Wednesday, August 11, 2010

Unplanned Obsolescence

Today's Wall Street Journal had what many might consider the media coup de grace for the Obama presidency. Fouad Ajami's op-ed piece, "The Obsolescence of Barack Obama" (Wall Street Journal, 08/11/10, A15) is a devastating critique. It paints a picture — true or not — of a man who has utterly failed, a president who, less than halfway through his term of office, has not just been relegated to the dustbin of history, but who has already been collected and incinerated.

That's a pity on more than one account. Primarily, of course, the opposition isn't offering anything much better. Less spectacularly bad, of course, but still not much better in objective terms. To all appearances, the liberal Democratic hegemony with no vision will be overturned in a couple of months by a conservative Republican hegemony with no vision. The only advantage is that, with Barack Obama to blame for everything, the lack of vision will not become obvious for at least four more years. Precious time will be thrown away arguing about who is more to blame for the rapid slide of the United States into a second rate economic, and third rate moral power.

The worst thing about the president's unplanned obsolescence, however, is that it can very easily convince him that "they" were out to "get him" all along. The signs of incipient "Nixonism" are there, from the grandiose gestures to the blaming others (especially George W. Bush), and, of course, the increasing suspicion that the media are after him. It would be very easy for Mr. Obama to give up, blame everyone else for his failure, declare that in two more years they won't have Barack Obama to kick around any more, and sit as a self-pitying and ineffectual lame duck for the rest of his term.

Or he could pull off another miracle, only this time one with more substance. He needs a vision and a plan, or at least something other than warmed over Keynesianism. That "something" can be found in the immediate passage of the Capital Homestead Act. Within three months of the passage of the Act, it is entirely possible that a real economic recovery will be under way — not a recovery that the politicians and Wall Street manufacture to give the consumer enough false hope to start borrowing and living beyond any possible means again.

Take one small example. Right now companies are very prudently holding on to cash, neither reinvesting it in the company nor paying it out as dividends. Under Capital Homesteading, however, there is a source of financing that does not entail either retained earnings or debt. New equity can be issued and sold to investors who purchase "full payout" shares on credit, and who collateralize their loans with capital credit insurance.

The company is not on the hook, because equity is ownership, not debt, and there is no obligation to pay if the profits aren't there. The investor is not on the hook, because if the stock fails to generate sufficient dividends the insurance will take care of it. Admittedly, the insurance company is on the hook, but that is only if the investment doesn't pay off. In any event, the insurance company should have factored the risk of failure into its premiums, and collected enough to make good any losses.

Current cash holdings above working capital needs could be paid out as dividends to existing shareholders, increasing consumption income and stimulating the economy naturally. If done quickly enough, it might even be possible that the old low dividend tax rate will still be in effect at the same time that the dividends are tax deductible at the corporate level. This brief window wouldn't last very long, of course (a basic principle of fair taxation under Capital Homesteading is that ALL income above a very generous exemption be taxed at the same rate) — but it might be just long enough to give a terrific boost to consumption at just the right time, and be a tremendous incentive to pay out as much as possible as fast as possible before the window closes. The rich receiving the dividends wouldn't be able to reinvest them in financing new capital, and would be "forced" to spend the "windfall" . . . increasing effective demand and creating new jobs without a government subsidy.

It's all up to Obama, now. Will he be satisfied with going down in history as the worst president in American history — or be ranked among the top three, right after Washington and Lincoln? It's his decision.


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