It looks like someone in the MSM needs a review of the “Parable of the Broken Window”

It looks as if someone at Mayor Michael “the friendly fascist” Bloomberg’s eponymous report needs some education in basic economic principles.  Bloomberg Views’ Matthew Klein took it upon himself to comment upon a New York Post story about several burglaries in a high-end New York building.  Klein suggests that there’s no reason to be upset because — hey! — the targets are wealthy:

When the thief fences $10,000 or $100,000 in jewelry from an heir who barely knows what he owns, the thief will feel much richer and spend most of that money. Maybe he will buy a new car, or go on a bender at strip clubs, or rent a villa in a beleaguered European country. The heir might be somewhat upset, but it’s hard to believe that he will suddenly cut back on his spending because he needs to recoup a relatively small loss. In fact, the heir might end up spending more money as he tries to make his apartment safer from future robberies.

You can understand a lot about America’s dire economic straits if you realize that this kind of idiocy shows up in one of the country’s premier financial publications.  What Klein says is a variation of the “broken window fallacy,” which Frédéric Bastiat’s wrote about in 1850, albeit with a soupcon of Marxism thrown in for good measure:

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

I understand that Klein would say that he’s not describing the “broken window” fallacy because there’s no preliminary destruction involved here.  There’s just the transfer of wealth from the undeserving rich to the somewhat deserving, albeit criminal, poor, with a substantial decrease in value along the way.  But what Klein does is to assume that the rich contribute nothing to the economy, while the poor — even the poor burglars – do.

Klein’s error lies in his belief that only feelings matter:  the rich don’t feel the pain of deprivation, while the poor do.  That’s true, but it has nothing to do with economics.  Lost in that emotionalism is Klein’s fallacious economic point:  redistribution (from rich to poor at the point of a gun) will spur the economy.  It’s more likely that the diminution in value of the goods as they travel (forcibly) from rich to poor will hamper the economy.  The rich man who spends $1 million on a diamond is certainly conspicuous in his consumption, but he’s undoubtedly sending more money into the economy than the poor man who reduces that diamond to $1,000 in cash, much of which we can assume will be spent on drugs and prostitutes.  (And even there, assuming the target is decadent, the poor man pours less in the economy buying pot and a $50 a night girl, than would the target who spends on designer drugs and high-end call girls.)

The above ruminations, of course, involve private wealth.  Government expenditures (such as Obama’s lavish vacations, all of which require millions in travel and security expenses that the taxpayers bear) simply rob Peter the taxpayer, while paying only a small cut back to Paul the taxpayer.

Hat tip:  Best of the Web

Thomas Sowell on the fallacy of liberal ideas

“Who’s Thomas Sowell?” my daughter asked.

“He’s a genius,” I replied.

“Why?”

“Because he has the rare gift of simplifying very complex ideas without dumbing them down.”

See for yourself:

After listening to Sowell, my blog’s motto seems appropriate:  “Conservatives deal with facts and reach conclusions; liberals have conclusions and sell them as facts.”

Hat tip: American Thinker

I’m shocked! Shocked! The Obama administration has been lying again.

Conservatives of all religious stripes have been attacking the ObamaCare mandate regarding birth control and abortifacients on religious grounds.  The Obama administration’s response was to introduce an “accommodation” under which the insurance companies will henceforth offer these medicines and services for “free.”

Anybody past the age of five understands that, in this life, nothing is free.  The same opponents immediately pointed out that religious institutions and people of conscience will still be funding an insurance package that includes morally reprehensible products.  After all, someone has to pay, right?

Wrong! says the administration.  No one has to pay because all “health care” products have a negative cost effect on the insurance companies.  By forcing the companies to provide preventive services for free, the Obama administration is actually saving the company’s money.  Never mind the fact that, in the real world, if there really was a cost savings, the insurance companies would already be offering these products and services for free — and then, in order to compete in the insurance market, they would be passing these savings along to their customers.

Aside from ignoring marketplace realities, the Obama administration is apparently lying as well:

[T]here is no evidence that a mandate on insurance companies to provide contraception is cost-neutral. A search of PubMedturns up nothing.

Tory Bunce, policy director at the conservative Council for Affordable Health Insurance, told IBD, “In our research, we’ve looked at the cost of mandates on the state level. We’ve asked our members to price these mandates in their actual policies. What we’ve been told from the actuaries is that the contraceptive mandate costs 1%-3% of premiums.”

Read more here about yet another administration lie, one that a complicit MSM cheerfully passes along to a credulous public.

The Dark World of Krugman

We have an odd family friend. Fundamentally, she is a nice person and sports a very unconventional view of the world that occasionally emotes great insights into the human condition. She has a major flaw, however, one that she admits as a character flaw: she is an unabashed hater. Despite her husband, kids and friends being conservative, she targets her venom at conservatives. We who love her nonetheless, understand: “conservatives” remind her of her father, a redneck sort of fellow who was a very bad father. She blames him for her mother’s suicide, which occurred when she was very young.

 

If you dig deep into people’s psyches, you can often find the reason for visceral hatreds and, usually but not always, they have to do with childhood experiences. As Oprah (an abused child) famously remarked, some people seem incapable of shedding their childhood baggage.

 

So, what is it with Paul Krugman, once a brilliant economist and now a dark troll fulminating ugly thoughts under stone bridges in Liberal-land? This article, contributed by Peter Foster in Canada’s Financial Post, does a brilliant dissection of Krugman’s visceral hatreds and the warped views he espouses on economics, conservatives and climate change (some of which have been repeated rote on this blog by certain participants).

http://opinion.financialpost.com/2011/06/28/peter-foster-the-demons-in-krugmanomics/

 

What the article doesn’t do is explain from whence do Paul Krugman’s demons arise. What happened to cause his descent into madness?

 

 

The Business of China and U.S.

Given this blog’s recent flogging of the China versus U.S. (“us”) question, here is  a primary example of how China may surpass the U.S. by becoming more business friendly as it decentralizes while the U.S. risks having to learn the lessons of socialist history all over again as our over-regulated economy grinds down to a slow crawl.

In this linked article at the American Spectator, an entrepreneur compares and contrasts the difficulties of and disincentives for creating new businesses in our country, under our increasingly socialist, statist form of governance.

http://spectator.org/archives/2011/05/10/killing-manufacturing

Money quote: “Now, this is China so the government and the state share 30% of your business, but considering the ease of entry, increased in-country sales and helpful attitude, this is a small price to pay, especially considering America’s 35% plus corporate tax rates.”

Here, the author makes an excellent point: when the State demands 35% of a company’s earnings (I believe that Mafia shake-down artists usually demand a smaller percentage in protection money, but I may be wrong), the State de facto owns a 35% equity interest in the company…with only one major difference: it shares 0% of the risk borne by shareholders.

Is America on the road to becoming a socialist paradise like, say, Europe’s former Soviet Block during the 1960s? Naaah…don’t think so! Our future will not be one of mythical straight-line Progessive projections.

I predict instead that, given American individual initiative and creativity, our trajectory will be more like that of an Argentina – once a leading economic jewel, now a pathetic, tired, broke 3rd-world backwater. In such economic environs, two groups will prosper: the government-sanctioned nomenklatura and those clever and adept enough to profit from the inevitable underground economy.

Sad story!

