Democrats didn't get the message. Will Republicans do better?
By PEGGY NOONAN
Much has happened in the dense and shifting political landscape of the past 18 months—the quick breakdown along partisan lines in Congress; continuing arguments over spending, the economy and immigration; the big Republican wins in Virginia, New Jersey and Massachusetts; the Gulf oil spill; falling poll numbers for the president and his party.
But the biggest political moment, the one that carried the deepest implications, came exactly one year ago, in July and August of 2009, in the town hall rebellion. Looking back, that was a turning point in both parties' fortunes. That is when the first resistance to Washington's plans on health care became manifest, and it's when a more generalized resistance rose and spread.
President Obama and his party in Congress had, during their first months in power, done the one thing they could not afford to do politically, and that was arouse and unite their opposition. The conservative movement and Republican Party had been left fractured and broken by the end of the Bush years. Now, suddenly, they had something to fight against together. Social conservatives hated the social provisions, liberty-minded conservatives the state control, economic conservatives the spending. Health care brought them together. The center, which had gone for Mr. Obama in 2008, joined them.
Neither the Republicans nor the Democrats saw it coming. But it was a seminal moment, and whatever is coming in November, it started there.
It was a largely self-generated uprising, and it was marked, wherever it happened, in San Diego or St. Louis, by certain common elements. The visiting senator or representative, gone home to visit the voters, always seemed shocked at the size of the audience and the depth of his constituents' anger. There was usually a voter making a videotape in the back of the hall. There were almost always spirited speeches from voters. There was never, or not once that I saw, a strong and informed response from the congressman. In one way it was like the Iranian revolution: Most people got the earliest and fullest reports of what was happening on the Internet, through YouTube. Voters would take shaky videos on their cellphones and post them when they got home. Suddenly, over a matter of weeks, you could type in "town hall" and you'd get hundreds, and finally thousands, of choices.
The politicians, every one of them, seemed taken aback—shaken and unprepared. They tried various strategies—mollify the crowd, or try to explain to them how complex governing is. Sen. Arlen Specter tried that in early August 2009, in an appearance with Health and Human Services Secretary Kathleen Sebelius. Faced with fierce criticism of the health-care bill as it then stood, Mr. Specter explained that see here, it's a thousand-page bill and sometimes Congress must make judgements "very fast." The crowd exploded in jeers.
When Rep. Russ Carnahan held a town hall meeting at a community college in Missouri on July 20, he tried patiently to explain that ObamaCare not only would be deficit-neutral, it would save money. They didn't shout him down, they laughed. When Sen. Claire McCaskill appeared before a town hall meeting in Jefferson County, Mo., on Aug. 11, she responded to the crowd with words that sum up the moment: "I don't get it. . . . I honestly don't get it. . . . You don't trust me?" "No!" the crowd roared.
When Rep. Brian Baird went before his constituents in Clark County, Wash., on Aug. 18, he was met by this speech from a young man in the audience: "I heard you say that you are going to let us keep our health insurance. Well thank you! It's not your right to decide whether I keep my current plan or not, that's my decision." The constituent got cheers.
It was a real pushback, and it was fueled by indignation. The attitude was: "We have terrible worries—unemployment, the cost of government, its demands, our ability to compete and win in the world. You are focused on your thing, but we are focused on these things."
The videos, still on YouTube, can be pretty stirring. There's a real "Mr. Smith Goes to Washington" feel about them. It was not only Democrats but Republicans too who felt the heat, and were surprised by it.
The president, of course, got his victory on health care. But a funny thing is, normally the press and the public judge a president's effectiveness in large part by legislative victories—whether he has "the ability to get his program through Congress." Winning brings winning, which increases popularity. Mr. Obama won on more than health care; he won on the stimulus package and the Detroit bailout. And yet his poll numbers continue to float downward. He is not more loved with victory. To an unusual and maybe unprecedented degree his victories seem like victories for him, and for his party, and for his agenda, but they haven't settled in as broad triumphs that illustrate power and competence.
In the past an LBJ showed his mastery by taming and controlling Congress. Mr. Obama's ability to work closely with the Democrats does not seem like evidence of mastery. The biggest single phrase you hear about him now, and it isn't coming from pundits and being repeated, it is bubbling up from normal people and being seized by pundits, is the idea that he is in over his head, and out of his depth. And this while he keeps winning.
Nor is the left happy with him. In The Nation this week, Eric Alterman writes that most progressives agree "the Obama presidency has been a big disappointment." No public option on health care, and labor unions, "among his most fervent and dedicated foot soldiers," see card check as "deader than Jimmy Hoffa." Is it possible the president "fooled gullible progressives during the election into believing he was a left-liberal partisan when in fact he is much closer to a conservative corporate shill"? Progressives, including two Mr. Alterman knows "who sport Nobel Prizes on their shelves" now feel this way.
Meanwhile some Republicans are feeling triumphalist, but it may be premature. At the moment they are beating up Republican National Committee chairman Michael Steele for his comments on Afghanistan. What was wrong with what Mr. Steele said was obvious: Afghanistan was not Mr. Obama's war of choice but a nine-year-old war the president has so far continued. But Afghanistan, like Iraq, is the meal he was served, not the meal he chose.
Far worse than Mr. Steele's muddling of the facts is that he spoke in a way that suggested the war could be used as a political tool against the administration. He was approaching a grave matter—war—in a merely partisan and political manner. How cheap and hackish.
The Republicans still need to show that they are worthy of the electoral bounty that is likely to come their way. Are they ready to govern, or only to win? Part of being worthy is showing yourself capable of having serious and truly open debate. What, in the post-9/11 world, should be our overarching foreign policy? What is it we're trying to accomplish? How should we try to get it done? What is the way out of our economic disaster? What must we do, how must we do it?
It's hard for those who do politics as a profession not to get lost in the day-to-day, but if they don't start thinking big and encouraging debate, they're going to blow it, too. And they'll find out at a town hall meeting in 2013. Or earlier.
Volatility has returned to markets, driven by events within the US and from abroad.
The heightened focus on re-regulating the financial system has prompted many investors to become more risk averse. This, in addition to sovereign debt issues in Greece and other eurozone countries and the Gulf of Mexico oil crisis, has put tremendous pressure on the US equity market, with the decline from the high points reached in April now exceeding 10%.
