Questions and Observations

Free Markets, Free People

The Dishonesty Inherent In The Administration’s Economic Claims

David Brooks, 3 days after a semi-courageous, “what-the-heck-is-going-on” column, received calls from the senior staff at the White House and quietly got back in line:

In the first place, they do not see themselves as a group of liberal crusaders. They see themselves as pragmatists who inherited a government and an economy that have been thrown out of whack. They’re not engaged in an ideological project to overturn the Reagan Revolution, a fight that was over long ago. They’re trying to restore balance: nurture an economy so that productivity gains are shared by the middle class and correct the irresponsible habits that developed during the Bush era.

The budget, they continue, isn’t some grand transformation of America. It raises taxes on energy and offsets them with tax cuts for the middle class. It raises taxes on the rich to a level slightly above where they were in the Clinton years and then uses the money as a down payment on health care reform. That’s what the budget does. It’s not the Russian Revolution.

How moderately wonderful, right? They’ve now dazzled Brooks again. They’re not “liberal crusaders”, they’re moderate pragmatists who want to lend stability to the economy.

Brooks then goes through a litany of things “Republicans should like”. He finishes up by claiming he still thinks they’re trying to do too much too fast, and that may lead to problems “down the road”, but all in all, he’s impressed by their sincerity, commitment to what is best for America and the fact that all of this is not going to cost anywhere near what all the critics claim.

On their face, the arguments are nonsense. This is the biggest planned expansion of government in a century. Estimates are the federal government will be hiring between 100,000 and 250,000 new employees to oversee its new programs and spend the trillions of dollars being borrowed through debt instruments right now.

Unlike the rather facile and easy to impress Brooks, Charles Krauthammer takes a look at the spin and deconstructs it rather handily.

At the very center of our economic near-depression is a credit bubble, a housing collapse and a systemic failure of the entire banking system. One can come up with a host of causes: Fannie Mae and Freddie Mac pushed by Washington (and greed) into improvident loans, corrupted bond-ratings agencies, insufficient regulation of new and exotic debt instruments, the easy money policy of Alan Greenspan’s Fed, irresponsible bankers pushing (and then unloading in packaged loan instruments) highly dubious mortgages, greedy house-flippers, deceitful homebuyers.

The list is long. But the list of causes of the collapse of the financial system does not include the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates. Indeed, one could perversely make the case that, if anything, the proliferation of overeducated, Gucci-wearing, smart-ass MBAs inventing ever more sophisticated and opaque mathematical models and debt instruments helped get us into this credit catastrophe in the first place.

And yet with our financial house on fire, Obama makes clear both in his speech and his budget that the essence of his presidency will be the transformation of health care, education and energy. Four months after winning the election, six weeks after his swearing in, Obama has yet to unveil a plan to deal with the banking crisis.

As Krauthammer points out, none of the costly things that Obama pledged to focus on have anything to do with the down economy. They all do, however, include the  the probability of causing even more damage if enacted.

And since they’ve been in office, Obama or his surrogates (mostly in the guise of Timothy “tax cheat” Geithner”) have talked down the stock market, the auto industry, the oil and gas industry, the health care industry, energy, banks, financial and the defense industry. They still don’t seem to realize what impact their words have on markets, or if they do, then one has to assume they’re doing this on purpose. I tend toward the side of ignorance, but at some point, after it has been pointed out to them over and over again, you have to abandon that belief and head toward the other conclusion. Their words, quite literally, are wrecking the economy.

Markets can’t stand instability and insecurity. When leaders talk about what’s wrong with this industry or that industry and what they intend on doing to punish or change how that industry does business, investors get very nervous. As you might imagine, they’re extremely nervous right now, as reflected by the Dow. They know that there is a government assault coming, in some form or fashion, on the industries I’ve mentioned. So they’re going to get out of the position they now hold in them and they’re going to refrain from investing in them until they’re clear what that assault will entail. And I don’t use the word “assault” lightly.

