Alexander Hamilton: Legend of American Finance

It may be slightly exaggerated, but I feel that the title I have chosen does capture the magnitude of Hamilton's greatest accomplishment, as well as acknowledging that he was more than just the first Treasury Secretary of Constitutional America. Hamilton possessed a swath of gifts, talents, and interests, and he left his mark all over the Federal government. He was a gifted orator who used his ability to persuade people to achieve remarkable things both before, during, and after holding public office. To be sure Hamilton possessed obvious faults. From Joseph Ellis we learned that he was one of the most controversial figures of the time because his policies upset many of his contemporaries such as James Madison and Thomas Jefferson. His enemies criticized him of being a monarchist, a friend of the rich, and even as a man who wanted to restore British control. Looking back, Ron Chernow, casts him as a visionary who set up the workings for a modern, capitalist society.

            I have always had a fondness for Alexander Hamilton. When I was younger he came across as far more interesting than Jefferson or Madison. He was also different from the others in many respects. Ellis I felt was very good in his treatment of Hamilton, but what I felt was largely unsaid was whether or not Hamilton's policies were right. When we discussed his fiscal policy in class I wanted to know more about what drove him to those decisions, as well as how they affected the economy, and how Hamilton helped shape the Federal government in general.

            The book I chose to further my knowledge of Hamilton was Alexander Hamilton by Ron Chernow. I found Chernow to be an engaging writer who paints a very detailed description of Hamilton from his roots on St. Croix all the way to his death at Aaron Burr's hands. Chernow brilliantly describes his charm, wit, and his uncompromising determination to see the new country succeed against all odds. He starts on the island of St. Croix where Hamilton grew up.          Hamilton was nominated as a delegate for New York at the Constitutional Convention. Afterwards he teamed up with John Jay and James Madison to craft the Federalist papers which were a treatise for a strong central government and the role it should play. And then he became the tireless first Treasury Secretary who put the nation on sound credit, chartered the first national bank, and passed a controversial tax on whiskey.

            Along the way Chernow has to debunk certain myths about him including but not limited to; being a traitor hoping to restore the British monarchy over America, that Washington was his puppet, and that he was using his position to reap huge dividends for himself through bank bonds. Chernow also critiques some of the typical stereotypes of Hamilton, chief among them was that he was just a British tool, but also that he was a monarchist, and perhaps that he was a womanizer. The latter, Chernow points out, is probably true, but Hamilton likely only had an affair with one other woman, not multiple as some accused him of having. One of the greatest benefits of reading this book was how well Chernow describes Hamilton's attitudes about a range of things from human nature to the role of the Federal government. He also does an excellent job of detailing Hamilton's reasons for his actions which I found very helpful for this paper.

            The Articles of Confederation had been the structural document of the independent states. It permitted a very limited central government that Hamilton felt was inadequate to solve the problems the new nation faced. From Ellis we learn that the debt left over from the Revolution was massive, and that the Articles were too weak to raise taxes to pay that off. Washington feared that the thirteen states would tear the federal head clean off bringing ruin on the whole. Hamilton had even greater fears. If there were  not a unified standing army under national control the states might turn predatory on one another with larger states preying on smaller states. Hamilton's fears probably would have found their deepest realization in the empires states were creating for themselves out west. If states had competing interest in land they might declare war on one another to get that land.

            Finally, on May 25, 1787 the Constitutional Convention began. Immediately the Virginia Plan was put forward by Edmund Randolph. It sought to abolish the Articles of Confederation, and form a strong central government. Soon the New Jersey plan was put forward to challenge it. Until this point Hamilton remained silent, but he came forward with his own plan on June 18. Hamilton wanted a chief executive that functioned as an elected monarch appointed for life, and the same for his vision of the Senate. The House of Representatives would be more democratic, chosen by voters every three years. His plan largely reflected his cynicism towards direct representation or mob rule-democracy, some in his day might have called it.

