Ship the Outsource Debate Overseas

Outsourcing (or offshoring) seems to be the political battleground of the week. Both presidential campaigns have launched into a finger-pointing offensive of claiming their opponent has contributed to the shipment of American jobs overseas. The outsourcing debate was sparked by an investigation into and a series of poltical attacks at Romney's activities at Bain. The Republican campaign retorted with recriminations regarding the handling of stimulus money.

While we'll leave the fact-checking to the newspapers, the entire debate is somewhat ridiculous, particularly from Romney's perspective—the supposed voice of economic reason during this electoral season. It is based on the ludicrous proposition that outsourcing jobs is an absolute negative for the U.S. economy. In simplistic political-speech, which assumes Americans are just too stupid to understand basic economics, the argument holds that when a company either hires a foreign company to perform a specific task or moves operations abroad that it is a unilateral loss for the domestic economy.

The first time I saw this "negative" ad from the Obama campaign, I could not help but think that the gist of the comments was true and Romney should proudly own it.

But such arguments ignore basic economic truisms that are taught in any introductory economics course. Trade, whether domestically or internationally, benefits everyone. The simple concept of comparative advantage—the situation in which one producer can produce a good relatively cheaper than its competitors—underpins this logic. By definition, every producer will have a comparative advantage, thus yielding an economic logic for specialization and trade.

In simple language, this is precisely what motivates outsourcing and offshoring. Other countries have a comparative advantage in labor. It is thus relatively cheaper for them to "produce" labor. Since they are comparatively better at labor, trade frees up American resources to do what we are better at (such as research and development). We can then, for instance, trade our research for their labor, creating products that benefit both sides of the transaction at a cheaper price. This specialization and trade helps both economies grow.

The real world is naturally more complicated (short-run costs of reallocating resources are very real), but the essence of the argument holds. Outsourcing and offshoring are good for the U.S. economy (if they are done without distorting effects of government meddling). But one must look at the entire effect, not just the outsourced job to appreciate this dynamic.

So how does outsourcing help? An outsourced job means that a domestic company can now get the work done for a cheaper price (it would not outsource the job if it was more expensive to do so). This frees up resources (money) to put to other uses. A company can either cut costs, passing along savings to consumers (maybe in an attempt to increase market share) who can then save or purchase more, or reinvest the saved money into expanding the business. In truth, both probably occur and both help grow the economy. As is usually the case, a growing economy creates new jobs, most likely in sectors in which the country has a comparative advantage.

If one thus looks at the economy on a holistic level, a cheaper input to production (cheaper labor abroad) will generally help an economy grow and create more jobs. A smart business leader, economist, or president will acknowledge that it is best to have the most efficient producer or worker do the job, regardless of national borders or any other consideration. Outsourcing is thus one piece of a broader economic puzzle, which allows an economy to operate at its highest and most efficient level.

But our politicians never try to explain this basic economic fact. Whether they think Americans are unable to comprehend such simple economics or are they beholden to special interests, both the left and the right seem to be stuck to a pseudo-protectionist argument. Arguably, much of this tenacity to the outsourcing-is-evil argument is due to political expediency. It is much easier, in a world of sound-bites, to make a a simple accusation of sending jobs to India, than explain an economic principle. But such expediency is damaging, not only by dumbing-down political discourse but by empowering certain groups to take-advantage of such language to further their own narrow desires (think unions and noncompetitive industries who want protection).


The Romney campaign would be wise to take a new angle in this debate. Much as New Jersey Governor Chris Christie does, Romney need to take an approach of separate, own, and educate. He needs to separate the fact from fiction, dismissing Obama's ridiculous conclusions about outsourcing, proudly own what he has done, and educate the people on why such actions are good. In other words, Romney has to stop looking like he is running from some greedy business transactions and start explaining how a smart economy works.

Such a change in tactic would not only benefit the United States by pushing our economic policy toward sound principles, but greatly help the Romney campaign. He'll regain the image of a responsible and educated economic steward, earn respect for standing up to smear campaigns and distortions of economic facts, make Obama look like the economic lightweight he is, and rise to a presidential level. It is a novel political strategy, but one that if properly employed will reap tremendous rewards for a candidate who is too often criticized for lacking a backbone.

There Is No 1%

In a recent interview, the New York Times sat down with businessman Edward Conrad to discuss the merits of the American economic system. Conrad, a former employee at Bain Capital, friend of Mitt Romney, and author of the upcoming book "Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong," came out swinging with a powerful defense of the United States' capitalist economy and the so-called 1%.

Conrad must be given credit for both a sound economic defense of the American system and for unabashedly standing up to the onslaught against the core economic principles that have defined the United States for generations. In a financial and economic discussion that is defended as "genuinely fantastic" even by prestigious leftist economists, Conrad outlines how the accumulation of wealth allows investment that proportionally helps everyone.

Conard understands that many believe that the U.S. economy currently serves the rich at the expense of everyone else. He contends that this is largely because most Americans don’t know how the economy really works — that the superrich spend only a small portion of their wealth on personal comforts; most of their money is invested in productive businesses that make life better for everyone....Conard concludes that for every dollar an investor gets, the public reaps up to $20 in value. This is crucial to his argument: he thinks it proves that we should all appreciate the vast wealth of others more, because we’re benefiting, proportionally, from it.

Essentially, he argues that, despite much opposing popular sentiment, there is not anything wrong with the perceived wealth gap in the United States. In fact, it seems he argues the opposite.

A central problem with the U.S. economy, he [argues], is finding a way to get more people to look for solutions despite these terrible odds of success. Conard’s solution is simple. Society benefits if the successful risk takers get a lot of money.

While to the interviewer's chagrin, Conrad does not delve into some serious counterarguments, such as rent-seeking, his economic arguments are sound and convincing. If one buys his logic, as is hard not to do, the Occupy Wall Street crowd are simply fools who are naively injuring themselves.

Nevertheless, Conrad's argument implicitly accepts leftist (socialistic) assumptions through his defense of the so-called 1% by highlighting their provision of a social good. He attempts to refute the charge that the high income and wealth of the rich is somehow denying the poor of what they are due. However, despite the clearness of this analysis, he is making the wrong argument. He is battling the left (and the populist right) on their battleground—generally a woeful proposition—by accepting two significant, albeit it wrong, assumptions.

First, his argument accepts that the divide between the 99% and 1% is real, that there is some fundamental gap that separates the two groups. But such a contention is insupportable. What separates, for instance, the 2% from the 1%? Is everyone in the 99% in the same position? How about the 1%? The truth is that this divide is arbitrary, as any sensible person would acknowledge. It ignores myriad nuances—costs-of-living, family-size, personal goals, type of career, and others.

