Principles Of Plenty

Congressman McClintock recently delivered this speech to the California Independent Automobile Dealers Association. We are pleased to bring its small government wisdom to our audience. – Ed.

We are in the third year of policies predicated on the assumption that if government just injects enough money into the economy, it can jump start consumer spending and therefore, economic growth.

For three years, this administration has squandered more than a trillion dollars of the nation’s wealth in pursuit of this assumption.

In so doing, it has incurred a debt greater than that acquired by this nation from the first day of the George Washington administration to the last day of the George H.W. Bush administration.

It has cost our nation its triple-A credit rating and it now threatens to bankrupt our country.

And not only have its policies not worked, but they have needlessly prolonged and deepened our economic suffering.

These policies have not worked because they cannot work.  Government cannot inject a single dollar into the economy until it has first taken that dollar out of the very same economy.

It is true that if I take a dollar from Peter and give it to Paul, Paul’s going to have an extra dollar to spend.  He is going to take that dollar into a local shop – maybe a car dealership – and buy something.  The shopkeeper is going to order more inventory, the manufacturer is going to order more resources, and that dollar will, indeed, ripple through the economy.

The problem is that they completely ignore the other half of the equation – Peter now has one less dollar to spend in that very same economy – one less dollar to ripple along.

In some ways, this is counter-intuitive, because we can see the job that is saved or created when the government puts that dollar back into the economy.  What we can’t see as clearly are the jobs that are destroyed or prevented from forming because government has first taken that dollar out of the economy.  After all, you can’t see something that doesn’t exist.  But we do see those millions of lost jobs in a chronic unemployment rate and a stagnating economy.

Much of the money for this folly is borrowed – as if somehow that has no detriment to the current economy.  But where does that borrowed money come from?  It doesn’t magically materialize as a gift from the future – it comes from the same capital pool that would otherwise have been available to loan to small businesses seeking to expand, or to homebuyers seeking to re-enter the housing market or to consumers seeking to make consumer purchases.

We all know from our personal experience, that when you borrow money, the people you borrow it from generally like for you to pay it back. In fact, in my experience, they insist on it.

Thus, as a matter of inescapable reality, if you live beyond your means today, you will have to live below your means tomorrow.   That is the tomorrow that we are creating for our posterity.  In a very real sense, we are witnessing the biggest intergenerational transfer of wealth in our nation’s history, deliberately impoverishing our children and grandchildren to pay for our own folly.

Economists tell us that income transfers always, ever, and in all cases will produce zero economic growth in theory.

In practice, such income transfers net to much less than zero economic growth – because we are transferring huge amounts of capital from investments that would have been made by investors calculated strictly on economic return to politicians calculated strictly on political return.

Government cannot create jobs, because government cannot create wealth.

Government can transfer jobs from the productive sector to the government sector by taking capital from one and giving it to the other.  It can transfer jobs from losers to winners in the market by taking capital from one and giving it to another.

Solyndra, for example, created 1,100 jobs as it was raking in a half-billion dollars of taxpayer money.  Eleven hundred jobs for half a billion dollars.  That was $450,000 for every job.  Of course, when the money ran out, those 1,100 Solyndra jobs ran out too – and at the end of the day we are a half-billion dollars poorer as a nation and those same people are once again out of work.

And Solyndra is not alone.  Evergreen Solar, a stimulus contract recipient, declared bankruptcy in May.  Spectra Watt, a stimulus contract recipient, declared bankruptcy in August.  EVP Solar declared bankruptcy in February.  BP solar and Solon North America both closed major facilities.  I don’t know how many millions of dollars each of them took out of job formation.  I know this: the government claimed it was saving or creating jobs with this money.  Now the money is gone and so are the jobs.

Allow me to give you another example, closer to home: “Cash for Clunkers,” the $3 billion program to pay people to buy new cars and to destroy the used cars.

How did that one work out?

Economists at Edmunds.com asked that very question.  And they discovered that of the 690,000 cars sold under “Cash for Clunkers,” 565,000 sales would have happened, anyway.  That means that the taxpayers ended up paying $24,000 for every genuine sale it actually “stimulated.”

It gets worse.  All that the program accomplished was to entice people to move up their purchase decisions by a few months – which then caused below-normal sales in the months that followed.  In other words, Congress spent $3 billion creating a car bubble.

