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Politics and the US Economy

The democrats are wrong again. Aren't they almost always wrong? Histerical too? It's a common refrain, one that we've heard many times before. This time is just more hot air put there to scare you.


The Democrats' War on Paul Ryan
By W. James Antle, III on 4.25.11

If hysteria and hyperbole could balance the budget, we would be running record surpluses right now. In that parallel universe, the Democratic reaction to Rep. Paul Ryan's (R-Wis.) budget proposal would wash away the red ink much faster than Ryan himself.

Consider this brainstorm by Rep. Debbie Wasserman Schultz (D-Fla.), the new head of the Democratic National Committee: "This Republican path to poverty passes like a tornado through seniors' nursing homes." Schultz isn't the only siren screeching out a warning to take refuge in the storm cellar. Rep. Jan Schakowsky (D-Ill.) is conducting an air raid drill.

"Make no mistake about it, the Ryan budget is a war on seniors," she said in a press conference organized by the Congressional Task Force on Seniors. "Newt Gingrich has said Medicare should wither on the vine. Well, this Republican budget would chop it down." The new civility didn't stop there: "Republicans are literally trying to kill Social Security, Medicare, and Medicaid. Democrats will stand of the way of their war on seniors."

The ever-excitable Rep. Henry Waxman (D-Calif.) was not to be outdone: "They use Medicaid as a piggy bank in order to avoid asking the people at the very top of our economic ladder, the very richest in our society, the highest income earners of millions and dollars or more, to avoid paying their fair share of taxes."

Finally, there was the president himself. "It's a vision that says up to 50 million Americans have to lose their health insurance in order for us to reduce the deficit," Obama intoned during his April 13 speech asking for a post-Ryan do-over on his 2012 budget. Obama continued:

Who are these 50 million Americans? Many are somebody's grandparents, maybe one of yours, who wouldn't be able afford nursing home care without Medicaid. Many are poor children. Some are middle-class families who have children with autism or Down's syndrome. Some are kids with disabilities .  .  . so severe that they require 24-hour care. These are the Americans we'd be telling to fend for themselves.

William Kristol rightly compared Obama's remarks to Ted Kennedy's infamous "Robert Bork's American" speech. In 1987, Kennedy accused Bork of wanting to force blacks to eat at segregated lunch counters while censoring artists, banning the teaching of evolution, and subjecting every American to the midnight knock at the door. Maybe Kennedy just had better better speechwriters than contemporary Democrats.

But that's not the only time we've been down this apocalyptic road. Before a Republican Congress passed and President Clinton signed welfare reform, Democratic politicians and liberal activists casually tossed around dire predictions of a million additional children being consigned to poverty. Rep. Jim McDermott (D-Was.) said the bill would "put 1.5 million to 2.5 million children into poverty" within two years of becoming law.

Sen. Frank Lautenberg (D-N.J.) warned that welfare reform "children hungry and homeless... begging for money, begging for food, and even at eight and nine years old engaging in prostitution." Sen. Carol Moseley-Braun (D-Ill.) called it an "abomination" and imagined it could lead to children being sold into slavery. Marian Wright Edelman wrote contemptuously of the need to reduce spending: "It is nonsense for congressional leaders to argue that they are protecting children from a future debt children did not create by destroying the vital laws and investments children need to live, learn, and grow today."

Replace Aid to Families with Dependent Children -- welfare as we knew it -- with a block grant to the states and Sen. Daniel Patrick Moynihan (D-N.Y.) said we could expect children to seek warmth by sleeping on sewer grates: "We will say, 'Why are these children sleeping on grates? Why are they being picked up in the morning frozen? Why are they scrambling? Why are they horrible to each other, a menace to all, most importantly to themselves?'" Moynihan, who should have known better, worried that even his fellow Democrats were "literally arranging flowers on the coffin of the provision for children in the Social Security Act."

Needless to say, none of this actually happened. Welfare reform was not without its flaws, but after it was enacted caseloads were reduced by 57 percent in ten years and child poverty dropped by 1 percent per year for the first five years. Child poverty rates remain below their pre-1996 levels despite a severe economic downturn and lackluster post-recession job growth.

Just because the most apoplectic liberals were as wrong about welfare reform as they were about the Reagan tax cuts spurring hyperinflation-- when it fact they helped whip stagflation -- does not necessarily mean that they are wrong about Paul Ryan's Medicare and Medicaid reforms. But it does give us reason to distrust those who are so confident in government while having so little confidence in ordinary people. The budget cannot be balanced by their fear-mongering and moral outrage.
 
I really liked that article. It shows that the dems reaction to almost every idea is histerics along the lines of "Republicans want to starve childen" when their ideas actually help children (the last legislation led to a significant decline in the number of kids growing up in poverty. I think it's time we try some more ideas to reduce poverty....like growing the economy so people can get jobs.

Did you get you're ObamaWaiver yet?
 
Is Obama Don Quiote and Harry Reid Sancho Panza? Look at the windmill they're tilting at now. They want to prevent companies from expanding in other parts of the United States (to preserve their union membership and to keep those political donations rolling in). Of course, the companies could easily expand in Mexico far from the prying fingers of the White House and the NRLB, but they chose instead to create American Jobs. Shame on them!

The White House vs. Boeing: A Tennessee Tale
Our auto industry took off because workers could choose whether or not to join a union

Wall Street Journal - Today
By LAMAR ALEXANDER

The National Labor Relations Board has moved to stop Boeing from building airplanes at a nonunion plant in South Carolina. The Board suggests that a unionized American company cannot, without violating federal labor law, expand its operations into one of the 22 states with right-to-work laws, which protect a worker's right to join or not join a union. (New Hampshire's legislature has just approved its becoming the 23rd.)

This reminds me of a White House state dinner in February 1979, when I was governor of Tennessee. President Jimmy Carter said, "Governors, go to Japan. Persuade them to make here what they sell here."

"Make here what they sell here" was then the union battle cry, part of an effort to slow the tide of Japanese cars and trucks entering the U.S. market.

Off I flew to Tokyo to meet with Nissan executives who were deciding where to put their first U.S. manufacturing plant. I carried with me a photograph taken at night from a satellite showing the country at night with all its lights on.

Boeing employees assemble a 787 Dreamliner jet at the company's manufacturing facility in Everett, Wash., in February.
."Where is Tennessee?" the executives asked. "Right in the middle of the lights," I answered, pointing out that locating a plant in the population center reduces the cost of transporting cars to customers. That center had migrated south from the Midwest, where most U.S. auto plants were, to Kentucky and Tennessee.

Then the Japanese examined a second consideration: Tennessee has a right-to-work law and Kentucky does not. This meant that in Kentucky workers would have to join the United Auto Workers union. Workers in Tennessee had a choice.

In 1980 Nissan chose Tennessee, a state with almost no auto jobs. Today auto assembly plants and suppliers provide one-third of our state's manufacturing jobs. Tennessee is the home for production of the Leaf, Nissan's all-electric vehicle, and the batteries that power it. Recently Nissan announced that 85% of the cars and trucks it sells in the U.S. will be made in the U.S.— making it one of the largest "American" auto companies and nearly fulfilling Mr. Carter's request of 30 years ago.

But now unions want to make it illegal for a company that has experienced repeated strikes to move production to a state with a right-to-work law. What would this mean for the future of American auto jobs? Jobs would flee overseas as manufacturers look for a competitive environment in which to make and sell cars around the world.

It's happened before. David Halberstam's 1986 book, "The Reckoning"—about the decline of the domestic American auto industry—tells the story. Halberstam quotes American Motors President George Romney, who criticized the "shared monopoly" consisting of the Big Three Detroit auto manufacturers and the UAW. "There is nothing more vulnerable than entrenched success," Romney warned. Detroit ignored upstarts like Nissan who in the 1960s began selling funny little cars to American consumers. We all know what happened to employment in the Big Three companies.

Even when Detroit sought greener pastures in a right-to-work state, its "partnership" with the United Auto Workers could not compete. In 1985, General Motors located its $5 billion Saturn plant in Spring Hill, Tenn., 40 miles from Nissan, hoping side-by-side competition would help the Americans beat the Japanese. After 25 years, nonunion Nissan operated the most efficient auto plant in North America. The Saturn/UAW partnership never made a profit. GM closed Saturn last year.

Nissan's success is one reason why Volkswagen recently located in Chattanooga, and why Honda, Toyota, BMW, Kia, Mercedes-Benz, Hyundai and thousands of suppliers have chosen southeastern right-to-work states for their plants. Under right-to-work laws, employees may join unions, but mostly they have declined. Three times workers at the Nissan plant in Smyrna, Tenn., rejected organizing themselves like Saturn employees a few miles away.

Our goal should be to make it easier and cheaper to create private-sector jobs in this country. Giving workers the right to join or not to join a union helps to create a competitive environment in which more manufacturers like Nissan can make here 85% of what they sell here.
 
