Whatever happened to political economy?

In a previous column I questioned the idea that there is something called "the economy" and suggested instead that we refer to our multiple transactions in the global marketplace with the term of the United States Constitution, viz., commerce. This is not just a matter of semantics. For if we choose our words with care, we accurately name the things to which the words refer. Before the term "economy" was applied to our domestic and foreign commerce, it referred to a virtue–of individuals, businesses and nations. The first dictionary definition of economy, after all, is "Careful, thrifty management of resources, such as money, materials, or labor."

Just as households and businesses must practice economy in order to make the most prudent use of their resources, so must governments. But with its powers of taxing, spending and borrowing, government has access to considerably more resources than any household or business. That means the temptations and opportunities for abuse are much greater.

As the purpose of our national government is to make laws for the common defense and general welfare, it is not, by definition, designed, like the household, to meet the daily recurrent needs of anyone; or, like a business, to make a profit. It exists to make households and businesses safe and secure.

For most of our history, American government has practiced political economy, out of conviction and necessity. That is, it is limited in its scope and its powers and not entitled to huge sums to conduct its functions, however greater those were than anyone else’s. And as long as the federal government in particular performed its constitutional functions, heavy taxation was both difficult to justify and hard to obtain against jealous state governments.

To appreciate the soundness of this limited view of economy, it is helpful also to be mindful of what commerce is and why it is so indispensable to modern republics. In ancient times, commerce referred to sea going trade, as commerce includes the root "mer," meaning sea. Hence, Athens, a naval power, supported commerce that its rival, Sparta, a land-based power, took little interest in.

Commerce contributed greatly to the decline of medieval feudalism, a system that combined perpetual armaments and subjugation by the lords of the peasants. Those aristocrats who aspired to national crowns found the nascent commercial classes a vital alternative to depending upon their rivals for financing their kingdoms, especially their wars.

The middle class, so called because its members were neither aristocrats nor peasants, made money in trade with cities and states other than their own. In return for protection or favored treatment, they would lend money to kings.

There were essentially two approaches that kings of the early modern nation states took toward the generation of national wealth. One supported acquisition of precious metals and hoarding them for national purposes. Spain, the first great nation at this time, was an exponent of that view. Another view, favored in Britain, was that it was better to encourage merchants to build their fortunes with limited regulation, as a growing commerce funded government with minimal taxation.

Adam Smith’s Wealth of Nations provided the most powerful argument for the second view of national wealth. The British government was no less tempted to commandeer the resources of the country than the Spanish, but Smith made a compelling case for laissez-faire (let them do as they please) as far more productive than national missions to exploit natural resources the world over to enrich the government’s coffers. Smith’s famous "invisible hand" was not blind to the avarice of businessmen (quite the contrary) but rather saw them as more efficient producers than any government could ever be.

As we stand on the brink of massive efforts to "rescue our economy" from its current credit crisis, it is helpful to remember these historical lessons on how to build up national wealth and, by implication, what diminishes it. The federal government tried to spend its way of the Great Depression and failed, just as its massive programs 30 years later failed to end poverty. Only individuals and businesses practicing economy, supported by a government practicing the same virtue, can accomplish that.

To the extent that our government embarks on a massive program of public works, business bailouts, unemployment compensation, forced unionism and uneconomical energy schemes, our current crisis will become much worse and we will imagine only that we didn’t do enough rather than far too much to "save" our commerce.

Lawyers & judges endangering elections

The world has marveled at the orderliness of America's "peaceful revolutions" ever since Jefferson's Democratic-Republicans first wrested power from the Federalist Party of Washington and Adams, But how long will voters remain peaceful when their will is cynically undermined by partisan lawyers and willful judges whose lust to see their interests prevail eviscerates any pretense of respect to fair elections?

In California in 2001, 61% of voters approved a state statute to preserve the historical and biological definition of marriage, only to see an activist supreme court rule that measure invalid based on a supposed conflict with the state constitution.

