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The Noses Knows

I’ve been sniffing around the editorial pages of various newspapers looking for a trend. Despite the bazillions of news and opinion outlets one thing you can count on is that the conventional wisdom does not reflect reality in fly over land. Instead like some corrosive syrup it oozes down from the top of the media food chain. What got my nose twitching was the use of the following phrase (or words to this effect) In his 1942 State of the Union address, Franklin Roosevelt told the nation that part of war time sacrifice would be an increase in the income tax. I thought that was an interesting observation as far as it went. I wish I could remember who said it but my olfactory nerve really shifted to condition red when I saw the same construction in the Feb. 3 (Sunday) column by liberal barometer EJ Dionne.

Had I stumbled on the market testing of a new slogan or was this just a coincidence? I’m not sure, but one thing is for certain, I am now screening everything I read looking for the magic concoction "Roosevelt" "War" and "Taxes".

In the hope that we can drive a stake through this vampire before it gets out of it’s coffin, let’s examine the current state of play.

President Bush has proposed a stimulus plan to revive the economy, he has proposed an additional increase in defense and security spending of over $50 Billion and he has proposed that his tax plan from 2001 become permanent. The reasoning is easy to follow. We are in a war and we need more defense and security spending. We are in a recession and we need new policies to restore the economy. Tax cuts are proven historically to the most effective means to incent free market participants to change their behavior from retrenchment to expansion.

This represents more than just a threat to the liberal dogma of more government, more spending and tax cuts for the few poor souls who pay no taxes. Bush has even, horror, proposed a budget that is not balanced. He admitted to the nation, in plain sight even, that we would run deficits for the next few years but his reason, survival is pretty convincing. Compared to the Democrats, who have adopted Hooverism as their lodestar Bush is both direct, honest and realistic. Defense and security spending in the Bush 2003 proposed budget crowds out everything but a smallish (2%) increase in other federal spending. Just how are the Democrats to balance the budget and pay off their all their interest groups if Bush is spending billions on national defense?

Enter the new formula. The old formula (green eye shades and interest groups) isn’t working so they adopt a patriotic approach to the budget and taxes. They drag FDR out of the closet, dust off some of his speeches, drape him in the American flag and viola: patriotism equals higher taxes. If this works then the liberals can convince the American people that "sacrificing" for the war effort means foregoing permanent tax cuts and spending more of their hard earned cash on interest group subsidies.

But look behind the legend and you see that this is a cynical ploy to sell bad economic policy as citizenship. The economic facts of 1942 and 2002 could not be more different. In 1942 the US faced a direct threat to its own survival. When FDR spoke to the nation in March of 1942 Bataan was falling. Britain had barely survived the Battle of Britain and its forces would be chased to the gates of Cairo just a few months later. The Japanese fleet had not yet been defeated at Midway and Americans in California were convinced that any minute Bettys would appear over Los Angeles to bomb our aircraft plants. The American economy had been expanding at a rapid pace since 1940 when the French, British and Dutch had placed large orders for weapons and materiel. Our own military services were embarking on a program of expansion so rapid that soldiers would be issued uniforms and weapons that had been produced just a few days before. It was the early days of a miracle of industrial mobilization that is still a marvel of human achievement. A miracle that would produce Liberty Ships in 5 days and thousands upon thousands of bombers, fighters and tanks.

Roosevelt was no fool. While I find much to criticize in his economic policies he was a smart man and had smart advisors. The economic challenge faced by FDR was not recession, it was an excess of wages. With priority going to the war effort the availability of consumer goods and basic consumables like meat, gasoline and rubber would create inflation. America was transforming from a nation where too few dollars chased too many goods, to one where too many dollars were chasing too few goods. Roosevelt knew that a world war was going to cost billions and billions of dollars. He also knew that the taxes paid by individuals and businesses were completely inadequate. He asked for and got both a tax increase and the implementation of with holding taxes. The headline reason was to pay for the war effort, but the real reason was to control inflation. Rationing was introduced not because the US was running out of raw materials, but because the demands of the war economy had to be satisfied and once that was done little was left for the population.

And all these sacrifices were done in the name of the war effort. War bonds and stamps were produced to soak up excess savings. It became patriotic to save bacon grease, scrap steel and newspapers. All those activities were a means to maintain public support, to link the activities of every man and woman to a united effort to defeat the enemy.

President Bush faces a much different challenge. Regardless of tax rates the American economy is sufficiently productive enough to provide the funds for the war against terrorists. This excess government spending will not do any damage to our capacity to borrow, invest or produce. $50 billion in a nine trillion dollar economy is not much greater than a rounding error. But Bush also knows that support for the war can wane unless he meets two conditions: success on the battlefield and economic growth at home. That is why he is pushing for lower taxes.

Whatever we do we must not be put off by liberal appeals to sacrifice as a form of patriotism. Phony economics are still phony, no matter how many stars and stripes they carry.

Patriotism does not mean higher taxes.

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