Conventions recalcify our principles

The recently completed Republican Convention had two outstanding speeches: Chris Christie provided the raw meat of conservative principles to rally the base and Condoleezza Rice provided the concise statement of the challenges we face and the hope that well reasoned people will shape compromise in the future.

Governor Christie (R-N.J.) turned many an eloquent phrase: to speak bluntly, directly, and without varnish; speak from the heart and fight for your principles; love may be fleeting but respect may lead to a durable love; it is better to be respected than loved; and best of all “real leaders do not follow polls, real leaders change polls.” Christie delivers a speech with a tone and intensity that conveys his passion and conviction. When he says that we must live by a code of “not avoiding truths but facing them and being better for it” he sounds uncompromising. Most of us know that truth isn’t that easy to find.

For an unbiased, apolitical economist would recognize that today’s circumstances are unique in our history. The problems that we confront today are not cyclical in nature but are structural. We have had a series of asset bubbles and rather than constrain the financial sector with regulation or tight credit conditions, we chose an expedient remedy through a monetary policy of low interest rates that inflated the next bubble. The excess credit must now be retired and new investment has become more uncertain.

Second, we fought two wars and deferred the cost of both though borrowing rather than financing them through higher taxes commensurate with those wars. This has never been consistent with Republican principles or sound financial management.

Third, the fiscal response to the bursting of the NASDAQ bubble and the terrorism of 9/11 was a tax cut. Federal Reserve Chairman Alan Greenspan, in congressional testimony, argued that the government surplus was approaching $200 billion and if we continued on that course, Wall Street might not have sufficient government debt to hedge its inventories of securities. Since then, we have accumulated $9 trillion of additional debt; Wall Street hedge problem resolved.

Fourth, is it possible that granting China favored nation trading status might have been a bit premature? Why did we do this? The wages and salaries in low-end manufacturing have been decimated and experts suspect that free trade might not be fair trade.

The point here is that all of these policies have been advantageous to capital and to the detriment of labor. The S&P 500 earned a 16.7 percent return on equity in the last year; 3.5 percent above its long-run average while wages and salary income as a proportion of GDP has fallen from 52 percent in 1970 to 44 percent today. The dominance of the special interest over the general interest has been exceedingly favorable to capital and tax preferences are probably not in order at this time. Any “truth” that includes tax cuts for capital is likely folly.

What is the appropriate policy response when the traditional cyclical policy tools of manipulating interest rates, the yield curve, and stimulus packages (tax rates and spending) have failed? Respected economist (unbiased, apolitical) Hyman Minsky, author of “Stabilizing an Unstable Economy (1986)” noted that persistent unemployment will exist when wages are sticky. The reported unemployment rate is 8.1 percent nationally; the labor participation rate is 3 percent below 2008; the real unemployment rate probably exceeds 10 percent. Add in the under-employed and the real pain to the labor pool is 17-18 percent.

Christie’s “truth” should allow him to target policy at employment, not tax cuts.

Condoleezza Rice gave the Gettysburg address; short and sweet. With respect to foreign policy, the world needs to know where America stands; absent that knowledge the void will be filled and possibly in chaotic fashion. The party needs to work for an open global economy and pursue free and fair trade; “We are abandoning the playing field of free trade – and it will come back to haunt us.”

Most poetic was her call to reform education. Labeling education the civil rights struggle of our day she asserted, “We have been successful because Americans know that their status at birth was not a permanent station in life. You might not be able to control your circumstances but you could control your response to your circumstances. And your greatest ally in doing so was a quality education. Let me ask you though, when I can look at your ZIP code and can tell whether you are going to get a good education, can I really say that it doesn’t matter where you come from, it matters where you are going.”

Rice’s comments go directly to social and economic mobility; a message distinctly directed to the middle class and our aspirations. Delivered with both firmness and grace; it is less a call to uphold rigid principles and more a statement of immediate priority. That is how you build a political party. Her message is one of Republican Party expansion.

Contact Glensky, a former Wall Street financial manager who now lives in North Myrtle Beach, at bwglensky@sccoast.net.