Posts Tagged ‘Congress’

Obama and amnesty

Saturday, June 16th, 2012

On Friday, as is often the case, Obama announced a new executive policy to impose a two year moratorium on deportation of young illegals if they can show they were brought here as children and have finished high school with no encounters with the law. They must be under 30 and were brought here before age 16. He promised that citizenship was not included and did not mention if family members were affected. Janet Napolitano, head of Homeland Security announced that this was the new policy but there has been no confirmation of an executive order.

I don’t have a real problem with this policy but it avoids Congress and legislation, a problem that even Obama acknowledged last year. It is a transparent ploy to appeal for Latino votes. Everyone knows that.

It also will close an opening for compromise.

Obama’s decision probably reduces the likelihood that the scenarios of greatest concern to me will come to pass, especially if Obama is re-elected. Irate Republicans are even less likely than before to cooperate with the administration on this issue now that it has acted so high-handedly and in such a patently political manner. As Marco Rubio, who is planning to sponsor some sort of DREAM Act, said today, by imposing a new policy by executive order, Obama has made it harder in the long run to reach consensus on “comprehensive policy,” i.e., one that gives illegal immigrants additional benefits and a path to citizenship.

The attraction of the action taken by Obama may have been that it would trump a possible Republican compromise on this topic. Now, suspicion has grown that amnesty and voting rights are the next step. The use of executive order for such a change in policy has been attacked as illegal.

So what we have here is a president who is refusing to carry out federal law simply because he disagrees with Congress’s policy choices. That is an exercise of executive power that even the most stalwart defenders of an energetic executive — not to mention the Framers — cannot support.

Even Obama said the same a few months ago in explaining his then inaction. “I wish I could wave my magic wand,” Mr. Obama said. “Until Nancy Pelosi is speaker again… At the end of the day, I can’t do this all by myself. We’re going to have to get Congress to act. I know Nancy Pelosi’s ready to act. It’s time to stop playing politics.”

Well, playing politics is the order of the day and the Republicans should focus on the illegality of doing it by executive order and not on the policy, itself. With proper safeguards, the policy is a good idea although there may be backlash from semi-skilled unemployed who just got a million new competitors. Certainly the unemployment figures should now be adjusted for all the new legal job seekers.

The distraction of the Daily Caller reporter interrupting the president was an amusing sidelight. Had Obama demonstrated humor and a benign manner, it might have been a good moment for him. Instead, he showed anger and the incident will probably lead to more interruptions as it seems to be the only way to ask this president a question.

Why Obamacare is much worse than many think and why it must be stopped.

Monday, May 14th, 2012

The Supreme Court will rule on he constitutionality of Obamacare this year. The arguments and the issue which got the most publicity was the individual mandate. I don’t actually care much about this although it may well violate the Constitution. There are far worse things in the legislation and they should be emphatically rejected by the Supreme Court. The worst of the issues is discussed in detail here. This is a really frightening piece of legislation and I cannot imagine that the Court will let it stand. Of course, given the absence of argument, the Court will have to find this itself.

Perhaps nothing in the Obamacare legislation embodies the top-down, command-and-control nature of Progressive healthcare more than the Independent Payment Advisory Board (IPAB), a 15-member panel of “experts” to be appointed by the President. There are three particular features of the IPAB that illustrate this fact: The IPAB will control all healthcare spending, public and private. The IPAB has been awarded near-dictatorial power. And the IPAB is designed to be a nearly immutable entity.

How is this accomplished ?

Specifically, Section 10320 (in the Managers’ Amendments portion of the legislation) grants the IPAB, beginning in 2015, the authority to limit all healthcare expenditures, that is, all healthcare expenditures, and not just expenditures by Medicare or government-run programs.

To emphasize this expanded authority, Section 10320 changes the name of the “Independent Medicare Advisory Board” to the “Independent Payment Advisory Board.” It directs the IPAB, at least every two years, to “submit to Congress and the President recommendations to slow the growth in national health expenditures” for private healthcare programs. Furthermore, it designates that these “recommendations” may be implemented by the Secretary of HHS or other Federal agencies “administratively” (that is, without any action by Congress).

Thus the federal government can control, under penalty of criminal prosecution of doctors, private health care spending ! This goes well beyond Medicare and Medicaid. It will prevent, unless stopped, people from spending their own money on health care.

That is not the worst of it. The IPAB cannot be changed or repealed by Congress. This is unprecedented in US law. Even the ill-advised Prohibition Amendment, promoted as another moral obligation by progressives after World War I, could be repealed by another constitutional amendment.

A quick reading of Section 3403 might leave one with the impression that the IPAB is a sort of Mr. Rogers of healthcare – a mild-mannered, friendly, always-helpful, but ultimately undemanding agent for good. This is the impression imparted by the first few paragraphs of the Section, which paint the new entity as an “advisory” board, whose main task is to develop “proposals” and “advisory reports,” which “proposals” and “advisory reports” would solely consist of various “recommendations,” that ought to be “considered” for the purpose of cost reduction.

Nothing could be further from the truth. This language is simply another example of supplying a new law, which is far more radical than the authors would like people to know, with a soothingly misleading introductory paragraph. The IPAB is actually designed to be as all-powerful as it’s possible to be.

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The Coming Election

Thursday, January 12th, 2012

I don’t think that a more important election has occurred in 75 years than the one later this year. I am not all that enthusiastic about any of the current candidate in the primary. Mitt Romney will probably win but he has been wounded seriously by attacks from other Republican candidates which alleged that his career as a venture capitalist and management consultant was an ethical issue. One expects this sort of thing from Democrats, about 53% of whom prefer Socialism.

53% of Democrats feel positively towards it.

Romney has defended himself with some vigor, which is a positive development. Others have defended him with a more effective argument.

