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“Fairness –
You will hear from Mr. Obama, in almost every speech he gives, references to fairness. He will claim it is not fair to cut this government program or that. He will say that it is only fair to ask the rich to pay more. What is fair? What does ‘fair’ really mean? And, more importantly, what is Mr. Obama’s reason to call for fairness at every turn.
In his speech to the Democratic National Convention last summer, for example, he used the word fair on six occasions, including once referring to his vision of what we should do with our tax code. “I want to reform the tax code so that it’s simple, fair and asks the wealthiest households to pay higher taxes on incomes over $250,000.” You need an interesting definition of “fair” to say that treating one group (those with incomes over $250,000) differently than all others fits any definition of fair that I have seen.
The Merriam-Webster Dictionary definition includes the following:
a : marked by impartiality and honesty: free from self-interest, prejudice, or favoritism <a very fair person to do business with>
Congressman Ted Poe from Texas recently pointed out that “fairness” as used by the President is a distraction from his failures. Here is some of what he said:
“There is no fairness in crony capitalism. That is favoritism.
There is no fairness in a perpetual bailout culture where the omnipotent government deems some too big to fail and others too small to succeed. That is favoritism.
There is no fairness in forcing Americans to fork over money to pay for failed pet endeavors, like Solyndra. That is favoritism.
There is no fairness in an unaccountable government that takes money from the people and squanders it in a failed stimulus (or two if the president had his way). That is favoritism.”
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Are the lessons of Orwell lost on us?
So if Mr. Obama’s use of the word “Fair” has nothing to do with “fairness” then what does the word mean in Obamaese? I think it is the same concept of fairness and equality as used in Orwell’s Animal Farm, “All animals are equal but some animals are more equal than others.” It seems as if Mr. Obama and his friends feel that they are the only ones ‘smart enough’ to make the right decisions for the rest of us. As such, they, in Mr. Obama’s world, are “more equal” than the rest of us.
As Snowball said in Animal Farm, “Do not imagine, comrades, that leadership is a pleasure. On the contrary, it is a deep and heavy responsibility. No one believes more firmly than Comrade Napoleon (Obama?) that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?” Snowball seems to represent those who believed that Mr. Obama really wanted the best for all citizens, not just those who were important to him gaining and staying in power. Are the Snowballs of the world beginning to fear that Napoleon will turn on them when they are no longer needed? Ask Women and African Americans what he has done to help them after getting their near total support.
So “Fair” in the eyes of Mr. Obama and his friends must mean what he feels is right, not what represents equal and honest treatment. So when you hear Mr. Obama say the word “fair” it would do you well to insert in its place the words, “in alignment with my world view since I am smarter than you are and more deserving of the power to control your actions than you are.”
It would appear that “fairness” means to Mr. Obama “from each according to his ability and to each according to his needs.” – Louis Blanc but attributed to Karl Marx.
Am I “unfairly” saying that Mr. Obama is redefining his words and trying to reshape the world in his interests, not the interests of the citizens of the nation he leads? What seems “Fair” to you?
The following video is almost 34 minutes long. I highly recommend that you watch the entire thing. If you want the Reader’s Digest Version, just watch for about two minutes. First, watch from 15:00 to 16:10. That minute and 10 seconds sums up his point about the problem of fatherless families. Then watch the final 60 seconds, from the 32:45 mark where he concludes (his exasperation) about Republicans not standing up for what is right and always being nice.
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In the talk, Mr. Elder rails against the welfare state. He feels there is no place for ANY participation in welfare by the Federal Government and that what welfare programs we may need should all be at the most local level. At one point, at the 14:15 mark, he tells us that there are three keys to making it into the middle class and avoiding poverty: 1. Graduate from High School; 2. Don’t have children before the age of 20; and 3. Be married before you have children. If you do those three things, you will avoid poverty. Fail to do those three things and you will live in poverty.
He also tells a story about incentives that, alone, is worth the price of admission.
Watch the video and then comment please.
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Last week, a good friend wrote an opinion piece for our local newspaper (The Yamhill Valley News-Register) in McMinnville, Oregon. It was a comment about our ever-greater problems with the State’s Public Employee Retirement System – PERS. I thought it was worthy of a wider audience. Here it is:
Unworthy of PERS
Oregon’s Public Employee Retirement System (PERS) is getting a lot of attention lately. Cities, counties, school districts across the state have no alternative but to cut staffing in order to pay the skyrocketing PERS assessments needed to fund public employee retirements. Legislative reform of PERS is overdue. One reform should address the betrayal by a few who commit serious crimes in their roles as public officials.
