Let's Have a Class War

Our Occupy friends want to string up the bankers.  I see their point.  The bankers do seem to have screwed things up pretty badly.

But if you want any street cred as a conspiracy theorist you really need to be able to see behind the guy who is saying "pay no attention to that man behind the curtain."

The power of bankers is limited.  They do the bidding of the central bankers.  And the central bankers do the bidding of the politicians.  This is true even of the best financial system, the "Dutch finance" of the old Dutch Republic, the Bank of England prior to World War I, the financial system of Alexander Hamilton and J.P. Morgan.  The government sets the tune.

It's the same with the corporate chieftains.  As ruthless as they may be, they are under the thumb of the politicians.  After all, who has the guns?  Who pays tribute with political contributions?  Who pays taxes?  Who gets to hand out subsidies of Other Peoples' Money?

When we talk about the one percent, we need to think clearly.  Who are the guys with the power?  Sorry Charlie, it's not the Wall Street bankers.  They have power because they serve the interests of the political elite.  It's not the corporate CEOs.  They have power because they sell good products or, in their crony capitalist version, because they suck up to the right politicians.

If we are going to have a class war in this country, let it at least be between the people and the powerful, not the people and the toadies.  The powerful today are the folks in the permanent educated elite, the New Class of top academicians, journalists, activists, politicians, and bureaucrats.  They are the people with political and cultural power, and they have economic power because of their political and cultural power.

Glenn Reynolds has a bunch of good links to today's Power Elite, and it's worth following them up.  Anne Applebaum speaks of the upper-middle class that has detached, and differentiated itself from the middle-middle.  Reynolds himself links the anti-American sneer to the New Class.

And here is Ross Douthat:

The public-sector workplace has become a kind of artificial Eden, whose fortunate inhabitants enjoy solid pay and 1950s-style job security and retirement benefits, all of it paid for by their less-fortunate private-sector peers...

Our entitlement system, meanwhile, is designed to redistribute wealth. But this redistribution doesn’t go from the idle rich to the working poor; it goes from young to old, working-age savings to retiree consumption, middle-class parents to empty-nest seniors... Then there’s the public education system, theoretically the nation’s most important socioeconomic equalizer. Yet even though government spending on K-to-12 education has more than doubled since the 1970s, test scores have flatlined and the United States has fallen behind its developed-world rivals...

The story of the last three decades, in other words, is not the story of a benevolent government starved of funds by selfish rich people and fanatical Republicans. It’s a story of a public sector that has consistently done less with more, and a liberalism that has often defended the interests of narrow constituencies — public-employee unions, affluent seniors, the education bureaucracy — rather than the broader middle class.

View in this light, the Occupy protesters are clearly useful idiots of the New Class, helping the elite rough up innocent scapegoats while the guilty go free.

Sooner or later the American people are going to remove this self-interested clique that imagines itself born to rule, while it corrupts itself with its sinecures and impoverishes America with its folly.  But, in the way of politics, the American people will probably not get it right first time.  And that's a shame.

Targeting the Fed

If there is anything that demonstrates the failure of expert-led government it is the Federal Reserve Board. Every time the economy tanks we find out that the Federal Reserve Board screwed up again and we hear demands for a new target to guide the Fed in its monetary policy.

In the 1920s the Federal Reserve was sterilizing gold flows; after the late 20s boom that was declared a failure.  In World War II and after the Fed targeted long term interest rates and monetized World War II debt.  In the early 50s that policy was abandoned that when inflation increased.  Then in the 70s Nixon turned back to inflationism in order to get reelected.  In the late 70s, after the dreadful inflation, the new target was the rate of increase in the money supply.  In the Greenspan years the target became inflation.

Now everyone agrees that inflation targeting is all wrong.  What is needed, according to economist Scott Sumner is "NGDP targeting."  Instead of targeting consumer prices or the GDP deflator, we should just increase nominal Gross Domestic Product by a sensible amount each year.

Maybe this new target would be better than the old target.  Who knows?  The problem is that central bankers are, first of all, the government's banker.  Central bankers make sure to smooth credit conditions for the government.  Smooth credit conditions for the government may not be the best policy for the economy.

Central bankers sit in the hot seat, so ever since government took over the central banks central bankers have been government bureaucrats and they have wanted a simple rule to govern their actions.  And there lies the problem.

The central problem in economic management is not money supply or inflation or economic growth.  It is to keep the credit system healthy.  Borrowers must make payments on time and people must have confidence that the balance sheets borrowers and lending institutions are healthy.

The proximate cause of the current crisis was that the holders of home mortgages failed on both these counts.  Overextended borrowers started failing to pay their mortgages.  That meant that their mortgages, considered as assets at the bank, were worth a lot less.  Thus the balance sheets at the banks got hammered.  Everyone headed for the exits.

Sensible bankers would have said by the mid 2000s: Wow!  Housing prices have shot up.  We should clean up our balance sheet and make sure that, if this developing bubble should pop that we have good assets that won't melt away if home prices drop.

But they didn't.  They couldn't, because the government had forced them to originate lots of loans at high loan-to-value (risky because a slight decline in home prices would put the loans under water) and lots of loans to borrowers with poor credit (risky because those borrowers are more likely to default).

