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.

Obama's Keystone XL Punt

One of the hardest to bear of the many liberal hypocrisies is the idea that liberals are trying to save the environment.  If only they were!

In reality, liberals are like Siddhartha Gautama, the young Indian princeling and upper-class ascetic, who decided to dump wifey and kids and princely burdens for a life of contemplation and enlightenment.  They are ramming their religion down our throats, the religion of upper-class asceticism.  It goes something like this.  We are well-to-do educated chappies, and we have found that getting more stuff doesn't make us happy.  So we have decided that you chaps shouldn't have any more stuff either.

President Obama is the leader of the liberal upper-class ascetics in America and his job is to make sure that the great unwashed don't get out of hand and build stuff to create jobs and prosperity.  That would disturb the liberal vision of everyone living simply so others could simply live.  So he punted on second down on the Keystone XL pipeline that's designed to get oil from Alberta to the gulf state refineries in the US.  Apparently the pipeline is routed through the Nebraska sand hills and a pipeline rupture might harm sensitive aquifers.  Wouldn't want to upset lefty enviros right before the presidential election.

According to liberals, we need regulation so that we can do the science on technical projects.  But of course, in reality the regulation serves as a perfect vehicle for liberals to legislate their morality on the rest of us.  The result is a complete mess in the energy industry and crony green capitalism as entrepreneurs get the message and massage the liberal pols in a pay for play deal that would make the old robber barons blanch.

The same thing applies everywhere that liberals are active.  There's education, a complete mess, that is generating high-school graduates that can't write and college graduates that can't get jobs.  Liberals want government-dominated health care, as if it isn't government power that has screwed up health care this half century and more.

Rich Lowry writes about the comical side of all this.  President Obama tells us that we don't do the big things any more, like build the Golden Gate Bridge.  We have become lazy and soft in recent decades, apparently.  If only.

If we don't build Golden Gate XL bridges, it is because liberals are standing in the courthouse door.  If we are lazy and soft it is because liberals have forced a welfare state on us that has become springtime for freeloaders.  If we have an energy problem it is because anti-science liberals have prevented common-sense energy development in favor of pie-in-the-sky green energy.  If we have an entitlement problem it is because liberals refuse to sign on to a solution.  They would rather demagogue about "saving Medicare as we know it" and win the next election.

Every political dynasty begins in vigor and reform.  Every political dynasty ends up frozen in fear and unable to do the simple necessary things to get things done.  Unfortunately, we have not yet reached the  end-game of dynastic liberalism. Liberals are still powerful enough to stop change and reform, but the American people aren't yet angry enough to sweep them aside onto the ash-heap of history.

Obama Brings Liberal Stereotypes Back

The great theme of the Clinton presidency was the effort to hide the liberal stereotypes that had sent liberals to the political wilderness.  The only way for a Democrat to get elected, the Clintons believed, was by keeping a distance from "liberal, liberal, liberal."  But now Obama has gone full frontal nudity and exhibited all the offensive the liberal traits.  Yuval Levin enumerates them at the Weekly Standard.

1. The Big Spender. Liberals like to shame us into making "investments" but "investments" are wasteful spending by any other name.
2. The Incompetent Economist.  Liberals want to have their cake and eat it too on the economy.  The result is the 1930s Great Depression, the 1970s Great Inflation, and the 2010s Great Recession.
3. The Bureaucratic Technocrat.  Liberals believe you can cheat the market with regulations and subsidies.  It always ends in tears.  See Hayek.
4. The Big Taxer.  It is amazing that the Democrats are going full out on this.
5. The Class Warrior.  Once you unleash the Big Taxer you need the Class Warrior to stigmatize the rich and make the American people forget that everyone pays taxes.
6. The Cultural Elitist.  Keep quiet there in the back of the bus or we may make an example of you.
7. The Peacenik Protestor.  Given how much the American people hated this chap the last time around, it's a bit strange that Democrats think he'll do them any good with the #OCCUPY movement.

For the veteran conservative it seems incredible that the Obamis could think they could win with this combination.  You start to doubt yourself and wonder if the Obamis know something you don't.

Most likely, we are seeing a generational  thing.  It was raised at the time of the Crash of 2008.  Financial crashes come only once or twice a century.  They occur because nobody now working was around the last time.  You have to think that the Obamis, earning their chops in the Hyde Park liberal enclave, just never talked to an ordinary American.  So they will have to learn the lessons of the 1960s the hard way.

Marx wrote that: "Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce."

He forgot to add that the third time, history repeats itself as a reality show.

Krugman: Welfare State Not To Blame!

Well that's a relief.  The New York Times' Paul Krugman assures us that the welfare state is not at the bottom of the current Euro crisis.  Some countries with big social protection expenditures like Germany are not in trouble, he tells us.  Anyway, back when the Euro was first proposed, a lot of conservatives were for it.

