Wednesday, April 28, 2010

Collapse of a republic

A constitutional republic that had endured for centuries was now breaking down. The signs were everywhere.

Constitutional limits on political power were dissolving; politicians were increasingly demagogic and unrestrained. Magistrates secured the passage of sweeping laws by evading normal legislative procedures.

Large portions of the citizenry now depended on plunder seized by those politicians and distributed to their supporters. The recipients, in turn, submissively voted for their masters at election time.

Many citizens who didn’t want the plunder were forced to seek it, due to economic distress created by the politicians themselves. Prices rose steeply, the economy was flooded with new currency. Masses of imported foreign workers made it more and more difficult for citizens independently to support their families. Government corruption, mismanagement, and foreign wars all created economic dislocations. The unemployment rate was shockingly high.

Unscrupulous intellectuals promoted the rush to dependency with trendy rationalizations for demagogy and vice. Standards of responsible behavior were replaced by hedonism, and a scramble of all against all.

Towering above the squalor were a few truly great statesmen. They identified the trends. They warned that unless citizens took corrective action at once, liberty would be lost. Those statesmen were much respected, but too-little heeded. In the end, liberty was lost.

Such were the last years of the Roman Republic: the death of limited and balanced government, and the imposition of imperial rule.

Those years comprise one of the most studied eras of the past. And with good reason.

The Roman Republic was the longest-lived major republic in human history. It lasted nearly five hundred years. Despite its many flaws, it had become an astounding success. Under few governments had ordinary citizens enjoyed as much personal and political freedom as in Rome - or living standards as high, or as much opportunity for building a better life. Roman citizens responded with a civic spirit that enabled the republic to survive repeated mortal threats. Eventually, Roman influence and Roman power were felt throughout the known world.

Yet in the end, that republic died.

Our American Founders were fascinated by the story of the Roman Republic. Their education included immersion in the Latin texts of Roman republican writers, such as Cicero and Sallust. They also read the charming histories of the Greek author Polybius, who had attributed Roman success squarely to the excellencies of the Roman constitution.

The records of our American Constitutional Convention and the debates over ratification are replete with references to the Roman experience. During the ratification debates, writers on both sides often published under Roman names. For example, Alexander Hamilton, James Madison, and John Jay wrote the Federalist papers under the name “Publius.” Last year, I visited St. Andrews University in Scotland, where James Wilson, one of our leading Founders, was educated. St. Andrews still possesses the records showing Wilson’s library withdrawals during the 1750s. His favorite topic? Ancient Rome. Wilson, like other Founders, retained that interest all his life.

History never repeats itself exactly, and parallels between America and Rome can be overdrawn. But if there were no parallels in history, then history would be a fruitless study, for we could never learn from it.

Certainly, our Founders thought we could learn from it. Again and again, they asked themselves and each other: What can we deduce from Roman success? How can we avoid Roman failures?

Our Founders embodied their lessons from Roman history (as well as from the history of Europe and America) in their Constitution. They put the document in writing, to make it clear that politicians had no power to change it without a formal amendment, as had been done with the unwritten, “living” constitutions of Britain and Rome. The Founders created a bicameral legislature and a presidential veto to reduce the risk of hasty mob action that sometimes had characterized Roman assemblies. They required that tax revenue be used only for “the general Welfare” rather than for special interests. They required that congressional laws be “proper” - that is constitutional and fair.

While the Roman government has nearly limitless authority, our Founders granted the new federal government enough power to hold the country together, but restricted that power carefully, and balanced it with the powers reserved by the states and the people. Our Founder added a Bill of Rights to further secure individual liberty. Finally, they avoided the Roman system of diffuse responsibility in favor of one concentrating responsibility for government functions among relatively few officials, so the voters would know just who had done what. The Founders would have strongly disapproved of how the modern administrative state hides responsibility from voters–such as by letting anonymous bureaucrats at the Departments of Health and Human Services write regulations which determine whether people will live or die.

The Founders’ basic purpose was to keep Americans free and personally independent, as Romans had been in the days before they lapsed into dependence on government handouts and servile submission to the cult of the Emperor.

The Founders were not omniscient, but on the whole, they were right. So long as Americans honored the rules they gave us, so long as our politicians were bound by the people’s right to liberty, and so long as citizens retained their good character and independence, our constitutional republic and our freedom endured.

When we began to behave otherwise, our own republic began to go the way of Rome.



More Health Care "Suprises" ...

When major companies declared that a provision of the new health care law would hurt earnings, Democrats were skeptical. But after investigating, House Democrats have concluded that the companies were right to tell investors and the government about the expected adverse effects of the law on their financial results.

