As the American's now stare into the eyes of the gigantic boondoggle politely referred to as the Health Care Reform Bill, it is fascinating to look at back at
Doug Thorburn's Open Letter to both Presidential candidates after their respective 2008 party nominations. Here is advice that President has not and probably wouldn't take anyway, but Thorburn's clear-eyed recommendations for both candidates are still valid as the country is mired in what can only be called a new-malaise as the Democrats continue to punish productive citizens and institutions, load up the economy with back-breaking debt burdens and thumb their nose at the policies to generate more economic activity.
Read both of
Doug Thorburn's letters carefully and find inspiration because this fight to beat back these destructive government policies gets hotter every day.
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Dear Barack,
Congratulations on your recent win. Now you have a few challenges ahead.
The first is to accept the idea that economics is no more your strong suit than it is John McCain's. Among your numerous proposals that could result in economic pain greatly exacerbating that which we have already suffered, two are particularly troublesome: an increased mandatory minimum wage adjusted for inflation each year, and your tax plan.
Wages have nothing to do with government mandates and everything to do with productivity, which is based largely on capital investment. Higher-than-market prices of anything result in unsold things. If you have an apple stand and your apples aren't selling for a buck each, what do you do? You lower the price and somewhere on the way down buyers magically appear.
Minimum wages price those who aren't yet worth the cost, especially the unskilled, out of a job. Consider the fact that only about 2.5% of the American work force is paid minimum wage. In a society with vast pools of savings and investment, 97.5% of workers, many with only a modicum of skills, are worth more than the current minimum. Raise that mandatory minimum price of labor and you'll end up with a greater number of unemployed workers.
Your tax plan won't so much affect Plumber Joe's ability to hire employees once he earns $250,000 a year as much as it will create a disincentive to work hard enough to ever earn that high an income. A number of my clients have the talent and skill to expand their businesses and hire more employees, but simply won't bother at the rates you propose. Increasing the maximum tax rate from 36% to 39% combined with a new 12.4% Social Security tax on earnings over $250,000, alongside a 2.9% Medicare tax and a 9.3% tax rate in California will all but destroy incentives to build businesses and create new jobs.
While a few altruists may be willing to work for less than 40 cents on dollars earned over that quarter million, many will simply shrug off the burden. It's challenging enough having to navigate employment rules and regulations without further increasing tax rates that are already too high. And by the way, Barack, it's time to dispense with the demagoguery-we both know that the top 1% of income earners pay 26% of all federal taxes (including income, payroll, corporate and death taxes) and the top 20% pay 67%. The "rich" already pay more than their "fair share."
You seem an open-minded sort of intuitive feeler (NF, in the Myers-Briggs/Keirsey paradigm), an idealist and diplomat, who can bring those with disparate views together. However, a weakness of NFs can be naiveté. If you really want to change Washington you need to be willing to take unpopular positions in areas where you may lose friends. By your own testimony, you knew there was a problem with lending standards, but never pressed your own party for legislation to right such standards. The fact that you were the 2nd biggest recipient of Fannie Mae lobbying contributions ever may have something to do with it, but for now I'll give the benefit of the doubt and assume it was a one-way payment. Now, please prove that the benefit of my doubt is earned.
You also seem to have a faith in government-and intuitive feelers are among the most credulous-that has been proven time and again to be misplaced. You said you will listen to all comers-including libertarians. Here's a thought: if you really think government works, then let it compete. Allow choice and competition on equal terms without subsidies among private and government providers. You can start by supporting educational vouchers and open the medical arena to greater rather than less competition (I offered a few thoughts on the subject in my summer-fall 2008 newsletter, which you may find of interest).
You'll note that the areas with the most challenging problems today-those we are constantly bickering over, which is anathema to an intuitive feeler-are areas filled with the heavy hand of government such as education, health care and energy. Also consider another tenet of libertarian thought: government requires coercion, which is less civilized than allowing people-adults, many of whom don't want the nanny state looking over their shoulders-to make up their own minds about how they spend their money.
Remember too that we all spend our own money better than someone else does, except when we don't. When that happens, we are given the opportunity to learn and to grow. As an NF you enjoy seeing people become all they can become. So let us be free to make our own goofs and benefit from them. Stop letting government protect us from consequences, Barack. Let us grow.
You may argue that government saved capitalism from itself in the Great Depression. This is a myth. Hoover pushed businesses to keep wages high, without any consideration to the idea that when you can't sell something-whether apples or labor-you simply drop the price (and when the price level of everything else is falling, wages must follow). He also pushed to keep investment high in industries that experienced falling demand for their products. That's like telling home builders to keep building new homes in today's market, which would obviously be idiotic.
He created-long before FDR-public works programs that employed workers with artificially high wages and signed on to a draconian hike in tariffs that was the equivalent of a declaration of war on the rest of the world. Inasmuch as you have stated your opposition to NAFTA, this is an error in policy to which you could easily succumb. (The loss of jobs from foreign competitors is no different from a loss of employment from domestic competition.) Hoover also began to hike taxes, which accelerated during the Depression, all but completely stifling the very innovation that would have led the country out of it.
