Will Wall Street Own Romney?

There's a bit of a dust-up about Kevin Williamson's recent "Repo Man" article in NRO.  Kevin argues that there's a reason why Wall Street went for Obama in 2008 and why they are swinging to Romney in 2012.  They are betting that Romney won't do anything to curb the extra-high leverage tricks and off-balance sheet borrowings that helped make the Crash of 2008 such a mess.  Anyway, they aren't conservative:

Here’s what Wall Street doesn’t want: It doesn’t want to hear from Sarah Palin or Michele Bachmann or even Newt Gingrich, or suffer any sort of tea-party populism. It wants you rubes to shut up about Jesus and please pay your mortgages. It doesn’t want to hear from such traditional Republican constituencies as Christian conservatives, moral traditionalists, pro-lifers, or friends of the Second Amendment.

Radio host Hugh Hewitt says that's all rubbish, and it is "Bilderberger" stuff to think that "they" are working to get the fix in on Romney.

I’m just not going to buy that. I do think they might show up in a Sarah Palin T-shirt, and I do think that they are generally often quite conservative, very Evangelical. Some are deeply Roman Catholic, traditionalist, generous, high-minded people.

Hugh, you are wrong.  There may be some Catholics on Wall Street, but, based on my own limited experience, Wall Street is not evangelical.  In fact evangelical is radio-active for Wall Street.

I think that Kevin has it exactly right.  Finance is important, but the intersection between finance and  politics is nothing but trouble.  That's because the politicians need the finance guys to float their debt.  Right now, with the sovereign debt crisis, they really need the finance guys.  Right now, I read, banks are sopping up all but about 20 percent of government debt.  Why?  Because they don't have to hold reserves against government debt--good as gold, you see.

But there's a problem.  Government debt, especially in Europe, is not as good as gold.  There is a good likelihood that one or more governments will default on their debt.  That means that the banks ought to be holding reserves against those questionable government loans.

The whole point of proper accounting is that it properly accounts for risks and rewards.  The whole point of a balance sheet is to show assets and liabilities as honestly as possible.  But when the Basel banking regulations say that sovereign debt is a "risk-free asset class" then the regulators are encouraging banks to lie on their balance sheets.

You can see the intersection of politics and finance here.  Politicians need the banks to sop up their debt.  Banks like the idea of holding debt that doesn't require reserves.  Very often in this world, people want things they shouldn't get.  And that is certainly true at the intersection of politics and finance.

What happens if things go wrong?  Then the politicians have to bail out the banks because, hey, the banks were just following orders.

Under Dutch Finance, invented by the Dutch four hundred years ago, rock-solid government debt is the foundation of the credit system.  But under French Finance, invented by John Law three hundred years ago, governments trade on the rock-solid reputation of Dutch Finance to game the system.  Government debt turns out to be not so rock-solid after all, and then Poof!

The credit system works when the counter-parties can be trusted.  Trust is important because high-leverage, unavoidable in banking, requires that the parties work to manages their assets so that they will always be able to meet their obligations.  There is no way you can be sure that the other guy is really doing this:  you have to trust him.  That's why J.P. Morgan famously said that the most important factor for a banker in evaluating a would-be borrower is trust and character. "Because a man I do not trust could not get money from me on all the bonds in Christendom."

That's because when trust fails, then the whole system grinds to a halt.

Kevin Williamson is arguing that we need to get back to a financial system where the bankers are expected to manage their banks so that they will not require bailouts.  That means they need to keep a distance from politics: no rent-seeking by the bankers, and no bullying by the politicians.

One fine day, a president is going to need to unwind the present corrupt connection between finance and politics.  Kevin Williamson is afraid that it won't be Mitt Romney.

Yearning for a True Conservative

I know.  All the Republican candidates are disappointing.  The serial Great Conservative Hopes have each turned out to have feet of clay, and Mitt Romney isn't anyone's idea of a conservative standard bearer.  Anyway, Mitt doesn't seem to have the cojones to go head to head with President Obama and the Chicago gang.

If we are looking for real conservatism, I don't take second place to anyone.  In my conservative vision, we chuck every social program in the can, from Medicare to welfare, because we humans are social animals, not soldier ants.  We can be trusted to do the social thing, most of the time.  But what really makes us into monsters is a check from the government.

The point to remember is that after Obama, we will need a president with the talent to get things done.  We know what needs to be done.  We need a reform of Medicare; we need a tax reform to reduce loopholes and reduce tax rates.  We need a sensible energy policy, and we need to roll back the environmental extremism of the Obamis.  We need to shake up the education system, and we need to defund the "grant" economy, the slush funds that keeps liberals in their Priuses and  their yeasty urban enclaves.

In other words, we need as president a man with the management skills to implement on a big program.  Looking around, you'd say that it wouldn't hurt if this guy had enough work ethic to do a business degree and a law degree at the same time.  He would have experience in the business sector, knowing when to save an ailing company and when to sell it.  Maybe he should have run a high-profile public project.  Of course he should have been the governor of a state.

Sounds a lot like Mitt Romney.

In the best of all possible worlds we would have  another Ronald Reagan and all of America would rise up and elect him by acclamation.  In the real world the real Ronald Reagan was always, even to Republicans, a rather questionable character.  Was he the real thing, or a lightweight movie actor, like the liberals insisted?  And what about the payroll tax increases of 1983?

It is only now, in the miseries of Obamadom, that the Reagan years seem like a Golden Age when giants walked the earth.

The political and economic situation in the United States is not that dire.  The problem is that every solution will require that Democrats take a hit.  Of course they will.  Just about every government program in existence is a slush fund for Democratic voters, from government universities to government welfare.

Think of it from the therapeutic point of view preferred by our liberal friends.  Democrats are substance abusers, addicted to enormous quantities of taxpayers' money.  They won't be willing to get straight until they hit bottom.  And pusher Obama certainly won't be the man to tell them that their addiction is ruining their lives.

2012 Isn't 1912 Isn't the Dark Ages

The real outrage in Osawatomie Bam's speech on Dec. 6, 2011 wasn't the "liberal history."  Liberals have to talk like that.  Liberals have to say that back in the Dark Ages at the turn of the 20th century people were outrageously exploited and some said it was all the price of progress.  Otherwise they don't have the therefore.  Therefore, we need big government programs to protect the exploited and the unprotected.  Run by caring and compassionate liberals with your tax dollars.

The outrage is that liberals like President Obama are still saying, after boosting the government from 7 percent of GDP to 40 percent in one century, that it's still not enough.

But it is still discouraging to read a chap like Barry Rubin making the Brooke argument.  All that Progressivism was all very well--it had a point--but now we need to "pull up" before we "go too far."

There is such a thing as balance. America’s rapid industrialization after the Civil War put the system out of balance and threatened to wreck the country’s constitutionally-mandated system. Robber barons, monopolies, exploitation of labor, and the buying and selling of legislatures were all commonplace. Only due to reforms, largely backed by Democratic presidents before most of us were born, was the balance corrected.

So legislatures were not being bought and sold in, say, 1812?  Labor was less exploited, as in plantation slavery and indentured servitude?  Let's get real here.  In 1900, the price of illuminating oil had been reduced by 90 percent--by Standard Oil.  The price of steel was down by 66 percent--by US Steel.  Railroads blanketed the nation so that, for the first time in history, farmers could sell their grain to the world.  But people were migrating to the US in their millions (because they could do it safely and inexpensively in the new steamships).  That kept wages down.

Here was the problem.  The political elite was afraid that the new rich, the men who had built the big corporations, would contest for political power.  Of course they would.  After all, politics for politicians isn't everything, it is the only thing.

So the Progressives set about shredding the power of the business elite and institutionalizing their own power--to control politics, to control commerce, and to control the culture.  To do that, they needed a scapegoat, and what better than to stigmatize the new barons of business as monopolists and robber barons and exploiters?

The cure was worse than the disease.  The Progressives turned the proud self-made business elite into cringing crony capitalists.  And they created "social insurance" programs that weren't social, they were regimental; and they weren't insurance, they were Ponzi schemes.

Here we are, 100 years later, and the "progressives," relabeled "liberals" who were relabeled "Progressives," are still retelling their "narrative."

Well, the postmodernists say that the "narrative" that historians tell us is really an apology for power.  When President Obama tells us a story of exploitation he is merely setting us up for bigger and bigger government.

Back in the 19th century, people were quite a bit rougher with each other than we are today.  You can tell that from the lynching statistics, and I mean 50 white-on-white lynchings a year and 50 white-on-black lynchings a year in the 1880s.  But how bad was it?  Well, when the school inspector went visiting factories employing 13-year-old children in 1912 she found that the children much preferred work to school.  Why?  Because their employers treated them better than their teachers.

The Left Doesn't Like Vaclav Havel

Vaclav Havel, Charter 77 activist and former president of Czechoslovakia and the Czech Republic, was a hero of freedom.  So the left doesn't like him.  Let's piggy-back on Ron Radosh's review of two negative lefty anti-Havel screeds.

