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Thursday, December 24, 2009
Politics and Delusion
“So you lie to yourself to be happy. There’s nothing wrong with that. We all do it.”
---Teddy, Memento (2000)
This morning, after the fait accompli that was the final Senate cloture vote, Harry Reid said in his speech that the American people would greet the passage of the bill with “joy and happiness.” That dovetails nicely with Nancy Pelosi’s “Christmas gift to the American people” line, doesn’t it?
In the real world, this spike says a lot about what the American people think about health care reform:
Even in democratic and republican governments, highly unpopular legislation can pass. The Kansas-Nebraska Act of 1854 was one such law. It was passed solely on the maneuvering of Stephen Douglas, with Congress badly split even with the substantial majorities his Democratic Party enjoyed.
The rationalizations then are the same as we see now.
- “The American people have been frightened by the lies of the opponents. Once they see the law in action, they’ll understand how much it helps them.”
- “If we don’t pass something, our supporters will desert us and the public will see us as incapable of governing. Passing even hated legislation will be better for us in the upcoming elections.”
- “This bill will solve once and for all a major national issue in our favor. Even if we suffer some short term losses, we’re not only establishing a great legacy but ensuring our long-term political dominance.”
These same delusions are so commonly suffered by politicians and activists on both sides that they ought to become new axioms in the study of political psychology.
In 1854, Douglas and the supporters of popular sovereignty were warned that a repeal of the Missouri Compromise would lead to violence in the territories over the question of slavery, general legerdemain in the slavery referenda, and would throw wide open a question that had been seemingly settled 30 years before. Today, the supporters of Obamacare have been warned that it merely funnels more patients into an already-broken system, that it will instantiate a monopoly in the insurance business of a scale not seen in this nation since Standard Oil, and that it threatens to accelerate the bankruptcy of the federal government’s entire entitlement scheme.
Yet, when such grand-sounding but nebulous concepts like “legacy” and “historic solution” are on the line, what difference do such petty objections really make? The Democrats have convinced themselves that this bill represents the “final solution” (no Nazi reference intended here - there is really no other phrase to use) to the nation’s health care problems, and more expediently, will permanently shift American politics to the left.
The historical precedents in Europe are certainly suggestive of that fact, but we easily forget that Europe’s socialistic systems are rapidly headed to bankruptcy, just as ours is. In fact, whether we get something like the House version, the Senate version, or no version at all, the outcome for this nation is still the same: an unavoidable, massive collapse in the government’s finances.
The raft of new taxes, fees, and fines, which will run for 3 or 4 years before the benefits begin to pay out, along with a series of dubious cost cutting measures, supposedly make the system deficit neutral in its first 10 years. That, of course, assumes that the revenue collected in those years is saved for the time when the benefit checks must be written. If the yearly raids on the Social Security fund while it was running a surplus are any indication, this looks like an implausible scenario. In fact, I would suggest a far more cynical possibility: that the rush to pass this health bill has less to do with the positive social effects it will supposedly bring (as some more liberal Democrats have suggested, the Senate bill may actually be destructive to the liberals’ long-term goal of single-payer health care), and more about raising the revenue that cap-and-trade was supposed to have netted the federal treasury.
Why all the secrecy and self-delusion? One reason is certainly memories of George Bush Sr.’s fate after he broke his “read my lips” pledge, which Obama fatefully echoed on the 2008 campaign trail. Obama is hoping that the complexity and obfuscation in the health bill will disguise the fact that it breaks many of his campaign promises, from no new taxes to no individual mandate to no plan that would not cover everyone.
Beyond the parochial world of campaign politics, however, lies the real rub: the record-wide spreads in the Treasury markets, the decline in world trade, the chaos in the currency markets, the financial disaster brewing in many, if not most, of our states, and the impending end of the Federal Reserve’s monetization-in-everything-but-name program. Larry Kudlow thinks the first element of that list represents a return to normalcy in the bond markets and hence “high economic growth,” but I would suggest the reason is more sinister. The truth is that for a variety of reasons both obvious and obscure, foreign interest in our treasuries has dropped precipitously; by some reports, it has been almost 0 for the last quarter or so.
That means the biggest source of demand for federal treasuries is now...the federal government. As everyone knows, this is the last stage of the Ponzi scheme - with no new buyers, the men behind the curtain start shifting money around the pyramid until the inevitable undoing of the entire enterprise. Still, the beast that is the Obama administration hungers, and a $100 billion “jobs bill” is already on the table to mop up for the abject failure of the $800 billion “stimulus bill” to stimulate anything resembling job creation. There will no doubt be other “emergency” fiscal needs throughout 2010: extensions of unemployment insurance, more food stamps, whatever the case may be.
Today, the Democrats voted on lifting the debt ceiling to fund government operations for one month. The amount required for that one month? $290 billion. This is the box the Democrats have willingly put themselves in. They can use the revenue from the health care bill to fund their short-term spending spree at the expense of the benefits the American people will now expect in 3-4 years, or they can save that revenue for those benefits at the expense of not being able to do anything for the rest of Obama’s term. In both cases, the bankruptcy of the nation begins in 2017 or sooner.
Wonderful world we live in, isn’t it?
Given the current situation, I think we can now begin to see the source of the Democrats’ self-delusion and desperation. It is both political and economic, and unfortunately for them, there is no way out. The great historical irony is that the Democrats were there at the beginning of the nation’s slow descent into insolvency in the 1930s, and now they are here with us again at the culmination. History will not remember their foolishness kindly.
Comments
Fantastic essay!
I think you are exactly right: a major motive for this bill is a new source of funding, much like the raiding of Social Security funding. The public gets a warm-and-fuzzy feeling of individual savings and paying their own way, while the pols get a new purse to swindle.
But government control very well could be the “final solution:” rationing.
Very insightful!
BTW: yields on short term treasuries really have been near zero percent. The source of demand: foreign governments, banks, etc. seeking a safe place to park very short term cash. But also the FED, as you say. It has bought some $300 billion in longer term paper alone over the course of 2009. You can check on that here.
But there’s a reason that longer term yields remain significantly higher… nobody wants to get stuck with worthless paper should yields rise or the dollar fall. Or both. Plus mercantilist nations need something to buy to keep the goods flowing.
There is a big jump in yields going from 6 months to two years. The curve really should look a lot flatter than that in my opinion. (and remember that long term rates have been manipulated down by FED purchases!) Both very short term and long term rates look abnormally low to me.
Posted by Scott Angell on 01/01/2010 at 07:08 PM
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