Backers of traditional marriage didn't protest or threaten violence against their political adversaries. Instead, they played by the rules, responding with a constitutional amendment to trump the courts. Attorney General Jerry "Moonbeam" Brown unethically rewrote the ballot summary to tip the scales against the amendment, but 52% of Californians nevertheless approved it.

Now, as supporters of same-sex marriage engage in sometimes violent protests in front of churches, gay activists and the ACLU are asking that same supreme court to invalidate yet another election.

In Washington state in 2004, voters elected Republican gubernatorial candidate Dino Rossi by a mere 261 votes, according to election day tallies. A second recount again showed Rossi the victor, this time by just 42 votes. Finally, a third count gave the lead to Democrat Christine Gregoire by 129 votes -- and the counting stopped.

In that election, numerous irregularities in Democrat counties aided Gregoire at each subsequent count. In King County (including Seattle), more than 700 ballots were "discovered" after election day. Some precincts showed more ballots cast than registered voters, while others tallied more votes than ballots. At least 129 felons were allowed to vote, and provisional ballots were mixed with regular ballots before anyone bothered to determine whether those provisional ballots were cast by legitimate voters.

Now we have the ongoing saga in Minnesota, where Sen. Norm Coleman, a Republican, led alleged comedian Al Franken, a Democrat, by 725 votes after the initial count. That lead slipped to 438 within two days as election officials announced "adjustments" ‹ like finding a box of uncounted ballots that unanimously favored Franken in the trunk of an election worker's car.

Minnesota law explicitly limits the recount to those ballots counted on election day. That means the validity of ballots is decided by citizen election judges who make those determinations at polling places before their judgment can be clouded by knowing who is ahead or by how much.

Not surprisingly, lawyers for Franken, aided by veterans of Gregoire's election heist, want election boards, courts -- anyone -- to allow previously rejected ballots to be scrutinized and selectively added to the count.

Elections can only be legitimate when conducted according to rules stipulated by both sides prior to voting. But Franken's legal beagles could care less about the rules. Their mission is to win even if that means renegotiating the rules in court to strike down laws that, in 20/20 hindsight, adversely impact Franken.

Another of those inconvenient laws, as John Fund reports in the Wall Street Journal, is the federal Help America Vote Act, which requires that provisional ballot votes remain anonymous.

In Washington, a judge allowed lawyers for Gregoire to obtain a list of uncounted provisional ballots. From that list, they gleaned the names of those who voted for the Democrat and engineered the counting of those votes -- but not those who voted for the Republican. By the time Republicans figured out the Democrats' game, it was too late.

Franken's attorneys are deploying a similar strategy in direct contravention of Minnesota's election law and of rules administered by the Democrat secretary of state. They just may succeed in using the courts to steal another election.

When Americans can no longer trust that their votes will be counted under rules established in advance or suspect that judges are all too willing to bend those rules, how much longer will our revolutions remain peaceful?

Mark Hillman served as Colorado senate majority leader and state treasurer. To read more or comment, go to www.MarkHillman.com.

Colorado pension plan in trouble

As some of you may have heard, PERA, Colorado's Public Employee Retirement program, has got a little problem. At latest report, its obligations were down to being about 60% funded, a couple of decadesout, down from 80%, which is considered fully-funded. This is before taking into account paper losses from real estate and other non-equity investments.

The reason that being underfunded 30 years out is a problem is that there are still bills to pay today, and that at some point you start paying out money faster than it can grow. One day, you wake up, and the seed corn is gone and the retirees are at the door.

Yesterday's Denver Post cites a 2004 State AG's report to the effect that there may be some legal limitations to what PERA can do. In all likelihood, benefits to current retirees are sacrosanct, barring a constitutional amendment (aren't you now glad that we rejected Referendum O?) to permit a reduction of benefits.

New hires should be put into the 401(k) without even the option of a defined-benefit plan. Those at or approaching retirement age should probably not have their benefits tinkered with. But some combination of higher contributions by employees, lower benefits, and a higher retirement age (really, who gets to retire on full bennies at 57?) will probably be required.