We are now in an election campaign that may well be centered on our country’s economic system. Is capitalism (or free market economics as preferred by some) the best way for our economy to work? History has been written by people who are not positive about capitalism. Recently, revisionist history has appeared that tries to balance the story. Academic studies have been published that suggest that the Depression was a result of Roosevelt’s policies.

The writings of John Maynard Keynes have been quoted in support of leftist economic policies. The problem is that his policies have never been tried. He advocated countercyclical programs which ran deficits in times of economic slowdowns and recessions but surpluses in good economic time. The net result was zero deficits, a marked contrast with policies followed since 1960.

In fact, politicians of both parties have never been willing to run the surpluses that Keynes advocated. In good times, spending rose whether taxes were raised or not. Jimmy Carter said he would balance the budget with higher taxes. Instead, his compatriots (not allies) in Congress spent even more, leading to an inflation and stagnation crisis.

Ronald Reagan reinvigorated the economy with a large tax cut in 1980. The beneficial effect was delayed to 1982 when Bob Dole, the Senate Majority Leader, succeed in delaying the tax cut. The result was a predictable delay in economic activity as taxpayers waited for the lower rates, and the loss of the Senate majority in 1982.

Bill Clinton raised taxes in 1994 (His wife, Hillary, avoided the higher tax rates by taking her bonus prior to January 1, 1993, when the higher rates took effect. The result showed her prudence but also suggested hypocrisy in the Democrats’ enthusiasm for higher taxes.

George Bush I raised taxes in 1992 in spite of a promise not to do so. He lost the 1992 election, mainly because of Ross Perot’s candidacy splitting natural Republican voters. I was interested in Perot at the time but he started acting strangely before the election and I voted for Bush with reservations. Had he not raised taxes, I think he would have been re-elected. I have had some suspicion in spite of denials, ever since that the Democrats extracted a promise to raise taxes in return for voting for the first Gulf War. It is well known that All Gore required concessions in return for his vote for the war.

The cause of the financial crisis

Thursday, December 15th, 2011

Peter Wallison has a piece in the Atlantic that explains the basic policy error that led to the housing bubble and the subsequent financial crisis. Barney Frank has been trying to evade his share of responsibility for the problem. He has been telling people that a failure of bank regulation is the source of the problem. In fact, it is the opposite. Banks were obliged by regulators to offer mortgages to people who were not credit worthy. This was an attempt by politicians like Frank to respond to ACORN and similar activists who complained that poor people and minorities had a hard time buying houses.

His most successful effort was to impose what were called “affordable housing” requirements on Fannie Mae and Freddie Mac in 1992. Before that time, these two government sponsored enterprises (GSEs) had been required to buy only mortgages that institutional investors would buy–in other words, prime mortgages–but Frank and others thought these standards made it too difficult for low income borrowers to buy homes. The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.

The GSEs, like Fannie and Freddie, were required to buy these subprime loans. The bankers, and mortgage brokers like Countrywide, responded by shifting the business plan of lenders from buying and servicing mortgages to selling mortgages and then flipping the loans to a third party who bundled them into the notorious “mortgage backed securities” that sank the economy. I have bought several homes over my lifetime, the first in 1969. Each time, I was required to document my ability to repay the loan and make a 20% or greater down payment. In fact, I sold my first home in 1973 when I moved to Orange County for the same price I had paid for it, thus losing my equity to the selling agent’s commission. Appreciation of housing prices did not start until inflation took off in 1976 with Carter’s election. By 1978, my house in Orange County had tripled in value. Even so, when I bought another house in 1979, I had to document my income and pay 20% down.

These requirements had disappeared by 2003 and mortgage brokers were making good incomes by processing loans they would not service and which they cared little about long term solvency of the buyer. It wasn’t their problem.

By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies–all under congressional and HUD pressure–followed suit. This continued through the 1990s and 2000s until the housing bubble–created by all this government-backed spending–collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages. Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government.

There is no doubt where the source of the problem lies. Now, we have to figure out how to get out of it. Cutting government spending and cutting regulation, which failed to do anything about the housing bubble, will help but that will take an election. If through mischance Obama is re-elected, we will have a ten year Depression. We are nearing the middle of one right now.

UPDATE Why I am not voting for Newt Gingrich.

This is a devastating report on Newt’s relationship with Freddie Mac. I was undecided and quite impressed with Newt’s debate performance until I read about his deals with Freddie Mac. He has denied lobbying but I find that very hard to believe. I reproduce the WSJ article because it may be behind a subscription wall.

Newt Gingrich’s opponents aren’t letting up in their criticism of his lucrative ties to the failed mortgage giant Freddie Mac after he resigned as House Speaker in the late 1990s. More damaging to his Presidential candidacy is that Mr. Gingrich doesn’t seem to understand why anyone is offended.

In his first response after news broke that he’d made $300,000 working for Freddie, Mr. Gingrich claimed he had “offered them advice on precisely what they didn’t do.” As a “historian,” he said during a November 9 debate, he had concluded last decade that “this is a bubble,” and that Freddie and its sister Fannie Mae should stop making loans to people who have no credit history. He added that now they should be broken up.

A week later Bloomberg reported that Mr. Gingrich had made between $1.6 million and $1.8 million in two separate contracts with Freddie between 1999 and 2008. The former Speaker stuck to his line that “I was approached to offer strategic advice” and had warned the government-sponsored enterprises (GSEs) to stop lending to bad credit risks.

Then on December 2 our colleagues at the Journal reported that as late as April 2007 Mr. Gingrich had defended Fannie and Freddie as examples of conservative governance. “While we need to improve the regulation of the GSEs, I would be very cautious about fundamentally changing their role or the model itself,” Mr. Gingrich said in an interview at the time.

Mr. Gingrich added in that interview that there are times “when you need government to help spur private enterprise and economic development.” He cited electricity and telephone network expansion. “It’s not a point of view libertarians would embrace, but I am more in the Alexander Hamilton-Teddy Roosevelt tradition of conservatism,” he said, adding “I’m convinced that if NASA were a GSE, we probably would be on Mars today.”

