Posts Tagged ‘Obama’

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Afghanistan and Pakistan

Sunday, June 13th, 2010

UPDATE #3: The new issue of Rolling Stone (Not out yet) has an article about General McChrystal and his aides who contemptuous of President Obama and his people such as Richard Holbroke and the Ambassador Eikenberry. All hell has broken loose in the White House and McChrystal has been called back to Washington to explain.

UPDATE #2: This may be old news being pushed by the administration in a bit of cheer leading. The original studies were published in 2007. This sort of thing may be the reason.

UPDATE: It now appears there are large deposits of minerals, especially Lithium, in Afghanistan. Given the neighbors of the country, I doubt this will be a benefit for a very long time, if ever.

A month or two ago I suggested it is time to get out of Afghanistan. There are serious problems with any effort to build a modern nation in Afghanistan. It has no assets in terms of natural resources or a history of a middle class. It is also a part of the sphere of influence of Pakistan which is frustrating our efforts by supporting the Taliban at the same time it is giving lip service to our war on the same entity. The fact is that the Taliban is a creature of Pakistan’s ISI, the intelligence service of the country which is more Islamist than the supposed democratic government.

India, which is our natural ally in the region, is reporting that the ISI is supporting them almost openly.

ISI provides funding, training and sanctuary to Taliban in Afghanistan on a scale much larger than previously thought, a report claims and suggests that the spy agency may be backing the insurgents to undermine Indian influence in the war-torn country. The report by the London School of Economics (LSE), based on interviews with nine Taliban commanders in Afghanistan between February and May this year, says the support for the Afghan Taliban was “official ISI policy”.

The IED explosives that resist detection by mine detectors are supplied to the Taliban by Pakistan. These IEDs are now the principle tactic of the Taliban.

“They have conducted less direct fire attacks from the winter into this spring, and they’re using more IEDs, suicide vests and potentially a car bomb,” he said.

As an example he cited last month’s suicide attack against the US-operated Bagram air base outside Kabul, and a suicide car bombing by the Taliban the previous day which killed at least 18 people, including six NATO troops – five U.S. and one Canadian.

The Bagram attack “was really not one that I think could have achieved success in terms of penetrating the base itself,” Scaparrotti said.

Yet it sparked hours of battles, left an American contractor and 10 militants dead, and highlighted the increasing sophistication and relentless pace of the conflict in which the Taliban are waging an insurgency to overthrow the U.S.-backed government of President Hamid Karzai.

It is now known that Pakistan, through the ISI, is now paying families of suicide bombers 200,000 Pakistani Rupees, about $1,000. This was a tactic of Saddam Hussein when he provided $25,000 stipends to the families of Palestinian suicide bombers. In a society where young men have few options for successful careers in real work, the sums are a real incentive.

“Although the Taliban has a strong endogenous impetus, according to Taliban commanders the ISI orchestrates, sustains and strongly influences the movement,” wrote author Matt Waldman, a fellow at Harvard University.
“They say it gives sanctuary to both Taliban and Haqqani groups, and provides huge support in terms of training, funding, munitions, and supplies. In their words, this is ‘as clear as the sun in the sky’.”
Waldman said the ISI appears to exert “significant influence” on strategic decision-making and field operations of the Taliban and controls the most violent insurgent units, some of which appear to be based in Pakistan.
Insurgent commanders claimed the ISI — an acronym for Inter-Services Intelligence directorate — was even officially represented, as participants or observers, on the Taliban supreme leadership council, he said.
The report alleges that Pakistani President Asif Ali Zardari himself had assured captive senior Taliban leaders that they were “our people” and had his backing. He had apparently authorised some to be released from prison.
The study drew an angry reaction from the Pakistani military.
“It is a part of a malicious campaign against the Pakistan army and the ISI,” Pakistan army spokesman Major General Athar Abbas told AFP.

The enemy we are fighting in Afghanistan is actually Pakistan and our aid to Pakistan is being used to fund our enemy in the field. This is worse than Vietnam where the enemy had sanctuary in supposedly neutral territory. Here, the enemy has sanctuary in our putative ally. We need to recognize this and get out. The enemy is Pakistan and our ally is India.

The recent expulsion of Michael Yon from Afghanistan is part of the delusion we are under in what is happening.

The intention was to write a detailed dispatch on the 3-17th Field Artillerly. Unfortunately, General Stanley McChrystals’ crew broke an agreement I had with the Army to stay until 5/2 Stryker Brigade Combat Team leaves Afghanistan, and so the research on this dispatch was not completed. However, there are some nice nighttime photos and so this dispatch is more about Canons than cannons.

He has incurred the displeasure of General McChrystal. The battle for Kandahar has been delayed and will probably not be successful. The expulsion of the best battlefield reporter we have is suspicious and suggests an effort to conceal the truth.