And by destroying 690,000 used cars, they artificially drove prices higher for the hundreds of thousands of lower-income buyers who would have otherwise purchased those cars, along with all the transactions that would have created.

It was recently calculated that if the economy had taken the same path as it did after Ronald Reagan inherited even worse unemployment from Jimmy Carter, 15 million more Americans would be working today and per capita income would be $4,000 higher than it is today.

Government cannot create jobs. But it can create the conditions in which jobs either flourish or whither.

It is freedom, and freedom only, that creates jobs.

It works the same whether it’s a multi-million dollar business deal or simply purchasing a cup of coffee.

What happens in that transaction?

When I hand you a dollar for a cup of coffee – I’m telling you that your cup of coffee is worth more to me than my dollar.  And at the very same time, you’re telling me that my dollar is worth more to you than your cup of coffee.  We make that exchange, and both of us go away richer than we were – both of us go away with something of greater value than we brought.

But now suppose some third party butts its nose into this transaction.  “The coffee must be served between 100 and 130 degrees; it must be in a biodegradable container; condiments must be available within ten feet of the point of sale, it must be covered if it is to be consumed more than 25 feet from the point of sale or the point of condiment dispensing, whichever is farther,” and on and on.

Every one of these restrictions will reduce the value of that transaction for one or both parties until the value is gone and the transaction no longer takes place.

Freedom creates jobs: the ability of two individuals to make exchanges that benefit both.  When that freedom is suffocated by an avalanche of regulations, jobs disappear.  That’s what we’re watching in real time: thousands of pages of new regulations from ObamaCare, from Dodd-Frank, from the EPA stifling American jobs.

The congressional budget office estimates that Obamacare by itself will cost the economy a net loss of 800,000 jobs and the Medicare actuary estimates it will cost us $300 billion more than we would otherwise spend.

A few weeks ago, the Natural Resources committee received testimony that just by getting out of the way and opening up American oil and gas resources to development, the government could generate 700,000 jobs and $600 billion of revenues to the national treasury, along with $60 billion to state governments.

Repeal ObamaCare and open up American oil and gas resources – there’s 1.5 million jobs right there – not only does that not cost the government a penny – it saves consumers $300 billion in health care costs and generates $660 billion of state and federal tax revenues without raising taxes.

It’s no secret why business isn’t expanding – just ask a businessman.

They’re scared to death of the additional taxes and regulations they may be facing in the next few years and are pulling back to see what happens.  Ask bankers why they’re not lending and you’ll hear the same answer.

And the real danger is this: History offers us not a single example of a nation that has ever spent and borrowed and taxed its way to economic prosperity.  But it offers us many, many examples of nations that have spent and borrowed and taxed their way to economic ruin and bankruptcy.

And today, history is screaming this warning at us: “Nations that bankrupt themselves aren’t around very long.”  Because before you can provide for the common defense, promote the general welfare and secure the blessings of liberty – you have to be able to pay for them – and the ability of our nation to do so is now coming into grave question.

Here’s the good news, and there’s a lot of it.

We know how to revive an economy – because we’ve done it many times before.

When people say this is the worst economy since the depression, I remember a time when we not only had double-digit unemployment but double-digit inflation, mile-long lines around gas stations and interest rates at 21.5 percent.

Maybe we don’t remember those times as vividly because they didn’t last very long.  That was the end of the Carter administration.  We had just elected Ronald Reagan.

Ronald Reagan diagnosed the nation’s problems very differently than the current administration.  In his inaugural address, Reagan declared, “In this economic crisis, government is not the solution to our problems, government is the problem.

He reduced the tax and regulatory burdens that were crushing the economy and produced one of the biggest economic expansions in American history.

There wasn’t anything new in this.  John F. Kennedy did the same thing in the early 1960’s, with the same result.  Warren Harding did the same thing in the early 1920’s, with the same result.

In 1945, Harry S. Truman abolished the excess profits tax.  He slashed federal income taxes.  In Fiscal Year 1946, Truman cut federal spending from $85 billion to $30 billion in a single year.  He fired 10 million federal employees.  (It was called war demobilization).  The Keynesians at the time predicted 25 percent unemployment and a second great depression.  Instead, we had the post-war economic boom that produced unprecedented prosperity for America’s middle and working classes.

