Topic: Government and Politics

Larry Kudlow’s Question: “Is McCain Like Ike?”

Larry Kudlow, on last night’s CNBC show, remarked that I had e-mailed him comparing John McCain to President Eisenhower. One guest, Jerry Bower, realized this was not necessarily a compliment. He noted that Eisenhower Republicans kept tax rates extremely high on both individuals and business, viewing that as the “fiscally responsible” way to finance a big defense budget. The economy was in recession almost as often as not in those days – in 1953-54, 1957-58 and 1960. John F. Kennedy, Bower rightly noted, campaigned on slashing [Republican] tax rates to get the economy moving again. When tax rates were finally cut in 1964, it worked (as always).

The two parties switched sides recently, with Republicans adopting JFK’s approach by cutting the most destructive tax rates in 1981-86, and Democrats sounding and acting more like Ike since 1993. Similarly, FDR ran against Hoover’s protectionism in 1932, but Republicans and Democrats have taken turns being the most protectionist in recent years (the word “populist” in both parties often means advocating tariffs on necessities to further impoverish the poor).

The Eisenhower-Nixon years defined the phrase “fiscal conservative.” If Democrats spent too much, a “fiscal conservative” would regard it as his duty to do the honorable thing and raise tax rates as much and as often as required, if only to protect the military budget.

My quick e-mail to Kudlow is reproduced below, warts and all. It is obviously more opinionated and political than my public writing, yet not really partisan:

Larry,

McCain would be eager and enthusiastic to join with past co-authors – Kennedy, Edwards, Lieberman and Feingold – to raise tax rates on high incomes, capital gains, dividends and estates.

McCain could surely be persuaded to remove the cap on the Social Security tax. That move, added to a state-local marginal rate above 45%, would make the top tax in the U.S. much higher than in any other civilized country, including Sweden (which has the least progressive tax system of them all). Many European countries allow the payroll tax to be deducted from the income tax, but it’s a nasty add-on for us. It’s loosely tied to benefits, but Social Security would become a pure redistribution scheme if they uncapped the tax.

All the Democrats need to do in exchange for such higher tax rates on the rich is to offer to “fix” the AMT (to make sure it just hits the rich) and cut the nominal corporate tax rate (after “closing loopholes” like quick depreciation), and also to fund any and all U.S. troops in the Middle East.

In McCain’s view, this would be another bold act of leadership, like pushing McCain-Feingold after being tarnished as a member of the Keating Five.

It would show how marvelously bipartisan he is, how fiscally responsible, unlike that upstart George W. Bush. I can see the smug grin even now.

Recall Ike’s excess profits tax and 90% tax rates to bankroll the Korean “police action.” McCain is a reincarnation of Ike. He sees great national honor in (taxpayer) sacrifice, compulsory national service, etc. You may recall a WSJ column I wrote calling the Rubin crowd “Eisenhower Democrats” in contrast with Kemp and the “J.F. Kennedy Republicans.” It caused Bill to yell at his staff, but they still didn’t get it.

All that matters to McCain is a big military/VA budget. He does hope to be frugal on domestic discretionary spending, but can’t accomplish nearly enough with a Democratic congress to offset even 10% of military spending at the Bush pace (which he sees as inadequate).

Besides, he feels, big corporations and greedy investors need to sacrifice for the common good. He always said so., and he hasn’t changed. The only reduction in tax rates he supported in recent years was cutting payroll taxes for the poor (nearly all of whom don’t work, so that’s a cheap gesture).

In a WSJ interview with Tunku, Milton Friedman once said some people are natural economists. I spent a couple of hours with Mitt and large group of the best economists I’ve ever seen in one room, even the White House. Romney held his own quite well. Very credible, wise and tough on big spenders.

I didn’t sign on to any candidate’s team (Doug called too), partly because I want to remain an unpredictable maverick. McCain is 100% predictable – no maverick at all.

If it ended up being a contest between McCain-Huckabee populists on the Republican ticket versus a familiar Obama-Richardson shift from defense to nondefense spending (always popular, always overdone), Republicans would not view my writing as helpful.

The only comfort is that if the Dems controlled the White House, Senate and House, they’d go overboard quickly and lose control of Congress after 2-4 years.

The 2011 tax time bomb would actually explode beneath John or Hillary, leaving the market in shambles in 2010 and the economy in ruin in 2011. Mitt is not that suicidal – he’d like a second term.

Alan Reynolds

Wall Street Journal v. Romney

Two back-to-back Wall Street Journal editorials comparing “McCain’s Apostasies” (Jan. 31) to “Romney’s Convictions” (Feb. 1) rely on a double standard. Why does McCain’s suspicious flip-flop on the Bush tax cuts make him a mere maverick, while Romney’s tougher line on social issues is said to show a lack of conviction?

In the first, McCain is depicted as an admirably stubborn maverick, someone whose decidedly non-Republican legislative history is at least predictable: “Republicans have a pretty good sense of where he might betray them.”

