Death of a SalesmanA slew of new polls suggest Obama is not a great pitchman for his policies.
On Thursday, the president will travel to Holland, Mich., to tout investments created by the Recovery Act. Several other administration officials, including the vice president, will hit the road, too. These periodic jaunts are part of "Recovery Summer," a months-long enterprise that, like the summer trips everyone else takes, will be punctuated by a single question: "Are we there yet?"
Economists may say, yes, the economy is recovering (maybe), but the country says no. Only 25 percent say the economy is improving, according to a recent CBS survey. That's just one of the dark findings for the administration in a slew of recent polls that suggest that the administration's summer tour will do little to improve the president's political fortunes and those of his party.
Three polls that came out in the last two days offer discouraging news for the White House. In the Washington Post/ABC News poll, public confidence in the president has hit a new low. Six in 10 voters say they lack faith in the president. In a CBS News poll, 54 percent of the country disapprove of his handling of the economy, the highest number to date. In a Pew Research Center/National Journal poll, the number of Americans who approve of the president's health care legislation, the signature achievement of his presidency so far, sits at an anemic 35 percent.
When politicians are confronted with bad poll numbers, they often say that these surveys are just a "snapshot in time." That can be true. Fortunes can change. Doom is not locked in. But what's so bad about these surveys is that they paint a very dark picture about the president's ability to brighten the future. If Obama can't improve things for Democrats, no one can. And as bad as the president's numbers are, the Democrats in Congress are in even worse shape.
Candidate Obama used to joke about rays of sunshine coming in when he started to speak. Now he brings the clouds. He's spent a great deal of time talking about the Recovery Act and health care reform, but the political fortunes of those programs are dismal, which suggests his ability to persuade and change minds is seriously damaged.
He has been trying to sell the success of his stimulus legislation for months in speeches, interviews, and events all over the country. In the CBS poll, only 23 percent think it has helped the economy. Only 13 percent think it has helped them personally. Despite all of his efforts, people are either ignoring him or tuning him out—or they can't hear him over the bad economic news. Whatever the reason, the best argument Obama has for how he and Democrats have addressed the issue people care the most about is one that people aren't buying.
The situation on health care is worse. There have been some signs that public opinion about health care was improving a little, but the Pew and CBS polls offer a darker outlook. Forty-nine percent disapprove of the new legislation, according to the CBS poll, and only 36 percent approve. Pew has nearly identical numbers.
This is not the way the president said things would turn out last March in a stirring speech he gave to Democrats on the eve of the House health care vote: "I am actually confident that it will end up being the smart thing to do politically because I believe that good policy is good politics. … Betsy [Markey] is in a tough district. The biggest newspaper is somewhat conservative, as Betsy described. They weren't real happy with health care reform. They were opposed to it. Betsy, despite the pressure, announced that she was in favor of this bill. And lo and behold, the next day that same newspaper runs an editorial saying, you know what, we've considered this, we've looked at the legislation, and we actually are pleased that Congresswoman Markey is supporting the legislation."
The president has worked hard to improve the political fortunes of health care, but it hasn't worked. He might not want to try anymore. It's not just that he's ineffective. In the CBS poll, the only issue Obama was faulted for spending too much time on was health care. If he spends more time trying to convince people of the merits of health care (which only 6 percent told CBS was the country's most important problem), he risks being criticized for not spending enough time on the economy, which 39 percent of the country think is the most important problem. Fifty-two percent already think he's not spending enough time addressing economic problems.
The best news for the president and Democrats is that 62 percent of those polled say that Congress should extend unemployment benefits. Republicans have blocked legislation that would do so and the president has gone after them for it. The White House also takes comfort in the fact that the country has an even lower opinion of Republicans in Congress than they do of the president. Still, 51 percent of the country tell the Washington Post that they'll vote for a Republican to put a brake on Obama policies, and those who say they are most likely to vote in the November elections say they prefer the GOP over Democratic rule by 56 percent to 41 percent. If that sentiment continues, the White House will have a bummer summer followed by a terrible fall.
By John Stossel
Something's happened to America, and it isn't good. It's become easier to get into trouble. We've become a nation of a million rules. Not the kind of bottom-up rules that people generate through voluntary associations. Those are fine. I mean imposed, top-down rules formed in the brains of meddling bureaucrats who think they know better than we how to manage our lives.
Cross them, and we are in trouble.
The National Marine Fishery Service (NMFS) received an anonymous fax that a seafood shipment to Alabama from David McNab contained "undersized lobster tails" and was improperly packed in clear plastic bags, rather than the cardboard boxes allegedly required under Honduran law. When the $4 million shipment arrived, NMFS agents seized it. McNab served eight years in prison, even though the Honduran government informed the court that the regulation requiring cardboard boxes had been repealed.
How about this one? Four kindergartners -- yes, 5-year-old boys -- played cops and robbers at Wilson Elementary in New Jersey. One yelled: "Boom! I have a bazooka, and I want to shoot you." He did not, of course, have a bazooka. Nevertheless, all four boys were suspended from school for three days for "making threats," a violation of their school district's zero-tolerance policy. School Principal Georgia Baumann said, "We cannot take any of these statements in a light manner." District Superintendent William Bauer said: "This is a no-tolerance policy. We're very firm on weapons and threats."
Give me a break.
Here's another: Ansche Hedgepeth, 12, committed this heinous crime: She left school in Washington, D.C., entered a Metrorail station to head home and ate a French fry. An undercover officer arrested her, confiscating her jacket, backpack and shoelaces. She was handcuffed and taken to the Juvenile Processing Center. Only after three hours in custody was the 12-year-old released into her mother's custody. The chief of Metro Transit Police said: "We really do believe in zero-tolerance. Anyone taken into custody has to be handcuffed for officer safety." She was sentenced to community service and now carries an arrest record. Washington's Metro has since rescinded its zero-tolerance policy.
Keith John Sampson, a student-employee at Indiana-Purdue University Indianapolis, had the temerity to read "Notre Dame Versus the Klan: How the Fighting Irish Defeated the Ku Klux Klan" during breaks on the job. One student complained because the book's cover depicted the Klan. The university then found Sampson guilty of racial harassment! Thankfully, a great organization, the Foundation for Individual Rights in Education (FIRE), came to his defense and got his school record cleared.
Palo Alto, Calif., ordered Kay Leibrand, a grandmother, to lower her carefully trimmed hedges. Leibrand argued that no one's vision was obstructed and asked the code officer to take a look. He refused. Then the city dispatched two police officers. They arrested her, loaded her into a patrol car in front of her neighbors and hauled her down to the station.
In 2001, honor student Lindsay Brown parked her car in the wrong spot at her high school. A county police officer looked inside and saw a kitchen knife -- a butter knife with a rounded tip. Because Lindsay was on school property, she had violated the zero-tolerance policy for knives. She was arrested, handcuffed and hauled off to county jail where she spent nine hours on a felony weapons possession charge. School Principal Fred Bode told a local paper, "A weapon is a weapon."
Congress creates, on average, one new crime every week. Federal agencies create thousands more -- so many, in fact that the Congressional Research Service itself said that merely counting them would be impossible.
This is a bad trend. As Lao Tsu said, "The more laws and order are made prominent, the more thieves and robbers there will be."
The Return of the Jeffersonian Vision and the Rejection of Progressivism
“No person shall…be deprived of life, liberty, or property without due process of law.” So reads a portion of the Fifth Amendment to the Constitution, part of the Bill of Rights passed by the First Congress and ratified by state legislatures, sponsored originally by Thomas Jefferson’s friend and political ally James Madison. It echoed, of course, Jefferson’s words in the Declaration of Independence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness.”
Madison and Jefferson followed the tradition of John Locke, the British philosopher whose Two Treatises on Government was taken as the justification for the transfer of power known as the Glorious Revolution of 1688-89—the subject of my 2007 book, Our First Revolution: The Remarkable British Upheaval That Inspired America’s Founding Fathers. Locke believed that men could be free only if their lives, liberty, and property were protected by the rule of law. And he believed that only men with property could be relied on to self-govern.
Locke, therefore, thought that the responsibility for choosing legislators in representative government should be limited to property owners, as it was in elections to the House of Commons. In English counties, the franchise was limited to 40-shilling freeholders—owners of property that brought in two pounds a year. The franchise in the more numerous boroughs was limited in different ways, in some cases to the owners of specific pieces of property.
The American people, the property-owning majority, even in this time of economic distress, seem to be embracing instead a culture of independence, a culture as old as the republic itself.