Focus on re-regulation is prompting risk aversion
Our portfolios are well positioned for a market being driven by fundamentals. However, the main drivers appear to be macro concerns and risk aversion. This environment has proved challenging and difficult for value investors, but we remain confident this will be for the short term. We remain convinced our price/intrinsic model will continue to deliver outperformance for clients over the long term in varied market conditions.
On a stock-specific standpoint, some of the main detractors from short-term performance are those where we still maintain a high degree of conviction. Examples include Covidien, Exelon and Baker Hughes, which was particularly affected by the expectation of stricter guidelines on offshore drilling, following the BP oil spill.
We are not only long only but also long/short investors.
On the short side of our portfolios, two of the largest detractors from performance have been Netflix and Akamai Technologies. Netflix’s principal activity is to provide an online movie rental service. While we believe Netflix will continue to increase cashflows through continued subscriber and revenue growth, we believe the current valuation implies greater growth potential than our own expectations. We also believe competitors, Time Warner and Comcast, have more efficient long-term delivery mechanisms for on-demand viewing. With Akamai, we expect increasing competition from Level3 Communications, Limelight Networks, Verisign and Google will limit the company’s growth potential.
On the long side, our positioning in utilities hurt performance. Exelon and First Energy both lagged the market during the downturn and modest recovery. However, the market is not providing sufficient credit to either company for the competitive advantage their nuclear capacity provides.
Tom Digenan is manager of the UBS US Equity and UBS US 130/30 Equity funds
Shipping Our Economy, Our Jobs And Our Prosperity To China
As the U.S. economy continues to implode, large American corporations are investing billions upon billions of dollars in China. But all of this investment comes at a price. Over the past several decades, hundreds of factories and manufacturing facilities that would have been constructed in the United States, along with millions of decent paying jobs, have ended up going to China instead where labor is so much cheaper. In the process, China has become a massive economic powerhouse, while once thriving manufacturing cities in the United States such as Detroit are now rusted-out corpses. In fact, China's economy has grown so rapidly that it is being projected that in 2010 China will replace Japan as the world's second-largest economy. Not only that, but China has already overtaken Germany and is now the biggest exporter of goods in the entire world. But none of this growth in communist China would have been possible without all of the globalism and free trade that U.S. politicians from both parties have been pushing on us for the last 40 years. When they were selling us on the benefits of "free trade" they didn't tell us that we would end up shipping our economy, our jobs and our prosperity over to China.
American consumers never seemed to be able to put two and two together. As we were busy running out and filling up our shopping carts with cheap plastic crap made in China, we didn't seem to realize that a "global economy" meant that we would be competing for jobs and wages with workers on the other side of the world.
So now the U.S. economy, with its high wages and repressive government regulations, is suffering while China's economy is thriving.
So just how much money are U.S. corporations pouring into China?
Well, according to the U.S.-China Business Council, U.S. corporations combined for $3.6 billion in direct foreign investment in China in 2009. That was substantially up from $2.9 billion in 2008.
As U.S. companies pour increasingly large amounts of money into China, the economies of the U.S. and China are becoming inextricably linked.
In fact, some of the biggest "American" success stories are now manufactured in China.
For example, have you purchased an Apple iPhone? Well, if you have, there is a really good chance that it was made in China. Of course what Apple doesn't tell you is that ten workers at the facility in China where the iPhone is manufactured have committed suicide in the past year by jumping off buildings at the factory. Perhaps they were depressed over their low pay - the workers at the factory work very long hours but make less than 300 hundred dollars a month.
How would you like to work for 300 dollars a month?
But things could be even worse.
Reuters recently described the ordeal of one Chinese worker who spends at least eight hours a day standing on an assembly line putting together locks for Honda cars....
"Each year is the same. It makes me sick in the stomach. There's no freshness to things anymore," he said of his job which pays around 30 yuan (US$5) per day.
How in the world can American workers be expected to compete with someone who makes 5 dollars a day?
But some Chinese workers toil in even more difficult conditions. According to the Toronto Star, employees at the Pingdingshan Cotton Textile Company work grueling two day shifts and yet only make 65 cents an hour.
These low wages have enabled big global corporations to make huge profits, and they have helped provide lots of low price products for American consumers, but in the process they are cannibalizing U.S. jobs, factories and businesses.
In fact, it is getting quite hard to find things that are made in the United States anymore. Even many of the "organic foods" that you are buying at organic food stores are now actually made in China.
As tens of millions of American workers sit at home collecting unemployment checks, U.S. companies are busy making plans to invest billions more in China.
According to Pacific Epoch, a China-focused research firm based in Shanghai, Pepsi "has committed $1 billion over the next four years to build 14 new beverage production plants, in a move that will almost double its production capacity in the country."
Couldn't we use a few of those beverage production plants in the United States?
But who wants to pay U.S. workers 12 dollars an hour when they can pay Chinese workers 2 dollars an hour?
But Pepsi is far from alone. Forbes recently detailed the massive investments that some of the major car companies are making in China....
General Motors and Volkswagen have invested billions in China, starting more than a decade ago. Ford is rushing to catch up by adding production capacity and expanding its dealer network in China. Ford and its joint-venture partner, Chang'an Ford Mazda Automobile, plan to start producing next-generation Ford Focus models at a new, $490 million plant in Chongqing in 2012.
Meanwhile, once thriving American manufacturing cities such as Detroit and Flint, Michigan are so dilapidated and run down that they literally look like war zones.
But it is not just U.S. companies that are investing in China. According to China's Ministry of Commerce, overall direct foreign investment in China rose 14 percent to approximately $39 billion in the first five months of 2010. Nearly half of that money was spent on building or expanding factories.
The implications of all this are staggering.
First of all, nobody can deny any longer that China has become a superpower. China now has one of the largest economies in the world, their military has been dramatically upgraded and modernized and they have developed a network of economic and diplomatic contacts around the globe that would have been unthinkable 20 or 30 years ago.
Meanwhile, the United States has an economy that is imploding, a reputation that has been deeply tarnished and a debt that is the largest in the history of the world.
In fact, China owns about a trillion dollars of U.S. government debt.
Yes, the United States is falling and China is rising.
So now that China's economy and manufacturing base has been built up so dramatically, what happens when someday the communist Chinese government decides that it doesn't want to be such great friends with the United States anymore?
If relations between the two nations really go south someday, could U.S. corporations suddenly lose the billions upon billions that they have poured into China?
