The Solution
To Talk Of Many Things—Living In Interesting Times
Part 2 of 5
 

Under current rules both political and economic policy are stalemated. Institutional rigidity paralyzes adaptation to cultural changes—in the fundamental case, providing stability; in the end, self-destruction. Many political leaders and economists, refusing to abandon cherished objectives, supply increasingly complicated answers to the simplest of questions. They prefer believing their theories rather than the facts.

Low incomes and unemployment are attributable primarily to faulty, misguided government policies, not to poor education or laziness. Even the rationalization of the welfare state perpetuating welfare recipients, a cherished belief of conservatives, is a lengthy reach to avoid real issues. Anyone who thinks that living on welfare, that having another baby to get an additional $64 a month from the state, is living, should try it for a few years. Take a serious look at long-term welfare recipients, worn out before they are thirty.

America is technically bankrupt. Its productivity, although higher than the world average, is not significantly higher in the trade-sensitive automobile, electronics and high-tech industries. Its relative position declines steadily with each passing year, seemingly overlooked by civil authorities blinded by the glorious pursuit of elusive goals. Most deny the obvious: The nation will never work its way out of this predicament under current rules.

Nor can America default, either financially or politically. Adding up the government’s assets is both irrelevant and useless; they will not be liquidated even if its bonds go into junk status. And the very thought of severe cuts in entitlements terrorizes career politicians.
 

The fundamental flaw in conventional wisdom is the perpetuation of servitude under an unconscionable debt-service burden and the associated intermittent economic recessions and recoveries. It was the attempt to use poorly designed fiscal and monetary systems in the quest for a socialist utopia that led to national disaster.

Utopia, socialist or otherwise, was never an option. Various groups, pulling the system’s strings first one way and then another in response to perceived problems, generated the economic waves. Economists called them the business cycle. Businesses fought the tidal forces, doing their best to stay afloat while the nation sank deeper into a sea of debt.

Long-run problems eventually become short-term considerations. This situation demands unconventional action. Its solution will not appear in American Economic Review until after the fact. Professional economists will then generate reams of theory explaining the results, undoubtedly proving that the answers were always implicit in their earlier works.

Without intellectual leadership society crumbles. The fall produces new leaders and, more often than not, raises some obscure theories and their theoreticians to new prominence.

Welfare socialism will die with the Clinton administration, largely repudiated in the ’94 midterm Republican sweep of Congress. Sixteen months into his first term, President Clinton had made no progress in “end[ing] welfare as we know it,” one of his campaign promises. “In exit polls conducted on Nov. 8, 1994 by NBC and the Wall Street Journal, welfare reform was the voters’ top priority for the new Congress.” Speaker of the House Tom Foley (D-WA), a 30-year incumbent, was the first speaker to be defeated since 1862, an expression of the depth of voter wrath. “Incredibly, not a single incumbent Republican congressman, senator, or governor was defeated.”[1]

New Republican leaders, including some that were definitely not stereotypical lawyer-politicians, replaced Democrats who had controlled the House of Representatives for 40 years and the Senate for 48 of the previous 60 years. They arrived in Washington determined to “replace the welfare state with an opportunity society,” and promptly selected Representative Newton Gingrich of Georgia as the new Speaker of the House.

Gingrich, serving his ninth term in office, was the obvious choice. With a Ph.D. in European History and years of service in the Congress, the political acumen, intelligence and intellectual standing of this former Associate Professor at West Georgia College were unquestioned. His Contract with America, a ten-point program defining political strategy, had been signed by Representative Dick Armey of Texas, an outspoken conservative thinker and former Chairman of the Economics Department of North Texas State University, and a host of more than 300 GOP candidates.

During a marathon first-day session the Republicans set about changing the way the House does business—abolishing three standing committees, reducing committee staffs, banning proxy voting, applying all laws to Congress, and so forth. Most changes passed with overwhelming majorities, supported by white-knuckled Democrats too disconcerted to fight the inevitable. The “sunshine” rule, calling for open meetings, passed with no dissenting votes.

As for the Republicans’ ten-point program, only part was on target—banning unfunded national mandates, a line-item veto, strengthening parents’ rights to supervise their children, maintaining a creditable national defense force, no U.S. troops under foreign command, mandatory sentences for violent criminals, and a few much-needed common sense reforms for the legal system. Some points missed the mark.

Their balanced budget amendment, supported in principle by about 80 percent of the American people, contained king-sized loopholes. Its promise applied only to the formal budget document, not the actual operating budget. By using unrealistic assumptions, politicians could easily reach a balance on paper. And, as provided in the amendment, by three-fifths vote they could abandon the plan, not just during wartime emergencies but in response to any perceived “crisis,” a strong temptation to backsliding.