The Founders anticipated a limited but broader franchise in America. They provided that senators should be chosen by legislatures, whose members were typically selected by a large electorate, and that members of the House should be chosen by voters with “the qualifications requisite for electors of the most numerous branch of the state legislature.”
The Founders had different ideas of the worthiness of commerce. Jefferson envisioned a republic of freeholding egalitarian farmers. Alexander Hamilton envisioned a republic on the path toward commercial and industrial preeminence. But Jefferson’s vision was a more accurate picture of the United States in the early years of the republic, where land was plentiful and labor scarce, where the large majority of white men were farmers and most of them owned the land they worked.
In this freeholders’ republic, it was natural to move toward universal manhood suffrage, to allow every white male adult to vote. Some states took longer than others to reach this goal—South Carolina still had the legislature choose its presidential electors until 1860. But the principle was widely accepted elsewhere: since almost everyone owned property, everyone should be allowed to vote. There was a danger, recognized by Alexis de Tocqueville in the 1830s, that the poor would vote to strip the rich of their wealth and, in President Obama’s words to Joe the Plumber, “Spread the wealth around.”
The New Deal was an attempt to freeze an economy, then in a downward spiral, into one place.
Tocqueville pointed to another danger as well, the danger of what he called “soft despotism,” in which a seemingly benevolent government would channel citizens into docile obedience like a herd of sheep. But that danger seemed distant, even to Tocqueville, in an America whose dominant and more populist party, Andrew Jackson’s Democrats, opposed government spending on public works projects and feared the power of a central bank.
Up through the end of the 19th century there did not seem to be a significant tension between universal democracy and property rights. The Founders’ vision prevailed.
A New Vision Based on Fear
But that was no longer the case in 1910. By then, another vision was being advanced, the vision of the Progressives—the vision of Presidents Theodore Roosevelt and Woodrow Wilson, of political philosophers Herbert Croly and John Dewey.
The Progressives explicitly repudiated the Founders’ vision of limited government. They argued that government needed to redistribute property, to take money from one group of citizens to help others, and to regulate economic activity in ways previously considered unconstitutional. The Constitution, they said, was a “horse and buggy” document, suited perhaps to the simpler society of the 18th century, but dangerously out of date in a complex industrial society which could not expect ordinary citizens to make their way without government guidance and assistance. They were acting, they said, in the interests of the people. Their critics said they were acting out of hunger for power.
I want to advance another thesis: That they actually acted more out of fear than of benevolence. They feared revolution.
I want to advance another thesis: That Progressives actually acted more out of fear than of benevolence. They feared revolution.
They did not know what we know today: that revolution wasn’t going to occur in America, as it had so often in Europe (multiple times in France, in many European countries in 1848, and as recently as 1870-71). Revolution would transform Russia in 1917-18. In the chaos and violence that followed World War I, Marxist revolts broke out in cities as productive and sophisticated as Munich and Budapest; Benito Mussolini’s fascists marched on Rome. The Progressives did not take the Marxist view that revolution was inevitable, but they certainly believed it was possible; Theodore Roosevelt was quite explicit about this threat. And they believed it a serious menace, as avowedly Marxist socialist parties gained millions of adherents in the expanding electorates of Europe.
The Challenges of Urbanity
This is understandable if we go back to 1910, and look at the America the Progressives faced. It was increasingly an urban country with an increasingly industrial economy, a country where great masses of people did not own significant amounts of property.
The United States in 1910 had 92 million people—it would pass the 100 million mark in 1915. This seems like a small number to us, living in a nation of 310 million, but it was an enormous multitude to the Americans of that time, a huge increase over the 3.9 million recorded in the first Census just 120 years before, in 1790.
Alexis de Tocqueville pointed to another danger as well, the danger of what he called “soft despotism,” in which a seemingly benevolent government would channel citizens into docile obedience like a herd of sheep.
It was an America with huge and rapidly growing cities. New York City had 4.8 million people in 1910, nearly half of them in Manhattan—almost a million more than live there today—and half of those lived south of 14th Street. The subways were being built that would spread the city out in the next decade to Brooklyn and the Bronx, each of which gained more than half a million people in the decade, during which the population of New York City rose to 5.6 million. Behind New York in 1910 were Chicago with 2.2 million, Philadelphia with 1.5 million, and St. Louis, Boston, Cleveland, Baltimore, Pittsburgh, and Detroit each with about half a million or more. Altogether, one out of eight Americans lived in these nine cities, America was rapidly moving to a time—reached by the 1920 Census—when a majority lived in cities.
And these cities were filling up with immigrants. In the 1900-1910 decade, America grew from 76 million to 92 million and welcomed some 9 million immigrants. Four million more would arrive in the next four years. More than half of America’s population growth came from immigrants, and for the first time many came from Eastern and Southern Europe, the vast majority of whom settled in big cities. It was a time when America’s giant factories employed great masses of immigrants. Henry Ford’s Highland Park plant was churning out hundreds of thousands of Model Ts—and Ford was organizing English and civics lessons for his workers, many of whom had little command of English.
In America, most farmers owned their farms. But most city dwellers did not own significant property at all. Most city residents rented rather than owned their homes; they cashed their paychecks for cash rather than have bank accounts; they depended on charity if they became disabled or widowed. It was the America of Theodore Dreiser’s Sister Carrie—a very hard America (as I used the term in my 2004 book, Hard America, Soft America), an America with plenty of competition and accountability, but which could be very unforgiving of mistakes and misfortunes. Millions made their way upwards, but most never accumulated significant wealth. They lacked the stake in their communities and in the larger society that property provides.
The Obama Democrats came to power with an assumption that in times of economic distress Americans would be more amenable to or supportive of big government programs.
For the Progressives, this was scary. Who could tame the urban masses? The post-Civil War politicians who built Fort Sheridan and Great Lakes Naval Station located them near Chicago to stamp out revolution if it came. And indeed there was rioting in the streets of Chicago during the Pullman strike of 1893, when President Grover Cleveland superseded the governor of Illinois and mobilized federal troops.
The Progressives and their progeny, the New Dealers—whether acting out of benevolence, hunger for power, or fear—were paternalistic; but they were also precautionary. Give the masses work relief, Social Security, deposit insurance, a floor on wages and prices, they thought, and the masses will not revolt or be attracted to the totalitarian faiths advancing in the Old World—the Communism that many intellectuals championed, the fascism that Anne Morrow Lindbergh wrote was “the wave of the future.”
The Progressives argued that economic freedoms were unimportant because ordinary people, lacking property, didn’t really have much economic freedom anyway. As such, property rights must be subordinated to human rights. It was better to guarantee people education, healthcare, food, housing—the domestic programs that Franklin Roosevelt advanced as victory in World War II neared in 1944 and 1945. Economic growth was a secondary concern at best. Roosevelt seems to have believed, as many Americans did at the time, that the era of economic growth was over and that the postwar years would see a return to economic depression. In any case, he was clearly focused on economic redistribution rather than growth.
The New Deal was an attempt to freeze an economy, then in a downward spiral, into one place. It envisaged not growth but stasis. It was widely believed that capitalism had failed and economic growth was a thing of the past.
Misreading History and the Progressive Overreach
Today we have a presidential administration and a congressional leadership which consciously seeks to expand the size and scope of government in the tradition set out by the Progressives and New Dealers. They came to power assuming that in times of economic distress Americans would be more amenable to or supportive of big government programs. This was a lesson they absorbed directly or secondhand from the great New Deal historians Arthur Schlesinger Jr. and James McGregor Burns, and from Franklin Roosevelt himself.
Progressives argued that government needed to redistribute property, to take money from one group of citizens to help others, and to regulate economic activity in ways previously considered unconstitutional.
But as I argued in my 1990 book, Our Country: The Shaping of America from Roosevelt to Reagan, and as Amity Shlaes argues differently in her book on the 1930s, The Forgotten Man, those lessons were misleading. It’s true that American voters in the 1934 and 1936 elections endorsed the policies of Franklin Roosevelt’s first term. But as the 1930s went on, opinion shifted. By 1937, most Americans opposed Roosevelt’s plan to pack the Supreme Court and were repelled by the sit-down strikes that resulted in unionizing the auto and steel industries. Majorities favored reducing government spending and controls, limiting the power of labor unions, and paring welfare programs—this was when the word “boondoggling” was added to the English language.