Also, many Chinese military strategists believe that it is inevitable that there will be a war between the United States and China someday. So could China end up using all of the technology and manufacturing capacity that they have gained at our expense against us someday?
The truth is that all of the money and technology that we have poured into China could end up being one of the greatest national security blunders of all time.
China is not a democracy. The Communist Party runs China, and most of their leaders still believe in the ultimate worldwide triumph of communism.
So in the end the United States may look back and realize how incredibly stupid it was to build up communist China at the expense of our own economy.
But this is the world our leaders have built for us. A world where globalism and "free trade" force us to compete for jobs against sweatshop laborers around the globe.
The reality is that this "new world" is not very good at all for the American middle class. The economic realities of the 21st century are very cruel for Americans who are seeking to live a middle class lifestyle.
Gradually, everyone in the world is being pushed into two economic groups. The massive global corporations that dominate everyone and everything, and the worldwide mass of expendable labor that serves those global corporations.
It is this kind of "neo-feudalism" that we must avoid at all costs. If the American people would just wake up this trend towards increasing globalism could be reversed.
But will they wake up?
If you watch any mainstream news program these days, it is almost a certainty that someone will mention the word "recession" before a half hour passes. In fact, it seems like almost everyone is either predicting that we are going into a recession, or they are warning of the need to avoid a recession or they are proclaiming that we are still in a recession. So will the U.S. economy once again be in recession in 2010? When you consider all the signs that are pointing that way, the evidence is compelling. The truth is that there is bad economic news wherever you turn. There is bad news in the housing industry. There is bad news in the financial markets. There is bad news in the banking system. There is bad news coming out of Europe. There are even signs that the bubble in China may be about to burst. Plus, the economic impact of the Gulf of Mexico oil spill could end up being the straw (or the gigantic concrete slab) that really breaks the camel's back. So there are certainly a lot of pieces of news that "gloom and doom" economists can hang their hats on these days. There is a very dark mood in world financial markets right now, and it seems like almost everyone is waiting for the other shoe to drop. But does all of this really mean that we are looking at the start of another recession before the end of 2010?
The truth is that nobody really knows. Things certainly look very ominous out there. The dark clouds are gathering and the economic winds are starting to blow in a bad direction. The following are 24 pieces of evidence that do seem to indicate that very difficult economic times are imminent....
-U.S. Treasury yields have dropped to stunning new lows. So why are they so low? Well, it is because so many investors are anticipating that we are headed into a deflationary period. In fact, many economists are warning that the fact that Treasury yields are so low is one of the clearest signs that economic trouble is ahead.
-The Conference Board's Consumer Confidence Index declined sharply to 52.9 in June. Most economists had expected that the figure for June would be somewhere around 62. If consumers aren't confident they won't be spending money. If American consumers don't start spending money soon a lot of American retailers are going to go belly up.
-The M3 money supply plunged at a 9.6 percent annual rate during the first quarter of 2010. If the M3 keeps declining at that kind of a rate it is going to put extreme deflationary pressure on the U.S. economy.
-Many economists are now warning that the "China investment bubble" is about to burst. In fact, Kenneth Rogoff, Harvard University professor and former chief economist of the International Monetary Fund, claims that China’s property market is beginning a "collapse" that will send a shockwave across the globe. One prominent economist that specializes in China is even forecasting that property prices in major Chinese cities are likely to soon experience a drop of up to 30 percent.
-Nouriel Roubini is warning that Europe's economy could stop growing as soon as this year. Back in 2007 and 2008, the U.S. was the epicenter of the financial crisis, but many analysts believe that it will be Europe this time around.
-Vacancies and lease rates at U.S. shopping centers continued to get worse during the second quarter of 2010. If things don't pick up soon will we see half empty shopping malls by the time Christmas rolls around?
-CBS News is reporting that the oil spill in the Gulf of Mexico is hurting businesses "from coast to coast". The longer this oil spill goes on the bigger of an impact it is going to have. The cost to the American economy from this disaster could ultimately be in the trillions.
-Some analysts are warning that if BP goes under as a result of the Gulf of Mexico oil spill that it could cause the total collapse of the worldwide derivatives market and unleash a liquidity crisis unlike anything the world financial system has ever seen.
-The state of Illinois has stopped paying most of its bills and yet the flood of red ink continues to get even worse. Illinois now ranks eighth in the world in possible bond-holder default. That is even worse than California.
-Speaking of California, the Schwarzenegger administration has won an appellate court ruling saying it has the authority to impose the federal minimum wage of $7.25 an hour on more than 200,000 state workers as California wrestles with its latest budget crisis.
-Things are so bad at the state level in the U.S. that economist Mark Zandi is projecting that up to 400,000 workers could lose their jobs in the next year as states, counties and cities struggle with lower tax revenues and significantly reduced federal funding.
-Two Federal Reserve officials recently said that U.S. unemployment is likely to stay high for a long time. Normally Fed officials are some of the biggest cheerleaders for the economy. If they are not optimistic about the employment situation that is a very bad sign.
-Analysts are warning that the "death cross" is coming. The Standard & Poor's 500 50-day moving average is about to cross beneath the 200-day moving average, and many economists say that this is a very strong indication that a new recession is about to begin.
-One prominent trader says that the Dow Jones Industrial Average is repeating a pattern that appeared just before financial markets collapsed during the Great Depression.
-Ambrose Evans-Pritchard, one of the most respected financial columnists in the world, really raised eyebrows recently when he declared that this "really is starting to feel like 1932".
-In the month of May, sales of new homes in the United States dropped to the lowest level on record.
-The National Association of Realtors recently announced that its seasonally adjusted index of sales agreements for previously occupied homes dropped 30 percent in May.
-It is being reported that sales of foreclosed homes in Florida made up nearly 40 percent of all home purchases in the state during the first part of 2010.
-Politicians across Europe have pledged to dramatically cut their national budgets, and many economists are warning that such a dramatic pullback in public sector spending could cause a very significant slowdown of the European economy.
-Banks in the U.K. are being instructed to hoard cash in preparation for the next financial crisis.
-One recent poll found that 76 percent of Americans believe that the U.S. economy is actually still in a recession.
-The average duration of unemployment in the United States has risen to an all-time high. Millions of unemployed Americans are fighting off deep despair and depression as they find it nearly impossible to find a decent job.
