Tuesday, April 24, 2012

“Why I Remain a Long Term Optimist”

Sydney M. Williams

Thought of the Day
“Why I Remain a Long Term Optimist”
April 24. 2012

The statement may seem odd. We live at a time when our politics are fractured. There are those like our President who believe that when your doorbell rings and the person standing there says, “I’m from the government and I’m here to help,” one should smile and invite them in. On the other hand, there are those, among whom I reside, who would immediately slam the door – a lesson well learned from President Reagan.

Despite Capitalism's defeat of Socialism in Margaret Thatcher’s UK and Communism in 1989, the lessons of free markets have gone unlearnt in places as diverse as Argentina and France, and among the left wing element in the U.S., including our President. In Argentina, President Christina Kirchner has seized the Spanish energy company Repsol’s 57% ownership of the Argentinean oil company YPF. In the first-round vote, French voters gave more votes to Socialist Party leader Francois Hollande than to President Nicholas Sarkozy, apparently unconcerned or ignorant as to the history of economic failure under Socialism.

In the United States, the far left, led by Mr. Obama with his policies of redistribution and division, argues the “unfairness” of capitalism. It is the only offense he can muster. As Margaret Thatcher wrote in her autobiography, The Downing Street Years, “Deprived for the moment at least of the opportunity to chastise the Government and blame free enterprise capitalism for failing to create jobs and raise living standards, the left turned their attention to non-economic issues.” We have seen exactly that response on the part of the far left in the U.S. The “Happy Planet Index” is but one manifestation. Others would include the absurd amount of power the Administration has provided appointees to the Environmental Protection Agency and the regulation for which they are responsible; and their emphasis on global warming, while ignoring the questionable science surrounding it. The President’s constant harping “it’s not fair,” as he chastises “millionaires and billionaires,” is a means of diverting attention from his disastrous fiscal policies.

The U.S., with $15.7 trillion in federal debt, is facing a massive debt crisis. Growth has been too anemic to bring the unemployment numbers down quickly and too slow to ramp up tax revenues. The Administration has focused on raising taxes, which will assuredly slow growth and therefore reduce tax receipts. Much of the economic growth over the past couple of decades was a result of increased consumer leverage. The consumer represents approximately 70% of the economy. Most of that debt was focused on mortgages and credit cards, both of which today are being paid down. The only growth area in consumer indebtedness today is student loans, which have a much smaller multiplying effect on the economy. More than offsetting consumer debt reduction has been the increase in federal debt, which also has a very slim multiplying effect. Government borrowing does not generate the growth private borrowing does.

One frightening possibility the government could employ, should we be hit with another unforeseen market meltdown might be to mandate that 50% of all retirement funds be invested in U.S. government securities. While I think that is a low probability, the $16 trillion to $18 trillion in 401(k), IRA pension plan and other retirement accounts must appear a tempting pool of money for politicians faced with run-a-away deficits and no apparent interest in, or aptitude for, curtailing spending. As far fetched as that seems, Gregory Bresiger writing in Saturday’s New York Post, notes that at least two Congressional commissions are currently studying means of tapping this source.

Nevertheless, and despite the discouraging news we read each day, from Iran to North Korea to California, I remain a long term optimist. For those who believe in the importance of the individual, the powerful force that is freedom and a capitalist system based on a rule of law, it is hard to get too pessimistic given the remarkable inroads capitalism has made in the last two decades. Providing support to the concept of American exceptionalism, we alone among the developed nations of the world continue to increase our population. Naysayers from Thomas Malthus, to the Luddites of the 19th Century, to the Club of Rome in the 20th Century warned of over population and the concern that machines would replace all human jobs. They have all proved too negative. Philip Auerswald, in an excerpt from his forthcoming book, The Coming Prosperity, writes: “Over the long term, the evidence supports the claim that the creativity of individuals powers human productivity and the improvements in societal well-being that follow.” We are also unique in the abundance of our natural resources, should we decide to tap them. We are truly a favored and blessed nation.

Thus far the forces of creative destruction have not diminished the search for new technologies, especially in the field of communication and the collaboration that entails, but is there a limit to how fast we must run? No one knows, but my bet is on man. Mr. Auerswald adds: “A combination of entrepreneurship, technological innovation and broad societal transformation are giving even children born in the most persistently poor places a chance to benefit from and contribute to the vitality of global markets and communities of collaborative action.”

