“We’re the country that built the intercontinental railroad,” Obama says. “So how can we now sit back and let China build the best railroads?”

I guess Obama doesn’t know that the transcontinental railroad was a Solyndra-like Big Government scandal. The railroad didn’t make economic sense at the time, so the government subsidized construction and gave the companies huge quantities of the best land on the continent. As we should expect, without market discipline—profit and loss—contractors ripped off the taxpayers. After all, if you get paid by the amount of track you lay, you’ll lay more track than necessary.

Crédit Mobilier, the first rail construction company, made enormous profits by overcharging for its work. To keep the subsidies flowing it made big contributions to congressmen.

Where have we heard that recently?

The transcontinental railroad lost tons of money. The government never covered its costs, and most rail lines that used the tracks went bankrupt or continued to be subsidized by taxpayers. The Union Pacific and Northern Pacific—all those rail lines we learned about in history class—milked the taxpayer and then went broke.

One line worked. The Great Northern never went bankrupt. It was the railroad that got no subsidies.

We need infrastructure, but the beauty of leaving most of these things to the private sector—without subsidies, bailouts, and other privileges—is that they would have to be justified by the profit-and-loss test. In a truly free market, when private companies make bad choices, investors lose their own money. This tends to make them careful.

By contrast when government loses money, it just spends more and raises your taxes, or borrows more, or inflates. Building giant government projects is no way to create jobs. When government spends on infrastructure, it takes money away from projects that consumers might think are more important. When government isn’t killing jobs by sucking money out of the private sector, it kills jobs by smothering the private sector with regulation. I talked to Peter Schiff about all this. Schiff is a good authority because he was one of the few people to warn of the housing bust. Now he’s had a run-in with the federal government over job creation.

Schiff, who operates a brokerage firm with 150 employees, recently complained to Congress that “regulations are running up the cost of doing business, and a lot of companies never even get started because they can’t overcome that regulatory hurdle.”

Schiff claims he would have hired a thousand more people but for regulations.

“I had a huge plan to expand. I wanted to open up a lot of offices. I had some capital to do it. I had investors lined up. My business was doing really well. But unfortunately, because of the regulations in the securities industry, I was not able to hire.”

People don’t appreciate the number of regulations entrepreneurs face. Schiff pays ten people just to try to figure out if his company is obeying the rules.

“Even my brokers . . . find out that maybe 20 percent, 30 percent of their day is involved in compliance-related activity, activity that is inhibiting their productivity. . . . All around the country, people are complying with regulations instead of producing, instead of investing and growing the economy. They’re trying to survive the regulations,” he said.

This is no way to create jobs or wealth. Keynesian pundits and politicians can’t understand why businesses sit on cash rather than invest and hire unemployed workers. It’s really no mystery. Government is in the way.

Here’s a hint: In the same speech, this candidate promised to “reduce the cost of current Federal Government operations by 25 percent.” He was elected President three weeks later.

Ronald Reagan? Wrong. Calvin Coolidge? Wrong again. The correct answer is Franklin Delano Roosevelt—in a campaign speech in Pittsburgh, Pennsylvania on October 19, 1932.

But how could this be, you ask? FDR was running against Herbert Hoover, the president our teachers and textbooks told us was a heartless skinflint who twiddled his thumbs as the economy fell into Depression. How could Roosevelt assail a supposedly laissez faire administration for its “reckless and extravagant” record of boosting federal spending by 50 percent in just four years?

The better question to ask is, “Why did my teachers and textbooks tell me something that just wasn’t true?” But that’s a story for another occasion. (See “The 1932 Bait-and-Switch” and “Great Myths of the Great Depression”.)

The fact is, what Roosevelt said about the Hoover administration in his Pittsburgh speech was precisely right. It’s a pity he proved to be an even bigger taxer and spender than Hoover was, thereby prolonging the Depression by at least seven years.

President Obama says he admires FDR, but which FDR—the candidate who promised one thing or the President who did the opposite? Clearly, it’s the latter. Obama’s policies imitate what Roosevelt actually did as president, which his New Deal confidant Rexford Tugwell admitted was just Hooverism on steroids.

