Free Markets, Free People
Greece’s long vacation from reality is very nearly over. Not that you’d believe it from listening to the country’s politicians. In the aftermath of Greece’s last elections, voters rejected further austerity, and instead sought refuge in fantasy. That fantasy is perhaps best exemplified by Alexis Tsipras, who emerged from the election with the power to block approval of any further austerity by blocking the formation of a government.
Indeed, I now have some doubt as to whether Mr. Tsipras is actually sane:
Leftist Alexis Tsipras, 37, emerged with the power to block them. Greece, he said, could ditch its spending cuts and renounce its debts to EU partners, yet enlist their help in keeping the euro currency some 80 percent of Greeks cherish.
Not. Gonna. Happen.
And everybody with a lick of sense knows it’s not gonna happen. Not in Greece. Nor, apparently, anywhere else on the Euro Zone’s periphery, as money is fleeing it with alacrity.
Foreign bank deposits have fallen 64% in Greece, 55% in Ireland and 37% in Portugal; in Italy, the fall is 34% and Spain 13%. Foreign government bond holdings have dropped 56% in Greece, 18% in Ireland and 25% in Portugal; in Italy the fall is 12% and Spain 18%. So if Italy and Spain were to move to the average for the other three, a further 200 billion euros would flow out.
The Greeks are not being punished by rich Germans. They aren’t the victims of speculators or criminals. They are merely being forced to pay the price that reality is about to impose for decades of enthusiastic socialism, and the attendant corruption, debt, and malfeasance it has encouraged. Their problem isn’t "austerity"; it’s the unsustainable political and economic fantasies that have sustained the county’s political culture.
Greece is a failed state. Spain is about to become a failed state. No doubt a list of "enemies" will be promulgated to try and paper over whose fault all this actually is. The sacrifice of scapegoats in times of crisis is, after all, a venerated European tradition.
But, that won’t help, or stop what is coming. Reality is relentless. And the really scary thing about that is that there are lessons in all this for us, which I am not entirely sure our own political class will heed—or is even capable of recognizing.
Reality is a great test of belief. Sometimes, the things you believe are confirmed by experience. Sometimes they aren’t. And sometimes, reality is so at odds with what people believe, they have to be complete dolts to keep believing it. But, I constantly see people who believe things that simply can’t be true, and it bothers me.
Ultimately, reality tells you whether what you believe is true or not. And if reality conflicts with what you believe, it isn’t reality that’s got it wrong.
The Stimulus Cheerleaders
Basically, it’s the unreconstructed Keynesian crowd. Popularly led by Paul Krugman—who is a Nobel Laureate economist—they continue to argue that the problem with the economy is that the government simply didn’t spend enough to properly stimulate the economy.
There’s so much wrong with that, it’s hard to know where to start.
First, let’s accept that in a range of circumstances, it actually is true that the government can stimulate the economy via deficit spending. As long as there’s not too much debt in the economy as a whole, you can prime the economic pump through deficit spending, especially if you have a fiat currency. We’ve done it lots of times since WWII.
So, up to a point, even if you have a credit bubble that collapses, you can re-inflate it by essentially transferring that debt to the Government via deficit spending.
Up to a point.
As I’ve mentioned previously, the newest ECB research indicates that, in developed economies, once you reach a government debt load of about 100% GDP, it begins to drag on the economy, reducing economic growth by about 1% annually. So, what should be 3% annual GDP growth becomes 2%. And as the debt gets bigger, the drag gets bigger, faster.
Now, ever since Reagan and Congress began serious, constant deficit spending in the 80s, there have been worries that the government debt would begin to crown out private markets, and slow the economy. But it never happened.
Well, until now, as we crossed that 1:1 GDP to debt ratio.
Moreover, the idea that we haven’t spent enough to stimulate the economy is simply farcical. In 2008, the total national debt was less than $10 trillion. Now it’s over $16 trillion. So no matter whether or not we spent X amount of money marked "stimulus", we’ve spent so much money that we’ve added more than $6 Trillion in debt in just 4 years. That’s a lot of stimulus.
