Underfunded and Micromanaged

In hindsight, the U.S. government’s handling of the Korean War – a “police action” – was perhaps in some ways negligent, inasmuch as funding for the military was not directed toward ensuring that the war effort was maximized. Historian Russell Weigley writes that “government and military leaders generally agreed that the growing funds available for national security must be used to seek a larger security beyond the immediate demands of the war,” and that “therefore they early proposed to use much of the enlarged defense budget to make better preparation for the all-out Soviet aggression they still thought likely.” On a policy level, this may or may not have made sense, but to the individual soldier in a foxhole in Korea, had he known, this might have seemed like lack of support.

Historians Allan Millett and Peter Maslowski report that the Truman

administration eventually spent 60 percent of the FY 1951 – 1953 defense budgets on general military programs and 40 on waging the war. In fiscal terms defense outlays became two-thirds of all federal spending. Supplemental appropriations brought FY 1951 defense expenditures to $22.4 billion, followed in the next two fiscal years by outlays of $43.9 and $50.3 billion. Although budgets fell short of Department of Defense requests, the administration approached a "holiday" on defense spending in its relations with Congress that approximated the halcyon days of World War II.

There was plenty of defense spending, but not much of it was going toward the effort in Korea.

William Donnelly analyzes the effect of this under-funding on the concrete details of combat. Because both civilian and military leaders saw the Korean conflict as draining resources away from the main mission – a strong defensive force in Europe – the most visible effect of underfunding the Korean conflict was a lack of manpower. The Eighth Army – the main U.S. force on the ground in Korea – found that the “cohesion of combat units” in its forces was “at a lower level than” in the Seventh Army, which was in Europe at the time. This was because the Department of the Army “churned a unit’s personnel at a faster rate.” To attempt to make up for the manpower shortage, the army scaled-back the resources it devoted to two other missions: continental air defense over the U.S., and building a strategic reserve. Despite diverting energy from these two missions, the manpower shortage remained significant, demoralized the troops and eroded the quality of leadership as less-experienced men were promoted to higher ranks. Many of the men had not volunteered – the draft – and it was clear that the political leadership was looking for an armistice, not a victory; the effect of these circumstances was “corrosive.”

President Truman had given four missions to the Army as mentioned above: European defense, Korean police action, American air defense, and the creation of a strategic reserve. Yet Congress did not give the Army the men and the money it needed for these tasks. One might inquire whether Congress or Truman is more to blame, but the results were dispiriting in any case.

The manpower shortage was seen in the rotation of troops between Korea, Europe, and “the Zone of the Interior” – the “ZI” was the military’s name for the forty-eight continental states. Men were normally stationed in the ZI for several months of training before being sent into combat – in this case, to Korea. But shortages dictated that both men and officers spent a shorter time in the ZI before shipping out to Korea; this meant that they arrived in the combat zone with less training and less organizational experience. Experienced officers were drawn from the ZI for combat leadership roles in Korea, which meant in turn that the officers in charge of training in the ZI had less experience, and training suffered accordingly. As morale fell, reenlistment rates did also. Infantrymen lost motivation as they saw that their “actions appeared to have no effect on the course of the war.” To counteract this demoralization, the Army offered combat pay for ground troops, enjoyable ‘rest and relaxation’ leaves in Japan, and an appeal to live up to the glorious history of the unit. The threat of punishment for soldiers who did not fight well lurked in the background, but was not often implemented. There were instances of ‘mass combat refusal’ – mutiny.

The secondary effects of the manpower shortage led to an ‘erosion of trust’ – lower level officers were not trusted by their men because they had too little experience; higher level officers were not trusted by the men or by the junior officers because they tended to remain out of the Main Line of Resistance (MLR) as the front was known. Senior officers, with little work to do once the front had stagnated, antagonized the men by means of “oversupervision” – too much paperwork and red tape. There were too many inspections, and any type of plan had to be approved by an increasing number of officers. The Eighth Army was turning into a bureaucracy.

Given that the Eighth Army’s objective – to “hold the line” until an armistice could be negotiated – was one which could demoralize men in even the best circumstances, it was even more dispiriting to face that objective with grudging draftees, inexperienced officers, longer tours in the combat zone, and a lack of unit cohesion as manpower shortages caused more individual rotations.

