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Here we go again.  Asking the question: Should we raise tax rates or lower rates to close the deficit? The President and many a Democrat think raising tax rates is the way to go.  They stand behind their belief that government funding can drive the economy and cite John Maynard Keynes as their patron saint.  They want to raise taxes to pay for economic “stimulation.” But what if Keynes agreed with Republican on lower taxes? President Obama has used Big Government to its fullest extent to turn the economy around.  Economic and job recovery was promised if we passed the “Stimulus” bill, Obamacare and support such policies as funding Solyndra.  Despite a lack luster economy and record long 8+% unemployment, the President and his supporters continue to tout a government led economy in their modern version of Keynsian economics. But is that really what Keynes believed?  In a word: No. It is true that Keynes believed that government intervention in the economy could be beneficial.  Government spending was part of several tools he thought the government could use to ensure economic growth and stability.  In that sense, Keynes believed that government could prime the economic pump.  The President and leading Democrats, however, believe that government should be the economic pump. Keynes would not have agreed with that. To the contrary, as an economist, Keynes well understood that the main driver of the economy was the private sector and that government policy must ensure incentives so that the private sector can flourish. Indeed, left out of the discussion of Keynsian economics, in the modern media today, is Keynes advocacy of tax cuts.  It was Keynes, long before Reagan, that stated: “high tax rates defeat their own object,” i.e. to collect tax revenue.  It was Keynes, long before Art Laffer, that said: “given sufficient time to gather the fruits, a reduction of taxation will run a better chance, than an increase, of balancing the budget.” Keynes so believed that that he also said that: “For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more–and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.” Keynes well understood that high tax rates destroy capital formation and limit profit seeking just as higher prices kill off sales.  Lower rates, on the other hand, restore incentives and spur individuals to take risks, achieve and to expand the economy. Such basic human nature thinking, after three recessions under President Eisenhower and his top tax rate of 91%, convinced none other than JFK to say: “It is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut tax rates now.” Although the top rate today is much lower, the combined state, local and federal rates – combined with the crushing regulatory burden (which has nearly the same effect as high taxes), all unheard of in their time, leaves us in much the same place as then.  Government is now in the way of the private economy. Throughout our history, the American economy has been like a sturdy pack mule.  Periodically, we burden it with too many packs, in the form of taxes and regulations, weigh it down and slow its pace.  Sometimes it even falls backwards down the hill.  Now and then, smart leaders come along and lift off some of those packs, lessen regulatory burdens and reduce the weight of taxes, and our economy starts up again.  It is not a recommendation unique to us. We read of tax battles and even reform in every age, like Urukagina’s tax reductions in Babylonia/Sumer in 2350 BC – so old is this problem and so old is the common sense remedy. Rather than compound the problems of last decade, Democrats should stop misusing Keynes for what he never believed and starting quoting him for what he and JFK did believe.  It is time to get government out of our way, through lower taxes and regulations, in order to turn our Country around. While we may disagree on spending priorities, if Keynes, Kennedy and Reagan can agree on how to collect revenues, we should too.

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Why Aren’t the Democrats Keynesian on Taxes?

Tom Capaccio Bloomberg News The U.S. Defense Department is in the “final stages” of drafting a strategy for cyber warfare that refines for military commanders a broad White House policy that equates…

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Pentagon cyber warfare strategy drafting in ‘final stages’

Martin Crutsinger The Associated Press Treasury Secretary Timothy Geithner said Monday that he will immediately halt investments in two big government pension plans so the government can continue to…

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Debt limit reached, U.S. halts 2 pension investments

