As we welcome the new year and a new political season, having given considerable time to analyzing the meaning of the November elections, one thing is abundantly clear:  the mystique of the Obama narrative is over and the reality of governing has finally overtaken this administration.  Until now, President Obama has been significantly aloof, above it all, possessed of his own exceptionalism (not to be confused with the truly American brand) based on the strength of  his unique personal narrative, that he is not only different from those “ghosts”, as he has called them,  pictured on U. S. currency but somehow immune to their burdens.  Well, the people didn’t buy it.  In fact, they soundly rejected it, and any notion that it would have been different if the unemployment rate had been two points lower or GDP growth a couple of points higher is moot, but nonsense.  The basic underlying themes of domestic policy pursued by this regime are alien to the American psyche.  A student of history should have known this.

There is already disappointing drift from Republican Congressional leadership that the privatization of Fanne Mae and Freddie Mac must be delayed or at least phased in over a longer period because of the anticipated impact on available housing finance that would result from a precipitous removal of what is, in effect, a government-subsidized floor on housing prices.  Two truths emerge here:  one is that, yes,  government subsidies to these entities are artificially propping up housing prices, at a cost to taxpayers, so far, of $134 billion, and two, these same props are postponing the market clearance of the toxic mortgage markets and their underlying collateral and thereby greatly delaying the resolution of the problem and a return to a healthy housing market.  This facade has been in place for over three years, well known to all knowledgeable observers, including the sponsors of the new financial industry regulatory overhaul bill which did nothing to address this problem in the slightest.  There is no doubt that there will be an additional big hit to housing values when this day of reckoning comes (some observers predict as much as 20%)  but the sooner we take it and allow the market to clear, whatever the  pain, the sooner this debacle will be behind us, the uncertainty of the overhang reduced, and real recovery can proceed.

The 20th was popularly and widely known as “The American Century” for a lot of reasons, some of which are embodied in something I wrote at the end of the last century in response to a request by a publication to characterize it in 50 words or less, as follows:

“They (the Americans) reluctantly assumed the mantle of world leadership; challenged and ultimately defeated the primary instruments of totalitarianism; exported the principles of democracy and human rights to regions where those concepts were unknown; and, for better or worse, initiated popular cultural hegemony over a major portion of the world’s population.”

But it’s a new century, and many, including our own citizens, believe we are in decline.  Most point to economic factors.  We are no longer the colossus of the mid-20th century in terms of economic dominance, which has recently been vividly demonstrated by the Swedish professor Hans Rosling in his fascinating portrayal of the convergence of world standards of living over the past two centuries.  Other countries have dramatically closed the gap with us.  Some would have us believe that this represents a loss of our vaunted exceptionalism.

But the American brand of exceptionalism is not measured in GDP; it’s about our values and about who we are.  No nation has ever assimilated immigrants and foreign cultures as successfully as America; no other nation has been founded by a creed, particularly one which has been so severely tested over two centuries as America’s has; and no nation has so successfully embodied pluralism and tolerance in its strongly grounded religious culture.  The rising economic powers and competitors cannot compete with America in these cultural  foundations.  These are the basis for American exceptionalism.  It’s incumbent on us to select leaders who actually believe in it and won’t squander it.

I am constantly bemused by the very large crowd of political activists who wants us all to “just get along” or “get things done” or drop the partisanship or avoid “going negative” in policy or electoral debates.  My sense is that most of this comes from the pragmatic, “whatever works”  people who are only casually or periodically involved with either electoral politics or public policy advocacy, but it’s an attitude that I consider to be both naive and non-productive.  Moreover, it represents an essential misunderstanding of our republican system, which was not designed for ease in “getting things done”.  It was built and thrives on an inescapable condition–the ongoing clash of interests and ideas.

The most recent manifestation of this sentiment is the “No Labels” movement, which is comprised of some very capable, knowledgeable and well-intentioned leaders from around the country and the full ideological spectrum who are circulating a petition urging our political leaders to drop the “labels”, presumably the ideological or partisan ones, to come together to solve the crisis of governance.

I’m OK with dispensing with labels of the kind that bind us to an ideological pigeon hole or blind party discipline.  What bothers me is that many of these people seem to expect that we can dispense with our deepest held convictions in the interest of compromise and “getting things done”, or even the fantasy of bipartisanship.  There are quite a few things that shouldn’t get done and many more that have been done that should be undone.  As I have often written, there are some issues on which we cannot be neutral or even moderate.  For example, how about the second paragraph of the Declaration of Independence?  The overriding causes are ordered liberty and freedom from tyranny from whatever source, whether internal or external.  What’s the moderate or “no labels”  position on that?