Arguing that we needed to spend more is…counterintuitive. If $6+ trillion won’t do it, then it probably can’t be done.
Besides, we already learned there was a fundamental problem with Keynesian economics when we had stagflation in the ’70s, which was supposedly impossible.
Here’s the thing about looting the system. Once you’ve looted it…it’s been looted. The Greeks seem utterly incapable of understanding that the system can’t continue to dole out benefits once you’ve looted it. It’s not the Germans that are making life difficult for the Greeks, by refusing to give them more money. It’s the Greeks that have made life difficult for themselves by spending themselves into a 1.28:1 Debt to GDP ratio.
Austerity, of course, isn’t pleasant—at least not the way they’ve implemented it. What they needed was public sector austerity, i.e., spending cuts, not private sector austerity, i.e., tax increases. Instead, they got both. What they needed were massive spending cuts, and debt repayment.
But, of course, in a country where practically every cop, teacher, and fireman is a unionized employee of the state, and half of the private citizens get some sort of cushy government benefit payment, much public sector austerity was a political non-starter. So they gave themselves a little public austerity and a lot of private austerity…and the economy collapsed. I mean, no matter what they did, they were in for a tough time, but they chose the most destructive path possible, then blamed it on the Germans.
The thing is, the Germans are historically…impatient with foreigners that they find troublesome. But the Greeks have decided that, having looted their economy completely, it’s the Germans’ fault somehow. The Greek position is, "We want to stay in the euro without worrying about our deficits, borrow money from Germany, never pay it back, and tell anyone who questions this to go screw."
The Germans, as are their wont, are unamused.
The list of odd things Californians believe that are directly contradicted by observable reality is, of course, far to long to be described here. A representative sample, however, includes:
- Maintaining a permanent class of illegal immigrants in modern-day helotage will not reduce employment among the minority citizenry. Giving them full access to state benefits and education will not strain the schools, medical system, or state budget.
- California must have the strictest environmental, tax, and employment regulation possible. This will not result slower economic growth, or a business exodus to another state. Similarly, stringent environmental regulation for the benefit of small fish or birds, and significantly reducing the water available for irrigation, will have no effect on farming in the central valley, and, hence, agricultural prices paid by consumers.
- It is completely possible to allow state employees to retire as young as 50, with an annual pension payment 85% of their highest salary, and fully meet our pension obligations, because the Dow will be at 24,000 by 2009, and 24,000,000 by 2099, thus making the latest round of pension increases perfectly sustainable through investment.
- If we’re taxing California workers 10% of their income, and we have a $16 billion budget deficit, the problem is that we obviously aren’t taxing enough. We should, therefore, tax higher income earners much more, because they can never leave California and move to Arizona. Or Texas.
California is just Greece with movie stars.
I could go on and on, but, you probably get the point.
The problem with reality is that it doesn’t care what you believe. It just is. The longer you ignore it, the more forceful it is when it re-asserts itself. But if I could point to one thing as the worst modern problem we have today, it would be an absolute refusal to acknowledge reality, accompanied by a steadfast refusal to recognize any of the warning signals it obligingly gives before its assertion becomes horrific, rather than merely unpleasant.
If you make the decision to ride this thing down in flames, reality will be perfectly happy to let you do it.
The eight hundred pound gorilla in the room when one discusses the unemployment rate is its accuracy.
8.1% of what? Apparently, it is 8.1% as measured by those still receiving unemployment benefits, i.e. “actively” seeking work (a requirement to continue to receive the benefits). Here’s the reality:
In April the number of people not in the labor force rose by a whopping 522,000 from 87,897,000 to 88,419,000. This is the highest on record. The flip side, and the reason why the unemployment dropped to 8.1% is that the labor force participation rate just dipped to a new 30 year low of 64.3%.
So, that means people have dropped out of the labor market and some have quit looking for work?
Yes. All one has to do is look at this chart and understand that a huge piece of the labor market has simply vanished from the statistics used to compute the official unemployment rate.
The current labor participation rate is equal to that of January 1982. From a high of 67.3% in January 2000, it has dropped 3% since. That is huge.
Yet, we’re only at 8.1%? Not bloody likely. Not if history is any gauge.