-Small and mid-size banks across the United States are failing at a rapidly accelerating pace. The truth is that the entire U.S. banking system is teetering on the brink of disaster.
-At this point just about everyone can see the writing on the wall. Literally dozens of top economists and world leaders are declaring that we are likely to enter the second leg of a "double-dip recession" at some point over the next twelve months.
So yes, things are really, really bad.
Those who want to forecast a coming recession don't have to look too far for data that will back them up.
There is actually one prominent economist who says that it is virtually impossible that the United States will experience a recession in the next six months.
Goldman Sachs economist Andrew Tilton says that there is "no way in hell" that the U.S. economy is going into a recession. To be more precise, Tilton says that there is a 1.6% chance that the U.S. economy will be in a recession six months from now.
So according to Tilton, there is a 98.4% chance (and he has computer models that supposedly back him up) that the U.S. economy will be growing when we reach the end of the year.
So what is actually going to happen?
The truth is that so many of these economists are so caught up in what is happening in the short-term that they are missing the bigger picture.
The bigger picture is that the U.S. economy is more over-leveraged than it ever has been before, and we are caught in a debt spiral that is basically impossible to unwind.
So in the final analysis it really doesn't matter if we are "officially" in a recession by the end of 2010 or not. The truth is that the United States is headed for a devastating long-term economic collapse and there isn't much that anyone can do to change that reality at this point.
Obama threatens to follow in FDR's economic missteps
By Amity Shlaes
With unemployment high and the Dow Jones industrial average bumping about, the big debate this summer is how to prevent a double-dip recession resembling that of the late 1930s. Some say Washington should spend more, arguing that government austerity triggered the collapse in 1937 that erased previous gains. Others say that cutting spending now will strengthen the economy generally and preclude dramatic downturns.
President Obama may be about to repeat Franklin D. Roosevelt's mistakes -- but not the ones captured in this narrow discussion.
By fixating on the debt and stimulus plans, Obama and Congress are overlooking challenges to the economy from taxes, employment and the entrepreneurial environment. President Roosevelt's great error was to ignore such factors -- and the result was that sickening double dip.
Taxation is an obvious area the Obama administration ought to reconsider. Income taxes, the dividend tax and capital gains taxes are all set to rise as the Bush tax cuts expire. The Obama administration portrays these increases as necessary for budgetary and social reasons. A society in which the wealthy pay their share, the message goes, has a stronger economy. The administration and congressional Democrats are also striving to ensure that businesses pony up. The carried-interest provision in the tax extender bill seeks to raise rates on gains by private equity and hedge funds. If that were not enough, a so-called enterprise value tax would be levied on partnerships that sought to elude the new high taxes by selling their companies.
Roosevelt, too, pursued the dual purposes of revenue and social good. In 1935 he signed legislation known as the "soak the rich" law. FDR, more radical than Obama in his class hostility, spoke explicitly of the need for "very high taxes." Roosevelt's tax trap was the undistributed-profits tax, which hit businesses that chose not to disgorge their cash as dividends or wages. The idea was to goad companies into action.
The outcome was not what the New Dealers envisioned. Horrified by what they perceived as an existential threat, businesses stopped buying equipment and postponed expansion. They hired lawyers to find ways around the undistributed-profits tax. In May 1938, after months of unemployment rates in the high teens, the Democratic Congress cut back the detested tax. That bill became law without the president's signature.
Then there is labor policy. Obama announced this year that the federal government would award contracts to firms with more generous pay and benefit packages. With its support of private- and public-sector unions -- recall its treatment of the automakers' unions in the 2009 bailout -- the administration generally wants wages or compensation to be high.
Roosevelt's flamboyant pursuit of a similar goal cost the economy dearly. The National Industrial Recovery Act and, later, the Wagner Act gave workers the power to demand higher wages. They got them. But employers struck back, choosing not to hire or rehiring many fewer workers than they otherwise might have. In the later 1930s, the divide deepened between those with jobs and the unemployed. Economists Harold Cole and Lee Ohanian wrote in the Journal of Political Economy that the politically driven wage increases were the most important factor in the double-digit unemployment of the later 1930s. A popular Gershwin song of the period, "Nice Work If You Can Get It," captured the bitterness.
What about the third factor, the entrepreneurial environment? The Obama administration places a premium on action. When it comes to spending, the idea seems to be that any spending is better than none. Big new laws -- financial reform -- are put forward to inspire confidence.
But change that is too arbitrary and too frequent petrifies firms, especially before their rules have been tested in the courts. As Verizon Communications chief executive Ivan Seidenberg noted recently in a Business Roundtable speech: "By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses."
This analysis echoes those of Depression-era entrepreneurs. In 1938 Lammot du Pont, head of the eponymous chemical concern, spoke of a "fog of uncertainty" slowing business and noted in the company's annual report that arbitrary government always slowed business down: "by land and sea the universal practice under conditions of fog is to slacken speed."
What about the old spend-or-save debate? The evidence suggests that easier money did indeed help end this second slump. But a larger factor was Roosevelt's decision to stop attacking business and turn to foreign policy. When Republicans made gains in the 1938 midterms, it became clear that the New Deal era of mega-intervention was ending.
It is that backtracking of the later '30s that is relevant to recovery today.
Amity Shlaes is a senior fellow in economic history at the Council on Foreign Relations and author of "The Forgotten Man: A New History of the Great Depression."
The Obama-Pelosi Lame Duck Strategy
Union 'card-check,' cap and trade, and so much more.
Democratic House members are so worried about the fall elections they're leaving Washington on July 30, a full week earlier than normal—and they won't return until mid-September. Members gulped when National Journal's Charlie Cook, the Beltway's leading political handicapper, predicted last month "the House is gone," meaning a GOP takeover. He thinks Democrats will hold the Senate, but with a significantly reduced majority.
The rush to recess gives Democrats little time to pass any major laws. That's why there have been signs in recent weeks that party leaders are planning an ambitious, lame-duck session to muscle through bills in December they don't want to defend before November. Retiring or defeated members of Congress would then be able to vote for sweeping legislation without any fear of voter retaliation.
