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Conservative America confronts a profound and difficult choice this year: a choice between supporting a political philosophy that they generally disagree with and supporting a faction that is trying to turn America into a kind of dictatorship of the rich and powerful. This faction, which now controls the Republican Party through its control of funding for campaigns, will try to mislead you about what their real intent is.

They do this by constructing a set of fairy tales that make them seem to support Conservative values, but that are based on nothing, or on misrepresentations or even lies, or by demonizing their opponents by attributing to them opinions that they do not espouse. These fairy tales conceal their real intent, which is to concentrate power in a system that protects large corporations and wealthy families at the expense of everyone else. And the Democrats have failed to confront the falsehoods behind this assault.

Conservative America confronts a profound and difficult choice this year: a choice between supporting a political philosophy that they generally disagree with and supporting a faction that is trying to turn America into a kind of dictatorship of the rich and powerful. This faction, which now controls the Republican Party through its control of funding for campaigns, will try to mislead you about what their real intent is.

They do this by constructing a set of fairy tales that make them seem to support Conservative values, but that are based on nothing, or on misrepresentations or even lies, or by demonizing their opponents by attributing to them opinions that they do not espouse. These fairy tales conceal their real intent, which is to concentrate power in a system that protects large corporations and wealthy families at the expense of everyone else. And the Democrats have failed to confront the falsehoods behind this assault.

Some of the fairy tales they use are:

•    America faces a fiscal crisis that demands cuts in spending in order to be responsible
•    Republicans support small government
•    Republicans support economic growth and jobs
o    Liberals don’t care about jobs or growth
•    Democrats support equal outcomes, not equal opportunities
•    Republicans support a foreign policy of strength rather than appeasement and is based on a strong military
•    Republicans want an energy policy based on more drilling and more nuclear power, which will make the economy grow.
•    Climate change and air pollution are not real risks, and are instead a Trojan horse for more government control of the economy.
•    Regulations burden the economy and cost jobs and growth
o    Out-of control bureaucrats are strangling the economy
o    Environmental standards kill jobs
•    Democrats support socialism rather than market forces
o    Unrestrained market forces always work best
•    Democratic mismanagement of the economy during the Obama Administration is responsible for unemployment

Note that I had to force the word “responsibility”—a fundamental Conservative value-- into the first fairy tale: this core conservative value is not consistent with any of the other myths, and is unfortunately not consistent with current Republican policies.

These themes occur repeatedly in the Romney campaign  and in other Republican talking points. But they are not based on facts or analysis, nor on hard economic numbers or sound science. Most their basis is made up out of whole cloth. They have little or nothing to do with reality. This is why I call them fairy tales: they are great stories, but they are no more real than Tinker Bell or Snow White.

Worse yet, the stories are used to hide their true goal. This stealth is evident because the goals set forth in the fairy tales are mutually contradictory, or in conflict with the facts.

For example:
•    Economic history is clear that cutting government spending in 2013 will reduce growth and jobs, and risks sending us back into recession, or worse. (This is what happened in 1937 here and what is happening today in Britain and Europe.)
This is pretty well-accepted macroeconomic theory, and Paul Krugman, the Nobel-prize-winning economist, writes that he  hasn’t seen any serious attempt by conservative economists (he is not a conservative, but has tried to be objective) to refute this position, even when he invites these attempts.
•    The strong foreign policy that Republicans advocate is based on a strong military, and a strong military needs a big budget. This increases government spending. More nuclear power also means more government, often a big federal government overturning local or state or market restrictions on nuclear power. A tough immigration policy requires more big government, again often overriding local desires; and restrictions on abortion are a tactic of a big government.
•    If responsibility to our children and grandchildren is a virtue, then we need to take action to prevent climate change EVEN IF THE ODDS THAT IT IS A PROBLEM ARE SMALL. We also need to provide more funding for education, which is essential for America’s ability to compete with foreign countries, but Republican budgets cut education.

The fairy tales are refuted in Appendix A. I intentionally do not refute them here because another part of the Republican effort to mislead is to keep the story simple and to ask you to trust them because they claim to share your values. The author of this paper evidently is not a conservative, and so the first line of attack they would use on this paper is to discredit the source. The next step would be to discourage you from reading at the level of detail in the Appendix: a level of effort that would convince you that the house of Republican ideas is built on a rotten foundation.

I encourage you to read it, especially if you are skeptical of what you have read so far.

But before you do, consider what the collection of Republican fairy-tales seems designed to make you accept:

They want your support in establishing a system where a small elite group, mainly hereditary or self-appointed, takes a larger and larger share of the power, wealth, and moral authority of a country. In their vision of America, the elite would profess religious values, especially toward sex. But since the powers of this elite are unchecked, these religious values don’t to apply to themselves. (If abortions are illegal, and you are rich enough, just buy an air ticket to someplace where they are not.) The elite are too powerful to need to follow the rules.

Promoting this agenda directly clearly would be unsuccessful in America. That’s the purpose of the fairy tales. But think about it: what policies would you advocate if you were a closet elitist? First, you would pursue a small and weak government. Government is a check on the power of the elite. (It’s the only institution that is big enough to be able to do so. The idea of a federal government as a check on concentrated economic and political power is not original with me, but the way: it is the subject of Federalist Paper Number 10.)

As a part of this effort, you would especially oppose government regulation. Regulation is the way that markets are made transparent and fair: how rules of behavior are laid down that allow open and honest and full competition. The elite faction doesn’t want fair competition; they want to be able to get away with pressing their thumb on the scales. They are happy to have a market with no rules, because such a system allows the powerful to write their own rules and change them on a whim.