This doesn’t make it OK and he has some explaining to do. His attack on Romney this week, talking about his career at Bain Capital as if it were deplorable, was even worse.

Congress is a criminal enterprise.

Friday, November 18th, 2011

Mark Twain once said, ” There is no true criminal class in America with the possible exception of Congress.” It’s time to withdraw the qualifier. It is now apparent that, with a few rare exceptions, Congress is a criminal enterprise and the Obama Administration is, as well. Here is the story of part of it.
“To entrench Fannie’s privileged position, Morgenson and Rosner write, Johnson and Raines channeled some of the profits to members of Congress — contributing to campaigns and handing out patronage positions to relatives and former staff members. Fannie paid academics to do research showing the benefits of its activities and playing down the risks, and shrewdly organized bankers, real estate brokers and housing advocacy groups to lobby on its behalf. Essentially, taxpayers were unknowingly handing Fannie billions of dollars a year to finance a campaign of self-promotion and self-­protection. Morgenson and Rosner offer telling details, as when they describe how Lawrence Summers, then a deputy Treasury secretary, buried a department report recommending that Fannie and Freddie be privatized. A few years later, according to Morgenson and Rosner, Fannie hired Kenneth Starr, the former solicitor general and Whitewater investigator, who intimidated a member of Congress who had the temerity to ask how much the company was paying its top executives.”The latter item is just to show that the corruption was bi-partisan. The quoted text above was written by Robert Reich, the left wing former Clinton Labor Secretary.

Johnson was the man chosen by Obama to vet his possible VP choices. When his history came to the public’s attention, he quickly withdrew. He had no financial background at the time he became the chief of Fannie Mae. He was a pure political animal.

The most telling recent blow is the bankruptcy of MF Global, a commodity trading firm run by Job Corzine, former governor of New Jersey. It appears that he stole $600 million of investor’s money. Another commodity trader has now closed her fund and returned her customer’s money. Here’s why: “The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

I do not agree with some of her theories, she appears to be a “birther,” for example, but that doesn’t matter. If Obama is a legal citizen, his corruption is just as bad.

“A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.”

The bankruptcy petition may have been responsible for freezing the accounts but criminal law should deal with this. Corzine should spend years in prison. Here is a depressing comment: “If Obama doesn’t win next year, watch for a January 19, 2013 pardon.”

The Presidency of Calvin Coolidge- II

Sunday, May 8th, 2011

Coolidge was more concerned with domestic issues than foreign policy. This had been true of most US presidents since the Civil War until 1917 and it was part of Harding’s “Return to Normalcy” plan. Coolidge knew little about other countries although he was not an isolationist. The true isolationist policy of the US was in the 1930s under Roosevelt who canceled a Hoover sponsored economic summit in Britain as soon as he was inaugurated. Only in 1939 and 40 was Roosevelt converted to the internationalist that is remembered by his supporters and biographers, internationalists themselves. I will have more to say about the slanders of Harding and Coolidge by the political left and the historians later.

Coolidge’s domestic agenda was dominated by a few issues. The first was the emergence of the “Farm Bloc” in Congress. The McNary- Haugen bill was the first of the “farm relief” bills and would dog Coolidge through his presidency as he vetoed it but it kept coming back as the farm bloc grew stronger. The background of the bill is well stated in the Wikipedia article:

World War I had created an atmosphere of high prices for agricultural products as European nations demand for exports surged. Farmers had enjoyed a period of prosperity as U.S. farm production expanded rapidly to fill the gap left as European belligerents found themselves unable to produce enough food. When the war ended, supply increased rapidly as Europe’s agricultural market rebounded. Overproduction led to plummeting prices which led to stagnant market conditions and living standards for farmers in the 1920s. Worse, hundreds of thousands of farmers had taken out mortgages and loans to buy out their neighbors property, and were now unable to meet the financial burden. The cause was the collapse of land prices after the wartime bubble when farmers used high prices to buy up neighboring farms at high prices, saddling them with heavy debts. Farmers, however, blamed the decline of foreign markets, and the effects of the protective tariff. They demanded relief as the agricultural depression grew steadily worse in the middle 1920s, while the rest of the economy flourished.

As the 1920s went on and Europe recovered, the rationale for the bill was less and less credible. Eventually, it would be the basis for the Roosevelt farm policy and has survived in some form until the present. The basic mechanism of the bill was to establish high tariffs for foreign farm products. The high tariffs on manufactured goods were the worst aspect of Republican policies in the 1920s and contributed to the financial instability that led to the crash in 1929. Europe could not sell to the US because of the tariffs and so could not generate the revenue to repay the war loans. That is an oversimplification but it was a factor. The farm bill would add price supports (equal to the tariff on imports) on farm exports to keep prices high. The government organized cooperatives would sell to foreign buyers at the lower world price and the difference would be collected as a tax or “equalization fee” on domestic sales of each export commodity. This would keep US food prices higher than the world price. We see something very much like this in sugar subsidies and in the ethanol tariff the prevents fuel companies from buying cheap Brazilian ethanol.

Coolidge supported a different approach which included rural electrification, modernization of farming with better hybrid seeds and better business methods. I should add that my own family were farmers in Illinois during this period. One farm family sent their son to agricultural college in the 1920s to the amused derision about going to college to learn how to farm from my grandfather. He returned home, revolutionized farming methods in Illinois with fertilizers, hybrid seed and crop rotation and his children now own most of the farmland where my ancestors once lived. Few Congressmen knew anything about farming and Coolidge’s approach did not stop them from sponsoring the tariff bill every year or two. He vetoed it twice.