Then there is austerity.

The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy.

Of course, he has a point.  But I would argue the bigger point.  Let us borrow a principle from environmentalism to do this: the Precautionary Principle.

The fact is that modern government pushes the economic system as hard as it can.  Partly the reason is to get cheap credit.  Partly the reason is to goose the economy to get revenues.  Partly the reason is to get out of a jam.  All of this violates the sacred Precautionary Principle, which says that you should know the outcome of technological actions on the environment before you barrel in.  How come that the party of the Precautionary Principle got us into such a jam with its non-environmental policies?  Surely the Precautionary Principle can be applied to all of life.

Instead what we get, every day, is some new subsidy program that just bandages some arbitrary economic wound.

Today is Veterans Day, and we are celebrating a veterans jobs bill that will give businesses a tax credit for hiring veterans.  It passed the US Senate on November 10.  It's nice to help veterans, but it would be better to have a solid stable economy in which all Americans can look for jobs and 9 percent of Americans aren't out of work.

Probably we won't get an economy like that until we have a proper separation of economy and state.  We all worship at the altar of the separation of church and state, although everyone wants his religion endorsed by the government.  Still, one of the defining ideas of the modern era is to separate throne and altar, to divide the powers of force and moral persuasion.  In the agricultural era the condominium of secular and religious power was endlessly abused, and as soon as God died, the idea got reborn in the modern secular religions like socialism and fascism.

Government makes a complete mess of the economy, because government is force and the economy relies on completely different principle: trust, the freedom of employment at will and consuming at will, and submission to the "creative destruction" of the marketplace.

And that is the problem at the bottom of the Euro crisis.  Everyone is busy trying to get the government to support their pet plan.  But if there was any virtue in those "pet plans" they would get funding without the intervention of government.

The current financial crisis represents the bonfire of the pet plans.  Some of them are subsidy plans like Fannie and Freddie.  Some of them are due to unaffordable pension and health care plans.  Some of them are just bad luck.

But there is no excuse for any country to have a National Debt over about 20 percent except after a bruising war.  A big National Debt is just asking for trouble.  And it will come.

It's the Freeloading, Stupid

It seems so stupid the way that tin-pot dictators screw up their nations' economies.  Don't they get it that debt default and inflation cause untold misery to millions?

Megan McArdle recalls how she, as an economics writer, used to rail at the Third World:

And the other journalists and I would cluck our tongues and say "Why can't they do the right thing when it's so . . . bleeding . . . obvious?"

Well, now we start to get it.  It's all too easy to for politicians of any stripe to hand out promises and goodies to their supporters.  The problem comes later on when the bill comes due and the supporters start to get really angry, and refuse to admit that their freeloading benefits have got to go.  Cue Greece, Italy, California, and now Ohio.  When voters get really angry, the politicians bolt.

If you want to know how things will develop, a good example is Vallejo, California, which recently emerged from three years in bankruptcy.  Here is the report from the liberal Huffington Post.

In an article on the state of California's legendary fiscal troubles, Vanity Fair scribe Michael Lewis pins the blame for the city's economic woes squarely on public sector pensions. "Eighty percent of the city's budget—and the lion's share of the claims that had thrown it into bankruptcy," wrote Lewis, "were wrapped up in the pay and benefits of public-safety workers."

At present the courts have been reluctant to cut public pensions, so the cuts will fall elsewhere.  There will be spending cuts and the firefighters are getting a new lower pension deal.  But here is the kicker:  "some creditors [will be] only getting back as little as five percent of the full amount they are owed by the city."

That will probably be the pattern.  A lot of spending cuts in jobs and libraries.  Some public employee give-backs.  And a real haircut to the creditors.

Call this the battle of the freeloaders.  Freeloader public employees want their pensions and health care. But the number of public jobs is going to go down.  Seniors demand their entitlements.  But they are taking a haircut in low interest rates on their savings accounts and facing a haircut on their bonds.

We are humans, social animals.  We can do better than that.

Blue Splitsville?

Our liberal friends are quick to detect splits in Republican ranks, particularly between the kind of Republican they like--the moderate, compromising kind--and the kind they don't--the social conservative kind.

Now Walter Russell Mead has unearthed a split in the Democratic ranks.  It has arisen in a police corruption case in New York City.  The folks at The New York Times are shocked, shocked that police out in the Bronx have been fixing tickets, and worse.  They were even more shocked when police, prompted by their union, demonstrated outside the courthouse where the accused ticket-fixers were being tried.

