Left and Wrong author: Rosa Brooks
Left and Wrong article: The ‘real’ America, really

Ms. Brooks just doesn’t get it. She bristles at the notion, promoted by Sarah Palin and others on the right, that “[s]ome parts of America – and some Americans – are just more authentic and pro-America than others.” Ms. Brooks believes that liberals in big cities are more in touch with the real America than the fantasy one conservatives see. “McCain and Palin look at America and see what they wish was there, rather than what’s actually there.” To Ms. Brooks, being pro-America or a real American means embracing the great liberal orthodoxy: “… the real America: a land of change and perpetual renewal.”

Sorry, Rosa, but that is a political slogan, not American heritage. What Palin is talking about is the tendency of those on the left to undercut long-held American values and principles, and to oppose America itself when it holds onto these principles. Most of these principles are in the U.S. constitution, and, all protestations aside, the left in this country since the 1930s have generally been opposed to the letter and the intent of our highest law. Whether it be a limited government of enumerated powers, free market economics, private property, or even the respect for law, the left are not comfortable with American core principles. They more easily identify with redistribution of wealth, socialized medicine, government regulation, and social engineering, all of which are in favor in Europe or the U.N. rather than America.

America is not “a land of change” but a land of unchanging core principles. Using immigrants to make your point that this is a land of change exposes a terrible misperception on your part. Immigrants do not come to this country to change it, they come here to live their lives in the freedom that its constitution and heritage assures. While certainly America adapts to the challenges, the innovations, and the demographic shifts of the day, its salient characteristic is its unbending conservation to principles of limited government and individual freedom. And yes, we do think people un-American when they introduce ideas that, when held against our core beliefs, are quite foreign.

All too often I have run into people (Americans!) who bad-mouth America because of recent history or Bush or Iraq or whatever. The Right never bad-mouthed America for what Clinton or Carter or FDR did. They bad-mouthed liberal policies that were contrary to America’s core principles. This uncovers the difference: the Left sees America as the problem because America at its core, not necessarily the current electorate but its heritage and institutions, is a nation of individualist, conservative principles. And the Right sees the Left as the problem for not standing up for them.

Deceitful and sly, Sisyphus was a man who thought himself an equal of the gods. He betrayed others secrets, escaped from bondage, and usurped his brother’s throne. For his hubris, Sisyphus was compelled by the gods to roll a huge boulder up a hill. At the top, without the final strength needed to send it over the cliff, it would roll back to the bottom, from where he would need to start again. This he was compelled to do for eternity. Or so it goes in Greek Mythology. This tale, along with our experience with business cycles in contemporary history, offers important advice for our economic policymakers: the harder you try to avoid the inevitable, the more difficult it will be.

Federal Reserve Board Chairman Ben Bernanke is hell-bent on avoiding a recession, or saving us from one. He testified before the House Budget Committee on this past Monday, October 20. Acknowledgeing a recent slowdown in economic activity and a likely impending recession, he said that “consideration of a fiscal package by the Congress at this juncture seems appropriate.” He went on to prescribe what he believed would be good “design principles” for such a package:

The extraordinary tightening in credit conditions has played a central role in the slowdown thus far and could be an important factor delaying the recovery. If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses, and other borrowers.

When the average American has consumer debt over 115% of annual income and the federal government has public debt over 75% of annual GDP, someone has to ask if an increase in consumer spending is the answer. What we need is greater production to match our consumption, not greater consumption in spite of our productivity. Yet Congressional Democrats and Mr. Benanke seem all for mortgaging more of the future by consuming more in the present.

The Federal Reserve needs to quit lecturing Congress and return to its core function: price stability. The great contribution of macroeconomics in the past quarter century is the realization that almost all macroeconomic destabilization occurs due to an incorrect alignment of price levels with economic production. The asset bubbles of the late 1990s (stock market) and 2000s (real estate market), while they at first appeared to be shocks unrelated to the money supply, were in fact directly caused by a blind spot in monetary policy: secondary market asset prices do affect consumer credit and spending, and thus must be part of price level considerations that before were almost totally devoted to primary purchases (new items).

If the Fed had wholly understood this and focused completely on price stability (inclusive of asset prices), we would now be facing neither a credit crisis nor a recession. The Fed must continue to advise fiscal policymakers in Congress that distortions to prices, chief among these the mortgage interest deduction in the federal income tax code, must be mitigated if we are to avoid macroeconomic shocks and resulting business cycles. But beyond the respect that fiscal policy must pay to price transparency and stability, fiscal expansions intent on macroeconomic stabilization will typically work against the Fed’s primary goal of price stability and thus be counterproductive with respect to stabilization itself.