Another major issue was the Ku Klux Klan. This was more of a problem for Democrats with their base in the “solid South” but it affected Republicans, as well. The Klan in the 1920s was unrelated, except in name, to the organization founded by Nathan Bedford Forrest after the Civil War. The “second Klan” did include some Republicans and was more concerned with immigration and anti-Catholic and anti-Jewish bigotry, both related to immigration. It had been founded in Atlanta in 1915 by Colonel William Simmons. Its attraction was in its pro-farmer and pro-poor native born Americans sympathies. It was anti-Wall Street and had more geographic diversity with active members in Oregon and California as well as in Maine and New York. A Texas Senator and an Indiana Senator were members and a number of governors, including in California and Oregon, had received Klan support. It had about 4 million members at its peak. The GOP convention had a proposed anti-Klan plank in the platform and that would be a fight when the time came.

Prohibition was a disastrous progressive experiment whose pathologies were becoming apparent in 1924. Coolidge said that Congress had passed the law and he would support it but he also added, “Any law that inspires disrespect for other laws– the good laws– is a bad law.” A number of organizations were formed to oppose the Volstead Act as the corruption and lawlessness grew. In support, there was actually a Prohibition Party, which held its convention on the day before the GOP convention and nominated candidates for president and vice-president. As previously noted, a number of Progressives had returned to the Republican Party in 1920 and they also constituted a Prohibition wing of the party. Hiram Johnson had shown how powerful they could be by denying Charles Evans Hughes the presidency in 1916.

Coolidge was more pro-civil rights than Harding had been but it has been largely forgotten in this country that the Democrats were the party of segregation. Woodrow Wilson had segregated the civil service in 1914 after it had been integrated since 1865. Coolidge gave the Commencement Address at all-black Howard University on June 6. He spoke of the progress of American blacks since the Emancipation Proclamation. He noted that, “in 1863, there were four million black Americans, 12 thousand of whom owned their own homes.” “In a little over half a century since, the number of business enterprises operated by colored people has grown to nearly 80,000, while the wealth of the negro community has grown to nearly $ 1,100,000,000.” He continued with a list of material and intellectual progress made since that point. He added, referring to the war, “The propaganda of prejudice and hatred which sought to keep the colored man from supporting the national cause completely failed. The black man showed himself the same kind of citizen, moved by the same patriotism, as the white man.”

The 1924 Convention opened in a placid mood on June 10. Coolidge was in control. Henry Cabot Lodge was a simple delegate and powerless. The country and the party had moved on. The power of the bosses was much diminished from 1920 and many of them were dead. Radio was breaking down the regionalism of the country just as it would eventually dilute regional accents. The Convention was the first to be broadcast on radio, a concept that did not even exist in 1920. The final platform did not mention the Klan but did congratulate the party for the improvement in economic conditions since 1920. They came out in favor of higher agricultural tariffs but not the McNary- Haugen bill. There was no mention of Prohibition or race relations. There was widespread concern that LaFollette would make a third party race on the Progressive ticket.

The Leopold-Loeb murder case competed with the Convention for public interest and newspaper coverage. The only uncertainty was the vice-presidential nomination. There were many names considered. Coolidge, through an intermediary, approach William Borah to determine his interest in joining the ticket. Borah, certain of his superior talents compared to Coolidge asked, “At which end?” Another bit of Washington gossip at the time was that Borah was the real father of Alice Roosevelt Longworth’s only child, daughter Pauline. Alice was none too discreet and Borah had a reputation for womanizing so the child was often called ” Aurora Borah Alice,” among the cognoscenti.

Coolidge favored a former Senator from Iowa and federal judge named William S. Kenyon. Kenyon had been a member of the Farm Bloc and a very astute opponent of Harding within the party. He was a progressive but had supported Taft in 1912 and was considered a “regular” although he was pledged to Hiram Johnson at the 1920 convention. Harding had offered him a federal judgeship to get rid of him from the Senate and Kenyon accepted but then became the judge who threw out the Tea Pot Dome oil leases and criticized Harding about the affair. Kenyon was a Coolidge supporter and would have made an interesting VP nominee. The Progressives would be pleased and might be lured from LaFollette if he ran. Unfortunately, Kenyon was not interested. The next candidate was Lowden, who was an excellent reform governor of Illinois and a serious presidential candidate in 1920. He also declined. The convention finally turned to Charles G Dawes, a banker who had an international reputation (and a Nobel Peace Prize) for his “Dawes Plan” for trying to deal with the reparations nightmare.

Dawes nomination was another example of serendipity as the man asked to nominate him agreed to do so because he wanted to run for the Senate in Nebraska and this would give him a chance to be heard in Nebraska on a national broadcast. A W Jefferis was a Nebraska delegate and not particularly a friend of Dawes. The radio in 1924 was a technological wonder and instant fame followed such an opportunity. Dawes was a bit of an independent politically. He had recovered from financial wipe-out in the Panic of 1893 and was Comptroller of the Currency under McKInley in 1901, which position he resigned to run unsuccessfully for the Senate. He served in the Army during World War I as head of the General Purchasing Board and ended the war as a brigadier general. He then took charge of the body responsible for liquidating the American supplies remaining in France at the end of the war. He became famous for his testimony before a House Committee on War Expenditures. The Republican majority was attempting to show that the Democratic Administration had been profligate in purchasing, if not dishonest. Dawes, of course, had been in charge of the purchasing and was outraged in spite of his Republican credentials. He became infuriated with the committee members’ ignorant questions and allegations of profiteering. His scathing and witty answers to the committee made him famous with the public. He was headline news the next day.

