Last month I wrote of the disaster looming in the form of 1970′s style “stagflation” as a result of a continuation of the misguided Federal Reserve monetary policy of the past five years that has disregarded its first priority–the protection and stability of the value of the dollar.  Now for the second leg of the looming disaster, one that is being formulated as I write by the “world’s greatest deliberative body”, the U. S. Senate, as it debates the economic stimulus plan written and advanced by the left wing of the majority party and inspired and enabled by the popularity of our new President.

Former George Bush aide Pete Wehner and Congressman Paul Ryan couldn’t have made it clearer for us in a recent op/ed: “We need to understand this new moment…………This will reshape, in deep and enduring ways, our nation’s historic sensibilities.  It will lead here, as it has elsewhere, to passivity and dependence on the state.  Such habits, once acquired, are hard to shake.” 

We were given advance notice of these transforming intentions by President Obama’s Chief of Staff, Rahm Emanuel, when he said quite matter of factly, “You never want a serious crisis to go to waste.  And what I mean by that is an opportunity to do things you think you could not do before.”  This is about as transparent as one can be.

In his inaugural address, President Obama was quick to depart from Ronald Reagan (“government is the problem”) and even Bill Clinton (“the era of big government is over”) with his assertion that “The question we ask today is not whether government is too big  or too small, but whether it works.”  He ignores one very big problem–government is never benign.  At some level, whether successful in its immediate objectives or not, it brings unintended consequences and becomes tyrannical in terms of its coercive nature and its tendency to create dependency and sloth.  Such is the new moment that Messrs. Wehner and Ryan admonish us to understand. 

Andrew Gelman of Columbia University is further instructive on this point in outlining the futility of political direction of a complex organic economy:  “The law of unintended consequences is what happens when a simple system tries to regulate a complex system.  The political system is simple.  It operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misguided incentives.  Society in contrast is a complex, evolving, high-feedback, incentive-driven system.  When a simple system tries to regulate a complex system you often get unintended consequences.”

This is exactly what will happen with the plan currently under debate.  An additional problem with this one, however, is that some of the worst consequences of the plan will not have been unintended by the perpetrators.

Recently, I revisited the 1978 classic, The Way the World Works, by the late Jude Wanniski.  For those of you too young to remember, Wanniski’s work followed on that of Art Laffer and Robert Mundell in fully developing the theories of Jean-Baptiste Say into the supply-side economics that were the platform for the Reagan Revolution of the 1980′s and the Bush economic recovery of the mid-2000′s, the tax policies that are consistently dismissed by the left, as recently as this week by President Obama,  as the “failed policies that got us here”.   In response, we should forcefully remind these critics, as well as some who should naturally be more supportive of these principles, that supply-side fiscal policy, when combined with monetary policy that protects the value of the dollar, has worked every time it has been properly implemented because it relies on human nature and the power of marginal incentives to alter the functioning of the complex market systems that Gelman describes. 

This is the only way out of this crisis of confidence.  I don’t deny that the resources of government will be necessary to enable the recovery, particularly in shoring up the financial system.   But the organizing principle should be, “do no harm”.  And more government intervention and regulatory oversight is not and has never been the answer to such crises, nor is more Keynesian-style spending on make-work projects, nor targeted tax ”rebates” to non taxpayers.  But Obama will get his stimulus bill in one form or another, because ”they won” and the great “moderates” we all admire will provide the deciding votes to win the day, but it will be a day that portends much worse news down the road, because global markets will not stand still while we experiment with Eurosocialism, American-style.   There will be a larger price to pay later.  Remember to understand this new moment.   

There is so much to deal with and so little time and space, so here are some odds and ends:

Executive Pay Limitation

The new policy of capping executive pay at $500K annually is typical government populist feel good nonsense.  It suffers from a number of flaws–it reflects complete ignorance of the financial services incentive system; the market will go around it and find other ways to compensate the best talent; it will have the unintended consequence of pushing many talented people into other career pathways, to the detriment of the recovery; and it may very well be a violation of the freedom of contract protection of the Constitution.  A better way to handle the CEOs of bailed out companies is the way the FDIC handled CEOs of bailed out banks in the 1980s–remove them.  

Only in California (Let’s Hope)

California Attorney General Jerry “Moonbeam” Brown is asking the California Supreme Court to declare unconstitutional, seemingly on natural law grounds, the constitutional amendment approved last November by the voters of that state defining marriage as a relationship between a man and a woman.  The perversity of this is mind boggling–as Kenneth Starr notes in response to Brown’s petition, the consequence of it would be that the people can never amend the Constitution to overrule judicial interpretations of inalienable rights. 

