Needed: A New Economic Paradigm not “Obama’s Class Warfare and Destruction of Capital Plans”

An Editorial Board opinion from an “irate TBP member”

Obama’s jobs plan and deficit reduction plan are dangerous, high risk social experiments that will result in government’s continued destruction of capital, which capital is needed to expand the economy and put people back to work. Given the current extreme national debt and out of control government spending, Obama’s war on capitalism needs to end. Cut spending to a level that can be managed, including debt service. Increase revenues not be raising taxes and destroying capital, but by expanding the economy, creating capital, and increasing revenue. 

Deficit spending has long been a tool of government, but never to the extreme Obama has expanded it. While the current fiscal mess has been building for many years across a lot of administrations in Congress and the White House, finger pointing is a waste of time and resources. The harsh reality is that China’s economy is projected to surpass ours in about five years, at which point it will be virtually impossible to finance an economy based on deficit spending. Five years does not leave much time to get our budget under control. Destruction of capital is not the answer. America needs a new economic paradigm. 

Obama’s destructive plans are based on fomenting “class warfare” which Obama admitted on Thursday, September 22, 2011:  “[if asking rich people] to pay the same tax rate as a plumber or a teacher is class warfare, then you know what? I, I, I, I, I’m, I’m a warrior for the middle class.” I almost tossed my cookies when I heard that one. Obama seemed to choke on his words as well. This is a blatantly misleading statement. 

There are two basic income taxes: ordinary income, where everyone pays a graduated rate increasing as income increases – their “fair share” (the rich already pay a higher percentage); and capital gains, a taxpayer incentive to invest (put capital at risk in exchange for favorable tax treatment) where everyone pays the same, lower amount. When the two are averaged, the combined rate will depend on the total mix of ordinary income compared to capital gains. Wealthy people tend to have a higher percentage of capital gains versus ordinary income (because their higher income leaves more to invest), which skews the average downward. In extreme cases, the average tax rate for an ultra wealthy person can be lower than the average rate for “normal” taxpayers. Should this averaging anomaly justify penalizing success and creating a disincentive to invest? America was built on individuals and free markets determining the growth markets, not the government (can you say ‘Solyndra’?). Is Buffett asking to have his capital gains rate raised? Obama’s plans are not any kind of math we learned in school, his protestations notwithstanding. 

Obama clearly lacks understanding of two very basic economic principles. 1.  The private sector creates jobs, not the government; 2. The private sector creates capital through the provision of goods and services while government takes capital from the private sector and redirects it by spending, cutting taxes, and/or giving it to foreign governments. 

The model for redirecting capital by spending or cutting taxes, also known as “stimulus,” is really the same for both sides of the aisle and no longer works. The common name is “trickle down – both parties push stimulus at the top of the economy hoping the benefits “trickle down” to us “little people.” The Left wants to use “stimulus” (private sector capital) for government-funded projects, which typically means contracts to big union-supported businesses to repair/build roads, bridges and schools. The theory, of course, is that new projects equal new/better jobs, which, in turn, would allow people to buy more goods and services, and more tax revenue.

Coincidentally, unions tend to vote democratic. The Right, conversely, tries to stimulate by plowing private sector capital back into the economy through tax breaks hoping “job creators” will create more jobs, so more people will have more money in their pockets, which would allow them to buy more goods and services, and produce more tax revenue. Coincidentally, “job creators” tend to vote Republican. If the Republican view will cripple America, then so will Obama’s and the Democrats’, as they are functionally the same. Why this political pingpong match no longer works will be the subject of a separate article. For now, the short answer is that the economy has evolved and growth must sprout from the ground up, not the top down. 

How does the Obama plan destroy capital? The U.S is underwater with debt which means Obama and Congress must understand and accept that the traditional market principals applied in good times are not necessarily what one does in our current fiscal position. The government just approved borrowing an additional $2.4T, which money will be taken in over the next 15 (plus or minus) months. The government plans to pay it off over the next 120 months by cutting spending! Here is the real math: the government is currently spending roughly $200B more than it takes in every month (which is why it needed $2.4T to cover the next several months).

