I Want a Divorce

As I hear people express disgust at the federal government, I also pick up a tone that's kind of like: “Why can’t you meat heads just get the job done like your political forebears did?” or “Why can’t we just get back to the way things were when Washington worked?”  How many times have I heard reference to President Reagan and Tip O’Neill (at one another’s throats during the day, sharing a beer after hours) lately? 

I’d like to advance a view of modern American political history that goes something like this: we haven’t truly had substantive collaboration in Washington for decades now.  What’s felt like cooperation to us hasn’t been true give and take.  Rather, it’s been a long series of negotiated settlements financed by the issuance of U.S. Treasury bonds.

'I want a new kitchen counter top.'
'Oh, yeah?  Well I want a new bass boat!'
'Hey, how about we get both and put them on the card?'
'Great idea!'    

That game is over.  Bond investors and rating agencies have begun to tell us that we need to stop, that we can’t continue satisfying all of our diverse wants by putting our purchases on 'the card', so to speak.

Republicans favor limited government and free enterprise and Democrats see government as a force for good and a crucial provider of social services.  Republicans don’t want to raise taxes because they see the oppressive tendencies of bloated federal bureaucracies.  Democrats don’t want to stop spending money on social programs because it would kill their very purpose for having a government.

On the face of it, is either of those a bad preference?  Think about it for a minute.  I’m sure you, like I, have a preference for how society SHOULD look or an opinion about how it operates BEST.  But is either of those desires inherently wrong?  I don’t think so.

What is wrong is pretending that we can eat our cake and have it, too.  We can’t prioritize both low taxes and government programs.  The price of equality is liberty, and vice versa.  France's national motto is idealistic, not realistic. 


Last November we were treated to bureaucratic sausage making at its finest: the “Supercommittee” negotiations.  This committee was the product of the settlement to raise the debt-ceiling last August and was comprised of six Democrat and six Republican senators & representatives.  They were tasked with finding a compromise to restore a modicum of health to the federal budget (or, rather, what would be a budget, if they'd passed one in the last three years).  Both tax increases and reforms to the real fiscal nightmares ahead (Medicare & Social Security) were to be on the negotiating table.  Shortly before Thanksgiving, however, the Supercommittee announced that it had failed to come to an agreement, thus triggering automatic spending cuts, mainly to defense and certain discretionary items.

The Supercommittee's failure was one of the most predictable outcomes of the last decade.  Did anyone really think the six Democrats on the Supercommittee would be able to look their constituents in the eyes after agreeing to any substantive entitlement cuts?   Could the six Republicans renege on their promises to not raise taxes?  Each of the 12 committee members had simply voted the way they’d been elected to vote.

Republican Supercommittee Co-chair Jeb Hensarling summarized the failure well in a Wall Street Journal Op Ed (November 22):  “…I believe my Co-chair, Sen. Patty Murray, and every Democrat acted with honor and integrity and negotiated in good faith to the end…Ultimately, the committee did not succeed because we could not bridge the gap between two dramatically competing visions of the role government should play in a free society, the proper purpose and design of the social safety net, and the fundamentals of job creation and economic growth.”

That strikes me as a pretty fair way of summarizing the problem. Things don’t get immediately easier with this realization.  In fact I think they’re almost certain to get a lot harder before we resolve anything.  But, I think acknowledging this gulf offers the possibility of a much more civilized negotiating process going forward, one which I think can lead to deep healing from some serious societal dysfunction.

The first step in this healing process is admitting that we have a problem.  Our problem is two competing societal views, which cannot both be satisfied.

I propose a divorce.

I don’t mean a name-calling, plate-throwing, dog-kicking divorce.  I'm just being real about our massive irreconcilable differences and I think splitting up is very sensible.  What I mean is it’s time to acknowledge that we’re never just going to “get along” again.  Let’s let our nostalgia for political cooperation, collaboration, and compromise just die—they’re anachronistic, given the magnitude of the current divide.

One way to move forward is through a more clearly federalist form of government: transfer most power, money, and responsibility back to the states and let the genuine differences flourish.  If Wisconsin wants to pay public school teachers minimum wage, let them.  If Massachusetts wants to allow its citizens to add their livestock to their health insurance policies, let them.  If we get 50 smaller laboratories experimenting with social and economic issues, we’ll be much more likely to distill the most effective public policies.

Plus, we’ll all be happier. You know, that freedom of association thing.
 
I’m not suggesting that we do away with the Federal government.  Keep the constitution, the military, the Supreme Court, and the Fed (Ron Paul’s off his rocker on this one), so long as we really limit the last one.  Keep Congress and the Presidency.  Heck, the Commerce Department might actually become relevant in that scenario, ironically enough, so keep it for the time being, too.  But most everything else could be done more effectively—and harmoniously—in the 50 state “laboratories”.  California learns from Tennessee's experiments, which learns from Ohio's, and so forth.

I don’t suppose that the split would be easy: if one state starts to migrate to the right, there’s no reason to think the progressives there will enjoy it and stay put.  Likewise, for example, if Indiana shifted dramatically to the left, I don’t know for sure that I’d move, but I would certainly encourage my kids to be deliberate about where they choose to settle because their residency choices would bear significantly on their social satisfactions.