When even Liberals wake up

Here is a financial report on USA, Inc., presented as a slide show, as developed by financial analysts.

Most of us Bookworm Room aficionados know that the economic state of health of our country is not good and getting worse. It is critical, actually. Unfortunately, there are many still wedded to Keynesian mythologies of the Hoover and FDR era who insist on bleeding the patient with leeches when major surgeries are warranted.

Where I see hope is that this devastating report, authored by Morgan Stanley analyst and Silicon Valley venture capitalist Mary Meeker, was supported by famous Liberal Democrat heavyweights such as Laura Tyson, Al Gore and Peter Orzag. Small rays of sunshine are beginning to enlighten the clinicians’ gloom. One can quibble with details (that General Motors has turned the corner, for example), but the core facts presented are solid and irrefutable. Scroll toward the end and visualize how this is not just the United States but the entire western world as we know it that is affected.

To solve a problem, one must first define the problem. Read it, skim it (just the graphs are explanatory enough) bookmark it, and use it to educate as many  people as you can. Because the real battles will begin when all of us must decide between surrendering our entitlements to the scalpel and turning off artificial life support altogether.

Our era is ending and we are seeing the first birth pangs of the new. Birth is a painful, bloody process.

H/T Richard Fernandez and Ace of Spades HQ.

***Update***

Some people have had trouble with the link above, so here is another link to the article.

Pyramid schemes — so simple even a child can understand them

Today, I told my children, who are 11 and 12, about pyramid schemes.  Since it’s always easiest for me to focus on people, I started my story with the first famous American pyramid schemer:  Charles Ponzi, who gave his name to the whole racket.

I explained the Ponzi scheme to the kids in the simplest of terms, using very easy math:  I told them that Ponzi promised his first investors that, if they gave him their money, he would give them double that amount back.  (I actually don’t know if he promised to double the money, but it was an easy concept for the kids to grasp.)  Excited by the prospective of money for nothing, these people readily handed their money to Ponzi.  They were the first tier of investors.

Ponzi then went out and found a larger number of investors, who also gave him their money.  These were the second tier of investors.  He took the money he received from the second tier, and gave it to the first tier.  The first tier was very happy.  Having done nothing, they nevertheless doubled their investment.  Many of them came back for more, reinvesting their money, and joining the third tier of investors.  With the money from that third tier, Ponzi paid off, big time, to the second tier.

This went on quite happily for a while, I told the kids, but then something inevitable happened:  Ponzi stopped finding a sufficient number of new investors whose fresh funds could pay off his old investors.  Since Ponzi was just moving money around — he was not providing a service or creating goods — the only thing that kept the money flowing was fresh blood.

So, I asked my attentive little audience, what happened then?  My 12 year old was quick with a reply:  “The whole system collapsed.”  Smart child.

Before I was even able to go on from them, my 11 year old, eyes suddenly widening, announced, “That’s like what the government does.  It takes money from people who work, and gives it to people who don’t work.”   Really smart child.

(By the way, I am absolutely not making this up.  That’s the story I told, and that is verbatim how my children responded, no editing, no augmenting.)

I leave you with a replay of Chris Christie, who speaks about the Day of Reckoning that will be inevitable unless we sharply turn away from the Progressive government’s giant Ponzi scheme:

Oh, I have one more “by the way,” apropos Gov. Chris Christie.  As you know, I believe lots of uninformed Americans voted for Obama, not because of his qualifications, but because they were swept away by the rapture of voting for the first black president.  I also read somewhere that a candidate in Texas is running, not on her actual qualifications for the job, but on her promise to the voters that, if they vote for her, she’ll be the first transgendered whatever it is she’s running for.

I mean, honestly, the way the media frames elections lately, the most important thing is to push the identity politics side of someone’s candidacy as the primary consideration, trumping all other matters.  So how about all of us starting a campaign for Chris Christie, promising Americans that, if he wins, he’ll be the first rotund president in the 21st Century, and the first since William Howard Taft?

After all, considering how badly people of weight are treated in America, it seems to me that Christie is already well on his way to wearing the victim moniker so beloved of the press.  The only problem, of course, is that Christie might, just might, be offended by victim/identity politics status, and might actually want to run on issues and competency.

The illogical behavior and beliefs of the American Statist

“Logic! Why don’t they teach logic at these schools?” — C.S. Lewis, The Lion, the Witch and the Wardrobe

Neither Data nor Mr. Spock, two relentlessly logical creations, could ever be liberals or Democrats or Progressives, or whatever the Hell else they’re calling themselves nowadays.  (For convenience, I’ll just lump them all together under the “Statist” title).  As I realized over the 20 plus years of my political journey from knee-jerk Statist to thinking Individualist, the single greatest difference between the two ideologies is that the former lives in a logic-free world.

Sure, as Statists will always shrilly point out, more Individualists than Statists subscribe to traditional religion — and the belief in God definitely requires a leap of faith — but that’s just about the only leap of faith in their lives.  Their political positions are almost always driven by a solid understanding, not only of human nature, but also of the realities of cause and effect.  Liberals, on the other hand, even as they pride themselves on the logic of their abandoning God (never mind that they cannot satisfactorily prove God’s nonexistence), apply magical thinking to just about everything else.

Here, in no particular order, is a laundry list of illogical policies espoused by Statists (with the understanding that modern statism is driven by identity politics and self-loathing):

Statists believe that America’s out-of-control illegal immigration has nothing to do with the fact that, when illegal immigrants sneak across the border, we provide them with education, health care, welfare, food stamps, and the promise that they will be allowed to remain in the country regardless of their unlawful status.  These same Statists, blind to the laws of cause and effect, are always shocked when temporary crackdowns result in a corollary (and, equally temporary) diminution in the number of illegal aliens.

Statists are wedded to the idea that government creates wealth.  To this end, they are bound and determined to use taxes to consolidate as much money as possible in government hands so that the government can go about its magical wealth creation business.  The fact that those countries that have all or most of their wealth concentrated in government hands have collapsed economically (Eastern Europe, Cuba) or are in the process of collapsing (Western Europe) doesn’t impinge on this belief.  As even my 10 year old and 12 year old understand, the government’s ability to print money is not the same as an ability to create wealth.  The best way for a government to create wealth is to ensure a level playing field with honestly enforced rules — and then to get out of the way.

Statists believe that no-strings-attached welfare has nothing to do with the creation of a welfare culture.  My father, the ex-Communist, figured this one out:  “If you’re going to pay women to have babies (meaning constantly increasing welfare benefits), they’re going to have babies.”  In 1994, a Republican Congress forced Clinton to change “welfare as we know it.”  To the Statists’ chagrin, all their dire predictions about weening Americans off the government teat proved false.  Poor people are not stupid people.  If they’re getting paid to do nothing, they’ll do nothing.  If that money vanishes, they’ll work.  By the way, I’m not arguing here against charity for those who cannot care for themselves.  I’m only railing against a political system that encourages whole classes of people to abandon employment.  This subject is relevant now, in 2010, because there is no doubt but that, Rahm-like, Democrats are using the current economic situation as a backdoor to increase welfare benefits to pre-1994 standards.

