All profoundly original work looks ugly at first.
Clement Greenberg
Heroes: Even in Eighth Grade...
Analyzing Obama's Latest Claptrap
Obama: "This November is your chance to render a verdict on the debate over how to grow the economy, how to create good jobs, how to pay down our deficit. Your vote will finally determine the path that we take as a nation not just tomorrow, but for years to come. When you strip everything else away, that's really what this election is about. That's what is at stake right now. Everything else is just noise. Everything else is just a distraction. From now until then, both sides will spend tons of money on TV commercials. The other side will spend over a billion dollars on ads that tell you the economy is bad, that it's all my fault - (laughter) - that I can't fix it because I think government is always the answer, or because I didn't make a lot money in the private sector and don't understand it, or because I'm in over my head, or because I think everything and everybody is doing just fine."This is same old, same old Obama nonsense: he tries to defuse an argument by predicting it. Notice that he doesn't bother to answer the questions; he simply dismisses or laughs the allegations as little more than "politics as usual". It's just a rhetorical trick so he can come back and say, "See? I told you they were going to say that." It's hard for Obama to argue the fact that we have seen an expansion of government intervention with so-called financial and healthcare reform and domination of the student loan. mortgage lending and health care sectors.
Will Obama's anti-business/free market policies be issues? Businesses don't even know whether the Bush tax cuts will extend past the end of the year; they face the highest marginal tax rates among the world's major economic powers.They expect health care costs to explode, a high cost of labor. They know that money spent on government occurs at the expense of the more efficient, effective private sector. Obama's crony unionist auto bailout is a problem. He'll have a hard time explaining that even with huge majorities in Congress, household net worth has fallen, we have the lowest labor force participation rate in decades, and the unemployment rate remains well above what he inherited.
I think quite clearly that the fact that Obama's failure to embrace the Bowles-Simpson bipartisan deficit reduction plan will be an issue, and Obama did not fix Medicare/social security/Medicaid, accounting for about 60% of the budget when he had the time and ability to do so.
And I see he's talked about the ALLEGED policies of the Bush years:
[Obama] blamed Republican policies over the previous decade for driving up the deficit and benefiting the rich at the expense of the middle class. The president listed the Bush-era economic and policy choices — embraced by Mr. Romney and Congressional Republicans — that he said had led to the recession of 2008 and 2009: tax cuts for the wealthy, deregulation, spending on the wars in Iraq and Afghanistan that was added to the deficit.First, let me make quick work of Obama's general incompetence on economic matters. The fact of the matter is that federal spending has increased steadily upward (with an outsized uptick in 2009 below), and federal revenues have stagnated since reaching an all-time high during the Bush second term. Moreover, any objective look at the evidence shows that Bush was increasing spending across the board--including domestic spending, not just defense, as Obama tries to imply.
Obama wants to blame "tax cuts for the wealthy"; in fact, Harding and Coolidge, JFK/LBJ and Reagan cut taxes far more than Bush did, and the $70B/year in upper end tax relief was more than offset by increases in federal revenue. Deregulation? Hardly. The hidden cost of regulation is over $1T a year; in terms of federal regulation, from 2001 through 2007, there were $30B in new regulation costs; the Bush Administration approximately halved the number of major new regulations (>$100M) to just over 7 a year, versus the Clinton Administration's second term rate, i.e., the rate of regulation merely slowed. As for defense spending, it's difficult to make that argument, given the fact the defense budget has increased under Obama and he's spending far more resources in Afghanistan than Bush; his occupational costs for both Iraq and Afghanistan have been far higher per year than Bush's through FY2006.
But what did all of this have to do with the economic tsunami? Did the Bush Administration bear some responsibility for what happened? Yes, but not for the reasons Obama's listing. The Bush Administration was certainly vested in the real estate bubble (which was inherited from the Clinton Administration) and wanted the Fed to maintain easy money policies through the 2004 election to stave off recession.
Let me quote Gary North, who writes from the perspective of the Austrian School of Economics (Mises and Hayek):
Mises taught that the cause of the business cycle is fractional reserve banking, especially in nations that have central banks, whose function is to create a cartel for private banks. First the central bank inflates. This produces a boom. Then it slows the rate of monetary expansion because of rising prices. This causes the recession: a re-pricing of assets, especially capital goods.
Mises's theory solved the central theoretical problem of all recessions: why entrepreneurs make the same investment mistakes at the same time? The central bank's interference with the free market. It lowers interest rates by creating fiat money reserves by purchasing government debt. This lowers short-term interest rates. Businesses borrow to expand, because of these low interest rates. Then, when price inflation appears, the central bank reverses policy. It slows the rate of debt purchases. Short-term interest rates rise. Businesses lose money. They cut back on expansion. Bankruptcies increase.Another Austrian School writer, Peter Schiff, had this to say in December 2008:
Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.
Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.
Fiat Currency Initiatives? Symptoms, Not the Disease
The Wall Street Journal broke news late today that Britain is about to open the money spigot like the US and the European central banks during and after the economic tsunami of 2008, basically out of concern on the European PIGS crisis and UK big bank exposure to relevant losses. As I write, I have not looked at shifts in the monetary system; several days ago I cited an article from de Rugy suggesting (along with another economist) the ideal of the Swedish solution: a budget surplus and easy money policy (to mitigate any monetary contraction resulting from cuts in government spending). See my above discussion (Schiff and North); I worry about any activist central bank activity. chances are, like the government, if and when they respond, we are all but guaranteed that the timing will be off. I would suspect if monetarist policy was engaged, it would have been current at the time of lowered government spending.
Stopping the Spinning Wheel:
The Truth of the Auto
I have coined the title of yet a new segment feature to combat the swampland of progressive / social liberal hype and propaganda
HT Don Boudreaux of Cafe Hayek. Todd Zywicki of the Volokh Conspiracy (see blogroll) has teamed with James Sherk of the Heritage Foundation have published a review of a key Obama reelection campaign rallying point: the auto bailouts; the article is entitled: "Auto Bailout or UAW Bailout? Taxpayer Losses Came from Subsidizing Union Compensation". I encourage readers to review the full article.
Here is the article's abstract:
The U.S. government will lose about $23 billion on the 2008-2009 bailout of General Motors and Chrysler. President Obama emphatically defends his decision to subsidize the automakers, arguing it was necessary to prevent massive job losses. But, even accepting this premise, the government could have executed the bailout with no net cost to taxpayers. It could have—had the Administration required the United Auto Workers (UAW) to accept standard bankruptcy concessions instead of granting the union preferential treatment. The extra UAW subsidies cost $26.5 billion—more than the entire foreign aid budget in 2011. The Administration did not need to lose money to keep GM and Chrysler operating. The Detroit auto bailout was, in fact, a UAW bailout.The fact that the Obama Administration abused its power to pay down a chit to its crony unionist allies? Nothing short of moral bankruptcy by the same demagogues whom hypocritically blast (the other side's) lobbyists. The biggest factor underlying the failures of GM and Chrysler was unsustainable union contracts; don't get me wrong: I hold the management ultimately responsible. Clearly Ford did something they didn't prudently do. GM was in trouble well before the 2008 economic tsunami: it reported a negative net worth as early as 2006. (I should point out that the last cited source (Cohan) buys into the "Obama saving Detroit" myth and attacks Romney's position against the federal government deferring bankruptcy on the backs of the American taxpayer and Romney's wanting to divest currently at a loss to the federal government. Romney is exactly right on both counts. In fact, the government's ownership holding is worth less today than at the IPO. I recently published in the blog a free market original quote similar in spirit to the Schiff excerpt above: "The seeds of economic growth lie in giving up the ghost of obsolete costs.")
Romney: Make the Election One of Principle
Restoring the Proven Success
of Governmental Non-Intervention
Underlying the Economic Boom
of Harding and Coolidge
Rejecting the Proven Failure
of Governmental Intervention
Underlying the Economic Inertia
of FDR, Bush and Obama
In a recent commentary, I warned Romney from playing the upcoming election on Obama's terms, e.g., "What Keynesian plan do you suggest to make jobs?" It's as loaded a question as "Did you kill your mother with an ax?" Throughout the Obama Presidency, I've been recycling relevant truths like "Haste makes waste." Patience is a virtue; we must resist desperation or even panic, e.g., Obama's "we can't afford to do nothing..." Yes, we can make things even worse; notice, for instance, how, despite the Fed's clear role in exacerbating multiple asset booms and busts, Obama actually doubled down on the Fed in Dodd N. Frankenstein. Mike Kubenic has a nice little post entitled "Don’t Just Do Something, Sit There!"
Romney would do well to remember the remarkable Warren Harding facing a severe recession in the aftermath of WWI:
Starting in 1920, markets experienced a drastic decline causing unemployment to rise from 5 percent to as high as 12 percent. The rate of business failures tripled, and in less than a year the national economy shrunk by 6 percent. To top it off, the government had been running a deficit to help fund the war efforts and was staggering under an enormous debt.
