"Protectionism is the crack cocaine of economics."
Richard Fisher, Dallas Federal Reserve President
Wednesday, April 01, 2009
Wednesday, March 18, 2009
You Can't Fight The Fed
The Federal Reserve sparked a rally on Wall Street Wednesday by announcing that it is allocating approximately $1.2 trillion toward open market operations designed to drive down interest rates. Clearly the Fed succeeded in its primary mission. Long-term treasury rates collapsed by about four-tenths of a percent. The dollar has also taken a hit. I wonder what the Chinese are thinking. If I were a Chinese central banker, I might ask Hillary next time she G5s her way to Beijing for a sales call why Americans shouldn't just finance their own debt if it's as simple as the Fed "expanding its balance sheet" in the form of buying treasuries.
Well, I guess maybe it's not that simple. Thursday and Friday the market took back the Wednesday's rally, but gold hasn't shut down. Gold turned on a dime Wednesday with the Fed's announcement, and continued higher through Friday. Ditto oil, and many other commodities. No, you can't just "engage quantitative easing" whenever the economy slows, and expect the action to be consequence-free.
Which is not to say I'm against attempts to "reflate". In fact, I think the Fed's move is an appropriate response to conditions, at least when viewed through a prism unobstructed by the insanity coming out of the Supreme Soviet and the President Shakedown administration. I know that's a little bit like saying I think the A's will win their division this year, IF everyone has a career year and no one is injured. But what is the Fed in business for, if not to take action to prevent the kind of deflationary spiral which most observers would agree, I think, remains a real possibility?
Indeed, Goldman Sachs chief economist Jan Hintzius said on CNBC this morning that the Fed action is not enough, and further that fiscal policy isn't stimulative enough. So I think we can say that the Fed doing nothing would be broadly considered irresponsible. And as "quantitative easing" is a term used to describe throwing cash into the system by purchasing securities on the open market, it also means "we can't lower interest rates below zero, so all we can do is print money". So that's what the Fed is going to do.
Again, if the root of our current troubles is the popping of the real estate bubble, then Fed action that would surely seem to put a floor under real estate and encourage spending (inflation means spend now, it'll be worth less later; deflation means don't spend now, it'll buy more later) seems rational. And I fully expect the markets to react well in the near to medium term. But the longer term problem is that the Federal Reserve's monetary policy isn't being applied in a vacuum. It must be viewed through the prism of the political class' fiscal policy.
When President Reagan was first elected, our nation faced economic peril which I am still contending far exceeded today's. If our current situation deteriorates to a point that it is worse than the depression of 1980-1982, then it's because instead of having a President Reagan, we have a President Shakedown. When President Reagan took office, inflation was the growth killer, because expectations of future inflation kept interest rates high. The solution was to kill inflation, but stimulate non-inflationary growth (through tax cuts). In other words, revive animal spirits, and allow risk-taking on new technologies and methods generate new wealth without printing money.
Currently, the growth killer is deflation, so we need to re-inflate, but with a bias, again, against inflationary growth. That means a bias against wasteful government spending, and in favor of entrepreneurial risk. As we are already seeing, simply inflating has consequences - if not (yet) in terms of rising interest rates, then in terms of higher commodity prices, which will impede growth rates, and thus re-employment. And, in contrast to the way in which Fed Chairman Volker's anti-inflation jihad of the early 1980s magnificently complemented Reagan fiscal policy, now we have a Fed Chairman who quite properly has signalled that he will do what it takes to prevent deflation, but who is paired with an administration that is hostile to capital, investment, and entrepreneurial risk. Thus, as Dennis Gartman repeated Wednesday after the Bell, it's still time to invest in things "that if you drop them on your foot, it hurts". You may be albe to throw out a government in two years, but you can't fight the Fed.
Well, I guess maybe it's not that simple. Thursday and Friday the market took back the Wednesday's rally, but gold hasn't shut down. Gold turned on a dime Wednesday with the Fed's announcement, and continued higher through Friday. Ditto oil, and many other commodities. No, you can't just "engage quantitative easing" whenever the economy slows, and expect the action to be consequence-free.
Which is not to say I'm against attempts to "reflate". In fact, I think the Fed's move is an appropriate response to conditions, at least when viewed through a prism unobstructed by the insanity coming out of the Supreme Soviet and the President Shakedown administration. I know that's a little bit like saying I think the A's will win their division this year, IF everyone has a career year and no one is injured. But what is the Fed in business for, if not to take action to prevent the kind of deflationary spiral which most observers would agree, I think, remains a real possibility?
Indeed, Goldman Sachs chief economist Jan Hintzius said on CNBC this morning that the Fed action is not enough, and further that fiscal policy isn't stimulative enough. So I think we can say that the Fed doing nothing would be broadly considered irresponsible. And as "quantitative easing" is a term used to describe throwing cash into the system by purchasing securities on the open market, it also means "we can't lower interest rates below zero, so all we can do is print money". So that's what the Fed is going to do.
Again, if the root of our current troubles is the popping of the real estate bubble, then Fed action that would surely seem to put a floor under real estate and encourage spending (inflation means spend now, it'll be worth less later; deflation means don't spend now, it'll buy more later) seems rational. And I fully expect the markets to react well in the near to medium term. But the longer term problem is that the Federal Reserve's monetary policy isn't being applied in a vacuum. It must be viewed through the prism of the political class' fiscal policy.
When President Reagan was first elected, our nation faced economic peril which I am still contending far exceeded today's. If our current situation deteriorates to a point that it is worse than the depression of 1980-1982, then it's because instead of having a President Reagan, we have a President Shakedown. When President Reagan took office, inflation was the growth killer, because expectations of future inflation kept interest rates high. The solution was to kill inflation, but stimulate non-inflationary growth (through tax cuts). In other words, revive animal spirits, and allow risk-taking on new technologies and methods generate new wealth without printing money.
Currently, the growth killer is deflation, so we need to re-inflate, but with a bias, again, against inflationary growth. That means a bias against wasteful government spending, and in favor of entrepreneurial risk. As we are already seeing, simply inflating has consequences - if not (yet) in terms of rising interest rates, then in terms of higher commodity prices, which will impede growth rates, and thus re-employment. And, in contrast to the way in which Fed Chairman Volker's anti-inflation jihad of the early 1980s magnificently complemented Reagan fiscal policy, now we have a Fed Chairman who quite properly has signalled that he will do what it takes to prevent deflation, but who is paired with an administration that is hostile to capital, investment, and entrepreneurial risk. Thus, as Dennis Gartman repeated Wednesday after the Bell, it's still time to invest in things "that if you drop them on your foot, it hurts". You may be albe to throw out a government in two years, but you can't fight the Fed.
China's Capital Gains Tax Rate Is What?
Recently Larry Kudlow leaped atop his ever-present soapbox to proclaim the great irony that "communist" China does not tax capital gains. That's right: China's capital gains tax rate is zero. Evidently, in "communist" China, the concept that you can keep whatever profit you can manage from a transaction (and suffer alone the consequence of a loss) does not violate or contradict "communist" theology. See contra, of course, former Democrat House Leader Richard Gephardt, who, during the Clinton administration (if memory serves), pronounced that lower capital gains rates were "anathema to Democratic Party theology"(emphsis added). There is a reason why I this was "seared" in my memory.
The capital gains tax, very simply, is a tax on capital formation, and therefore on job creation and innovation. It has little to no usefulness as a tool of economic policy or revenue generation. It is nothing but a political football. Many modern economies, in addition to China, simply don't tax capital gains. The benefits derived from what little revenue generation occurs are too easily outweighed by the destructive impact on the general economy. I will maintain over and again that a big part of the reason why we're in the mess we are is because once the Dems regained control of Congress in November, 2006, everyone knew low capital gains rates were in jeopardy, and that any hope for help on the tax front which would ameliorate the collapse of the housing bubble (largely created by Democrats in Washington) had vanished.
What prompts me to write this, however, is the appearance of Congressman John Campbell (R, Irvine), on Hugh Hewitt's show yesterday. He is going to propose a capital gains holiday for any capital investment made during 2009 and held for at least twelve months. I think this is brilliant. Rep. Campbell credited a constituent who just sent him an e-mail with the idea. I also think it has the proverbial snowball's chance in hell, sadly.
I think the Campbell proposal is brilliant because it directly addresses significant problems in the economy which are impeding growth and job creation. Specifically, it addresses the biggest problem facing us today (economy-wise) apart from toxic assets. That problem is appetite for risk. Velocity dried up last fall because there was no appetite for risk on the part of businesses, investors, consumers, or whomever. This was clearly evidenced by the 0.01% rates that obtained with respect to both the one month and three month treasury bills - in short, there was money out there, but it was parked in short-term securities. (Today, the rates are 0.11% and 0.19%, respectively.)
If investors know that they can add a minimum of 15% to their profit projections, and more likely at least 20%, by virtue of federal capital gains taxes being waived, do you think that might spark a wave of investment in capital assets which, by the way, are way down in price? That would really solve the velocity issue. And it would probably spark the creation of new businesses and employment. Capital markets would be markedly buoyed, and balance sheets would start looking much better. There would be a wave of activity, in 2009, that would provide a near-magical boost to 2009 GDP.
And, here's the really great part. There would be little to zero static reduction in capital gains tax revenue for at least twelve months, because many of these assets would not have been purchased and sold within that time frame absent the holiday. Moreover, from a dynamic standpoint, it is likely that the boost to GDP growth would generate increased revenues from other tax sources (e.g., income taxes, etc.). Any theoretical loss of revenue in the out-years would, according to the President's budget projections, occur when the economy surely will be booming and generating all sorts of revenue from other sources.
This is such a winner of an idea, the only thing that could hold it back is something like... theology. Only religious fanatics would not see the merit in this proposal - provided their concern is actually in improving the economy. Unfortunately, religious fanatics are in control, and the religion is what is very misnamed as "liberalism". I'm sure I've said it before, but "liberal" is the pre-eminent Orwellism of our time.
Liberals aren't. They've got a whole scheme of theological canons they adhere to, which are impervious to reason, and taxing capital is at the top of the list. No matter what the data show regarding manipulation of the capital gains tax rate (such as increases in revenue when rates are reduced), all these campus radicals want to do is tax capital more, because capital gains are bad. The "communists" in China have got around to deciding that this "thinking" is madness, but the campus radicals chic-ing around the Supreme Soviet in Washington love it. Ronald Reagan is rolling over in his grave because the world is upside down.
The capital gains tax, very simply, is a tax on capital formation, and therefore on job creation and innovation. It has little to no usefulness as a tool of economic policy or revenue generation. It is nothing but a political football. Many modern economies, in addition to China, simply don't tax capital gains. The benefits derived from what little revenue generation occurs are too easily outweighed by the destructive impact on the general economy. I will maintain over and again that a big part of the reason why we're in the mess we are is because once the Dems regained control of Congress in November, 2006, everyone knew low capital gains rates were in jeopardy, and that any hope for help on the tax front which would ameliorate the collapse of the housing bubble (largely created by Democrats in Washington) had vanished.
What prompts me to write this, however, is the appearance of Congressman John Campbell (R, Irvine), on Hugh Hewitt's show yesterday. He is going to propose a capital gains holiday for any capital investment made during 2009 and held for at least twelve months. I think this is brilliant. Rep. Campbell credited a constituent who just sent him an e-mail with the idea. I also think it has the proverbial snowball's chance in hell, sadly.
I think the Campbell proposal is brilliant because it directly addresses significant problems in the economy which are impeding growth and job creation. Specifically, it addresses the biggest problem facing us today (economy-wise) apart from toxic assets. That problem is appetite for risk. Velocity dried up last fall because there was no appetite for risk on the part of businesses, investors, consumers, or whomever. This was clearly evidenced by the 0.01% rates that obtained with respect to both the one month and three month treasury bills - in short, there was money out there, but it was parked in short-term securities. (Today, the rates are 0.11% and 0.19%, respectively.)
If investors know that they can add a minimum of 15% to their profit projections, and more likely at least 20%, by virtue of federal capital gains taxes being waived, do you think that might spark a wave of investment in capital assets which, by the way, are way down in price? That would really solve the velocity issue. And it would probably spark the creation of new businesses and employment. Capital markets would be markedly buoyed, and balance sheets would start looking much better. There would be a wave of activity, in 2009, that would provide a near-magical boost to 2009 GDP.
And, here's the really great part. There would be little to zero static reduction in capital gains tax revenue for at least twelve months, because many of these assets would not have been purchased and sold within that time frame absent the holiday. Moreover, from a dynamic standpoint, it is likely that the boost to GDP growth would generate increased revenues from other tax sources (e.g., income taxes, etc.). Any theoretical loss of revenue in the out-years would, according to the President's budget projections, occur when the economy surely will be booming and generating all sorts of revenue from other sources.
This is such a winner of an idea, the only thing that could hold it back is something like... theology. Only religious fanatics would not see the merit in this proposal - provided their concern is actually in improving the economy. Unfortunately, religious fanatics are in control, and the religion is what is very misnamed as "liberalism". I'm sure I've said it before, but "liberal" is the pre-eminent Orwellism of our time.
Liberals aren't. They've got a whole scheme of theological canons they adhere to, which are impervious to reason, and taxing capital is at the top of the list. No matter what the data show regarding manipulation of the capital gains tax rate (such as increases in revenue when rates are reduced), all these campus radicals want to do is tax capital more, because capital gains are bad. The "communists" in China have got around to deciding that this "thinking" is madness, but the campus radicals chic-ing around the Supreme Soviet in Washington love it. Ronald Reagan is rolling over in his grave because the world is upside down.
Wednesday, March 11, 2009
Quote of the Day
“Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.” Winston Churchill
Tuesday, March 10, 2009
Today's Markets
Today was a banner day for the stock market. After the worst January in History, and the worst February since 1931, the major averages had their best day since a couple of big rebound days last fall. The Dow gained 379.44(5.80%), while the Nasdaq gained 89.68(7.07%), and the S&P gained 43.07(6.37%). This constitutes the first rally attempt of the Obama Bear Market.
These numbers are very impressive; however, their significance, or lack thereof, will be revealed in the next few days of trading. Do we have a new bull market at hand? A strong counter-trend rally? A dud? A big rally on high volume Friday or next Monday would be an excellent sign. Contrary-wise, a failure to see such a rally in the next week will bode ill. In any case, today's action is the type which typically signals a new rally - it just doesn't guarantee one.
