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Where did the stimulus go ?

Tuesday, January 25th, 2011

Two distinguished Stanford professors of Economics have published an analysis on where the stimulus money went. The results are not surprising but the details are interesting.

During the recent recession, the U.S. Congress passed two large economic stimulus programs. President Bush’s February 2008 program totaled $152 billion. President Obama’s bill, enacted a year later, was considerably larger at $862 billion. Neither worked. After more than three years since the crisis flared up, unemployment is still very high and economic growth is weak. Why have such large sums of money failed to stimulate the economy? To answer this question, we must look at where the billions of stimulus dollars went and how they were used.

Keynesian stimulus packages come in three basic types. In the first type, the federal government puts money directly into the hands of consumers. The hope is that consumers will use the money to increase their purchases of goods and services. In the second type, the federal government directly purchases goods and services, including infrastructure projects, equipment, software, law enforcement, and education. In the third type, the federal government sends grants to state and local governments in the hope that those governments will use the funds to purchase goods and services.

In each case, according to Keynesian theories, the increase in purchases will stimulate additional economic activity over and above the initial increase in purchases. The 2008 stimulus was mainly of the first type, while the 2009 stimulus was a mix of all three types.

The 2008 (Bush) stimulus was of the first type. The Obama stimulus was mixed.

Take a look at Graph 1, which shows both income and consumption in the economy as a whole from the start of 2007 to the present. You can see the big blip in disposable personal income in the spring of 2008 as checks were sent out. But consumption did not increase at all around the time of the stimulus payments. What happened to the money? It went to pay down some debt or was simply saved rather than spent on consumption.1

This should not have surprised anyone. Long ago, the Nobel Prize–winning economists Milton Friedman and Franco Modigliani explained that individuals do not increase consumption much when their income increases temporarily. Instead, they save most of the funds or use the money to pay back some of their outstanding debts. Friedman and Modigliani demonstrated that most people, when deciding how much to consume, consider more long-lasting, or permanent, changes in income. Because one-time increases in transfer payments and temporary tax rebates are, by their very nature, temporary, people should not have been expected to alter their consumption patterns. The Friedman-Modigliani theory, called “the permanent income” or “the life-cycle” hypothesis, profoundly influenced macroeconomic thinking for decades. It was, oddly, ignored in the development and enactment of the stimulus of 2008.

The Bush stimulus was a waste but, at least, it went to taxpayers and was relatively modest compared to what followed.

The American Recovery and Reinvestment Act of 2009 (ARRA) repeated this mistake. The amount paid out to households was smaller and delivered over a longer period of time than the 2008 stimulus, but the largest portion of increased payments was made in the spring of 2009. You can see the resulting blip in income in Graph 1.

Again, there was no noticeable effect on consumption. Instead, individuals used the money to shore up depleted bank accounts or pay off overextended credit card bills. As had been true a year earlier, the temporary cash payments failed to create consumption and, as a consequence, failed to increase production and employment.

Graph 1 also illustrates the failure of another recent stimulus attempt: the 2009 “cash for clunkers” program. For a temporary period, this program provided a one-time subsidy if individuals purchased a qualifying new car and simultaneously traded in their old car. The program’s objective was to increase the demand for new cars to spur production and employment.

By definition, a one-time subsidy cannot cause a permanent increase in consumer demand. So what happened? Consumers merely shifted forward in time the purchase of a new car by a few months. This behavior is evident in the lower-right-hand part of Graph 1. Consumption rose sharply as consumers responded to the temporary subsidies, then came right back down. There was no net increase in consumption to bolster the recovery.2

Read the rest.

To sum up:

To sum up: the federal government borrowed funds that it mainly sent to households and to state and local governments. Only an immaterial amount was used for federal purchases of goods and services. The borrowed funds were mainly used by households and state and local governments to reduce their own borrowing. In effect, the increased net borrowing at the federal level was matched by reduced net borrowing by households and state and local governments.

So there was little if any net stimulus. The irony is that basic economic theory and practical experience predicted this would happen. If policymakers had only remembered what Milton Friedman, Franco Modigliani, and Ned Gramlich had said, we might have avoided these two extremely costly policy failures.

There is nothing new under the sun.

H/T Powerline

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Posted in economics, financial, politics | 2 Comments »

More reasons to get out of Afghanistan

Tuesday, October 19th, 2010

Here is more to add to my previous reasons for getting out.

Word had come down the morning Brooks spoke to this reporter that watch towers surrounding the base were going to be dismantled because Afghan village elders, some sympathetic to the Taliban, complained they were invading their village privacy. “We have to take down our towers because it offends them and now the Taliban can set up mortars and we can’t see them,” Brooks added, with disgust.

I can understand minimizing civilian casualties by making certain of your target. What is accomplished by this nonsense ?

“I don’t think the military leaders, president or anybody really cares about what we’re going through,” said Spc. Matthew “Silver” Fuhrken, 25, from Watertown, N.Y. “I’m sick of people trying to cover up what’s really going on over here. They won’t let us do our job. I don’t care if they try to kick me out for what I’m saying — war is war and this is no war. I don’t know what this is.”
To the soldiers and Marines risking their lives in Afghanistan, restrictions on their ability to aggressively attack the Taliban have led to another enormous frustration stalking morale: the fear that the Karzai government, with the prodding of the administration of President Obama, will negotiate a peace with the Taliban that wastes all the sacrifices by the U.S. here. Those fears intensified when news reached the enlisted ranks that the Karzai government, with the backing of senior Obama officials, was entering a new round of negotiations with the Taliban.
“If we walk away, cut a deal with the Taliban, desert the people who needed us most, then this war was pointless,” said Pvt. Jeffrey Ward, with 1st Battalion, 4th Infantry Regiment, who is stationed at Forward Operating Base Bullard in southern Afghanistan.