There's a lot of mumbo jumbo around banking and credit.  So it helps to look at the experience of a banker like the young W.T. Sherman, of Marching Through Georgia fame.  This inexperienced banker became manager of a small bank in San Francisco in the mid 1850s.  He didn't like the look of the economy so he cleaned up the bank's balance sheet.  A key action was in reducing the loan balance of a politician that he didn't trust.  When the politician skipped town, leaving millions in defaulting debts, Sherman's bank easily survived a run, while other banks went under.

How hard can it be?  OK, it helps if the government isn't breathing down your throat forcing you to do stupid things.

The problem with government financial regulation is that it is always backward looking.  The time to stiffen credit terms is on the upswing of the business cycle, to say: Wow, asset prices are really climbing; we should not be originating any 80 percent or 90 percent loans.  Instead we get Barney Frank calling for Fannie and Freddie to roll the dice.  The time to relax credit conditions is right now, when asset prices have tumbled for a couple of years and aren't likely to decline much more.  Instead we get the Dodd-Frank bill that stiffens credit standards with impenetrable regulations.

There's a way forward here, but it isn't some new simple-minded target for the Fed.  What we desperately need is for the financial system to be run by leaders like old J.P. Morgan who really know what they are doing.  Politically-connected chaps like Alan Greenspan and Ben Bernanke just don't cut it.

Three Big Problems

In a way, the Occupy Wall Street protesters are right.  Wall Street is the epicenter of our problems.  But not in the way the protesters think.

Actually, the left has rigidly determined to misunderstand everything about the modern era.  The interesting question is Why.  Why would they be so superstitiously determined to call this age of prosperity and opportunity a monstrous age of exploitation?

The big problems we face today are a consequence of the vanity of the current ruling class, the educated elite.  Our present rulers began in the middle of the 19th century as a moral witness against the huge dislocations of industrialization.  That was a useful, if widely overblown critique.  The industrial revolution was and is rough and tough, just like Major Bagstock.  But then any transition is rough and tough, J. B.

The great mistake the modern educated elite made was that it wasn't satisfied with moral critique.  It wanted to get its hands on the levers of political power.  One thing we know in the modern age; the combination of moral and political power is a recipe for disaster.  Then it gets worse.  Pretty soon, when you combine political and moral power, you find it is not enough, so you decide to get your hands on the levers of economic power as well.  Then you have totalitarianism.

It is telling that there is idle talk among the Obamis about the need to postpone elections.  They just don't get it.

So let's get to the three problems.

Government is lousy at pensions, health care, education, and welfare.  Government is only good at things that require force, like policing and warmaking.  They are lousy at everything else.  On pensions, they have turned savings programs into vote-buying programs,  On health care they have tried to regulate the details when the details, indeed the whole system, keeps changing.  On education they have turned teaching into a pension program, and gutted the learning.  On welfare they have broken up  the low-income family.

Government is lousy at finance.   There is an argument for government getting control of the financial system.  But only during a war when government ought to have access to every instrument for winning the war.  But in all other times, government is a financial pest, because it manipulates the financial system to buy votes with low interest rates and subsidies and it abuses its debt issuing power until it ends up in debauching the currency and/or defaulting on its sovereign debt.

Government is lousy at long-term anything.  It is comical that politicians and their bribed apologists like to criticize business for short-term thinking.  Politicians are worse.  Government really cannot be allowed to do anything long-term, because it loses interest after a couple of years and then the special interests and the crony capitalists take over.

The Occupy Wall Street folks are right that Wall Street is a problem.  But only as a symptom of the bigger problem, that government is a failure and it always tries to paper over its failures with debt.  And Wall Street is where you go when you need to issue debt.

Every politician needs a friendly banker.  And that's the problem.

Never Mind Who Lost Arabia

Before we start arguing about "who lost Arabia" let us  revisit the previous argument over "who lost China."

When Mao won the half-century civil war in China after the collapse of the Manchu dynasty, the reaction in the US elite was to argue about who allowed Mao to win.  As it happened, it didn't matter. Mao managed to make China into an economic midget with his crazed socialist plans.  He managed to wreck China on both socialist fantasies: first, that a political elite can manage the economy better than business people, and second, that political activists running around annoying people are anything other than a nuisance.  The first fantasy wrecked China in the Great Leap Forward and the second fantasy wrecked China in the Cultural Revolution.  Mao's great achievement was to utterly discredit the lefty menu and clear the decks for Deng Xiaoping to inaugurate a capitalist economy and an economic takeoff.

When we look at the "Arab Spring" and start arguing about whether Bush or Obama made it worse, we are missing the point.  The peoples of the Middle East have to figure out how to get out of the economic, political and cultural mess they are in.  Whatever they do it is obviously going to be uncomfortable for us in the West.  In Tunisia, the election Sunday produced a victory for the main Islamic party and for moderate parties that ran on accommodation with the Islamists.  Does that mean that Tunisia will now go on a rampage and try to eliminate Israel?  Maybe, but if it does the US has the power to help Israel stop it.

What about Egypt?  Well, the Muslim Brotherhood might win power and it might want to go on a jihad in the Middle East to restore the glory of Egypt.  And that means they might use Israel as a foil.  But if they do, the US has the power to stop it.