At issue is a section of the law that eliminates a tax break available to companies that provide drug benefits to retirees as part of their insurance coverage. The tax change, expected to generate $4.5 billion of revenue over the next 10 years, will help offset the cost of providing coverage to the uninsured.

Within days after President Obama signed the law on March 23, companies filed reports with the Securities and Exchange Commission, saying the tax change would have a material adverse effect on their earnings.

The White House suggested that companies were exaggerating the effects of the tax change. The commerce secretary, Gary F. Locke, said the companies were being “premature and irresponsible” in taking such write-downs.

Representative Henry A. Waxman of California and Bart Stupak of Michigan, both Democrats, opened an investigation and demanded that four companies — AT&T, Caterpillar, Deere and Verizon — supply documents analyzing the “impact of health care reform,” together with an explanation of their accounting methods.

The documents — hundreds of pages of e-mail messages and financial worksheets — include large amounts of data that substantiate the companies’ concerns. They have reignited a battle over the law in Congress.

Representative Joe L. Barton of Texas, the senior Republican on the House Energy and Commerce Committee, said, “From a financial standpoint, from a purely economic standpoint, many companies would be better off discontinuing health care as a fringe benefit, paying the penalty and pocketing the savings.”

In a memorandum summarizing its investigation, the Democratic staff of the committee said, “The companies acted properly and in accordance with accounting standards in submitting filings to the S.E.C. in March and April.”

Moreover, it said, “these one-time charges were required by applicable accounting rules.” The committee staff said this view was confirmed by independent experts at the Financial Accounting Standards Board and the American Academy of Actuaries...



Government: More Incompetent than Ever

Most intellectuals support big government, and millions of people depend on it. So why, with thousands of laws, millions of employees working to carry out those laws, and trillions of dollars spent, is it in trouble?

The most popular big-government programs–like Social Security, Medicare, and Medicaid–are going broke. These entitlements account for more than half of annual federal spending. In 2009, spending on all federal entitlements exceeded all federal tax revenue. As Cato Institute economist Richard W. Rahn explained, this means “virtually all of the other government spending programs, including defense and interest payments on the debt, will be funded by more borrowing.”

The escalation of spending for the entitlements is politically unstoppable because they’re defended by powerful interest groups that benefit from them. These and other federal programs–guarantees for home mortgages, commercial bank deposits, credit union deposits, veterans benefits, import/export deals, student loans, and private and government-employee pension benefits–involve financial commitments that currently exceed $70 trillion. In addition, more than $12 trillion in U.S. Treasury debt is outstanding, much of which is held by Chinese and other foreign investors. Incredibly, President Barack Obama’s administration risked a trade war with China by blocking Chinese imports, a political payoff for labor unions that had supported Obama during the 2008 presidential campaign, even though such action could complicate U.S. efforts to continue selling its debt.

For years, the government has spent more money than it has had. It’s constantly going deeper into debt.

In spending all this money, members of Congress commonly don’t read the bills they vote on. They keep passing more laws even though they have limited understanding of the effects of previous laws. Many laws are so complicated–over a thousand pages–that government officials themselves are among the most notorious violators. Government is bigger than anything else in our society and far more complicated than the derivatives and other toxic bank assets nobody knew how to value after the financial meltdown of 2008. Managing the federal government well is beyond the capability of any human being. It’s beyond the capability of the 535 members of Congress. It’s too big to succeed.

You Need a Form for That Form

One thing the federal government does as it gets bigger is require people to fill out more bureaucratic forms. In 1978 Congress passed the Government Paperwork Elimination Act, when it was estimated that people spent almost a billion hours a year filling out federal forms. Not surprisingly, a new federal bureaucracy–the General Services Administration’s Forms Policy and Management Team–was established just to deal with federal forms. Creating, changing, or eliminating a form requires that somebody fill out a two-page SF152 form with 27 questions. For those who might have difficulty filling out the form, the government produced a 23-page booklet explaining how.

Unfortunately, things don’t seem to have been going well with the Forms Policy and Management Team. Now it’s estimated that people spend about ten billion hours a year filling out some 8,000 different federal forms. Both political parties are responsible for the colossal waste of time that could have been used to create more growth and jobs. Republicans reportedly have excelled at multiplying the number of defense-related forms. Democrats have excelled at forms related to social spending. Obama’s so-called stimulus bill authorized bureaucrats to churn out still more forms in an effort to determine where all the money went.