It is true that Roosevelt was re-elected in 1940 and that Democrats retained majorities in Congress. But polling suggests that if the 1940 election had been decided on domestic issues, the Republicans would have won. Roosevelt was nominated for a third term weeks after the fall of France, when Hitler and Stalin and Imperial Japan were allies in command of most of the land-mass of Eurasia—the closest the world has ever come to George Orwell’s vision in 1984. Roosevelt was an experienced and tested leader; the Republican candidate, though talented, was a former utility executive who had never held public office and had no experience in foreign or military affairs.
Most Americans have accumulated—or will, during the course of their working years, accumulate— significant amounts of wealth.
The Obama Democrats today believe they have progressed toward the goals Roosevelt outlined for domestic policy in his last year as president, and are puzzled by the adverse public reaction to their programs. But the America we live in is a very different country from the America the Progressives and New Dealers knew and, in part, because of the impact of some of the public policies set in place by the New Dealers and their opponents.
Those policies—as modulated by the Republican Congress in 1947 and 1948, which eliminated wage and price controls, cut taxes, limited the powers of labor unions, and rejected public housing programs—helped to produce the postwar prosperity which neither the New Dealers nor their political opponents predicted. The housing policies of the New Deal helped to make a majority of Americans homeowners while the bipartisan G.I. Bill of Rights, shaped in large part by the American Legion, enabled millions to attend college. These policies helped produce the postwar prosperity that neither Roosevelt’s admirers nor most of his opponents anticipated.
And when macroeconomic policies produced the stagflation of the 1970s, politicians, Democratic as well as Republican, embraced deregulation, which squeezed out huge costs in transportation and communication. This reduced the costs of life’s necessities, which enabled more Americans to accumulate significant wealth over a working lifetime.
John Locke believed that men could be free only if their lives, liberty, and property were protected by the rule of law. And he believed that only men with property could be relied on to self-govern.
We live now in a moment where it is clear that some of these policies went too far. Policies to increase homeownership helped produce the housing-price crash of 2007. Poorly understood innovations in finance led to the financial crisis of 2008. The resulting recession is painful and is, I believe, being prolonged by the economic policies of the Obama Democrats.
But the fact is that we are once again, as in the days of the early republic and not in the heyday of the Progressives and the New Dealers, a republic of property owners. Most Americans have accumulated—or will, during the course of their working years, accumulate— significant amounts of wealth. And that is why, I believe, American voters seem to be rejecting the policies of the Obama Democrats. Those policies, rooted in the Progressive and New Deal tradition, are designed to encourage a culture of dependence. It is the “soft despotism” of which Tocqueville warned us 175 years ago. The American people, the property-owning majority, even in this time of economic distress, seem to be embracing instead a culture of independence, a culture as old as the republic itself.
The major political development of the last 17 months has been an inrush of hundreds of thousands or even millions of Americans into political activity, an inrush symbolized by but not limited to the tea party movement. It is fascinating to me that the tea partiers have adopted the language and in some cases even the costumes of the Founders. While the Progressives’ descriptions of a “horse and buggy” Constitution and their sense that giant auto factories and steel mills were the harbinger of the future seem tinny and out of date, the language of the Founders continues to resonate with the clear timbre of a silver spoon tapping a crystal glass. The majority of the American people seem to firmly agree with the Founders’ insistence that no one should be deprived of life, liberty, or property without due process of law. And so we can take satisfaction that most of our fellow citizens in our freeholders’ republic still hold these truths to be self-evident.
This article is based on a speech delivered at the Jack Miller Center Summer Institute, University of Virginia, Charlottesville, Virginia.
No Saddam-sized sanctions on Iran
But that would be to wander in the make-believe world in which much diplomacy has its strange half-life. Instead, I'll tell you the truth. These sanctions represent a final, dismaying demonstration of the frivolity of the international system, if you can characterise the ramshackle, dysfunctional and corrupt processes of the UN as a system at all.
The sanctions show that, for the moment at least, no one is serious about stopping Iran from acquiring nuclear weapons. The only chance of a serious delay in that process is an Israeli attack from the air. This may seem politically unlikely in the wake of the Gaza flotilla episode, but an intriguing report in Britain's The Times contains detailed information about Saudi Arabia offering its airspace to Israel to do just that. I think chances of an Israeli attack are still less than 50-50, but don't rule it out.
Foreign Minister Stephen Smith has rightly described Iran's nuclear program as "the most difficult peace and security issue the international community will be confronted with over the next 12 to 18 months". Canberra will enforce the sanctions and add a couple of extra Iranian individuals and organisations to the sanctions list. It is doing its part in the international effort, but the truth is the international effort is puny while the problem is enormous.
The UN sanctions are exceptionally weak and were passed at the Security Council by a vote of 12 to 2, with Turkey and Brazil opposing and Lebanon abstaining. The sanctions go a little further than previous resolutions. They expand the categories of weapons that are banned for Iran, increase the number of Iranian institutions subject to sanctions, especially targeting institutions connected with the Revolutionary Guards, increase the restrictions on nuclear technology transfers to Iran and enable the inspection of cargo.
Well, brother, that and a couple of dollars will just about buy you a cup of coffee in most parts of the world. For a regime perfectly happy to steal an election, beat, club, murder, imprison, rape and disappear its internal critics by the hundreds, all in the name of the Islamic revolution, this is not so much being thrashed with a feather as being tickled by one.
Under some circumstances, sanctions can work. They had an effect in ending apartheid in South Africa. The big example of where they worked is Iraq, although people on all sides of the political equation don't like to point it out. The sanctions against Iraq were fraying by the end, but they did prevent Saddam Hussein from constructing nuclear weapons. But the sanctions against Iraq were infinitely stronger than these. Sanctions have four purposes. They make a statement by the countries imposing them, apply political pressure on the subject of the sanctions to change its policy, apply financial pressure, and physically prevent it acquiring capabilities it shouldn't get. How will these sanctions stack up against those purposes?
They do make a political statement but it's a feeble one. Instead of demonstrating Iran's isolation, they demonstrate the breadth of its international support. Turkey and Brazil used to be two of Washington's closest friends. Now they side with Tehran. Within a few days of the sanctions being passed, Iran's President Mahmoud Ahmadinejad was an honoured guest in China. Beijing's trade with Iran is worth $US30 billion ($35bn) a year. China and Russia watered down the sanctions to the point of being meaningless. Both were insistent that the sanctions not affect the workings of Iran's economy. Yet US Secretary of State Hillary Clinton only a few months ago talked of imposing "crippling" sanctions.
Therefore the sanctions fail purposes two and three as well. They apply neither political nor financial pressure of any consequence. Will they stop stuff Iran needs for its nuclear program getting through physically? Maybe, a little. It's still unclear whether Russia feels the sanctions will stop it from selling advanced air defence missiles to Iran or commissioning the nuclear reactor it is building for the Iranians at Bushehr. I don't doubt the goodwill and earnest intent of the Obama administration in all this. Nor do I think another president necessarily would have done better. After all, the progress towards Iranian nuclear weapons took place mostly under George W. Bush. Barack Obama has a perfect storm of other problems to deal with. But for people who really look into Iran, it's rather like people who are convinced that climate change will lead the planet to ruin. If you accept the initial premise, you must act. And if you don't act it's clear you're not serious about the initial premise.
At this stage, anyway, the Obama administration is not acting as if it takes the Iranian nuclear threat seriously, even though it says it does. If the Americans were really serious, they would at the very least impose their own blanket economic sanctions, designed to cause as much disruption to the Iranian economy as possible, and ask all like-minded countries to follow. It would be an enormous and costly undertaking, but that is what global leadership sometimes requires.
The International Atomic Energy Agency has concluded that Iran is operating 4000 centrifuges enriching uranium. It has already enriched 2.5 tonnes of uranium, enough for two nuclear weapons. It's not yet enriched to weapons grade, but Iran keeps taking big leaps in that direction.
Politically, the regime of the ayatollahs looks to have all but snuffed out its domestic opposition, which rose heroically and received no serious international support. Ahmadinejad is a hit in many Muslim countries and in much of Latin America. He controls terror proxy armies in Hezbollah and Hamas, has a tight alliance with Syria and a deepening economic partnership with China. He and his allies have been smart in the campaign to delegitimise Israel. Iran too now plans to send "civilian" ships to bring aid to Gaza. Tehran has successfully changed its rhetoric on Israel, no longer depicting it as a powerful enemy but rather a besieged outpost with faltering US support. This is a very self-confident regime. These sanctions are almost completely useless.
By Jonah Goldberg
It wasn't supposed to be like this.
The Obama administration came into power with the political winds at its back, the media at its feet and Americans open to major change. The White House even had a slogan: A crisis is a terrible thing to waste.