This is a political war on nearly every level. Though this will almost certainly be our most deadly year so far, violence is often a minor aspect of the struggle, while in some places combat is—by far—the most prevalent feature. Insofar as combat, our plans do not include serious fighting within Kandahar City, though soon after publication of this dispatch fighting will erupt in nearby areas. BfK is more of a process for both sides than a set battle. The Taliban are succeeding in their process to take Kandahar, and we wish to reverse that process.

The war is going to bring heavy casualties and I do not see the value of the struggle as we have committed to leaving next year, which makes the effort even less worth the cost.

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Posted in military, politics, terrorism | 1 Comment »

The Vague President

Saturday, June 12th, 2010

I’ve tried to leave Obama alone for a while, partly because it is so enervating to think about him. Mark Steyn, however, seems to have the best view of him that I’ve seen. I need to read “Dreams From My Father.” My daughter, a surprise Obama supporter, gave me the other book he is alleged to have written but I had no interest in reading a campaign book by a man who had never done anything but run for office.

I did read a couple of books about him during the campaign and so was not surprised by how he has performed in office. I use the term “performed” advisedly.

Mark Steyn:
Anyway, a couple of years back, Michael Ignatieff, a professor at Harvard and previously a BBC late-night intellectual telly host, returned to his native land of Canada in order to become prime minister, and to that end got himself elected as leader of the Liberal party. And, as is the fashion nowadays, he cranked out a quickie tome laying out his political “vision.” Having spent his entire adult life abroad, he was aware that some of the natives were uncertain about his commitment to the land of his birth. So he was careful to issue a sort of pledge of a kind of allegiance, explaining that writing a book about Canada had “deepened my attachment to the place on earth that, if I needed one, I would call home.”

Gee, that’s awfully big of you. As John Robson commented in the Ottawa Citizen: “I’m worried that a man so postmodern he doesn’t need a home wants to lead my country. Why? Is it quaint? An interesting sociological experiment?”

I think this is a key insight of Steyn’s. Obama has a vision of what he wants to do but it doesn’t exactly fit reality. Since Harvard professors rarely get to run anything more complicated than a seminar, there has been very little testing of Obama’s ideas. A San Francisco County Supervisor, a year or so ago, suggested that entire US Military be dismantled so the money could be spent on social programs. Now, there is a motion for debate. Mr Sandoval is actually a government official, of San Francisco it is true, but still he does have a hand in running something. That is the sort of thing that probably runs through Obama’s mind although he is just smart enough to know not to mention it.

More Steyn:

Many Americans are beginning to pick up the strange vibe that, for Barack Obama, governing America is “an interesting sociological experiment,” too. He would doubtless agree that the United States is “the place on earth that, if I needed one, I would call home.” But he doesn’t, not really: It is hard to imagine Obama wandering along to watch a Memorial Day or Fourth of July parade until the job required him to. That’s not to say he’s un-American or anti-American, but merely that he’s beyond all that. Way beyond. He’s the first president to give off the pronounced whiff that he’s condescending to the job — that it’s really too small for him and he’s just killing time until something more commensurate with his stature comes along.

He gives the air of a citizen of the world but, when the truth slips out (How do they say that in Austrian ?), he really hasn’t been anywhere except Hawaii and Indonesia. He speaks none of those languages that he scolds Americans for not speaking. It is all a sort of pose.

No doubt my observations about Obama’s remoteness from the rhythms of American life will be seen by his dwindling band of beleaguered cheerleaders as just another racist, right-wing attempt to whip up the backwoods knuckle-dragging swamp-dwellers of America by playing on their fears of “the other” — the sophisticated, worldly cosmopolitan for whom France is more than a reliable punchline. But in fact my complaint is exactly the opposite: Obama’s postmodern detachment is feeble and parochial. It’s true that he hadn’t seen much of America until he ran for president, but he hadn’t seen much of anywhere else, either. Like most multiculturalists, he’s passed his entire adulthood in a very narrow unicultural environment where your ideological worldview doesn’t depend on anything so tedious as actually viewing the world.

Here is the key. Obama has adopted the airs of a cosmopolitan without actually, you know, knowing anything or being anywhere.

You don’t need to go anywhere, or do anything: You just need to pick up the general groove, which you can do very easily at almost any college campus.

This Barack Obama did brilliantly. A man who speaks fewer languages than the famously moronic George W. Bush, he has nevertheless grasped the essential lingo of the European transnationalist: Continental leaders strike attitudes rather than effect action — which is frankly beneath them. One thinks of the insistence a few years ago by Louis Michel, then Belgian foreign minister, that the so-called European Rapid Reaction Force “must declare itself operational without such a declaration being based on any true capability.” As even the Washington Post drily remarked, “Apparently in Europe this works.”