The second editorial strongly implied that Romney has no convictions, but is simply driven by “expediency” and “pandering.” Romney stands accused of changing his message to suit “the audience to which he is speaking at the moment (Think $20 billion in corporate welfare for Michigan auto makers).” On the basis of that one parenthetical anecdote about Michigan auto makers, we are told this “risks a Presidency that would get rolled.”

The trouble is, Romney never proposed any bailout for automakers, much less just those in one state (relatively little of U.S. auto production is in Michigan). That key accusation was lifted uncritically from a McCain radio ad. As FactCheck.org noted, “Romney actually proposed a $16 billion increase in federal research into ‘energy research, fuel technology, materials science, and automotive technology… . Perhaps to McCain’s ears that’s a bail out. But the senator has been a strong proponent of pursuing alternative energies in the past – so strong that he proposed the improbable goal of making the country ‘oil independent’ within five years.”

FactCheck.org offered other examples where “John McCain is attacking Mitt Romney with some out-of-context or misleading statements.” In particular, “McCain is off base in the implications he has been making: Romney never advocated for a particular date for withdrawal or a public date for withdrawal.” Economist Thomas Sowell, among others, has taken McCain to task for such deceptions.

The overall impression from the Journal editorial is that electing Romney “risks a presidency that would get rolled” by Democrats in Congress. That is an ironic conjecture, since McCain has been famously eager to co-sponsor dubious legislation with Democrats – such as McCain-Feingold, McCain-Kennedy, and McCain-Lieberman.

Senator McCain blocked all the 2001-2003 tax cuts because (1) he wanted more revenue for the Iraq War, and because (2) he vehemently objected to granting the slightest tax relief to “the rich.” The editorial says “Republicans have a pretty good sense of where he [McCain] might betray them.” If so, they should realize that a McCain presidency would surely “get rolled” when Bush tax cuts expire in 2010, if not sooner. McCain would surely regard it is as a sign of honor, leadership and fiscal responsibility to trade higher tax rates on the rich for a large military budget and keeping troops in Iraq.

The Wall Street Journal editorial page has allowed itself to be rolled by one candidate’s bogus attacks against his opponent. The result was unfair and unbalanced.

Straight Talk and Militarist Madness

In the New Hampshire primary, exit polls revealed that 38 percent of those voting in the Republican primary who “strongly disapprove” of the war in Iraq cast their ballot for John McCain. In Michigan, 35 percent of those strongly disapproving of the war cast their ballots for him. Somehow, McCain’s repeated indications that he would be more favorably inclined toward war than the current president haven’t broken through the fog of media adulation that surrounds the Arizona senator.

One of the first, most striking indications was McCain’s serenading an audience in South Carolina last April with a rendition of the Beach Boys’ song “Barbara Ann” with the lyrics changed to “Bomb, bomb, bomb, bomb, bomb Iran.” His campaign spokesman later spun the outburst as “adding levity to the discussion,” but his campaign kept up the theme, playing the real “Barbara Ann” at subsequent appearances. The mainstream media, of course, gave a pass to McCain–who is truly a press darling–but the video was posted on YouTube and other websites, and downloaded by millions of viewers across the world–many of whom probably didn’t find it funny.

Before the New Hampshire primary, McCain was at it again. Speaking to an audience in New Hampshire on January 3, one questioner remarked with concern that the current president has spoken about staying in Iraq for 50 years. How, the questioner wondered, did Senator McCain feel about this? Before the man had a chance to finish his question, McCain interrupted him, blurting out “make it 100 [years]! … That would be fine with me!”

It was a stunning, candid admission. If elected, McCain acknowledges that his policies would help ensure that when our grandchildren sign up for military service, some of them will deploy to Iraq. More broadly than Iraq, Senator McCain has a clear track record of supporting war and militarism, and if elected, there’s every reason–from his twitchy statements on the campaign trail to his actions in Congress–to believe that Senator McCain is the all-war-all-the-time candidate.

In the past decade, Senator McCain has supported unsheathing the saber against a variety of enemies from Serbia to Iraq, Iran, and Sudan. And in the present, as Matt Welch writes in his new book The Myth of a Maverick, the senator from Arizona “envisions a more militaristic foreign policy than any U.S. president in a century.”

In fact, Senator McCain has indicated that not only would he like to unleash the U.S. military on substantial portions of the rest of the world, as president, he would work to militarize American society. In a 2001 article in the Washington Monthly, after lamenting that it was “not currently politically practical to revive the draft,” McCain went on to praise and argue for the expansion of the National Civilian Community Corps, a federally-administered program where volunteers “wear uniforms, work in teams, learn public speaking skills, and gather together for daily calisthenics, often in highly public places such as in front of city hall.”

McCain glowed at the fact that the participants “not only wear uniforms and work in teams…but actually live together in barracks on former military bases.” There is already a place where young people wear federal uniforms, live in military barracks, and gather for calisthenics in front of government buildings: It’s called North Korea.