            Hamilton had seen the effects of mob rule all too personally, and he felt that public opinion must be steered by educated representatives. This is probably why Hamilton felt that the wealthy and educated were best equipped to lead, and why he was willing to upset many groups of people to make sure that the country did not descend into the tyranny of the masses, and get the educated, wealthy people on the new government's side. While at King's College a mob had stormed the school to tar and feather the Tory president, Myles Cooper. Hamilton held them off long enough for Cooper to escape by giving a speech criticizing their actions and intent. Later another incident caused Hamilton to pick up his pen and condemn the lawless sacking of James Rivington's print shop, the New York Gazetteer. Hamilton wrote that, "The same state of the passions which fits the multitude, who have not a sufficient stock of reason and knowledge to guide them, for opposition to tyranny and oppression, very naturally leads them to a contempt and disregard of all authority" (Chernow, 69). After the Revolution, Hamilton witnessed another instance of mob rule which must have had struck him with fear. Shay's Rebellion looked like civil war to Hamilton. The rebels, crushed by the heavy Massachusetts taxes, dressed in their old revolution uniforms and shut down courthouses. Hamilton secretly identified with these rebels because he wanted the federal government to take on state debts left over from the war. This was known as his Assumption Plan which was a part of his Report on Public Credit.

            The Report on Public Credit was Hamilton's plan to restore fiscal stability to America.

But it was something more than that. It was an attempt to secure the Federal government as the chief taxing power. It was, in short, an attempt to make the Federal government powerful and gain the confidence of the rich particularly those who had loaned money to the government at any level. What is interesting about all of his policies is that they all helped out northern wealthy merchants and bankers. This led Madison and Jefferson to despise Hamilton's policies, which they regarded as a plot to enrich the rich. It also presented something very close to the English system of public finance including a national bank and a funded debt, but it also asked for the assumption of state debt and a "Spirits tax" on whiskey and other spirits. This report is what makes Hamilton so controversial. According to Ellis: "These developments forced the planter class of Virginia to realize, for the first time, that their days as America's premier political elite were numbered, soon to be replaced by the commercial and financial elite of New York and New England" (Ellis, 174). Since farmers tend to be debtors they have a natural aversion to bankers and creditors.

            Shay's Rebellion, in Hamilton's view, was the result of heavy taxes levied on farmers by the state of Massachusetts. By trying to settle its own debt the Massachusetts government had created heavy taxes borne by farmers. Unable or unwilling to diversify the taxes among the rest of the population, the Massachusetts government witnessed a farmers revolt. Hamilton felt that if the Federal government assumed the states' debt then it would distribute the tax burden much more evenly, and not single out one group or another. The assumption plan divided Congress, and was the most difficult part of Hamilton's Report on Public Credit to pass, requiring a compromise that fixed the capitol on the Potomac river in order to get the necessary votes. The reason for the difficulty? Some states had paid off most off their debt, and now they were going to be asked to pay for other states' irresponsibility! However, Hamilton argued that without assumption many states with large debt would have to raise taxes, while less indebted states would lower taxes creating large migrations of people from high tax to low tax states. Not only would assumption prevent this migration it would also be far more efficient "since there would be one overarching scheme for settling debt instead of many small, competing schemes" (Chernow, 299). Hamilton was also doing something more subtle. Creditors have a special interest in seeing their borrowers pay them back, therefore a kind of allegiance is formed between creditor and debtor. If the Federal government, not the state governments, was the one who owed money then lenders would become attached to it, however grudgingly, in order to see that they got their money back.