The most discreditable part of the Republicans’ strategy lay not in its objectives but in its execution through fiscal tinkering. More than a dozen changes in tax code, essentially tax cuts and credits, made up the heart of their program. They still intended to hit your fingers annually with their tax hammer but expected praise for reducing and redirecting the force of the blow.

Restoring the American dream sums the goals of both Democrats and Republicans. Democrats believe in entitlements, in government-supported retraining and education to help American workers move from low-skill, low-wage jobs to high-skill, high-wage jobs. Year after year they maintain boundless faith in these schemes in spite of the government’s poor performance record. Republicans believe in “cutting the size of government” and that a generous distribution of tax cuts will, in a market economy, achieve the same goals. Both support the idea of government as the engine of social change, the differences in their approach being largely superficial. Neither care to confess that their brand of social engineering through legal tinkering will not solve America’s problems.

Republicans insisted that their tax cuts would be offset by spending cuts, that with “dynamic budget management” deficits would be eliminated in five years. The Congressional Budget Office pointed out that, without revenue increases for that period, more than $1 trillion in spending cuts were required just to break even. They all but ridiculed the plan. Alan Greenspan, Chairman of the Federal Reserve, warned Congress that changing the name of the budgeting process would not fool the markets. In effect, he cautioned that their plan would probably drive interest rates higher increasing both deficit and debt.

Democrats, temporarily resigned to their loyal minority fate, gleefully attacked the Republican’s plan, complaining that reforms did not go fast or far enough. They demanded details: How could Republicans increase military spending, cut government costs, reduce taxes and still balance the budget? It was obviously impossible without cooking the books or making drastic cuts in government spending for entitlements, dreadful political options. Conservative Democrats, whose politics were less discredited than those of their liberal leaders, suddenly found themselves in excellent position to boil Republicans in their own snake oil, much to the delight of the mass communications media.
 

Discounting for political posturing, members of both parties generally agreed with the mood of the country—Fix the problems! Questions remained: How? At whose expense? With plunder in short supply, the Washington inside-the-beltway elite whispered among themselves of shared sacrifice. That road ended in another swamp. The political potency of equal shares quickly loses appeal when sacrifice is the thing to be shared.

Granting that some Republican reforms and plans for the future were necessary, even long overdue, they were far from sufficient. Their balanced budget amendment would “take effect for the fiscal year 2002 or for the second fiscal year beginning after its ratification, whichever is later.” Meanwhile, America’s debt soared higher. Their proposed Job Creation and Wage Enhancement Act allowed “taxpayers to designate up to 10 percent of their tax liability to be used to help reduce the public debt.” It also required an equivalent reduction in government spending. “If for some reason the spending cuts do not occur, an across-the-board sequester will be imposed on all government accounts except the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Resolution Trust Corporation.”[2]

Opponents of this debt buy-down plan pointed out that rich taxpayers, holding much of the nation’s debt, would thus redirect federal funds to pay themselves while depriving the poor of needed government assistance. Also, a quick check of the numbers reveals its futility. One hundred percent participation brings in an estimated $60 billion per year. At that rate it takes 83-plus years to eliminate a $5 trillion debt.

Beyond just solving America’s problems, most politicians recognize that the solution must make cardinal changes in average lifestyles and make them immediately. With full implementation of the Republicans’ plan, realistic 5-year projections for continued growth ranged between 2 and 2.5 percent annually. Numbers at twice those rates did not save the Democrats during the ’94 midterm elections.

Voters selected Republicans over Democrats, not because of their Contract with America which few read and fewer understood, but because of personal frustration, their lack of an opportunity to share in the American dream. For years politicians promised utopia: Voters ordered it, paid for it in advance, and now expected delivery. Correctly interpreting the mood of the country, Republicans took the pledge to build an “opportunity society.” It was astute short-term politics, not a final solution.

The Clinton administration was wounded, not brain-dead. It would never rubber-stamp any Republican plan, offering counter arguments and proposals each step of the way. And without extraordinary improvement in individual lifestyles, not to be expected even with successful completion of the Republican Contract, Democrats would make another comeback.

Republicans, well aware of the possibility, promised that their Contract was just the beginning, that additional reforms would put America back on the right track. Most saw the midterm elections as a mandate supporting their vision of a smaller, more responsible federal government. A few conceded the need for an innovative strategy, something beyond their 100-day plan. Publicly displaying a Messiah-complex, their hopes and those of many Americans focused on Newt Gingrich. Self described as a “conservative futurist,” this history teacher turned political leader offered the best chance in a generation that Washington would seriously consider new ideas. Who else would impulsively suggest tax credits for the poor to buy laptop computers?
 

1 Contract with America, Edited by Ed Gillespie and Bob Schellhas, Time Books, a division of Random House, Inc., New York, p. 3 
2 Ibid.