http://blog.jmhamiltonpublishing.com/2010/09/19/the-plutocracy-paradox-and-remember-the-70s-when-the-democrats-were-the-fringe-party.aspx

A Nation of Whiners!

By J.M. Hamilton

"Thank God the economy is not as bad as you read in the newspaper every day." – Former Senator Phil Gramm, Republican, UBS Bank Executive, and former campaign advisor to John McCain

The free market guru and economist, Hayek, recognized the importance of government in establishing the rules of the road for capitalism.  In fact, one almost gets the feeling from the following passage, from The Road to Serfdom, that he’s annoyed that the topic must be addressed.  It’s a given.

“Of course, every state must act and every action of the state interferes with something or other. But that is not the point. The important question is whether the individual can foresee the action of the state and make use of this knowledge as a datum in forming his own plans, with the result that the state cannot control the use made of its machinery and that the individual knows precisely how far he will be protected against interference from others, or whether the state is in a position to frustrate individual efforts.”

The central point is: Are the rules of the road firmly established, so that businesses are willing to invest in, and hire for, the future?  Unfortunately, after 30 years of financial deregulation, and the subsequent Great Recession caused by Wall Street banks, it was the Obama administrations responsibility to re-establish the rules of the road.  After thirty years of hearing “yes,” from government, to every request made by Wall Street, the new rules (Dodd-Frank) were not well received, even if the legislation was essentially Pro-Wall Street.  The result:  a Republican party attacking Democrats as anti- business, and socialist, for what Hayek acknowledges is a fundamental responsibility of government, that is establishing the rules of capitalism.  Political opportunism, timing, combined with high unemployment, means that the Republicans more than likely will take over the house.

So how does Obama turn the tide, post November elections?  Plan A:  Nationalizing the banks, globally, and hitting the reset button on global debt, via restructuring, and establishing a global currency for a global economy, is not in the cards just yet.  That will have to wait for the next financial Hiroshima, which, according to Mr. Jamie Dimon and financial history, should be just around the corner (Hints of QE2 by the Fed suggests that the financial health of our nation’s banks is in question).  The failings of Dodd-Frank, and Basel III, will insure the next global financial meltdown, as sure as the sun will rise tomorrow.

Until then, this leaves the Democrats with Plan B, which is not news to anyone; Plan B having already been well established by the last great fiscal conservative, President Bill Clinton.

When life gives you Republicans, it’s best to co-opt the bastards!  And just as a Clinton did before him, President Obama should steal the thunder from the Republican herd by adopting an extremely pro-business stance, effective immediately.   The recent legislation supporting small business, awaiting the President’s signature, shows that the administration may already be headed in that direction, as does the recently announced departure of Larry Summers.

To kick it up a notch, and to confirm that the rules of the road are firmly set, might the administration, but for two notable caveats, commit to the following:  A two year moratorium on further government regulation of business and industry; a two year moratorium on increases in government spending; and a two year moratorium on tax increases?

The two notable caveats are the Bush tax cuts, created by the most fiscally intemperate President, should be allowed to expire; and secondly, in terms of regulation, Elizabeth Warren must be allowed to work out on Wall Street banks.  Let’s all hope that accounting transparency is a part of Ms. Warren’s portfolio.

Why the exception for Elizabeth Warren and further bank regulation?  Contrary to what Senator Shelby (R- AL) suggests, banking interests, and the business community’s interests are seldom aligned; this is best exemplified by Goldman Sachs, who would short sell family members, let alone clients, if there was a buck to be made.  A laissez faire Wall Street is bad for top line growth, and bottom line profits for many of the world’s businesses; okay, admittedly Wall Street does appear to be good for businesses that service bankruptcies, and foreclose on commercial and private real estate. My guess is that both the American people and American business clearly understand this nuanced dichotomy.

The second part of Plan B, also from the Clinton play book, is to roll back government.   Just as President Clinton had his Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Welfare Reform), President Obama has the entire “ginormous” federal government with which to whack at.  And just as it took Nixon to embrace Red-China, it takes a Democrat to successfully roll back big government.  As an aperitif, Sarbanes Oxley (SOX), accounting standards created post-Enron, was supposed to protect the American people from the financial apocalypse we are presently facing, and yet, it failed.   Why not give ol’ SOX the boot?  Surely there are other regulatory mandates that are either obsolete or fatally flawed, why not jettison them?  And while we are on the topic of rolling back government, just as business must consolidate and trim costs during trying economic times, why not look at consolidating the various services provided by local, county, state and federal government?  The MIC, too, would appear ripe for, at the minimum, a freeze in entitlements, and winding down the war in Afghanistan would also help trim deficit spending.

So far Plan B is designed to create jobs, give the President fiscal credibility, and marginalize the Republican Party, all worthy goals.  That said, with the fiscal and monetary tool kit worn thin, how might the President facilitate the creation of jobs in this country and tax base expansion?  Here, the President should look no further than the Pacific Rim, and the unfair trade practices aligned against the United States.  It’s time to return manufacturing to U.S. shores.

While Republican orthodoxy demands strict adherences to “free trade” dogma, most educated American know that there is no such thing as “free trade,” just as we all know there is no Santa Claus.  In short, “free trade” is nothing more than some form of arbitrage, whether it is labor, regulatory, or avoidance of tax, which often benefits some multi-nationals at U.S. expense.  Here, the Obama administration can turn to none other than Ronald Reagan, who despite a great deal of “free trade” rhetoric, was actually, one of the great protectionist Presidents of the 20^th century.  

