LATICONOMICS

2012-01-28T19:52:00.001-08:00

EU signs ACTA, global internet censorship treaty

Rady Ananda

Today, the European Union and 22 member states signed the Anti-Counterfeiting Trade Agreement (ACTA), Japan’s Ministry of Foreign Affairs announced. They have now joined the US and seven other nations that signed the treaty last October.
This signing ceremony merely formalized the EU’s adoption of ACTA last month, during a completely unrelated meeting on agriculture and fisheries, reports TechDirt.
Though initiated by the US, Japan is the official depository of the treaty.
Removal of the Three Strikes clause, in which users accused of three counts of piracy would be barred from the internet, paved the way for the EU to adopt ACTA last month.
Related to ACTA, a chapter in the Trans Pacific Partnership Agreement (TPP) “would have state signatories adopt even more restrictive copyright measures than ACTA,” reports the Electronic Frontier Foundation.
Both ACTA and TPP were developed without public input and outside international trade groups, like the World Trade Organization and the Organization for Economic Cooperation and Development.

Leaked cables published by WikiLeaks in 2009 exposed early drafts of ACTA, resulting in a firestorm of controversy. Those cables, coupled with later releases, showed that ACTA negotiationsbegan in 2006 and were controversial even to participating states. An historical summary of the treaty’s progress through December can be found here.

Speaking Perpetually To The Political Wind: Why Obama’s Words Lack Authority

Saman Mohammadi

“Now everything’s a little upside down, as a matter of fact the wheels have stopped
What’s good is bad, what’s bad is good, you’ll find out when you reach the top.” – Bob Dylan, Idiot Wind.
“No rays from the holy heaven come down
On the long night-time of that town;
But light from out the lurid sea
Streams up the turrets silently-
Gleams up the pinnacles far and free-
Up domes- up spires- up kingly halls-
Up fanes- up Babylon-like walls-
Up shadowy long-forgotten bowers
Of sculptured ivy and stone flowers-
Up many and many a marvellous shrine
Whose wreathed friezes intertwine
The viol, the violet, and the vine.
Resignedly beneath the sky
The melancholy waters lie.
So blend the turrets and shadows there
That all seem pendulous in air,
While from a proud tower in the town
Death looks gigantically down.” – Edgar Allan Poe, The City in the Sea (1831).
“John Murdoch: Excuse me. How do I get to the end of the line?
Train Passenger: You want the Express.
John Murdoch: [after train blows by him] Hey, how come that train didn’t stop?
Station Master: That’s the Express.” - Dark City, Directed by Alex Proyas (1998).

“A man made of stone has nothing to say.” – Kno, If You Cry f. Natti, from the album Death Is Silent (2010).

Obama Signs Global Internet Treaty Worse Than SOPA

White House bypasses Senate to ink agreement that could allow Chinese companies to demand ISPs remove web content in US with no legal oversight

Paul Joseph Watson

Months before the debate about Internet censorship raged as SOPA and PIPA dominated the concerns of web users, President Obama signed an international treaty that would allow companies in China or any other country in the world to demand ISPs remove web content in the US with no legal oversight whatsoever.

Obama Arms Mexican Narco-Terrorists

The Alex Jones Show: Obama's Treasonist Act Gives Mexican Narco Terroris...

Mexico is a Narco Terrorist State: Thermal drug mule video

Civilian Personnel: The Missing Piece in the Pentagon’s Budget Puzzle

by Christopher Preble

While most news stories have accurately characterized the Obama administration’s proposed military spending cuts as “modest,” the Pentagon is planning significant reductions in the number of active-duty troops in the Army and Marine Corps. Both forces will be larger than they were in 2001, but the active-duty Army will fall from a post-9/11 high of 570,000 in 2010 to 490,000. The Marine Corps will go from 202,000 to 182,000.
The DoD should likewise reduce civilian personnel.
The reason the Pentagon’s plan places so much emphasis on personnel is stated clearly in the document (pdf):

Military personnel costs have doubled since 2001, or about 40% above inflation, while the number of full-time military personnel, including activated reserves, increased by only 8% during the same time period.

Marco Rubio's Hot Political Love Triangle

Divers Recover Woman's Body in Costa Concordia

Ten Red Lines Washington’s Totalitarian Terrorist State Has Crossed

Saman Mohammadi

The government in Washington is a failed terrorist state. It can no longer manage American public opinion, its violations of international law are resented by many nations, and it has failed to psychologically dominate the world by unleashing terror at home and abroad.
To put it simply, nations are not afraid of America because it has military strength combined with political vision, rather, they are afraid because America’s leaders are insane and self-destructive. In other words, they are afraid of a failed terrorist state, not a global superpower.

Zambada Niebla Case Exposes US Drug War Quid Pro Quo

Posted by Bill Conroy -

Prosecutor, DEA Agent Confirm Intel From Sinaloa Mafia Used to Undermine Juarez, Beltran Leyva Drug Organizations

U.S. government officials have long presented the drug war through the media as a type of "Dirty Harry” movie, in which hardscrabble cops are engaged in a pitched battle with hardened street criminals who threaten the very social fabric of life behind America’s gated communities.
Of course it’s a big pretense, with the truth being closer to what really goes on in the marketplace of the US everyday. The drug war is, in reality, a drug business in which backroom deals are cut to advance the profit motives of the business entities involved, whether they be narco-trafficking organizations, or weapons manufacturers or government bureaucracies — and the aspiring, greedy careerists who inhabit their leadership ranks.
But even the US government makes mistakes, and in this case it’s the government’s own agents and prosecutors who have that egg on their face via affidavits filed in early December in a controversial criminal case now pending in the Windy City. The pleadings supposedly advance the government’s case against a major Mexican narco-trafficker, Jesus Vicente Zambada Niebla. In reality, though — for any person of a critical mind reading them — the court documents demonstrate the insidious nature of the cooperation that exists between the US government and Mexico’s Sinaloa mafia organization.
Nowhere has the peel on that sour fruit been stripped back more cleanly with the paring knife of truth, revealing the bloody pulp inside, than in the ongoing narco-trafficking case against the rising Mexican Sinaloa Cartel capo Zambada Niebla — son of Ismael “El Mayo” Zambada Garcia, who, together with business associate Joaquin Guzman Loera (El Chapo), serves as a godfather of the Sinaloa organization.