Fifteen months from now, unless our spending is reduced by $200B per month, the government will be unable to pay its bills and will have to borrow more money as it will have exhausted the most recent $2.4T of new debt. Obama doesn’t want to cut spending by that much. Instead, he wants the wealthy to pay more in taxes. Obama will try to cut only $100B per month and cover the shortfall by new taxes on the “rich” and hidden taxes and fees on the rest of us. The money taken in taxes and fees, of course, can only come from private sector capital. The money, however, will not be redirected back into the U.S. economy, but paid to creditors, most of them foreign governments. That capital, therefore, is destroyed as to the U.S. economy because it is no longer available. By pulling $100B per month out of the economy, the government will not be stimulating the economy (regardless of which stimulus approach is used), but depressing the economy. 

Obama’s tactic of class warfare to get reelected is despicable and transparent (ironically, probably the most transparent aspect of his confused presidency). Regardless, couching his attack on success and wealth as “fairness,” his new code word for “redistribution of wealth,” is a good election year sound bite, but a fiscal disaster if enacted. 

The solution is obvious to most Americans, as is the reality that reigning in the government’s out of control spending will be hard. For some reason this is lost on politicians who seem more interested in self service rather than public service. Cut spending to a level that can be managed, including debt service. Increase revenues not be raising taxes and destroying capital, but by expanding the economy, creating capital, and increasing revenue. Government needs to get out of the way.

The Bold Pursuit is pleased to introduce a new feature, TBP Editorial Board. The Editorial Board will publish our members’ opinions on current political and economic issues. The Editorial Board is a feature in development, so please email us with your ideas and suggestions for TBP EB (the email submission form is in the lower left-hand column. ~ Clio)

The American Blame Game …

by Cam Vallee 

I am sure it is one that is coming soon to a station near you. It has been played so well and so often by the Obama administration that it may even become a number one hit on the television channels on ‘your side of the fence.’

Watching this game being played from my side of the border, I remember all the times Bush played the game. Remember when he stood up and blamed the Clinton Administration for 9/11? After all, it was Clinton who had the first clear shot at Bin Laden and when told this, he decided to let the fool live. Who was the fool in the end, eh?

Then there was the financial disaster. It was Clinton’s administration as well that took all the financial guards off of your lending in America which led to the huge crash in the market – with some probable help from the likes of George Soros. Remember when Bush blamed Clinton for that, as well as every hangnail he had?


That’s because none of the above EVER HAPPENED.

When Bush took office, he accepted all of the responsibility that went with it –  past and present – and blamed no one but the evil doers. Not once did he ever go out of his way, while in office, to disparage Clinton. Bush has also stayed silent while this current administration continues the onslaught of blame that is misplaced and starting to sound like a broken record. If Obama did not have the courage to take responsibility for the office of President, then why the hell did he run for the office in the first place?

To create havoc in the American political arena it would seem. To stir the pot and pit American against American. To start a race war and to try and get you to take your eye off the ball while they regulate your country to death with rules that are made by unelected officials – completely circumventing your Congress and Senate. To expand your government and strangle the dependency of the people in it which weakens the intent of your rights as free men and women of the world. To hang a socialist collar around your neck the way we did here in Canada over fifty years ago. To bring the greatest nation on earth to its knees by cutting off the independent nature that has always stood you well.

To make you like the rest of us; dependent on Government handouts instead of the ‘hands up’ they should give us when we need them. We have had enough of this in Canada and, in less than a year, organized ourselves to take control of our political arena again. 

In just over a year, your country will make a choice to either correct the Obama mistake or carry on with it. It surely goes without saying that you cannot afford another four years of this pretender. My question to you, my American neighbours, is where the hell are you? Have you stepped up to engage fellow Americans in conversation regardless of whether it is with the next door neighbor or online? Have you volunteered to help with voter registration to make sure as many as possible get the opportunity to voice their opposition to this administration or are the Obots going to walk on water again?

What have you done? 

What are you doing? 