During the run-up to the ObamaCare vote, Statists adamantly contended that, even if employers would find it far cheaper to pay fines than to provide insurance coverage for their employees, they would still provide coverage.  Likewise, they refused to acknowledge that, if insurers could no longer refuse coverage for preexisting conditions, and if individual fines were cheaper than insurance, savvy consumers would jettison insurance and wait until they were actively ill before knocking on the insurer’s door.  In both cases, the Statists’ illogical beliefs about human nature and economics were proven absolutely and conclusively wrong.  (Info and examples are here, here and here.)

For decades, Statists have contended that if we can just get guns out of citizens’ hands crime will go away.  To the Statists, the problem isn’t one of culture and policing, it’s that the guns themselves cause crime.  What’s fascinating is that they continue in this belief despite manifest evidence that it is untrue.  The NRA was right all along:  If guns are outlawed, only outlaws will have guns.

Statists firmly believe that Individualists (a group that includes Republicans, conservatives, libertarians, and other “bitter” Americans), are an angry mob, primed and ready to explode against all non-white, non-straight, non-Christians.  They do so despite hard evidence that angry mobs, as opposed to scattered angry individuals, reside solely on the Left, anti-American side of the political spectrum.

Statist gays, who feel obligated to be Leftists because of identity politics, throw their wholehearted support behind Palestinians, whom they see as the beleaguered victims of evil Israeli imperialism.  They hold to this view despite the fact that Palestinians kills gays, and Palestinian gays regularly try to immigrate to the safe haven of Israel.  In the same way, Statist gays, hewing to their solid Leftist credentials, side with Iran against America, despite the fact that Iran is able to boast about the absence of homosexuals only because it routinely kills them.

Statist blacks, who feel obligated to be Leftists  because of identity politics, are deeply hostile to the police.  While there is absolutely no doubt that, in the past, police routinely harassed, arrested, and killed black people just for being black, we’re not living in the past anymore.  In modern America, the person most likely to kill a black person is another black person.  Blacks need police more than I do, sitting in my comfortable safe, suburbia — yet it’s here, in white suburbia, that our police force, which is largely decorative, is appreciated and admired.

American Statists believe that, if you placate a bully, he will see the error of his ways and become nice.  It didn’t work for Chamberlain in 1938, and I’m pretty damned sure it won’t work for us, whether the bully is Iran, Venezuela, China, Russia or any other totalitarian government intent upon expanding its power beyond its own borders.  I’m not advocating unbridled aggression our part.  That would mean we’re no better than the bullies arrayed against us.  I’m more of a Teddy Roosevelt, in that I’ll allow us to speak softly, as long as we carry a big stick.  Self-defense is not aggression — and sometimes you have to fight to defend a principle, a person, or a nation.

Statist women are silent, absolutely silent, about the condition of women across most of the Muslim world.  I think I’ll rename them “sadist” women, not “statist” women.

Statists tout as a quality Supreme Court justice Elena Kagan, who violated American law to bar the military from her campus because of Clinton’s don’t ask/don’t tell policy, but who cheerfully accepted millions of dollars and a chair from the same Saudis who murder homosexuals and treat women like 32nd class citizens.  There’s logic for you.

I opened this post with a quotation from C.S. Lewis regarding the absence of logic in education.  We can see the profoundly dangerous effect that lack of logic has on real world policies.  I’ll end with Tweedledee and Tweedledum opining on logic in a way that only a Statist could appreciate and understand:

“I know what you’re thinking about,” said Tweedledum: “but it isn’t so, nohow.”

“Contrariwise,” continued Tweedledee, “if it was so, it might be; and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.”

The politics of City budgets in liberal cities *UPDATED*

I’ve noted before that San Francisco (consistent with Democratic-run cities and states everywhere) is terribly cash-strapped.  But politics will always trump practicality.  Exactly one month ago, despite the fact that the school district is pretty much broke, the Board of Education voted, not just to cut education programs quite drastically, but also to put into place a brand-new, expensive gay rights program.

Now, despite trembling on the verge of fiscal bankruptcy (I think it’s already crossed the verge into moral bankruptcy), the city is planning on sending good money after bad by keeping afloat a LGBT community center that has been a money loser since the day it opened:

Eight years after opening with great fanfare, San Francisco’s city-subsidized, $12.3 million Lesbian, Gay, Bisexual and Transgender Community Center is on the verge of foreclosure – and is asking the cash-strapped city for a $1 million line of credit to help bail it out.

And from the looks of things, the center will probably get it.

The thinking: The city has already spent about $5.7 million on the building at Market and Octavia streets and needs to “make sure it doesn’t go under,” said Supervisor David Campos, who along with fellow gay Supervisor Bevan Dufty is seeking approval of a $1 million “mortgage relief” fund.

Even that, however, might not be enough to save the center.

According to a new report by the Board of Supervisors budget analyst, the center could need even more public funds to cover the nearly $3 million that it still owes on its mortgage.

“Clearly, it’s unprecedented,” Campos said of the bailout proposal. “But I do believe there is something unique about the role the LGBT Center plays – not only in the life of the community, but the entire city.”

Located at the gateway to the Castro district, the LGBT Center and its staff of 24 offers everything from counseling and job training to HIV prevention and arts programs. Of its $1.8 million budget, $777,000 consists of city contracts.

But the center has never made the money it expected from renting out rooms to community groups, and with the recession there has been a drop-off in contracts and in contributions from foundations and individuals.

This is the difference, of course, between the real world and the tax payer supported political world.  In the real world, if something doesn’t work, even something beloved and symbolic, the person in charge of finances (whether household or business) bids that something, whatever that “something” is, a reluctant farewell.  In the world of politics — or, at least, the world of liberal politics, which sees every taxpayer as an endless money spigot — finance-draining programs just keep going on going.

We see the same thing in the protests regarding cuts at the University of California.  Unlike the protests in the 1960s, which were at least draped in vaguely altruistic colors (never mind that the college boys were mostly trying to avoid the draft as they opposed the “imperialist” Vietnam War), the current round of protests has simply seen a lot of spoiled kids whining that less government money will flow to them.  They seem unperturbed that there is, simply, less government money to flow anywhere.  These kids have been raised with their mouths firmly latched on to the government teat, and they’re going to be damned before they stop demanding an unending flow.  That the animal attached to the teat is dying from being over-milked is a petty inconvenience.

UPDATE:  Per the Wall Street Journal, we learn that those college kids would have done better to picket union headquarters.

Obama’s Great Leap Forward *UPDATED*

If you were wondering what Obama and the maniacal Democrats were doing, James Lewis finally puts a name to it.  It’s the Great Leap Forward:

Even the Europeans are resisting hyper-deficits, because Europe always has that memory of the 1920s and 30s: hyperinflation, unemployment, crushing poverty and despair, followed by Hitler and Stalin. They are refusing to follow Obama down that road. If the dollar crashes, they don’t want the euro to go down with it.

Super-deficits are bad for the country and for the world, but the Obamanites are sleep-walking, hypnotized by an idée fixe, and it’s unvarnished socialism. They expect the US to get to socialism in one great leap, guided by the Great One. If it takes even more of a crisis, with real suffering spreading nationwide, so be it. They are ready to see other people go down.

It took Western Europe five decades to get that far down the road to decadence, and they had the US military to protect them while they were doing it. As a result, even today they may not be able to produce a heavy lift military transport aircraft; that’s how much they have diverted their resources from self-defense to vote buying.