So much for GM’s self-imposed ban on political contributions. According to The Washington Post : General Motors reported making $47,000 in contributions to lawmakers and congressional candidates in July, the first it has made since November 2008. The company stopped giving through its political action committee just as it began to seek government assistance to stay in business. The U.S. government provided support but also steered the company through bankruptcy. Today, the Treasury owns a 60 percent stake in the company, which recently announced plans to go public with a stock sale. GM earlier gave $41,000 to groups and causes associated with lawmakers. The latest contributions were made directly to lawmakers’ campaigns. The Post notes the fact that GM is spreading the wealth around to both political parties: $26,000 to Republicans and $21,000 to Democrats. Below is the list of GM PAC recipients from the Federal Election Commission : Recipient’s Name Date Amount Image Number CONTRIBUTIONS BLUNT, ROY VIA FRIENDS OF ROY BLUNT 07/30/2010 5000.00 10991095182 BROWN, SHERROD VIA FRIENDS OF SHERROD BROWN 07/30/2010 2000.00 10991095183 BUILDING RELATIONSHIPS IN DIVERSE GEOGRAPHIC ENVIRONMENTS PAC (BRIDGE PAC) 07/30/2010 1000.00 10991095181 CAMP, DAVID LEE VIA DAVE CAMP FOR CONGRESS 2010 07/30/2010 5000.00 10991095182 CANTOR, ERIC VIA CANTOR FOR CONGRESS 07/30/2010 2000.00 10991095181 COATS, DANIEL R VIA DAN COATS FOR INDIANA 07/30/2010 5000.00 10991095181 DINGELL, JOHN D. MR. VIA JOHN D. DINGELL FOR CONGRESS 07/30/2010 5000.00 10991095183 KILPATRICK, CAROLYN MS. VIA KILPATRICK FOR UNITED STATES CONGRESS 07/30/2010 1000.00 10991095183 KLOBUCHAR, AMY J VIA KLOBUCHAR FOR MINNESOTA 2012 07/30/2010 1000.00 10991095184 PEOPLE FOR ENTERPRISE TRADE AND ECONOMIC GROWTH (PETE PAC) 07/30/2010 2000.00 10991095184 PETERS, GARY VIA PETERS FOR CONGRESS 07/30/2010 2000.00 10991095184 PORTMAN, ROB VIA PORTMAN FOR SENATE COMMITTEE 07/30/2010 5000.00 10991095185 REPUBLICAN PARTY OF WISCONSIN 01/31/2009 -1000.00 29991044396 SCHUMER, CHARLES E VIA FRIENDS OF SCHUMER 07/30/2010 5000.00 10991095182 STABENOW, DEBBIE VIA STABENOW FOR US SENATE 07/30/2010 5000.00 10991095185 WYDEN, RONALD LEE VIA WYDEN FOR SENATE 07/30/2010 1000.00 10991095185 Now it should go without saying that a company that is owned and operated by the government has no business making campaign contributions to members of Congress, no matter how the company tries to spin it. But this is exactly the kind of suspicious, shady and corrupt arrangement we can expect now that the government has decided to meddle so obtrusively into the private sector. I checked with a spokesman for the Corporation for Public Broadcasting (CPB), another “private” corporation funded and controlled by the federal government. He told me that CPB does not have a PAC. You may recall I called attention to another conflict of interest when the government provided a $527 million loan to the auto company Fisker, which then used the funds to purchase a former GM plant. (Vice President Biden was also caught up in the controversy, as the plant is located in Delaware, Biden’s home state. Read more here .) While the political activities of GM are particularly offensive given the government’s considerable ownership stake, other companies bailed out with taxpayer dollars also continue to fill the political coffers according to Fox News : Several companies that escaped financial failure two years ago through massive taxpayer-funded bailouts are spending millions of dollars to make donations to political causes and even some candidates’ campaigns. General Motors, Chrysler and Citigroup are just three of the biggest bailout recipients who have continued to remain politically active, through their political action committees, federal lobbying or direct donations to the pet projects of lawmakers. Getting back to GM, its ban on political contributions ought to be made permanent, at least until such time as the government has relinquished its ownership stake. Politicians on both sides of the aisle, such as Rep. Eric Cantor (R-VA) and Sen. Chuck Schumer (D-NY), who received GM PAC contributions, should return them immediately. Government corporations giving money to politicians to help them run for government office: Does it get any more corrupt than that?

