Ends and Means

George Will once called Thomas Jefferson the patron saint of limited government, which explains how my son came to be named Jefferson. Limited government, free markets and lower taxes also explain why I became a Republican. Today, however, those ideas also reflect why I now have such problems with the party, specifically that almost everything listed - just about everything the party stands for - is a commitment to the "means" rather than the "ends."

Free markets and limited government sound good and are good - up to a point. But unlimited freedom leads to anarchy, which leads to tyranny of the strong (interestingly, I spoke with a friend yesterday who's friendly with a Russian emigre, who said that is precisely what happened after the fall of the Soviet Union - unfettered capitalism led to corrupt oligarchy). But I digress.

When free markets are treated as an end, rather than a means, they tend to be left to their own devices because we are blind to their shortcomings in the belief that the nature of free markets makes them self policing. Not so, as we saw just eight years ago, when Alan Greenspan was shocked that bankers didn't police themselves to avoid the pitfalls of their actions. Problem was that he ignored human nature, which invariably chooses the short-term over long-term view. It's why we choose fries instead of steamed vegetables for our side - short term gratification over long-term good.

Economics are no different. Unfettered capitalism will have far greater highs than a moderated version, but also far greater lows. And without regulation, the true cost of free markets get passed on in ways that can be deadly (toxic waste, dangerous products, etc.), uneven (unemployment, dislocations) or in ways that lead to divides that are dangerous to democracy (hungry people gripe, starving people revolt).

So free markets need to be treated as a means to driving greater productivity, but as part of the goal (the ends) of creating the greatest common good for society as a whole (for the best example of ends and means, look at the U.S. Constitution - the preamble states the ends, the document outlines the means).

Supply-side economics is another issue where means have been confused for ends. Top tax rates exceeded 90% after WWII as we tried to pay down our debt from the war (that debt for war production is what pulled us out of the Great Depression, much like today's debt kept us out of another depression in 2008, but we do not seem to have the will to pay it down like our forebearers did). Again, I digress.  Still, those rates were reduced to 70% by JFK, then 50% by Ronald Reagan, based upon Arthur Laffer's theory that there is an optimal tax rate that maximizes tax revenue by increasing economic activity - but that reducing the tax rate beyond that point begins to reduce tax revenues once more.

It is almost certain that tax rates already are at or below that point where revenues will fall with further tax cuts. U.S. corporations are sitting on nearly $1.8 trillion in cash, largely because keeping it in the bank or financial markets generates better returns than could be had reinvesting in their own businesses. Further tax cuts will only increase that stagnant cash horde, and thus, are more likely to fuel asset bubbles and inflation than they are economic activity, while also fueling further government deficits. This is why I argue that the GOP has ceded their right to claim they are the party of fiscal responsibility.

Finally, health care - this requires a book, but suffice it to say that there is nothing where we have neglected to agree on our goal (the ends) more than with health care. But I will say without equivocation that a free market approach will lead to millions being left without insurance and that the overall cost of providing healthcare in the U.S. will continue to rise. That is because it is nearly impossible to create a transparent market where consumers can knowledgeably price and shop their healthcare needs in order to control prices. Add to that our willingness to spend ourselves into bankruptcy over health concerns and it becomes clear that the typical market forces that hold prices in check do not apply to health care (if corn goes up too much, I’ll buy wheat instead, whereas if a hip replacement is my last, best hope for pain relief, they pretty much have me over a barrel).

Bottom line, the GOP has become so intellectually constrained by mantras of free markets and lower taxes that they are operating with blinders on. That they are being led by perhaps the least intellectual president in our history does not give any cause for relief.