Conservatism vs. Liberalism Part II: Conservatism (by guest author Maker from The Daily Switch)

February 27, 2009

This is the second in the two part series Conservatism vs. Liberalism. Forming the underpinning of our two most elephant-vs-donkey-boxingprominent political parties, the ideological debate over Conservatism and Liberalism is as old as our nation’s founding. Now, with a new administration in office, this debate has been reinvigorated. Part II features guest author Maker from The Daily Switch, offering an overview of Conservatism.

“I would rather be exposed to the inconveniences attending too much liberty than to those attending to small a degree of it.”

-Thomas Jefferson

As a young man, I remember listening to my father as he spoke of the world, man, and how things worked, with a fascinated reverence for this thing called Conservatism. Awe would tighten his voice as he told of the seamless way that this ideology worked with and through the strengths and weaknesses of man.  What my dad grasped, and passed on to me, is that conservatism is the only line of thinking that allows for life, liberty, and the pursuit of happiness. It is the only way for us to connect with and uphold that which the Founders had in mind. Conservatism is a deep breath. It is a pause to consider what we can glean from history and how best to apply these lessons to the situations and dilemmas facing us today. Where liberalism demands action, and action now, conservatism prescribes a tempered consideration of the past, present and the potential futures, before acting.

Liberty is at the core of conservatism. A love and defense of liberty fuels the entire philosophy. You won’t hear liberals speak of liberty very often, and for good reason. Liberty sits in direct opposition to the policies of the left. For the ideals of liberalism to be implemented, the people must willingly or unwittingly surrender an increasingly large portion of their liberty. As a matter of fact, the overwhelming majority of liberal ‘accomplishments’ are demonstrable attacks on liberty in the name of growing a ‘benevolent’ government. You see, from the left’s vantage point, you don’t and can’t know what is best for your life, so you need government to intervene on your behalf. Conservatism says that government can never know the best interests of its citizenry, or provide for them, nearly as well as an unencumbered free people can for themselves.

The fundamental differences between liberalism and conservatism pertain to the preferred size of government. Liberals: the bigger the better. Conservatives: less is more. These views have a direct causal relationship with the amount of liberty the citizens are afforded. Conservatism recognizes and encourages the goodness that man can achieve without placing faith in the mythical idea of man being inherently good. Where liberalism seeks to control and stifle people for their own good, conservatism seeks to set free and embolden people to pursue their best interests autonomously. 

Conservatism looks to free market capitalism as the only historically viable economic environment for freedom, while liberalism stubbornly places its faith in systems proved fatally flawed by history. Conservatism seeks in all things to preserve the framers intent for this country to limit the size and scope of government while ensuring the freedom of the common man. The Constitution was developed to this end, and has shaped our nation into the greatest the world has ever known. Conservatism views this greatness as something to be preserved and defended against the eroding effect of liberalism’s continual creep towards socialism.

Practically, what better time than now to look at the issue of taxes? Conservatism and liberalism line up reliably as supportive of lower taxes and higher taxes, respectively. More and more, liberals are admitting that their desire to tax the wealthy is less focused on government revenue than it is on ‘fairness’ or ‘leveling the playing field.’ Conservatives advocate lowering taxes across the board, and especially encouraging small and large business growth through lowered corporate tax rates. Liberals want to exponentially raise taxes on the top two tax brackets in an attempt to, as President Obama famously said, “spread the wealth around.” But, as Dr. Adrian Rogers said, “You cannot legislate the poor into freedom by legislating the wealthy out of freedom… [y]ou cannot multiply wealth by dividing it.” The inconvenient truth here is that, historically, government revenues increase as tax rates decrease and decrease as they increase. If you continue to raise taxes on these individuals, you discourage growth, job creation, and investment. If you cut corporate tax rates, you create an environment of productivity for a flourish of businesses that provide the jobs and products that Americans depend on. In this way conservatism embraces logic, the laws of economics, and liberty in a free market society.

There are countless ways that conservatism opposes the ill-formed and damaging ideas of the left and seeks to preserve what is right and good; that which we value most, by proposing time-tested solutions that honor the laws of nature and man. Conservatism perseveres despite the disadvantages of a Republican Party that has become more betrayer than advocate, a seemingly endless barrage of mischaracterizations by a hostile press, and an increasingly entitlement-friendly society. The place in a person that takes pride in hard work, relishes freedom and demands equal justice under the law is, on some level, inexorably drawn to conservatism.