The logic behind the axiom is unassailable. As Robert Higgs documented in his libertarian classic, "Crisis and Leviathan," it's crisis -- not merely war -- that is the health of the state. Crises melt frozen politics. They create opportunities. They give the government room to maneuver and grow.
And for a while, it worked that way. Democrats steamrolled the most ambitiously liberal agenda in at least a generation. Yet liberals are miserable. Their lamentations over what they see as President Obama's lack of audacity punctuate the din, like ululating matrons at an Arab politician's funeral.
This misplaced griping stems not from Obama's failure to "think big" but from a misreading of the political climate: Liberals thought they'd be popular.
The American people supported the New Deal and pro-FDR politicians for years. This time around, Americans aren't turning to government. Rather, they've grown only more disgusted with the public sector. Trust in government is near its historic low. Obama's support among self-identified independents is at an all-time low and doesn't appear to have hit bottom yet, while the "intensity" among Republican voters continues to surge.
Indeed, conservatives outnumber liberals by more than 2 to 1 (42 percent to 20 percent), according to Gallup. If that trend continues just a bit more, an absolute majority of Americans may soon call themselves conservatives.
All those liberal pundits who prophesized an Obama-led "new New Deal" must feel foolish as they don their life preservers and head to higher ground in anticipation of the electoral tsunami heading their way in November.
In a futile effort to build the morale of the sandbag brigades preparing for the tide, the White House and Democrats have interrupted their "recovery summer" cheerleading and started making the case that the coming election is a "choice," not a "referendum." It's "a choice between the policies that led us into this mess or the policies that are leading us out of this mess," Obama thundered in Missouri last week.
Obviously, such arguments hinge on the hope that the people will agree. That seems doubtful. Indeed, if that reasoning were persuasive, ObamaCare would be popular -- or at least it would have become popular since its passage, as the White House predicted.
Perhaps voters don't remember the Bush years as a time of "market fundamentalism" so much as a time when "big government" conservatism in the White House and cronyism in Congress set the kindling for the bonfire Obama ignited.
However much blame they deserve for the economic crisis, Obama and congressional Democrats deserve the political crisis they've created for themselves. And the GOP should exploit it.
For a year or so, Republicans have been the so-called party of no. Contrary to the expectations of its critics, that tactic has been good for the GOP. It seems that the "tea parties," America's natural antibodies to Obamaism, have provided some vital stem-cell therapy -- helping to regrow the Republican spine.
But that spine is only valuable if you use it for something. Much of the GOP leadership has been content saying "no" for two reasons -- one good, one bad. When Obama was tall in the saddle and determined to exploit the economic crisis on his terms, there was no point in offering real alternatives. It's just a lot easier to criticize than it is to lead.
Now is the time for the GOP to call Obama's bluff and offer a real choice. My personal preference would be for the leadership to embrace Wisconsin Rep. Paul Ryan's "road map," a sweeping, bold and humane assault on the welfare state and our debt crisis. Doing so might come at the cost of trimming the GOP's victory margins in November, but it would provide Republicans with a real mandate to be something more than "not-Obama."
Don't let Obama's crisis go to waste.
Economics Is … Easy
I stumbled across an interesting article a few days ago. Written by Kartik Athreya, of the Federal Reserve Bank of Richmond, the article is titled "Economics is Hard. Don't Let Bloggers Tell You Otherwise."
The abstract of the paper declares,
In this essay, I argue that neither non-economist bloggers, nor economists who portray economics — especially macroeconomic policy — as a simple enterprise with clear conclusions, are likely to contibute [sic] any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public.
To start, I might propose that the open-minded public ignore economists and organizations that are unable to run a spell-checker over the word "contribute."
But that takes me away from the issue.
If by "hard" Athreya means that economic concepts, and results, are sometimes counterintuitive, then I can agree. Examples include the following:
- Giving the poor cash payments will result in fewer poor people — False.
- Or, setting limits on rent prices will make housing, overall, more affordable — Also false.
But that is not what Athreya means. He means that economics is so scientific and complex that the untrained economist (or a trained economist who simplifies the explanation or policy result) has nothing meaningful to contribute.
He continues in discussing the public commentary, or lack thereof, that took place after the Tsunami in East Asia and the earthquake in Haiti:
Everyone understands that seismology is probably hard enough that one probably has little useful to say without first getting a PhD in it. The key is that macroeconomics, which involves aggregating the actions of millions to generate outcomes, where the constituents pieces are human beings, is probably every bit as hard. This is a message that would-be commentators just have to learn to accept. For my part, seventeen years after my first PhD coursework, I still feel ill at ease with my grasp of many issues, and I am fairly confident that this is not just a question of limited intellect.
The truth is that economics is so hard for Kartik Athreya because he is trying to do the impossible. He still feels ill at ease in his profession, after seventeen years, because he is trying to explain the economic aggregates of entire states and nations with the tools he learned in Calculus III, Econometrics II, and Linear Algebra I.
This all reminds me of the scathing critique that Nassim Nicholas Taleb leveled in his book The Black Swan about the infiltration and paralyzing reality that rationality became to the world of mainstream economics:
It involves complicated mathematics and thus raises a barrier to entry by non-mathematically trained scholars. I would not be the first to say that this optimization set back social science by reducing it from the intellectual and reflective discipline that it was becoming to an attempt at an "exact science." By "exact science," I mean a second-rate engineering problem for those who want to pretend that they are in the physics department — so-called physics envy. In other words, an intellectual fraud. (p. 184)
For a short explanation on the limits of macroeconomics, I recommend reading "The Limits of Macroeconomics" by Roger Garrison.
For a slightly longer one, I recommend a quick reread of Human Action by Mises himself.
Additionally, I will say that recent macroeconomic developments have been easy to understand. People bought homes they couldn't afford with the blessing of government officials. This was encouraged by the likes of Fannie Mae and Freddie Mac, and a Federal Reserve in love with a cheap-credit policy. Now, it is all being made worse by increasing regulations, higher taxes, fiscal interventions, and unneeded bailouts.
Meanwhile, I will continue to repeat that all people will be made better off in the long run by lowering taxes, easing regulations, stopping fiscal-policy interventions, and not giving the state the power to print fiat money.
And Kartik Athreya can go on making "quality" contributions to macroeconomics by recalculating the fiscal multiplier, mathematically tweaking the Phillips Curve, and taking integrals under the IS-LM curves.
By DICK MORRIS
Any president facing a recession has a basic conundrum to resolve: If he doesn't try to make people believe that a recovery is in progress, nobody will. But if he tries to make them believe that all is getting better, he risks being seen as out of touch at best or insensitive at worst.
It was just such a predicament that landed George H.W. Bush in trouble in 1991 when he preached that the economy was emerging from the recession, only to be seen as rich and elitist for his efforts. Things got so bad that this verbally challenged president once blurted out his staff's strategy memo by saying, "Message: I care." That was about as well-received as Nixon's statement that "I am not a crook."
Now Obama is trying to sell the unsellable -- that the economy is getting better. In Nevada, he said: "But the question is, No. 1: Are we on the right track? And the answer is, yes." Presumably those who are gullible enough to think they can beat the casino odds in Vegas are ripe for this form of self-delusion, but it leaves the rest of us cold. The fact is that, when asked directly in polls whether the U.S. is on the right or the wrong track, by more than two to one, Americans feel the nation is on the wrong track.
Fifteen million are unemployed and, adding in underemployed, part-time workers and those who have given up looking, the total is 26 million. So Obama's statements of confidence are a bit like Herbert Hoover's ritual incantation that "Prosperity is just around the corner."
Polls show that 70 percent of Americans do not believe that the stimulus program has worked and a similar percentage feel the best thing we could do to create jobs is to cut taxes.
But Obama's conundrum is that if he is not the font of optimism, who will be? Economists are increasingly coming to see that the so-called recovery was, in fact, a false dawn and that we are entering a double-dip recession (if, indeed, we ever left the initial downturn). In our book 2010: Take Back America -- A Battle Plan, we predict a false dawn followed by a double dip -- and now it is upon us.
It is now time for the Republicans to counterattack against Obama by calling him out of touch with the realities of the economy and to take advantage of the commonly held idea that the president doesn't know what is going on in the streets. In Obama's case, the GOP cannot then turn "out of touch" into an accusation of insensitivity (as the Democrats did to Bush-41). But they can push the idea that Obama is so wrapped up in his liberal ideology that he cannot see the reality in front of him -- that big spending stimulus hasn't worked and won't work.