CBS News Poaches Narco News’ Drug War Coverage Posted. by Bill Conroy

Network Producer Also Concedes “Some Bloggers Were Out Ahead of Us” on the Fast and Furious Story But Were Given No Credit

Taking a poke at the mainstream media is old hat in the new age of dispersed media access, but the mechanizations of some old-world information clowns are still worth illuminating from time to time, particularly when they involve pilfering unapologetically work done by the independent press.

In the spotlight on that front for this expose is CBS News, part of CBS Corp.’s “Entertainment business segment,” which accounts for some 53 percent of the parent company’s annual revenue of $14 billion, according to filings with the U.S. Securities and Exchange Commission.

You would think with that kind of pecuniary clout, the employees of CBS News would have no need to lift and repurpose deep reporting unabashedly, without credit, from independent journalists, who are invariably underpaid — if at all. But, in this case, and in my experience with many other interactions with network TV honks, the evidence of such behavior in play seems rather convincing.

The story in question relates to arms trafficking between the United States and Mexico, legal gun running in this case as part of a U.S. State Department program known as Direct Commercial Sales (DCS) — through which U.S. companies are approved to sell arms to Mexico, via the Mexican military. Given the situation in Mexico with the drug war, and the extent of the corruption within the government there, including its military, the DCS program appears to be a direct conduit for weapons transfers that empower narco-trafficking organizations.

At least that’s the nature of the story that Narco News broke in early 2009, and continued to follow through this year, with three additional story updates following the original scoop — which carried the headline “Legal U.S. Arms Exports May Be source of Narco Syndicates Rising Firepower.”

In early December of this year, nearly three years after Narco News published its initial story on the DCS program, CBS News, via its well-marketed “Investigative Unit” (which takes credit for exposing the Fast and Furious

Fast and Furious Is One Among Many Similar Drug-War Warts

Turf Wars, Agency Budgets and Case Stats Trump Lives in the Era of Prohibition

Ever since ATF’s Fast and Furious gun-running operation was catapulted into the national spotlight in early 2011, the focus has been on the politics influencing the police work and the manipulations behind intelligence operations, with little to no attention paid to the dysfunction of the drug-war bureaucracy.
A report released by the US Government Accountability Office in June 2009, some three months before Operation Fast and Furious was even launched, underscores that dysfunction in succinct detail. Advance copies of that report were provided at the time to “the Departments of Homeland Security, Justice, and State and to the Office of National Drug Control Policy,” GAO documents state.
In that now two-and-a-half-year-old report is a blistering indictment of operations, obviously already in existence prior to June 2009 and Fast and Furious, that utilized a strategy similar to that employed in Fast and Furious — which allowed criminals to “walk” thousands of guns into Mexico under the watch of the Bureau of Alcohol, Tobacco, Firearms and Explosives (better known as ATF). The supposed goal: identify and bring to justice the higher-ups in Mexico’s arms trafficking organizations.
Here are the money graphs from the GAO report:

Gingrich Took a Month to Rebound, but Here He Is

By Al Giordano

Now that everyone in this electoral projections business is picking former House Speaker Newt Gringich to win a come-from-behind victory in today's South Carolina primary, let's reflect on why they had so little faith until after the polls began turning his way. Less than a week ago, the New York Times' 538 blog projected former Massachusetts Governor Mitt Romney with an 82 percent chance to win in the Palmetto State and, citing its method of "regression analysis" gave him a 98 percent chance to win the GOP nomination.

Inside Tijuana Drug Lords

Border Wars: City Under Siege Narrated for the Visually Impaired

Drug Tunnel

Nuclear War against Iran. by Michel Chossudovsky

The launching of an outright war using nuclear warheads against Iran is now in the final planning stages.

Coalition partners, which include the US, Israel and Turkey are in "an advanced stage of readiness".

Various military exercises have been conducted, starting in early 2005. In turn, the Iranian Armed Forces have also conducted large scale military maneuvers in the Persian Gulf in December in anticipation of a US sponsored attack.

Since early 2005, there has been intense shuttle diplomacy between Washington, Tel Aviv, Ankara and NATO headquarters in Brussels.

Debkafile reported on 17 January that an imminent joint Israeli-US exercise had been cancelled by Israel’s prime minister, and not by the US as widely supposed. Convinced that Iran has made the decision to become a nuclear power Mr Netanyahu is preparing for possible unilateral attacks on Iranian nuclear sites.
British press reports say agents from the CIA and MI6 are operating within Syria while British and French Special Forces are training members of the Free Syrian Army in Turkey. Pravda has claimed that NATO snipers who fought in Libya have been sent to Syria.

As regional war threatens drastic and unforeseen consequences in the Middle East some commentators claim that humanitarian benefits justify Western intervention in repressive states. This claim is worth considering in the context of the events that have befallen Libya.

The Greatest Threat

It's not the Mooslims

by Justin Raimondo,

There’s always a Looming Danger, an Ominous Threat lurking somewhere – that’s the War Party’s bread-and-butter. Back in the day, it was the Germans, who were going to cross the Atlantic and meet their Japanese allies somewhere near the Mississippi. Then it was the Commies, who were not only in the process of swallowing Asia but supposedly had their Fifth Column right here in the US, ready willing and able to take the Capitol at a signal from the Kremlin. After that there was some hesitation in deciding just who or what would take the place of the Red Threat, but that was decided on September 11, 2001, when Osama bin Laden’s Global Caliphate emerged as the Bogeyman of the moment. It turned into quite a long moment, as we have seen, one that still lingers to this day, even after bin Laden’s death and the crushing of al-Qaeda: Americans, being sentimentalists, hang on to their villains long after their shelf life has expired.

CIA Drug Ops Conspiracy-Unaired Documentary-Full Length

Posted byRicardo Valenzuelaat12:03 PM0comments

2011-08-30T17:58:00.001-07:00

Victor Davis Hanson

A Vineyard Too Far

People who rail against “fat cats” shouldn’t vacation with them.

By Sunday afternoon, the Gallup tracking poll showed a 17-point spread in the president’s approval rating — 38 percent approval to 55 percent disapproval. Such polls are fickle and can go up and down quickly, often depending on unwarranted and unfair perceptions and media hype, hinging on everything from hurricanes to killing bin Laden. That said, these recent abysmal numbers might suggest that for the first time, a considerable number of Americans are starting to be turned off not just by Barack Obama’s economic policies, but by Barack Obama himself. But why now?

The president’s latest Martha’s Vineyard vacation was a public-relations disaster, wholly unnecessary, and in part responsible for Obama’s most recent slide in the polls. Part of the problem was purely coincidental and no one’s fault: Who could have expected that while the president of the United States was resting on an exclusive private beach on a tony island on a calm August day, millions of Eastern Seaboarders around him would be engaged in a media-driven frenzy of emergency preparation and evacuation?

