Senator Paul, I Beg to Differ

In his questioning of Secretary of State Hillary Clinton regarding the attack in the U.S. Consulate in Benghazi, Libya, Senator Rand Paul said: “had I been President at the time and I found that you did not read the cables from Benghazi, you did not read the cables from Ambassador Stevens [regarding security concerns] I would have relieved you of your duties.” I doubt it.

Rand Paul is a political zealot. Rand Paul is committed, above all, to his political ideas. He is not merely an obstreperous jerk (as some liberals unfairly claim), but is committed to his ideals because he honest believes that they are right. He believes that his views of politics and economics are correct, and if followed will cure many of the nation’s ills. His zealotry is pure, so I cannot fault him for it. I do not think, and would never claim, that he is self-serving or power-hungry. I do not believe that he is in any way. But he is absolutely, positively, completely convinced that his philosophical, economic and political beliefs are correct. And he is burning with passion to impose those views, and the policies that emanate therefrom, onto his nation. And he does this because he honestly believes that those policies will solve many of the nation’s problems. This, then, is a deeply committed partisan ideologue, which in common parlance is known as a zealot.

And like most zealots his loyalty is to his beliefs, and as a result, his personal loyalties are to those who share his beliefs. This is because the only way to achieve the desired political goals is with staunch and unwavering political allies.

And so, if Paul was president (a future scenario that is extremely unlikely) and he had a Secretary of State who was a political ally, and that Secretary of State did something objectionable (like ignore security warnings), I doubt seriously that imaginary future president Paul would relieve that person of his duties. I believe that imaginary future president Paul would fervently defend his friend and ally against scurrilous accusations.

I think that we have some recent history that supports this contention. Did President Bush relieve his national security adviser (Condoleezza Rice) when she ignored national security advisories in the summer of 2001 that said that Osama bin Laden was planning attacks in the United States? No. Did President Bush relieve his Secretary of Defense when it proved that he had completely failed to plan for the post invasion occupation of Iraq? No again.

In both cases political loyalty and ideological compatibility trumped competence. I have little doubt that the same policy will hold true in the imaginary future presidency of Rand Paul.

Rand Paul vs. Reality

In a radio interview yesterday, Kentucky Senator Rand Paul criticized actress Ashley Judd, who some suggest may be considering running for US Senate against Paul’s colleague Mitch McConnell. Paul said that Judd was probably too liberal for Kentucky (which is probably accurate) but then he said “She hates our biggest industry, which is coal.”   

Coal is certainly an important industry in the Commonwealth, but it is hardly Kentucky’s biggest industry.

In fact, from the information I could find, coal mining is a fairly minor portion of the overall state economy. Unfortunately I didn’t find any good, comprehensive data.

But the main point is that it is a bit disconcerting for a Kentucky Senator to so thoroughly misunderstand the economy of his state. If we are to solve this state’s problems, and this nation’s problems, we need to first understand them. That means understanding the factual reality of the issues.

You can’t solve problems on hopes and dreams and wishes. We saw how the Republicans tried to solve the problem of the presidential election based on hopes and dreams and wishes, and it wasn’t a pretty sight. We need politicians who can handle reality, and that doesn’t appear to be Senator Paul.

OK, here’s the data on industry in Kentucky:

According to fortune Magazine, there are Six Kentucky companies on the Fortune 500 for 2012. They are: Humana (Health Insurance), Yum Brands (fast food including KFC and Taco Bell), Ashland (oil and specialty petroleum products), Omnicare (Health Care and Pharmacy services), General Cable(electronics and electrical equipment) and Kindred Healthcare (Health care and medical facilities).

According to the State of Kentucky web site:

Kentucky’s Gross State Product (GSP) during the latest reporting cycle was $156 billion. The largest industry groups, based on their contribution to the total state gross product are: manufacturing, services, government, insurance and real estate, retail trade, transportation and public utilities, wholesale trade, construction, mining, farming and agricultural services, forestry, and fisheries.

Unfortunately I was not able to find anything that more accurately quantified that data.

According to the State of Kentucky Economic Development Cabinet, these are the top employer industries in the state:

2011 Manufacturing Employment

 

According to the State EDC, these are the top ten largest employers in the state:

Top 10 Manufacturers/Supportive Service Companies by Employment

 

Here’s a good pie chart from MACED that shows the employment breakdown by industry in Kentucky.