The Fox News poll now shows that 55 percent of all likely voters feel that it is appropriate to call Obama a socialist. This epithet, which most Americans did not see fit to use even a few months ago, fits him well. Republicans should make the point that he is willing to sacrifice all for his ideology and that he is blind to the reality of the damage his spending and borrowing are causing.
When a president runs around the country saying things that two-thirds of America does not believe, it is time to counterattack vigorously and show how out of touch he really is.
Then, with every invocation of optimism, Obama will be digging himself deeper and deeper into the hole.
Retail sales declined 0.5% in June
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Retail sales declined 0.5% in June versus a consensus expected dip of 0.3%. Sales excluding autos fell 0.1%, exactly as the consensus expected. Including downward revisions to April/May, overall sales were down 0.7% in June and down 0.5% excluding autos.
Even with the decline in June, retail sales are up 4.8% versus a year ago; sales ex-autos are up 4.4%.
The decline in retail sales in June was concentrated in autos and gas. Excluding those two categories, sales were up due to small gains in most sectors.
Sales excluding autos, building materials, and gas were up 0.2% in June (-0.3% including revisions to April/May) and are up 3.9% versus last year. This calculation is important for estimating GDP.
Implications: Retail sales were soft in June but the underlying trend is still upward and we expect to see renewed gains in sales starting next month. It is not unusual for recoveries to exhibit two-month periods when the pace of consumer spending temporarily slows down, particularly after a series of strong increases. During the sales surge that ended in April, retail sales increased at an 11.7% annual rate in seven months. That pace of increase was not going to last. Now, two months later, after a normal pullback, the annualized rate of increase for the past nine months is still a decent 6.7%. Notably, “core” sales were up in June after two straight declines. Core sales strip out autos, gas, and building materials. When estimating GDP, the government gets data on autos from a different source, not the retail sales report. Movements in gas sales are mostly price related, which means they tell us little about activity. And building materials reflect home building, not consumption. In other news this morning, business inventories increased 0.1% in May, which was less than the consensus expected. On the inflation front, import prices fell 1.3% in June, but are still up 4.5% versus a year ago. Most, but not all, of the May decline was due to oil. Excluding petroleum, import prices declined 0.5% in June but are still up 3.1% in the past year. Export prices declined 0.2% in June, both including and excluding farm products. In the past year, export prices are up 4.3% overall and 5.1% excluding farm products. Look for a rebound in trade prices next month.
Cuba promises to the Catholic Church the liberation of 52 political prisoners – Merco Press
Five prisoners will be freed and would be able to leave “in brief” to Spain, along with their family members, while the negotiation of the other 47 “will be concluded within a three to four month period, which begins right now,” the archiepiscopate text stated.
According to the Church’s document, the government of Cuban President Raúl Castro informed of the decision during a meeting with Cardinal Jaime Ortega Alamino, the Spanish Foreign Affairs Minister Miguel Ángel Moratinos -who arrived in Havana on Monday to support the dialogue-, and his Cuban counterpart Bruno Rodríguez.
The text also reads that in the next few hours, another six prisoners would be taken to the provinces where they reside.
“During the meeting’s, we talked about the process which begun last May 19, when President Raúl Castro Ruz received cardinal Jaime Ortega and the President of the Cuban Catholic Bishops Conference, monsignor Dionisio García Ibáñez.”
Up to now, it says, the development of this process has allowed the liberation of a prisoner and the transfer of another 12 to their native provinces.
However Cuban dissident Guillermo Fariñas who has been on a hunger strike for 134 days said he would only stop fasting once at least 12 of the 52 political prisoners that the government of President Raul Castro promised to free are “in the street”.
“I have always said that until the liberation of the 12 and the Catholic Church officially reports it, I will not end the hunger strike”, said Fariñas in a phone conversation with the Ladies in White.
“I’m sceptical, until our brother are not free on the streets, we don’t trust authorities”, warned Fariñas who began fasting February 24 a day after the death of another dissident Orlando Zapata.
Edison’s Lightbulb Dims as Freedom Flickers – by Deroy Murdock
As American as the grand slam, the Mustang convertible, and the constitutional republic, Thomas Alva Edison’s incandescent light bulb is among this nation’s most enduring gifts to mankind. Granted U.S. Patent No. 223,898 on January 27, 1880 (after enduring some 1,200 experiments), Edison’s “Electric Lamp” essentially made night optional for most Earthlings. Days stopped ending at sunset. Simple, convenient, and cheap, Edison’s greatest invention also was far safer than the flammable kerosene lamps they replaced.
Today’s federal government, naturally, had to hammer something that has hummed along nicely for 130 years. In one of his most shameful acts, former President George W. Bush stupidly signed the Energy Independence and Security Act of 2007. EISA establishes performance criteria that Edisonian bulbs cannot meet. As the Federal Trade Commission (FTC) explains: “These standards, which begin in 2012, will eliminate low efficiency incandescent light bulbs from the market.”
According to an April 14 fact sheet from General Electric, which Edison founded in 1876, 276 of its incandescent bulbs will start to vanish just 18 months from now. Few Americans realize that federal busybodies plan to snatch their traditional bulbs. Sylvania’s December 2009 survey of 302 adults found that “awareness of the 2012 100-watt bulb phase-out is” just 18 percent. (Error margin: +/- 5.7 percent)
EISA has made more common the Compact Fluorescent Lights, those swirly bulbs with distinct pros and cons. Costlier up front, energy-efficient CFLs eventually save money. They also require less frequent replacement than do traditional bulbs.
To discover CFLs’ negatives, try setting a romantic mood with a dimmer switch. This is, at best, a hit or miss proposition.
Scarier still, just drop one onto your kitchen floor. Its internal mercury is highly toxic. If spilled, it requires something approximating a Superfund cleanup. The Environmental Protection Agency warns that if a CFL breaks on one’s apparel or bedspread, “Do not wash such clothing or bedding because mercury fragments in the clothing may contaminate the machine and/or pollute sewage.” (Emphasis added.)
CFLs should be discarded at recycling centers. Hundreds of millions of busy Americans, however, will toss these dangerous bulbs in the trash, atop table scraps and junk mail. CFLs will clog landfills from coast to coast. Decades hence, mercury will have leeched into the environment. Americans will wonder why people are suffering brain, kidney, and lung damage. Medical visits will yield lawsuits. And another national disaster will erupt, courtesy of Washington, D.C.
Team Obama characteristically has inherited a big-government jalopy from the Bush-Rove Administration and then turbocharged it.
As June 25′s Washington Times detailed, 91 pages of brand-new FTC rules force manufacturers to label the front of CFL packages regarding brightness (in lumens) and annual energy cost (in dollars). Packages’ sides or rears must disclose bulbs’ lifespan, color appearance, wattage, voltage, and mercury content.
“I think the incandescent light bulb was one of the great contributions to the art of architecture in the 20th Century,” says Howard M. Brandston, a legendary lighting designer renowned for relighting the Statute of Liberty before its rededication on July 4, 1986. “Lighting played a huge role, as essential as the structures themselves. That was thanks to Thomas Edison.”
“Our homes are our castles,” says Brandston, a former adjunct professor of architecture at Rensselaer Polytechnic Institute. “The government should not enter our homes, tell us how to live, endanger our health, and ruin our quality of life.”
Republicans and thinking Democrats running for Congress this fall should pledge publicly to repeal the federal ban on Thomas Edison’s monumental creation. Why not try something worthy of the Spirit of ’76? Keep traditional bulbs, CFLs, halogens, and everything else on the market, and allow Americans to purchase whatever bulbs help them pursue happiness.
July 4 would be a perfect day for such a Declaration of Incandescence.
* Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.
Calm surface, turbulent underneath
by The Economist online | WASHINGTON
AT FIRST glance, all would seem well in the International Monetary Fund’s latest global forecast. It thinks the world will grow a bit faster this year than it thought in April: by 4.6%, instead of 4.2%. It puts growth next year at 4.3%, unchanged from April, reflecting a modest upgrade to the American outlook, and a tiny downgrade everywhere else, even Europe.
But beneath that placid surface the IMF sees a snake pit of threats. Among these “downside risks”: banks could curtail lending because of their exposure to impaired government debt; consumers and businesses could spend less because their confidence has been dented; deficit cutting could suppress growth; new financial regulations could damp bank lending; American property prices could fall further; and exchange rates could go haywire. And the upside risks? The IMF doesn’t proffer any.
Most of these threats stem from the rising risk of default by some countries in the euro zone and the knock-on damage to the European banks that hold their bonds. The IMF ran a scenario in which the world repeats the financial shocks it experienced in late 2008. For the world, GDP would be 1.5 points weaker–not enough to tip the world economy back into recession. However, the estimated three percentage point hit to euro-zone growth would easily do the job there.