Apparently. Thus, Barack Obama: He declared himself operational without such a declaration being based on any true capability. But, if it works for the EU, why not America? Like many of his background here and there, Obama is engaged mostly by abstractions and generalities. Indeed, he is the very model of a modern major generalist. He has grand plans for “the environment” — all of it, wherever it may be.

Steyn is able to capture the essence of Obama here. We are now being taught that it doesn’t matter if we go places no country has ever gone before. We will stimulate the economy by borrowing. This is a bit like paying a bill with a credit card. It doesn’t get us anywhere but maybe it will keep the bill collector away another month. The BP oil spill is another such example. Obama is all about politics and the next election. He rails on and on about “British Petroleum” years after it changed its name and the British people, our most loyal ally, fume about it week after week. Who cares if their pensions, invested in BP shares, are destroyed? Obama needs a scapegoat. Years from now, the litigation will be settled and it will probably be resolved that it was all an accident and BP has no special liability beyond the usual business and civil liability.

However, our relationship with England will be changed forever. Obama has fantasies about mistreatment of his father in Kenya by the British, fantasies that cannot be confirmed, and so he hates the British. And we are along for the ride, whether we like it or not. His lack of economic understanding, typical of the left who had been kept from governing this country until now, will lead to ruin. Thus images can kill.

Victor Davis Hansen has an excellent piece today on the same topic.

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Posted in economics, politics | Comments Closed

The coming economic crash

Monday, June 7th, 2010

Arthur Laffer has a powerful column today in the Wall Street Journal. He, of course, was the author of the “Laffer Curve” that led to supply side economics as the economic policy of Ronald Reagan.

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn’t surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

This is one effect that supply side economics, in its most basic form, should predict. Maryland passed a “Millionaire’s Tax” a couple of years ago and discovered that millionaires and their tax revenue disappeared.

But as the state comptroller’s office sifts through this year’s returns, it is finding that the number of Marylanders with more than $1 million in taxable income who filed by the end of April has fallen by one-third, to about 2,000. Taxes collected from those returns as of last month have declined by roughly $100 million.

That is supply side economics. The basic definition is narrow, that demand does not drive the economy but that economic activity is based on incentives for the producers. If you can make more money by producing widgets, you will do so. The principle difference from Keynesian economics is that the producers themselves, not government bureaucrats, make the decisions. This is Adam Smith’s Hidden Hand. Making more widgets will not necessarily cause consumers to buy them. It is up to the producer to recognize demand and fulfill it. Sometimes they will fail because they misread the market. That is their problem, not the government’s.

People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, “high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994.”

Even Hillary CLinton recognized the incentive and had her law firm bonus moved up to December 1992.

We saw this in 1992 when there was a bulge in income realizations late in the year as people anticipated higher taxes after the election of Bill Clinton. Hillary Clinton’s law firm, for example, distributed bonuses in 1992 that otherwise would not have been paid until 1993. While the number of people who have this much flexibility in timing their income this way is small, the same principle applies to all income earners. In the aggregate, the impact can be large.

We have seen the same phenomenon with the “Cash for Clunkers” program and with the cash incentive for first time home buyers, which ended on April 30. In both cases, purchases were moved up to take advantage of the incentive but the sales after the incentive expired plunged. No net increase in economic activity resulted.

Laffer discusses the Reagan tax cut of 1981.

In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn’t take effect until Jan. 1, 1983. Reagan’s delayed tax cuts were the mirror image of President Barack Obama’s delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

He doesn’t mention that the delay in implementation of the tax cuts was due to Bob Dole who, as Senate majority leader, rejected supply side economics and delayed the recovery. The result was a big loss for Republicans in the 1982 election. The election this fall is being compared to the 1982 election but there is a huge difference. The Reagan loss was due to the delay in tax cuts and economic recovery. This year, the loss will be due to anticipation of Obama’s policies that have not yet taken effect. Once they are in force, things will get worse, a lot worse.

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what’s going to happen to tax rates, this conversion seems like a no-brainer.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.

This might be dismissed as partisan rhetoric except that Laffer predicted the 1981 to 83 effect of delaying tax cuts.

Next year will be a bad year for the US economy. I have read an investment letter since 1977. It is called The Dow Theory Letter and it has been written by Richard Russell since the 1950s. I wish I had taken all his advice but, fortunately, I have taken some. Twice, he has sent an unscheduled warning to subscribers. Each time, it was a warning of a major drop in the stock market. Once was in 1987, a month before the 25% market drop in one day. The second time was two weeks ago. He told his subscribers to sell all their stocks. He also said that, by the end of the year, the America we know would be changed beyond description. I think there may be a bit of hyperbole in that statement but I would sell all my stocks if I still had any.

We have not yet seen the Obama policies in effect. The economy has made some tentative moves in the direction of recovery. That will end once the Obama policies take effect. I have made adjustments in my life, including selling my house. I wonder how many others are doing the same thing ?

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Posted in economics, financial, politics | 5 Comments »

Israel, the existential threat.

