Monday, November 21, 2011

Tea Party - 3, Keynesians - 0

The debt committee did not fail. In order to fail, something has to not do what it was intended to do, and I contend that the debt committee was intended to end in exactly the way it announced today. Essentially, it was a means to force Congress as a whole to finally admit that consensus on a debt reduction deal is unreachable in the current situation. Why is this admission another Tea Party victory? Well, let's recap what the various groups in Congress want and who they represent, and then examine the effects of the debt committee's success at failing on each group and its policy hopes.

The Keynesians

Despite their infinite bickering, mainstream Democrats and Republicans actually back the same economic model; a Keynesian model in which most of the economy is privately operated but its funding is essentially funneled through the Federal government. Providers of essential services like food, health care, and housing are private entrepreneurs, but service recipients are heavily funded by government-subsidized entitlements to pay for their services - such as Food Stamps, MediCal/Medicare, Agricultural Subsidies, HUD subsidized housing, and so forth. Industry, including both civil and defense manufacturing as well as retail and other forms of distribution, is also performed by private corporations, but these, too, are heavily subsidized by stimulus, corporate welfare in the form of "development grants", and frequent bailouts for failing megacorporations such as auto-industry giants and Wall Street banks, lauded as attempts to protect jobs and consumer security. Tax rates are largely irrelevant in this system. It has been proven time and again that the wealthy don't actually pay taxes - they dodge the majority of their obligations though loopholes and deductions, then get the rest of it back and thensome through corporate welfare, stimulus, and subsidies. The poor are virtually exempt from taxes altogether, except miniscule contributions to entitlement programs that they disproportionately rely on. The middle class, of course, does not come close to paying at the rates assigned to it either, but it does get stuck with an unfair share because it gets the fewest exemptions and the least tax-funded welfare. Without a detailed lecture on why this economic model is disastrous, the only REAL divide between mainstream Democrats and Republicans is where to direct the Keynesian benefits when they are in short supply, which is the inevitable result of Keynesianism's colossal inefficiency and the shortages created by multiple cycles of borrowing and rationing. Mainsteam Republicans - affiliated with special interests of industry and defense - favor cutting entitlement spending, whereas the Democrats - affiliated with special interests in banking and the variety of subsidized service providers (agriculture, energy, health care, housing), want to cut defense spending and reduce some of the direct corporate stimulus that benefits industrial corporations, such as the Bush-era "tax cuts". Tax rate increases, such as the sick joke called the "Millionaire tax," are almost entirely for show in the solutions proposed by both; they primarily pretend to levy heavier contributions on the wealthy who will dodge them, disadvantaging the upper middle class while producing negligilble revenue increases. Arguably, the two Keynesian factions could reach a compromise with each other with relative ease by dividing the costs between their special interests, but such a compromise would preserve the structural failure of the system by protecting the inefficient special interests who thrive off unfair tax loads on the middle class and overpriced, rationed services provided to the poor. The election of the fringes on both sides is arguably a rebellion against this false Keynesian dichotomy.

The Progressives

The growing fringe on the left, with ideas arguably sympathetic to the emerging Occupy movement, prefers a more socialism-like model. It is obstinately opposed to any real cuts to entitlement spending, but a redeeming factor is that it favors an honest attempt at forcing efficiency and accountability out of the tax-subsidized providers and banks or even the direct provision of their services by government agencies. As far as taxes, Progressives are less interested in rate hikes and moreso in the elimination of loopholes and stimulus to make the wealthy actually contribute their share. Unfortunately, this system is as impractical as it appears well-intentioned and fair. While it may provide more equality, it would destroy what little efficiency is left in the US economy. Actually forced to pay their taxes, the wealthy simply leave or move their money abroad - the disastrous experiment of the Eurozone is demonstrating this exact effect and the powerlessness of regulations to prevent it. Government forcing efficiency out of providers or providing efficiecy itself is also a fairy-tale as proven by every macro-socialized service model in history, and premium-free services guarantee over-consumption in which the poor would use them more and most of the middle class would become recipients. These combined effects result in even greater shortages than Keynesianism although they are more effectively rationed, essentiallu ensuring EVERYONE starves to death together, which of course results in famine-driven rebellion that breaks the system. Despite its disposition to an unrealistic utopia, this small fringe effectively refuses to sign on to any deal that cuts entitlements and does not include provisions to stop stimulus for the wealthy, a crucial piece of the equation that keeps the Keynesians from reaching a majority that overrules the larger fringe on the right.

