Questions and Observations

Free Markets, Free People

Destroying The “Ungovernable” Canard

Jay Cost at the Real Clear Politics blog takes on the emerging liberal canard about America suddenly becoming “ungovernable”:

Recently, some analysts have suggested that the lack of major policy breakthroughs in the last year is due to the fact that America has become ungovernable. Ezra Klein argued that it was time to reform the filibuster because the government cannot function with it intact anymore. Tom Friedman suggested that America’s “political instability” was making people abroad nervous. And Michael Cohen of Newsweek blamed “obstructionist Republicans,” “spineless Democrats,” and an “incoherent public” for the problem.

Nonsense. America is not ungovernable. Her President has simply not been up to the job.

Cost goes on to lay out, in some pretty good detail why he claims Obama hasn’t been up to the job. And I think he does a pretty thorough job. Be sure to read it all.

He also mentions something in there that I think is lost on the left and sometimes the right. While for many of us, we’ve seen government grow well beyond what we find acceptable or prudent, we actually could be worse off. And one of the reasons we’re not is the inherent design of the system of government we have. The same design many on the left now find frustrating and obstructive.

Let’s acknowledge that governing the United States of America is an extremely difficult task. Intentionally so. When designing our system, the Founders were faced with a dilemma. How to empower a vigorous government without endangering liberty or true republicanism? On the one hand, George III’s government was effective at satisfying the will of the sovereign, but that will had become tyrannical. On the other hand, the Articles of Confederation acknowledged the rights of the states, but so much so that the federal government was incapable of solving basic problems.

The solution the country ultimately settled on had five important features: checks and balances so that the branches would police one another; a large republic so that majority sentiment was fleeting and not intensely felt; a Senate where the states would be equal; enumerated congressional powers to limit the scope of governmental authority; and the Bill of Rights to offer extra protection against the government.

The end result was a government that is powerful, but not infinitely so. Additionally, it is schizophrenic. It can do great things when it is of a single mind – but quite often it is not of one mind. So, to govern, our leaders need to build a broad consensus. When there is no such consensus, the most likely outcome is that the government will do nothing.

The President’s two major initiatives – cap-and-trade and health care – have failed because there was not a broad consensus to enact them. Our system is heavily biased against such proposals. That’s a good thing.

So, as Cost points out, governing America is hard. But that’s a feature not a bug. It is intentionally hard because within that system is a means for the minority to be heard. That’s a critical feature. Because of that feature, the majority isn’t able to ram through legislation that isn’t acceptable to a broad base of the voting constituency. Health care reform and cap-and-trade represent legislation that has been found wanting in that regard. So the left, who used it like a Stradivarius when they were in the minority, now want that check eliminated in the Senate (kill the filibuster) and pine for the good old days of elite rule when, they claim, ramming through major legislation was so much easier.

No real surprise there.

Which brings me to Richard Fernandez’s take on this subject. He agrees with 99% of what Cost says, but says there is 1% where he’d differ:

The Left doesn’t want to govern, it wants to rule given the chance. It is as always willing to leave its own Big Tent behind at the decisive moment. The continual calls from the Democrat Left for Obama to ‘grow a spine’ are really coded calls to say that the moment is now; that the President must ‘’seize the day, seize the hour”. It’s not as Cost imagines, a call to compromise. It’s a call to say that the time for compromise is over. They can drop the mask; they can hoist the Jolly Roger.

I think Fernandez is right. Remember “I won” soon after Obama’s assumption of power? That bit of gloating was a moment the mask dropped.

The left would much rather rule than govern. It is certainly easier. And it tends to agree more with their authoritarian bent.

Governing is a messy and hard business in which they must listen and react to constituents. It means they actually are servants to the public. On the other hand, ruling means the elite choose what the constituency should live with since it is believed by them that the elite know best what that should be. Those they represent exist only to justify the presence of their rulers. The only difference between our left wing and that which founded the USSR is ours haven’t ever had the chance to effect the change those in Soviet Russia did. To this point, our system has mostly prevented it. But redistribution of income, more government intrusiveness and more government control are certainly the obvious desired results of most of the left’s agenda.