When Bill Clinton received an election drubbing in 1994, he proclaimed that “the era of big government is over.”  He reduced federal spending by a miraculous three percent of GDP.  He attacked entitlement spending and abolished the open-ended welfare system of the time.  He signed what amounted to the biggest capital gains tax cut in American history.  He turned in the only four budget surpluses in 40 years and produced a prolonged era of economic expansion.

Clinton was followed by George W. Bush.  Bush increased federal spending by a full two percent of GDP.  He approved the biggest expansion of entitlement spending since the Great Society.  He turned in record budget deficits and began the era of stimulus spending in the spring of 2008 that was supposed to jump-start the economy. And he presided over an unprecedented era of government intervention in the housing and financial markets that created the massive housing bubble and the bailouts that followed.

That’s the flip-side.  We also know what doesn’t work.  The problem is, that’s what we keep doing.

Herbert Hoover responded to the recession of 1929 with massive government intervention, starting with the Smoot-Hawley Tariff Act, a steep tax on some 20,000 imported items.  He increased federal spending by 60 percent in just four years.  He increased federal income taxes from 25 percent to 63 percent.

And he managed to turn the recession of 1929 into the depression of the 1930’s.

Franklin Roosevelt simply doubled down and amplified those mistakes.

After nearly a decade of Keynesian experiments with massive deficits and unprecedented stimulus spending, unemployment stubbornly hovered above 17 percent.

On May 9, 1939, Roosevelt’s Treasury Secretary, Henry Morgenthau, made an anguished and heart-felt admission during a meeting with Democratic Members of the House Ways and Means Committee.  He said:

No gentlemen, we have tried spending money. We are spending more than we have ever spent before and it does not work.  And I have just one interest, and if I am wrong as far as I am concerned, somebody else can have my job. I want to see this country prosperous.  I want to see people get a job.  I want to see people get enough to eat.  We have never made good on our promises … I say after eight years of this Administration we have just as much unemployment as when we started…And an enormous debt to boot!

Benjamin Franklin once observed that experience keeps a dear school but fools will learn in no other.  The last few years in Washington have proved that there are some people who can’t even learn from experience.

Fortunately, the American people have learned, and from the decisions they made last year and will make again next year, we may yet avert the tragedy of another Treasury Secretary admitting mistakes that cost America a completely avoidable decade of distress.

I agree with President Obama on one thing: 13 months is a long time to wait for relief.  But unless and until he reverses his policies, I’m afraid that’s the immediate future for our country.

The last thing we should do is to take his advice and massively increase taxes on 88 percent of small business net income – which is at the core of his so-called jobs bill – at just the time when we’re depending on small businesses to produce two-thirds of the new jobs in this economy.  To massively raise their taxes and expect them to respond with an explosion of new jobs is simply insane.

Lincoln put it best when he said, “the voters are everything.  If the voters get their backsides too close to the fire, they’ll just have to sit on the blisters a while.”

It’s a painful experience – but it’s a learning experience.  And at the end of that process, we emerge sadder and wiser.

And that’s what we must constantly bear in mind – that our nation hasn’t been struck down by some mysterious act of God.  These are all acts of government and are fully within our power as a people to change.

We have already seen the results of that awakening last November in one of the greatest watershed elections in American history.  In that single night, the nation saw a net shift of 63 U.S. House seats from Democrat to Republican, 6 U.S. Senate seats, 19 state legislatures, 6 governors and more than 680 state legislative seats.

But, for some very good reasons, our constitutional system is specifically designed not to turn on a single election, but on a series of elections.

The last election, despite its dramatic results, only changed one-half of one-third of the decision making apparatus of the federal government.

The next election is 13 months away, and upon the outcome of that election depends the future of our nation and the prosperity of our people.

The good news is that that day is coming, and the economy is very dynamic.  For good or ill, it responds rapidly to changes in public policy.

So, I must tell you that I cannot offer you a great deal of optimism over the next year, because of the policies now in place.  I think it will be difficult.

But I have great faith in our political institutions, in the judgment of our people when they are paying rapt attention to events – as they now are – and in the resilience of a free economy.

Two years from now – I believe we will be able not just to tell our children what it feels like when it is morning again in America – but to be able to show them.