BREAKOUT 2.0

BREAKOUT 2.0

For Breakout 1.0, go to http://jaygaskill.com/Breakout1.0.htm

The USA is out of money to revive the moribund economy, and its executive branch is out of productive ideas. On the eve of Thanksgiving 2010, I continue my discussion about the way out. Welcome to Breakout 2.0.

THE FEAR FACTOR

Ireland and Greece are examples of one possible future for the USA (see Irish collapse in the New York Times for the latest chapter). http://www.nytimes.com/2010/11/23/world/europe/23ireland.html?_r=1&ref=business.

Cutbacks are driven by the brutal economic reality. When the cupboard is empty, is really is empty. Street-level blowback is the equivalent of an infant’s scream. The situation actually requires adult supervision. Blowbacks follow cutbacks like the night follows the day.

The probabilities are that USA’s blowback will be concentrated in a few cities, the ones in which the culture of indulgent entitlement has put down its deepest taproots. Unlike Ireland and Greece, we have no larger institution from which we can reasonably expect a bailout.

…Except China?

That burgeoning economy increasingly resembles a bizarre marriage of the US in its railroad-boom, raw capitalist stage and the British Empire in its most arrogant form. But one does not get bailed out by a growing Imperium…one gets taken.

On this day, 11-23-10, we learned that the USA’s credit rating by China has been downgraded. “Dagong Global Credit Rating on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the United States from AA to A+ with a ‘negative’ outlook, the Xinhua news agency reported.” {Link: http://www.google.com/hostednews/afp/article/ALeqM5jO96_CDFpUwPcXyN_jL-enhT3atQ?docId=CNG.736ad4cc4829f350c53be1828396ba2f.81 }

And the fed has begun the process of political spin. {See NYT, Fed Adopts Political Tactics… http://www.nytimes.com/2010/11/23/business/economy/23fed.html?ref=business.}

Do you detect the shadow of the coming storm here?

There are two alternatives: We get serious about fixing our overleveraged, over borrowed, over extended fragile prosperity, or the iron laws of economics will impose a solution from which we may not be able to recover for generations.

OUR SECRET WEAPON

Our secret weapon, our only means available for a self-bailout, is to seriously attack the accumulated political load on commerce. This will generate opposition, but some perspective here is needed. Nothing generates bigger riots than sudden, involuntary poverty. As we approach the prospect of reducing the political, regulatory and bureaucratic impediments in the US to profitable economic activity (i.e., recovery), we will need to focus with laser efficiency on the legitimate core concerns, the concerns that animated the push for regulation in the first place.

They fall into three categories:

Environmental toxins
Heath risks
Public safety risks.

In each of these areas, China’s blowtorch economy is a cautionary tale as well as a working model of a rapid capitalist expansion. China’s post-communist leaders have ignited a Wild West economy, the rough edges of which are insulated from protest by the selective use of the legacy tyranny-instruments from the Maoist days. We’ve witnessed more of this than the Chinese people have. The burning skyscraper in Beijing captured on US television during Diane Sawyer’s recent visit, the lead-painted toys of Christmas’s past, and the adulterated pet food are just the visible hints of the not-so-hidden costs of economic speed.

By contrast, the USA economy is like a sclerotic geriatric case, using a walker, hesitating in chrinic ambivalence about the next step. But the decrepitude of our own design, much of which was implemented over the last six decades by semi-autonomous bureaucracies tasked to make life better for some of us, no matter the general cost.

The moment is overripe for an intelligent attack on the political load burdening US commerce. We are ready, or almost ready, for a discussion of how regulatory easing would be managed and implemented.

Not all of the burdens holding us back stem from health and safety concerns. Much of the burden represents the bureaucratic processes themselves, the “hearings” and “inputs’ and “reports” that are designed to substitute endless, unproductive discussions for decisive progress. The post-earthquake San Francisco Bay Bridge replacement project (the quake was in 1989 and the work is just now approaching a visible terminus) was delayed at least a full decade while a highly politicized process invited “input”. Most of the discussion was nominally about esthetics, but really about credit-sharing and the courting of embedded interests. All this talk trumped public safety concerns and drove up costs.

Delay is a form of regulatory abuse, the direct byproduct of politics as participatory obstructionism.

