Archive for category Conservative Politics

The Reality of Multinational Corporations

The Wall Street Journal recently reported that many large U.S. corporations are hiring, but hiring more people in other countries than they are here at home.

Eager to highlight the evils of multinational corporations, Think Progress reported on the report, noting that some companies had even cut jobs in the U.S. while hiring abroad. References to the problem of outsourcing and a look at the article’s comments section make clear how Think Progress and the left see this issue, and that this sort of information is their evidence.

Here’s what they overlook. Think Progress calls out Wal-Mart specifically (because who doesn’t love to hate Wal-Mart), and then posts the chart at right. The bottom section is the group guilty of layoffs in America while hiring overseas.

But these aren’t outsourced call centers and sweatshops. UPS, Starwood Hotels, International Paper. Think about what these companies do. UPS employees get in trucks and drive packages around their city, or work in warehouses necessary in every city they deliver to. UPS isn’t going to hire a driver in Detroit to deliver packages in Peru. Attacking UPS won’t save any jobs, it will just make it more expensive to order products online. In the same way, it makes no sense to blast Starwood Hotels for hiring people in Brazil to staff their hotel in Brazil. It’s not like hotel chains run sweatshops in China. They open hotels all over the world, and staff them locally.

They go out of their way to mention Wal-Mart, though they didn’t even make the list. But Wal-Mart has opened almost 700 stores abroad since 2009, giving them almost 1200 more stores abroad than they have here at home. And they still employ almost twice as many people in America as they do in other countries (around 1.4 million). Are they supposed to fly cashiers from Minnesota to Singapore every day so that they can use American labor? Yet these are the numbers the left points to when they complain that businesses need to be more regulated and punished for not hiring American workers. This is the standard counterargument whenever someone uses the term “job creators.”

As it turns out, manufacturing in America is still strong. We’re still, by far, the most productive country in the world, and manufacturing salaries continue to rise (currently averaging around $50,000). International Paper, also on this list of offenders, is a good illustration of manufacturing in the modern world economy. International Paper runs paper mills and distribution centers in America to sell to America. They also have dozens of mills, offices, and centers in other countries. To do business in those countries. Just like Toyota and Honda have factories in Indiana and Ohio to make cars to sell in America. Just like American auto makers have opened factories in China–gasp!–to sell their cars in China. Doing otherwise would be inefficient and make their product more expensive. Attempts to impede companies’ ability to operate where it makes sense to operate will not save any jobs–it will only drive up the cost of products and services. It will make all stuff more expensive. Helping the poor, that ain’t.

I know there are companies that make use of cheap overseas labor. Yes, Apple has a lot of components put together in China. But they also employ 47,000 people here at home, more than twice as many people employed abroad. And that’s only direct Apple employees–that business supports literally hundreds of thousands of other US jobs in affected industries providing raw and technical materials, services, transportation, health care. If you forced the 23,000 employees in other countries out of their jobs, Apple might be able to hire some here, but they’d also lose a lot of their sales when the price of the new iPhone doubled, and have to lay those workers right back off. And thousands of people in China would be kicked off the lifeline that’s finally pulling that country out of a peasant economy.

So if you think Apple’s overseas factory is the reason for 14% real unemployment here in America, you’ll be disappointed to see the hundreds of thousands of American workers harmed by making it harder for Apple to do business. And since the most common fixative I hear liberals support in order to deal with this supposed problem is to levy extra taxes on companies that do business overseas, you’ll be disappointed when all that does is make your vacations and Amazon purchases more expensive. Most of all, if you think damaging UPS and Starwood Hotels’ business is worth it just to “get” companies like Apple, keep in mind the hundreds of thousands of US workers you’re “getting” at the same time, and driving up the cost of goods for every single one of us.

All the supposed solutions simply make imports more expensive. If you make imports more expensive, then the end product will be more expensive too, and that’s bad for the customer and manufacturer alike. That just means less business gets done, and you and I have access to less stuff. Protectionary tariffs are one of the things that led to the Great Depression. If you threaten businesses here, some may submit, but none will choose to do business in America any longer if they can help it.