First of all there's the Guardianista Neil Clark who didn't like the way that Havel dissed the "achievements" of Communist Eastern Europe.

Havel’s anti-communist critique contained little if any acknowledgement of the positive achievements of the regimes of eastern Europe in the fields of employment, welfare provision, education and women’s rights. Or the fact that communism, for all its faults, was still a system which put the economic needs of the majority first.

It's helpful to have the point made so clearly, because it makes it so easy to debunk.  Let us make it clear.

Democratic capitalism is the system that puts "the economic needs of the majority first."  We know that because wherever democratic capitalism has been tried it has brought the majority up from $3 per day to $100 per day.  In socialist countries the opposite is true.

And let us be clear about the reasons for this.  Under capitalism, millions of people make millions of decisions in which they determine how to better their lives by serving others.  Under socialism, millions of people sit and follow orders while a few politicians and bureaucrats determine what is best for them "in the fields of employment, welfare provision, education and women's rights" so that "the economic needs of the majority" come first.  But there's a problem with this noble vision.  If the politicians and bureaucrats foul up, as they did time and time again in the socialist countries, and as they do in the government sector in the capitalist countries all the time, well, too bad.  Their intentions were good.

Then there is Geoffrey Robertson at the Daily Beast, writing from the arty left.   He's upset that the neocons have adopted him as one of their own.  To him, Havel was a man of the democratic left, and it's a sacrilege for him to be tarnished with neocon-icity.

That's the other side of the left, the world of fashionable "affect."  Capitalism and Reagan and Thatcher are wrong because they send out the wrong "vibes."  That's a problem that we have in the United States, where the educated class sneers at the unwashed masses in "flyover country" for their unsophisticated culture and their anti-intellectualism.

Too bad.  Vaclav Havel was a man of freedom, and whatever his faults, we salute him.

It's the Strategy, Stupid

Conservatives like to get our knickers in a twist every time our Republican heroes get out maneuvered by their wily Democratic foes.  And in the payroll tax flap they seem to have got their heads well and truly handed to them. Why, they thought that the Social Security Trust Fund was supposed to be a sacred trust!  That's what the Democrats have been telling us for the best part of a century.

But think what the Democrats are telling us with their payroll tax holiday:

1. Trust fund, schmust fund.
2. What matters is President Obama's reelection.
3. High taxes do too matter to the economy.
4. They are stuck with a stupid payroll tax reduction because they have shut off the real solution, lowering marginal income tax rates.  Millionaires and billionaires, old chap.

Let's step back a moment and look at the lay of the land.  The bigger picture is that, for the last ten to twenty years, Democrats have been on the back foot.  They had to run Bill Clinton as a centrist and had to concede welfare reform.  They had to run a non-stop campaign of character assassination against President Bush to keep their base energized.  And now, on defense and foreign policy they have basically endorsed the Bush doctrine.  Only they lack the intestinal fortitude to do it.

On economic policy they are having to lie to themselves that it was greedy bankers that caused the Crash of 2008 and not government credit policy and housing subsidies.  They totally muffed the recession by passing all their big government agenda before the economy got a head of steam.  And anyway, their Keynesian policy stuff is rubbish.  It was rubbish in the 1930s, and it is even more rubbish today because the government is up to its ears in debt and can't really mortgage the nation to "stimulate" it.

What the Obamis are demonstrating in living color, for those of us with eyes to see, is that the weight of government really matters, most especially when the economy is weighed down with underwater mortgages and unknown future costs associated with ObamaCare.  And it doesn't help that the Dems are keeping various sacred cows alive on crony capitalist life support.

Look at the big picture.  It tells you that the Dems are toast.  Because they are running out of other peoples' money.  All the sound and fury is telling us something.  Macbeth knew, in the moment before a messenger reported to him that Birnam Wood was on the move:

Life's but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more: it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.

So it is, when the roof is about to fall in.

The American people don't know nuttin' about economic policy.  But they do know when things aren't working.  And when they feel that things aren't working they reckon it is time for a change.  Like right now.

Equality the Last Refuge of a Scoundrel?

Over in the liberal Amen corner, they are all singing the same hymn: "Equality."  And James Pethoukakis does us a favor by listing the five parts to the song: The People's Budget, the Brandeis Inequality Tax, Doubling of top income tax rates, Osawatomie Bam, and the Occupy movement.

For conservatives, the question is: why now?  Liberals have kept their longing for equality down to a low rumble for many years.  Why are they swelling into a thunderous chorus right now?

My guess is that President Obama is the chap that has pulled out the stops on the liberal organ.  And so the other players have upped their volume too.

As I've written before, it's a bit scary when the liberals start marching their class warfare army around.  Because it is so divisive.  And you have to assume that the reason they don't normally do it is because it is electoral poison.  Maybe it will be this time, or maybe not.  Maybe it will die a quiet death in the spring when the president's handlers decide that it's not working.

Here's another thing I wonder.  I wonder if President Obama's strategy of running against Congress is really such a good idea.  They say it worked for President Truman in 1948.  But the Do-Nothing Congress of that era had actually done rather a lot, including the Taft-Hartley Act to roll back the powers of organized labor.  In those days, when 30 percent of the work-force was unionized, there were plenty of people who might be annoyed with Congress.

In my view, the American people expects the president to bash heads together and get things done.  I'm not sure that bashing heads together and not getting things done can be expected to get the American people excited about a president's reelection.

And there is this:  If Bush were  president the air would be full of the horror of unemployment and people choosing between heating and eating.  But with Obama in the White House the air is surprisingly calm.  That's just the way the mainstream media operates.  But coming up is the presidential campaign, a time when the non-political moderates actually get to hear the Republican side of the argument for a change.  That can't be good for the president.

So maybe the reason the liberals are all worked up about inequality is that, with Keynesian economics a failure, they don't have any other brilliant ideas.

NYT Still in Denial on Fannie Freddie

One of the things you need to believe if you are a card-carrying liberal is that it was greedy bankers that caused the Crash of 2008, not government housing policy.  At The New York Times they have written nary a discouraging word on the subject.  They don't want their readers to find out that it was the Community Reinvestment Act that bullied bankers into making sub-prime loans and Fannie and Freddie that securitized them.

Lately, things have been a bit precarious, because Gretchen Morgenson, an NYT reporter, wrote Reckless Endangerment with Joshua Rosner.  It dared to point the finger at folks like former Fannie CEO James A. Johnson, former campaign manager to Fritz Mondale.

But good old faithful Joe Nocera is still plugging the Who Me? line.

Fannie and Freddie got into subprime mortgages, with great trepidation, only in 2005 and 2006, and only because they were losing so much market share to Wall Street... The reality is that Fannie and Freddie followed the private sector off the cliff instead of the other way around.

Peter J. Wallison, who wrote a dissent to the Financial Crisis Inquiry Commission, contests Nocera, arguing that Freddie mis-reported the number of its sub-prime loans for years.

Anyway, if Fannie and Freddie were late to the party, how come that they are in receivership, expecting to cost the taxpayer something like $200 billion in losses, when "Wall Street" is back up and running.  It suggests that the Fannie Freddie balance sheet was a lot worse that the average megabank.  And why would that be?

And if you want an insider look at Fannie and Freddie, this extraordinary call to the Rush Limbaugh radio program from "Laurie" might give you a clue.

You know, in the late '90s and early 2000s when real estate prices were sharply on the rise, you know, anywhere between '99 and '03 depending upon what part of the country you lived in, housing prices were on the rise dramatically, and there was a lot of pressure at Fannie and Freddie to get mortgages out the door.

We had a representative from FHA, HUD, Fannie and Freddie, all of which visited this mortgage broker's office. And when Fannie began this idea of packaging these things as securities and grouping them together, you'll find that the number of mortgage brokers for residential mortgages in the country skyrocketed because they were suddenly getting what we call wholesale lines of credits from banks. So mortgage company A or B goes to the bank and he gets a $15 million line of credit called a wholesale line. He fills that line up with mortgages and then they're guaranteed, they're bought off. Fannie and Freddie buy them up immediately, repackage them, or leave them whole and send them out to places like Lehman Brothers.

 Pressure at Fannie and Freddie?  To get mortgages out the door?

The problem with our liberal friends insisting that there is nothing to see here is that it blinds them to what is really going on in the world.  When you refuse to credit news that you don't like, there is a penalty.  One day you wake up and find that you have been totally blindsided.

Welfare Queens Aren't the Issue, Dems

In the liberal mind, Republicans are always trying to come up with "wedge" issues that divide the American people and disturb the even tenor of good, beneficial programs that create a safety net.

First it was affirmation action, then welfare queens.  Now the Republicans think they have a new issue, according to Mark Schmitt: unemployment insurance.

But now they seem to have found it, in the most unlikely of programs: Unemployment Insurance. The legislation to extend the payroll tax cuts that passed the Republican-controlled House on Wednesday brings the full arsenal of welfare reform gimmicks to the UI program: Time limits; drug tests; requirements to seek work or enter an education program.

