Choices and Echoes

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Forty years
ago, Phyllis Schlafly wrote a little paperback book, A
Choice, Not an Echo
. That was the year of the paperbacks,
which marked the arrival of conservatism: Haley’s A
Texan Looks at Lyndon
and Stormer’s None
Dare Call It Treason
.

Today, four
decades later, the choice is between Skull & Bones Member
A and Skull & Bones Member B. Some choice.

This year,
it’s Yale vs. Yale. In 2000, it was Yale vs. Harvard. Some choice.

Over the
last four years, the stock market has gone nowhere. The official,
on-budget Federal deficit has soared. The trade deficit has soared.
The savings rate has tanked. Outsourcing is continuing. The nation
is at war. What is the next President going to do about all this?

President
Bush says "More of the same, but this time, it will work."
Senator Kerry says "More of the same, unless I change my
mind again, but this time, it will work." Neither man has
offered specifics to prove that his strategy will make things
better. In fact, the absence of specifics is the hallmark of this
election.

When you
hear no specifics, you can be sure of one thing: the
specifics are either unbelievable, or scary, or irrelevant. This
creates uncertainty. Uncertainty is bad for the stock market.

The fact
is, the world economy is beyond the ability of politicians to
shape, short of nuclear war. The more interdependent the economy
is, the less influence that politicians in any nation possess
to gum things up or make things better.

I HAVE
GOOD NEWS AND BAD NEWS

The good
news is that we are seeing the erosion of state power. It is happening
slowly. Politicians gain votes by promising to make things better.
The fact is, there is very little they can do to make things better.
What is even more amazing, there is progressively less and less
they can do to make things worse.

The state’s
loss of economic influence, one way or the other, upsets the socialists
who write the textbooks. They prefer to ignore it. Meanwhile,
the loss of state power seems unbelievable to anti-socialists,
who have spent their lives battling the socialists who write the
textbooks. They cannot admit that the system of government spending
is in autopilot mode, no matter who wins elections.

Here is the
amazing fact: if Hillary Clinton is elected in 2008, it won’t
make much difference in the way the economy works. The Federal
government’s influence over markets is steadily declining because
of the growth of world trade and the free flow of capital across
borders. This process is unlikely to be reversed. It is going
to accelerate.

To say such
a thing is anathema to political conservatives, who think politics
really does matter, and also to political liberals, who think
Hillary really would make a difference. When compared to the difference
that Franklin D. Roosevelt made, Hillary Clinton is an echo, not
a choice. The election of Hillary Clinton would make far less
difference than the three-time non-election of William Jennings
Bryan.

This means
that the Federal government cannot protect most Americans from
the economic consequences of their individual actions. This is
bad news for socialists, who believe in the creative power of
the state. It is also bad news for people who are not able to
compete economically.

As a reader
of odd-ball economic reporting, you are not among the broad masses
of people who go about their daily lives in a kind of trusting
fog, hoping for the best, and unaware of larger trends around
them. You are probably able to compete. Your job is not on the
line, and even if it is, you are flexible enough to jump ship
before it sinks.

But for tens
of millions of American voters who still think that politicians
are in a position to protect them from economic forces that seem
to threaten them, a Presidential election year offers what they
think is hope. The bad news for them is that it doesn’t. Yet that
is really not bad news. It’s very good news. But it takes economic
understanding to recognize this.

I think Jacques
Barzun and Martin van Creveld have got it right: we are seeing
the decline of the nation-state. Barzun, who has been writing
for over six decades, argued in the Epilogue to his masterpiece,

From Dawn to Decadence
(2000), that the state can no
longer defend its citizens from rising crime. It will go bankrupt
when the bills come due for state-funded retirement and medical
programs. Van Creveld made the same two points in his 1999 book,
The
Rise and Decline of the State
.

Voting will
not reverse this process. That’s good news. But it’s bad news
for those citizens who have bet their economic futures on the
ability of the state to deliver what the politicians have promised.

This year,
neither candidate has promised much. The specifics are not there.
Bush is going to make us safer, somehow. Kerry is going to save
American jobs, somehow. Bush is going to make the Middle East
more democratic, somehow. Kerry promises the same, somehow. And
every day, there is another car bombing.

Car bombings
are highly specific.

THE
NAME OF THE GAME

Every four
years, American voters are given the opportunity to decide who
will be President for a four-year term. Voters have no direct
control over the real political rulers of America: five Supreme
Court members. A five-to-four decision by the Court is the court
of final appeal. Voters are not part of this decision-making procedure.