Conservatives have an alternative. Free trade makes the world a better place. It’s hard to get many economists to agree on anything, but they generally agree on that. More jobs here, more jobs abroad. If one company moves a call center to India, another company opens its doors here in America. Cheaper goods everywhere. And the more markets we open for American goods to be sold abroad, the more American manufacturing jobs can be created.

If you really want to help the poor, that sounds like a good start.

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GOP and Women

From my recent article at Kendall County YR:

The May 10th editorial by Tony Scott in the Kendall County Record claims that the GOP needs to stop alienating women with backwards social issues like abortion and birth control. Scott goes so far as to claim that “most Republican candidates support limits on… birth control.” This is made up. It’s false. Scott wants the uninformed to assume that these dangerous Republicans are coming to ban sex and make women wear burkas. In fact, the issue of birth control has only been brought up by Democrats recently, in attempts to force religious institutions to provide free contraception for their employees. Even the staunch social conservative Rick Santorum stated that, though he morally disagreed with contraception, he had no interest in restricting anyone’s access to it. If you remember all the way back to January of this year, when the issue was first artificially injected into the campaign by former Democratic advisor George Stephanopoulos at a debate, every single Republican on stage was variously bemused and/or annoyed at the waste of time. Stephanopoulos spent over four minutes repeatedly asking each candidate, in so many words, come on… you want to ban the pill, right? Tell me you want to ban the pill.

The Republican audience got so fed up with the absurdity of the line of questioning that they started to yell and boo. Romney summed up the general sentiment: “George, I — I don’t know whether a state has a right to ban contraception. No state wants to. I mean, the idea of you putting forward things that states might want to do that no — no state wants to do and asking me whether they could do it or not is kind of a silly thing, I think.”

Scott correctly reports that 77% of those recently polled thought birth control “should not be part of the national political debate.” Republicans agree. They’re not interested in it either, despite attempts to characterize the GOP as the party of “extremism and gender inequity.”

Also brought up is the issue of abortion. Republicans need to back off abortion, goes the claim, because 53% of Americans support it! Polls on abortion are tricky. They change. A lot. Constantly. Pew did report last month that 53% of those polled were in favor of keeping it mostly legal, but that number, in its pendulous swings over the past few decades, keeps slowly swinging in a pro-life direction. And swing it does. Between October 2008 and April 2009, support swung from 57% to 46%—eleven points in eight months. There was a three point change between two polls conducted in the same month in 2008. Even six months ago, only 51% of those polled supported abortion. This number moves a lot, but the big picture is a trend towards protecting the lives of our unborn children.

Here’s the bigger picture still. These social issues make for good press and loud arguments, but when asked what issues will determine their vote this November, people list abortion, contraception, and gay marriage low on the list (39%, 34%, and 28%, respectively, answer these issues are “very important”). The top of the list? The economy (86%) and jobs (84%). Our current President is running on a failed record on those issues, against a man who’s spent his life demonstrating a spectacular ability to turn financial failures into successes, in both the public and private spheres. Which of those two men do you think Americans should trust with our economy?

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Seeing with Clarity

I’m often accused, and see other conservatives accused, of not seeing things clearly. It’s a common refrain in many circles, one generally intermixed with references to Fox News and Rush Limbaugh.

So imagine my surprise when I hear, from the side that sees everything with perfect clarity, the argument that came up in a Congressional hearing last week.

Sandra Fluke, a Georgetown law student, made the case that the federal government must force all insurers and employers, regardless of their religious or moral objections, to pay for contraception for their employees–or, in this case, college students. They must do this because paying for one’s own contraception causes one to suffer “financially, emotionally, and medically.” She even described the sad case of how “embarrassed and powerless” one woman felt upon learning that her contraception would not be free. [1]

Let’s get this straight. The argument here appears to be, “Because I want birth control and paying for it sucks, the government ought to force someone else to buy it for me.” That’s about it. Look closely, we want be sure we’re seeing this clearly.