Thursday, June 3rd, 2010

UPDATE: We are staring to see some frank talk about Turkey’s role in the crisis. Turkey has turned away from us and should no longer be considered an ally. That includes the F 35 fighter we have agreed to sell to them. We might as well sell them to Iran, at this point.

I have previously posted on the Cordesman paper about a possible Iran-Israel nuclear exchange. He estimates that Iran would lose with 28 million dead and “the end of Iran as an organized society.” While that would deter a rational state, Iran is not a rational state.

The recent raid on a ship carrying cargo and militant Islamists to Gaza has brought world wide opprobrium on Israel although that was to be expected. The UN, as expected, postured and pontificated. Obama produced vague generalities that are faintly anti-Israel. The American left has become progressively (no pun intended) more hostile to Israel. A former ambassador attacks them for “alienating” supporters, as if defending oneself would alienate a true supporter.

In less than six months, under its truncated Likud government, Israel has managed to alienate its most important regional Muslim ally, Turkey; angered the United Arab Emirates with the botched assassination saga in Dubai; endured expulsion of diplomats from Australia and the United Kingdom — two of Israel’s greatest friends; accorded Hamas’ supporters a public relations bonanza, and kicked settlement construction sand in the eyes of Vice President Biden.

Here we see much of the leftist narrative. Turkey has been shifting toward the Islamist forces since Erdogan and the AKP party took over seven years ago. Army officers are being arrested for “treason” as the Islamists try to emasculate the secular army. This has nothing to do with Israel and everything thing to do with Islamist politicians who are destroying the legacy of Ataturk.

It is all Israel’s fault. Hamas is just a political party; the settlements in Jerusalem were not in traditional Jewish neighborhoods, and so on. The fact remains that Israel has control of the West Bank and Gaza because the Arabs started a war and lost. In fact, they started three wars and lost them all. When Germany started a war and lost, they lost East Prussia and Sudetanland. We do not see German suicide bombers in Poland or Czech Republic protesting that they were dispossessed just because they lost a war and demanding “right of return.” They would be laughed out the UN. Why is Israel different ?

Well, they are Jews. They were expelled from what is now the West bank in 70 AD after rebelling against the Roman provincial officials. However, there have always been some Jews living in what is now Israel, especially Jerusalem. The Zionist movement began when Theodore Herzl recognized the implications of the Dreyfus Affair. After watching anti-Semitic rallies in paris, he came to the conclusion that assimilation was a trap, an opinion reinforced in Germany in the 1930s. The emigration of Jews to the portion of the Ottoman Empire now called Israel and Palestine began with the Russian pogroms in 1888. Herzl then encouraged more emigration around the turn of the century. Arab- Jewish violence was well established by the 1930s, mostly at the instigation of the Arabs. The Grand Mufti of Jerusalem in the 1930s was an avid follower of Hitler. Copies of Mein Kampf are still on sale in Cairo and, interestingly, in Turkey. Turkey, in recent years, has seen a rise in anti-American conspiracy theories that are intertwined with anti-Jewish folklore. One that goes back to the Middle Ages is the cannibalism of Christian children. The modern equivalent is seen in a popular Turkish movie in which Americans harvest the kidneys from dead Iraqis for shipment to Israel. It starred many well known American actors.

The level of vicious anti-Israeli rhetoric is high and this is not just disgusting but dangerous. Some American leftists have concluded that Israel is an embarrassment rather than an ally. They have no strategic sense and the instinct is to dump your friends when they are
not being helpful. Harry S Truman once said that about a famous Roman Senator, “His downfall began when he took his friends for granted and tried to bribe his enemies.” This is a profound statement and one I have lived by. It is an instinct to try to add to our circle by recruiting new members, even if it may push aside a loyal supporter. This appears to be the central tenet of the Obama foreign policy, illustrating how far the Democratic Party has come from its origins.

Anyway, the present crisis has its origins long ago and has nothing to do with the actions of Israel, which are totally defensive.

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Posted in History, Israel, middle east, politics | 1 Comment »

Why Tom Freidman will be disappointed

Wednesday, March 17th, 2010

New York Times columnist Tom Freidman has expressed a wistful admiration for the Chinese government and its ability to get things done.

One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.

I think Tom is going to be very disappointed if this article is correct, and I think it is.

The world looks at China with envy. China’s economy grew 8.7 percent last year, while the world economy contracted by 2.2 percent. It seems that Chinese “Confucian capitalism” – a market economy powered by 1.3 billion people and guided by an authoritarian regime that can pull levers at will – is superior to our touchy-feely democracy and capitalism. But the grass on China’s side of the fence is not as green as it appears.

In fact, China’s defiance of the global recession is not a miracle – it’s a superbubble. When it deflates, it will spell big trouble for all of us.

Oh oh.

