Choices and Echoes

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.

Copyright © 2004 LewRockwell.com