The fact is that almost every political regime that takes power after a revolution tends towards aggressive behavior.  The Brits won a global empire in the century after the Glorious Revolution.  The French invaded the rest of Europe after their Revolution.  And the US conquered a continent after the Revolutionary war.  We should expect the same from the Islamic revolutions and develop plans to contain any aggression that damages our interest.

There is one problem for the Islamic forces if they plan on conquest.  War needs money, and the way you get money in the modern era is to have a thriving modern economy.  That is something that is sadly lacking in most of the Islamic world, in particular in Egypt.

Let us look at Iran, which spent the ten years after its 1979 Revolution in a fruitless war with Iraq.  For all its meddling, what has it achieved?  Anyway, at 30 years after its revolution the revolutionary generation will be soon dying out.  Normally, the fiery revolutionaries get replaced by less impressive time servers.

The bigger threat from Islamism is the migration of the Islamic peoples into Europe where they are inheriting the rotting corpse of the welfare states.  Over the past half-century the native peoples of Europe have seemed too materialistic to suffer the costs of childbearing and childraising.  There is a cost to that.  It means that someone else will inherit the future.

You Must Remember This

It's 31 years ago now.  I remember the moment exactly, driving home from work in the summer of 1980.  Ted Kennedy was delivering "The Dream Shall Never Die" speech, and it terrified me.  How could the lightweight Ronald Reagan ever win against rhetoric like that?

The answer then, and probably now as well, is that Americans aren't persuaded by left-liberal class warfare rhetoric.  It makes them want to upchuck.  And anyway, back then the "lightweight" Ronald Reagan beat incumbent President Carter in a landslide, and went on to become America's most beloved and successful president since whenever.

That's what David Brooks is saying today in "The Fighter Fallacy."  It is one thing to promise big government when Americans trust government, and back in the middle of the last century, about 70 percent did.  Today, "only 15 percent of Americans asked said that they trust the federal government to do the right thing most of the time."  Writes Brooks:

This is a problem for Democrats. But Democrats can win elections in this climate if they defuse the Big Government/Small Government ideological debate.

Bill Clinton did it with the Third Way, and snuck a bunch of liberal policies through.  Barack Obama did it in 2008 as the post-partisan candidate.  Then he governed as the left-liberal president.

After the 2010 election Obama tried compromise with the Republicans (he did?) but it didn't work.  So now he is running as a fighter.

If Obama were a Republican, he could win with this sort of strategy: Repeat your party’s most orthodox positions and then rip your opponent to shreds. Republicans can win a contest between an orthodox Republican and an orthodox Democrat because they have the trust in government issue on their side.

In other words, "The Dream Shall Never Die" won't work today either.

And then there are the facts, or rather the myths.  John Hawkins has an article on five myths the Occupy crowd believe in.  He does it well, but I've boiled it down further.

1. Wall Street Created Housing Bust. Oh no kiddies. The government did it.  They told banks to lend to bad credit risks or they might have an "accident."  Now the whole economy had an accident.
2. Obama hates Wall Street.  Yeah, I've got a bridge to sell you.
3. Iraq War created deficit.  CBO says war cost $709 billion.  Doesn't seem so big any more after the bailouts and stimuli.
4. GOP wants to kill SoSec, Medicare. However much GOP hates old people, there's a $100 trillion hole there that won't get filled by class warfare.
5. Tax the Rich. Sorry chum.  Not enough money there to make a difference.

The Occupy chappies also believe the government should forgive their $1 trillion in student debt.  Sounds like a real vote winner among the young set.  But probably poison to the other 99 percent.

Too Little Too Late on Housing?

With the news that the president will announce a plan to make it easier for homeowners to refinance their underwater mortgages and a Larry Summers article boosting the idea in the Washington Post it is clear that the Obama administration is "doing something" about the housing meltdown.

Just how much it will help is a good question.  After all, if the government lets underwater borrowers refinance at lower rates then it is forcing the bankrupt GSEs like Fannie Mae and Freddie Mac back to subsidizing high-risk debt.  The only way that we will finally get out of the mess is when the market clears and the foreclosed homes are no longer hanging over the market and home prices start to climb.

Larry Summers, at least, has a good idea.  It is nonsensical for the government's conservators at Fannie and Freddie to stiffen their lending requirements at the bottom of the business cycle.

[C]redit standards for those seeking to buy homes are too high and too rigorous. The characteristics of the average successful applicant in 2004 would make that applicant among the most risky today. The pattern should be the opposite, given that the odds of a further 35 percent decline in house prices are much lower than they were at past bubble valuations.

That is a universal problem.   People are wildly optimistic at the top of the business cycle and pessimistic at the bottom of the cycle.  The risks to lenders are highest when asset prices are high after a strong run-up, and lowest after a substantial decline.  If government has a role to play in credit, it should be to lower credit standards at the bottom of the cycle and raise them as a bubble develops.  If home prices increase by 20 percent in a couple of years, then lenders should stop offering 80 percent mortgages and crank back to 75 percent or 70 percent.  But try telling that to geniuses like the Sen. Dodds and Rep. Franks of the world.

The administration's moves seem to have moved the homebuilder stocks a little.  But I wonder if it isn't all too little too late for the president and his reelection.  Even with these efforts at tweaking the housing market the economy is hardly likely to be a barn burner by next summer.  If Obama wanted to run on the economy, he should have had the economy in good shape by summer 2011 at the latest.