            This created a number of problems. From Ellis and class we learned that some of the bond holders were soldiers who had been paid in paper IOU's, but sold them off to speculators. They had feared that they would not get their money back. Under Hamilton's funding scheme the federal government would make good on all bond payments, and hopefully bond values would soar to their original value. So who should pocket the windfall? "The answer to this perplexing question, Hamilton knew, would define the future character of American capital markets" (Chernow, 298). And indeed it would. As we know, Hamilton decided to reward the speculators who may have coerced soldiers into selling them their bonds. In Hamilton's view the soldiers were not merely innocent victims, nor were the speculators unmerciful predators. Hamilton felt that the soldiers had shown little faith in the new government, and had been paid when they wanted it. Speculators had taken a risk, and should be rewarded for that risk. This should sound like capitalism which promotes risk taking and investing. On the other hand this is some sort of deviation from pure capitalism, which states that risk takers occasionally lose on their risk. Hamilton decided, grudgingly, to protect risk takers technically at the expense of patriotic soldiers. I say that this was technically at the expense of the soldiers because, although the soldiers had been paid for their services (albeit not by the federal government who had issued the bonds), they may have been duped or coerced into selling their bonds to selfish speculators who had shorted them on the bond's true value. And so this would evolve later into the sort of corporate welfare we see in the gilded age, and perhaps more evincing in the mortgage-backed securities crisis of 2008. Since Hamilton we have tended to cradle the rich which is not something Hamilton would have wanted. "Hamilton's interest was not so much in enriching creditors or cultivating the privileged class so much as in insuring the government's stability and survival" (Chernow, 299). Meaning that Hamilton did not want to protect the rich from every misfortune that might befall them, he merely wanted them to support the new government and know that if the government owed them money, then it would pay them back.

            Another problem created by assumption was that once news got out that the Federal government would take on the state debt it caused one heck of a commotion among speculators and investors. "Many rich merchants had already posted agents to backwoods areas of the south to scoop up depreciated state debt that would become more valuable if the federal government assumed the debt" (Chernow, 301). To Hamilton this merely showed the new confidence in the Federal government. Interest rates were going down, and creditors were showing faith in the new system. To others it reflected a wasteful spend of money. Away from the presidential office on July 29 Washington sent Hamilton a list of twenty-one complaints he had heard on his trek home. Among them was a complaint that speculation was draining capital from productive uses and corrupting Congress. This was to resurface later in Hamilton's term as Treasury Secretary when the House of Representatives launched an investigation into his policies.   

            Having assumed the state debt the federal government now had to find a way to pay for it. Hamilton's tax on whiskey and other spirits would be the method. Hamilton knew it was bound to be unpopular, but what other options did he have? He could initiate a property tax, but that might be even more unpopular than the Whiskey Tax as it would hit farmers particularly hard. If he was deprived of the tax at all he would have to raise tariffs which promoted smuggling and retaliation abroad. Again, as we know from class it was the local farmers who bore the brunt, not the large distilleries. As a result local farmers in Pennsylvania, for whom consumption and distillation of spirits was a way of life, rose up in arms, tarring and feathering tax collectors.

            So could Hamilton have taxed something else, and was he right to have small distillers bear the majority of the tax burden? Well Madison, for one thought that no alternative existed, and even cited possible social benefits of such a tax. Chernow doesn't give a detailed list of all other options he only states that Hamilton knew that any alternative would be even more unpopular; farmers would never settle for more taxes that they saw going to enrich northern bankers. "He was boxed in, however, by the already ingrained American aversion to taxation. Direct taxation, whether of people or houses, was anathema to many, and, given the strength of agricultural interests and real-estate speculators, a land tax could never have been enacted" (Chernow, 342). Hamilton clearly saw that whiskey was his only option.

            As for the taxes fairness to all distillers, Chernow notes something quite insightful I think. "The mostly Scotch-Irish frontiersmen of western Pennsylvania…had the highest per-capita concentration of home-made stills in America" (Chernow, 469). What I think this illustrates is that Hamilton is getting the most amount of revenue possible out of this tax. Sure the bigger distilleries might be proportionally larger, but small distilleries was where the majority of whiskey was being made. I think Hamilton's point is to get the debt paid off as quickly as possible without sapping too much money out of farmers and other commoners. It is also possible that had he taxed at a flat percent rate, that rate would have been much higher on wealthy distilleries in order to generate the same amount of revenue. Hamilton was willing to sacrifice fairness for a swift end to public debt which would benefit the whole population.