Next you would want to attack the estate tax. How can you have hereditary elite if the children of the rich can only inherit less than half of the estate? Why, by the fourth generation you would be down to less than 5% of the original hoard. Reducing taxes on the wealthy and on high earners just enhances this scheme.

You would also want to support a wide range of efforts to use the law to enforce religious values, such as requiring prayer and teaching creationism in public schools, banning abortion and perhaps even contraception, and outlawing same-sex relationships. (Is divorce next on the list?)


Because you could attract supporters who find these beliefs in line with theirs, who would be willing to overlook the economic mismatch of your policies with their well-being. And you wouldn’t have to worry about this religious oppression because it wouldn’t apply to you: your class would always be able to get around its dictates. You and your friends in the elite could be as self-indulgent as you wanted because likely no one would find out--and even if they did you could simply admit to youthful indiscretions or extraordinary circumstances and get away with it. Just like George W. Bush or Newt Gingrich did.

How would you sell this position? You would call it freedom.

Freedom is one of the slipperiest words in political discourse: it can mean many different things to different people. This observation comes from the (Conservative) professor in my first Political Science course in college. George Orwell made very good use of this confusion in describing his despotic leaders’ approaches in 1984. For despotic leaders, “freedom” could mean license for the elite to do whatever they wanted without the interference of the public or of the government. It could include the freedom to exploit public resources without paying the costs or being responsible for the outcomes.

Or you could say that your position is anti-Communist. Many dictators around the world have risen to power by their opposition to Communism; and the fact that there is no plausible Communist threat in this Millennium seems to be no deterrent to this strategy.

Why is this story so worrisome to me? Because as an open-minded and logical adult, I have looked with growing dismay at the self-inconsistencies of self-declared conservatives. These have gotten palpably more serious over the last 30 years. What is the moral or philosophical or ideological basis of the self-proclaimed Right? Can you predict what position they will take on a specific policy on the basis of broad principles (whether you agree with those principles or not)?  Increasingly you cannot.

The ethical and philosophical inconsistencies of the “Right” are so pervasive and deep  that one needs to look for some other self-consistent and explanatory basis for their chosen policies and positions: is there a principle or set of principles that explains and predicts “conservative” positions?

Support for the creation of a hereditary elite does this. Since that is the system that most of us or of our ancestors came to America to escape, the elitist faction needs a more effective story than telling the truth. This is why the use of fairy tales is so important: it is what anti-democratic regimes have always used to win elections and consolidate power, both in the real world and in fiction and essays such as Orwell’s.

Note that I am not the first person do associate conservatism with defense of privilege: Friedrich A. Hayek, a writer often cited by Conservatives, and one whom progressives ought to read as well, did so in The Road to Serfdom.  He defined his preferred position as “classic liberalism”, and dismissed what he called conservatism as mere defense of privilege.

So perhaps we need to add another fairy tale to the list: the belief that Republicans care about what’s good for America. Senator Mitch McConnell, the Senate Republican Leader, said in 2010 after Republicans took control of the House of Representatives that his primary goal for the next two years was to assure the Barack Obama was a one-term President. A primary goal, of course, takes precedence over secondary goals. Therefore if faced with a choice of creating jobs and helping Americans on one hand, and as a consequence increasing Obama’s chances of re-election on the other, Mr. McConnell told us which choice he would make. Is this kind of partisanship something Conservatives approve of—making America poorer and weaker as a tool to gaining political ascendancy?

So I urge you to take the time and effort to read the Appendix and to vote against the stealth “conservatives” that are running for President and Congress this year, even if you dislike many of the centrist and liberal positions that Democrats are taking. It will be easier to promote a true conservative agenda if losing an election forces Republicans to return to the Party’s roots and its core philosophy.


Here are the main myths used by Republican leadership and campaigns in 2012, followed by a refutation that shows them to be contrary to reality.

America faces a fiscal crisis that demands cuts in spending in order to be responsible

This fairy tale conceals two separate falsehoods:

•    That Republican policies would reduce the deficit; and
•    That the size of the deficit is a crisis

Republican Policies Don’t Reduce Deficits

The deficit is the difference between government revenues and government spending. “Government revenues” means taxes. The simple math is that there are two equal ways to cut deficits: raise taxes or reduce spending. Republicans have taken taxes off the table, for reasons that defy logic and run contrary to the history of the results of such actions.

The problem with this policy is that the thesis that low taxes lead to economic growth is based on nothing. Proponents of low taxes cannot point to any studies, or serious examples, of cases where low personal income taxes led to greater growth at the national level . The evidence, to the extent there is some, points clearly in the other direction: that low taxes are connected to low growth, and high taxes to high growth. The first example is the Bush tax cuts. Analysis of their results shows that these tax cuts reduced economic growth.

The Romney plan of reduced taxes and relaxed regulation is no different from the Bush plan: it is hard to explain why he expects different results from the same policies.

More detailed analysis, which despite its partisan tone is hard to refute, shows that tax cuts were attempted three times at the national level, and that all three experiments led to lower growth, not higher.

If the goal is to balance the budget, and at the same time increase economic growth, then tax increases are one obvious alternative, according to facts, not fairy tales.

The other way to reduce deficits is to cut spending. But “spending” is not a useful concept, since government spending is used to run thousands of different programs. A conservative could logically call for cutting spending for specific programs, based on a budgetary analysis of what really matters, but that tactic is seldom taken.