So who are the missing workers?
The conventional wisdom out there likes to explain that huge drop away by claiming that the baby boomers are most likely choosing to retire rather than seek work. They further claim there’s no reason to panic, it’s the old folks dropping out and they have their retirement to fall back on.
In fact, the older demographic has remained steady and, in fact, even seen job percentage increases among those thought to be retiring.
Job holders 55 and up have risen by 3.9 million — and fallen by 8.1 million among those under 55, Labor Department data show. It’s been 50 months and counting since payrolls peaked, a post-war record. Labor releases the April jobs report on Friday morning.
For the 65-69 and 70-74 groups, the employed shares are up 1.1 percentage points and 1.6 percentage points, respectively, over the past four years.
So much for that myth. In fact the early retiree level (i.e. those who claim Social Security at the lowest possible age – 62) dropped to 26.9% last year, the lowest since 1976.
As that final chart points out along with the accompanying stats, it isn’t the baby boomers who are causing the labor participation rate to drop. It is workers in the two younger demographics who’ve stopped getting benefits and still don’t have work.
Political implications? Well one can fudge the official numbers all one wishes, but unemployment is a personal thing. Official numbers don’t mean squat to someone without a job and is unlikely to convince them that things are better than they were.
Whether or not the official number drops below 8% before the election, the reality of unemployment to those 5 million without a job and not carried in the official number remains.
As mentioned yesterday, incumbent presidents usually have an advantage. But that advantage depends on a few things such as performance, leadership and to a degree, circumstance. For Barack Obama he’s come up 0-3 in those areas. And the polls consistently show his numbers trending down in just about every imaginable way.
I’ve talked about enthusiasm and how important that is to an election. Enthusiasm translates into voters eagerly going to the polls. It makes any Get Out The Vote program a breeze. And usually the side that is most enthusiastic turns out the largest numbers of voters and wins the election. The difference in enthusiasm for each side is called the “enthusiasm gap”. In the last election, the GOP was on the wrong side of that gap. This time, it appears the lack of enthusiasm is on the left is both evident and growing.
That leads us to something else that can doom a campaign. Perception. In the world of politics, perception is reality. How a voter perceives a candidate and his or her chances may decide how he or she votes, or whether they even bother. And one of the polls today essentially measures perception. And in keeping with most of the polls we’ve seen lately, it’s not good news for President Obama:
Just 37 percent in a new ABC News/Washington Post poll say they expect Obama to win re-election in November 2012; 55 percent instead expect the eventual Republican nominee to win. ABC’s George Stephanopoulos is asking the president about that result in an interview today.
That sort of perception, for whatever reason, is deadly to a politician’s future. The ABC story talks about enthusiasm and expectations and how those drive GOTV in most cases. Here’s the cherry on top of the sundae though:
Democrats do expect Obama to win, but they say so only by 58-33 percent – a comparatively tepid vote of confidence within his own party. Republicans, by contrast, smell victory by a vast 83-13 percent. And independents – the linchpin of national politics – by 54-36 percent expect the Republican candidate to beat Obama.
Obviously the perception among Republicans is one of victory. Among Democrats, almost resignation to a loss (especially given 2010. But the key demographic, the one I constantly harp on about, perceive Obama as a loser in the next election. And since it is Independents who will decide that, this is decidedly bad news for the Obama campaign. It also makes one wonder why, recently, he’s abandoned his “move to the center” for a more hard left (class warfare) approach. Not smart if you want to woo the center. But then, you also have to fire up your base when you’re in the electoral shape Obama is in.
The other poll falls into the third category I mentioned above – circumstance. I remember saying just prior to the Obama win that I’m not sure, given the economic circumstances the country finds itself in, that I’d want to win that election. Certainly our economic condition has not been favorable for Obama. Not that he’s helped himself at all during his time in office. He has, for the most part, backed exactly the wrong sort of policies and actions when he could even be bothered to address the economy.
The problem for Obama is the voters have notices and deem him to be ineffective as a leader because of the condition of the economy. Right or wrong, that’s the way American politics works. So again, there’s a growing perception of ineffectiveness and ineptness about the economy, which will be the main issue in the upcoming presidential election, that is going hang around Obama’s neck like an albatross.