Birth control is not a basic right, like life, liberty, and the pursuit of happiness. Nor is it a women’s health issue. It’s something that, according to recent polls, most people choose to use at some point. But it’s still a choice, and it’s not a choice that everyone makes, and it’s certainly not something that anyone needs in the sense that we need food and shelter. It’s fairly absurd for Fluke to put contraception-on-demand on the same level as antibiotics or insulin, referring to birth control as a “critical health care need.” But this clear thinker makes an even more dubious logical leap: her claim is that their struggle is “for the access to the health care we need.”

Catch that? She’s attempting to make this about access. She’s making the argument that if we don’t force someone else to buy her birth control, we’re saying she’s not allowed access to birth control.

But this is ridiculous on its face. Everyone has access to birth control. Nobody, despite claims in the media, wants to restrict that access. But that doesn’t mean that colleges should have to buy it for their students–especially where the contraception is against the religious beliefs of that college!

This isn’t about access. Nobody’s banning birth control, or telling you what you can or cannot use. Political leaders are making those claims, and those people are lying to you.

If that’s not clear, think about it this way. I’m seeing lots of excitement online about a company that’s making cupcake ATMs–automated cupcake dispensers open 24 hours. The cupcakes aren’t free, you have to put money in the machine. But by Sandra Fluke’s logic, by failing to provide the cupcakes for free, this company is attempting to ban cupcakes. Charging at this machine is nothing less than restricting my right to cupcakes, and causing financial and emotional suffering.

By the way, let’s look at exactly how much of a financial burden she’s claiming this is. Fluke claims that “without insurance coverage, contraception, as you know, can cost a woman over $3,000 during law school.” Now THAT is a lot of–cough–contraception.  Many have pointed out that, assuming you’re spending a reasonable average of $1 a condom at CVS, this means you’re having sex almost 3 times a day, every day, for three years. No wonder people say law school is exhausting.

So that cost is a difficult case to present. Besides, I’ve spent the last few months being told everywhere I turn that women can get checkups, screenings, and contraception for free or reduced cost at Planned Parenthood. Indeed, the argument has been that they hardly do any abortions, THIS stuff is really their main purpose. I also seem to remember that when I went to college, they went out of their way to distribute free condoms and let students know where more free condoms were always available. Not to mention the fact that, upon the slightest amount of research, it turns out that the Target near Georgetown’s campus offers various generic birth-control pills for $9 a month, without insurance. [2] So, if we’re going to look at this clearly, her facts are more than a bit off.

She also argues that having to pay for the pill causes you to suffer “emotionally.” Really? Is she simply referring to the woman that was upset when she found out it wasn’t free? I don’t think that counts as a woman’s health issue. I suffered emotionally when I found out that I couldn’t afford to buy a BMW. That’s not an argument that Congress should write a law forcing my employer to buy me one.

So, if we’re really thinking clearly so far: 1. this isn’t about access; 2. the “financial and emotional burden” fail basic reality checks, and 3. they fail to lead to the logical conclusion that the government ought to mandate that someone else must buy college students contraception.

Finally, she argues that paying for your own contraception causes you to suffer “medically.” This one takes a little more thought, and appears to have some merit, considering the stories she tells. But by her own testimony, her coverage includes hormonal birth control if it’s for medical reasons other than contraception. She tells a couple of anecdotal stories she’s heard about women that have valid conditions and the insurance refuses to pay despite the doctor’s diagnosis. That’s a problem. You can bet that if my doctor told me I needed covered antibiotics for a covered condition, but the insurance company refused to pay, there would shortly be lawyers involved. You’d think law students would be able to work that out.

In the meantime, I’d be buying the medication at Target for $9 a month. I’ll be very interested if anyone can ever validate the “friend who lost an ovary” story (to say nothing of the absurdity of the “friend who decided not to report a rape because Georgetown doesn’t buy us condoms” story).