            The last piece of Hamilton's fiscal machine was the central bank. The bank would create a uniform currency, increase the money supply, lend to the Federal government and business, collect revenue and store government funds, and handle foreign exchange. Hamilton was well aware of the evils of banking, but he felt that the good of the bank far outweighed any negative consequences. "If banks, in spite of every precaution, are sometime betrayed into giving a false credit to the persons described, they more frequently enable honest and industrious men of small or perhaps of no capital to undertake and prosecute business with advantage to themselves and to the community" (Chernow, 348). Banks were loathed by farmers in the south where, Ellis tells us "bankruptcy often arrived as a complete surprise on many Virginia plantations, a product of account legerdemain that many planters took considerable pride in not comprehending" (Ellis, 174). Essentially many farmers were under the impression that bankers exploited them to enrich themselves. Farmers probably did not realize exactly what taking out a loan meant for them in the long-term. Plus farmers were at high-risk of default. If they suffered a bad crop, an unforgiving bank might confiscate the land. Hamilton recognized this aversion, and encouraged southerners to buy up stock in the new central bank to distribute bank ownership; needless to say few, if any heeded his call.

            Jefferson's own Treasury Secretary educated him on the importance of the national bank. Albert Gallatin, who had previously attacked Hamilton's use of the national bank, said that, along with the Customs Service, it had helped to reduce national debt. Next, Jefferson wanted Gallatin to launch an investigation into Treasury documents to find any condemning evidence against Hamilton's policies. Gallatin found none, and remarked to Jefferson that he had found the most perfect system ever devised. He didn't stop there. "As for the First Bank of the United States, once denounced by Jeffersonians as a diabolical lair, Gallatin proclaimed that it had 'been wisely, and skillfully managed'" (Chernow, 647). The bank, like much of Hamilton's system, was necessary for putting the country on firm fiscal footing. The First Bank of the United States was a forward looking move by Hamilton to create a modern fiscal machine. With it the U.S. could regulate banking and currency. Without it, the Federal government was either starved of cash (War of 1812), looking helplessly at financial panic and subsequent depression (Panic of 1837), or facing the consequences of having an unregulated currency (Black Friday, 1969).

            So what are we to make of Hamilton? Certainly the man seemed to favor wealthy, northern bankers and merchants at the expense of the poorer farmers and southern aristocrats. Nevertheless, Hamilton was not a tool of the wealthy. He did not simply want to enrich bankers and merchants; he wanted to modernize America, bring it up to speed with Europe, and create the workings of a capitalist society that promoted risk taking. Here are two quotes which I think explain (not excuse) Hamilton's policies: "As chief agent of a market economy, he had to spur acquisitive impulses, accepting self-interest as the mainspring of economic action. At the same time, he was never a mindless business booster and knew how the desire for lucre could shade over into noxious greed" (Chernow, 345), and from Thomas Hobbes he got "the sacredness of contracts in transfers of securities, arguing that people entered into such transactions voluntarily and must accept all the consequences" (Chernow, 296). What the two quotes emphasize are that Hamilton had certain misgivings about showing favoritism to the rich, but that it was indeed worth it because they had taken a voluntary, calculated risk, and it was these types of people who were going to build and characterize the American economy all the way to the modern era. I am certain that Hamilton would be revolted at the practices of the investment bankers who received government bailouts in 2008.

 Whatever flaws or moral hazards his policies contained he was resigned to the fact that the new nation must promote risk takers who sometimes lost.  

Rethinking a Balanced Budget

With the pressure mounting from Republicans for a balanced-budget amendment which would make significant cuts in spending I thought I'd take a look into it. While their arguments make for good campaigning and political discussion, their demand for a balanced budget amendment is out of touch with common sense and good governance. Mitt Romney has the most sensible plan (that doesn't make it sensible, but in comparison with other prominent Republicans it is). He would raise the debt ceiling (the level the Federal Reserve will continue to allow the federal government to borrow to honor its obligations) provided there were comparable cuts in spending. It's something that Republicans in Congress have continued to push for. In order to keep spending at a deficit the government would have to reduce that deficit by x number of dollars in order to keep the government from defaulting on its debts. Rick Santorum and Newt Gingrich both run on their records as budget-balancers, and Ron Paul says he can cut $1 trillion in the first year (mostly from defense, but other programs as well). What they all have in common is the belief that the federal government cannot continue to run deficits (spending more than you take in), much like any family.