Two major factors have been cited for the rally. First, a news item that Citibank was profitable for the first two months of the year buoyed confidence that there is hope in the financial sector. Second, but perhaps more importantly, the criminal Barney Frank indicated that his House committee would revisit the uptick rule. The suspension of this rule, which formerly prevented short sellers from taking a position on a "down tick", has been cited innumerable times by the likes of Jim Cramer, Larry Kudlow, Steve Forbes, and others as a major factor in the market's crash. I absolutely adhere to this school of thought, and in fact believe that it worked in diabolical combination with FASB 157 ("mark-to-market") to annihilate financial stocks.
I also think a third factor was at work as well. Last week, I opined in the midst of the insanity coming out of the Shakedown administration, and the accompanying market meltdown, that the spark for a new rally would come from a congressional defeat visited upon the administration vis-a-vis its budget, or some other major agenda item (card check?). I think something akin to this was at work today. Over the weekend, and continuing today, we have seen a number of big names who voted for Obama question his priorities. In fact, it would not be an exaggeration to say that at least some of these people expressed buyer's remorse. On Monday, Warren Buffet, a notorious rich Democrat, in so many words said this guy's priorities are all screwed up. Last week Jim Cramer called Mugabe administration policy "insane". Over the weekend, several liberal pundits evidently felt safe to come out of the closet on the administration's flat earth economic policy.
I think the market, in addition to factors one and two above, was buoyed by the notion that there are just enough sane democrats, in office and/or in punditry, to put a check on President Shakedown's efforts to take down the economy. Watch how these atmospherics progress as you watch the markets. Perhaps, to the extent the Mugabe administration is forced to retreat, we will see a market rally. Watch especially for word from Washington concerning FASB 157 - Steve Forbes said over the weekend that the Dow would rally 3000 points in a month if FASB 157 was junked, and the uptick rule reinstated. Beyond that, I don't think there's a great deal of potential in this market, because the campus radicals still dominate D.C. And remember, the averages still have a little ways to go just to climb back to what only recently were considered rock bottom support levels. Let's all take a look at this post at the end of the month and see how things turned out.
These numbers are very impressive; however, their significance, or lack thereof, will be revealed in the next few days of trading. Do we have a new bull market at hand? A strong counter-trend rally? A dud? A big rally on high volume Friday or next Monday would be an excellent sign. Contrary-wise, a failure to see such a rally in the next week will bode ill. In any case, today's action is the type which typically signals a new rally - it just doesn't guarantee one.
Two major factors have been cited for the rally. First, a news item that Citibank was profitable for the first two months of the year buoyed confidence that there is hope in the financial sector. Second, but perhaps more importantly, the criminal Barney Frank indicated that his House committee would revisit the uptick rule. The suspension of this rule, which formerly prevented short sellers from taking a position on a "down tick", has been cited innumerable times by the likes of Jim Cramer, Larry Kudlow, Steve Forbes, and others as a major factor in the market's crash. I absolutely adhere to this school of thought, and in fact believe that it worked in diabolical combination with FASB 157 ("mark-to-market") to annihilate financial stocks.
I also think a third factor was at work as well. Last week, I opined in the midst of the insanity coming out of the Shakedown administration, and the accompanying market meltdown, that the spark for a new rally would come from a congressional defeat visited upon the administration vis-a-vis its budget, or some other major agenda item (card check?). I think something akin to this was at work today. Over the weekend, and continuing today, we have seen a number of big names who voted for Obama question his priorities. In fact, it would not be an exaggeration to say that at least some of these people expressed buyer's remorse. On Monday, Warren Buffet, a notorious rich Democrat, in so many words said this guy's priorities are all screwed up. Last week Jim Cramer called Mugabe administration policy "insane". Over the weekend, several liberal pundits evidently felt safe to come out of the closet on the administration's flat earth economic policy.
I think the market, in addition to factors one and two above, was buoyed by the notion that there are just enough sane democrats, in office and/or in punditry, to put a check on President Shakedown's efforts to take down the economy. Watch how these atmospherics progress as you watch the markets. Perhaps, to the extent the Mugabe administration is forced to retreat, we will see a market rally. Watch especially for word from Washington concerning FASB 157 - Steve Forbes said over the weekend that the Dow would rally 3000 points in a month if FASB 157 was junked, and the uptick rule reinstated. Beyond that, I don't think there's a great deal of potential in this market, because the campus radicals still dominate D.C. And remember, the averages still have a little ways to go just to climb back to what only recently were considered rock bottom support levels. Let's all take a look at this post at the end of the month and see how things turned out.
Sunday, March 08, 2009
Today's Economics Lesson
The following quote is from Douglas Holz-Eakin, economist and former director of the Congressional Budget Office. It is from a forum of economists and others (including Jim Cramer) pondering the wisdom, propriety, and "fairness" of President Shakedown's "soak the rich" policy.
The phenomenon described above is something any reasonably far-sighted person could have discerned as our economy has moved in stages from agriculturally-based, to "smokestack", to "information", and now, it appears, to "imagination"-based. The Wall Street Journal discussed this matter thoroughly in a series of editorials two decades ago. Continually, the WSJ spoke of "returns to education" increasing as our economy became more knowledge-based. This fact of life raises a whole host of questions about policy-making, not least of which, it seems, is whether certain people in policy-making positions are going to pretend to ignore it for political reasons.
The topic of how returns to education, and not tax cuts, is the root cause of (previously) widening income/weatlh distribution is properly the subject of a book, so it's going to be difficult to keep all I have to say to reasonable post length. The first hurdle to clear in analyzing the phenomenon is whether one will choose to accept that widening income distribution is a function of education becoming more and more valuable as an economy becomes more and more knowledge/information/imagination-based. The next point of analysis would be: is this bad, and if so, what do you do about it?
Personally, I am not real keen on widening income distribution, for reasons that are rarely, if ever, discussed in the popular media. However, it has to be viewed in the context of alternatives. If the creation of greater wealth by virtue of both a greater store of and ability to manipulate and apply knowledge and information is taken as a good, then why would you want to discourage the same by, for example, taxing it? Do we really want to discourage the accumulation of knowledge in the name of "distributive fairness"? As preposterous as this notion sounds, I think it is particularly so because the more freely knowledge is accumulated, manipulated, and applied, the greater the increase in living standards in, for example, the lowest income quintile. This, to me, is especially important because that is where increasing living standards is especially important.
Conversely, slowing the accumulation of knowledge and its application by artificially suppressing the application of knowledge is the same as slowing the creation of wealth, which is going to hit the poor the hardest. Taxing capital gains, dividends, and interest, as well as ordinary income, at higher rates is the functional equivalent of suppressing the accumulation and application of knowledge. It is a burden on wealth creation. And lest you think to yourself, "who cares about wealth creation, the wealthy have enough", I ask you to analyze the matter in light of recent experience. The opposite of wealth creation is wealth destruction, and if some rich person has 50% of their wealth destroyed, they're still rich - if a person of more modest means has 50% of their wealth destroyed, they're in trouble. You may have greater wealth equality, but you also have more hardship.
To sum up, growing disparities in wealth (which have likely been more than arrested in the last six months) were the result not of Bush or Reagan tax policy, but of the modern economic reality of education's greater and growing value relative to unskilled or modestly skilled labor. Addressing this problem by instituting policies that cause wealth destruction may bring greater equality, but hurt lower quintile earners too much. A better approach is to continute to encourage accumulation and application of knowledge through education, seek to expand true educational opportunities and choice, and expand awareness among those who do not avail themselves maximally of education that opportunities abound for separating from those who do all that excess cash they'll be accumulating. That, and maybe reducting the supply of lower-skilled workers by clamping down on illegal immigration. You think any good liberal would be keen to help the poor among us by applying that basic fix?
This is a misguided policy toward fairness. Rising inequality is a 30-year process with its roots in skills and education -- not tax policy -- and creating punitively high top tax rates to fund checks for low-earners does not address the underlying issues.
The phenomenon described above is something any reasonably far-sighted person could have discerned as our economy has moved in stages from agriculturally-based, to "smokestack", to "information", and now, it appears, to "imagination"-based. The Wall Street Journal discussed this matter thoroughly in a series of editorials two decades ago. Continually, the WSJ spoke of "returns to education" increasing as our economy became more knowledge-based. This fact of life raises a whole host of questions about policy-making, not least of which, it seems, is whether certain people in policy-making positions are going to pretend to ignore it for political reasons.
The topic of how returns to education, and not tax cuts, is the root cause of (previously) widening income/weatlh distribution is properly the subject of a book, so it's going to be difficult to keep all I have to say to reasonable post length. The first hurdle to clear in analyzing the phenomenon is whether one will choose to accept that widening income distribution is a function of education becoming more and more valuable as an economy becomes more and more knowledge/information/imagination-based. The next point of analysis would be: is this bad, and if so, what do you do about it?
Personally, I am not real keen on widening income distribution, for reasons that are rarely, if ever, discussed in the popular media. However, it has to be viewed in the context of alternatives. If the creation of greater wealth by virtue of both a greater store of and ability to manipulate and apply knowledge and information is taken as a good, then why would you want to discourage the same by, for example, taxing it? Do we really want to discourage the accumulation of knowledge in the name of "distributive fairness"? As preposterous as this notion sounds, I think it is particularly so because the more freely knowledge is accumulated, manipulated, and applied, the greater the increase in living standards in, for example, the lowest income quintile. This, to me, is especially important because that is where increasing living standards is especially important.
Conversely, slowing the accumulation of knowledge and its application by artificially suppressing the application of knowledge is the same as slowing the creation of wealth, which is going to hit the poor the hardest. Taxing capital gains, dividends, and interest, as well as ordinary income, at higher rates is the functional equivalent of suppressing the accumulation and application of knowledge. It is a burden on wealth creation. And lest you think to yourself, "who cares about wealth creation, the wealthy have enough", I ask you to analyze the matter in light of recent experience. The opposite of wealth creation is wealth destruction, and if some rich person has 50% of their wealth destroyed, they're still rich - if a person of more modest means has 50% of their wealth destroyed, they're in trouble. You may have greater wealth equality, but you also have more hardship.
To sum up, growing disparities in wealth (which have likely been more than arrested in the last six months) were the result not of Bush or Reagan tax policy, but of the modern economic reality of education's greater and growing value relative to unskilled or modestly skilled labor. Addressing this problem by instituting policies that cause wealth destruction may bring greater equality, but hurt lower quintile earners too much. A better approach is to continute to encourage accumulation and application of knowledge through education, seek to expand true educational opportunities and choice, and expand awareness among those who do not avail themselves maximally of education that opportunities abound for separating from those who do all that excess cash they'll be accumulating. That, and maybe reducting the supply of lower-skilled workers by clamping down on illegal immigration. You think any good liberal would be keen to help the poor among us by applying that basic fix?
Friday, February 27, 2009
The California (Banana) Republic
A couple of years ago, one of my dear wife's relatives, a highly intelligent individual (as they tend to be), a Maine-iac, asked me how things were in California. I told him exactly what I thought: "California is a banana republic". He scoffed. A "banana republic", he said, is like, what? Guatemala? Honduras? Not California. "Mark my words", I told him. "The state government is a joke, and it's run by jokers".
I'm not going to bother remarking on the recent budget battle, except to note that a number of states were able to run surpluses and establish rainy day funds while the economy was booming and revenues were gushing. California couldn't get out of deficit if the economy was growing 10% per year. We don't have economic problems so much as we have political problems.
But no, I'm not writing this because of the old news that the state can't pass a budget on time, or balance one. I'm writing this because of the news today that the unemployment rate in California has eclipsed 10%, for the first time since 1983. A year ago, the rate was in the low sixes. California's unemployment rate is probably a good 2% higher than the national average. That is just inexcusable.
I can understand why Michigan, for example, battles high unemployment. Or, for that matter, why several other states whose economies are heavily dependent on cyclical industries might suffer. But California is so big, and its economy so diverse (ugghh!), that there is just no good reason why California should suffer more than most states. No good reason, but there is a reason. It's been turned into a banana republic. Warning to the rest of the country - President Mugabe wants to do for the rest of you what's been done to the (formerly) Golden State.
I'm not going to bother remarking on the recent budget battle, except to note that a number of states were able to run surpluses and establish rainy day funds while the economy was booming and revenues were gushing. California couldn't get out of deficit if the economy was growing 10% per year. We don't have economic problems so much as we have political problems.
But no, I'm not writing this because of the old news that the state can't pass a budget on time, or balance one. I'm writing this because of the news today that the unemployment rate in California has eclipsed 10%, for the first time since 1983. A year ago, the rate was in the low sixes. California's unemployment rate is probably a good 2% higher than the national average. That is just inexcusable.
I can understand why Michigan, for example, battles high unemployment. Or, for that matter, why several other states whose economies are heavily dependent on cyclical industries might suffer. But California is so big, and its economy so diverse (ugghh!), that there is just no good reason why California should suffer more than most states. No good reason, but there is a reason. It's been turned into a banana republic. Warning to the rest of the country - President Mugabe wants to do for the rest of you what's been done to the (formerly) Golden State.
Today's Economics Lesson - Laying Down the Laws
Previously on this blog we have discussed Hauser's Law, which holds that changes in income tax rates don't meaningfully alter income tax revenues as a percentage of GDP. We have also recently discussed Santelli's Law, which holds that in order to decrease deficits, you must increase GDP. Now, I give you, Thacker's Law. It is as follows:
Increases in tax rates NEVER yield the increases in tax revenues its proponents predict; and decreases in tax rates NEVER yield the reductions in tax revenues its opponents predict.
Thursday, February 26, 2009
The Radical President
This morning Rush read the last paragraph of Daniel Henninger's WSJ column, entitled "The Radical Presidency". Herewith that paragraph:
Mr. Henninger is exactly right. He is also right that this is a "radical presidency", and a radical president. As I've said, Barack Mugabe intends to take down the country by inducing a depression, so that he can remake it in his image. Republicans have to start explaining this now - and offer bold alternatives - in order to realize the big gains in 2010 that are both (a) achievable; and (b) necessary to derail the stealth coup d'etat that the President is attempting.