The Press Conference We Didn’t Get
Some things the President doesn’t want to talk about.
by John Hayward
04/27/2011

President Obama held a press conference to announce the release of his birth certificate today, falsely claiming that this was important because obsession with the birth certificate was preventing adequate news coverage of his position on important issues. Here are some issues the President has not seen fit to hold a press conference to discuss:

The continuing collapse of his war in Libya. The siege of Misrata, which Obama demanded must stop immediately in an editorial he published in concert with British and French leaders, continues unabated. Obama has authorized $25 million in “non-lethal” assistance to a Libyan rebellion that appears to have non-lethality down to a science.

The brutal oppression of Syrian demonstrators, by a man the Obama Administration described as a “reformer” only a few weeks ago. The dissidents remain defiant, issuing a statement that if the dictator Assad “does not wish to be recorded in history as a leader of this transition period” to democracy, Syrians must “move forward along the same path as did the Tunisians, Egyptians, and Libyans before them.” They might want to reconsider following the Libyan path.

The worsening situation in Afghanistan, where an Afghan military pilot gunned down eight American soldiers and an American contractor today, and hundreds of captured Taliban fighters recently escaped in a bizarre prison break. The Associated Press reports “It was the seventh time so far this year that members of the Afghan security forces, or insurgents impersonating them, have killed coalition soldiers or members of the Afghan security forces.” Are we still on schedule to begin drawing down our forces in Afghanistan this summer?

The historic first-ever press conference held by the Federal Reserve, at which Fed chairman Ben Bernanke is expected to announce the end of Obama’s “Qualitative Easing” monetary policy. This is an absolute vindication for critics such as Sarah Palin, who correctly pointed out the negative inflationary consequences of this policy at the time of its passage. Not long ago, it was said that every word spoken by the Fed chairman could send earthquakes rumbling through the markets. Now they’ll be holding more press conferences than the President does.

Skyrocketing gas prices, and the role of Administration policy in causing the problem. We do not need any staged witch hunts for “price gouging” profiteers. We need answers from Barack Obama, the man who caused this crisis as a matter of deliberate policy. Why are offshore drilling projects a mortal threat to the Earth that must be stopped at all costs in American waters, but a noble bid for prosperity worthy of American subsidies in Brazil? These policies should be listed, discussed, and defended before the American electorate.

The dire forecasts of Standard & Poor’s and the International Monetary Fund, which have predicted America could lose its AAA credit rating, and soon be surpassed as the world’s largest economy by China. Obama should explain why he tried to suppress the Standard & Poor’s report. If he had been successful, he would have deprived Americans of vitally needed information about the financial future of their country.

The Administration’s action against Boeing on behalf of labor unions, which former National Labor Relations Board chairman Peter Schaumber called “unprecedented.” Why is this unprecedented action, to block Boeing from opening a non-union production line in South Carolina, being taken? What freedoms do American corporations retain? Which companies will be next to find the federal government is teaming up with unions to control their business decisions? Schaumber told Fox News that if the union claim is upheld, “it could jeopardize any company with unionized workers that wants to expand in a right-to-work state.” Do the people who live in right-to-work states have any say in this?

Instead, we got a press conference about the release of Obama’s birth certificate. If that distracted you from the above matters, or other important stories I haven’t listed, the White House thanks you for your cooperation.
 
Are we in a Government that rules by the whims of the people who support Obama? What about the rule of law? What are the ramifications of this interpretation...that the people and the companies in the US are servants of the government. That wasn't the intention of the Constitution...the Constitution was written to accomplish exactly the opposite, that the government was the servant of the people. What's going to be next?


Obama's Silence on Boeing Is Unacceptable

The president's appointees have moved to block the company from building planes in my state. He owes us an explanation..
Wall Street Journal - Today
By NIKKI HALEY

In October 2009, Boeing, long one of the best corporations in America, made an announcement that changed the economic outlook of South Carolina forever: The company's second line of 787 Dreamliners would be produced in North Charleston.

In choosing to manufacture in my state, Boeing was exercising its right as a free enterprise in a free nation to conduct business wherever it believed would best serve both the bottom line and the employees of its company. This is not a novel or complicated idea. It's called capitalism.

Boeing has since poured billions of dollars into a new, state-of-the art facility in South Carolina's picturesque Low Country along the Atlantic coast. It has created thousands of good jobs and joined the long tradition of distinguished and employee-friendly corporations that have found a home, and a partner, in the Palmetto State.

This a win-win for South Carolina, for Boeing, and for the global clients who will see Dreamliners rolling off the North Charleston line at the rate of 10 a month, starting with the first one next year. But, as is often the case, a win for people and businesses is a loss for the labor unions, which rely on coercion, bullying and undue political influence to stay afloat.

South Carolina is a right-to-work state, and we're proud that within our borders workers cannot be required to join a labor union as a condition of employment. We don't need unions playing middlemen between our companies and our employees. We don't want them forcefully inserted into our promising business climate. And we will not stand for them intimidating South Carolinians.

That is apparently too much for President Obama and his union-beholden appointees at the National Labor Relations Board, who have asked the courts to intervene and force Boeing to stop production in South Carolina. The NLRB wants Boeing to produce the planes only in Washington state, where its workers must belong to the International Association of Machinists and Aerospace Workers.

Let's be clear: Boeing is a great corporate citizen in Washington and in South Carolina. The company chose to come to our state because the cost of doing business is low, our job training and work force are strong, and our ports are tremendous. The fact that we are a right-to-work state is an added bonus.

The actions by the NLRB are nothing less than a direct assault on the 22 right-to-work states across America. They are also an unprecedented attack on an iconic American company that is being told by the federal government—which seems to regard its authority as endless—where and how to build airplanes.

The president has been silent since his hand-selected NLRB General Counsel Lafe Solomon, who has not yet been confirmed by the United States Senate as required by law, chose to engage in economic warfare on behalf of the unions last week.

While silence in this case can be assumed to mean consent, President Obama's silence is not acceptable—not to me, and certainly not to the millions of South Carolinians who are rightly aghast at the thought of the greatest economic development success our state has seen in decades being ripped away by federal bureaucrats who appear to be little more than union puppets.

This is not just a South Carolina issue, and President Obama owes the people of our country a response. If they get away with this government-dictated economic larceny, the unions won't stop in our state.

The nation deserves an explanation as to why the president's appointees are doing the machinist union's dirty work on the backs of the businesses and workers of South Carolina.
 
Obama clearly has little regard for the rule of law in his vapid pursuit of fairness for his constituencies...







:(
__________________
If you ask your government to treat everyone "fairly," the only way it can ever accomplish that task is to treat someone "unfairly."
A_J, the Stupid
 
Frisco_Slug_Esq said:
Obama clearly has little regard for the rule of law in his vapid pursuit of fairness for his constituencies...

:(
__________________
If you ask your government to treat everyone "fairly," the only way it can ever accomplish that task is to treat someone "unfairly."
A_J, the Stupid
Click to expand...

Silly AJ, it's just like Affirmative Action, no different.
 
The Missing Fifth
By DAVID BROOKS


In 1910, Henry Van Dyke wrote a book called “The Spirit of America,” which opened with this sentence: “The Spirit of America is best known in Europe by one of its qualities — energy.”

This has always been true. Americans have always been known for their manic dynamism. Some condemned this ambition as a grubby scrambling after money. Others saw it in loftier terms. But energy has always been the country’s saving feature.

So Americans should be especially alert to signs that the country is becoming less vital and industrious. One of those signs comes to us from the labor market. As my colleague David Leonhardt pointed out recently, in 1954, about 96 percent of American men between the ages of 25 and 54 worked. Today that number is around 80 percent. One-fifth of all men in their prime working ages are not getting up and going to work.

According to figures from the Organization for Economic Cooperation and Development, the United States has a smaller share of prime age men in the work force than any other G-7 nation. The number of Americans on the permanent disability rolls, meanwhile, has steadily increased. Ten years ago, 5 million Americans collected a federal disability benefit. Now 8.2 million do. That costs taxpayers $115 billion a year, or about $1,500 per household. Government actuaries predict that the trust fund that pays for these benefits will run out of money within seven years.

Part of the problem has to do with human capital. More American men lack the emotional and professional skills they would need to contribute. According to data from the Bureau of Labor Statistics, 35 percent of those without a high school diploma are out of the labor force, compared with less than 10 percent of those with a college degree.

Part of the problem has to do with structural changes in the economy. Sectors like government, health care and leisure have been growing, generating jobs for college grads. Sectors like manufacturing, agriculture and energy have been getting more productive, but they have not been generating more jobs. Instead, companies are using machines or foreign workers.

The result is this: There are probably more idle men now than at any time since the Great Depression, and this time the problem is mostly structural, not cyclical. These men will find it hard to attract spouses. Many will pick up habits that have a corrosive cultural influence on those around them. The country will not benefit from their potential abilities.

This is a big problem. It can’t be addressed through the sort of short-term Keynesian stimulus some on the left are still fantasizing about. It can’t be solved by simply reducing the size of government, as some on the right imagine.

It will probably require a broad menu of policies attacking the problem all at once: expanding community colleges and online learning; changing the corporate tax code and labor market rules to stimulate investment; adopting German-style labor market practices like apprenticeship programs, wage subsidies and programs that extend benefits to the unemployed for six months as they start small businesses.