Dawes was a man of many talents. He played several instruments and composed music, including a piece in 1911 that eventually, with words, became the song “It’s All in the Game,” in the 1950s. After the 1920 election, he turned down the Secretary of the Treasury position but accepted the new position of Director of the Bureau of the Budget. The Coolidge tax cuts and the Dawes budget controls resulted in the government showing a budget surplus in each year of the Harding-Coolidge presidency. The Bureau of the Budget continued to control government expenditures until reorganized by John Kennedy in 1961. In 1923, Dawes was asked to join a Committee of Experts to rescue the German economy. The result was the Dawes Plan and the 1925 Nobel Peace Prize. Dawes was an outstanding choice for the vice-presidency. Coolidge, who hated to campaign, was greatly complemented by Dawes who enjoyed it.

Meanwhile, the Democrats imploded at their convention over issues like Prohibition and the Klan. The early favorite was Wilson son-in-law William McAdoo. He had an attractive resume but two glaring problems. He was supported by the Klan, although not a member, and he was a “dry.” His principal opponent, Senator Oscar Underwood of Alabama was a “wet” and a fierce opponent of the Klan. He privately believed racism was responsible for much of the poverty of the South. The Klan was powerful in the Democratic Party and Underwood had opposed Women’s Suffrage and Prohibition, both positions unpopular in 1920. Al Smith, Governor of New York, had not entered primaries and knew that the convention decision would depend on the issues of the Klan and Prohibition. Smith’s Catholic religion would also be a huge factor in the election if he were nominated, as he was in 1928. The Convention was to be held in New York, which encouraged Smith’s ambitions.

One of the first nominating speeches, by Forney Johnson of Alabama, speaking on behalf of colleague Underwood, threw down the gauntlet on the Klan. Like Underwood, Johnson was a fierce opponent of the Klan and his speech tore the convention apart. Live radio coverage magnified the effect. A motion to condemn the Klan failed by a single vote. The one positive development was Franklin Roosevelt’s nominating speech for Al Smith, the “Happy Warrior.” It marked Roosevelt’s return to the public scene after his polio rehabilitation. He had been the VP nominee in 1920. After 50 ballots, delegates talked of returning home without a nominee. Smith allies hooted from packed galleries and on the 100th ballot he led with about third of the delegates. Eventually,
on the 103rd ballot, the delegates turned to John W Davis, a distinguished lawyer and former Congressman and his VP nominee, Charles W Bryan Governor of Nebraska. Bryan was the younger brother of William Jennings Bryan, perennial Democratic nominee, famous for his populist politics and his “Cross of Gold” speech.

The Bryan brothers, ever hopeful.

The Democrats were crushed in the election but personal disaster struck Coolidge. On June 30, while playing lawn tennis with his brother, Calvin Jr developed a blister on his toe from playing without socks. He was 16 years old. The blister became infected and he died on July 7, 1924. His father never recovered. My son, who is diabetic, developed a similar blister on his toe when wearing firefighter boots. He works 72 hour shifts and, by the time he finished his shift and went to an urgent care center, he had positive blood cultures. He was hospitalized for several weeks and had a one year recovery including skin grafts and multiple surgeries. He is now back at work but, even with modern antibiotics and other measures, he was very ill and took a long time to recover. Calvin Jr was not diabetic but there were no antibiotics available and sepsis was a fatal complication.

Dawes and Coolidge had dinner together during the boy’s illness. Dawes had lost a 21 year old son to drowning in 1912 and understood the president’s concern although he did not realize the seriousness of the illness yet. As he left, he looked into Calvin Jr’s room. “As I passed the door of Calvin’s room, I chanced to look in. He seemed to be in great distress. The president was bending over the bed. I think I have never witnessed such a look of agony and despair that was on the president’s face.” We forget what the days before antibiotics were like. In the very early days of the development of penicillin, one of Howard Florey’s first patients was a policeman who had pricked his finger on a rose thorn. He was dying of streptococcal sepsis, the same infection that undoubtedly killed Calvin Jr. The amount of penicillin they had been able to isolate was very small. They treated the policeman and he improved but then they ran out of the drug. They tried everything including extracting it from his urine but could not get enough and he died.

Calvin Jr with hanging tobacco leaves.

The president agonized about his lost boy. He signed a book for friend who had also lost a son. “To my friend, in recollection of his son, and my son, who by the grace of God have the privilege of being boys throughout eternity.” Calvin Jr had had a previous serious illness, at age six years old, and required surgery to drain an empyema, a collection of pus in the chest following pneumonia. His father was very worried then, as well, but things turned out well. There is another story of this time in Coolidge’s life. Colonel Starling, the president’s Secret Service bodyguard, on his way into the White House, saw a small boy standing outside the railing looking in. “I asked him what he was doing up so early. He looked up at me, his eyes large and round and sad. I thought I might see the president,” he said. “I heard that he gets up early and takes a walk. I wanted to tell him how sorry I am that his little boy died.” “Come with me, I’ll take you to the president,” I said. He took my hand and we walked into the grounds. In a few minutes, the president came out and I presented the boy to him. The youngster was overwhelmed with awe and could not deliver his message so I did it for him. The president had a difficult time controlling his emotions. When the lad had gone and we were walking through Lafayette Park, he said to me: “Colonel, whenever a boy wants to see me, always bring him in. Never turn one away or make him wait.” There has been considerable speculation, based on some evidence, that the boy’s death left Coolidge in a prolonged depression that affected his presidency.

To be continued

The Budget Deal

Saturday, April 9th, 2011

I think John Boehner struck a wise deal with the Democrats last night. First, the $38.5 billion in cuts is not just a symbol but does begin the process of reducing government. Since only 5 months remain of the fiscal year, it is the equivalent of the $100 billion that was promised last fall to the tea party. More important is the coming debate about the Paul Ryan budget for 2012 and it is time to begin that debate.

The funding of Planned Parenthood was always a hostage for the Republicans to use in negotiations, just as the President used the military as his hostage. The agreement establishes a bill that will have to be voted on by the Senate along with a companion agreement to defund Obamacare. Both of these votes are going to be painful for the 23 Democratic Senators who must stand for re-election next year.

It was a reasonable compromise and now it is time to move on to the Ryan budget.