But Obama wants to do it, oh, about ten times as fast as Europe did, and steal the money from the Veterans Administration to boot. What Obama contemplates doing to the VA tells us everything we need to know about his plans for socialized medicine. He will take the money wherever he can steal it, whether the US government has made solemn commitments to care for wounded vets or not.

UPDATE: Showing the ability to hold two thoughts at the same time, Obama is not only a Maoist visionary, he’s an ordinary corrupt capitalist too.  (H/T:  Dr. Melissa Clouthier.)

Democrats in a nutshell

Mary Katharine Ham caught John Kerry finally admitting what Democrats fear most of all:  that people will take control over their own destinies, without the elite in government dictating how their hard earned money should be spent.  Perhaps if Kerry had ever held a real job and earned the money himself, he might have had a different attitude than the one she exposes:

Sen. John Kerry took to the Senate floor today to pace, rant, and raise his voice in a monotone simulation of human passion as he spoke up for the massive spending bill the Democrats want to pass today under the guise of “stimulus.”

During his speech, he addressed the argument made by fellow senators and many economists that tax cuts might be more helpful to stimulating the economy than long-term government spending. The American people are also coming around to that view, according to a recent CBS poll, which found only 22 percent of them favor more government spending over tax cuts as stimulus.

His argument against tax cuts for Americans during these hard economic times was illuminating:

I’ve supported many tax cuts over the years, and there are tax cuts in this proposal. But a tax cut is non-targeted.

If you put a tax cut into the hands of a business or family, there’s no guarantee that they’re going to invest that or invest it in America.

They’re free to go invest anywhere that they want if they choose to invest.

Indeed, people with their own hard-earned money in their own pockets are free to spend, save, invest, or not wherever they please. Kerry betrays the fear that haunts every good liberal— that the American people won’t spend their money on exactly what good liberals would spend it on. Good liberals must, therefore, advocate for forcibly relieving the American people of the better part of a trillion dollars of their own money to fund things like STD education, welfare programs, and water parks.

Senators like Kerry have placed their own ideological desires over the right of the American people to a clean stimulus bill without the long-term spending even Obama himself admits is in it.

You can read the rest of Ham’s scarily accurate post about Kerry and liberal elitism here.

Economic incest

I’m not an economist and I don’t even play one on TV.  I am a one-time history major, though, and someone with the kind of knowledge-base that’s built up over years of being an autodidact, an employee and a small business owner.  While I don’t understand economics at a complex level (I’m a lousy investor), I have a very good understanding of how currency developed, how credit developed, what purpose taxes serve, etc.  I’m also good at explaining complex ideas in fairly simple terms.

So, in simple terms, I’m going to explain government’s role regarding money, spending and taxes.  This is precisely the same lecture I gave my 6th and 4th graders, both of whom understood what I was saying.

In the old days — the really old days — there was no money.  Instead, there were goods.  You had wheat and wanted a cow.  I had a cow and wanted wheat.  We were a match made in heaven, trading our goods to fulfill our desires.

Problems arose, of course, when I wanted the wheat, which you had, but you wanted a chicken, not a cow.  Or perhaps you had wheat, but only a little, and certainly not worth an entire cow.

There was also a problem with mobility.  It’s simply not feasible to carry bushels of wheat with you wherever you go, unless you have a really big purse.  And cows are hard to lead into the pub in exchange for a nice pint o’ beer.  Not to mention the fact that you’d need a lot of pints to equal one cow.

Something better needed to come along.  And it did:  Gold.

Gold’s a great substance.  It’s beautiful, infinitely malleable; it blends well with other metals; it doesn’t degrade; it can be replenished, although the effort needed to replenish it ensures the rarity that’s necessary to its value as a trade-able commodity.  The only downside to gold is that it’s heavy.  Very, very heavy.  Get enough gold together, and you’ve got the weight of that cow — and, once again, your purse isn’t big enough, which is a subject I’ll revisit in a moment.

In all societies, some people, whether through trade or warfare, proved more adept at amassing wealth (whether wheat, cows or gold) than others did, and they assumed leadership positions.  Once in those positions, they tended to demand that those subordinate to them pay them protection money, which amounted to protection both from harassment by that same leader and from attacks launched by enemies outside of the kingdom.  Eventually, this protection racket got formalized as taxes.  The leadership also discovered that, in addition to protection services, there was a virtue in providing basic services within the kingdom, such as roads, minimal care for the very poor, etc.

But back to those grand clumps of heavy, heavy gold.  Someone eventually got the idea that, rather than have gold, it would be a good idea to have paper and coins of lightweight medal that stood in for the gold.  Credit was also a useful substitute for dragging around that cold, gold metal.  Of course, you couldn’t have just random sheets of paper or chunks of copper roaming around, because these money substitutes were useful only to the extent people believed them to be backed by the genuine gold article.  And the only way to ensure that people could trust this paper was to delegate to a single entity the task of guarding the real gold and issuing the substitute paper.  That entity was the government.

There are two important things to remember at this point:  First, this paper’s worth is always relative to the gold.  If the gold is finite, but you print more paper, the paper devalues.  In that latter scenario, where one piece of paper once represented enough gold to buy a gallon of milk, it now would take five pieces of paper to by the same gallon.

Second, and this is the really important thing, one must remember that, nowadays, unlike the feudal lord of old who went and out raped another country for its gold, today’s government doesn’t generate the gold; it just generates the paper.  Government doesn’t make wealth.  To the extent the government has wealth, it’s because it uses its police power to demand that we give it our wealth in the form of taxes.  The government hasn’t created anything. In today’s America, as in all modern economies, only the people create wealth.

I’m sure you’re all with me at this point, and you’re still bewildered by my post title:  “economic incest.”  That concept arises from the fact that, when government “creates” jobs and programs, the most it can do is to rob Peter to pay Paul.  Thus, if I, the government, give you a government job I, the government, in turn tax you to raise money to pay for that job.  The net result is that the money travels out of one government pocket and right back into the other.

For a brief while, when you first start shoveling this money into government funded programs, there’s a little pop into the economy as you, my little government employee, pay money for food, clothes, and shelter, etc.  However, your government job, because this is the nature of government jobs, doesn’t create new wealth.  It’s kind of busy work.  And having too many busy-work jobs means that the economy contracts.  There’s no innovation.  There’s no energy.  And the population, because it’s been sedated by the constant low flow of government funds, becomes passive, lazy and uncreative.

Aside from a torpid population, this cycle of paying people to do busy work so that they’ll have money to pay taxes back into the government creates the incest I mentioned earlier.  Keep in mind that, in terms of a biological population, incest occurs when there is no new genetic material.  If the same gene pool keeps recycling itself, it replicates errors, useful genes vanish, bad genes multiply, and you rather quickly end up with the Hapsburgs:  ugly and insane.

The same thing occurs within the closed circle of a completely government run economy.  It’s the same money cycling endlessly around.  No new money, no new ideas.  Instead, everyone constantly siphons off a little, government bureaucrats make mistakes that result in gold vanishing permanently, and corruption becomes the only way for those in the power seat to generate a little private wealth.  Incest in the economy results in the economic equivalent of the Hapsburgs — a North Korean style economy, where the only people not starving are the elite.

If you’re still with me at this point, you understand why socialism is so dangerous.  It weakens national wealth by endlessly cycling a constantly contracting money supply through the same government pockets, without the energetic infusions of true capitalism.