We can’t replace Karzai. That was a fatal mistake we made in Vietnam. It may be that Obama’s promise to bail out next summer may have poisoned the relationship with Karzai. I fully expect him to move to the French Riviera when we leave.

From the front lines, the U.S. backing of the Karzai government, widely seen as riddled with corruption by the Afghans living in local villages, has given the Taliban a position of power in villages while undercutting U.S. moral authority.
Corrupt government officials have made “it impossible for us to trust anyone,” said elder Sha Barar, from the village of Sha Joy. The people of that village and many others profess fear of the Taliban, and recount tales of brutality and wanton killings by the Taliban and their sympathizers. But they don’t see the Karzai government as a positive force in their lives.

This is a dilemma with no possible solution that I see.

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Posted in middle east, military, terrorism | Comments Closed

The rule of law.

Thursday, October 7th, 2010

People make jokes about lawyers but the law is foundation of prosperity in this and all prosperous societies. Joel Mokyr, in his books on the history of economics and technology, concludes that the reason why technology and progress in the Roman empire ended with the fall of Rome was the lack of laws that protected inventors and those who developed new technology. A working steam engine was invented in Alexandria in about 62 AD by Heron (often spelled Hero) of Alexandria. It was used to open temple doors and there were other applications. Inventions continued through the Middle Ages but the Industrial Revolution required laws, including patent laws, so that people who did the work would be rewarded in some logical way. In addition, another example may well be the revocation of the Edict of Nantes by Louis XIV in 1685, which sent the Huguenots fleeing to other countries, principally England and Holland. The exodus included 400,000 Protestants who were among the most inventive and industrious of France’s citizens. With them, went the Industrial Revolution.

Why do I bring this up now ? The Obamacare legislation is an attack on the rule of law in this country’s health care economy.
UPDATE: The Obama supporters, like this New York Times reporter have a laughingly ignorant concept of what the rule of law means.

Representative Paul D. Ryan, Republican of Wisconsin, alluded to “The Road to Serfdom” in introducing his economic “Roadmap for America’s Future,” which many other Republicans have embraced. Ron Johnson, who entered politics through a Tea Party meeting and is now the Republican nominee for Senate in Wisconsin, asserted that the $20 billion escrow fund that the Obama administration forced BP to set up to pay damages from the Gulf of Mexico oil spill circumvented “the rule of law,” Hayek’s term for the unwritten code that prohibits the government from interfering with the pursuit of “personal ends and desires.”

The law, of course, is written down. The problem is with people who don’t follow it. Such is the state of knowledge at the New York Times.

On September 30th, Janet Adamy reported for The Wall Street Journal that McDonald’s was considering canceling its health insurance plan for nearly 30,000 hourly restaurant workers unless new Obamacare regulations were waived. The White House pushed back hard with U.S. Department of Health and Human Services spokeswoman Jessica Santillo claiming: “This story is wrong. The new law provides significant flexibility to maintain coverage for workers.” But this Tuesday we learned that Adamy was correct. According to Bloomberg News McDonald’s had sought, and eventually won, a waiver from the upcoming Obamacare regulations. This allows them to continue providing health insurance coverage to 115,000 workers. In fact, McDonald’s workers were just some of the over 1 million of Americans who were spared losing their current health care coverage thanks to one-year waivers from the Obama HHS.

The big companies are gaining waivers while small business will face all the onerous regulations of the bill.

a letter HHS Secretary Kathleen Sebelius sent to the nation’s health insurers threatening to exclude them from the yet to be implemented Obamacare health exchanges. The letter warned there “will be zero tolerance” for “falsely blaming premium increases” on Obamacare. And who would determine if premium increases were or were not due to Obamacare? The Obama administration of course.

So health insurance companies can be excluded from participation if they tell subscribers that the new legislation will raise premiums. What law authorizes this ? None.

We now know that 22,000 bureaucrats will be hired to write regulations that no one knows now and which are based purely on the bureaucrat’s opinion. The law will be entirely enacted by “Administrative Action”. There is no law saying what the principles should be. Congress passed a bill it had not read and which establishes a framework for bureaucrats to write the laws.

Enactment of PPACA is the first step to this control; the law must be implemented by administrative action. While it is detailed in some instances, PPACA is largely aspi­rational; it directs the Administration to achieve various universally desired goals—better quality of health care, improved access to care, and increased efficiency of delivery. It constructs the scaffolding of federal control and gives the Administration very broad authority to achieve these aspirations.[3] Each of the many actions taken to implement it will determine the shape of that control. Implementation will be technically difficult and politically charged.

PPACA is based on the premise that the federal government can—and must—regulate the details of the health care financing and delivery systems. With its enactment, health care has been thoroughly bureaucratized—since it must be implemented by public servants—and politicized by the Administration and Congress. Bureaucratization and politicization are the inevitable characteristics of government action.
Health care is infinitely complex. Patients and those who provide and pay for their care engage in millions of discrete but interrelated transactions. It is hubristic to believe that the federal government can determine the one “right” approach to organizing the health care system. Yet PPACA attempts to do just that. PPACA represents an effort to impose a uniform template on the health care system. It sig­nificantly reduces the ability of patients and providers to choose how to accommodate their different circumstances and individual desires.

If you would like an example of what happens when people ignore the rule of law in commerce, here is one. Dubai is one of the United Arab Emirates. It was an oil state but, as the oil flows has declined, the ruler decided to build a commercial center. Many rushed to invest.