"I've got lots of things I want to do" in a lame duck, Sen. Jay Rockefeller (D., W. Va.) told reporters in mid June. North Dakota's Kent Conrad, chairman of the Senate Budget Committee, wants a lame-duck session to act on the recommendations of President Obama's deficit commission, which is due to report on Dec. 1. "It could be a huge deal," he told Roll Call last month. "We could get the country on a sound long-term fiscal path." By which he undoubtedly means new taxes in exchange for extending some, but not all, of the Bush-era tax reductions that will expire at the end of the year.
In the House, Arizona Rep. Raul Grijalva, co-chairman of the Congressional Progressive Caucus, told reporters last month that for bills like "card check"—the measure to curb secret-ballot union elections—"the lame duck would be the last chance, quite honestly, for the foreseeable future."
Iowa Sen. Tom Harkin, chair of the Senate committee overseeing labor issues, told the Bill Press radio show in June that "to those who think [card check] is dead, I say think again." He told Mr. Press "we're still trying to maneuver" a way to pass some parts of the bill before the next Congress is sworn in.
Other lame-duck possibilities? Senate ratification of the New Start nuclear treaty, a federally mandated universal voter registration system to override state laws, and a budget resolution to lock in increased agency spending.
Then there is pork. A Senate aide told me that "some of the biggest porkers on both sides of the aisle are leaving office this year, and a lame-duck session would be their last hurrah for spending." Likely suspects include key members of the Senate Appropriations Committee, Congress's "favor factory," such as Pennsylvania Democrat Arlen Specter and Utah Republican Bob Bennett.
Conservative groups such as FreedomWorks are alarmed at the potential damage, and they are demanding that everyone in Congress pledge not to take up substantive legislation in a post-election session. "Members of Congress are supposed to represent their constituents, not override them like sore losers in a lame-duck session," Rep. Tom Price, head of the Republican Study Committee, told me.
It's been almost 30 years since anything remotely contentious was handled in a lame-duck session, but that doesn't faze Democrats who have jammed through ObamaCare and are determined to bring the financial system under greater federal control.
Mike Allen of Politico.com reports one reason President Obama failed to mention climate change legislation during his recent, Oval Office speech on the Gulf oil spill was that he wants to pass a modest energy bill this summer, then add carbon taxes or regulations in a conference committee with the House, most likely during a lame-duck session. The result would be a climate bill vastly more ambitious, and costly for American consumers and taxpayers, than moderate "Blue Dogs" in the House would support on the campaign trail. "We have a lot of wiggle room in conference," a House Democratic aide told the trade publication Environment & Energy Daily last month.
Many Democrats insist there will be no dramatic lame-duck agenda. But a few months ago they also insisted the extraordinary maneuvers used to pass health care wouldn't be used. Desperate times may be seen as calling for desperate measures, and this November the election results may well make Democrats desperate.
Dan Balz of the Washington Post has written an article on President Obama’s dismal standing among independents (it stands at 38 percent approval according to Gallup, an 18-point difference from a year ago). Balz quotes both Republican and Democratic strategists in searching for the reason for this perilous polling condition: high unemployment, an unpopular health-care law, bigger government, a liberal governing agenda, lack of bipartisanship, and the inability to change the culture of Washington. And then we find this:
White House senior adviser David Axelrod said that the criticism of Obama as a big-spending liberal grows out of decisions the president felt he had to make to prevent a depression. “We were forced to do things from the start to deal with this economic crisis that helped create a false narrative about spending and deficits that’s had some impact on independent voters,” Axelrod said. “And that’s something we have to work on.”
Ah, yes, there’s that darn False Narrative again.
According to the True Narrative, Obama the Great acted with wisdom and courage to forestall another Great Depression. The charges of profligate spending have been manufactured out of thin air. The stimulus package has been a spectacular success. ObamaCare will bend the cost curve down. The economy is doing swimmingly. The outreach to the Muslim world has led to unprecedented breakthroughs. Nation after nation — Iran, Turkey, Russia, China, Brazil, Venezuela — are bending to Obama’s will. And all the problems America faces — from nearly 10 percent unemployment to polarization to acne among teens — are owing to Obama’s predecessor.
Yet because the Forces of Darkness so thoroughly and completely control the media and dominate the messaging wars — because Republicans have such fantastic spokesmen as RNC Chairman Michael Steele and Democrats have no bully pulpits available to them — Obama has become massively unpopular among independents. The White House, you see, has a message problem, but no other. Once they get their message out better, Obama will once again stride atop the political world.
Within the walls of the White House, it seems, Barack Obama is still viewed by people like Mr. Axelrod as a near-mythical figure. To much of the rest of the nation, he appears to be presiding over a failing presidency. If Obama and his top advisers persist in their self-delusion — which is unusual even for those working in a profession (politics) prone to self-delusion — they and their party are going to face, sooner or later, a brutal awakening.
Economy in U.S. to Cool as Consumers Spend Less, Survey Shows
By Bob Willis and Kristy Scheuble
July 9 (Bloomberg) -- Economists trimmed their U.S. growth forecasts through the middle of next year, though not enough to show the recovery is in danger of faltering.
Growth in the world’s largest economy will average 2.8 percent from the current quarter through the second quarter of 2011, according to the median estimate of 52 economists surveyed by Bloomberg News from July 1 to July 8, down 0.1 percentage point from last month.
While recent housing, manufacturing and employment figures suggested the U.S. economy is more vulnerable, the survey shows the recovery will survive the effects of Europe’s debt crisis and China’s efforts to slow growth. With few signs of inflation, the Federal Reserve will wait longer than previously anticipated before raising interest rates.
“It’s not a falling-off-the-cliff scenario but it is a bit more cautious,” said Julia Coronado, a senior U.S. economist at BNP Paribas in New York. “There is going to be fallout from the European situation.”
Economists reduced their forecasts for consumer spending for this year as companies are slower to hire after the worst recession in seven decades.
Spending will average 2.4 percent this year, down from a 2.5 percent forecast a month ago. That compares with last year’s decline of 0.6 percent, the biggest decrease since 1974, and a three-decade average of 3.1 percent.
Economists marked down this year’s average growth pace to 3.1 percent, with the expansion cooling to an average 2.9 percent in 2011.
Unemployment will be slow to fall after reaching a 26-year peak of 10.1 percent in October, signaling it will take years for the economy to recover the more than 8 million jobs lost during the latest recession.
“Some of the momentum that looked to be in the job market has faded,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.
The jobless rate will average 9.6 percent in 2010 before falling to 9.1 percent in 2011.