Given that skewed balance of risks, what can policy makers do? The IMF says policy actions must be “concerted,” “rapid,” “credible,” and “swift,” especially on fiscal policy. The IMF has not joined the hair-shirt brigade; advanced countries shouldn’t actively try to trim their deficits before 2011 because that would threaten the recovery. But “they should not add further stimulus,” either and medium to long-term plans to lower deficits are, it says, “of utmost importance.” These should be designed to boost productive potential, by reforming entitlements and making taxes more growth-friendly.
The IMF notes governments face enormous refinancing needs in the coming year as short-term debts mature. Weaker euro-area governments must refinance 300 billion euros ($380 billion) maturing in the second half of 2010, at a time when other advanced countries will be rolling over $4 trillion. Banks, especially in the euro area, also face a “wall of maturities in the next few years.”
With fiscal policy constrained, the IMF recommends that monetary policy remain loose and prepare to be looser. How can it, when most major central banks have already cut interest rates to, or close to, zero? The answer, the IMF says, is more quantitative easing: “central banks may need again to rely more strongly on using their balance sheets to further ease monetary conditions.” That means buying bonds with newly printed money or making bigger loans on easier terms to banks.
This is easier said than done. The European Central Bank has reactivated some of its longer-term lending operations, but its purchases of government debt, designed to supplement the new European Financial Stability Facility, to date amount to only 59 billion euros. Doing more could make Germans unhappier than they already. The Federal Reserve faces similar internal resistance to more quantitative easing, although the hurdles are lower. Yet even if it could buy another $1.75 trillion of bonds, it would deliver less oomph than the first $1.75 trillion. Liquidity traps apply to long term as well as short term rates. With Treasurys yielding only 3%, it’s not clear how much more demand the Fed will spur by getting them down to, say, 2.5%. But it’s better than doing nothing.
A curious coincidence
ON MONDAY evening in Havana, Fidel Castro gave a televised interview, after four years without a public appearance. There was no sign of anticipation on the capital’s sweltering streets—unlike the day before, when everyone retreated indoors to watch the World Cup final, most people said they had no idea Mr Castro was scheduled to speak, even though the programme was given endless publicity in state media.
Those that failed to watch didn’t miss much. The frail but cogent 83-year-old, wearing a grey tracksuit top, seemed far more relaxed than his interlocutor, a government journalist named Randy Alonso. Speaking almost in a whisper, Mr Castro made wide-ranging and convoluted accusations against America: that it had sunk the Cheonan, a South Korean navy ship thought to have been torpedoed by North Korea, in order to provoke conflict, and that its policy towards Iran would lead to nuclear war.
Cuban domestic affairs were not discussed. Their absence was particularly conspicuous given that during the broadcast, seven former political prisoners and their families were traveling to Havana’s airport and a new life in Spain. They are the first of 52 dissidents scheduled to be freed under a deal brokered by the Catholic Church and the Spanish government, in the most important prisoner release in over a decade. Some were given less than 24 hours’ notice that they could leave Cuba. At the airport, Spanish officials were on hand with visas, which usually take months to prepare.
Some dissidents are convinced that Mr Castro’s appearance was deliberately timed to coincide with, and divert attention from, the freed prisoners' departure. If true, such a tactic would serve as a stern warning to those who see change in the air that it remains far off.
Baltic dries up
by The Economist online
FOR most of the past two decades the main measure of shipping costs has been used as a guide to what is happening to world trade. So the fact that the Baltic Dry Index—which measures the rates charged for chartering the giant ships that carry coal, iron ore and grain—has fallen by almost 60% in its longest streak of consecutive declines for nine years (34 days running as of July 14th) has won attention.
Add in the fact that China’s imports of iron ore and coal fell in June by 6% and 8% respectively, and the Baltic Dry seems to be signalling trouble ahead. Melissa Kidd of Lombard Street Research notes that the decline in rates has been greatest for the biggest vessels, the sort used to carry iron ore and coal from Australia and Brazil to China, suggesting weaker demand in the world’s most vibrant big economy. Such ships cost $48,000 a day to charter in late May; they are now down to around $18,000 a day.
China’s steelmakers are certainly being squeezed. Measures to cool property markets have caused prices for construction steel to fall by 17% since mid-April. The price of hot-rolled coil steel used to make cars and domestic appliances has seen a similar decline. Meanwhile the price of the iron ore the steelmakers import as their core ingredient rose by nearly 50% in the first half of the year, squeezing margins. So steel mills could be running down their iron-ore stocks because they see demand falling and because they suspect that ore prices will fall later this year. Spot prices at Chinese ports have fallen in recent weeks, suggesting that destocking has begun.
There are growing doubts, however, about what the Baltic Dry is actually signalling. The confusion is whether the index is saying more about the supply of ships than the demand for their cargoes. The index spiked dramatically in 2008 as China’s imports of hard commodities soared at a time when the supply of ships was constrained and port congestion added to demand for capacity (see chart). The financial crisis soon set the index back on a steadier path but not before this period of dramatic growth in demand from China had prompted a surge of orders for bulk carriers, especially the very largest ones that are used on the China trade routes.
These ships take around three years to come onstream. Despite the cancellation of some orders the flow of new ships is now in full flow: in the first half of this year the global fleet increased by 23% as new vessels came into service at the rate of 16 a month. There are now 23 such vessels arriving each month, adding to oversupply.
Other freight indicators are less negative than the Baltic Dry. Container-shipping rates are holding pretty steady as companies decide to accept a lull in traffic rather than cut rates to stimulate demand. And according to the International Air Transport Association air freight is booming, up by 34% year-on-year in May. But air freight measures trade in high-value finished goods, whereas bulk ships reflect demand for the raw materials of which they are made. If there is more to its decline than supply-side distortions, the Baltic Dry could yet be a grim warning of what is to come.
Arrogance Surplus Leads to Government Excesses: Amity Shlaes
Commentary by Amity Shlaes
July 14 (Bloomberg) -- What helps business? President Barack Obama seems to think putting a complaining executive on a prestigious committee is the answer.
That’s what Obama did when he responded to Verizon Chairman Ivan Seidenberg’s complaint about policy uncertainty with invitations to chat and a seat on a committee studying exports. Democrats think that the way to help business is to create a small business fund, at least according to legislation proposed by Senate Finance Committee Chairman Max Baucus.
Nobody knows what Republicans think about business. To judge by its chatter this week, the Grand Old Party solution for business has something to do with curtailing the distribution of medical marijuana.
The problem for all is that business isn’t an identifiable person, group or company. Good policy is what might be called humble policy. It starts with admitting what we don’t know. That includes who will lead growth in 2011 or 2012, where that person lives, and how he or she will get capital. Humble policy then goes on to concentrate on trying to let our economy become that broad space that future businesses and industries still unknown, might find inviting.
Humble policy is, of course, hard for a U.S. Congress to get its head around. Policy, in lawmakers’ minds, is all about knowing and crafting smarter law. Lawmakers are arrogant in their certainty that voters will never accept policy that doesn’t reward voters like Pavlov’s dogs. Lawmakers are also certain that they shouldn’t be seen to write law that will help the rich in the future. But again, there is that mistake: they are assuming they know who the rich will be.
But to the plan. Humble step No. 1: Permanently set tax rates lower for all. That means keeping the dividend tax low, keeping the top income-tax rate at 35 percent and sustaining the capital-gains rate at 20 percent or lower. Cutting the corporate tax would help the U.S. compete with the rest of the world.
Even better would be to pass the plan of the humble congressman, Republican Paul Ryan of Wisconsin. The Ryan plan advocates abolishing taxes on capital gains and dividends, and reduces the top marginal rate on income taxes to 25 percent.
Lower taxes would increase growth. When President George W. Bush and Congress lowered dividend and capital gains rates taxes, they increased gross domestic product by 0.25 percentage point. When President Bill Clinton and Congress lowered the capital gains rate in the 1990s, growth likewise increased. The revenue from the cuts were in both incidents higher than static analysis from federal offices predicted.
Cutting regulation, including the new health-care mandate, would generate the missing jobs that are driving our political and policy debates. It is the definition of arrogance to assume employers can afford the modern mandates.
The next humble step would be to set policy to benefit the overall economy, not any specific group. The Obama administration’s new emphasis on exports is misguided. Promulgating export policy may help one politician through one election cycle. But overall, emphasizing exports ignores that exports may not be the area in the U.S. economy where growth will be most productive. Therefore export politics misallocates economic resources.