What form do I think "Republican Radicalism" should take? I don't have enough time or space, so I'll distill the matter to two simple elements. First, explain how Mugabe is doing everything wrong, assuming he wants to bring about recovery. Raising tax rates in a recession is exactly the wrong thing to do - it is exactly what Hoover tried; moreover, it will not raise revenues as expected. Lowering the mortgage interest deduction is exactly the wrong thing to do, if you want to shore up asset values. Raising taxes on interest, dividends, and capital gains is exactly the wrong thing to do, if you want to support asset values and facilitate lending. This is how we begin to pin the depression on Mugabe. Another job will be to talk, talk, talk about how affirmative action lending got us to this place; blame it on Mugabe (through his association with ACORN); and point out that all of this spending is going to make things worse, not stimulate.
Element #2 of Republican Radicalism is its affirmative side. It can be summed up in two words: flat tax. Now is the time. Stop playing games with the tax code every time an election shifts the balance of power; stop "spreading the wealth" to accountants and tax and estate lawyers; and go institute a simple, understandable system under which higher income taxpayers will pay much more than lower earners, but not face 50%-plus taxes on each additional dollar earned. The efficiencies and incentive benefits would be so stupendously great that we just might be able to cut the deficit in half in four years.
Per Mr. Henninger, Republicans need to go radical. I say this means go libertarian. Not as libertarian as Libertarians would go, but take a bold step in their direction. Put this simple choice to the voters: do we want to sustain our heritage of limited government - the ethos that made this country more than any other; or do we want to be a nation of unlimited and unrestrained government? Where is the historical basis for that? Pushing the flat tax would throw down a gauntlet of our own, and go a long way toward exposing which is the party that can't live without getting all in your business.
Gov. Bobby Jindal's post-speech reply did not come close to recognizing the gauntlet Mr. Obama has thrown down to the opposition. Unless the GOP can discover a radical message of its own to distinguish it from the president's, it should prepare to live under Mr. Obama's radicalism for at least a generation.
Mr. Henninger is exactly right. He is also right that this is a "radical presidency", and a radical president. As I've said, Barack Mugabe intends to take down the country by inducing a depression, so that he can remake it in his image. Republicans have to start explaining this now - and offer bold alternatives - in order to realize the big gains in 2010 that are both (a) achievable; and (b) necessary to derail the stealth coup d'etat that the President is attempting.
What form do I think "Republican Radicalism" should take? I don't have enough time or space, so I'll distill the matter to two simple elements. First, explain how Mugabe is doing everything wrong, assuming he wants to bring about recovery. Raising tax rates in a recession is exactly the wrong thing to do - it is exactly what Hoover tried; moreover, it will not raise revenues as expected. Lowering the mortgage interest deduction is exactly the wrong thing to do, if you want to shore up asset values. Raising taxes on interest, dividends, and capital gains is exactly the wrong thing to do, if you want to support asset values and facilitate lending. This is how we begin to pin the depression on Mugabe. Another job will be to talk, talk, talk about how affirmative action lending got us to this place; blame it on Mugabe (through his association with ACORN); and point out that all of this spending is going to make things worse, not stimulate.
Element #2 of Republican Radicalism is its affirmative side. It can be summed up in two words: flat tax. Now is the time. Stop playing games with the tax code every time an election shifts the balance of power; stop "spreading the wealth" to accountants and tax and estate lawyers; and go institute a simple, understandable system under which higher income taxpayers will pay much more than lower earners, but not face 50%-plus taxes on each additional dollar earned. The efficiencies and incentive benefits would be so stupendously great that we just might be able to cut the deficit in half in four years.
Per Mr. Henninger, Republicans need to go radical. I say this means go libertarian. Not as libertarian as Libertarians would go, but take a bold step in their direction. Put this simple choice to the voters: do we want to sustain our heritage of limited government - the ethos that made this country more than any other; or do we want to be a nation of unlimited and unrestrained government? Where is the historical basis for that? Pushing the flat tax would throw down a gauntlet of our own, and go a long way toward exposing which is the party that can't live without getting all in your business.
Quote of the Day
“No American is ever made better off by pulling another American down, and every American is made better off whenever any one of us is made better off. A rising tide raises all boats.” John F. Kennedy
Wednesday, February 25, 2009
The Obama Depression
Our favorite columnist, Holman Jenkins, lays it all out for us today. He wrote the column I would have wanted to write. I've been contending that President Mugabe-Wannabe doesn't give a damn about the economy. His concern is getting even with The Man, and he's going to try it because he thinks he can blame Bush for everything he purposely does to screw things up. If you think I'm crazy, just watch him.
Let's hope Holman Jenkins is correct in his prediction as to where this cowardly strategy will take the Obamalama:
We can only hope. But I'm telling you now he's sowing the seeds, with his Depression policy, of what will be (finally) "the worst economy since the Great Depression".
The quote above is actually from the end of Mr. Jenkins' column. He began by quoting the Obamessiah himself, from the inaugural: "Put away childish things..." Mr. Jenkins has a list of things for the President to put away, as follows:
1. "Put away the global warming panic";
2. "Put away the 'energy independence' conceit";
3. "Put away Ponzi welfarism"; and
4. "Put away class warfare tax politics".
I'm not holding my breath. We have no reason to believe the crack dealer in-chief is anything other than a Chicago race-hustling thug - apart from his Sidney Poitier sweet talk. For all the talk of change, hope, post-this, and post-that, the "stimulus" told us all we need to know: as Mr. Jenkins described it, once in office, his interest is in fulfilling the wish lists of those who put [him] there."
If nothing else, says Mr. Jenkins, this is going to be a fascinating presidency.
After 9/11, many of us hoped that our political "leadership" would wake up to a new world in which clownishness and ancient shibboleths would no longer be tolerated. Sadly, the clowns, communists, and incompetents fought tooth-and-nail to preserve their positions, using every dirtbag trick in the dirtbag politician's book. Look at where we are now, as a consequence. And the ultimate dirtbag, President Shakedown, is betting his presidency on his ability to sell more of the disease as a cure, with his ability to blame the resulting depression on his predecessor as the backstop. Mark my words: he intends to sink the country.
Let's hope Holman Jenkins is correct in his prediction as to where this cowardly strategy will take the Obamalama:
He kids himself if he thinks he will be allowed, like FDR, to preside over a Depression without being blamed for it. The public is different now - the world is different - and he will own the "Obama Depression" sooner than he thinks.
We can only hope. But I'm telling you now he's sowing the seeds, with his Depression policy, of what will be (finally) "the worst economy since the Great Depression".
The quote above is actually from the end of Mr. Jenkins' column. He began by quoting the Obamessiah himself, from the inaugural: "Put away childish things..." Mr. Jenkins has a list of things for the President to put away, as follows:
1. "Put away the global warming panic";
2. "Put away the 'energy independence' conceit";
3. "Put away Ponzi welfarism"; and
4. "Put away class warfare tax politics".
I'm not holding my breath. We have no reason to believe the crack dealer in-chief is anything other than a Chicago race-hustling thug - apart from his Sidney Poitier sweet talk. For all the talk of change, hope, post-this, and post-that, the "stimulus" told us all we need to know: as Mr. Jenkins described it, once in office, his interest is in fulfilling the wish lists of those who put [him] there."
If nothing else, says Mr. Jenkins, this is going to be a fascinating presidency.
But his presidency will get really interesting in a year or two, or six months - whenever he finally realizes that everything he thought he wanted to do is irrelevant. He'll then have to adapt an agenda for the world as it is, in which many childish things no longer have a place.
After 9/11, many of us hoped that our political "leadership" would wake up to a new world in which clownishness and ancient shibboleths would no longer be tolerated. Sadly, the clowns, communists, and incompetents fought tooth-and-nail to preserve their positions, using every dirtbag trick in the dirtbag politician's book. Look at where we are now, as a consequence. And the ultimate dirtbag, President Shakedown, is betting his presidency on his ability to sell more of the disease as a cure, with his ability to blame the resulting depression on his predecessor as the backstop. Mark my words: he intends to sink the country.
Kudlow's Take, Santelli's Law
President Hope-a-Dope is continuing to spook the markets. Which is not to discount the lousy existing home sales data (though this didn't surprise anyone). The overall theme is that there is a continuing absense of detail characterizing the administration's economic policy musings. This lends credence to the suspicion (which is reasonably based on his history as a Chicago racial agitator and the most leftist - according to Roll Call - member of the U.S. Senate, as well as his campaign rhetoric) that this guy is the Mugabe wannabe his biography suggests.
Larry Kudlow divines from the speech last night a likelihood of rising marginal tax rates, as well as a costly new regulatory regime (e.g., cap-and-trade, etc.). Steve Leesman then chimes in that he doesn't see the big deal about a two percentage-point increase in marginal rates. I do. The problem is appetite for risk. And that gets to the heart of the matter with this administration: it's not doing anything to increase anyone's appetite for risk, and doesn't seem to care.
Rick Santelli has been terrific through this period. To Leesman's sympathy with the notion that deficits can be reduced by raising marginal rates, Santelli expounds what I will now dub "Santelli's Law". "Deficits come down when the economy generates revenue. That's the dynamic." Santelli continued on this theme to describe the concern of traders as he sees it: "How deep is this (deficit) hole going to be, and are we going to be able to pull ourselves out next time?"
The problem we are going to be facing over the next several years, very simply, is how a program of massive spending is going to be financed, especially given what I will refer to as the "China Syndrome" (a matter that will be discussed in another post shortly). If we don't "generate revenue", we're in big trouble. That means we have to grow. And we're not seeing anything from the administration that is truly pro-growth. Congress is comprised of clowns, communists, and incompetents, and the markets know it (when Barney Frank and Chris Dodd are chairing the committees before which Ben Bernanke testifies, how can you feel optimistic?). President Mugabe-Wannabe is "hostile to capital" (per Larry Kudlow), and the markets know it. Hence, Louise Yamada's prediction (see "Scary Charts", December 3, 2008) is looking more likely. Have a nice day.
Larry Kudlow divines from the speech last night a likelihood of rising marginal tax rates, as well as a costly new regulatory regime (e.g., cap-and-trade, etc.). Steve Leesman then chimes in that he doesn't see the big deal about a two percentage-point increase in marginal rates. I do. The problem is appetite for risk. And that gets to the heart of the matter with this administration: it's not doing anything to increase anyone's appetite for risk, and doesn't seem to care.
Rick Santelli has been terrific through this period. To Leesman's sympathy with the notion that deficits can be reduced by raising marginal rates, Santelli expounds what I will now dub "Santelli's Law". "Deficits come down when the economy generates revenue. That's the dynamic." Santelli continued on this theme to describe the concern of traders as he sees it: "How deep is this (deficit) hole going to be, and are we going to be able to pull ourselves out next time?"
The problem we are going to be facing over the next several years, very simply, is how a program of massive spending is going to be financed, especially given what I will refer to as the "China Syndrome" (a matter that will be discussed in another post shortly). If we don't "generate revenue", we're in big trouble. That means we have to grow. And we're not seeing anything from the administration that is truly pro-growth. Congress is comprised of clowns, communists, and incompetents, and the markets know it (when Barney Frank and Chris Dodd are chairing the committees before which Ben Bernanke testifies, how can you feel optimistic?). President Mugabe-Wannabe is "hostile to capital" (per Larry Kudlow), and the markets know it. Hence, Louise Yamada's prediction (see "Scary Charts", December 3, 2008) is looking more likely. Have a nice day.
Sunday, February 22, 2009
Investment Thought of the Day
Don Luskin appeared on Larry Kudlow's show Friday and announced the coming of $2000 gold. His argument is compelling. The Fed's "balance sheet" has been vastly expanded, and there's zero chance that it will be meaningfully contracted during any recovery. That would require an awful lot of political will, and might in any event be undermined by Mugabe, err, Obama administration policy a la Jimmy Carter vis-a-vis Paul Volker, c.1979-80.
In a "Clash of the Titans" moment, David Malpass begged to differ. He says that according to official Fed records, the Fed has already begun to suck up liquidity (presumably, by selling treasuries from its inventory). Luskin's response: "How do you know when the Fed is lying? Its lips are moving."
I think any rational observer must presume that when a government, any government, finds itself in a bind, it's going to do what comes naturally. Inflate. However, as a self-certified wannabe economist, I can't just let that go without a good, solid, "on the other hand". I have heard Bernanke speak at length on his scholarly efforts as a specialist in Great Depression studies (Prozac alert), and I can readily conceive that he would like to undo with much haste any monetary excess he necessarily, but regrettably, promoted. On the other hand, like I said, Carter's Treasury Department engaged in some monetary engineering to undermine Chairman Volker's efforts to slay the inflation beast, so I certainly wouldn't put such past President Hope-a-Dope.
In a "Clash of the Titans" moment, David Malpass begged to differ. He says that according to official Fed records, the Fed has already begun to suck up liquidity (presumably, by selling treasuries from its inventory). Luskin's response: "How do you know when the Fed is lying? Its lips are moving."
I think any rational observer must presume that when a government, any government, finds itself in a bind, it's going to do what comes naturally. Inflate. However, as a self-certified wannabe economist, I can't just let that go without a good, solid, "on the other hand". I have heard Bernanke speak at length on his scholarly efforts as a specialist in Great Depression studies (Prozac alert), and I can readily conceive that he would like to undo with much haste any monetary excess he necessarily, but regrettably, promoted. On the other hand, like I said, Carter's Treasury Department engaged in some monetary engineering to undermine Chairman Volker's efforts to slay the inflation beast, so I certainly wouldn't put such past President Hope-a-Dope.
Friday, February 20, 2009
Quote of the Day
“It is quite easy to get change. It is not so easy to get progress.”
Emperor Franz-Josef
Emperor Franz-Josef
Thursday, February 19, 2009
Andrew Jackson on Religious Tolerance
"General" Jackson was villified throughout his public life as an uncouth backwoods ruffian, not totally without justification. For example, do you think John Quincy Adams would have been caught dead (pun alert) on a dueling ground? Nevertheless, Jackson was clearly a very bright man, and his self-education is awe-inspiring.
In Robert Remini's "The Course of American Democracy, 1833-1845", we find an anecdote in which an old woman so feared for the nation, due to the "late arrival of catholicks to our peaceful and happy land", that her granddaughter was moved to write the General for reassurance that he wasn't himself a closet "catholick", intent on establishing an "Inquisition in the United States". The General's response:
Judge the tree by its fruit, have charity toward all those whose walks correspond with their professions, in so far as their professions are charitable, and recall the glory of our "excellent" Constitution and its First Amendment.