Considering the poor job the Federal Reserve has done in correctly judging the impact of asset price instability on the economy in recent years, why should Congress or the American public heed its call for stimulus to avoid recession? Especially since artifical stimulus by the Fed has so many fingerprints over the current economic instability and works almost directly in conjunction with price inflation, the Federal Reserve needs to be told without nuance or equivocation: shut up and do your job.

Not only does that mean the Fed should not be encouraging expansionary fiscal policy. It means that monetary policy should be devoted to price stability as the economy’s dominant long-term stabilizing force, not geared towards “saving the nation” from recession. The proclivity of the nations’ top economists to carelessly offer their familiar tool of interest rate reductions to a country that is up to its eyeballs in debt is like offering another bottle of whiskey to an exasperated alcoholic: if you are in a hole, just keep digging. Stimulus, monetary or otherwise, does not create productivity or economic growth. Only localized innovations, a change in the structure of the economy, or changes in its underlying incentives, can do that.

It is sheer intellectual laziness for economists to return to water-spigot measures like interest rate reductions and rebate checks rather than to seek and destroy the inefficiencies and disincentives inherent in government policy.

Indeed, the resurfaced idea of issuing tax rebate checks, like those sent as part of this year’s Spring stimulus package, is a wholly misguided policy. Certainly it pumps money into the economy by increasing the money supply. But is this increase in the money supply accompanied by an increase in production? No. Instead, prices rise as more currency chases the same amount of goods. The part that people spend does not have a net increase in economic activity because in real terms they aren’t spending more. The part that people commit to savings or debt increases asset prices and contributes to an even greater asset price bubble. In the end, all that this achieves is less confidence in the stability of prices and some limited income redistribution, which undermines incentives and efficiency.

Others in Congress are demanding a different kind of stimulus, one that centers on infrastructure improvements and public works. This is less artificial than tax rebate checks. But in many ways it is worse. It is acknowledged by its proponents that such a stimulus would indeed be temporary. In this sense, it creates its own cyclical dark side: when the funding ends, thousands of construction workers are without a job. The goal of fiscal policy should be to avoid cycles, which require constant retraining and reallocating of societal resources. To the extent that infrastructure improvements are needed, such investments may be reasonable. But the fact that it is proposed as a stimulus means that many projects will be included that wouldn’t merit investment in normal circumstances.

The extension of unemployment benefits is perhaps the most counterproductive of stimulus ideas. Not only does it not stimulate (for similar reasons as the rebate checks), but it creates new disincentives to work and be productive, as recipients will search longer for jobs with “income” in their pocket. Nothing makes less sense than sitting back and waiting for economic activity to pick up.

What would be welcome is elimination of government-created incentives and disincentives that exacerbate the misallocation of capital and delay its quest (back) towards an efficient equilibrium. This might include: (1) a reduction of marginal income tax rates for individuals and businesses; (2) a phase-out of the income tax mortgage-interest deduction; (3) removal of arbitrary environmental impediments to energy production; and (4) a general reduction in all policies and biases that favor homeowners over renters and borrowers over savers.

Obviously most working Americans and probably most economists have a pre-conceived notion that a recession is to be avoided at all costs. Certainly a recession will be painful and burdensome. But it should be increasingly clear to all that the productivity gains of the American economy over the past twenty years, while strong, have not matched the profligate spending trajectory of consumers and governments. It is irresponsible in the extreme to encourage them to continue on such a trajectory, piling debt upon debt. The crash for ourselves and our children will be that much harder.

A number of public policy mistakes over the past twenty years has distorted the economy and pushed our financial system to the brink. Two asset price bubbles have enlarged the financial services and housing sectors of the economy to unsustainable levels. The great challenge for our economy today is to restructure itself such that labor and capital can quickly and smoothly transition out of these sectors and into areas with profitability not dependent on asset prices artificially inflated by government policy mistakes. That restructuring is the recession that everyone fears. Better to have it happen quickly and efficiently than to continue to overemploy labor and capital where it is not needed and let the bubbles continue.