                Here, I want to critique the necessity of a balanced-budget amendment during difficult times. Taking a look back in history reveals just how critical deficit spending has been to the United States and other countries as well. I will also critique the analogy of treating the government like an individual household. And I also propose my own solutions on how best to spend our deficits, ease the burden on the federal government, and fix the economy.

                Alexander Hamilton, as the nation's first Treasury Secretary, arguably had the hardest job of any man of his time. He had to find a way to set the nation on a firm financial footing to ensure that people trusted the new United States. One of his proposals was a national bank very much like the National Bank of England which could loan money to the federal government to invest in government projects (such as warfare). On national debt Hamilton said, "A national debt, if it is not excessive will be to us a national blessing". Clearly Hamilton was in favor of borrowing money. If the new nation could pay back its debt it would establish good credit with other nations who would be more than happy to lend to us at lower interest rates. Another advantage dealt more with precarious situation of the new government: to establish the federal government as a legitimate institution in order to convince people that it was worth keeping around. If people held a piece of government debt (bonds), and the government paid them back plus interest those people would be more willing to support the government.

                What Hamilton was getting at is the need for the government to borrow money to pay for necessary improvements and programs. If the government borrows responsibly, and pays its lenders back, then debt is a good thing. Hamilton set up a means for the federal government to set aside money purely to pay back its debts. Hamilton got a special tax on whiskey then used the revenue collected from the tax to pay off loans. The system worked so well that without it the United States was reeling from financial woes (War of 1812, Panic of 1837, Black Friday, 1869).

                In 1936 a new way of looking at the role of the federal government came into play. John Maynard Keynes was a British economist who challenged the old notions of a self-regulated market. Previously, classical economists taught that the balance between supply and demand would work out in such a way that maximum employment was obtained. The trouble was that supply and demand are unstable (subject to change at any moment based on uncertainty), and the balance may work out at a point where certain people that could be employed wouldn't be simply because, from a business standpoint, it would be inefficient to employ them.

                Keynes proposed that the federal government should spend more than it took in when tough times were likely. The reason for this is because consumers who are worried about the future tend to save their money. Businesses lose money and lay off workers as a result. But if the government invested some money to keep people employed working on public works like roads and bridges then they would spend some of the money they earned. Eventually the system would pick back up again. In Keynesian theory the government can analyze the economy and release funds where they are most needed in order to ease pressure on the whole system; this is something no private market analyst can do.

                Keynes witnessed the great nations of Britain, France, and the United States slide into economic trouble after World War 1. And it was because of his influence that Franklin Roosevelt launched the New Deal. The plan was to dump money into the economy not in the form of stimulus (think Obama here), but by hiring people to build roads, power lines, dams, bridges, conservation camps, and a whole host of other important projects for an industrial nation. And the economy did begin to show signs of improvement. In 1933 the unemployment rate had risen to roughly 25%, almost 40% of banks had failed in 3 years which cost depositors $2 billion, and gross net produce had fallen by 21.1% (1929-1932). By 1937 GNP had risen 34.9% since 1933 and unemployment was down to 14.3%.

                However, the United States was not the first nation to recover from the depression (it would not do so until 1939 with the outbreak of World War 2). Roosevelt steered clear of the kinds of deficit spending that Keynes recommended. By contrast, Sweden bounced back out of the depression by 1934 thanks to Keynesian-level spending. Germany under Adolf Hitler grew out of the depression by 1936 though this is largely because it spent at levels that would have eventually bankrupted it if not for the outbreak of World War 2. Then Britain, in preparation for war, began to revive and by 1938 was out of the depression as well. If the U.S. had a balanced-budget amendment during this time it would have severely hampered FDR's ability to get us out of the mess we were in.