In Robert Remini's "The Course of American Democracy, 1833-1845", we find an anecdote in which an old woman so feared for the nation, due to the "late arrival of catholicks to our peaceful and happy land", that her granddaughter was moved to write the General for reassurance that he wasn't himself a closet "catholick", intent on establishing an "Inquisition in the United States". The General's response:
I was brought up a rigid Presbeterian, to which I have always adhered. Our excellent constitution guarantees to every one freedom of religion, and charity tells us, and you know Charity is the reall basis of all true religion, and charity says judge the tree by its fruit, all who profess christianity, believe in a Saviour and that by and through him we must be saved. We ought therefore to consider all good christians, whose walks correspond with their professions, be him Presbeterian, Episcopalian, Baptist, methodist or Roman catholic , let it be always remembered by your Grandmother that no estalished religion can exist under our glorious constitution.
Judge the tree by its fruit, have charity toward all those whose walks correspond with their professions, in so far as their professions are charitable, and recall the glory of our "excellent" Constitution and its First Amendment.
Today's History Lesson
Is from "Andrew Jackson, The Course of American Democracy, 1833-1845", by Robert Remini:
Imagine. No need for the central government to get all in everyone's business, so it consists of the Post Office, the Land Office, and little else. No wonder Jackson paid off the national debt.
Under Jackson virtually every federal department was 'reformed', and the Post Office and Land Office, which employed more than three-fourths of the civilian personnel of the entire government, underwent major overhauls. (Emphasis added.)
Imagine. No need for the central government to get all in everyone's business, so it consists of the Post Office, the Land Office, and little else. No wonder Jackson paid off the national debt.
The Chicago Tea Party
Anyone reading this who hasn't seen the video of Rick Santelli on the floor of the Chicago Merc today should check it out at cnbc.com. Rush played the audio on his show. Santelli flat out said this stimulus is idiotic, and got a huge cheer from the traders. Specifically, he took huge issue with the notion of the Keynesian "multiplier", calling it nothing but an excuse to spend other people's money. He pointed out pointedly that if the "multiplier" is such an awesome trick, why don't we just print a trillion dollars an hour and make everyone rich? The reaction he got from the traders was very heartening. Real people not getting a government check understand the awful implications.
The CNBC crew asked Santelli if he'd like to take the disputed Illinois Senate seat. His response was top-notch: "You could never get me to go to Washington. I wouldn't want to have to take a shower every hour."
Incidentally, Rush also played audio of Larry Summers proudly proclaiming himself "Keynesian". I won't call myself an "expert", but I don't think even Keynes was a "Keynesian". But there we have it. Top Mugabe, errr, Obama economic advisor proudly admits that he's a believer in government-knows-best, central planning, stagflation inducing, ruin. All the potentially effective tools at their disposal, and all they can think about is the orgiastic spree they're going to have because in 1936 this guy came up with a theory suggesting that government spending might be an effective counter-cyclical measure, which he himself acknowledged might be full of holes. Gold, the TBTs, and/or, as Dennis Gartman reiterated last week, anything that "when you drop it on your foot, it hurts".
The CNBC crew asked Santelli if he'd like to take the disputed Illinois Senate seat. His response was top-notch: "You could never get me to go to Washington. I wouldn't want to have to take a shower every hour."
Incidentally, Rush also played audio of Larry Summers proudly proclaiming himself "Keynesian". I won't call myself an "expert", but I don't think even Keynes was a "Keynesian". But there we have it. Top Mugabe, errr, Obama economic advisor proudly admits that he's a believer in government-knows-best, central planning, stagflation inducing, ruin. All the potentially effective tools at their disposal, and all they can think about is the orgiastic spree they're going to have because in 1936 this guy came up with a theory suggesting that government spending might be an effective counter-cyclical measure, which he himself acknowledged might be full of holes. Gold, the TBTs, and/or, as Dennis Gartman reiterated last week, anything that "when you drop it on your foot, it hurts".
Cramer Nails It Again
Jim Cramer today made one of his best remarks ever on a matter not strictly investment-related. He told that idiot Mike Barnacle that if our Crack Dealer In-Chief, Barack Mugabe, really cared about fixing the economy, he'd call Ben Bernanke into the Oval Office and say "Ben, what should I do?".
Part of the significance of this lies in the fact that Cramer (again, I don't agree with him on a lot of things, but at least he isn't going to try to force me to admit that the sun sets in the east) was a famously outspoken critic of Mr. Bernanke in 2007. Nevertheless, he acknowledges the Fed Chairman's particular expertise in Great Depression Studies (did he get free Prozac for that?), and his deft handling of our financial crisis from a monetary standpoint.
I can't help noting that this remark came in the context of idiot Barnacle's hectoring of Cramer regarding why Wall Street can't rally in support of recovery and the good ole USofA. Cramer told him flat-out it's because there's nothing to rally about - this administration acts like it doesn't have a clue. Remember, Cramer is a self-identified Dem.
Part of the significance of this lies in the fact that Cramer (again, I don't agree with him on a lot of things, but at least he isn't going to try to force me to admit that the sun sets in the east) was a famously outspoken critic of Mr. Bernanke in 2007. Nevertheless, he acknowledges the Fed Chairman's particular expertise in Great Depression Studies (did he get free Prozac for that?), and his deft handling of our financial crisis from a monetary standpoint.
I can't help noting that this remark came in the context of idiot Barnacle's hectoring of Cramer regarding why Wall Street can't rally in support of recovery and the good ole USofA. Cramer told him flat-out it's because there's nothing to rally about - this administration acts like it doesn't have a clue. Remember, Cramer is a self-identified Dem.
Wednesday, February 18, 2009
The Lilly Ledbetter Fair Pay Act
This is yet another example of why I have zero confidence that President Hope-a-Dope cares the least little bit about putting people back to work and liberating them from government subsidies. The only people it will put to work are lawyers. This job-killing abomination pre-empts state statutes of limitations (typically 180-300 days following termination, with many exceptions) on suits alleging gender or racial discrimination, and extends them to twenty years!As Steve Forbes remarks: "Can the President please show us how this incentive for costly lawsuit abuse aids future job creation?"
Larry Kudlow Is Keeping Track
Larry the K notes that since election day, the "stock market" is down 25%, and gold is up 35%. On a related note, from Forbes:
I could be wrong (obviously!), but I'm still thinking that going ultra-short treasuries is the way to score big going out a few years. Better than gold, better than trying to bottom-fish financials or real estate.
A more urgent question is that as Uncle Sam continues to spend its way out of the national mess, will the Chinese still accept a 2.9% yield on ten-year Treasurys?
I could be wrong (obviously!), but I'm still thinking that going ultra-short treasuries is the way to score big going out a few years. Better than gold, better than trying to bottom-fish financials or real estate.
Tuesday, February 17, 2009
There Were Giants In Those Days (Part 2)
A little more than a hundred years after Mr. Chief Justice Marshall's immortal quip regarding the power to tax, the great economist John Maynard Keynes expounded his epochal General Theory, and his timing was providential, from a certain point of view. It was the middle of the Great Depression, and the New Deal was in full flower. The New Dealers, recall, were a tribe of Utopian dreamers and schemers, with visions of agricultural collectives and nationalized utilities dancing in their heads. Among other things, they actually believed that the G.D. was caused by low wages (you read that correctly) and cash hoarding. Many had made the pilgrimage to Josef Stalin's paradise to gain their inspiration. All believed unreservedly in the capacity of enlightened, educated people (such as, well, themselves!), given enough authority and money, to fix the world. Certainly, modesty was not their hallmark.
You can imagine their delight when Lord Keynes revealed the Gospel of Aggregate Demand. The government, you see, can pull the economy out of a slump by taking it upon itself to boost aggregate demand! How to do this? A magic wand? A magic bullet? No. It's much simpler than that. All you need to do is organize useful projects and hire the unemployed to staff them. Where does the money come from? You borrow it. You see, sometimes the economy needs its "pump primed". You can pay off the debt later, once recovery kicks in, and the tax receipts come gushing. And did you know about the "multiplier"?
As you may now grasp, Lord Keynes' groundbreaking and brilliant (I mean that) work on aggregate demand provided the intellectual cover for busy-bodies and do-gooders throughout the land to congratulate themselves as they spent other peoples' money (or maybe even money that doesn't exist yet) on their pet schemes. Might there be shortcomings in this approach (see Today's History Lesson, infra, November 23, 2008), in the form of the long-run effects of taking on debt to pay for projects of unknown utility that private investors might have shunned? Sure, but the ever-insightful Keynes had an answer for that: "in the long run, we are all dead".
By the 1970s, the long-run had arrived, and, as he predicted, Lord Keynes had passed on. Efforts to manage the business cycle through manipulation of aggregate demand, however, were alive and well, though President Nixon's famous remark on the subject ("We are all Keynesians now") may have been an Ultimate Contrary Indicator. Nonetheless, Keynes' Cover had predictably led to social engineering through the tax code and other onerous regulations. Further, years of attempts to manage aggregate demand, and the widespread belief in the Phillips Curve (which held that there is an inherent and unbreakable link between inflation and unemployment such that more of one necessarily means less of the other) caused policymakers to accept more and more inflation in the hope of controlling unemployment. Once inflation inevitably got out of hand, interest rates skyrocketed, bringing high unemployment. This was the era of stagflation. The Phillips Curve was a dead letter, and many economists threw up their hands.
But the Two Giants, Reagan and Volker, had an plan. They would kill inflation through tight money (also suporting the dollar), and that, along with tax cuts and regulatory reform, would drive down unemployment. By the conventional wisdom of the Phillips Curve, this was an absurdity and bound to fail. But Keynes' aggregate demand model had some big holes in it, which the Two Giants recognized. First, Keynesian stimulus is effective only to the degree to which it is unexpected: to the degree markets see it coming, they learn to discount it in the form of higher interest rates. Second, the Keynesian model took no cognizance of the notion that perhaps government spending might be tinged with cronyism and other assorted inefficiencies that would undermine stimulus. Third, and most importantly to President Reagan, the Keynesian model took no cognizance of the role of incentives in economic life. Very simply, if you let people keep more of their money, and hassle them less, their appetite for risk will increase, as will overall economic activity. That this truism is even debated astounds me.
All of this seems common-sensical, and the results spoke for themselves. Yet these principles have been fought savagely, including by our current president, against all reason. Why? Simple. Ronald Reagan spoiled their fun. More money for tax payers and risk takers means less for "community organizers" to work their wonders. To the extent you put your faith in "economic activists", and the dreams of energetic people, you implicitly devalue the "contributions" of community organizers, government planners, social workers, political staffers, and the like. You've just told a lot of do-gooders that you don't think they do much good. Ouch!
To stand up against this type of entrenched interest, and to do so knowing that your approach would bring a brutal recession before causing the country to emerge much stronger than ever, is the definition of political courage. Current "leadership" could learn a lot, but won't. For reasons I'll delve into in the near future, our current president is constitutionally incapable of placing his faith in the dynamism of the American people. He will bitterly cling to the flat-earth creed of government knows best. He will be a failure.
You can imagine their delight when Lord Keynes revealed the Gospel of Aggregate Demand. The government, you see, can pull the economy out of a slump by taking it upon itself to boost aggregate demand! How to do this? A magic wand? A magic bullet? No. It's much simpler than that. All you need to do is organize useful projects and hire the unemployed to staff them. Where does the money come from? You borrow it. You see, sometimes the economy needs its "pump primed". You can pay off the debt later, once recovery kicks in, and the tax receipts come gushing. And did you know about the "multiplier"?
As you may now grasp, Lord Keynes' groundbreaking and brilliant (I mean that) work on aggregate demand provided the intellectual cover for busy-bodies and do-gooders throughout the land to congratulate themselves as they spent other peoples' money (or maybe even money that doesn't exist yet) on their pet schemes. Might there be shortcomings in this approach (see Today's History Lesson, infra, November 23, 2008), in the form of the long-run effects of taking on debt to pay for projects of unknown utility that private investors might have shunned? Sure, but the ever-insightful Keynes had an answer for that: "in the long run, we are all dead".
By the 1970s, the long-run had arrived, and, as he predicted, Lord Keynes had passed on. Efforts to manage the business cycle through manipulation of aggregate demand, however, were alive and well, though President Nixon's famous remark on the subject ("We are all Keynesians now") may have been an Ultimate Contrary Indicator. Nonetheless, Keynes' Cover had predictably led to social engineering through the tax code and other onerous regulations. Further, years of attempts to manage aggregate demand, and the widespread belief in the Phillips Curve (which held that there is an inherent and unbreakable link between inflation and unemployment such that more of one necessarily means less of the other) caused policymakers to accept more and more inflation in the hope of controlling unemployment. Once inflation inevitably got out of hand, interest rates skyrocketed, bringing high unemployment. This was the era of stagflation. The Phillips Curve was a dead letter, and many economists threw up their hands.
But the Two Giants, Reagan and Volker, had an plan. They would kill inflation through tight money (also suporting the dollar), and that, along with tax cuts and regulatory reform, would drive down unemployment. By the conventional wisdom of the Phillips Curve, this was an absurdity and bound to fail. But Keynes' aggregate demand model had some big holes in it, which the Two Giants recognized. First, Keynesian stimulus is effective only to the degree to which it is unexpected: to the degree markets see it coming, they learn to discount it in the form of higher interest rates. Second, the Keynesian model took no cognizance of the notion that perhaps government spending might be tinged with cronyism and other assorted inefficiencies that would undermine stimulus. Third, and most importantly to President Reagan, the Keynesian model took no cognizance of the role of incentives in economic life. Very simply, if you let people keep more of their money, and hassle them less, their appetite for risk will increase, as will overall economic activity. That this truism is even debated astounds me.
All of this seems common-sensical, and the results spoke for themselves. Yet these principles have been fought savagely, including by our current president, against all reason. Why? Simple. Ronald Reagan spoiled their fun. More money for tax payers and risk takers means less for "community organizers" to work their wonders. To the extent you put your faith in "economic activists", and the dreams of energetic people, you implicitly devalue the "contributions" of community organizers, government planners, social workers, political staffers, and the like. You've just told a lot of do-gooders that you don't think they do much good. Ouch!
To stand up against this type of entrenched interest, and to do so knowing that your approach would bring a brutal recession before causing the country to emerge much stronger than ever, is the definition of political courage. Current "leadership" could learn a lot, but won't. For reasons I'll delve into in the near future, our current president is constitutionally incapable of placing his faith in the dynamism of the American people. He will bitterly cling to the flat-earth creed of government knows best. He will be a failure.
Monday, February 16, 2009
The Only Thing We Have To Fear Is...Overwrought Rhetoric?
