Jun 02 2012

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The Crisis of Liberalism

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Liberals Never Miss an Opportunity to Miss an Opportunity

Modern liberalism is faltering.

A century after Teddy Roosevelt divided the Republican vote and enabled the election of the alarmingly liberal Woodrow Wilson, the intellectual wheels are now coming off an ideology that swept the US and has transformed the world, culminating today in a massive economic-political and cultural crisis that threatens Western civilization itself.

Indeed, a decisive inflection point for modern liberalism came in the form of one of its greatest triumphs, the election of President Obama.

Coming to power after the worst financial crisis since the Great Depression – a crisis that had thoroughly discredited free marketers – and possessing unified political control of the US government,  with unique moral authority as the first African-American to become president, Obama had a once-in-a-generation opportunity to implement undiluted liberal governance as a valid, sustainable alternative to the economic arrangements of the past.

Only three and a half years later, the President’s failure is as clear as it is colossal.

A fiscal Stimulus that failed to prevent a steep rise in unemployment.

A year and a half spent on health care while the national economy deteriorated.

A health care law that was incomprehensible, passed through irregular legislative procedures, on a partisan vote secured with sordid backroom deals, that never enjoyed majority support among the American people, and now faces serious constitutional scrutiny.

The regulatory miasma of Dodd-Frank, designed to prevent another financial collapse, that did nothing to reign in big banks or constructively deal with the housing crisis, but which managed to create a blizzard of burdensom new regulations on business anyway. Indeed, this was a parable for the Obama administration’s governing philosophy, which extended to sectors such as energy production and the environment, where ostensible good intentions undermined business confidence and regulatory predictability that is essential to economic growth.

This was accompanied by a “make it up as you go” approach to tax policy, which has been both temporary and erratic, focused on “targeted” stimulus measures which have not worked, amid a corrosive partisan fight on the tax code writ large that is frozen in place.

The economic numbers bear out the liberals’ burden in this mess.

Since 2009, the US has taken on $5 trillion in new debt.

To put that in context, it is more debt than that accumulated by all presidents from George Washington to Bill Clinton – in his second term.

And what have we gotten from this orgy of borrowing?

A national credit downgrade. Anemic economic growth. Meager job creation with more than 2 million fewer jobs today than at the beginning of 2009. Sustained, high unemployment. Collapsing consumer  and business confidence. A housing market in the tank, and a newly struggling manufacturing sector.

It is a simply pitiful result.

It is hard not to conclude from this that President Obama and his supporters blew it – Big Time.

Indeed, failure was an inevitable result from the very beginning, where ideological rigidity by the President and Democrats prevented the creation of clear and sound priorities that aligned with national economic and social realities, and instead. Instead, the Administration supported a constituency-pleasing agenda which was largely at odds with public expectations.

Instead of addressing the country’s immediate economic problems, – to build the kind of confidence and credibility that modern liberalism so often lacks on economic issues – the President and his liberal coalition borrowed trillions to transfer resources to favored constituencies, implement draconian regulation of out-of favor industries, while building controversial and costly new social welfare initiatives, built upon the decaying base of existing social programs. There is scant evidence that fiscal discipline played any role in these plans.

That overreach – enabled through government-mandated wealth transfers, indifference to fiscal realities and a obsessive fealty to reward core constituencies at the risk of alienating the larger public – is the fundamental cause of American liberalism’s current crisis.

We see it on display in Wisconsin, where public unions had acted like a de facto mafia, shaking down members for dues, which form the basis of campaign contributions to influence elections – and majorities – in favor of politicians who support the union agenda – all done with taxpayer money, but with no regard for fiscal impact.

When newly elected governor Scott Walker stepped in to put an end to the union’s game, and in the process  restoring fiscal order to Wisconsin, providing regulatory flexibility to localities and preventing the any union layoffs that had been predicted by union officials – the outraged liberal establishment put it all on the line to recall Walker and the state Senators who supported him.

On Tuesday we will find out if whether the unions will recover their coveted special status to dole out rewards to favored constituencies with public monies, or whether fiscal restraint and the welfare of the larger public interest will win the day.

We see it on display in Europe.

Remember during the 2008 campaign, when Europe was upheld by liberals as the model for a new American social democracy?

Now, governments across the continent drown in debt and deficits as the government takes an every increasing share of the economy to redistribute benefits to a growing segment of the population which is essentially unproductive. Those economies, stifled by regulations and bureaucracy, and an increasingly inefficient work force, are growing less competitive in the international marketplace, forcing lower growth and lower government revenue, and a concurrent, vastly increasing gulf between social commitments and economic capabilities.

Greece is the microcosm. It not only borrowed well beyond its means. It secretly borrowed money to pay the interest on its officially borrowed money. All to pay for a social welfare state that could not be supported by the Greek private sector, but which was unchangeable due to the power and influence of public unions.