And when it is, the cuts are all for programs that Republicans don’t like on their merits: programs that they would cut even if they cost almost nothing. So calling for these kinds of cuts is bad faith; the leadership is seeking support for the broad principle of cutting spending when what they really mean is cutting only the programs that they oppose. The numerical cost of some of the programs the Romney campaign proposed to cut in June 2012 is so small as to be ridiculous. For example, cutting foreign aid—incidentally something the Right has opposed funding on principle for over 40 years—would save $100 million dollars, according to the Romney campaign. That’s less than one hundredth of one percent of federal spending.

A worse example is the campaign’s proposed elimination of funding for family planning. This would save only $300 million in next year’s budget, but would end up COSTING MONEY since planned families do not create as many dependents that cost government money to feed and educate. It is legitimate for conservatives to oppose family planning and abortion, but these issues should be argued on their own merits and not on the basis of budget.

The actual examples used by the campaign are all trivial or disputed: the only large savings comes from overturning the Health Care law, which many analysts think costs money rather than saving it. The fact that the Health Care law would save money is evident from logic: if hospitals do not just let people die on their doorsteps, SOMEONE is paying for the very most expensive types of care anyway. Perhaps not the federal government, but the cost is still there. Lower taxes, lower spending and lower deficits at the cost of paying all the savings and more through private insurance is not a good deal for the economy or its citizens or businesses. Rationalizing the system through requiring universal insurance should save money. In fact a careful study commissioned by the State of Vermont showed that their universal coverage plan would reduce costs by 25% over ten years  because it would eliminate an large element of cost—the administrative cost of deciding which insurance company should pay for a cost that is already incurred.

The biggest components of government spending are Social Security and Medicare and military costs. The Republican policies don’t affect these in a substantial way, other than proposing spending caps for Medicare, which is a bureaucratic, top-down (and market-hostile) imposition on health care markets that seems sure to fail in its goal to contain costs.

The Debt is Not a Crisis

America ran up large deficits and a substantial debt during the Bush II Administration, under a Congress with Republican majorities in both Houses, but the debt was still small enough to assure that the credit rating agencies all gave the U.S. Government their highest creditworthiness ratings, and to allow low interest rates. This changed in 2011 NOT due to the deteriorating debt situation or to the current-year deficit but due to the perceived risk that political division fostered by Republican members of the House would prevent the types of actions needed to prevent defaults.

In terms of data, the current and projected debt compared to GDP are not out of line with other countries, and are a lot less than those of many European countries (where debt is truly a problem) and Japan (where market perceive that it is not, despite a ratio of debt to GDP more than double ours).

If your goal is to be responsible, it is important for Republicans to assign responsibility looking backward. The federal government had a much smaller debt in 1980, measured in any terms you want to employ, whether relative or absolute, than it does now. Most of the accumulated debt was run up during the Reagan and Bush (both) Administrations. We actually had a surplus during two years of the Clinton Administration, following a modest tax increase on the highest earners passed over the objection of every single Republican in Congress. So if balanced budgets are the problem, both parties are culpable, and the evidence shows that Republicans are more culpable.

Again, if responsibility is a virtue, it is important to hold oneself and ones friends to the same standards as one holds ones opponents.

Thus, there is no track record for Republican policies reducing the deficit; the track record is the reverse. It is possible, of course, for Romney to say that past Republican Administrations made mistakes that he would steer clear of, but first he would have to actually identify past Republicans as part of the problem, and second he would need to identify the mistakes they made and show how he would do better.

Let’s return to the proposition that we face a crisis.

The evidence that would support the belief that we face a crisis would be that confidence in long term (30 year) U.S. government debt would diminish and interest rates go up. But the evidence is that long-term interest rates have gone down, far down, during the period where government spending and debt accelerated, and they have stayed down.

The market is letting us know that it does not foresee a problem, much less a crisis, for the next 30 years or longer.

And conservative leadership, by provoking the default crisis of 2011 that caused the first-ever downgrade of US debt, showed that good creditworthiness and its resultant low interests rates were not a very high priority for them in any case.

Would balancing the budget through spending cuts help with economic recovery? No: it would hurt the recovery in the short term, and would not necessarily help in the long term. Certainly if it worked, we would expect the countries that did it, notably the UK, but also Ireland and Portugal, to have better economic performance as a result, but the facts are that they have done worse.

What about Social Security? The fairy tale is that the system will “go bust” in 2033. That story is derived from a report by the Trustees that says the system will run out of money in 2033 . But that does not mean that the system will collapse. It means it will only have the money to fund 75% of the payments it expects to make without borrowing from general funds. In other words if no changes are made in the system, in 2033 benefits to everyone would have to be cut by 25% or subsidized from other sources. Thereafter the system would be in balance. That is a problem, but clearly not a crisis. And it could be averted entirely by raising the Social Security tax by 2.7 percentage points from its current rate of 12.4%. Some or all of this 2.7% could be raised by eliminated the earnings cap for the Social Security tax, a cap that makes a middle class earner of $100,000 a year pay a higher marginal tax rate than a wealthy wage earner making $5 million a year. And even those findings are based on 20-year economic forecasts, which no one ought to take overly seriously.

Republicans support small government

There are two aspects to small government: low amounts of spending and low levels of interference in the lives of its citizens and in the actions of its businesses.
Republican policies do not promote low government consistently in either area.