FREEING UP COMMERCE

The celebrated Commerce Clause of the US constitution, one of the enumerated powers of the burgeoning federal bureaucracy, has spawned a vast system of regulatory agencies the powers of which were delegated by both the executive and the legislative branches. The word dereliction rather than delegation seems more appropriate. Several agencies are generating “rules” with the power of law, in ways and with a reach never contemplated or approved by either branch of government. This development was brilliantly exposed by attorney Mark Levin in his bestselling book, Liberty and Tyranny, so I’m not going to recap the whole history here. But we have a bright line example of line crossing, one that illustrates and leads us to reexamine all of the other line crossings before it. The EPA is chartered to make rules controlling air pollution. Now CO2, something you and I and every other living mammal regularly exhale, is subject to the EPA’s power to fine, regulate, even prohibit. {See – http://www.usatoday.com/money/industries/energy/environment/2009-12-08-carbontoll08_ST_N.htm .} The negative economic impact will be great; the environmental impact will be marginal. This amounts to an administrative coup.

Among the US constitution’s grant of powers to the federal government, “Congress shall have power to regulate commerce…among the several states…” from Article One, Section 8, clause 3, placing that power among the list of other specific government powers such as to provide for the common defense.

To those of us who read the constitution through the lens of original purpose and intent, the federal power to regulate commerce is read together with the supremacy clause[1] in service of freeing commerce from conflicting burdens imposed by the states.

James Madison (1731-1836) is widely recognized as the principal author of the US constitution. In 1929, he wrote about the commerce clause.

“Yet it is very certain that it grew out of the abuse of the power by the importing States in taxing the non-importing, and was intended as a negative and preventive provision against injustice among the States themselves, rather than as a power to be used for the positive purposes of the General Government, in which alone, however, the remedial power could be lodged.” – Letter to Cabell, February 13, 1829.

Put plainly, the commerce clause was originally designed to clear the path for free and unencumbered trade within the USA, overriding contrary state levies, tariffs and restrictions, because, after all, we were members of one union. By the early 1800’s, the commerce clause was used to prohibit state monopolies over travel on interstate navigable waters as in Gibbons vs. Ogden 22 US 1 (1824). “…when a State proceeds to regulate commerce with foreign nations, or among the several States, it is exercising the very power that is granted to Congress.” 22 US 200.

Just as individual states attempted to choke the flow of commerce within the US over navigable waters – only to be broken up by federal override, a suffocating web of regulations, tariffs and laws have grown up to smother the new commerce of the 20th and 21st centuries. At a time when we desperately need to promote an economic recovery without spending more federal tax (or borrowed) dollars, the Commerce clause is being used to smother a recovery.

I have described this suffocating web as the political load on commerce. Much of it has been imposed by individual municipalities and states, but even more, ironically, has been imposed by the federal government itself using (some would say perverting) the authority granted to it under the commerce clause.

That which as originally done to liberate commerce within the US has been turned to the opposite goal.

In Breakout 3.0, I will outline some concrete steps the president and congress could take to employ the commerce clause to do what it was originally tasked to do: Promote commerce. That which the government has the power to regulate it also has the power to free from regulations.

About two years ago, I wrote this:

“It is both legally and practically feasible for a specific, as yet unnamed federal agency to be created, empowered and charged with the mission to break clear paths through the ice floes of bureaucratic red tape and punitive taxation so that nascent, privately funded commercial enterprises can flourish more quickly and robustly than anyone though possible, especially in the pre-recovery economic environment.

‘In the same way that an Arctic ice breaker can break open a clear path for a fleet of fishing trawlers, a federal regulation and taxation ice breaker can do the same for a strong business recovery. This would be proactive, creative conservative-liberal policy at its very best. It would serve the same, practical function in the tangled web of business-killing regulations, licenses, permits, delays and kleptocratic taxes that bribes do in corrupt Third world economies. Except that its operations, in partnership with cooperating state governments would be above board, transparent, subsidy-free and legal.

“Business people are not fools. The protections afforded a start up would need to provide a clear path that could relied upon to remain clear for a reasonable time, say, a full decade or more. And the political leaders who back this plan should not be fools, either.

“The proposed protection is reserved for privately funded ventures only, the kind where the cost of failure is born by those who took the risks in the first place, the same investors who can reasonable expect to be allowed to retain the rewards of their success.

“…this model (or something very much like it) will work. But just stop for a moment to think about the implications. How far we have come…. Pandering politicians were compelled by circumstances, their own ideological inclinations and the electoral reward system to act as the public parasites of success. Now they have nearly brought down the whole beast. The fleas have almost killed the lion. We are now forced to see ourselves as a Third World Country…..

“The heavy lifting? That takes place in about two years, or just as soon as the Beltway crowd figures out that our crater is deeper than anyone had been willing to admit….

Two years later, we are much closer to the day of reckoning. This discussion is continued in Breakout 3.0

Stay tuned and…

Happy Thanksgiving to all!

JBG

[1] Article Six, Section 1, Clause 2, “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof… under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing …in the Laws of any State to the Contrary notwithstanding.”

Leave a Reply