The Great Depression was triggered initially by an excess of credit creation leading to mal-investment, which is the cause of the current recession (too much money and credit was invested in real estate). Please don't make the same mistakes that Hoover and then FDR made through continuous meddling, which resulted in a depression lasting over a decade. If you don't believe that a "hands-off" approach is best, have your economic policy advisers tell you about the Depression of 1921. On the other hand, they may not even know about it since it lasted only a year, despite a 25% drop in economic output. The difference between it and the Great Depression was the government did nothing. Accept the fact that people are ingenious when left to their own devices and that, in the long run, they will be better off for it.
You seem a modest sort, despite the jokes about Barack the Messiah. Intuitive feelers are generally humble if they are not alcoholics, which you are not. However, both your father and step-father were alcoholics, which resulted in a lack of control over your early life and a need to right things. You may think you can make up for it by trying to control things as an adult. This is arrogant and beneath you. Your advisers will try to guide you into directing others in a vain attempt to control the economy. If you refrain from following their lead you will be a better leader. In fact, with your oratory skills, you could be a great leader. But a leader, Barack, is not a ruler.
Also, remember the definition of insanity: doing the same thing over and over and expecting a different result. You have intimated that you would support a second "stimulus" payment. The first one gave a temporary boost to spending, no increase in productivity (simply shifting money around does not increase aggregate wealth) and ended in the October surprise.
As economist
Arthur Laffer suggests, "Ask yourself why not a $40,000 rebate per person...if a $600 rebate is so good." Learn a basic economic truism: rebates reduce output because they reduce incentives to produce output. If you want to see an increase in wealth, focus on policies that increase savings and investment, not transfers. As author Alvaro Vargas Llosa puts it, "People who start and grow businesses don't need a government's help; they need assurances that government will not destroy their efforts through taxation or regulation or-worst and most common of all-by bestowing favors on their competitors." Rise above those in Congress who will implore you to do it again, only to further increase America's debt burden and mislead Americans into thinking they can get something for nothing.
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Dear John,
Well, you and the Republican Party, formerly the Party of small government, blew it. You helped it grow into a Party of big government under Bush's watch, during which time government grew at a 20% per annum rate. This was far greater than its growth even under Carter's and Clinton's watches, when it grew 17% and 6% per annum respectively. You lost those who believe America is about the freedom to do what we want, for better or worse in our own lives.
You caved in to those who tell us that government knows better than we do. And where you may have done some good, you didn't adequately explain why you did it. (I refer to, among other mismanaged policies, the Iraq War, over which I have some disagreement with my libertarian brethren. I view it as the world in 1938 and give you credit for the possibility that, so far, you prevented 1941 from occurring. However, you mismanaged it-but then what war isn't badly mangled?-and didn't do the one thing essential to teaching the world a lesson about free market capitalism, which was to privatize the Iraqi oil fields. But I digress.)
You didn't complain, and in fact by your own testimony supported your President's push of his agenda for an ownership society. Owning rights to Social Security and Health Savings Accounts are one thing; pushing us to all purchase homes is quite another. Yes, home ownership increases the strength of our roots in the community, but suggesting that government knows what is best and that it should subsidize a massive diversion of debt and capital into housing is the height of arrogance.
You stood by as the American Dream Downpayment and Zero-Downpayment Initiatives were implemented with the worthy goal of helping low-income families overcome the hurdle of down payments. You didn't think this through, John. You forgot to ask, what sort of unintended consequence might result from making it so buyers have no skin in the game? Hence, my initial comment to Barack: economics is not your strong suit. Misguided government attempts at allocating capital and people no more work in the United States than it did in the former Soviet Union.
Now you support propping up home prices and a $700 billion (probably more like $7 trillion) bailout, which only serves to slow down the market cleansing process. Look, John, the market will eventually find equilibrium. Supporting prices by bailing out mortgagees not only sets a bad example by teaching both borrower and lender that the nanny state will save them from their own follies; it will prolong the pain and make it even worse over the long run by digging the debt hole ever deeper.
Such policies-having government take ownership positions in firms and mortgages-increase moral hazard and the misallocation of capital that has gotten us into this mess. This is not what America is about. Let badly managed firms and individuals who stretched beyond their ability to pay go bankrupt. Free people have a way of rising out of such ashes.
Now John, you may actually agree with much of what I'm saying. But you didn't defend it and certainly didn't practice it for much of the last eight years. You have been complicit in hiring the same people who helped create the economic mess to fix it. The folks who only weeks ago said that everything is fine are now heading up a trillion dollar bailout. As I mentioned to Barack, the definition of insanity is doing the same thing repeatedly and expecting a different result. Hopefully in 2012, as a member of the loyal opposition, you'll have learned to try something different.
Read the previous newsletter at
www.dougthorburn.com/newsdetails.php?Featured-Articles-14 For more info go to
www.dougthorburn.com For media interviews contact Promotion in Motion at 323-461-3921 or
brad@promotioninmotion.net www.promotioninmotion.net