Instead of the speech he read from the teleprompter last Thursday before Congress, Obama should have given something like the FDR Pittsburgh speech. Perhaps on the day after the markets would have soared but as we all know, they tanked. Markets know something (actually, a whole lot) that Obama doesn’t.

Imagine if Obama had spoken these words from FDR’s Pittsburgh speech instead of the ones some staff members wrote for him:

“The credit of the family depends chiefly on whether that family is living within its income. And that is equally true of the Nation. If the Nation is living within its income, its credit is good. If, in some crises, it lives beyond its income for a year or two, it can usually borrow temporarily at reasonable rates. But if, like a spendthrift, it throws discretion to the winds, and is willing to make no sacrifice at all in spending; if it extends its taxing to the limit of the people’s power to pay and continues to pile up deficits, then it is on the road to bankruptcy.

“For over two years our Federal Government has experienced unprecedented deficits, in spite of increased taxes. We must not forget that there are three separate governmental spending and taxing agencies in the United States–the national Government in Washington, the State Government and the local government….[A]ll three of our governmental units became reckless….

“It was all very merry while it lasted. We did not greatly worry. We thought we were getting rich. But when the Crash came, we were shocked to find that while income melted away like snow in the spring, governmental expense did not drop at all…..Can we stand that? I do not believe it. That is a perfectly impossible economic condition. Quite apart from every man’s own tax assessment, that burden is a brake on any return to normal business activity. Taxes are paid in the sweat of every man who labors because they are a burden on production and are paid through production. If those taxes are excessive, they are reflected in idle factories, in tax-sold farms, and in hordes of hungry people, tramping the streets and seeking jobs in vain. Our workers may never see a tax bill, but they pay. They pay in deductions from wages, in increased cost of what they buy, or—as now—in broad unemployment throughout the land. There is not an unemployed man, there is not a struggling farmer, whose interest in this subject is not direct and vital. It comes home to every one of us!”

This is not the FDR of the typical history book. But it is certainly the FDR of the 1932 election. The Pittsburgh speech was not an anomaly. He repeated these charges throughout the campaign. The Democratic Party platform on which he ran contained the very same promise of a 25% reduction in government spending. FDR’s running mate, John Nance Garner, echoed the theme by declaring that Hoover “was leading the country down the road to socialism.” Roosevelt and Garner won the election and proceeded to lead the country down the same road at warp speed.

More from candidate Roosevelt:

“The most obvious effect of extravagant Government spending is its burden on farm and industrial activity, and, for that, nearly every Government unit in the United States is to blame. But when we come to consider prodigality and extravagance in the Federal Government, as distinguished from State or local government, we are talking about something even more dangerous. For upon the financial stability of the United States Government depends the stability of trade and employment, and of the entire banking, savings and insurance system of the Nation.”

Then there was this nugget. Attacking the Hoover administration for predicting surpluses but producing deficits, Roosevelt pronounced, “There is something much more than mere error in that kind of thing. Our people and the world are entitled to reasonable accuracy and reasonable prudence; and above all they are entitled to complete frankness. They have a right and a duty to place in retirement those who conceal realities, those who abuse confidence.”

Roosevelt quoted this statement signed by Calvin Coolidge: “All the costs of local, State and national Government must be reduced without fear and without favor. Unless the people, through unified action, arise and take charge of their Government, they will find that their Government has taken charge of them.” FDR’s very next sentence was, “Every word of that warning is true; and the first and most important and necessitous step in balancing our Federal budget is to reduce expense.”

On September 8, 2011, we were treated to a campaign speech but it wasn’t anything like the FDR campaign speech of October 19, 1932. Instead, we got more of what FDR actually delivered but didn’t work and what Bush and Obama gave us that isn’t working any better. Sadly, the joke is on the rest of us, which gives me the opportunity to close with one:

A bus filled with politicians was driving through the countryside one day, on the campaign trail. The bus driver, caught up in the beautiful scenery, loses control and crashes into the ditch. A farmer living nearby hears the horrible crash and rushes out to discover the wreckage. Finding the politicians, he buries them.

The next day, the police come to the farm to question the man. “So you buried all the politicians?” asked the police officer. “Were they all dead?”

The farmer answered, “Some said they weren’t, but you know how politicians lie.”