Reinvigorating the missing fifth — bringing them back into the labor market and using their capabilities — will certainly require money. If this were a smart country, we’d be having a debate about how to shift money from programs that provide comfort and toward programs that spark reinvigoration.

But, of course, that’s not what is happening. Discretionary spending, which might be used to instigate dynamism, is declining. Health care spending, which mostly provides comfort to those beyond working years, is expanding. Attempts to take money from health care to open it up for other uses are being crushed.

There are basically two ways to cut back on the government health care spending. From the top, a body of experts can be empowered to make rationing decisions. This is the approach favored by President Obama and in use in many countries around the world. Alternatively, at the bottom, costs can be shifted to beneficiaries with premium supports to help them handle the burden. Different versions of this approach are embodied in the Dutch system, the prescription drug benefit and Representative Paul Ryan’s budget.

We’ll probably need a mixture of these approaches to figure out what works. Instead, Republicans decry the technocratic rationing model as “death panels.” Democrats have gone into demagogic overdrive calling premium support ideas “privatization” or “the end of Medicare.”

Let’s be clear about the effect of this mendacity: We’re locking in the nation’s wealth into the Medicare program and closing off any possibility that we might do something significant to reinvigorate the missing fifth. Next time you see a politician demagoguing Medicare, ask this: Should we be using our resources in the manner of a nation in decline or one still committed to stoking the energy of its people and continuing its rise?
 
The World Turned Upside Down — Again

MAY 11, 2011 4:00 A.M.

Will the strains in the Middle East, Asia, and Europe resolve themselves — or are we on the brink of epochal change?

Every once in a while, the world is turned upside down in just a few years, whether by ideological ferment or force of arms. We may be entering such a phase now — unsure whether the unrest in the Middle East, the rise of China, and the crisis in the EU will sputter and dissipate like the upheavals of 1848 or make the world unrecognizable in the way that Alexander the Great’s ten-year romp, the fall of Constantinople, World War I, World War II, and the collapse of Soviet Communism changed the very map of Europe and Asia.

The question is not whether Greece will default on its massive debt, but, rather, when it does, whether the inevitable default will spread to Spain, Portugal, or even Italy and unravel the European Union, or simply be confined to Greece, returning it to its genteel poverty of the 1970s. Either way, a much weakened Greece will watch an ascendant and Islamist Turkey exercise, in Ottoman fashion, its newfound influence in the Aegean, Cyprus, and the Eastern Mediterranean.

But in geopolitical terms, these are small potatoes compared with the position of Germany, which for fourth time in 140 years is beginning to feel, fairly or not, that it is put upon by its neighbors. Again, the key is not whether EU countries to the south and the east are living beyond their means by virtue of German capital, but whether Germans believe that they are — and feel that they are doing so willing and knowingly. If the latter, then we will began to appreciate why the original architects of both the EU and NATO were not utopians like their grandchildren, but hard-bitten realists who were desperate to find a solution to the “German problem” of a dynamic but often aggrieved culture, by making its foreign policy indistinguishable from that of the rest of Europe and the United States. A united, economically dominant Germany that feels it is being conned is a very dangerous thing indeed.

In many ways, China resembles the Japan of the late 1920s — singular economic growth, modernization, and defense ascendancy by virtue of cherry-picking the Western paradigm: embracing capitalist modes of production and Western science and technology, while rejecting Western notions of individual freedom and institutionalized constitutional government.

Just as the Philippines, China, and the regional colonial powers felt apprehensive in 1930, so now do the Philippines, Indochina, and Japan — especially since the United States’ current stance seems to resemble the role it played in the 1930s more than its omnipresence between 1945 and 2008. Both imperial Japan and present-day China first sought to reshape the economy of the western Pacific as a prelude to an overt expression of their increasing military power. Even more disturbing, the United States in 2011, as in the 1930s, is judged in the region to be a spent financial power whose lackluster economy reflects supposed deep-seated, insurmountable pathologies.

Yet on the plus side, China, also like imperial Japan, may belatedly find that consensual government and individual freedom are essential lubricants to free-market capitalism, which at some point either sputters or self-destructs when liberty is denied. In any case, the Chinese have a rendezvous with unionism, class strife, environmental cleanup on a massive scale, and the 19th-century-style disorientation that follows the sudden shift from farm to factory. The only enigma is whether that impending social unrest will be expressed only internally or will vent itself through foreign adventurism.

The unrest in the Middle East resembles the liberation movements in Africa and Asia of the late 1940s and early 1950s, as independent nations sprung up to replace the old colonial powers. In both cases, optimism about a new world clouded reasoned judgment about the chances of consensual government without continued Western dominance in these regions. Yes, neoconservatives are delighted that monarchs, theocrats, military dictatorships, and authoritarian psychopaths are all threatened by popular unrest that proclaims a democratic yearning; and, yes, realists are not unhappy that the chaos and turmoil seems to be weakening many regimes that are anti-American, while diminishing the old unified Arab Street’s pathetic cheerleading for radical Islam.

#pageBut so far, the commonality in all these cases of unrest is a singular absence of reflection and introspection. Just as Asian and African strongmen six decades ago assured their people that British and French colonialists were the source of all their problems as they wrecked their new nations, so today protesters blame a Qaddafi, Assad, Mubarak, or Ben Ali on “them” (fill in the blank with Jews, Europeans, Americans, or all three), never on themselves. Nonetheless, one would have to invent an Assad or a Mubarak had they not existed — given the endemic gender apartheid, tribalism in lieu of meritocracy, suspicion of science and modernism, religious fundamentalism and intolerance, and conspiracy theories in place of reason. So far we hear few Middle East reformers brave enough to say that Muslim Middle Easterners’ problems are not in the stars but in themselves — or that their almost uniformly wretched leaders were not foreign impositions, but tragic reifications of collective values and unquestioned mindsets.

Then we come to America. This administration, or so we are told, now believes we must “lead from behind” given our supposed inevitable decline and persistent unpopularity. But this is surely a crackpot theory extrapolated from the faculty lounge. In truth, viewed against most of the world, the United States remains a bastion of sanity, stability, and tolerance, where dozens of races, religions, and factions adjudicate differences as peacefully as they do it by violence abroad.

In terms of energy, never have America’s fossil-fuel reserves been known to be more vast. For the first time in a half-century, inspired leadership really could make America “energy independent” by full use of natural gas and methane, combined with increased oil, nuclear, and coal production. As the world totters on the brink of famine, American farms have never been more productive — or strategically important. The U.S. military has never been more tried, more experienced, or more lethal. Global brands like Apple, Microsoft, and Google are not flukes but natural expressions of the world’s most innovative and open-minded society. Our great crisis — astronomical debt — is one of will, not resources. We have the capital but not yet the sense of urgency to pay down our trillions, something we could do in a mere four or five years, without a traumatic loss of lifestyle, should the country find the courage to.

Of course, in the short term we may conclude that it is strategically advantageous to “lead from behind,” or we may wish to do so out of an aggrieved and warranted sense of Schadenfreude, but again, such a new global stance is a matter of choice, not of fated decline.

America has never had greater strength or potential — and we should remember that as the rest of the world around us seems about to be turned upside down.
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The economy looks like it's degrading a bit again. The question some ask it why? But that's the easy part, decline is the natural result of these economic policies and so there's really no question about that. The big question is whether Obama will try to reverse course on the econony or continue to try to tell us that collectivism really really really will bring jobs at some point (just like in the USSR - that he would say had full employment).

The Osama Obama bump helped a bit this week, will it last?

Will the Republicans rally around a candidate or will we be mired in a "committee" approach for the next year?
 
RightField said:
The economy looks like it's degrading a bit again. The question some ask it why? But that's the easy part, decline is the natural result of these economic policies and so there's really no question about that. The big question is whether Obama will try to reverse course on the econony or continue to try to tell us that collectivism really really really will bring jobs at some point (just like in the USSR - that he would say had full employment).

The Osama Obama bump helped a bit this week, will it last?

Will the Republicans rally around a candidate or will we be mired in a "committee" approach for the next year?
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No, I think he's going to campaign on the idea that we're on the right track, but that things were a lot worse than he estimated and that changing course now would begin a great new depression...

... and he's going to get a lot of help, as we saw in the latest "popularity" poll, from the press. Every benign number will be a triumph and every bad number, as we saw when unemployment rose, will be a portend of a brighter future, and finally *fingers-crossed* the housing crises has reached its bottom...

Then there's the simple-minded tactic of going to every constituency with a message of fear,

THE REPUBLICANS ARE COMING​

... they're coming to take your food, your medicine, your education, your money...,
 
Three Senate Democrats angry about the high price of gasoline propose to raise taxes on the firms that produce it. No, it does not make any sense to us, either. For Democrats, expensive gas is just the price of scoring a moral victory over Big Oil, and American consumers will be expected to pay any price and bear any burden that Harry Reid & Co. inflict upon them.

