Experience Matters

I strongly agree with what Thomas Sowell wrote in his recent column, The Need to Explain:

The most successful Republican presidential candidate of the past half century– Ronald Reagan, who was elected and reelected with landslide victories– bore little resemblance to the moderate candidates that Republican conventional wisdom depicts as the key to victory, even though most of these moderate candidates have in fact gone down to defeat.

One of the biggest differences between Reagan and these latter-day losers was that Reagan paid great attention to explaining his policies and values. He was called “the great communicator,” but much more than a gift for words was involved. The issues that defined Reagan’s vision were things he had thought about, written about and debated for years before he reached the White House.

I think that we’ve been missing a sorting out process to find folks like Reagan.

It took Reagan decades to hone his communication skills, develop an understanding of the material and learn how to communicate it so that it made sense to people.

One example of this is the book, Reagan: In His Own Hand. This is a collection of the scripts that Ronald Reagan wrote himself for 5-minute long weekly radio addresses syndicated in the 1970s. The book shows the edits Reagan made to his text as he deliberately crafted each address to be easily grasped, memorable and meaningful for the folks listening.

I recommend reading the book. Many of the addresses are instructive still today. I learned a great deal about economics, domestic policy and foreign policy from it. As a lad, I trusted the garbage the media fed me about Reagan not being the brightest bulb, however what I read in this book made me realize I was wrong to have trust them.

Reagan’s writings were deeper, yet easier to understand, than anything that I had heard or read from the media. Reagan’s communication skills still remind me of this quote:

I would not give a fig for the simplicity this side of complexity, but I would give my life for the simplicity on the other side of complexity. -Oliver Wendell Holmes, Jr., Supreme Court Justice, 1902 – 1932

After reading Reagan’s scripts, I realized that the media — and much of the world — exists in the simplicity on this side of complexity, while Reagan was on the other side. The media simply couldn’t fathom it.

Our political processes do not favor folks like Reagan. They favor folks like Barack Obama and Mitt Romney. Sowell continues in his column:

One of the secrets of Barack Obama’s success is his ability to say things that will sound both plausible and inspiring to uninformed people, even when they sound ridiculous to people who know the facts.

Ronald Reagan’s Hair for VP

 

If you’ve been reading this blog for a while, you may recall that I am a huge fan of Paul Ryan’s hair. It’s very Reagan-esque.

And, while this isn’t a Reagan fan blog and I realize Reagan was a politician, the type of person I’ve programmed myself to distrust even when I think I like them, as politicians go, you could do much worse than Reagan.

Check this out:

As hair goes, Romney made an excellent choice.

I also think Ryan is one of the best politicians out there in being able to articulate a more liberty-minded version of conservative politics, which is another trait he shares with Ronald Reagan. I agree with much of what Charles Rowley writes here.

 

Enlightening Aggregation

I typically think that looking at things like the economy in terms of aggregates is not helpful.  GDP, for example, is an economic aggregate, or a sum of several different categories of spending that is used as a gauge on the health of the economy.

GDP can be useful for visualization, comparison and analysis.  For example, it’s fair to use GDP per capita to compare the relative living conditions of the U.S. and Zimbabwe, or folks living today and folks living in the U.S. fifty years ago.

The danger comes when those in power believe it is something they need to micro manage.

The following passage provides an example of an author who used aggregation to create an effective visual.  I read it years ago, and every now and then it bubbles back to the surface.  I think it may be especially timely now with the debt limit debate in DC (emphasis added).

Wm. Rickenbacker editor of the Rickenbacker report and author of a recently published “Savings & Investment Guide” has pointed out that 28.6 mil.  Americans depend on gov’t retirement and disability programs.  Then you add in recipients of survivor programs — almost 9 mil, unemp. benefits to 6 mil., Military 3-1/2 mil., civilian emps. & dependents and you come up with a total of 81.3 mil. people dependent on tax dollars for their year round living.

All of those tax dollars must come from 70.2 million Americans working & earning in the private sector.  Ah! but you say govt. workers pay taxes too. And so they do. But all their inc. & therefore the portion they pay in taxes comes originally from tax dollars so they are just returning to gov’t. tax money already pd. by the worker in the pvt. sector.

The 70.2 mil. private sector workers have 62.1 mil. personal dependents, so we’re talking about a private sector of 132.3 mil. sharing their income with an additional 81.3 mil.

To sum it up roughly 70 million Americans provide a living for themselves and 143.4 [million] additional people.

Now, don’t take this as meaning there should be no recipients of tax dollars or that all who work in gov’t are parasites.  Obviously, we want to provide for the needy & disabled.   Just as obviously we must have & are happy to have in the military those who provide for our security.  This goes also for policemen and firemen & all those who provide services we want & need.

The point I’m making is that somewhere there must be a figure beyond which we can’t go in the growth of gov’t without wimping out those in the private sector who pick up the tab.

The plain truth is every effort to slow gov’t growth or reduce gov’t costs has failed.  In the last 20 yrs. corp. profits have risen 105%–wages have gone up 213%–govt. costs have risen 340%.  There is one sensible, long overdue answer; fix in the constitution a limit on the share of earnings govt. can take without becoming a drag on the economy.

These words are from the book Reagan: In His Own Hand.   They were written as a manuscript for a Paul Harvey-esque radio spot that Reagan gave in those days.  This one aired on radio on November 16, 1976.