Consider Jefferson’s notion above. This is the choice between left and right, liberal and conservative, tyranny and liberty.

-Guest author Maker (from The Daily Switch) on TruPolitics.net

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Conservatism vs. Liberalism Part I: A Proud Liberal (by guest author Saylor Smith)

February 27, 2009

elephant-vs-donkey-boxingThis is the first in the two part series Conservatism vs. Liberalism. Forming the underpinning of our two most prominent political parties, the ideological debate over Conservatism and Liberalism is as old as our nation’s founding. Now, with a new administration in office, this debate has been reinvigorated. Part I features guest author  Saylor Smith, offering a summary of Liberalism.

As a lifelong liberal, I look askance at the ascendance over the past two-and-a-half decades of the conservative political cause. President Ronald Reagan gave conservatism legitimacy in the 1980’s after its nearly two decades of decline. How, in recent years, did “liberal” become a pejorative hurled by conservative or moderate politicians at their left-leaning opponents? Why do liberals themselves now even run from the characterization, hiding behind the less specific and presumably safer “progressive”?

As I recall, liberals gave us Social Security, Medicare, Medicaid, civil rights and women’s rights legislation, farm subsidies, labor union rights laws, the minimum wage, FDIC, FCC, FHA and the Federal Reserve system, among many others, virtually all of which were consistently opposed by conservatives.

A liberal believes the government can and should solve many of society’s problems. A conservative believes big business should be granted the unregulated power to operate in society – corporate scandals of the past several years, the Wall Street meltdown and the banking crisis of the past few weeks certainly help to contradict that theory. Clearly, it is a whole lot easier to remove a government official who has to answer to the voters than it is to battle the powerful influences of millionaire corporate heads of such multi-nationals as Enron, Halliburton, Mobil and the insurance, tobacco and pharmaceutical companies, many of which operate, thanks to the conservative movement, with fewer governmental regulations.

It is “liberal” to favor environmental laws for the protection of our air and water; it is “conservative” to support the “rights” of oil, tobacco and coal companies to operate free of regulations. It is “liberal” to argue for reduced taxes for citizens with lower and middle incomes; it is “conservative” to argue for lower taxes for the richest corporations and for citizens with the highest incomes. It is “liberal” to favor reasonable gun control legislation, including laws that outlaw the sale and ownership of assault weapons; it is “conservative” to support every citizen’s right to own and use guns. It is “liberal” to favor laws that grant equal rights to all American citizens; it is “conservative” to oppose equal rights for those individuals deemed “unworthy.” It is “liberal” to insist that a wealthy, civilized nation such as ours should provide health insurance for all of its citizens; it is “conservative” to insist that every man or woman should shift for him- or herself. It is “liberal” to argue that taxpayers should support – even with their pocketbooks – strong, safe public schools; it is “conservative” to insist that public education can get by on less. Liberals fight for First Amendment rights, especially the constitutional guarantees of a free press and free speech; conservatives fight for the Second Amendment guarantee that, as they see it, a citizen may carry a gun at any and all times and places. Liberals fight for an Equal Rights Amendment to expand rights of citizenship; conservatives fight for a constitutional amendment to ban gay marriage, thereby denying rights of citizenship to a certain group.

The governmental concept of liberalism is, I believe, responsible for developing and strengthening one of the greatest forces for good in our society, protection of the minority from the “tyranny of the majority,” an often overlooked hazard in a democratic society. Without that protection, groups such as African-Americans, Latino-Americans, Asian Americans, Native Americans, Muslims, Jewish Americans, women and seniors might never have gained their rightful standing as full-fledged citizens. Gay and lesbian Americans continue the fight.

Liberalism is defined in “Webster’s Dictionary” as “a political philosophy based on belief in progress, the essential goodness of man, and the autonomy of the individual and standing for the protection of political and civil liberties.” Conservatism is defined as “a political philosophy based on tradition and social stability, stressing established institutions, and preferring gradual development to abrupt change.” Neither political philosophy is “correct,” but it seems fair to argue that over the past seventy-five years the unique form of liberalism that developed in the United States has been the most powerful and consistent force for good on the face of the earth. 

I, for one, am proud to add my name to the bottom of a list of American liberals that includes Franklin and Eleanor Roosevelt, Harry Truman, Adlai Stevenson, John, Robert and Ted Kennedy, Hubert Humphrey, George McGovern, Martin Luther King, Jr. and, yes, Barack Obama.