When Financing a Campaign is More Important Than the Candidate's Ideas

Critics from both ends of the political spectrum have noted the increasingly important role of fundraising in modern elections. Several legislative attempts at reform have been made, but still enormous focus and energy is devoted to finding sponsors who will contribute money to fund a candidate's campaign. When a prospective elected official spends so much time looking for donors, saying what he must in order to persuade them to contribute, the question arises - is the democratic process being sidelined, if the candidate has less time to study issues, less time to speak directly to voters, and the temptation to listen more to donors than to voters?

Because the electoral process is currently driven by a candidate's ability to raise funds, modern politicians have become experts at raising money. One of the best is Barack Obama. Gathering donors prior to his 2008 election to the presidency, and his 2012 reelection bid, he showed himself adept at finding ways to persuade them to give. One example is the LightSquared company, a business owned by the Harbinger Capital investment group.

Knowing that LightSquared and its owners were inclined to support him, Obama needed to find a way to direct funding to the company. The owners would take their share of the company's sales as their profit, and would donate a percentage of that profit to Obama's 2012 reelection campaign. So LightSquared needed to make some big sales prior to the 2012 campaign season. Obama arranged for government contracts to be handed to LightSquared.

This is a pattern: use the government budget to buy services and products from companies whose owners will use their income - their share of the profit from sales to the government - to fund Obama's campaigns. This tactic has been highly successful. Historian David Limbaugh writes:

Four-star general William Shelton testified at a classified congressional hearing that the White House pressured him into changing a political briefing to reflect support for a wireless project by Virginia satellite broadband company LightSquared, a Democrat-backed firm, despite the Pentagon's concerns that the project could interfere with GPS. LightSquared is owned by Harbinger Capital hedge fund, which is led by billionaire investor Phil Falcone. According to the National Legal and Policy Center, after Falcone visited the White House and made large donations to the Democratic Senatorial Campaign Committee, the FCC granted LightSquared "a highly unusual waiver that allows the company to build out a national 4G wireless network on the cheap."

This pattern would be quite successful as Obama directed federal contracts - and millions of taxpayer dollars - to companies whose owners would donate to his campaigns. The Solyndra affair would follow a similar pattern. Obama demonstrated himself as quite skilled in the modern art of campaign finance.

Carter Deregulates!

Despite the perception that presidents from the two different political parties approach things in opposite ways, there are instances of agreement. In a surprisingly consistent pattern, four Republican presidents and two Democrat presidents (Ford, Carter, Reagan, Bush, Clinton, and Bush) embraced the idea of deregulation. To be sure, they were not always uniform in applying this idea, sometimes deregulating one sector of the economy while adding new regulations to a different sector. But a steady trend of rhetoric and executive orders demonstrates that deregulation is part of the Zeitgeist - the spirit of the times.

In the case of Carter and Clinton, this shows that it is an oversimplification to assert that Democrats always restrain the freedom of the market and favor government intervention in the economy. Historians Karen O'Connor and Larry Sabato write that, after it became clear that excessive regulations - including wage and price controls under LBJ and Nixon - were harmful to the economy, enthusiasm for deregulation grew:

For some time, there were no changes in economic regulation despite these criticisms. In the mid-1970s, however, President Gerald R. Ford, seeing regulations as one cause of the high inflation that existed at the time, decided to make deregulation a major objective of his administration. Deregulation was also a high priority for Ford's successor, President Jimmy Carter, and legislation that deregulated airlines, railroads, motor carriers, and financial institutions was enacted during Carter's term as president. All successive presidents have maintained an active deregulatory agenda.

The succession of deregulating presidents continued until the election of President Obama in 2008. The Obama administration marked a return to the approaches of Lyndon Johnson and Richard Nixon. LBJ's wage and price controls were cast as guidelines, and not as mandatory. Nixon's were cast as actual executive orders. In both cases, the controls failed doubly: first, they were difficult to enforce - LBJ's guidelines were toothless, and Nixon's were filled with loopholes which lawyers and accountants soon discovered; second, in those cases in which they were consistently applied, inflation only became worse.