The Labor Department reported last week that employment dropped by 125,000 workers in June, the first decline this year, because of layoffs of temporary census workers. Private companies added 83,000 people, a smaller-than-forecast gain that capped a month of data indicating weakness in industries from housing to manufacturing.
Wells Fargo Cuts
Companies are still firing staff to cut costs. Wells Fargo & Co., the fourth-largest U.S. bank by assets, plans to eliminate 3,800 jobs, or about 1.4 percent of its workforce, and close its consumer-finance branch network, the San Francisco- based company said this week.
“We have a store network, and that is closing,” David Kvamme, president of the unit, said in a phone interview. Also, “some of the businesses have been branded Wells Fargo Financial and we will rebrand them over time.”
The Standard & Poor’s 500 Index has fallen 12 percent from a 19-month high on April 23, while the euro has dropped 5 percent as investors worry that some cash-strapped European nations may default on their debt.
A July 1 report from the Institute for Supply Management showed manufacturing, which has been leading the recovery, expanded in June at the slowest pace this year as orders and exports cooled.
The number of contracts to purchase previously owned houses plunged 30 percent in May after a homebuyer tax credit expired, the National Association of Realtors said the same day. The drop was the biggest in records dating to 2001.
“The deceleration we’re seeing is being magnified by the fact that the policy incentives have pulled demand forward and now we’re suffering from the hangover,” said Steve Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York.
Job creation, the sluggish recovery and the growing budget deficit are likely to be top issues in November elections that will decide control of Congress.
“Government doesn’t have all the answers,” President Barack Obama said yesterday after touring the Smith Electric Vehicles factory in Kansas City, Missouri, where he highlighted a $32 million government grant to the plant. “What government can do is lay the foundation for small businesses to expand and thrive.”
A strengthening dollar and slower growth in Europe and China threaten demand for American exports. Goldman Sachs Group Inc. last week cut its forecast for 2010 growth in China to 10.1 percent from 11.4 percent as government restrictions on lending and real estate slow expansion in the world’s fastest-growing major economy.
The Fed last month said slowing inflation and the fallout from Europe’s debt crisis were among reasons it will maintain interest rates close to zero for “an extended period.”
The central bank’s preferred price gauge will rise 1.1 percent this year, the smallest gain in data going back to 1960 and the same as last month’s forecast in the Bloomberg survey.
Economists pushed back their forecast for the first rise in the fed funds target rate. The benchmark interest rate on overnight loans between banks will rise to 0.75 percent in the second quarter of 2011. Last month, they projected the first increase, to 0.5 percent, to occur in the January-to-March period. The rate has been in a range of zero to 0.25 percent since December 2008.
U.S. Stocks Rise, Sending S&P 500 to Best Week Since July 2009
By Rita Nazareth
July 9 (Bloomberg) -- U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the biggest weekly gain in a year, amid optimism about earnings reports and a rally in metals that drove up shares of its producers.
Alcoa Inc., the first Dow Jones Industrial Average company to post second-quarter results July 12, rose 2.1 percent. Bank of America Corp. and JPMorgan Chase & Co., which also report quarterly numbers next week, jumped more than 1.6 percent. Google Inc. rallied 2.4 percent as China renewed its Internet license, while rival Baidu Inc. slid 1.7 percent.
The S&P 500 rose 0.7 percent to 1,077.96 at 4 p.m. in New York, giving it a 5.4 percent rally in a week shortened by Monday’s Independence Day holiday. The Dow gained 59.04 points, or 0.6 percent, to 10,198.03. Both gauges had the biggest weekly rally since July 17. Fewer than 6.7 billion shares traded on U.S. exchanges today, the lowest volume of the year.
“Stocks have more room to go,” said E. William Stone, who oversees $104 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “We took the elevator to the ground floor. Hopefully, we can ride this back up with some brighter news on the earnings front. While there are questions about a slowdown and corporate outlooks, we believe we’re not in a double dip.”
Stocks advanced after a 16 percent retreat on the S&P 500 between April 23, which it reached a 19-month high, and July 2. The rally this week was spurred by higher-than-forecast sales at some retailers and a drop in jobless claims.
Profits for S&P 500 companies are projected to have increased 34 percent in the April-June period and by the same amount in 2010, according to analysts’ estimates compiled by Bloomberg. Corporate profits may grow 25 percent in the third quarter, the slowest pace of the year. Per-share earnings rose 52 percent from January through March.
“Investors are in a wait-and-see mode,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, which oversees $693 billion. “People are looking for data to show that we’re not having a double dip. Second-quarter earnings will come in much higher than expected. However, investors are looking for corporate outlooks. Investors are trying to gauge if the recent rally is for real.”
Alcoa may announce earnings of 11 cents a share, according to the average analyst estimate in a Bloomberg survey. That compares with a loss of 26 cents in the same period a year ago.
The largest U.S. aluminum producer rose 2.1 percent to $10.94, helping to lead raw-materials companies to the biggest gain among 10 S&P 500 industries. Gold rose the most in three weeks on speculation that the lowest prices since May will revive demand. Copper, silver also rallied.
Newmont Mining Corp., the largest U.S. gold producer, climbed 2.6 percent to $61.93. Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, jumped 4.5 percent to $65.98.
Monsanto Co., the world’s largest seed company, had the biggest gain in the S&P 500, rising 7.3 percent to $51.21.
Financial stocks had the second-biggest gain in the S&P 500 among 10 industries, rising 1.6 percent.
Trading of bullish options on U.S. banks and brokers rose to a two-month high before three of the five biggest financial companies report results next week.
More than 287,000 calls to buy the Financial Select Sector SPDR Fund, an exchange-traded fund tracking 79 firms, changed hands, triple the four-week average and double the number of puts to sell. The ETF climbed 1.4 percent to $14.51, its highest close since June 25. The ETF’s most-active options were July $15 calls, which doubled to 9 cents and accounted for more than half of call volume.
JPMorgan Chase, which reports results July 15, rose 1.8 percent to $38.85. Bank of America gained 1.7 percent to $15.11, while Citigroup Inc. advanced 1.8 percent to $4.04. Both report second-quarter results on July 16. Profits at S&P 500 financial firms are estimated to increase 81 percent in the three-month period ending June 30 from a year earlier, according to analysts’ estimates compiled by Bloomberg.