In the case of spending, Republicans support INCREASING spending for the military, subsidizing nuclear power, a policy that not only means that a big government is picking winners within the marketplace for electricity services, but that also costs tens of billions of dollars, cutting federal investments in railroads, which results in much greater expenditures on highways and airports, increased efforts at immigration limits, which is also expensive, cutting budgets for low-income weatherization, which results in greater costs for subsidizing low income utility bills, subsidies for agriculture, tax exemptions for corn-based ethanol (at least in the recent past), and supported the prescription drug payment increase for Medicare. Overall, it is not clear that Republican budget proposals, on net, and ignoring accounting tricks, are any lower in spending than Democratic ones.
The real difference in budgets is WHAT the money is spent on, not HOW MUCH is spent.
In the case of government control over our personal and business lives, Republicans have a very mixed record. Policies such as restricting abortion rights, limiting the ability of states or cities to license gun ownership or gun carrying, limiting the ability of states to enact environmental laws, limiting the choice of marriage partners, empowering police to detain or question suspects on broad grounds, limiting the voting franchise to people with government identification, allowing wiretapping by law enforcement agencies, etc., limiting the ability of people to spend more on their mortgages in order to save money on transportation and utility expenses, are big-government policies. At the local level, restrictions on mixing residential and commercial uses, limits on the density of development, minimum requirements for how much parking needs to be provided, etc., all are examples of big government intruding into decisions that could otherwise be made by homeowners and commercial property developers.

Republicans support economic growth and jobs; Liberals don’t care about jobs or growth

Virtually everyone actually supports job growth and economic growth in general. The only people who don’t are those who believe in voluntary simplicity, which includes both left wing idealists and conservatives who join monasteries or convents. This is a bogus issue as a way to distinguish the political parties.

The problem is that while almost everyone supports growth and jobs, we as a world know precious little about how to do this. (If we did, more nations and regions would be more successful at it.)

One thing that is pretty widely known is that education leads to economic prosperity. But Republican policies, especially at the state and local levels where most of the big decisions are made, usually are to cut education funding.

Infrastructure investment tends to promote growth, especially infrastructure such as transit. But Republicans support reductions in transit funding.

Energy exploration and other forms of natural resource exploitation are found to reduce economic growth when comparing nations or states. Yet the Romney campaign wants them to expand.

Republicans argue that environmental protection costs jobs and cut growth, but the evidence points in the opposite direction. Thus the proposed limits on environmental regulation would reduce jobs and growth. This is discussed further below.

Both Republicans and Democrats seem to care equally about jobs and growth, but neither party really understands how to make it happen. Based on what we know about jobs and growth, Republican policies do worse at it than Democratic ones (which also have their limits); this is reflected in aggregate data showing better economic performance when a Democrat is President than when a Republican is.

Democrats support equal outcomes, not equal opportunities

Communists claim to support equal outcomes, but Democrats have never proposed this.

Democrats have proposed making the tax system more progressive, but that is not even close to equal outcomes. A million dollar earner would still keep some $650,000 under Democratic proposals, which is still far more than the $50,000 that a median earner would keep even if s/he pays no income taxes. Democrats also propose programs to help the poor and middle class, which often have the side effect of minimizing the value of earned income at the bottom of the scale, but this is also a Republican idea: note Mr. Romney’s proposal to means-test Social Security payments. Programs to help lower-income people are not the same as equal outcomes.

Oddly enough, in summer 2012 the Republicans in the House were supporting a farm bill that provides target prices for agricultural commodities. This form of  government-paid insurance not only undercuts market forces that are based on price, but it is a closer approach to equal outcomes than anything that Democrats have supported.

So this claim is simply false. But it is worse than just mistaken: it appears to be a deliberate attempt to paint Democrats as Communists.

Republicans support a foreign policy of strength rather than appeasement and is based on a strong military

Most Republicans criticized President Obama’s support of the Libyan rebels. We don’t hear Republican support for military intervention in Sudan or Syria (nor Democrats). President Bush claimed to have a more assertive foreign policy position, but he did not have the nerve to challenge North Korea over its nuclear weapons tests. There just doesn’t seem to be a consistent partisan difference on this issue. The assertion that there is a difference—that Republicans are tougher--cannot be tested against the actual performance of a Republican President. And a foreign policy of strength is harder to achieve if we cut foreign aid, which has been disproportionately military, and unless we increase government spending on the military.

Republicans want an energy policy based on more drilling and more nuclear power, rather than on “clean energy”, to promote economic growth

The fairy tale is somewhat hidden here, as it is correct that Republicans support more drilling rather than clean energy. The fairy tale is what lies behind the mistaken belief that drilling will support economic growth: the story that America is sitting on vast reserves of oil that silly environmental restrictions are keeping us from drilling. But the facts are that the off-limit reserves only look big when taken out of context.

Most of America’s oil reserves are in areas where drilling is already allowed. Even total reserves are not large from the perspective of the globalized oil market. When compared to America’s consumption of oil, or to the reserves in the rest of the world, they are tiny. The Alaska National Wildlife Reserve, for example, would not even produce enough oil to compensate for drivers’ failing to keep their tires inflated properly. All of America’s proven reserves of oil amount to less than 3% of worldwide reserves, even though America’s use of oil is 25% of the world’s oil.

The consequences of these errors are large: more drilling cannot produce enough additional oil to affect gasoline prices noticeably, nor does it help the economy grow or produce jobs, on net, for the national economy. Yes, drilling does produce some jobs at the well site, but it eliminates other jobs elsewhere and the net effect is small.