Today, Dubai has emerged as a global city and a business hub.[7] Although Dubai’s economy was built on the oil industry, currently the emirate’s model of business, similar to that of Western countries, drives its economy, with the effect that its main revenues are now from tourism, real estate, and financial services.[8][9][10] Dubai has recently attracted world attention through many innovative large construction projects and sports events. This increased attention has highlighted labour rights and human rights issues concerning its largely South Asian workforce.[11] Dubai’s property market experienced a major deterioration in 2008 and 2009 as a result of the worldwide economic downturn following the Financial crisis of 2007–2010.[12]

In fact, its property market collapsed. Now some investors have discovered that getting their money back may be very difficult as the laws are changing every month.

Dubai’s real estate regulators have issued a flurry of rules since 2008 to clarify the situation and to comfort potential investors. But new rules sometimes contradict others issued just months earlier, often in ways that leave developers with the advantage and property buyers in a legal limbo, making many wary of ever investing in Dubai again.

Without the rule of law, no one knows what anything is worth or what sort of return one might expect from an investment. The Obama Administration seemed to have taken its approach to law from the Dubai model.

UPDATE: Here is a very good article by Amity Schlaes on the sanctity of contracts. Harding and Coolidge ended a severe recession after World War I by cutting government spending and leaving the economy to pull itself out of the ditch. That worked much better than FDR’s efforts or Obama’s stimulus.

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Posted in economics, financial, health reform, middle east, politics | 2 Comments »

The White House Insider Series

Tuesday, September 21st, 2010

Roger Simon has links to a series running on another blog that is alleged to be interviews of a White House insider in the Obama administration who has become disenchanted. The interviewee is, of course, anonymous and there are doubts about the authenticity but it rings true to me. I will make comments about some of the statements.

The first installment is here.

White House Insider on Obama: “the President is Losing It.”

Quite a title.

When I asked this insider if the media gave candidate Obama an assist throughout his campaign, it elicits a sly smile. Sure – we definitely had people in the media on our side. Absolutely. We went so far as to give them specific ideas for coverage. The ones who took that advice from the campaign were granted better access, and Obama was the biggest story in 2008, so yeah, that gave us a lot of leverage.

Could Obama have succeeded without the media’s help? Yeah, I think so. As I said, on the campaign trail he is very-very good. The opposition didn’t have near the energy, or the celebrity attraction that Obama brings. Plus, the country was burned out after eight years of Bush. We knew that going in. We knew that if we won the Democrat nomination, we were likely going to cruise our way to the White House – and that is exactly what we did.”

This sounds authentic to me. I’m not sure Obama could have won without both the press and the flow of anonymous money that has yet to be explained but he was good with a teleprompter and Bush was unpopular.

But after Obama was sworn in, things began to change? Almost immediately. Obama loved to campaign. He clearly didn’t like the work of being President though, and that attitude was felt by the entire White House staff within weeks after the inauguration. Obama the tireless, hard working candidate became a very tepid personality to us. And the few news stories that did come out against him were the only things he seemed to care about. He absolutely obsesses over Fox News. For being so successful, Barack Obama is incredibly thin-skinned. He takes everything very personally.

And you state he despises Joe Biden? Oh yeah. That is very well known in the White House. Obama chose Biden for one reason – to have an older white guy with some international policy credentials. Period. If Biden has all of this international experience that Obama found so valuable, why has he buried him under the pile of crap that became the stimulus bill? What does Joe Biden know about budgets and economics? Not much – but Obama didn’t care. Give Joe a job and get him the hell out of my hair – that pretty much sums up the president’s feelings toward Joe Biden.

Read the rest. This is only the first segment.

What about Hillary Clinton? Obama is scared to death of Hillary. He doesn’t trust her – obsesses over her almost as much as he does Fox News. He respects her though, which might be why he fears her so much as well. He talks the game, but when it comes down to it, she has played the game on a far tougher level than he has, and Obama knows that.

I include this only because I think the anonymous interviewee is a Hillary staffer. Watch his comments on the Clintons. For example:

How about Bill Clinton? I never heard Obama say anything about Bill Clinton personally, though I was told he has cracked a few jokes about the former president since getting into the White House. I have heard that Bill Clinton does not like Barack Obama. That really started when Obama played the race card against him during the primary campaign. Apparently Clinton was apoplectic over that and still hasn’t gotten over it. If there is one thing I have learned in this town – don’t make an enemy of Bill Clinton.

So if Obama doesn’t appear interested in the job of president, what does he do day after day? Well, he takes his meetings just like any other president would, though even then, he seems to lack a certain focus and on a few occasions, actually leaves with the directive that be given a summary of the meeting at a later date. I hear he plays a lot of golf, and watches a lot of television – ESPN mainly. I’ll tell you this – if you want to see President Obama get excited about a conversation, turn it to sports. That gets him interested. You start talking about Congress, or some policy, and he just kinda turns off. It’s really very strange. I mean, we were all led to believe that this guy was some kind of intellectual giant, right? Ivy League and all that. Well, that is not what I saw. Barack Obama doesn’t have a whole lot of intellectual curiosity. When he is off script, he is what I call a real “slow talker”. Lots of ummms, and lots of time in between answers where you can almost see the little wheel in his head turning very slowly. I am not going to say the president is a dumb man, because he is not, but yeah, there was a definite letdown when you actually hear him talking without the script.

That sounds like you are calling Obama stupid to me. No – I am not going to call him stupid. He just doesn’t strike me as particularly smart. Bill Clinton is a smart guy – he would run intellectual circles around Barack Obama. And Bill Clinton loved the politics of being president. Obama seems to think he shouldn’t have to be bothered, which has created a considerable amount of conflict among his staff.