The “Close Big Oil Tax Loopholes Act” is a minotaur’s labyrinth of economic illiteracy, with Democratic senators Robert Menendez (N.J.), Sherrod Brown (Ohio), and Claire McCaskill (Mo.) lurking at the center of it. This A-team of financial sophisticates has taken a hard look at rising gasoline prices and concluded that the most reasonable course of action is to increase the cost of producing oil by “closing tax loopholes” for the five biggest oil companies. Why the five biggest? Why not four or six? Why not all oil companies? Because this is not a bill about tax reform, but a bill about Democrats’ bitterness and impotency in the face of unpleasant economic realities.
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The Editors
NRO
 
If you want a federal contract, better be nice to Obama
Washington Examiner
Today.

President Obama neatly summed up his political philosophy last year when he advised Latinos to "punish our enemies" and "reward our friends" on immigration issues. House Minority Whip Steny Hoyer, D-Md., took a brave stand against that philosophy Tuesday, announcing his opposition to a draft presidential executive order that would require any company seeking a government contract to disclose all federal political contributions by the firm's owners, directors and managers. If Obama signs the order, he will effectively restore the partisan spoils system in federal contracting that civil service reformers struggled for decades to eradicate.

"I think there are some serious questions as to what implications there are if somehow we consider political contributions in the context of awarding contracts," Hoyer said. "I'm not in agreement with the administration on that issue. The issue on contracting ought to be on the merits of the contractors' application and bid and capabilities," he added.

Awarding government contracts on bidder merits rather than as a reward for partisan political activity should not be controversial. The law at 2 U.S.C. ¤ 441c bars contractors from making contributions to federal officeholders and candidates during the negotiation and performance of a federal government contract. Obama's proposed order would capture contributions made prior to negotiations.

What's happening here is that, since last November's smashing Republican election victory, Obama has sought every possible power lever to increase his 2012 re-election chances, including invoking federal laws and regulations to stifle contributions to his political opponents. Shortly after the 2010 election, Obama's wholly owned think tank subsidiary, the Center for American Progress, helpfully compiled a list of such power levers, including the benignly titled "Disclosure of Political Spending By Government Contractors" draft executive order that now appears close to being signed.

This proposed order is anything but benign. Not only does it require disclosure of individual contributions to partisan candidates, it also covers donations to any organization that might use the funds for "independent expenditures or electioneering communications," otherwise known as political speech protected by the First Amendment. So all firms hoping to do business with the federal government would have to investigate the personal political activities of their principals and report them to federal bureaucrats and their politically appointed overseers (Democrats kid only themselves if they think Republicans won't do the same thing once they get back in the White House).

Liberal groups claim that these disclosure requirements are only meant to increase transparency, not chill political speech. But if that were true, consider this: In 2010, Obama's liberal allies, including unions, spent $95 million on independent expenditures like those funded by corporations. But unions that sign collective bargaining contracts with the federal government are exempt from the Obama order's "disclosure" requirements. Clearly, the chill would only be felt among Obama opponents.
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This is really foul, but typical for Democrats.
 
"Look, if you do this, you're not gonna be hurting Big Oil; you're gonna be hurting employment in my state. You people in Michigan, yeah, go ahead. You complain all you want about the gasoline price. What are you doing to contribute to our energy in this country? Your state doesn't do anything for energy. But we here in Louisiana, we contribute. We have all kind of things.

"We have a lot of jobs. We have a lot of companies, a lot of businesses here that are devoted to producing and providing energy for this whole country, and I resent this notion of being singled out."
Mary Landrieu (D)
 
Reaganomics Vs. Obamanomics: Fallacies Offered By The Left
Forbes Magazine
May. 12 2011
By PETER FERRARA

From watching and participating in debates over the years regarding Reaganomics, patterns of logical fallacies and factual errors repeatedly arise among critics on the Left. As the troublesome facts demonstrating the failures of Obamanomics accumulate, we find that almost religiously minded supporters of President Barack Obama can’t deal with those facts, and exhibit analogous logical fallacies.

But if we are ever to restore traditional American prosperity, we must get beyond those fallacies and errors.

Most fundamentally, many insist that they do not understand how tax rate cuts promote economic growth. As discussed in my column last week, Reagan reduced the top marginal tax rate from 70% when he entered office, all the way down to 28%. He cut all the other income tax rates by 25% across the board. Then in the 1986 tax reform, he consolidated all the lower rates into a single 15% rate, effectively the income tax rate for the middle class.

The tax rate, particularly the marginal tax rate, which is the tax rate that applies to the last dollar earned, determines how much the producer is allowed to keep out of what he or she produces. For example, at a 25% tax rate, the producer keeps three-fourths of his production. If that rate is increased to 50%, the producer keeps only half of what he produces, reducing his reward for production and output by one-third. Incentives are consequently slashed for productive activity, such as savings, investment, work, business expansion, business creation, job creation, and entrepreneurship. The result is fewer jobs, lower wages, and slower economic growth, or even economic downturn.

In contrast, if the tax rate is reduced from 50% to 25%, what producers are allowed to keep from their production increases from one-half to three-fourths, increasing the reward for production and output by one half. That sharply increases incentives for all of the above productive activities, resulting in more of them, and more jobs, higher wages, and faster economic growth.

Moreover, these incentives do not just expand or contract the economy by the amount of any tax cut or tax increase. For example, a tax cut of $100 billion involving reduced tax rates does not just affect the economy by $100 billion.

The lower tax rates affect every dollar and every economic decision throughout the economy. That is because every economic decision is based on the new lower tax rates. Indeed, the new lower tax rates affect every dollar, or unit of currency, and every economic decision throughout the whole world regarding whether to invest in America, start or expand businesses here, create jobs here, even work here, because all these decisions will be based on the new lower tax rates. Tax rate increases have just the opposite effect on every dollar and economic decision throughout the economy and the world.

In addition, marginal tax rates do not just affect the incentives of those to which the rates currently apply. They also affect those to which the rates may apply in the future. For example, consider a small business owner. If he invests more capital in the business to expand production, or hires more workers to increase output, that may result in higher net taxable income. It is the tax rate at that higher income level, not at his current income level, that will determine whether he undertakes the capital investment, or hires more workers.

These are the reasons why the dramatic reductions in tax rates under President Reagan were the central factor in creating the dramatic turnaround in the economy that grew into the astounding, historic, 25-year Reagan boom, though the change in monetary policy was critical as well.

The most intellectually coherent argument of the critics is that the Reagan boom was really just the effect of the large deficits during his years in office. The largest of those was $221 billion in 1986. But borrowing $200 billion out of the economy to spend $200 billion back into the economy does nothing to promote the economy on net, nor does it do anything to change the fundamental incentives that drive the economy. That has been proven over and over, in America and around the world, for decades. That continues to this day, for if government deficits were the key to promoting economic growth, today’s economy would be booming more than ever, with President Obama’s own 2012 budget projecting a deficit for this year of $1.65 trillion, or $1,645 billion for the numerically challenged.

The Reagan boom was extended to 25 years with the help of other rate cuts. The Republican Congressional majorities, led by House Speaker Newt Gingrich, cut the capital gains rate by nearly 30% in 1997. President Bush cut the Clinton era tax rates as well, with the bottom rate slashed by a third to 10%, and the top rate cut to 35%. Bush also cut the capital gains tax rate by 25%.

Critics have the most fevered difficulties in dealing with the facts regarding the effects of these Bush tax cuts. They quickly ended the 2001 recession, despite the contractionary economic impacts of 9/11, and the economy continued to grow for another 73 months. After the rate cuts were all fully implemented in 2003, the economy created 7.8 million new jobs and the unemployment rate fell from over 6% to 4.4%. Real economic growth over the next 3 years doubled from the average for the prior 3 years, to 3.5%.

In response to the rate cuts, business investment spending, which had declined for 9 straight quarters, reversed and increased 6.7% per quarter. That is where the jobs came from. Manufacturing output soared to its highest level in 20 years. The stock market revived, creating almost $7 trillion in new shareholder wealth. From 2003 to 2007, the S&P 500 almost doubled. Capital gains tax revenues had doubled by 2005, despite the 25% rate cut! That should not have been a surprise. Capital gains revenues rose sharply after the Gingrich capital gains cuts in 1997.

President Obama likes to pretend that a third of his trillion dollar stimulus involved tax cuts too. But those “tax cuts” all involved temporary tax credits which are economically no different from increased government spending. Indeed, a majority of the Obama “tax cuts” were “refundable” income tax credits, which involve sending a government check to people who do not even pay income taxes, economically indistinguishable from increased government spending. That is why even the federal government’s own official beancounters account for such refundable credits in the federal budget as spending rather than tax cuts. Such tax credits do not have the incentive effects of rate cuts explained above.

When President Reagan came to Washington in 1981, the top 1% of income earners paid 17.6% of all income taxes. By 2007, after a quarter century of tax rate cuts under Reaganomics, the top 1% paid 40.4% of all income taxes, close to twice their share of income.

In part, that was because at the lower tax rates the higher income earners took so much more of their incomes in more flexible taxable income rather than in tax exempt forms. That has been erroneously disparaged as the rich getting richer under Reaganomics, when it was just the same income in different forms. At the lower rates, upper income earners did invest and otherwise work to earn more, which of course is exactly the desired effect of the rate cuts, and so paid higher taxes on the resulting incomes. This is why Jack Kemp always used to say if you want to soak the rich, cut their tax rates.