To understand the Chinese economy, consider three distinct periods: “Late-stage growth obesity” (the decade prior to 2008); “You lie!” (the time of the financial crisis); and finally, “Steroids ’R’ Us” (from the end of the financial crisis to today).

The first period is like Starbucks.

About a decade ago, the Chinese government chose a policy of growth at any cost. China’s leaders see strong gross domestic product (GDP) growth not just as bragging rights, but as essential for political survival and national stability.

Because China lacks the social safety net of the developed world, unemployed people aren’t just inconvenienced by the loss of their jobs, they starve; and hungry people don’t complain, they riot and cause political unrest.

So did Starbucks, sort of.

To achieve high growth, China kept its currency, the renminbi, at artificially low levels against the dollar. This helped already cheap Chinese-made goods become even cheaper. China turned into a significant exporter to the developed economies.

Normally, if free-market economic forces were at work, the renminbi would have appreciated and the US dollar would have declined. However, had China let this occur, demand for its products would have declined, and its economy wouldn’t have grown at roughly 10 percent a year, which it did during the past decade.

The more China sold to the United States, the more dollars it accumulated, and thus the more US Treasuries it bought, driving our interest rates down. US consumers responded to these cheap goods and cheap home loans by going on a buying binge.

However, companies and countries that grow at very high rates for a long time will inevitably suffer from late-stage growth obesity. Consider Starbucks: In 1999, it had 2,000 stores and was adding 1.8 stores a day. In 2007, when it had 10,000 stores, it had to open 5.5 stores a day in a desperate bid to keep growth rates up. This resulted in poor decisions and poor quality – a recipe for disaster.

In China, political pressure for full employment has led to similar late-stage growth obesity. In 2005, China built the largest shopping mall in the world, the New South China Mall: Today it’s 99 percent vacant. China also built up a lavish district in a city called Ordos: Today, it’s a ghost town.

Starbucks can close poorly performing stores. What will China do ? Stage II “You lie !”

All good things come to an end, and great things come to an end with a bang. When the financial meltdown erupted in 2008, US and global banks started dropping like flies. Countries everywhere suffered contraction.

Even China.

During the crisis, Chinese exports were down more than 25 percent, tonnage of goods shipped through railroads was down by double digits, and electricity use plummeted.

Yet Beijing insisted that China had magically sustained 6 to 8 percent growth.

China lies. It goes to great lengths to maintain appearances, including censoring media and jailing those who write antigovernment articles. That’s why we have to rely on hard data instead.

Sorry, Tom.

In the midst of the financial crisis, in late 2008, Beijing fire-hosed a $568 billion stimulus into the Chinese economy. That’s enormous! As a percentage of GDP, it would be like a $2 trillion stimulus in America, nearly triple the size of the one Congress passed last year.

It gets even more interesting. Unlike Western democracies, whose central banks can pump a lot of money into the financial system but can’t force banks to lend or consumers and corporations to spend, China can achieve both at lightning speed.

The government controls the banks, so it can make them lend, and it can force state-owned enterprises (one-third of the economy) to borrow and to spend. Also, because the rule of law and human and property rights are still underdeveloped, China can spend infrastructure project money very fast – if a school is in the way of a road the government wants to build, it becomes a casualty for the greater good.

Does that sound like anyone here that you know of ? Government controls the banks and makes them lend ?

Well, not yet anyway.

To maintain high employment, China has poured money into infrastructure and real estate projects. This explains why, in 2009, new floor space doubled and residential real estate prices surged 25 percent. This also explains why the Chinese keep building new skyscrapers even though existing ones are still vacant.

The enormous stimulus has exacerbated problems that already existed, threatening to turn China into a less shiny but more drastic version of debt-riddled Dubai, United Arab Emirates.

What happens in China doesn’t stay in China. A meltdown there – or even a slowdown – would have severe consequences for the rest of the world.

It will tank the commodity markets. Demand for industrial goods will fall off the cliff. Finally, Chinese appetite for our fine currency will diminish, driving the dollar lower against the renminbi and boosting our interest rates higher. No more 5 percent mortgages and 6 percent car loans.

That is why I am downsizing and getting fixed rate mortgages. The storm is coming and it will be really bad. I don’t know if we can stop it, even with a Republican Congress. After all, they helped bring it on.

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Posted in economics, financial, politics | 9 Comments »

Clueless experts on health reform

Wednesday, March 3rd, 2010

Today Gail Wilensky, who was Medicare administrator under Bush I, tries to explain where we are in a New England Journal article. Since the NEJM is firmly socialist on health care, the article holds no surprises.