But the divide has powerful political ramifications, which is precisely why promoters of class warfare have seized upon it. It mobilizes people into an us versus them mentality, attempting to create an artificial camaraderie between the vast majority of Americans—an in-group—against some undeserving out-group. Worst of all, it ignores one of the founding principles of this country that all Americans are equal under the law. There is no 1% or 99%, but simply 100%, each trying to live their own life according to their own abilities, goals, and luck.

Second, by expounding these economic benefits Conrad is accepting the argument that in order for certain members of society to be able to justify high incomes or accumulated wealth, they need to be providing a social benefit. In other words, Conrad's formulation is identical to that of the far-left—individual success, at least for the wealthy, is only justified if the rest of society gains from their behavior. The flip-side implies that if high-income earners cannot convincingly highlight a social good, then their income is somehow illegitimate and possibly forfeit. Conrad only differs from the OWS thugs insofar as he believes that high-income provides such a social good, while those in Zuccotti Park do not.

But this argument is untrue and unjust. Individuals are entitled to the rewards of their work simply because they have been deemed valuable enough by the efforts and their employers to be compensated accordingly. No one, whether wealthy, poor, or middle-class, has to justify their compensation in any social context. Society seems to accept this logic for all but the rich. Very few people feel the need to justify their salary by citing a greater social good. Most feel entitled (and rightly so) to their income based on the hard work they put into their jobs. However, at some arbitrary point a sort of jealousy kicks in creating a scenario where certain Americans have to justify their incomes according to different standards.

This is profoundly un-American. A banker has no greater moral responsibility to justify a social benefit of his salary than a shopkeeper or mechanic. Every American is entitled to reap the rewards that come his way, in whatever form he desires. No one else has a claim to his income and no one else should arbitrarily define criteria to judge whether such wealth is deserved or not. To do otherwise opens a dangerous arena for improper abuse by the majority against the minority.

@FutureChallenges: The Annual Bertelsmann Conference: Making a Comeback

I attended the annual Bertelsmann Foundation conference—Making a Comeback: A Return to Jobs and Growth—which discussed the economy, jobs, and the political state of Washington, D.C. and Europe. Check the following links for my coverage, all posted at FutureChallenges.

Here's a link to a general review of the event, including descriptions of some of the more interesting discussions and panelists.

One of the panels had a lengthy discussion on risks to the international system. This interesting conversation featured panelists Ian Bremmer, from Eurasia Group, and Anne Krueger, from SAIS.

At the conference, Bertelsmann Foundation and the Kiel Institute proposed a new international, non-profit, credit rating agency (INCRA), to address some of the short comings and possible conflicts of interest in the current for-profit model.

In one of the more interesting panels, Congressman Gregory Meeks (D-NY) provided a discussion on the Democrat's take on the debt and tax issues. Fiscal Consolidation: A Technical Term for Partisan Quarrels.

The Privilege of Being American

In today's Wall Street Journal, Lawrence Lindsey, a former Federal Reserve governor and adviser to George W. Bush, wrote an interesting op-ed, refuting Secretary of Treasury Timothy Geithner's argument that it is a privilege to be an American and thus, by extension, the richest should pay more taxes. Lindsey's argument is worthy of reprinting in-part.

Last week Treasury Secretary Tim Geithner said that the "most fortunate Americans" should pay more in taxes for the "privilege of being an American." One can debate different ways of balancing the budget. But Mr. Geithner's argument highlights an unfortunate and very destructive instinct that seems to permeate the Obama administration about the respective roles of citizens and their government. His position has three problems: one philosophical, one empirical, and one logical.

Philosophically, the concept that being an American is a "privilege" upends the whole basis on which America was founded. Privileges are things granted to one individual by another, higher-ranking, individual. For example, in my house my children's use of the family car is a privilege. One presumes Mr. Geithner believes that the "privilege" of being an American is granted by the presumably higher-ranking, governing powers that be.

This is an age-old view that our Founding Fathers rejected. First, they argued that the basic rights of life, liberty and the pursuit of happiness (i.e., economic liberty) were natural rights, endowed by our Creator, not by government. Second, the governing powers do not out-rank the citizens. Rather it is the citizens who grant government officials their "just powers." As Jefferson wrote in the Declaration of Independence, governments are instituted among men based on their consent in order to secure the rights of life, liberty and the pursuit of happiness. The notion that a governing authority grants privileges to those it governs directly contradicts Jefferson's declaration.

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This philosophical point is fundamental. But even if you accept Mr. Geithner's case that the well-to-do must pay more for their presumed "privilege" of being governed, his story ignores the empirical fact that they already do pay a record share of income taxes, even relative to their share of income. According to the Census Bureau, the share of income received by the top 5% of American households is now 21.5%, up from 21.4% in the 1990s. Their share of income taxes has risen to 59% under President Obama from 52% under President Clinton. This despite the fact that the top tax rate was five points higher in the Clinton years.

If you go further back to the pre-Reagan days, when the top tax rate was 70%, the story becomes even more dramatic. Under the four presidents of that era, the income share of the top 5% was 16.8% and their share of the income tax was 36%. In other words, the share of income received by the top 5% has risen 28% and their share of income taxes has risen 64%.

Stated differently, based on the data provided by the Census Bureau and the Internal Revenue Service, the relative tax burden of the top 5% of American earners compared with the remaining 95% has grown from roughly three-to-one prior to 1980 to almost six-to-one today.

One can always argue that this ratio should be 10-to-1, that the "privilege" of being governed is worth 10 times as much per dollar of income to someone who is rich than to someone who is middle-class. Once we give up our moral compass of government deriving its powers from the people. we must also give up any empirical compass of how much we must surrender to government. When you begin the argument that being a citizen is a "privilege" for which one should pay ever more, you very quickly find yourself on Friedrich Hayek's "Road to Serfdom."

This brings us to the third problem with Mr. Geithner's argument, a fundamental logical inconsistency. If being governed, or over-governed, is a privilege for America's citizens, shouldn't everyone pay for the privilege? Why are more than half of all American workers paying nothing at all in income taxes? And if the issue is the need to "pay more" for our privilege, why should only those making over $250,000 be the ones who pay more? If being an American really is a privilege, then certainly all who are thus privileged should pay something.

Still, the real problem with this whole privilege argument goes back to what the Founding Fathers were thinking. Being an American is a right, not a privilege. The privilege belongs to those who are temporarily allowed to serve this great nation in a decision-making capacity. When they turn this privilege into a right to distribute government largess in ever larger quantities—and in ways, to use Jefferson's phrase, a "wise and frugal government" would not—it is those in government, and not the governed, who bear the responsibility for our budgetary problems.