I am a natural law devotee.  In giving birth to the “second founding” at Gettysburg, Lincoln merged the natural law espoused by the Declaration of Independence with the negative rights and positive law of the Constitution.  But nowhere in natural right/natural law philosophy is the right to marriage, which is a convention based on the concept that the union of one man and one woman is the most successful means by which children are nurtured and continuity provided to social order.

Limbaugh Out of Bounds?

I was struck recently by the criticism of Rush Limbaugh, who was accused by many of wishing for a failed Obama presidency.  After listening to his taped remarks, that is not at all what he said.  Let’s get this straight–a successful government is not necessarily coterminous with a successful country, nor is a successful or failed presidency determined by the polls gauging the popularity level of a particular President.  Barack Obama is my President, but I am no less patriotic if I wish my President well in the service of the best interests of the country while applauding his failure to successfully adopt policies that are detrimental to the welfare of its citizens.  I wish this President well, but if his success be defined by how well he implements policy that in my estimation moves this country closer to socialism at home and defeat abroad, I pray that he is not successful.

Students as Customers

It was recently reported that a large majority of faculty members at three Texas A&M University campuses declined to participate in cash bonus program based on student evaluations which is part of a group of proposals by Gov. Rick Perry designed to increase accountability in higher education.  This was deja vu for me.  While serving on the Board of Regents of Stephen F. Austin State University in the early 1990′s, I proposed a somewhat similar program there, and the response was about the same.  Listen to what Robert Kreiser of the American Association  of University Professors had to say about the TAMU plan: “Students are attending colleges and universities to be educated; they’re not there as customers; they are not there to get a product as one would in a supermarket or a department store.”  This is very similar to the response I received fifteen years ago, and my response to Mr. Kreiser is this–many of us have had quite enough of this arrogance, and you and your colleagues had better take a longer look at the changing configuration of the K-16 continuum in education as well as the latest customer-driven college cost/benefit analyses lest you become obsolete.

Darwin and the Texas State Board of Education

Count me among those who believe that the State Board’s recent debate over a short phrase in the Texas science curriculum standards was an unfortunate waste of time.  It was not, however, without importance, and it did not deserve the ridiculously slanted coverage that it received by the uninformed media.  The phrase in question currently reads as follows:  “The student is expected to (a) analyze, review, and critique scientific explanations, including hypotheses and theories, as to their strengths and weaknesses, using scientific evidence and information.”   The offensive language, in place for twenty years, is in bold type.  The Board narrowly voted to remove the phrase and replace it with similar, but “more scientific” language, due to the fear that the current phrase has become an opening to challenge Darwinian evolution of species and other elements of the theory.

Here is my problem.  Far from simply supporting science, the Board has now succumbed to the fallacy of scientism in the paranoid fear that somehow the investigation of any weakness in Darwin’s theory will lead directly to teaching creationism.  It is important for both sides in this debate to make a distinction between the two types of evolution.  Micro-evolution, change within species, and macro-evolution, change from one species to another, are different theories.  Critics of Darwinism must understand that micro-evolution is factual and clearly happens; supporters of Darwin must acknowledge that macro-evolution remains very much a theory that should be subject to scientific critique.  Let’s don’t take this issue down the path of the environmental totalitarians with their notion that the ”global warming debate is over”.  More importantly, let’s don’t close the minds of our kids. 

Can We Handle the Truth?

In all of the debate over the accusations of torture by the Bush administration, the alleged violation of civil rights perpetrated by abusers of the Patriot Act, the alleged mistreatment of prisoners and world condemnation of our detention facility at Guantanamo Bay, I am often reminded of the famous challenge issued by Jack Nicholson as Col. Nathan Jessup to his interrogator played by Tom Cruise in “A Few Good Men”: “You can’t handle the truth!”  Jessup was clearly in the wrong, but his plight was not without some sympathy in the context of our present predicament and that of those on the picket line manning the outer edges of our defense of freedom, as well as those who command them.  I suspect that President Obama has a significantly more refined appreciation of the trade offs today than before he began receiving regular security briefings shortly after election day.  So when he said in his inaugural speech, “As for our common defense, we reject as false the choice between our safety and our ideals”, he probably now has a much different perspective on this choice than the luxury of the campaign trail would allow.  Closing Gitmo was a pander to buy a year’s time with the anti-war, anti-American left, both at home and in Europe, and his apology for the past 20-30 years’ treatment of Muslims over Arab TV, extremely disappointing and misguided on its own, will appeal to the same sensibilities.  But these gestures will also send a message of weakness to a world that understands only one thing–power and the will to use it.  Obama is a lot closer to the truth and the realities than he was a couple of months ago.  Let’s see if he can handle it.