Energy efficiency, on the other hand, can produce over 1 ½ million new jobs on net, according to a careful analysis by ACEEE, and can reduce energy costs by at least $2 trillion and probably much more, while also making American business more productive. The Republican turn against clean energy is recent and appears to be based on large part on the theory that if Democrats want it (which overstates their embrace of clean energy) WE must oppose it. In past Congresses, Republicans supported energy efficiency and renewable energy. Many of the real champions of energy efficiency in Congress and in state administrations over the past 40 years were Republicans.

Nuclear power, in addition to its safety issues, is one of the most expensive options available: a recent power plant in Florida is now estimated to cost $12 a watt, and it’s anyone’s guess how far that cost would escalate if construction proceeds. In contrast, the recent more-efficient incandescent lamps recently required by legislation that Republicans now want to overturn cuts the energy of a 100 watt light bulb by 28 watts. It does not cost the consumer $300, as the nuclear plant would, but only about $1. (This is not an apples-to-apples comparison since the light bulb may not be run all year long, but a comparable number would be about $5-10.) Why would we want to pay 30 to 60 times as much for a watt?

The Republican philosophy of “drill baby drill” has been the basic American energy policy for over 75 years. The current problems of energy economics, from energy’s effects on inflation to its role in the US trade deficit are the consequence. To change the outcomes one has to change the policies. The Republicans are not proposing to do that.

It is noteworthy that at the state level, there is much more consensus on the need for policy to encourage clean energy.

Climate change and air pollution are not real risks, and are instead a Trojan horse for more government control of the economy.

The scientific community, especially those who specialize in climatology, is in strong agreement that climate change is a real risk, and that pollutants such as small particles and mercury from power plants cause at least 30,000 excess deaths a year. Even if we believed that there is doubt about how bad or costly climate change will be, or even that it may occur, a truly conservative reaction would be to spend some money mitigating the risk.

Yet the Republican position is one of irresponsible denial: it is not worth doing anything to mitigate the risk. “If it feels good, do it” and “live for today, forget about tomorrow” used to be associated with 1960s hippies and was denounced and feared by conservatives. Yet it is now the preferred policy for dealing with environmental risks.

Especially when it comes to environmental issues, it is impossible to reconcile a truly conservative attitude with the reckless and irresponsible positions and arguments that “conservatives” put forth on pollution and on climate change. Are you as a conservative unconvinced that mankind has already caused measurable climate change? That’s OK (if scientifically wrong), but could you insist that there is no chance at all that you may be wrong and that climate change is really a problem? Are you so convinced that you are unwilling to spend anything on an insurance policy that you may be mistaken? Because a truly conservative attitude towards risk is to mitigate it (like having fire insurance on your home), even if (or especially if) it is small.

What is the cost to mitigate climate change and air pollution? For climate change, conventional wisdom studies such as those performed by the EPA for the Waxman-Markey climate bill suggested costs of about $20 billion a year. But this analysis ignored the efficiency gains that would be made in response to the bill that were not explicitly required or paid for in the bill itself. More comprehensive studies showed costs between essentially zero and net benefits in the hundreds of billions annually.

What about health-related pollution? EPA analysis here showed benefits many times greater than costs.

Is climate change mitigation really a trick to conceal a hidden agenda? I have worked with advocates for climate bills for 25 years, and have yet to see anyone who is using climate change control as a means to a hidden (evidently not very well-hidden) agenda. A very small set of progressives believes that a climate bill will advance their agenda, but the Scoping Plan adopted by the California Air Resources Board that has the force of law does not give support to the notion that other elements of a progressive agenda (other than environment) are being advanced. The Plan is completely business-as-usual in terms of the rights of corporations and citizens, and in terms of property rights. If anything, the Plan allows developers more flexibility in developing their property.

Regulations burden the economy and cost jobs and growth

One of the Romney campaign’s key issues is reducing regulation of the economy for the explicit purpose of increasing economic growth. He bases his claim on a Small Business Administration study that purports to show that regulations cost businesses $1.75 trillion.

Before explaining the failures of that study, we must point out the obvious: the nation suffered a deep recession when the financial bubble of the real estate and home mortgage sectors burst in 2007. It is nearly universally accepted that one cause of the bubble was weak regulation of mortgage-backed securities enabled by deregulation of banks a decade before.

It is not widely known, but still true, that the problem was exacerbated by a failure to regulate how home loans were underwritten, resulting in the fact that loan qualification was based in large part on comparing the applicant’s income to the projected monthly payments, excluding the costs of transportation and utilities, cost which over the 30 life of the loan amounted to about twice the amount borrowed. It is no accident that defaults are concentrated in the areas with highest transportation costs.

So our most recent economic history shows disastrous consequences of inadequate and recently-weakened regulation. Millions of jobs were lost and remain lost. There is a lack of convincing countervailing evidence that regulation might hurt jobs and growth.

Industries afraid of regulation often argue that regulations are the opposite of free markets. This is completely untrue. Regulation is the foundation of markets. Markets require free and fair competition in the provision of known goods. Business discovered as early as the 1880s that it was impossible to buy truly known goods without regulations. That is why businesses support and pay for the maintenance of over 50,000 private sector regulations.


Here is what the American National Standards Institute, a private business-sponsored organization, says:

Standards are essential tools helping today’s businesses stay innovative, reduce costs, improve quality and market their products or services. Standards are the foundation for innovation. They help break down barriers to trade, provide industry stability and encourage commerce.