He "Deserves" a Second Term?

If Obama's arrogance and sense of entitlement have not yet come through in his policies and his speeches, he has made it abundantly clear, in a recent interview with NBC's Matt Lauer, that he deserves a second term. When questioned yesterday by Lauer regarding Obama's 2009 statement, "“If I don’t have this done [the economy fixed] in three years, than this is going to be a one-term proposition,” the president responded by stating “I deserve a second term but we're not done.”

Visit msnbc.com for breaking news, world news, and news about the economy

Regardless of what one thinks about his policies, the hubris that emanates from such comments is revealing. As he has repeatedly demonstrated, Obama's leadership is steeped in a worldview that consistently demands and expects some to provide for others. His mentality and his policies are one of entitlement and obligation, unfortunately in direct contrast to an ethos of individual responsibility and self-reliance. This view is apparent whether the state is obliged to provide health insurance for all, bankers or the rich owe their money and wealth to others, or, now, the American people owe Obama a second term, presumably for his "well-deserved" hard work.

@ FutureChallenges: Jobs, Jobs, Jobs: It's the Fundamentals

My newest article at FutureChallenges has just been published. Linked to the content package, Work in the Developing World, the article, Jobs, Jobs, Jobs: It's the Fundamentals, explores the current economic issues faced by the United States and offers a discussion on a possible way to attack the jobs problem.

It is clear, to even the most casual observers of American politics, that one of the most pressing problems of the past several years and a poignant issue in the 2012 election cycle is jobs. With unemployment rates at dismal levels—8.5% as of December 2011—and not having fallen below 8.0% since January 2009, Democrats and Republicans have been slogging it out over who is to blame and what steps need to be taken to ameliorate the situation.

This marks a significant change in the focus of the American electorate. Following 9/11, security and terrorism were, for at least a decade, the primary issues on most Americans’ minds. However, as Eurasia Group, a political risk consultancy, argues, the 9/11 era is over. Over the next few years, economics—especially jobs—will be the driving force behind politics, both in the United States and abroad.

But while politics shift to an economic focus and politicians and pundits began to scrutinize, bolster, and tear-down each others’ and their own job-creating records, many gloss over the fact that governments are rarely directly responsible for creating actual jobs. This is particularly true in free-market systems with relatively small public sectors such as the United States. Instead, governments can indirectly facilitate job creation by generating a favorable economic environment, thus establishing the foundational prerequisites needed for the private sector to flourish.

To see the remainder of the article, please click here.

Newt Undermines GOP Arguments on Capitalism

A desperate and angry Newt Gingrich has relinquished his remaining grip on smart primary campaigning and unleashed an all out assault on Mitt Romney's economic record – and, by association, capitalism. Gingrich's attacks on Romney's experience, however, only serve to undermine Gingrich's stance as a responsible, non-negative campaigner and isolate him from the sensible Republican voters whom he needs to court to have any chance at receiving the GOP nomination.

However, aside from the damage that such attacks seem to be having on Gingrich's campaign, this anti-capitalist line of campaigning is causing monumental damage to the very economic basis that the Republicans are supposed to defend. In his quest to take down his rival, Gingrich is relying on the same Occupy Wall Street-style rhetoric that dominates the left. (To be fair, Governor Rick Perry has resorted to similar tactics, as the WSJ reports.)

The pernicious results are, at least, twofold. First, these attacks greatly help the Obama campaign. These are the precise attacks that the anti-freedom, anti-capitalist forces of the left will unleash on Romney come the general election. There could not be a better way to bolster their argument than by dishing it out for them. As the presumptive nominee, Romney will have an uphill battle to convince those who succumb to the easy anti-capitalist rhetoric that bashes the free market system. Obama can only be gleeful to have help in his mission in the form of Newt Gingrich.

Secondly, and arguably more importantly, Gingrich's attacks solidify misconceptions and distortions about how the free market works. The underlying assumption in his argument is the same as those held by the worst populists in OWS and the anti-Wall Street fringes of the Tea Party. The central argument is that somehow those who have money must justify their possession based on some social, communal good. This is simply false. The freedoms of the American political system guarantee that individuals have the right to their property. Provided they do not engage in illegal activities, individuals have no obligation to justify their earnings to the state in any regards. In other words, the rich, the middle-class, or the poor, need not demonstrate a social purpose or benefit from their occupation in order for the state to deem it acceptable. A free market functions precisely because no government body determines these things.

However many populists and the left implicitly rely upon this assumption when attacking the "rich." Accordingly, they argue that financiers cannot justify a socially-beneficial purpose and thus their "unjustly" earned wealth should be, at least partially, relinquished to the state. Gingrich has gone on record stating that the likes of Bill Gates, Steve Jobs, and Sam Walton deserve their billions because they invented something real. By contrast, goes the argument, Wall Street is just a "handful of rich people [who] manipulate the lives of thousands of other people and walk off with the money...."

This is a gross distortion of the role that finance plays in a capitalist system. Finance is an essential service – it moves capital from those who possess it to those who can use it best. It allows entrepreneurs, who do not possess the needed resources, to obtain them fairly and efficiently. And like anything in business, sometimes it succeeds and sometimes it fails. Capitalism's success is not because it always creates jobs, but that it allows resources to be successfully and most efficiently allocated to the right places, something no one person or institution (government) could do alone. This inherently implies hiring and firing, buying and selling, and investing and divesting. Firing, for instance, moves labor from an area that does not need it and thus frees it up to be used in a more productive fashion.

But Gingrich's attack plays into the leftist and populist rhetoric that ignores the importance of finance. Not only does it confuse voters who are unfamiliar with finance, providing fodder for the left to continue the myth that finance and Wall Street are greedy robbers that need to be stopped by the government (Progressive blogs have jumped on this Gingrich quote.) but it does a great disservice to the purported Republican goal of changing the direction of this country.

Gingrich should be ashamed at such low-brow politics. As an academic and a genuinely smart guy, he must know that the quest to hold political office should not undermine the long-term goals of righting the direction of this country. Relying upon political expediency rather than education only reinforces the anti-free market myths that dominate the public sphere. Republicans have unfortunately excelled far too much at this game. They choose to battle on the Democrats' terrain, using leftist arguments and thus continuously fighting on the defensive. The GOP will only be able to transform this country if it starts to think for itself, if it directly targets these sort of implicit assumptions that underline much of the political dialogue and replaces them with truth. Gingrich's behavior flies in the opposite direction by not just failing to break down the "Wall Street" is bad assumption but strengthening it.