Preparing the battlefield

Monday, March 7th, 2011

On the day before Emperor Darius planned to battle Alexander at the battlefield of Gaugamela, thousands of slaves leveled the field to assist in the use of chariots with great scythes mounted on the wheels. Darius believed he had not had enough room to use his superior numbers at Isus, the first battle two years before.

It didn’t help.

Now, we see another attempt to prepare a battlefield. The political left fears that Obamacare and its mandate will not survive Supreme Court scrutiny so they are viciously attacking Justice Thomas and Scalia in an attempt to intimidate them. No mention, of course, is made of various speaking engagements and contacts with left wing groups by such members of the Court as Ginsberg (Former ACLU counsel) and Kagan (Obama Solicitor General).

Still reeling from a 2010 Supreme Court ruling that opened the door to an explosion of political ads from corporate interests and fearful the court could overturn President Barack Obama’s healthcare overhaul, liberal groups have launched an aggressive — and, at times, personal — attack on the court’s most conservative justices.

The sharp questioning of the impartiality and ethics of Justices Clarence Thomas, Antonin Scalia and, to a lesser extent, Samuel Alito, represent the most concerted attack on a bloc of justices since the early 1970s, when conservatives waged a long campaign against the liberal justices of the Warren court, most notably Justices William O. Douglas and Abe Fortas.

Abe Fortas was a crony of LBJ and a labor lawyer. His nomination to be Chief Justice was derailed by ethics complaints that caused him to resign as Associate Justice soon after.

In 1965, Lyndon Johnson, then President, persuaded Supreme Court Justice Arthur Goldberg to resign his seat to become Ambassador to the United Nations so that he could appoint Fortas, his longtime friend, to the Court. Johnson thought that some of his Great Society reforms could be ruled unconstitutional by the Court, and he felt that Fortas would let him know if that was to happen. Johnson and Fortas did collaborate while Fortas was a justice; Fortas co-wrote Johnson’s 1966 State of the Union speech.

Now, THERE is conflict of interest ! All in a good cause, of course. The Great Society that has bankrupted the United States.

Thomas and Scalia have been accused of undermining public confidence in the court by engaging in partisan politics and making decisions that could benefit the political and financial interests of family members and associates. And liberal groups have called on the Justice Department to investigate whether the two justices’ alleged conflicts of interest should have disqualified them from voting in the 2010 decision on political spending, Citizens United vs. Federal Election Commission. One low-profile liberal watchdog group last week asked the Missouri Supreme Court to disbar Thomas.

This is standard Saul Alinsky tactics, of course.

“What we’re seeing is that there is major concern among liberals that the four died-in-the-wool conservatives on the court — with Justice Kennedy, when they’re able to bring him on board — are now in a period of real activism,” said Noah Feldman, a Harvard law professor and author of a book about the sometimes heated battles surrounding the jurisprudence of the liberal justices appointed to the Supreme Court by former President Franklin D. Roosevelt.

“In this [modern] context, it’s not so surprising that attacks on the justices would veer from the purely ideological into attempts to delegitimize the justices personally, to some extent,” said Feldman, who clerked for retired liberal Justice David Souter but nonetheless drew fire from the left for a February New York Times op-ed in which he argued that the political engagement of Thomas and Scalia pales in comparison to their predecessors and could, in fact, help better inform their decisions.

No, facts are not of interest. The LA Times has weighed in with the disappointing Jonathan Turley waving the bloody shirt.

This was a rally sponsored by Common Cause, Turley’s sponsor.

Louis XIV of France was infamous for his view that there was no distinction between himself and the state, allegedly proclaiming “L’État, c’est moi” (“I am the State”). That notorious merging of personality with an institution was again on display in a February speech by Supreme Court Justice Clarence Thomas before the conservative Federalist Society.

Wow ! Heady company for the poor kid from the South Carolina ghetto.

Thomas used the friendly audience to finally address a chorus of criticism over his alleged conflicts of interest and violation of federal disclosure rules concerning his wife’s income. Rather than answer these questions, however, Thomas denounced his critics as “undermining” the court and endangering the country by weakening core institutions.

In January, Common Cause released documents showing that Thomas had attended events funded by conservative billionaires David and Charles Koch. Thomas was even featured in Koch promotional material — along with Glenn Beck, Rush Limbaugh and others — for events that sought financial and political support for conservative political causes.

Horrors !!!

Are you starting to see the pattern ? The Citizens United decision is a proxy for the favors done the left by past campaign finance legislation, including that authored by John McCain. Obama was elected by a flood of unidentified money coming from God knows where. He turned down federal financing after promising to abide by the rules. His campaign TURNED OFF credit card validation software so the source of the contributions could not be traced. Fake names were used. Contributions poured in from other countries including Gaza, controlled by Hamas.

What is interesting to me is that the merchant acquirer has knowingly violated a basic CNP fraud prevention technique to accommodate a merchant (Obama Campaign). I think that both the Associations (VISA & MasterCard) would be highly interested in looking at the merchant acquirer that was processing these transactions. The value of ignoring the AVS responses is that multiple invalid transactions may be made without fear of being rejected by the authorization systems. This means that the real owner of the credit card account is willing to allow multiple transactions to be made on the account using different names and addresses that under normal conditions would be denied. The merchant acquirer has a complete listing of all transactions done and it would be very interesting to see how many transactions were conducted on the same account number using different names. I would think that this would be a Federal violation under the current campaign funding laws.

No, this is unimportant. The election is over and Obama and his friends, whoever they are, won.

What is important is Clarence Thomas and his wife’s job.

Worse yet, Common Cause discovered that Thomas had failed to disclose a source of income for 13 years on required federal forms. Thomas stated that his wife, Virginia, had no income, when in truth she had hundreds of thousands of dollars of income from conservative organizations, including roughly $700,000 from the Heritage Foundation between 2003 and 2007. Thomas reported “none” in answering specific questions about “spousal non-investment income” on annual forms — answers expressly made “subject to civil and criminal sanctions.”

