Can We Save the Goose That Lays the Golden Eggs?

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A strange and wonderful thing is happening in this run-up to the midterm elections. It's about the only thing that gives me hope that our country may yet escape ruin.

Soaring oratory aside, democracy rests on the idea that most citizens vote their self interest. A solid tenet of political campaigning has always been that elections could be won by convincing enough constituencies that you and your party could give them something for nothing. It didn't matter which group was being targeted - wannabe homeowners, union retirees, Midwest farmers, reckless bankers, or bellicose defense contractors. It didn't matter what was being promised - low cost mortgages, fat pensions, crop subsidies, easy money, or bloated contracts. The strategy worked as long as enough voters believed that their goodies would be delivered at someone else's expense. This has turned the Federal Government into the largest income redistribution machine in the history of man.

Our two political parties pander to different groups but both Democrats and Republicans had a common interest in making sure that the system kept doling out largesse. More often than not political compromise consisted of larding up spending bills to the point that both parties could honestly tell their core constituencies that they delivered the goods.

Given the general state of economic illiteracy it was easy to get people to believe that a majority of the people would come out ahead and though a minority might squawk that was just the price they paid for a civilized society. Most people were also led to believe that no matter how distorted the economy got, businesses would somehow figure out how to get by.

While the rhetoric of the two parties varied, each time one or the other gained power government spending went only one way. Up. A vast social-issues issues sideshow was maintained to sharpen party differentiation and entertain the masses but at the end of the day these issues bore little relevance to the fiscal health of the country.

The giveaway game isn't working any more, and the reason is simple. The cupboard is bare. It's not only bare; it's been hocked - along with the kitchen, the house, the car, the foundation, and the neighborhood. Our government is being kept alive right now on printing press money, and we all know how that story ends. This means that the majority can no longer deceive itself into believing that either party can deliver on new promises. It is even beginning to dawn on a growing minority that old promises, specifically the ones underlying middle class welfare schemes like Social Security and Medicare, are unlikely to be kept either.

This has unleashed a lot of anger, some of it blind, some of it directed, and some of it cynically manipulated. The party currently in power is receiving the brunt of this anger but confusing this for support of the party currently out of power would be a mistake. Things are going to get uglier over the next few years no matter who is driving the boat. The Republicans may celebrate after they take the House of Representatives in November but that's a lot like celebrating being promoted to senior officer on the Titanic.

The only way to escape this death spiral - if it can be escaped - is economic growth. We've done it before and just maybe we can do it again. And the only way our economy is going to start growing again is to unleash the power of the American people, not doing make-work projects but responding to the needs of businesses each charting their own path through the competitive thicket in search of real profits. No subsidies, no kickbacks, no mandates, no handicaps, no shackles. Just go create more wealth than you consume.

Businesses are sitting on enough capital to fund a return to growth but they have gone on strike, just as they did after Herbert Hoover and Franklin Roosevelt teamed up to drive them into the bunkers last time an easy-money speculative orgy turned spectacularly sour. Cranking up the printing presses to push low interest government loans on companies that don't want to borrow money is idiotic. Building high speed trains to nowhere is idiotic. Demonizing the two percent of the populace that makes the vast majority of the business decisions in this country is especially idiotic. Only removing the boot of uncertainty and the burden of jacked-up taxes, promising to GET OUT OF THE WAY, will revive the spirit of industry and commerce that made us who we were.

Time is growing short. Let's hope it's not too late.

Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

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