And, much to the frustration of the left, the system is preventing it again (with the stipulation that the GOP doesn’t find a way to cave and pass the unpopular bills cited above).

I’m not sure what Barack Obama thought he’d be able to do in terms of “ruling” instead of “governing”, but I’m sure that those who supported his “hope and change” agenda weren’t looking for a ruler. However it is clear, per Cost’s article, they’ve not gotten someone who can govern either (back to the leadership problem again). And, somewhat surprisingly, Obama doesn’t seem to understand the situation he’s put himself in as he doubles down on the leftist agenda he’s allowed liberal Congressional Democrats to craft. He, like so many deluded politicians, is convinced the problem with lack of popular support for the agenda is to be found with the message’s delivery, not with the message itself.

Cost concludes with an answer that I think fairly well destroys the “ungovernable” canard:

This remains a divided country, which creates complications in a system such as ours. The President should have recognized this, and governed with a view to building a broad coalition. But he has not.

America is not ungovernable. Barack Obama has so far failed to govern it.

Here’s to further frustration to the left and their agenda by the “ungovernable” among us.



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Musings, Rants and Links over the 18th Fairway:02/09/2010

We finally got a mixed bag on the employment front this month, a welcome change from the purely awful. However, with everyone focused on “creating” jobs I think this quick synopsis attacking the unrealistic expectations of when and where jobs will come from is well worth reading. This chart gives you an idea of how bad it really has been (click image for larger version)


Yves Smith looks at the problem of how to handle the prospect of the financially weaker members of the European Union possibly defaulting. neither the PIIGS nor their colleague states want to take the steps they may need to take. Markets however are sending a clear message, “Do Something!” The risk goes beyond the direct damage from the potential losses from holding these countries debts. European banks are already shaky, with shaky assets and still a lot more leverage than is safe. I believe Europe’s bear market is likely back on.

European banks are shaky? How provincial of me not to mention our own banks. The coming wave of defaults in the Alt-A and Prime mortgage space are not getting enough attention, Yves helps out there as well. Not only are the losses coming (pretending loans are good only works until they actually default) but the banks are in for some serious lawsuits from all kinds of parties that bought the toxic loans. First in line are Freddie and Fannie. They will still lose at least 400 billion, but they’ll take a good chunk out of the banks hide on the way down.

the phrase “credit specialists at Citi” is not exactly the kind of thing which instills enormous confidence in analysts and investors these days

I think that is an understatement. They want to sell another fancy derivative designed to remove all risk if there is a systemic crisis when, of course, those supposed to pay up will certainly have the money to do so….Right?

Please imagine me banging my head against the keyboard. And no, the response of the Citi Spokesman doesn’t make me feel any different, in fact, it makes me feel worse.

The term liquidity is the pixie dust the financial commentariat uses to obscure what is really going on. I maintain, and have throughout the last few years, that our difficulties have not been a liquidity crisis (though many who had no business exposing themselves individually to liquidity drying up for them certain had a liquidity crisis) but a solvency crisis. David Merkel points out that liquidity always exists, it just goes where the marginal credit buyer has gone. Where insolvency risk seems to be increasing, the marginal buyer can become very scarce and will provide it to areas seemingly exposed to less risk. At the end of the day it is solvency that is our problem, and until we solve that liquidity will go to those perceived to be least at risk. Right now that is the government and those they are backing. Hence a credit crunch for much of the economy.

Speaking of credit, consumer credit has now declined for 11 straight months. A record, and by a long shot. (Click image for a larger version.)


In the “no big surprise department,” and paralleling the argument I made at the time, it has now been shown that the ban on short selling during the crisis did not help support prices and damaged stock market liquidity. In the no surprise at all department the biggest complainers turned out to have fundamental problems that short sellers were pointing out accurately (much better than our regulators.) The loudest complainer of all, and their bizarre CEO, Patrick Byrne. The upshot, they have been cooking their books for years, just like the short sellers were claiming.

