by Gary North
by Gary North
Hope is strong early in every new President's first term. It is a time of great expectations. This is the triumph of hope over experience.
Before the hoped-for day of deliverance on January 20 at high noon, there is a two-month transition period. The dark night of the incumbent Administration is expected to recede in the brightness of a new dawn. This calls forth exuberant editorials by members of the victors' party. Consider this forecast by Thomas Kostigan, who writes the "Ethics Monitor" on Market Watch.
We know that we must protect our planet to protect ourselves and our future. We know that politicians will blatantly lie and need more accountability. We know that we have a strong say in how our country is run and that, yes, we can vote for change. We know that despite tough times we can come together and celebrate gold medals. We know that we can experience happiness, that no matter how ugly and uncomfortable and downright bad it gets, that we can rise. We will.
And that is why it is the best of times, because the worst of times is behind us. There is hope.
In just a few weeks the emblem of that hope, President-elect Barack Obama, will take office. He said: "Our destiny is inextricably linked ... together our dreams can be one. 'We cannot walk alone,' the preacher cried. 'And as we walk, we must make the pledge that we shall always march ahead. We cannot turn back.' America, we cannot turn back ... not with so much work to be done; not with so many children to educate, and so many veterans to care for; not with an economy to fix, and cities to rebuild, and farms to save; not with so many families to protect and so many lives to mend. America, we cannot turn back. We cannot walk alone. At this moment ... we must pledge once more to march into the future. Let us keep that promise, that American promise, and in the words of scripture hold firmly, without wavering, to the hope that we confess."
To hope. To a happy new year. It can be one. It will be one. The tide has turned. Hope heralded can turn true.
I would like to think that this is satire. I am not so sure. But even if it is, its general assessment is not being challenged by the world of liberal punditry.
The dawning of this new day will be money in the bank for Rush Limbaugh and Ann Coulter. Let us hope, for their sake at least, that the FDIC will do its job over the next four years.
Before that dawn arrives, we can all enjoy a departing lame duck. Just as the chickens are coming home to roost, the lame duck waddles off.
This comparatively rare event is one of the finest traditions of American political history. We should savor every moment.
I call it "reality on parade."
A PARADE OF LAME DUCKS
George W. Bush is the most memorable lame duck President in 75 years. The last lame duck President as lame as Bush was Herbert Hoover.
What is a lame duck President? The general definition is this: "A President whose term has ended because he was not re-elected, but who has not yet been replaced by the newly elected President." His period of lameness lasts from election day to inauguration day. I think this definition is inadequate. I define a lame duck President as follows:
A President who remains in office after a Presidential election, whose term will end on January 20, and who will be replaced by a President of the rival party.By this standard, Ronald Reagan was not a lame duck President. He was replaced by George H. W. Bush, whose senior agent was (and probably still is) James Baker III, who had been Reagan's Chief of Staff in his first term. Baker also served as Chief of Staff in Bush's final year. In between, he served as Reagan's Secretary of the Treasury and as Bush's Secretary of State. The transition from Reagan to Bush was almost seamless. There was no change in any major policy. It was business as usual.
Some historians might make the argument that Harry Truman was as lame a duck as Hoover. His popularity rating was low. A Republican President would soon preside over a Congress with Republicans in control of both houses. This had not happened in 20 years, and would happen again only under the present Bush. Eisenhower was much beloved and trusted.
I argue that Truman was in better shape than Hoover. Truman's domestic policies would not be reversed, nor did the voters think they would be. Eisenhower had not campaigned on radical change here. This expectation of continuity was fulfilled. The top marginal tax rate remained at 91%. Kennedy lowered it to 70%, not Eisenhower.
The Korean war was in a stalemate in early 1953. Technically, it still is. Congress had never declared war, and the 1953 truce to this legally non-war was not a peace treaty. It remains a cease-fire.
There would be no victory. Voters were willing to accept this outcome in late 1952. They just wanted it to end. Eisenhower had promised: "I will go to Korea." It looked as though he would end it. They voted for him. Truman had not run, and Stevenson was no hawk. Truman had been in a holding pattern before the election.
Yet even the Hoover-Roosevelt transition period was mostly illusion. As Murray Rothbard proved in his 1963 book, America's Great Depression, Hoover's policies were taken over by Roosevelt. There was no fundamental change. There was a change in rhetoric. There were lots of new programs, but the big ones were extensions of Hoover's policies. Even Roosevelt's closing of the banks in March of 1933 had been proposed by Hoover, who complained years later that the idea had been his, but Roosevelt had refused to support it. So, Hoover did nothing. Hoover and Roosevelt had known each other for years. In their years off the Federal payroll or the New York State payrolls in the 1920's, they both had been on the payrolls of business organizations with headquarters at the little-known but crucial address: 120 Broadway, New York City. These connections were discussed by Antony Sutton in his 1976 book, Wall Street and FDR. Historians, who are universally pro-FDR and anti-Hoover, have ignored all these connections for 75 years. They discreetly refuse to talk about Roosevelt's employment as a bond salesman, 1921—1929.
A new President can and does accelerate the centralizing tendencies of his predecessor, but he cannot reverse them. The process of centralization continues.
Roosevelt accelerated Hoover's centralization. He got credit for this in the textbooks because historians favor national centralization. They also like his anti-plutocrat rhetoric. This does not change the fact that he was a lifelong plutocrat.
It is true that Hoover could not get new laws passed in the final days of his Administration. He faced a Democrat-controlled Congress. But he had faced this in the House ever since 1931, with only a one-vote majority in the Senate, not counting a Farm-Labor Party Senator.
Bush has faced the same thing. He could not get the auto industry bailout passed after the election, but he just siphoned off money from the bank bailout fund. Nothing fundamental has changed.