Was It Wall Street or the Government?

A recent Securities Exchange Commission (SEC) investigation into Fannie Mae and Freddie Mac, the two government sponsored enterprises (GSEs) that were integral to the housing boom and bust, now formally argues that these two organizations committed massive fraud, which underrepresented their exposure to subprime mortgages and contributed to the economic meltdown.

The Wall Street Journal expounds how this investigation blows holes in the argument, often proffered by anti-capitalist Democrats, that Wall Street is solely to blame:

Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis. 

That's the story revealed Friday by the SEC's civil lawsuits against six former Fannie and Freddie executives, including a pair of CEOs. The SEC says the companies defrauded investors because they "knew and approved of misleading statements" about Fan and Fred's exposure to subprime loans, and it chronicles their push to expand the business.

And while the GSEs were somewhat independent from the legislature and the bureaucracy, the paper trail seems to go further back. At least some of the incentive for the alleged fraud was directly caused by government's social policy of getting every American his or her own house - regardless of the ability to afford it.

The Beltway story of the crisis claims that Congress's affordable housing mandates had nothing to do with it. But the SEC's lawsuit shows that Fannie degraded its underwriting standards to increase its market share in subprime loans. According to the SEC suit, for instance, in 2006 Fannie Mae adjusted its widely used automated underwriting system, "Desktop Underwriter." Fannie did so as part of its "Say Yes" strategy to "provide more 'approve' messages . . . for larger volumes of loans with lower FICO [credit] scores and higher LTVs [loan-to-value] than previously permitted."

Unfortunately, this is what happens when the government meddles in private-markets for social engineering purposes - prices (and risk) get mispriced, bubbles are grown, and then busts bring the economy down. And while this does not fully absolve Wall Street (fraud did occur and non-criminal stupid decisions were made) or the consumer (the role that greedy homeowners played in buying too much house or refinancing to buy flat-screen TVs and BMWs is unfortunately overlooked), it does shed light on the harm government can do. Sometimes trying to help people ends up with a worse outcome than doing nothing, especially if all potential consequences are not considered from the outset.

Stop Trying to Control Everything

For a long time, Americans have turned to the government to solve their woes. When things "go wrong" the government has been the readily accessible and presumably best organization to make things right. Social problems, economic recessions, health concerns, cultural discords, and the like have all been placed under  government oversight.

Government officials have often done a poor job at solving these problems, partially because the solutions are outside the scope of what a government can successfully do, partially because legislators and bureaucrats often fail to appreciate unintended consequences, and partially because rigid bureaucracy is generally ill-formed to adapt to changing circumstances in the real world. Yet, unfortunately many Americans still turn to the government as the problem-solver. This impulsive desire to turn to the almighty government comes from a general malaise in the American psyche that wants others to carry the tough burdens (or at least a lack of confidence in the ability to achieve), a human desire to control his environment, and an undue confidence that the government is the only institution that can solve big problems. The latter, of course, is rooted in a fundamental lack of imagination on how other forces can have tremendous impacts. The government can be seen, it is tangible, and thus to the naive it is the only means to implement solutions. The less tangible - social, cultural, and economic forces - are summarily dismissed.

But while there has long been criticism of expansive government, there appears to be growing popular antagonism to these outmoded ways of thought. Former Florida governor, Jeb Bush, writes a powerful critique of the need for the "right to rise." He argues that government causes more harm than benefit by its incessant interloping in the marketplace and its attempts to solve the 'problem' of risk.

But when it comes to economic freedom, we are less forgiving of the cycles of growth and loss, of trial and error, and of failure and success that are part of the realities of the marketplace and life itself. 

Increasingly, we have let our elected officials abridge our own economic freedoms through the annual passage of thousands of laws and their associated regulations. We see human tragedy and we demand a regulation to prevent it. We see a criminal fraud and we demand more laws. We see an industry dying and we demand it be saved. Each time, we demand "Do something... anything."

He goes on to discuss the pressures he faced, as a governor, to always find a solution, to always be the one to "do something," even though there was not always something to be done. The pattern is emblematic of the corrosion of the American way, where Americans now look for the easy way out, for someone else to solve their problems, and for a cushy, utopian lifestyle free from any possible harm.

In a similar vein, Robert J. Samuelson argues that Keynesian economics, the economic theory that has justified government management of and intervention in Western economies since the interwar period, is on its deathbed. Government management of the economy may have been appropriate when governments were small, nimble, and able to tweak the economy at the margin; however, now these policies are increasingly a disaster.

Deficit spending and pump priming were plausible responses to economic slumps. Now, huge governments are often saddled with massive debts. Standard Keynesian remedies for downturns — spend more and tax less — presume the willingness of bond markets to finance the resulting deficits at reasonable interest rates. If markets refuse, Keynesian policies won’t work.

However, governments have long since abandoned prudent use of such policies, distorting the original intent of Keynesianism to justify massive government control and intervention in the private sector. This has not only rendered Keynesianism ineffective but created ripples of problems across the American landscape. The death knells of this philosophy, are deeply rooted in a growing lack of confidence that some enlightened, technocratic government is truly able to solve the country's woes.

Unfortunately, some still tenaciously cling to the outmoded confidence in government. They cannot envision an alternative. They cannot accept that not only can we as humans, with our minimal capacity, not fix every problem, but that it is often not desirable to try and do so. Failure can be a good thing, self-reliance can be empowering, problem solving can build character, and being independent can yield a better world than  stifling, top-down control. Mankind cannot control every aspect of its environment, not through individual or government action. The sooner we let go of this pernicious desire to shape our surroundings into some ideal and the sooner we let go of the false hope that only through government's magical hands will we better our world, then the sooner this country will be able to progress.

@ FutureChallenges: An Artificial Protest: Occupy Wall Street

A discussion and analysis of Occupy Wall Street has been published at Bertelsmann Foundations FutureChallenges.org, that argues that OWS has severe structural issues and is thus far from a real protest movement. Not only does it lack a coherent message (although that is slowly changing), most of its constituent members are motivated by factors that are not conducive to a successful political force. OWS is driven by an obsession with the David-and-Goliath complex, a romanticization of protest, and a large amount of cognitive dissonance. While economic grievances may be real, OWS is far from a potent political force.

The American media has been awash with jubilant exaltations of Occupy Wall Street (OWS). However, despite many claims, the movement is not a transformative revolutionary force. While indubitably there is a small core that is committed to dramatic, even revolutionary, change, they are not representative of most Americans, or even, arguably, of most protestors in the streets. Accordingly, OWS will not have the dramatic impact championed by the chattering class.