But the kicker here is that Fluke isn’t arguing to enforce medically necessary treatment. I might get behind that. But no, her argument doesn’t have anything to do with medical treatment, and these stories are nothing more than a litany of red herring. She’s arguing that the government should make her school buy her contraception, just because she wants it and doesn’t want to pay for it. I think, despite the claims of the left, the conservative opposition to this kind of thing is pretty clear-headed and fact-based.

But the unfounded accusations continue. Senate Democrats tweet about the “GOP #Contraception ban.” Sen. Chuck Schumer (D-NY) claims on the Senate floor that “if this amendment passes, it would ban contraception coverage for any woman in America whose boss has a personal objection to it.” The head of the National Organization for Women even claims that the opponents of this mandate are “demanding that the government step in and use the force and power and police power of the state to prevent women from taking birth control.” [3] [4] [5] That’s some clear thinking. These people are simply lying, and it’s sad that so many people are fooled by these lies. I hope one day we can all try to see things a little more clearly.

But maybe it’s not so bad. Maybe at least I’ll get some free cupcakes.


[1] http://www.whatthefolly.com/2012/02/23/transcript-sandra-fluke-testifies-on-why-women-should-be-allowed-access-to-contraception-and-reproductive-health-care/

[2] http://www.weeklystandard.com/blogs/dc-target-sells-birth-control-9-month-georgetown-student-tells-congress-friends-are-going-broke-pay-pills_632955.html

[3] https://twitter.com/#!/SenateDems/statuses/174905955853676545

[4] http://www.washingtonpost.com/blogs/fact-checker/post/sen-chuck-schumers-remarks-about-the-blunt-amendment/2012/03/01/gIQAwt6bmR_blog.html

[5] http://www.nationalreview.com/corner/292488/presidents-anti-catholic-allies-ramesh-ponnuru

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Lies, and Why People Hate Politics

I’m on the road, on the job. And the things I just heard the President say disgusted me enough to stop my day and respond.

President Obama just gave a press conference in which he called on House Republicans to pass the Senate bill extending the payroll tax holiday for eight weeks. He trotted out several stories about real people who won’t be able to order pizza because the Republicans are playing politics and refusing to compromise. And he ended by lamenting that this mess the Republicans have made is why Americans are disgusted with politics today. I would give exact quotes, but I can’t find a posted transcript yet.

I generally try to keep things on a positive and rational level here, but sometimes a spade is a spade. What utter tripe. The President kept claiming that he was trying to save the average American $1000 a year, and House Republicans are preventing him. Lies. These are outright lies. The eight week extension passed by Democrats saves the average American around $166. The House, on the other hand, did pass a bill extending the tax cut for a full year, which would save people that $1000 he says he wants.

What happened to that bill? The Senate said no. Harry “CEOs-are-like-unicorns” Reid refused the Republican bill to save Americans that money and allow businesses to plan for the future, and passed their own version that will, instead, allow the Democrats to continue to hold this tax over the heads of Republicans and working Americans as a threat. Republicans have been literally waiting in a conference room for Senate Democrats to come work out a compromise, but Reid said, “my way or the highway,” passed this ridiculous eight-week extension, and sent the Senate home. And President Obama just gave a speech claiming that Republicans are raising your taxes by refusing to work together!

Then, since he had no rational argument to make for his position, the President supported the lies by telling stories about poor people that will freeze unless Republicans get in line. This kind of thing, for future reference, should always send up red flags. Notice that the argument of the left is not “here’s our rational position,” but “if you don’t do what we say, you want poor people to die!” That is nearly always a sign that you’re losing the argument. If you have a logical defense, you don’t have to resort to this kind of thing.

This is a main difference between the left and the right, of course. Conservatives base their positions on logic, reason. We want what works. Liberals are all about feeling. Logic is a lower priority–facts may be overlooked, because emotions are what drive liberal policy. It doesn’t matter if your ideas don’t work, as long as you know you’re not one of those evil, uncaring Republicans.