To be sure, while deregulation almost always leads to an immediate drop in prices, it often has a transitional effect of temporarily creating chaos as various businesses adjust to find a new equilibrium point - a few consolidations, bankruptcies, and restructurings - before the full benefit of deregulation is enjoyed. Thus it is important to council patience, and not to promise that the complete advantage of deregulation will be felt soon. O'Connor and Sabato note that, long-term, deregulation wins the day,

though the effects of deregulation have been mixed, as illustrated by the airline, communication, and agricultural sectors.

American consumers noted a significant price decrease in air travel and telecommunications when those sectors were deregulated. The transitional effects, as noted, involved a shuffling of the companies in those industries. Old airlines were merged with others, or went bankrupt; new airlines emerged. The courts had to wade through the details of national telephone companies. But lower prices were the end result in both cases - so much so, that years later, when price increases took place, the "new, higher" prices were still lower than the original prices before deregulation, and only "higher" than the prices immediately after deregulation.

The occasional inconsistencies in the pattern of deregulation - a political necessity, even if an economic sin - led to certain ill effects. Carter and Clinton, while deregulating other sectors, burdened the financial sector with rules forcing lenders to write loans to customers whose ability to repay was suspect. By requiring the financial institutions to grant loans to substandard customers, Carter and Clinton paved the way for the real estate meltdown of 2008, when the economy had to absorb numerous defaults.

Standing at the historical source of the deregulation trend, President Ford wrote:

A third priority on my agenda for the first six months of 1975 was regulatory reform. And was that reform needed! Rules and regulations churned out by federal agencies were having a damaging effect on almost every aspect of American life. They were costing taxpayers an estimated $62.9 billion per year, an average of $300 per citizen. They were increasing the cost of doing business - a cost that's always passed along to consumers - and thus contributing to inflation. They were perpetuating huge bureaucracies - more than 60,000 people were employed by the federal government for the sole purpose of writing, reviewing, and enforcing regulations - to sift through pyramids of paperwork. (In 1974, Congress passed 404 new laws. They federal bureaucracy, however, produced 7,496 new rules and regulations, which accounted for some 45,000 pages of fine print in the Federal Register.) They were stifling American productivity, promoting inefficiency, eliminating competition and even invading personal privacy. Red tape surrounded and almost smothered us; we as a nation were about to suffocate.

The contrast between President Gerald Ford and President Nixon was great - from wage and price controls to deregulation. Ford began to liberate American productivity from endless rules, a trend which would continue, despite occasional relapses into the regulatory mentality, for over thirty years.

The Right Type of Immigration

Immigration has been one of America's greatest strengths, and also one of its biggest problems. Legal immigrants bring creativity, energy, and a vision for the future. Illegal immigrants fail to pay their fair share of taxes, represent a drain on public services, and create a second underground economy which undermines the legal economy. The Wall Street Journal writes:

No country on earth is in the same league as the U.S. when it comes to the quantity of immigrants who have come here and the quality of their contributions. But lately, in our generally sour mood, Americans have been questioning the benefits of immigration. Many worry that today's immigrants differ from those of the past: less ambitious, less skilled, less willing and able to assimilate.

The negative stereotype is derived mainly from illegal immigrants. It is important to remember that the legal entrants into this country bring with them a desire to work and succeed within the nation; illegals desire to work around the system.

The conventional picture is of an unstoppable wave of unskilled, mostly Spanish-speaking workers — many illegal — coming across the Mexican border. People who see immigration this way fear that, instead of America assimilating the immigrants, the immigrants will assimilate us. But this picture is both out of date and factually wrong.

The problem is that we use the same word - 'immigrant' - to describe both the legal newcomers as well as those who have deliberately broken the law to enter the country. These two groups could hardly be more different, and yet are confused in popular culture. Legal immigrants actually help our economy, while illegal immigrants hurt it.

A report released this month by the Pew Research Center shows just how much the face of immigration has changed in the past few years. Since 2008, more newcomers to the U.S. have been Asian than Hispanic (in 2010, it was 36% of the total, versus 31%). Today's typical immigrant is not only more likely to speak English and have a college education, but also to have come to the U.S. legally, with a job already in place.