An AP story in the News Register on February 5th reported a guilty plea by the city manager of Dallas, Oregon to charges of theft, official misconduct, and falsifying business records. The article went on to say that the city manager would not have his PERS pension reduced because there is no pension forfeiture law in Oregon and “Federal law prohibits tapping a pension”.
The article is half correct. Oregon doesn’t have a pension forfeiture law of any kind. However, 25 states and the federal government have some form of pension forfeiture. If a federal employee is convicted of offenses listed in 5 USC 8312 they are permanently barred from receiving their pension.
Why doesn’t Oregon have a pension forfeiture law?
I have lived in Oregon for 30 years and I am proud of the reputation for “clean government “Oregon enjoys. We are the beneficiaries of many great public servants who, long ago, had the foresight to protect watersheds, build bridges that are engineering marvels, and create the country’s best system of state parks.
But we occasionally have some rotten apples that need to be dealt with. The former city manager of Dallas is only the latest example. Last year we learned of massive kickbacks demanded by the City of Portland’s parking director in exchange for “no bid” contracts. A few years earlier, we learned of corruption by a Department of Corrections food service procurement official who was leading a luxurious lifestyle at taxpayer expense. Both of these officials used their offices for illegal purposes at the expense of taxpayers.
The most egregious offence doesn’t involve money…it exploits something far more precious—our kids. Last year, Michael Montgomery, who had taught Spanish for years at Salem’s Sprague High School, pled guilty to sexual abuse of one of his students and was sentenced to 5 years in prison. He’ll be eligible for full PERS when he is released.
Regrettably, Montgomery’s case is not unique. These crimes occur with too much frequency. Penn State Assistant Football Coach Jerry Sandusky lost his $59,000 a year pension for molesting children due to Pennsylvania’s pension forfeiture law. Pennsylvania law even provides for victim compensation out of members’ pension contributions.
PERS provides every member with an annual account balance which consists of the member’s contributions. In most cases, employee contributions have been made by their public employers –a holdover from labor negotiations decades ago when employers agreed to cover the employee contributions in lieu of salary increases. This needs to change—but that is grist for another article.
When a PERS member retires, the account balance of that member is matched by employer funds to calculate an annuity for duration of the member’s life.
Public employees who are convicted of serious crimes while in the course of their duties should, at a minimum, forfeit the employer match to their account balance when calculating pension benefits. We should redirect the forfeited matching funds to victim restitution.
This step will inform public employees that the public trust is precious and that betrayal of that trust will bring about financial consequences. And it will remove the bitter pill taxpayers have to swallow when crooks and predators are paroled and collect pensions that are unequalled in the private sector.
I can’t imagine why Oregon, or for that matter all states and the Federal Government, do not all have pension forfeiture laws.
Vacation is good for me. Two weeks in the sun helps to break up the very gray winter we have in the Willamette Valley. I like to use Jeff Foxworthy’s description of winter here, “You know you are from Oregon if you know the four seasons as, Almost-Winter, Winter, Still-Winter, and Road construction.” But vacation is good for more than just a break in Winter. It helps you put some things in perspective. Too often, the rush of everyday duties prevents you from appreciating much of what you have, health, family, friends, community, etc.
Vacation also brings you face-to-face with the Federal government in the form of the Transportation Security Agency, TSA. I understand the reaction to the events of 9-11. However, I truly doubt that the TSA serves a purpose today, or, if it does serve a purpose, it does so at a cost that has no relationship to the usefulness of its purpose.
My experience leaving Kauai last week is a case in point. Lihue, Kauai has a small airport. The TSA only has two radiation machines and about 20 agents on duty at any given time. When my wife and I approached the conveyor belts and began to undress (belt, shoes, jacket, etc.) my wife told the nearest agent that we wanted to opt out and get the pat-down instead of the radiation. The agent told her that the radiation machine (for our line) was out of order so we could just walk through. Every passenger who went through the line that we were in went through uninspected while the other line continued to grow as those passengers got the full backscatter screen.