Google climbed 2.4 percent to $467.49. The owner of the world’s largest Web search engine said the Chinese government renewed its Internet license, after the company submitted a revised application to meet regulations in the world’s biggest market by users.
Rival Baidu slid 1.7 percent to $71.20.
Visa Inc. gained 3.1 percent to $77.38. The world’s biggest payments network was added to the “Americas Conviction Buy” list at Goldman Sachs Group Inc.
Research In Motion Ltd. surged 7.8 percent to $53.33. The maker of the BlackBerry smartphone plans to start an applications store and consumer Internet services in China, according to Reuters.
The benchmark index for U.S. stock options fell for a sixth day, the longest losing streak since March. The VIX, as the Chicago Board Options Exchange Volatility Index is known, dropped 2.8 percent to 24.98. The index, which measures the cost of using options as insurance against declines in the S&P 500, is down from this year’s closing high of 45.79 on May 20.
Russian Oligarchs Weigh Succession as ‘Bears’ Prowl for Fortune
By Yuriy Humber and Maria Kolesnikova
July 9 (Bloomberg) -- For Alexander Lebedev, hardly a week goes by without a call from a crooked security-services agent or cop angling for a chunk of his $3.4 billion fortune. It’s not a lifestyle he wishes for his son, Evgeny.
“Business in our country is like wrestling with bears,” Lebedev said in an interview with Bloomberg Businessweek for its July 12 issue. “I’m not sure you’d want to pass that on to your son -- would you?”
At 50, Lebedev is already pondering a dilemma that will confront the entrepreneurs and industrialists who amassed riches in the early years of post-communist Russia: What will become of their billions -- sometimes acquired through unorthodox means -- and how should they plan their successions?
By 2020, the average age of the nation’s top 50 businessmen will exceed 60. While the wealthy may outlive the average male lifespan of 62, the transfer of assets to the next generation is a pressing issue in a country where property rights can’t be guaranteed and corruption ranks on par with Cambodia, Venezuela and Sierra Leone, according to Berlin-based watchdog Transparency International.
“There is almost no such thing as private property in Russia,” said Stanislav Belkovsky, a former Kremlin adviser who now heads the National Strategy Institute, a Moscow-based think tank. “It’s no harder for the authorities to fire an owner than it is an employee.”
Lavrik Sells Out
That was apparent in the fallout from a 2007 coal-mining accident in Siberia that killed more than 100 people, prompting the regional governor to insist on an ownership change. Georgy Lavrik, the pit’s general director, who had inherited the asset from his father a year earlier, sold his 40 percent stake.
Russia ranks 143rd out of 179 countries in the 2010 Index of Economic Freedom, with protection of private property “weak” and the judicial system “corrupt,” according to the Washington- based Heritage Foundation.
“The easiest asset to transfer to children will be cash in accounts outside of Russia, such as in Swiss banks, and property,” Lebedev said in his Moscow office. An ex-KGB agent who worked in London as the Soviet Embassy’s economic attache, Lebedev owns a house near Hampton Court Palace outside the city, a 13th-century castle in Italy, a French chateau and the Swiss Chateau Guetsch, with its own funicular and luxury restaurant.
Other billionaires are exploring a variety of options for transferring their wealth. Telecom magnate Vladimir Yevtushenkov has primed his son and daughter by giving them executive roles, while Vladimir Potanin has pledged his fortune to charity, including a stake in Russia’s biggest mining company.
With the potential fragmentation of some of the country’s biggest companies as owners account for numerous heirs, corporate stability may increase as business units become better focused, according to a report by UBS AG.
Even so, not all the oligarchs’ children, often sent abroad for their education, will be equipped with the political clout of their parents and some, such as the younger Lebedev, show little interest in returning to Russia to take the helm.
“The heirs may not want to be the hamster in the wheel,” said his father, whose Russian assets include about 19 percent of airline OAO Aeroflot and 26 percent of aircraft leasing company Ilyushin Finance Co.
Alexander sponsors his 30-year-old son’s investments in Europe, which include London’s Sake No Hana restaurant and Wintle fashion house. A graduate of the London School of Economics, Evgeny also runs London’s Evening Standard and Independent newspapers, which his father bought for 1 pound each. Evgeny’s representative said he had no time to comment for this article.
“The new generation has more freedom,” said Anton Zingarevich, the 28-year-old son of entrepreneur Boris Zingarevich, who with partners sold 50 percent of Russia’s biggest paper producer Ilim Pulp Enterprise Ltd. to International Paper in 2006. “We also have more opportunities; the trick is using them.”
Shunning the paper industry, Anton chose to join his father’s Ener1 Inc., a New York-based maker of lithium-ion batteries for electric cars, calling the company more “revolutionary and interesting.”
Most of Russia’s top businessmen prioritize international experience and overseas education for their kids, with 80 percent of children getting schooled both in Russia and abroad, according to UBS, which polled 25 businesspeople.
That experience may bode well for Russia Inc., according to Ruben Vardanian, chairman of investment bank Troika Dialog. If the oligarchs’ children can avoid family strife and meddling from the Kremlin or corporate competitors, they may be better prepared to run businesses than their fathers were when they acquired them, he said.
“Russian companies will become more global and the children will be CEOs of global companies,” Vardanian said. “They will be more ready for M&A, for control of a global company.”
Stocks, Oil Rise on Economy; Canadian Dollar Gains on Jobs
By Michael P. Regan and Stephen Kirkland
July 9 (Bloomberg) -- Stocks rose, with the MSCI World Index completing its biggest weekly rally in a year, and copper and oil gained on waning concern the global recovery will falter. Canada’s currency surged 0.8 percent versus the dollar after the nation’s jobs growth topped forecasts.
The MSCI gauge of 24 developed nations climbed 0.6 percent and the Standard & Poor’s 500 Index increased 0.7 percent to 1,077.94 at 4 p.m. in New York, with both extending their advances this week to more than 5 percent. Copper increased to an almost two-week high in New York. Ten-year Treasury yields climbed two basis points to 3.05 percent to cap the biggest weekly gain since April.
The S&P 500 rallied this week amid optimism that second- quarter earnings will justify the index’s rebound from a 10- month low on July 2. Profits at companies in the index are projected to have increased 34 percent in the April-June period, led by income growth at financial, energy and technology companies. French manufacturing grew in May, spurred by improving global trade and a pickup in output at car plants.