In the interests of full disclosure, I was consulted by Common Cause before the release of the Thomas documents. I found the violations regarding Virginia Thomas’ income particularly alarming.

Virginia Thomas was receiving money from groups that had expressed direct interest in the outcome of cases that came before her husband, including Citizens United vs. Federal Election Commission, in which the court in 2010 struck down limitations on corporate contributions to elections.

A justice is expressly required by federal law to recuse himself from any case “in which his impartiality might reasonably be questioned.” This law specifically requires recusal when he knows that “his spouse … has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding.

Virginia Thomas, like the 40% of Greater DC who are not government employees, is a lobbyist. She was before she met Justice Thomas. I was not aware that lobbyists whose clients lose on an issue are fired. She could broadly be construed to have a financial interest in issues that come before the Court but this is not a new issue. They have been married since before he was elevated to the Court and her occupation has not changed.

The present tactic is not new.

In 1991, Thomas returned to government service in the Legislative Affairs Office of the United States Department of Labor, where she argued against comparable-worth legislation that would have mandated equal pay for women and men in jobs deemed to be comparable. That year, her husband, Clarence Thomas was nominated by President George H. W. Bush to fill the open seat on the U.S. Supreme Court left by the retirement of Justice Thurgood Marshall. She attended the contentious Senate confirmation hearings and stood by her husband as he was accused of sexual harassment. During the confirmation hearings, several Democratic Senators claimed that her job with the Labor Department might create a conflict of interest for her husband if he was seated on the Supreme Court.

This is just more preparation of the battlefield for the coming Obamacare decision. I expect it to be nasty and vicious and, for Justice Thomas, very personal. The left knows no scruples in gaining an advantage in a struggle.

The same efforts will be made with Scalia but he does not seem as vulnerable. Thomas’ life, and that of his wife, have been the subject of slander and libel since 1991. If you doubt that, take a look at the comments following the LA Times column by Turley. Get ready for the political equivalent of eye gouging and biting as this winds to a conclusion. After all, Obama learned his politics in Chicago.

Afghanistan, Egypt and Obama

Sunday, January 30th, 2011

I have previously posted my opinion that Afghanistan is not worth the cost. I stated my reasons why we should leave here and here and here. Nothing has changed there but a lot is happening elsewhere in the Middle East.

Egypt’s escalating tensions amount to the first real foreign crisis for the Obama administration that it did not inherit. The crisis serves as a test of Obama’s revamped White House operation. Daley, a former Commerce secretary in the Clinton administration, is now running a staff that is briefing Obama regularly on Egypt.

They have handled it badly. This is a very dangerous time for us. The Egyptian Army seems to be siding with the protesters. That may or may not last.

The left-wing Israeli newspaper Haaretz says that Egyptian army officers in Cairo’s central square have tossed aside their helmets and joined the crowd. “The Army and the people are one,” they chanted. MSNBC’s photoblog shows protesters jubilantly perched on M1A1 tanks. The real significance of these defections is that the army officers would not have done so had they not sensed which way the winds were blowing — in the Egyptian officer corps.

And even as Mubarak tottered, the Saudi king threw his unequivocal backing behind the aging dictator — not hedging like Obama — but the Iranians continued to back the Egyptian protesters. The Saudi exchange tumbled 6.44% on news of unrest from Cairo. Meanwhile, the Voice of America reports that Israel is “extremely concerned” that events in Egypt could mean the end of the peace treaty between the two countries. If Mubarak isn’t finished already, a lot of regional actors are calculating like he might be.

But Washington will not be hurried. The San Francisco Chronicle reports that President Obama will review his Middle Eastern policy after the unrest in Egypt subsides. The future, in whose spaces the administration believed its glories to lie, plans to review its past failures in the same expansive place. Yet time and oil wait for no one. Crude oil prices surged as the markets took the rapid developments in. U.S. Energy Secretary Steven Chu observed that any disruption to Middle East oil supplies “could actually bring real harm.”

Of course, Mr Chu should not worry as we have wind and solar to take up the slack. Actually, we get our oil from Canada and Mexico but the price of oil shifts with the world’s supply.

The present Obama commitment to Afghanistan is ironic since he promised to bring troops home but he has declared that Iraq was NOT necessary and Afghanistan is. This is slightly crazy. The Iraq invasion was an example of US power being applied in a critical location; right in the middle of the Middle East. Afghanistan is a remote tribal society reachable only through unreliable Pakistan. It has minimal effect on world events. We went there to punish the Taliban for harboring the people who attacked our country. Thousands of them have been killed. We have little of interest there now. We should have left last year.

With a Shi’ite dominated government in Iraq, Hezbollah in Lebanon, and a Muslim Brotherhood that may keep Egypt in neutral or tacitly accept Teheran’s leadership, how could things possibly get worse?

They can if Saudi Arabia starts to go. And what response can the U.S. offer? With U.S. combat power in landlocked Afghanistan and with the last U.S. combat forces having left Iraq in August 2010, the U.S. will have little on the ground but the State Department. “By October 2011, the US State Department will assume responsibility for training the Iraqi police and this task will largely be carried out by private contractors.” The bulk of American hard power will be locked up in secondary Southwest Asian theater, dependent on Pakistan to even reach the sea with their heavy equipment.

This is not where we want to be. The problem is that Obama and Hillary and the rest of this administration have no concept of strategy.

The Obama administration made fundamental strategic mistakes, whose consequences are now unfolding. As I wrote in the Ten Ships, a post which referenced the Japanese Carrier fleet which made up the strategic center of gravity of the enemy during the Pacific War, the center of gravity in the present crisis was always the Middle East. President Obama, by going after the criminals who “attacked America on 9/11? from their staging base was doing the equivalent of bombing the nameless patch of ocean 200 miles North of Oahu from which Nagumo launched his raid. But he was not going after the enemy center of gravity itself.