Looks like a Doctor about to do a Prostate Exam
The TSA budget of over $8 Billion a year is just the tip of the iceberg that describes the cost of the TSA to the American taxpayer. Think of the extra hour required for every departure. Think of the hassles. Think of the real estate and the equipment at every airport. I can’t carry my Swiss Army Knife with a 2″ blade, but the teenaged Goth in front of me can carry a comb with a 6″ spike handle and the lady behind me has a knitting bag with a half dozen 10″ knitting needles. Think about the 3 oz. liquid allowance. I like to carry a bottle of water when I travel. To do that, I must subject myself to not only the groping (I always opt out of the radiation treatment) but also to getting raped by the Airport vender who gets $3.50 for the bottle of water that costs 50¢ at the grocery store. (please note that at PDX – Portland International – they charge $1.00 for water and all stores have normal street prices, not inflated Airport Prices)
By the way, the TSA budget is larger than the budget of the National Weather Service (8 X as large). Think about the benefit to agriculture, transportation, tourism provided by the National Weather Service.
The TSA is far Less effective than a single drug sniffing beagle (Okay, I made that up, but let’s face it, they have not been too effective – over $5,000,000 spend for each gun found in screening?).
Doug Casey is a favorite of mine. He minces no words. His disdain for the TSA is beyond the pale. Just read this interview with Casey from late 2010 posted here.
What is the difference between preventing a terrorist act in the air that kills 250 people and destroys one aircraft or a terrorist act on the ground (at the security checkpoint) that kills 250 people and destroys a big chunk of an airport facility? Answer – It is a lot easier to get the people on the ground. TSA does almost nothing to prevent terrorism. It only has the potential to shift the location of the terrorist act.
As much as I think the TSA is a joke, I must defend the TSA agents in one small way. They are, like our uniformed military, controlled by politicians. Do you think they would be more effective if they profiled people? Would that be better than frisking every 27th person resulting in 85 year olds in wheel chairs getting put through the ringer?
My solution to the TSA problem, of course, is a private, not government, solution. I would leave air travel security up to the Airlines/Airports. If they want to profile passengers (“We reserve the right to refuse service…”) or have armed security agents on each flight, that would be up to them. The actual customers of each airline would pay the cost, not all taxpayers. And, the airlines would do a much better job.
You don’t think so? The airlines would be highly motivated. They don’t want to lose a plane. Planes are pretty expensive. They don’t want to lose a passenger. The word would not be good marketing buzz for an airline that was known for sacrificing a few customers to save money on security. And who do you think would lose his job if an airline failed due to loss of aircraft or passengers, the airline employee or the TSA agent? That is incentive. Makes things work efficiently. Disband the TSA. It’s just another expensive, inefficient government bureaucracy that does little to improve our safety.
I have no intention of discussing Al Gore, or weather, or perceptions of more or fewer storms this year or last. Instead, I want to talk about change in business climate. Specifically, I want to address what is happening in California as a microcosm of what is happening in the country as a whole.
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Thanks to Fellowshipofminds.wordpress.com
First, personal experience, then, some statistics that I think are relevant and finally some conclusions:
Personal Experience – In 1966, our business was started by my step-father who bought a small welding and fabrication shop in San Jose, California that employed two. He invested in new equipment, worked hard and by the time of his death, 8 years later, the business had grown to employ 13 people. Eventually, by the late ’80s, it employed 35 and was housed in a building of about 25,000 square feet on two acres. In 1990 the business was moved from Silicon Valley to the Central Valley of California. It was becoming too difficult and too costly to manufacture in the San Francisco Bay area. Proof of this was the fact that only 5 of the 25 large fruit and vegetable processing plants that existed in the San Jose area in 1966 were still there when we moved out in 1990. The City of San Jose and the Bay Area Air Quality District were making and enforcing rules with the good intentions of preventing air and ground pollution. Unfortunately they were working from book knowledge not hands-on knowledge and created a serious burden for manufacturers, except for the Silicon Valley Industries that created “clean jobs.” This, to me, was an early example of government choosing winners and losers in private sector businesses. But that is a tale for another day.
