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.

And sorry if I haven't articulated it, but I'm not talking just a blanket rebuild. Of course that defeats the purpose, as the self-sustaining nature of their socialist programs is built into the program. We have to retool the program, so it still serves the same purpose, it just does it our way (which is the way to ending the program all together). The program still exists, it still provides the same service, it just has more constraints and time limits, so that in the end, it doesn't exist anymore. In other words, we rebuild the program to actually work.

Unless Rule #1 is "Less money will be spent on this stuff this year than last year, and so on next year, and so on..." they you ain't a fiscal conservative. Period.

You seem to be suffering from the delusion that either (a) you are King, and can rule by decree; or (b) fiscal conservatives are a voting majority in the United States.

Neither of those things is true, with the consequence that no matter how loudly you proclaim the virtues of smaller government and less spending, you are doomed to witness an ever-growing, ever-more-expensive government.

For how long have conservatives been calling for spending reductions and smaller government? In what year has the government ever once gotten smaller or spent less? Do you a connection here? Have you heard the saying that doing the same thing over and over again, but expecting a different result, is insane?

I agree that it is difficult to see long-term wisdom when the short term is painful. However, many things in life are like this. This is how Bush works. He likes things that take 30 years and produce earth-changing results. Tweaking water policy to save 500 salmon a year is a Clinton program. A Bush program seeks to remake the Middle East, or end welfare dependency in the United States. None of that "small ball" stuff for him.

Don't be a "small ball" player. Conservatives have been screaming about spending since the Constitution was ratified. All they've gotten for it is leviathan government. Do you really think that screaming some more is going to do any good?

Thanks for writing this Nick. I saw a reference to it the other day and I'm glad to find the whole thing posted on its own.

There's another way to visualize "big government". It's a club; a Louisville Slugger on steroids. And the Democrats have been beating us over the head with this club for the last 70 years. Now that we're the one's holding the club, what do we want to do? Break it! This is, of course, stupid. The first thing the Dems will do is make another club. And then they'll spend the next 70 years beating up on us with their new club. So what should we do? Take that club, beat them to death with it and then break it.

As a libertarian, the last thing I want is more government to "help" me. I'll be honest, I was one of those getting queasy about the rising spending and debt. However, I had been taking the attitude "Aw screw it; we're at war. We'll settle the books later." I hadn't considered the thought of using the Left's spending apparatus as a weapon against them; or that it might serve to fulfill more conservative/libertarian ends.

Good response to Nick's post.

What is being proposed, IMHO, is the backdraft theory. Sometimes it is necessary to create another fire in order to put out the original her raging, wild, out-of-control fire. Of course, there are risks involved.

Like most here at FR, I believe in a smaller government. However, 40+ years of liberal laws and social baggage have created a snake-pit. In the long run, the costs of eliminating the tentacles, one by one, are higher -- much higher and with the risks (not to mention social/civil chaos) are increased - whereas a start-up overlay will have the effect of creating a bigger can to cage the worms.

This is good.

This thread reminds me of a campaign speech by the LP presidential candidate Harry Browne. He talks about how, if elected, he'll dismantle this bureaucracy or that department, abolish this tax or that subsidy, that he'll roll back a laundry list of Federal programs, followed by the punchline "and then I'll break for lunch." The crowd is going nuts. They're cheering and applauding; but not one person in the room realizes that speeches like that will never win an election.

The average American voter doesn't want some scary, screaming loon to take a meat-ax to the Government. It doesn't matter how sound the argument is for doing so or how good the result will be. Do you remember how Mr. Newt was raked over the coals for his "wither on the vine" comment about Medicare? He wasn't even talking about reducing the program. He only wanted to foster a replacement for Medicare. He was talking about a gradual change over the course of years. People heard "wither in the vine" and freaked. They've grown up with Government taking care of them. BB loves them and they know it. It will takes years to convince them of the opposite. Nick's "shining city in a bowl" is one way to bring about that transformation.

It took years to get into that snake pit; it will take years to get out.

Redcloak -- you've got that EXACTLY right. On all the points you wrote in that post.

When President Bush won 2000, there were many conservs screaming for him to simply axe the NEA and pub ed. Well, as I pointed out... "okay, let's axe the NEA and pub ed.. and tell me how many teachers you plan to employ in your own company to offset the jobloss and economic chaos? Going to pay more taxes to feed and house their children?

I was called a spoilsport... lol!

I know some who think just "chopping off" something will eleviate their own personal stress.. but it usually doesn't work that way.....

From the Opinion Journal today:

That Was Fast http://www.nytimes.com/2005/10/11/politics/11poverty.html?ei=5090&en=f4277df5c2847789&ex=1286683200&partner=rssuserland&emc=rss&pagewanted=all

"Liberal Hopes Ebb in Post-Storm Poverty Debate" reads a New York Times headline today. Jason DeParle reports:

*** QUOTE ***

As Hurricane Katrina put the issue of poverty onto the national agenda, many liberal advocates wondered whether the floods offered a glimmer of opportunity. The issues they most cared about--health care, housing, jobs, race--were suddenly staples of the news, with President Bush pledged to "bold action."

But what looked like a chance to talk up new programs is fast becoming a scramble to save the old ones. . . .

"We've had a stunning reversal in just a few weeks," said Robert Greenstein, director of the Center on Budget and Policy Priorities, a liberal advocacy group in Washington. "We've gone from a situation in which we might have a long-overdue debate on deep poverty to the possibility, perhaps even the likelihood, that low-income people will be asked to bear the costs. I would find it unimaginable if it wasn't actually happening."

*** END QUOTE ***

The Times quotes a couple of conservative antipoverty types, the Heritage Foundation's Stuart Butler and the National Center for Neighborhood Enterprise's Robert Woodson. Butler identifies half the reason for the problem: that "the left has just talked up the old paradigm: 'let's expand what's failed before.' "

There's another part of the problem, though. Although the left is wedded to a failed ideology and the right has better antipoverty ideas, most conservatives view poverty as a fairly marginal issue. This makes political sense: The inner-city poor vote overwhelmingly Democratic, when they vote at all, so Republicans have little incentive to worry about how to improve their lives.

George W. Bush seems pretty clearly to be an exception to this; all indications are that he genuinely cares about the poor. And he did put forward some innovative ideas in the wake of Katrina. But there is a sense among political observers that the president is in a weak political position right now; if so, one would expect his poverty ideas to go by the boards.

Those who really care about the poor, then, should hope that the president recovers politically (or that his current supposed malaise is a case of wishful thinking on his opponents' part). The alternative is to wait for the left to free itself from its ideological straitjacket, and we wouldn't hold our breath for that.

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