-Guest author Saylor Smith on TruPolitics.net

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It Is Time to Believe Again

February 23, 2009

“The path we have chosen for the present is full of hazards, as all paths are. The cost of freedom is always high, but Americans have always paid it. And one path we shall never choose, and that is the path of surrender, or submission.”

-John F. Kennedy

We are a nation of pioneers, of revolutionaries, and of dreamers. A people who seize opportunity, work hard to build better lives for our families, and let nothing short of excellence satisfy us. Our heritage is rich with the courageous, and marked by people who have overcome. We were born out of Revolution, when people desiring freedom and opportunity won the most improbable war against the world’s foremost superpower. We subdued a wild continent, ventured West, and were both pioneers and pilgrims. We overcame a brutal Civil War, defeated the dark forces of Nazism, and brought about the beauty of civil rights to a nation long overdue. We emerged from The Great Depression to lead the world economy, became the standard bearer of democracy and freedom, and rose as one from the shadow of September 11th. gadsdenflagThis is the Land of Opportunity, of “Go West, young man,” “I have a dream,” and “Life, Liberty, and the Pursuit of Happiness.” This is our heritage; it is the lifeblood of who we are. We have always believed that the future will be better than the present, and that there is nothing we cannot overcome. Courage, passion, optimism, and dogged patriotism are woven into the fabric of our nation. But where are they now?

Too quickly we are letting the difficulty of the times cloud our judgment. Today’s headlines are wrought with stories of Wall Street’s downturn, an economy in turmoil, and millions of jobs lost. And where have we turned for safety? Where have we looked for rescue? The government. We now believe that a bailout is tantamount to the market, and that government handouts trump personal responsibility. The cloud has darkened so much that we think the only way out is for the government to nationalize private industry, pay off sinking mortgages, and buy up toxic assets. Our President, who promised hope and change, and brought the mantra of “Yes, we can,” has since turned to call this an uncontainable crisis, that “we may not be able to reverse,” and will quickly become equivalent to the Great Depression. And now, despite our heritage, we are being told we need to change everything. The free market and private industry that have driven us to the greatest standard of living in the world suddenly must be thrown away. The values of personal responsibility and persistence have quickly been replaced by a victim mentality clamoring for handouts. The American Dream that became reality for so many, that anyone can become anything through personal industry and perseverance, suddenly is just a dream. What changed?

On the one hand, this persistent doom and gloom is a product of both political and media opportunism. Fear and sensationalism sell newspapers. Nobody wants to read about the sunny and safe day at Disneyland-it is the broken roller coaster that zooms off the tracks that gets headlines. The murderers make news, not Joe Average who spent a simple day at work and came home to his family. Politically, fear is an incredibly powerful tool. It allows you to accomplish things you otherwise would not be able to accomplish (see The Obama Stimulus: A need for sober judgment). If the American people believe that they will sink into The Second Great Depression if they do not pass an $800 billion stimulus bill, they will pass the bill no matter how much waste is in it. A crisis environment drives and justifies action because the status quo becomes patently unacceptable. And if you paint a dark enough picture early on, you cannot be blamed when things do not improve. It is the classic case of under promise, over deliver. If things don’t work out, it wasn’t your fault anyway.

But it is time to push political and media opportunism aside, and to return to the roots of this great country. Great leaders inspire those who follow them, and motivate belief in the ability to overcome. What we have right now is not a crisis of economy or of the financial markets, but a crisis of confidence. We have lost the identity that makes us American. And since the markets are fundamentally predicated on the confidence of consumers, investors, and entrepreneurs, crushing this confidence only accelerates the downturn.

More government control means less faith in the people. What we need right now is less bailout, less handout, and less government. Cut taxes to spur growth and place faith in the people to produce and consume out of the crisis. Move out of the way of private enterprise, and encourage fresh industry. Most importantly, demonstrate belief and inspire confidence in the citizens of this great nation. It is time to regain confidence and remember who we have always been: Pioneers; pilgrims; revolutionaries; entrepreneurs; dreamers; patriots–Americans.

The foundation of our country was fastened with individual liberty, opportunity, responsibility, and courage. We have never been a people dependent on our government, or doubting in the future. We faced down Soviet Russia, reached the moon, and became pioneers of science and titans of industry. We are a nation that proudly waved the Gadsden “Don’t Tread on Me” flag, not the white flag of surrender. It is time for our country to remember its heritage, and for our leaders to renew their belief in our people. It is time to believe again.