From Bradley Schiller, author of a popular introductory economics textbook:
Although I wholeheartedly agree with Prof. Schiller that analogies to the G.D. border on evil, I tend to agree with Greg Mankiw that the totality of Prof. Schiller's criticism may be a tad overblown. In Prof. Mankiw's words, it is doubtful "that any president's rhetoric has a substantial influence on confidence." My view is that although there is ample reason to doubt the influence of mere rhetoric, it is also undeniable that in certain circumstances a president's "leadership" on an issue can be impactful. I think that's called the "bully pulpit".
Nevertheless, I do think the Obama administration intends to "talk down" the economy, but our worry should not be what the near-term impact of this will be on consumer confidence, much less overall economic performance. (BTW, anyone else recall the criticism of GWB in Jan., 2001, for "talking down" the economy, when he urged resolution of the election fiasco so that he could focus on a clearly declining economic condition?) Instead, our worry should center upon the administration's political goals, both short and long-term. Certainly, I believe the administration has a near-term goal of frightening the public, so as to enable it to sucker the nation into more of the "cure" (over-reaching and incompetent government) that has caused the disease. (I can't remember which econopundit very recently described the "stimulus" as the economic equivalent of "bleeding the patient". I wish I could claim that one.)
The larger goal of the fearmongering, however, is to provide political cover for the long-term underperformance that the "stimulus" all but guarantees. All reasonable people understand that President Hope-a-Dope inherited a sorry economic climate, and that it would therefore be unfair to blame him (too much) for the travails we are going to endure over the next several months. But at some point, a President will and should be held accountable.
Thus, the goal of talking down the economy, by making detestable analogies to the G.D., is both to (a) enable the administration, as Rahm Emmanuel would say, to take maximum advantage of a good crisis; but more importantly, to (b) convince voters that things are so bad they should not have high expectations for the economy along about, oh, say, 2012. Of course, the insidious aspect of this is that they know full well that the "stimulus", being a triumph of recklessness and cronyism, will be the direct cause of the malaise we'll likely be experiencing in four years. But that's a matter of mere ethics. As we all know, the numero uno, over-arching, all-encompassing goal of any office holder is: (all together now) to get re-elected.
President Barack Obama has turned fearmongering into an art form. He has repeatedly raised the specter of another Great Depression....Mr. Obama's analogies to the Great Depression are not only historically inaccurate, they're also dangerous. Repeated warnings from the White House about a coming economic apocalypse aren't likely to raise consumer and investor expectations for the future. In fact, they have contributed to the continuing decline in consumer confidence that is restraining a spending pickup.
Although I wholeheartedly agree with Prof. Schiller that analogies to the G.D. border on evil, I tend to agree with Greg Mankiw that the totality of Prof. Schiller's criticism may be a tad overblown. In Prof. Mankiw's words, it is doubtful "that any president's rhetoric has a substantial influence on confidence." My view is that although there is ample reason to doubt the influence of mere rhetoric, it is also undeniable that in certain circumstances a president's "leadership" on an issue can be impactful. I think that's called the "bully pulpit".
Nevertheless, I do think the Obama administration intends to "talk down" the economy, but our worry should not be what the near-term impact of this will be on consumer confidence, much less overall economic performance. (BTW, anyone else recall the criticism of GWB in Jan., 2001, for "talking down" the economy, when he urged resolution of the election fiasco so that he could focus on a clearly declining economic condition?) Instead, our worry should center upon the administration's political goals, both short and long-term. Certainly, I believe the administration has a near-term goal of frightening the public, so as to enable it to sucker the nation into more of the "cure" (over-reaching and incompetent government) that has caused the disease. (I can't remember which econopundit very recently described the "stimulus" as the economic equivalent of "bleeding the patient". I wish I could claim that one.)
The larger goal of the fearmongering, however, is to provide political cover for the long-term underperformance that the "stimulus" all but guarantees. All reasonable people understand that President Hope-a-Dope inherited a sorry economic climate, and that it would therefore be unfair to blame him (too much) for the travails we are going to endure over the next several months. But at some point, a President will and should be held accountable.
Thus, the goal of talking down the economy, by making detestable analogies to the G.D., is both to (a) enable the administration, as Rahm Emmanuel would say, to take maximum advantage of a good crisis; but more importantly, to (b) convince voters that things are so bad they should not have high expectations for the economy along about, oh, say, 2012. Of course, the insidious aspect of this is that they know full well that the "stimulus", being a triumph of recklessness and cronyism, will be the direct cause of the malaise we'll likely be experiencing in four years. But that's a matter of mere ethics. As we all know, the numero uno, over-arching, all-encompassing goal of any office holder is: (all together now) to get re-elected.
Sunday, February 15, 2009
Today's Economics Lesson
Is courtesy Greg Mankiw, Professor of Economics, Harvard. On his blog, Professor Mankiw noted that from the coverage of the "stimulus" "package", many people might conclude the economics profession exists in a state of perpetual and harsh disagreement. With a few notable exceptions, this is not the case. Polls have been conducted of professional economists which reveal a number of important policy issues on which there is substantial, if not near-universal agreement. Prof. Mankiw has posted a list of poll responses. The list is fairly lengthy, however I'd like to reproduce a substantial portion of it to reflect the general tenor.
(1) A ceiling on rents reduces the quantity and quality of housing available. (93%)
(2) Tariffs and import quotas usually reduce general economic welfare. (93%)
(3) Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
(4) The United States should not restrict employers from outsourcing work to foreign countries. (90%)
(5) The United States should eliminate agricultural subsidies. (85%)
(6) If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
(7) The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
(8) A minimum wage increases unemployment among young and unskilled workers. (79%)
(9) The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
(10)Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)
I have omitted four of the issues Prof. Mankiw listed. Anyone interested can check his blog at gregmankiw.blogspot.com. Here's the real takeaway, however, IMHO:
Can we get an "Amen!" for that? Frankly, though, I'd take a little issue with the Professor. If public policy would faithfully reflect half of the questions on Prof. Mankiw's list, it would change the world, much for the better.
(1) A ceiling on rents reduces the quantity and quality of housing available. (93%)
(2) Tariffs and import quotas usually reduce general economic welfare. (93%)
(3) Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
(4) The United States should not restrict employers from outsourcing work to foreign countries. (90%)
(5) The United States should eliminate agricultural subsidies. (85%)
(6) If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
(7) The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
(8) A minimum wage increases unemployment among young and unskilled workers. (79%)
(9) The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
(10)Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)
I have omitted four of the issues Prof. Mankiw listed. Anyone interested can check his blog at gregmankiw.blogspot.com. Here's the real takeaway, however, IMHO:
If we could get the American public to endorse all these propositions, I am sure their leaders would quickly follow, and public policy would be much improved. That is why economics education is so important.
Can we get an "Amen!" for that? Frankly, though, I'd take a little issue with the Professor. If public policy would faithfully reflect half of the questions on Prof. Mankiw's list, it would change the world, much for the better.
Saturday, February 14, 2009
There Were Giants In Those Days (Part 1)
Wednesday's WSJ featured a piece by Peter Ferrara, a Reagan Administration official, in which he did a nice compare and contrast job, then versus now. Perhaps the best thing about this piece was the photo it accompanied: "Ronald Reagan and Paul Volker, July, 1981", taken in the Oval Office. I thought I felt a tear starting to well up.
Indeed, there were giants in those days. These two men inherited a mess that makes today's pale. "What we suffer with today is not the worst economy since the Great Depression, but the worst since Jimmy Carter - the last time liberals were dominant politically and intellectually", accurately notes Mr. Ferrara. A couple of statistical examples: inflation ran at 13.2% in 1980, and unemployment eclipsed 11% in 1982. In the fall of 1980, the 30-year mortgate rate reached nearly 18.5%!
It seemed there might be no way out of that mess. With inflation running high, and, more importantly, expectations of future inflation running even higher, the cost of borrowing money was in the stratosphere. Who's going to lend money at rates lower than inflation? The upshot of this was that there was no way enough borrowing would occur to generate sufficient growth to drive down unemployment. Any effort to stimulate the economy through deficit spending, or through monetary stimulus, would be met immediately by rising interest rates, as money markets therefore expected yet higher inflation. Thus was born the term "stagflation", to describe the theretofore inconceivable phenomenon (under Keynesian theory) in which high unemployment and high inflation co-existed. The "Keynesians" were flummoxed.
Ronald Reagan had an approach no one else gave much thought to - incentivize "economic activists" to work, invest, and produce. This was revolutionary! In fact, it was the essence of the "Reagan Revolution". Taking the focus off of federal schemes managed by self-satisfied wiz kids getting a government check, and return it to those who actually create the real wealth. For reasons I'll describe more fully below, this approach - amazingly, in hindsight - was ridiculed almost universally by elites in Washington and the national media.
The Reagan approach, as described by Mr. Ferrara, was in four parts. First, lower tax rates across-the-board, to encourage work and investment by thereby increasing after-tax returns. Second, deregulate industry to remove unnecessary costs, again increasing returns on investment. Third, control/limit federal spending, and fourth, with the help of Mr. Volker, institute a tight, anti-inflationary monetary policy. These last two elements served to create confidence that inflation might be controlled, and thus future profits earned in non-inflated dollars.
The results were spectacularly successful. Inflation was cut to 6.2% in 1982, then to 3.2% in 1983. The infamous "misery index" (a term coined by President Reagan to describe the combined inflation and unemployment rates), dropped from 22 percent in 1980, to 7.7% by the end of 1986 (it's probably running in the 11-12% range currently).
Why was this seemingly common-sense approach to recovery so revolutionary, and so reviled? Chief Justice John Marshall famously remarked that "the power to tax is the power to destroy". With apologies, I'd like to alter that famous formulation just a little. "The power to tax is the power to control", as I see it, and there's nothing political elites and aspirants like more than the thrill of control.
(Part 2 will address the rise of Keynes, and how his theory of aggregate demand ostensibly gave license to the political class to manipulate the economy through Soviet-style central planning. What could be more fun than to spend other people's money, in the cause of ("social") justice?)
Indeed, there were giants in those days. These two men inherited a mess that makes today's pale. "What we suffer with today is not the worst economy since the Great Depression, but the worst since Jimmy Carter - the last time liberals were dominant politically and intellectually", accurately notes Mr. Ferrara. A couple of statistical examples: inflation ran at 13.2% in 1980, and unemployment eclipsed 11% in 1982. In the fall of 1980, the 30-year mortgate rate reached nearly 18.5%!
It seemed there might be no way out of that mess. With inflation running high, and, more importantly, expectations of future inflation running even higher, the cost of borrowing money was in the stratosphere. Who's going to lend money at rates lower than inflation? The upshot of this was that there was no way enough borrowing would occur to generate sufficient growth to drive down unemployment. Any effort to stimulate the economy through deficit spending, or through monetary stimulus, would be met immediately by rising interest rates, as money markets therefore expected yet higher inflation. Thus was born the term "stagflation", to describe the theretofore inconceivable phenomenon (under Keynesian theory) in which high unemployment and high inflation co-existed. The "Keynesians" were flummoxed.
Ronald Reagan had an approach no one else gave much thought to - incentivize "economic activists" to work, invest, and produce. This was revolutionary! In fact, it was the essence of the "Reagan Revolution". Taking the focus off of federal schemes managed by self-satisfied wiz kids getting a government check, and return it to those who actually create the real wealth. For reasons I'll describe more fully below, this approach - amazingly, in hindsight - was ridiculed almost universally by elites in Washington and the national media.
The Reagan approach, as described by Mr. Ferrara, was in four parts. First, lower tax rates across-the-board, to encourage work and investment by thereby increasing after-tax returns. Second, deregulate industry to remove unnecessary costs, again increasing returns on investment. Third, control/limit federal spending, and fourth, with the help of Mr. Volker, institute a tight, anti-inflationary monetary policy. These last two elements served to create confidence that inflation might be controlled, and thus future profits earned in non-inflated dollars.
The results were spectacularly successful. Inflation was cut to 6.2% in 1982, then to 3.2% in 1983. The infamous "misery index" (a term coined by President Reagan to describe the combined inflation and unemployment rates), dropped from 22 percent in 1980, to 7.7% by the end of 1986 (it's probably running in the 11-12% range currently).
Why was this seemingly common-sense approach to recovery so revolutionary, and so reviled? Chief Justice John Marshall famously remarked that "the power to tax is the power to destroy". With apologies, I'd like to alter that famous formulation just a little. "The power to tax is the power to control", as I see it, and there's nothing political elites and aspirants like more than the thrill of control.
(Part 2 will address the rise of Keynes, and how his theory of aggregate demand ostensibly gave license to the political class to manipulate the economy through Soviet-style central planning. What could be more fun than to spend other people's money, in the cause of ("social") justice?)
Friday, February 13, 2009
Cramer of the Day
"Why can't this market get off the mat even though it's getting $800B thrown at it, not to mention hundreds of billions in bailout dollars?"
"Our stimulus package doesn't even merit the name."
He's really optimistic about China's prospects, given that they passed a real stimulus.
"Our stimulus package doesn't even merit the name."
He's really optimistic about China's prospects, given that they passed a real stimulus.
Thursday, February 12, 2009
Quote of the Day
"Any society that would give up a little liberty to gain a little security will deserve neither and lose both."
Benjamin Franklin
Benjamin Franklin
The Emperor Has No Clothes
That was Cramer's opening line today, regarding the Obama administration, and the so-called "stimulus". He says sell any rally tomorrow. Again, I find his negative outlook vis-a-vis the administration's economic policy notable, given his self-identified status as Democrat, and previous and palpable efforts to cheerlead. This guy is about money, period, and if something isn't going to make him money, he's not going to pretend for long. Hence his swift abandonment of the Obamessiah, based on the utter uselessness of the "stimulus". The market is under no illusions about the "cluelessness" (Cramer's word) of Washington's current ruling elite.
Perhaps this is a time to repeat my theory about the election of 2006, as it relates to the markets, and the economy. As the election of 1994 signalled a multi-year resurgence in the markets and economy, the election of 2006 signalled the reverse. Why? With respect to 2006, it was the signal that killed any hope that sanity would prevail in Washington. That is, notwithstanding the foibles and weaknesses of Congress while under Republican control, market participants could be reasonably certain that nothing crazy was likely. With the Dem's takeover, all hope was lost.