Plenty of lawmakers tell themselves they are too clever to back exports. Instead they want to target help to entrepreneurs, and offer, of course, a specific definition for what an entrepreneur is. But doing this, they begin to commit the same error as the export mercantilists.
The third humble policy is demanding a serious commitment from lawmakers to abandon fiscal stimulus. Stimulus spending represents an even worse misallocation of resources than export promotion. Optimal of course would be if Washington used savings it gets from abandoning stimulus to pay for the supposedly impossible task of maintain the Bush tax rates.
The fourth humble move is up to voters. It is to reduce expectations about entitlements. This would be easier to do if the fifth and final requirement were met: electing lawmakers or hiring government advisers with an ability to demonstrate humility.
One such humble hero in the wings is Mitch Daniels, Republican governor of Indiana. Daniels spent time in the second Bush administration as director of Office of Management and Budget, so he knows the details of crafting, say, a humbler Medicare policy. Ryan, the congressman, may also meet the humility criterion.
Right now there’s little evidence of humble vision in Washington. At a hearing on the future of taxes in the Senate Finance Committee this week, for example, the debate will range from extending the Bush rates for some to extending them for all to extending them for none. Any other possibility, deeper cuts for example, will be ridiculed because it won’t fit the pay-as- you-go budgeting regime. And tax cuts never will meet that standard, goes the argument, because lawmakers will never be willing to make the offsetting spending cuts.
Even as it is ridiculed, humble policy still is worth laying out. Doing so reminds us that what is failing us isn’t our economy, but our politics.
Bailouts Failed to Aid Small U.S. Banks, Warren Says (Update1)
By Ian Katz and Betty Liu
July 14 (Bloomberg) -- Elizabeth Warren, who leads the congressional panel overseeing the Troubled Asset Relief Program, said U.S. taxpayer bailouts helped Wall Street and not small banks.
TARP “worked really well for the Wall Street banks, but it didn’t work well for the rest of the banks in the system,” Warren said today on Bloomberg Television’s “In the Loop with Betty Liu.”
Small banks that took money from TARP may struggle under the weight of their repayment obligations, Warren’s Congressional Oversight Panel said in a report released today. The Treasury Department may be stuck with stakes in banks that can’t raise replacement capital, the panel said. Banks that don’t repay TARP capital by 2013 will have their dividend payment grow to 9 percent from the current 5 percent.
About 10 percent of the participating smaller banks have repaid taxpayers, and another 15 percent are late on at least one dividend payment, according to the report.
Congress authorized TARP in October 2008 to prevent a collapse of the U.S. financial system. Large companies including Goldman Sachs Group Inc. and Bank of America Corp. that took funds have since repaid the government.
“The commercial real estate problem for small banks is huge,” Warren said. “The overall economy obviously is a problem for them.”
Consumer Protection Agency
Warren declined to comment on whether she’s interested in heading a consumer protection agency that’s part of the overhaul of financial-services regulations the Senate may approve this week. The proposed agency “is strong, it has a lot of teeth,” Warren said.
The oversight panel recommended that the Treasury clarify its exit strategy and also develop a policy for how to handle banks that miss six or more dividend payments and trigger a provision that lets the government replace board members. The Treasury injected about $205 billion in capital into 707 banks, including 690 with assets of less than $100 billion, the report said.
Treasury spokesman Mark Paustenbach said TARP is “still providing relief” to participating small banks. He said there have been four failures of small banks that accepted capital injections, or 0.6 percent of banks that took TARP funds. Out of all U.S. banks, 2.9 percent have failed since the end of 2007, he said.
Treasury Secretary Timothy F. Geithner said last month that the capital injections for small banks were designed to help them weather the economic crisis. The Treasury will work with the banks to give them alternatives to slashing lending in a way that would harm the recovery, he told Warren’s panel in a June 22 hearing.
The oversight panel has five members, three appointed by Democrats and two by Republicans. Four Republicans have left the panel since it was created in October 2008.
Germans Show No Way to Give Up on Euro Spurring Boom (Update2)
By Simon Kennedy
July 14 (Bloomberg) -- For Germany, bailing out its neighbors to save the euro is proving a price worth paying.
Rising share prices and foreign sales at Bayerische Motoren Werke AG and Siemens AG show why it may be worth keeping the single currency even as some voters balk at the cost of rescuing Greece and demand a return to the deutsche mark. As exporters benefit from the lower labor costs and currency stability fostered by the euro’s 1999 introduction, unemployment has dropped close to an 18-year low and the DAX Index is the 16- nation bloc’s best performing major benchmark this year.
That’s reinforcing Germany’s status as a pillar of euro stability rather than a weak link as European policy makers scramble to stop the region lurching back into recession. While academics including Martin Feldstein say the Greek crisis could splinter the euro and investor George Soros urges Germany to do more to ease economic tensions in the region, the currency is rebounding. The euro has gained 6.6 percent against the dollar since hitting a four-year low on June 7.
“A break-up would be a big, big problem for the German economy, probably bigger than for most others,” said Julian Callow, chief European economist at Barclays Capital in London. “Industries in Germany have gained so much market share in Europe. For Germany, it’s a lose-lose situation.”
Germany is reaping the rewards of the discipline imposed on its economy over the past decade after reunification in 1990 dragged down growth and saw the country being labeled the “sick man” of Europe. With the euro preventing governments from devaluing their way to growth, Germany squeezed labor costs just as economies from Spain to Greece allowed employment costs to rise before being forced to run up record budget deficits when the global recession hit.
The result has sharpened Germany’s trading edge over the euro-region economy’s southern periphery. Europe’s largest economy became 13 percent more competitive against its neighbors in the 11 years through 2009, mirroring similar declines in Spain and Greece, according to a wages-based indicator designed by the European Central Bank.
The pay-off is evident in the performance of Siemens, Europe’s largest engineering company. Since 2001 it has recorded 23.1 billion euros ($29 billion) in restructuring costs, according to estimates by Morgan Stanley. That efficiency-drive helped boost the European share of Siemens’ sales to 41 percent in 2009 from 32 percent in 2004 and pushed its operating margin above those of General Electric Co., Alstom SA and ABB Ltd.
Exporters have pushed the DAX 3.9 percent higher this year, with Siemens shares increasing 18 percent and BMW, which yesterday raised its earnings forecast, climbing 32 percent. The Spanish and Greek benchmarks have lost 14 percent and 29 percent, respectively, and the U.S. Dow Jones Industrial Average has declined 0.6 percent.
“Talking to companies you get the feeling that they are really quite positive about their earnings and expectations,” said Stefan Moeckel, a fund manager at WestLB Mellon Asset Management in Dusseldorf, Germany, which manages about 40 billion euros. He says the DAX may reach 7,000 this year, compared to its level of 6,173 at 2:45 p.m. in Frankfurt today.
Commerzbank AG Chief Executive Officer Martin Blessing said July 8 Germany is growing at a faster pace than anticipated. Deutsche Bank AG predicts that the German economy will expand 2 percent this year, more than France, Italy and Spain.
German voters are yet to be convinced about the benefits of the euro as they foot the biggest share of the bailouts agreed by leaders earlier this year to rescue the currency. Fifty-one percent of respondents in a poll published on June 30 by the mass-selling Bild tabloid called for a return to the deutsche mark. That’s up from a third who wanted the euro scrapped in March 2008.
The reason for their irritation is that Greece and other so-called peripheral economies “broke the rules” of the euro by living beyond their means, said Joerg Kraemer, chief economist at Commerzbank in Frankfurt. Of the 610 billion euros pledged by governments, Germany could have to pay as much as 170 billion euros.
While Kraemer says quitting the euro is “not on the agenda,” Morgan Stanley’s co-chief global economist Joachim Fels has said that may change. Inflation expectations may accelerate if investors question governments’ commitment to fiscal discipline, he says, prompting a German rethink of membership.
A German exit is “clearly not a near-term possibility,” Fels said in a May 18 interview on Bloomberg Television. “It is a distinct possibility longer-term.”
There may even be some benefits to Germany from quitting the bloc, said Christopher Smallwood, an associate of London- based investment consultancy Capital Economics Ltd. A new deutsche mark could appreciate enough to cut the country’s trade surplus, depressing prices and forcing the government to stoke demand at home, he said in a July 11 report.
“The huge external surplus, from which German consumers derive no benefit, would be translated across into increased public and consumer spending,” said Smallwood. “The standard of living of German households would rise substantially.”