The second installment is here and just as interesting.

So you still wish to keep your name hidden from the public? Why? I intend to remain working in this town for a bit longer. A public disclosure might complicate that just a bit given who is in power right now. But I won’t be the last one from the current administration coming forward. After the midterms, there will be a number of us speaking about what is really going on in the Democrat Party, if for nothing else because it’s such a damn mess right now.

What do you mean “it’s a damn mess”? I mean just what I said. The Democrat Party is the most chaotic I have ever seen it – and that goes back almost 30 years.

So who is to blame? We all are. By we I mean those of us who were working within the party power structure the last ten years or so. We got so caught up in the hate Bush mentality, we let the party get hijacked by our own far left. That was disaster the moment it happened. The disaster that will be the midterm election in 2010 started in November of 2006 when Pelosi and Reid took over the Democrat Party. Those two have only brought trouble to the Democrat Party since day one of that time.

This again rings true to me. And this is a revelation to me.

What scares you more as president – Sarah Palin or Barack Obama? (Hands to head) Oh boy. What a choice! People would kill me for saying this – actually you know what, there are more and more of us Democrats saying what I am going to say in one form or another… Sarah Palin understands America more than Barack Obama. Yes, she has a minority of our far left who hates her, and some in our media are part of that group, but overall, she seems to get America. Americans aren’t a complicated people, and neither is Sarah Palin, so that probably works in her favor. But President Obama is just out of touch. He really doesn’t understand what America is. What it’s about. Or who it is. And that is a real problem for him – and the Democrat Party at this moment in its history.

Are you saying you would vote for Sarah Palin over Barack Obama? No, I don’t think I could do that. As much as I admire Palin’s ability to connect with the American people, I just can’t stand her politics. I am a pro-choice Democrat. I support unions. I support welfare programs. Sarah Palin understands America, but that doesn’t mean she understands the best parts of America. That being said, I think President Obama understands hardly any of America. That is probably a big reason he appears so lost these days.

That is quite an interesting admission if the interview is legitimate. The third segment is here.

Why is he doing this ?

I am doing it for me, for my party, and for my country. In my own small way – maybe it’s insignificant, maybe not, I want to see Democrats move ahead of this mess that we are in right now. It is a mess of our own making, so we need to be the ones to clean it up. If we don’t, this country is going to continue hurting, and too many people out there are really hurting these days.

Ok…but how does giving me some apparent insider information going to help the country, or help your political party? Simple – it lets others know it’s time to start talking. It’s time to get the word out. It’s time to challenge the inept status quo that is currently running things. People are scared – hell, I’m a bit scared myself. But enough is enough – this political train has got to get back on its tracks. And I’ll tell you this, my talking to you, and your little blog stories, is already helping. More people are ready to talk. It’s already happening. And more is coming. The media won’t be able to ignore it anymore. This administration, the leadership in Congress, they need to account for how they have totally mishandled the responsibilities given to them. That accounting is coming soon enough in November – we are going to get what we deserve. But I am still hopeful it is not too late to save 2012.

He is talking about Congress and I agree that somebody has to.

We are literally killing our political futures out of some need to keep supporting an administration that has in no way, shape, or form shown itself to be worthy of that support.

Those are strong words – but what exactly to do you mean by that? What do I mean!? (Voice rising) What I mean is exactly this – we got Congressmen and Senators running for re-election right now whose political careers are about to be ended because they supported a president and a Democratic Party leadership that told them to do so. They trusted they would be politically protected, that the American people would agree with the agenda. Well guess what? That hasn’t happened. Good people, good Democrats, are being tossed aside like so much trash – and this White House DOES NOT GIVE A DAMN. In my eyes that is absolutely unforgivable. You just don’t do that to your own people. And some of these politicians are talking. They are – but for the most part the media is ignoring them because they don’t want to hurt the administration. To that I say enough! Do your damn job. Report what is going on within the Democratic Party. We need to clean up this mess, and it starts by getting the truth out there. That is my motivation.

The shift of independents to the Republicans is evidence that he is correct. Hell, I don’t even trust the Republican party after the past ten years. The 1994 revolution petered out in politics as usual. Tea party people are cringing in anticipation of the new “Contract” that the Republican leadership is preparing to release tomorrow.

This White House doesn’t give a damn for the concept of loyalty, dedication, sincerity. This White House is the most self-centered, arrogant, and ignorant…they just don’t care to know what they are doing. And when they do it – consequences mean nothing to them. NOTHING. And that is not to say it’s all bad at the White House. There are some very bright people working there. But you know what, those people have been marginalized, pushed aside, and are now leaving. You watch – the exodus from this White House will prove to be of historical proportions.

The exodus is already starting. It will be interesting to see how large it gets. Even the interviewee is frightened of what Obama could do to the country.

For most of the last year, you want to know what question keeps playing in my head?
What question was that? WHAT THE HELL HAVE WE DONE? Now that may come off terribly disrespectful to the president, but so be it. What have we done? We were led to believe this man was one thing, but everything I have seen, heard, and understand, points to the indisputable fact he is not what we hoped for. Not what we were promised. Maybe he might have been. Maybe a full term or two in the Senate and he would have had the experience and maturity to handle the job of President of the United States. But right now – the man is simply not up to the task, and yet it is loyal Democrats who are paying the price for his incompetence and incoherence. The health care bill? Do you know I was told he has never read the bill? Not one part of it? NOT ONE. Sounds like something you would hear on one of the talk radio shows, right? And I wouldn’t normally consider such a possibility, but this came directly from one of those good Democrats who might now see their political careers ended because they supported that bill and now its being used against them like some political sledgehammer. How is that supposed to make someone who put their career on the line feel? Betrayed. A whole lot of us are feeling betrayed these days and it just pisses me off.