Well, I'd have to agree that drug tests and seeking work are gimmicks.  But that's because liberals like Mark Schmitt will descend like a murder of crows on anyone that proposes a bigger reform and asks bigger questions.

Don't agree?  Well, Schmitt himself pours scorn on Newt Gingrich for a "proposal to have schoolchildren work as janitors."  Sorry, I don't bite.  Why don't we have schoolchildren getting out to work instead of being confined for their entire childhood in those wonderful government child-custodial facilities without possibility of parole?

And why don't we take a bigger look at unemployment insurance?  Why don't we privatize the whole thing: old-age pensions, unemployment insurance, workers' comp, and disability?  All of these government programs, that want us to believe that government is giving us wonderful benefits, are merely running wage income through the government and then out again as benefits.  Why don't we encourage workers to build their own savings, and supplement it with a bit of insurance when they are young?

I will tell you why, and it has nothing to do with the safety net.  It is merely that people in politics want to buy votes.  In the case of unemployment the government taxes employers and then turns around and pretends that the government is giving money to the helpless unemployed.  Suppose we just gave that money directly to the workers in personal unemployment accounts, and let them borrow from the government during a recession when jobs are hard to find?

The good thing is that the temptation to freeload, however large or small, would be diminished when people are spending their own money on unemployment.  And if an unemployed 40-year-old went out and found a job sooner, because he didn't want to touch his nest-egg, well, it's a free country.

That's the difference between conservatives and liberals.  Liberals want a benefit society; conservatives want an ownership society.

A Wedge for Me? Or Thee?

Quick question.  What is a "wedge issue?"  The answer, according to Jonah Goldberg, is any issue the Democrats don't want to talk about.

In his book What’s the Matter with Kansas? Thomas Frank insisted that Republicans only know how to win on divisive wedge issues that distract voters from their “real” interests. This amounted to McMarxism — a dumbed-down, mass-market version of the old socialist notion of “false consciousness.” Liberals like Frank assume voters are too dumb to know what they should care about.

Like the Keystone XL pipeline.  Right now, the White House is in high dudgeon that the eevil Republicans have put the Keystone XL pipeline and its 20,000 jobs on the payroll tax holiday bill.

And I agree.  It is monstrous for the Republicans to be raising the false consciousness of the white working class with the mirage of jobs, jobs, jobs, when anyone who knows anything knows that the only way to save the planet is to put the kybosh on fossil-fuel development and shovel money at Democratic crony capitalists and their solar panels and wind farms.

But there's a bigger problem for Democrats than the bitter clingers of the white working class.  It is the disappointed hordes of young voters that voted for hope and change in 2008.  Voters under 30 voted 66 percent for Obama back then, but they seem to be experiencing buyer's remorse.  I wonder why.

According to Carl Cannon, only 32 percent of under-30s approve of the president's handling of the economy.  All is not lost, of course.  The president still leads a generic Republican among 18-29 year olds by six points.  But you can see that the 66 percent is out of the window, and also the enthusiasm.

This is good news.  For Republicans there is nothing better than for a whole generation of youngsters to put their faith in a charismatic leader and have their hopes cruelly dashed.  Now those young folks will be receptive to our message.  This is not rocket science, folks.  When government controls everything then young people must join the end of the queue.  Because young people don't have much political power.  It is much better for young people to rely on their energy and youth than upon Uncle Sugar.

But here is more.  It looks like President Obama's class warfare campaign is coming up a loser.  The Gallup Poll announces that "Fewer Americans See U.S. Divided Into "Haves," "Have Nots"".  Gallup asked people whether they thought the nation was divided into Haves and Have Nots.  Back in 2008 Americans split 49% to 49% on this.  But now the Is Divided camp has declined to 41%.  And here is the kicker.  When asked to say whether they felt they were part of the Haves or the Have Nots, 58% said they were Haves, and 35 percent said they were Have Nots.  And Americans' self identification has not changed much over the last ten years.

I continue to think that we ain't seen nothing yet when it comes to the election of 2012.  It is going to be a watershed election.

Newtonian Politics

Like most everyone, I'm a bit skittish about Newt Gingrich.  Why?  Because, you know, he's a bit flaky.  Shoots from the hip.  And all the other things we "know" about Newt Gingrich, which is to say, stories that his enemies have launched into the public square through their willing accomplices in the mainstream media.

On the one hand, I don't think that Newt is a dreaded "progressive," in the mold of TR, Wilson, and FDR, as Glenn Beck seems to think.  On the other hand, I don't think that Newt is a dyed-in-the-wool conservative.

We hear now from former House members that didn't like Gingrich as speaker and thought he was erratic, and then you read Tony Blankley, who used to work for him, write this:

Curious. I remember most of them enthusiastically following his leadership year after year as the Republican whip from 1989-1994. It was the most successful congressional opposition movement since Benjamin Disraeli formed the modern Conservative Party in Britain in the mid-19th century. And after the GOP took back the House for the first time in 40 years (and the Senate, too, by the way), Gingrich's four years as speaker proved to be the most productive, legislative congressional years since at least 1965 to 1967, and they were led by Lyndon B. Johnson from the White House. Working against -- and with -- Democratic President Bill Clinton, we passed into law most of the Contract with America, welfare reform, telecommunications reform (which ushered in the modern cell phone and Internet age), we had the first balanced budget since before the Vietnam War, we cut taxes and lowered unemployment to under 5 percent.

And the other thing about Newt is that when they said: Go, in 1998, he went.

So which is it?  The big thing about Newt is that Democrats can't stand him and like to make fun of him.  But then they made fun of Ronald Reagan and George W. Bush: they sneer at all conservative Republicans.  They have a special reason to be angry at Newt.  It was he that forced Speaker Wright (D-TX) to stand down and it was he that led the 1994 campaign that switched the House to R. for the first time since 1954.

I met Newt at a fundraiser back in 1994 when I was working on the congressional campaign for Rick White.  What did I think?  I think it was outrageous that the left were demonstrating outside the fundraiser.  They called Newt a bomb-thrower back then, meaning that he said nasty things about the opposition.  You mean like every Democrat that ever lived?

Here's what I think.  If the American people are determined to get rid of Barack Obama it won't matter whether Newt is a flake or has "baggage" or has taken money from Freddie Mac.

And you know what?  They would be right.

Newt and Romney and Layoffs

Presidential candidate Newt Gingrich has ruffled feathers with the following challenge to Mitt Romney:

If Gov. Romney would like to give back all of the money he’s earned from bankrupting companies and laying off employees over his years at Bain, then I would be glad to listen to him.”

I get the point.  We conservatives believe in the market economy and one of the vital functions of the market economy is performed by companies like Bain Capital: reorganizing bankrupt companies, laying off employees, and recapitalizing them for further growth, if possible.

So what is Newt playing at, doing the Democrats work for them?  It is, after all, President Obama who told us, in his role as Osawatomie Bam:

Because there were people who thought massive inequality and exploitation of people was just the price you pay for progress.

But that is the point.  Right now I expect that the president and his handlers are rubbing their hands about Mitt Romney and Bain Capital.  Democrats have been whaling on Romney for years now about all the companies he bankrupted, and all the jobs he sent overseas.  It's time that Mitt Romney came up with a retort.

And that retort better be more than a lame defense.  It has to go on the attack.  It has to say that companies get into trouble.  When they do there are no good options.  You have to suck it in and do the best you can with what you have.  Back in the railroad era, it was J.P. Morgan who wound up with the nasty job of reorganizing bankrupt railroads.  It was a dirty job, but someone has to do it.

We know what President Obama believes in.  He believes in taxpayers' money for his union cronies and his crony capitalist contributors. As for coal companies, he's quite happy for them to go out of business and all the jobs with them.  As for oil pipelines, from small to XL, who needs 'em?

We all understand that humans are risk averse.  We hate to admit it when we are wrong, and we hate to be the bearer of bad news, and we put off unpleasant decisions when the companies we lead are going south.  That usually means that the reorganization falls to an expert in reorganization, like Mitt Romney and Bain Capital. We often resent people that are tough enough to do the tough work.

So where is Mitt Romney's home run on the Bain Capital issue?

And of course there is the bigger issue about "inequality" and "exploitation."  Of course inequality and exploitation are problems.   The question is, can government make them better?  The record, I would say, is clear.  Government hasn't a clue what to do about inequality and exploitation except take money from people it doesn't like and give it to people it does like.

Take the auto bailouts.  That was taking money from ordinary Americans and giving it to the best-paid workers in America.  Talk about inequality!  And when the government took money from the taxpayers and gave it to solar-panel loser Solyndra it was exploiting all the companies that sell products to market without subsidies.  Talk about exploitation!

