Cherry Picking Your Scapegoat

This post is just a reprint of the second half of this older post:

How Two Sides can both be right about Objective Truths
Now I will show by example how opposing viewpoints about objective truth can both be right. I will take the recent financial crisis as an example. That there is a meltdown of sorts is pretty much an objective truth agreed upon by most everyone. Over the past months I've heard two claims that were made with utmost certainty:
1. Republicans, especially President Bush (And more recently President Reagan), are 100% to blame for the crisis.
2. Democrats are 100% to blame for the crisis.

My argument is based on the fact that, whether they knew it or not, each of the above claimants is implying "according to my values and priorities" in their statement. When you take into account the implied reference point, their claims can both be verified objectively

I will do so. According to this Denver Post article and this WSJ article there are about eight causes of the financial meltdown. Some of the causes had both beneficial as well as deleterious effects. In no particular order:

1. Enactment of laws that encourage home ownership (most notably, the CRA of 1977 and the 1993 expansion of it) (D)
   
2. Political pressure on Fannie and Freddie to buy/guarantee subprime loans. Followed up by lax oversight. (D)
   
3. Deregulation of banks which allowed them to get too big and have too high a debt load (R)
   
4. Overregulation of banks which give them a false sense of security. (D)
   
5. Low interest rate policy of the Fed which fueled mortage debt (D/R)
   
6. Preditory lending practices (R)
   
7. Government created credit-rating oligopoly (providing the market with misinformation) (D)
   
8. Short Sellers (R)
   

This is a gross simplification, but each of the causes above can be loosely associated with one political party or the other. To be fair, each cause can be attributed to both parties...but I'm trying to make a larger point. I've marked each cause with the associated party.

Now a bubble can only burst when it reaches a certain level. Take away any one or two of the above factors, and you might have averted the crisis entirely. So if you order the list above according to your priority, the last few items (that the other guy caused) are the entire cause of the meltdown right? This sort of cherry picking can be justified from a subjective point of view and it is very very common. But wouldn't be better if we acknowledge the valid considerations of both sides?

Obama's Tax Increase on All Americans

10,000 for a candy bar
I'll never forget my first hand experience with 5,000 percent inflation. I was living in Argentina in 1989 as a missionary. We got our living stipend at the beginning of the month. It was denominated in Australes. The money had to be spent quickly, as prices would double by the end of the month. When I arrived in 1989 a candy bar (the tasty alfajor) was 100 australes. When I left in 1991 the same alfajor cost 10,000. I'll never forget how we used 100 Austral bills as toilet paper. I still have a wad of Australes an inch thick that I kept as a souvenir.

Inflation is a major back door tax on all citizens. Everyone with a bank account or a fixed wage suffers. Governments with debt love inflation because they can pay down debt with devalued currency. The recession is causing a temporary deflationary cycle, but with things starting to turn around, everyone knows that inflation is the true threat. I noticed that gas was already back up to almost 2.50. And it isn't because of oil demand. The dollar is losing value. The Chinese are getting nervous about holding so much U.S. debt. Even prominent central bankers are worried. Here is a random quote from fund manager Harry Lange at Magellen (one of my 401k funds) "In my view, that no-holds-barred approach to spending could mean that inflation will resurface as a serious problem once the U.S. economy enters a recovery phase. " And from the fund managers of Vanguard Primecap: "There are legitimate concerns about the increased moral hazard and unintended consequences that are likely to result from the various rescue plans and stimulus bills...We are also concerned that the dramatic increase in money supply may result in inflation."

How to fund a major increase in the size of government
It is completely naive to believe that President Obama can fund all his programs by just soaking the rich. I believe he thinks it can be done, but it goes against all experience. The reality is that Obama's initiatives will be paid for by everyone. Here is how:

1. Inflation will pay for much of the debt. China will not keep buying our treasuries forever. You monetize debt by selling it to the Federal Reserve. Sure, the FED buys debt all the time to maintain a stable money supply. But now it's being pressured into it for political ends.
2. The tax increase on the "rich" will miss the target and hit smack dab on the middle class. As the 2003 Bush tax cuts proved, the upper class doesn't try as hard to hide income when taxes are relatively lower. Thus, we saw a surge in the amount that the upper 10% pays in taxes because of the Bush tax cuts. Obama will reverse that trend, and the rich will go back to either hiding income or being less productive with it. The middle class will have to shoulder the burden.
3. Cap-and-trade. Regardless of the environmental merits, carbon taxes are a tax increase on all Americans. I'd even say they are regressive. There is no such thing as a tax on a company. Only taxes on people. You can tax companies all you want, but it all lands on consumers and on shareholders. (Most Americans are shareholders of some sort, whether through a company retirement fund or a 401k plan.)
   