Getting back to Iraq, perhaps the best one can say is that Senator McCain has made his views plain: staying is victory, and leaving is defeat. While this may be a soothing idea for those like Senator McCain who urged us to start a war with Iraq in the first place, as a governing principle for our presence in the Middle East, it is extremely dangerous.

But give Senator McCain credit: he isn’t falsely marketing a “humble” foreign policy on the campaign trail. To the contrary, when voters go to the polls, there will be plenty of information available to indicate that a vote for McCain is a vote for perpetual war and occupation. Voters may even obtain that information—if the media could stop fawning over the deliciously “mavericky” Senator McCain and just reveal his platform for what it really is.

Sullivan on Wehner on Obama

Peter Wehner argued in yesterday’s WaPo that, although it’s seemingly impossible to dislike Obama, the guy’s just too liberal for conservatives to support. Andrew Sullivan, the conservative author of a favorable profile of Obama in the Atlantic a few months back, chimes in:

If a Democrat ran for office today pledging a massive increase in entitlement spending, a decades-long multi-trillion dollar nation-building project in the Middle East, the biggest increase in discretionary spending since LBJ, a huge increase in the power of the executive branch, a doubling of the federal education budget, a de facto amnesty program for 12 million illegal immigrants, and a cool additional $32 trillion to the country’s unfunded liabilities … would Wehner be saying he is out of bounds for conservatives because he is a special interest group liberal?

Nothing in Obama’s policy book comes even close to the massive lurch to the left that Pete Wehner engineered and supported and celebrated when it was done by a Republican president.

Ouch. That’s going to leave a mark.

Would You Vote to Put this Statist in the White House?

Last month, I wrote on this site about a Republican who genuinely believed in limited government. The bad news is that my example was not from this year’s campaign, but instead came from a 1920s-era video featuring Calvin Coolidge. After further research, I’ve discovered a more recent video that captures the words of someone who is getting a lot of attention in this year’s GOP campaign. Sadly, this high-profile Republican uses class-warfare rhetoric to condemn tax cuts. He urges more income distribution and a bigger role for the federal government. He even claims that corporate profits cause inflation. Would you vote for someone who gave this speech?

Excessive Salaries for State and Local Bureaucrats

USA Today reports on the growing compensation gap between bureaucrats and workers in the productive sector of the economy. My colleague Chris Edwards already has documented how federal bureaucrats are overpaid, so the extravagant compensation for state and local bureaucrats is not very surprising

State and local government workers are enjoying major gains in compensation, pushing the value of their average wages and benefits far ahead of private workers, a USA Today analysis of federal data shows. The gap is widening every year, rising by an average $1.02 an hour last year and $2.45 an hour over the past three years.

…State and local government workers now earn an average of $39.50 per hour in total compensation, reports the Bureau of Labor Statistics (BLS). Private workers earn an average of $26.09 an hour. Benefits are a big reason for the gap.

…From 2000 to 2007, public employees enjoyed a 16% increase in compensation after adjusting for inflation compared with 11% for private workers. The nation has 20 million state and local government employees. About 116 million people work in the private sector.

The pay gap obviously is bad news for taxpayers, but the bigger issue may be the misallocation of labor. When compensation for bureaucrats is excessive, this encourages people to migrate into government jobs. This means that they are not in the private sector, producing value for their fellow citizens. This does not mean, to be sure, that every bureaucratic position is useless and every bureaucrat is lazy (I’ll resist the temptation to comment on DMV offices) and it does not mean that every private employee is a workaholic. But over the long run, the economy’s performance will suffer because labor is not being used productively.

The Democrats’ Mod Squad

The Democratic candidates remind me of the Nixon-era TV series “The Mod Squad”: One white, one black, one blonde.

And really, that’s all I know about the show and about all I know about the candidates. What are the differences among them? Obama is eloquent and elegant. Hillary is earnest. Edwards is TV-actor cute and shouts more than the others–not that that ended up counting for much.

And like the TV show, the Democrats’ Mod Squad is based on a lot of ideas that seemed cool in the early ’70s –  energy independence, groovy kinds of alternative energy, national health insurance, fine-tuning the economy, higher taxes, cheap money, interest rate freezes, corporation-bashing, and ending the war but not any time soon.

So instead of a bridge to the 21st century, the Democrats this year are offering us a bridge to the post-Woodstock era.

But the good news is that while the early ’70s were marked by plenty of policy disasters—Nixon’s wage and price controls, Ford’s “Whip Inflation Now” buttons, Carter’s “turn down your thermostats”—those things did make more people aware that the old regulatory policies had dramatically slowed down economic growth. As the ’70s went on and turned into the early ’80s, good things actually started to happen. Transportation, energy, finance, and telecommunications were deregulated. Capital gains and then income tax rates were reduced. Both large corporations and large unions were on the decline. CNN, Microsoft, and Apple were founded. Blacks, women, and gay people moved into the mainstream of society. After Watergate and Vietnam, Congress curbed some of the powers of the presidency.

Maybe the Mod Squad will once again be a precursor of better times to come.