The third option is to create a new, more limited bill, which essentially means starting over. This strategy seems unlikely to be acceptable to Democrats, and it’s hard to know whether Republicans really want a new bill, either, though they say they do. In reality, there seems to be little inclination on either side to change the positions already staked out. Republican support has coalesced around two different bills: the Common Sense Health Care Reform and Affordability Act developed by the Republican House leadership last July and the Coburn–Burr Patient Choice Act of 2009 sponsored by Senators Tom Coburn (R-OK) and Richard Burr (R-NC) and Congressmen Paul Ryan (R-WI) and Devin Nunes (R-CA). However, as happens too often with Republicans and health care, neither proposal was pursued with the single-mindedness and passion that characterizes the Democratic pursuit of health care reform.1

That might have something to do do with the fact that nothing is better than any of the Democratic proposals. Will none of these people ever recognize that command economies don’t work ? Health care is an economic system that has been wrecked by perverse incentives and moral hazard for 60 years. There is no reason why employer provided health insurance should be tax exempt. It goes back to World War II and wage and price controls.

Most of these people are bureaucrats who have spent their lives managing other people’s lives, usually poorly. Gail Wilensky was no great shakes as Medicare administrator. The academics who write about this have no experience and are using their own theories of management based on a life on salary with clinic patients arranged for their convenience. They know nothing of paying a staff or rent or running a private practice.

My own preference for some time has been the French system, which uses fee-for-service to control utilization and which requires patients to pay first and be reimbursed later.

The Obama system has no market mechanism to control utilization and is a disaster requiring an intricate command and control system that would make the Soviet Union envious.

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Common sense

Sunday, February 28th, 2010

There is a basic amount of shared experience that most people in this country have that is often referred to as common sense. People know how to go to the store and buy food, how to put gas in your car and how to get dressed in the morning to go to school or work. Then, there are people who seem to have missed out on some of these shared experiences. One of them is learning what car insurance does. When I was young and poor and a college student, I had an old car and did not have insurance. I probably drove a little more carefully but there was no law that said I had to have it and I was making a choice between insurance and eating.

Our president was presiding over a summit meeting on health insurance this week, but began with a story from his early experience with auto insurance. There is video at the link.

When I was young, just got out of college, I had to buy auto insurance. I had a beat-up old car. And I won’t name the name of the insurance company, but there was a company — let’s call it Acme Insurance in Illinois. And I was paying my premiums every month. After about six months I got rear-ended and I called up Acme and said, I’d like to see if I can get my car repaired, and they laughed at me over the phone because really this was set up not to actually provide insurance; what it was set up was to meet the legal requirements. But it really wasn’t serious insurance.

Now, it’s one thing if you’ve got an old beat-up car that you can’t get fixed. It’s another thing if your kid is sick, or you’ve got breast cancer.

It’s one thing to tell a story and another thing to know what the hell you are talking about !

When you are “rear ended,” the other driver is responsible for fixing your car ! You don’t call your own insurance company; you call the other driver’s insurance company !

OK, so let’s say the other driver doesn’t have insurance. Did he pay the premium for uninsured driver coverage ? Or did he just pay the minimum for liability coverage ? If he didn’t pay for uninsured driver coverage, why is that the insurance company’s fault ?

Some of us choose to buy high deductible health insurance because it is cheaper, we are healthy and we choose to pay for routine care out of pocket. Obama is planning to take away that choice. We will all have to buy Cadillac coverage and, if we can’t afford it, the government will subsidize it. Why is that better ?

How would he know if he doesn’t even know how car insurance works ?

I still wonder who was guiding this guy through life when he was young. It sounds to me like he would starve to death if left to his own devices.

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George Will’s speech at CPAC

Monday, February 22nd, 2010

George Will is an eloquent spokesman for the conservative cause and has never been more riveting than he was in this speech. I recommend everyone watch it.

He is diplomatic when he points out how much Bush anticipated the policies of Obama and the Democrats.

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Paul Ryan

Wednesday, February 10th, 2010

Congressman Paul Ryan has a proposed budget plan that could avoid the looming disaster we face with Obama’s spending and taxing plans. I’ll try to analyze it briefly but we will see much more about it, especially if Republicans take Congress this fall.

Here is one analysis in, of all places, the Washington Post.

His budget road map offers many proposals, but one big vision. Over time, Ryan concentrates government spending on the poor through means-tested programs, patching holes in the safety net while making entitlements more sustainable. He saves money by providing the middle class with defined-contribution benefits — private retirement accounts and health vouchers — that are more portable but less generous in the long run. And he expects a growing economy, liberated from debt and inflation, to provide more real gains for middle-class citizens than they lose from lower government benefits.

Ryan has been proposing this plan for several years but only now is it getting serious attention.

Spending. Our budget gives priority to national defense and veterans’ health care. We freeze all other discretionary spending for five years, allowing it to grow modestly after that. We also place all spending under a statutory spending cap backed up by tough budget enforcement.

A spending freeze has been a good option for years. It was a proposal of McCain’s in the campaign. Instead, the Obama administration has increased federal employees by 153,000 in one year. The deficits, of course, are notorious.

