Massachusetts Makes Far Left Democrats Think Again

President Obama exhorted Senate leaders just over a month ago to pass the health care bill. “We are on the precipice,” he declared, of health care change. At the time, I figured he’d simply misspoken. A precipice, after all, is a situation of great peril or the edge of a dangerous cliff. Now I think it was a Freudian slip.

The health care bill was a cliff. It had become tainted with Chicago-style pressure politics, industry and congressional payoffs, secrecy, profligacy and policy confusion. When the Democratic Party stronghold of Massachusetts elected a Republican senator to the “Kennedy seat,” Obama’s progressive agenda fell into the abyss.

The president then magnified his losses by countering the Massachusetts loss with a populist attack on the very banks he had bailed out. He proclaimed that he would increase regulations on banking institutions. Exempted, of course, were his beloved quasi-governmental agencies Fannie Mae and Freddie Mac, whose fraud and corruption cascaded us into the current Great Recession. Worse, he promised to raise taxes to “get our money back” from a still unsteady financial industry.

The stock market dutifully and predictably plummeted 500 points. Even loyal supporters in the media, who swallowed the administration line concerning the boondoggle stimulus package, broke ranks. If I had to bet, at this point, my money says Obama joins Jimmy Carter on the list of one-term presidents.

I’m writing about this stuff because of the financial consequences, and the news is very good. I never doubted that America would eventually rein in the big spenders and return to fiscal sanity.

I predicted a hard tack to the center when Barack Obama was elected. I also predicted that the health care takeover would not succeed. I didn’t predict, however, that this failure would be so hard and so fast.

The reason I was wrong about the timing was that I didn’t expect him to abandon his centrist campaign promises so completely. I had assumed that he would govern as a pragmatic opportunist, not one of Eric Hoffer’s “true believers.” And I lost faith in my own judgment regarding health care, believing that some watered-down version would pass. Even that outcome is now in serious doubt.

Regardless, the consequence of this shift is extremely positive for the economy and investors because the administration’s ability to expand government has been abruptly curtailed. After unnecessary and public humiliations over the Chicago Olympics, Copenhagen and Massachusetts, the president’s currency is looking a lot like the Venezuelan bolivar.

While the president promises to double down and keep fighting for his progressive goals, Democratic moderates are abandoning ship. Rep. Marion Berry of Arkansas, for example, is only one Democrat who has decided not to run for re-election in this climate of backlash. He now openly mocks the president’s belief that he can prevent a massive shift to the Republicans in the 2010 elections.

So let’s discuss the benefits of these developments. Primarily, we will now see a coalition of Republicans and moderate Democrats grow in power. This means that the most radical of the administration’s legislative goals, cap and trade and a government health care takeover, are almost certainly shelved.

This is extremely good news because cap and trade was an economy killer even in good times. Moreover, it would have had no impact on climate. I believe, as do many scientists shut out of the corrupt U.N. process, that CO2 does not drive climate change. Even if you believe it does, however, many environmentalists have pointed out that the legislation would have no appreciable effect on CO2 levels. Cap and trade was always about raising taxes and delivering control of industry to the intellectual classes.

Incidentally, China and India have confirmed what I predicted. They will not sign even the toothless Copenhagen climate accord. This is the final nail in the U.N.’s effort to institute global governance based on climate concerns. Interestingly, the Indian media credit the vote in Massachusetts for their government’s decision to repudiate the U.N. power grab.

I can’t express how happy this makes me. Economic growth is the only solution to the enormous debt overhang that has been foisted on us by both our political parties. It’s also the solution to most of the developing world’s challenges. Like it or not, all economies have been globalized to one degree or another. Growth in Asia and South America will have beneficial impacts on your portfolio.

We can now expect the administration to start talking about the economy. Unfortunately, the enormous pork-barrel stimulus package and the debt it has entailed has already depleted the fiscal arsenal. Fortunately, two-thirds of the so-called stimulus package has not yet been spent. If Obama were to support the repeal of that spending and institute tax breaks, he could probably accomplish the same thing that JFK did when he faced a lousy economy. A CNN poll just showed that 56% of Americans favor doing so.

It is particularly meaningful that Nebraska voters forced Ben Nelson to take the special advantages he won for the state from the health care bill. Americans are clearly willing to forgo politically gotten gains. Obama himself is now talking about “deficit reduction,” though starting a year from now.

Without spending cuts that I doubt he will support, that’s a synonym for “increased taxes.” The Tea Party movement, which now has higher voter approval than either major party, probably won’t allow that to happen.

Incidentally, it has taken one of the most liberal representatives, Dennis Kucinich of Ohio, to point out the damage liberals have done to themselves by disparaging that movement. He said, recently, “I met with people who were unfairly ridiculed as being just a bunch of Teabaggers and, frankly, they had basic economic concerns just like everyone else, they felt that government wasn’t listening to them, and this is where the Democratic Party better wake up.”

Whether or not one agrees with the movement, the individuals have been alienated by those who insulted them, and this includes the failing media as well as the president.

Anyway, the bottom line is that we’ve turned an incredibly important corner. The delusion that the smart kids could solve all our problems if they just had enough power has been brought back under control, at least temporarily. We will pay the price for the foolishness of the last decade for some time, but lessons have been learned.

I hate to be the optimist in the crowd, but I predict that people will look back in a few years at this as an enormously positive time. Breakthrough technologies will have powered investors and the economy to new financial heights.

The weakness of economists is that we cannot imagine the true nature of exponential growth. In my lifetime, I’ve seen enormously intelligent economists consistently underestimate the ability of free peoples to solve problems. They are making that mistake again now.

Significantly, these lessons are being learned all over the world. The Obama administration’s message has always been that America should be more like Europe. This is contrary to the message of other great Democrats, like JFK. America took that turn toward European-style mixed economies. We did it disastrously with our banking system and then unsuccessfully with health care. And the world has noticed.

If you’d like a little pick-me-up, there’s a great article in The Economist. An excerpt: “America’s most vibrant political force at the moment is the anti-tax Tea Party movement. Even in leftish Massachusetts, people are worried that Mr. Obama’s spending splurge, notably his still unpassed health care bill, will send the deficit soaring. In Britain, where elections are usually spending competitions, the contest this year will be fought about where to cut. Even in regions as historically statist as Scandinavia and southern Europe, debates are beginning to emerge about the size and effectiveness of government.”

My old friend Leonard Read, who brought Austrian economics into the U.S. and funded Ayn Rand when she was writing her first novel, had something to say about times like this. Paraphrasing, he said that three steps forward in human progress are inevitably followed by two steps backward. Yet thousands of years of history have shown that those two wrong steps are always followed by another three that lead to increased freedom and prosperity.

It’s nice to be moving in the right direction again.

Patrick Cox

January 28, 2010

The Daily Reckoning