As for all the accusations that the Congress hadn’t read the health care bill ?

they pushed it a bit further – suggested the president could do some town meetings and answer questions about the bill, alleviate all the concerns and fight back against the conservative chatter that was being put out there. Guess what they were told regarding that? They were asked one question – did they read the bill? This Congressperson admitted they hadn’t. Like a lot of them, they had voted for it, but hadn’t read it. That was a mistake, sure, but the thing is over 2000 pages, right? Well, after admitting they didn’t read the bill they are told in a laughing way mind you, “That’s ok – neither has the president, so you can’t expect him to take on a bunch of town meetings on it, right?” So that was it. Nice, huh? Bye-bye, thanks for playing, and good luck with the -explitive- storm coming your way this summer.

Anybody who has been around legislatures knows that bills are written by staff and lobbyists but you could at least expect them to read it before voting. Why healthcare ?

Was everyone on his staff on board with the president pushing so hard for healthcare? Absolutely not. There were some who voiced concerns. Some who pushed for a more clear economic agenda. Apparently Obama wanted none of it – he was obsessed, absolutely obsessed with getting some kind of healthcare legislation. And the ones who did voice concerns…they are, or will be, among the first to go. And it’s coming sooner rather than later.

And now, what may be the motive for this interview.

Any ideas as to an acceptable alternative? Hillary Clinton perhaps? (Smiles) The Clinton angle was not missed in your last two articles, was it? I make no attempt to hide my admiration for President Clinton. Unfortunately, Bill Clinton cannot run for another term as this country’s president. As for Hillary, I do not know her as well, but I do admire her – a lot, and now regret not having been a part of her own run for president. My ties to the2008 Obama campaign feel more and more these days like a dishonorable victory.
But would you like to see her run in 2012 if President Obama, as you put it, fails to improve? Yes. I would support Hillary Clinton over Obama in 2012 if the need was still there to help ensure President Obama was given only one term. But Hillary Clinton is not the only possibility for the Democrats. We are a party with many fine leaders – many, many potential candidates for president who I would gladly support.

Personally, I think Hillary is no more competent than Obama to be president and I think she is just as far left but it is interesting to see the developing split between the progressives and what is left of the Democratic Party.

Read all three installments. I have only posted the sections that most interested me. There is a lot more, including some about Michelle that is interesting.

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Posted in Chicago, politics | 5 Comments »

Where are we going ?

Friday, August 27th, 2010

There are several good posts on various blogs today and I thought I would summarize some of them. This is sometimes called a “thumbsucker” column when it appears in the NY Times.

1. Germany is rapidly recovering from the financial crisis. This from, of all people, David Brooks.

During the first half of this year, German and American political leaders engaged in an epic debate. American leaders argued that the economic crisis was so bad, governments should borrow billions to stimulate growth. German leaders argued that a little short-term stimulus was sensible, but anything more was near-sighted. What was needed was not more debt, but measures to balance budgets and restore confidence.

The debate got pointed. American economists accused German policy makers of risking a long depression. The German finance minister, Wolfgang Schäuble, countered, “Governments should not become addicted to borrowing as a quick fix to stimulate demand.”

So, the Germans went one way, we went another. Results ?

The American stimulus package was supposed to create a “summer of recovery,” according to Obama administration officials. Job growth was supposed to be surging at up to 500,000 a month. Instead, the U.S. economy is scuffling along.

The German economy, on the other hand, is growing at a sizzling (and obviously unsustainable) 9 percent annual rate. Unemployment in Germany has come down to pre-crisis levels.

In fact, the second quarter US GDP has now been revised DOWN by 1/3. To 1.6% growth.

As an editorial from the superb online think tank e21 reminds us, the Germans have recently reduced labor market regulation, increased wage flexibility and taken strong measures to balance budgets.

2. Victor Davis Hanson writes excellent columns on his web site but the one today is exceptional. “Decline is a choice.”

In the age of Obama, the notion of not being exceptional or preeminent comes as a relief to millions on the left who pretty much are in sync with the protocols of the United Nations. On the right, there is a sense that Obama is the ultimate expression of downfall; given the wild spending, the iconic efforts abroad at apology, and the rampant entitlements we simply aren’t what we once were. In between, most aren’t quite sure—but sure are worried that we may never climb out of our self-created indebtedness crater, and that the culture’s education, the nation’s borders, and the civilization’s values are eroding.

He makes the point that much of our problems are psychological and, in fact, are the consequences of one generation, the Baby Boomers.

On the plus side, as I mentioned last time, our economy is almost three times larger than China’s. American agriculture is the most productive in the world. There is simply nothing like the farmland in the Great Plains, or the 400 miles of irrigated expanse between Bakersfield and Red Bluff. For all the damage done by the federal government, we remain the most orderly free society on the planet, where merit still to a large degree determines success—not class, race, or tribal affiliation. While our universities in the humanities are increasingly corrupt, their science, engineering, and computer science departments, as well as professional schools in business and medicine, are the best in the world. It is not that Cal Tech, MIT, Harvard or Yale or Stanford are better than counterparts in Germany or Russia or China, but that an entire array such as UCLA, USC, Texas, Ohio State, Duke, and dozens of others is as well.

We have huge reserves of both coal and natural gas, and can quite easily quadruple our nuclear power generation. The U.S. military is not just the most technologically advanced and supplied, but the most experienced in all phases of modern challenges, from air campaigns to counter-insurgency.