Indeed, by 2007 that 40.4% of income taxes paid by the top 1% of income earners was more than the income taxes paid by the bottom 95% combined. That is because Reagan and his Republicans cut taxes sharply for those lower income earners as well.

The origins of the Earned Income Tax Credit (EITC), which has done so much to reduce income tax liabilities for lower income people, can be found in Ronald Reagan’s famous testimony before the Senate Finance Committee in 1972, where he proposed exempting the working poor from all Social Security and income taxes as an alternative to welfare. As President, Reagan cut federal income tax rates across the board for all taxpayers by 25%. He also indexed the tax brackets for all taxpayers to prevent inflation from pushing workers into higher tax brackets.

In the Tax Reform Act of 1986, President Reagan reduced the federal income tax rate for middle and moderate income earners all the way down to 15%. That act also doubled the personal exemption, which benefitted the more moderate income workers the most.

Newt Gingrich’s Contract with America adopted a child tax credit of $500 per child that reduced the tax liabilities of lower income people by a higher percentage than for higher income people. President Bush doubled that credit to $1,000 per child, and made it refundable so that low-income people who do not even pay $1,000 in federal income taxes could still get the full credit. Of course, as explained above, those credits did not involve pro-growth incentives. But they did reduce taxes for more moderate income workers. Bush also adopted a new lower tax bracket for the lowest income workers of 10%, reducing their federal income tax rate by 33%. By contrast, he cut the top rate for the highest income workers by just 11.6%, from 39.6% to 35%.

The end result of these Reagan Republican tax policies is that federal income taxes were abolished for the poor and working class, and almost abolished for the middle class. Many conservatives do not think it was a good idea to exempt so many from paying any income taxes at all. Nevertheless, the point is that the charge that the Republicans only cut taxes for the rich is factually groundless.

Some critics falsely argue that Reagan increased payroll taxes which are paid much more by lower and moderate income workers. The payroll tax rate increases of the 1980s were adopted under President Carter and the Democratic Congress in 1977. The Greenspan Commission Social Security rescue plan adopted in 1983 only advanced a couple of these already scheduled payroll tax rate increases by a year or two. But the ultimate plan for payroll taxes is to phase them out entirely in favor of lower cost personal accounts to finance the benefits currently financed by those taxes, as discussed in previous columns in this space.

Next week I will discuss the causes of the 2008 financial crisis, and the following week I will answer the question as to what should the alternative be to Obamanomics.

Peter Ferrara is Director of Policy for the Carleson Center for Public Policy and Senior Fellow for Entitlement and Budget Policy at the Heartland Institute. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is the author of America’s Ticking Bankruptcy Bomb, forthcoming from HarperCollins.
 
America's Slowdown
By James Piereson from the May 2011 issue

The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better
By Tyler Cowen
(Dutton/Penguin, Kindle Edition, $3.99)

With The Great Stagnation, Tyler Cowen has given us a provocative and highly controversial assessment of the U.S. economy. Cowen, a professor of economics at George Mason University, the co-proprietor of the popular blog Marginal Revolution, and the author of a monthly business column for the New York Times, argues that the U.S. economy has been stagnating for more than a generation due to a slowdown in technological invention and progress. The slowdown in invention is behind several current adverse trends, among them rising inequality, stagnating wages and income for the middle class, rising government debt, protests against government spending, and, even, the recent financial crisis. His case is worth pondering even if in the end the reader may not be convinced that he is right.

The Great Stagnation is an e-book available only on the Internet at a modest price, with a condensed argument set forth in a mere 15,000 words. While the author is a skilled economist, he presents his case with a minimum of academic jargon and technical proofs. The intelligent layman can proceed through the book in a few hours of attentive reading and come away from the experience with a new way of looking at old problems. The presentation of the argument in this form is ironic in that the author proceeds to argue that the revolution in computers has done little to change our ways of living.

Cowen argues that the rapid increase in incomes and living standards that occurred through the 20th century and especially during the quarter century after World War II was propelled by a series of technological breakthroughs that were rapidly commercialized and made available to nearly everyone. These included electricity, indoor plumbing, railroads, the combustion engine and the automobile, the telephone, radio and television, and aviation. These developments with their various offshoots produced millions of jobs for Americans, generating rising incomes and living standards and changing the ways people lived. The growth in incomes allowed for increasing shares to be siphoned off by government to pay for services (education) and infrastructure (highways and airports) required by these far-reaching innovations.

Yet the pace of growth in incomes and standards of living has slowed down substantially since the 1970s. Indeed, Cowen identifies 1973 as the precise point at which growth and progress began to slow and incomes began to stagnate. During the postwar period from 1947 to 1973, real household income doubled from a median of $22,000 to $44,000 (measured in 2004 dollars), or an increase in real terms of about 3 percent per year. Afterward, during the 31-year period from 1973 to 2004, real (median) household income grew by just 22 per cent in real terms to about $54,000, or an average of less than 1 percent per year. If incomes had continued to grow at the earlier rate during this latter period the median household income in the U.S. today would be more than $90,000 per year. This slowdown in progress is a major factor behind our increasingly acrimonious political debates and the growing resentment over the costs of government.

Cowen's explanation for this slowdown is intriguing and counter-intuitive, since most people think that we are living in a period of rapid technological progress driven by computers, cell phones, and the Internet. Yet Cowen cites technical studies suggesting that the pace of invention has actually slowed since the 1970s, a conclusion also echoed by prominent figures in the investment and technology fields such as Peter Thiel and Michael Mandel. Thus Cowen argues that our current living standards are built upon innovations and breakthroughs produced a century ago. Until we produce innovations comparable to electricity and the automobile, the stagnation will continue.

The United States has already harvested the "low-hanging fruit" that propelled the growth in living standards during the first two-thirds of the 20th century. Our abundant free land has been settled and put to commercial use. We have educated our population to a near maximum extent. We have exploited the technological breakthroughs of the early part of the century. It is now hard to identify new sources of growth. At the same time, we are now spending much more than in the past on government, whose contributions to economic growth are hard to measure. Government controls large sectors of the economy where costs have gone up but productivity and measured outcomes have declined. We spend growing sums in health and education but do not receive returns commensurate with those investments. Conservatives and liberals are mistaken to think that growth can be revived through tax cuts or by more public investment when the real source of our trouble is the slowdown in technological progress.

Cowen anticipates the criticism that the current revolution in technology will propel a rise in living standards comparable to the breakthroughs of the past century. He argues, first of all, that these industries employ very few people compared to the numbers employed in the past by firms like General Motors or AT&T. Google, for example, only employs about 20,000 people, eBay about 16,000, and Facebook only 2,000. These companies, while highly profitable, produce very few jobs and thus cannot produce improvements in living standards. The jobs they do produce go to the highly skilled and educated, thereby further widening income gaps in the society and weakening the economic position of the unskilled and less educated. While they make our lives more interesting by allowing us to surf the Internet and play video games, these innovations have done little as yet to generate widely shared economic benefits.

According to Cowen, the financial blowout of 2007 and 2008 occurred because Americans, taking prosperity for granted, thought that they were wealthier than in fact they were. Thus they borrowed against their homes and stock portfolios and governments made extravagant promises to public workers and future retirees in the belief that asset values and incomes would continue to rise. They were wrong because, due to the great stagnation, the U.S. economy was not creating the real wealth required to sustain those asset values or to support the vast amounts of credit leveraged against them. The crash served as a system-wide reminder that our economy is not growing as rapidly as we thought it was.

COWEN CERTAINLY has a point. The great innovations of the past changed a rural and agricultural society into an urban and suburban civilization in a span of just 50 or 75 years, while current breakthroughs in computers and cell phones are unlikely to have such far-reaching effects.

The Great Stagnation encapsulates many insights drawn from "growth theory" suggesting that economies surge ahead through technological innovations and continue to grow by the accumulation of human capital. Looking forward, Cowen sees a remedy for "the great stagnation" in more and smarter investments in scientific research and in a more sophisticated appreciation among the public of the crucial role played by technology in driving economic growth and rising standards of living. In this sense he thinks that current battles between conservatives and liberals over taxes and public spending are beside the point and do not address the real source of our financial problems.

Against his case, one might raise the following objections:

First, Cowen is correct to point to 1973 as a pivotal year for the U.S. economy but perhaps not for the reasons he cites. That was the year in which OPEC was formed and when Middle Eastern countries unleashed the "sword of oil," driving up gasoline prices and ending the era of cheap energy for the U.S. economy. It was also about this time that West Germany and Japan reemerged as players in the global system after their economies were leveled in World War II, thus bringing to an end an era in which U.S. producers dominated the world's supply of quality consumer goods. To complicate matters further, it was also a time when the expenditures required by Lyndon Johnson's Great Society programs began to kick in so that public programs began to siphon resources previously allocated to private investment and production. One can see that growth may have slowed in the U.S. economy at this time for several intersecting reasons.

