a nationalist, many so-called conservatives, in and out of Congress and the White House, have been pushing for this agreement for months and using arguments that border on economic treason. Take for example Charles Krauthammer. His column on June 24 of this year argued that the United States needed to enter into a free trade pact with Latin America, not to help us but because of the low living standards and the “widespread poverty” in the Central American region! “If we have learned anything from the last 25 years,” he writes, “it is that open markets and free trade are the keys to pulling millions, indeed hundreds of millions of people, out of poverty. The Central American Free Trade Agreement (CAFTA) is a chance to do the same for desperately poor near-neighbors.” Mr. Krauthammer, what about our people? It is not the responsibility of the United States of America to pull the world out of poverty. Many nations around the world are in that situation because of their own stupidity and we should not throw open our markets to cheap imports that will cost us important jobs!
So you see the hypocrisy of free traders: on the one hand they argue that these foreign markets will be open to American goods but then on the other hand try to argue that free trade deals will help these impoverished regions. How can they buy our goods if they are so poor?
But Mr. Krauthammer is not done. No, he continues his argument, not by citing great American leaders of years past, but a foreign one! Krauthammer cites British economist David Ricardo in attempting to prove that trade between two nations “based on relative efficiency of production is always beneficial to both countries.” But Mr. Krauthammer does not bother to tell us how it will benefit the U.S. economy, just like no one could tell us how NAFTA would be a benefit, except by useless generalizations.
Our Founding Fathers well understood the importance of economic nationalism and self-sufficiency. Beginning with Washington and our great economic architect Hamilton, and later with Jefferson, Clay, Lincoln, and TR, our nation placed its own economic interests first and would have never signed onto an agreement like CAFTA that would hurt the American economy and its workers to the benefit of the Third World. America maintained a policy of economic nationalism for well over 150 years and built the greatest economic machine the world has ever known; a financial and industrial giant that single-handedly fought a two-front war in the 1940’s to bring down Fascism and later Communism. It was not free trade that paid for these victories but that now-dirty word – protectionism. Mr. Krauthammer stands with the British and David Ricardo. I’ll stand with America and Alexander Hamilton.