 

As you can see, Mining accounted for about 1 percent of employment in Kentucky in 2004, and I could not find statistics showing that this number went up significantly. In fact, most data shows that it went down.

This MACED chart was the most inclusive data that I could find on the issue.

How Do You Deal With Morons?

That’s not a hypothetical question. How do we deal with people that don’t recognize facts?

Let’s say, for example, that we are doctors and we have an ill patient. A quick test reveals a bacterial infection, and the standard treatment is a penicillin like antibiotic. But let’s say that another doctor says that he doesn’t believe in modern medicine and thinks the best solution is the application of leeches and bleeding. Most people would say ignore the other doctor. But what if he is the chief resident? Or what if he is a United States Senator and the question is not what to do with a sick patient, but what to do with a sick economy?

Republicans are saying that President Obama’s stimulus package was a complete failure. Senator Mitch McConnell has said it, Republican Senatorial Candidate Rand Paul said it, and Congressional Candidate Andy Barr said it. Here’s a news report that says otherwise:  http://www.reuters.com/article/idUSTRE67N55X20100824

According to the report: 

The massive stimulus package boosted real GDP by up to 4.5 percent in the second quarter of 2010 and put up to 3.3 million people to work, the nonpartisan Congressional Budget Office said on Tuesday. 

CBO’s latest estimate indicates that the stimulus effort, which remains a political hot potato ahead of the November congressional elections, may have prevented the sluggish U.S. economy from contracting between April and June.

That is hardly a failure. Now the stimulus may not have been the best way to revive the economy, it might be bad economic theory, and it might be an inappropriate governmental intrusion into the economy. All of those statements are matters of political opinion. But to call the stimulus a failure is simply false.

And that brings me back to my question: how do you deal with people that do not recognize facts?

How can we address important public policy issues with people who are simply incapable of dealing with facts that they do not like? Would we go to a doctor who does not believe in modern science? Probably not. But the problem is that we have people who are in positions of power who are incapable of believing in facts and much of the modern world. And because of their elected position we have no choice but to deal with them on some level. But how?

I think that the only thing that we can do is to restate the base line facts in every interchange. Every time a Republican politician says the stimulus was a failure, point out that the CBO says otherwise, and then say we can debate the policy but we shouldn’t have to debate the facts.

There is an exercise in philosophical debate called the definitional inquiry. Before any philosophical discussion the parties agree on the basic underlying facts and the meaning of the terms that they will be using. That way they can have a rational debate. The law engages in a similar exercise. Early on in any case the parties have to set out some agreed facts so that the court and the parties know roughly what is in dispute. You don’t want the parties to a car wreck wasting time on issues regarding divorce or defamation. Unfortunately there is nothing even remotely similar in public and political discourse. But there should be. How can we debate the economy, and possibly craft a solution to current economic problems when the parties to the debate don’t even agree on underlying facts? It makes the process impossible. And that it part of the problem with our current national debate on most issues.      

Symptom and Disease

Rand Paul is a doctor. Surely he understands the difference between the symptoms of a disease and the cause. Surely he knows that the only way to cure a disease is to treat the cause and not simply address the symptoms.

In a speech before the Kentucky Farm Bureau on July 22, 2010, Dr. Paul said that the budget deficit is the most important issue facing the nation. Specifically he said that the deficit was his “number one concern.”

Hopefully the fact that the deficit is Dr. Paul’s number one concern means he will address the cause of the problem and not just the symptom. But if you look at his stated positions, (see his web site: www.randpaul2010.com) he is focused almost entirely on reducing the deficit, and doesn’t even seem to grasp that it is part of a larger problem.