Health care, defense, oil and gas, pharma, auto, energy, housing, banking, finance etc. are all under a form of assault by the new administration. Health care will change and expand dramatically under government auspices, oil and gas will lose tax breaks, cap-and-trade will bury the auto industry and shoot energy prices through the roof – affecting transportion and manufacturing. Cram-downs affect the housing, banking and financial sectors. Who wants to invest in any of that when a judge can reward irresponsible home owners with a write down of their principle? Meanwhile responsible home seekers will see the interest rate go up by about 2 points to cover the losses. That’ll spur homebuying, won’t it?

Like Dale pointed out about the Red Kangaroo, you can see this coming from a mile off. And “useful idiots” like David Brooks climb back on the bandwagon and resume cheering the parade to economic ruin.

~McQ

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Watching the Kangaroo

This morning on the Opie and Anthony show, Aussie comedian Jim Jeffries was a guest, and he told an amusing story.  It seems that he and some fellow comedians were travelling from Perth to Kalgoorlie for some sort comic event.  Things went well for a bit, until, about three hours outside of Perth, they ran into an emu. The poor emu didn’t die immediately, and, tragically, had to be dispatched with a large rock.  Their car, however, did die, due to radiator damage.

They were stuck in the Australian desert with no transportation.  Fortunately, in Australia, they do keep cell towers along the major roads, so Jeff and the boys were able to call a fellow they knew back in Perth, to ask if he could come help them out, and if he did, they’d try to see if they could get him some mike time at the comedy show.

He agreed, and told them he’d be on his way in about an  hour.

So, four hours later, Jeff saw his car, coming down the road a couple of miles away.  He also saw, anbling slowly towards the road, a large Red Kangaroo.  As he watched, the car get closer, he also watched the kangaroo come closer and closer to the road.  And in what must have been sort of a horrified fascination, he watched the convergence until BOOM!  The car and kangaroo collided.

Fortunately for them, their friend’s car was still driveable after the accident, although the ‘roo was a total write off.

But, the story really encapsulated the way I’ve been feeling watching the economy over the last several months.  You can see the elements coming together for some sort of horrible wreck, but there’s not really anything you can do to stop it.

And it looks like the kangaroo is coming closer.

Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department…

Last week, the FDIC proposed raising fees on banks in order to build up its deposit insurance fund, which had just $19 billion at the end of 2008. That idea provoked protests from banks, which said such a burden would worsen their already shaken condition. The Dodd bill, if it becomes law, would represent an alternative source of funding…

The FDIC would be able to borrow as much as $500 billion until the end of 2010 if the FDIC, Fed, Treasury secretary and White House agree such money is warranted. The bill would allow it to borrow $100 billion absent that approval. Currently, its line of credit with the Treasury is $30 billion.

Let’s examine the implications of this.  TheFDIC fund is now depleted, and needs to be recharged.  Not with $30 billion, but with $500 billion. Banks howled at premiums being increased, saying it could damage their business even further.  So now Sec. Geithner, Chmn. Bernanke, and Chmn. Bair are asking for the federal government to open their credit line, which is currently restricted to $30 billion.

Does this mean that the SecTreas, FDIC, and Federal Reserve all believe the FDIC may need to come up with half a trillion dollars to pay back depositors for bank failures?  If so, that’s…disturbing.

What do they know about the health of banks that we do not in order to come up with that number?  What will the general public do if they figure out the implications of this?  How will the markets respond?

Hop.  Hop.  Hop.

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On the “tea parties” and “going Galt”

I don’t want to get off on a rant here, but…*

I don’t mind people protesting against massive government expansion and taxation.  But do they have to call their protests “tea parties”?

Mailing bags of tea to Congress costs very little and risks nothing.  It’s just one step up from sending a strongly worded email, which is only one step up from an online form letter or petition.

Do they know what the Boston Tea Party was about?  And if so, what are they implying when they send tea to Congress?  We have representation to go with our taxation, more direct representation than the American Revolution established.  If the “tea party” protests of 2009 aren’t really related to the original Tea Party, why draw a comparison?