” The moral case for unions–protecting working families from exploitation–does not apply to public employment.”–Tim Pawlenty, Governor of Minnesota.

Former British Prime Minister Margaret Thatcher once said that “the enemy within is much more difficult to fight than the enemy without, and more dangerous to liberty”.  She had reference to the public sector unions, who at the time were holding her country hostage.  Well, almost 30 years later one can say without fear of hyperbole that one of the most significant threats to self-government in America is the stranglehold of the public sector unions.  In fact, it is pretty easy to make the case that we are in a position close to that of Britain when Thatcher spoke.  In almost every state the primary fiscal problems are directly tied to the political and contract clout of the public sector unions or, in the case of the open shop right-to-work states, the power of their lobbies.  In virtually every public policy debate, this power weighs heavily in favor of a larger role for government, less accountability for performance, and larger benefits and legacy costs ultimately underwritten by the taxpayers.  In states like California, New Jersey, and Illinois it is no exaggeration to say that the public sector unions run the government.  The Kellogg School at Northwestern University estimates that our 50 largest cities have combined pension underfunding of $574 billion on top of the estimated actual liabilities of their states of well over $1 trillion.

Do we have the will to turn this around?  There is hope: governors in Wisconsin, New Jersey, Missouri, and Indiana are making bold steps, but much more courage is needed and should be possible during this budget crisis.  In addition, there is evidence that union solidarity is breaking down as  private sector union members are growing weary of subsidizing the employment protection and overly generous benefits of their brothers and sisters in the public sector while struggling with layoffs in their own industries.  But this is one of the most significant policy areas in which the new Republican majority in Congress and the state legislatures will need to be very bold in the face of enormous political intimidation from a constituency that takes no prisoners.

What don’t we understand about this?  If Julian Assange and his Wikileaks operation have not perpetrated an act of war against the United States, please supply the definition.  He has admitted that it has nothing to do with transparency or the public “right to know”; it is purely an act of war in the name of Assange’s notion of “cosmic justice”, a cover for his anti-American mission.  After all, we are already the most open and transparent society in history, but must continually deal in relative confidence with leaders who consistently lie to their own people with impunity,  so this is another example of how certain pockets of the American left seem to want to allow the use by our enemies of an American exceptionalism they no longer believe in to defeat us.

I know that there are weaknesses in the Espionage Act of 1917 and that it has been further undermined by the Supreme Court, but we should indict this guy under it anyway and demand extradition immediately.  The fact that President Obama has not ordered his feckless Attorney General to do so and has generally shown such a passive reaction to these acts of aggression should be as instructive to us as it is to our allies and enemies worldwide.

On at least a couple of occasions, I have mentioned The Battle, a book by Arthur C. Brooks of the American Enterprise Institute which defines a fast approaching pivotal moment in the form of a question that we must answer:  Does America recover its commitment to free enterprise and ordered liberty or does it continue to drift toward European-style welfare statism?  This he believes is the real culture war, and I believe that he is in many respects correct, primarily because the underlying question is in essence a moral issue.  In fact, we are in constant need of reminding ourselves that Adam Smith, the traditional godfather of capitalism, was not really an economist; he was a moral philosopher and his Theory of Moral Sentiments is much more instructive of the underpinnings of the capitalist system than his more widely acclaimed Wealth of Nations.

In a recent essay in National Affairs, Yuval Levin points out that the two key moral features of Smith’s political economy–its democratic or popular character and its disciplining effect–have been under assault in our time: the first by a growing collusion between government and large corporations, and the second by a welfare state that has expanded far beyond its needs.  And the case for capitalism is a case against these two trends against the morality of the system.

So back to the issue raised by Brooks.  Can we rise above the questions involving the functionality of government and get to the underlying moral questions suggested by Levin?  For it seems that the liberal vs. conservative battle has boiled down to a debate about which ideology is served by government, rather than the classic opposition between big and limited government, which is the moral debate we should be having.  As former Congressman Bill Archer once asked me, “would you rather balance the budget at 40% of GDP or 20%?”.  This is critical, for the impact on the underlying values that we subsidize with larger government is destructive in ways that Adam  Smith understood very well.   Business leadership is the key.   Will corporate leaders be in the forefront of this effort of moral restoration, or will they be largely rent-seekers from government?