Second, the case implies a secular stagnation in growth rates since the 1970s but in fact there have been sub-periods of fairly rapid growth within that time frame. Between 1983 and 2000, the years of the Reagan "boom," real GDP grew at an average rate of 3.7 percent per year, not as rapidly as the 4.5 percent rate of annual growth achieved during the 1960s but impressive nonetheless, and a rate of growth sufficient to support rising living standards. This period of expansion was bookended by two periods of sub-par growth during the 1970s and the early 2000s. Indeed, our current fiscal troubles may arise from the subpar growth of the years from 2001 to 2009 when real GDP expanded at an average rate of just 1.6 percent per year. Thus the case for secular stagnation dating back to the 1970s is not as strong as one that places an emphasis on the recent period of disappointing growth as the real source of current troubles.

Third, if the case is correct, then why did we see a boom in financial assets that produced a 20-fold increase in stock market averages between 1982 and 2000? Investors certainly did not see a great stagnation taking place during these years -- quite the opposite, they saw a booming economy generating rising corporate profits and, in turn, rising stock valuations. Is it likely that sophisticated investors, focused on the short run, missed the long-term weaknesses in the U.S. economy? I for one doubt it. Interestingly enough, the stock markets have been generally stagnant over the past decade of subpar growth, which again suggests that our troubles are of more recent origin.

Finally, there are reasons to think that Cowen too quickly dismisses the potential economic impact of the computer and cell phone revolutions. These innovations have already led to impressive improvements in productivity and communication, while permitting people to work from home, in small business settings, and in highly skilled occupations. Some of these technologies are spreading around the world more rapidly than many of the innovations of the past. There are thousands and perhaps millions of people around the world who do not have access to indoor plumbing or higher education but are walking around with cell phones. It is still early days for some of these technologies, and we do not yet know where they may eventually lead. It is, moreover, a good and not a bad thing that companies like Google, Facebook, and Twitter can carry on their operations with modest investments in labor so that available manpower can be allocated to other uses. Do we really want Google or Microsoft to operate like the industrial behemoths of the past? It is in the nature of advancing economies to move away from enterprises like General Motors and toward smaller and more specialized firms that employ highly educated workers and exploit new technologies.

WHETHER COWEN is right or wrong about "the great stagnation," he has at least placed a critical issue on the table for national discussion. The American experiment has always depended upon economic growth as the main pathway to individual satisfaction and as a solvent for political discord. After the close of the frontier in the late 1800s, we soon found new avenues of progress in the amazing technological breakthroughs that Cowen cites. What will be the sources of growth in the 21st century?

On one critical point, however, Cowen is right on the money. We are not as wealthy as we think we are. As we eat our seed corn without replenishing it, we are bound to see our living standards deteriorate and our political conflicts escalate. The Great Stagnation is an important and impressive book, and a book of the best kind -- one that makes us think about current ills even when we may not agree with its diagnosis. 
 
The True Story of the Financial Crisis

By Peter J. Wallison from the May 2011 issue
American Spectator

As many readers of The American Spectator will know, I was a member of the Financial Crisis Inquiry Commission, a 10-member body appointed by Congress to investigate the causes of the financial crisis of 2008. The Commission issued its report in late January 2011, with a majority concluding that the crisis could have been avoided if the private sector had not taken so many risks and government regulators had not been asleep at the switch. I dissented from the majority's view, arguing in my dissent that the financial crisis would not have occurred if government housing policies had not fostered the creation of an unprecedented number of subprime and otherwise risky loans immediately before the financial crisis began.

After the majority's report was published, many people lamented that it was not possible to achieve a bipartisan agreement even on the facts. But the way the Commission was organized and run made this impossible. One glaring example will illustrate the problem. In March 2010, Edward Pinto, a resident fellow (and my colleague) at the American Enterprise Institute who had served as chief credit officer at Fannie Mae, sent the Commission a 70-page, fully sourced memorandum on the number of subprime and other high-risk mortgages in the financial system in 2008. Pinto's research showed that he had found more than 25 million such mortgages (his later work showed that there were approximately 27 million). Since there are about 55 million mortgages in the U.S., Pinto's research indicated that, as the financial crisis began, half of all U.S. mortgages were of inferior quality and liable to default when housing prices were no longer rising. In August, Pinto supplemented his initial research with a paper documenting the efforts of the Department of Housing and Urban Development (HUD), over two decades and through two administrations, to increase home ownership by reducing mortgage-underwriting standards.

This information, which highlighted the role of government policy in fostering the creation of these low-quality mortgages, raised important questions about whether the mortgage meltdown would have been so destructive if those government policies had not existed. Any objective investigation of the causes of the financial crisis would have looked carefully at Pinto's research, exposed it to the members of the Commission, taken Pinto's testimony, and tested the accuracy of his research. But the Commission took none of these steps. Pinto's memos were never made available to the other members of the FCIC, or even to the commissioners who were members of the subcommittee charged with considering the role of housing policy in the financial crisis.

Ultimately, I dissented from the Commission majority's report. There was no alternative. The Commission's management -- particularly its chairman, Philip Angelides, a former Democratic treasurer of California and unsuccessful gubernatorial candidate -- would not allow the staff to pursue any theories about the causes of the financial crisis other than those embodied in the standard left-wing narrative. And in the end a majority of the commissioners -- never having been presented with any contrary evidence -- signed on to a report that said the financial crisis could have been avoided if there had been better regulation of the private sector.

The question I have been most frequently asked about the Commission is why Congress bothered to authorize it at all. Without waiting for the Commission's report, Congress passed and the president signed the Dodd-Frank Act (DFA), far-reaching and highly consequential regulatory legislation that I believe will have a strong adverse effect on U.S. economic growth in the future. In enacting the DFA, Congress and the president acted without seeking to understand the true causes of the wrenching events of 2008, perhaps following the precept of the President's chief of staff -- "Never let a good crisis go to waste."

But to avoid the next financial crisis, we must understand what caused the one from which we are now slowly emerging, and take action to avoid the same mistakes in the future. If there is doubt that these lessons are important, consider the ongoing efforts to amend the Community Reinvestment Act of 1977 (CRA), which currently requires all insured banks and S&Ls to make loans to borrowers at or below 80 percent of the median income in the areas the banks service. If these loans were profitable, of course, there would be no reason to require by regulation that they be made. In the last session of the 111th Congress, a bill was introduced to extend the CRA to all "U.S. nonbank financial companies," and was lauded by House Financial Services Committee chairman Barney Frank as his "top priority." If enacted, the proposal would have applied to the whole financial community the same government social policy mandates that were ultimately responsible for the mortgage meltdown and the financial crisis.

Because of the 2010 election, it is unlikely that supporters of this idea will have the power to adopt similar legislation in the current Congress, but in the future other lawmakers with views similar to Barney Frank's may seek to mandate the same requirements. At that time, the only real bulwark against the government's use of private entities for social policy purposes will be a full understanding of how these policies were connected to the events of 2008.

What Caused the Financial Crisis?

GEORGE SANTAYANA is often quoted for the aphorism that "Those who cannot remember the past are condemned to repeat it." Looking back on the financial crisis, we can see why the study of history is often so contentious and why revisionist histories are so easy to construct. There are always many factors that could have caused a historical event; the difficult task is to discern which, among a welter of possible causes, were the significant ones -- the ones without which history would have been different.

Using this standard, I believe that the sine qua non of the financial crisis was U.S. government housing policy, which led to the creation of 27 million subprime and other risky loans -- half of all mortgages in the United States -- which were ready to default as soon as the massive 1997-2007 housing bubble began to deflate. If the U.S. government had not chosen this policy path -- fostering the growth of a bubble of unprecedented size and an equally unprecedented number of weak and high-risk residential mortgages -- the great financial crisis of 2008 would never have occurred.

In this article, I will outline the logical process that I followed in coming to the conclusion that it was the U.S. government's housing policies -- and nothing else -- that were responsible for the 2008 financial crisis.

The inquiry has to begin with what everyone agrees was the trigger for the crisis -- the so-called mortgage meltdown that occurred in 2007. That was the relatively sudden outbreak of delinquencies and defaults among mortgages, primarily in a few states -- California, Arizona, Nevada, and Florida -- but to a lesser degree everywhere in the country. No one disputes that the losses on these mortgages and the decline in housing values that resulted from the ensuing foreclosures weakened financial institutions in the U.S. and around the world and were the precipitating cause of the crisis.

This raised a significant question. The U.S. had experienced housing bubbles in the past. Since the Second World War, there had been two -- beginning in 1979 and 1989 -- but when these bubbles deflated they had triggered only local losses. Why was the deflation of the housing bubble in 2007 so destructive?

The Commission's answer was that there were weaknesses in the financial system -- failures of regulation and risk management, excessive leverage and risk-taking -- that were responsible for the ensuing devastation. To establish this idea, the Commission had to show that these weaknesses were something new. It didn't attempt to do this, although that was an essential logical step in establishing its point. And the Commission ignored a more obvious answer: the quality of the mortgages in the bubble. As I noted earlier -- and as the Commission never acknowledged or disputed -- by 2008, half all mortgages in the U.S. -- 27 million -- were subprime or otherwise risky loans. If the Commission had really been looking for the reasons that the collapsing bubble was so destructive, the poor quality of the mortgages in the bubble was a far more likely hypothesis than that there had been a previously undetected weakening in the way the U.S. financial system operated.