The president and his party are paying for the mistakes of 2009.  They thought back then that it was first and ten, and they could fix the economy and enact the liberal agenda at the same time.  They were wrong; it was first and twenty on the five yard line, and now they are reduced to a Hail Mary on fourth down with a quarterback not known for his strong arm.

Steve Jobs and the Coolness Factor

Now they tell us.  Steve Jobs apparently told Barack Obama in 2010 that he was on track to be a one term president.  From HuffPo:

"You're headed for a one-term presidency," he told Obama at the start of their meeting, insisting that the administration needed to be more business-friendly. As an example, Jobs described the ease with which companies can build factories in China compared to the United States, where "regulations and unnecessary costs" make it difficult for them.

Jobs also criticized America's education system, saying it was "crippled by union work rules," noted Isaacson. "Until the teachers' unions were broken, there was almost no hope for education reform." Jobs proposed allowing principals to hire and fire teachers based on merit, that schools stay open until 6 p.m. and that they be open 11 months a year.

But Jobs offered to author campaign ads for the president in 2012.  So here's a question.  Just how bad would it have to get for the cool kids like Jobs to vote for a Republican?  Here was Jobs, who lived and worked in the most anti-business state in the Union, yet he obviously went to his grave a Democrat.

We know why, of course.  Democrats and liberals have managed to define Republicans and conservatives as narrow-minded bigots, "anti-science," racists, and bitter clingers.  So they have persuaded generations of Jobses and "economically conservative, socially liberal" educated people that Republicans and conservatives are radioactive extremists.

Jay Cost describes how this process of political irradiation works.  He calls it "front-lashing."  Here's how it got Harry Reid reelected to the Senate in Nevada even though Nevadans were both anti-Obama and anti-Reid.

A solid majority of Nevada voters disapproved of both President Obama and Senator Reid, yet the latter was able to win a secure victory. The reason? A decisive minority of this group found Angle to be unacceptable. She only won 78 percent of the Obama disapprovers and a terrible 82 percent of the Reid disapprovers.

Over 90 percent of the Obama/Reid approvers voted for Reid.  Only 80 percent of the Obama/Reid disapprovers voted for Angle.  "A staggering 45 percent of voters thought that Angle's positions were "too conservative," and 75 percent of them voted for Reid.

Obviously, Cost writes, the Obamis are going to be trying this strategy.

Any time you hear the Democrats squawking about how the Republicans are “anti-science,” that’s the frontlash in action. The goal is to tag the GOP as a bunch of flat earth throwbacks who are too extreme for the independent swing voters to support.

Notice that in 2008 it was difficult for Republicans to play this game by painting Obama as "too liberal" without running into the race card, especially as Obama was presenting himself as "post partisan."

It really is about time that conservatives broke out of the box we've been put in, and start to define liberals as narrow-minded and intolerant and anti-science.  It's not as if there's no evidence to prove it, e.g., political correctness and climate "science."

Some day we conservatives are going to have to get Steve Jobs and the cool kids back on the side of conservatism.  After all, conservatism ever since Edmund Burke has been a moderating influence against the craziness of modern secular religion, from Jacobinism to Communism to environmentalism. What could be extreme or uncool about that?

Economy 2012

The big question for the economy in 2012 is the impact of QE2. That's the Fed's huge money-printing operation that ended in the middle of 2011.  How big?

The Fed's response to the 2008 meltdown was QE1.  The Fed increased the monetary base from about $0.8 trillion to $2.0 trillion, more than doubling it.  Then in QE2 the Fed increased the monetary base further from $2.0 trillion to $2.7 trillion where it now stands.

The question for ordinary Americans is what happened to the actual money supply.  Back in 2008 the M2 monetary aggregate stood at about $7.7 trillion.  The first monetary burst took M2 up to $8.5 trillion, a 10 percent increase.  Then M2 flatlined for about six months before resuming "normal" growth.  In the last three months it has ballooned from $9.0 trillion to about $9.6 trillion in response to QE2.

Of course, M2 has not increased in proportion to the increase in the monetary base.  This shows that people really are "deleveraging" and reducing their debt load.  But in the end the increase in the monetary base will feed into M2.

Generally speaking the nominal GDP growth (i.e. GDP growth including inflation) is reckoned to parallel  M2 growth, with a lag.  Thus, the M2 pulse at the end of 2008 yielded a bounce by mid 2009.  And so we should expect the QE2 money pulse to boost GDP starting about now.

But the question is whether the monetary pulse will result in real GDP growth or just a pulse in inflation.  If it results in real growth, it will lead to a hangover a year later, just when the next administration is inaugurated.  If the pulse just feeds into inflation then we will not see any real growth next year but just price increases, particularly in food and fuel.

President Obama is clearly setting up his campaign to run against economic villains.  We have had millionaires and billionaires and Wall Street thus far.  Can Wal-Mart and Exxon be far behind, as food and gas prices balloon?

The ugly truth about the economy is that it is never the fault of corporations.  The government sets the rules for commerce, from Wall Street to Main Street.  The government controls the money supply; the government makes the regulations; the government awards the market-distorting subsidies; the government hands out entitlements to its supporters.

