I, Heretic

Here I am going to spout heresy. I am going to argue that the fiscal policies being followed by President George W. Bush represent a breakthrough in conservative — yes, conservative — thinking. They represent good policy; and even better strategy.

I will suggest that President Bush understands money better than any President we have ever had. He understands it better than most economists. He understands it better than our illustrious pundits. President Bush understands money the way a financier understands money. He sees it as a force or a power that one squirts at the world to make the world change. He sees it as a weapon.

This is not how accountants view money, and it is not how most economists view money. And it is certainly not how any ordinary citizen could view money. But in the mind of a President of the United States, such thinking has the potential to lead to some rather revolutionary results.

Prior to his recent speech concerning the rebuilding of New Orleans, President Bush was already being lambasted by critics from right to left for what appears to be some rather profligate spending behavior. There is pork in River City. There is the $500 billion prescription drug benefit. There is the War on Terror, involving huge expenditures in Afghanistan and Iraq. There are what Democrats call tax cuts, and what the rest of us must still call tax rate cuts even if revenues have risen. And now comes what sounds like two hundred billion more in federal spending to build a shining city in a bowl.

This raises questions. Such as, for example, where is all this money supposed to come from? What about the deficit? What about the national debt? Why are we saddling our children with still more debt they will have to pay off? Whatever happened to small government? We're spending like Democrats! Why? Whatever happened to fiscal discipline? How can anyone call this conservatism?

1. China. Well, China and Japan. 2. We are taking on debt. Ergo, a cash deficit. So? 3. It's about where it ought to be. 4. We aren't. 5. The public doesn't want it. We have to teach them to want it. 6. How long, Oh Lord, will our side be on defense? 7. Who says we don't have it? Do they know what they're talking about? 8. Watch.

Here's where we get the money: our citizens earn it in their businesses or by performing their jobs. They spend it on things they need. A lot of those things are imported. The cash ends up in the hands of foreigners. The U.S. government borrows it back. Note carefully that our consumers now have the stuff, and our government has the cash. Is this a good deal, or what? What the foreigners have is a debt instrument. Good for them.

Here is why we take on debt: He who has the cash makes the rules. If we have the cash, we get to say how it's spent. Remember, money is power. It is a force you squirt at the world to make it change. We drive the change, when and where we want. What the foreigners get is a debt instrument. They are passive investors. Those are the best kind. This is especially important with respect to China. China is accumulating massive amounts of our debt. Good. Better that than they should have the cash, which they would probably spend on things that we would think are scary. Every dollar we can get them to loan us another dollar they don't have for building battleships. Bush understands this. Too many people don't.

Here's the deal with the national debt: Debt is about acquiring cash now, from somebody else. An institution should do that any time it thinks it can earn a return on the cash that is higher than the interest it must pay on the debt. In actual practice, people start to get uneasy if an institution's debt starts to exceed a certain percentage of its total capital. For companies in the U.S., 50% debt is pretty high. In Japan that's low; Japanese companies rely much more on debt financing than on equity when financing their businesses. There is no right answer to how much debt is the "correct amount." It's one of those things that "depends." For a government, the question is sort of weird, because there is no such thing as owning "equity" in a government. At least, not in the financial sense. For a government, a better measure might be its ability to service its debt, i.e. how much of its actual cash revenue (taxes and fees) is needed to pay the interest on its debt? So long as that looks reasonable, no one should get too worried. Instead they should think about, as Bush obviously does, how we might invest the cash we get from new debt so as to produce a higher return than the interest rate on the debt. If we do that, we don't care how large the debt gets. We'll always be able to service it.

Our children are not going to have to pay it back. Institutions are not individuals. For our purposes, institutions are immortal. If some of their debt comes due, they simply roll it over. They can do this perpetually. IBM probably has debt on its books that's been there since the 1920's. It's been rolled over several times. No one cares. So long as IBM sees opportunities for investing cash that return more than the interest rate, they will never pay the debt back... they'll just keep rolling it over. And then the Sun burns out. This can be a difficult concept for non-finance-types to understand. But it is crucial to understanding what's going on here. So long as the U.S. economy keeps growing... so long as we have opportunities to invest cash in ways that earn a higher rate than we have to pay in interest... we should keep rolling over our debt, and adding more as we can, forever. All these people who moan about the chillrun do not understand this game. The chillrun aren't going to pay it back. They don't have to. They're going to roll it over, and add more of their own. As will their children. Until the Sun burns out.

Here's why we don't have small government: People don't want it. They say they do, but when you threaten to give it to them, they vote for the Other Guys. It took Republican politicians decades to figure this out, and most Republican voters still haven't figured it out. The fastest way to become the minority political party in the United States is to become the party of government frugality and fiscal discipline. Let the Democrats do that. We've been there, done that, and have Bob Dole to prove it.

Besides, the Democrats are lying. The minute they got in, they'd start spending like, well, like George Bush and the Republican Congress are spending. But there's a difference: they'd be spending it on their stuff. More social engineering. More government-dependency programs. More crosses soaked in more urine on more government grants.

