Tuesday, December 8, 2009

How Did We Get Here?

Many people across this great land of ours are expressing deep frustration about how far and how fast this country seems to be heading into an economic abyss. People feel as though we have abandoned the principles of free enterprise and rewarding individual work and achievements. People are burdened by how much they have to pay in taxes. People are concerned about the proliferation of entitlement programs that cannot possibly be sustained as our population ages and more people become dependent upon the government largess. People don’t like heavy-handed government interference in their private lives. And people are worried about the accumulation of U.S. debt that has interest on the debt alone potentially bankrupting our federal government.

“How did we get here?” we ask ourselves.

We are witnesses to what happens to a representative form of government when the people realize that they can vote themselves a stipend from government programs. This is what you get when more than half of the electorate receives more from the government than they pay in taxes.

And when the liberal policy wonks in Washington suggest that we just raise the taxes on the “rich” to solve our problems, they have ignored basic tenants of human nature and rational decision making.

When I was in the fifth grade and my teacher was extolling the virtues of Lyndon Johnson’s Great Society, I had the temerity to tell the class, “Yeah, just wait until you make a buck.” This resulted in a note from the teacher to my parents, who as Goldwater Republicans, reveled in the afterglow of my words for years.

Then along came college when I was certain that I was smarter than a fifth grader. I was an economics major at the University of California at San Diego. The Negative Income Tax was the latest fad among economic policymakers. Instead of complicated and administratively burdensome entitlement programs, there would be a tax policy put into place that would have people below a certain income level actually receive money from the federal government. Not just a refund, actual income from the federal government over and above what they have paid. As part of our macro economics class, each student had access to a computer that had a sophisticated model of the US economy. We were told to establish our own parameters for a negative income tax, plug them into the computer model, and watch the resulting impact on the economy. Being a na├»ve and vintage 1970’s liberal, I proceeded to set a very generous policy for negative income tax and, fully expecting a Utopian-like outcome, I began to watch the results. Very soon after my policy went into effect, the economy experienced an increase in inflation and a drop in productivity. As time went on, the inflation began to spiral out of control. The last inflation rate I recall was in the neighborhood of 1200%! In the end, the computer spit out a punch card with a sobering message to this effect, “The incentive to work is so low that the workers have all quit working, your economy has collapsed, and your country is in revolt.” Seriously, according to the computer, I had precipitated the failure of our economy and revolution!

I believe we got where we are because we ignored history and the warnings of the founding fathers. Thomas Jefferson said, “A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government.” Another time he fore shadowed the current debate about health care reform when he said, “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

According to the Internal Revenue Service, in 2007, the top 10% of Adjusted Gross Income earners paid 71.2% of the income taxes for that year. The bottom 50% of earners paid a piddling 2.9% of the total US income tax. But, don’t say somebody didn’t tell us so, because Alexis de Tocqueville warned Americans, “A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”

This all makes me wonder if I missed some major event that got us to this point in history. Did I sleep, like a Rip Van Winkle, through a violent overthrow or a bloodless coup d’etat in America? The Cold War is over, so we must have stopped the march of the Communist Revolution. The Domino Theory did not work. Every nation in Southeast Asia did not fall to a communist overthrow after South Vietnam was defeated by Ho Chi Minh. Cuba was not able to export Che Guevara’s style of gorilla warfare and Fidel Castro’s brand of communism to the United States.

In fact, in what has become one of the strangest twists of fate, the former USSR and Red China are now the bastions of capitalism and free enterprise. The Chinese government owns $1 trillion of US debt and they never miss an opportunity to tell us to get our fiscal house in order.

The history lesson that we have all overlooked and failed to heed is that prediction made in 1848 when Karl Marx and Fredriech Engels wrote The Communist Manifesto. In their now infamous treatise, Marx and Engels postulated that communism would be a byproduct of democracy. Classical Marxism is not about bloody revolutions such as the Bolshevik Revolution of Russia in 1917. Nor, does it support Chairman Mao Tse-Tung’s Little Red Book that says “All political power comes from the barrel of a gun.”

So, once again, how did we get here? We are where we are because “we” have voted ourselves into this mess. This is representative democracy at its worst. Taken as a whole, Congress has approval ratings in the mid-20% range, yet we continually re-elect our representatives and senators. It is time for all Americans to take a longer view when they step into the voting booth. We must stop decrying pork barrel spending while praising our members of Congress when they bring it on home. We must recognize that there will be a straw (tax) that will break the camel’s (taxpayer’s) back (economy). And paying it forward should bring shame to us all and will result in fear and loathing from our children. Fortunately, there is a way forward and that is through the same democratic process that got us to this point. Let us not forget the principles put forth by our founding fathers, that free enterprise and personal liberties are strengths and enduring values to be cherished and protected. Moreover, let us remember that in America, revolution comes through the ballot box and that is where we need to go.

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