Then the government blames Wall Street, banks, and corporations when things go wrong.

What a world!

Will Obama Benefit from OWS?

When the president of the United States does something, even if it is stupid, his action benefits from the aura of the office.  So when the president launches into a full-throttle Occupy Wall Street class warfare campaign, even the most hardened opponent has to wonder: Does he know something I don't know?

After all, there is a reason why politicians are very careful about choosing their enemies.  When you get attacked, it wakes you up.  It makes you angry.  It prods you into getting an opposition organized.  No politician wants that.  He wants, if possible, to put the opposition to sleep.

So I've been watching the daily Rasmussen Reports daily Presidential Tracking Poll, looking for changes that might reflect reactions to the president's class-warfare campaign.  Frankly, I don't see any results.  Not yet.

If you look at the Total Approve number, it started declining during the Debt Ceiling debate, and has flatlined at 43-45 percent ever since.

If you look at the Strongly Approve number, it has been in steady decline since the start of 2011, and seems to have flattened out at 21-22 percent since the beginning of September.  So is this the effect of the class warfare campaign, that it has stopped the erosion in the president's base support?  Big Deal!

If you look at the Strongly Disapprove number, it had declined from about 43 percent at the end of 2010 to about 36 percent by May 2011.  But during the Debt Ceiling debate the Strongly Disapprove numbers strongly rallied back to 43 percent.   Since the beginning of August the number has flatlined at 42-43 percent.

I don't know what the Obamis see in their polls.  But I'd say that whatever it is they are doing, it isn't working.

Looks like the old Clinton campaign slogan still applies.  It's the economy, stupid.

A Test of Class War

Republicans rail at Democratic "class war" rhetoric.  That makes sense because the Republican Party is a resolutely middle-class party.  Republicans, who are mostly neither rich nor poor, think that class-war politics is likely to damage the prosperity of the corporations they work for or the small businesses they own.

But maybe President Obama is on to something.  Maybe he can pump up the rage of the unemployed and win the election with it.

The problem is, of course, that the experts all say that you can't win an election merely turning out your base.  You have to win the moderates, the independents.

Here's Jay Cost writing that President Obama can't win without the independents, and right now he has 35 percent support from independents.  Jay Cost proposes a thought experiment.

[L]et’s conduct a little thought experiment. Suppose that the same percentage of Republicans, Democrats, and independents turn out in every state in 2012 as happened in 2008. Let’s also suppose that Obama does as well with Republicans and Democrats, but with independents he suffers a 17 percentage point decline in every state (which is in keeping with his dropping from 52 percent support among independents on Election Day 2008 to 35 percent today). What would that election look like?

It would look like 2004, and the Republican would win with 50.5% of the vote.  But that scenario is really too generous to the Democrats, he reckons.  More likely, Republican "soft partisan" vote will swell and the Democratic "soft partisan" vote will shrink in 2012 when compared to 2008.  On that scenario the Republicans win in a blowout with a 10-point lead in the popular vote.

Then there are the Catholics.  Colleen Campbell details how in numerous instances the Obama appointees have pressed Catholics on sensitive issues, from abortion to adoption to traditional marriage.

A candidate who won their support by pledging to respect the religiously grounded views of those with whom he disagrees has morphed into a president whose administration relentlessly attacks religious liberty.

The fact is that President Obama and the Reid-Pelosi Congress has done nothing for independents.  Stimulus, ObamaCare, and cap and trade were all about throwing money at the Democratic base.  Yet now the president is running for reelection by ginning up the Democratic base.

Does he really think he can raise enthusiasm on his side without waking the sleeping bear on the other side?

The problem with big government is that it amounts to a kind of secular religious state.  In every big program it is pushing secular religious morality and repressing traditional religious morality.  Liberals absolutely hate the right "legislating morality."  But they seem to be clueless about their own agenda. And that boils down to "legislating liberal morality."

Everyone except liberals hates it when liberals legislate morality.  So that's why I wonder about Obama and his class-warfare campaign for reelection.

Where's the Astroturf?

When the Tea Party emerged in the winter of 2009 and staged numerous Tea Parties across the United States on April 15, 2009, the reaction of the liberal elite in the media and in politics was uniform.  It was contemptible and it was anyway, as Nancy Pelosi said, astroturf.

That is, the demonstrations were ginned up by the Republican Noise Machine and were not authentic grass-roots political activism.

Now that the Left has taken to the streets in the Occupy Wall Street movement, the Right is quick to discover a guiding hand in the movement from the Obama campaign and from labor unions.

Who is right?   Who knows?

All I can say is that the Tea Party activism was a surprise to me.  In the winter of 2009 I experienced the Republican/conservative coalition preparing to hunker down, ready to compromise as necessary with a popular new president and his agenda.  I think the "Republican establishment" was initially taken by surprise and confused by the Tea Party, and also worried that Tea Party extremism might compromise their ability to appeal to the moderate middle.

Yes, but what about the Koch brothers?  Yeah, well what about George Soros?

It makes good left-wing copy to conjure up a movement organized by the Koch brothers, but if you want reality, not a conspiracy theory, you have to recognize that the Koch brothers have been funding libertarian think tanks for decades, and were probably taken by surprise as much as anyone.  But once the Tea Party emerged, they were glad to help and organize.  Hey that's politics.