The whole point about capitalism is that its needs a proper legal basis, one that rewards faithful service and clearly defines the rights of debtors and creditors and punishes fraud.  But when you start talking about inequality and exploitation you are getting into pretty deep water.  You are saying that the system that took us from $3 per day to $100 per day needs to be bashed around by force.  For government is force and politics is talking about force.

How in the world are you going to improve a system of peaceful cooperation with force?

Man Problems: Who's to Blame?

Let's talk about the "man-child" problem.  Or the "preadult" problem.  Or the fact that women are doing much better in education and the work force than men.  Philip Brand has a review of several books on this problem.

Or is it a problem at all?  Hey, men have exploited women since the dawn of time, so maybe it's about time!

But the problem is that it's not just a man problem, it's a class problem.   As Charles Murray points out, upper-middle-class men are doing fine.  It's the men below them that are having problems, men who don't quite rate the professional, leadership jobs that you get when you excel at college and bureaucracy.

Now, for Kay Hymowitz, pre-adulthood is a "predictable, perhaps even necessary, response to massive changes in the way Americans earn a living." A college education is essential, and women excel in the kind of occupations that have been thrown up by the new economy. Also women are determined to "achieve financial independence before marriage."

Oh yeah? For "women" read "upper-middle-class women." Head down the social ladder and you see women merely using the welfare state. Which, I suppose, is a kind of financial independence.

Then there's the argument of Leonard Sax in Boys Adrift that the educational system is all wrong for boys.

Or, according to Hanna Rosin in "The End of Men" (Atlantic, June 2010) it's the end of the manufacturing wage.

In my view, the reason for the man problem is liberals, liberals, liberals. Granted that the changes in the workplace and the sex-place (see Walter Russell Mead here) are changing everything, the problem is that certain things can't change because liberals are sitting on the switch.

In education we need huge changes, and we need to mix education and early work. But liberals have education bureaucratized into utter stasis and ineffectiveness, and the work-place regulated into inflexibility.

With welfare we have totally marginalized lower-class men. And with health care we have made bio-medicine both free and impossibly expensive at the same time. Warning: liberals at work.

The problem with all this is pretty simple.  Liberals believe in government.  But government is force, and politics is talking about force.  Most things in this world don't lend themselves to force.

The solution to our problems is a cultural revolution, one that removes liberals and their cold dead hands from the levers of political and cultural power.

And Barack Obama is maybe just the man to help.  By leaving office on January 20, 2013.

Not Really the Working Class Any More

Finally, old reliable Michael Barone has weighed in on the Obama "abandon the white working class" strategy.

Of course, he writes, the Dems abandoned the white working class decades ago when they pivoted from Social Security/Medicare to welfare and regulation.  Now, apparently, Obama wants to win with the educated, the young, and minorities in swing states like Colorado and Virginia that Obama won in 2008.

So maybe it makes sense for Obama to write off the white working class. Yet he is doing it in an odd way, by enacting New Deal-like programs and expending great energy on raising taxes on high earners.

Of course, the white working class is really the white middle class these days.  They may not have big houses and fancy cars, but they do have houses and cars.  They may want their Social Security and Medicare but they don't want them expanded.  New Deal-like programs really appeal to the minority voters, the replacements for the white working class in the Democratic coalition, people who want a powerful patron and the benefits that flow therefrom.

But I wonder if the president can really expect to keep the educated and the young voters in Colorado and Virginia.  After all, the way that the Dems did well with educated suburban voters was on the social issues.  Social issues seem to be really quiet right now, and for good reason.  Educated voters are taking an educated look at their economic position this year, and they are wondering what all this class warfare does to help them.  They are moving towards the economic conservative rather than the socially liberal side of their world view.

And young voters.  Any young voter that doesn't thinking she was sold a bill of goods in 2008 deserves... well she will probably still vote for Obama.  But don't expect any 65% of young voters going for the president this time around.  If anything, I expect most young voters to be very confused.  After all, they have spent the last 16 years listening to liberal teachers tell them about the wonders of liberalism and government, and now that they are out in the world, they are looking at their liberal map and deciding that they are completely lost.  If I were one of them I would be casting around for a new map, an alternative world view.

Buzzing around in my head is the question: are these Obamis crazy, or crazy like a fox?  I resist the idea that they are fools, because that is not a good way to think about the opposition.

Maybe the answer lies in Donald Rumsfeld's line that you go to war with the army you have.  Never mind how the Obamis would like to fight the election.  The fact is that they can't change uniforms and tactics and weapons on a dime.  The Dems are the party of the educated elite and the entitlement beneficiaries, and they can't really pretend to be anything else.  They could try to be post-partisan and post-racial in 2008 as the "out" party.  But not in 2012 as the "in" party.

Three Hits on O's Osawatomi Speech

I had a go yesterday at the president's Osawatomi, Kansas speech, but now I'm really worked up.  As usual, my thoughts condensed after writing the blog, and now I find three things wrong with the speech.

First, there's the liberal history.  I really have a problem with the way that liberals insist that, but for liberals, people would work in sweatshops and Jim Crow would rule the South.  As Rush Limbaugh insisted yesterday, that flies in the face of the founding social science of the modern era, Adam Smith's Invisible Hand.  By working in the world to feed their families, he argued, people help the larger society.  Liberals are taking credit for the miracles of modernity when the credit really goes to the social system we call capitalism.  President Obama calls for the rich to pay their fair share.  Well, chum, back in the Crash of 1907, J.P. Morgan got the richest men into his library and got them to bail out the economy--with their own money.  I didn't see that happen with all the Democrat-contributing rich in the Crash of 2008.  So how come that the America of a century ago was worse than today?

Second there's the smallness of the goals.  Are we to believe that all the high-flown rhetoric and the dramatic call for fairness in your speech is just to increase college education funding and infrastructure spending?  Please, Mr. President.  It's not as if we don't already spend a ton of money on education.  And infrastructure spending?  What happened to the Great Stimulus?  I thought that was cram-jammed with shovel-ready projects.  The fact is that the problem with education and with infrastructure is not money.  The problem is liberals.  Liberals are standing the college door preventing reform of education and defending the indefensible status quo.  And it is liberals, as environmental activists and regulators, that are standing in the way of improving our infrastructure.

Third, whatever happened to entitlements?  You criticize President Bush for his tax cuts that "made it much harder to pay for... Medicare and Social Security" but we don't hear a whisper from you about what you intend to do about them. Apparently you haven't had a thought about the matter since you decided to solve the Medicare problem with the IPAB and rationing.

The fact is, Mr. President, that you have on a direct course for a Greek-like sovereign debt crisis.  There is no attempt to reform, let alone reduce government expenditures, just a determination to throw good money after bad at the usual Democratic constituencies.  Full speed ahead and damn the torpedoes.

You spoke a lot about "fairness" in your speech.  I think a lot about that too.  And what I think is that politicians like you don't have a clue what you are talking about.  Everyone wants an America where "everyone engages in fair play and everybody gets a fair shot and everybody does their fair share."  But here's the thing, Mr. President.  We conservatives think that as soon as you get government in on the "fairness" game, putting a thumb on the scales with entitlements and subsidies, then "fairness" flies out the window.  We present the history of the 20th century as evidence of this.  Let's just take Medicare as the poster-boy example.  With Medicare we have prosperous senior citizens like me being subsidized by ordinary working Americans trying to raise a family.  Where is the "fairness" in that?

Hell, forget "fairness."  What about justice?  Where's the justice, Mr. President, in rich older Americans voting politicians into office to take money from struggling young Americans?

President Obama's Tired Program for USA

They say that President Obama is trying to channel Teddy Roosevelt by going to Osawatomi, Kansas, and puttin' on the class warfare.  Good for him.  It gave the president another chance to rehearse the Democratic narrative that it's all the fault of the rich.

We have the most productive workers in the world, the president said.

But for most Americans, the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people.

Yeah, and I wonder why that is.  Greedy bankers, perhaps?

For a while, the president continued, "credit cards and home equity loans" papered over the harsh reality.

But in 2008, the house of cards collapsed. We all know the story by now: Mortgages sold to people who couldn’t afford them, or even sometimes understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets -- and huge bonuses -- made with other people’s money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn’t have the authority to look at all.

Yes.  How come that mortgages got to people that couldn't afford them?  Banks selling off the risk?  How come?  Regulators asleep at the switch?  Greedy bankers again?  Or could it be Democratic politicians bullying bankers into issuing mortgages to people that didn't have a prayer of servicing them?

It was wrong. It combined the breathtaking greed of a few with irresponsibility all across the system. And it plunged our economy and the world into a crisis from which we’re still fighting to recover.

The question is: what do we do about it? Some people, the president said, want to go back to the tried and failed.

And their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules.

Really Mr. President? I guess that would be liberals, since liberals believe that people should free themselves from rules and do their own creative thing, challenging society. Right?

But the president doesn't agree with his liberal cohorts. He wants us all to obey the same rules.

I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, when everyone plays by the same rules.

So that means that the president utterly deplores all the legislation that creates special rules for special people, all the way from affirmation action and diversity to tax breaks for the rich to benefit scams for the poor.