This week’s rally in stocks “buttressed our belief that the damage has been contained and that the recent reversal of fortune is poised to continue,” Richard Ross, global technical strategist at Auerbach Grayson & Co. in New York, said in a note to clients.
Alcoa Inc., the largest U.S. aluminum maker, is due to report earnings next week, the first company in the Dow Jones Industrial Average to announce results for the second quarter. Commodity, financial and consumer companies led gains in the S&P 500 today among 10 groups. Caterpillar Inc., Travelers Cos., Alcoa and Chevron Corp. climbed at least 2 percent to lead the Dow to its highest close since June 23.
Google Inc. rallied 2.4 percent to $467.49. The owner of the world’s largest Web search engine said the Chinese government renewed its Internet license, after the company submitted a revised application to meet regulations in the world’s biggest market by users.
Treasury 10-year notes had the biggest weekly decline since April as concern eased that the U.S. is slipping back into recession and the government prepared to sell $69 billion of notes and bonds.
The benchmark 10-year yield touched the highest level in almost two weeks after rising yesterday above 3 percent for the first time this month as stocks rallied. The U.S. will auction $35 billion of three-year notes on July 12, $21 billion of 10- year debt the following day and $13 billion of 30-year bonds on July 14.
Canada’s currency, known as the loonie, strengthened 0.8 percent to C$1.0335 per dollar and touched the strongest level since June 23. Canada’s job creation was almost five times more than economists expected in June, restoring most of the country’s job losses since 2008 and bolstering the case for the central bank to raise interest rates for a second month. Canadian employment rose by 93,200 in June, following gains of 24,700 in May and April’s record 108,700, Statistics Canada said today in Ottawa.
The Stoxx Europe 600 Index rallied for a fourth day, climbing 0.6 percent to bring its weekly rally to 5.4 percent. Commodity producers led the advance, with Rio Tinto Group climbing 3.2 percent in London. Copper producer Antofagasta Plc surged 4.1 percent after Citigroup Inc. recommended buying the shares.
Copper rose 1.3 percent to $3.0535 a pound in New York and 2.2 percent to $6,760 a metric ton on the London Metal Exchange. Crude oil for August delivery climbed 0.9 percent to $76.08 a barrel.
Gold rose the most in three weeks on speculation that the lowest prices since May will revive demand for the precious metal. Gold futures for August delivery rose $13.70, or 1.1 percent, to $1,209.80 on the Comex in New York, the biggest gain since June 17. On July 7, the metal touched $1,185, the lowest level for the most-active contract since May 24.
The MSCI Emerging Markets Index climbed 1.2 percent today and 4.2 percent on the week, the biggest weekly advance of the year. China’s Poly Real Estate Co. led gains by developers after the Oriental Morning Post reported some Shanghai banks have resumed lending to third-home buyers.
South Korea’s won jumped 0.9 percent versus the dollar after the Bank of Korea unexpectedly raised its benchmark interest rate.
Emerging-market stocks will rally as much as 25 percent by the end of the year as the global economy avoids a “double dip” recession and attractive valuations lure investors, Citigroup Inc.’s New York-based strategist Geoffrey Dennis wrote in a research report dated yesterday.
A benchmark indicator of corporate credit risk in the U.S. fell for a sixth day amid expectations that European stress tests may reveal the extent of bank holdings of sovereign debt, providing clarity to investors.
Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 0.8 basis point to a mid-price of 112.5 basis points as of 11:57 a.m. in New York, according to index administrator Markit Group Ltd. Earlier, the gauge fell as much as 2.2 basis points.
US: Where Best To Be Poor – by Walter Williams
Imagine you are an unborn spirit whom God has condemned to a life of poverty but has permitted to choose the nation in which to live. I’m betting that most any such condemned unborn spirit would choose the United States. Why? What has historically been defined as poverty, nationally or internationally, no longer exists in the U.S. Let’s look at it.
According to the U.S. Department of Health and Human Services, the 2009 poverty guideline was $22,000 for an urban four-person family. In 2009, having income less than that, 15 percent or 40 million Americans were classified as poor, but there’s something unique about those “poor” people not seen anywhere else in the world. Robert Rector, researcher at the Heritage Foundation, presents data collected from several government sources in a report titled “How Poor Are America’s Poor? Examining the ‘Plague’ of Poverty in America” (8/27/2007):
– Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage and a porch or patio.
– Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
– Only 6 percent of poor households are overcrowded; two-thirds have more than two rooms per person.
– The typical poor American has more living space than the average individual living in Paris, London, Vienna, Athens and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
– Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
– Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
– Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
– Eighty-nine percent own microwave ovens, more than half have a stereo, and a more than a third have an automatic dishwasher.
What’s defined as poverty is misleading in another way. Official poverty measures count just family’s cash income. It ignores additional sources of support such as the earned-income tax credit, which is a cash rebate to low-income workers; it ignores Medicaid, housing allowances, food stamps and other federal and local government subsidies to the poor. According to a report by American Enterprise Institute scholar Nicholas Eberstadt, titled “Poor Statistics,” “In 2006, according to the annual Bureau of Labor Statistics Consumer Expenditure Survey, reported purchases by the poorest fifth of American households were more than twice as high as reported incomes.” That additional money might represent earnings from unreported employment, illegal activities and unreported financial assistance. A proper measure of well-being is what a person consumes rather than his income. A huge gap has emerged between income and consumption at lower income levels.
Material poverty can be measured relatively or absolutely. An absolute measure would consist of some minimum quantity of goods and services deemed adequate for a baseline level of survival. Achieving that level means that poverty has been eliminated. However, if poverty is defined as, say, the lowest one-fifth of the income distribution, it is impossible to eliminate poverty. Everyone’s income could double, triple and quadruple, but there will always be the lowest one-fifth.
Yesterday’s material poverty is all but gone. In all too many cases, it has been replaced by a more debilitating kind of poverty — behavioral poverty or poverty of the spirit. This kind of poverty refers to conduct and values that prevent the development of healthy families, work ethic and self-sufficiency. The absence of these values virtually guarantees pathological lifestyles that include: drug and alcohol addiction, crime, violence, incarceration, illegitimacy, single-parent households, dependency and erosion of work ethic. Poverty of the spirit is a direct result of the perverse incentives created by some of our efforts to address material poverty.
* Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of More Liberty Means Less Government: Our Founders Knew This Well.