-Matt Benchener from TruPolitics.net

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Adding Seconds to a Ticking Time Bomb

February 19, 2009

“All of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to deepen…if we act boldly and swiftly to arrest this downward spiral, every American will benefit.”

-President Barack Obama

President Obama announcing his mortgage relief package in Arizona

President Obama announcing his mortgage relief package in Arizona

Yesterday, President Obama announced a $275 billion package aimed at aiding struggling homeowners at risk of foreclosure. The plan allows these homeowners to refinance their loans through the government-controlled mortgage giants Fannie Mae and Freddie Mac, while also providing incentive to lenders to modify loan terms for people at risk of foreclosure or already in foreclosure proceedings. The combined affect would be substantially lower mortgage interest rates and monthly payments for these at risk homeowners, something the Obama Administration hopes will reverse the housing downturn by stalling foreclosures. While President Obama is right to say that the housing crash has greatly damaged the whole of the market (see The Financial Crisis Part I), and this is certainly a step in the right direction, the plan is deeply flawed and may lead to significant long-term consequences.

Subsidizing poor investment: First, as noted in a previous post, sub-prime mortgages were the primary driver of the financial crisis. The proposed plan does not solve the sub-prime problem, but instead props up these poor loans for a little while longer. The homeowners who are at risk of foreclosure purchased beyond their means, meaning that their income could not pay for the quality or price of house they now own. Simply lowering their interest payments and restructuring their loans does not come close to elevating their mortgage values to what lenders consider prime or even stable mortgages. Said Alan White, an assistant professor Valparaiso School of Law, “You’re building payment shock into people’s loans, and the payment shock is what created the problem in the first place. You are assuming again that home prices will continue to rise.” The plan attempts to delay high payments in the short term by restructuring loans, but the true value of the house and the required payments have not changed. In fact, a recent study by the Office of the Comptroller of the Currency (OCC) showed that nearly 60% of at-risk home buyers who decide to restructure their loans default anyway. Why? Simply put, the irresponsible buyers have not changed; the value of the home has not changed; so the risk of foreclosure is not substantially affected. Rather, we are simply adding seconds to an already ticking time bomb.

Inflating the housing bubble: The housing bubble initially inflated because of the mass issuance of sub-prime loans, which led quickly to the over-valuation of real estate. Sub-prime loans essentially increased the demand for housing artificially, which in turn artificially propped up housing prices. The bursting of the bubble, as a result, was the market returning housing prices to their proper levels–a market free of sub-prime loans (as with all bursts, the market decelerated beyond its true normal valuation, but that will correct over time). The Obama Plan will inflate the bubble yet again by keeping sub-prime homeowners and mortgages in the system, propping up demand beyond its normal limits. It is simply setting us up for another burst and another future recession. This is especially true when you consider the rate cuts and restructuring inherent in the plan–we are ‘re-inflating’ the bubble.

Taxpayer dollars: Significantly, the plan is being fully funded by taxpayer dollars, with the public absorbing a minimum of $200 billion worth of risk that will be passed to the government-owned Fannie Mae and Freddie Mac. If you were responsible when you purchased your home and did not spend beyond your means, then you are not helped by this plan. The government is using responsible taxpayers’ money to pay for the indiscretion of the irresponsible. If you follow the dollars through to the end of the plan, taxpayers are essentially paying irresponsible homeowners’ mortgages through lower rates and adjusted principle. This is not to mention that the risks inherent in this plan are far too heavy to place on the public. If these were toxic loans before, they will continue to be toxic in the future. Now, however, the risk of default has been shifted from the banks and the homeowners themselves to the taxpaying public. 

A better solution: The solution to the financial crisis needs to span more than just the housing market, but it is an important place to start. However, rather than prop up at-risk homeowners and expose the public to all the risk of default, we would be best served by providing a tax credit to all homeowners. This would serve the dual purpose of helping at risk homeowners pay for their mortgages without inflating the bubble with new loans, and give those stable homeowners more money to pour back into the economy through investment and consumption. Furthermore, it does not widen, but shrinks, government’s reach in society, and eliminates the public absorption of risk while keeping it where it belongs–in the market. To have an impact, the credit would have to be significant (unlike the Bush plan of $600). Instead of the $275 billion the Obama Administration plans to spend on this package, a $2500 tax credit per household would be of equal value and far more impactful. This is fair, just, and helps all levels of the taxpaying economy.