When we moved the business from San Jose in 1990, it cost over $50,000 to clean up ‘hazardous materials’ from our property before we could sell it. The hazardous material was an unidentified (according to the member of the S.J. Fire Department given the job of inspecting our property) substance with a red color that in the inspector’s words, “… looks poisonous to me.” The material was garnet sand. We used it in our sandblasting operation, blasting rust off of steel to prep it for painting or welding. We argued and complained but no official in the city would dream of overturning the ruling of a firefighter (who had taken a 3 month course in inspecting for ground pollution). Long story short: we needed to money from the sale of the property to make the move – the City had to approve our ‘decommissioning of our permitted paint and sandblast operation – so we paid for the “clean-up” (we vacuumed up two 55 gallon barrels of sand and had it shipped to a hazardous storage area – yep, over $50,00 cost plus more paperwork than you would believe), got the City to approve the property sale, finalized the sale, and moved.
We moved into a much larger facility in Woodland, Yolo County, California. It was within the territory of the Yolo-Solano Air Quality Management District. In order to start up a paint and sandblast operation at our new site, I needed to get permits from the YSAQMD. They employed 5 people and worked out of a leased office space of less than 1,000 square feet in Woodland. Fourteen years later when we moved from Woodland to Oregon, we again had to get permission to close out our permits for paint and sandblast booths. This time there was no (perceived) hazardous materials issue. However, we had to drive to the town of Davis to find the YSAQMD which now leased a purpose-built 19,000 building to house their over 100 employees. Twenty times the space and twenty times the employees in 14 years. This was possible even with a declining manufacturing base and fewer painting booth permits because the AQMD was “self-funding” in the jargon of California government. By “self-funding” that meant that each year, the AQMD would develop a budget of what they thought they would spend to do their job. They would then divide that number by the number of permits and send out the bills. You can imagine how fast and how high our permit costs rose. And, each year the AQMD added restrictions as to how much and what we could spray in our booths. By about 1999, we were only allowed to spray paint with super-low VOC (volatile organic compounds). Our standard, legal industrial paint that we used on our products cost almost $100 per gallon. We had a competitor in Texas who used an enamel that cost him under $10 per gallon, and it did a better job of protecting the surface. Side note: this and other government-induced costs led us to lose a product to the Texas company. They essentially copied a water trailer that we made and were able to sell it at a profit for less than our cost of manufacture. We had to walk away from the product because we could no longer compete.
Our inability to compete with non-California companies was the main reason for moving out of state. If we were to stay in business, we could not remain in California. We lost one product to a Texas Company (who could sell it for less than our cost to build it) while we watched our sales drop significantly in California and increase significantly in Texas.
Currently, California has a population of over 37,000,000 people but about 200,000 are leaving the state each year. Texas has about two thirds as many people as California but has a net population inflow of about the same as California’s outflow.
Californians pay out 10.6% of their income to pay for state and local government. For comparison, Texans pay less than 8%.
Californians pay for over 250 non-education bureaucrats per 10,000 people. Texas has fewer than 200.
Yet, California has 252 Education Employees per 10,000. Texas has 295. It’s no mystery that Texas schools outperform national averages in education outcomes while California schools badly underperform the national averages.
California has a State personal income tax rate of 10.55%. There is no personal Income Tax in Texas.
California has a sales tax rate that is 2% more than that of Texas.
Is it a wonder that Texas is the home of more Fortune 500 companies than any other state? Or that Apple just announced that they would build a new facility in Austin, Texas to employ over 3,000 people?
My conclusions: California is leading the way in taxing its people at new heights. It has led, and continues to lead in advancing “diversity” while failing to assimilate most of these diverse populations. California is driving investors to invest elsewhere and businesses to look for more fertile ground. In the short term, California is living off the wealth created by its great climate and natural beauty, agriculture, silicon valley companies, and earlier policies which made the state attractive. I think as its government gets more controlling, its attractiveness will diminish and it will suffer hard economic times sooner than most believe.
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Today there was a brief post at GodFather Politics about Taxation as Theft.
It pointed out that Governments have no money and no source of income. In order to spend, they need to either tax (take money from their subjects) or print money. Both are forms of theft. One is direct and the other is through devaluing what you have.
I am reminded of something that was a real wake-up call for me a number of years ago. In the early 80s, Marilyn, a gal who was a key member of our staff was gifted a home by her parents. They had bought the home newly built on a 25 year fixed mortgage. They had long since paid off the mortgage and were moving to a seniors retirement area away from where they had lived the previous 35+ years.