Lawrence W. Reed is president of the Foundation for Economic Education, with offices in Irvington, New York and Atlanta, Georgia.

D’Souza needs to get out more. Specifically he should have a talk with Timothy Carney and Charlie Gasparino, whose books demonstrate beyond question that the best phrase to sum up Obama’s presidency is not “African anticolonial socialist” but “American Progressive corporatist.” Carney’s 2009 book is titled Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses. Gasparino’s just-published book is called Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street. Neither writer could be mistaken for a left-winger.

The political establishment, helped by the mass media and intelligentsia, has long played a game in this country. It consists in depicting the competition for power as between two blocs: one hostile to business in the name of social justice, the other friendly to business in the name of “the free market.” Each bloc’s talking points and pet projects are calculated in superficial ways to reinforce its signature theme. Whenever the blocs need to rally their respective bases, they accentuate their surface differences. The “antibusiness” bloc accuses its opponents of being, say, Wall Street lackeys, while the “pro-free-enterprise” bloc accuses its opponents of being, say, socialists.

It’s all a sham that serves each side’s interests. The rivals actually want two variations of the same thing: the corporate state, a system of economic privilege that transfers wealth via government from market entrepreneurs, workers, and consumers to well-connected business interests.

What we have are two factions of a single establishment. Differences in rhetoric notwithstanding, both are friends of and beholden to big entrenched manufacturers (military contractors lead the way) and big financial institutions. Neither faction wishes to do anything to undermine the interests of these businesses. And for their part, the business people have no desire to antagonize either side. They need one another: The politicians need the campaign funds and economic cooperation; the businesses need the subsidies, guarantees, low interest rates, and impediments to competition. The banks in particular need friendly relations with politicians (federal, state, and local) who float debt that brings big fees for bond underwriters. It’s one close and lucrative alliance (which is not say the various parties agree on every detail). Thus it has been throughout American history (scroll down to Carney review).

Obama to the Rescue

Enter Barack Obama. “For the most part, Obama had been good to the banks — really good. They’d gotten everything they wanted in terms of bailouts and handouts and reaped enormous profits because of it,” Gasparino writes. “…The fact of the matter is, when you strip away the name-calling and class warfare coming from the Obama administration, and when you ignore Wall Street’s gripes about the new financial reform legislation that will put a crimp in some of its profits, these two entities are far more aligned than meets the casual eye. They coexist to help each other — in an unholy alliance against the American taxpayer.”

Gasparino points out that Obama signaled his eagerness to be Wall Street’s friend at a meeting with the big players during his presidential campaign, and they came through with the money. Wall Street had no reason for remorse when they saw his economic appointments and advisers: Timothy Geithner (formerly of the New York Fed), Lawrence Summers (Treasury secretary under Bill Clinton and former World Bank president), Paul Volcker (former Fed chairman), Robert Rubin (formerly of Goldman Sachs, later of Citigroup), Ben Bernanke (reappointed as Fed chairman), Rahm Emanuel (formerly of Goldman Sachs), and Greg Craig (a political insider who has gone on to represent Goldman Sachs from one of the nation’s top law firms). Many other Wall Street insiders, whose  names are not so well known, have the President’s ear.

Garparino’s thesis is confirmed by the essential continuity between the Bush and Obama administrations. Wall Street got first consideration beginning when the rotten fruit of bipartisan housing and monetary policies became apparent. If anything, the Obama team has substantively treated Wall Street better than the Bush team did. The Fed has gone into the business of allocating capital selectively, buying up mortgage-based and other “assets” of dubious value from institutions deemed too big to fail. One must guard against being deceived by political rituals. The Dodd-Frank financial “reform” is portrayed as the long-overdue taming of Wall Street, but no one who pays close attention believes that. The usual players will help write the myriad rules the new law calls for, and they are not likely to harm the insiders’ interests.

Sure, Obama bashes Wall Street these days. No surprise: There’s a campaign on in which his party is in deep trouble; unemployment is stuck above 9.5 percent; and the disillusioned base needs rallying or it won’t show up at the polls. The bigwigs at Goldman and the other firms may not be happy about the rhetorical roughing-up. They may even be concerned that a desperate Obama will do something in the short run that could reduce the growth of profits and executive pay. Such uncertainty is surely one reason for the cautious investing and slow recovery. But it’s unlikely that any big player fears that the future holds a radical anti-capitalist revolution.

