Paul Ryan and the Extreme Populist Establishment

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When it comes to the Republican Party’s base, there isn’t “an establishment” — there are two. The Realistic Conservative Establishment (the RCE) consists of those in power (in the media and industry) who speak to and for those Republicans who embrace free market capitalism and limited government (the free movement of goods, labor and capital globally). The Extreme Populist Establishment (the EPE) consists of those in power who speak to and for those Republicans who embrace populist economics (opposition to free trade, to immigration across the board, and to companies moving operations abroad to avoid America’s corporate taxation and regulation).

The two establishments are fighting to get the Republican base to nominate their preferred candidates and pursue their preferred policies. The focus now is on the presidential primary, with the EPE generally supporting Donald Trump, with the backup position of Ted Cruz or Ben Carson. The RCE support is split among the remaining candidates (except Rand Paul, who is more the libertarian choice). But nowhere is the split between the two Republican establishments more clear than in their respective treatments of one of the unsung heroes of our time, House Speaker Paul Ryan.

You should measure the success of a negotiation not merely against what you get, but against what you get facing the opposition you have.

Ryan only recently took over after then-Speaker John Boehner resigned from a controversial tenure, a bitterly disappointing one to the populist base and the EPE. After weeks of turmoil, Ryan reluctantly agreed to become speaker. He met with deep skepticism by the EPE. Now Ryan has accomplished several things, and the EPE has attacked him furiously. As a classical liberal, I am angry at the short-sighted EPE commentators attacking what I perceive as major accomplishments.

Consider Ryan’s recently negotiated budget deal. EPE hero Rush Limbaugh was outraged at it, saying it gave Obama everything, and the conservatives nothing, and opining that “what has happened here is worse than betrayal.” Others echoed this sentiment. But I contend that the Ryan deal is in fact a good one, especially considering the fact that the Democrats still have the power to stop bills in the Senate and hold the White House. I mean, Earth to EPE pundits: you should measure the success of a negotiation not merely against what you get, but against what you get facing the opposition you have. Let’s look at some of the major provisions of the deal so condemned by the EPE.

First, Ryan secured about $700 billion in tax cuts — extending some useful deductions and making some (such as the R&D tax credit) permanent. Oh, and the tax cuts include greater expensing of small business costs, and renewable energy credits are phased out.

The second major victory the Ryan deal won was an increase of $573 billion in spending for defense, and another $163 billion for veterans’ programs. To those of us who have voted Republican as opposed to Libertarian all these years, this is huge. Realist conservatives and classical liberals view defense as the most important function of the federal government, and while the previous “sequester” deal did lower the deficit, it did so by cutting defense spending massively. Would I have preferred that this increase in defense spending not been accompanied by increases in spending for pet Democratic social programs? Sure, but defense spending has been held hostage by the Democrats, with the ransom being increased domestic spending; and that won’t change until there is a Republican in the White House. Concession on this issue was what it took to secure Obama’s signature on the compromise deal.

The third victory achieved by the deal escaped notice by the EPE commentators as much as by the mainstream media (the Progressive Liberal Establishment). The deal puts major restrictions on the highly politicized and deeply corrupt IRS. These restrictions include forbidding the use of personal email accounts for conducting IRS business (Lois Lerner’s cute little trick), as well as barring the targeting of nonprofits based upon their political or other ideological beliefs. This was a deeply satisfying victory for those of us who feel we have been politically targeted by the IRS.

This asinine prohibition was passed by a Democrat Congress and signed into law by a Republican president nearly 40 years ago, in the middle of the oil crisis.

Of course, if the Republicans can elect a president this year, I would push for that president to appoint a special prosecutor to investigate Lerner — along with the dozens of IRS creeps who worked with her to annihilate the Tea Party — for violations of the civil rights of taxpayers.