The home was modest, about 1200 square feet on a typical city lot. It was, however paid-for. Being quite frugal, this was a wonderful thing for Marilyn. All she would have to pay each month would be the property taxes and insurance. The insurance on the home (optional since she had no mortgage holder to protect) was under $25 per month. The property tax was over $220 per month. She was very pleased to have her cost of housing drop from $500+ for her small apartment to under $250 for a home of her own.
After she had moved in, she had her folks over for dinner one night so they could see what she had done to make the home hers. Over the dinner table, she explained just how thankful she was and how this had really changed her life. Now she and her son (she was widowed quite young) had a better place to live and at far less cost. She told them that with only the taxes and insurance, she was paying under $250 a month instead of the old $500 payment for her apartment. Her folks were shocked. How could she be paying $250 per month. Upon further discussion, they learned that Marilyn was paying $220 a month in taxes alone, over twice what they had paid for a mortgage ($108) for 25 years.
If you stop paying your mortgage, the bank can take your home. In fact, the bank owns your house. Most people understand that. Yet, we never hear people saying that the government owns their house even though it would take your house for non-payment of taxes just like the bank would for non-payment of your mortgage. So the question arose, who owns the house, Marilyn or the Government? It is a good question to ask.
What do you really own that is not subject to government theft? Your home? Your car? Your boat? Your Hunting Shotgun? Your business? If you don’t know the answer, try not paying your taxes or your license and permit fees.
Here is some wisdom from the past that makes you think these people were watching us in action in 21st Century America.
Winston Churchill said that “Democracy is the worst form of government except for all those others that have been tried.” He also said, “The best argument against democracy is a five-minute conversation with the average voter.” I would argue that it may be difficult to find an average voter with the attention span needed for a five-minute conversation.
Churchill also said, “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” I would suggest that Churchill erred in that he neglected to take note of the fact that the “political leaders” of socialist nations do not get an equal share of the miseries. Those with the power, take the cream off the top. It is good enough for them to let others share the misery.
Alexander Frazer Tytler has written, that “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover they can vote themselves largesse out of the public treasury. From that moment on, the majority,” he said, “always vote for the candidate promising the most benefits from the treasury with the result that democracy always collpases over a loose fiscal policy, always to be followed by a dictatorship.” Proof positive that Tytler was right was the result of the 2012 Elections.
Margaret Thatcher said, “The trouble with Socialism is that eventually you run out of other people’s money.” For the USA today, I think fortunately, there are enough other people out there willing to buy our notes that we have not yet run out of other people’s money. But the time is coming, soon.
Ronald Reagan said, “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.” he also said, “The best minds are NOT in government. If any were, business would hire them away.” and, “Government is not the solution to our problem. Government is the problem.” Hard to argue with any of those points.
And, it was Henry Ford who said, “Any man who thinks he can be happy and prosperous by letting the Government take care if him; better take a closer look at the American Indian.” (thanks to Eric in Brazil who showed me this one for the first time.)
No National Debt was ever caused by taxing too little. By definition, debt can only be caused by spending more than one has to spend and by borrowing more than one can pay back. Spending is the problem but our Congress and our enlightened President want to argue about how much to tax us rather than how much they could reduce spending with just a little restraint.
The current U.S. Government Budget crisis can be solved by one of two methods. Each solution will create problems of its own. Either we can borrow without limit until we can pay for all of the services we want from our government, or we can cut spending without limit until we have only government services that we truly need. If we borrow without limit, eventually no lender will be willing to lend and our source of capital will dry up. Or, we can cut spending without limit. If we do that, at some point a majority of people will feel that we are cutting services that are necessary to live. Which path do you think has the easier solution? If we run out of money and there is no one left who is willing to lend us more, are we forced to cut government services?
My friend Jim believes we could do better with a form of Meritocracy, requiring certain merits from individuals before they would be able to do certain things. For example (my words, not his) it would make sense that a person should be able to show competence flying a plane before he is allowed to pilot the plane while carrying passengers. This is actually a requirement in most developed countries today. But do they require that a person be responsible before he or she can parent a child or that he or she be informed about issues before voting? There is real merit to a system that rewards discipline, thrift, labor, and common sense. There was once a nation which did just that, the United States until about 100 years ago.
