Catastrophe (10 page)

The Obama plan injects a further element of uncertainty in that no business will really know if it is “too big to fail” and, hence, subject to another round of regulatory scrutiny. And what about the future? At what level of growth will a firm’s success be punished with such a designation? And what will that mean?

All these factors tend to freeze economic activity as businesspeople wait for the regulatory gavel to fall.

In late March, President Obama appointed a task force, headed by former Federal Reserve chairman Paul Volcker, to recommend sweeping changes in the tax code. The panel was charged with the mandate of making its recommendations by December 2009. The very breadth of Volcker’s assignment implies that huge changes are in the offing, potentially affecting every aspect of business and personal activity—adding to the uncertainty that is already paralyzing corporate and individual economic decisions.

What businessperson in his or her right mind would embark on a major investment without knowing what the tax consequences will be? And how many people would feel comfortable deciding to buy a home or making an investment without knowing whether they’ll be able to deduct the mortgage or depreciate the investment?

The price of Obama’s spasmodic efforts at reform will be paralysis of just the sort that prolonged the Great Depression in the 1930s.

The possibility of new rules about labor union organizing is another area that creates uncertainty. Later in this book we’ll discuss Obama’s card-check unionization proposal and his demand for compulsory arbitration to resolve impasses in labor contract negotiations. Any business contemplating expansion in the United States has to wonder whether Obama’s proposals will lead to unionization of its new factory or workplace. Just as the Wagner Act, passed by FDR in the mid-1930s, raised the likelihood of a new, unionized environment for business, so do the Obama proposals—another source of uncertainty that could lead to the postponement of business decisions and short-and intermediate-term stagnation.

Finally, who knows what the president will come up with tomorrow? What new proposals will he make, and what will their impact be? The president cannot expect to change every aspect of the regulatory environment and the relationship between the economy and the government without curtailing exactly the kind of spending and investing that he most needs to help the economy.

Obviously, Obama is motivated by political realities; he’s trying to act while he still has control over all the levers of power. But we must all realize that by indulging him and permitting these far-reaching changes, we are only lengthening and deepening the current crisis.

Some of Obama’s proposals are necessary. We do need to regulate non-bank financial institutions; it is absurd that we scrutinize (though inadequately) the activities of banks but not of brokerage houses. But to every government action there is a season. And this should be a time of stability, a time for business expansion and investment to be encouraged, not under-cut. There will be time for change once the crisis has passed.

Unless, like Rahm Emanuel, you believe that “no serious crisis should go to waste.”

THE EUROPEAN IDEA IN OBAMA’S HEAD

With his emphasis on principles such as income redistribution, increased spending, and heavy taxation of the rich, Barack Obama is marching to the beat of a different drummer—a European drummer. These are the con
cepts that animate the social democracies of the Continent; they are foreign to the American traditions of democracy, independence, and limited government.

The economist Jeremy Rifkin echoes many of Obama’s ideas in his new book,
The European Dream
. He tells us that the American Dream is defunct and that its natural successor is the new European model. Rifkin discusses the differences between American and European attitudes toward income redistribution.

In Europe, Rifkin goes on to explain,

It is exactly this concept of a social democracy that seems to form the central element in President Obama’s thinking. Certainly his evocation of class consciousness clearly imitates the European model.

Europeans, for example, have no problem with taxing the rich. Their marginal tax rates—the percent of income of the richest people that the government takes—are significantly higher than they have historically been in the United States.

But after Obama passes his tax program, the top rate in the United States will rise to about 49 percent. And when he passes his program to eliminate the cap on the Social Security tax, it will soar into the low 60s (counting state and local taxes) bypassing all the European nations listed above!

The European bias against the rich is so ingrained that French president
Nicolas Sarkozy recently spoke of the need to “reconcile France with the idea of success.”
⁹⁵

Part of Americans’ traditional love affair with success—and Europeans’ empathy with poverty—comes from their differences over what causes people to move up or down the career ladder. Rifkin quotes the Pew Global Attitudes Project’s observation that “two-thirds of Americans believe that success is not outside their control…. Asked why people are wealthy, 64 percent of Americans say [it is] because of personal drive, willingness to take risks, and hard work and initiative.”
⁹⁶

And why do others fail? When asked that question, 64 percent of Americans cited a lack of thrift, 53 percent ascribed the failure (at least in part) to a lack of effort, and a like percentage said that failure was due to a lack of ability.
⁹⁷

But Rifkin notes that “in Europe, a majority in every country—with the exception of the U.K., Czech Republic, and Slovakia—‘believe that forces outside of an individual’s personal control determine success.’” In all, 71 percent of American respondents “believe that the poor have a chance to escape from poverty.” Only 40 percent of Europeans polled agreed.
⁹⁸

Obama’s emphasis on income redistribution and his determination to
use the tax code to promote it may earn the ire of Joe the Plumber, but it draws applause from Europe.