Not exactly. The president is concerned that some people want to solve the wholw thing by cutting taxes and regulations and letting the market take care of it, relying on "our rugged individualism and our healthy skepticism of too much government."

But here’s the problem: It doesn’t work. It has never worked.

So we've got to "up our game." Oh good. Now comes the brilliant ideas to renew America.

1. Education. "It starts by making education a national mission -- a national mission."
   
2. Science and Reseach, Training. "we also need a world-class commitment to science and research, the next generation of high-tech manufacturing. Our factories and our workers shouldn’t be idle. We should be giving people the chance to get new skills and training at community colleges so they can learn how to make wind turbines and semiconductors and high-powered batteries."
   
3. Infrastructure. We "should be rebuilding our roads and our bridges, laying down faster railroads and broadband, modernizing our schools".

Yes, Mr. President. Brilliant ideas. Boy, oh boy.  Like we haven't already been spending a ton of money on these things for decades, and all the time getting less and less return on the dollar.  And aso for infrastructure: what about liberal activist groups and regulators that do all they can to prevent us from "paving over the nation."

Of course, these wonderful things don't come free, the president explained.

Of course, those productive investments cost money. They’re not free. And so we’ve also paid for these investments by asking everybody to do their fair share... I know that many of our wealthiest citizens would agree to contribute a little more if it meant reducing the deficit and strengthening the economy that made their success possible.

So all of this song and dance comes down to throwing more money at education, as if we haven't been doing it for the last half century, for very little return. And throwing money at research, as if that hasn't become impossibly corrupted by liberal pet projects in environment and climate. And community colleges. Well, everyone's in favor of that. But we already spend a ton of money on them.

It's true. The wealthiest citizens would agree to pay more. If they thought that the extra money would make a dime's worth of difference.

Mr. President, you proposal is simple. Take more money from the rich so you can pump up the higher-education bubble and send money to all the Democratic voters in the education blob. And send more money to union construction workers to build a few projects in ten years after your environmental friends have delayed the projects with their deep concern for the environment.

Meanwhile Medicare is going broke, Mr. President.  How about that?

The truth is that you don't understand the market economy and you don't want to. When we eevil capitalists say "let the market decide" we are not saying that it is everyone for themselves.  We are saying that the market is a social and economic system that naturally directs resources at the most urgent needs of the consumers. Why? Because that's there the money is.

But the market gets into real trouble when government subsidizes its pet projects and government credit policies distort it. You know, like in housing with Fannie and Freddie, and in education with student loans that go into buffing up university fees, bureaucracies, and recreational facilities.

Frankly, Mr. President I am glad that you are raising the class warfare issue and proposing tax increases to pay for stupid education expansion and infrastructure. Because it is time that we had a national conversation on this. With any luck, the American people will decide that they are fed up to the back teeth with empty promises about education and infrastructure and vote for the free market.

Because there is one thing for sure. When government spends money, then Wall Street stands at the head of the line for handouts. Why? Because government needs Wall Street to sell the debt.

Then, of course, politicians like you can assess those Wall Street honchos for political contributions, just like you did so expertly in 2008.

Anthony Watts is a Mensch

One thing has been crystal clear in the Climategate mess.  Chaps like Dr. Phil Jones of the Climatic Research Unit are clueless when it comes to computers, IT, email, and the Internet.

We know that because Dr. Phil cluelessly advised his pals to delete emails.  Give me a break!  Surely everyone knew, back in the early 2000s, that you can't delete an email.  Emails are forever!

Put it this way.  No American CEO can be ignorant of the fact that everything he puts into an email can be used against him and will be, if he gets sued.  One of the basic responsibilities of his job is to manage IT issues like email.  Not at the detail level, but at the grand strategic level, to make sure that his company obeys the law, but also protects itself as much as possible.

So how come Dr. Phil Jones, CEO of CRU was so clueless?

I will tell you why.  The rules that apply to business don't apply to the little darlings of the NGOs.  These little pets of the politicians, so obligingly churning out actionable research that can be used to justify tens of billions in climate rescue programs, don't have to obey the laws you and I do.  So they manage to stay stunningly ignorant of the law and the technology.

Anyway, Anthony Watts, proprietor of WattsUpWithThat.com, the climate skeptic site, found out that Jones and Co. had been sending emails to each other with "open links" to their research papers on the websites of the scholarly journals they use to communicate their science to the world.  The open links include the password of Jones's account at Journal of Geophysical Research (JGR).

Har! Har!  You might guess that Anthony Watts would publish this embarrassing fact to the world,  but you would be wrong.  Watts is a mensch, and so he sent a private email to Dr. Jones instead.

I know that you know me, and probably do not like me for my views and publications. Regardless of what you may think of me and my work, it has been brought to my attention by a reader of my blog that there are open access links to your manuscripts at JGR included in the email that are now in the public view.

Therefore, it is my duty to inform you that in the recent release of Climategate 2 files there are links to JGR journal review pages for your publications and also for the publications for Dr. Keith Briffa.

For example, this link:

http://jgr-atmospheres-submit.agu.org/cgi-bin/main.plex?el=[access code redacted]

I have verified that in fact that link opens your JGR account and provides full access to your JGR account.

Now that the chaps at CRU have changed the password, Watts has published his email in an interesting post that discusses who could have assembled all the Climategate emails for publication.  Answer, it had to be an IT administrator, because only those chaps have both the knowhow and the passwords to do the job.

Actually, it's not surprising that Watts would do this.  The famous Robbers Cave experiment shows that when people divide over an issue each side takes a lot of trouble to be different from the other guys.  Since the Hockey Team has a culture of bullying, statistical incompetence and data manipulation, it is natural that the skeptics should make a point of being completely different.

But that doesn't alter the fact that Anthony Watts is a mensch.

After the Welfare State

Whether or not the Tea Party and the Occupy movements are comparable, there is this about them.  They both represent discontent with the welfare state.

The Tea Party represents older Americans that experience the pressure of welfare state politics on their wellbeing.  The Occupy movement represents young people that drank the Kool-Aid, went to college, and now find that there is no payoff.

The Tea Party and Occupy are not the end of the new activism.  There will be more trouble; there always is when a ruling class starts to confront the contradictions of its raison d'etre. 

The whole idea of the welfare state was that the green eye-shade bother of social protection were better done by disinterested rational experts.

But the experts were not disinterested; they were shills for the ruling class.  And the ruling class, in its contest for votes, has promised the same money to different people.  That's why there is an unfunded deficit for Medicare and Social Security.

Also, of course, the "disinterested" experts have made 30, 40-year assumptions about economic growth and demography.  The auto companies tried that in the 1940s and the promises they made couldn't be redeemed.  So now the auto companies are in bankruptcy and the Obama administration is paying off the promises with monies from the pockets of the taxpayers.

The sensible Robert Samuelson has sensible thoughts about all this.  The welfare state was planned in an era of remarkable economic growth.

The great expansion of Europe's welfare states started in the 1950s and 1960s, when annual economic growth for its rich nations averaged 4.5 percent compared with a historical rate since 1820 of 2.1 percent, notes Eichengreen. This sort of growth, it was assumed, would continue indefinitely. Not so. From 1973 to 2000, growth settled back to 2.1 percent. More recently, it's been lower.

There is no mystery about what happens next.  There will be a fight for resources.  And I suspect that, despite its voting power, senior citizens like me will come out on the losing side.  After all, that's where the money is.  If senior citizens don't agree to a reduction in benefits then the fight will move out of the voting booth into the streets.

To me, that is the bottom line on the welfare state.  It has screwed the young generation.  It has given them lousy schools, kept them incarcerated in child custodial facilities and away from the adult world of work.  And then, when they actually get to work, they are burdened with outrageous taxes to benefit their parents. Remember them?  They are the folks that sent their kids dutifully off the the child custodial facilities. Why aren't the kids all in the streets?

The irony is that the Occupy chaps are in the streets for more of the same: subsidies, freebies, and taxes on the "rich."  Don't they realize that's what got us in this mess in the first place?

The way of social animals is that when we are faced with a problem we stumble towards a solution using trial and error.  It's not hard to figure out what the solution should be: a lot less top-down rational planning that predictably goes badly astray, and a lot more real social cooperation and social adaptation.

Fortunately we already have a system that does that.  It is called democratic capitalism, buttressed by authentic social institutions like the family, the church, the neighborhood and the member association.

The problem is, of course, that such a system leaves no role for an educated elite, disinterested experts, and compassionate politicians.  It runs on its own.

We can expect that our liberal friends, who fill important positions as disinterested experts in the educated elite, will fight any such solution to our problem to the last dollar of sovereign debt.

Mixed Employment News

Unemployment went down last month, to 8.6 percent.  The trouble is, it got that way by a statistical fluke.  Employment went up by 278,000.  That's good.  But the labor force went down by 315,000.  That's how you get the unemployment rate to drop by 0.4 percent in one month.