Yet most of the negative perception was the president’s own doing. For nearly three years, there has been something strange about the First Family’s ritzy getaway tastes. The annual Martha’s Vineyard rentals were bookended by First Family junkets to Vail, Costa del Sol, and Hawaii. The choice of venues spawned at least three problems for the president that have nothing to do with the First Family’s right, and indeed duty, to enjoy a little well-earned vacation time — or with the fact that other presidents have vacationed in nice places.

First, Obama’s fiery rhetoric (“fat-cat bankers,” “corporate jets,” “millionaires and billionaires,” “redistributive change,” “at a certain point you’ve made enough money,” etc.) has demonized the better off. Many successful liberal presidents do that, but they finesse the necessary fundraising and schmoozing with Wall Street zillionaires with tact and discretion. Bill Clinton was a past master at gluing a populist veneer atop his deep fascination with old money and hip celebrity. The Obamas are far clumsier in both their class-warfare boilerplate and their overt elite tastes, whose contradictions they apparently either miss or don’t much care about.

No doubt this August the presidential advisers, without a clue about life in Tulare or Des Moines, gave sycophantic pep talks to the Obamas not to listen to “right-wing talk radio” and just enjoy what they like to enjoy. Obama himself apparently is still confident that the media will always exempt his golfing in a way they never did Bush’s far less frequent putting. Michael Moore, after all, is not going to cut and paste a video clip of Obama on the fairway.

Yet some photos inevitably leaked out of the “redistributive change” statist at his $50,000-a-week rented estate, surrounded by “millionaires and billionaires” who could alone afford such rental prices, many of whom flew in on “corporate jets.” That disconnect appears to the American public as abjectly hypocritical. We all know that for the president to keep pushing his agenda of higher taxes, he will soon inevitably get back to bashing the rich. But we also assume that this time the public has seen the flip side of a one-eyed Jack and wonders, when the president hits up his Vineyard neighbors for campaign cash at his $20 million rented estate, whether he will first make sure that they are not “fat cats” and owners of “corporate jets.”

Even right-wing presidents, even in good times, know enough not to rub in too much the perks of being president. George W. Bush was pilloried for chain-sawing at “the ranch,” as if he were a counterfeit outdoorsman; but he still knew that his media critics suffered far more in his beloved nowheresville of Crawford than did he. The “Reagan Ranch” in the Santa Barbara Mountains was not really a ranch at all, but a rustic hovel, and the videos of Reagan in his early seventies, chopping wood amid burrs and stickers, with sweat spots under his arms, were not faked. In contrast, the elder Bush liked boating off his family estate in Maine — and was flayed for being a bit too happy with his seaside, preppie-sounding Kennebunkport mansion.

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Marco Rubio's Tide Is Rising
By Cal Thomas

In my high school days before sex and environmental education and the general dumbing down of the population, memorization of some Shakespeare was expected in Miss Kauffman's 12th-grade English class.
A favorite I still recall is this line spoken by Brutus in "Julius Caesar": "There is a tide in the affairs of men, which, taken at the flood, leads on to fortune; omitted, all the voyage of their life is bound in shallows and in miseries ..."

Sen. Marco Rubio, R-Fla., repeatedly says in various ways it is too soon, or he isn't ready, for higher office such as vice president. He's been in the Senate for a little more than seven months and has delivered only two major speeches -- his maiden speech on the Senate floor and one last week at the Ronald Reagan Presidential Library in Simi Valley, Calif.

In the Reagan Library speech, Rubio laid out his philosophical foundation, something that must be at the heart of any policy.

Defining the proper role of government ought to be the central issue in the coming presidential campaign. Indeed, it should occupy our thoughts between campaigns because those of us who pay income tax are not getting a good return on our investment.

Here's Rubio: "We have the opportunity -- within our lifetimes -- to actually craft a proper role for government in our nation that will allow us to come closer than any Americans have ever come to our collective vision of a nation where both prosperity and compassion exist side by side."

That takes the "compassionate conservatism" of George W. Bush to a different level. To Rubio, prosperity is not the opposite of compassion. Rather, the two are -- or should be -- joined.

Prosperity provides the means by which people can be compassionate to those truly in need, such as the disabled and elderly. It is also the ticket out of dependency for people who can work but have been robbed of their dignity by addiction to a government check.

Dignity leads to many other character qualities, which advance the true welfare of an individual, benefiting society. Someone with dignity, self-regard and respect for others is unlikely to take part in a flash mob attack.

Rubio points to a path beyond the familiar "either-or" debate; beyond envy of the wealthy and multiple and ineffective programs to liberate the "poor." This repetitive scenario has produced, said Rubio, "a government that not even the richest and most prosperous nation on the face of the Earth can fund or afford to pay for. An extraordinary tragic accomplishment, if you can call it that."

Rubio went further than what might be expected of a Republican, acknowledging his party is partly responsible for the growth of government:

"I know that it is popular in my party to blame the president, the current president. But the truth is the only thing this president has done is accelerate policies that were already in place and were doomed to fail. All he is doing through his policies is making the day of reckoning come faster, but it was coming nonetheless."

And then there is this, which shatters the left's stereotype about the right: "Conservatism is not about leaving people behind. Conservatism is about empowering people to catch up, to give them the tools ... that make it possible for them to access all the hope, all the promise, all the opportunity that America offers. And our programs to help them should reflect that."

If this is not a speech that lays the foundation for a Rubio run for higher office, it is a speech that ought to begin a major transition from costly and ineffective government programs to a renewed empowerment of individuals.

No one, perhaps not even Rubio, can know for certain whether he is "ready" for higher office. President Obama has proven he wasn't ready. Some leaders don't know they can lead until leadership is thrust upon them.

The right philosophy is key and the Reagan Library speech proves that Rubio has the most important ingredient of any leader: vision. Read it, be inspired and then consider whether Rubio's tide is rising.

An Unusual Economy?
By Thomas Sowell

Many in the media are saying how unusual it is for our economy to be so sluggish for so long, after we have officially emerged from a recession. In a sense, they are right. But, in another sense, they are profoundly wrong.

The American economy usually rebounds a lot faster than it is doing today. After a recession passes, consumers usually increase their spending. And when businesses see demand picking up, they usually start hiring workers to produce the additional output required to meet that demand.

Some very sharp downturns in the American economy, such as in the early 1920s, were followed quickly by bouncing back to normal levels or beyond. The government did nothing -- and it worked.