For decades, Republicans played defense with money. Tied to this idea about "small government" in a country where people didn't want that, the best idea they could think of was to build speed bumps on the Road to Socialism. This while the Democrats got to call the shots because Republicans wouldn't call any when they got in. They'd be "responsible." They wouldn't spend as much. All they did was conserve borrowing capacity for the next time the Democrats got their hands on the spigot. What the rest of us got was a ratchet that clicked left when the Democrats were in, and just sat there when the Republicans were in.

Now comes George Bush to play offense with money. Folks, this is a new idea. Think about what we can do here. We get to call some shots. George Bush can see this, why can't anyone else? Is our highest priority right this minute "small government?" Is it "reduced spending?" Is it "balance the budget?" I don't think so. I think our first priority is to survive. There are some really crazy people out there who think we should all be Moslem, or dead. There are a lot of them, and they are nuts. They have a lot of money. They are very, very dangerous and thinking anything else is likely to be suicidal. So that's priority one. We can quibble over the details, but spending money to survive is not a bad idea.

So what's next after survival? Can we now balance the budget? I say no. I say the next priority is to reverse the decline of our civilization. Surviving won't have that much utility if we all end up as savages clubbing one another. We all just got a very clear demonstration of what that looks like. We've seen it before, too. In fact we've seen it almost everywhere that Democrats have had their way in imposing their values on citizens through government dependency programs. There is a message in this. It is that the "ratcheting" has to stop. Like it or not, we either spend money to have our values reflected in this society, or the Democrats will keep pushing us toward Lord of the Flies.

Did anyone really listen to George Bush the other night? I did. I see that Rush Limbaugh did as well. Limbaugh has phrased it as, "You Democrats had 60 years to try it your way. Now we're going to try it our way." Is that worth doing? I say yes, as I will explain below. But let's be clear: it's going to cost a lot of money. We are going to have to exercise power to make this happen. Exercising power means spending money. It does not mean balancing the budget, reducing spending, or any other thing.

We will get smaller government when people want it. No one alive today in the U.S. has ever seen small government. It sounds scary. Democrats, and their allies in the media, make sure it sounds scary. Grandmothers will be tossed in the street. Poor people will die of starvation. What a cold, cruel world these Republicans envision. People will only support a party of small government when they are sure that that stuff won't happen. And the only way to make them sure is to demonstrate it. Paradoxically, because of our history since FDR, the only way to demonstrate it now is to spend a bunch of money to create a demonstration.

Picture New Orleans 2.0, the shining city in a bowl. It's a kind of town we have a lot of in the United States. Many people of modest means, but they own their own homes. Or at least it says they do on their mortgage. Someday the mortgage will be paid off and they really will own their own homes. They will be land owners. For sure their children will be. Think about that. Think about how different that is. They care about this place. They care about their homes. They care about their neighborhoods. They care whether their politicians are crooked. It's no one else's responsibility to keep things up. This is their place. They own it.

So we do this our way, and yes, we spend some money – a fortune, frankly – to get it off the ground. Know what we'll have when we're done? People who want smaller government. Homeowners. With jobs. Why will they want big government? They won't. And that's how we win. But we can't get there unless we make it happen; unless we exercise power; unless we spend money. We have to demonstrate to people that our ideas work.

We know where to get the money. It's a Good Thing to get the money, because doing so weakens the Chinese and allows us to take care of survival in the face of some other people who are just as scary. And instead of sitting here quietly waiting for the next Democratic administration to come in and click the ratchet one more notch to the left, we can reverse some of the harm they've caused, and demonstrate that our ideas are better. This really does all play together. And it really is "conservative" in the strongest sense of the word. It's just not the same old short-term thinking, like we're used to from our politicians. It's not "small ball." It's playing to win, as opposed to playing not to lose.

You make some interesting assertions, but I see a few flaws. If "cash is king" as you suggest; then the ability to produce said cash must be meta-king. The Chinese have utilized Americans' (and the world's) appetite for cheap goods to upgrade their infrastructure (and military) which; while they are willing to buy US debt, seems to be a good deal as you outline. But in doing so, they are acquiring the means of production of many things which can be sold for cash. So if I buy your thesis then I also have to see this phenom as one of them acquiring an ever expanding means of cash production. It just so happens that they today have an appetite for US debt, which is hard (for me and many others) to understand. It is also true that the US can just print money, and that's even easier than making cheap goods to sell for money.

Frankly, I think the world is seeing the ease with which the US can simply print money and it is showing up in commodity prices, eg gold and oil

So without going into lengthy discussion, yeah, the juicy game you outline appears to be working for the moment but it's in many ways dependent upon the kindness of strangers, some of whom may well have questionable motives on a long term basis.

As for the OPEC component of generating this magic cash, our ever expanding economy depends in many ways upon cheap [refined] oil. That too apears more and more tenuous as things progress here. I will admit to being very wrong as to the resiliency of the US consumer over the past few years. Today, OPEC accepts our cash for their oil. In some ways, one has to wonder; the Arabs have seen our real estate market double in value, and everybody seems just gag over it. Maybe they feel left out...why shouldn't oil double? Again I say, the game you cite is working just dandy now. It may not always work so well.