-Matt Benchener from TruPolitics.net

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The Curious Case of Nadya Suleman

February 14, 2009

A few weeks ago, Nadya Suleman made national headlines for successfully giving birth to octuplets. While the medical nature of her case is astounding, it is the content of her actions that is most important politically. Consider the context: First, Ms. Suleman already has six children, three of whom are disabled, and yet chose to pursue in-vitro pregnancy. Second, given the health of her children and her own poor financial state, Ms. Suleman receives nearly $500 a month in food stamps, and thousands more in child disability and general welfare payments. This begs the question of how a woman on welfare and food stamps could afford a $15,000 elective in-vitro pregnancy, take masters classes at a local college, and have her own personal publicist. Asked this question in a recent interview with NBC, Ms. Suleman said that she had saved some of the more than $165,000 in disability welfare payments she received after being injured in a 1999 riot at a state mental hospital where she worked. Add to these costs the estimated $1.2 million hospital bill from the recent birth of her eight children, a bill which she will not be able to pay due to inadequate insurance, and there are serious questions about the integrity of the welfare system.

Nadya Suleman

Nadya Suleman

Where does the money come from to pay for Ms. Suleman’s food stamps? You and me. Where does Ms. Suleman’s monthly disability check for her children come from? You and me. Where did the $165,000 in personal disability payments come from that she adimitedly used for masters classes, a personal publicist, and an in-vitro pregnancy? You and me. Where will the residual of the $1.2 million in hospital bill be passed? To the state, and then to you and me. Where will the hundreds of thousands of dollars in additional welfare to support her eight new children come from? You and me.

Ms. Suleman’s case throws light onto the politically protected arena of welfare payments and the ideology that forms its underpinning. Most politicians shy away from criticizing the welfare system because they are afraid of seeming uncompassionate toward the poor. But this trivializes an important ideological debate: The liberal view of government believes that government is the answer for society’s problems, and should also level the playing field for all; conservatism holds that individuals should take responsibility for their actions, and that the government’s essential role is to protect personal and property rights. As such, liberalism forms the foundation for welfare, as government payments and handouts are seen as the support needed to provide for the poor and make ‘fair’ a society tilted away from the underprivileged.

“In her view these are just payments made for people with legitimate needs…She just believes that there are programs for people with needs and she and her children qualify for some of them.”

-Michael Furtney, Ms. Suleman’s personal publicist.

However, as seen in Ms. Suleman’s case, this type of support not only encourages abuse of the system, but also inefficiently and indiscriminately allocates taxpayer dollars. The statistics are staggering: Unemployment welfare rates and the unemployment rate have an almost 1:1 correlation, meaning that the more the government pays in welfare to the unemployed, the higher the unemployment rate rises. Why? Workers simply lose the incentive to return to work if they are paid not to work. This effect multiplies as the welfare rate multiplies. Then there is the wide spread case of so called “welfare queens,” or single mothers who choose to stay on welfare rather than return to work. Why? Because once a single mother gets a job, she loses her welfare payments. Even once she begins working, her welfare payments decrease as her wages increase. As a result, unless she can make over the tax free average of $750 a month, there is often no reason to find work. So who pays her bills? You and me.

Of course, there are millions of single mothers who work extremely hard to find a job and are legitimately aided by welfare, and they should be praised for their dedication to their children. The problem, however, is that cases like Ms. Suleman’s are entirely too prevalent. And, since welfare is fully funded by taxpayer dollars, it is literally our money being wasted each time a case like this arises. Wouldn’t you be upset if Ms. Suleman stole $15,000 from you to pay for her in-vitro procedure despite the fact that she already had 6 children? The problem is that welfare is spread so thinly through society, and is then redirected through the government, that the cost seems distant and impersonal. That is why Ms. Suleman’s case is so important–it brings to light the misuse and inefficiency inherent in social welfare programs and large government philosophy.

This does not mean that we should ignore the poor or turn away the downtrodden. Rather, practically, any welfare program should be directed only to those who cannot physically work. Ideologically, we must recognize that personal responsibility should always trump government support, and that indiscriminate spending of taxpayer dollars represents a fundamental violation of private property and individual rights. Otherwise, Ms. Suleman’s poor choices will continue to cost you and me.

-Matt Benchener from TruPolitics.net

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The Financial Crisis: Understanding the Causes

February 11, 2009

 Many people know and hear about the recession, but do not understand how we got to this point. This post seeks to provide a concise high-level account of the key factors contributing to the downturn.