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‘Government Motors’ Fills Political Coffers

Today marks Constitution Day. On 17 September 1787, in Philadelphia, the Framers of the American Constitution added their signatures to the document they had produced, and soon thereafter it was dispatched to the Continental Congress for consideration by the states. On this day, it is appropriate that we, their heirs, reconsider their handiwork and ask whether ours is still a constitutional government. In their deliberations, the Framers confronted one great question, and it was largely on this question that the debate between the Federalists and the Anti-Federalists during the ratification period turned. Can one establish an enduring republic on an extended territory? This is the question that Americans in this crucial period wrestled with. As I have argued in earlier posts here and here and, in much greater detail, in my recent books Montesquieu and the Logic of Liberty and Soft Despotism, Democracy’s Drift , the Americans had reason to worry. In the late eighteenth century, it was almost universally agreed that what they were attempting could not succeed. Such was the argument that Montesquieu advanced in the first part of his authoritative book The Spirit of Laws , and he had grounds for advancing such a claim. Athens and Sparta were situated on territories of no great size, and the same could be said for early Rome and for Lucca, Florence, and Venice in the Middle Ages and the Renaissance. Of course, late republican Rome was an exception to the rule. Under the late republic, nearly everyone in Italy was a citizen, and that polity ruled the Mediterranean and beyond. But – as both Machiavelli in his Discourses on Livy and Montesquieu in his Considerations on the Causes of the Greatness of the Romans and their Decline and Spirit of Laws had pointed out — Rome was also the exception that proved the rule. It was a small republic that, by dint of conquest, came to be situated on an extended territory; and soon after it had expanded, it collapsed. The Framers of the American constitution faced a great challenge, and this they and their opponents among the Anti-Federalists knew all too well. The challenge was straightforward. Polities situated on extended territories sit at a great distance from the vast majority of the people whom they rule. This is consistent with despotism; and if the distance is not too great, history suggests, it is consistent with legitimate monarchy and the rule of law as well. But for republics it poses a seemingly insuperable challenge. Governments located at a considerable distance from the people they rule tend to be invisible; and when human beings armed with authority are invisible, they tend rightly to suppose that they can get away with a lot. Moreover, large polities tend to face emergencies more often than small polities, and emergencies require from rulers vigor, alacrity, and decisiveness of the sort most easily provided by a man authorized to act alone. The challenge facing the American Framers was to devise a constitutional structure capable of producing a government fit for meeting emergencies but unlikely to become, as James Madison once delicately put it, “ self-directed .” To meet this challenge, the Framers turned to the second and third parts of Montesquieu’s Spirit of Laws – where he sketched out two different ways in which a republic can overcome this limitation on its magnitude. It was, he realized, necessary that it do so because – at least in modern times – no small republic could hope to marshal the resources necessary for its self-defense when attacked by monarchies intermediate or despotisms immense in size. The first expedient suggested by Montesquieu was federalism. By means of federalism, a group of republics could project power in the manner of a monarchy while remaining small enough to be genuinely self-governing. Montesquieu’s second expedient was the separation of powers. By distinguishing along functional lines between the executive power, the legislative power, and the judicial power and by distributing these three powers to different bodies in such a fashion as to render them separate and quasi-autonomous, the English had managed to transform a monarchy into a republic capable of sustaining itself on an extended territory. For emergencies, they had an executive capable of vigor, alacrity, and decision. To prevent this executive from becoming a tyrant, they had a House of Commons responsible to the electorate and capable of calling the executive’s servants to account. To avoid populist excesses, they had a House of Lords capable of checking the House of Commons; and to protect the liberty of the citizens, they had judges who could not easily be removed from office and juries selected from among the peers of those accused. The Americans combined both expedients. To begin with, they instituted a federation, building on the remnants of the old colonial system and on the structure that existed under the Articles of Confederation. At the center, they established a government of limited powers – capable of defending the nation, of guaranteeing to every state a republican government, of regulating commerce between the states, and of responding to emergencies. To the states and local governments, where the territory was comparatively small, they left all other legitimate powers. To make the federal government in some measure independent of the states, they provided for direct popular election of the House of Representatives; and to enable the states to protect their own prerogatives from federal encroachment, they had the state legislatures elect the federal senate. At both the state and federal level, the American founders instituted a separation of powers, giving to the executive, the legislators, and the judiciary the means by which to defend their own prerogatives and the motives for doing so – and, by dividing and separating the powers, the Founders sought to make the government and its operations visible to the citizens. Each branch served the general public as a watchdog with regard to the others. As I attempted to show in earlier posts linked here and archived here and in my two books, we have – over the last one hundred years – gone astray. In a massive fashion, the national government has encroached on the prerogatives of the states, substituting its jurisdiction for theirs and, by dint of mandates both funded and unfunded, reducing them to instruments for the pursuit of public policy dictated from the center. Something similar has been done to the separation of powers. Congress, in clear breach of the Constitution, has conferred on administrative agencies within the executive branch the power to issue regulations that have the force of law – which is to say, the power to legislate. And these agencies combine all three of the putatively separated powers – devising and promulgating regulations which have the force of law, enforcing these regulations, and adjudicating disputes that arise with regard to these regulations. This is, Montesquieu asserted and the Framers believed, the essence of despotism. It means that most of what the federal government does it does in camera, behind closed doors, out of the public view. And not surprisingly, as we have seen in dramatic fashion in the last twenty-one months, the federal government has become what Madison most feared: an entity self-directed . If we are to pass our legacy of self-government on to our progeny, we will have to re-establish constitutional government in this country by rolling back the administrative state, restoring legislative accountability, and returning to the states the prerogatives that are rightly theirs.