In his inaugural address, President Warren G. Harding assured the American people that his administration would work for “[an end to] unnecessary interference of government with business, for an end to government’s experiment in business, and for more efficient business in government administration.” Instead of attempting to use government spending to spur economic growth, the Administration allowed markets to work themselves out.
Secretary of Treasury Andrew Mellon spearheaded one of the few bills — the Revenue Act of 1921 — which eliminated the excess profits tax, and lowered the top marginal tax and capital gains tax rates. The economy quickly rebounded — unemployment fell 6 percent by 1922 and plunged below pre-depression levels by 1923. By continually cutting government spending, the Harding Administration halved the government budget and reduced the national debt by one-third by 1922.I know what you're thinking: Obama inherited an economy with an unemployment UNDER 8%--not 12% Harding inherited, but Harding managed to cut high income taxes (way, way, way down, not Bush's 4.6 points), slashed spending, and paid down the national debt by a third (rather than increase it by 50%!)
But let Jim Powell leave us with the big picture (I include it in addition to Kubenic for extra details and commentary) (my edits):
[Another] great success cutting both taxes and spending involved an American president who inherited one of the worst depressions in American history. It happened in 1921, after World War I as the government cancelled orders for war materials. Unemployment doubled, and wholesale prices plunged about one third.
The president was Warren Harding (1865-1923), who shrewdly believed that if tough adjustments must be made — such as from a wartime economy to a peacetime economy — the most humane policy is to get through the inevitable adjustments as fast as possible. Although the intention of bailouts and relief programs is to relieve misery, Harding recognized that such policies undermine incentives to make adjustments rapidly and can end up prolonging misery.
Harding cut spending about 50%, he cut taxes about 40%, and he started paying down the debt. There were no bailouts, no “stimulus” programs, no entitlements, no government employee unions, none of the things that made it extremely difficult for later presidents to cut spending. Harding’s policies helped turn around the American economy within 18 months. There were budget surpluses every year during the 1920s.Perhaps if Obama had spent more time studying high school history class instead of smoking marijuana, he might have learned how a real President handles a crisis, instead of constantly whining and bitching about his predecessors.
Oh, in case any reader was wondering whom I think was the greatest President of the twentieth century, re-read this commentary...
Why We Must Restore Economic Liberty to America
No More Government As Usual
Of, By, and For the Economically Illiterate/Incompetent
Obviously the first step towards economic liberty is to reject Barack Obama and his fellow hyper-regulating, spendthrift Congressional Democratic allies, particularly in the US Senate.
There are several reforms I would like to see, including, but not restricted to the following:
- cap spending increases to the rate of inflation unless by a super-majority vote
- require business "best practices" approaches to federal operations, including any risk-based disbursements for goods and services, properly funded liabilities, and automatic review of spending spikes
- means-test and cap individual transfer payments
- limit applied tax credits and deductions
- eliminate planned increases in baseline budgeting
- provide management and worker incentives for lowering agency operational costs
- establish a balanced revenue mix between consumption and income
- mandate any new taxes or regulations to be applicable only for the current session of Congress and require renewal
Political Humor
"The original "Dallas" series started in 1978. Back then, America was very different. We had an ineffective, one-term president. Gas prices were through the roof. We were in a stand-off with Iran. I'm glad those dark days are over." - Craig Ferguson
[Losing military aircraft in Iran, a fiscal budget deficit, a Massachusetts Republican in the Democratic-controlled US Senate, the Democratic president looking to face off against a former GOP governor from a blue state, Paul Volcker named to a prominent economic role by the administration, a president whom warns us of the need to lower our thermostats... Go figure...]
"TV icon Betty White visited President Obama in the Oval Office this week. The last time Betty visited the White House, it was still under construction." - Jay Leno
[Jay, she was just coming home to visit. After all, whose name is on the house? It's not called the "Obama House"...]
My Greatest Hits: June 2012
Oddly enough, three older posts surged to the top 3 of this month's top 5. I think my early April one-off post, suggesting that Romney choose Texas' retiring senior US Senator Kay Bailey Hutchison as his Veep, has seen an increase in hits in the aftermath to Romney's clinching the nomination (I'm still not hearing her name raised, and I'm baffled). These 3 posts rank 2-4 on my all-time list (only behind my Valentine's Day post) since the beginning of the year when these statistics became available:
- Miscellany: 8/22/10
- Miscellany: 10/23/10
- Romney VP Selection? My Suggestion: Kay Bailey Hutchison
- Miscellany: 5/25/12
- Miscellany: 5/26/12
Tom Petty & the Heartbreakers, "Don't Do Me Like That"