The current financial crisis has been the focus of nearly all media attention, policy debate, and popular conversation for the past five months. Both the depth and ferocity of the downturn makes this a truly historic time, and the decisions made to solve the crisis will have an enduring impact on both our financial system and national economy. In order to frame these discussions properly, it is important to have an understanding of what happened and how we got to this point.

The Housing Bubble: The root cause of the crisis can be traced back to the burst of the housing bubble, which began by most estimates in early 2006. The build-up of the bubble was, like all bubbles, based on the façade of massive profit with little regard to risk. Banks were offering the now famous NINJA loans (no income, no job, no assets) to people who were at a high risk to default, and sub-prime mortgages swiftly became the norm. These banks were chasing the enormous profits inherent in bulk loans, but with shockingly little regard to the enormous risk they were taking on. When the bubble finally burst, and no one was able to pay their mortgages, the banks got stuck with all of the bad debt you now hear so much about.

Wall Street Doubles Down:  Behind the scenes of the mortgage defaults was wide spread investment in complex financial instruments called Collateralized Debt Obligations (CDOs). Essentially, a CDO is a type of asset-backed security–a bond backed by a mortgage in this case. The problem with CDOs is that the originators of the loan retain no risk for the poor loans they make, but still collect the interest on those loans. Simply put, a bank would make a sub-prime loan, give the mortgage risk to an investor (passing the risk to the investor), and still collect the loan payments.

With housing shooting through the roof in the early 2000s, Wall Street investors invested heavily in CDOs, essentially doubling down the risk on the sub-prime mortgages. This was all exacerbated by mismanaged rating from credit agencies, who undervalued the risk inherent in these complex financial instruments. The bottom line is that Wall Street doubled down on the heavy risk the banks were already taking. Everyone wanted the profit grab from the bubble, and nobody seemed to care about the risk.

The Bubble Bursts: When you loan people money who shouldn’t be loaned money, they will default. Millions of people were given mortgages $100,000 to $200,000 more than they could actually afford, and eventually they weren’t able to pay. Finally, the housing bubble burst. When this happened, revenue the banks had relied upon from mortgage payments and interest was no longer there, and Wall Street’s CDO investments all crumbled almost overnight. With commercial banks struggling to cover losses, and Wall Street investment banks taking hits from CDOs and mortgages, the market began to collapse quickly.

financial-crisis6

Credit Crunch: The massive losses in both commercial and investment banks created a classic credit crunch, meaning that banks were unwilling and unable to loan money out to investors and consumers. Since credit forms the basis for much of the market’s function, the freeze meant a halt to nearly all significant investment. Essentially, banks now had to pay for the risks they had taken, so they could not afford to loan out any money. The lending system forms the foundation for our economy, so a credit and liquidity crisis meant a full stop to investment and growth.

Consumer Fear: The sharp downturn decimated millions of 401(k)s and portfolios, and brought fear into the marketplace. Consumer spending declined sharply as people worried about job loss and their rapidly shrinking portfolios, and justifiabily sought to save to cover losses. Consumer confidence reached a 30 year low at the end of 2008 and job loss accelerated quickly in a stalling economy (2.6 million lost in 2008 alone). Combine low confidence, falling wealth (from investments), and massive job loss, and the economy moves rapidly into a classic recession.

A Vicious Cycle: Unfortunately, as you can see from the chart, we are in a terrible cycle. Recession and job loss only further accelerate mortgage defaults, which fuel the credit crisis and so on.

-Matt Benchener from TruPolitics.net

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Walking a Dangerous Line

February 6, 2009
Ken Lewis - B of A

Ken Lewis - Bank of America

Lloyd C Blankfein-$68.5 million; Kenneth D. Lewis-$24.8 million; James Dimon-27.8 million; John Mack-$800,000. These are the CEOs of Goldman Sachs, Bank of America, J.P. Morgan Chase, and Morgan Stanley, respectively-all companies that have taken significant aid from the government’s TARP program. And those huge numbers represent their total compensation packages from the past year, even as their companies posted a combined $52 billion decline in year-over-year earnings. With that kind of disparity and excess, many Americans have expressed disbelief and anger that these CEOs are being paid so much with so little apparent return to shareholders.