I’d be more impressed if they fired a shot across the bow and coordinated a national day for cranking up their withholding allowances, just as high as they can.  They’re planning their next party on Tax Day, right?  One might think they’d be interested in ceasing to lend their earnings interest-free to the government.  They might take some satisfaction in doing something that actually shows up on the government’s ledger.

I’d be convinced of their sincerity if they subsequently considered actually not paying their taxes next year if the government didn’t change its policies.  That would be civil disobedience, as opposed to loud-but-obedient.  But still, hold the tea.

The “going Galt” thing has been a bit better — at least it involves refusing to produce — but “John Galt” is a rather radical standard, ladies and gentlemen.  Reducing your income so that you don’t pay the higher marginal taxes in the next bracket; partially shutting down businesses and taking more leisure time; retiring early.  These are nice, but it’s like “going Martin Luther King, Jr.” without risking jail or invoking the Alamo without risking death.

Galt refused to let the public seize his creations for their (immense) benefit.  He led an illegal strike.  He accepted nothing more than a night watchman state.  He openly scorned all religion and mysticism.  His opposition to government was not of the “vote the bums out 20 months from now” variety, or merely underperforming–although he did discuss underperformers in his marathon speech, much of which is dramatized here (note: videos spoil much of the book – the part about underperformers is at 7:20 or so in Part 14).

Not that radical?  Not willing to take that kind of risk?  Then don’t play dress-up.

Content yourself to call your actions by their proper names.  If you know what the fictional character symbolizes, and that’s not a standard by which you judge yourself, it’s better that you don’t compare your actions to his.

________

* This isn’t a Dennis Miller-style rant.  Sorry.  If I tried to emulate that, I’d just pale in comparison.  Speaking of which…

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Saul Alinsky, Barack Obama and George Orwell

Stephanie Gutmann brings up something I’ve noticed. She starts with an Orwell quote:

“The program of the Two Minutes Hate varied from day to day, but there was none in which Goldstein was not the principal figure. He was the primal traitor…All subsequent crimes against the Party, all treacheries, acts of sabotage, heresies, deviations, sprang directly out of his teaching. Somewhere or other he was still alive and hatching his conspiracies, perhaps somewhere beyond the sea, under the protection of his foreign paymasters perhaps even — so it was occasionally rumoured in some hiding place in Oceania itself.” 

1984 by George Orwell

She then says:

In the passage above, and throughout 1984 and Animal Farm, George Orwell illustrates how regimes with tentative hold over beleaguered populations deflect anger away from their own corruptions and mistakes with the deployment of a greatly embellished, even invented, external enemy.

There are many things that bug me about Barack Obama — the insane laundry list speeches, the silly rhetoric, the hostility to the free market — but these are all talked about. He has another habit that hasn’t been talked about so much and, of all the things he does, it makes me the most queasy.

It’s pretty subtle, but I think it’s worth keeping an eye on because, if it were to become full-blown, it has the potential to be the most socially damaging element of his presidency.

I’m talking about what I’m going to call his Goldstein-ism, his tendency to make veiled, dark allusions to a recently vanquished “other”, an evil being (he is never specific) who is, he always implies, the real cause of all our problems.

His references to his “inherited” problem, to bankers, greedy Wall Street and his “predecessor” are all too common, not to mention Limbaugh and Hannity.

So why this tendency to attempt to deflect criticism by blaming it on others? Well, consider the Obama march to the presidency. His entire campaign was based on how bad George Bush was and how necessary it was to replace him. Bush was Obama’s “Goldstein”. And Obama used Bush to deflect attention from his own paper thin resume and lack of experience. He managed to make Bush so bad that those things didn’t matter to most Americans who bought the characterization.