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Constitution Day

YESTERDAY, Paul Ryan replied to David Brook’s response to his and Arthur Brooks’ WSJ op-ed , which I discussed here . Mr Ryan, a

Some Republicans, joined by a chorus of conservatives brandishing their newly acquired “Tea Party” credentials, appear to have a fascination with doomsday scenarios. It’s not enough that many engineer their own hearty implosion. The latest is a bizarre love affair with the government shutdown, something we haven’t seen or heard since 1995, when it left egg on the face of the House GOP leaders who staged it. Prematurely lighting celebration cigars before polling station hours have even been set, a mixed crowd of Grand Old Party old schoolers and Glenn Beck-ite new school tacticians are already staging a revolution should they regain majorities in Congress. One expectation is gridlock on passing a budget, Republicans all but certain they can’t work through an impasse with the President on such issues. From former House Speaker Newt Gingrich to surprise GOP Senate nominee Joe Miller in Alaska, and the disgruntled former Clinton advisor turned Republican strategist Dick Morris, an increasing number of influential Republicans are urging a 1995-redux. Obviously, they forgot what happened in 1996. The shutdown was the GOP albatross that turned into President Bill Clinton’s life preserver in the ’96 Presidential elections. Not only is such talk “premature,” as former House Majority Leader Dick Armey (R-TX) puts it, but it’s a bit baffling, cynical and somewhat dangerous in this very fragile economic climate. Talk of government meltdown does, however, shed light on one big contradiction – the 800-pound gorilla in the room – in much of the rhetoric coming from the hard right these days. Here you have a bunch of anti-government cats who want to run for elected office and, pretty much, draw a government salary for extended periods of time. If you don’t like the government, why are you running for a government gig? What’s up with that? In that hypocrisy, you find a beast of a scam driven by smooth-talking “insurgents” who are using the unemployed, debt-ridden, foreclosing, unhealthy, poorly educated and working class folks who need government services the most to help them pimp a government shutdown. That’s pretty rich stuff. Far from being a partisan here, but hoping to inject some common sense, it’s difficult to strain the insanity from this. Republicans have not even captured a majority in Congress (yet) and many are already engineering a government shutdown. Rather than present creative ways to make government run smarter, these dudes want to blow it up. How smart is that considering the economy is barely running on a string of federal stimulus? What kind of signal will that send to nervous global markets in the middle of a recession? How will it help if you have hundreds of thousands of federal workers without a paycheck unable to spend into a frail economy that largely depends on consumer spending? Why is it that the GOP, in a bid to impress its tea party friends, feels pressed to screen test “Apocalypse Now” in 2010? What is it about doomsday talk that excites conservatives? If this doesn’t scare Democrats or sensible Independents into mobilized panic, who knows what will. Perhaps it’s the right political move for November, getting your fanatic base riled up like armed gorillas with billy clubs, like a scene straight out of “Planet of the Apes.” And maybe it gets you the short term shot you need to snag that majority you’ve been tasting all year. Worry about the consequences later. But, by the time 2012 voters see how much you mucked it up and vote accordingly – switching it right back to where it was and giving the President you despise another term – you’ll be in a rear view mirror with your hands out begging for a political bailout.