But the fourth victory is one that is a profound gamechanger. It will transform not just the American economy but the politico-economic order of the whole world. Again, this victory escaped the notice of the EPE pundits no less than the mainstream media. Ryan’s deal amazingly succeeds in repealing one of the most idiotic laws ever passed — the law prohibiting American oil companies from exporting domestically produced oil. This asinine prohibition was passed by a Democrat Congress and signed into law by a Republican president nearly 40 years ago, in the middle of the oil crisis. Really, how stupid is it to attempt to get the country’s oil companies to drill for more oil — by walling them off from the world market? The policy guaranteed that the major oil companies would focus on oil exploration abroad. So it sent more American jobs abroad, made us even more dependent on foreign oil, and sent vast billions of dollars out of the country, to enrich our enemies. The ill-considered law no doubt delayed our oil fracking revolution by decades. Ryan’s compromise not only suspends this law, but permanently repeals it.

The elimination of the export ban is massive. We can now compete head-to-head with the Middle Eastern and Latin American oil states, along with Russia. We can help Europe become completely free from dependence on Russian energy, thereby dramatically weakening Putin’s power to cause mischief. By keeping world prices low, we starve Putin of petro-dollars with which to build up his military. In fact, the continuing low price of oil has drained Russia’s reserve fund by 30%, and it is projected to be empty by the end of the year. We can become Asia’s number one supplier of fossil fuels, keeping our friends (Japan, Taiwan, and South Korea) close and our enemy (China) closer. Moreover, by selling them oil and natural gas, we can lower our trade deficit enormously. Finally, we can cut the Venezuelan socialist regime off at the knees.

Indeed, just a few days after the deal was signed, the first two tankers carrying American domestic crude for ports abroad. The first ship left Corpus Christi, Texas, bound for Trieste, Italy, loaded with oil drilled from the Eagle Ford Shale field by ConocoPhillips. The second ship left Houston carrying oil to Marseilles, France. The shipping should ramp up rapidly: the Corpus Christi terminal alone is capable of sending out 400,000 barrels a day (BPD) as is, and developments under way will boost that to 575,000 BPD in the near future. The CEO of ConocoPhillips suggests that the demand from foreigners for our oil will hit 2,000,000 BPD by 2020. If the price of oil recovers and moves into the $50 range, exportation should just explode. So much for “peak oil” and eternal dependence on the OPEC thieves.

We can now compete head-to-head with the Middle Eastern and Latin American oil states, along with Russia.

This is a success that was way beyond the dreams of us who believe that our fracking revolution will make us energy independent. But the only way to get anti-fossil-fuel Democrats in Congress and our global-warming-obsessed president to agree was to offer them all a lot of useless spending — such as renewing subsidies temporarily for unproductive forms of energy such as wind and solar power.

Of course, should the Republicans win the White House in 2016 and hold both chambers of Congress, these subsidies can be easily ended. But should the Democrats keep the presidency and take back the Senate — which they will surely do if Trump gets the nomination — it would be almost impossible for them to reinstitute the ban on exporting oil.

In fine, Ryan outfoxed the Democrats magisterially — amazing for someone who just stepped into the job.

What peeves the EPE commentators about the deal? Their stated objections are obviously weak. They complain that in the bill Ryan negotiated, ObamaCare was not eliminated, the taxes intended to pay for it (such as the steep tax on “Cadillac” health care plans) were deferred for two years, funding for Planned Parenthood was not ended, and the budget deficit increased. The replies are simple. If Ryan had put the elimination of ObamaCare in the bill, it would not have passed, or if it did, Obama would not have signed it.

Should the Democrats keep the presidency and take back the Senate — which they will surely do if Trump gets the nomination — it would be almost impossible for them to reinstitute the ban on exporting oil.

Ironically, soon after getting this bill done, the ever-clever Ryan was able to put through Congress bills repealing ObamaCare outright and ending funding of Planned Parenthood and place them on the desk of the president, who of course immediately vetoed them. Ryan thus kept his promise to force Democrats to vote publically on the issues, and put them on the desk of the president to veto. But for this, the long-time EPE pundit Lou Dobbs bashed Ryan, saying that getting those bills through Congress was mere theater.

What really angered the EPE crowd is that Ryan dared to cut a deal at all. The EPE crowd would rather be right than be president. And that’s the way they will continue to play it.




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The Gloves Are Off

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Last week’s bipartisan budget deal was more than a ceasefire in the fiscal war between Republicans and Democrats. It also led to the first shot being fired in the long-awaited, long-postponed civil war within the Republican Party.