Endemic to left wingers, and to those who believe that salvation is solely derived from a strong and benevolent central government, is an inherent pessimism. It is based on their assumption that capitalism produces inequities that can only be addressed by government, a belief that ignores Newton’s Law that dictates that as government power increases there is an equal and off-setting diminution in personal freedom. Statists and illiberal Leftists do not have faith in the individual, ergo their pessimism. If one believes that individual freedoms, which are always at risk, will be lost, one cannot be optimistic.

Over the past decade and a half, the world has undergone a massive shift. Sea-changes are notoriously difficult. They always have been. The whaleman rued the discovery of oil in Pennsylvania. The telegraph made obsolete the Pony Express. Makers of horseshoes and buggy whips were left jobless as the internal combustion engine replaced the horse. The internet and communication are radically changing today’s world, in some ways for the better and some ways not, but that is the way with ideas and people. Yet the world has grown far richer today than twenty years ago. My mother, who died twenty-two years ago, would barely recognize the world we live in today. As we know, man is not perfect, nor is any system, but capitalism works better than any other system yet devised. It marches hand-in-hand with freedom. Ariel sings to a bereaving Ferdinand in Shakespeare’s The Tempest about the loss at sea of his father, of how his eyes have become pearls and his bones, coral, “Nothing of him that doth fade, but doth suffer a sea-change.”

Eric Brynjolfsson and Andrew McAfee of the Sloan School at M.I.T. have a new book, Race Against the Machine. In the book they argue that we are neither in a ‘Great Recession’ nor in a ‘Great Stagnation’, but rather we are in the early stages of a ‘Great Restructuring’, driven by technology that is advancing faster than our skills. While they recognize that progress will leave some people behind and that outcomes will not be even, they conclude on an upbeat note – that the tools being developed will improve our lives and our world.

My optimism does not translate into a belief that stocks will go straight up, or that Israel and Iran will walk off into the sunset hand-in-hand; nor does it suggest that the economy will suddenly get much better, or that North Korea will pull a mea culpa, or even that Germany will encourage its citizens to visit the Acropolis on their next vacation. We face numerous problems, but we are acknowledging them, if not confronting them. When I read that faith in institutions has fallen dramatically between 2002 and 2012 – in banks it has declined from 47% to 23% and in the Presidency it has fallen from 58% to 35% – I know that we are not at the start of a decline. Ron Fournier and Sophie Quinton authored an interesting piece entitled, In Nothing We Trust for National Journal. They wrote of traditional churches losing congregations, of parents disillusioned with overcrowded public schools, of out-of-work people unhappy with their former public and/or private employers and unions. Government does not seem responsive. They know not where or to whom to turn. But the process of change has begun. Mega churches with charismatic preachers are expanding; the number of children attending charter schools has increased fourfold in the past decade – the changes are driven by competition. The two parties represent competition in government, at least at the top. Unfortunately there is little competition in government bureaucracies, and public employee unions have made things far worse.

In the end, however, my optimism is based upon a belief in the people of our country, both individually and collectively. Tough times have confronted people in the past – wars, depressions – but individuals persevered and our economy continued to grow, enriching a few, impoverishing others, but raising living standards for all. Free enterprise and capitalism is not a perfect system, but man is not perfect. Nevertheless, the spread of capitalism continues, despite temporary setbacks. In his new book, Why Capitalism?, Professor Allan Meltzer writes: “Instead of ending, as some critics suppose, capitalism has spread to cultures as different as Brazil, Chile, China, Japan and [South] Korea. It is the only system humans have found in which personal freedom, progress and opportunities coexist. Most of the faults and flaws on which critics dwell are human faults, as Immanuel Kant recognized. Capitalism is the only system that adapts to all manner of cultural and institutional differences. It continues to spread and adapt and will continue to do so for the foreseeable future, as long as people value both growth and freedom.”

Many will consider me naïve, and perhaps I am. There will certainly be setbacks, such as what we are now experiencing. Foolish regulation will create more problems than it solves. People, after all, are human. Malice and ignorance are both human conditions, but so are creativity, aspiration and intelligence.

However, I am thinking long term. The future is for the young; in my family that means it is for my grandchildren. I am not as down on their prospects as are many that I know. I hope that I am right. I believe that I am. The best gift we can provide the next generation is the best education we can offer. My assumption is that, over time, both freedom and economic growth will persist, and that provides the fuel for my optimism. And I believe people have the inherent sense to choose the option that favors freedom.

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