Immigrants have historically brought important skill sets to this nation. In areas like engineering and medicine, many of our economic successes have been initiated by legal immigrants.

A great deal of mythology has grown up around American immigration. Images of Irish and Italians forced by starvation to emigrate, Jews fleeing Russian persecution — this was all real, but just part of the story. Waves of educated and professional middle-class people also arrived — men like Albert Gallatin fleeing the radicalism of the French Revolution, disappointed liberals abandoning Europe after the failure of the revolutions of 1848, and of course the generations of educated exiles from the terrible totalitarianisms of the 20th century.

In particular, immigrants from Asia enter this country with a good education, with a strong work ethic, with a desire to assimilate, and a desire support American culture and the American way of life. Legal immigrants from Asia are models for how legal immigration can work well and benefit the nation.

Immigration from Asia wasn't always this smooth, and for many years the federal government, often prodded by politicians from the West Coast, tried to keep Asians out. By 1870, Chinese workers accounted for 20% of California's labor force; the Chinese Exclusion Act of 1882 cut Chinese immigration from 39,500 that year to just 10 people in 1887.

With the Chinese excluded, thousands of Japanese, Koreans and Indians replaced them as cheap labor, but public opinion soon turned against these immigrants as well. In 1906 the San Francisco school board ordered the segregation of Japanese students in its public schools. The news sparked riots in Japan, and President Theodore Roosevelt scrambled to make what was called the "Gentleman's Agreement" by which the Japanese government agreed to stop immigration to the U.S. In 1917 India was added to the "Pacific-Barred Zone" from which no immigrants to the U.S. were allowed, and from 1924 until 1965 Asian immigration into the United States was essentially banned.

The ensuing 37 years of legal immigration are making an impact. In 1965, Asian-Americans accounted for less than 1% of the population; today they are almost at 6% and growing, with the biggest numbers from China, the Philippines and India, followed by Vietnam, Korea and Japan. (Almost one out of four Asian-Americans has roots in either mainland China or Taiwan.)

While illegal immigration represents a harm to the economy and to society, a healthy program of legal immigration is a benefit to the nation and to the economy.

The honor roll of American immigration is long. Names like Alexander Hamilton, Albert Einstein, Andrew Carnegie, Madeleine Albright and Sergey Brin speak for themselves.

To that list we can add names like Wernher von Braun, Henry Kissinger, and ESPN announcer Michael Ballack. It is clear that legal immigrants have done much to promote the United States. Illegal immigrants, however, ultimately represent an economic drain.

What Happened to Habeas Corpus?

On December 31, 2011, a historic and controversial peace of legislation was signed into law by President Obama. His administration had fine-tuned the wording of a bill, which was primarily to fund the military. But one provision in the bill had nothing to do with sustaining our defense efforts. (This is a common maneuver: attaching unrelated riders to major bills, knowing that Congress will be so eager to pass them that they will overlook the distasteful amendments.) Historian Michael Savage writes that

Barack Obama signed into law legislation that spelled out his power as president of the United States to detain any U.S. citizen indefinitely on the grounds that he or she might be a "terrorist." The National Defense Authorization Act (NDAA), which the president had earlier promised to veto, represents the single most egregious rollback of American civil liberties in our nation's history. Obama made the move under cover of America's New Year's Eve Party, while most Americans were more concerned with having a good time than with losing their freedom.

No other president in U.S. history has sought or had such power. Note that this law does not merely apply to people in general, but to citizens. The legal tradition of habeas corpus demands that citizens cannot be jailed without being told which specific charges are being leveled against them; this tradition also implies the notion of a "speedy trial" and not "indefinite" detainment.

Obama insisted that the reason he signed the bill was to guarantee funding for the military, to support our troops. In the process, he deprived U.S. citizens of the very freedom for which our military is fighting. In fact, despite his insistence to the contrary, it was the president himself who had fought for the right of the Commander-in-Chief to detain American citizens. Obama was outed by radial leftist legislator Carl Levin, who explained what the president was up to on the floor of the Senate. Levin made it clear that the White House had pushed for the law to be applied indiscriminately to American citizens.

The president had directed his administration to insert these directives into the bill, and then explained that he was reluctantly signing them into law because they had been attached to an important piece of legislation: a sophisticated move indeed. How has the Obama administration interpreted the law since its passage?