This is particularly important with respect to the soon-to-lapse "Bush tax cuts". My theory was that the housing boom, to the extent it was precipitated by Fed policy, constituted a deferral of the tech-bust, 9/11 secular downturn. In that light, there had to be a potential for some other factor to spark the economy once the housing boom ran its course. It might have been, apart from the extension of the 2003 tax cuts, further tax cuts (particularly the corporate tax rate), more substantial tax reform (flat tax?), or non-tax policy improvements, such as an enlightened energy policy. Once the 2006 returns were in, any clear-headed observer knew none of the above was possible. So the economy was left to fall flat.
As I've remarked before, we are going to have a recovery, of sorts, in spite (NOT because) of the "stimulus" legislation. This is the natural order of things - GDP posted blowout quarters even during the Carter administration. But the best-case prognosis for the economy is growth in fits and starts - no long boom. That's what's got Cramer so bearish. Remember, he wanted to believe, but faced with the facts of current economic policy, he just can't put his money on growth. That's what I like about people who actually have (major) skin in the game: they're quick to grasp the reality of a situation even if it's personally unappealing.
Perhaps this is a time to repeat my theory about the election of 2006, as it relates to the markets, and the economy. As the election of 1994 signalled a multi-year resurgence in the markets and economy, the election of 2006 signalled the reverse. Why? With respect to 2006, it was the signal that killed any hope that sanity would prevail in Washington. That is, notwithstanding the foibles and weaknesses of Congress while under Republican control, market participants could be reasonably certain that nothing crazy was likely. With the Dem's takeover, all hope was lost.
This is particularly important with respect to the soon-to-lapse "Bush tax cuts". My theory was that the housing boom, to the extent it was precipitated by Fed policy, constituted a deferral of the tech-bust, 9/11 secular downturn. In that light, there had to be a potential for some other factor to spark the economy once the housing boom ran its course. It might have been, apart from the extension of the 2003 tax cuts, further tax cuts (particularly the corporate tax rate), more substantial tax reform (flat tax?), or non-tax policy improvements, such as an enlightened energy policy. Once the 2006 returns were in, any clear-headed observer knew none of the above was possible. So the economy was left to fall flat.
As I've remarked before, we are going to have a recovery, of sorts, in spite (NOT because) of the "stimulus" legislation. This is the natural order of things - GDP posted blowout quarters even during the Carter administration. But the best-case prognosis for the economy is growth in fits and starts - no long boom. That's what's got Cramer so bearish. Remember, he wanted to believe, but faced with the facts of current economic policy, he just can't put his money on growth. That's what I like about people who actually have (major) skin in the game: they're quick to grasp the reality of a situation even if it's personally unappealing.
Monday, February 09, 2009
Barack Obama Votes "Present"
If I'd been running Senator McCain's campaign, this is a topic I would have played up huge. Particularly because I so enjoyed watching one of the Obamessiah's minions justify his compulsion for non-committal - how lovely it would have been to watch that show more often. Further, it would have helped make a very legitimate point, which absolutely was not adequately made (except once, very effectively, by Sarah Palin): this guy is no real leader. Giving him maximum benefit of the doubt, he's got he soul of a radical law professor, not a chief executive.
I know it's a bit late now, but two pieces in last Thursday's WSJ help drive home this point: "What Is Congress Stimulating", by Dan Henninger; and "Democrats Try Trickle Down", by Karl Rove. Mr. Henninger's piece does an excellent job of detailing just how little "stimulus" is actually tucked inside the dark regions of the 700-page "American Recovery and Reinvestment Act". "This bill isn't economic stimulus, it's self-stimulus", quips Mr. Henninger, before reciting the litany of "redecorating" programs the feds are engaging for themselves.
The fact is, this bill is an absolute plundering of working Americans by government for its own sake. It "lays open for public view the world of Washington's pay-for-favors that makes the average Wall Street banker look like Little Bo-Peep." Tom Daschle can't get confirmed as HHS Secretary because of tax issues (I thought all Dems were pure as the wind-driven snow)? What does he care, he just goes back to his lobbying work at a cool $200K - per month.
Come on, folks. You didn't really buy that campaign BS about ethics, reform, and cutting lobbyists out of the Obamessiah administration. I guess a lot of you did. Well, I hope some of you might be getting the idea that there's really not much new under the sun in the political realm, and by the way, maybe you can also see why it's so profitable for Democrats to be the party of government.
Thus, we can only hope that Mr. Henninger is correct when he forecasts that the stimulus "package" "is looking like the luckiest thing to happen in the GOP's political fortunes since Ronald Reagan switched parties." Not that I care what label doing the right thing wears. But anyone who thought that the Dems could be trusted to do the right thing when fully entrusted with a spending bill is a fool, plain and simple. For all the failures of the Bush administration and recent Republican congresses when it comes to spending, the Dems are always going to be worse, and if you doubt me, do some research on how individual Senators and House members vote on appropriations and learn something for once. "Putting budgets of political allies above the budgets of strugling families", as Mr. Rove put it, has been exactly what the Dems of have been doing since roughly November 22, 1963.
Which takes us back to President Hope-a-Dope, and his "post-partisan" "leadership". By farming out the "stimulus" to Congress, he invited the big spenders to roll him, and they did. As Mr. Rove notes, "He refused to get his administration's hands dirty in crafting the legislation by laying out a detailed plan in December", thereby continuing the cowardly game he's played his entire career - speechify to the sheeple, while letting others screw up and sidestepping blame. The biggest economic crisis in a generation, and, as always, Barack Obama votes present.
Those of us old enough to remember 1981 know there's a better way. A courageous, bold, hopeful, and manly way. When Ronald Reagan took office, the economy was much worse than it is now. He did not delegate to Congress the bold action that was required. He campaigned on specific measures to be undertaken, explained what he would do if elected, why the measures were needed, what they were intended to address, and why they would work. In short, he left no room for anyone to doubt what his intentions were, and left himself no wiggle room. Everyone knew what he thought the cause of the "malaise" was, and what he intended to do about it. He practically begged to be held accountable. What a concept.
Once in office, President Reagan did exactly what he said he would do, without sitting on his hands until Congress did the dirty work so he could decide whether and how much he should distance himself from the result. And the results spoke for themselves, brilliantly vindicating his vision and leadership. Simply put, the generation of prosperity we can thank Ronald Reagan for (that has left so many Americans so spoiled that they have never bothered to give a thought to what creates - and destroys - prosperity, and can be persuaded that every hiccup is a crisis) was built upon courageous leadership, not fuzzy-minded hope peddling. I'm afraid we're in trouble for a generation. It didn't have to be this way.
I know it's a bit late now, but two pieces in last Thursday's WSJ help drive home this point: "What Is Congress Stimulating", by Dan Henninger; and "Democrats Try Trickle Down", by Karl Rove. Mr. Henninger's piece does an excellent job of detailing just how little "stimulus" is actually tucked inside the dark regions of the 700-page "American Recovery and Reinvestment Act". "This bill isn't economic stimulus, it's self-stimulus", quips Mr. Henninger, before reciting the litany of "redecorating" programs the feds are engaging for themselves.
The fact is, this bill is an absolute plundering of working Americans by government for its own sake. It "lays open for public view the world of Washington's pay-for-favors that makes the average Wall Street banker look like Little Bo-Peep." Tom Daschle can't get confirmed as HHS Secretary because of tax issues (I thought all Dems were pure as the wind-driven snow)? What does he care, he just goes back to his lobbying work at a cool $200K - per month.
Come on, folks. You didn't really buy that campaign BS about ethics, reform, and cutting lobbyists out of the Obamessiah administration. I guess a lot of you did. Well, I hope some of you might be getting the idea that there's really not much new under the sun in the political realm, and by the way, maybe you can also see why it's so profitable for Democrats to be the party of government.
Thus, we can only hope that Mr. Henninger is correct when he forecasts that the stimulus "package" "is looking like the luckiest thing to happen in the GOP's political fortunes since Ronald Reagan switched parties." Not that I care what label doing the right thing wears. But anyone who thought that the Dems could be trusted to do the right thing when fully entrusted with a spending bill is a fool, plain and simple. For all the failures of the Bush administration and recent Republican congresses when it comes to spending, the Dems are always going to be worse, and if you doubt me, do some research on how individual Senators and House members vote on appropriations and learn something for once. "Putting budgets of political allies above the budgets of strugling families", as Mr. Rove put it, has been exactly what the Dems of have been doing since roughly November 22, 1963.
Which takes us back to President Hope-a-Dope, and his "post-partisan" "leadership". By farming out the "stimulus" to Congress, he invited the big spenders to roll him, and they did. As Mr. Rove notes, "He refused to get his administration's hands dirty in crafting the legislation by laying out a detailed plan in December", thereby continuing the cowardly game he's played his entire career - speechify to the sheeple, while letting others screw up and sidestepping blame. The biggest economic crisis in a generation, and, as always, Barack Obama votes present.
Those of us old enough to remember 1981 know there's a better way. A courageous, bold, hopeful, and manly way. When Ronald Reagan took office, the economy was much worse than it is now. He did not delegate to Congress the bold action that was required. He campaigned on specific measures to be undertaken, explained what he would do if elected, why the measures were needed, what they were intended to address, and why they would work. In short, he left no room for anyone to doubt what his intentions were, and left himself no wiggle room. Everyone knew what he thought the cause of the "malaise" was, and what he intended to do about it. He practically begged to be held accountable. What a concept.
Once in office, President Reagan did exactly what he said he would do, without sitting on his hands until Congress did the dirty work so he could decide whether and how much he should distance himself from the result. And the results spoke for themselves, brilliantly vindicating his vision and leadership. Simply put, the generation of prosperity we can thank Ronald Reagan for (that has left so many Americans so spoiled that they have never bothered to give a thought to what creates - and destroys - prosperity, and can be persuaded that every hiccup is a crisis) was built upon courageous leadership, not fuzzy-minded hope peddling. I'm afraid we're in trouble for a generation. It didn't have to be this way.
Friday, February 06, 2009
Investment Thought of the Day
Yesterday on Fast Money, Karen Finerman tipped us to TIPS - that is, the "inflation protected" treasuries. This trade is similar to the TBT trade she pitched several weeks ago, which has been very profitable. Think about it: the ultrashort treasury (TBT) play was as close to a no-brainer as there ever is, when the one AND three month bills were at 0.01, and the 30 year was under 3.00. If that's not a panic reaction/market anamoly, I don't know what is. The next bet is that with insane economic policies likely to be enacted, your protection is inflation protection.
BTW, Cramer is pitching a turn in the market officially, which I have to go along with. The Dow/S&P refused to break through support notwithstanding a ton of bad news, culminating today with the employment numbers. I liked how he made special mention of the UPS report Tuesday (and the transports generally), and the 10% uptick for UPS for the week. I say don't expect miracles, but I think we've got a real updraft working.
BTW, Cramer is pitching a turn in the market officially, which I have to go along with. The Dow/S&P refused to break through support notwithstanding a ton of bad news, culminating today with the employment numbers. I liked how he made special mention of the UPS report Tuesday (and the transports generally), and the 10% uptick for UPS for the week. I say don't expect miracles, but I think we've got a real updraft working.
Thursday, February 05, 2009
Even Cramer is All Aboard
Jim Cramer just said it too. Obama's "leadership" regarding the "stimulus" "package" has been a "complete disappointment". He came right out and said that Pelosi and Reid have "rolled" him. He admitted that the legislation brewing in Congress is nothing but a pork-filled fiasco. Cramer's pronouncement from his 3PM (PST) perch at CNBC WHQ is significant for two reasons off the top of my head: (1) his word carries a lot of weight with not only viewers, but on the Street as well; (2) he is a self-identified Democrat (though I suspect one of your grandfather's variety) who has been trying to give President Hope-a-Dope the benefit of the doubt. It's just become too clear that he's so in love with himself he can't comprehend the idea that everyone else won't be as in love with the sound of his voice as he is. Certainly not the lot of professional gangsters running Congress.
On a related note, I am coming to the belief that this economy may be stabilizing and therefore the "stimulus", in the form in which it will likely pass, may be counter-productive. I think the biggest break President Hope-a-Dope could get would be for the thing to be junked and then pared down very substantially. I have reached this belief based on the immense growth in M2 the past few months, with resulting firming in commodity prices now taking hold, as well as some other indicators (including all credit spreads) suggesting stabilization. In short, appetite for risk is returning. Let's not squelch it with, as Hugh Hewitt calls it, a "porkapalooza" of a spending bill that mainly pays off big government interests and loyalists. Alas, I am not holding my breath.
On a related note, I am coming to the belief that this economy may be stabilizing and therefore the "stimulus", in the form in which it will likely pass, may be counter-productive. I think the biggest break President Hope-a-Dope could get would be for the thing to be junked and then pared down very substantially. I have reached this belief based on the immense growth in M2 the past few months, with resulting firming in commodity prices now taking hold, as well as some other indicators (including all credit spreads) suggesting stabilization. In short, appetite for risk is returning. Let's not squelch it with, as Hugh Hewitt calls it, a "porkapalooza" of a spending bill that mainly pays off big government interests and loyalists. Alas, I am not holding my breath.
Wednesday, February 04, 2009
Sen. McCain: Obama Talks the Talk, but...
Sen. John McCain appeared for a segment of the Hugh Hewitt show Wed. afternoon to discuss the state of the "stimulus" legislation. Frankly, I think Sen. McCain is doing himself proud as a responsible spokesman for sanity while President Hope-a-Dope blathers about "catastrophe". He is in the process of engaging in legislative wheeler-dealing in an effort to de-porkify what is clearly not a "stimulus" measure, but instead a "let's addict as much of America to government as possible" manifesto. In this regard, he mentioned specifically one amendment he offered to a Senate bill calling for a scaling back of the stimulus in the event of two consecutive quarters of positive GDP growth. Of course the amendment lost on a near party-line vote.
For the benefit of anyone who hasn't heard me hold forth on this topic, I would like to say that John McCain has never been my favorite politician - not by a long shot. I found him, as have many others, way too interested in cozying up to the national media. Moreover, I didn't think you could ever really be sure where he would come down on an issue, perhaps because he may not have known himself. I have sometimes questioned his effectiveness because it seemed that he was playing a different game than most of his fellow senators, and not out of high-mindedness, but rather, I've thought, out of naivete.