Is the Mainstream Losing Interest in OWS?

Here's an excerpt from a poignant critique of OWS from the Washington Post's Michael Gerson. The whole article is worth a read.

At what point does a protest movement become an excuse for camping? At what point is utopianism discredited by the seedy, dangerous, derelict fun fair it creates? At what point do the excesses of a movement become so prevalent that they can reasonably be called its essence? At what point do Democratic politicians need to repudiate a form of idealism that makes use of Molotov cocktails?

The emergence of Occupy Wall Street raised Democratic hopes for the emergence of a leftist equivalent to the Tea Party movement. The comparison is now laughable. Set aside, for a moment, the reports of sexual assault in Zuccotti Park and the penchant for public urination. Tea Party activists may hate politicians, but they venerate American political institutions. Veneration does not always involve understanding. But the Tea Party’s goal is democratic influence.
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And we are beginning to see what direct action means. Occupy DC protesters recently assaulted a conservative gathering, then took over a public intersection to prevent the passage of luxury cars. Blocking the path of one driver and his 2-year-old son, an activist shouted, “Sorry, but you have no power right now.” That is the opposite of participatory democracy — the use of power to intimidate a fellow citizen on a public street. It is the method of British soccer thugs.
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Defenders of OWS dismiss this as the work of a few bad apples. But the transgressors would call themselves the vanguard. And they express, not betray, a significant ideological strain within the movement. Since the 1960s, some on the political left have sought liberal reform through the democratic process and nonviolent protest. Others have sought to hasten the crisis and collapse of fundamentally illegitimate social and economic systems. Both groups can be found within OWS, but the latter is ascendant.

As ANR has argued before and has been written elsewhere, Occupy Wall Street is fundamentally a flawed, if simply a "fake," protest movement. While there are certainly real grievances throughout America, OWS is not a viable movement that can address them. This isn't an argument about OWS's ideology (if it has one), which is certainly open to criticism on its face, but a structural criticism. It seems that the mainstream is starting to recognize this too.

The Economic Harm of OWS

For a movement that professes to be protesting the dismissal state of the economy, including the lack of jobs, Occupy Wall Street (OWS) appears to believe that hampering the mechanisms of capitalism is a smart move. Yesterday, members of Occupy Portland shut down the Port of Portland, preventing any trade from proceeding. The Port of Portland is the fifth largest port (by tonnage) in the United States and is thus responsible for an enormous amount of trade and jobs, both at the port and in markets that rely upon the trade.

Why the Occupy movement thinks that stopping economic flows is an intelligent tactic is beyond comprehension. Not only would it seemingly undermine any potential support they could garner from those who do not sit on the far-left of American politics, but such strategies undermine attempts to improve the economy. It is nonsensical to prevent people from working and interrupt economic activity in this economic climate.

OWS has had pernicious effects on small businesses, particularly those located in the vicinity of the protests. Shops, for instance, have been forced to close as protesters have driven away paying customers. Other businesses have had to lay-off employees in order to stay afloat. And many banks have been forced to close their doors for fears of potential violence. None of this helps the economy or the newly minted unemployed.

But the follies of OWS do end there. There have been reports, admittedly isolated for the time being, of Occupy protesters attacking banks, stores, and other institutions of "capitalism." While not yet the mainstream of the movement, which has largely been peaceful, such violent trends are worrisome. The last thing this country needs is to descend into further turmoil.

Some Sense Regarding the Housing Market

It is about time someone talks honestly about the economy. According to The Wall Street Journal, Mitt Romney commented about the housing market and foreclosure:

One is, don't try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up. Let it turn around and come back up. The Obama Administration has slow-walked the foreclosure processes that have long existed, and as a result we still have a foreclosure overhang.

Number two, the credit [that] was given to first time homebuyers was insufficient and inadequate to turn around the housing market. I think it was an ineffective idea. It was a little bit like the cash-for-clunkers program, throwing government money at something which was not market-oriented, did not staunch the decline in home values anymore than it encouraged the auto industry to take off.

The Journal went on to say:

How's that for refreshing? After five years of politicians trying without success to postpone disclosures and levitate the housing market, Mr. Romney dared to tell the truth. Parts of the U.S., including Nevada, still have too many homes, and that supply needs to be sold off and fixed up so the market can find a bottom before home prices can start to rise again. The faster that process proceeds, the faster the recovery will take hold.

While the personal plight of many individual Americans is heart-wrenching on the personal level, meddling in the housing markets is the sort of disastrous policy that helped push the economy to its current state. Why can so many correctly criticize the bailout of big banks, insurance companies, and auto manufacturers, but not realize a bailout of Main Street is just as dangerous? The government's expressed desire to "prop-up" or "boost" the ailing housing markets are simply other terms for "create a new bubble."

By distorting incentives the government encourages individuals and institutions to incorrectly calculate risk. Inevitably, this will lead to sub-optimal outcomes. As difficult as it may be to watch the nefarious outcome of poor risk management, it is sometimes better for all to simply do nothing. The government not only does not have the ability or resources to "help" everyone, but it creates awful drags on the economy, as current policies have demonstrated, and breed future problems when it foolishly tries to become a superhero.

Occupy Wall Street: An Inflated Movement

Occupy Wall Street (OWS) is "inept, incoherent and hopelessly quixotic"—and this is from their gushing supporter Eugene Robinson, who goes on to offer effusive and saccharine praise. The media has been awash with such puerile punditry—half-baked attempts to turn this rabble into a meaningful cause. But the truth is that these characteristics—the disorganization, lack of coherence, lack of mission and purpose—that Robinson and his compatriots are trying to turn into redeeming qualities are precisely why OWS is asinine.

The basic problem with OWS is that they do not know what they are criticizing nor do they know what they want. Instead they just want to make some noise. They have descended on the streets to join a protest-cum-fiesta, with no agenda in mind. In other words, they are pointlessly trying to create turmoil (or just trying to be part of the "crowd").

There are two underlying tenets of leftist philosophy that are implicitly driving this movement to the streets. The first is the so-called "problem of the underdog" (alternatively the "David and Goliath complex"), where the underdog is automatically granted moral superiority while the "overdog" is castigated as evil, corrupt, abusive, and the like. In cases where there is no clear underdog, a battle of words and propaganda usually ensues to claim the mantle of the oppressed. This conceptualization of the world is generally a driving theme on America's left. The underdog is to be reflexively defended against the oppression of the overdog, without any consultation with facts, history, logic, or other essential inputs that often underlie rational behavior. Whether the powerful is white, male, American, Israeli, rich, or a business owner, they are rubber-stamped with moral opprobrium.