In that sense, this is an unusual recovery in how long it is taking and in how slowly the economy is growing -- while the government is doing virtually everything imaginable.

Government intervention may look good to the media but its actual track record -- both today and in the 1930s -- is far worse than the track record of letting the economy recover on its own.

Americans today are alarmed that unemployment has stayed around 9 percent for so long. But such unemployment rates have been common for years in Western European welfare states that have followed policies similar to policies being followed currently by the Obama administration.

Those European welfare states have not only used the taxpayers' money to hand out "free" benefits to particular groups, they have mandated that employers do the same. Faced with higher labor costs, employers have hired less labor.

The vast uncertainties created by ObamaCare create a special problem. If employers knew that ObamaCare would add $1,000 to their costs of hiring an employee, then they could simply reduce the salaries they offer by $1,000 and start hiring.

But, since it will take years to create all the regulations required to carry out ObamaCare, employers today don't know whether the ObamaCare costs that will hit them down the road will be $500 per employee or $5,000 per employee. Even businesses that have record amounts of cash on hand are reluctant to gamble it by expanding their hiring under these conditions.

Many businesses work their existing employees overtime or hire temporary workers, rather than get stuck with unknown and unknowable costs for expanding their permanent work force.

As unusual as 9 percent unemployment rates may seem to the current generation of Americans, unemployment rates stayed in double digits for months and years on end during the 1930s. Franklin D. Roosevelt's administration followed policies very similar to those of the Obama administration today. He also got away with it politically by blaming his predecessor.

White House bluster hides truth

STEVE HUNTLEY

That’s a mighty wind blowing from the east. No, I’m not talking about Hurricane Irene. It’s the blustery gusts stirred up long before Irene by the constant whining from the Obama White House: Everything but the administration’s own policies are responsible for the faltering economy.

Irene is only the latest of the “head winds” White House officials blame for feeble economic growth and persistent high unemployment. There was the earthquake/tsunami in Japan, the fiscal crisis in Greece, the civil war in Libya on top of Arab Spring uprisings in other Arab countries and, of course, Republicans refusing to go along with President Barack Obama’s spending binge, er, “investments.” One adviser even found head winds from the East Coast earthquake, though its most notable damage appeared to be cracks in the foundation of the Washington Monument.

No doubt these events did create drag for the economy. But Democrats never cut that kind of slack for President George W. Bush. They constantly talk about him inheriting a surplus from the Clinton years but ignore that he also inherited a deteriorating economy that produced a recession in March of 2001 just weeks after he was sworn in.

Liberals ignore the economic devastation of the Sept. 11, 2001, terror attacks in New York and Washington. Air traffic was grounded for days, commerce came practically to a halt. But none of that was allowed to intrude into the left’s narrative of Bush squandering the surplus.

Hurricane Katrina was a convenient cudgel to pound Bush over the failure of government to respond effectively to the disaster, though it was the Democratic-run governments of New Orleans and Louisiana, the first responders, that were the most guilty. Here again the Democratic narrative leaves out the economic consequences of Katrina.

The point is that any president has to deal with “head winds” to the economy from unexpected and uncontrollable events domestic and foreign. What’s remarkable about this presidency is the never-ending whining about them.

This finger-pointing is just passing the buck to avoid responsibility for policies that have failed to revive the economy and, worse, served to prolong the economic suffering.

There’s the nearly trillion-dollar stimulus that failed its goal of keeping unemployment from breaching 8 percent. ObamaCare and the new financial regulatory law have bureaucrats working overtime writing new regulations. That’s frozen investment by businesses large and small worried about the yet-to-be-determined costs of the new rules.

Obama and his advisers never flinch from anti-business rhetoric, further undermining investment. They rail about millionaires and billionaires but their tax proposals would hit small businesses earning far less than a million dollars.

Democrats sneer at the Texas job growth story by pointing out that a significant part of it is based in the oil and gas industry, revealing left-wing job-killing hostility to developing traditional energy resources. A study by the business analysis firm IHS Global Insight asserts increased offshore energy production could produce nearly 230,000 jobs, add $44 billion to the economy and provide nearly $12 billion in tax and royalty revenues to state and federal governments.

But documents released by Sen. David Vitter (R-La.) show that the administration’s campaign against deepwater drilling in the Gulf of Mexico caused 10 oil rigs to leave for better opportunities in waters off Egypt, Congo and other places — including Brazil where, ironically, Obama has promoted the ocean exploration he frustrates at home.

Meanwhile the administration pursues alternative energy jobs, though the New York Times reported this month that “federal and state efforts to stimulate creation of green jobs have largely failed.”

All the finger pointing, whining and passing the buck can’t hide the failure of Obamanomics.

Irene's Broken Windows

By Larry Kudlow

Get ready for a bunch of demand-side economists to tell you that the post-Hurricane Irene rebuilding phase is actually a good thing for future economic growth. But don't believe it.

Who has it right?

Joshua Shapiro, chief U.S. economist at MFR Inc., delivered my favorite quote on the subject to The New York Times: "If you're in the middle of recession, you just wander around blowing up buildings, and that would be your path to prosperity. And clearly, that's not the case. It's not the case with a natural disaster, either."

Echoing this thought, Ian Shepherdson, the chief U.S. economist at High Frequency Economics, bluntly noted on CNBC's website that "no one is made better off by the destruction of their home or workplace." He acknowledged the benefits of reconstruction work, but he dismissed the idea that somehow this is a net win for the economy.

It sounds to me as if both of these gentlemen are recalling the parable of the broken window, introduced by French free market philosopher Frederic Bastiat, in an 1850 essay called "That Which is Seen, and That Which is Not Seen." Though Bastiat agrees that repairing broken windows is a good thing, encouraging the glazier's trade and income, he argues that it is quite different from the idea that breaking windows is a good thing, in that it would cause money to circulate and encourage industry in general.

Why? Because a shopkeeper who spends money to fix broken windows cannot spend or invest that money on new ventures.

"It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library," Bastiat wrote. "In short, he would have employed his six francs in some way, which this accident has prevented."

In other words, the businesspeople who are spending to fix the damage of Hurricane Irene are not spending or investing that money on brand-new ventures or startups or on ordinary goods and services. Those are the real economics of Hurricane Irene.

There was a lot of damage incurred along 1,100 miles of U.S. coastline. Tragically, 28 deaths have been reported so far. There were toppled trees, power disruptions and flooding on damaged roads. Homes, commercial buildings and factories all stopped for at least a couple of days. In some sense, the human distress has been even greater than the economic distress.