The daily talk-radio and cable-news alarms about this being the most radical left-wing administration in U.S. history should be chalked up to base-rallying on the other side. As I suggested at the outset, the American political system capitalizes on the division in public opinion over the role of government by propagating the myth that there is a grand war raging between the advocates of Big Government and the advocates of Free Markets. In fact, it’s an intramural competition between two rival factions that favor government management of the economy — with a few differences in detail — on behalf of special interests.

Why the charade? All the better to exploit the productive classes, those that would be prospering in a freed market.

Barack Obama said those words in defense of his opposition to extending the soon-to-expire 2001 and 2003 tax-rate reductions for people making more than $200,000 a year. The government guesses that not extending them – that is, raising taxes — would bring in $700 billion over a decade.

Hard as I try, I can’t let this pass. As I’ve said recently, one need not feel all warm and fuzzy about the rich in a corporatist economy riddled with privilege to be bothered deeply by what Obama says.

Look at the statement closely. Now, if I may adapt what Mary McCarthy said about Lillian Hellman, every word Obama says is a fallacy, including “to” and “that.”

Let’s break it down.

If we were going to spend $700 billion… The “we” isn’t you and I. It’s him and his army of presumptuous bureaucrats. There is no collective decision being made by the nation. A group of identifiable individuals, ultimately backed by armed personnel, will decide how those resources will be used. How did they get those resources?

Imagine a mugger eyeing a potential victim, thinking, “I could spend that guy’s money by leaving it in his pocket, or I could spend it myself right away. Now which would be the better way to spend it?”

Any reasonable person sees what’s wrong. But change the context to government and politics, and all the rules are thought to change. Why is that? Because the government represents us? But it doesn’t really. (And if it did, how would that justify force?) The people who run the government say it represents us, but they don’t know what they’re saying. True, if enough people don’t like how the officials spend money, they may be voted out of office. But that doesn’t change the fact that while they are in office, they represent only themselves and their patrons. No “client” can fire them on the spot for misfeasance or malfeasance or even order them to stop, and they have myriad ways to disguise what they do. The principal-agent model breaks down. It is more designed to blunt criticism and immunize offenders. (I’ll save “tacit consent” for another occasion.)

The Wisdom of Power

…it seems it would be wiser having that $700 billion going to folks… Does it now? On what grounds are we to conclude that Barack Obama — or anyone else in political office — is qualified to say what a wiser use of such a sum of money would be? It’s hard enough deciding what’s a wise use of one’s own meager resources: The future is uncertain and the choices are many. It is the height of hubris – a pretense of knowledge, to use Hayek’s phrase – to invoke wisdom while asserting the power to dispose of that money.

… who would spend that money right away. There you go. He has a good reason after all. He’s says the money will go to people who will spend it in a hurry. Of course, he doesn’t actually know that. The money would just be distributed across the budget, funding the same old boondoggles or starting some new ones. Part of that $700 billion would surely go to military contractors to make something irrelevant to Americans’ welfare and inimical to the welfare of some non-Americans. We don’t know how quickly those recipients would spend the money. The wealthy executives of the contracting companies may be the same people who would have held on to the money if the tax-rate reductions were extended. A lot of it will go to government employees, who have higher wages than people in the private sector. This is one of those talking points that sounds as though it makes sense until you … think about it.

But let’s assume the people who get the money would spend it right away. Why is that better than simply letting the people who make the money keep it? The theory is that people making over $200,000 a year don’t spend enough of their incomes to stimulate the economy. So it’s Keynesianism that Obama is espousing here. Take the money from people who will sit on it, and stimulate the economy by spending it in ways – public works, for example — that will put it into the pockets of people who will go out and buy things. The shopkeepers who get it next will then spend it, and on and on. If you watch Chris Matthews, you’ll get as sophisticated a rendition of this theory as possible: The economy’s in a ditch. Consumer spending would get it out, but consumers are afraid to spend, so the government must spend for them. (The leading Progressive Keynesian, Paul Krugman, and the leading conservative Keynesian, Martin Feldstein, think it will take a major war to produce a big-enough stimulus. See my comment.)