                And this is why it's such a mistake to push for a balanced-budget amendment now. The federal government is not subject to the same kinds of restrictions an individual household is. Families save during tough times, the federal government is wise not to. Government money eases pressure on businesses, provides jobs, promotes growth, and can even spur private investment. As the government lends to businesses so will investors who notice that this money will be used in smart ways such as developing new products. As an example consider the $2 billion that Chevy got to develop the Volt. That money was matched by outside investors who realized that this company was changing its line of products to reflect both government efficiency standards and the demands of the market for more fuel efficiency. Detroit is now rebounding out of its slump.

                So how would I go about fixing the federal government's budgetary woes in a smart way that promotes growth? Well, to begin, we need welfare reform badly. This is the beast that is devouring the budget, and it does not promote growth. Medicare and Social Security are for those who have already left the labor force, and Medicaid is for those who cannot afford health insurance. In the not-too-distant future these programs will have driven the budget into a pit of no return. As a brief side-note these programs are extremely useful for keeping people out of poverty, and should by no means be gotten rid of.

                While I don't claim to be able to figure out the perfect solution for reforming these programs, I do have some suggestions (though they are not entirely my own, but have been proposed by others as well). The first would be raising the retirement age to 70 starting right now. Those who are already collecting their Social Security and Medicare benefits may continue to do so, but anyone not collecting will have to wait five more years. This will keep them off these programs for those five years, and working for that same period of time. There are plenty of people capable of working until they are 70 especially in this day and age when we are living longer, and they will add their experience and knowledge for the benefit of new employees (as opposed to them retiring and the business having to hire a younger, less experienced employee in their place). For five more years, instead of draining tax dollars which could be spent elsewhere, they would continue to pay into the system, easing the pressure on politicians to work out cuts to these benefits. And someone who decides to retire early: despite their decision they wouldn't be able to collect on their benefits until they turn 70.

                I also propose a tax on fast food; at least 20% (hopefully higher). Fast food has little real value as a source of nutrition, and in fact, eating too much can lead to major health problems. Taxing the major fast food companies McDonald's, Burger King, and Wendy's would reduce consumption especially among those who consume it regularly. It would make going to the grocery store and picking out a package of hamburger more appealing as the price of a fast food hamburger is now closer to buying from the store. And the tax revenue gained from those who continue to eat at fast-food restaurants could be re-allocated to fund our healthcare system. Hopefully, society will, overtime become more healthy and the cost of supporting someone who has retired will be reduced.  I am not unaware of the opposing arguments to this. Major fast-food companies will try to show how they will be hurt by this new tax, and certainly they will be-that's the point. It may also be true that, as a result, they will have to lay off many high-school students and will no longer serve as a place where they can count on a job. Students will find work elsewhere once they realize that working a cash register at McDonalds is not the only job they can obtain.

                To spur growth the federal government, as well as state and local governments, needs to spend more in areas like research and development, education, and infrastructure. The most innovative economies are spending much more of their budgets in these areas, and the United States would do well to follow suit. These are the areas that will propel us out of this period of slow growth. There's no reason that China should experience 30 years of consistent growth above 8% a year and we cannot. In 2010 China spent 30 billion dollars on solar technology, the U.S. spent 1.5 billion. China is spending vast amounts of money on immense building projects providing people with housing and work; the U.S. is not doing that in any significant way. In order to turn the economy around our deficits should not come from welfare programs, but from pro-growth spending. Once the economy turns around we can begin to ease back on our spending and return to a balanced budget. Until then spend on growth and don't look back!         

For Further Reading

Chernow, Ron. Alexander Hamilton. Penguin Group (USA) Inc., New York (2004)

Foroohar, Rana. "Balanced-Budget Blues". TIME Inc. (August 8, 2011)

Keeping the Dream Alive

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness." These words form the backbone of how Americans view human rights. However, many Americans must wonder if they hold true today. In the 2006 movie 'Amazing Grace' Thomas Clarkson (played by Rufus Sewell) tells William Wilberforce (Ioan Gruffudd) that "what we say of the slave is true of the worker in the field; the weaver; the miner: shouldn't they be free to prosper too?" In 18th century Britain, such workers were theoretically "free to prosper", but in reality they were in bondage to their masters who had wealth, power, and influence. In America, the "land of the free", we are increasingly falling into a lack of freedom to prosper. What we have done over the last 30 years is shift national problems (welfare, income inequality, poverty and education in this particular case) over to states, local governments, or individuals. Gone are the days when we had one of the best primary education systems in the world, and our 'war on poverty' under Lyndon B. Johnson is all but disappeared. We are taking away the helping hands necessary to help people rise from rags to riches. 
              