But Bush is gone now. And Obama has no specific “Goldstein” with whom he can shift blame and/or deflect attention. But Gutmann points out, he still tries to use Bush when possible. For example:

Monday was full of terrible economic news. It was another day of “unstoppable selling on Wall Street,” according to AP, a day in which Foreign Policy said ” the markets were sending an unambiguous signal that the U.S. economy is now headed in the wrong direction.” How did the administration respond?

I do not think it a coincidence that late in the day the administration “threw open the curtain on years of Bush-era secrets” as the ever in-the-tank Associated Press put it, with the release of memos “that claimed exceptional search-and-seizure powers…”

Soooo, what was in these scary-sounding memos? Midway down the article AP explains that the memos detailed possible legal rationale for tactics the Bush admin was considering using in its anti-terror program. You’d have to read further still to see that the “Bush administration eventually abandoned many of the legal conclusions.” Nevertheless, AP harrumphs, “the documents themselves [about stuff that had been discussed] had been closely held.” But who cares what the article actually said: It generated a nice headline — “Obama releases secret Bush anti-terror memos” — during a day the populace might have been thinking disloyal thoughts about the their president’s direction.

Of course this gets harder and harder for Obama to do, and besides, it’s unseemly if a president does it – that’s what minions are for. And as Bush fades, a new Goldstien is necessary. Enter Robert Gibbs, Rush Limbaugh, and others:

Jim Cramer. Rush Limbaugh. Rick Santelli.

What do they all have in common? Most likely, none of them is getting invited to the White House Christmas party.

All three media personalities have been singled out by President Obama’s press shop in the course of less than two weeks. White House Press Secretary Robert Gibbs, in doing so, has shown an unusual willingness to spar with cable and radio hosts who take shots at his boss.

The rebuttals have ranged from playful ribbing to disdainful scolding.

One of the things we didn’t see, for the most part, was these sorts of assaults on people who weren’t the political opposition during the Bush years. And, in fact, few assaults on those that were in the political opposition. Never once was Keith Olberman or a host of others called out from the White House Press Secretary’s podium. In fact, they were mostly, if not completely ignored. But obviously the same can’t be said of the Obama White House.

It’s personal.

So, you have to ask, “why”?

Try Rule 12 from Saul Alinsky’s “Rules for Radicals“:

RULE 12: Pick the target, freeze it, personalize it, and polarize it.” Cut off the support network and isolate the target from sympathy. Go after people and not institutions; people hurt faster than institutions.

As you recall, Mr. Bi-partisan, “heal the nation” Obama did have one thing on that thin resume – he was a community organizer from the Saul Alinsky school of organizing.

And as for the attacks coming from the White House Press podium? Rule 5 covers that:

RULE 5: “Ridicule is man’s most potent weapon.” There is no defense. It’s irrational. It’s infuriating. It also works as a key pressure point to force the enemy into concessions.

After watching the man for two plus years, I’ve come to realize this is more than a tendency, it’s his modus operandi. And one should assume his administration will reflect the bosses MO when dealing with criticism. The difference is Obama has himself under pretty tight control. I’m not so sure that can be said of some others. And that’s where Rule 6 comes in:

RULE 6: “A good tactic is one your people enjoy.” They’ll keep doing it without urging and come back to do more. They’re doing their thing, and will even suggest better ones.

The danger with Rule 6 as it is now being executed gleefully by Gibbs (“There are very few days that I’ve had more fun,” Gibbs said.) is that he (and others) will overreach. They always do. And it certainly came as no surprise to me to find out Rahm Emanuel was involved in the Limbaugh attacks. So my prediction is this new and advanced “politics of personal destruction” campaign that this administration has embarked on will blow up in their face at some point.

But that doesn’t detract from Gutmann’s point about Obama’s tendency to need and rely on a “Goldstein”. I’m not a psychologist or a psychiatrist, but it seems to indicate, at least to me, a deep-seated sense of insecurity. If I had no more experience than Obama has, I might be looking for such a scape-goat myself.  Knowing that, however, damn well doesn’t make me feel better about it though.  But we shouldn’t be surprised when a Saul Alinsky trained community organizer acts like a Saul Alinsky trained community organizer, should we?