Emboldened by recent Tea Party defeats in special elections held in Alabama and Louisiana, and by polling data showing that the October shutdown of the federal government was deeply unpopular with voters, House Speaker John Boehner used the budget agreement as a pretext to come out swinging against the Tea Party wing of his party.

According to sources who spoke to The New York Times and other media outlets, in a meeting of House Republicans held on Dec. 11 Boehner castigated advocacy groups like Heritage Action for America and the Senate Conservatives Fund: “They are not fighting for conservative principles. They are not fighting for conservative policy. They are fighting to expand their lists, raise more money and grow their organizations.” These accusations in private were followed by Boehner’s public denunciation of the same groups for opposing the deal worked out between House Budget Committee chairman Paul Ryan and his Democrat counterpart in the Senate, Patty Murray of Washington. “I just think they’ve lost all credibility,” he said of the groups at a press briefing on Dec. 12. Implicitly of course Boehner was also criticizing the Tea Party supporters in his own caucus, as well as Ted Cruz and Co. over in the Senate. The smell of blood is in the air; the establishment’s fight to take back the GOP has begun in earnest.

At the same time the Speaker was attacking the far right, the executive director of the House Republican Study Committee, Paul Teller, was fired for leaking the content of private conversations to conservatives opposed to the party establishment. The dismissal amounts to a first step to wrest control of the Republican agenda from those sympathetic to the Tea Party and place it firmly in establishment hands.

So far the Tea Party and affiliated groups have responded with rhetoric only. It is difficult to see what they can actually do to hurt the establishment without damaging their own cause. They remain a minority — albeit an important one — within a minority, and as such can only go so far without committing political seppuku. It may very well be, however, that they will prefer to die “honorably” rather than compromise with the establishment. True believers rarely yield. How fanatical the Tea Partiers truly are will become clear over the next year or two.

The establishment is seeking to control the agenda and put forward candidates who will enable the Republicans to hold the House and win the Senate in 2014. It also wants to smooth the path for an establishment candidate (Scott Walker, or Jeb Bush, or perhaps Paul Ryan, who declared himself for the establishment when he put his name on last week’s budget deal) to gain their party’s nomination for president in 2016.

At the moment the tide is running with Boehner and the establishment. But the establishment’s ability to impose its vision upon the GOP is yet to be demonstrated. November’s special election in Louisiana, for example, was by no means a clear-cut establishment victory. And it is far from certain that the establishment, even if it triumphs in the intramural battle with the Tea Party, can win a majority of the electorate for its agenda. Demographic trends will continue to shrink the Republican vote, despite efforts by Republican-controlled state legislatures to suppress Democrat turnout. The recent decline in the Democratic brand has been caused by the disastrous rollout of Obamacare; there is no indication that it represents a secular trend.

In any case, the battle between Republicans has been truly joined, and it should be fun to watch. Pass the popcorn, please.




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The Budget Charade

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On April 10 President Obama submitted his fiscal 2014 budget to Congress. Sixty-five days late and 2,400 pages long, it calls for $3.77 trillion in spending, with a projected deficit of $744 billion. It turns off the automatic budget cuts imposed by sequestration, and thus increases federal spending by some $160 billion over fiscal 2013. Its projections assume that over $5 trillion will be added to the national debt during the next ten years.

One never quite gets used to these figures; they boggle the mind. Only 50 years ago the federal government’s annual budget was under $100 billion (about $700 billion in today’s money), and deficits were small. Then the irresponsible policies of Lyndon Johnson (guns and butter: massive domestic spending increases and a major war fought without raising taxes) and Richard Nixon (fiat money replacing gold) began America’s descent into virtual bankruptcy. Johnson opened the floodgates of deficit spending. Nixon launched the lamentable decline of the once almighty dollar.

Deficit spending and fiat money have a symbiotic relationship; they march together on the path to fiscal doom. The policies of every succeeding president have only made these problems worse. Needless to say, Congress has been equally irresponsible, whether under Democrat or Republican leadership. It is the votes of Congress, after all, that transform bad economics into law.