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Charles D. Ellison: Why Conservatives Love to Blow Things Up or Shut them Down

WASHINGTON — The nation’s largest banks have an obligation to pay some of the cost for bailing out mortgage buyers Fannie Mae and Freddie Mac because they sold them bad mortgages, a government regulator said Wednesday. Edward DeMarco, the acting director for the Federal Housing Finance Agency, said the banks this summer have refused to take back $11 billion in bad loans sold to the two government-controlled companies, in written testimony submitted for a House subcommittee hearing Wednesday. A third of those requests have been outstanding for at least three months. DeMarco said the banks have a legal obligation to buy back the loans and called the delays “a significant concern.” He said the government may take new steps to force those buybacks if “discussions do not yield reasonable outcomes soon.” In an interview with reporters after the hearing, DeMarco declined to give further details on what the government might do next. He said only that “we’re looking for contractual obligations to be fulfilled.” Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. The two mortgage giants nearly collapsed two years ago when the housing market went bust. The government stepped in to rescue them and it has cost taxpayers about $148 billion so far. The rescue is on track to be the most expensive piece of stabilizing the financial system. Fannie and Freddie have a legal right to return bad loans, especially if they later discover fraudulent statements on applications. Any money they recover offsets their losses. The amount in question is a small fraction of the total government rescue, said Ed Mills, financial policy analyst at FBR Capital Markets. Still, lenders say Fannie and Freddie are trying to return too many loans. And in some cases, they are pushing back loans where it’s not clear fraud was committed, the lenders say. Mortgage industry consultant Brian Chappelle said the requests often apply to loans that met the mortgage buyers’ guidelines at the time. “The industry believes that the pendulum has swung far beyond what is reasonable,” he said. As a result, he said, lenders are being extremely cautious about making new loans. Wall Street has worried that the costs of bailing out Fannie and Freddie could get pushed back on big banks. Fitch Ratings said in a report last month that the four largest U.S. banks could book losses of up to $42 billion if Fannie Mae and Freddie Mac force them to take back troubled mortgages they made. It also estimated that JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. could record $17 billion in losses if they repurchase a quarter of the mortgage giants’ seriously delinquent loans. The leading Democrat on the panel, a House Financial Services subcommittee, indicated the banks bear some responsibility. “We must begin to think about approaches for recouping taxpayers’ money in the long run,” said Rep. Paul Kanjorski. “We found a way to pay for the savings and loan crisis, and we can survey find a way to recover the costs associated with this crisis.” A bigger headache for lawmakers is figuring out what to do with Fannie and Freddie in the future. The Obama administration is working on a plan to restructure the mortgage market and make sure home loans are affordable. Officials don’t plan to release details until next year. But Michael Barr, an assistant Treasury secretary, told the panel Wednesday that Fannie and Freddie “will not exist in the same form as they did in the past.” Sorting out the future of housing finance has been a divisive issue on Capitol Hill. And it could grow even more contentious if Republicans take control of one or both houses of Congress. Republicans have seized on the administration’s management of Fannie and Freddie to illustrate Democrats’ push for broadening the reach of the federal government. They say loans acquired by Fannie and Freddie since the September 2008 takeover have put taxpayers at risk. “It’s time for the government to get out of that business,” said Rep. Spencer Bachus, the top Republican on the House Financial Services Committee. But Democrats and regulators say the loans acquired by Fannie and Freddie before their takeover represent the overwhelming majority of the companies’ losses. New loans acquired since then have been performing well, they note. “There is no urgency,” to reform the two companies, said Rep. Barney Frank, the committee’s chairman. “The pattern of abuse they had engaged in has been changed…Fannie and Freddie are behaving differently and are causing far less problems.”

