Friday, November 17, 2006

The New Majority Economic Agenda

Or, and why its bad

Come January, the Democrats will control both houses of Congress in the US for the first time in 10 years. The Republicans lost because of a no-win intervention somewhere we shouldn’t be (Iraq) and never should’ve been. A policy of “pre-emptive strikes” is a bad policy and is, indeed, “arrogant”.

So the Democrats are in, and its old dog old tricks on the economic front. The Democrat’s “Six for ‘06” that Speaker Pelosi promises to deliver within 100 hours of taking power:

1. Raise the minimum wage. The big question here is why is this not a states-right issue. Despite and unlike monetary policy which is a blunt nation (world)-wide tool, each state does have its own economic conditions so should be able to set their own unique wage policy. And, 1) many states already have wages set above the federal minimum, and 2) most importantly this takes away the rights of people to freely contract with each other (especially those at the lower end of the economic scale who need jobs and low-cost employees the most). This is populism at is best, and fascism at its worst.

2. Expand tax breaks for college. This is another complication to our already overly complicated tax code. Just lower taxes and get rid of tax breaks for everybody. Subsidizing education – be it tax breaks or government subsidized education loans – just raises tuition costs as more money goes to the sector and schools lose the need to price/quality compete.

3. Free America from dependence on foreign oil by giving tax breaks for alternative fuels. (See 2. on cost increases). Plus, how on earth can bureaucrats in Washington pick and choose the best alternative fuel uses? By the time decent scientists and entrepreneurs fill-out all the government forms, others will have already had other breakthroughs, and will have to unfairly compete with those, those less efficient, that have subsidies. Lastly, all oil, like all money, is fungible. The US produces oil just like foreigners do. This again is stupid naïve self-serving populism. If you want to reduce oil use, tax it at the pump (but be sure to reduce taxes elsewhere.)

4. Allow government to buy medicines in bulk. (See 2. and 3. on cost increases and disincentives for creative entrepreneurial risk-taking). More pandering. The whole reason that health care (and education) costs are three times that of the rest of the economy is that government subsidies and controls these industries. Let individuals and pharmacies buy in bulk as they have incentives to keep prices down, not keep them up for special interests.

5. Promote stem-cell research. Ok. Don’t promote it, just get out of the way of it.

6. Stop any plans to privatize social security. This is a stupid idea whose time has come and gone. Yes, when the world (and US) was in the Depression in the 1930s, people were desperate and Keynesian interventionist ideas took hold (even though it was later proved that the Depression lasted so long due to bad monetary policy – see Milton Friedman). That time has come and gone.

Now we are stuck with a program that discourages individuals and families and communities from taking care of themselves and one another, because the big benevolent state does so for us. Remember this is the same state that spends every dime it takes in (at 13% of every wage paid in the US), saving nothing but debt for future generations for the social security program. Plus it kicks in at 63 years old. Most people are just reaching their stride at that point – the government is telling them they are too old to keep productive. Arrogant at best.

Anyway, food for thought as 2006 turns into 2007 and the new Congress begins. As the Economist says, “Within the next few months the Democrats will have to decide whether they care more about fiscal discipline or shoveling money at ordinary Americans”, I think we see where this is headed (same place it was under a Republican leadership!).