Cross posted at The View from the Bluff

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“Bi-Partisan Health Care Summit” Or Political Theater? (Update)

The GOP has every reason to be wary of and, in fact, refuse to participate in the televised “bi-partisan” health care reform summit the President is calling for on NPR unless a number of preconditions are met. The reasons are many, but perhaps the primary one has to do with the fact that this isn’t a summit proposed to begin bi-partisan talks on reforming health care, but instead, an attempt to shame Republicans into supporting the present Senate bill passed. The president refuses to abandon it and reset the health care reform debate at the beginning.

After months of behind closed door negotiations, it’s suddenly “sunshine” time. Why in the world wouldn’t Republicans be suspicious?  It’s hard not to conclude (especially after the results of the televised meeting at the GOP retreat) that this is nothing but political theater designed to show the Republicans as “obstructionists” and the “party of no”.

What the televised “summit” will likely consist of is Obama and the Democrats pushing for acceptance of the same bill now pending and the Republicans saying “no”. The desired outcome is to have them say it right there in the open on TV.  Of course they’d love to have enough Republicans submit to the pressure and commit to passage as an outcome. That’s most likely not going to happen. The most likely scenario has the Republicans say “no” and Democrats claim “see we tried to include them, but they refuse” and use that as a justification for reconciliation. As Democrats see it, it would be a win-win for them with a chance to make the GOP look bad.

The House Republican leadership has sent a letter to the President in which they question all of this. You can read it here. My favorite part of the letter comes after a series of very pointed questions are put to him:

Your answers to these critical questions will help determine whether this will be a truly open, bipartisan discussion or merely an intramural exercise before Democrats attempt to jam through a job-killing health care bill that the American people can’t afford and don’t support. ‘Bipartisanship’ is not writing proposals of your own behind closed doors, then unveiling them and demanding Republican support. Bipartisan ends require bipartisan means.These questions are also designed to try and make sense of the widening gap between the President’s rhetoric on bipartisanship and the reality. We cannot help but notice that each of the President’s recent bipartisan overtures has been coupled with harsh, misleading partisan attacks. For instance, the President decries Republican ‘obstruction’ when it was Republicans who first proposed bipartisan health care talks last May.

The questions mentioned address reconciliation, starting over and other important ones. It’s a letter that makes it clear that the House GOP leadership is very suspicious of the intent of the so-called summit – and rightfully so.

Of course that doesn’t mean they won’t end up playing along. The possibility that the summit would turn into a “bash the GOP” event is something they just won’t be able to stand and will show up in an attempt to avoid that.  Instead, they’ll just play into Democratic hands.  If I were them, I’d instead issue a statement saying that the GOP has concluded there is no good faith attempt on the behalf of the administration or the Democrats toward bi-partisanship in the summit citing their refusal to reset the debate and include the GOP from the beginning. As a consequence the Republicans see no utility in trying to make a silk purse out of the sow’s ear of legislation they already universally oppose.

I don’t know about you but I’d respect them much more if they did that than if they show up and play along in a bit of political theater that is designed primarily to cast them in a bad light for the benefit of the opposition.

UPDATE: White House (non)response to the GOP’s letter.



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Counting Unemployment

The most recent release of unemployment data has raised some questions, namely, how can we lose 20,000 jobs in the same month that the unemployment rate declined to 9.7%.  The answer is simple: The unemployment rate is essentially a made-up figure.  And I can give you a much more accurate way to measure the unemployment rate.

First, let’s take a brief look at how the monthly Employment Situation figures are compiled by the Bureau of Labor Statistics.  The BLS combines two surveys to compile the Employment Situation.  The first survey is the Establishment Survey.  That’s a pretty accurate survey, because it consists of asking businesses to provide hard payroll data on the number of existing jobs.   The second is the Household Survey, which is where the train runs off the rails.