The White House and the Justice Department have fought against bringing any cases involving indefinite detention of American citizens to trial for fear that the courts would overturn their right to abrogate citizens' constitutional guarantees of freedom from arbitrary arrest. In addition, the administration fought tooth and nail to insure that language barring the law from being applied to Americans was not included.

President Obama would prefer that this piece of legislation not be given much attention at all: it makes things easier for him if it is not well-known, or if the public doesn't think about it much. If any attention is given to it, he would certainly hope that it is perceived as a necessary, if regrettable, tool for national security. In fact, however, its wording is broad enough that it can justify any detentions ordered by the executive branch. It is less about national defense and more about increasing the discretionary power of the president.

Ending the Cold War

Before Western Europe and the United States could win the Cold War, they had to first believe and imagine that they could win it. For many years, the Iron Curtain had divided the free world from the communist world, and many people had come to see that situation as permanent. But it wasn't. Somebody had to wake them up. Somebody had to get people to see that things could be better, that they didn't have to accept communist tyranny over half of Europe. The Wall Street Journal reports that

on June 12, 1987, Ronald Reagan delivered a speech in Berlin. Standing in front of the Berlin Wall, with the Brandenburg Gate, the historic ceremonial entrance to the city, rising behind him, the president of the United States issued a challenge to the leader of the Soviet Union, Mikhail Gorbachev.

Although Reagan's speech posed the question rhetorically to Gorbachev, its effect was also to wake up Europeans, Americans, and others to the notion that the world did not have to endure Cold War misery indefinitely. They could end the Cold War, and even better, they could win it. Before Reagan's speech, says Yuri Yarim-Agaev, a former Soviet dissident interviewed by the Journal,

even the West accepted the division of Europe. "Imagine how hard this made our struggle. We almost had to admit that it was hopeless. Then Reagan says, 'Break the wall!' Why break this wall if these borders are valid? To us, it was more than a question of Berlin or even of Germany. It was a question of the legitimacy of the Soviet empire. Reagan challenged the empire. To us, that meant everything. After that speech, everything was in play."

It is a powerful thing to open people's minds to a new possibility - the possibility that they did not have to accept the Soviet Union as a communist bully threatening free people - the possibility that freedom could be brought back to those suffering under communist tyranny. A wake up call - getting people to see that a new thing is possible:

To come to, to snap out of it, to awaken. Ronald Reagan was hardly alone, of course. John Paul II, Margaret Thatcher, Lech Walesa and Vaclav Havel called for an end to the division of Europe. Yet when the president of the United States demanded the destruction of the Berlin Wall, Dieter and Yuri enabled me to see, he issued a summons of such power and clarity that many who heard him felt as if they had suddenly regained consciousness. The Berlin Wall address represented a call to awaken.

Ronald Reagn was not alone - a number of heroes not only bravely opposed communism, but awoke their fellow citizens to the possibility that Western Europe and America together could win the Cold War, which they did!

How Businesses Fix a Broken Economy

By the end of the 1960's, the U.S. economy was beginning to experience difficulties. By the early 1970's, there was a serious problem. Cengage's history textbook describes it:

Lyndon Johnson, determined to stave off defeat in Indochina without cutting Great Society programs or raising taxes, had concealed the true costs of the war, even from his own economic advisers. Nixon inherited a deteriorating (although still favorable) balance of trade and rising rate of inflation. Between 1960 and 1965, consumer prices grew an average of only about 1 percent per year; by 1968, this figure exceeded 4 percent.

The problems had more than one cause. First, total government spending had increased annually. Second, entitlement spending and social welfare spending had increased both absolutely and as a percentage of the increasing federal budget (Great Society programs). Third, although LBJ had worked to avoid major tax increases (minor revenue increases did sneak in), there had been no significant tax cut since 1964. Finally, there was a private sector cause as well: the failure of some industries to implement the full efficiency of technology.