PERA's Board may have to show to a court's satisfaction that all this is necessary to prevent major street corners from being overrun by former state employees and the inevitable tin cup shortage. At the same time, there's no question that PERA has been operating under one of those unspoken assumptions that the taxpayers will always be there to bail them out, if necessary. Thus the somewhat rosy 8.5% growth assumptions underlying their projections.

We'll probably have to await the 2008 Annual Report to see exactly how bad things are, but there's no question that the sooner we deal with this the better. After all, better to ask public employees now to contribute more to their own financial security than to ask you, 15 years down the road and a few years away from your own golden years, to work for a few more years.

Glass way more than half full

This Thanksgiving season, no one has more reason to be grateful than us. Though the media, politicians, Hollywood and a growing number of cap-in-hand special interest groups would like you to believe otherwise, Americans enjoy an unrivaled degree of prosperity. Even the 12.5 percent of Americans identified by the census bureau as poor are well off by world standards. Forty-three percent of all poor families own their own homes. The average poor American enjoys more living space than the average Londoner or Parisian. Three quarters of poor families own a car. Ninety-seven percent have a color television (more than half of the families have two or more televisions). A majority have cable TV, a VCR or DVD player, a microwave oven, and air conditioning.

These government statistics, compiled by the Heritage Foundation, paint a different picture of the downtrodden than does the nightly news, but the facts do not tell the whole story. Without a comparison of how other people live around the world, Americans have no real sense of just how grateful they should be.

Unfortunately, Americans don’t get out much. Roughly a quarter of US citizens hold passports. I’m probably safe in assuming that more of my countrymen watch American Idol than BBC World News. American myopia creates a skewed perception of reality. America’s poor families have homes, cars and televisions. The poor in most of the world have little or nothing. Completely destitute in America means finding a shelter where you can have a warm bed, a meal and the help you need to get back on your feet. In Haiti, the poor are baking dirt into cookies to fill their stomachs.

In America, if you lose your job there are “help wanted” signs up and down the street. The jobs may not be optimal but they’ll do until something better comes along. I’ve certainly done my time behind a register and sweeping a broom and I’ll do it again if I have to.

No such option exists for people in Zimbabwe where the unemployment level is 80 percent. There are no jobs. Government corruption and control of the market have reduced this once prosperous nation to abject ruin. Zimbabwe is far from the only country to strangle its economy with government regulation. The world average for unemployment is 30 percent. In the U.S. it is less than 5 percent.

America’s clean air and water may look dirty if you don’t know better. In Cairo, every breath I took was like sucking off a tail pipe. I found myself smoking Egyptian cigarettes just to get the taste of the air out of my mouth. Cairo took 2nd place in the Progressive Policy Institute’s Smokiest Cities contest with 159 micrograms of particulate matter per cubic meter of air. By comparison, Los Angeles, America’s most polluted city has 36 micrograms of particulate matter.

Breathing in the Egyptian capital was tough but drinking the tap water was out of the question. I drank bottled water and ate oranges, a fruit hermitically sealed by its own peal. Cairo was a great place to visit and I’ll go again, once my lungs have healed.

Should I need any medical help along the way, I’ll get it here, thank you. Americans have access to the best health care in the world. In developing countries, people die for want of penicillin or routine vaccinations. In socialized European nations and our neighbor to the north, citizens can get decent care if they have the time to wait for it.

According to the Frasier Institute, a Canadian think tank, Canadians wait on average nine weeks between getting a referral from a general practitioner and actually seeing the specialist. They then wait another nine weeks to get treatment. A cancer radiation referral takes five weeks, orthopedic surgery nine months.

My point here isn’t to browbeat readers into gratitude but to give a needed perspective. Ignorance is not bliss. An ungrateful heart is an unhappy one. It leaves people vulnerable to being misled by honey-tongued politicians promising to make them richer, healthier, and happier. In the places where the government tries to give people these things, it inevitably makes them poorer, sicker and less free to seek their own happiness.