For the Household survey, they ask if you are employed.  If the answer is “No”, they then ask if you if you’re actively looking for a job. If the answer is no, then they just simply take you out of the labor force.  They don’t care whether you aren’t looking for work because you know there are no jobs available, or whether you’ve retired and are planning to sail a sloop across the Pacific.  If you aren’t actively looking for work, you aren’t part of the labor force.  So, the official unemployment rate generally understates–sometimes substantially–the real level of unemployment.

Fortunately, there is a better way to calculate the rate of real unemployment, and the BLS web site conveniently provides you with all the data you need to do it.  From here, we only need three items: The Civilian Noninstitutional Population, the Participation Rate, and the number of Employed.

The first thing we need to do is figure out the Labor Force Participation Rate during the most recent period of full employment.  If you take the average monthly labor force participation rate from the 70 months between Jan 04 and Oct 08, you get a participation rate in the labor for of 66% of the Civilian Noninstitutional Population.

Next, you multiply the Civilian Noninstitutional Population by 0.66.  That gives you the size of the normal labor force at full employment.

Next, you take the number of Employed, and calculate the actual rate of unermployment using the following equation:

1-(Employed/Normal Labor Force)=Unemployment Rate.

So, with this method, we can compare the unemployment level of Oct 08, right before the economy cratered, to last month.  When we do so, we get the following results:

OCT 08:
Civilian Noninstitutinal Population:
Participation Rate: 66%
Labor Force:
Employed: 145,543,000
Unemployment Rate: 6.0%

Jan 10:
Civilian Noninstitutinal Population:
Participation Rate: 66%
Labor Force:
Employed: 136,809,000
Unemployment Rate: 12.5%

Note that this calculation for Oct 08 is very close to the official unemployment rate of 6.1%.  But as the economy gets worse the official employment rates show greater and greater variance.  In other words, the official unemployment rate becomes progressively less accurate as the Employment Situation worsens, substantially understating the actual rate of unemployment.  This is, by the way a feature of the BLS’s method, not a bug.  It is no coincidence, as our Soviet friends used to say, that discouraged workers fall out of the labor force calculations.

Now, this measure I’ve explained doesn’t tell us anything about people who are working only part-time, when they’d prefer a full time job, so it doesn’t tell us much about underemployment.  But it does tell us, based on the recent historical labor force participation rate, what the size of the labor force should be.  Once we know that, it becomes very easy to see what the actual rate of unemployment is in real terms, rather than the notional terms provided by the Household Survey.

According the BLS, however, the Civilian noninstitutional population has increased by 2,220,000 people  from 234,612,000 to 236,932,000, while, at the same time, the civilian labor force has shrunk by 2,055,000 people  from 155,012,000 to 153,455,000.  Using the BLS numbers, then, the labor force participation rate is 64.6%.  That kind of demographic change might be expected in a couple of years when the baby Boomers begin retiring in large numbers, but for right now, it seems…counter-intuitive.

In any event, 12.5% unemployment is a far more realistic number than the BLS estimate of 9.7%.

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Eye On The Polls – Not Good News For Democrats Or Incumbents (Update)

A bunch of interesting polls have emerged today.  One finds Obama at his lowest job performance rating yet.  Of course, as you might expect, Republicans mostly  disapprove of his job performance.  Democrats, on the other hand, generally approve.  But what gets his job approval rating to 44% approval, 47% disapproval in this Marist poll are the independents.  They’re very dissatisfied with his performance – only 29% approve while almost twice that number, 57% disapprove.

Remember it was the independents who put Obama over the top in 2008. Also remember it was they who put Scott Brown over the top in MA and were key in the elections in VA and NJ.

As for Obama’s personal popularity, that too has suffered.

And while GOPers strive to avoid attacking Obama personally, for fear of offending voters who see him in a favorable light personally, even that aura of invincibility is wearing off. Independent voters view Obama negatively, too, by a 39% favorable to 52% unfavorable margin. All registered voters still see Obama favorably by a 50%-44% margin, but that’s down 5 points in just 2 months.

However, there’s more to this than just Obama’s job approval and personal ratings. Also found in this poll is a strong trend toward anti-incumbency:

Meanwhile, members of Congress should brace for a difficult election year. 42% of registered voters said they would back their current member of Congress, while 44% said they would support someone else — a drop of 9 points in support of the incumbent in just 2 months.