But here is the kicker.  Across the street from the courthouse was a welfare office, and the welfare recipients jeered at the cops: "Fix our tickets!" they cried.  Not to be outdone, the cops returned the compliment. "EBT! EBT! EBT!" they chanted.  "EBT," for you innocents, is the way that food stamps and the like are distributed electronically these days.

The fact is, Mead tells us, the folks in the Democratic coalition don't like each other.  The cops hate the welfare cheats, especially the way that they are not allowed to really police the poor, and the welfare chappettes obviously have hated police brutality since the invention of urban police forces.  The relation between the public service workers and the goo-goo liberals is interesting.  You might say that the liberals fill the pockets of the public union workers with cash to shut their mouths.  Scratch a policeman, a teacher, a welfare worker, a health worker, and you'll hear war stories of the scum they are paid to baby sit.  You need good money to put up with that and not actually do anything about it but just sit there saying "yes, sir, no, sir" to your liberal masters, never knowing what crazy twist they will introduce into the care of the poor next week.

One underappreciated component in the Democratic coalition is Wall Street.  The Wall Street guys are the middle-men that provide the cash for the welfare state in the form of bonded indebtedness.  Every public official needs a good relationship with his banker, and vice versa.  So it's a bit shocking that the young libs in the Occupy movement are blaming Wall Street.

Of course, there's a reason for that.  The young skulls full of mush actually believe the line that their liberal daddies give them about evil Republican fat cats on Wall Street.  They are too dumb to realize that all the bankers are Democrats.

Still, it's important to realize that all these people that hate each other, and are united only in their pursuit of money--taxpayers money.  That is why Democrats talk about nothing but revenue increases.

Unfortunately the money has run out, and so the folks in the Democratic coalition won't be getting the full amount they have in mind in the future.  There is every prospect that they will start to fight amongst themselves over the diminishing spoils.

No need to discourage that.

Klein's Obamanomic Lament

Young Ezra Klein is a coming man in LiberalLand, and so he's the chap The New York Review of Books selected to push back on Ron Suskind's White House tell-all Confidence Men.


Take an Obama announcement in September 2010 where Treasury Secretary Tim Geithner was "looking sheepish," according to Suskind.

So I went back to the tape... I paid special attention to Geithner. Suskind’s right: his suit is too big. But he doesn’t look sheepish or ashamed. He looks, by turns, bored and interested. He clasps his hands behind his back. He nods attentively. He tries not to fidget. He looks like every experienced bureaucrat looks when they’re asked to stand like a prop near the president. Blank, and trying not to make any news. He failed.

OK, so we liberals can ignore Ron Suskind.  But Klein has bigger fish to fry: the failure of Obamanomics.  What went wrong?  It wasn't the clash of the "confidence men."  It was political reality.  Theoretically, if your program isn't big enough to turn the economy, you make it bigger.

If the initial stimulus is too small, you make it bigger. If your housing policies are too modest, you toughen them up. If the private sector sheds jobs and long-term unemployment becomes a problem, you begin hiring workers directly.

Sound great, but this ignores political reality.  The reality is simply that there is no way that Obama could have got a bigger stimulus through Congress.

When Obama angrily dismisses Romer’s umpteenth argument for more stimulus, it’s not because he disagrees. It’s because he can’t get it passed. “Enough!” Suskind quotes him as shouting. “I said it before, I’ll say it again. It’s not going to happen. We can’t go back to Congress again. We just can’t!”

And then there is Ben Bernanke; he's too "timid."  A more activist chairman could have goosed QE2 with a bigger boost.

This raises the question of whether the Obama administration made a mistake in reappointing Bernanke. If it had managed to install a more activist chairman at the Federal Reserve, then its inaction might have been more effectively offset by the Fed’s actions.

 Of course, what Klein doesn't do is question the caloric content of the Keynesian menu.  Suppose "stimulus" is just empty calories that leaves the economy hungry after a quick sugar high? Then a bigger stimulus wouldn't have made a difference.  Suppose that Fed easing just feeds through into inflation.  Suppose that supporting the housing market just puts off the inevitable need to clear the overhang of underwater mortgages?  Klein doesn't even consider that.

The reason the Republicans oppose the Obama economic menu is that we believe that Reaganomics showed that Keynesian fiscal and monetary stimulus isn't nutrititous for the economy.  When you have a big crash the Reagan menu says you need to cut government spending and lower tax rates and reduce government regulation.

The Obama menu says you should fatten up on subsidies to Democratic client groups, get ready to raise taxes on the rich, and boost government regulation on energy and health care.

Young Ezra Klein never even begins to wonder if that kind of food is economic poison.

But don't despair.  Ezra Klein is young.  But surely he is smart enough to know the difference between science and pseudo-science.  When he has reached the age of wisdom.

Good News on Employment

For donkey's years, we have concentrated on the Unemployment Rate as the measure of economic wellbeing.  But the Unemployment Rate has always been a problem.  As right now.