I thought this was an interesting way of looking at the economy.  Wealth must first be created in the private sector before it can be used by government.  Government doesn’t divine wealth out of thin air.  It lives off the wealth created in the private sector.  And the ratio of folks living of that wealth is high.  Someday I might try to update these numbers to see if the ratio has changed.

The reason we transitioned from hunter-gatherers — folks who spent most of their time providing the essentials — to where we are now is through private sector trading that allowed us to free up time amongst ourselves and others.  That freeing up of time allows us to use some of our produce to fund things like government.  It allows some people to not produce much at all and do things like occupy government positions.

While people have many different ideas about what wealth is, wealth derives from this savings of time.  How much time does it take to feed ourselves compared to our hunter-gatherer ancestors?  Much less.  If it didn’t, we couldn’t afford government.

I think it’s good to keep that in mind as some of those in government seem awfully preoccupied with biting the very hand that feeds them.

Get out of the way, please

A friend who wishes to go by Lane Meyer sent an e-mail pointing out an excellent passage from Wall Street Journal columnist Daniel Henninger’s piece, A Ronald Reagan Budget.

But the Obama prescriptions reflected Democratic Party politics of our time, which insists that prosperity begins inside someone’s head in Washington and then flows out to the country. The country is a taker of what Washington creates or allows—whether the Obama health-care plan or anti-carbon regulations. Reagan-Ryan argues that prosperity is born inside the heads of several hundred million citizens, and that the government’s first responsibility is not to kill the yeast.

Both the Beltway Democrats and the conservative deficit hawks share the conceit that the nation’s future revolves completely around what they do in Washington. This reduces the people to bystanders. That may work for Europe’s parliamentary systems, but it’s not the way things work here. Successful politics here draws people into its drama, and that means offering something bigger to believe in than deficit reduction. And guess what, progressives: The “safety net” isn’t what moves a nation, either. Think bigger.

Paul Ryan’s budget is inevitably about what Washington does (or refuses to do). But its underlying rationale is to reorder the relationship between Washington and the American people—country first, Washington behind.

It would be tough to word that any better.

If you come across anything you think is especially post-worthy, please let me know.

Incentives Matter

Courbe de Laffer

Image via Wikipedia

Arthur Laffer writing a piece called Reaganomics: What We Learned in the Wall Street Journal today, plainly explains the Laffer Curve:

The key to Reaganomics was to change people’s behavior with respect to working, investing and producing.

Changing tax rates changed behavior, and changed behavior affected tax revenues. Reagan understood that lowering tax rates led to static revenue losses. But he also understood that lowering tax rates also increased taxable income, whether by increasing output or by causing less use of tax shelters and less tax cheating.

Moreover, Reagan knew from personal experience in making movies that once he was in the highest tax bracket, he’d stop making movies for the rest of the year. In other words, a lower tax rate could increase revenues. And so it was with his tax cuts. The highest 1% of income earners paid more in taxes as a share of GDP in 1988 at lower tax rates than they had in 1980 at higher tax rates.

I always appreciate humility:

To Reagan, what’s been called the “Laffer Curve” (a concept that originated centuries ago and which I had been using without the name in my classes at the University of Chicago) was pure common sense.

 

Who controls the capital?

As I wrote here, this isn’t a blog about Ronald Reagan.  It’s a blog inspired by a quote from Reagan.

But, chapter seven in F.A. Hayek’s The Fatal Conceit, entitled Our Poisoned Language, reminded me of my second favorite quote from Reagan (my first favorite is at the top of this page).

All systems are capitalist.  It’s just a matter of who owns and controls the capital – ancient king, dictator or private individual.

I try to avoid discussion about whether society is socialist, capitalist, communist, fascist or some other common label.  I find those discussions to be unproductive red herrings that avoid getting to the root of the matter.  Each word has textbook definitions and also has much baggage attached.  I find that most discussions about these terms equivocate between the text book definitions and the baggage and rarely apply exactly to any specific group of people.

In his quote, Reagan drops the textbook definition of capitalism and all its baggage to get to the heart of what truly differentiates large groups of people that form political economies — who owns and controls the capital.

In chapter seven of The Fatal Conceit, Hayek explains that the words we use to describe the actions of individuals interacting with each other, words like markets or society, give the impression that these groups of individuals are something they are not — a single unit with a centralized mind or central goal.  And this gives rise to some people using that image to convince others that this single unit should have their overall goals.

Steven Landsburg expressed this idea well in his book The Big Questions, which I quoted here, by explaining that folks  imagine that organizing an economy is like organizing a birthday party, which it is not.

Here’s Hayek’s words to explain the phenomenon (p. 113):

Thus the word ‘society’ has become a convenient label denoting almost any group of people, a group about whose structure or reason for coherence nothing need be known — a makeshift phrase people resort to when they do not quite know what they are talking about.  Apparently a people, a nation, a population, a company, an association, a group, a horde, a band, a tribe, the members of a race, of a religion, sport, entertainment, and inhabitants of any particular place, all are, or constitute societies.

To call by the same name such completely different formations as the companionship of individuals in constant personal contact and the structure formed by millions who are connected only by signals resulting from long and infinitely ramified chains of trade is not only factually misleading but also almost always to model this extended order on the intimate fellowship for which our emotions long.

The crucial difference overlooked in this confusion is that the small group can be led in its activities by agreed aims or the will of its members, while the extended order that is also a ‘society’ is formed into a concordant structure by its members’ observance of similar rules of conduct is the pursuit of different individual perspectives.