~McQ

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Health Care Is Next – Will We Heed The Warnings?

As the Obama administration prepares to hold a health care summit, a reminder about involving the government too deeply in your health care decisions:

Thousands of patients with terminal cancer were dealt a blow last night after a decision was made to deny them life prolonging drugs. 

The Government’s rationing body said two drugs for advanced breast cancer and a rare form of stomach cancer were too expensive for the NHS. 

The National Institute for Health and Clinical Excellence is expected to confirm guidance in the next few weeks that will effectively ban their use. 

Note the bold term. Government rationing body. Doesn’t matter what you want or need or are even willing to pay for, does it? Denied with no recourse except to get on an airplane, fly to the US and pay for it yourself … if you can afford all of that. And what if there were no US to fall back on?

When the government owns the problem, rationing will be the result. Take a look around you and tell me what you see going on economically. What do you suppose, then, will be the case if the same sort of system exists here? How can it be any different?

And a side note about unintended consequences. If you were the CEO of the drug company that developed these drugs, would such development be a priority in the future? Right now you have the relatively free market of the US to sell such products in. And as they’re used and studied, even better drugs will result. But if that market dries up because government is unwilling to pay the price for newly and expensively developed drugs, what’s the incentive for you and your company to do so?

~McQ

[HT: Below The Beltway]

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The Coming Tax On Everything

Over the past few days, I’ve been highlighting the fact that the promise of tax cuts for 95% of Americans is illusory at best. If your bottom line is net spendable income, then despite the Obama promise, you’re going to have less of it when all his plans for your income are passed into law. Or, as I’ve been pointing out, while he’ll make a big deal of the tax cut for the 95% on the one hand, he’ll be taking what he’s cut back and more with the other.

The Detroit News editorial board seems to have figured that out:

President Barack Obama’s proposed cap-and-trade system on greenhouse gas emissions is a giant economic dagger aimed at the nation’s heartland — particularly Michigan. It is a multibillion-dollar tax hike on everything that Michigan does, including making things, driving cars and burning coal.

Tell me – who is it that has been whining for years about losing manufacturing jobs to overseas competitors? Who has thumped the podium about “outsourcing”? Who has claimed to be the champion of the working man?

The same crew that wants to enact draconian taxes which will affect the very companies and jobs they claim they want to save or create. And while the companies will do all they can to pass on the cost to the consumer (thereby negating any tax cut), they will have to absorb some of the cost to stay competitive.

Doing so will drive up the cost of nearly everything and will amount to a major tax increase for American consumers.

Or companies can go to countries who don’t have cap-and-trade laws such as China and India and set up there. Of course if they do, they’ll be called “unpatriotic” and the government who forced the issue will declare them the problem.

And the net result?

The proposed tax would take effect in 2012 and has the very real potential to throw the nation back into recession, if indeed the expected recovery has arrived by then. It’s impossible to raise costs for such basics as manufacturing and energy production by more than half a trillion dollars over a decade and not have the effects felt across the economy.

Economic common sense. But you see, the 2012 effective date is a result of political calculation. If we are seen to be climbing out of the recession by 2011, most likely the Obama administration will get a second term. After that they couldn’t care less how they or their policies are viewed. And it is far enough from 2016 that they think it may be politically survivable for the Democrats.

However it also means that if the GOP starts hammering on this now and making the same sense the Detroit News editorial board is making, there’s a chance they can use it as an issue to try to recapture power. That assumes, of course, they have the smarts and the spine to stand up, make the consequences known and ensure they frame the argument instead of letting the Democrats spin it away.

How likely is that?

Oh, and just for the record:

A similar program in Europe hasn’t worked. European automakers complained about carbon dioxide limits the European Union proposed in 2007 as damaging to the economy.

Ya think?

~McQ

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Jobs, Jobs, Jobs …

Or not.