And this is why people are disgusted with politics. It’s speeches like the one the President just gave. It’s lies presented as facts, and the knowledge that large portions of the American public will simply believe them. It’s the fact that I would like to see changes to help more people get out of poverty, but because of people like Reid and Obama and speeches like this, so many people will continue to think that I personally want poor people to freeze, because I support Republicans.

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CNN National Security Debate

I just barely made it home in time for tonight’s GOP debate. I would have made more of an effort, but I didn’t know there was a GOP debate tonight–I’ve stopped paying attention to the schedule since there’s one every week.

However, I’m glad I caught it. For those who missed, tonight’s debate focused on national security–in my mind, the second-most-important issue of this election (after the economy), and arguably, what should be the first priority of every President.

Some important issues came up tonight. Finally, the candidates had some real, strong disagreements. On economic issues, most of this field is generally on the same page, and so debates have been less debate-y and more focused on attempts to appear more conservative than everyone else, and/or maligning each others’ conservative cred. But I already knew that any one of them would be infinitely better equipped to handle the economy than our current President. So tonight we got to see where they really disagree, and that’s great.

For those interested, my thoughts on the candidates after tonight’s performance follow, in the order they were standing:

Santorum – Didn’t get much time to speak tonight, and sadly, that’s perfectly appropriate. We’re rounding the final curves in the primary race, and Santorum has failed to generate any appreciable interest at any point, in a volatile and vulnerable field. I appreciate his strongly conservative social and economic views, I share most of them. Not all, but most. I like that he was the only one tonight that didn’t hedge and clearly stated that, of course, some TSA profiling makes sense. But it’s time to bow out at this point and allow better focus on those with a chance to win.

Paul – After hearing Dr. Paul talk about economic issues in the last debate, I had warmed up to him. He’s so very often right on the economy, and he doesn’t care what anybody thinks about anything he says. Tonight reminded me why I can never support him for President. He seems to think that if America would just leave the world alone, the world would leave us alone too. He thinks Iran is no threat to anyone. He thinks the Taliban got a bad rap and the greatest threat to America is America overreacting to things. This is what happens when you hang out with 9/11 truthers.

Perry – Came across to me as unnecessarily aggressive. I hated when people accused President Bush of this, but when I was hearing Perry talk tonight about military strikes and no-fly zones, the phrase “cowboy diplomacy” kept popping into my head.

Romney – Had some great, well-rehearsed answers, just like the last debate. Absolutely right in his answer on the terribly important difference between dealing with crime and dealing with war; if a battalion of Nazis had come ashore in 1943, we wouldn’t have had the police arrest them and send them before a civilian court. Hence the difference between common criminals and those in Guantanamo. If we’re electing someone who is good at saying the right things, Romney is hard to beat. I’m still not sold on his conservative cred (there, now I’m doing it), but he keeps saying things I like to hear, and that kind of thing can wear you down. I’m just… not yet convinced that he’s anything more than a slick-talking empty suit. Governor Romney, prove to me that you’re more than that.

Cain – Clearly had very little to say. We all already knew this was his weakest area, tonight was a demonstration of that. It’s fine to fall back on the point that the President has expert advice available, but it’s also extremely salient to point out that, all else being equal, I’m much more comfortable with a Commander in Chief that’s extremely well-informed and personally knowledgeable on foreign policy and national security.

Gingrich – As always, he’s the smartest guy in the room, and it shows. On every question, he gave the sense that, whatever it is we’re going to do, his priority is to do it right or not at all. I really enjoyed his answer to Dr. Paul’s criticism about McVeigh–we don’t want a government that says, “If you blow up a major city, we’re sure going to get you!” We want a system that will stop terrorists before they strike. Newt also took a very courageous stand as the only candidate tonight that wasn’t willing to support mass deportation of 12 million illegal immigrants. He’s right. We need to be discerning. Someone that gets brought here at 3 years old, that grows up, loves this country and wants to serve in the military–that person should get a fast track to citizenship. Politics tends to be black-and-white, but I really appreciated the fact that he was the only one willing to point out that there are shades of grey in this issue. I’m feeling more and more strongly attracted to the idea of a President Gingrich.