What will you do to make sure this mistake is righted in 2012? 

It is time to take up arms with the strongest weapon those of us in the free world have – your voice and your vote. The one thing we have too little of in life is time and the clock is ticking.

Just a view from my side of the fence…

I am, as always, your Northern Neighbour,

Cam Vallee 

Obama Jobs Speech Was Another Political Stunt

by Jim Mullen

In another Barack Obama bizarre performance, he left a joint session of Congress and the American people stunned by his empty, unimportant triviality. His jobs speech ended as it began, an eloquent oratory to economic nowhere.

This latest political stunt diminishes another long-held tradition of using a joint session of Congress for vital American interests. He brings time-honored national traditions and the office of the Presidency down to his level of classless Chicago, street politics.

Once again, the President used his tax-and-spend monotone, replete with words of class warfare. His code words and phraseology always crowd the message anytime he opens his mouth. “Paying their fair share”, “investment,” and “winning the future,” are favorites. He tried to disguise his economic sameness by changing the inflections of his words but presented nothing new.

There is nothing new to an ideologue who believes all job creation begins and ends with big-government financing and regulatory control.

This entire dramatic exercise was political grandstanding at its worse, intent on distracting American voters from the sheer folly and dismal failure of his policies. What’s more, the plan pumps stimulus money into his base to coincide with next year’s election. It is a plan to buy an election, pure and simple, by using bailouts and payoffs.

If it wasn’t bad enough for the country to suffer through another vintage Obama speech of artful dodging of the truth, more deception and rope-a-dope, he followed that performance with another Rose Garden ceremony staged with life-like Democratic mannequins and puppets, praising the genius of their benefactor.

All of Barack Obama’s speeches follow a script feeding his own self-importance. What better way to stroke his giant ego, than with feigned applause and fawning, adoration of a Congress held captive to his whimsical fantasies. We should take this exercise as seriously as a comedian should take canned laughter to a monologue of jokes.

Seeing his approval numbers spiraling down the economic drain, he knew he must quickly shift his Marxist-mobile into a higher gear and press the accelerator on his class warfare, anti-capitalist rhetoric.

In one of his best theatrical performances, he delivered a clear warning to Republicans for all Americans to hear; get in step and follow him into his Marxist abyss, or you stand in the way of job creation.

Hanging like a pall through the capitol and over the airways, we heard the dreaded words to which Obama is infamously attached – the snake-oil salesman’s favorite – “You must act now!” Precisely, the words he used to foist the Obama-care disaster, the first stimulus, the banking debacle, and all the bailouts upon an unwilling country. All of which resulted in the massive unemployment and miniscule growth of the economy we are experiencing nearly three years into his administration.

The American people and their Republic are in mortal danger from Obama’s unbounded arrogance and ineptitude. For the first time in American history, we hear an American President deny American exceptionalism to the world, repudiate free enterprise and then glorify Marxism.

Brazenly, he tries hammering another stimulus program through Congress and steamrolling a populace long tired of his trillions of dollars of debt piled on future generations of Americans.

Obama’s Stimulus-2 proposal is a mirror image of Stimulus-1. However, instead of one trillion dollars for two years, this nightmare is a half-trillion dollars for one year. As with all of this President’s proposals and policies, there is nothing to diminish the burden on the real job creators, the private sector, or to mitigate the cost to taxpaying Americans and their families.

When Obama speechifies about jobs, he invariably means increasing the size and scope of government. In other words, he means public-sector, union jobs. One must always remember that Obama and unions represent unions, not American workers. The only way to create permanent, private-sector jobs is to create a business-friendly environment by reducing taxes and regulations; the exact antithesis of the Marxist philosophy espoused by this President.

President Barack Obama has one chance for reelection. He must ask the voters a simple question, “Are you going to believe me or your lying eyes?” He must then go into a full attack mode by telling the most outlandish lies, defending the indefensible and demonizing Republicans.