Taxing Forms

Perhaps the most aggravating forms have to do with taxes. The tax code has become hideously complex, a consequence of trying to extract trillions of dollars for social and military spending and trying to do good through thousands of different tax breaks. Lindy L. Paull, who served as chief of staff for the Joint Committee on Taxation, told the Senate Finance Committee: “The Internal Revenue Code consists of nearly 1.4 million words and includes 693 separate sections that impact individual taxpayers.

The Treasury Department has issued some 20,000 pages of regulations containing over 8 million words. Individual taxpayers who file an annual Form 1040 must deal with its 79 lines, 144 pages of instructions and 11 schedules totaling 443 lines plus instructions to go with them. There are 19 separate worksheets embedded in the Form 1040 instructions, and the possibility of filing numerous other forms, depending on the circumstances.”

The U.S. Treasury has estimated that individuals, employers, and nonprofits spend more than six billion hours a year dealing with their taxes. This is the equivalent of full-time work by 2.8 million people–more people than are employed in the auto-manufacturing, petroleum-refining, electric-power generation, computer-hardware, computer-software, pharmaceutical, medical-devices, steel, and chemical industries combined. In addition to the cost of this time is the money spent for tax-planning and tax-accounting services, not counting the taxes themselves. All this is a stupendous waste of resources that would be better spent adding value to the economy.

Bloated Mass of Contradictions

Big government is a bloated mass of contradictions that often have unexpected, harmful consequences. Politicians scold citizens for consuming too much sugar, but the government provides subsidies for producing high-fructose corn syrup that’s widely used in sodas, cookies, and other sweets.

Government subsidizes farmers for growing crops and no crops at all. Government subsidizes homeownership and restricts the number of homes that can be built. Officials criticize business executives who take on too much debt, but government encourages debt by providing tax deductions for interest (but not for equity capital), and of course the government itself is deeper in debt than anybody else.

Officials complain that companies invest so much money overseas, but the government imposes a 35 percent tax on earnings brought back to the United States. Officials bemoan our dependence on foreign oil, while restricting U.S. oil drilling.

Businesses can be prosecuted for “predatory price cutting” if they charge too little, “price gouging” if they charge too much, and “price fixing” if they charge the same as their competitors.

By providing billions of dollars of federal aid for attending college, the government subsidizes demand, which has had the effect of making college more expensive and more difficult to pay for than it otherwise would be.

Officials promote the virtues of small, high-mileage cars, and they enforce laws that make it almost impossible to produce such cars profitably in the United States. There are laws that make it more difficult for employers to hire people and laws that provide income for the unemployed.

Officials encourage more couples to get married, but there are higher taxes on married people than on single people, providing incentives not to get married. Officials say they want more doctors while enforcing laws that limit the number of students who can enter medical schools.

Government probably does more than anyone else to cause health care inflation by channeling about a trillion dollars a year into that sector, enabling people to bid up prices–and then the government tries to limit health care price increases with rationing, such as excluding more treatments from Medicare.

Mismanaging the Economy

Politicians expanded the power of the federal government to watch over the economy, but this has backfired badly. President Woodrow Wilson and Congress established the Federal Reserve System to prevent economic catastrophes. After inflating, misguided Fed officials tried to limit what they viewed as excesses of the Roaring Twenties stock market boom, but they overplayed their hand and triggered the 1929 crash.

Not realizing what they had done, they presided over a severe monetary contraction, a major cause of the Great Depression. President Franklin D. Roosevelt signed the 1935 Banking Act to centralize power at the Fed, and officials there soon stumbled again, doing much to bring on the depression within a depression of 1938. In 2002 Ben S. Bernanke, a governor of the Federal Reserve Board before becoming chairman, acknowledged the Fed’s role in the Great Depression: “We did it. We’re very sorry. We won’t do it again.”

Unfortunately, in the early years of this decade, Fed officials stumbled yet again. They promoted an easy money policy that had the effect of subsidizing borrowing. The apparent intention was to make sure the economy fully recovered from the dot-com crash of 2000, but in the process they encouraged individuals and businesses to load up on debt, contributing to the bubble that burst in 2008.

Nobody has a crystal ball, certainly not Fed officials. They’re always trying to make sense of conflicting and incomplete data. Naturally they focus on avoiding the mistakes made the last time around. They can’t be sure what the effects of their policies will be in the future because it takes many months for them to play out through a large and complex economy.

By the time Fed officials realize they have accelerated monetary expansion for too long, they’re tempted to hit the brakes too hard, jolting the economy with a more severe recession. Fed officials are human and bound to make errors. Their vast power means that when errors occur they will harm not just a city or state or region. They will harm the entire country and beyond. Disastrous errors are an unavoidable risk of big government, which turns out to be a principal source of instability in our economy.



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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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