Only 50 years ago the federal government’s annual budget was under $100 billion (about $700 billion in today’s money), and deficits were small.

The president’s budget proposals were preceded by those of the Senate and the House. In late March the Democrat-controlled Senate passed a budget that increases taxes by almost $1 trillion over ten years, while still adding over $5 trillion to the national debt. “The only good news is that the fiscal path the Democrats laid out in their budget resolution won’t become law,” said Senate Republican leader Mitch McConnell. That’s true, but on the other hand I can’t see the Congress passing a budget that will be much of an improvement over the Democrats’ plan. Certainly the Republican-led House provided nothing but faux leadership on the issue.

The Republicans in the House unveiled their budget a few days before the Senate acted. House Budget Committee chairman Paul Ryan produced a plan based on political impossibilities. It repeals Obamacare. It turns Medicare into a voucher program. Neither of these ideas has the slightest chance of becoming law anytime soon, and Ryan knows it. Ryan’s budget reduces the top tax rate from 35 to 25%, eliminates the alternative minimum tax, and repeals the tax increases contained in Obamacare, yet assumes that revenues will remain level. It says nothing about which loopholes it will close and which deductions it will eliminate to make the revenue projection real. In other words, it is a through-and-through political document, and not a serious plan designed to bring spending and deficits under control. Even if its fantastical proposals were enacted, it would still require ten years to bring the budget into balance.

Given the Great Recession, it is practically impossible to balance the budget in ten years’ time — the risk of sending the economy into a tailspin of 1930s proportions is just too great. But no officeholder has put forward a serious proposal to balance the budget on any timetable. The one attempt to do so, flawed though it may be, is the plan offered in 2010 by the Simpson-Bowles commission. Unfortunately, the politicians, led by the president (Obama) who created the commission, have done nothing to implement its recommendations. Simpson-Bowles allows 40 years to get to a balanced budget. Yet no politician will touch it, beyond giving it mild and passing praise. The “sacrifices” it entails are apparently too great for politicians to contemplate.

In his budget Obama proposed a change in the way in which cost-of-living increases for Social Security recipients are figured. This small, helpful step saves a few billion a year, but does not address the root problem, which is demographic. And while Obama claims he will cut $400 billion from Medicare over ten years, the savings are supposed to be found by cutting payments to providers, a sure recipe for reducing the number of doctors who will take Medicare patients. In any case, if this is all the Democrats are prepared to do on entitlement reform (and the left wing of the party is up in arms about even these small changes), then surely insolvency (for Medicare at least) is inevitable.

We have a spending problem. It’s a problem that cannot be resolved by simply raising taxes. Both the welfare and the warfare state require drastic reform, as does the tax code. And generational oppression — the old sucking up resources at the expense of the young — must be curbed. Yet where is the political will or wisdom to accomplish these necessary things? It is utterly lacking. What then does the future hold?

I predict that the idea of inflating our way out of debt will at some point take hold in political, academic, and media circles. Such a course would deal a death blow to the dollar, and leave wage earners, savers, and other responsible people even worse off than they are now. But it might get the politicians off the hook, at least temporarily. The pols will blame anyone and everyone but themselves for the inflation they have created, and retire on indexed pensions while the rest of us eat grass.

We seem set on this course already. In the 1980s Federal Reserve chairman Paul Volcker killed the inflationary dragon that had plagued the world economy for a decade and more. It has until now stayed dead; indeed, deflation is the worry of the moment. But in the wake of the Great Recession, central bankers, egged on by politicians, have been printing money like crazy. With the Federal Reserve, the Bank of Japan, the European Central Bank, and the Bank of England all engaged in “quantitative easing,” the return of the dragon looks inevitable at some point. A world awash in fiat money must suffer inflation eventually.

Where is the political will or wisdom to accomplish these necessary things? It is utterly lacking.