On the other hand, lost sales, forgone consumer spending and temporary stoppages of production and employment all will be recouped in a relatively short period of time. Mark Zandi of Moody's Analytics suggests that the economic toll will be in the billions, but not the tens of billions. (Remember that the total U.S. gross domestic product is roughly $15 trillion.) So there's no black-swan event here that will throw our fragile economy into a double-dip recession.

Yes, the economic blow from Irene is noticeable, but it's temporary. In fact, what makes this economic setback even less worrisome is that it occurred over a weekend. You really didn't even lose two days of economic activity.

Restaurants, retailers, baseball games and Broadway shows all shut down, but only for a short bit. And actually, there was a lot of consumer buying in the days leading up to Irene. People went to Home Depot and Lowe's to find stuff with which to board up their windows. They went to Costco for food. And they went to Walmart and Dollar General for all sorts of things.

When the final tally is in, Irene may or may not qualify as a top 10 hurricane. But the history of such disasters is that the national economy rebuilds and snaps back shortly thereafter. Nonetheless, the economic rebuilding essentially gets you back to where you were before the storm. Unfortunately, there is virtually no net new investment from all of this.

That said, if President Barack Obama tries to use Hurricane Irene as an excuse to pour tens of billions of new infrastructure dollars into the economy, he's barking up the wrong tree.

For just as Bastiat's seen-and-unseen analysis holds for the shopkeeper repairing his window, it also holds for the impact of massive government spending on the whole economy. It's a huge mistake -- and a consequence of our fiscal profligacy -- when private money is not spent on new investment because funds are absorbed by big-government borrowing.

If we are to restore strong economic growth and job creation, we require measures such as pro-growth tax reform or regulatory rollback and repeal. In this sense, the new House Republican plan just released by Majority Leader Eric Cantor to repeal job-destroying regulations -- especially on labor and the environment -- makes a lot more sense than throwing money at the Federal Emergency Management Agency for new infrastructure banks.

Breaking fiscal windows is just as ineffective as breaking the shopkeeper's pane of glass.
Lawrence Kudlow is host of CNBC's The Kudlow Report and co-host of The Call. He is also a former Reagan economic advisor and a syndicated columnist. Visit his blog, Kudlow's Money Politics.

Can Obama Pull a Reagan?

Democrats inside and outside the White House are looking for a comeback strategy for President Obama, and their model is Ronald Reagan.

STEPHEN MOORE

Democrats inside and outside the White House are looking for a comeback strategy for President Obama, and their model is Ronald Reagan.

The Gipper's approval ratings were in the tank at the end of his second year in office, but he roared back to win 49 states against Democrat Walter Mondale. And Reagan's polling numbers at this stage of his presidency were not much better than Mr. Obama's are now.

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However, a new analysis from Laffer and Associates suggests that it will be very difficult for Team Obama to replicate Reagan. Reagan's numbers bottomed out in January 1983, right after the trough of the 1982 recession, at about 35%. But for the rest of 1983, Reagan's numbers steadily climbed and eventually surpassed 50% by the end of that year. For Mr. Obama, the trend line this year has been in the opposite direction.

"Reagan's numbers really began to soar by late '83," says Arthur Laffer, who was an economic adviser to Reagan. "The numbers really tracked the economic recovery."

That kind of political resurrection could happen for Mr. Obama if the economy heals. But right now unemployment exceeds 9%, and presidents typically don't get re-elected when unemployment is more than 8%. And then there are the "confidence" and "competence" factors, according to the Laffer report. These are measures of whether people feel that things are getting better and the president is doing the right thing, even if the economy isn't so good at that point in time. In 1984, the unemployment rate was still above 7.5 % and Reagan won big.

The Laffer report on the two presidents is aptly entitled "The Odd Couple." In this case Reagan would be Felix, because he cleaned up the mess; and Mr. Obama is more like Oscar, who leaves a bigger mess behind.

Deficit Committee Taps GOP Tax Expert as Leader

CBO's Fiscal Fantasy

President Obama's Competency Crisis

Can Krueger Fix the Economy?

A New Japanese Government?

Larry Summers’s Bad Math Is S&P Informed Opinion

Larry Summers’s Bad Math Is S&P Informed Opinion: Caroline Baum

By Caroline Baum

About Caroline Baum

Caroline Baum, a columnist for Bloomberg News since 1998, is the author of "Just What I Said: Bloomberg Economics Columnist Takes on Bonds, Banks, Budgets and Bubbles."

More about Caroline Baum

When Standard & Poor’s downgraded the U.S.’s long-term credit rating from AAA to AA+ on Aug. 5, Washington went on the offensive.

President Barack Obama’s advisers blasted S&P. The administration’s friends and allies came out with guns blazing. The Securities and Exchange Commission is reportedly scrutinizing S&P’s procedures connected with the downgrade. And the Senate Banking Committee is said to be pondering an investigation -- into what exactly, committee members haven’t said.

None of S&P’s detractors let us forget for one minute that this is the same S&P that slapped a AAA rating on collateralized subprime junk during the housing bubble, and that gave Enron Corp. and WorldCom Inc. investment-grade ratings shortly before each of them imploded.

What’s more, the U.S. Treasury found a $2 trillion error in S&P’s analysis, prompting Larry Summers, a former Obama economic adviser, to offer a rating of his own.

“S&P’s track record has been terrible and its arithmetic is worse,” Summers told CNN.

A pox on S&P’s house! Death to the messenger! In fact, the messenger was shot so early and often one might have missed the message amid all the gun smoke. Unless the U.S. gets its fiscal house in order and aligns the promises it has made to retirees with tax rates that don’t stunt growth, the nation’s sovereign- debt rating is unlikely to contain the first letter of the alphabet at all.

Ready, Shoot, Aim

As it turns out, the sharpshooters were wide of the target. S&P didn’t make an arithmetical error, as Summers would have us believe. Nor did the sovereign-debt analysts show “a stunning lack of knowledge,” as Treasury Secretary Tim Geithner claimed. Rather, they used a different assumption about the growth rate of discretionary spending, something the nonpartisan Congressional Budget Office does regularly in its long-term outlook.

CBO’s “alternative fiscal scenario,” which S&P used for its initial analysis, assumes discretionary spending increases at the same rate as nominal gross domestic product, or about 5 percent a year. CBO’s baseline scenario, which is subject to current law, assumes 2.5 percent annual growth in these outlays, which means less new debt over 10 years.