In response, the Obama Administration recently enacted executive compensation caps of $500,000 for all “senior leaders” whose companies take significant funds from TARP (the government’s relief bailout program). This is a well calculated political move, in that it speaks directly to the public outrage surrounding these men, but may have devastating long-term ideological and practical consequences. Are these men overpaid? Probably. But the question should not be whether or not these men are overpaid, as has been the focus of so much media and political attention. Rather, the debate should focus on who should decide the compensation packages of these men: The free market or the government? Whenever the free market collides with partial regulation, unintended consequences result.

Consider the following:

Let’s say the Baltimore Orioles, Cincinnati Reds, and Oakland Athletics all had such terrible records and attendance last year that they are on the verge of bankruptcy. Knowing that the loss of such historic franchises would greatly damage Major League Baseball and its fans, the MLB officials decide to bailout each team with a large infusion of money. The terms of the bailout, however, require that no player on any of the three teams make more than $500,000 per year. If the teams are losing so many games, and aren’t generating revenue, why should any of the players make a fortune? Consider also that the average salary for a top MLB player is approximately $5 million per year. The next season, all of the teams’ top talent come up for free agency, and leave to go to other teams in the league that can pay them their true market value. The three bailout teams were already terrible-now their best players have left to go to teams willing and able to pay them. Soon after, with continually poor records and declining fan bases, all three teams fold.

Limiting executive pay sounds like a great idea on paper, but in the end it sets a dangerous precedent, and only further hurts struggling firms. We are already seeing this with TARP companies. AIG, for example, has seen a well documented outflow of its senior talent to competitor firms, and is now struggling to weather the crisis. This pattern will repeat again and again if applied. Whether it is human talent or industrial goods, the market will always guide the greatest supply to the greatest demand.

This is not to mention, of course, that CEOs all answer to a board of directors and a mass of shareholders. If they want to compensate their leaders at such high rates, it is their choice. If an owner of a baseball team wants to pay a player a huge salary, even overpay him, it is the owner’s choice. If the fans don’t like it, they can stop going to the games. If the shareholders don’t like it, they can sell the stock or elect a new board of directors.

Finally, it has become popular to say that since taxpayer money is funding these men, the government has the right to intervene. But that’s simply not true. Taxpayer money is funding the capital, credit, and toxic assets on the books of these companies, not employee salary. And if we are comfortable saying the CEOs are overpaid, what about the mid-level manager who makes $100,000 a year and is also seemingly under-performing? Should we slice his salary in half? I certainly understand and share the outrage at the excess-especially with $80,000 office rugs and multi-million dollar private jets-but we walk a dangerous line when we want the government to control company spending.

We can debate the merits of each leader, and chronicle spending indiscretion endlessly. But the fact remains that unless you impose a nationwide salary cap, the merits of which wilt under any capitalist consideration, the plan will only hurt shareholders, and eventually the country.  It is not for us or the government to decide what these men should be paid. Is the public outrage justified? Yes, but it is misplaced. If you think these men are overpaid, blame the board of directors and the shareholders that elected them, not the government.

-Matt Benchener from TruPolitics.net

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Does Daschle Matter?

February 4, 2009
Associated Press

Associated Press

“I’m here on television saying I screwed up and that’s part of the era of responsibility. Ultimately it’s important for this administration to send a message that there aren’t two sets of rules.”

-President Barack Obama

Yesterday, President Obama’s pick for Health and Human Services Secretary, former Sen. Tom Daschle, withdrew his bid for the post amid questions over his failure to pay approximately $100,000 in taxes. The media is making a big deal about it, with both liberal and conservative outlets attacking Mr. Daschle’s integrity, as well as questioning President Obama’s pledge to raise the ethical standards in Washington. And yes, it matters.

The essence of a democratic republic is trust.  What makes representative government distinct from other forms of government is that citizens choose who will lead them, so the defining sociopolitical act is the transfer of trust in a vote. When you elect someone, you are allowing that person to shape both the society you live in, and to some extent, the trajectory of your life. The right to govern is a powerful right to grant anyone, so with it come sharply elevated accountability and responsibility to those who place their trust in you.

“It’s obviously a mistake. But I think it’s an innocent mistake. I don’t think it affects one iota his ability to do the job.”

-Senator John Kerry 

So, when government officials from any party display a lack of integrity, the public has the right and responsibility to come down with swift judgment. It is easy to say, “So Sen. Daschle simply didn’t pay a portion of his taxes? That happens all the time.” While that is true, the responsibility of the office means that Mr. Daschle’s transgression was not just against the IRS, but against all American citizens. He violated our trust. This is not a partisan or politicized issue; any leader who displays such a lack of integrity should not be governing.