I have lost confidence in American arts, in the sense of fiction and poetry, which are now in large part warped by the cult of race/class/gender orthodoxy that brings intertribal awards and recognition, but American scholarship in science, medicine, and the professions remains preeminent.

I agree with all this and have had confirmation with my youngest daughter’s experience at the University of Arizona two years ago. I believe, and she suspected, that her experience, at a cost of $25,000 per year, was useless. She has returned home and is starting junior college in San Diego Monday. She told me what her classes are and they all sound solid and useful.

I could go on, but you get the picture: our parents and grandparents left us a wonderful infrastructure, methodology, and constitutional system. So it is hard for our generation (I was born in 1953) to screw things entirely up, although we have done our best, within a mere twenty years of coming into the responsibility of governance.

Look at the often cited pathologies that are destroying what we inherited, and note how easily they are within our material ability to cure—and yet how psychologically we simply lack the courage to take our medicine.

I agree with his comments and there is an interesting thread in the comments section of the blog. There is a growing backlash against the cultural and political “elite,” including the practices of affirmative action. Racism has been taboo for 40 years. We are now learning that American blacks are the final reservoir of this poison and a backlash may come soon if this continues.

3. The election in Alaska is a microcosm of the coming revolt against the elites. The Alaska Republican primary election was won by a tea party and Sarah Palin backed insurgent. The GOP apparatchiks seem to be trying to steal the election for the incumbent, Lisa Murkowski, an example of nepotism if there ever was one. Sarah Palin began her career by defeating Lisa Murkowski’s father in the election for governor. He appointed his daughter to fill a vacant Senate seat. There is just nothing like starting at the top.

A reliable source unaligned with either GOP senatorial campaign in Alaska, and positioned to know, confirmed for me last night that the Alaskan Republican Party (ARP) stepped up their efforts on behalf of Sen. Lisa Murkowski in the closing days of the election, going so far as to phone bank for her from the Alaska GOP’s headquarters on election day.

There is just no better example of trying to thwart the will of the people. Primary elections should be hands-off for the party. Instead the NRSC seems to be heavily involved in trying to pick candidates. If someone were to write a book on how to fuck up a golden chance to elect lots of Republicans, this should be chapter one.

4. John Boehner gave an excellent speech that may suggest an aggressive GOP agenda. I hope so.

I refer you back to my post on Angelo Codevilla’s essay that I posted on recently. It is amazing to see how quickly his points are being proven true. These are frightening times. I took two friends from England on a tour of California three years ago. Rather than waste time at tourist attractions everyone has seen, I drove them through the Central Valley that Hanson refers to. I wanted them to see the real riches of California. Now, that valley is mostly a dust bowl thanks to the Environmental Protection Agency and its concern over a tiny non-native fish in the Sacramento Delta.

This coming election will be the most important for our future since 1860.

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Posted in economics, education, politics, racism, social issues | 8 Comments »

A message from the president.

Tuesday, August 3rd, 2010

I don’t think any more need be said. Do you ?

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Posted in politics, Uncategorized | Comments Closed

Now we know why Ms Sherrod has disappeared.

Monday, July 26th, 2010

UPDATE #3: Shirley Sherrod’s father was not shot by a klansman.

Grace Miller, Hosie Miller’s wife and Sherrod’s mother, said Friday that she didn’t know if the FBI had opened an investigation into her husband’s killing.

“I hadn’t heard that but, I think it would be a good thing if they did,” Miller said. “But, then again, it won’t bring him back and that was a long time ago.”

Miller, who said that she and Hall were distantly related, never made any attempts to contact the family before his death in 1976.

According to the documents obtained Friday, Grace Miller and her brother-in-law, Walter Miller, tried at least three times to get Hall tried.
On the night of the shooting, Grace Miller swore out a warrant against Hall for assault with intent of murder. Despite the fact that Hosie Miller had since died, that charge went before a grand jury on Oct. 27, 1965 and was dismissed.

On March 24, 1965, the day before Hosie Miller succumbed to his wounds, Walter Miller swore out a murder warrant before James Holt, a justice of the peace, for Hall. That warrant would be presented as an undated special presentment before the grand jury and was also dismissed.

Finally, on Jan. 17, 1966, Walter Miller again tried to bring murder charges against Hall but was unsuccessful.

Eight days later, on Jan. 25, 1966, Grace Miller, with the assistance of famed civil rights attorney C.B. King, filed a wrongful death lawsuit against Hall alleging that Hall shot Miller in the chest while in Miller’s cow pasture off Route 2 in Newton on March 15, 1965. According to court documents Miller was seeking $330,00 to recover present and future lost wages, medical and funeral costs.

So Hall shot Miller over a lawsuit and Hall was a relative of Sherrod’s mother. Doesn’t sound like a Klan case to me.

UPDATE # 2: The coverup of her views is not working. People who criticized Breitbart and defended her are changing their minds and apologizing to Breitbart.

UPDATE: John Derbyshire has a few things to add.

So: while you’re forming opinions on whether Andrew Breitbart did due diligence, whether the NAACP shot themselves in the foot, whether the White House ordered Ms. Sherrod’s firing, whether Bill O’Reilly committed journalistic malfeasance, and the other issues in the case, please don’t lose sight of this key fact: Positions at all levels in the federal bureaucracy — positions dispensing power, patronage, and huge sums of public money — are being filled by radical revolutionary leftists like Shirley Sherrod.

Yesterday, one would have expected, given the furor over Andrew Breitbart posting her speech to an NAACP convention, that Ms Sherrod would be on at least one of the Sunday talk shows. The current media theme is that she is a race hero who had explained how she turned from a racist past to a new understanding that we are all just people, black and white. One might almost say a deification process was underway.