But S&P’s rating horizon is three to five years. The difference between the two assumptions amounts to a gap of about $250 billion in debt estimates for 2015: $14.5 trillion, or 79 percent of GDP, under the baseline scenario, versus $14.7 trillion, or 81 percent of GDP, under the alternative. (S&P includes federal, state and local government debt in its calculations.)

Over 10 years, the difference is, as Treasury says, $2 trillion and eight percentage points as a share of GDP.

Repeated Mistake

In its response to the S&P downgrade, Treasury used the word “mistake” eight times, “error” five times, and other pejorative words three times -- all in a 550-word memo. Just in case anyone missed the point.

To be sure, S&P’s critics have legitimate gripes. Was the credit rating company being too much of an activist in demanding $4 trillion of savings for the U.S. in order to maintain its AAA rating? Why didn’t S&P’s acceptance of a slower rate of spending produce a different outcome? Was the downgrade political? If so, is this a legitimate framework for assessing the creditworthiness of the U.S.?

These are all valid questions. Yet when the discussions between S&P and Treasury didn’t have the desired results, the administration set out to discredit the messenger.

Cognitive Dissonance

Imperfect as that messenger may be, shooting him doesn’t minimize the message. Fiscal policy is on an unsustainable path, largely the result of entitlement spending exacerbated by the retirement of the baby boomers. We have a government that lives beyond its means and a political class that lacks the will to find a solution.

For example, “preserving Medicare as we know it,” as House minority leader Nancy Pelosi is wont to say, isn’t an option. Medicare’s Hospital Insurance Trust Fund will be exhausted by 2024, according to the 2011 annual report from the program’s trustees. That’s five years earlier than they projected in 2010. Medicare has been running a cash-flow deficit, with expenditures exceeding income, since 2008.

The Social Security Trust Fund, which ran a cash-flow deficit excluding interest last year and is projected to run one this year, will be exhausted in 2036. (No, Virginia, there is no lockbox.)

‘Delicious Irony’

The Republicans’ intransigence on revenue increases, no matter what the source, is another stumbling block. As economist Art Laffer put it, “Who doesn’t want revenue increases” if they result from stronger economic and job growth? Almost everyone agrees the economy would get a boost from a more efficient tax system that eliminates loopholes and lowers corporate and individual income-tax rates.

Looking at the big picture, the American Enterprise Institute’s Alex Pollock finds a “delicious irony” in the S&P downgrade. The only reason it carried so much weight is the federal government gave S&P that power. S&P is one of three nationally recognized statistical rating organizations (NRSROs), along with Moody’s and Fitch, designated by the SEC in 1975.

The Dodd-Frank financial-reform act includes a provision that would end their monopoly, but progress on implementing it has been slow.

In the meantime, just think if all the energy expended to discredit S&P had been put to better use. Maybe the Obama administration could have offered up its own plan to put the U.S. on a sustainable fiscal path -- perhaps one that passes muster with S&P.

Granny’s Fate Rides With Bernanke in Jackson Hole

Granny’s Fate Rides With Bernanke in Jackson Hole: Caroline Baum

Illustration by Nathaniel Russell

By Caroline Baum

About Caroline Baum

Caroline Baum, a columnist for Bloomberg News since 1998, is the author of "Just What I Said: Bloomberg Economics Columnist Takes on Bonds, Banks, Budgets and Bubbles."

More about Caroline Baum

Investors around the world are waiting to find out whether Federal Reserve Chairman Ben Bernanke puts any QE3 in his opening remarks today at the Kansas City Fed’s Jackson Hole conference. It was one year ago at the same event that he outlined the Fed’s policy options for an ailing economy, including a second round of quantitative easing that started in early November.

A second audience will be listening to Bernanke -- not as closely, perhaps, nor in real time, but with no less a stake in the outcome: retirees living on fixed incomes who have watched their returns dwindle to almost nothing.

Bernanke has already told this group to forget about earning a higher rate of interest anytime soon. At the conclusion of its Aug. 9 meeting, the Fed announced it would keep the benchmark rate near zero “at least through mid-2013.” What’s a small saver to do?

Monetary policy isn’t offering much solace in the short run. That’s because the Fed adjusts interest rates and, in so doing, changes the incentives to spend and to save.

When inflation-adjusted interest rates are high, the public is induced to forego current consumption in favor of future consumption. In plain talk, we’re being paid to save.

Alternatively, when real rates are low or negative, as they are now, the incentive is to spend today and forget about saving for a rainy day. Interest rates act as a guide to our choices.

Risk Management

That’s one explanation of how monetary policy works. There are others. While currently out of favor, monetarism teaches that if the Fed creates more money than the public wants to hold, people will spend it. It’s akin to dropping money from a helicopter, the metaphor adopted by the late Milton Friedman to teach his University of Chicago students how monetary policy works.

Bernanke explains it in a different way. Once short-term rates hit zero, monetary policy works through the portfolio balance channel, a theory he outlined at Jackson Hole last year. Specifically, when the Fed buys risk-free Treasuries, it depresses the yields and forces investors to buy other assets that carry increased credit and interest-rate risk -- long-term corporate bonds or stocks, for example.

In a Nov. 19 speech, he even argued that there was no Q in quantitative easing. The thrust of QE, he said, comes from changing the quantity of bank reserves, a channel he called weak. Securities purchases, on the other hand, work through portfolio substitution.

“The Fed should talk in terms of reserves, not asset prices,” said Marvin Goodfriend, a professor of economics at Carnegie Mellon University in Pittsburgh and a former research director at the Richmond Fed.

Bad Marketing

The reason? To remind the public of the Fed’s unique authority, independent of the political process, “to stabilize the purchasing power of money,” Goodfriend said.

Maybe it’s just a case of bad marketing, although the Fed has been emphasizing the asset side of its balance sheet since December 2008, when it lowered the funds rate to near zero. For an institution that is so concerned with its communication policy, the Fed could do better. The talk about forcing investors to assume more risk sounds as if the Fed is encouraging Gram and Gramps to redeem those six-month Treasury bills, cash out of the money-market fund and let the CDs mature, and go out and buy stocks and high-yield bonds.

Small savers and retirees have reason to be upset. It’s as if monetary policy has been personalized to punish one group that behaved well (savers) and reward another that over-borrowed and over-spent.

Daily 400-point swings in the Dow Jones Industrial Average aren’t for everyone. Most octogenarians, I’d venture to say, prefer less volatility.