ANSI sees standards as so important that its mission statement is

To enhance both the global competitiveness of U.S. business and the U.S. quality of life by promoting and facilitating voluntary consensus standards and conformity assessment systems, and safeguarding their integrity.
The supportive relationship of standards to the free market is affirmed by the National Institute of Standards and Technology (NIST), a government standard-setting agency, which says
Standards [] underlie all mass production methods and processes...Standardized parts can reduce inventory requirements, facilitate product repairs, and allow interoperability between different products and systems. Standards can also promote competition by facilitating the comparison of prices of standardized commodities. In addition, standards can facilitate the introduction of innovative products and new technologies.
Today, an estimated 80 percent of world merchandise trade is affected by standards or regulations that reference or incorporate standards. Standards are fundamental to the U.S. economy and vital to world commerce. In fact, the American Society of Mechanical Engineers (ASME) ranked the promulgation of standards among the top ten engineering accomplishments of the last century. Standards shared top-ten honors with such accomplishments as the inventions of the automobile and airplane. Standards permit society to make more effective use of limited resources and allow improved communication among all parties involved in particular activities, transactions, or processes. Indeed, standards are crucial to every form of scientific and industrial process.

Perhaps this strong business support of regulations is why the Romney campaign is reduced to relying on the obscure “SBA study” cited on the campaign web page to attack regulation. In fact, the “SBA study” is not really a study BY the SBA: it was only funded by the SBA. It is published with a disclaimer that the SBA does not necessarily endorse its conclusions.

While the study finds that regulations cost business $1.75 trillion, it says nothing at all about the extent to which these costs are balanced by benefits. If regulations really did cost $1.75 trillion, but produced benefits of $4 trillion, then they would help the economy and create jobs. How can one perform a competent study of the value of regulations by looking only at costs and not at benefits? How can a web page that recommends more cost-benefit analysis fail to notice that the same page cites a study that does not follow this recommendation?

Worse yet, it is an unpublished study that has no data whatever on the actual costs of compliance with regulations. In the case of environmental regulations, it used the agencies’ upper bound estimates of costs for its analysis, apparently ignoring a study that was already a decade old when the report was written that finds that ACTUAL costs of compliance were always less than the agencies’ mid-range projection, and were usually less than half as much. And it also ignores an analysis of clean air regulations published by the Bush-II EPA that shows that these regulations cost $220 billion but produced $1.2 trillion of benefits.

Most regulation is economic rather than environmental, health, and safety-related in terms of claimed burden. But after the Enron meltdown of early last decade, business leaders reluctantly admitted that without the resulting stronger regulation of the securities sectors, capital markets would have frozen up, harming business far more than the cost or bother of compliance.

The evidence, then, is unequivocal that the most significant regulations allowed the economy to crash when they were weakened, or produced at least $5 of benefits for each dollar of costs. It is not just erroneous but affirmatively misleading to assert on this evidence that regulation hurts the economy and that reducing regulation would promote growth.

    Out-of control bureaucrats are strangling the economy

This claim is instructive in several ways, as it demonstrates how these fairy tales provide disinformation, not just incorrect information.

First, there is no such thing as an out-of-control bureaucrat, because the law requires that regulations be promulgated through a thoroughly defined public process. If they are not, aggrieved individuals are entitled to sue the government and overturn them.

Regulations generally are issued because the law requires the agency to do so. Thus environmental regulations are required by the Clean Air Act and similar legislation, and appliance efficiency standards are enacted because they are required by the National Appliance Energy Conservation Act and other similar laws, according to a fixed schedule. (The latter laws were signed by Republican Presidents.) They are not proposed, much less issued, on the whim of a bureaucrat.

These regulations must comply with criteria specified in the law. Even then, they are not just issued by a bureaucrat with a personal agenda; they must undergo extensive engineering and economic analysis and be proven to be beneficial, and then must receive the signoff of the Cabinet Secretary or the EPA Administrator.

That is just the beginning of the process: the next step is formal public review: the proposed regulation is published in the Federal Register and anyone is allowed to comment. The issuing agency is required to respond to each and every comment and to adjust the regulation as necessary. Almost always the rule must go through another round of agency analysis and revision and another round of public comment. Again, each comment must be addressed before the final rule is issued. And OMB reviews almost all regulations for their economic effects at all of these stages. Even then, any party that is still dissatisfied can always challenge the regulation in court.

So the regulatory process is deeply under control. And, as stated above, the weight of the evidence is that regulation helps the economy.

    Environmental standards kill jobs

The evidence is clear if not completely unambiguous that environmental standards create jobs on net and improve economic conditions. They do this by driving innovation and competition—that is WHY retrospective studies of the cost of compliance show that the real costs are less than the projected costs by more than half. And they do this in part because almost all environmental standards are subject to benefit cost analysis, and that analysis consistently finds that economic benefits are greater than projected costs, and usually much greater. Usually the studies find that jobs increase, on net. Of course, whenever there are changes in a market economy, some individual jobs may be lost; but overall beneficial actions usually produce more jobs than are lost. Mr.Romney, of all people, ought to understand job destruction and creation in a market economy and recognize that net job creation is the relevant measure.

Democrats support socialism rather than market forces

Virtually no one in the U.S. supports socialism, if by the word one means government-owned enterprises producing at fixed bureaucratically-determined prices. Socialism has been demonstrated not to work well by the collapse of the Soviet Union and by the growth of privately owned companies in China. It has had few and diminishing supporters in the United States since the left became disillusioned with Stalin in the 1930s.

In some selected areas of the economy, government does own enterprises—publicly owned utilities are an example—but conservatives do not seem to object to this special case.