Bachmann – I like Representative Bachmann. But I think it’s a bad sign that my first thought on her performance tonight was, “I’m pleased that she didn’t do anything embarrassing.” She made some good points here and there (as when pointing out to Dr. Paul that using privacy standards that assume people only use wired phones makes no sense in an age of disposable cell phones and internet), but seemed to have a hard time staying on topic. She came across tonight as not being quite prepared.

Huntsman – Frankly had no business even being at tonight’s event. Barely registers on any polls. Thinks living in China for a while gives him expertise on how to deal with the Middle East. Answers questions on the economy and national security by talking about the “trust deficit.” It’s time for Huntsman to go.

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Why Debit Card Fees Aren’t Going Away

And, a Deep Difference Between the Camps

A few days ago, Bank of America announced that it was canceling its planned $5-a-month debit card fees. Sen. Durbin (D-IL) immediately rejoiced on the Senate floor, taking partial credit for the change that he claimed was due to “a combination of reasonable regulation and consumers voting with their feet.” [1] Politico calls it “a win for President Barack Obama and Occupy Wall Street.” [2]

All of which is shortsighted. We’re still going to get charged those fees.

I pointed out in a previous post (see: Why Government Decisions Matter) that Sen. Durbin’s public attacks on BofA and their proposed fee were ironic, considering that the fee was a direct result of legislation he successfully attached to Dodd-Frank that capped debit card swipe fees charged to retailers. First off, expecting any other response on the part of the banks was ridiculous on its face, and demonstrates that he either has zero understanding of basic math, or the whole thing was a political song and dance meant to further endear the Democrats to those of an anti-Wall Street bent. Since Sen. Durbin does not come across as stupid, I will assume the latter.

For the record, it really is simple, basic math. If you write a law forcing a business to cut price X, they will respond by raising price Y. It’s that simple. Businesses aren’t going to provide services for free. If you regulate the price of a Big Mac to $1 (to help the poor!), McDonald’s will charge 6 bucks for a Coke. If you command that everything on the menu must be $1, then they will charge customers a $5 fee just to get in the door. See the result here–your actual price to get a combo meal goes up, and people that just wanted a Coke to begin with really get screwed. Or customers simply decide it’s no longer worth it to patronize these stores, and McDonald’s lays off employees due to loss of sales. It doesn’t matter that you intended to help the poor. This is the real-world effect of this type of government control over the economy.

Meanwhile, all of our taxes pay for the army of government bureaucrats working to enforce the harmful regulation, it’s harder and more expensive to start a business, and personal freedom is further eroded. (And Democrats continue getting votes because they say, “We cut prices on your Big Mac,” and the people cheer, and think no more of it.)

But I was talking about the debit card fees. They are not going away. The banks are going to get paid for that service. Dodd-Frank made them stop charging the way they were originally–so they attempted to put the fee up front. Everyone freaked out, so they took it back. This just means they’re going to put the fee somewhere else. Like a cover charge for McDonald’s, we will see interest rate changes, a reduction in some previously free service (like free checking accounts), etc. We’ll still pay the debit card fees. They’ll just be better hidden.

In a further irony, Sen. Durbin is now crusading against hidden and complicated bank fees–he wants them all simple and up front. Yet his policies help create the very situation he’s complaining about.

This is useful in that it illustrates a basic, fundamental difference between conservatives and liberals today. When presented with a problem, liberals often see a need for the government to step in and solve it. Conservatives, on the other hand, often want the government out of the way–because we understand that government solutions always have these unintended consequences.