Central bankers believe that they will know when to turn off the printing presses. They envision themselves acting at just the right moment to prevent the outbreak of serious inflation. This seems about as likely as an investor timing the market correctly — that is, the chance of getting it right appears very small. The question of timing aside, turning off the presses is certain to cause a crash in the bond market and a rise in interest rates, with dire consequences not just for the arbitrageurs, but for the world economy. History provides little comfort for those who believe in the capacity of central bankers to prevent economic catastrophe. Volcker may have saved the world economy back in the early ’80s, but he stands almost alone. The behavior of central bankers today reminds one of Alan Greenspan’s abysmal performance during his last decade as Fed chairman. One may even be justified in comparing the central bankers of today to John Law.

A bargain (grand or otherwise) between Democrats and Republicans over the federal budget is unlikely to do more than put off the day of reckoning. The necessary, thoroughgoing reforms are so politically unpalatable that they will almost certainly never be enacted. The budget process in Washington is a charade. And so I ask myself, can I learn to like the taste of grass?




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The Ryan Pick

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With his selection of Representative Paul Ryan of Wisconsin as his running mate, Mitt Romney has decided the 2012 presidential election. Barack Obama will be reelected president of the United States.

Ryan, the chairman of the House Budget Committee, brings Romney needed credibility with conservatives. Indeed, over the past few days establishment conservatives have been waging a pick-Ryan campaign in the media, and probably behind the scenes with Romney’s people as well. Ryan is a serious figure intellectually, and commands respect within establishment political circles. But he has spent over a decade in Congress, and as a result is viewed with some skepticism by Tea Party types. He will not excite the yahoo wing of the party as Sarah Palin did in 2008.

But just how much Ryan solidifies Romney’s support from the base is beside the point. Indeed, the Ryan pick shows just how out of touch Romney is with political realities. Conservatives were going to hold their noses and vote for Romney anyway, because they hate Obama. What Romney needed was a VP pick who would help him win over independents, particularly women. Ryan doesn’t do that. But the damage the Ryan pick does to Romney goes beyond this.

The problem is Ryan’s plan for Medicare. I’m not going to discuss the merits of the Ryan plan here; this is a piece about electoral politics. The Ryan plan will be pounded day in and day out by Democrats. By November Ryan and Romney will literally look like losers, irritable and worn from weeks and weeks of defending a plan that most people (and all oldsters) will perceive as the evisceration of a sacrosanct entitlement. Even people over 60 who belong to the Tea Party believe that their Medicare benefits must be preserved, no matter the cost.

Romney’s people may believe that Ryan will bring them Wisconsin, and winning that state becomes a bit more likely with Ryan on the ticket. But it’s still very much a reach for the Republicans. Scott Walker’s success in surviving the recall election earlier this year is not likely a harbinger of Republican prospects in November. Many Walker voters who were standing up against Wisconsin’s public employee unions (i.e., voting their pocketbooks), will not support cuts in Medicare and Social Security.

Had Romney been looking to pick off a battleground state, he should’ve picked Rob Portman of Ohio. Ohio is bigger than Wisconsin, and Republicans had a decent chance of carrying the state. Portman might have put them over the top there. The Ryan pick places Ohio more firmly in the Democratic column.

I originally thought that Romney would pick a woman or a Hispanic (Marco Rubio), because he lags badly with both groups. I did an analysis in June that gave President Obama 22 states and the District of Columbia with a total of 270 electoral votes, the minimum needed to win. With five months to go the election was clearly very much up for grabs. I thought then that Romney would pick Portman, as Ohio is a state Romney needs to win if he is to prevail. With the selection of Ryan, Romney has probably lost Ohio and Florida, which in June I had going to the Republicans. If Romney loses both Ohio and Florida, there is no way he gets to 270 electoral votes.

The idea that major structural reform of Medicare and Social Security will play politically, in a time of economic uncertainty and widespread voter despair, is utter nonsense. Yet that is what Romney apparently believes, based on his selection of Ryan. Romney truly is out of touch with reality. His dippiness was already apparent in his views on foreign policy. His economic policies — on tax reform, job creation, and yes, entitlement reform — were in fact far more sensible than anything put forward by the Democrats, and this constituted his main advantage over Obama. But by placing radical reform of Medicare and Social Security in the forefront of the political debate — that is, by picking Paul Ryan — Romney has cost himself the election. The only question now is how big Obama’s margin will be.




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