– Energy. Our budget lays a firm foundation to position the U.S. to meet three important strategic energy goals: reducing U.S. dependence on foreign oil, deploying more clean and renewable energy sources free of greenhouse gas, and supporting economic growth. We do these things by rejecting the president’s cap-and-trade scheme, by opening exploration on our nation’s oil and gas fields, and by investing the proceeds in a new clean energy trust fund, infrastructure and further deficit reduction.

I think “clean energy” is a boondoggle but this proposal was made last spring before the “Climategate” scandal punctured the AGW balloon.

– Entitlements. Our budget also takes steps toward fulfilling the mission of health and retirement security, in part by making these programs fiscally sustainable. The budget moves toward making quality health care affordable and accessible to all Americans by strengthening the relationship between patients and their doctors, not the dictates of government bureaucrats. We preserve the existing Medicare program for all those 55 or older; and then, to make the program sustainable and dependable, those 54 and younger will enter a Medicare program reformed to work like the health plan members of Congress and federal employees now enjoy. Starting in 2021, seniors would receive a premium support payment equal to 100% of the Medicare benefit on average. This would be income related, so low-income seniors receive extra support, and high-income seniors receive support relative to their incomes — along the same lines as the president’s Medicare Part D proposal.

I have my own ideas on health care reform. The Medicare reforms he proposed are an extension of the private accounts that Bush proposed in 2005. Social Security is in somewhat better shape than Medicare but it is not sustainable long term and fixing it is easier now than in 2017 when expenditures first begin to exceed revenue. There are comments that the “trust fund” will still not be exhausted until 2037 but that trust fund consists of Treasury IOUs. On Social Security, itself, he proposes only modest changes.

In one of the most valued government programs — Social Security — our budget begins to develop a bipartisan solution to the program’s pending bankruptcy by incorporating some of the reforms advocated by the president’s budget director. Specifically, we provide for a trigger that would make small adjustments in the benefits for higher-income beneficiaries if the Social Security Administration determines the Social Security Trust Fund cannot meet its obligations. This is a modest but serious proposal which would not affect those in or near retirement, but is aimed at helping develop a consensus, across party lines, toward saving this important retirement program. We also assure that benefits for lower-income recipients are large enough to keep them out of poverty.

I think he is avoiding the serious issues here in the interest of avoiding the worst demagogues.

The key to any success is getting the annual increases to stop. We will hear a lot more about Ryan’s plans although the loudest voices will be misrepresenting it and demogoguing the topic.

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Posted in economics, health reform, politics | 2 Comments »

Is this a parody ?

Saturday, February 6th, 2010

UPDATE: Here is an interesting article examining this phenomenon in the Washington Post. And here is a nice summary by David Freddoso.

I have been mulling the question of whether this incredible article was worth responding to. When I saw the title on Real Clear Politics, I assumed it was a parody. I’m still not 100% sure it isn’t.

In trying to explain why our political paralysis seems to have gotten so much worse over the past year, analysts have rounded up a plausible collection of reasons including: President Obama’s tactical missteps, the obstinacy of congressional Republicans, rising partisanship in Washington, the blustering idiocracy of the cable-news stations, and the Senate filibuster, which has devolved into a super-majority threshold for any important legislation. These are all large factors, to be sure, but that list neglects what may be the biggest culprit in our current predicament: the childishness, ignorance, and growing incoherence of the public at large.

The writer has not considered the possibility that Obama’s economic and national security policies are detached from reality. He does not give any thought to the possibility that millions of people have been running businesses and living their lives without the benefit of government and would like to continue to be left alone.

He also ignores the fact that, as a result of tax reforms the past two decades, about 35% of the tax payers pay no income tax. Thus, there is a constituency for new spending that knows the responsibility for paying those bills will be someone elses. In fact, by 2009, that percent who pay no tax had continued to rise and is now nearly 40%.

Maybe those people who pay no income tax are the “stupid and ignorant” group he is referring to. No, he seems to think that the middle class, which pays the vast majority of income tax, is the target of his ire.

The usual way to describe such inconsistent demands from voters is to say that the public is an angry, populist, tea-partying mood. But a lot more people are watching American Idol than are watching Glenn Beck, and our collective illogic is mostly negligent rather than militant. The more compelling explanation is that the American public lives in Candyland, where government can tackle the big problems and get out of the way at the same time. In this respect, the whole country is becoming more and more like California, where ignorance is bliss and the state’s bonds have dropped to an A- rating (the same level as Libya’s), thanks to a referendum system that allows the people to be even more irresponsible than their elected representatives. Middle-class Americans really don’t want to hear about sacrifices or trade-offs—except as flattering descriptions about how ready we, as a people, are, or used to be, to accept them. We like the idea of hard choices in theory. When was the last time we made one in reality?