How nice it would be to have a leader who measured up to the leaders quoted above.
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Why did you vote for Mr. Romney or for Mr. Obama?
Why did I ask, “Questions for those who voted for Mr. Obama in 2012” ? I was disappointed, but not surprised by the response.
My post on 12/14 was intended to learn the reasons why people voted for Mr. Obama in spite of terrible economic, social, and political news throughout his first term in office.
If I had read a blog that asked those questions of me regarding my vote for Mr. Romney, here is how I would have answered:
1. Mr. Romney has spent his entire life doing good things for other people. He is not selfish, nor power hungry, nor self centered. In short, he is a good man. LIke I do when I hire people to work for our company, the first and most important question to answer is “Is this a GOOD person?”
2. Mr. Romney has spent most of his life balancing a business career with his responsibilities as a husband and parent, and his church responsibilities. He has an excellent understanding of our economy and how business works. He has a great deal of experience solving business and organizational problems. I was very impressed by his ability to organize and lead the Salt Lake City Olympics to a successful and profitable run proves his ability to take on a big and challenging task and lead a disparate group of people to reach their goals. His ability to work with politicians from the other party as he did when Governor, led me to believe he would be able to deal with all the various political factions in Washington, D.C.
3. Though Mr. Romney never blew me away with his oratorial skills, he had the nerve to have a discussion with the American people about issue we must face, like the National Debt, Medicare, Social Security, and Traditional Social Values.
4. His broad experience in the Business, Government Service, and Non-Profit worlds made him uniquely qualified to take on an Executive position even bigger than that of Governor or CEO or Church Stake President, all of which positions he held and performed successfully.
I have asked the same questions of numerous friends who are liberal politically and who I assumed had voted for Mr. Obama. The only responses that I have received were reasons why these individuals had voted against Mr. Romney, not why they had voted for Mr. Obama. The other common thread to answers from those who voted for Mr. Obama was that he had inherited the problems from Republicans and needed more time to solve the problems. In other words, Mr. Obama failed to accomplish in 4 years what he had promised to do in one year but still deserved four more years.
I wonder if those who voted for Mr. Obama are ashamed of their vote and therefore won’t answer, or, if in trying to find reasons why they voted for Mr. Obama, they found there were none, just reasons why they voted agains Mr. Romney.
I don’t like just copying other people’s work but here’s an exception. I’ve not asked their permission to reprint this and the Wall Street Journal may not be happy. But, this editorial was freely available on line. It is the most worthwhile piece I have read in the WSJ this year. Do yourself a favor and read it. You will be glad you did.
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Poland’s Leszek Balcerowicz – Courtesy of http://blogs.ft.com/beyond-brics
Leszek Balcerowicz: The Anti-Bernanke
Warsaw
As an economic crisis manager, Leszek Balcerowicz has few peers. When communism fell in Europe, he pioneered “shock therapy” to slay hyperinflation and build a free market. In the late 1990s, he jammed a debt ceiling into his country’s constitution, handcuffing future free spenders. When he was central-bank governor from 2001 to 2007, his hard-money policies avoided a credit boom and likely bust.
Poland was the only country in the European Union to avoid recession in 2009 and has been the fastest-growing EU economy since. Mr. Balcerowicz dwells little on this achievement. He sounds too busy in “battle”—his word—against bad policy.
“Most problems are the result of bad politics,” he says. “In a democracy, you have lots of pressure groups to expand the state for reasons of money, ideology, etc. Even if they are angels in the government, which is not the case, if there is not a counterbalance in the form of proponents of limited government, then there will be a shift toward more statism and ultimately into stagnation and crisis.”
Looking around the world, there is no shortage of questionable policies. A series of bailouts for Greece and others has saved the euro, but who knows for how long. EU leaders closed their summit in Brussels on Friday by deferring hard decisions on entrenching fiscal discipline and pro-growth policies. Across the Atlantic, Washington looks no closer to a “fiscal cliff” deal. And the Federal Reserve on Wednesday made a fourth foray into “quantitative easing” to keep real interest rates low by buying bonds and printing money.