This actually isn’t a very complicated concept.  And yet our esteemed, Ivy League educated president, the one who has never really held down a job or fully entered the economy, doesn’t get it.  In his angry, uncontrolled speech to the House Democrats, Obama, after the school yard insults were over, had this to say:

So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? (Laughter and applause.) That’s the whole point. No, seriously. (Laughter.) That’s the point.

At Power Line, Paul eviscerates the ignorant inanity behind that statement:

Under this “logic,” any bill that contains spending should be enacted because, by definition, it provides “stimulus.” It doesn’t matter how much stimulus is provided or when the stimulus will occur. This is quite possibly the most irresponsible position ever taken by a president on an economic issue.

Just a few weeks ago, in his inauguration speech, Obama said that his touchstone for governmental action is how well it will work. Now the touchstone is whether it constitutes spending.

A highway project will “work” better, i.e., provide more stimulus, than a Pell grant. A program that spends money in six months (or one that provides tax relief even more quickly) will work better as a response to the recession than a program that will result in a government expenditure years down the road when the recession likely will be over.

Obama is correct that, given enough time, every spending program in the Democratic plan will result in putting money into the economy, and thus produce some degree of economic stimulus. The problem is that given enough time, every spending program in that plan will have to be paid for by taking money out of the economy. The result of taking money out of the economy is the opposite of stimulus.

When Obama got elected, all of us worried about the fact that a Marxist economist had entered the White House.  It may be worse than that.  With his statements about the necessity for spending just to spend, Obama may have gone one step beyond the foolishness of Marxist economics, and entered the realm of out and out stupidity.  Perhaps the next time he escapes the White House to spend time with elementary school children, he needs to sit down for a good elementary school level lecture about the nature of money, government, and initiative.

Cross-posted at Right Wing News

When economic self-interest and ideology part ways

The other day I was speaking with a man who commented that the proliferation of Obama bumperstickers on luxury cars (not to mention the fact that the very rich in blue communities had flocked to the Obama banner) comforted him that Obama would not destroy the US economy by trying to nationalize it.  After all, he said, one has to assume that all these people are voting for, not against, their own self-interests.  I don’t think he’s right.

The evidence for my belief that wealthy liberals have a death wish is Hollywood.  We’ve all noticed that an oft repeated pattern coming out of Hollywood.  First, Hollywood makes movies that assault the armed forces, that attack Republicans, that skew the president, and that celebrate evil people; second, these movies are dismal box office failures; and third, they keep bouncing up to make the same types of movies.  Economic interest would dictate that Hollywood stop producing these losers and focus on movies that make money — which, regardless of genre (romance, tear-jerker, adventure, etc.), tend to be somewhat patriotic and pro-military.  But, noooo.  The Hollywoodies’ ideological fervor propels them to keep churning out movies no one wants to see.

And so it is, I think, with the rich blue people.  At an ideological level, they’ve bought into Bush hatred, and they’ve drunk the Obama kool-aid.  As a result, they’ve become incapable of putting their self-interest first.

One can admire the rich blues for their altruism, but one certainly shouldn’t assume that, if they’re voting for Obama, they believe that he will oversee economic changes that will operate to their benefit, or to the benefit of those who would like to join the ranks of America’s rich.  Once ideology becomes strong enough, it apparently overwhelms the survival instinct.  (Witness the Islamist suicide bombers for the reductio ad absurdem of ideology overriding our innate life force.)

A little perspective

The worst may be yet to come, but before the panic reaches an altitude from which there is no recovery, keep the following in mind (with thanks to Mike Devx, who gave me the idea).

Re 1997, from Wikipedia:

In financial markets, Black Monday is the name given to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short period. The crash began in Hong Kong, spread west through international time zones to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average (DJIA) dropped by 508 points to 1739 (22.6%).[1] By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. New Zealand’s market was hit especially hard, falling about 60% from its 1987 peak, and taking several years to recover.[2] (The terms Black Monday and Black Tuesday are also applied to October 28 and 29, 1929, which occurred after Black Thursday on October 24, which started the Stock Market Crash of 1929. In Australia and New Zealand the 1987 crash is also referred to as Black Tuesday because of the timezone difference.)

The Black Monday decline was the largest one-day percentage decline in stock market history. Other large declines have occurred after periods of market closure, such as on Monday, September 17, 2001, the first day that the market was open following the September 11, 2001 attacks. (Saturday, December 12, 1914, is sometimes erroneously cited[3][4] as the largest one-day percentage decline of the DJIA. In reality, the ostensible decline of 24.39% was created retroactively by a redefinition of the DJIA in 1916.

Re the current market loss, from CNN money:

Stocks skidded Monday, with the Dow slumping nearly 778 points, in the biggest single-day point loss ever, after the House rejected the government’s $700 billion bank bailout plan.

Do you think the members of the media currently screaming for blood even have an understanding about the difference between point and percentage losses?

A few comments about the debate *UPDATED*

I’ve watched almost all of the debate, but it’s bedtime now, and I’ll have to save the rest for later.  Three comments:

1.  The first, the most obvious, and the most pressing question:  How many botoxes did they kill to create that abnormally smooth, completely motionless forehead Biden was sporting?  That was creepy.

2.  Was I the only who noticed that Biden speaks in the language of class warfare, while Palin talks of American exceptionalism?

3.  Regarding the debacle on Wall Street, I wish someone would explain clearly the difference between deregulation, and the issue of oversight, which would have prevented this from happening.

The problem on Wall Street wasn’t deregulation.  Instead, it was a problem of too much regulation — that is, the government started telling banks how to loan money.  The instructions required loans that went against banks’ financial interests, so banks started doing funny-money stuff to protect themselves — and they did so with Fannie’s and Freddie’s active participation.  That was the Democratic side.

None of this would have happened if there had been oversight.  Oversight doesn’t mean telling Wall Street what to do, it means policing Wall Street to make sure that, when it makes business decisions, it does so honestly.

Obama/Biden want to increase how much government dictates to Wall Street, and we’ve seen what a disaster that is.  McCain/Palin want to get government out of bossing Wall Street around, and get government to do its more natural and appropriate role of policing Wall Street.

Those two concepts are hugely different from each other but, because nobody’s articulating this difference, including McCain and Palin, Obama and Biden are getting away with conflating the terms, muddying the waters, and besmirching McCain’s reputation and foresight.

Overall, Biden smirked but didn’t gaffe; Palin was a little nervous, but hit the high points.

UPDATE:  I see I was not the only one to notice Biden’s forehead shield.

UPDATE II:  I’m sure you’ve already read what the top bloggers have to say.  Here are links to what some of my friends (some of whom are coincidentally pretty top bloggers themselves) have to say:

The Anchoress (who has wonderful links)

Lorie Byrd at Wizbang

Steve Schippert at Wizbang

Cheat-Seeking Missiles

Brutally Honest

Flopping Aces

If you think someone wrote a particularly good debate post, please feel free to link in the comments.

Should they act or shouldn’t they

Normally, I’m entirely on board with the theory that “that government is best which governs least.”  Normally, I fear last minute bail-outs, especially those from a Democratically-dominated Congress.