This in turn raised two other major questions. Why were there so many weak and risky loans in this bubble? What had happened to mortgage underwriting standards in the preceding years that caused such a serious deterioration in mortgage quality?

"Affordable Housing Goals" and the Deterioration in Underwriting Standards

RESEARCH SHOWED that the turning point came in 1992, with the enactment by Congress of what were called "affordable housing goals" for Fannie Mae and Freddie Mac. These two firms, which were shareholder-owned, had been chartered by Congress more than 20 years earlier to operate a secondary market in mortgages. The original idea was that they would buy mortgages from banks and other originators (Fannie and Freddie were not permitted to originate mortgages), standardize the mortgage document, resell those mortgages to institutional and other investors, and in that way create a national market for U.S. mortgages.

From the beginning, Fannie and Freddie's congressional charters required them to buy only mortgages that would be acceptable to institutional investors -- in other words, prime mortgages. At the time, a prime mortgage was a loan with a 10-20 percent down payment, made to a borrower with a good credit record who had sufficient income to meet his or her debt obligations after the loan was made. Fannie and Freddie operated under these standards until 1992.

The 1992 affordable housing goals required that, of all mortgages Fannie and Freddie bought in any year, at least 30 percent had to be loans made to borrowers who were at or below the median income in the places where they lived. Over succeeding years, the Department of Housing and Urban Development (HUD) increased this requirement, first to 42 percent in 1995, to 50 percent in 2000, and finally to 55 percent in 2007. It is important to note, accordingly, that this occurred during both Democratic and Republican administrations.

At the 50 percent level, Fannie and Freddie had to acquire at least one goal-eligible loan for every prime loan that they acquired, and since not all subprime loans were goals-eligible Fannie and Freddie were in effect required to buy many more subprime loans than prime loans to meet the goals. As a result of this process, by 2008, Fannie and Freddie held the credit risk of 12 million subprime or otherwise risky loans -- almost 40 percent of their single-family book of business.

But this was not by any means the full extent of the problem. HUD took Congress's enactment of the affordable housing goals as an expression of a congressional policy to reduce underwriting standards so that low-income borrowers would have greater access to mortgage credit. As outlined in my dissent, by tightening the affordable housing goals, HUD put Fannie and Freddie into competition with the Federal Housing Administration (FHA), a government agency with an explicit mission to provide credit to low-income borrowers, and with subprime lenders such as Countrywide, that had pledged to reduce underwriting standards in order to make more mortgage credit available to low-income borrowers. Moreover, all these organizations were joined by insured banks and S&Ls, which as noted above were required under the CRA to make mortgage credit available to borrowers who are at or below 80 percent of the median income in the areas where they live.

Of course, it is possible to find borrowers who meet prime loan standards among low-income families, but it is far more difficult to find such loans among these borrowers than among middle-income groups. And when Fannie, Freddie, FHA, subprime lenders like Countrywide, and insured banks and S&Ls are all competing to find loans to borrowers in the low-income category, the inevitable result was a significant deterioration in underwriting standards.

So, for example, while one in 200 mortgages involved a down payment of 3 percent or less in 1990, by 2007 it was one in less than three. Other credit standards had also declined. As a result of this government-induced competition, by 2008 19.2 million out of the total of 27 million subprime and other weak loans in the U.S. financial system could be traced directly or indirectly to U.S. government housing policies.

Private Sector Securitization of Subprime Loans

IF THE GOVERNMENT was responsible for 19.2 million of the 27 million subprime and other risky loans, that leaves 7.8 million similar loans that came from other sources. These were mortgages securitized by the private sector (often called Wall Street in the Commission's report) and held by financial institutions around the world. How were these mortgages the result of U.S. government housing policy?

This is an important question. Even though these privately securitized mortgages were less than one-third of the total number of subprime and other risky loans outstanding, they are the reason that banks and other loan originators generally have been blamed -- in the media, in most books and films about the financial crisis, and of course by the Commission -- for the financial crisis.

The securitization of subprime and other risky loans was also a new phenomenon in the housing bubble that ended in 2007, and it was a direct result of the extraordinary growth of the bubble itself. Most bubbles in the past lasted three or four years. In that time, delinquencies begin to appear and the inflow of speculative funds begins to dry up. The bubble that deflated in 2007, however, had an unprecedentedly long 10-year life. The reason was that the money flow into that bubble was not from private speculators looking for profit, but primarily from the government pursuing a social policy by directing the investments of companies or agencies it regulated or otherwise controlled.

Housing bubbles tend to suppress defaults. As housing prices rise, people who can't meet their obligations can sell the house for more than they paid, or can refinance, so delinquencies are limited. By 2002, five years into the bubble that began in 1997, investors were beginning to notice that subprime and other risky loans -- which usually carried higher than normal interest rates because of their risk -- were not showing delinquencies or defaults commensurate with their risks. In other words, the data suggested that mortgage-backed securities (MBS) made of these loans were offering unusually high risk-adjusted yields. This stimulated the development of a private market in securitized subprime loans -- something that had never existed before.

This market was about 4 percent of all mortgages made in 2002, but by 2004 had grown to 15 percent. It kept growing through 2005 and 2006, but completely collapsed in 2007, when the 10-year bubble finally topped out and began to deflate.

Thus, the 7.8 million subprime and other risky loans that were securitized during the 2000s and still outstanding in 2008 were also the indirect result of U.S. government housing policies, which had built an unprecedented bubble in the late 1990s. The bubble created the necessary conditions -- a long run of subprime loans without the expected losses -- for the growth of a huge securitization market in subprime and other risky loans in the mid-2000s.

Before leaving this subject, it is important to address one statement that has appeared again and again in the mainstream media, in statements by members of the Obama administration, and was repeated in the Commission report. This is the claim that Fannie and Freddie became insolvent because, seeking profits or market share, they "followed Wall Street" into subprime lending. This idea neatly avoids the question of why Fannie and Freddie became insolvent in the first place, and focuses the blame again on the private sector. The statement, however, as the following quote from Fannie's 2006 10-K report makes clear, is untrue:


[W]e have made, and continue to make, significant adjustments to our mortgage loan sourcing and purchase strategies in an effort to meet HUD's increased housing goals and new subgoals. These strategies include entering into some purchase and securitization transactions with lower expected economic returns than our typical transactions. We have also relaxed some of our underwriting criteria to obtain goals-qualifying mortgage loans and increased our investments in higher-risk mortgage loan products that are more likely to serve the borrowers targeted by HUD's goals and subgoals, which could increase our credit losses.

Subprime and Other Risky Loans Cause the Financial Crisis

WITH HALF OF ALL mortgages weak and of low quality by late 2007, an eventual financial crisis was a foregone conclusion. No financial system could withstand the huge losses that occurred when the delinquencies and defaults associated with 27 million subprime and other risky loans began to appear. Alarmed by these unexpected and unprecedented numbers of these delinquencies and defaults, investors fled the multi-trillion dollar market for MBS, dropping MBS values -- and especially those MBS backed by subprime and other risky loans -- to fractions of their former prices.

Mark-to-market accounting then required financial institutions to write down the value of their assets -- reducing their capital positions and causing great investor and creditor unease. In this environment, the government's rescue of Bear Stearns in March of 2008 temporarily calmed investor fears but created significant moral hazard; investors and other market participants reasonably believed after the rescue of Bear that all large financial institutions would also be rescued if they encountered financial difficulties.

However, when Lehman Brothers -- an investment bank even larger than Bear -- was allowed to fail, market participants were shocked; suddenly, they were forced to consider the financial health of their counterparties, many of which appeared weakened by losses and the capital writedowns required by mark-to-market accounting.

This caused a halt to lending and a hoarding of cash -- a virtually unprecedented period of market paralysis and panic that we know as the financial crisis of 2008.

The Policy Stakes

THE FAILURE OF THE Financial Crisis Inquiry Commission to do its job is one more obstacle to persuading the American people that the Dodd-Frank Act is illegitimate and should be repealed. The act is far and away the most restrictive piece of legislation ever imposed on the U.S. economy, and it will have a long-term effect in slowing economic growth, just as the uncertainties it has created have already slowed the recovery from the recession. The DFA was sold to the American people by the media and the Obama administration as necessary to prevent another financial crisis, but as outlined in this article and made very clear in my dissent, the financial crisis was not caused by weak or ineffective regulation. On the contrary, the financial crisis of 2008 was caused by government housing policies -- sponsored and promoted by many of the same people who framed and ultimately enacted the DFA. If we don't learn that important lesson, we will make the same mistake again, and then we really will have another financial crisis. 
 
Here's something funny...



Obama is going to play Lucy with the football now; an election is coming up, so he's announced he's going to open up drilling...





*chuckle*

... 'cause you know prices tumbled when Bush announced it...
 
Lol...and Obama wants us to follow the no-growth path.