But what about the Occupy Wall Street crowd?  How close are they to the liberal establishment, and more significant, how close to the Obama campaign?

My guess is: a lot closer than anyone is letting on.  It's curious, isn't it, that the Occupy Wall Street demonstrations started just after the president committed to a class warfare campaign with a jobs bill that was designed to be indigestible to Republicans.

I'm not arguing for a conspiracy here.  Its just that the relations among the various groups on the left are a lot closer than on the right.  It starts right with the notion that on the left politics is everything, and that the whole point of politics is to mobilize the marginalized and raise their consciousness with organizing.   That's the point of the president's brief internship as a "community organizer."

The bigger question is whether all this street activism will work?  That remains to be seen.  On the right we tend to believe that left-wing street activism is all about the sacred rituals of the "over" part of the over-under coalition we know as the Democratic Party.  Our liberal friends see themselves as altruistic and idealistic leaders of the marginalized and the exploited.  They do not stop to ask whether their enlistment of the poor into their political army is not a mere cynical exploitation of the poor to prop up liberal power.

What does the American people want?  Ask me in December 2012.

A Tale of Two Tariffs

Back in the 19th century the Republican Party rode to victory, election after election, on the Tariff.  It was common sense, really.  By charging a fee on imports we Americans could make imports from decadent Europe a little more expensive and help boost American jobs and wages.

It all worked like a charm until the economic Armageddon of 1929-33.  Then the Smoot-Hawley tariff helped bury the Republican Party for a generation.

That was then; this is now.  Now the Democratic Party is reaching the end of the line on their Tariff.  The Democratic tariff is not a tariff on imports.  The Democratic tariff it is a tax on jobs.

Think about it.  If you are a "job creator," as we Republicans like to say, you find that when you pay a new employee you must also pay the government for the privilege.  There's the 7 percent payroll tax, the 1 to 6 percent unemployment tax, the premiums on the state's workers' comp. program.  It could add up to a 20 percent tariff that you pay the government on each dollar of each worker's pay.  Then the worker pays their share of the payroll tax, plus income tax if they earn decent money.  That's another tariff, another tax on jobs.

But hey, it's just common sense, right?  We have to fund the government's social insurance programs for retirement, health care, and unemployment compensation somehow.  Right?

Back in 1937 when Social Security taxes first started the tariff on jobs was one percent on the employer and one percent on the employee.  And only the rich paid income tax.  The big 1937 recession was probably not caused by the new FICA tax, but by the 1935 Wagner Act that resulted in huge boosts to union wages.

But now that the tariff on jobs--on ordinary low wage jobs--is hitting 20, 30 percent...  Well, just think back to the days of the Smoot Hawley tariff, when tariffs on imported products reached almost 20 percent.

Economist Deirdre McCloskey writes:

“‘Jobs’ are deals between workers and employers, and so ‘creating’ them out of unwilling parties is impossible. The state, though, can outlaw deals, and has.”

Let us expand this notion.  If "Jobs" are deals between workers and employers, then "Products" are deals between producers and consumers.  Everything the government does to get between workers and employers or between producers and consumers is going to sour the "deal."  Whether it's a tariff on an import, or a tax on a job, it makes the deal less attractive to the parties to the deal.  At some point, they are going to say: "screw it, the deal is just not worth it."

So now tell me that the Obama administration, intent upon raising the tariff on labor, is as smart as they say it is.

Let's Make the Payroll Tax Cut Permanent

Conservative talk-show host Michael Medved is worried that President Obama has a plan to make the current payroll tax cuts permanent and make up the difference on higher income tax rates.  The president has already tipped his hand that 2012 would not be the right time to "raise middle-class taxes".

[T]he new low rates in payroll taxes for every American household, from 6.2 percent in 2010 to 3.1 percent in 2012, won’t suddenly evaporate at the end of 2012; they will become permanent almost inevitably, shrinking revenues not by $240 billion in a single year but by at least $2.4 trillion over 10 years.

But I say: Bring It On.

The current payroll tax, falling heaviest on wage earners, is part of the system of political defense in depth for Social Security and Medicare.  It preserves the illusion, promulgated first by FDR and believed by many Americans, that Social Security and Medicare are insurance programs.  I paid into the trust fund, Americans say, so I got my benefits coming.

But if politicians cut the tax so that it clearly is no longer funding Social Security properly, then the inconvenient truth starts to emerge, that Social Security is really a welfare program.  Then, of course, the sacred aura surrounding the program starts to fade away.  People might start to say: how come those Latinos down in Chile got a genuine savings program and we just have this joke of a welfare program?

Yeah. Let's raise income tax rates.  Let's screw the rich.  But the problem is that US tax rates are already pretty high by international standards.  If we make them higher then people are going to start serious tax avoidance, and maybe even move to more friendly tax regimes.  And the higher you make the rates, the more that it pays people to pay politicians to carve out crony capitalist exemptions and deductions.

And there is another reason.  One of the ways that Democrats prospered in the 2000s was that the professional middle class was doing well, tax wise.  Taxes on wages were moderate, and tax rates on capital were reduced.  The result was that upper-income people did not need the Republicans to represent their interest and started to dwell more on the embarrassing religious enthusiasm of the downmarket social conservatives.