             The focus of my post is going to be on the third right listed: pursuit of happiness. Are all Americans free to pursue happiness, or is it just those who have money and power to begin with? I argue that America is more unequal now than at any time since the Gilded Age (1870-1900), and that this inequality and subsequent crippling of social mobility does not give every American equal opportunity to pursue happiness in whatever way they might choose. I also will critique many of the Republican party's proposed "reforms" and "solutions" primarily because I am saddened by my own party's lack of true understanding of the problem.

                On September 13, 2011 the New York Times published an article online on, what Harvard economics professor, Lawrence Katz, calls the 'Lost Decade'. The title of the article was "Soaring Poverty Casts Light on 'Lost Decade'". The article cites a Census Bureau report stating that in 2010 another 2.6 million Americans fell below the poverty line, and 46.2 million people now live below the official poverty line (for a family of four the poverty line is $22,314; for a single person it is $11,344). The total number is the highest in the 52-year history that the Bureau has published the data. The official unemployment rate is 8.3% which means that roughly 25.9 million Americans do not have a job and are wholly dependent on state unemployment benefits (checks, food stamps, and medical assistance) for survival. Dig just a little deeper and you will find that state and local governments are reducing spending on these social welfare programs that so many are so dependent upon. So what does all of this have to do with the pursuit of happiness?

                I would imagine that, for the vast majority of unemployed Americans they do not feel like they are able to pursue happiness. My dad is going back to school to study social work, and, after reading Amazing Grace by Jonathon Kozol, he noted that by middle school most children in poorer schools are aware of the inequality in the system. They realize that their life is not as good as it could be, and that the school they go to, the home they live in, and the community they are a part of is tragically neglected. By the time they reach high school (should they even make it to high school) they become angry cynics of the system. 

            In the last 40 years the real value of a standard welfare package has decreased by 26%. And welfare is no longer provided for a family or individual until they obtain a job; it is cut off after a certain period of time (usually five years, four for my home state of Michigan) which forces many Americans to take jobs in the most readily available positions (i.e, cashier, janitor, fast-food). These jobs are low paying and provide little added benefit beyond work experience. And these are the fastest growing jobs in the nation. Many middle-income jobs have been outsourced or are now being done by robots or computers. Now, many workers in low-skill, low-wage jobs have little hope of moving up into higher skill jobs unless they go off to college or a technical school.

                In a recent TIME Magazine article (November 14, 2011) Rana Foroohar points out that by funding public education with public money, and providing universal healthcare paid for by the state (as opposed to private insurers and employers) Europeans have ensured that the best and brightest can rise, and those who have average wages do not fall into poverty because of medical emergencies (in the U.S. 1 in 3 people cycle in and out of poverty every year as a result of medical crises). Studies show that job growth and income mobility can be determined by how well a society's education system keeps up with technological change. Contrast American education with Northern European and South Korean models and we hardly stand a chance. In Finland teaching is an honor because Finland filters out roughly 90% of undergrads who apply for the teaching program, and requires teachers to have at least a master's degree and rewarded with high pay (between 40 and 60 thousand dollars). In South Korea the government has actually had to mandate that schools close by 10 p.m., and South Korean children are in school for 220 days; 35 more than the American schools (which still runs on summer harvest schedules for farmers where only 3% of the population is employed).  In America some inner-city public school teachers make less than the poverty line salary for a family of four. Public school funding (funding for technology, facilities, teachers pay, etc.) is paid for by property taxes, which doesn't generate enough revenue for many inner-city schools because the property taxes for that school district are so low. And our high-school graduation rates have fallen gradually since they peaked in 1970.