The fact is that Europe desperately needs Obama. When François Mitterrand, a Socialist, became president of France in 1981, he nationalized a broad swath of French businesses and industries and embarked on a vision of achieving socialism in France. Predictably, French capital fled to Margaret Thatcher’s Britain and Ronald Reagan’s United States, where free markets and low taxes predominated. Stung by the resulting one-country depression, Mitterrand had to reverse field only two years into his term and reprivatize most of the companies the government had taken over.

Europe’s Left learned its lesson: it is virtually impossible to launch socialism in one country when there are competing models nearby. So it began to focus on integrating all of the continent’s economies into the European Union (EU) and moving it toward socialism. The ethos of eight-week vacations, paid pregnancy leaves, abridgement of the right to fire workers, and a host of other leftist policies gained broad currency throughout the EU.

But one problem remained: the United States was not on board. Stubbornly pursuing free-market and minimal-government policies, Washington benefited from a massive outflow of capital and jobs from Europe to the United States as employers and the wealthy fled the high taxes and intrusive regulation of the European Union.

Now that Obama is bringing U.S. tax policy (and soon regulatory policies) into sync with those of the European Union, the socialists are euphoric. Their problem is solved. They can go ahead building their continental utopia without having to trim their sails for fear of competition from across the ocean.

The European goal Obama seems to be pursuing runs distinctly counter to the traditional American Dream. Jeremy Rifkin adroitly emphasizes the differences:

Follow Rifkin’s list, and you will see Obama’s program as it takes shape:

By raising taxes on the wealthy and using the money to fund government spending and tax reductions for the middle class and the poor, Obama is leading the United States very close to the European model of social democracy.

His goals belie the power of the markets and undercut our work ethic. The individual drive to work hard, make money, and move up is not the European ideal—and it is not Obama’s either.

To understand where the European philosophy leads, consider the reduction in the work week. Led by the Socialist Party, France cut its work-week to thirty-five hours in order to share job opportunities and reduce unemployment. Rifkin noted that “the French experiment is particularly interesting because it defies the American logic that hard work and long hours on the job are indispensable to achieving productivity gains and a better quality of life for working people.”
¹⁰⁰

It’s all well and good for labor unions to win shorter workweeks. Most Americans figure that this means that you get overtime faster and get more of it. Not in France. There, it is
illegal
for an employee to work more than 180 extra hours per
year
(that’s about 3.5 hours per week) without a collective bargaining agreement. Illegal! Not only don’t you get rewarded for doing extra work in France, you can actually be punished for it!

This is socialism at its worst.

Has it ever occurred to the European socialists that some people like to work? That “deep play” is not preferable to hard work? That taking a vacation may be well and good but that the sense of accomplishment and fulfillment that comes from creating something with our hands and brains affords a more lasting pleasure?

And in this universal society of human rights, don’t we have a right to work, to create, to apply ourselves—even if it drags on for more than 180 extra hours a year?

The dumbing down and mediocrity that underscore this kind of socialism are hard to take. They run counter to every fiber of the American spirit. But they are the logical extension of where Obama wants to take us when he imposes tax rates that are prohibitive and discourage us all from working hard.

As if that weren’t enough, Charles Murray, the W. H. Brady Scholar at the American Enterprise Institute, has articulated an even greater divide between European and American attitudes—and a greater challenge to those who want to keep our side of the Atlantic filled with our traditional approaches to work, family, and life.

Noting the rapid decline in European birthrates, Murray has predicted that “the European model can’t continue to work much longer. Europe’s catastrophically low birth rates and soaring immigration from cultures with alien values will see to that.”
¹⁰¹

He points out that these low birthrates, well below those necessary simply to maintain Europe’s current population, exist in countries “providing generous child allowance, free day-care centers, and long maternity leaves.”
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