Then she disappeared from public. Why ? If she is going to sue anybody, make her case !

Well, there might just be a problem. Her husband seems to have some odd views.

Charles Sherrod: “We must stop the white man and his Uncle Toms from stealing our elections.”

Oh oh.

Where does Obama find these people ? He seems to be surrounded by them. Is Jeremiah Wright a sort of executive headhunter for the administration ?

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Posted in politics, racism | 2 Comments »

A very interesting question

Tuesday, July 20th, 2010

Why were the Russian “illegal” spies repatriated so quickly ? They were exchanged for American agents but why so quickly ? Why not interrogate them for a longer period to be sure we knew what they had been doing. Many newspapers and other one-party media have ridiculed the spies’ accomplishments. Maybe they just weren’t very good and there wasn’t much to learn.

There is, however, another theory.

The speed with which the Obama administration exchanged the recently-arrested Russian “illegals” was astonishing and has led to speculation that the illegals ring may have had potentially embarrassing relationships to current or former US government officials. As a former “illegal” myself, I believe this is plausible.

The cushiest assignment in the world for a Russian intelligence officer would be to the United States, with its clean air and water, excellent medical care, and with none of the anarchy and danger that are common in so much of the world. Ambitious Russian officers would push hard to get these assignments.

For their choice of cover, they’d prefer commercial covers to diplomatic covers. Just as terrorists and nuclear proliferators are wary of meeting our diplomats overseas, American government officials in the US will be wary of meeting a Russian diplomat – they’d suspect he’s a spy. There is no diplomatic immunity for intelligence officers posing as business people, but as we have seen, a captured Russian officer is treated gently and the most likely outcome is exchange.

This is analysis from a former CIA deep cover agent whose workname was “Ishmael Jones.” There is more from this strategic thinker about intelligence.

Why were we in such a hurry to exchange the Russians ? And who were they exchanged for ?

Though one Russian website dubbed today’s transfer “Russia 10 USA 4”, western intelligence sources were claiming tonight that Britain and the US got more out of the spy swap than Russia. They said the four men released by Moscow were more serious individuals than the 10 agents handed over by the US. The four had been in jail and poorly treated.

Britain has a direct interest in Skripal, a former Russian army colonel convicted of passing the identities of Russian agents working undercover in Europe to MI6.

Skripal was sentenced in August 2006 to 13 years in jail for spying for Britain. Russian prosecutors said he had been paid $100,000 by MI6 for the information, which he had been supplying since the 1990s when he was a serving officer.

Two others, Alexander Zaporozhsky and Igor Sutyagin, were convicted of spying for the US. The fourth, Gennady Vasilenko, was sentenced to three years on murky charges of illegal weapons possession. Reasons for his involvement in the swap were not immediately clear.

Well-placed British sources said the exchange was also significant because Russia rarely gives up its citizens, as opposed to Americans or other foreigners, whom it has jailed on spying charges.

One reason given for the extreme reticence among British security and intelligence agencies to talk about the exchanges is fear the Russians would make fresh arrests to use more people as potential collateral. It is possible they were already placing potentially vulnerable people under surveillance now, the sources said, and possible targets may have been warned to lie low.

Hmmm. So the people exchanged were not Americans but Russian double agents. The whole story is peculiar.

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Posted in espionage, military | 1 Comment »

Is this 1937 ?

Friday, July 9th, 2010

There is a frightening symmetry going on with the Great Depression. I have previously pointed this out, for example in my review of The House of Morgan by Ron Chernow. Amity Schlaes has written about the aftermath of the crash and how the Depression developed in The Forgotten Man. Both of these books are important to understand what is happening now. Chernow’s book is a bit dated as it was written after the S&L crisis of the 80s. Another, recent book is important. That is After the Fall by Nicole Gelinas.

In graphic form:

Are we at 1937 ? The economy was recovering from the crash but unemployment was still high and banks had been sorted out by the FDIC.. The FDIC is one of the best measures Roosevelt devised. I am a fan of the WPA and the CCC, both of which put men to work on useful tasks. That could never happen today because of the vast web of regulations that have grown up in recent decades, most stimulated by the environmental movement. Donald Luskin, from whose blog that image comes, has some thoughts.

The stock market tells us that last year we avoided a new Great Depression—barely. It was a close call, but we’re not headed for 1932. Now, as stocks correct from their April highs and fears of a “double dip” recession mount, should we be worried about an economic relapse like 1938?

First, the good news. An important milestone was passed last week for stocks. Friday, July 2, was the 997th day since the all-time high in October 2007. That’s how many days the bear market in the Great Depression lasted, starting at the high several weeks before the Great Crash of 1929 and ending on June 1, 1932, one month before Franklin Delano Roosevelt was nominated to run for president. [Ed The bear market had ended before Roosevelt was elected.]

At the bottom in 1932, stocks (as measured by the S&P 500) had lost 86.2% from the 1929 top. Last Friday, stocks were only off 34.7% from the 2007 top. “Only”? To be sure, losing 34.7% is no buggy-ride. But to match the devastation in the Great Depression, the S&P 500 would have to fall 806 points from Friday’s level, or 78.8%.

This comparison is no idle thought experiment. In 2008 and 2009, based on what the stock market was indicating, we really were headed for a new Great Depression. At two crucial junctures in 2008 and 2009, stocks had fallen further than they did in the Great Depression the same number of days after the 1929 top.

In 1920, Harding and Coolidge faced a similar prospect to that which faced Roosevelt. There had been a bear market and a deflationary depression since the end of World War I and the cancellation of war orders. What did they do ? They cut spending and declared “a return to normalcy.” They are often mocked by the left for this but do you know what happened ? The Depression ended in 1921.