Although most of the damage to the economy came from the government, the private sector causes warranted attention as well, because they were perhaps more quickly and easily fixable. As technology had entered into various sectors, decreasing the need to for labor, industries had failed to respond with tighter staffing. Thus, as David Brooks writes about the situation in 1972:

Forty years ago, corporate America was bloated, sluggish and losing ground to competitors in Japan and beyond. But then something astonishing happened. Financiers, private equity firms and bare-knuckled corporate executives initiated a series of reforms and transformations.

While the economic history of the 1970's is alternately dominated by damage done by the federal government and attempts by the federal government to correct its mistakes, the non-governmental side gets less attention in history books.

Cengage tells us that, on the government side, harm was done when “domestic programs favored by most congressional Democrats contributed to this economic distress. Increasing the minimum wage and vigorously enforcing safety and antipollution regulations” stifled economic growth, raised prices to consumers, sapped resources out of business, and discouraged any creativity in the private sector.

Eventually, even Democrat President Jimmy Carter

cut spending for some social programs, sought to reduce capital-gains taxes to encourage investment, and began deregulating various industries, beginning with the financial and transportation sectors.

In these actions, Carter agreed substantially with his predecessor President Ford, and with his successor President Reagan. Tax cuts, spending cuts, and deregulation were the common-sense measures to help the economy. To this would be added a reduction in debt and deficit as concern grew about fiscal responsibility.

Thus far the standard economic history. What has not always been made so clear, however, is the role played by business in finally getting American out of the economic doldrums. The time had arrived to fully implement the cost-saving aspects of technology, as David Brooks explains:

The process was brutal and involved streamlining and layoffs. But, at the end of it, American businesses emerged leaner, quicker and more efficient.

Businesses could either turn themselves around, or in some cases be taken over by new ownership and management which would help them become efficient:

Over the past several decades, these firms have scoured America looking for underperforming companies. Then they acquire them and try to force them to get better.

Economic principles often make use of inequalities, and of the changes produced when inequalities are brought toward equilibrium levels:

In any industry there is an astonishing difference in the productivity levels of leading companies and the lagging companies.

One cure is to give the management of a lagging company an incentive to work toward better productivity. New owners can

acquire bad companies and often replace management, compel executives to own more stock in their own company and reform company operations.

This was the key to turning around certain sectors and getting them out of the rut of the 1970's. Even if the government does its part - cutting taxes, spending, regulations, debts, and deficits - the private sector must also do its part, maximizing efficiency and productivity. Individuals and companies which specialize in "turning around" unprofitable businesses are often the catalyst to improving productivity.

Most of the time they succeed. Research from around the world clearly confirms that companies that have been acquired by private equity firms are more productive than comparable firms.

Sometimes this process is painful. Companies which have supported offices long after technology has made them superfluous - imagine keeping a typewriter repairman on the payroll - must face the reality that they cannot afford to pay for unneeded services.

This process involves a great deal of churn and creative destruction. It does not, on net, lead to fewer jobs. A giant study by economists from the University of Chicago, Harvard, the University of Maryland and the Census Bureau found that when private equity firms acquire a company, jobs are lost in old operations. Jobs are created in new, promising operations. The overall effect on employment is modest.

Turnaround specialists often form what are called 'private equity firms' - companies formed by groups of investors who hope to make money by improving the efficiency of lagging companies. Once productivity - and thereby profitability - have been improved, these companies can be sold by the private equity firm to other investors.

Nor is it true that private equity firms generally pile up companies with debt, loot them and then send them to the graveyard. This does happen occasionally (the tax code encourages debt), but banks would not be lending money to private equity-owned companies, decade after decade, if those companies weren't generally prosperous and creditworthy.

The majority of companies bought by turnaround specialists are able to reenter the marketplace in a profitable and competitive condition. Any private equity firm which did not succeed in reviving lagging companies would soon cease to be funded. Turnaround specialists and private equity firms are sometimes mocked in the popular press as "vultures" because instilling efficiency requires self-discipline and hard work. Lagging companies often employ underutilized or excess numbers of workers, who simply don't have enough to keep them busy.

Private equity firms are not lovable, but they forced a renaissance that revived American capitalism.

When large sectors of the economy were headed for destruction in the 1970's, it was - in part - the turnaround specialists who saved them. The process was sometimes painful, but the alternative was the annihilation of selected industry groups, a blow from which the country could not have recovered.