This speech and his new jobs plan are just chapters in the Obama reelection saga. Prepare for the onslaught of nonsense, hyperbole, and brazen lies by the administration, leftist Democrats, and the Obama mainstream-media machine. We will never again witness such extremes in the art of blaming others and making excuses for utter incompetence.

Jim Mullen

Time For Republican Jujitsu On Social Security Status Quo

by Eric Singer


Years ago, my young teenage daughter turned to me at the dinner table and said, “My social studies teacher wants me to talk tomorrow to the class about Social Security. Do you have any ideas that I could use?” Remembering her progressive teacher, I replied, “Why, yes I do.” 

The next day she told the class how Social Security worked and how people paid money in and eventually sometimes got their money back or more. And then she told the teacher in her best Gossip Girl voice she thought it was “mean” that on average people got only 1% back on their money when banks were paying 5% on everyone else’s savings.
“Who took the other 4%?” she asked. “That’s enough,” he replied, “sit down.”
But now we have an entire country where short-term rates have been fixed at zero by the Fed. Not just Social Security beneficiaries, but every saver in the country is now asking, “Who took my interest?”
‘Financial Repression’
Bill Gross of Pimco calls it “financial repression” when savers are forced to get a below-market rate for their interest. Recently, Texas Gov. Perry called Social Security a “Ponzi scheme.” The SEC website says: “With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”

With 78 million baby boomers starting to cash out, each entitled to benefits at age 62 continuing for over 22 more years on average, Social Security fits within the definition of a Ponzi scheme. Just because the government can currently coerce new participants doesn’t mean today’s young workers want to pay in or that boomers won’t want their cash. It’s not self-sustaining as originally presented.

President Obama has included in his major jobs initiative a proposal to deepen the existing cut in the payroll tax from 2% to 3.1% — for one year only. In his Keynesian vision, the average household with $50,000 income will immediately spend most of the $1,500 saved in taxes.

However, an honest economist will tell you that when tax cuts are temporary, people tend to hoard the savings and not “jump-start” the economy by spending the proceeds. And with the S&P downgrade of the U.S. debt, many Social Security participants are starting to discount their ability to get all, or even any, of their promised benefits. This is the opposite of a wealth effect: it’s a loss effect.

Republicans are concerned that opposition to this cut will be painted as mean-spirited to poor people. It’s time for jujitsu on this issue. Let’s use the 3.1% cut to open up private savings accounts (PSAs), and make the payroll tax cut permanent. Let that permanent account accrue capital gains, interest and dividend income in perpetuity without any tax.

Tax-Free Savings

As a nation, we have a collective memory of what it was once like to earn interest on savings. If you are 35 years old today, and can save an extra $1,000 a year tax-free for the rest of your life, that is something much more valuable than a one-year tax cut. And if you know it can never be taken away from you, those animal spirits start flowing.

Even better if in the back of your mind you think it might earn interest again someday. A rough discounting of all these benefits back to the present totals thousands if not tens of thousands of dollars, far more than the temporary cut.

It is here that the Chilean experience, recently mentioned by Herman Cain, is so compelling. Jose Pinero, the architect of Chile’s PSA plan, described his office secretary as having saved $400,000 through a PSA, or enough to buy a new house and have a good pension, or to buy two or three houses.

By comparison, the average retiring U.S. worker has a net worth of $50,000 from private savings, enough to buy a third of our average house, but only gets a small payment from Social Security. Relative to their expenses, the Chileans seem to be several times wealthier than we are. In fact, they are rated AA and rising and we are rated AA+ and in danger of falling further.

Wealth Effect

What does all this mean for the short-term policy fight over jobs? It means that letting workers keep an additional 3.1% that they can put in PSAs will do the most to make them feel a true wealth effect.

The Republicans should agree with President Obama about cutting the Social Security tax, propose eventual adjustments to benefits but emphasize letting Americans use their savings to start to privatize Social Security. There is no time like the present for letting this camel’s nose into the tent.

Eric Singer is Portfolio Manger of the Congressional Effect Fund (CEFFX) which only invests in the broad stock market when Congress is on vacation. Learn more at Reprinted with permission from Investor’s Business Daily.