The Tea Party

Largely favored by the middle class, this fringe is primarily opposed to smoke and mirrors fixes such as the raising of tax rates. Sure, a move from 15% to 20% would not actually force any middle class person to pay 20% of their income in taxes, but it may force them to go from paying 6% to paying 8%, which is a significant increase that does nothing to fix the economy, and keeps a flatrate of 0% taxes on the wealthy. This fringe is sympathetic to the Progressives' idea of eliminating loopholes and deductions in the tax code, but seeing as it represents people who actually PAY taxes, it wants this balances by reduced rates, because the inflated rates intended for the rich would be quite unaffordable for the middle class without any deductions. This fringe is equally opposed to continued borrowing to keep funding the unsustainable antics of wealthy Keynesian beneficiaries, because when the system inevitably breaks down as Europe's has, the middle class will carry most of the costs. This fringe loves spending cuts in all areas and is quite indifferent to how they are distributed as long as they are deep, permanent, and not balanced by tax hikes on the middle class that continue to exempt the rich. The Tea Party favors a non-interventionist foreign policy that does not require colossal defense budgets, it would love to see corporate stimulus go up in flames because that insulate its large business competition from market forces, and it sees entitlements as wasteful and inefficient and often as corporate subsidies, correctly emphasizing that without their inevitable effect of inflation and shortages, MOST recipients would be able to afford private services in a world that eliminated them as long as corporate stimulus was also axed. Hence, this fringe refuses to agree to any deal that raises tax rates or does not axe large amounts of government spending and intervention. While it does not hold a majority, the other 2-3 groups would have to come together without it to get one.

Political and Economic Implications

So, we've entered an age of indefinite stalemate and economic uncertainty, right? Not quite. The continued stalemate is beneficial almost exclusively to the Tea Party fringe. Stimulus is not actually enough to keep the corporations on both sides of Keynesianism alive, merely to insulate them from competition and drive investor certainty in their solvency. The consistent stalemate is very destructive to these special interests, as investors dump their stock like yesterday's garbage because they are famous for their inefficiency and it is no longer a given the government will assume their obligations if/when they fail. This is why they have instructed their pet politicians to give in to the Tea Party in the 2 budget stand-offs this year once the Tea Party made it clear it would not be deterred by the prospect of a shutdown - an event that cuts off the special interests' money supply and breaks investors' confidence in them. The blow of the debt committee deal may have been the final KO delivered to the Keynesians by the Tea Party. Undeterred even by the prospect of a default, they essentially forced the center to vote in this doomed-to-fail fix, and now the special interests involved face trigger-cuts that, while delayed, will be a consensus nightmare to repeal or redirect. Recalling that uncertainty and inconfidence, rather than direct lack of government subsidies, are the silver bullets for these monsters, you will realize that their bankruptcy is now a looming and realistic threat. As for the Progressive fringe, the effects of this stalemate on them are somewhat neutral. Their most sacred cows remain out of the crosshairs, specifically the government-operated Social Security, and may actually stand a chance of enduring the crisis if special-interest run entitlements bite the dust; while they like those entitlements, said special interests are their enemies too. However, the entitlement crunch will produce a period of constriction that will be difficult for the poor between the breaking of special interest providers and the emergence of affordable non-entitlement ones. While this is sad, it is an unavoidable cost as the existing system is simply unsustainable, and many of the Progressive politicians are professionals first and ideologists second, realizing that this is a better option for them than to empower the Keynesians against the Tea Party.

As for political impact, please don't buy into the hype that this stalemate will be hanged disproprotionately by voters around the neck of one party or the other. Yes, the Republicans have lost some of their popularity in the last year, but their numbers had nowhere to go but down, if you recall their electoral sweep in 2010 and the fact that they went from an almost irrelevant minority to a powerful player. The Democrats, on the other hand, are even LESS popular now than they were when they had a triumverate and supermajorities in both houses, even Bush Jr. didn't have the incompetence to accomplish THAT. Every political prognosis based on quantitative statistics rather than the unrepresentative ranting lunacy of biased voters in forums and media does NOT predict significant changes in the balance of power in either House of Congress. Republicans MAY take the Senate because more Democrats are up for re-election, and Senate Democrats are more unpopular, but their majority would be as insignificant as the current Democratic one, maybe 1-2 seats. Democrats are likely to make some gains in the House, but not remotely enough to take control of it. The Presidential election is still WAY too early to call as the Republican nomination is anybody's ball game and the possibility of a far-left challenge to Obama is not completely out of the question. A lack of power shift coupled with the extreme unpopulartity of both parties means the real change will occur within each party, namely a magnified 2010 effect of incumbents and establishment candidates for open safe party seats dropping like flies in the primaries, for a combined shrinking Keynesian center and embellished power of both fringes. The days of this party system and its accompanying economic insanity are numbered, and their end can't possibly come fast enough.