In 1993, President Clinton attempted to deal with “unfair” CEO pay by capping the salary a company could write off on corporate taxes at $1 million. The next year, the ratio of CEO-to-worker pay, relatively stable for decades, began a ten-year spike that peaked at around 300:1. [3] Businessweek wrote that, “As a practical matter, the law… quickly established $1 million as the minimum base pay any self-respecting CEO expected from a major corporation.” [4] Companies began avoiding the new tax by paying CEOs in stock rather than straight salary–which led to more unintended consequences on the side, namely, the CEOs found themselves with powerful personal incentives to boost short-term stock gains at the risk of long-term health. (Not to mention that they also found themselves now paying a lower tax rate on their dividends than their secretaries paid on their salaries.)

Liberals, however, don’t see the changes in CEO pay or new bank fees as consequences of government interference. The government regulations are well-intended, so you’d have to have bad intentions to be against them, they say.

Conservatives look deeper. Intentions are important, but consequences are ultimately what really matter. Regardless of intent, if these regulations make things worse, they should go. If government interference in the market hurts us, we’re right to want less government interference in the market.

This means Dodd-Frank has to go. This means Sen. Durbin’s and President Obama’s economic solutions will not work. And this means we all need to support conservative candidates in the next few months so that these changes can take place.


[1] http://www.cbsnews.com/8301-503544_162-20128729-503544/dick-durbin-bank-of-america-decision-a-win-for-consumers/

[2] http://www.politico.com/news/stories/1111/67339.html

[3] http://www.epi.org/publication/webfeatures_snapshots_20060621/

[4] http://www.businessweek.com/magazine/content/06_48/b4011079.htm

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Should We Raise Taxes?

The Historical Record

During a recent debate with some friends, I was presented with a very intelligent challenge:

How do you explain the 1990s — as a fluke due to the internet boom? Weren’t there more regulations and higher taxes on the wealthy and corporations then? Can you really just say “but that was a different time!”
I don’t understand the logic behind saying that IF we raise taxes back to that level everyone will suffer. Data that shows this has historically been true may exist, but I’m just not aware of it. Please let me know if there is anything except what you consider common sense telling you that’s the case.

This led me on a fascinating flurry of research about the modern history of taxes in the U.S. But before we dive in to that, there’s a direct response on the issue of regulations.

Regulations

The question refers to both taxes and regulations in the 90s. There’s no question that both will have an impact on the business environment (see also: Why Government Decisions Matter).

While it’s true that tax rates were higher then, that’s not quite the case for regulations. As I pointed out to my friend, the principal achievements of this administration have been huge regulatory increases–the Affordable Care Act, Dodd-Frank, the CARD act. The EPA this year has had to roll back its own implementation of new CO2 emissions rules because, by their own estimation, they would have to hire 230,000 workers to enforce them. Rather than admitting the new regulations are absurd, they simply decided to wait until 2016 to do it. [1] The FDA recently announced that it is reinterpreting a 1994 law in such a way that will add millions to the cost of doing business for an entire industry–possibly putting smaller companies out of the market. [2] [3]

This is a drastic change in direction compared to, really, any administration in the past 30 years. Even Clinton was caught up in a decades-long deregulatory wave (see Gramm-Leach-Bliley). [4] So yes, it’s clear in hindsight that the successes of the 90s were partially due to the tech bubble, but also due to the general reduction in government interference in the economy that started under Reagan and continued until the last couple of years, where we’ve experienced a major about-face.

Taxes

This brings us to the other half of the challenge, the question of taxes. If taxes were higher in the 90s and things were okay, what’s the harm in raising them back to those levels now? Why won’t we still be okay?

Plot of top bracket from U.S. Federal Marginal Income Tax Rates for 1913 to 2009

Here’s what I found. Income taxes have only gone up a handful of times in the past century, and for various reasons. There’s a spike for WWI, one at the outset of the Great Depression, another halfway through the Great Depression, then two more in generally healthy times–the 1945/51 range and the 1991/93 range. [5]

At least on the surface, small tax increases during healthy economic times don’t seem to hurt the overall economy too much (the late 40s and the early 90s). And a temporary tax hike to pay for WWI apparently did no lasting damage.  Let’s look closer at some of those big swings.