And that brings us to the second poll of the day:
A new CBS News poll finds that nearly seven in 10 Americans believe President Obama has not made real progress in fixing the economy.
Sixty-nine percent say the president has not made real progress on the economy, which voters overwhelmingly cite as their most important issue. Twenty-five percent say he has made real progress.
Perceptions are not improving. The percentage who said Mr. Obama has made real progress has dropped 10 points from a survey 13 months ago, when 35 percent said he had made real progress.
Just 35 percent of Americans approve of Mr. Obama’s handling of the economy, and his approval rating on the issue has been below 40 percent since February. Fifty-three percent approve of his handling of the economy.
There’s that word again – perception.
Always wanting to find a silver lining, there’s this:
Still, most don’t blame the administration for the state of the economy. Asked who was most to blame, Americans cited the Bush administration (22 percent), followed by Wall Street (16 percent), Congress (15 percent) and then the Obama administration (12 percent.) One in 10 said "all of the above."
Sorry, in terms of the 2012 election, that’s irrelevant. That won’t drive a single vote to the polling place. Bush isn’t running and the responsibility to turn it around isn’t his. Who is to blame isn’t relevant to who can fix this infernal mess. And thus far the building perception is that Obama isn’t the man.
And perceptions about his leadership have fallen precipitously as well – from a high of 85% in January 2009 to 57% now saying he displays strong leadership qualities (not sure what they think constitute strong leadership qualities, but I’ve never seen anything I’d say qualified as such during his entire presidency). That is even more bad news for his reelection campaign.
So it goes on and on, the downward trends obvious, the news not good. Obama is battling the same sort of perception that Jimmy Carter battled, that of a weak ineffective president. The voting public got rid of Carter, and, if the polls now coming out are to be believed (and trust me, his reelection campaign believe them) Obama is headed down the same electoral road.
In both cases, I think the voting public’s has/had it right.
One of the smoke-and-mirrors aspect of this debt deal that experienced observers noticed immediately was the “super-committee” that would negotiate the cuts before the December 23 deadline. If that committee doesn’t agree upon suitable cuts, then the meat-axe of across-the board cuts, mostly focused in the defense area, will take effect.
Everyone with any sense understands that part of the process of making meaningful cuts in spending and thus the debt must address entitlement spending. But apparently the liberal left is fine with gutting defense instead. Nancy Pelosi has basically declared that any committee members she appoints will oppose all entitlement benefits cuts.
The debt limit fight is over, but the fight over entitlement programs will continue for months. In the weeks ahead, the leaders of both parties in both the House and Senate will name three members each to a new committee tasked with reducing the deficit by at least $1.2 trillion.
The ultimate makeup of that committee is key. It will determine whether this Congress will pass further fiscal legislation, and, thus, what the major themes of the 2012 election will be.
At a pre-recess press conference Tuesday afternoon, TPM asked House Minority Leader Nancy Pelosi (D-CA) whether the people she appoints to the committee will make the same stand she made during the debt limit fight — that entitlement benefits — as opposed to provider payments, waste and other Medicare spending — should be off limits.
In short, yes.
"That is a priority for us," Pelosi said. "But let me say it is more than a priority – it is a value… it’s an ethic for the American people. It is one that all of the members of our caucus share. So that I know that whoever’s at that table will be someone who will fight to protect those benefits."
Right. “Benefits” make up their “value” and “ethic”, meaning they’ll decide what you owe others and what you’ll pay for it and you just shut up, sit back and be quiet. That’s their “ethic”. Their “values” lie in redistributing wealth they don’t earn but they certainly find no problem in dividing yours out to those who they favor and/or who will vote for more “benefits” from your pocket book (or in this case, out of borrowed money).
Obviously Ms. Pelosi hasn’t yet quite figured out that the “benefits” that are key to her political agenda and provide her political power are no longer affordable. Claiming she’s clueless is an insult to the really clueless of the world. The welfare state has run out of money and all that is has promised is no longer affordable.