                In crafting the Declaration of Independence, Thomas Jefferson was critiquing a government that was obstructing these rights from its colonial citizens. Today, we have a government that is doing much the same; perhaps unintentionally, but by blocking necessary reforms we have allowed these downward trends to continue. I firmly believe that Republicans must bear the brunt of the blame for this. I also wish that I did not have to feel that way towards my own party (rest assured I am a Republican; just a frustrated one). Republicans do have an answer for lack of social mobility, and it is not less government involvement. Rather it is more funding for education, research & development, science and technology, and better infrastructure,. All of these were put in place largely by Dwight Eisenhower.  

                When I watch the Republican debates now it is quite horrifying just how unaware of the consequences the candidates are towards their own policies and past actions. Newt Gingrich wants to get people off unemployment checks and food stamps and into jobs saying something to the effect that he wants to give people the "dignity of a paycheck". While feeling like you've earned something by hard work and even sacrifice can be dignifying, providing for a family is probably more dignifying. Rick Santorum was the author of so-called 'welfare reform' which allocated block grants of money to the states to use for entitlement spending which, while it has helped reduce the growing deficit in the federal budget, has also limited the time people can stay on welfare, and restricts the states to a certain budget for welfare programs. And what is probably most upsetting is that Republican politicians are just opposed to the kinds of reform we need to help impoverished and lower middle-income families achieve the American dream.  
               

               This is what Republicans imply when they propose "bold" reforms; taking away the helping hand of government. And, even though they would deny this to their graves, they do succumb to that old stereotypes that the poor are poor because they are lazy. That may be going a bit far, but it does show itself every so often in conversations with Republicans. In one interview ex-presidential hopeful, Herman Cain said of the Occupy Wall Street movement, "If you don't have a job, don't blame the banks; blame yourself". Let me rephrase that: if you don't have a job, then you are to blame; it's your own dumb fault! Now Herman Cain may be one extreme example, but I think he was just brave (or un-empathetic) enough to voice what many Republicans probably think about blaming Wall Street for our economic woes.
               

                Here is the link to a New York Times article on the fiscal troubles of Rhode Island; a perfect case in point for much of what I have covered so far in this post: http://www.nytimes.com/2011/10/23/business/for-rhode-island-the-pension-crisis-is-now.html?pagewanted=3&sq=rhode island bankruptcy&st=cse&scp=1. The message can be summed up with Ms. Raimondo's answer to the gentlemen who said that Rhode Island would be "reneging on a moral obligation" by enacting her reforms: I would ask you, is it morally right to do nothing, and not provide services to the state’s most vulnerable citizens? Yes, sir, I think this is moral. Rhode Island is mostly in trouble because of its overgenerous pension system; a system which is skewed away from those who really need it.

               

             So I began this post by asking the question: are Americans free to pursue happiness? To rephrase the question: can anyone (regardless of the circumstances they are born into) achieve the American dream (that life gets better from one generation to the next, and that anyone can go from rags to riches)? My answer is that the American dream is being threatened because the kinds of social safety nets (welfare) necessary to keep the impoverished afloat during hard times, and the lack of quality education available to all people are no longer assured. States are going bankrupt because of pension plans for public sector workers (such as police officers and firefighters), many public schools across the nation are dysfunctional because of poor teaching and management, inner-city children can't get to the best public schools because they're too far away so they spend their time in schools that just encourage slothful behavior, and all the while the wealth gap widens between the top 1% and the bottom 20%. As we have seen, education is probably the most crucial engine of social mobility-the crux of the American dream, and Fareed Zakaria, in a TIME Magazine article points out that the U.S. has a 25% high school drop-out rate. We once possessed the highest college-graduation rates, but now other countries are catching up and overtaking us. In order for people to be free to prosper they need to have access to good education and social safety nets during hard times. The former is being denied to a large minority of the population, and the latter is suddenly and terrifyingly no longer a guarantee. For my own party I pray sincerely that they will wake up and understand this.