Syriza, the Greek political party that has gained the most in the current crisis is the best symbol of liberal denial of reality.  Syriza seeks to abrogate the austerity treaty with the EU, which has placed enormous burdens on the Greek economy, but with the goal of making Greece competitive once again. At the same time, Syriza does not want to leave the currency union. Indeed Syriza is essentially campaigning to bring back the order that existed before the crisis.

But that option does not exist for Greece.  It is either European enforced austerity, or the profound uncertainty and economic disruption of leaving the currency union altogether.

Syzira speaks for the larger liberal narrative, advocated across Europe and the US, for a social contract that to differing degrees is no longer remotely achievable.

We see it on display in China.

How often have liberal politicians in the US openly pined for the China model, where vast sums of government money can be poured into state sponsored infrastructure projects with the tip of a pen, without the pesky interference of democracy?

Pined for the land of bullet trains and solar panels.

But the bullet trains are too expensive for average Chinese to travel on, so there are few passengers and less revenue to keep the ventures afloat, or to pay back the enormous, interest bearing loans. And the poor workmanship by state run Chinese companies have led to horrific accidents.  We have seen this sloppiness in everything from Chinese drywall to dog food.

In truth, the Chinese political class has effectively divided the economy into family fiefdoms where the powerful and well connected become rich, largely at the expense of the population at large, and contrary to all the ideological foundations of the modern Chinese communist state.

Burdensome state control has also distorted the Chinese economy in ways big and small. As a result, China today is rich, but also vulnerable. A lack of transparency and accountability within China, due in no small part to the government’s dominant role in allocating resources, represent the seeds of a growing challenge across the economy; crises potentially larger than those suffered in the US in 2008.

“The road to hell is paved with good intentions,” so the saying goes. And that is true with modern liberalism.

The wreckage lies ahead.

What emerges from the rubble will be pivotal to the quality of life we can hope for, and for that of our children.










  1. Rooney

    Why do I keep hearing that there is money in the SSA trust fund and that it won’t run out until 2030 or some such date? My understanding as that the money was ‘borrowed’ by the government to spend on other products, and thought there is a government obligation to pay it back, the money to pay it back must come from borrowing further or the taxpayer. How can anyone, and I hear it on Fox and from Congressmen, continue to further this myth?

    1. duffysoa

      This is a great comment and goes directly to the point that in order to get a handle on our budget and debt, we first have to understand how federal budgeting is so very different from how we manage our personal funds or business accounts.

      During the debt ceiling crisis last summer, and the ensuing budget talks, Democrats too a position that Social Security should not be included because it was “off budget” and was running a huge surplus – around $2.7 trillion.

      But as you say, that’s a myth.

      By law, any surplus from Social Security must be invested in interest bearing US treasuries, redeemable at future date. It is the surpluses – plus interest on the securities ($106 billion in interest in 2011) that make up the Social Security Trust Fund. By mandating that Social Seucrity invest in treasuries, the US government is effectively borrowing money from the surplus to fund other activities. Since we have not had a surplus since 2001, the Social Security surpluses replace international borrowing that the US would othewise have to do, to finance our deficit.

      Actual payments out of Social Security exceeded taxes paid in for 2011. No surplus. First time since 1983. Interest payments on existing securities will cover the benefits through 2020. After that, Social Security will actually have to redeem the securities it holds with the Treasury and will be completely exhausted in 2031.

      The fuzzy math here is that there isn’t a Treasury Department 401(k) where it has deposited the money borrowed from Social Security at a higher rate of interest. Begining last year, when benefits exceeded taxes, the Treasury covered the difference – by borrowing overseas. This will continue through the life cycle to 2031, absent any changes to the budget process.

      The Social Security Trust Fund is a filing cabinet of IOUs, that we are passing down to our children – and their children – in the form of radically higher taxes, draconian budget cuts, or more likely a mix of the two. As for our kids getting any benefit from these programs, they can pretty much forget about it.

      To your question about the “myth,” there is a case – torchured as it is – that by official US budgeting standards, there is a $2.7 trillion surplus. Those bonds are backed by the full faith and credit of the US government – same as the bonds we issue to the Chinese. Start questioning whether we will redeem our own bonds, and you have a big confidence problem our foreign creditors.

      But this is part of a larger problem with budget gimmickry. These are the same kind of rules that: 1) call a smaller than anticipated increase in spending in a particular program a “cut,” 2) assume that the previous year’s budget is a “baseline” or starting point for the next year’s budget, which almost always means more spending, 3) scores tax cuts as a net loss of revenue without taking into account how certain tax cuts spur investment and economic activity that generates revenue, 3) automatically – without any congressional involvement – adjusts entitlement programs for a flawed calculation of inflation – which increases mandatory spending that Congress has no oversite of.

      If we want to get to the heart of the matter, we really need to change the way we talk about the budget in a way that makes sense for average Americans and business owners.

      thanks for writing.


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