But the world economy is a different animal.  When thinking of it, it’s worth thinking also of Roosevelt’s warning that “the only thing we have to fear is fear itself.”  Markets are information-based.  Fear itself is sufficient to destroy a market.  I worry that, based on fear, if Congress doesn’t “look busy” quickly, world markets will collapse when Monday’s trading opens, starting an irreparable downward economic spiral.  Even if the plan is a lousy plan, and just expensive window dressing, it may have value if it staves off fear.

It’s all their fault

I’m no Sondheim fan, but he did get the psychology of blame down well in a song from Into The Woods that has the constant refrain “It’s all your/his/her fault.”  It’s human to assign blame.

Sometimes, though, assigning blame is easy, and with the current economic crisis, history shows us that the largest part of the blame lies with the Democrats, who acted en masse to block the type of reform McCain was urging.

First, here’s what McCain, back in May 2006, predicted would happen without oversight to control the Raines and Johnsons in charge (emphasis mine):

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

He had some crystal ball there, that John McCain, because it played out precisely as he feared it would.

And why was nothing done?  Well, a Bloomberg op-ed piece says that, despite the fact that the Democrats didn’t control Congress, it was still their monolothic voting block that destroyed any possibility of reform (h/t Gerry Charlotte Phelps).  First, here’s what happened:

The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street’s efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn’t make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

In other words, precisely as McCain said, Fannie and Freddie got too big and without any oversight at all.  Also, in keeping with Democratically driven policies, F&F were giving loans to every Tom, Dick and Harry, so that all Americans, without effort, could own homes.

As for the attempt to reform matters, there is no doubt that the Democrats drove that train (emphasis mine):

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn’t even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: “It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.”

Ironically enough, this whole scandal created the Democratic dream:  the government, in true socialist fashion, is now the vehicle for providing Americans with home ownership.  First, change the laws so that financial institutions start giving out ridiculous loans to obviously inappropriate borrowers.  Second, put your high level operatives in charge of the lender, and allow them to rape the system.  Third, resist any efforts to reform the system.  Fourth, when the system implodes, have the government buy every single piece of bad debt in the nation.  Voila — instant socialism, with massive government ownership of property.

The crisis explained in words of one or two syllables

You’ve got to love an economics video that uses ABBA for its background music.  You’ve also got to love an economics video that uses very simple language to show that Obama has been a very good friend to Fannie and Freddie, and they’ve loved him back, to the profound detriment of the American people:

Incidentally, I know people who were the beneficiaries of these types of loans.  They were good people, but they got in way over their heads financially.  When I queried why they were doing this, their response was, essentially, “Because we can.  If the bank is going to give us the money, why shouldn’t we take it?”

What I thought, but didn’t say, was” Well, you shouldn’t take it because, even if the bank is being stupid, you shouldn’t be.  It’s unlikely that you can service these loans, and you’re going to end up, at best, with a destroyed credit rating and, at worst, completely bankrupt.”  And indeed, the credit rating is gone, and bankruptcy is imminent.

As I said, my friends aren’t bad people.  They truly believed that, if the bank trusted them with the money, everything was going to be golden.  It didn’t occur to my friends that they had to apply some of their common sense and life experience to determining whether they were doing something wise.

I bet that scenario played out in hundreds of thousands of households across America.

H/t:  Danny Lemieux

Why do we pay taxes?

Governments tax people.  They always have.  A good question to ask, though, and one we haven’t seen asked lately is — what’s that money for?

The Founders had an idea about what taxes were for.  In the Constitution Art. I, Sec. 8, they spelled out the purpose behind taxes:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.

Since the concept of a welfare state lay decades in the future, when the Founders referred to “Welfare of the United States” they were contemplating infrastructure the would shore up America as a whole:  roads, bridges, water works, etc.  So, taxes were to pay for America’s defense, to pay America’s debts, and to keep a functioning infrastructure.

As time went by, the concept of Welfare expanded to become “welfare as we know it,” with the Government taking upon itself the responsibilities that used to lie with private charities.  There’s a certain logic to that, because charity can be spotty or, in times of severe economic distress, non-existent.

The one thing that taxes never were in America was socialist wealth distribution by which the Government casts of all pretenses that it simply needs money to manage its own responsibilities and instead demands that the rich give up their wealth simply because it’s unfair that they are wealthy.  Democrats might have thought that, but they were never stupid enough to stay that.

That is, that kind of honest stupidity has never been the case until now.  Joe Biden finally came out and said what Obama’s been hinting at for so long — if the Democrats control the White House and Congress, the primary purpose of federal taxes will be to take money away from the rich because they don’t deserve it:

Democratic vice presidential candidate Joe Biden says that paying higher taxes is the patriotic thing to do for wealthier Americans.

Biden says he and Democratic presidential candidate Barack Obama want to “take money and put it back in the pocket of middle-class people.”

As is so often the case with “Progressive” policies, this plan — to rob from the rich and give to the poor — is in fact profoundly regressive, harking back to an era in America that last officially existed in 1783 and before.  You see, this kind of wealth redistribution makes sense (assuming it makes sense at all) only in a class society that sees wealth locked into ancient aristocratic families, and that has no room for social and economic movement.

Think of France in the years leading to the French Revolution:  Fabulously wealth aristocrats and starving peasants, all locked into economic strata that had existed unchanged for centuries.  While it’s true that there was a middle class that saw some movement, the vast bulk of the population was either immovably starving or immovably rich.  Even worse — the rich didn’t pay taxes and the poor did.

America is so not like that.  With the exception of a very few families, today’s rich Americans aren’t people who are just living off of money that’s been locked in the family for centuries.  They’re not rich by accident of birth.  They’ve made money because they’ve worked hard, because they’ve shown initiative and, perhaps, because they been lucky.

Every single family in my neighborhood, and it’s a very comfortable neighborhood, comes from a family that was either poor when the grandparents were growing up or when the parents were growing up.  The doctors and lawyers and professors and realtors in this neighborhood come from homes in which their parents (or, at most, their grandparents) were immigrants or blue collar workers or bottom of the rung white collar workers.  Their parents (or grandparents) worked hard, some invested successfully, and all insisted that their children work hard in and out of school.  It’s those values and that work that created wealth.

Why in the world, then, should the government demand that the hardworking American rich be forced to give away that money for some Ailinsky/Ayers idea of fairness?  What kind of fairness is that?  It’s out and out theft, that’s what it is.  It’s antiquated socialist redistribution of wealth that has no place in America’s incredibly mobile society.

And mobile it’s always been, something you can see quite vividly if you go to one of my favorite museums in the whole world:  The Tenement Museum in New York.  This museum, in New York’s famous Lower East Side (an area once more crowded and squalid than Calcutta) gives you an insight into how America’s immigrants lived in the years between 1877 and 1932.  I can tell you how they lived in one world:  horribly.

Imagine an apartment about the size and shape of a school bus, only a little shorter, divided into three rooms, with only the front room having a window.  There is, of course, no air conditioning, but there’s also no electricity and running water comes from a hand pump in the kitchen (assuming the pump works). There are four of these apartments to the floor and, if you were lucky enough to move into the building as of the 1890s, there is a single toilet serving the whole floor.

At night, you live there with your family:  Mama, Papa, and five to seven (or maybe more) children.  Oh, and of course, the boarder, who provides that little bit of extra money you need to feed the family.  He’s so important, he sleeps in the back bedroom, all by himself.  The rest of you sleep on and under the kitchen table, on the stove top, and on chairs arrayed around the front room.