No matter how it turns out, the pro-Obama forces will be able to claim victory because the processes I've outlined above are all very indirect. But modern liberals have always succeeded more when they take the back door approach. Who wants to hear tough talk? Americans seem to want others to pay for their benefits, so the political class has to fool them into believing that they're getting a free ride. We'll you're not. Factor into it the opportunity costs of lost freedom and innovation, and the picture is pretty bleak.

Don't Socialize Healthcare

Again, another letter to my senator, reproduced here for my readers (what few there are):

Senator Bennet,
When this nation was founded, it was founded on the principles of local government first, federal government last. You have highlighted the advances Colorado has made in health care in your recent newsletter. That is exactly the place where we should address health care issues, here at the local and state levels.

It is your duty as Senator to ensure that Colorado remains a strong state that is not tied down by Federal constraints. Please do not sign on to socialized, or even quasi socialized measures that pump money to a federal bureaucracy only to come back to Colorado after large percentage is siphoned off. Please do not vote for measures that kill choice and freedom.

The solution to healthcare costs is to take insurance back to what it is supposed to be: insurance against disaster. Normal people should rarely use insurance. If you are using it often without any dire circumstances, it isn't insurance! It's a cost sharing system that ensures that people are disconnected from true market costs. This always encourages them to use more healthcare then is necessary. This causes costs to rise. It also forces a bureaucracy on doctors that costs more.

The solution is to make all healthcare expenditures tax deductible, wean employers from having to provide it, and letting insurance be portable.

These measures will solve the crisis without further eroding the freedom of the state of Colorado and it's citizens who would otherwise be governed by federal mandates.
Nathan

Please choose freedom over security

Here is the text of a pro-freedom letter I wrote my Colorado Senator:

Senator Bennet,
I am concerned that lawmakers are trying to take it upon themselves to control every aspect of society in an attempt to create an utopia.

In your newsletter you said we may risk being the first generation to bequeath less opportunity to our children. I believe that when government displaces private action, it does just that! I see your job creation, health care, and educational programs as displacements of private action which, no matter how well intentioned, will reduce freedom and prosperity.


America has been a dynamo of job creation precisely because of the relative freedom of private industry. And even if it means that we reap what we sow during hard times, isn't that the price of freedom? Isn't is part of freedom to experience lows as well as highs? Please don't assume that all of your constituents value prosperity over freedom or even security over freedom.


Our health care system has problems, but they are the problems of being overly socialized already! Please consider that our nation has ruined healthcare precisely because we have mandated employers to be involved. We already have a oligarchic few-payer system. The single-payer system doubles down on that. Please look at the research that shows that we can solve our health care by adding freedom, not by regulating it further.

Instead of promising the moon and the sky, please consider that America is great because we can choose our futures, not because Washington dictates safe outcomes.

Ironically, freedom breeds prosperity. If you do nothing but assure Americans that the our laws will be enforced and the dollar will be stable (by not overspending) the economy will come back all by itself. It will be cyclical, but it always has been. And if you free up Americans to choose their educational venues (via vouchers for example) you'll see education flourish. The answer is freedom.
Sir, I hope you'll have the opportunity to consider these views. Thank you.

Stimulus Proponents: Admit it, it isn't about growth

Here is an insightful review of the Keynesian multiplier and why Europeans aren't as big on stimulus spending at the WSJ

They reference this study by prominent economists that shows only a temporary boost to the economy by stimulus spending. The "Keynesian multiplier" peaks at 1.4 only for a brief period and then it quickly diminishes to below 1.0 in 2010. Thus, we're paying a whole lot of money to ultimately hurt the economy long term. It's like being addicted to a narcotic. You need continually higher doses to achieve a high.

Keynesians: Admit it! This isn't about growth. It is about controlling society. It's about socially engineering outcomes. The real aim is to use the crisis to permanently create a constituency that is beholden to the Democratic Party for its livelihoods.

I was thinking about the great sacrifices of previous generations of Americans. How they died to protect freedom. Freedom was more important than life. But now, we're willing to trade our freedom for an elusive attempt to buy prosperity. It won't work and we sell our soul in the attempt. We saddle our grandchildren with even more debt. We have some noble veterans who are still willing to put it on the line for our country, but their numbers are very small as a percentage of the population. On average I think Americans have chosen material well-being over freedom. And they will get neither.