What is something you probably shouldn’t do if you want to see an industry “save or create” jobs?  

Increase their costs?

U.S. oil and natural gas producing companies should not receive federal subsidies in the form of tax breaks because their businesses contribute to global warming, U.S. Treasury Secretary Timothy Geithner told Congress on Wednesday.

It was one of the sharpest attacks yet on the oil and gas industry by a top Obama administration official, reinforcing the White House stance that new U.S. energy policy will focus on promoting renewable energy sources like wind and solar power and rely less on traditional fossil fuels like oil as America tackles climate change. 

Got that? They shouldn’t get tax breaks because they “contribute to global warming”. Freakin’ incredible. An ideological reason given to deny tax breaks. Here’s government again picking winners and losers.

The Obama administration’s budget would levy an excise tax on oil and natural gas produced in the Gulf of Mexico, raising $5.3 billion in revenue from 2011 to 2019.

And in a time of financial crisis, that cost will be passed on to whom?

Obama’s budget would also place a $4 per acre annual fee on energy leases in the Gulf that are designated as nonproducing. The budget proposal projects the fee would generate $1.2 billion from 2010 to 2019.

Of course, they’re talking millions of acres out there. As Sen. Cornyn points out, it won’t be the ExxonMobile’s or the Chevrons which will be hurt by this:

Senator John Cornyn of Texas criticized the tax increases, saying they would hurt independent energy companies that provide a large share of U.S. oil and gas supplies.

“My view is that higher taxes on small and independent producers here in America will make us more dependent on imported oil and gas while we transition to cleaner energy alternatives, a goal we all share,” said Cornyn. “And it will also hurt job retention and job creation in the energy sector, which provides an awful lot of jobs in this country.”

Pure brilliance.

Yup – it’s all about “saving or creating” jobs – if government approves.

~McQ

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When “Waste” Isn’t Waste

When it comes to military procurement, President Obama says:

“I reject the false choice between securing this nation and wasting billions of taxpayer dollars,” Obama said on a day when he signed a presidential memorandum reforming the contracting system across the entire government.

But when it comes to a spending bill with 9,000 earmarks?

*crickets chirping*

Democratic Senator Evan Bayh calls it what it is – wasteful spending.

Where’s the presidential leadership on this?  If there’s waste in the procurement system and that’s a target, why isn’t waste in the spending bill also a target?

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Let Them Buy Stock

While stocks are tanking, partially due to uncertainty and skepticism over President Barack Obama’s economic agenda, the president encouraged people to invest:

As Wall Street tumbles, President Barack Obama offered up some investing advice on Tuesday, telling a wary nation that stocks are becoming a “a potentially good deal” for those willing to think long term. The White House later cautioned people not to read too much into the statement.

Obama also said he will not base policy on what he called the “day-to-day gyrations of the stock market.” The Dow Jones industrial average fell again Tuesday after plunging on Monday to it lowest level in more than 11 years.

The index has lost more than half its value since a record peak in October 2007. The toll on retirement plans, college savings and nest eggs has been huge.

“You know, the stock market is sort of like a tracking poll in politics,” Obama said during an appearance with British Prime Minister Gordon Brown. “It bobs up and down day to day, and if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

Yet lately, Wall Street’s direction has been down, period. Investors are in despair over the state of financial companies, the deepening scope of the recession and doubts about the government’s various attempts to bolster the banking sector and create jobs.

Talk show host Neal Boortz responded with this:

Is he kidding? He’s waging an all-out war against capitalism, and he wants us to buy stocks? This man who wants a government-controlled economy wants us to invest in the stock market? This is like the Surgeon General telling us to go out and have unprotected sex with drug addicted street walkers. Yeah … let’s all do that!

No doubt that stocks may improve in the future, but economic forecasts aren’t that great in the long term, considering the amount of debt being piled up and unfunded liabilities from entitlements.

And who wants to be an investor when they constantly have a target painted on their backs by politicians who make class warfare the focal point of their economic agenda?

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