Similarly,
voters have little control over the House of Representatives.
Of the 435 seats, only about 30 are up for grabs every two years.
The incumbents are overwhelmingly favored. State legislatures
have gerrymandered the districts so as to guarantee the re-election
of most Congressmen. This pleases incumbent Congressman because
it guarantees their future. The fact that this process reduces
the voters’ choice is quietly hailed as the way to go by incumbents.
It also frees up donors’ money for Senate races and the Presidential
race.

The Senate
is up for grabs these days because of the Republicans’ paper-thin
majority. So, to the extent that the voters possess marginal influence
over the outcome of politics, the Presidency and a few tight races
for the Senate are where the action is.

The gigantic
size of the Federal bureaucracy, with its predictable and ever-expanding
budget, is barely affected by politics. The bureaucrats in fact
rule America. Unless challenged by a combination of all three
branches of government, with budget cuts to match, the day-to-day
operations of the national government are not going to change.
Over 1.2 million civilian employees are protected by Civil Service
laws. Union representation and in-house bureaucratic traditions
protect most of them from suffering negative consequences for
their actions. A President can hire and fire only a few hundred
of these people. The faces at the top change every four years
or eight years. The actual operations of these bureaucracies change
little. Every year, another 80,000 pages of fine-print regulations
are promulgated in the Federal Register. The system keeps
rolling along. Voters have nothing to say about it one way or
the other.

Choice? No.
Echo? Yes.

THE
VOTERS ARE CATCHING ON

Interest
in politics is constantly declining, all over the economically
developed world. The percentage of eligible voters who actually
vote is constantly declining in nation after nation. One by one,
voters conclude that their input does not matter, that no matter
who they vote for, the system will not change significantly. They
ask themselves: "Why bother to vote?"

The answer
is not what we are told in high school, let alone college: voting
is a religious act. This was understood by the ancient Greeks,
who regarded political life as central to religious life. But
in a society that promotes the separation of church and state
in the name of the separation of religion and politics, it is
not politically correct to admit the truth, namely, that exercising
the franchise is an act of promoting one’s religion, i.e., one’s
worldview. It means picking up a ballot instead of a gun, so that
people you approve of will possess the lawful authority to pick
up a gun in your name.

This is what
politics is: the right to decide who picks up a government-provided
gun and then tells other people what to do or not do. We can fool
ourselves as voters by refusing to admit this, but when push comes
to shove, and political issues seem to be life-and-death issues,
we go out and use our ballots to make sure that "our guys"
have control of the guns.

So, the name
of the political game today is two-fold: (1) to distract voters’
attention from the hard reality of politics, namely, that it’s
all about who controls the biggest guns; (2) to convince swing
voters that the party’s program is best for them, which really
means that the party’s appointees can be trusted with the guns.
No candidate is willing to admit in public that he and his agents
intend to stick guns in the bellies of the political losers, but
this really is the plan. When a politician says "Trust me,"
he means, "Trust me to use the gun on that guy over there,
not you." He’s lying, of course. He intends to stick the
gun in your belly, too.

Voters are
beginning to figure out that the guns will be used on them, no
matter who is elected, and there’s not much they can do about
this. How does a patriot act today? He takes off his shoes before
boarding a plane. "Your photo ID, please."

The bureaucracy
holds the guns, and no President can do much, one way or the other,
to prevent the bureaucrats from using these guns in a way that
is convenient to them. The system is too large to control. Bureaucrats
respond to only one pressure: the threat of a budget cut. Because
modern politics is all about increasing the budgets of bureaucracies,
there is no believable threat facing the bureaucrats with the
guns.

Voters therefore
stay home on election day by the tens of millions. They respond
rationally. They regard their time as valuable. They know that
the vast bureaucratic bog is unaffected by politics. They can
be motivated to come out and vote only by promises of significantly
more goodies from the system at the expense of the losers. But
because they have learned that taxes keep rising and regulations
keep increasing, no matter who is elected, they don’t show up
at the polls.

THE
ART OF DECEPTION

Politics
is the art of deception. A politician who tells the truth is more
likely to scare voters than excite them with a vision of meaningful
change. Kerry wins; Dean loses. The parties fear one thing above
all else: to scare the swing voters so badly that they come out
and vote for the other party.

Both parties
have most of their reliable voters in their hip pockets. When
you are in someone’s hip pocket, expect to be sat on. Your interests
will be sacrificed for the sake of the quest for uncommitted swing
voters.

This is why
there are so few ads on TV for Kerry and Bush in states where
the polls indicate that the outcome is assured. Most of the TV
ad budgets are allocated for a few swing states. You want to know
how important your state is, or your block of your party’s vote
is? Follow the money. Check
the ad budgets
. (This is not easy.) As of mid-July, four states
had received big chunks of the money from both parties: Ohio,
Iowa, Missouri, and Wisconsin. Seven states were at the bottom:
Arkansas, Michigan, Minnesota, Oregon, Washington, and (amazingly)
Pennsylvania.