During the day, the young children go to school, because that’s how they’re going to make it in America.  The older children work.  But the apartment isn’t empty.  These apartments were used as sweatshops so that, in the stifling heat of a New York summer, you might have up to 14 people laboring to piece together clothing.  You can get some idea of what the scene was like by looking at Jacob Riis’ seminal book, How The Other Half Lives.  It all goes back to that single word I used before:  It was horrible.

But you want to know something interesting?  Because of census records, we know what happened to the families that lived in those tenements.  They didn’t stay there.  The children benefited from those educations, and they got solid blue collar jobs or, if they were smart, profitable white collar jobs.  And they moved out of the slums and into the suburbs.  They made it! (For two books telling about the ones who made it, I recommend either As Thousands Cheer : The Life of Irving Berlin or the out-of-print Everything But Money.)

This wasn’t inherited wealth.  This was money immigrants and their children earned because America’s free-flowing capitalistic system rewarded people with energy and initiative.  It still does, but Joe Biden and Barack Obama want to change that.  They want to punish people with energy and initiative, and take their money away in search of some elusive fairness — a “fairness” that even Obama concedes will destroy an already fragile economy.  Right about now, anybody who wants to is invited to tell me how it’s going to be fair to anyone to drive the American economy into the socialist ditch.

If anything, Joe Biden’s pronouncement about taxes is the most unpatriotic thing I’ve ever heard.  It runs entirely counter to the Constitution, it seeks to destroy people who have worked hard, and it constitutes a socialist taking on a mass scale never before expressly contemplated in America.

McCain’s version of “getting in their faces” *UPDATED*

At Iowa, McCain “gets in your face” mano a mano (that is, he doesn’t delegate his surrogates, but gives a speech to America, Obama included), and he focuses on the facts.  This is a very concrete speech, which appropriately boasts his virtues and clearly exposes Obama’s failings:

U.S. Senator John McCain will deliver the following remarks as prepared for delivery in Cedar Rapids, IA, today:

I’m happy to be introduced by Governor Palin, but I can’t wait until I introduce her to Washington. Let me offer an advance warning to the big spending, greedy, do nothing, me first, country second crowd in Washington and on Wall Street: change is coming.

We need reform in Washington and on Wall Street. The financial markets are in crisis. Times are tough. Enormous strain is being put on working families and individuals in America. I know that the events unfolding can be difficult to understand for many Americans. The dominos that we have seen fall this week began with the corruption and manipulation of our home loan system. The reason this crisis started was the abuses that took place within our home loan agencies, Fannie Mae and Freddie Mac and within our home loan system.

Two years ago I warned this Administration and Congress that regulations for our home loan agencies, Fannie Mae and Freddie Mac, needed to be fixed.

But nothing was done.

Senator Obama talks a tough game on the financial markets but the facts tell a different story. He took more money from Fannie and Freddie than any Senator but the Democratic chairman of the committee that regulates them. He put Fannie Mae’s CEO who helped create this disaster in charge of finding his Vice President. Fannie’s former General Counsel is a senior advisor to his campaign. Whose side do you think he is on? When I pushed legislation to reform Fannie Mae and Freddie Mac, Senator Obama was silent. He didn’t lift a hand to avert this crisis. While the leaders of Fannie and Freddie were lining the pockets of his campaign, they were sowing the seeds of the financial crisis we see today and enriching themselves with millions of dollars in payments. That’s not change, that’s what’s broken in Washington.

There was no transparency into the books of Wall Street banks. Banks and brokers took on huge amounts of debt and they hid the riskiest investments. Mismanagement and greed became the operating standard while regulators were asleep at the switch.

The primary regulator of Wall Street, the Securities and Exchange Commission (SEC) kept in place trading rules that let speculators and hedge funds turn our markets into a casino. They allowed naked short selling — which simply means that you can sell stock without ever owning it. They eliminated last year the uptick rule that has protected investors for 70 years. Speculators pounded the shares of even good companies into the ground.

The Chairman of the SEC serves at the appointment of the President and has betrayed the public’s trust. If I were President today, I would fire him.

We cannot wait any longer for more failures in our financial system. Structures like the resolution trust corporation that dealt with the failed savings and loan industry were designed to clean up the system and worked. Today we need a plan that doesn’t wait until the system fails. I am calling for the creation of the mortgage and financial institutions trust — the MFI. The priorities of this trust will be to work with the private sector and regulators to identify institutions that are weak and take remedies to strengthen them before they become insolvent. For troubled institutions this will provide an orderly process through which to identify bad loans and eventually sell them.

This will get the treasury and other financial regulatory authorities in a proactive position instead of reacting in a crisis mode to one situation after the other. The MFI will enhance investor and market confidence, benefit sound financial institutions, assist troubled institutions and protect our financial system, while minimizing taxpayer exposure. Tomorrow I will be talking in greater detail about the crisis facing our markets and what I will do as President to fix this crisis and get our economy moving again.

Senator Obama has never made the kind tough reform we need today. His idea of reform is what his party leaders in Congress order him to do. We tried for bipartisan ethics reform and he walked away from it because his bosses didn’t want real change. I know how to make the change that Senator Obama and this Congress is afraid of. I’ve fought both parties to shake up up Washington and I’m going to do it as President.

Those same Congressional leaders who give Senator Obama his marching orders are now saying that this mess isn’t their fault and they aren’t going to take any action on this crisis until after the election. Senator Obama’s own advisers are saying that crisis will benefit him politically. My friends, that is the kind of me-first, country-second politics that are broken in Washington. My opponent sees an economic crisis as a political opportunity instead of a time to lead. Senator Obama isn’t change, he’s part of the problem with Washington.

When AIG was bailed out, I didn’t like it, but I understood it needed to be done to protect hard working Americans with insurance policies and annuities. Senator Obama didn’t take a position. On the biggest issue of the day, he didn’t know what to think. He may not realize it, but you don’t get to vote present as President of the United States.

While Senator Obama and Congressional leaders don’t know what to think about the current crisis, we know what their plans are for the economy. Today Senator Obama’s running mate said that raising taxes is patriotic. Raising taxes in a tough economy isn’t patriotic. It’s not a badge of honor. It’s just dumb policy. The billions in tax increases that Senator Obama is proposing would kill even more jobs during tough economic times. I’m not going to let that happen.

I have seen tough times before. I know how to shake-up Wall Street and Washington. I will get this economy moving. I will lead us through this crisis by fighting for you, and when I am President we will be stronger than ever before.

UPDATE: McCain’s there. Congress is not. For a good analysis of the Democrat Congress’ pusillanimous conduct with regard to the current economic situation, please go here. The only saving grace in their show of cowardice is that, given their political/economic views, it’s probably better for the economy if they run away.

Obama’s economics

Suitably Flip is remarkably brilliant in analyzing Barack Obama’s first response to the economic problems plaguing Wall Street right now.  Go here and get good red ink visuals showing that Obama’s grasp of this problem is about as strong as his grasp of the Russia/Georgia situation was in the first instance.

