Mitt Romney’s choice of Congressman Paul Ryan as his running mate is in effect a declaration of principle: he is saying that this race ought to be about big issues, about the relationship between government and the governed.
That is where this campaign should be conducted. President Obama has had an objective in mind from the get-go: to transform the country into one where government is a more central player in the economy. He betrays this intention in some of his more unguarded comments, such as the famous “you didn’t build that” remark. Even taken in context, it was very revealing. What he was saying was that the efforts of the individual, the risk-taker, the entrepreneur are less consequential than the collective efforts of the people, as enacted through government.
He views the free market economy as one with predators and victims; as he said in his memoir, he viewed his brief time working in the private sector as having been “a spy behind enemy lines.” Private enterprise to him is a flawed instrument, one that needs to be managed and regulated to achieve social objectives. In contrast, he sees government as the way to “strengthen the middle class,” as his campaign spots put it, mostly by targeted manipulation of the tax code and spending programs designed to improve social results.
The problem with this credulous faith in the benevolent power of government is that it fails to take account of the law of unintended consequences – which applies wherever government intervenes in the economy. It is because of this behavioral law that the economy has responded so poorly to the Obama Administration’s policies.
Regardless of whether Obamacare is good policy or bad, and likewise with Obama’s regulation of the financial sector, of the energy sector, or anything else for that matter, the impact of all these changes has been to cause the private economy to seize up. Corporations and entrepreneurs have been sitting on trillions of dollars of investable cash for the last few years, and they have not deployed it because all the upcoming regulation – much of which has yet to be detailed – leaves them with too much uncertainty to take risks. Similarly, the ongoing stalemate on taxes, with temporary fixes and periodic games of budgetary chicken, has stifled the animal spirits that would normally have led this economy out of the latest recession.
Contrast this with the politics of optimism and reform that Ryan’s addition to the ticket promises to bring. Their platform will be one that emphasizes the unique power of the private economy, and recognizes that the proper role for government is a limited one of empowerment rather than creation. Only the private sector can turn a dollar into two or three or four; the “multiplier effect” of government spending is negative – when it takes from party A to pay party B no additional demand is created, and the very act of taking from party A distorts economic signals.
It is in the private sector that ideas are brought to life as new products or services, where our economy is transformed with new technologies, and where whole businesses are created seemingly overnight. For instance, a good third of the Dow Jones Industrial Index companies did not even exist thirty or forty years ago. Additionally, many of the old Dow stocks have now disappeared. The “creative destruction” described by economist Joseph Schumpeter is one of the key elements in our success. Government steps in to limit that churning at the peril of our prosperity.
Government does have a role in regulating the private economy. But that regulation can easily go overboard. The Obama Administration has promulgated an unprecedented number of regulations costing the economy $100 million or more. This creates a drag on economic growth that outweighs the value of the regulations, totally apart from the business distortion caused by the rules themselves. The Romney-Ryan vision is for a government that regulates lightly, but effectively, lifting the boot from the neck of the private economy while still providing necessary protections.
The main contrast is in spending. President Obama has elevated the government share of the economy to heights not seen since World War II, when the entire country was mobilized for war. At first it was the emergency spending of the 2009 “stimulus.” But that emergency spending never diminished – judging by the levels of spending, the crisis is as acute now as it was then.
Romney and Ryan will throttle back on this gusher of spending. And it will be controversial, because nobody wants to give up the money they get from the government. This is the insidious effect of the liberals’ expansive spending policies – it is easy to ratchet it up, since there are always those who need money, but it is devilishly difficult to cut it back. Liberals will scream that every penny is vital, and any cutback will plunge innocent families into penury.
But, more than any of the above, this race will now become one of leadership and responsibility. It has been known for decades that Medicare, Medicaid, and Social Security on their current paths are unsustainable, and that unless reformed, they will crowd out spending on all other government obligations. The Obama Administration has provided no plan to address that. As Treasury Secretary Geithner famously told Congress, they have no plan “but we know we don’t like yours.” The Republicans will be running on an explicit plan to reform the entitlement system, to enable it to deliver on the promises made to the seniors of the future.
It will also be heavily focused on trimming the deficit. Mitt Romney has been quoted as saying it is “not just bad economics, it is immoral to burden our children” with such deficits. We have no business forcing our children and grandchildren to pay for the government we consume today; they will have their own needs to pay for.
President Obama’s plan for deficit reduction seems to come down to raising taxes on the wealthy, even though his proposals will at best pay for a few days’ less borrowing. There isn’t enough money in all the accounts of the 1% to make a dent in his spending plans, and yet he has had no serious discussion with Congress about cutting into those trillion-dollar deficits. His last budget was rejected unanimously by both Houses of Congress.
Obama has been derelict on spending, on the deficit, and on the looming catastrophe of the entitlement crash. The Romney-Ryan ticket will tackle those issues head-on. Democrats will demagogue, and call them all sorts of names for trying to be responsible.
I hope the American people are more interested in a serious debate on our future.