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November 20, 2006
Forced To Govern, Part 2

It seems that the Democrats have hit on a theme for their agenda, now that they have control of both chambers of Congress. Voters will recognize this theme, as Democrats have used it for decades as a lever for power -- market distortion. In yet another example of why Democrats represent a difference from Republicans, Chuck Schumer laid out a government-interference model for economics that will disincentivize industry and create inflationary pressures without any corresponding increase in productivity:

Senator Schumer, who concentrated his party's firepower on Iraq during an election in which he masterminded a narrow victory in the Senate, laid out the Democratic Party's less talked about domestic agenda yesterday.

"It's high time that Congress address issues that matter to the average family," Mr. Schumer, who was recently elected no. 3 in the Senate and will oversee the party's policy and strategy, said yesterday in New York.

Although Mr. Schumer presented the raft of policies — which included allowing prescription drug prices to be negotiated; restoring college tuition tax credits; raising the minimum wage, and tackling energy prices — as bipartisan and uncontentious, they immediately ran into trouble from conservatives who said many of the measures would not achieve their aims.

First, let's wallow in the irony of Chuck Schumer defining "bipartisan" and "non-contentious". Here's the Senator who ran the DSCC, an organization most noted for its theft of Republican Michael Steele's credit report, and a man who made identity theft his signature issue, opining on the nature of partisanship. That takes a lot of chutzpah, even for Schumer, whose level of that quality is legendary.

Besides, his agenda of top-down government control of economics hardly qualifies as bipartisan, no matter who makes the claim. For one, he wants to raise the minimum wage by over 40% over the next three years. Minimum wage raises are inflationary by nature, as they raise the costs of production without increasing either production or productivity. It forces employers to either raise prices or cut other expenses, and the effect of those choices becomes cumulative along the entire production-delivery line. The net effect of such mandates usually is a combination of higher prices and higher unemployment, especially among younger workers.

After that, he intends on having the federal government use its Medicare leverage to drive down the retail price of prescription medication. While this will indeed create lower prices for the Medicare prescription program, it will create a severe market distortion that will have one of two effects in response to the massive loss of profit for pharmaceuticals. Either they will have to raise prices to non-government distributors to make up for the losses, or they will have to put less money into research and development. Pharmaceuticals are all publicly-held corporations, and millions of people have invested retirement funds into them, in part. They want to see that investment continue to grow, and they will not get that when profits decline. The loss will either have to be made up, or the investments will decrease; it's one or the other.

Schumer also wants to "tackle energy prices", but somehow it's difficult to believe that he intends on using increased domestic supply to do so. Instead, he wants to mandate flexible-fuel technology in vehicles. That's not a bad idea, but government mandates for ethanol will not lower energy prices, not even at the pump. Ethanol does not travel well and it provides less power, gallon for gallon, than gasoline. Schumer also wants to give big federal grants to local mass-transit projects which have never been shown to lower energy prices. Not surprisingly, Schumer wants to direct most of those funds for New York.

We can see now why the Democrats resisted revealing their agenda for the past several years. It's the same, tired, top-down government intervention models that they have championed for the last several decades.

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Posted by Ed Morrissey at November 20, 2006 9:45 AM

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Tracked on November 20, 2006 11:44 AM


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