State of the Union?

No one asked for it, but here it is anyway - my take on the president's state of his re-election speech disguised as the State of the Union address.

The president said he wanted to address America's growing income gap. Doesn't everybody? The problem is that the gap effecting most Americans exists primarily between the private sector and government employees. The secret is now out that public sector employees have higher incomes, significantly better benefits and more job security than those who work in private enterprise. Personally, I don't think the president plans on closing the gap by cutting or even restraining the growth in government employees compensation packages.

The president said he wants to restore an economy where everyone enjoys prosperity, not just a few. Really! What a concept! I guess he thinks he is the only person in America with that objective. Be that as it may, he unfortunately believes socialism, income redistribution and placing shackles on free enterprise is the way to do that. Apparently he has little knowledge of history. He additionally said he wants an economic system where everyone plays by the same rules, again as if that is a singular desire on his part alone. He then proceeds to announce new programs and subsidized benefits available only to targeted interest groups. So much for everyone playing by the same rules.

In America we have always envied those who have more than we do. We haven't hated them. Until now. For generations immigrants came to America because they knew capitalism and free markets offered them the opportunity to build better lives for themselves and their families through hard work. Until now. That has been the change produced by our current president and his political party.

An American making $343,000 a year qualifies to be in the top one percent of earners, and $36,000 a year to qualify as a member of the middle class. Globally those numbers are $34,000 and $1,225 a year, respectively, as reported by CNN. This staggering difference in relative affluence was not created by socialist economic and political policies. It was created by capitalism and free enterprise.

The president always says he is willing to compromise and work with Republicans. Unfortunately, his idea of compromise is for Republicans to bend over while he shoves his agenda up their ass. But of course claiming this false willingness to compromise certainly goes down well with the fawning 'words speak louder than actions' crowd who worship every cliche he reads off his teleprompter.

Regarding specific issues, the president wants to eliminate all oil and gas subsidies. That prompts the question, what oil and gas subsidies? Does he mean the depreciation and amortization allowances on capital expenditures and intangible assets available to every business in America? Wouldn't denying those allowances to oil and gas companies be a contradiction of his equal playing field objectives? Or is he talking about depletion allowances for natural resources, without which there would be little incentive to spend money exploring for new reserves? Wouldn't that contradict and impede his stated goals of achieving energy independence for America? Gee, I don't know, maybe he doesn't let those kind of details bother him. After all, they don't seem to bother the folks who vote for him.

Another subject is national security, which he claims to be in favor of. That is good to know. The president announced he will cut the number of troops in the Army and focus on drones and small special operations units to defend against our adversaries. That is a good idea given the nature of the immediate threats we face today. In fact, that strategy is what my book "The Paladin Principle" is all about. But cutting vital next generation weapons systems is a very bad idea. Potential opponents are always improving their capabilities, so it is imperative that we always stay a step or two ahead. Over his three years in office Obama has cancelled vital programs such as the F-22 Air Superiority Strealth Fighter, and made substantial cuts in others such as the F-35 Joint Strike Fighter, our ballistic missile defense shield, and the CGX Next Generation Cruiser - all programs geared towards protecting the country from the more sophisticated threats we may encounter in the future.

Yes, high tech weapons do reduce the need for ground troops. But today's weapons of mass destruction can destroy whole cities and eliminate massive numbers of military personnel in an instant. In order to prevent that from happening to our cities and our soldiers our super weapons must be better than our opponents super weapons. We do not get to choose where our next threat will come from. If it comes from non-government sponsored terrorist organizations or Middle Eastern nations who are not as strong as they think they are we will most likely prevail. But if it comes from an increasingly belligerent world power, then we will be the ones who are defenseless. Perhaps the president thinks we can just whip advanced weapons systems out whenever we might need them in response to aggressive moves by the Russians, the Chinese, the Iranians or the North Koreans. But that is not a plan to provide for the common defense. That is a plan for extinction.

And then of course there are taxes. He wants everybody to pay their fair share. Again he appears to believe that is a concept no one else has thought of. Or maybe his inspiration is that he gets to decide what is fair. Contrary to his rhetoric, there is a majority of people on both sides of the ideological spectrum that agree America needs serious tax reform. But the president is not advocating tax reform. He just wants to raise tax rates on his definition of the wealthy. Not that I object to that, but it is kind of like using a child's sand shovel to dig the Panama Canal. There aren't enough rich people to make a dent in bringing down the nuclear bomb of a budget deficit he has created over the last three years. Furthermore, is it really fair for 50% of Americans to pay no income taxes at all while 10% bear 70% of the load?

It is past time to blow up the current tax system and start all over. There are lots of good ideas floating around about a tax system that truly is more fair for every American, and doesn't rely on just raising income tax rates on the rich and, if the Democrats were honest, the middle class. A flat tax, a value added tax, maybe even a wealth tax should be considered. For starters there should be the elimination of all tax preferences, which are nothing more than unfair subsidies benefitting special interest groups. Real fairness will be difficult to achieve without upsetting a lot of folks who have grown accustomed to their cherished credits and deductions. But if we are talking about real reform, that is the place to start.

The president continues to blame all of America's woes on George Bush and the Republicans in Congress, conveniently ignoring the fact his party controlled both houses of Congress his first two years and the Senate last year. He is trying to convince the nation that our economic sluggishness couldn't possibly be due to his enlightened vision of progressive leadership. Fortunately for him, capitalism has an inherent propensity to generate growth even when shackled with the burdens of unnecessary regulations and restraints. But too many of those restraints keep the economy from growing at a rate strong enough to maintain a society's standard of living. That is where this president's leadership now has us trapped. But of course he will never admit his ideology does not work.