Rassmussen has a poll out that begins to flesh out why that trend is building. Three-quarters of the public, according to his latest polling data, express some level of anger at the policies of the federal government. That’s up 4 points from November. It is also why I call the Tea Parties the “tip of the populist iceberg”. There are a whole lot of unhappy voters out there.

So how does it break down? Well, not as Jacob Weisberg and the “ignorant, childish voters who want to live in Candyland” crew would have you believe.

Part of the frustration is likely due to the belief of 60% of voters that neither Republican political leaders nor Democratic political leaders have a good understanding of what is needed today. That finding is identical to the view last September, just after the tumultuous congressional town hall meetings the month before. But only 52% felt this way in November.

And, as time goes by, this trend continues to grow. Note that the leaders of both parties are identified as being clueless by this 60%.

So this week let’s revisit the comparison between the Political Class and the Mainstream (you proles in flyover land) voters. And as we saw last time we checked it out, the PC bunch is totally clueless:

The divide between the Political Class and Mainstream voters, however, is remarkable. Eighty-eight percent (88%) of Mainstream voters are angry, but 84% of the Political Class are not. Those numbers include 57% of Mainstream voters who are Very Angry and 51% of the Political Class who are not angry at all.

But then 68% of Mainstream voters don’t think the leaders of either major political party have a good understanding of what the country needs today. Sixty-one percent (61%) of the Political Class disagree.

By comparison, the majority of Republicans, Democrats and unaffiliateds don’t believe the current political leaders have a good handle on what is needed today.

Older voters and higher-income voters share that belief most strongly.

Thus the Tea Parties and the very negative reaction by the PC to them. They simply don’t get it. Which is why we’re suffering through this spate of leftist pundit tantrums in which they damn the people, democracy, and the opposition for being unwilling to roll over and submit to their sublime enlightenment, ability to know what is good for us and benevolent despotism. We’re seeing laments about how the good old day before the damned internet, talk radio and 24 hour cable let the enlightened elite do as they wish.

Look around you my friends – to this point that’s worked out just wonderfully hasn’t it?

Rasmussen lists a bunch of reaction which pretty much outline what you’re hearing from the most vocal of the Tea Partiers:

Most voters oppose the now-seemingly-derailed health care plan proposed by President Obama and congressional Democrats for months. They continue to have very mixed feelings about the $787-billion economic stimulus plan approved by Congress last February.

Looking back, most voters still don’t approve of the multi-billion-dollar government bailouts of the financial industry and troubled automakers General Motors and Chrysler.

Forty-nine percent (49%) worry the government will try to do too much to help the economy, while 39% fear it won’t do enough.

As the economy continues to stumble along, 59% of voters believe cutting taxes is better than increasing government spending as a job-creation tool, but 72% expect the nation’s elected politicians to increase spending instead.

Eighty-three percent (83%) of Americans say the size of the federal budget deficit is due more to the unwillingness of politicians to cut government spending than to the reluctance of taxpayers to pay more in taxes.

Voters have consistently said for months that they have more confidence in their own economic judgment than that of either the president or Congress.

Charles Krauthammer calls this “The Great Peasant Revolt of 2010”. And in a very real sense it is. What Republicans haven’t yet grasped is this revolt is pretty non-partisan. The reason Republicans seem less threatened by it is because of their fiscally conservative, limited government philosophy. Democrats, on the other hand, suffer more because of their tendency toward fiscal profligacy and government expansion. The problem for Republicans, however, is the country is no longer in a mood to see them give fiscal conservatism and limited government lip service.  If you don’t believe me, take a look at this Iowa poll:

A third of Iowans from across the political spectrum say they support the “tea party” movement, sounding a loud chorus of dissatisfaction with government, according to The Des Moines Register’s new Iowa Poll.

Neither party has a lock on these restless advocates of limited government and fiscal control, according to the poll. However, their conservative leanings appear to give Republicans a greater opportunity than Democrats to make gains at the dawn of a volatile election year.