We have had only one lame duck President who made a big difference: John Adams. Adams in his final days appointed John Marshall to the Supreme Court. Marshall shaped American law for the next two decades. He was a centralizer and a Federalist — the last of the Federalists. Adams had seemed to be impotent. He wasn't. He left Washington on the morning of Jefferson's inauguration.
James Buchanan is accurately regarded as the archetype of a lame duck President. He refused to go to war when seven states seceded after the election of 1860. He let Lincoln deal with that issue. He just sat. For this, he has been regarded by historians as the worst President in American history. Only Warren G. Harding has given him a run for the money. Harding also sat. I believe George W. Bush will replace Buchanan for the next few decades. I have given my reasons here.
It was not that Bush sat. He was the most activist President since Lyndon Johnson. He got us into two small wars and ran huge Federal deficits. Johnson got us into one large war and let Nixon run the deficits. But Bush had no notable successes from a liberal historian's point of view, despite his budget-busting Medicare prescription drug bill. Johnson passed the Great Society's budget-busting bills, and then teamed up with Teddy Kennedy in 1965 to lower the immigration barriers that had prevailed ever since 1924. So, Johnson's Presidency is assessed as tarnished, because of Vietnam, whereas Bush's Presidency will be assessed as the greatest failure in American history.
Bush is a lame duck. Realistically speaking, he has been in a holding pattern since November. This is nothing new. After his attempt to reform Social Security died in 2005, which everyone knew it would, he became a caretaker President. The bureaucracy chugs along, issuing 70,000 three-column pages of small print in the Federal Register each year, year in and year out, as it always does.
PASSING THE TORCH
Bush has been gracious in passing the symbolic torch to Obama. This is another way of saying that CFR Team B is letting its man hold press conferences about preparing to take the torch, and CFR Team A is being gracious, just as it was in early 1993. Clinton was not so gracious in 2001, but he and his wife were busy in 2001 packing up White House artifacts and their files.
Like Clinton in 2001, Bush spends his days pardoning criminals, which is a major activity of lame duck Presidents.
Obama is assembling his advisors, most of whom are retreads from the Clinton years. He is even retaining Bush's Secretary of Defense, where change supposedly was coming and is long overdue. Gates was the head of the CIA. Bush's father was the head of the CIA.
The more things change, the more things stay the same.
The only thing that changes much is the national debt. The rate of increase is accelerating. This is Bush's legacy. Obama will honor it.
We are in a recession. There is widespread hope today that we will not be in recession for long.
Investors and politicians have enormous faith in Keynesianism. They believe that a fiscal deficit will be a stimulus. They cheer new spending programs. They love to hear about public works projects. They want to see concrete and steel and bulldozers. They do not ask: "What else could have been done with all this money?" They do not search for the thing unseen, a fact noted by Frédéric Bastiat in the 1840's and Henry Hazlitt a century later.
The financial press is excited over the proposed stimulus package. How large will it be? Obama is not saying. The trillion-dollar figure is tossed around, but it is not clear if this is a one-year or two-year deficit.
Let me make my position clear. If the stimulus comes as a result of a tax cut, I am in favor of it. Paraphrasing Will Rogers, I never met a tax cut I didn't like. Will it be $300 billion? I hope so. Will it be $500 billion? Even better.
Won't this increase the deficit? Of course. Isn't decreasing the Federal deficit job number one? Not at all. Decreasing Federal spending is job number one. I do not mean decreasing the rate of growth. I mean an actual decline in 2009's spending from 2008. This is the ultimate fantasy in American politics.
Why is it better to cut taxes than cut the deficit? Because paying taxes is compulsory. Investing in Treasury debt is not. I can opt out of the effects of the deficit if I invest wisely. I cannot opt out of taxes. Better a bird in hand — a tax cut now — than two under the bush: a balanced budget Real Soon Now.
Congress will spend any surplus and then borrow more. That is what I wrote in the late 1990's, when the phony Clinton surplus — siphoning off Social Security and Medicare — was heralded as the wave of the future.
My view is that it is better to take a tax cut now than to forego a tax cut on the assumption that increasing revenues will someday equal spending. They won't.
A spending cut would reflect a political transformation on an unprecedented level. I would be accurate to call such a reduction as a political revolution. Short of national bankruptcy after hyper-inflation, this is not going to happen. So, we should take what we can get: a tax cut.
Will a decrease in taxation be healthy for the economy? Yes. Will it be accompanied by increased Federal spending? Yes. Will this be productive for the economy? No.
So, the question decision-makers and investors had better ask themselves is this: "Will the tax cuts benefit my capital or my income more than the spending increases hurt the general economy, thereby hurting me?"
Each company or each portfolio will have a different answer. It is easier to change your portfolio than to change your company, assuming you don't quit and try to get a better job, which is always risky, but especially in a recession.
Over the next year, we are going to see a lot of red ink. The press will focus on the wonders of borrowed money. It will not pay nearly so much attention to Federal Reserve policy since September 1. There will be a stimulus, but it will be in the form of fiat money.
The tax cut will help. It will not get the economy out of the recession without a continuing stream of fiat money. I think we will get that stream.
A lame duck President does nothing politically. This is the most productive thing that a President can do most of the time. The lame duck period is a great blessing. The President does not propose new programs. If he did, he could not get them passed.
Enjoy the period of high hopes while it lasts. When it fades, due to the magnitude of the recession internationally, reality will intrude. Then we will see what the Clinton retreads can do to bring back the phony surpluses of Bubba's tenure in office.
I hope they cut taxes even more. As long as the Federal government is going bankrupt anyway, we might as well get a rebate.
January 7, 2009
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