President Obama's interest in taxing the wannabe rich is going to concentrate the minds of the "economically conservative, socially liberal" educated professional classes.  And that won't add up to votes for our Democratic friends.

"Care About" or "Care For"

The eternal complaint about the government is that the government doesn't care, and so politicians are always anxious to present themselves as caring.  The pollsters are always asking the question to voters: "Does the government care about people like me?"

So Peggy Noonan listening in on a couple of focus groups hears this:

What do they want in a political leader? Someone who cares about "Jane Doe on Main Street that can't pay her electric bill." Someone "with passion not for himself but for America."

The problem is that it is a short step from a leader "who cares about me" to a government that "cares for me."  But this is actually a big step.  It is the step into slavery.  Robert Lacey and Danny Danziger tell how this worked in England in The Year 1000.  Slavery back then could be a penalty for crimes ranging from "certain types of theft to incest."  And, of course, you could be captured by the Vikings and sold into slavery.  But you could become a slave by your own act.

People also surrendered themselves into bondage at times of famine or distress...  [I]n the year 1000 the starving man had no other resort but to kneel before his lord or lady and place his head in their hands...  It was a basic transaction--heads for food.

When a free man places his head in the hands of his lord he gives up his freedom, his birthright, in return for a mess of pottage.  He no longer wonders if his lord "cares about" him.  He has changed the relationship.  Now his lord must "care for" him and provide his food.

In reality this boundary is not as clear cut as it might seem.  You can see this in the way that ordinary people in Peggy Noonan's focus groups think about the role of the banks in the mortgage meltdown.

Who are the culprits behind our economic calamity? "The banks and the people who took the loans." But more the banks, because they had, as one woman put it, "the authority." When they gave out the loans, people thought "it must have been OK." People were "lured in" by the banks—don't worry, home values will keep going up—which pocketed the fees and kept walking.

I've noticed that a lot of people think this way.  The bank has responsibility because they shouldn't have loaned to me if I couldn't pay.  The whole authoritarian welfare state, of course, is built upon this equivocal attitude to freedom.  Employers don't just have a responsibility to pay you, but to provide benefits.  Corporations are supposed to act not just as purveyors of products and services but "give back" to the community.

This subordinate attitude, so encouraged by our liberal friends and the mainstream media, would have seemed shameful to the sturdy folk in George Eliot's Adam Bede.  In the English Midlands of 1800, Adam Bede is a modest carpenter, and believes that his work is part of his religion, "that good carpentry was God's will"; he is the perfect expression of Max Weber's Protestant ethic.  Adam looked to himself and his interpretation of the Bible to guide his life.  There is not a whisper of subordination in his character, or in the remarkable character of Dinah Morris, a twentysomething lay Methodist preacher and textile worker.  These people of the Great Awakening lived a culture of deep moral inquiry and personal responsibility.  They did not think to blame others for their troubles, and they had plenty of them.

Our time is a time when the "care for" culture of the authoritarian welfare state is collapsing in moral and actual bankruptcy.  There is a simple reason for the collapse.  Government is force.  Government does not care for anything except its power.  Government must "care about" its people, because their prosperity is the foundation and the reason for its existence.  But when it pretends to "care for" its people then it enters a wilderness of mirrors.

Conservative Jonah Goldberg, jokes that too many of our liberal friends believe in a government that is a "non-hierarchical, consensus-based, extremely deliberative form of direct democracy." In their confusion they grasp a truth.  Humans as social animals prize as an ideal a society that is non-hierarchical, consensus-based, and deliberative.  But government is necessarily hierarchical, and its consensus is always something of a sham.  Because when the majority votes a bill into law after due deliberation, it votes to compel the losers to obey the new law.  Government is force, and always will be.

Unions, Soros Join "Occupy Wall Street"

Back in the 1960s the New Left used street protest to oppose the Vietnam War.  They brought down a Democratic president and helped elect a Republican, Richard Nixon.

In the 2000s the Angry Left, assisted by capitalists like George Soros, the mainstream media, and the Democratic Party, took to the streets to oppose President George W. Bush and everything he stood for.

Now, with the Occupy Wall Street movement, we see the Democratic Party use street demonstrations to support an incumbent president. And George Soros and the labor unions are along for the ride.

With sympathetic reporting on the protests from the mainstream media, we must assume that President Obama is backing the protests as part of his Soak the Rich reelection strategy.  It shows that he really is a movement leftist, as his conservative critics have charged, and really lives his community organizer values.  Left-wing protest is what he knows; left-wing protest is what he does.  So he has decided to live or die by the street protest.

Just one thing, fellas.  When the Democratic Party last tried this in the late 1960s the American people hated it. The liberals and the mainstream media all fell over themselves about the wonderful "kids" demonstrating for a just and liberated society.  But the American people went the other way.

In fact, the protest era of the 1960s and 1970s ended the Democratic Party's reign as the Everyman's party. That's because for the American people, as opposed to rent-a-mob activists, the economy and the country must work for them to prosper and thrive.  It may be tremendous fun for "students" to create mayhem in the streets, but ordinary working people need to get back to peaceable work.  The people most upset by the Wall Street protests are the retail business people in the area (often immigrant minorities) trying to run a business.