Keynesian Fallacies

But Keynesianism gets it wrong on so many counts. The fundamental economic problem is not that aggregate demand is too low. Individuals are doing things – and not doing things – for particular reasons in response to what’s going on around them. Consumers are holding back because they’ve lost their jobs or fear they may do so. People are losing their jobs because a government-produced inflationary boom went bust and malinvestments need to be liquidated so resources can be realigned with consumer demand. But that’s not happening (fast enough) because unpredictability over what the government may do next and other factors make entrepreneurs and investors cautious.

All that Keynesians see are consumers not spending. They are uninterested in why. Once the reasons are understood, the remedy becomes clear. The burdens of government must be lifted quickly and people must be confident they will stay lifted. Then the necessary adjustments will be made — in part because people save (rather than consume) and invest, precisely what Obama seems worried about.

So let’s not raise tax rates – let’s cut or repeal taxes (and spending)! Obama’s “fears” are ungrounded. But give him credit: He combines bad economics and a shameful moral philosophy rather adeptly.

Invisible Hands by Kim Phillips-Fein, professor of American history at New York University’s Gallatin School, is a well-researched and thorough account of resistance to government economic domination. It’s also a veritable Who’s Who of twentieth-century “conservatives” who have been trying, ever since FDR’s New Deal, to “propagate a new mentality.” Phillips-Fein provides an evenhanded investigation of the counterreaction, launched mainly by people in the business world, to the authoritarianism of the New Deal. While she deftly illuminates that part of the “conservative” movement, Phillips-Fein fails to note that the “conservatives” consisted not only of free-market stalwarts like Mises but also many corporate-state advocates who just thought the New Deal went too far.

Franklin D. Roosevelt took office after criticizing his predecessor for expanding government and increasing public spending. Yet once in office FDR embarked on new programs that increased spending, centralized power, and imposed many regulations and taxes. Roosevelt won over public opinion, but many Americans were alarmed by his programs and philosophy.

The book describes the founding of the American Liberty League by a group of businessmen who wanted to preserve “private enterprise” (but were no fans of laissez faire). The National Association of Manufacturers joined in the struggle and even claimed by 1940 that it was winning the battle against the New Deal. Then came World War II, and it became “unpatriotic” to criticize federal controls and regulations. Only at war’s end were the varied “conservatives” able to resume the struggle to limit government power.

Phillips-Fein maintains that the decline of the “liberal” New Deal regime “lay not only in its inner tensions . . . but also in the slow preparation of an alternative agenda by its business opponents.” She acknowledges the crucial role of economists such as Ludwig von Mises and Friedrich Hayek in guiding that agenda. Also influential were the ideas of Leonard E. Read, founder of FEE, and the international Mont Pelerin Society of free-market advocates.

Invisible Hands also covers religious groups that were formed to promote the freedom philosophy and oppose communism.

Some of the success of these groups came through the publishing of books and magazines to promote the free market and attack socialism. Chambers of commerce supported entrepreneurship and argued against interventionist government. Business groups introduced free-market materials in the schools and a few universities created courses in entrepreneurship.

Collective bargaining, as required by the National Labor Relations Act, led to conflict and strikes. Companies often gave way to union demands, but some fought back, and the book details the personalities and events. The Kohler Company withstood a long strike in 1954, operating with non-union workers. General Electric’s Lemuel Boulware stood up to the unions, publicizing GE’s best offer and saying, “Take it or leave it.” Unfortunately, the courts declared his approach illegal.

The genial, articulate former movie actor Ronald Reagan proved an effective spokesman for GE and free enterprise. He had the common touch and spoke of providing jobs instead of encouraging capital formation. His attitude toward business? He was, the author writes, “the candidate of the entrepreneur, the farmer, the small businessman, the independent.”

Phillips-Fein looks on Reagan’s capture of the presidency in 1980 as a victory for “conservativism” and the anti-New Dealers she describes. “A great transformation of American politics began during the years that Ronald Reagan was in the White House,” she writes. Reagan fired and replaced 11,000 air traffic controllers after their illegal strike in 1981. Strikes and union membership declined. The labor movement dwindled, and the left’s statist agenda was held in check.