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FHA: Banks Should Share Fannie, Freddie Bailout Costs

As the Federal Election Commission (FEC) scans the political landscape scrutinizing tea party activist and most every other citizen who participates in this year’s federal elections, the Service Employees International Union (SEIU) got a “a get out of jail free card” to ignore and flout campaign finance regulations.  At the FEC, the foxes are apparently already in the henhouse even before President Obama’s politically charged SEIU lawyer John Sullivan ( Obama FEC nominee who was involved in Clinton-Teamsters-DNC campaign scandal) arrives to serve as one of six FEC commissioners. It seems no matter where you these days it is easy to find another rule of law or procedure bent by this government to the benefit of SEIU. FEC law specifically prohibits threats of financial reprisals in an effort to obtain PAC (Political Action Committee) contributions. Not only does SEIU threaten every local member that their PAC contributions must meet SEIU national Headquarters’ goal; SEIU brazenly made it a part of the union’s constitution. Under this scheme, SEIU political planners notify each local of its PAC contribution goal.  If that PAC goal is not achieved, then the local receives a reduction in its allocation of forced dues money equal to the PAC shortage plus 50%. Looks like threats with financial reprisals. National Right To Work President Mark Mix Op-Ed in the Washington Examiner , described it this way: Imagine the outcry if McDonalds executives demanded that each franchise owner collect “voluntary” contributions totaling $25,000 for the company’s Political Action Committee (PAC) from the owner’s employees. What if the fast food titan’s headquarters followed up with a threat – pay us, or face a $37,500 fine? Do you think this heavy-handed scheme would raise a few eyebrows at the Federal Election Commission (FEC)? [You betcha it would.] Replace “McDonalds” with “SEIU” in that description and you’ve got a pretty good idea of Big Labor’s latest political fundraising strategy. To meet their ambitious fundraising targets, SEIU bosses are now threatening to fine any local affiliate that doesn’t meet its PAC contribution requirements . Not only did the FEC ignore FEC rules in dismissing of the NRTW complaint; it hid its reasoning for dismissing the complaint until well past the 60-day deadline, thus prohibiting the National Right To Work Legal Defense Foundation an opportunity to challenge the FEC dismissal in U.S. District Court. For some, rules do not apply.

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FEC Okays SEIU Threats for PAC Contributions

SAY I want to buy a cheeseburger, coke and fries from you. You give me the cheeseburger, coke and fries and say, okay, that’ll be $4 please. I hand you $3. You say, um, sir, we have a payment problem here. I say, no, we have a price problem. You’re charging too much. We don’t have a payment problem. I’m not paying you too little. I give you the tax-cut philosophy of Mitch McConnell : The measure, introduced by Senate Minority Leader Mitch McConnell (R-Ky.) this week, would permanently extend the George W. Bush-era income tax cuts that benefit virtually every U.S. taxpayer, rein in the alternative minimum tax and limit the estate tax to estates worth more than $5 million for individuals or $10 million for couples. Aides to McConnell said they have yet to receive a cost estimate for the measure. But the nonpartisan Congressional Budget Office recently forecast that a similar, slightly more expensive package that includes a full repeal of the estate tax would force the nation to borrow an additional $3.9 trillion over the next decade and increase interest payments on the national debt by $950 billion. That’s more than four times the projected deficit impact of President Obama’s health-care overhaul and stimulus package combined. “We have a spending problem. We spend too much. We don’t have a taxing problem. We don’t tax too little,” McConnell told reporters Tuesday. This is a philosophical claim. It’s not really a factual claim at all.