However, something significant also happened that is being buried beneath the scandal. While one official broke our trust, another took a step to build it. Despite Mr. Daschle’s misstep, President Obama displayed a powerful and refreshing sense of leadership in the handling of the situation. Rather than give a speech about the need for reform in Washington, or express how blindsided he felt, President Obama did what few leaders have had the courage to do: He took responsibility.

In a news conference following Mr. Daschle’s withdrawal, President Obama said, “I’m here on television saying I screwed up and that’s part of the era of responsibility. Ultimately it’s important for this administration to send a message that there aren’t two sets of rules. You know, one for prominent people and one for ordinary folks who have to pay their taxes.” President Obama later added, “[I am] frustrated with myself, with our team…ultimately my job is to get this thing back on track.” This type of honesty and responsibility is what we should demand from our elected officials. Most politicians would have deflected the blame, but President Obama has decided to shoulder it–that  engenders trust.

This, of course, is not to say that I fully support President Obama. I have been a great critic of his policy initiatives and social-liberal framework. But, as I mentioned at the launch of this site, the goal is to weigh the issues evenly and offer a fresh, non-partisan perspective. While conservatives may disagree with his policy, it is difficult to deny a display of great leadership. And that matters.

-Matt Benchener from TruPolitics.net

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The Obama Stimulus: A need for sober judgment

February 2, 2009

With a political environment and public calling for action, and a party and President in command of nearly all policy intiatives…what would you do if you were in power?

The current economic downturn, wrought with daily headlines decrying financial crisis, has created a political environment starving for action. Coupled with the sweeping popularity of the newly elected President, the state of the economy provides a powerful opportunity for the Obama Administration to get something done. This is nearly always true for Presidents in a time of perceived or actual crisis—the status quo is never acceptable for voters when the world seems to be falling around them, so movement in any direction is immediately popularized. People often forget, for example that over 75% of Americans supported the Iraq War in the weeks prior to invasion, largely because it was so closely positioned to 9/11. And, regardless of political preference, most people believe that some action needs to be taken to reverse the downturn. In short, we are a nation ready to be lead, ready for movement, or even change.

“Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.”

-Rahm Emanuel, White House Chief of Staff

 It is also clear that the Democrats control the House and Senate by a wide margin, and have plenty of political capital to spend behind one of the most popular newly elected Presidents in our nation’s history. So, with a political environment and public calling for action, a party and President in command of nearly all policy initiatives…what would you do if you were in power? What they have done with the recently proposed $825 billion stimulus is not terribly surprising given the political opportunity, but it is deeply troubling. The “stimulus” is anything but, with only 23% ($90 billion) going toward a growth stimulus package (tax cuts plus infrastructure investment), and the other $735 billion going toward various political agenda items. Among the most egregious pork-filled agenda items:

 

1. Nearly $4 billion to ACORN (the far-left group that helped President Obama get elected); 2. $2.4 billion for carbon-capture demonstration projects (a hot button environmentalist agenda item); 3. $400 million for global-warming research; 4. $20 billion for food stamps and $36 billion for expanded unemployment welfare (welfare expansion policies long hoped for by Democrats); 5. $50 million for the National Endowment for the Arts; 6. $150 million to the Smithsonian museum.

 

Those items are simply the tip of the iceberg, and represent what the Wall Street Journal so adeptly called “A 40-Year Wish List” for the Democratic Party. Will $150 million to help update the Smithsonian’s collection help thaw Wall Street’s credit freeze? Will $2.4 billion for a controversial environmentalist carbon-capture program bring back the housing market? Will $4 billion to the extremist group ACORN spur business investment and job growth? This is not to mention the vast expansions of welfare programs, which have been shown to have a direct inverse correlation to job rates and economic growth.

 

Here, it is not important to discuss the merits of many of these proposals in and of themselves–some of them might even be important in the long run. However, at a time when the nation needs a serious answer to a complex financial problem, there is simply no justification for these line items. They certainly do not deserve to fall under the touted umbrella of a stimulus or economic rescue plan.

 

What we are seeing is a troubling display of partisan politics in a time where the country needs sober judgment and unifying leadership. If President Obama wishes to be the great unifier he spoke so much about, he will need to realign his policy to reflect the needs of his country, not the wishes of his party. This is something both Democrats and Republicans can agree upon.

 

-Matt Benchener from TruPolitics.net

 

 

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