The incorrectness of this knee-jerk damnation should be self-evident. Certainly while those in power can be in the wrong, their identity does not automatically imply that such is the case. However, this unfortunately has become a guiding principle of the left and a motivator of OWS. The unwashed have flocked to Zuccotti Park, the "headquarters" of OWS in NYC, because of an innate bias against the supposed overdog. Wall Street, CEOs, and bankers have been pilloried simply because of their identity and their perceived positions of power. And while there was indisputable wrong-doing by some on Wall Street (just as there is indisputable wrong-doing by those in Washington and on Main Street, the latter unfortunately far too often ignored), the attack on the system shows a lack of understanding of Wall Street's purpose and how basic things, like economics and finance, work. Instead it shows the deeply rooted bias, endemic to leftist ideology, of anyone who is perceived as being "top dog."

Secondly, OWS is motivated by the romantic aura that the left drapes around social revolution and protest. Acts of civil disobedience are lauded simply because they are performed, generally regardless of the cause. Protest has become an end unto itself, the mission and message are secondary, if existent at all. In a sense, a segment of the left wants to "recapture" the spirit of the 1960s, a time when protest was successful, partially because there were causes to protest about (some justified, others less so). "The Occupy Wall Street movement is an exercise in nostalgia. It’s an attempt to recreate the excitement of 1968, when the world’s youth took to the barricades," says a blogger at The Telegraph. The hippie mentality is evident in the drum circles, tie-dye, and other throwbacks filling Zuccotti Park. OWS is not really protesting—they have nothing to protest about—they are throwing a party, living in a revolutionary dreamworld, and trying to recreate some romantic notion that never existed.

The movement, if it can be called that, has tried to link itself not only to the 1960s, but to the Arab Spring and even the Tea Party. But the truth is, it shares little in common with any of these movements. The key lacking feature is that OWS has no agenda. They have no demands nor do they offer any alternatives to the status quo. There is, in fact, nothing political about them. The Arab Spring has a clear agenda of removing the tyranny and dictatorship that has lorded over the various Arab nations for decades. They have a goal and can clearly define when part or all of that goal has been achieved. For all their problems, (and ANR has been critical of the Tea Party), the Tea Party has a clear platform and agenda. They propose and can judge legislation according to a set of principles.

OWS possesses none of this. Their vague discussion about "economic justice" is meaningless. They are grossly out of touch with any sort of philosophical underpinnings of their beliefs. There is no social or political argument to be found.

Charles Krauthammer has decisively described the condition of OWS.

To the villainy-of-the-rich theme emanating from Washington, a child is born: Occupy Wall Street. Starbucks-sipping, Levi’s-clad, iPhone-clutching protesters denounce corporate America even as they weep for Steve Jobs, corporate titan, billionaire eight times over.

These indignant indolents saddled with their $50,000 student loans and English degrees have decided that their lack of gainful employment is rooted in the malice of the millionaires on whose homes they are now marching — to the applause of Democrats suffering acute Tea Party envy and now salivating at the energy these big-government anarchists will presumably give their cause.

Except that the real Tea Party actually had a program — less government, less regulation, less taxation, less debt. What’s the Occupy Wall Street program? Eat the rich.

The sad thing is how much some circles want to turn OWS into something consequential. Whether for nostalgia, a romantic notion, political expediency (look at the unions and many Democratic politicians), or simply because anyone in a suit must be a bad guy, many are beating their drum-circle drums to create meaning out of this "protest." But OWS cannot go anywhere, certainly not in its current state. Instead it just disrupts and distracts, removing focus from the very real problems many Americans are facing. At worst, it may lead to wholesale violence and division, precisely what America does not need. America's economic woes are all of our faults—we should be coming together to find solutions, not playing rounds of "point the finger."

A Rebuke Against Obama

One of America's most Democratic congressional seats has gone red.  NY-09, the district once held by former Congressman Anthony Weiner, was won last night by Republican Bob Turner in a special election to replace the disgraced former congressman.  The loss of this long-held district is a huge blow to the Obama administration.

The Democratic pedigree of the district is astounding and the statistics say it all.  The district, currently a bastion of (mostly Orthodox) Jews and Catholics nestled in Queens and Brooklyn, has been held by Democrats since 1923.  It has produced such notables as Chuck Schumer (current senator from New York) and Geraldine Ferraro (vice presidential candidate for Walter Mondale).  Only two Republicans have held the seat since 1874 (for a total of six years) and over the entire history of the United States, Republicans have represented the district for approximately nine years.

Yet even if the statistics are insufficient to convince naysayers of the impact, local Democrats concede the results are a clear rebuke of Obama. For instance, Democratic analyst Hank Sheinkopf said:

The Democrats said no to Obama, no to his economic plan, and no to his position on Israel.... It’s major smack at Democrats, a definite rejection of President Obama and it’s a warning that says if Catholics in the most blue of blue states can vote for the Republican they can do it in other states as well and the Democrats may have real trouble.

But while Sheinkopf is correct to focus on the Catholic vote, Obama should also worry about the second major demographic that makes up NY-09:  the Jewish vote.  New York Democratic leader Ed Koch outwardly supported Turner's campaign as a message against Obama's approach to the Middle East. Many Jews, a large Democratic staple, have become increasingly frustrated with Obama's caustic policies towards Israel and have turned against the administration.  This vote is a major indicator of that trend.

Dan Senor, in the Wall Street Journal, details a laundry lists of administration affronts to Israel, but sums up the meaning of the vote rather succinctly.

A Public Policy Poll taken days before the election found a plurality of voters saying that Israel was "very important" in determining their votes. Among those voters, Republican candidate Robert Turner was winning by a 71-22 margin. Only 22% of Jewish voters approved of President Obama's handling of Israel.

This trend, should it continue, does not bode well for the president and will certainly aid the Republicans come 2012.  Obama is getting hit hard in the supposedly safe bastions.  His mismanagement of the economy, poor foreign policy, and general inability to manage the political climate in Washington, have alienated many of his traditional voters.

And yet despite this wealth of evidence, many Democrats have tried to disavow any linkages to the administration's policy.  This is foolish.  Democrats can choose to ignore the lesson, but the interpretation of the special election as a rebuke against Obama stands rather solidly.  Even Turner acknowledged that there was little daylight between his and former opponent's, Democrat David Weprin, positions, particularly regarding Israel.  The voters, he argued, were not so much voting for him as sending a message of discontent to Washington.  Hopefully, for Obama's sake and the country's, the message does not fall on deaf ears.