Does this sound ridiculous and extreme? Maybe, but it really shouldn’t.   The reality is that the divorce has already happened in our hearts: all that's changed is we've lost our ability to remain in denial.  How we proceed with the split is key.

If not federalism, then what?  Moderates take over?  Hardly.  The recent political volatility is the result of the perennially wishy-washy—neither the left nor right would tolerate that.  The Socratic "golden mean" was a nice idea, but often times is as realistic and useful as a painting of a unicorn.  Don't get me wrong: moderates are often both peacemakers and pragmatists, and I respect those qualities.  It's just that the time of giving a little something to everybody is over.  We really have arrived at the big fork in the road.

The Left takes over?  Maybe, but you might as well start filling container ships with American capital and sending it to foreign markets (Think I'm using hyperbole?  Read this).  Our standard of living will get absolutely creamed if we follow President Obama's impulses. Plus, there are those pesky Second Amendment & military asymmetries to be reckoned with.  The Right takes over?  Only if you’re prepared for even bigger and more violent OWS-style wealth disparity protests, general strikes, etc.  And, many on the left would sooner die than be governed by someone they perceive to be a theocratic nut-job who champions social liberties, but only as he defines them. 

Coercion is coercion, whether from the left flank or the right.   If we shrink the number of instances where we have to coerce one another, we'll necessarily have fewer opportunities for division, bitterness, and hatred.  

As I see it, the way to avoid a second American civil war down the road is to figure out how to live peaceably in the same house right now and quit pretending that we’re going to get along again someday. Let’s just get a divorce--a federalist divorce.  We’ll all be happier.

Reality and Fantasy: The Economic Pie

All governments have certain financial obligations.  Which obligations they ought to have is a matter for political philosophy.  How they most prudently meet their obligations is, at least in part, an economic question.  It’s an important topic right now because if things don’t change pretty significantly, the U.S. may not be able to meet all of its projected expenses.  

There are essentially three views as to how we can satisfy those obligations, and they segregate into two camps: the size of the American economic pie is fixed, or the economic pie can grow.

The Occupy Wall Street crowd is the clearest example of fixed-pie thinking.  The very act of labeling citizens by their income percentile betrays a fixation on current wealth / income and ignores the implications of future economic growth.  Can you imagine any self-respecting OWSer arguing that in order to wring more money out of the 1% we should figure out how to incentivize them to deploy their wealth more productively?  Their rhetoric is entirely confiscatory.    

Reality is not on their side—economies grow.  The basic equation for macro-economic growth is a rising population + increasing productivity.  Both of those trends are intact globally and show no signs of letting up in the next several decades.   

Some fixed-pie folks may claim to have a right to a larger piece of that growth, but that is a question for political philosophy--and hopefully, the rule of law--not economics.  

The other group believes that the economic pie can grow.  They believe that taking money out of the public sector allows it to be put to work more productively in the private sector, which raises taxable incomes and which in turn leads to higher tax receipts.    

Growing pie proponents include “supply-siders”.  Supply-siders argue that that there is no limit to the amount of economic benefit realized through cutting taxes, and that because of this, the more taxes are cut, the more tax money will be raised through taxes.

Ultimately it’s a view that reduces to the absurd: if we were to cut total federal tax receipts from $1 to $0, would we really somehow then take in more money?  Reality is on their side, but only to a point.   

  

The other growing-pie sub-group—we’ll call them the “optimal tax” group—says to the fixed pie-ers and the supply-siders, “Wait a minute, there must be a tax structure that engenders economic growth through private sector profit retention, and maximizes tax receipts to meet government obligations.”

One challenge—especially difficult in an election year—is to distinguish whether popular arguments pertain to political philosophy, or to economics.  Another challenge is to decide which economic arguments are reasonable.  

The fixed-pie crowd has a tough time distinguishing between philosophy and economics and when they do, they make poor arguments like: “redistributing wealth will allow ‘middle-class families’ to spend more money and, thus, increase economic growth.”  Hmm.  How do we know that consumers will spend money more productively than hirers?  Empirically, we’re seeing the limits of that notion right now: far from spending their FICA tax holiday money, consumers are paying down debt.

Supply-siders also frequently blur economics and philosophy.  They desire a less pervasive federal government and thus support all tax-cutting initiatives, often times without actually doing the work to figure out the real economic implications.

The place to spend our intellectual energy is optimal tax structure.  Optimal tax proponents agree with research which suggests that high marginal income tax rates act as a drag on incentives to produce.  They also know that we can’t simply cut our way to paying off our debts.  

Backing optimal tax rate policies does not limit you to one political philosophy.  It just means you’re thinking rationally about government income and expenditures, and tax payer incentives and disincentives.  In other words, optimal tax structure is the land of grown-up fiscal management—the domain of economic reality. 

 

So, OWSers and blind-faith supply-siders, pull up a chair!  The pie is delicious—and capable of growth—and the price ain’t so bad, in reality.