Until these people are replaced with people who actually understand the concept of limited government, property rights and the fact that they don’t have the right to anyone else’s earnings, nothing will change in DC or for us.
It is something – the difference between rhetoric and reality - I don’t think Obama, for all the claims of his intelligence, understands. Just because you claim something is true doesn’t make it so (I know, something most of us learned around age 6).
In a speech in Boston – at a fund raiser:
Obama says that America should not be about the “haves and the have-nots.”
Didn’t know that it is, but this is a comfortable and popular theme among the limo liberal crowd, so it isn’t surprising the old horse was trotted out one more time. But let me set the scene for you:
President Obama addressed a group of 152 Democratic donors at the Museum of Fine Arts in Boston. The walls were lined with enormous original oil portraits from the 16th century and guests are seated around about 24 round tables.
Lots of “have nots” in that room weren’t there?
But that isn’t the major point here – just wanted you to understand the context of the next part. To add to the surreal atmosphere he said this:
In welcoming Nancy Pelosi, Obama called her “someone who’s going to go down as one of the greatest Speakers in our history: Nancy Pelosi.”
“When the rubble had cleared, when the dust had settled. This country was going through as touch a time economically, as tough a time financially, as any period since the 1930s,” Obama said..
His administration “had to make a series of quick decisions, and often times unpopular decisions,” Obama said.
In those times, Obama said, there would have been a temptation to “resort to the expedient.”
“That’s why when I say, Nancy is going to go down as one of our finest speakers… I mean what I say,” Obama continued.
“Not only were we able to yank this economy out of the recession,” Obama said.
“Not only were we able to get this economy going again, that in the last 15 months we’ve seen the economy add jobs…but under Nancy’s leadership we were able to achieve historic health care legislation that over the last 15, 20 years will end up benefiting millions of families across the country… we were able to get “don’t ask, don’t’ tell” repealed,” he continued, adding that Congress expand our investments in clean energy, made the largest investments in infrastructure and the largest investments in education in years.
“We didn’t just rescue the economy we put it on the strongest footing for the future,” Obama said.
“And along the way we saved the auto industry and a few other things,” he quipped, to some laughter from the crowd.
Obama went over a kept promise to end combat in Iraq, and reduce the country’s military commitment in Afghanistan.
Where to start?!
Suffice it to say, anyone who could tout Nancy Pelosi as the “greatest Speakers in our history” either has the ideological blinders on so tight they’re cutting off blood flow to the brain or has a rather tenuous grasp on reality. Nancy Pelosi, if anything positive could be said about her, was a compliant means to an end. Someone from the short bus should have been able to push through just about anything they wanted in Nancy Pelosi’s House, given the huge majority Democrats had.
And she was complicit in the biggest expansion of government, not to mention the largest expansion of the public debt, of any Speaker I know.
Great? For America, she was a disaster. And so is the person fawningly praising her.
As for his other claims, well that’s just what they are … claims. He’d like you to believe them because doing so helps his case, but what you see here is a sort of test run of how he plans on spinning his record – something he’s never had to run on before.
Each and every point is either highly debatable or can be refuted outright. I got a kick out of one of the commenters under this story addressing his Iraq claim about ending combat:
If you think Obama stopped combat here, you are stunningly gullible.
Our guys are out on patrol every day and night amid the IEDs and VBIEDs. Our specops forces are operating outside the wire every day and night. The mortars and rockets are hitting our FOBs on a very regular basis. Purple Hearts are still being issued, including two on my FOB in January when a 107mm rocket landed across the street in one of my buddy’s men’s huts.
You live in Fantasyland, but thanks for the laugh.
The last line pretty much sums up the 152 Democrats in the Boston Museum of Fine Arts last night and much of the left right now – sitting there listening to a litany of “accomplishments” that are straight out of Fantasyland.
Doubling the debt, multi-year trillion dollar deficits, expanded government, expanded spending, 9% unemployment and a jobs record that won’t even maintain the status quo. Clueless about foreign policy, no energy policy, Gitmo still open, still in Iraq and little to show but another huge entitlement we can’t afford.
That’s the record he’s compiled. And Nancy helped.
That is the record you need to remember.