Beneath the gobbledy-gook, an implied concession about taxes *UPDATED*

Wow!  Unless I’m very confused, beneath all the O-babble here, Obama is conceding that low taxes benefit the economy:

Democrat Barack Obama says he would delay rescinding President Bush’s tax cuts on wealthy Americans if he becomes the next president and the economy is in a recession, suggesting such an increase would further hurt the economy.

Nevertheless, Obama has no plans to extend the Bush tax cuts beyond their expiration date, as Republican John McCain advocates. Instead, Obama wants to push for his promised tax cuts for the middle class, he said in a broadcast interview aired Sunday.

“Even if we’re still in a recession, I’m going to go through with my tax cuts,” Obama said. “That’s my priority.”

What about increasing taxes on the wealthy?

“I think we’ve got to take a look and see where the economy is. I mean, the economy is weak right now,” Obama said on “This Week” on ABC. “The news with Freddie Mac and Fannie Mae, I think, along with the unemployment numbers, indicates that we’re fragile.”

In other words, while Obama shies desperately away from simple declarative sentences, what he’s saying is that his taxes have nothing to do with economic strength.  If they did, nothing would prevent his immediately rescinding the Bush tax cuts so that his Obamonomics could help “grow the economy.”  Instead, he’s conceding that tax increases are economically damaging, since they could, if enacted, harm an already fragile economy.

Still, Obama remains committed to making those who pay the most taxes pay even more taxes.  Let’s put that in other words too:  raising taxes has nothing to do with the economy under the Obama plan and everything to do with wealth redistribution.  Under the blathering, under the equivocation, under the confusion generated by the vague words, Obama is stating “This is socialism.  Taxes are not about paying for the government, a cost that should be kept to a reasonable minimum so that Americans can manage their own money and keep the money growing.  They are about punishing the rich, and redistributing wealth in America under the government aegis.”

UPDATE: I wanted to point out that I didn’t misconstrue how the AP reported the above story.  The New York Times sums Obama’s words up in he same way:

On ABC’s “This Week,” Mr. Obama said the United States economic condition is “fragile” and pledged that if elected he would push ahead with his plan to provide tax relief to the middle class. But he said he would consider delaying any tax increases to wealthy Americans — by rescinding President Bush’s tax cuts — for fear of its damaging impact on the economy.

Again, this can only be understood as a concession increasing taxes damages an economy. The corollary, of course, is that leaving taxes low, or even lowering them, is probably goo for the economy. With the further corollary that any effort on Obama’s part to raise taxes on “the rich” is punitive in nature and has nothing to do with the economy.

UPDATE II: Here’s the link to the interview on “This Week.”

UPDATE III: I’m not the only one who understood that Obama was conceding that tax hikes weaken an economy.  Ed Morrisey (aka the Captain) caught that too.

Greed is good

When I was at Berkeley, I had only a few decent professors.  One of them (who was really wonderful) taught a British history class covering the period from 1760 to WWII.  He taught us that the Industrial Revolution, though it started in England, petered out.  It lacked the ferocity and longevity that characterized the American version of that same Revolution.

The professor’s explanation for this phenomenon was the class system. Since British workers could not raise themselves out of their class — since they could not live in the fancier neighborhoods or wear the “upper class” clothes — their acquisitiveness quickly maxed out.  Getting together a small nest egg, making sure the roof didn’t leak, having enough food, and being able to go to the pub for a pint were their goals, and those goals were fairly quickly satisfied.  With the vast majority of citizens neither buying nor striving to buy, the pure capitalism of America, which allows people to work and acquire to their heart’s content, just never kicked in.

Certainly when I moved to England some time later, my own observations bore out this same principle, and that was despite the fact that I lived there in the 1980s, not the 1880s.  Working class kids didn’t want champagne, they wanted fake orange drink.  They didn’t want fine leather shoes, they wanted punk boots.  They didn’t want to travel the world, they wanted to binge at the pub.  Their tastes remained simple, so they had little need to work hard or invest or to be innovative.  Add to that the fact that the Government readily provided enough funds for these limited tastes, and you had complete stagnation.

I’m waffling on about this point because of a wonderful batch of paragraphs in an IBD editorial taking apart Obama’s Marxist economic views:

In arguing for a heavier mix of government, he assumes that capitalism unfairly favors the rich, almost exclusively so, and fails to spread prosperity.

“The rich in America have little to complain about,” he carps. “The distribution of wealth is skewed, and levels of inequality are now higher than at any time since the Gilded Age.”

Obama cites data showing a yawning gap between the income of the average worker and the wealthiest 1%. He thinks it’s government’s job to step in and close it — “for purposes of fairness” — by soaking the rich, among other leftist nostrums.

“Between 1971 and 2001,” he complains, “while the median wage and salary income of the average worker showed literally no gain, the income of the top hundredth of a percent went up almost 500%.”

But such a snapshot comparison would be meaningful only if America were a caste society, in which the people making up one income group remained static over time.

Of course that’s not the case. The composition of the rich and poor in this country is in constant flux, as the income distribution changes dramatically over relatively short periods. Few are “stuck” in poverty, or have a “lock” on wealth.

As I see it, aside from being fundamentally wrong, Marxism, to the extent it has a smidgen of rightness in it, applies only to Europe and other stratified societies.  It has absolutely no place in the social fluidity that is America.  I guess this rather obvious point is one more reason explaining why Obama’s European junket was so well received abroad, but left him with fewer fans at home.

Economics for idiots

Lawrence Lindsey explains in language even a numerophobe can understand precisely why Obama’s Social Security proposal isn’t just mean-spirted, pandering and illogical, but is also disastrous for the American economy:

Although the formula connecting benefits to tax payments or “contributions” has evolved slightly over time, it still adheres to this basic message. Today, what Social Security terms a “low-wage” worker will pay (in present value terms) $77,197 over his or her lifetime and get $112,261 in benefits. A median-wage worker earning $42,000 will pay $171,550 and get back $187,085. A “high-wage” worker making $67,000 will pay $274,480 and get back $245,085.

Under the current formula, lower-wage workers get a slightly better deal than do higher-wage workers, assuming the same life expectancy. But the principle remains that as workers’ wages rise so do the taxes they pay, and so do the benefits they will get from the system.

Sen. Obama would do away with this principle by requiring higher-end workers to pay taxes without getting any extra benefits linked to their higher contributions. This would be a big step toward turning Social Security from a contributory pension scheme into just another welfare program.

The economics of what Sen. Obama is proposing should be at least as troubling. A high-income entrepreneur would see his or her federal marginal tax rate rise to 53% from 37.7% under Sen. Obama’s tax plan. He proposes a 4.6 percentage point hike in the personal income tax rate, a loss of some itemized deductions, and a 12.4 percentage point hike in the Social Security payroll tax. This would take a successful entrepreneur’s effective marginal tax rate higher than what it was under Jimmy Carter or Richard Nixon, when the maximum tax on an entrepreneur was 50%.

One of the lessons from the disastrous economics of the 1970s and the subsequent Reagan tax cuts is that everyone – particularly entrepreneurs – responds to incentives. If you take away 10% of a high earner’s after-tax income at the margin, he will cut his taxable income by at least 4%. At the margin, this taxpayer now takes home 62.3% of his earnings, a figure that will drop to 47% under the Obama plan. According to a widely accepted economics rule of thumb, the entrepreneur’s taxable profit would drop by 11.2%.

And that’s not all.  Read the rest here.