This allocation
process is rarely discussed publicly because neither party wants
to tell its core voters that their interests are marginal to their
party’s elite. The interests that count are the undecided swing
voters’ interests in those states where (1)there are a lot
of electoral votes at stake and (2) the polls indicate a very
tight race.

These swing
voters are undecided because they are not sure if they will benefit,
net, from the guns in the hands of the bureaucrats if this party
or that party is victorious. The Presidential candidates therefore
try to say things that pull in swing voters. They avoid saying
things that would pull swing voters to the polls to vote for the
opponent.

This means
that candidates avoid specifics. The more specific a promise,
the more specific the price tag. The more specific the price tag,
the more this will tend to scare voters, who are aware that taxes
are more predictable than fulfilled political promises are.

"Who
will pay for all this?" Above all other questions, this one
is the one politicians prefer to avoid. Everything they do is
designed to obscure the answer to this question. It’s why candidates
seek to avoid offering solutions. They do not publish detailed
position papers on how they intend to distribute the bills.

The distribution
of the bills is the central question facing politicians today.
The public has learned from experience that political promises
are unlikely to be fulfilled. This is why candidates do not propose
specific new programs. They are content to promise the fulfillment
of existing promises. Bush’s prescription drug benefits for Medicare
represent the first major new welfare program in three decades.
He did not campaign heavily on this platform in 2000.

The specifics
that we as voters need to hear are related to the central political
question: "Who will pay for all this?" Problem: swing
voters will come out in droves to stay off this list. This is
why the candidates campaign on generalities. No politician ever
says, "You’re on this list for this percentage of the bill."
That’s because he fears the wrath of those on the list, which
always includes members of his core constituencies.

WHAT
THIS MEANS FOR INVESTORS

If Kerry
wins and the Democrats take the Senate, this will be meaningful
for a few treaties and a few Supreme Court confirmations. The
Kyoto Treaty on carbon dioxide emissions might be confirmed under
Kerry, if the Democrats win the Senate. But maybe not. Democrats
in rust belt manufacturing states probably will vote against confirmation.

The Supreme
Court and the Federal courts are said to be a reason to vote for
Bush. This same Republican argument pops up every cycle. There
is truth to this. Politics is conducted in the courts more than
in the legislatures, contrary to what the Constitution’s Framers
expected. But the Republican appointments to the Court have not
been inspirational.

For investors,
it is more significant what the central bank of China does than
which candidate is elected President in November. A world economy
is beyond national politics. There are major players, of course.
The United States is the major player, with China and Japan also
very powerful. This is well known, but psychologically, investors
tend to forget.

We have moved
into a new economic world in which political parties are constrained
by past promises and present budgets. Discretionary income is
marginal. Economic power has moved decisively toward market forces
and central bank policies. Bond markets and currency markets have
more influence than political parties do. Clinton’s political
operative, James Carville, said it best. He said he wants to be
reincarnated as the bond market, because that’s where the real
power is.

Economists
like to say that economic change takes place at the margin. Short
of major wars, so does political change. Swing voters in swing
states must be catered to. A political party that goes too far
in proposing policies that swing voters perceive they will be
expected to pay for will suffer a defeat.

The result
is mush-mouth politics, gridlock, and a refusal of politicians
to face the looming reality of the Social Security/Medicare bill,
which must be allocated.

We hear that
"this is the election of the century." This is nonsense.
Roosevelt/Landon, maybe. Roosevelt/Parker, probably. Not Kerry/Bush.

The new President
will have to play ball with the bond market. This pressure is
going to increase over the next four years. Carville is right.
This is where the power is in a world with no gold standard.

The biggest
problem is Iraq. If the bond market starts to fall, getting out
of Iraq will become top priority. Getting the Federal budget under
a semblance of control will then be the #1 priority.

So far, this
Administration has not faced this pressure. It is unlikely that
the next Administration will be so lucky.

CONCLUSION

America’s
economy is becoming less and less dependent on the Federal government.
The Federal government is 25% of the economy, but the economy
is more and more part of the world economy. This is good news
for liberty. The bond market responds to international economic
pressures more than it does to a President’s whims.

Stocks may
rise because of a reduction of political uncertainty. But political
uncertainty is minor compared to central bank uncertainty.

This
means that voting has become marginal economically. The voters
perceive this. Defenders of democracy may wail in despair at the
refusal of voters "to do their civic duty." Their wailing
will do no good. Neither James Carville nor I hopes to be reincarnated
as the Electoral College.

October
6, 2004

Gary
North [send him mail]
is the author of Mises
on Money
. Visit http://www.freebooks.com.

Gary
North Archives

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