The Unemployment Rate today declined from 9.1 percent to 9.0 percent.  More of the same, it seems.  But if you look at the BLS Household Survey you see that employment has been rising solidly for three months in a row.  Here are the numbers.

Month	Employment (000s)	Change (000s)
Jul	139334
Aug	139296	-38
Sep	139627	331
Oct	140025	398
Nov	140302	277

There are no two ways about these numbers. They are good numbers and show that there is solid increase in employment in the economy.  So why has the Unemployment Rate stayed so high?  The reason is that the labor force is also increasing as more people start to look for work.  Here are the numbers.

Month	Labor Force (000s)	Change (000s)
Jul	153421
Aug	153228	-193
Sep	153594	366
Oct	154017	423
Nov	154198	181

The Unemployment Rate is the employment level divided by the labor force. If both employment and labor force are increasing at the same rate, in this case by about 300,000 per month, then the Unemployment Rate won't change.

There is more good news here.  Our friends in the mainstream media will doubtless soon find it necessary to tell us the good news.  In the past, in the early 1970s, early 1980s, and early 1990s, recessions and recoveries usually occurred during Republican administrations, so the MSM was delighted to put the worst face on the economic numbers.  But now that a Democrat is suffering from bad economic numbers things must change.  And the best way to do it is to show that the solid increase in job numbers is good news that is more important than the continuing bad news in the Unemployment Rate.

A National Conversation about Debt

With the European project flushing down the toilet, I think it is time for a national conversation about debt.

This is hard, and you know why.  It is hard because of a trait that our liberal friends share with Harvard men.  You can always tell a liberal, but you can't tell her anything.  Liberalism is a religious cult, rather like Harvard.  It is a closed system, and is almost impervious to persuasion.

My point is this.  I can understand having a debt crisis when the nation's existence is at stake, when we have to strip the nation of assets in order to feed its armies fighting against the Nazis or the Commies.  But should we really be facing a debt meltdown over paying grannie's Medicare?

Everyone wants to make grannie's golden years a comfort to her.  But what happens when grannie's Medicare/Medicaid takes 12 percent of GDP?

It seems to be a good idea to mortgage the whole nation if an earthquake had leveled San Francisco.  That is what government is for, to rally us all after a crisis, and help pay for the trillion dollars needed to rebuild.  But should we bankrupt the nation on multigenerational welfare?

The great advantage of keeping the national debt down to about 10 to 15 percent of GDP is that it means that the nation is ready to assume any extraordinary burden that comes along, whether it is a war to defend democracy or a natural disaster.  When it is up at 100 percent like it is now, then the nation is not ready to assume extraordinary burdens.  It already has enough burden shouldering today's debt.

Don't get me wrong.  I think that pensions are a great idea.  Health care is a wonder.  But people value these things enough to do them without the government.  Of course, after 70 years of Social Security and 40 years of Medicare many Americans can't imagine life without them.  But we'd find a way if the government went broke.  In fact, I'll bet my nickel that the aftermath of a government default would see wonders of invention: oldsters like me figuring out how to make a buck, physicians figuring out how to deliver health care to people that had to pay for health care with their own money.

And there is the societal aspect to consider.  Most ordinary people derive their most satisfaction in meeting the routine challenges of life.  In today's welfare state only the educated elite gets to meet challenges.  Everyone else just sits around telling victim stories and waiting for the handout.  No wonder we learn that, e.g., young people are curiously diffident these days.   Nobody is challenging them.

Of course, there is a bigger problem with the welfare state than just debt.  It is the demographic problem, that welfare state people don't get married and don't have children, as in Germany and Italy, and Spain.  Here in America conservatives have about 50 percent more children than liberals.  That is an existential disaster that, so far, is not suitable for polite conversation and a national conversation.

So when we look at the national government budget for 2011, courtesy of usgovernmentspending,com:

Government Pensions	$1.0 trillion
Government Health Care	$1.1 trillion
Government Education	$0.9 trillion
National Defense	$0.9 trillion
Government Welfare	$0.6 trillion
All Other Spending	$1.6 trillion
Total Government Spending	$6.0 trillion

You have to ask: Wouldn't most of this stuff be done better if the American people did it themselves?  We wouldn't do it alone, of course, but in revived voluntary collective associations, first reported by Tocqueville to the world in the 1830s.

And in that national conversation about this, let us ask a difficult question, appropriate for national conversations.  Is America ready to discuss the fact that it's all welfare, all $3.6 trillion of Social Security, Medicare, Medicaid and Temporary Assistance to Needy Families and on and on?

Imagine an America in which all these functions were being done in a vigorous, can-do American spirit.  Bureaucrats need not apply.