It's good news that the unemployment rate went down.  But at this stage of the recovery it would be better news if the unemployment rate went up.  Why?  Because in a healthy recovery you get people entering the labor force in their hundreds of thousands looking for work in lockstep with the people actually getting jobs in their hundreds of thousands.  For about a year, when the economy really starts to kick into forward gear, you can expect healthy job growth but no reduction in the unemployment rate.

The labor force has been essentially flat for the last four years.  By comparison, from 2002 to 2008 the labor force increased by 10 million.  Put it this way.  Absent the Great Recession the labor force should be about 4 million higher than it is right now.  It will take years of healthy job growth to fix that, and get back to the robust job market of the mid 2000s.  And that healthy job growth is only just getting started.

It is true, of course, that, with the housing crash, there was no way to get back to full employment in a couple of years.  But it is also true that the Obama administration has made things worse with its regulations, its ObamaCare, its spending splurge, and its green energy boondoggle.  The American people might have something to say about that next November.

"Who Lost Egypt" Misses the Point

In NRO today Andrew C. McCarthy, who prosecuted Sheik Abdul Rahman in the 1990s, is bewailing the election result in Egypt:

It would be hard to overstate what a catastrophe the Egyptian elections are shaping into. Reports about stage one of the long process show not only that the Muslim Brotherhood may be getting over 50 percent of the vote; an even more extreme Islamist party — called “Nour” — is apparently getting between 10 and 15 percent.

Well what do you expect?  The army has ruled Egypt for the last half century--Nasser, Sadat, Mubarak--and today Egypt is broke.  What do you expect the Egyptians to vote for?  A secularist-socialist party with its core support in the educated elite?  Please.

The tone of the conservative reaction to the Islamist surge is reminiscent of the "Who Lost China" blame game in the 1950s.  Egypt isn't ours to win or lose, any more than China was in 1949.  China--and Egypt--has to find its way into the modern era.  And that means adapting its moral-cultural tradition to the modern facts of life. Obviously, this is a very hard thing to do.

Usually countries start by making a bad choice.  In the 20th century, the bad choice was typically to try and ape the secularist-socialist culture of the western educated elite.  That's what Russia tried, China tried, and India tried.  It led to starvation and stagnation until they threw off the secularist-socialist yoke and tried a bit of capitalism.

The Middle East tried the same thing and the result was disaster, compounded by the petroleum boom that allowed rulers to coast on oil revenue without needing to confront the cultural challenge of the modern era.  Given the failure of their secularist army government, it is natural that the Egyptians should return to Islam.  The problem is that Islam has not really confronted the challenge of modernity in the way that Christianity has done.  There has been no equivalent of the Protestant Ethic merging with the Spirit of Capitalism.  And there has been no attempt to separate church and state in the Muslim world.

The modern problem is that, if you combine church and state you get totalitarianism.  And that applies in particular when the church in question is the secular church of socialism or communism.  If you combine economy and state you get crony capitalism.  And if you combine church and economy you get I know not what.

The challenge and the opportunity of the modern age is to develop a Greater Separation of Powers between state, economy and the moral-cultural sector.  If you do not do it, then the result is disaster.  But people have to do it on their own.  They cannot be prodded or "nudged"--i.e., coerced--into it by a supposedly enlightened elite.

We can see that India seems to have made the break from the 20th century Wrong Turn.  China is maybe doing it, if it can get the Communist Party to loosen its grip on political power.  Russia seems to have exchanged church-state totalitarianism for economy-state totalitarianism.

The problem for the US in "losing Egypt" is Israel.  Will an Islamic Egyptian state decide that the way to the future lies through the smoking ruins of Israel?  They certainly might.  Typically, post-revolutionary states get pretty expansionary.  Take the USA.  We conquered most of the North American continent within a century of our revolution.

The US has two options on Israel.  It can help Israel fight off the invaders or it can bring the Israelis here to the US.  Meanwhile Egypt is broke, and needs a bailout from the international community.  That means us.

The Fed Gooses: Dutch Finance or French Finance?

Today the markets have soared in response to the Fed's latest ploy: making dollars available to foreign banks.  But it hasn't solved the problem.

At best, analysts said the move could buy the 17 nations of the euro zone a little more time to agree on a broader plan to stabilize financial markets.

Why is that?  Because all the Fed has done is solve the liquidity problem.  It has not solved the solvency problem.

The solvency problem is that a number of European nations have run up debts that cannot be repaid.  There will be sovereign default, and there will be haircuts for bondholders, and there will be welfare state spending cuts.

Why are these nations in this mess?  The reason is quite simple.  They follow the principles of what I call "French Finance."

The modern era has two models of national finance.  There is Dutch Finance, invented by the Dutch Republic in its war with Spain back in the 16th century.  Then there is French Finance, invented by John Law in France in the early 18th century.

The difference is simple, and understandable by any of us financial ignoramuses.  Let's start with French Finance.

In French Finance the resident wizard, be he John Law or Benjamin Strong or Alan Greenspan or Ben Bernanke, manipulates the financial system to get the government out of its latest jam.  You get inflation, government-sponsored companies like the Mississippi Company and Fannie and Freddie.  It always ends in tears. And the reason is pretty simple.  The credit system runs on trust (credit means faith).  It requires the participants to believe that the other participants can be trusted.  Obviously, under French Finance with its John Laws and Alan Greenspan and Ben Bernankes the question always is: how can I manipulate the markets so my political masters can coast through to the next election?  They spend and borrow and don't give a damn about the long term.  And in the long term the government ends up with debts that cannot be serviced.  After the election comes the deluge.

But what about Dutch Finance?  Now you are talking.  The idea of Dutch Finance is that you take all the government's mess of IOUs and convert them into long-term government bonds.  Then you create a tax and allocate it to the payment of interest on the bonds.  The tax is big enough that the market has confidence that the interest can be paid,.  And paid, and paid.  The result is a big boom, because the government's rock-solid bonds become the best kind of collateral for individuals and the best kind of reserves for banks.  The Dutch did it, and then they invaded Britain in 1688 and set up the same system up with the Bank of England and the "funds," i.e., the National Debt "funded" with earmarked taxes.  If you read your naval fiction you will find that your Jack Aubreys always put their prize money in the "funds."  Alexander Hamilton gave the US Dutch Finance in 1792 when he converted all the Revolutionary War debt into government bonds serviced by import tariffs and excise taxes.  Pretty soon the US had actually paid off its National Debt.

There is always a temptation for governments to cheat, to pretend that they are doing Dutch Finance when they are actually veering towards French Finance.  The Germans had their fill of French Finance in the first half of the 20th century with hyperinflations that reduced money to zero twice after defeat in war.  They want a financial system that will never again ruin the German people.

In the present crisis, as the Wall Street Journal opines, everyone wants the Germans to write a blank check for the defaulters.  The German people, perhaps more than their leaders, are dead set against it.  And who can blame them?

No doubt we will soon get to the end game on this mess, and nobody knows how wide the damage will be.  Will the contagion spread to the US and push the economy back into recession?  Nobody knows.

But one thing we do know.  French Finance always ends in tears.  Dutch Finance is different.  It leads to peace and prosperity.

What's Wrong With Obama Center-left Coalition

I'm still thinking about the news that the Democrats are abandoning the white working class.  Thomas B. Edsall gave us the news in the New York Times:

All pretense of trying to win a majority of the white working class has been effectively jettisoned in favor of cementing a center-left coalition made up, on the one hand, of voters who have gotten ahead on the basis of educational attainment — professors, artists, designers, editors, human resources managers, lawyers, librarians, social workers, teachers and therapists — and a second, substantial constituency of lower-income voters who are disproportionately African-American and Hispanic.

 It seems to be that there are three things that don't compute with this over-under strategy.

1. There aren't enough "professors, artists... social workers, teachers, therapists" to make up for the departed white working class.  Let's think a little more broadly about the "socially liberal, economically conservatives" that voted Democrat during the Bush years.  I'd say it was easier to get those educated suburbanites to vote for Democrats during the Bush years than it will in 2012.  Today they are not worrying about whether Pat Robertson is going to be invading their bedrooms.  They are worrying about their children's careers.  Sure, the educated class that works for government will vote Democratic.  But that just means that they will be voting their pocket books.  The rest of the educated class needs a growing economy to fatten their pocket books.
2. Don't count on the Hispanic vote.  Bush got the Hispanic vote up to 40 percent GOP.  Obama took it back to 30 percent.  Democrats shouldn't count on keeping that 30 percent.
3. Don't count on turning out the black vote.  Obama was elected on a huge enthusiasm in the African American community.  Word is that blacks are deeply disappointed with Obama.  They won't be voting Republican, of course, but many won't be voting at all.

If you ask me the Obama strategy for 2012 is a strategy of desperation.  They are going the center-left over-under class warfare strategy because that's the only way they have a prayer of winning.