In a way, I feel amazed.  President Obama and his people can't really believe that they can get reelected this way.  By sending left-wing demonstrators into the streets?  By making the American people afraid?  If it works, they will be geniuses.

But my money says that President Obama is creating a gigantic opening for the Republican Party to take and hold the center ground of American politics.  One big reason: Women.   Politicians in recent years have avoided calling people into the streets because they know that women hate that sort of thing.  Women hate street fighting.  They like to see politicians that get together and discuss their dilemmas and all agree to get along.  Candidate Obama of 2008 was a politician who was all about people getting along and getting past the childish partisan games of the 2000s.

What has changed since then?  The answer is Obama himself.  Back then he was the cool challenger, and everything was going his way.  Now he is the embattled incumbent and things seem to be falling apart.

When pilots experience an emergency, they go with their training.  That's why the airlines do tons of emergency training.  When something goes wrong, the pilot doesn't have to think, he just applies his training.

That's what President Obama is doing in the current emergency.  He is going back to his training.  And his training is in left-wing grievance politics.  The problem is that his training doesn't really apply to the welfare state in crisis with failed programs, massive debt, and 9 percent unemployment.

So he will make it worse.  That is going to cost the US.  Big time.  And it is going to cost the Democratic Party.  Really big time.

Newt's New Contract

The Contract with America worked for Newt Gingrich in 1994 when he led the House Republicans to their first House majority in 40 years.  So why shouldn't it work again?

Presidential candidate Newt has published a 21st Century Contract with America on his newt.org website, and it's a work in progress.  But his legislative agenda is ready, and here it is.

1. Repeal ObamaCare.
2. Return to robust job creation. with 12.5 percent corporate income tax, zero capital gains tax and death tax, and optional flat tax.  Reform the Fed.
3. Unleash America's full energy production potential. with "all of the above" energy exploration and production.
4. Save Medicare and Social Security with proper savings and insurance programs.
5. Balance the federal budget "by freeing job-creators to grow the economy, reforming entitlements, and implementing waste cutting and productivity improvement systems".
   
6. Control the border and make English the official language.
7. Revitalize our national security system.
8. Maximize the speed and impact of medical breakthroughs "by removing unnecessary obstacles".
9. Restore the proper role of the judicial branch. Includes replacement of judges.
10. Enforce the 10th Amendment by transferring power back the states.

You can see what it is all about.  It is an "all of the above" recitation of the conservative agenda.  Except that it has nothing about the social issues.  And no wonder.  First we have to get the economy moving and heal the damage that Obamanomics has done to the economy before we try to mend the broken society.

Two points:  First, this program represents a kind of consensus in conservative and Republican circles.  And really, apart from the ever touchy subject of the entitlements, Newt's contract shouldn't have much trouble with the American people.  

Second, every bullet point in the contract is poison to liberals.  Everything in it dismantles decades of liberal dreams and liberal legislation.  It reminds us that the upcoming election is going to be a real choice, reprising the old Goldwater chestnut about "a choice, not an echo."

As the 2012 election unfolds, I can't help thinking that the Democrats are in a miserable position.  You can tell from the actions of their leaders.  Here we have President Obama going for a class warfare campaign against millionaires and billionaires, in a country that defines itself as middle class, and we have Majority Lead Reid pushing a vote on a punish China bill.  These efforts by Democratic leaders are worse than criminal.  They are just stupid.

FoxNews in 2012

It all began in 1964, according to Jeffrey Lord, when the news media took out after Barry Goldwater, calling him the "rallying point for white resistance" to desegregation.  Barry Goldwater?

The man who, during his tenure on the Phoenix City Council and in the Arizona National Guard, helped desegregate all Phoenix schools, restaurants, and the state's National Guard itself?

At the 1964 Republican National Convention in San Francisco, former President Eisenhower couldn't take it any more.  He said this to the delegates about the three liberal networks.

The delegates, he said, should "particularly scorn the divisive efforts of those outside our family, including sensation seeking columnists and commentators, because… these are people who couldn't care less about the good of our party."

The Republican delegates reacted instantaneously.

Delegates shot to their feet, shouting furiously, their applause thunderous. Many jumped up on their chairs in decidedly un-choreographed and quite spontaneous rage turning to face their media antagonists, literally shaking their fists at what Goldwater biographer Lee Edwards would describe as "startled anchormen in the glassed-in television booths high above the convention floor."

But it took 32 years before America had its first conservative TV news network.  Rupert Murdoch opened the Fox News Network in 1996 and put Republican operative Roger Ailes in charge.  Today Fox News earns a little less than one billion a year, and it defines TV news.  Now our liberal friends know what it is like to watch political stuff on TV that trashes everything you believe in.  Everyone should have that experience.  It builds character.

Probably 2008 was the last hurrah of the liberal media, as they jumped in the tank for Obama and, by hiding all the questionable stuff about him, were responsible for electing perhaps the worst president in living memory.  Here's a item that illustrates the point.  President Obama is not a man that likes to get on the phone with Democratic Senate leaders.

But in 2012 the American people will be desperate to consume political news that tells them how to get out of the horror of Obamanomics, ObamaCare, Obama's truckling to the labor unions, Obama's horrible left-wing racism and classism.  Now, with a seasoned Fox News, a teenager at 15, they have a place to go to get the news they want.

That, as they say, is progress.