Bubble Blindness

Goodfriend says the Great Inflation of the 1970s soured many savers on owning long-term bonds. They opted for short-term instruments instead, which left them vulnerable to periodic bouts of ultra-low rates (the periods seem to be getting longer).

Besides, the Fed’s extended policy of zero-percent interest rates is apt to spark a bubble in some unexpected asset class. (Farm land and student loans have been mentioned as possible candidates.) When it comes to bubble identification, the Fed is the last one to know and even slower to admit to a role in its creation.

The Fed tries to be neutral in its conduct of monetary policy, buying Treasuries only and no other asset classes. (The various lending facilities created in 2007 and 2008 to deal with the financial crisis are the exception.) In the same spirit, the central bank needs to communicate that it’s running monetary policy for everyone, not just sophisticated investors.

Don’t Forget Gramps

“A policy that is effective in getting the economy to grow more rapidly will improve the lives of most people,” says former St. Louis Fed President Bill Poole.

Stronger growth means more hiring, more income, bigger profits, higher stock prices and higher real interest rates.

Figuring out what’s “effective” isn’t so easy. I doubt that Bernanke will offer any new solutions today. After all, three members of the Fed’s policy committee dissented from the Aug. 9 decision to commit to near-zero rates through mid-2013.

Inflation readings are much higher than they were a year ago: 3.6 percent versus 1.2 percent for the consumer price index; 1.8 percent versus 0.9 percent for the core CPI, which excludes food and energy and is given more weight by policy makers. The bar for additional Fed action has been raised.

Whatever Bernanke says or doesn’t say is sure to have a market impact. Stocks, for example, will probably be disappointed without the prospect of a Fed fix.

As for Gram and Gramps, who won’t be attending this or any Fed symposium, Bernanke will have nothing to offer. At minimum he could acknowledge their predicament and stop encouraging them to buy junk bonds.

How Steve Jobs Made Business Cool Again, 1981

How Steve Jobs Made Business Cool Again, 1981: Virginia Postrel

Illustration by Leif Parsons

By Virginia Postrel

About Virginia Postrel

Virginia Postrel writes about commerce and culture, innovation, economics and public policy. Shes the author of "The Future and Its Enemies" and "The Substance of Style," and is writing a book on glamour.

Why Alan Krueger's Jobs Analysis Was Spot On

Why Alan Krueger's Jobs Analysis Was Spot On: The Ticker

By Paula Dwyer

In a March 31 Bloomberg News op-ed, Princeton University economist Alan Krueger predicted that the unemployment rate, then at 8.9 percent, would keep falling. He was wrong -- it rose, and five months later it's still higher at 9.1 percent.

President Barack Obama today nominated Krueger to lead the Council of Economic Advisers, replacing Austan Goolsbee. Did the president choose someone who doesn't understand labor markets?

To the contrary. In the same op-ed, Krueger's analysis was spot on when he wrote about the employment-to-population ratio, which may offer a better window on job-market trends. As Krueger explained, the unemployment rate can be illusory because it only counts people who have actively looked for a job in the last month. He wrote:

"Here’s something to think about. At the end of this year, extended unemployment benefits will expire, while other people will exhaust their benefits during the course of the year. Once that happens we might start seeing more people give up looking for work, restoring the pattern where people unemployed the longest leave the labor force at a higher rate than others. After all, the prospect of finding a job after looking for two years is small, and it probably won’t improve much even if the labor market continues to heal.

So we might well see the labor force shrinking more even as the measured unemployment rate falls. Nonetheless, we still will have a serious joblessness problem even as the unemployment rate falls.

Instead of focusing on the unemployment rate, it may be better to look at the employment-to-population ratio, or the share of the population that is employed. This rate isn’t affected by whether someone is counted as in or out of the labor force.

Tellingly, the employment-to-population rate has hardly budged since reaching a low of 58.2 percent in December 2009. Last month it stood at just 58.4 percent. Even in the expansion from 2002 to 2007 the share of the population employed never reached the peak of 64.7 percent it attained before the March-November 2001 recession.

What this indicator tells me is that we weren’t creating enough jobs long before the recession that began in December 2007. If this pattern holds, even in recovery, it points to a much deeper and disturbing problem for the U.S. economy."

He was right: The employment-to-population ratio kept on slipping in subsequent months, reaching 58.2 percent in the June payrolls report and 58.1 percent in July. As my colleague Mark Whitehouse wrote in an Aug. 5 Ticker post, that's the lowest point since the 1983 recession. We'll see if it dips below that, to 58 or even lower, when the August employment figures are released on Friday.

Give Karl Marx a Chance to Save the World Economy

Give Karl Marx a Chance to Save the World Economy: George Magnus

Illustration by Jordan Awan

By George Magnus

Policy makers struggling to understand the barrage of financial panics, protests and other ills afflicting the world would do well to study the works of a long-dead economist: Karl Marx. The sooner they recognize we’re facing a once-in-a-lifetime crisis of capitalism, the better equipped they will be to manage a way out of it.

The spirit of Marx, who is buried in a cemetery close to where I live in north London, has risen from the grave amid the financial crisis and subsequent economic slump. The wily philosopher’s analysis of capitalism had a lot of flaws, but today’s global economy bears some uncanny resemblances to the conditions he foresaw.

Consider, for example, Marx’s prediction of how the inherent conflict between capital and labor would manifest itself. As he wrote in “Das Kapital,” companies’ pursuit of profits and productivity would naturally lead them to need fewer and fewer workers, creating an “industrial reserve army” of the poor and unemployed: “Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery.”

The process he describes is visible throughout the developed world, particularly in the U.S. Companies’ efforts to cut costs and avoid hiring have boosted U.S. corporate profits as a share of total economic output to the highest level in more than six decades, while the unemployment rate stands at 9.1 percent and real wages are stagnant.

U.S. income inequality, meanwhile, is by some measures close to its highest level since the 1920s. Before 2008, the income disparity was obscured by factors such as easy credit, which allowed poor households to enjoy a more affluent lifestyle. Now the problem is coming home to roost.

Over-Production Paradox

Marx also pointed out the paradox of over-production and under-consumption: The more people are relegated to poverty, the less they will be able to consume all the goods and services companies produce. When one company cuts costs to boost earnings, it’s smart, but when they all do, they undermine the income formation and effective demand on which they rely for revenues and profits.

This problem, too, is evident in today’s developed world. We have a substantial capacity to produce, but in the middle- and lower-income cohorts, we find widespread financial insecurity and low consumption rates. The result is visible in the U.S., where new housing construction and automobile sales remain about 75% and 30% below their 2006 peaks, respectively.