The author recognizes that Reagan failed to eliminate the welfare state or to shrink government bureaucracies. Still, she says, “the political cause for which they [market enthusiasts and business conservatives] labored has in large part been triumphant: the New Deal has been turned back.”

But that conclusion is unwarranted. The New Deal mentality is still alive and well. The government is growing rapidly in scope and power. Advocates of limited government and free enterprise now face a new and perhaps even more daunting challenge in Barack Obama’s “new New Deal.”

Invisible Hands is a carefully researched history of the struggle to “propagate a new mentality” to replace statist thinking. The history is sound even if the writer’s conclusions aren’t always solid.

Later the President explained there would be a $5,000 tax credit for employing an additional worker, forgiveness of the employer’s 6.2 percent portion of Social Security payroll taxes for newly added salaries and other salary increases, an end to capital gains on investment, and continuation of rapid write-offs for new capital investment, all to be targeted to business with 50 or fewer workers.

Mr. Obama was right to be concerned about small businesses. According to ADP’s latest report, firms with fewer than 50 workers employed some 48 million in December 2009; those hiring more than 50 had 60 million on the payroll.  So America’s  small businesses employ close to half the workers in the economy.  But their hiring plans now are decidedly bleak.

On first hearing the President’s message, and captured by the moment, I shouted out, “Right on!  Now we are getting somewhere.”  According to press reports, I was not alone in my enthusiastic reaction. John Arensmeyer, CEO of Small Business Majority, happily said, “These tax credits are simple and straightforward, and will support small businesses to generate the jobs Americans so desperately need. And they’ll start doing it now.”

My response must have come from a stored-up love for small businesses that goes back more than 40 years.  But after settling back in my chair, I had other thoughts on the matter.  Let me explain.

For some 15 years, starting when I was still a college student in 1952 to 1967, I was a part- owner of a small business enterprise, which in 1967 had about 50 employees.  As corny as it may sound, I still remember what it takes to make a payroll on Friday night.  I understand how hard it is to generate enough additional dependable business to add just one more employee. And I know how great it feels to bring one on and to introduce the new employee to the team members he or she will join.  I also know how much it hurts everyone in the firm to cut back, to have to fire a good worker because business has fallen off.  Because of the pain that goes with layoffs, I know how careful one will be before hiring another worker. In the case of small business, that person is likely to be a friend, former colleague or family member. Also, if the firm employs ten people, which is common, adding one more amounts to a 10 percent increase in personnel.  And that ain’t hay, especially in a recession when you are not sure if the next month will be your last.

I hope that some of Mr. Obama’s close advisers know these things as well as, if not better than, I.  I am betting they do.

No one in his right mind wants to bring on a new employee only to face the plight of having to pass out more pink slips.  Before hiring that one person I would want to see a lot of black ink on the operating statement, not just one or two profitable months.  Because of this, I don’t think a $5,000 tax credit will get the job done.   What we need is some certainty.

This seemed to be a base concern when Susan Eckerly, senior vice president, federal public policy, of the National Federation of Independent Business, was asked about the Obama tax credit.  She indicated that small businesses wouldn’t start hiring until earnings improved.  “An employer is unlikely to hire someone just to get a $5,000 credit,” she said.  When I read Eckerly’s comments I was reminded of a wise guy’s response to tax incentives that allowed a firm to “to take it off your income tax.”  The response:  “First off, I’ve got to have income.”

Too Many Boulders

Mr. Obama wants to see one million new employees added to the ranks of America’s small businesses.  I do as well. But adding just one new full-time hire when your toes can barely touch the bottom in a recession’s deep end is risky business, and for one major reason.  In February 2010 there is no way to know what really lies ahead; there is no way to distinguish between stimulus and the real economy.  Too many policy boulders are being dropped in the water.  One can hardly determine the effects of one before another one is thrown in the pool.