Is the GOP listening?

It should be clear to both sides that we’re moving into an era of “do what you say or be gone”. The days when incumbents only left office when they assumed room temperature, as did Jack Murtha today, are coming to an end.  What the Tea Parties signal is a much more connected, networked and activist population which has been empowered by the communications technology of today – much to the chagrin of the elitists.

The fun is just beginning. Barack Obama and the Democrats may not realize it, but the era of big government is over.

UPDATE: Gallup also has polling numbers out today. They run different approval ratings for Obama on 9 different issues.

At 36%, Americans give President Barack Obama his lowest job approval rating yet on his handling of the economy. By contrast, the president’s 51% approval rating on handling foreign affairs is up slightly from last month.

As I’ve noted any number of times, the foreign policy’s crisis is yet to come.  2009 was a year of checking out the new president and assessing his strengths and weaknesses.  2010 will be the year that actually tests his foreign policy skills and abilities.

On domestic issues, Obama’s approval rating is in the tank  at 36%.

Most interesting though was the fact that in the list of 9 issues, both foreign and domestic, independents did not once give Obama a majority approval rating, again making the point that indies are not at all happy with his administration.



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Bernanke’s Plan To Drain The Monetary Swamp

Interest rates are at record lows and literally trillions of hastily printed dollars have been pumped into the economy by the Federal Reserve in an effort to stem an even deeper recession. While it is debatable as to whether or not it has really accomplished that goal, what isn’t debatable is at some point, the Fed has to wring that excess money from the economy or risk all sorts of dire consequences.

The Wall Street Journal carries the Bernanke plan for doing so. The centerpiece of that plan is found in the interest rate the Fed pays banks on the reserves it keeps. Right now, that’s .25%. The plan is to gradually raise that rate with the assumption that such rate raises will give an incentive to banks to keep even more money on reserve and thus out of circulation. This “interest on excess reserves” then is the primary vehicle the Fed plans to use to begin to pull money out of circulation.

But that’s a process fraught with risk. Because the immediate effect of any such interest rate increase will be to tighten credit. And depending on the strength of the economy, it has the potential to affect it negatively. Says the WSJ:

Extricating itself from these actions [low interest rates and trillions of infused dollars] will require both skill and luck: If the Fed moves too fast, it could provoke a new economic downturn; if it waits too long, it could unleash inflation, and if it moves clumsily it could unsettle markets in ways that disrupt the nascent economic recovery.

It’s pretty easy to drop interest rates and pump money into a down economy. But going the other way is not at all as easy. “Skill and luck” are understatements. Timing will have to almost be perfect. The problem is, should markets get skittish because of moves by the Fed that it sees as having a negative effect, things could break negatively quickly and spiral out of control. While the Fed would like everyone to believe this is a piece of cake – and will continue to tell us it is – it’s not at all an easy thing to do. The desire of those talking positive about the ease of draining the monetary swamp is to bolster confidence and allay fears if possible so a panic which could undermine the whole plan doesn’t develop. That, however, is going to be extremely difficult:

The nature of its exit from today’s unusually low interest rates will affect everything from mortgage rates and what companies pay on short-term borrowings to the rates savers earn. The timing and sequence of the steps are the subject of intense speculation in financial markets.

At the risk of boring the living hell out of you, I want to stress that this plan may be one of the most important plans in quite some time. If it isn’t executed perfectly, we could see a quick slide back into recession or rampant inflation. Read the whole article if you get a chance. The Fed has some other contingencies and plans as well. But as you’ll see as you read through them, all present the possibility of having a very negative downside if the strength of the economy is misread and/or the execution of each portion of the plan isn’t almost perfect.

The economic high-wire act – without a net – the Fed is about to embark upon is a very difficult one. Yes, it’s necessary and, in fact, critical – but it isn’t going to be easy. And if screwed up, could be pretty devastating to a recovering economy.



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“The Green Police?”