Nevertheless, I would also wish to say that in my opinion, John McCain is a great American, though not a great Republican, and not even a good Presidential candidate. Although I think he deserved to be President just for what he did in Viet Nam (I know that's ancient history), President Hope-a-Dope was mighty lucky to have the "opportunity" to run against him. In any case, I think it is clear that Sen. McCain has retained a good deal of credibility for the unquestioned character he has continued to exhibit, which may end up serving the nation very well in the next two years. He has not my admiration as a presidential candidate, but very much so as a leader capable of displaying character of the highest rank. This will be a commodity of high value given, as he noted when asked to assay the leadership abilities of our new President, that the President is great at talking the talk, but we still haven't seen him walk the walk. I think the budget/stimulus episode, quickly turning to a fiasco, is vindicating John McCain.
For the benefit of anyone who hasn't heard me hold forth on this topic, I would like to say that John McCain has never been my favorite politician - not by a long shot. I found him, as have many others, way too interested in cozying up to the national media. Moreover, I didn't think you could ever really be sure where he would come down on an issue, perhaps because he may not have known himself. I have sometimes questioned his effectiveness because it seemed that he was playing a different game than most of his fellow senators, and not out of high-mindedness, but rather, I've thought, out of naivete.
Nevertheless, I would also wish to say that in my opinion, John McCain is a great American, though not a great Republican, and not even a good Presidential candidate. Although I think he deserved to be President just for what he did in Viet Nam (I know that's ancient history), President Hope-a-Dope was mighty lucky to have the "opportunity" to run against him. In any case, I think it is clear that Sen. McCain has retained a good deal of credibility for the unquestioned character he has continued to exhibit, which may end up serving the nation very well in the next two years. He has not my admiration as a presidential candidate, but very much so as a leader capable of displaying character of the highest rank. This will be a commodity of high value given, as he noted when asked to assay the leadership abilities of our new President, that the President is great at talking the talk, but we still haven't seen him walk the walk. I think the budget/stimulus episode, quickly turning to a fiasco, is vindicating John McCain.
Sunday, February 01, 2009
Quote of the Day
From Mark Steyn, courtesy Hugh Hewitt:
Rockers attending the Obama inauguration are like visiting royalty at a Bourbon or Habsburg wedding. By the way, over the years I've met kings, princesses, dukes and all the rest, and none of 'em were as hung up on precedence as the aristorockracy. A decade or so back, Sting had to issue a formal apology because at one of his big save-the-rainforest banquets at his country pile he committed the ghastly social faux pas of seating Jools Holland (of the band Squeeze) next to some no-name session musician. In Britain, these guys all live in stately homes, and any of their number who makes it to 50 without choking on his own vomit or being found face down in the swimming pool gets knighted - Sir Elton John, Sir Mick Jagger, Sir Paul McCartney, etc. Obama's pal Bono has a knighthood. You say you want a revolution? Sorry I'm having tea with the Prince of Wales that day.
Thursday, January 29, 2009
"I'm Outraged, just Outraged!"
This is pretty rich. President Obama is outraged by Wall Street bonuses. But I guess no one should be outraged by $5 billion in a "stimulus" package being allocated to the execrable ACORN. Yeah, that's real stimulative. What a phony. If this guy can last four years without a lot of people getting thoroughly sick of him then this country is more spoiled and corrupted than I thought. Of course, I probably said that about Mr. Slick also.
54-46 Update
I caught Rush's appearance (by telephone) on CNBC this morning. Mark Haines and Erin Burnett did their "good cop, bad cop" routine (is that still legal?), with Haines doing his producer's bidding and acting the curmudgeon, while Burnett said "hey, the tax reduction proposals make sense".
To be honest, I don't know if Haines was playing the role of thick-headed MSM numbskull, or if he really is as thick-headed as he appeared. He wondered where Rush was on "bi-partisanship" after the 2004 election. I guess he didn't get the nature of the ploy, though Rush tried to help by explaining that "bi-partisanship" is a joke, even when you package it as "post-partisanship" and smile.
With the publication today of his 54-46 proposal in the WSJ, Rush is getting some real traction with this gambit. "Illustrating absurdity with absurdity" has long been his trademark, and I'm sure he's especially delighted that so many of the left's religious fanatics are taking the bait. But obviously, this is not all about fun and games.
As Hugh Hewitt noted in his politico.com piece today, "I won" has got to go up in every GOP locker room in the country. Not because anyone's complaining about the victor claiming spoils. But because this phony who played the race-card to the White House is telling the world what he really thinks about "post-partisanship": if you don't like a budget in a time of crisis being filled to the brim with ward-healing, machine-building, special interest-tending lard, that's too damn bad, "I won". Rush is calling him on it, and in his absurd way, he's making them nervous.
To be honest, I don't know if Haines was playing the role of thick-headed MSM numbskull, or if he really is as thick-headed as he appeared. He wondered where Rush was on "bi-partisanship" after the 2004 election. I guess he didn't get the nature of the ploy, though Rush tried to help by explaining that "bi-partisanship" is a joke, even when you package it as "post-partisanship" and smile.
With the publication today of his 54-46 proposal in the WSJ, Rush is getting some real traction with this gambit. "Illustrating absurdity with absurdity" has long been his trademark, and I'm sure he's especially delighted that so many of the left's religious fanatics are taking the bait. But obviously, this is not all about fun and games.
As Hugh Hewitt noted in his politico.com piece today, "I won" has got to go up in every GOP locker room in the country. Not because anyone's complaining about the victor claiming spoils. But because this phony who played the race-card to the White House is telling the world what he really thinks about "post-partisanship": if you don't like a budget in a time of crisis being filled to the brim with ward-healing, machine-building, special interest-tending lard, that's too damn bad, "I won". Rush is calling him on it, and in his absurd way, he's making them nervous.
Analyzing Last Fall
At this, the beginning of a new semester, Derek recently described for me his spring schedule, senior year. AP Chem, pre-engineering, and AP Government/Econ. And, his day ends at about 12:30, ideal for golf season. He was also eager to tell me that in the 4th quarter, when the transition to the Econ portion of his third period class begins, they traditionally stage a stock market contest. He said that last semester, the winning team finished down 30%. Let's hope he does better, for all of our sakes.
About last fall. How in the world did it happen? How did all that shareholder value just vanish? (And what timing!)I think most of the culprits are well known, but the mystery to me is how they conspired together to work such a precipitous collapse. Obviously, this is going to be studied, and written about, for decades. And I haven't yet seen anyone offering a comprehensive explanation.
In Monday's WSJ, however, L. Gordon Crovitz devoted his weekly column to a discussion of a factor I'd not before encountered. "Value at Risk" ("VaR") models have been used on the Street to measure various types of financial risk, using historical data. Thing is, any model using "historical data" must include the "low but real risk that some new element could make the historical data a poor measure of the future." Once upon a time, these risks, outlying on the "tails" of the Bell Curve, were openly acknowledged in the form of high incomes earned by traders capable of managing the risk that lives many standard deviations from the mean. Here's the upshot from Mr. Crovitz:
This dovetails interestingly with today's "Fan and Fred's Lunch Tab" in the WSJ:
What is the price? The WSJ notes that the narrow measure (the price of bailing out Fan and Fred) has gone from $25B six months ago (with a 50% probability that nothing would have to be paid), to a minimum of $238B - greater than the entire federal budget deficit of fiscal 2007.
Even this estimate may be far too low. As for the "macro" cost of Chris and Barney's excellent adventure into housing market manipulation, let's just say a trader who could have figured out how to trade this risk would have become the world's richest man. After all, Mr. Frank pronounced Fan and Fred safe not long before their collapse, and doubled-down on that pronouncement by threatening the race card whenever anyone questioned the viability of the Fan/Fred "affirmative action in housing" model. It would have been hard to bet against them.
In sum, I sure don't know how all the pieces fit together, and I have yet (surprisingly) to find anyone claiming to. But it's a certainty, notwithstanding Mr. Frank's claim that he and his pet mortgage bankers had nothing to do with it, that our affirmative action in housing program is going to bleed this economy hard for years, if not decades.
About last fall. How in the world did it happen? How did all that shareholder value just vanish? (And what timing!)I think most of the culprits are well known, but the mystery to me is how they conspired together to work such a precipitous collapse. Obviously, this is going to be studied, and written about, for decades. And I haven't yet seen anyone offering a comprehensive explanation.
In Monday's WSJ, however, L. Gordon Crovitz devoted his weekly column to a discussion of a factor I'd not before encountered. "Value at Risk" ("VaR") models have been used on the Street to measure various types of financial risk, using historical data. Thing is, any model using "historical data" must include the "low but real risk that some new element could make the historical data a poor measure of the future." Once upon a time, these risks, outlying on the "tails" of the Bell Curve, were openly acknowledged in the form of high incomes earned by traders capable of managing the risk that lives many standard deviations from the mean. Here's the upshot from Mr. Crovitz:
It's now clear that the data that banks used were distorted by years of government initiatives to promote homeownership. Government-mandated loans led house prices ever higher and house-price volatility ever lower. When the VaR models looked back, they wrongly modeled a low risk of default. Wall Street shouldn't make the mistake again of ignoring the impact of politics on economics - and politicians should find ways to achieve social goals without undermining the integrity of markets.
This dovetails interestingly with today's "Fan and Fred's Lunch Tab" in the WSJ:
"...politicians like Mr. Frank have been telling us for years that Fannie and Freddie's federal subsidy was a free lunch. We are now slowly, and painfully, learning the price of Mr. Frank's famous desire to 'roll the dice' with Fan and Fred."
What is the price? The WSJ notes that the narrow measure (the price of bailing out Fan and Fred) has gone from $25B six months ago (with a 50% probability that nothing would have to be paid), to a minimum of $238B - greater than the entire federal budget deficit of fiscal 2007.
Even this estimate may be far too low. As for the "macro" cost of Chris and Barney's excellent adventure into housing market manipulation, let's just say a trader who could have figured out how to trade this risk would have become the world's richest man. After all, Mr. Frank pronounced Fan and Fred safe not long before their collapse, and doubled-down on that pronouncement by threatening the race card whenever anyone questioned the viability of the Fan/Fred "affirmative action in housing" model. It would have been hard to bet against them.
In sum, I sure don't know how all the pieces fit together, and I have yet (surprisingly) to find anyone claiming to. But it's a certainty, notwithstanding Mr. Frank's claim that he and his pet mortgage bankers had nothing to do with it, that our affirmative action in housing program is going to bleed this economy hard for years, if not decades.
Tuesday, January 27, 2009
The "Little Guy"
For those still deluded enough to believe that the Dems are "looking out for the little guy", I submit as Exhibit "A" contra, the infamous Kelo v. City of New London, 545 U.S. 469 (2005). This ought to have been an eye-opener, but alas it's not a perfect world, and you better watch out for those dastardly Republicans who will (a) starve your kids; (b) kill your grandma; and (c) sick the Monopoly man on you.
For those interested in a little 5th Amendment glimpse into our brave new road to serfdom, there's now a book out detailing the trials of one Susette Kelo, entitled "Little Pink House", reviewed in yesterday's WSJ. For those unfamiliar with the tale, it is the saga of Ms. Kelo, a forty year-old, divorced EMT; the house she bought in 1997 in a blue-collar Connecticut neighborhood; a giant corporation (PFE ticker symbol), a grasping city council, and five liberal Supreme Court justices.
It seems that when Pfizer came a courtin' the New London Development Corporation (NLDC), whispering sweet nothings in its ear about a new plant in an older neighborhood adjacent to a recently closed naval facility, the NLDC swooned. But what to do? You can't make people abandon their homes just because you've cooked up a lovely development scheme that promises to fill the city coffers. Or can you?
The Fifth Amendment reads in pertinent part: "...nor shall private property be taken for public use, without just compensation." Thus, until Kelo, the Fifth Amendment takings clause had been understood, not unreasonably, to mean that a taking of private property may occur if (a) just compensation is paid; and (b) the taking was for use by the public. Such "uses" included all those things you would imagine - parks, highways, bridges, and the like.
Since Kelo, however, and thanks the five most "liberal" (Orwell alert) Supreme Court justices then sitting, "public use" now means "public benefit". What's a public benefit? Whatever City Hall says it is. As the dissenting opinions pointed out, this interpretation obliterated "for public use" from the text. It also made clear, for any who might care to see, that the liberal establishment is only too happy to crawl into bed with the biggest businesses and crush "the little guy" like a little bug if there's a fat commission involved.
The happy ending isn't, sadly, that Ms. Kelo kept her house. But neither was it demolished, as were the other holdout homes in her area. Ms. Kelo's was dismantled and re-assembled in another part of town, complete with commemorative plaque - can you just imagine the very same local political thugs who ran her out preening for the photo-op? No, the happy ending is that since Kelo, 43 states have enacted legislation clarifying that "public use" means "for use by the public". Who do you think opposed this legislation? On the other hand, when a similar law came up for vote in Congress, it was defeated. Who do you think defeated it? Getting the idea? Here's your news flash: your grandfather's Democrat party is dead and buried.
For those interested in a little 5th Amendment glimpse into our brave new road to serfdom, there's now a book out detailing the trials of one Susette Kelo, entitled "Little Pink House", reviewed in yesterday's WSJ. For those unfamiliar with the tale, it is the saga of Ms. Kelo, a forty year-old, divorced EMT; the house she bought in 1997 in a blue-collar Connecticut neighborhood; a giant corporation (PFE ticker symbol), a grasping city council, and five liberal Supreme Court justices.
It seems that when Pfizer came a courtin' the New London Development Corporation (NLDC), whispering sweet nothings in its ear about a new plant in an older neighborhood adjacent to a recently closed naval facility, the NLDC swooned. But what to do? You can't make people abandon their homes just because you've cooked up a lovely development scheme that promises to fill the city coffers. Or can you?
The Fifth Amendment reads in pertinent part: "...nor shall private property be taken for public use, without just compensation." Thus, until Kelo, the Fifth Amendment takings clause had been understood, not unreasonably, to mean that a taking of private property may occur if (a) just compensation is paid; and (b) the taking was for use by the public. Such "uses" included all those things you would imagine - parks, highways, bridges, and the like.
Since Kelo, however, and thanks the five most "liberal" (Orwell alert) Supreme Court justices then sitting, "public use" now means "public benefit". What's a public benefit? Whatever City Hall says it is. As the dissenting opinions pointed out, this interpretation obliterated "for public use" from the text. It also made clear, for any who might care to see, that the liberal establishment is only too happy to crawl into bed with the biggest businesses and crush "the little guy" like a little bug if there's a fat commission involved.