There is stimulus one.  Then stimulus two.  And now talk of stimulus three.  There is TARP.  Cash for Clunkers.  Cash for Appliances.  First home buyers tax credits. Health care revision.  Copenhagen.  Cap and  trade.  Jobs programs.  Financial reform.  Each announced in short succession.  The effects of some of these programs are so large that they are readily seen in GDP and construction data.  By some counts, about half of 2009’s fourth quarter 5.7 percent GDP growth is explained by Cash for Clunkers, a program that came on like gang busters and then faded into oblivion.

Imagine yourself as owner of a small business with 20 employees.  You are trying to decide if you should build up inventories again, hire one or two people, and lease another pickup truck.  Would you make your decision on the basis of the fourth quarter GDP numbers?  Would you base your plans on the explosion of existing home sales that followed the first-home-buyer stimulus?  Most likely not.  I’ll bet you would wait so that you could get a better fix on the real economy.

Perhaps we need six months of political silence.

When I think about the situation and Mr. Obama’s proposal, I wonder if it might be better to expand the noble elements of his idea to all businesses, small and large, and do so permanently.  Instead of having a complicated jobs-based tax system, why not just cut the marginal tax rate?  And instead of allowing a temporary moratorium on capital gains taxes for small business, why not just abolish capital gains taxes for all businesses.  Doing this would put an end to trying to determine what is stimulus and what is real and what may change at the end of the year.

There is a supply side to the economy that wants to spring forward.  A growing economy will produce more jobs and more tax revenue.  This is the time to give a nudge and then stand back and let the real economy recover.

Broken or not, government at the moment is not inspiring confidence in the majority of people. That’s good news for those who look to government for neither inspiration nor solutions (to problems it itself has created). There’s no more urgent task that to fan the flames of political cynicism, emphasizing that what’s wrong with health care, finance, and energy won’t be fixed by electing the “right” person or party next time around but rather by removing the obstacles to bottom-up, decentralized solutions.

Read TGIF here.

He thinks this growing sense can be arrested through better manners, bipartisanship, compromise, and cooperation.  But to what end? Greater government management of, among other things, medical care, finance, and energy. In a skillful act of question-begging, he identifies this with “serving the people.”

Let’s overlook that Obama and his allies in Congress and the media have consistently impugned their opponents — all of them, inside Congress and out — as corporate knaves, fanatical ideologues, or drooling flat-earthers; that is, they could learn something about civil debate themselves, but we’ll leave that for another day. There’s a deeper issue here.

To tell if something is broken, you need to know how it’s supposed to look or work when it’s intact. If you don’t know that, you also won’t know what “fixing” it means.

Some people who think government is broken mean that it’s not doing nearly enough. Others mean that it’s doing far too much already. Those two sides won’t agree on what a “fix” would consist of.

But Obama has a third notion of “broken.” He takes it as given that government should do more. In his view, what’s broken is the mechanism that produces authorizations for government to grow. If he can’t get the votes to do what he wants, then the system is malfunctioning.  It never occurs to him that by some standards, successfully thwarting the growth of government shows that in at least that narrow respect the system has worked. Broken is in the eye of the beholder. (Some might think that the system really isn’t broken at all because exploiting the productive for the benefit of the privileged is what it was set up to do!)

For those in power today (and their patrons and clients), compromise is the great good. Unsurprisingly it seems to run in only one direction. In the case of medical care, for example, it requires people who want less or even no government interference to accept more. The compromise lies in the fact that it won’t (initially) be all the intervention that the staunchest interventionists want. Compromise never consists in the interventionists’ moving in a noninterventionist direction. That can’t be an accident.

Obama & Co. does not acknowledge that there can be real and sincere differences about what government should do, so he speaks as though the lack of the spirit of compromise is driven purely by partisan politics, satisfaction with a profitable and corrupt status quo, or both. That may be true for some, but surely not all, of his critics. One can — indeed, should — oppose Obamacare and the status quo. This is easier  when one realizes that Obamacare would be merely an extension of the status quo. (See the cooperating pharmaceutical and insurance companies for proof.)