This Thursday I gave thanks to God for the many blessings in my life including my beloved country. I joined with those who, in the words of George Washington’s Thanksgiving Proclamation, “unite in rendering unto Him our sincere and humble thanks for His kind care and protection...for the great degree of tranquility, union, and plenty which we have since enjoyed; for the peaceable and rational manner in which we have been enable to establish constitutions of government for our safety and happiness, and particularly the national one now lately instituted for the civil and religious liberty with which we are blessed...”

Krista Kafer is a Denver-based education consultant, frequent cohost on Backbone Radio, and regular columnist for Face the State.com, from which this is reprinted by permission.

We, the people, should control commerce

The hearts of progressives everywhere are racing as they contemplate the delightful prospect of a federal replay of the New Deal and Great Society, those overrated nostrums intended to solve major economic problems which they only made worse. In less than two months the sainted Obama Administration will take power, already in transition promising to stimulate our commerce with massive public works projects (including unprofitable and inefficient "green" energy) and doubtless more bailouts of companies "too big to fail." Preference will be given, of course, to those saddled with huge costs imposed by federal mandates, with expensive union pensions, "job banks" (money for not working) and top wages.

Hint: The initials are GMC, FMC And CMC.

The late great economist Henry Hazlitt, author of the remarkable volume, "Economics in One Lesson," advised economic policy makers to look not just at the immediate consequences of a given policy but the long-term consequences as well. Actually, one does not have to have a very long attention span to notice that the first bailouts of the credit markets have begotten still more in any industry or business whose bottom line is in trouble. This took only days and weeks, not years, to become evident.

A still longer term consequence has to do with how Americans view their commerce. Is it a multitude of transactions between willing buyers and willing sellers? Or is it a single entity waiting for the expert guidance of politicians to maximize the payoff to those most deserving of consideration, which always means the influential and the powerful?

A thoughtful article in the Wall Street Journal earlier this year debunked the false notion that there is such a thing as "the economy." When one considers the billions (yes, billions) of people who are buying and selling every day, 365 days a year, in a multitude of different markets and a great variety of ways, it leads the prudent person to scale down massive expectations. Commerce cannot be saved by government policy that intervenes on behalf of those not benefitting enough–whoever they are, whatever their resources.

Many who take this sober view of the possibilities of controlling the marketplace by political action consider themselves exponents of what has been called "laissez-faire" economics. Far from seriously quarreling with this point of view, I only hasten to mention that the United States Constitution authorizes Congress to "regulate commerce with foreign nations and among the several states, and with the Indian tribes."

Government, with its power to tax and spend, will always be the greatest single influence on commerce, particularly in this era of Big Government. For decades federal spending has accounted for about a fifth to a fourth of the nation’s total, not to mention that of 50 state governments and thousands of local jurisdictions.

Prominent economists of the past such as John Maynard Keynes and John Kenneth Galbraith argued that, given the massive influence government had even before the New Deal dwarfed all previous federal spending, it should intervene on behalf of socially desirable objectives, such as reducing unemployment, raising wages and redistributing wealth.

But government by nature is not a commercial enterprise. It does not compete in a free marketplace. It depends upon forcible collection of taxes and other revenues in order to ensure the performance of its basic functions, viz., insuring our safety inside and outside our borders and administering justice, civil and criminal.

Republican government was designed to be impartial among the many (fortunately) competing interests of our people. To regulate is to "control or direct according to rule, principle, or law." Rules, principles and laws are no respecters of persons. The object is the common good, not the good of favored groups.

Of course, this republican restraint is more easily advocated than practiced. But we Americans have been governed by principle to an extraordinary degree, and for that reason the majority of us still believe that the purpose of government is not to reward indolence or failure but to promote enterprise and provide no more than a ground floor for victims of circumstances beyond their control.

But as we are tempted once again to consent to massive controls over our commerce, here and abroad, let us remember, as Ronald Reagan said, "Government is not the solution to our problems. Government is the problem."