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.

Government Questions Employer's Right to Require High School Diploma

Once again the government is slowly pushing its tendrils into the private sector. The Equal Employment Opportunity Commission (EEOC) has recently released a non-binding letter indicating that employers may be in violation of the American Disabilities Act (ADA) if they require a high school diploma as a prerequisite for employment. The letter, which as of now is only an informal expression of the EEOC's position and does not have the force of law, states:

[I]f an employer adopts a high school diploma requirement for a job, and that requirement “screens out” an individual who is unable to graduate because of a learning disability that meets the ADA’s definition of “disability,” the employer may not apply the standard unless it can demonstrate that the diploma requirement is job related and consistent with business necessity. The employer will not be able to make this showing, for example, if the functions in question can easily be performed by someone who does not have a diploma. 

Even if the diploma requirement is job related and consistent with business necessity, the employer may still have to determine whether a particular applicant whose learning disability prevents him from meeting it can perform the essential functions of the job, with or without a reasonable accommodation. It may do so, for example, by considering relevant work history and/or by allowing the applicant to demonstrate an ability to do the job’s essential functions during the application process. If the individual can perform the job’s essential functions, with or without a reasonable accommodation, despite the inability to meet the standard, the employer may not use the high school diploma requirement to exclude the applicant. However, the employer is not required to prefer the applicant with a learning disability over other applicants who are better qualified.

While fortunately not yet legally binding, the argument behind this letter continues a worrying trend of arbitrary government interference in the private sector. However, putting aside the incremental threat of government micromanagement of the economy, this policy has the potential for significant negative economic and social effects.

First, the policy can arguably cause undue economic burdens to employers and restrict their ability to recruit appropriate candidates. The possession of a high school diploma is often used as a filter to screen out less than desirable candidates. While, like any such screen, it will be imperfect—sometimes keeping out good matches and other times allowing bad candidates to move on to interviews or even employment—methods of filtering job applicants allows employers to reduce overhead costs and save resources. Employers will have a much longer and costly hiring process if they are forced to consider every applicant without the ability to employ screening techniques as they see fit.

Likewise, employers will be faced with growing costs related to litigation and preventative legal steps, such as developing rubrics to discern if "the diploma requirement is job related and consistent with business necessity." The policy will open the door to expensive legal battles and direct corporate resources from primary business operations to the legal department.

Such costs will, of course, be passed on to consumers or taken from employees paychecks—results that are not needed during tough economic times. Additionally, higher expenses related to hiring can lead to damage to the job market. Companies will become more hesitant to expose themselves to regulatory action or litigation by quickly entering the job market when, particularly, short-term needs arise. Any job market needs to be largely unencumbered—to facilitate easy hiring and firing and thus allowing employers and employees to rapidly find mutually beneficial arrangements. This policy will have the opposite effect on the job market.

These economic concerns are rivaled by the pernicious implications that this proposed policy has on the value of education. Many opponents cite that this will limit incentives to a high school education. This argument carries some weight. After all, if employers are limited in requiring a high school diploma, students will have less pressure to avoid dropping out. More jobs that do not require a diploma will be available and legal action will always be a viable route.

Inevitably, the social effects of devaluing education could yield unfortunate ramifications—handicapping an already flagging economy and continuing the dumbing-down of our relatively declining pool of human capital. America needs to increase its productivity and human capital; high school education is a first step in this process.

America does not need disincentives to high school education. It does not need to continue providing excuses for people to disavow personal responsibility. Nor does it need to invent ways to try to "protect" Americans against every conceived stroke of bad luck, injustice, or risk. What America needs is to increase productivity, allow economic forces to freely operate, and afford Americans the opportunity to face and overcome challenges—and sometimes also fail.

UN Embarrasses Itself - Again

The United Nations General Assembly (GA) has once again made a fool of itself. In proceedings today, it held a minute of silence as a sign of respect for the death of North Korean dictator (and general madman) Kim Jong-il, who died this past Saturday. The president of the GA, Nassir Abdulaziz Al-Nasser, called for a twenty-five second ovation, stating:

It is my sad duty to pay tribute to the memory of the late Kim Jong-il, Secretary-General of the Workers Party of Korea, Chairman of the National Defence Commission of the Democratic People's Republic of Korea and Supreme Commander of the Korean People's Army, who passed away on Saturday, December 17...

While Western leaders boycotted the ceremony and the GA meeting was sparsely attended, the honoring of such a tyrant as Kim Jong-il rudely displays the daftness of the UN, representing yet another utter failure to even approach a reasonable interpretation of the United Nations' founding principles. It also signifies a capitulation to the worst form of North Korean propagandizing, creating even more material for the North Korean leadership to brainwash their people into accepting the supposed successes and laudatory nature of the failing regime.

Of course such behavior from the UN General Assembly is not surprising. However, as it continues to let itself be used as a political forum for the world's most hateful regimes, despotic dictators, and terrorist organizations to spew their hatred, it only serves to undermine any sense of morality in the international system.

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.

Grabbing the Center

Elections are won and lost in the center. So seems to be an increasingly vocalized mantra from some of the more sensible on the right. The argument is fairly simple: while America is generally a center-right country, a large number eschew extreme candidates, whether on the far left or right. The politician that can successfully grab the middle stands to win the election.

Some conservatives, though, have long been arguing against this perspective, claiming instead that a more "pure" (read: further right) candidate is needed. But this logic fails. The far-right will vote for a moderate conservative over the leftist Obama, and, given their intense dislike of the incumbent, will undoubtedly head to the polls for Mitt Romney rather than seeing the president re-elected.

The independents, those who voted for Obama three years ago and are now sorely disappointed, will be more hesitant to vote for what appears to be an extreme GOP candidate, than a more moderate one, like Romney. Since, these are the powerful swing voters, their apprehension could be disastrous, giving Obama yet another four years.

Karl Rove, architect of the Bush Jr. campaigns, seems to agree. He has argued that a successful candidate needs to draw votes from both the left and the right and be representative of all of America. This is the strategy that worked for the "Big-Tent" Republicanism of Ronald Reagan, who created an entire new group of Democrats - the Reagan Democrats.

In the Wall Street Journal, syndicated radio show host Michael Medved provides a powerful argument to this effect.  He concludes:

In short, the electoral experience of the last 50 years does nothing to undermine the common-sense notion that most political battles are won by seizing and holding the ideological center. In the last two presidential elections, more than 44% of voters described themselves as "moderate," and no conservative candidate could possibly prevail without coming close to winning half of them (as George W. Bush did in his re-election). 

The notion that ideologically pure conservative candidates can win by disregarding centrists and magically producing previously undiscovered legions of true-believer voters remains a fantasy. It is not a strategy. At the moment, it is easy to imagine Mitt Romney appealing to many citizens who would never consider Rick Perry or Herman Cain. It is much harder (if not impossible) to describe the sort of voter—Republican, Democrat or independent—who would refuse to support Mr. Romney (over Barack Obama!) but would somehow eagerly back Messrs. Perry, Cain or Gingrich, let alone Michele Bachmann, Rick Santorum or Ron Paul.

Conservatives, as well as their moderate and progressive neighbors, may have plenty of reasons to oppose Mitt Romney in favor of some rival candidate. Electability can't reasonably count as one of them.

Ideology certainly has its place, but those that are truly committed to correcting the misguided course this nation is on must be careful not to be blinded to their own detriment. Democracy is fundamentally about compromise, even if a compromise is worse than some alternative "pure" option. If the Republicans want a seat at the table, if they want to be able to influence the direction of the country, they must be politically smart as well.