“Treasury Secretary James A. Baker has boasted about the protectionist record: Reagan ‘has granted more import relief to U.S. industry than any of his prede­cessors in more than half a century.’”

Rather than start an ever escalating trade war with the Pacific Rim, via tariffs and quotas, the U.S. should leverage its supremacy as a world market, and create economic incentives for Asia to set up shop in America and hire U.S. labor.   Honda and Toyota never had to be told to establish manufacturing facilities in America, they pre-empted future tariffs and taxes on Japanese exports to America, by setting up shop within our borders.  China may want to follow in a like path, in order to prevent imports from stacking up on Shanghai docks.  By hiring American labor, China allows the U.S. to thin the ranks of the unemployed, lower unemployment spending, and cut deficit spending.  Also as a result, the U.S. becomes a more stable market for China, the dollar becomes a more stable currency, and America is less reliant upon China to finance U.S. debt.

China would gain by setting up shop in the U.S. by purchasing less U.S. debt to sustain the purchase of China’s imports, and by gaining a stronger foothold in the world’s largest economy.  It avoids a nasty trade war, and social upheaval, if Chinese exports were to suddenly to stop flowing to America.  In fact, IF America and China coordinate this well, the rise in China’s hiring on U.S. shores, and the cutting back of exports to America, could also rise with an increased standard of living in China (an appreciation of the Yuan), and the rise of a Chinese market place parallel to, if not ultimately exceeding, its U.S. rival.

“Plan B” then, assists in addressing U.S. job creation, the size of government, fiscal matters, and some foreign policy issues, which leaves the political component.    

In economics the goal of predatory pricing is monopoly; and likewise, between the two parties, the goal of predatory politics is hegemony.  Since Messer. Bush and Cheney had their way with the U.S., the Republican Party has been on the verge of a political, philosophical, and social crack up.  Why not push them over the edge? 

Therefore, Plan B must also contain a political component designed to gain maximum advantage over the schism currently breaking the GOP apart at the seams.  Fortunately for Democrats, the Republican Party appears to be taking themselves out of the picture.  Witness the following: 

McCain's top economic adviser Phil Gramm tells America to suck it up and stop complaining about the economy:

"You've heard of mental depression; this is a mental recession," he said, noting that growth has held up at about 1 percent despite all the publicity over losing jobs to India, China, illegal immigration, housing and credit problems and record oil prices. "We may have a recession; we haven't had one yet.”  And, “We have sort of become a nation of whiners," he said. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline.”

Phil Gramm was a U.S. Senator from Texas, who, as head of the Senate Banking Committee, was responsible for much of the banking deregulation that directly contributed to our current crisis.  After finishing his Senate career, Mr. Gramm went to work for UBS.

House Minority Leader John Boehner compared the Dodd-Frank legislation to “killing an ant with a nuclear weapon.”

“This is killing an ant with a nuclear weapon,” Boehner said of the bill. “There are faults in our regulatory system, some in terms of transparency, most as a result of ineffective enforcement by the bureaucracy, who have no idea what these financial products look like today. That could’ve been fixed, but that’s not what we have here.”

Mr. Boehner, a perennially tanned chain smoker, will likely be the next Speaker of the House; Mr. Boehner’s insensitivity to the ever growing ranks of unemployed, and those citizens who make up the recently reported spike in poverty (welcome to Mr. Boehner’s ant hill), may only be exceeded by the poster boy for the Republican Party, Joe Barton.

"I'm speaking totally for myself, I'm not speaking for the Republican Party ... but I'm ashamed of what happened in the White House yesterday," Barton told Mr. Hayward (CEO of BP) , shortly after the Gulf Oil Disaster, and right after President Obama demanded that BP set up a 20 billion dollar fund for its victims.

Of course, Mr. Barton looks almost normal, compared to the Tea Bag candidate, Christine O’Donnell.

So how might the DNC capitalize on this gang in 2010 and beyond?   Well for starters Democrats may want to steal a page right out of the Republican play book, and utilizing the Supreme Court’s ruling in Citizen United V. The Federal Election Commission, actually - in select instances - crossover and support the Extreme Right/Tea Baggers in their bid to hijack the Republican Party and invade government.   The more extreme the candidate, possibly, the greater the financial support deployed.  The more rabid, nonsensical, and polarizing the Republican Party becomes, the easier it will be for Democrats to make their case against the GOP, post-election and headed into 2012.

Separately, as the President’s Chief of Staff heads for Chicago, President Obama will want to channel his inner Rahm and go after the RNC for the sins committed over the last thirty years: from policies of deficits don’t matter, to starting two wars, to embracing Big Oil and Wall Street banks – contrary to the business interests of the nation.  The Republican party has left itself wide open.  Even today, the Republican Party is married to the very ideas that brought this nation to its knees.   Best of all, if the GOP regains control on the House, Republicans are going to have to do far more than say they favor tax cuts; they will actually have to govern, and explain which government programs they want to cut.

Perhaps Republicans could start with President Bush’s greatest expansion of big government, Plan D of Medicare, or what I like to call, The Big-Pharma Entitlement Act.  Note to Republicans: Abdication of responsibility to the social contract, and blind adherence to Laissez Faire doctrine is not governing.

Like Clinton before him, President Obama may actually thrive with a Republican controlled House of Representatives. 

 After all, a nation of whiners needs all the help it can get!