Interesting.

I even agree with some sapects of it.

However, the problem is that the federal government is growing out of control and taking over the responsibilities of the states.

If Louisiana wants to use tax dollars to rebuild New Orleans, that's within their authority to do so. Maybe the federal government should help rebuild some bridges and roads, but a better solution would be to cut most of the federal gas tax, and let the states fix their own roads with gas tax revenues instead of the money all going into the federal government's hands where it gets spent on pork.

There are problems that the federal government needs to throw money at. Border security is an exellent example of this, yet it's getting sidelined while Bush throws money at issues that are outside the responsibility given to the federal government in the constitution.

The federal government needs to shrink significantly, and if the people want more government programs, they should see about getting them implemented at the state level.

invest cash in ways that earn a higher rate than we have to pay in interest

OK, but I fail to see how larger bureaucracy payrolls earns any 'rate of return'. Also, when the interest rate required to attract investments in U.S. promissory notes raises to, say 10%, then annual interest on our existing 8 trillion of debt amounts to 800 billion ... nearly $11,000 annually for each family of four ... just to cover the interest. No, like IBM, even nations can go belly up.

So it's better that the Left gets to spend money, showing people that THEY can get what the people want, rather than using that as a weapon against them--using money so people can see the truth of the Conservative message...

Let the Left continue to use this tool and see what happens to the Conservative voice in Washington--we will be replaced. But, if we use it against the Left, we step in, in their stead, and use this tool, then people will recognize the truth of the Conservative message. It won't be a perpetual spending spree, just long enough to defeat the idea that gov't handouts are the only option. Just watch--once people have their lives back, and things are rebuilt according to the Conservative idea (since Bush and a Repub congress are in charge, largely), people will see that the gov't can provide temporary help, but the only real "fix" comes from the individual--then, buh-bye Leftist ideals...

So trillion dollar healthcare plans are not depending on government? 'Fixing' Social Security isn't depending on government? Pushing for passage of Constitutional Amendments on social issues (clearly a state issue) isn't social engineering? More dollars for federally funded education isn't government dependency and social engineering?

BTW, haven't seen the Republicans offering plans for dissolvement of the National Arts and funding thereof either. How are Republicans better than Democrats again?

Using their tool, as you put it, is using a socialist redistribution scheme. Slapping a conservative label on it doesn't change that. It hasn't worked anytime it's been tried, ever. This is the flip side of the everybody does it (or the Clintons did it first) defense every time we see a Republican get caught with his hand in the till. Now, this time it's "The Dems buy votes, so why shouldn't we? It's not bad because our intentions are pure."

People have had 60 years of this, so, while it is self-evident that the State gov'ts should have the brunt of the responsibility, the population-at-large has been told for decades that it is the federal gov'ts job. So, we play by their rules, we play the game--throw a bunch of money at the problem, and rebuild it in OUR image. THEY got to keep rebuilding in such a way that it kept people dependent on the Fed, and thus perpetuated the idea that the Fed is the only savior. Now, WE get to fix the problem and rebuild it in such a way that there will be no NEED for the Fed to be the savior, as it won't need fixing again! I look at this as a hand-up, not a hand-out. People can rebuild their lives, and will see the Conservative ideology shine thru--albeit by using a Liberal tool. The states will be more beholden to the Fed, and thus more apt to do what the Fed wants, by, say, knocking out the ridiculous trade-union rules that muddy and slow the process; then perhaps by imposing jobs and welfare restrictions that we wouldn't have otherwise gotten; or by relaxing environmental rules so we can actually build another refinery or expand business zones to accomodate better and higher paying jobs; or to rework HUD and Title XI appropriations...

This is the IN we needed. Use their tool against them--sure it costs now, but WE WIN in the long run, as it is OUR vision that will be instituted, the vision of self-reliance and ownership, not the vision of "Need help? Ask the gov't." It seems like the latter right now, but that is only when taken with a myopic view of the strategery.

Let the Left continue to use this tool and see what happens to the Conservative voice in Washington--we will be replaced.

Who honestly believes that hasn't happened already?

But, if we use it against the Left, we step in, in their stead, and use this tool, then people will recognize the truth of the Conservative message.

So, spending more money, expanding government programs and increasing government police powers is the way to get people to "recognize the truth of the conservative message"? Are you serious?

Just watch--once people have their lives back, and things are rebuilt according to the Conservative idea (since Bush and a Repub congress are in charge, largely), people will see that the gov't can provide temporary help, but the only real "fix" comes from the individual--then, buh-bye Leftist ideals.

Right. Bear in mind that Bush and a GOP Congress have given us the biggest, most expensive, most intrusive government in over 30 years. There was more spending and growth in Bush's first four years than in eight years under Clinton. When you allow government to step in and take over, the only result is that people expect more from government.

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