I tend to agree with him about California but there is one characteristic about California that he doesn’t mention. Which political party dominates California government ? In 2005, Arnold Schwartzenegger, who had been elected two years before during the recall of his predecessor, Gray Davis, attempted to pass four reform initiatives to try to get control of the runaway entitlements of California. The teachers’ unions and the SEIU mobilized against him and all four initiatives went down to defeat. Arnold quickly caved in the political left and we are now on the verge of bankruptcy.

Schwarzenegger’s proposals to curb spending and weaken unions inflamed passions on both sides, partly because of the election’s roughly $50 million cost in a state that repeatedly faces budget shortfalls.

Appearing before supporters at a Beverly Hills hotel after learning that at least two of his initiatives had failed, a smiling governor did not concede defeat.

“Tomorrow, we begin anew,” Schwarzenegger said, his wife Maria Shriver beside him. “I feel the same tonight as that night two years ago … You know with all my heart, I want to do the right thing for the people of California.”

Though some of the measures were complex, Schwarzenegger cast the election in simple terms: Support him and the state moves forward — vote no and protect a broken system of government in Sacramento.

Actually, he gave up and the state has continued its decline as middle class tax payers flee to other states.

So who has good ideas to stop the financial whirlpool the US is caught in?

I don’t mean to suggest that honesty is what separates the two parties. Increasingly, the crucial distinction is between the minority of serious politicians in either party who are prepared to speak directly about our choices, on the one hand, and the majority who indulge the public’s delusions, on the other. I would put President Obama and his economic team in the first group, along with California Gov. Arnold Schwarzenegger. Republicans are more indulgent of the public’s unrealism in general, but Democrats have spent years fostering their own forms of denial. Where Republicans encourage popular myths about taxes, spending, and climate change, Democrats tend to stoke our fantasies about the sustainability of entitlement spending as well as about the cost of new programs.

Climate change ? He still thinks that AGW is a high priority ? Wow ! Plus he thinks Obama’s $3.8 trillion budget is drawn up by “serious politicians” ? Maybe he thinks that Gorbachev was on the verge of solving the Soviet Union’s problems in 1989. He thinks the Obama who raised discretional spending by $84 billion this past year is serious about deficits with his fake spending freeze? What about the federal employee situation ? The only place in the US which is not having a recession is The District of Columbia and environs. Federal employee numbers are climbing rapidly, where the numbers are expected to increase by 153,000 in fiscal 2010. Private industry, mostly small business, has lost about 4.5 million jobs.

The political left, having lost the confidence of the electorate in record time, is unhappy with that electorate. Imagine if Obama had really tried to be bipartisan and had incorporated Republican concepts in his first big “stimulus” bill. Imagine for a moment that, instead of the famously corrupt payments sometimes in non-existent Congressional districts, to interest groups and local government, the bill had included a six month holiday from FICA taxes. That would have resulted in a similar deficit but it would have had instantaneous effect and it would have been distributed to the working tax payers. Imagine if the health care bill had included exchanges in which individuals could have purchased insurance that was tailored to their needs, high deductible for young healthy workers for example, and the mandates of the special interests had been left out. Had that been done, Republicans would have much less to complain about and Weisberg might even like us voters more. We wouldn’t be so ignorant.

Alas, the chance was wasted and now the left is angry at us “ignorant” middle class voters. James Fallows has a pretty good essay on American decline until he gets to the last two pages. Then we get back to the tired old complaints about the electoral college and the Senate and the inability of Democrat phonies like Kerry to get elected.

America the society is in fine shape! America the polity most certainly is not. Over the past half century, both parties have helped cause this predicament—Democrats by unintentionally giving governmental efforts a bad name in the 1960s and ’70s, Republicans by deliberately doing so from the Reagan era onward. At the moment, Republicans are objectively the more nihilistic, equating public anger with the sentiment that “their” America has been taken away and defining both political and substantive success as stopping the administration’s plans. As a partisan tactic, this could make sense; for the country, it’s one more sign of dysfunction, and of the near-impossibility of addressing problems that require truly public efforts to solve.

Of course, when Bush tried to deal with the coming collapse of Social Security by allowing private accounts, the Democrats demagogued it mercilessly but the Republicans are the “nihilists.”

We could hope for an enlightened military coup, or some other deus ex machina by the right kind of tyrants. (In his 700-page new “meliorist” novel, Only the Super-Rich Can Save Us, Ralph Nader proposes a kind of plutocrats’ coup, in which Warren Buffett, Bill Gates Sr., Ted Turner, et al. collaborate to create a more egalitarian America.) The periodic longing for a “man on horseback” is a reflection of disappointment with what normal politics can bring. George Washington and Dwight Eisenhower were the right men on horseback.

Here we go with the left’s fondness for military coups and authoritarian government. They can’t win elections so it is the voter’s fault and they want to try to do without those ignorant voters.

I guess it wasn’t a parody.

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Posted in economics, politics | 7 Comments »

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