Mr. Bernanke’s inducement to ease credit for “consumers” and “homebuyers” is fighting the precise changes the economy is making to correct for its excesses. His is a foolhardy and short-sighted task. Like the Fed’s actions in 2001-2002 and earlier this year, these policies create the seeds for bigger problems later. Like Sisyphus, the more he pushes against the forces of nature, the greater the ultimate fall. May lawmakers have the wisdom to discard his advice.

Though opposed to the Treasury’s plan myself, I really wish people would stop calling it a $700 billion blank check. (Questioning the Treasury’s $700 Billion Blank Check: An Open Letter to Secretary Paulson). A “blank check", by definition, has no amount.

So apparently Lincoln Chafee, former Republican U.S. Senator from Rhode Island, and Jim Leach, former Republican U.S. Congressman from Iowa, are defecting their party and urging Republicans to vote for Barack Obama this fall, according to the Wall Street Journal (“Republican Trio Crosses Party Lines To Back Obama”).

Truthfully, I would be more concerned if they had endorsed McCain. Link Chafee and Jim Leach have lifetime American Conservative Union (ACU) ratings of 35 and 42, respectively. They deserve to be lumped in with Obama on the left side of the political ledger. If they had endorsed McCain, it would have been one more reason of concern that our presumptive nominee will not stand up for free nations, a free economy, and American values. These two (especially Chafee) were always thorns pricking the Republican leadership. Like conservative Democrats, it is best that they ditch their beguiling party labels and stay true to their ideology. They are not leaders, and John McCain should have no fear that this announcement means anything more than the loss of one vote in Rhode Island and one vote in Iowa.

By the way, Joe Lieberman has a lifetime ACU rating of 16. His endorsement of McCain is troubling to the extent that his consistently left-wing views on economic and social policy have any sway. But it is quite clear that it is for his stand on foreign policy in general and the Middle East in particular that Lieberman endorsed McCain. And it is far more significant that such a liberal Democrat ignores his life-long domestic policy convictions to stand with McCain’s because of his leadership on Iraq than for Obama to show that two liberal Republicans backed his pathetic candidacy.

In his article of today, August 8, Michael Gerson of the Washington Post makes a slip that shows why people have become very distrustful of the media. Dissecting why McCain still is in the race despite Republican woes this year, Gerson briefly discusses the impact of Obama’s unique black candidacy on the polling numbers:

There is clearly an undercurrent of prejudice in parts of the electorate, evident even among some Democratic primary voters. There is also massive enthusiasm among younger voters to break the color barrier in the Oval Office, coupled with large increases in African-American primary turnout. These unpredictable factors may well balance in Obama’s favor, which would speak well of the country.

How does this “speak well of the country"? To the extent that the injection of race into a presidential campaign has any affect whatsoever speaks ill of the country. Even if the factors balance out, the continuing existence of any factors caused by the specific race of a candidate should be a source of dismay to any enlightened observer. Perhaps we should all be glad if the factors did balance out. But what Gerson is saying, and what much of the media believes, is that if these factors play positively for Obama, that is indicative of our nation’s ongoing transcendence of the race issue. I wholeheartedly disagree. On the one hand, Gerson speaks of an “undercurrent of prejudice in parts of the electorate", which presumably favors McCain. On the other, he speaks of “massive enthusiasm among younger voters to break the color barrier", which favors Obama. Since he says that these combine as a net benefit for Obama which “would speak well of the country,” he obviously thinks that the enthusiasm among younger voters specifically in reference to breaking the color barrier is undeniably a good thing.

In my mind, the undercurrent of prejudice and the targeted enthusiasm, while working against each other, both are equally immoral. Both disregard sociotropic reasons for voting, such as a calculation of who would do well for the country’s economy or foreign affairs, in favor of indulgence in personal emotions rooted in racial distinctions. Too often liberal elites and the media see the tug-of-war on race between white animus and black success, and side with black success. But if that is the real fault line on race, the struggle will never end and the chasm dividing us will never be filled. The real tug-of-war is between race consciousness and color-blindness. And color-blindness sees wrong both in the voter who won’t vote for a black man despite his politics and in the voter who will vote for a black man despite his politics.

Obamamania is a real phenomenon. It is the tendency to treat the candidate Obama with non-traditional political analysis by focusing on his appearance and his race. The media denies that it is part of the phenomenon, that they simply report it. But when a middle-of-the-road journalist claims that the net benefit a candidate receives from his race alone is a good thing, it is clear that the media is neck deep in Obamamania.