But if you think of it, the Obamis are leaving the center wide open for the Republican nominee.  Instead of class warfare, the Republican can invoke all the hoary all-American themes, of hope, hard work, freedom, opportunity, and making America better for our children.

And getting government off our backs.

Entitlements and Realignments

This just in: The Democrats are abandoning the white working class.  The New York Times Thomas B. Edsall says so.

All pretense of trying to win a majority of the white working class has been effectively jettisoned in favor of cementing a center-left coalition made up, on the one hand, of voters who have gotten ahead on the basis of educational attainment — professors, artists, designers, editors, human resources managers, lawyers, librarians, social workers, teachers and therapists — and a second, substantial constituency of lower-income voters who are disproportionately African-American and Hispanic.

Now, of course, the Democrats have always been an over-under party.  But the point of the New Deal coalition was that the "under" included the working stiff, the white working class.

It's interesting that the Dems are trying this right now, especially in the light of an article on the same day from Michael Barone.  He points out, using a study done by the indispensable Paul Ryan (R-WI) that entitlements actually contribute to inequality.  How?   Well, a smaller share of entitlement spending is going to the poor these days. According to Ryan:

[T]he distribution of government transfers has moved away from households in the lower part of the income scale. For instance, in 1979, households in the lowest income quintile received 54 percent of all transfer payments. In 2007, those households received just 36 percent of transfers.

Can anyone spell "Medicare"?

Now, I'm all in favor of reducing middle-class entitlements.  I think that middle-class people like me in their 60s should be paying for their own retirement and their own health care.  But I also understand Irving Kristol's argument that, in order for government to do something for the poor you have to deal in the middle class.

You can see what the Democrats are planning.  They are planning to energize their over-under coalition by taking monies from the middle class, including the white working class, to fund their redistributive programs.  They want to send more money to the poor (oh, and quite accidentally, the overclass that will manage the redistribution.)

There is one problem with Baldrick's cunning plan.  If the Dems start moving money away from the middle class they will reduce middle-class support for entitlement programs and government spending in general.  The middle class likes to vote itself free money like anyone else.  But if the ruling class decides that the middle class doesn't need so much of the free stuff then the middle class is liable to make the obvious judgment.  It will say that if I can't get my share of the loot then nobody else should either.

All of which just shows what we knew already.  The upcoming 2012 election will be a momentous election that decides the direction of US politics for decades to come.  It won't just be a "wave" election.  Or even a "realignment."  It will be an earthquake.

The Real Obstructionists

Democrats have been having a grand old time recently accusing Republicans of poisoning the well by refusing to consider tax increases.  But, as Charles Krauthammer writes, that's a lie.  Republicans have too proposed tax increases, by proposing loophole-closing measures.  Remember when Democrats used to be all wigged out about loopholes?  Here is the list of Republican tax increase proposals, as listed by Krauthammer.

1. Sen.Tom Coburn (R-OK) last year signed on to the Simpson-Bowles tax reform that would have increased tax revenue by $1 trillion over a decade.
   
   
2. During the debt-ceiling talks, House Speaker John Boehner (R-OH) agreed to an $800 billion revenue increase.
   
   
3. Supercommittee member Pat Toomey (R-PA), proposed increasing tax revenue by $300 billion as part of $1.2 trillion in debt reduction.

So much for the eevil obstructionist Republicans.  Of course, Republicans aren't exactly innocent lambs about this.  They don't want to increase taxes on millionaires and billionaires; they would rather reduce the tax loopholes that disproportionately benefit blue-state taxpayers.

The real obstruction to progress on the budget is Democrats.  There's President Obama, for starters, who produced three dead-on-arrival budgets last year: the February budget, the April budget speech, and whatever it was he was proposing in the debt-ceiling debate.  Then there is the Democratic Senate that has failed to produce a budget resolution as required by law since the beginning of the Obama administration.

There is a simple reason for the Democratic obstruction.  They don't want to face up to the one incontrovertible truth of today's politics.  Entitlements must be cut.  No, not just entitlements.  Medicare must be cut.

In my view, the real agenda behind ObamaCare is/was to cut Medicare by the back door, by forcing everyone in America into a system that would ultimately ration care.

The Medicare problem is pretty simple.  Medicare as presently structured does not encourage seniors to economize on health care.  As soon as a majority of seniors (like me) start facing deductibles on Medicare then they will start bargain-hunting.  As I like to say: wait till the Jewish bubbies of South Florida start treating Medicare like they treat grocery shopping.  But Democrats don't want to face up to that.  Their idea of politics is that the American people come to them for "benefits".  A Medicare system with a fixed subsidy and deductibles doesn't fit their patron-client political paradigm, because it will refocus seniors' attention on bargain-hunting rather than benefit-hunting.

But the current system is heading straight for the rocks.  And when it does, it will hurt Democratic voters the most.  Hey, who cares?  Not the Democrats.

Giving Thanks

I'm a lucky guy, all thing considered, and I'm thankful.

In the first place I'm a lucky guy to have two beautiful daughters and six strapping grandchildren.   One daughter is married to the $2 billion man, and the other has a debut novel, OVERSEAS, coming out next year.

In the second place, things always seem to turn out all right for me on the work and money front.  Like right now, when I've "retired" and am now busy writing.  But wouldn't you know, my little website, usgovernmentspending.com, is turning in $2,000 per month in Google advertising revenue.  Next year, very likely more. Who knew, back in March 2007 when the site debuted?

Then we get down to the details.  I'm grateful for President Obama.  He is doing more than anyone to bring on the conservative millennium.

I'm grateful for the Tea Party.  Only in America is there a movement of sensible, measured conservative renewal, in our case based on the founding principles in the Declaration of Independence and the Constitution.  Other nations should be so lucky.

And I'm grateful for the Occupy folks.  If they didn't exist we would have to invent them!

I'm grateful for Mitt Romney.  Is America ready for a Mormon president, liberals?

I'm grateful for Newt Gingrich.  Somebody had to ignite a presidential campaign by needling the mainstream media.

I'm grateful for the climate deniers.  They have stuck it to the climate science community and shown to the world that the headline climate scientists are not doing science, they are doing politics.  It turns out that they are not very good scientists, and not very good politicians, either.

I'm grateful for American workers and American businessmen working away, trying to make the economy recover, even as the government makes things worse and worse.

And of course, I'm grateful for the lovely Lady Marjorie.

Obama Won't Talk

I always say that you can tell what you are good at with one simple test.  What do you like to do at 9:00am on Monday?  If you dread getting back to work at that moment, then you know something important about yourself.  You are in the wrong business.

There's a reason why I'll never make a good politician.  I don't like to get on the phone at 9:00am on Monday and talk to people.  And neither, it appears, does President Obama.  That's not me saying that.  It's MSNBC's Chris Matthews.  Says Matthews of conversations with people on Capitol Hill:

He doesn’t call. He doesn’t write. Matthews continues, “I keep asking them, when did you hear [from the president] last? Silence. He doesn’t like their company.”

When he first got elected as Governor of California, Ronald Reagan's aides pushed him in a different direction.  Forget about going home at five pm, they said:

You have to get to know the legislators, especially the leaders, especially the Democrats. You have to have drinks with them. Tell jokes with them. They have to get to know you, like you, and trust you.

Over at the Wall Street Journal Holman Jenkins details how his isolation worked against President Obama on the recently failed Supercommittee.  The president could have picked up the tax-increase idea floated by Sen. Pat Toomey (R-PA) and fashioned a compromise.  But he didn't.

Mr. Obama, if he had the political creativity he credits himself with, would now pick it up and run with it, instantly redeeming the super-committee "failure" with an act of presidential leadership.

Ah yes.  Leadership.  What voters are generally looking for in a president.  But leadership, according to Ronald Reagan's aides, means getting out and talking with the players.  Because unless you get out among them, you will find it impossible to twist their arms when the moment comes to make the final push on a key piece of bipartisan legislation.

Napoleon said that in battle, the moral is to the physical as three to one.  When Gen. Sherman was marching through Georgia, his troops liked to get a look at their "Uncle Billy" to make sure that things were still all right.

When things get tough in 2012, how will Obama's troops get the same reassurance from the man that nobody knows?

Teeing Up For 2012

The Supercommittee, writes John Podhoretz, was never meant to work.  Or rather, it was designed to kick the can down the road once more.  And it did.  Forget about "dysfunction."  The debt ceiling debate of July 2011 demonstrated the current stalemate between the two parties.  Republicans don't have the power to change, and Democrats have the power to stand pat.  Only an election can decide it.

The central dispute between the camps of the supercommittee — the Republicans wanted no tax increases to stimulate economic growth and entitlement cuts to shrink the size of government, while Democrats wanted tax hikes on the wealthy — will certainly be the central debate of the upcoming national election.

And that is as it should be.

It is also right and proper, writes Yuval Levin, that the Democratic Party should be demonstrating the two sides of progressive liberalism: its technocratic side in the yearnings of people like Peter Orsag for less democracy, and its populist side in the envious ravings of the OWS crowd.