Germany’s focus on exports and budget discipline has drawn criticism from billionaire investor Soros, who says the country should buy more goods from other countries and labels Germany “the main protagonist” for Europe’s crisis. “Germany is endangering the European Union,” Soros said in Berlin on June 23.
Euro membership has nevertheless sheltered Germany, which relies on exports for 41 percent of gross domestic product, from the ravages of the global financial crisis, said Juergen Pfister, chief economist at Munich-based lender Bayerische Landesbank. Prior to the euro, the mark was a haven in times of turmoil and prone to volatility, surging about 50 percent against the Italian lira in the first half of the 1990s.
“The deutsche mark would have appreciated massively as a result of the financial crisis, harming German exports and making the 2009 recession much worse,” said Pfister. “The euro provides stability.”
Mark Cliffe at ING Bank NV calculates that any splintering of the euro area would mean a deflationary shock in Germany and a slump in output of about 10 percent over two years.
Instead, German companies are cashing in on the euro’s 16 percent decline since November as it makes BMW and Volkswagen AG’s Audi cars cheaper abroad and swells their value when the revenue is repatriated. Shares of TUI AG, Europe’s largest travel company, have risen 39 percent this year and the company on July 6 raised its forecast for global container shipping, citing a “notable” recovery.
Exporters’ success is filtering into the broader German economy. Unemployment declined for a 12th month in June and the Organization for Economic Cooperation and Development’s standardized measures shows a jobless rate of 7 percent in May, 2.7 percentage points lower than the U.S.’s. Business confidence reached a two-year high in June, according to the Ifo institute.
“In a way, we are the winner because of the high exports,” said Christa Randzio-Plath, the former chairwoman of the European Parliament’s monetary affairs committee and now professor at the University of Hamburg. “We would pay for going out of the euro area.”
Americans in 70% Majority See More Jobless in Poll (Update1)
By Mike Dorning and Catherine Dodge
July 14 (Bloomberg) -- More than 7 out of 10 in the U.S. say the economy is mired in recession, and the country is conflicted over how to balance concerns over joblessness and the federal budget deficit, according to a Bloomberg National Poll.
Just like the experts, Americans are torn about whether the federal government should focus on curbing spending or creating jobs, the poll conducted July 9-12 shows. Seven of 10 Americans say reducing unemployment is the priority. At the same time, the public is skeptical of the Obama administration’s stimulus program and wary of more spending, with more than half saying the deficit is “dangerously out of control.”
This concern over spending extends to aid for the jobless. With unemployment at a near-record high of 9.5 percent in June, the public is closely split on whether another extension of jobless benefits, which is stalled in Congress, is worth the $34 billion cost.
“They’re just running out of patience,” says J. Ann Selzer, president of Selzer & Co., a Des Moines, Iowa-based company that conducted the survey. “The number they’re seeing change is the deficit. It’s rising at what seems like an astronomical rate. The number that seems intractable is the unemployment rate.”
The Obama administration expects a record budget deficit this year of more than $1.5 trillion, or 10.6 percent of GDP, according to projections the White House released in February. The U.S. deficit is a greater percentage of GDP than any other major industrialized nation except the U.K., where it is estimated to reach 11.4 percent, and Ireland, where it will be 12.2 percent, according to International Monetary Fund projections released in April. The only deficit-reduction measure that gets strong support in the poll is higher taxes on upper-income Americans.
The public’s perception that the U.S. is still in recession contradicts data showing the economy has been growing for a year, with the Commerce Department reporting GDP rising at 2.7 percent annual rate in the first quarter. The median forecast in a Bloomberg News survey of economists conducted July 1-8 shows 3.2 percent growth for the second quarter.
Four months ahead of the midterm congressional elections, the poll’s results show a challenging climate for Democrats. The public mood is bleak, with 63 percent saying they believe the country is on the wrong track, the most negative reading of Obama’s presidency. After a year of economic growth, 71 percent say the economy is still in recession; another 13 percent say the economy is faltering and will dip back into recession.
Not Better Off
Only 1 in 6 say they believe they are personally better off than they were 18 months ago, when President Barack Obama took office. They are more apt to see the economy today as deteriorating than improving.
More than half say they are responding to the economic climate by hunkering down. Fewer than a quarter say they are getting back to normal and only 16 percent are seeing opportunity and taking risks. The public’s posture is more pessimistic than the view of global investors polled a month earlier. In a poll of Bloomberg customers conducted June 2-3, more than twice as many respondents -- 35 percent -- said they are seeing opportunities and taking risks.
The divergence in the outlooks of the general population and investors fits the way each group is experiencing the economic cycle. The public confronts an unemployment rate hovering near a 26-year high, home values and retirement portfolio balances that remain below pre-recession levels, and the debt crisis in Europe that threatens the global recovery.
The public’s perception is gloomier than some recent economic data: The U.S. economy has been growing for a year, first-quarter corporate profits were up more than 33 percent from a year earlier and research published in 1980 by Federal Reserve Chairman Ben S. Bernanke points to the possibility of “an investment boom” following resolution of uncertainty such as the jitters provoked by the crisis in Europe. In addition, investors have benefited from a rise of more than 36 percent in the S&P 500 stock index since Obama took office even after the recent turmoil in the markets.
The public gives the Obama administration little credit for its tax cuts, which according to the Washington-based Tax Policy Center lowered federal income taxes for 93 percent of filers. Asked to compare their federal income taxes to what they paid during George W. Bush’s presidency, only 7 percent say they are lower; 20 percent say their taxes are higher and 65 percent say they are about the same.
The Bloomberg National Poll is based on interviews with 1,004 U.S. adults ages 18 or older. Percentages based on the full sample may have a maximum margin of error of plus or minus 3.1 percentage points.
Republicans Pick Deficit
Americans’ anxieties over the economy are reflected in the top issues they see facing the country: Unemployment and jobs, cited by 41 percent, and the federal deficit, cited by 26 percent, dwarfed other concerns. Few Democrats share the concern over the deficit, with just 7 percent choosing it as the top issue -- last in a list of five -- versus 44 percent of Republicans and 31 percent of independents.
“People need to have work to keep their living going,” says poll respondent Jane Phillips, an 80-year-old retired school teacher from Springfield, Ohio, who listed unemployment as the most important issue. “It downgrades our people if they don’t have anything to do.”
The two big priorities are reversed among respondents who say they will definitely vote in November and say the election is exceptionally important. A 41 percent plurality name the deficit as the top issue, compared with 33 percent who pick jobs among those who say they are intensely interested in the November congressional elections. Respondents who describe themselves as Republicans say they are more likely to vote, the poll shows.
“The debt that our kids are accumulating is going to be beyond belief,” says Jim Tympanick, 55, of Foxborough, Massachusetts, an independent who works in technology support. “I don’t see how it can be rectified without an increase in taxes.”
The White House hasn’t made much progress in selling its $862 billion economic stimulus package. Asked how their opinion of the stimulus has changed in recent months, respondents were divided about evenly among those who say they had become more supportive, those who are less supportive and those who haven’t changed their opinion.
Other high-profile spending plans undertaken in the wake of the financial crisis have fared worse. The assistance package to automobile companies is becoming less popular: 48 percent say they had become less supportive in recent months versus 17 percent who say they have become more supportive.
By a two-to-one margin, the public classifies the $700 billion Troubled Asset Relief Plan that Congress passed in 2008 as the financial industry teetered as an “unneeded bailout” rather than “necessary.”
Asked about a range of options to cut the budget deficit, the public is willing to consider removing the cap on earnings covered by the Social Security tax, currently set at just under $107,000, and eliminating tax cuts for the wealthy enacted under Bush.
The public opposes a 2 percentage point increase in income tax rates on the middle class, cutbacks in Social Security or Medicare benefits, though 52 percent say they would at least consider an increase in the eligibility age for Medicare to 67 from 65.
The public is divided on cuts in spending on defense, education, public housing, regulatory agencies or public works and on discontinuing extensions of unemployment benefits to help close the deficit.
Perceptions of the economy’s performance split sharply along party lines. A 48 percent plurality of Democrats say the economy is getting better. Only 17 percent of Republicans and 19 percent of independents see an improving economy.
Younger Americans also had a slightly more positive read on the economy, with 31 percent of people under 35 saying they believe it is improving. Middle-aged Americans had the most negative reading, with only 24 percent describing the economy as getting better. Among those over 55, 28 percent say the economy is improving.
Voters in Western states also were more pessimistic, with 24 percent seeing an improving economy versus 27 percent in the Midwest, 29 percent in the Northeast and 30 percent in the South.
To see the methodology and exact wording of the poll questions, click on the attachment tab at the top of the story.