Make no mistake, the deficit is a symptom of a larger disease. The current national budget deficit is a product of the changing economy, it is not the cause of the changing economy. The deficit is the symptom, the disease is the changing world and national economy. The world economy has been changing dramatically for the last 20 to 30 years, and the pace of change just keeps getting faster. Computers have dramatically altered the marketplace in many ways, including my eliminating entire career fields. Secretaries, draftsmen, and bookkeepers are largely a thing of the past. When I first started practicing law about 15 years ago, most law firms, even sole practitioners, had at least one secretary for each lawyer. Today most solos don’t have a secretary, and the ratio of lawyer to legal secretary at big firms is one secretary for every three lawyers. Computers and word processing software have made legal secretaries obsolete. Automation has similarly changed manufacturing. Robots and computers have replaced workers in factories. Because of automation, most companies produce more manufactured goods with fewer employees, and make more money doing it. This is good for a company’s bottom line (and good for their investors) but it is bad for employees and bad for national employment. Foreign competition is also cutting into domestic manufacturing, and in many cases preventing domestic companies from raising prices or wages. All of this has led to a general economic slowdown. The overall economy was slower in the first decade of this century than at any time since the end of the Second World War. And the last ten years have seen almost no job growth.

The national economy has slowed and this means that government revenue has slowed. But unfortunately the size and scope of government has not slowed. If you chart the growth of the economy since the sixties and the growth of government during the same period you will notice that the two roughly parallel each other. But the line for the economy essentially flat-lined during the Bush Administration, but unfortunately the line for the government continued up on about the same slope as in previous years. And the difference between these two curves is partly responsible for the budget deficit. During the flush economic times we – government and business – made commitments that made sense at the time (health care benefits, retirement benefits) but that are no longer economically feasible.

Solving the budget deficit is definitely important, but it won’t bring back jobs lost to computerization and automation. Lawyers are not going to start rehiring legal secretaries and factories are not going replace robots with laborers if the federal budget is balanced. The Chinese economy is not going to stop growing if the Congress passes a balanced budget amendment. Certainly fiscal restraint will mean that more money can go into the private sector than the public sector, but that alone will not solve the larger systemic changes to the economy.

If Rand Paul’s prescription for the ailing economy is nothing more than ending the deficit, he is treating the symptom and ignoring the disease.  

Abolish the Fed? And then what?

Title: The Dumbest Idea in the World

Abolish the Fed? Really?

In the land of dumb ideas, some stand head and shoulders above the rest. Like abolishing the Federal Reserve.

The idea is gaining credence because it is part of Rand Paul’s campaign for US Senate in Kentucky. Rand Paul is now talking about strict oversight of the Federal Reserve, but in the past he has discussed complete abolition of the Fed. This proposal is essentially the same as his father’s proposal to abolish the Fed and return the U.S. currency to the gold standard.

The idea is born of frustration with current conditions, but the cure would be far worse than the disease.

There are two basic problems with abolishing the Fed: history and reality. The Fed was established to prevent the wild swings in the value and supply of money in the 18th century. Without it there is no telling what would happen to the money supply. The other problem is that without the Fed the “market” would establish the value of money. But the market it no longer some pastoral vision from Adam Smith, with the exchange rate established by the farmer, the butcher and the greengrocer. Today the “market” is the international financial market, which is dominated by the central banks of major economic players and sovereign wealth funds of major economies. Abolishing the Federal Reserve would mean that the value of the American currency would be set by entities like the European Central Bank, the People’s Bank of China (which has more financial assets than any other public institution on earth)and Saudi Arabia’s sovereign wealth fund.  

Those who advocate abolishing the Federal Reserve say that the value of money would be more stable because it would be based on the gold standard. But the value of gold is not fixed; it is based on the value set by the commodities markets. People flee to gold for a sense of stability, but its value is set by supply and demand. If one nation or large fiscal entity wants to drive up the price, it could. Just look at what the Hunt brothers did to the price of silver in the 1980’s. While the United States has the world’s largest gold reserves, the Chinese and the Russians also have large gold holdings. If either decided to liquidate their gold reserves it could drive down the price of gold and essentially devalue the U.S. Dollar. And China has enough other assets (including U.S. Treasuries) that it could easily start buying gold, driving up its value and the price of the U.S. Dollar.      

I recognize the problems with the Federal Reserve, and the frustration over its opacity, but abolishing it is one of the dumbest ideas I have ever heard.

Some background data:

History of the founding of the Fed:

http://www.newyorkfed.org/aboutthefed/history_article.html

See also:

http://meganmcardle.theatlantic.com/archives/2007/12/the_good_old_days_werent_alway.php

http://meganmcardle.theatlantic.com/archives/2007/09/theres_gold_in_them_thar_stand.php