The climax came in early March 2009. Then, with the banking system still feared to be insolvent, the hasty passage of a massive deficit-busting “stimulus” bill sent the message that an all-powerful new president and Congress would just as quickly enact their strident antibusiness agenda. At the worst, stocks plunged to show a loss of 56.8% from the 2007 highs. At the comparable point in the Great Depression, stocks were off only 49%.

But a funny thing happened on the way to the new Great Depression. Chairman Ben Bernanke’s Federal Reserve announced a massive program to buy Treasury bonds and mortgage-backed securities to pump liquidity into the banking system. Treasury Secretary Tim Geithner deftly executed “stress tests” enabling the largest banks to be recapitalized in public markets. And one agenda item at a time—socialized health-care, cap-and-trade energy tax, unionization “card check,” mortgage “cramdown”—got diluted, slowed down or stopped.

So, the failure of most of Obama’s agenda saved the economy. OK, I’ve got that.

The most worrisome analogue is the great bear market that began in March 1937. From the top stocks lost 60% of their value, making it the second worst bear market in history. Not ending until April 1942, it was the longest ever.

That’s worrisome because, as the nearby chart demonstrates, over the last year the stock market has followed a path eerily similar to 1937. First, a strong, rapid run to a recovery high—same pace, same magnitude. Then a correction—again, the same. Will we continue on the path that led the correction of 1937 into a collapse in 1938? This question would be nothing more than a technical curiosity for chartists if it weren’t for alarmingly similar economic backdrops between the two periods.

Or, maybe it was a bear market rally.

[A]fter 1937 the economy relapsed into what historians call “the recession within the Depression,” a downturn so severe that in any other context it would qualify as a depression itself.

It was triggered by a set of very specific policy mistakes. The Fed tightened by raising reserve requirements. Consumers were hit with new taxes to pay for the then-new Social Security program. Worried about excessive deficits, Roosevelt cut government spending. At the same time, his administration accelerated antibusiness rhetoric and regulation.

Sound familiar? We’re repeating some of the same mistakes right now, even as fears of a “double dip” recession mount. Antibusiness rhetoric from the Obama administration is at toxic levels, and the pending Dodd-Frank financial reform bill is the harshest regulatory initiative in a generation. Taxes are set to rise, to support new social spending such as health-care reform, and if for no other reason because no one will stop the expiration at the end of this year of the 2003 Bush tax cuts.

Amity Schlaes has some thoughts, too.

Government can spur the private sector. That’s the gist of the argument that’s in the air this summer. This week, for example, President Barack Obama said, “we’ve got much more work to do to spur stronger job growth and to keep the larger recovery moving.” Such spurring is often said to occur in a technical way, when government outlays have a so-called multiplier effect that invigorates other economic participants.

The Obama administration has a second meaning for “to spur.” It is that government entering an industry as a competitor will strengthen that industry and make it more honest. The president has said government entry into the health insurance sector will force the private companies to lower premiums.

But in reality the government isn’t a spur, either kind. It’s a competitor. And when such a big player jumps into a market, it tends to squeeze others out. Even promising industries — the Internet sector, for example — can be hurt.

This is what happened in the 1930s to the Internet equivalent of that era, the utilities industry.

Read the rest. I am still pessimistic about the economy and, as many of my friends know, am taking steps to insulate myself from the worst.

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Shakedown

Friday, June 18th, 2010

We had a mini-firestorm yesterday after the House energy committee had BP CEO, Tony Hayward (now ex-CEO), in for a ritual beating. Joe Barton, a Texas Congressman and an honest man (as well as far better qualified to comment on the oil spill than 95% of his colleagues) apologized to BP for the disgusting treatment they had received from the Obama administration.

If you listen to what he says, there is nothing that I see as untrue. What really outrages me, is the behavior of the Republican leadership of the GOP in the House. They threatened him with loss of his position as ranking member. They ordered him to apologize for his remarks. This is truly outrageous.

Of course, the White House, showing that they can move quickly on issues that matter to them, immediately attacked Mr Barton. I am not surprised at their reaction. What would you expect them to say, knowing Barack Obama as we do now? Joe Biden, the Vice-President, attacked Mr Barton with considerably more skill than Obama and his usual minions. Biden has had decades to develop his skills in lying.

Later that day, under enormous pressure, Joe Barton apologized. Unfortunately, I cannot find the You Tube version of that statement but I have heard it and can reassure conservatives that his backing down was not of the cowardly variety but he maintained the truth of his earlier statement and apologized for the “misconstruction” of his statement. Of course, those misconstruing it, did so purposefully.

The scene we have witnessed the past few weeks is one of incompetence by our government (The Coast Guard stopped oil removal by barges because they could not verify the presence of life jackets on board) and grandstanding by Congressmen with a very weak connection to the science of the situation. Congressman Barton has BS and MS degrees in Engineering and has served as a consultant to the oil industry before his Congressional career. He is uniquely well qualified to judge the present situation. He represents a district heavily involved in the oil industry. What do you expect ?

I can understand the administration trying to mitigate the image of their incompetence. What I cannot accept is the reaction of Congressman’s Barton’s colleagues in the GOP leadership. That is disgusting. I got a call from the Republican Party an hour or so ago. I gave the lady calling a piece of my mind on this issue. I did it politely but I hope it registers. If Congressmen Boehner and Cantor can’t do better than this, I wonder how much difference it makes who is in the majority.

Maybe Mr Barton could have phrased his comments more artfully but IT WAS THE TRUTH !

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