Just Another Stimulus Package

Obama's "jobs bill," announced last night, is just another stimulus package, plain and simple.  But not only is it just another Keynesian^[1] spending package, it is the same old policy proposals cloaked (poorly) in a new garb.  The Wall Street Journal said it best:

If President Obama's economic policies have had a signature flaw, it is the conceit that by pulling this or that policy lever, by spending more on this program or cutting that tax for a year, Washington can manipulate the $15 trillion U.S. economy to grow. With his speech last night to Congress, the President is giving that strategy one more government try.

It seems that Obama has the vision of a new New Deal - the same type of stimulus; filling potholes, building infrastructure, and the like, that has already been attempted twice with little success during the Great Recession.  This is the same Keynesian economics that has, for some, justified profligate spending since World War Two.  Its record is, of course, highly debatable - after all, it was not so much the New Deal that brought America out of the Great Depression but World War II.  And while the staunchest defenders retort that military expenditures are government spending and thus justify Keynesian economics, there is a qualitative difference insofar as WWII spending occurred amid massive domestic and international structural changes.

But even if one concedes that Keynesian stimulus worked during WWII, it is the only event in American history that can make this claim.  Subsequent attempts have largely failed - most clearly demonstrated in the two most recent stimulus packages.  It is time to jettison this outmoded economic philosophy.  A simple enough reason is that Americans are catching on to the reality - any stimulus has to be paid by the taxpayer down the line.  Obama may wish to paper over this by claiming the "jobs bill" is fully funded, but the reality is if he is able to squeeze a few more billion out of the Super Committee, it should be used to further reduce our debt, rather than pay for new programs.

The truth is that the economy is failing to right itself because of fear.  Business owners and entrepreneurs have little certainty as to what is going to come out of Washington - more taxes or less, greater spending or austerity, increased or decreased regulation, downgrades, debt or solutions.  This has led to a near paralysis as a wait and see mentality has set in.  The volatility of the stock market says it all.  We have all become manic-depressives.

If Obama is serious about jobs, he has to allow business to do what it does best - get to work - by creating the stability it needs to properly function.  This is not even a call for decreased regulation or taxes [some regulation, as Obama pointed out is necessary to protect the safety and security of workers and consumers], but a need for businesses to know that their operating environment tomorrow will be the same as it is today.  This small thing, renewed confidence, will allow them to go forward and make long-term plans.  It is an easy solution - maybe too easy for a Democratic party beholden to the notion that complex government programs are needed to solve man's everyday problems.

The Republicans shouldn't even consider the bill; it is a waste of time.  Sure Obama will try to peg them as obstructionist and thus the Republicans should avoid grappling in the mud.  Their response so far - no response - is perfect.  There is no debate here, just political theater as Obama launches he reelection campaign. [But if one feels compelled to see what's economically wrong with his proposal the Heritage Foundation has put together a concise list.]

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[1] Keynesian economics is the economic philosophy that government spending is sometimes needed to support the economy.  First developed by John Maynard Keynes in the early 20th century, it has often been used to justify countercyclical deficit spending (i.e. during recessions) by the government to stimulate the economy.  Largely beyond its original intent it has been argued by some (most notably following the Kennedy administration) that it should not solely be used during recessions but during other times of non-full employment.  This argument has led to deficit spending during economical booms to increase employment.  

Market Rallies After Earthquake Leads to Evacuation of Capitol

Okay, so the market was moving upwards all day.  Nevertheless, it seems to have taken its most rapid climb of the day a short time after the 1:51 PM earthquake forced the evacuation of many government buildings in Washington, including the Capitol and White House.  Telling? Coincidence? Irony?   We'll leave it to the people to judge.

A Fine Debt Deal

The bipartisan deal, announced yesterday by the White House, to raise the debt ceiling alongside significant spending cuts has not only helped avert an economic crisis, but has started a much needed process towards fixing America's fiscal situation.  As Speaker of the House, John Boehner (R-OH) said, "[It is not] the greatest deal in the world.... But it shows how much we've changed the terms of the debate in this town....”

The deal, which has yet to be voted on by either chamber of congress but is largely expected to pass, includes immediate cuts and an increase in the debt ceiling.  This is to be followed by a second round of cuts and debt ceiling raises, backed by the recommendation of a bipartisan committee.  Notably absent at this stage are any tax increases or a balanced budget amendment.  Both issues will be raised by the time of the second round of cuts.

Republicans should be quite happy with the outcome.  While the deal certainly has not achieved everything that the GOP desired, it is a good first step.  Reforming the fiscal condition of this country is a process.  After some 80 years of fiscal misguidance, it is far too ambitious to expect all of the needed changes to be implemented during one summer's battle over the debt ceiling.  What this battle has done is begin to change the national mentality.  It has rewritten the terms of debate in a manner that is more conducive to further reforming the fiscally unsound policies of the post-war era.  For the first time, debt limit increases have been linked to to spending cuts.  As Senate Majority Leader Harry Reid (D-NV) bemoaned, the debt ceiling has been unconditionally raised 74 times since 1962.  This has now changed and each future debt limit increase will most certainly involve debates over additional cuts.

In one sense, it is probably good that the Republicans have not received everything that they want - and everything the economy needs - in this one deal.  If the GOP had managed to drive through a "dance-in-the-streets" deal - one complete with a balanced budget amendment, fulsome plan to reduce our national debt, and severe cuts to government spending and entitlements - the debate would be prematurely terminated.  This may have thus provided the needed fiscal changes, but would accordingly fail to make them lasting.  It would only be a matter of time before the left regained the position to scale back these reforms.

The fact is while these needed changes are apparent to many, especially on the right, they are unfortunately not obvious to all Americans.  Fixing policies is only half the game, changing the American mentality is the real crux of the battle.  Unfortunately, many Americans are not quite ready to completely revamp their thinking about deficit spending and the government's fiscal responsibilities.  Accordingly, winning too much, too soon could undermine the broader discussion that is needed.  America needs to realize the necessity of making these reforms and turn from its all-the-time-Keynesianism deficit spending mentality to one of long-term fiscal responsibility.  The process that the battle over the debt ceiling has started will provide the continued platform to present these arguments.  These reforms will only become permanent if the American ethos is severely altered. Spending beyond our means is unsustainable, but unfortunately much of America will need to be convinced of this through a drawn out debate.

Republicans should be sanguine with their success.  No, it is not perfect, but it is an amazing start.  For a party that only controls one-third of the government and has faced a Democratic opposition that started on the far-left of American politics, it has been an astounding feat to so change the national dialogue.  There is still much more work to done, and given the ingrained and long-established interests it will not be easy; yet a historical process has begun.  For this we should be proud.