And government regulation does set prices of some businesses, notably utilities. This system works better than unregulated market forces, as proven by California’s disastrous experiment with deregulation according to the formula proposed by California conservatives. These deregulation advocates got as close to exactly what they asked for as one ever gets in a non-totalitarian government. The outcome was a cost overrun passed on to ratepayers of $15 billion—over $1000 in one year for every household in the state—and electricity rates that went up 40% on a near-permanent basis.

Various Republicans, including Newt Gingrich, have accused Obama’s health care proposal of being socialist. But health care is not a market: competitive forces cannot work and lead to an optimal outcome because more than a dozen preconditions for markets to work are violated. Anyone who has tried to buy health insurance on their own will see that unless you are a large employer it is hard to buy decent insurance and impossible to get a reasonable price. And that’s for someone without pre-existing conditions.

And at the same time that Republicans are decrying socialism in health care and the environment they are supporting it for large agricultural interests, and for nuclear energy. Agricultural price supports are a deep government intervention into the free market, and one that costs the government a lot of money and undercuts the discipline of the market, yet Republicans are not proposing to pull the plug on them. Nuclear plant owners benefit from free accident liability insurance over a fixed limit of damages, and also from large subsidies. It is no coincidence that nuclear power flourished mainly in countries with a large government interest in the power sector, such as the Soviet Union, France, and the UK right after World War II.

        Unrestrained market forces always work best

Economic theory says that if a number (a large number) of assumptions and conditions are met, markets assure the best outcome for everyone. But it definitively does not assert that market forces work best under ALL circumstances. Perhaps this observation motivated Presidents Ford and Nixon to invoke wage and price controls in the 1970s.

Economic theory is a lot less reliable as a predictor of the real world than physics theory. But like physics theory, the theory cannot be accepted until validated by experiment. And in many important areas—energy is a good example—the data irrefutably show that unrestrained market forces can produce outcomes with fewer jobs and lower growth than regulated markets could have done.

Republicans recognize this at some level, because when the interests of their supporters require it they not only tolerate but actually support non-market-based government interventions, such as for agriculture, mining and drilling.

Democratic mismanagement of the economy during the Obama Administration is responsible for unemployment

The Obama Administration began as the banking system was nearing collapse, and both parties agreed on a financial bailout package. The Obama response was to offer a compromise stimulus package that agreed to extend the Bush tax cuts temporarily and also added some stimulus spending. Liberal economist such as Paul Krugman argued at the time that the stimulus was too small to solve the problem.

What happened? The bleeding stopped relatively rapidly, but the nation struggled to recover from the recession. Recovery was slower than anyone wanted. But this pattern is typical of financial panics. It is not evident that anything else would have helped much by now, and the one policy that could have made a big difference—making a major commitment to investments in energy efficiency—was not considered by either party.

Today corporate America is sitting on nearly $2 trillion in cash—money that could create jobs and growth if it was spent.  It surely isn’t helping corporations that much when they are earning 1% or so on it! Business is not investing because they don’t see the business opportunity from investment.

Would the Republican platform of deregulation, low taxes, and spending cuts (assuming they can find enough spending to cut to make a difference) matter in inducing them to spend? The evidence says not. Neither the Bush tax cuts nor the Reagan cuts created robust job growth. Deregulation of the financial sector might just allow a repeat of the speculative bubbles that created the recession in the first place.

Deregulation of the environment would clearly make things worse: not only by eliminating the beneficial effects observed broadly, but now it would also create regulatory uncertainty around coal. At present, market conditions (low gas prices, low demand due to the economic conditions, low demand due to efficiency programs, etc.) complement regulatory conditions to favor retiring old, dirty coal plants and replacing them with wind and a little solar and with gas plants, if any fossil fired plants are needed at all. If EPA rolled back current health-related standards and failed to promulgate carbon emission standards, regulatory pressures would become contradictory to market pressures. Investments that would otherwise be made in new gas and renewables plants, in energy efficiency, and in new pollution controls would be put on hold to see how well the new rollbacks would fare in the courts and in the succeeding Congresses and Administrations, and because state actions would be hard to predict.

Delaying investments is the worst possible situation for the economy. It would be compounded by the risk of political backlash: if President Romney can roll back emissions standards suddenly, could not President Bernie Sanders require them with no lead time in 2017?

A key assumption in this fairy tale is that somewhere else where liberal-to-centrist governments are not in power, the national economies are doing better. After all, the WHOLE WORLD went off the rails in the 2007 economic crisis. Which countries are doing better than us, and which worse?

The evidence shows just how dangerous the fairy tale of Democratic mismanagement of the economy is. The places that are doing best are the welfare states (in comparison to America) of Sweden, Germany, and Austria: the places with big governments and lots of regulation. The places that are doing worse are the UK, Ireland, and Spain, where the Romney policies of austerity and balanced budgets are being accepted or forced on the economy.

The nation is divided into two classes of people, moochers who are dependent on government and try to appear as victims, and producers who contribute to society.

This is a particularly troublesome fairy tale, because it has been used by Republicans since at least 1980 when Ronald Reagan wanted to crack down on welfare queens who drove Cadillacs. But it is based on immense misperceptions, such as the false belief that welfare for the poor is a significant part of federal spending, and that it is easy to live comfortably on welfare without trying to work. And the misperception that Republican policies will reduce mooching.

This fairy tale is dangerous because it is based loosely on truth—some people do take advantage of government programs—but it spins this truth to the point of absurdity. And it is not easy to refute in a sound bite, because the truth is complicated. The fact that the truth is not simple makes this a great fairy tale with which to mislead people: the listener will tune out before hearing the full story.