Perhaps one of the biggest problems we face today as a nation is that the majority of voters do not understand economics. They seem to believe left wing politicians' bullshit that the government will provide for them by taking money from those who have more of it, as if that is fair. Another major problem is that elections are nothing more than popularity contests, not a rational process of learning about and electing qualified, knowledgeable, capable leaders. That is why every so often we end up with unqualified, dishonest egomaniacs who promise unattainable, fantasyland Utopias. A government run by deceitful, corrupt socialists and their like-minded supporters results in a self-righteous aristocracy dominating a moribund society that cannot produce enough to sustain itself.

It is almost expected these days that politicians are dishonest, devious and corrupt. Our president takes these undesirable attributes to new levels. He has been president for more than three years, but everything bad is always someone else's fault. He tries to tell us our problems couldn't possibly be caused by the discredited anti-growth Keynesian economic and illogical socialist policies he resurrected from the trash dump of history. But the fact is that no country's economic and social problems have ever been solved by printing money, redistributing income and adding to already bloated government bureaucracies.

If Republicans were smart they would agree with Obama's stated objectives, and then strongly argue why their solutions would provide more success in meeting those objectives. All the rational arguments are in their favor. But they probably won't. Republicans have never been good at public relations. In fact they are currently engaging in exercises that may achieve nothing but self-destruction. Sometimes you almost think they want to lose. It would almost be humorous if the stakes weren't so critical to the future of our country.

A Golden Opportunity

Apparently Mitt Romney will be the Republican candidate for president next fall. Consequently, it was inevitable that his career as head of a private equity firm would become an issue he would have to deal with as he runs for president. Over the last two decades many of these deal-makers have grown fabulously wealthy by acquiring struggling companies and restructuring them in order to improve their value and sell them for a profit. In the process many jobs were lost. Of course many jobs were also created if the firms were eventually successful. But some have used the loss of any jobs as an indictment of capitalism, and it is far better the debate regarding capitalism and private equity comes to the forefront now rather than next fall. Barack Obama will certainly press the issue hard in attempting to demonize his opponent, but at least now it will be out in the open and hopefully the arguments well known.

Many folks regard private equity investors as the epitome of the kind of rapacious bandits that represent the unrestrained greed and reckless behavior that has destroyed the global financial system and brought the Western economies to their knees. That is a bit of a stretch, since private equity firms generally did not indulge in the leveraged trading orgy of collateralized mortgage obligations and credit default swaps carried on by the too big to fail banking institutions at the epicenter of the financial collapse.

But the critics do have a few legitimate arguments. Some private equity firms are guilty of buying struggling companies solely for the purpose of leveraging them up with debt, paying themselves huge dividends from the borrowed money that oftentimes exceeded their investment (providing an instant profit), arbitrarily laying off large numbers of people to reduce expenses, then selling the over-leveraged carcass off to go bankrupt a couple years down the road. That is called looting and it is inexcusable, irresponsible and immoral. It should also have been illegal. The private equity executives that engaged in this behavior should be in jail and required to forfeit all of their earnings from the activity.

However, not all private equity firms operated in this despicable fashion. Private equity, when conducted in a responsible manner, may be the purest form of capitalism and one of the most beneficial when companies that would have gone bankrupt without outside intervention and restructuring manage to regain profitability and grow. Instead of everyone losing their job, the company can retain a significant portion of its people while replacing those at the top with more effective managers. The company may even become a substantial new job generator as profitable operations resume. To date I have seen no credible evidence that Bain and Company pursued the looting strategy rather than the objective of corporate regeneration for the benefit of all. If evidence that I am mistaken comes to light, then Romney is toast, as he should be.

Unfortunately, it appears that many Republicans are not doing the Party a favor by disparaging capitalism and accusing Romney in particular, and private equity investors in general, of plundering and pillaging. Either they do not really understand capitalism or they are political opportunists who desire to tap into the voters concern over the unfortunate growth of income inequality in America. In order to combat these perceptions, Romney must produce a verifiable report that proves Bain and Company did not engage in looting and that the firm was responsible for creating far more jobs than were lost by their investment and restructuring operations. If he doesn't, Obama will tear him to pieces with this issue next fall.

Certainly income inequality and Wall Street excess needs to be rationally addressed and reversed, but the redistribution of income policies of the current administration will not get it done. There ain't enough rich folks for that to succeed. 'Tax the rich, feed the poor til there are no rich no more' may have been a great line in an early 70's counterculture song (Alvin Lee, Ten Years After, 1971), but it is not a viable long term policy. Europe is the living proof. Only the economic growth generating attributes inherent in capitalism have the potential ability to raise living standards for all rather than for a privileged few.

Actually, all of this creates a tremendous, and critical, opportunity for Mitt Romney and our country. Romney must make a strong case for the job creation and abundant affluence that has been the legacy of capitalism in America versus the inevitable decline of living standards resulting from government control of the economy. Again, the ace in the hole for making this case is Europe. Unfortunately, with nearly half of Americans today receiving more from the government than they pay in, the majority of voters may not be listening. Something for nothing always appeals to people, particularly when it is legitimized by society. That has to change.

Democracy made America free. Capitalism made it great. Like it or not, Mitt Romney has perhaps been chosen by fate to be the man to lead America back from the precipice, to restore the United States back to its basic principles of individual liberty, equal opportunity, impartial justice, limited government and free enterprise. To regenerate an industrious work ethic in Americans we must be able to gain rewards from our efforts. That message must be eloquently and convincingly delivered. It would help if Romney would lose his patrician mannerisms as quickly as Obama acquired his. Regardless, Mitt Romney may be our last chance. He may not be up to it. Let's pray that he is.