Did you happen to catch the Audi commercial during “The Big Game” last night (btw, congrats Saints)?  It is, I suppose, an attempt at humor.  And it’s a good commercial, I guess, because I remember which product it was pushing.   But in reality I found it to be a bit scary.  Why?  Because it foretells something which I would hope is unlikely, but – at least at a state level – I believe couldbe entirely possible in some places.  Don’t forget, California was talking about drive-by thermostat monitoring and restricting car colors that could be sold in the state.   So this isn’t at all beyond the possible at some future date in a state near you:



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Deficit Spending – Pimping The Great Lie

When the NY Times entitles anything, especially an editorial, starting with “The Truth About …”, you should be immediately suspicious.  As Arnold Kling says, that normally means “The liberal elite narrative about …”.  And it’s editorial, “The Truth About The Deficit” is no exception.  The first part of the editorial is spent on a selective history lesson which makes all of our troubles, as you might imagine, something brought on by the GOP’s focus on tax cuts for the wealthy.  Nevermind that they were across the board marginal cuts – this narrative won’t die.

The entire bit of revisionist history (with the normal “blame Bush” tautology) is aimed at justifying this paragraph:

Americans should be anxious, for reasons including the huge deficit. But the cold economic truth is this: At a time of high unemployment and fragile growth, the last thing the government should do is to slash spending. That will only drive the economy into deeper trouble.

What the NYT and the Krugman’s of the world believe is government spending can be substituted for private spending and have the same result – economic growth. And that economic growth, spurred by this spending, will create jobs. But if you think about it, unless the government is buying goods and services produced by the private sector, that’s most likely not going to happen, is it? Temporary jobs located in “infrastructure improvement,” unemployment benefit extensions and jobs “programs” don’t create jobs. Private sector growth does. And when government is borrowing .40 cents for every dollar it spends, it starts to dry up the private credit market. That means if there is a desire to expand, the credit isn’t as readily available as it would be if the 800 pound credit hog weren’t in the market.

Then there’s this:

To truly tame deficits will require serious health care reform …

To which Kling replies:

In Washington, serious health care reform means “fixing” private health insurance. But our deficits are caused not by problems in private health insurance. They are caused by the structure of Medicare and Medicaid. That is where we need reform. But the Times and other liberal mouthpieces need to create a narrative that makes it sound as though unsound government programs are the fault of the private sector.

Spot on. This has been the most irritating part of the “health care reform” issue. It is the public programs – which neither party will touch – that are breaking the bank, yet we continually hear politicians on the left talk about “greedy [private] insurance companies” as the sole reason health care costs or so high. In fact, without private health care insurance to pay the difference, Medicare and Medicaid would have foundered long ago. But the point is the deficit problem is not one caused by private insurance.  It has no effect on public debt.  That is caused by the mismanagement of the government programs. And other than a passing wave at “stopping waste, fraud and abuse” – the promise of every politician since the inception of those programs, and accomplished by none of them – this “reform” package ignores the real problem while attacking the private market.

But back to the primary point of the NYT’s attempt to persuade you that deficit spending – massive deficit spending – is a good thing:

Here is an unpopular but undeniable fact of life: When private sector demand is weak, the federal government must serve as the spender of last resort. Otherwise, collapsing demand sets in motion a negative, self-reinforcing spiral in which lack of demand — for goods, services and new employees — leads to ever deepening economic weakness.

And here’s the undeniable economic truth about the snake oil they’re peddling:

The narrative is that we are suffering from a shortfall in demand. The reality is that the private sector has decided that workers should be hired on the basis of profits, rather than on the basis of debt. The government may choose to make a different decision, of course, but that will not necessarily strengthen our economy.

One of the many economists not at all in agreement – despite President Obama’s claim to the contrary – with the prescription that deficit spending is not only good, but necessary. And while they can blame the situation on anyone they choose, the decisions being made to run up this massive debt based on some pretty flaky economic logic are theirs and theirs alone.



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Podcast for 07 Feb 09

In this podcast, Bruce, Michael  and Dale discuss the unemployment numbers and Sarah Palin.  The direct link to the podcast can be found here.


The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.

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