The full story is that it is impossible to distinguish between producers and moochers, and there is a lot of territory in between. Is a retiree living on government checks (Social Security) a moocher? My conservative friends say “no” because the individual contributed earnings into the system and deserves to take advantage of them”. And I agree. But what if the retiree contributed far less than the value of his benefits, which is the case for most lower-income retirees? (If this were not the case—if everyone funded their pensions fully through contributions--the system would be on sustainable financial ground with no changes!)

Is the owner of a highway construction firm a moocher if his business is 95% government contracts? No, says a conservative friend, because he is rendering service for the money, and is able to sell to the private sector if the government did not fund roads. But I don’t think the case is so clear, since the bulk of the profits from his company are dependent on government. In others words, the simple division of society into moochers dependent on government and producers who are in the private sector breaks down. This guy is both dependent on government and also a producer.

Is a defense contractor a moocher or a producer? This answer also depends on the details, so what about the case where the product he delivers is funded by a Congressional earmark inserted in legislation by a Representative to whom the contractor has donated half a million dollars?

Is an individual who does not pay federal income taxes a moocher? If so then General Electric is too.

Is a person educated in a public school a moocher because the school is provided for free by local government with federal assistance? Are the teachers there producers or moochers?

If you drive on federally funded Interstates whose right of way was taken from the property owners by eminent domain and whose users don’t pay tolls, are you a moocher? How about if you use the Internet for free, given that the Internet was founded technically based on federally funded research and it was founded operationally on federal regulation that forced telephone companies to provide communications services, over their private network of wires, to all comers even when they didn’t want to?

Are you a moocher if you save $1000 a year in electric bills due to federal efficiency standards on appliances?

Are you a moocher if you never worked a day in your life because you had the good fortune to be the son of a lucky investor who bought Google stock the day it was issued, and who died and left all his money to you? What if you used to work hard and produce a lot before the inheritance but now just lie on your couch and watch TV?

Conversely, are you a producer if you make money from banking and your firm would have gone bankrupt without federal deposit insurance or without the bailout of 2007-8? Or an investor who would have lost probably half your investment if the bailout did not keep the banking sector solvent?

Dozens of such questions can be posed. The more you think about them the more you realize that we all depend on government services to some extent, some more than others obviously, and we (almost) all contribute something positive.

Perhaps the most important such question is: are you a moocher if you fail to have health insurance and then show up at the emergency room when you are sick, knowing that you will be treated even if you don’t pay? The answer to this question, unlike the previous one, is clear: YES, you are a moocher. And in a big way, since if you show up with cancer or a serious injury from a car wreck, the medical bills can top $100,000.

Did you ever think of who pays for the $100,000? It winds up being buried in the hospital’s accounts and effectively subsidized by the insurance companies and individuals that DO pay, raising health insurance costs for everyone.

Next question: are you still a moocher if you couldn’t buy health insurance because coverage was denied due to pre-existing conditions?

The clear solution to this mooching is to require that everyone have health care insurance, even if it means subsidizing lower income households. This is the core of Obama-care, and it is opposed by the Republicans, who campaign on repealing the law. The Democrats took a first step in eliminating this mooching, and the Republican plan is to restore it.

The fairy tale misleads us into thinking there are good people who need to be rewarded and moochers who need the tough love of government forcing them to look after themselves. The real world is that we all combine some level of dependence and even mooching and some level of useful productiveness. We want to encourage productive ACTIONS, and discourage selfish ones.


Current Republican thinking seems to be based on a Disney-esque belief that wishing will make it so. Republicans seem to believe that life is a fairy tale story where if you want something to be true badly enough, it becomes true.

Republicans WANT lower taxes to lead to economic growth, and so they do. No need to  do the analysis.
Republicans WANT climate change not to be a problem, and so it isn’t.
Republicans WANT austerity to be the way out of the recession, and so it is.

Why is this way of thinking so dangerous? Because the real world, the world of science and of economics, doesn’t care what people think, or what they want. Nature bats last: the facts are what they are and if you ignore them you will get in trouble.

Why do they do this? Perhaps the new leadership is simply deluding itself. And passing this delusion on to its supporters who don’t bother to think independently. But it seems more likely to me that the fairy tales are a conscious political tactic. Most of the fairy tales I describe in this essay are so obviously out of touch with reality that it cannot be an accident or an oversight that they are being disseminated. They are evidently false in total or misleading overall even if true around the boundaries. In only a few cases could the misinformation be based on true honest error or serious difference of opinion.

No doubt these fairy tales have been focus-group tested and found to work. This leaves it up to us in this intended audience to show that such errors are not to be tolerated.

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Comment Preferences

  •  Thank you for this. (0+ / 0-)

    It is a well reasoned and researched piece that I intend to hotlist to keep as a reference for future use. You have covered these major conservative delusions with strong insight and sound argumentation.

    What would be wonderful if the could get every uncommitted voter in the country to read it. (It would also be great to have all Republicans do the same but the chance that they would be able to substitute reason for doctrine is, sadly, minimal.)

    This diary was clearly a lot of work and I want you to know that at least one person deeply appreciates it, agrees almost totally and read it virtually in its entirety, skimming perhaps a few paragraphs. Thanks again.

    The world is a den of thieves and night is falling. -Ingmar Bergman

    by Pirogue on Tue Oct 02, 2012 at 06:19:17 AM PDT

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