Not Such a Hard Deadline

According to a New York Times report, August 2nd is not really the "hard deadline" that the administration has been arguing will signify the end of the federal government's ability to pay its bills.  For months pressure has been building to raise the debt limit by this date to avoid the catastrophic event of default.  However, as the Times reports it seems that there is at least another week of cash available to pay the government's bills.

It turns out the federal government is sitting on some extra cash.  

Thanks to an inflow of tax payments and maneuvering by the Treasury Department, the government can probably continue to pay all of its bills for several days after Aug. 2, providing potentially critical breathing room for Congress to raise the debt ceiling, according to estimates by several Wall Street banks and a Washington research organization.  

The consensus is that the government will not run short of money until Aug. 10, when it would be unable to cut millions of Social Security checks without borrowing more money. ...The government will exhaust its ability to borrow more money on Aug. 2, which is equivalent to maxing out a credit card. But there still will be cash in the federal wallet.  Some Republicans have expressed skepticism about the Aug. 2 deadline, describing it as an artificial line drawn by the Obama administration for political reasons. Analysts emphasize, however, that the deadline is real; it’s just the date that is inexact.

Obviously this does not obviate the need for some deal to, at least in the short-run, raise the debt ceiling with concomitant cuts in spending and some tax reform.  It does however provide the markets with some much needed time before "crisis" hits.  If these numbers are legitimate, it would be prudent for the White House and congressional leaders to seize upon them to quiet market psychology.  Winning a political battle is not worth sinking the economy.

Redefining Poverty

There is a problem of definitions in American politics.  Although not a new phenomenon, it is unfortunately one that is rarely discussed.  In many instances, challenging the accepted political definition of certain words leads to harsh, acerbic, and often unwarranted attacks by those who wish to defend a political definition for their own partisan uses.

In a recent report, the Heritage Foundation has courageously taken a stand against the definition of one of these words - "Poverty".  The abstract to the full report states the following:

For decades, the U.S. Census Bureau has reported that over 30 million Americans were living in “poverty,” but the bureau’s definition of poverty differs widely from that held by most Americans. In fact, other government surveys show that most of the persons whom the government defines as “in poverty” are not poor in any ordinary sense of the term. The overwhelming majority of the poor have air conditioning, cable TV, and a host of other modern amenities. They are well housed, have an adequate and reasonably steady supply of food, and have met their other basic needs, including medical care. Some poor Americans do experience significant hardships, including temporary food shortages or inadequate housing, but these individuals are a minority within the overall poverty population. Poverty remains an issue of serious social concern, but accurate information about that problem is essential in crafting wise public policy. Exaggeration and misinformation about poverty obscure the nature, extent, and causes of real material deprivation, thereby hampering the development of well-targeted, effective programs to reduce the problem.

The report continues by discussing the standard of living experienced by most "poor" Americans and how high these are, both in historical comparisons and vis-à-vis other countries.  It makes the key argument that there is a need to separate the truly destitute (eg. those that chronically lack shelter, food, or clothing) from those that are just defined as poor.  Due to limited resources, this expansive definition of poverty has not only injured the truly destitute but provided for those that are arguably not needy.

The U.S. Census Bureau, which determines the poverty thresholds, bases their calculation of these thresholds on a 1963 study that looked at the Department of Agriculture's low cost food plan.  Surprisingly, it was not designed to reflect the daily needs of an individual or family.  "...[They] did not develop the poverty thresholds as a standard budget... a list of goods and services that a family of a specified size and composition would need to live at a designated level of well being." 

While the Census Bureau's "poverty thresholds" are only used for statistical purposes, the Department of Health and Human Services (HHS) further complicates issues by setting forth "poverty guidelines" for administrative purposes.  While these are generally based on the Census Bureau's numbers they are modified for various programs (for instance scaled up by some percentage).  These guidelines are what are used in most welfare programs.

Arguably both the Census Bureau's and HHS's definitions are exceedingly arbitrary.  As the Heritage report empirically supports, far too many are able to achieve substantial luxuries while nevertheless being deemed poor by the government.

A secondary source of definitional challenge comes from politicians who often use the term "poverty" in a relative sense.  A relative definition of poverty signifies that poverty is determined by some distance from a measure of "middle-class" - for instance the median income. This necessarily implies that the problem of poverty can never be solved, unless all incomes become very narrowly distributed around a median income.  Taken to its logical conclusion, in some perverse world, poverty could easily be eradicated by evaporating the wealth of the richest in a country without any concomitant change in the position of the poorest. By thus diminishing the "wealth gap," relative poverty would no longer exist. Obviously such a precept is laughable - no state would be better off by removing wealth from society - but it nevertheless is the natural conclusion of a doctrine of relative poverty.  In reality, "relative poverty" is nothing but a euphemism for "income inequality."

Instead, poverty should be measured in relation to what a person needs to achieve certain necessities, such as food, shelter, and clothing. By using an such an absolute measure, poverty is defined by essential characteristics not an arbitrary statistical formulation or relative comparison. This is undoubtedly a more just definition of poverty and puts the state in a better position to provide resources to alleviate poverty. It also provides proponents of the welfare state with a better position from which to defend the need for state assistance in eradicating poverty.

[By claiming the American definition of poverty is wrong, one does not mean there are not people who truly are in need, nor that there are not those who are truly poor in America.  But it does imply that a changed definition can have significant implications for welfare policies.]

It is to be expected that vested interests will attempt to avoid any discussion, let alone any changes to the definition of poverty.  Expansive definitions of poverty allow numerous constituents (particularly but not exclusively of the Democrats) to gain benefits at the expense of others.  It is unlikely that recipients of handouts (whether low- or high-income) will be willingly to abdicate their lucrative positions.  This is unfortunate and unfair.  In such times of economic difficulty and budgetary disorder it is necessary to carefully study if our current definitions and resulting policies have stepped beyond what is appropriate and into the realm of social and economic largess.

Arguably, much of our welfare state has become a system of wealth redistribution rather than a social safety net.  This is not so much a critique of the concept of the welfare state but of its abuse to fulfill abstract notions of social justice.  As Heritage points out, our working definition of poverty has become one much more about "income 'inequality'" than one of need.  This has arguably caused the state to venture far outside of its appropriate bounds and has indubitably contributed to our expanding fiscal woes.  According to the authors of the study, "President Obama plans to make this situation worse by creating a new 'poverty' measure that deliberately severs all connection between 'poverty' and actual deprivation... giving the President public relations ammunition for his 'spread-the-wealth' agenda."  A redefinition of "poverty" to more accurately reflect individuals' needs may not only help alleviate America's budgetary problems but allow a misappropriation of the system to revert to its moral underpinnings.