As a former central banker, Mr. Balcerowicz struggles to find the appropriate word for Fed Chairman Ben Bernanke‘s latest invention: “Unprecedented,” “a complete anathema,” “more uncharted waters.” He says such “unconventional” measures trap economies in an unvirtuous cycle. Bankers expect lower interest rates to spur growth. When that fails, as in Japan, they have no choice but to stick with easing.
“While the benefits of non-conventional [monetary] policies are short lived, the costs grow with time,” he says. “The longer you practice these sorts of policies, the more difficult it is to exit it. Japan is trapped.” Anemic Japan is the prime example, but now the U.S., Britain and potentially the European Central Bank are on the same road.
If he were in Mr. Bernanke’s shoes, Mr. Balcerowicz says he’d rethink the link between easy money and economic growth. Over time, he says, lower interest rates and money printing presses harm the economy—though not necessarily or primarily through higher inflation.
First, Bernanke-style policies “weaken incentives for politicians to pursue structural reforms, including fiscal reforms,” he says. “They can maintain large deficits at low current rates.” It indulges the preference of many Western politicians for stimulus spending. It means they don’t have to grapple as seriously with difficult choices, say, on Medicare.
Another unappreciated consequence of easy money, according to Mr. Balcerowicz, is the easing of pressure on the private economy to restructure. With low interest rates, large companies “can just refinance their loans,” he says. Banks are happy to go along. Adjustments are delayed, markets distorted.
By his reading, the increasingly politicized Fed has in turn warped America’s political discourse. The Lehman collapse did help clean up the financial sector, but not the government. Mr. Balcerowicz marvels that federal spending is still much higher than before the crisis, which isn’t the case in Europe. “The greatest neglect in the U.S. is fiscal,” he says. The dollar lets the U.S. “get a lot of cheap financing to finance bad policies,” which is “dangerous to the world and perhaps dangerous to the U.S.”
The Fed model is spreading. Earlier this fall, the European Central Bank announced an equally unprecedented plan to buy the bonds of distressed euro-zone countries. The bank, in essence, said it was willing to print any amount of euros to save the single currency.
Mr. Balcerowicz sides with the head of Germany’s Bundesbank, the sole dissenter on the ECB board to the bond-buying scheme. He says it violates EU treaties. “And second, when the Fed is printing money, it is not buying bonds of distressed states like California—it’s more general, it’s spreading it,” he says. “The ECB is engaging in regional policy. I don’t think you can justify this.”
“So they know better,” says Mr. Balcerowicz, about the latest fads in central banking. “Risk premiums are too high—according to them! They are above the judgments of the markets. I remember this from socialism: ‘We know better!'”
Mr. Balcerowicz, who is 65, was raised in a state-planned Poland. He got a doctorate in economics, worked briefly at the Communist Party’s Institute of Marxism-Leninism, and advised the Solidarity trade union before the imposition of martial law in 1981. He came to prominence in 1989 as the father of the “Balcerowicz Plan.” Overnight, prices were freed, subsidies were slashed and the zloty currency was made convertible. It was harsh medicine, but the Polish economy recovered faster than more gradual reformers in the old Soviet bloc.
Shock or no, Mr. Balcerowicz remains adamant that fixes are best implemented as quickly as possible. Europe’s PIGS—Portugal, Italy, Greece, Spain—moved slowly. By contrast, Mr. Balcerowicz offers the BELLs: Bulgaria, Estonia, Latvia and Lithuania.
These EU countries went through a credit boom-bust after 2009. Their economies tanked, Latvia’s alone by nearly 20% that year. Denied EU bailouts, these governments were forced to adopt harsher measures than Greece. Public spending was slashed, including for government salaries. The adjustment hurt but recovery came by 2010. The BELL GDP growth curves are V-shaped. The PIGS decline was less steep, but prolonged and worse over time.
The systemic changes in the BELLs took a while to work, yet Mr. Balcerowicz says the radical approach has another, short-run benefit. He calls it the “confidence effect.” When markets saw governments implement the reforms, their borrowing costs dropped fast, while the yields for the PIGS kept rising.
Greece focused on raising taxes, putting off expenditure cuts. They got it backward, says Mr. Balcerowicz. “If you reduce through reform current spending, which is too excessive, you are far more likely to be successful with fiscal consolidation than if you increase taxes, which are already too high.”
He adds: “Somehow the impression for many people is that increasing taxes is correct and reducing spending is incorrect. It is ideologically loaded.” This applies in Greece, most of Europe and the current debate in the U.S.