Boeing and the Union Berlin Wall
Between 2000 and 2008, 4.8 million Americans moved from forced union states to right-to-work states—that's one person every minute of every day. .

By ARTHUR B. LAFFER AND STEPHEN MOORE

The Obama administration's National Labor Relations Board filed a complaint last month against Boeing to block production of the company's 787 Dreamliner at a new assembly plant in South Carolina—a "right to-work" state with a law against compulsory union membership. If the NLRB has its way, Dreamliner assembly will return to Washington, a union-shop state, along with more than 1,000 jobs.

The NLRB's action, which Boeing will challenge at a hearing next month, is a big deal. It's the first time a federal agency has intervened to tell an American company where it can and cannot operate a plant within the U.S. It lays the foundation of a regulatory wall with one express purpose: to prevent the direct competition of right-to-work states with union-shop states. Why, as South Carolina Gov. Nikki Haley recently asked on these pages, should Washington have any more right to these jobs than South Carolina?

A recent New York Times editorial justified the NLRB decision by arguing that unions are suffering from "the flight of companies to 'Right-to-Work' states where workers cannot be required to join a union." That's for sure, and quite an admission. We've been observing that migration pattern for years, but liberals have denied it's actually happening—until now.

Every year we rank the states on their economic competitiveness in a report called "Rich States, Poor States" for the American Legislative Exchange Council. This ranking uses 15 fiscal, tax and regulatory variables to determine which states have policies that are most conducive to prosperity. Two of these 15 policies have consistently stood out as the most important in predicting where jobs will be created and incomes will rise. First, states with no income tax generally outperform high income tax states. Second, states that have right-to-work laws grow faster than states with forced unionism.

As of today there are 22 right-to-work states and 28 union-shop states. Over the past decade (2000-09) the right-to-work states grew faster in nearly every respect than their union-shop counterparts: 54.6% versus 41.1% in gross state product, 53.3% versus 40.6% in personal income, 11.9% versus 6.1% in population, and 4.1% versus -0.6% in payrolls.

For years, unions argued that right-to-work laws were bad for workers and for the states that passed them. But with the NLRB complaint, they've essentially thrown in the towel. If forced unionism is better for the economy of a state, why would the NLRB need to intervene to keep Boeing from leaving Washington? Why aren't businesses and workers moving operations to heavily unionized places like Michigan, New York, Ohio and Pennsylvania and fleeing states like Georgia, Tennessee, South Carolina and Texas?

In reality, the stampede of businesses from forced-union states like Washington has accelerated in recent years. A 2010 study in the Cato Journal by economist Richard Vedder of Ohio University found that between 2000 and 2008 4.8 million Americans moved from forced-union states to right-to-work states. That's one person every minute of every day.

Right-to-work states are also getting richer over time. Prof. Vedder found a 23% higher per capita income growth rate in right-to-work states than in forced-union states, which over the period 1977-2007 amounted to a $2,760 larger increase in per-person income in those states. That's a giant differential.

So now the unions concede that this migration is indeed happening, but they say that it is unhealthy and undesirable because workers in right-to-work states are paid less and get worse benefits than the workers in union states. Actually, when adjusting for the cost of living in each state and the fact that right-to-work states were poorer to begin with, a 2003 study in the Journal of Labor Research by University of Oklahoma economist Robert Reed found that wages rose faster in states that don't require union membership.

Employers that move away from forced-union states mainly do so not to scale back wages and salaries—although sometimes that happens—but to avoid having to deal with intrusive union rules, the threat of costly work stoppages, lawsuits, worker paychecks going to union fat cats, and so on.

Boeing officials have admitted that their decision to build the new Dreamliner plant in South Carolina was due in part to the fact that the company could not "afford a work stoppage every three years" as had happened in Washington state over that past decade. (By the way, this is the comment the NLRB complaint cites as proof of "retaliation" against union workers.)

Boeing is merely making a business decision based on economic reality. In fact, the company chose South Carolina for the new plant even though Washington has no income tax and South Carolina does. The two of us are often accused of arguing that income tax rates are the only factors that influence where businesses and capital relocate. Taxes certainly matter. But Boeing's move shows that taxes are not always the definitive factor in plant location decisions. In the case of Washington the advantage of its no income tax status is outweighed by its forced-union status. Lucky are the six states—Texas, Tennessee, South Dakota, Nevada, Florida and Wyoming—that are both right-to-work states and have no income tax.

While there are only six right-to-work states that also have a zero earned income tax rate and three zero earned income tax rate states that have forced- union shops, their performance differences over the past decade (2000-09) are revealing. Of the nine zero income tax rate states, those six that are also right-to-work have grown a lot faster than the three with forced-union shops: 64.9% versus 53.8% in gross state product, 59.0% versus 46.8% in personal income, 15.5% versus 10.3% in population and 8.2% versus 6.9% in payrolls.

The Boeing incident makes it clear that right-to-work states have a competitive advantage over forced-union states. So the question arises: Why doesn't every state adopt right-to-work laws? Four or five are trying to do so this year, and have faced ferocious opposition from the union movement.

But that shouldn't stop state legislators in forced-union states from doing what's in their workers' best interests. They need to decide whether they want to continue to see jobs and tax receipts exit their states, or whether they want to adopt laws that afford their workers the right to join a union or not. The only alternative is to build a regulatory Berlin Wall around their borders to keep their businesses from leaving.
 
The union fight is just beginning
By John E. Sununu
Boston Globe
May 16, 2011


THERE IS something quintessentially American about a showdown — two adversaries standing on principle, face to face. It brings to mind simple, iconic images: Gary Cooper in “High Noon,” Burt Lancaster in “Gunfight at the OK Corral,” inmates vs. guards in “The Longest Yard.”

Lured in by the promise of a decisive conclusion, we quickly choose sides — another American trait — and focus on the contest itself. But whether a confrontation plays out amid the tumbleweeds or in a legislative chamber, focusing on just the fight can distract us from the underlying issues at stake.

That’s the danger in New Hampshire, where the showdown over “right to work’’ legislation continued to unfold last week. Governor John Lynch vetoed a bill that would protect workers from paying fees to unions they haven’t joined. It passed both House and Senate with big margins, and the drama over whether the House will override him is easily cast as a local “pro-union’’ vs. “anti-union’’ contest. But struggles over collective bargaining and union politics are happening all over the country, suggesting there’s much more here than first meets the eye.

It’s not just the result of the Republican surge in 2010. Republican majorities have controlled New Hampshire’s State House before, yet high-profile labor fights have been rare. Such widespread action in so many states suggests a more pervasive sentiment that unions have done something — perhaps several things — that run against the broader public interest.

In Ohio and Wisconsin, where new laws restrict the issues that can be negotiated under collective bargaining, it’s about the budget. Years of sweetheart contracts have given public employees pension and health care benefits that are unsustainable. Wisconsin Governor Scott Walker wants to raise state employee health care contributions to 12.6 percent, still well below the private sector. Even Massachusetts has a bill pending to restrict municipal workers’ bargaining rights on health care.

In states like Florida and Tennessee, the perception has grown that unions are the biggest obstacle to rewarding good teachers and punishing the bad. Both have passed legislation that make it easier to fire the poorest-performing teachers. Tennessee’s law requires an “effective” rating before teachers get tenure; it has received enthusiastic public support. Governor Chris Christie in New Jersey is now pushing a similar bill; look for other states to follow.

In New Hampshire, the argument comes down to freedom and competitiveness. On an individual level, no employee should be required to pay fees to a union they don’t wish to join. Besides, employment growth is higher and unemployment rates are lower in the 22 right-to-work states than in their closed-shop counterparts. This advantage has driven the National Labor Relations Board to an unprecedented level of government interference — recently demanding that Boeing locate a new manufaturing plant in union-friendly Washington rather than right-to-work South Carolina.

Nationally, these issues are unlikely to go away. States that have restricted public unions’ say over pension and health care matters are curtailing an enormous power base for union leadership, and one that won’t be given up without a fight. Moreover, with membership now less than 7 percent in the private sector, the union movement is now predominantly about government workers and their benefits.

Many of these states will still have budget troubles in 2012, so the high costs of pensions and health care will remain a front-burner issue in state and local races. Adding momentum to the reform movement, Bloomberg recently reported that Wisconsin’s borrowing costs have fallen by half since January. That’s a benefit that other states will be scrambling to duplicate.

And don’t forget presidential politics. New Hampshire, Ohio, Missouri, Florida, and Indiana are all considered battleground states. Presidential candidates will weigh in with money and organization to bring visibility to their own campaigns. In short, both sides will perceive that they have something to gain from maintaining the high-profile struggle through 2012 — raising money, generating turnout, and promoting their agenda. This is one showdown that won’t be settled by a quick-draw artist.

However much the public supports unionization in principle, it will not support what it views as the results of heavy-handed union politics: retirement at age 45, protection for bad teachers, or workers who don’t contribute to their own health care costs. In New Hampshire, the House leadership just might swing enough votes to turn a 225-140 margin into a veto override. Either way, however, the popular sentiment behind this movement will be with us for a long time.
 
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