Superficial Opposition

What makes all this so hard to see for the casual observer is that the official opposition party is not really an opposition at all at the level of basic premises. It’s the party that delivered a huge, open-ended expansion of an already-broke Medicare, Wall Street bailouts, outrageous spending increases, and frighteningly large budget deficits when it was in charge. It, like the current majority party, is cozy with Big Pharma, Big Insurance, and Big Finance, all of whom are what they are today because of years of political privilege. So when the opposition suddenly objects to “socialized medicine” or fiscal irresponsibility, or when it cries that the “free market” is being violated, it has so little credibility that its intransigence is easily portrayed as petty partisanship. Who can truly say it isn’t? Politicians live to win elections.

This is sad because the rest of us get caught in the crossfire.

But let’s have no sympathy for the good-government types who bemoan public cynicism. It is they who created unfulfillable expectations by touting the blessings of the omnipotent State. They have only themselves to blame. Yet they seem to have learned nothing. They rather plunge ahead, bringing to mind Bertolt Brecht’s line:

The people have lost the confidence of the government; the government has decided to dissolve the people, and to appoint another one.

Broken or not, government at the moment is not inspiring confidence in the majority of people. That’s good news for those who look to government for neither inspiration nor solutions (to problems it itself has created). There’s no more urgent task than to fan the flames of political cynicism, emphasizing that what’s wrong with health care, finance, and energy won’t be fixed by electing the “right” person or party next time around but rather by removing the obstacles to bottom-up, decentralized solutions.

Despite what some popular right-wing talk-show hosts claim, Barack Obama is not pushing Marxism, revolutionary or otherwise. He’s pushing good old American progressive-corporate elitism.

Read TGIF here.

For a socialist Shaw demonstrated good sense with that quotation. Unfortunately, America has become a laboratory in which his hypothesis is being tested.

The theory of government I was taught says that government provides benefits, primarily security, to the entire population. In return we pay taxes. But lately the government has been a distributor of special privileges, taking money from some and giving it to others. America is now about evenly split between those who pay income taxes and those who consume them.

The Urban-Brookings Tax Policy Center recently disclosed that close to half of all households will pay no income tax this year. Some will pay less than zero—that is, they’ll get money from those of us who do pay taxes.

The Tax Policy Center adds that this year the average income-tax rate for the bottom 40 percent of earners will be negative and that their cash subsidy will equal 10 percent of the total amount the income tax brings in, thanks to the Earned Income Tax Credit and President Obama’s “Making Work Pay” program.

The view from the top also shows the lopsidedness of the tax system. The top 20 percent of earners make about 53 percent of the income in America but pay 91 percent of the income tax. The top 1 percent pay 36 percent. The IRS says the bottom half of earners pay less than 3 percent.

How the Other Half Votes

This presents a serious problem because government has such vast powers to dispense favors. As Shaw suggested, people who pay no tax will not hesitate to vote for politicians who promise big spending. Why not? They will get stuff without having to pay for it.

Yes, working people who pay no income tax still pay taxes: sales tax and payroll (Social Security and Medicare) taxes. But the income tax is big and visible, so it’s a problem that a growing number of people don’t pay but get benefits from those who do.

Frédéric Bastiat, the great nineteenth-century French economist, defined the State as “that great fiction by which everyone tries to live at the expense of everyone else.” I don’t know if he envisioned one half of the population living off the other half.

It’s important not to confuse the interests of the taxpayers with the interests of the politicians and other tax consumers. Yet that is done all the time. When the government bought toxic assets (of zero market value) from the banks, it said taxpayers would profit when the economy recovered and the assets once again commanded a positive price in the market. Even if we make the dubious assumption that the government is savvy enough to buy low and sell high, it’s not the taxpayers who would benefit from any profits. The politicians will spend every penny rather than cut taxes.

To put it bluntly, we are not the government.

The built-in unfairness of the tax system has prompted a range of tax-reform proposals, such as a flat tax and replacing the income tax with a sales tax. These alternatives are better, but they have their drawbacks, too. For that reason, there is something more urgent than tax reform: spending reform.

The true burden of government, the late Milton Friedman said, is not the tax level but the spending level. Taxation is just one way for the government to get money. The other ways—borrowing and inflation—are also burdens on the people. The best way to lighten the tax burden is to lessen the spending burden. If government spends less, it takes less. And if it takes less, the tax system will weigh less heavily on us all.

Once again, we find wisdom in Adam Smith: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”