During his various stints in government in Poland, the name Balcerowicz was often a curse word. In the 1990s, he was twice deputy prime minister and led the Freedom Union party. As a pol, his cool and abrasive style won him little love and cost him votes, even as his policies worked. At the central bank, he took lots of political heat for his tight monetary policy and wasn’t asked to stay on after his term ended in 2007.
Mr. Balcerowicz admits he was an easy scapegoat. “People tend to personalize reforms. I don’t mind. I take responsibility for the reforms I launched.” He says he “understands politicians when they give in [on reform], but I do not accept it.” It’s up to the proponents of the free market to fight for their ideas and make politicians aware of the electoral cost of not reforming.
On bailouts, Mr. Balcerowicz strikes an agnostic note. They can mitigate a crisis—as long as they don’t reduce the pressure to reform. The BELL vs. PIGS comparison suggests the bailouts have slowed reform, but he notes recent movement in southern Europe to deregulate labor markets, privatize and cut spending—in other words, serious steps to spur growth.
“Once the euro has been created,” Mr. Balcerowicz says, “it’s worth keeping it.” The single currency is no different than the gold standard, “which worked pretty well,” he says. In both cases, member countries have to keep their budget deficits in check and labor markets flexible to stay competitive. Which makes him cautiously optimistic on the euro.
“It’s important to remember that six, eight, 10 years ago Germany was like Italy, and it reformed,” he says. Before Berlin pushed through an overhaul of the welfare state, Germany was called the “sick man of Europe.” “There are no European solutions for the Italians’ problem. But there are Italian solutions. Not bailouts, but better policies.”
Why do some countries change for the better in a crisis and others don’t? Mr. Balcerowicz puts the “popular interpretation of the root causes” of the crisis high on the list.
“There is a lot of intellectual confusion,” he says. “For example, the financial crisis has happened in the financial sector. Therefore the reason for the crisis must be something in the financial sector. Sounds logical, but it’s not. It’s like saying the reason you sneeze through your nose is your nose.”
The markets didn’t “fail” but were distorted by bad policies. He mentions “too big to fail,” the Fed’s easy money, Fannie Mae and the housing boom. Those are the hard explanations. “Many people like cheap moralizing,” he says. “What a pleasant feeling to condemn greed. It’s popular.”
“Generally in the West, intellectuals like to blame the markets,” he says. “There is a widespread belief that crises occur in capitalism mostly. The word crisis is associated with the word capitalism. While if you look in a comparative way, you see that the largest economic and also human catastrophes happen in non-market systems, when there’s a heavy concentration of political power—Stalin, Mao, the Khmer Rouge, many other cases.”
Going back to the 19th century, industrializing economies recovered best after a crisis with no or limited intervention. Yet Keynesians continue to insist that only the state can compensate for the flaws of the market, he says.
“This idea that markets tend to fall into self-perpetuating crises and only wise government can extract the country out of this crisis implicitly assumes that you have two kinds of people. Normal people who are operating in the markets, and better people who work for the state. They deny human nature.”
Gathering the essays for his new collection, “Discovering Freedom,” Mr. Balcerowicz realized that “you don’t need to read modern economists” to understand what’s happening today. Hume, Smith, Hayek and Tocqueville are all there. He loves Madison’s “angels” quote: “If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.”
This Polish academic sounds like he might not feel out of place at a U.S. tea party rally. He takes to the idea.
“Their essence is very good. Liberal media try to demonize them, but their instincts are good. Limited government. This is classic. This is James Madison. This is ultra-American! Absolutely.”
Mr. Kaminski is a member of the Wall Street Journal’s editorial board.
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If you voted for Mr. Obama in the recent election, you are uniquely qualified to answer a few questions. Please feel free to answer them by adding a comment to this post. Thanks.
1. What experience did Mr. Obama have that led you to believe he would do a good job as President?
2. What did Mr. Obama do in the first 3+ years of his Presidency that led you to believe he would do a good job in a second term?
3. Did You vote for Mr. Obama because of his experience and his successes in his first 3+ years in office?
4. List the three most important reasons why you voted FOR Mr. Obama.
5. What will Mr. Obama accomplish in a second term?
Thanks for your help. Please answer by use of a comment.
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