For all of its defects the campaign in Iraq was at least in the right place: at the locus of oil, ideology and brutal regimes that are the Middle East. Ideally the campaign in Iraq would have a sent a wave of democratization through the area, undermined the attraction of radical Islam, provided a base from which to physically control oil if necessary. That the campaign failed to attain many of objectives should not obscure the fact that its objectives were valid. It made far more strategic sense than fighting tribesmen in Afghanistan. Ideology, rogue regimes, energy are the three entities which have replaced the “ten ships” of 70 years ago. The means through which these three entities should be engaged ought to be the subject of reasoned debate, whether by military, economic or technological means. But the vital nature of these objectives ought not to be. Neutralize the intellectual appeal of radical Islam, topple the rogue regimes, and ease Western dependence on oil and you win the war. Yet their centrality, and even their existence is what the politicians constantly deny.

Events are unfolding, but they have not yet run their course; things are still continuing to cascade. If the unrest spreads to the point where the Suez and regional oil fall into anti-Western hands, the consequences would be incalculable. The scale of the left’s folly: their insistence on drilling moratoriums, opposition to nuclear power, support of negotiations with dictators at all costs, calls for unilateral disarmament, addiction to debt and their barely disguised virulent anti-Semitism should be too manifest to deny.

Leftism is making common cause with Islamic terrorism. Why ? I don’t really know. Some of it may be the caricature of Jews making money and being good at business. Some may simply be the extension of animosity to Israel extending to all Jews. The people behind Obama are not free of these sentiments. His Justice Department is filled with lawyers who defended terrorists at Guantanamo. Holder seems uninterested in voting rights cases if a black is the offender. He was even unwilling to say that Islamic terrorism was behind 9/11.

Because it will hit them where it hurts, in the lifestyle they somehow thought came from some permanent Western prosperity that was beyond the power of their fecklessness to destroy. It will be interesting to see if anyone can fill up their cars with carbon credits when the oil tankers stop coming or when black gold is marked at $500 a barrel. It is even possible that within a relatively short time the only government left friendly to Washington in the Middle East may be Iraq. There is some irony in that, but it is unlikely to be appreciated.

I would add a bit to this from one of my favorite essays on the topic. It compares Gorbachev to Obama.

Nor are the two men, themselves, remotely comparable in their backgrounds, or political outlook. Gorbachev, for instance, had come up from tractor driver, not through elite schools including Harvard Law; he lacked the narcissism that constantly seeks self-reflection through microphones and cameras, or the sense that everything is about him.

On the other hand, some interesting comparisons could be made between the thuggish party machine of Chicago, which raised Obama as its golden boy; and the thuggish party machine of Moscow, which presented Gorbachev as it’s most attractive face.

Both men have been praised for their wonderful temperaments, and their ability to remain unperturbed by approaching catastrophe. But again, the substance is different, for Gorbachev’s temperament was that of a survivor of many previous catastrophes.

Yet they do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.

In another passage:

There is a corollary of this largely unspoken assumption: that no matter what you do to one part of a machine, the rest of the machine will continue to function normally.

A variant of this is the frequently expressed denial of the law of unintended consequences: the belief that, if the effect you intend is good, the actual effect must be similarly happy.

Very small children, the mad, and certain extinct primitive tribes, have shared in this belief system, but only the fully college-educated liberal has the vocabulary to make it sound plausible.

With an incredible rapidity, America’s status as the world’s pre-eminent superpower is now passing away. This is a function both of the nearly systematic abandonment of U.S. interests and allies overseas, with metastasizing debt and bureaucracy on the home front.

The turmoil in Egypt is a test that, I fear, Obama and his Secretary of State, will not pass.

UPDATE: The situation in Egypt festers with an ambiguous statement by Obama no help. Here is an example of how Reagan handled the Philippine overthrow of Marcos. A very different approach.

UPDATE #2: A column by Charles Krauthammer is indispensable reading today.

Elections will be held. The primary U.S. objective is to guide a transition period that gives secular democrats a chance.

The House of Mubarak is no more. He is 82, reviled and not running for reelection. The only question is who fills the vacuum. There are two principal possibilities: a provisional government of opposition forces, possibly led by Mohamed ElBaradei, or an interim government led by the military.

ElBaradei would be a disaster. As head of the International Atomic Energy Agency (IAEA), he did more than anyone to make an Iranian nuclear bomb possible, covering for the mullahs for years. (As soon as he left, the IAEA issued a strikingly tough, unvarnished report about the program.)

Worse, ElBaradei has allied himself with the Muslim Brotherhood. Such an alliance is grossly unequal. The Brotherhood has organization, discipline and widespread support. In 2005, it won approximately 20 percent of parliamentary seats. ElBaradei has no constituency of his own, no political base, no political history within Egypt at all.

He has lived abroad for decades. He has less of a residency claim to Egypt than Rahm Emanuel has to Chicago. A man with no constituency allied with a highly organized and powerful political party is nothing but a mouthpiece and a figurehead, a useful idiot whom the Brotherhood will dispense with when it ceases to have need of a cosmopolitan frontman.

The Egyptian military, on the other hand, is the most stable and important institution in the country. It is Western-oriented and rightly suspicious of the Brotherhood. And it is widely respected, carrying the prestige of the 1952 Free Officers Movement that overthrew the monarchy and the 1973 October War that restored Egyptian pride along with the Sinai.

The military is the best vehicle for guiding the country to free elections over the coming months.

El Baradei also attempted to intervene in the 2004 US elections by releasing a letter that alleged US forces had allowed radicals to steal hundreds of pounds of explosives in Iraq by failing to guard the facility. After the election, it was proven that the letter was not true. The man is anti-American and a liar.

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