Everybody is familiar with the Great Depression. Less familiar is the post-WWI recession of 1920-1921. Despite its lack of popular recognition today, the recession that began in 1920 was rough. Various estimates of unemployment agree that there was a rise from 3% or less to as high as 8.7-11.7% at the peak. Industrial production fell 30%. Stock prices as measured by the Dow Jones Industrial Average fell 47%. [6]

The government’s response was summed up in an article by Thomas E. Woods, Jr:

Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.” By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923. [7]

Did we all catch that? This downturn was as severe as what we saw in 2007, as severe as the beginning of the Great Depression. Yet in less than two years, production had returned and unemployment was below 3%.

There was another market correction at the end of that decade. Industrial production fell. In 1930, unemployment was approaching 9% again, and this time, the government intervened. Immediately, major new tariffs were instituted to protect American jobs (sound familiar?). In 1932, taxes went up on everyone, falling largely on the top earners–top marginal rate went from 25% to 63%, the estate tax was doubled, and corporate taxes went up slightly (sound familiar?). Through the rest of the decade, taxes were raised again every year or two. The appalling lack of recovery after 6 years led to another large tax increase on the wealthy in 1935–raising the top rate from 63% to 79%. The stagnant economy responded by dipping back into recession though 1937 and 1938. [8] [9] [10]

Throughout the decade, unemployment stayed close to 15%–peaking much higher, around 25% in 1933. Despite massive government intervention and hiring, this depression simply would not end the way others did before and since.

Let me try to bring this all together. We have the following situations:

  • Raising taxes and more government involvement during good times: little immediate economic damage (late 40s, early 90s).
  • Cutting taxes and less government involvement during recession: quickly ending recessions (1920, see also early 80s and 2000-2001).
  • Raising taxes and more government involvement during recession: longer, deeper recessions (30’s).

Today, we have a choice. We see the effects already of 3-4 years of intervention since the first problems started in 2007. The lack of recovery is turning into a full-on double-dip recession right now. The President is currently asking for higher taxes and more intervention–the same policies that turned a situation like this one into the Great Depression.

I’ve presented the historical record on two general directions the government has tried. Our choice is, do we want to take a whole decade to get back to prosperity, like in 1930? Or do we want to take only a year to get back to prosperity, like in 1920?


[1] http://mediamatters.org/research/201109270014  Media Matters’ take on this is, “No, the EPA is not hiring 230,000 workers.” However, even in their own story, they can’t present any evidence that goes any farther than saying, “The EPA’s new rule would require 230,000 workers to enforce, but now they say they’re waiting until 2016 to do it.”

[2] http://thegormleyfiles.blogspot.com/2011/09/fdas-plan-to-cripple-health-food.html

[3] http://www.naturalproductsinsider.com/topics/new-dietary-ingredients.aspx

[4] http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act For the record, I’m not intending in this article to argue the relative merits of GLB or Glass-Steagall. I’m not comfortable with anything being truly too big to fail, but there’s interesting arguments on both sides of that issue. This is just to point out that Clinton’s record during the 90s is not exactly an island of Big Government surrounded by Bushes–he was deregulating too.

[5] I’m using the top marginal income tax rate for simplicity, but corporate and capital gains taxes generally followed the same curve: http://www.ritholtz.com/blog/2011/04/us-tax-rates-1916-2010/ The capital gains tax conspicuously breaks ranks throughout the 70s, and is raised in the late 80s as well, though offset that time by dramatic income tax cuts.

[6] http://en.wikipedia.org/wiki/Depression_of_1920%E2%80%9321

[7] http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b

[8] http://www.24hgold.com/english/contributor.aspx?article=2991697306G10020&contributor=Nathan+Lewis

[9] http://en.wikipedia.org/wiki/Great_depression

[10] http://www.infoplease.com/ipa/A0104719.html

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