The happy ending isn't, sadly, that Ms. Kelo kept her house. But neither was it demolished, as were the other holdout homes in her area. Ms. Kelo's was dismantled and re-assembled in another part of town, complete with commemorative plaque - can you just imagine the very same local political thugs who ran her out preening for the photo-op? No, the happy ending is that since Kelo, 43 states have enacted legislation clarifying that "public use" means "for use by the public". Who do you think opposed this legislation? On the other hand, when a similar law came up for vote in Congress, it was defeated. Who do you think defeated it? Getting the idea? Here's your news flash: your grandfather's Democrat party is dead and buried.
Today's Economics Lesson
Courtesy NYU Professor Mario Rizzo, here is John Maynard Keynes of 1942, six years after publication of The General Theory:
Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.
Monday, January 26, 2009
The 54-46 Challenge
I've got to say, he's done it again. There's a reason why this guy, who I remember living in a tract house among a lot of state workers, is (and has been for a long time) in line to buy an NFL franchise. Rush's "bipartisan" stimulus proposal wonderfully highlights the fascistic tendencies of the Obamessiah and the single-brain-cell organisms that slobber over him in the MSM. Of course it is nothing new to note that "bipartisan" means Republicans back down and agree to go along with what the media and beltway libs want. Neither is it news that the government-media complex would love to silence, and seeks to marginalize, new media (shout out to Dan Rather!). So the Obamalama is just another thuggish Chicago pol in this tired old mold - where's the story?
What is new, and brilliant, is Rush's approach to Obama-speak. Don't just "just say no" to national socialism; and don't just say "me too (but less)". Call out the new- speak, and present an alternative (that highlights the farcical nature of Obamanomics). Finally, Reagan-style, explain how it will work, why it will work, and issue a challenge.
Thus the 54-46 Challenge, so-named for the approximate percentage of the vote going to Obama and McCain, respectively (rounding up slightly for Obama). Let the Dems take control of 54% of a stimulus package, and the Republicans 46%. Now there's a stimulus we can really call bipartisan! Astutely, Rush points out that among financial commentators, the supply-siders aren't violently opposed to Keynesian stimulus of some level; and the administration isn't completely opposed to tax cuts. Moreover, opinion polls show the public lacks confidence in the efficacy of government spending, yet has a degree of willingness to try a mix of demand and supply-side solutions.
So let's try a 54-46 solution. The administration, and the congressional majority, can figure out what they'd like to do with 54% of the money, and the congressional minority can do what it wants with 46%. Let us put 46% toward cap gains and corporate rate cuts, payroll tax holidays, housing, and suchlike. They can do what they want with their 56%, and all we'll do is say it won't work and I told you so.
C'mon Mr. President. Whining about Rush Limbaugh isn't very original, much less "post-partisan". Neither is lecturing the minority about who won the election and who didn't. By contrast, the 54-46 Challenge may be the most "post-partisan" idea I've ever heard. Want to be a real hero? Take Rush's advice and float it as a trial balloon, then watch what happens in the markets. You won't need to watch another opinion poll, and Rush has said he'll let you take all the credit.
What is new, and brilliant, is Rush's approach to Obama-speak. Don't just "just say no" to national socialism; and don't just say "me too (but less)". Call out the new- speak, and present an alternative (that highlights the farcical nature of Obamanomics). Finally, Reagan-style, explain how it will work, why it will work, and issue a challenge.
Thus the 54-46 Challenge, so-named for the approximate percentage of the vote going to Obama and McCain, respectively (rounding up slightly for Obama). Let the Dems take control of 54% of a stimulus package, and the Republicans 46%. Now there's a stimulus we can really call bipartisan! Astutely, Rush points out that among financial commentators, the supply-siders aren't violently opposed to Keynesian stimulus of some level; and the administration isn't completely opposed to tax cuts. Moreover, opinion polls show the public lacks confidence in the efficacy of government spending, yet has a degree of willingness to try a mix of demand and supply-side solutions.
So let's try a 54-46 solution. The administration, and the congressional majority, can figure out what they'd like to do with 54% of the money, and the congressional minority can do what it wants with 46%. Let us put 46% toward cap gains and corporate rate cuts, payroll tax holidays, housing, and suchlike. They can do what they want with their 56%, and all we'll do is say it won't work and I told you so.
C'mon Mr. President. Whining about Rush Limbaugh isn't very original, much less "post-partisan". Neither is lecturing the minority about who won the election and who didn't. By contrast, the 54-46 Challenge may be the most "post-partisan" idea I've ever heard. Want to be a real hero? Take Rush's advice and float it as a trial balloon, then watch what happens in the markets. You won't need to watch another opinion poll, and Rush has said he'll let you take all the credit.
Saturday, January 24, 2009
Quotes of the Day
"Big government is not the solution to our problems; big government is the problem."
President Ronald Reagan, January 20, 1981
"The era of big government is over."
President Bill Clinton, State of the Union Address, 1996
President Ronald Reagan, January 20, 1981
"The era of big government is over."
President Bill Clinton, State of the Union Address, 1996
Robert Reich has Nothing Against White Male Construction Workers
Robert Reich, former Clinton administration Labor Secretary, who, as indicated in the Wikipedia post bearing his name "has dedicated his career to making worthless people more worthless", has done the country a tremendous favor. He has given us a most eye-opening glimpse into the true meaning of "economic stimulus" in Obamessiah speak. In so doing, he has hopefully provided the noose with which the current administration will be hanged in 2010 and 2012.
I am speaking, of course, of his recent "testimony" - presumably in his capacity as Obama economic advisor - before some banana-republic congressional conference chaired by congressman Charlie("let's reinstitute the draft so we can get more white kids killed")Rangel. This spectacle first came to my attention via Rush, and also was a hot topic on Tom Sullivan's show yesterday. Now, it can be found on youtube at http://www.youtube.com/watch?v=opxuUj6vFa4
The lowlights are as follows. In opining on the objectives of the forthcoming "stimulus" legislation, Mr. (not, to my knowledge "Doctor", as suggested by the illiterate Rangel) Reich said that the money should be allocated with the greatest speed possible (good!), for "high social return" (?). Amplifying on this point, he infamously proclaimed that "the money should not go to highly-skilled professionals, or to white male construction workers." Instead, (presumably the preponderance of) stimulus money should be allocated to "the long-term unemployed... people who are not necessarily white construction workers or high-skilled professionals." For those still struggling to discern the direction in which the Obamalama wishes to take the country - whether his nods in the direction of moderation are mere head-fakes - the Reich Manifesto ought to provide a clue.
If I sound like I take offense at the notion of hundreds of billions of debt-financed federal expenditures being allocated on the basis of criteria other than the twin, and mutually-reinforcing, goals of economic recovery and taxpayer value, then I have succeeded in communicated my displeasure. And, with apologies to Seinfeld, I wish to make it crystal clear that I am not offended as a (mostly) white male; I am offended as an American and a taxpayer! Though offensive on many levels, the Reich Manifesto is offensive mostly because it reveals, with utmost and brazen clarity, that this claque of super-annuated student council candidates, whom the below-the-median crowd has put into power, cares not a whit about economic recovery or getting the unemployment rate back to pre-recession levels. If they did, they would take the greatest pains to ensure that deficit-financed stimulus be allocated in ways that maximize (taxpayer) return. Like it or not, that goal would require putting the money in the hands of people who have the skills to create lasting value. And, like it or not, in many cases, this would mean "white male construction workers".
For those of us who fancy themselves New Deal historians, the Reich video is no surprise. As is becoming increasingly clear via recent scholarship, the New Deal was an abject failure as an economic enterprise. It was, however, a masterful exercise in big-government propaganda. I'm reminded again of the famous encounter FDR had with his Treasury Secretary, Henry Morgenthau, in the latter's office. Morgenthau had a sign on his desk, intended to guide his subordinates, which read "does it contribute to the recovery?" When he saw this, FDR sniffed "this isn't about recovery; this is politics" - at a cost in human misery measurable on the cataclysmic scale. And so it is with the new administration. A President with no executive experience, who's goals in life appear to have been to (a) spend other people's money, and (b)"remake America", has been handed the opportunity of a lifetime. As his Chief of Staff, Rahm Emmanuel, put it: "a crisis is a terrible thing to waste".
The public expects Washington to spend money, and Washington will be happy to oblige. The public thinks it's buying infrastructure, but it's only half right. It's going to buy the infrastructure of a political machine, whether it wants to or not, and at a very dear price. Further, as Congressman Rangel candidly explained in the video, the administration needn't worry about what the middle class might think of this mad (social) scientist experimentation - they'll be way to preoccupied with taking care of themselves to raise a fuss. Where does this leave us? A massive exercise in social engineering, doomed to fail as a massive subsidy to bad behavior, bad culture, bad habits, and bad ideas, resulting finally in, as Holman Jenkins described in the title of his recent WSJ piece, "A Lost Decade". Ten years from now, they'll still be saying it's Bush's fault, but I'm telling you now: by then, it won't be.
I am speaking, of course, of his recent "testimony" - presumably in his capacity as Obama economic advisor - before some banana-republic congressional conference chaired by congressman Charlie("let's reinstitute the draft so we can get more white kids killed")Rangel. This spectacle first came to my attention via Rush, and also was a hot topic on Tom Sullivan's show yesterday. Now, it can be found on youtube at http://www.youtube.com/watch?v=opxuUj6vFa4
The lowlights are as follows. In opining on the objectives of the forthcoming "stimulus" legislation, Mr. (not, to my knowledge "Doctor", as suggested by the illiterate Rangel) Reich said that the money should be allocated with the greatest speed possible (good!), for "high social return" (?). Amplifying on this point, he infamously proclaimed that "the money should not go to highly-skilled professionals, or to white male construction workers." Instead, (presumably the preponderance of) stimulus money should be allocated to "the long-term unemployed... people who are not necessarily white construction workers or high-skilled professionals." For those still struggling to discern the direction in which the Obamalama wishes to take the country - whether his nods in the direction of moderation are mere head-fakes - the Reich Manifesto ought to provide a clue.
If I sound like I take offense at the notion of hundreds of billions of debt-financed federal expenditures being allocated on the basis of criteria other than the twin, and mutually-reinforcing, goals of economic recovery and taxpayer value, then I have succeeded in communicated my displeasure. And, with apologies to Seinfeld, I wish to make it crystal clear that I am not offended as a (mostly) white male; I am offended as an American and a taxpayer! Though offensive on many levels, the Reich Manifesto is offensive mostly because it reveals, with utmost and brazen clarity, that this claque of super-annuated student council candidates, whom the below-the-median crowd has put into power, cares not a whit about economic recovery or getting the unemployment rate back to pre-recession levels. If they did, they would take the greatest pains to ensure that deficit-financed stimulus be allocated in ways that maximize (taxpayer) return. Like it or not, that goal would require putting the money in the hands of people who have the skills to create lasting value. And, like it or not, in many cases, this would mean "white male construction workers".
For those of us who fancy themselves New Deal historians, the Reich video is no surprise. As is becoming increasingly clear via recent scholarship, the New Deal was an abject failure as an economic enterprise. It was, however, a masterful exercise in big-government propaganda. I'm reminded again of the famous encounter FDR had with his Treasury Secretary, Henry Morgenthau, in the latter's office. Morgenthau had a sign on his desk, intended to guide his subordinates, which read "does it contribute to the recovery?" When he saw this, FDR sniffed "this isn't about recovery; this is politics" - at a cost in human misery measurable on the cataclysmic scale. And so it is with the new administration. A President with no executive experience, who's goals in life appear to have been to (a) spend other people's money, and (b)"remake America", has been handed the opportunity of a lifetime. As his Chief of Staff, Rahm Emmanuel, put it: "a crisis is a terrible thing to waste".
The public expects Washington to spend money, and Washington will be happy to oblige. The public thinks it's buying infrastructure, but it's only half right. It's going to buy the infrastructure of a political machine, whether it wants to or not, and at a very dear price. Further, as Congressman Rangel candidly explained in the video, the administration needn't worry about what the middle class might think of this mad (social) scientist experimentation - they'll be way to preoccupied with taking care of themselves to raise a fuss. Where does this leave us? A massive exercise in social engineering, doomed to fail as a massive subsidy to bad behavior, bad culture, bad habits, and bad ideas, resulting finally in, as Holman Jenkins described in the title of his recent WSJ piece, "A Lost Decade". Ten years from now, they'll still be saying it's Bush's fault, but I'm telling you now: by then, it won't be.
Tuesday, January 13, 2009
Investment Thought of the Day (one month later)
On December 15, I noted that Cramer featured five high-dividend payers as strong, safe stock plays for the current environment. The stocks were: BMY, GXP, KMP, NAT, and VZ. Below is a rundown of their respective performances since then:
CLOSING PRICE 12/15 1/12 Div. Yield
BMY 22.50 22.15 .31 (12/30) 5.50%
GXP 18.48 19.42 (x-d 11/25) 8.60%
KMP 47.65 48.14 (x-d 10/29) 8.50%
NAT 32.77 32.21 (x-d 11/19) 19.80% (!)
VZ 32.30 31.79 .46 (1/7) 5.70%
During the relevant time frame, the S&P 500 ETF (SPY) declined in price from 87.75 to 86.95. Obviously, this is a very short time frame within which to assess the performance of any portfolio. Nevertheless, we can say that so far, it is holding up well and performing as advertised - reasonable price performance relative to the S&P, plus good to great (to fantastic) dividend yields. Moreover, I haven't heard any bad news about any of these companies, which is a real bonus these days. We should continue to monitor these stocks.
CLOSING PRICE 12/15 1/12 Div. Yield
BMY 22.50 22.15 .31 (12/30) 5.50%
GXP 18.48 19.42 (x-d 11/25) 8.60%
KMP 47.65 48.14 (x-d 10/29) 8.50%
NAT 32.77 32.21 (x-d 11/19) 19.80% (!)
VZ 32.30 31.79 .46 (1/7) 5.70%
During the relevant time frame, the S&P 500 ETF (SPY) declined in price from 87.75 to 86.95. Obviously, this is a very short time frame within which to assess the performance of any portfolio. Nevertheless, we can say that so far, it is holding up well and performing as advertised - reasonable price performance relative to the S&P, plus good to great (to fantastic) dividend yields. Moreover, I haven't heard any bad news about any of these companies, which is a real bonus these days. We should continue to monitor these stocks.
Monday, January 12, 2009
Quote of the Day
“Just because something doesn’t do what you planned it to do doesn’t mean it’s useless.”
Thomas Alva Edison
Thomas Alva Edison
Subscribe to:
Posts (Atom)