Yuval proposes two types of liberalism, the conservative liberalism of constitutionalism and limited government and the progressive liberalism of progress towards an ideal society.

One view, which has always been the less common one, holds that liberal institutions were the product of countless generations of political and cultural evolution in the West, which by the time of the Enlightenment, and especially in Britain, had begun to arrive at political forms that pointed toward some timeless principles in which our common life must be grounded, that accounted for the complexities of society, and that allowed for a workable balance between freedom and effective government given the constraints of human nature. Liberalism, in this view, involves the preservation and gradual improvement of those forms because they allow us both to grasp the proper principles of politics and to govern ourselves well.

The other, and more common, view argues that liberal institutions were the result of a discovery of new political principles in the Enlightenment — principles that pointed toward new ideals and institutions, and toward an ideal society. Liberalism, in this view, is the pursuit of that ideal society.

The Tea Party, a popular movement to restrain government, is today's instantiation of conservative liberalism, and the Democrats, with technocrats and populists blazing away, exactly represent what you would expect from progressive liberalism: frustration in the technocrats that they can't execute their well-crafted plans, and envious rage from the street that the ideal society hasn't happened yet.

Everyone thinks that next Fall the decision will be a pretty close-run thing.  But I don't.  I think we are going to see a 55-45 Republican win.  It's true that the president is stirring up his base and lambasting the Republicans at every turn and he is moving the needle on his popularity.  But the problem is that the president doesn't have a plan that gets us out of the jam.  Raise taxes?  Steady as she goes?  You must be joking.

The American people are frightened, and are looking for someone to lead them forward.  They know that government is too big, and they know that we need jobs.  Obama's plan isn't working, and it doesn't look as if things are going to be much better by next fall.  The Euro debt debacle will take care of that.

But don't think that a resolution of the Euro debt mess would help the president.  If the Europeans turn the corner then the hot money presently sitting in US debt as a safe haven will be looking at Europe for safety.  That would not be good for US Treasury debt yields, and it would not be good for President Obama's reelection.

Supercommittee Fail

The Supercommittee failure was predicted by Newt Gingrich back in August, according to Rush Limbaugh.  The reason? All those members of Congress weren't going to let a committee of 12 make all their decisions for them.

But bigger than that is President Obama's nasty bind.  Let's assume that he and the Democratic High Command know that entitlements must be reformed.  Let's assume that they also know that healthy, sustainable entitlements are vital for the core Democratic vote, the lower income folks who don't have capital assets.  So why isn't the president out in front proposing a practical, sensible reform of entitlements?

Because to do would demoralize the troops.  It would admit that the Democrats have betrayed their base, promising benefits that cannot be paid out to the party faithful.  President Obama is planning a reelection campaign in which he fights for his base against the mean, Do Nothing Republicans.  Admitting that the Democrats have overpromised on welfare-state benefits doesn't fit the narrative.

Moreover, there is the first law of government checks.  The shortest measurable time interval in the world is the time between someone getting a government check and deciding he deserves it.  Any cuts in government benefits are hugely unpopular.  Because the people receiving them reckon they deserve them.

Maybe, one day, Democrats will vote for reform of entitlements.  But, like the Europeans, they will only do it in the context of a threatened sovereign debt default.  Because in their political calculus, only the end of the world justifies cutting government benefits.

You and I can argue about the morality of big government.  We can wail about the social destruction that government "social protection" programs cause.  But practical politicians don't care about that.  They only care about the next election, and elections are won by promising loot to your supporters.

Reform of the welfare state, if it comes before total financial meltdown, will only occur in the context of a moral movement of reform, something like the anti-slavery movement of the 19th century.  And even then, it may not succeed without violence.  The fight over slavery ended in war because slavery was very profitable, and getting more so.  There was no way that the South could be persuaded on the moral merits of emancipation.  They were making too much money. And they had also seen how emancipation had ruined the sugar planters of the British West Indies.

I'm afraid that the same is true about the welfare state.  It's likely that the beneficiaries will want to fight to retain their benefits.  And judging from the way that the Democrats have given the Occupy movement a wave and a nod, it's unlikely that Democrats will stand in the way of a violent movement to protect "our" benefits.

The Coming Labor Split

When is the white working class going to get it?  That's the question I asked in my latest American Thinker piece.  You can't thrive when you are endlessly running to government for help.  Because in the end, the government stiffs you.

So yeah, government support of labor unions helped some workers for a while--until the unionized steel industry went broke and the auto industry needed a bailout.

Now of course we have the Democratic Party joined at the hip with public sector unions.  And private sector workers are getting the shaft.  President Obama recently "postponed" the Keystone XL pipeline that is designed to carry crude oil from Canada to the refineries in the Gulf of Mexico.  He sided with environmentalists and public sector workers against private sector workers.

The hype over "green jobs" is of course at attempt to paper over the fact that today's Democratic Party is radically anti jobs.  Daniel Henniger lays out the reality.

The Democratic promise to private blue-collar workers has been that the party would use its clout to in effect "manufacture" new jobs out of public budgets—high-speed rail projects, school construction and the like.

But really what hope is there for that, given the budgetary death struggles in the deep Blue states, where the Democrats are committed to supporting their public sector union buddies to the last tax dollar? "There isn't going to be anything large left over for "public-private" job schemes."  As in.  There is no more money!

Sooner or later, private-sector blue-collar workers are going to have to get it, that the Democratic Party is no friend of the working man.

Yesterday the news came through that the Seaway pipeline between Oklahoma and the Gulf had been sold.  The new owners planned to reverse the flow so that it will now flow from Oklahoma to the Gulf. Crude prices and the stocks of oil companies invested in the new oilfields in the Dakotas immediately reacted.

This is how energy policy really works.  Capitalists react to changed market conditions and create jobs by responding to the needs of consumers.  Whenever government gets into it, it always ends up in crony capitalism and epic failures, as in Solyndra and the fatuity of California's high-speed rail to nowhere.

Come on in, workers.  Capitalism is great and the water's fine.  Leave the Democratic Party to its last ditch defense of the indefensible public-sector bloat.

Beyond Constitutionality on ObamaCare

Columnist David Harsanyi is in a foul mood as he contemplates ObamaCare lumbering up to the Supreme Court for a constitutionality test.   Never mind the constitutionality of forcing Americans to buy health insurance, he writes.  It's the whole process that got us here: the lies, the corrupt process, and now the fact that an ObamaCare cheerleader sits on the Supreme Court.

Now, numerous news organizations have falsely reported that the Supreme Court agreed this week "to decide the fate" of Barack Obama's health care policy. Fortunately, the fate of Obamacare can still be decided by voters and -- more likely, in time -- by its overwhelming fiscal and moral failure. The court does not historically like to strike down federal legislation. Those who oppose Obamacare might hope for the best in July, but rather than stake their argument solely on the constitutionality question, they should be prepared to fight on grounds of bad policy and corrupt process.

Sooner or later we are going to have to confront the whole of the welfare state and its "springtime for freeloaders."  It's appropriate that an age that rejected the notion of divine justice, that God will get you even if earthly policemen and judges don't, has reverted to an older, crueler form of social control: the blunt force of government.  Because that is the grand theory of the welfare state: Force.

The reason that humans first invented divine justice, according to Nicholas Wade in The Faith Instinct, is that it is much better to have God deal with freeloaders than society, for with God you don't need policemen and jailers.

In the old hunter-gatherer days, freeloaders were controlled by the "force" of divine justice, but in the agricultural age real force was needed to keep the agricultural surplus away from robbers and brigands, so we got the warrior landowners to enforce property rights and protect farmers from thieves.

Capitalism came along and changed the rules again.  Instead of divine justice or land barons it offered freedom.  If you didn't trust someone, you were free not to deal with him: freeloaders beware.

A lot of people were scared to death by the new freedom.  What if my employer just fires me on a whim?  What if my best worker ups and quits?  So we got a new birth of compulsion.  Activists decided that government had to fill in the gaps in private education.  So now we have a government monster that fails to educate the majority of students.  Even at the top end, half of college freshmen need remedial courses.  Instead of mutual aid and charity, with the discernment to pick out the freeloaders from the honest folk coming on hard times "through no fault of their own" we have government welfare with qualification rules that the poor have become expert in scamming.  Instead of a flexible, adaptable health care system we have a government monstrosity that is eating up the budget.

The fundamental truth about social animals is that social behavior reduces the need for force.  You can't have social animals if everything is decided by force.  But with the welfare state we have regressed to a pre-social community.  For in the welfare state everything is decided by politics, and the decisions of politics are fast-frozen into bureaucratic rules.  Unfortunately there is an unavoidable truth about this.  Politics is power, government is force.  By deciding societal matters by force we revert to a pre-social society where everyone is a freeloader unless restrained by the police and the enforcement officers.

It's a tragedy that an age that invented a stunning system of social cooperation without force decided that it was much happier living under the knout of the politician and the bureaucrat.