As Marx put it in Kapital: “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses.”

Addressing the Crisis

So how do we address this crisis? To put Marx’s spirit back in the box, policy makers have to place jobs at the top of the economic agenda, and consider other unorthodox measures. The crisis isn’t temporary, and it certainly won’t be cured by the ideological passion for government austerity.

Here are five major planks of a strategy whose time, sadly, has not yet come.

First, we have to sustain aggregate demand and income growth, or else we could fall into a debt trap along with serious social consequences. Governments that don’t face an imminent debt crisis -- including the U.S., Germany and the U.K. -- must make employment creation the litmus test of policy. In the U.S., the employment-to-population ratio is now as low as in the 1980s. Measures of underemployment almost everywhere are at record highs. Cutting employer payroll taxes and creating fiscal incentives to encourage companies to hire people and invest would do for a start.

Lighten the Burden

Second, to lighten the household debt burden, new steps should allow eligible households to restructure mortgage debt, or swap some debt forgiveness for future payments to lenders out of any home price appreciation.

Third, to improve the functionality of the credit system, well-capitalized and well-structured banks should be allowed some temporary capital adequacy relief to try to get new credit flowing to small companies, especially. Governments and central banks could engage in direct spending on or indirect financing of national investment or infrastructure programs.

Fourth, to ease the sovereign debt burden in the euro zone, European creditors have to extend the lower interest rates and longer payment terms recently proposed for Greece. If jointly guaranteed euro bonds are a bridge too far, Germany has to champion an urgent recapitalization of banks to help absorb inevitable losses through a vastly enlarged European Financial Stability Facility -- a sine qua non to solve the bond market crisis at least.

Build Defenses

Fifth, to build defenses against the risk of falling into deflation and stagnation, central banks should look beyond bond- buying programs, and instead target a growth rate of nominal economic output. This would allow a temporary period of moderately higher inflation that could push inflation-adjusted interest rates well below zero and facilitate a lowering of debt burdens.

We can’t know how these proposals might work out, or what their unintended consequences might be. But the policy status quo isn’t acceptable, either. It could turn the U.S. into a more unstable version of Japan, and fracture the euro zone with unknowable political consequences. By 2013, the crisis of Western capitalism could easily spill over to China, but that’s another subject.

U.S. Confidence Slumps to Lowest Since 2009

By Timothy R. Homan

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Women carry shopping bags in New York. Photographer: Scott Eells/Bloomberg

Play Video

Aug. 30 (Bloomberg) -- Jonathan Spector, chief executive officer of the Conference Board, talks about the group's consumer confidence survey for August and the outlook for the U.S. economy. The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July. Spector speaks with Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Play Video

Aug. 30 (Bloomberg) -- Robert Shiller, an economics professor at Yale University and co-creator of the S&P/Case-Shiller home-price index, talks about the U.S. housing market and economy, and his prescription for government action to boost growth and employment. Property values in 20 cities fell 4.5 percent in the year ended in June, after a 4.6 percent drop in the 12 months ended in May that was the biggest since 2009, according to the Case-Shiller index. Shiller speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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Aug. 26 (Bloomberg) -- Allan Meltzer, a professor at Carnegie Mellon University and a historian of the Federal Reserve, Jacob Frenkel, chairman of JPMorgan Chase International, and Dean Maki, chief U.S. economist at Barclays Capital, offer their views on today's speech by Fed Chairman Ben S. Bernanke at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming. This report also contains comments by Diane Swonk, chief economist at Mesirow Financial Holdings Inc., Allen Sinai, chief global economist at Decision Economics Inc., Richard Dekaser, an economist at the Parthenon Group, and Kevin Hassett, director of economic policy studies at the American Enterprise Institute. (Source: Bloomberg)

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Shoppers look over merchandise at a Gap Inc. store in San Francisco. Photographer: David Paul Morris/Bloomberg

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Confidence among U.S. consumers plunged in August to the lowest in more than two years as Americans’ outlooks for employment, incomes and business conditions soured. Photographer: David Paul Morris/Bloomberg

Confidence among U.S. consumers plunged to the lowest level in more than two years as Americans’ outlooks for employment and incomes soured.

The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based research group showed today. It was the biggest point drop since October 2008. A separate report showed home prices declined for a ninth month.

Treasury yields dropped on concern consumers will pull back on the spending that makes up about 70 percent of the economy, increasing the risk of a recession. An unemployment rate above 9 percent, partisan bickering over the budget deficit and a volatile stock market weighed on sentiment.

“This paints a picture of underlying demand weakening,” said Bricklin Dwyer, an economist at BNP Paribas in New York, whose forecast of 45 was most accurate in a Bloomberg News survey. “Consumers are seeing their wealth deteriorate. We’ve seen a huge decline continuing in the housing market. They’ve also been hit on the chin by the equity markets.”

Treasuries climbed, pushing down the yield on the benchmark 10-year note down to 2.17 percent from 2.26 percent late yesterday. After declining as much as 1.2 percent, the Standard & Poor’s 500 Index rose 0.2 percent to 1,212.92 at the 4 p.m. close in New York after minutes of the Federal Reserve’s last meeting showed some policy makers wanted to take more action to spur growth.

Global Confidence Slump

American consumers aren’t the only ones feeling more glum. European confidence in the economic outlook plunged in August by the most since December 2008 as a persistent debt crisis roiled markets and clouded growth prospects. An index of executive and consumer sentiment in the single-currency region fell to 98.3 from a revised 103 in July, the European Commission in Brussels said today.

The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in June from a year earlier, after a 4.6 percent drop in the 12 months ended in May that was the biggest since 2009.

Federal Reserve Bank of Chicago President Charles Evans urged easier monetary policy to keep the recovery going after the central bank on Aug. 9 vowed to keep its benchmark interest rate close to zero at least through mid 2013.

“I would favor more accommodation,” Evans, a voting member of the Fed’s policy-making committee, said today in a CNBC television interview. “I am somewhat nervous about the economic recovery and where we stand at this point.”

Survey Results

Economists predicted the Conference Board’s gauge would fall to 52 in August, according to the median forecast in the Bloomberg survey. The index averaged 98 during the economic expansion that ended in December 2007.

The share of consumers who said jobs are currently hard to get increased to 49.1 percent, the highest since November 2009, from 44.8 percent in July. Confidence dropped in all nine U.S. regions.

“If you were advised to lean on one side or the other, I’d say it’s more likely to be slightly more negative from a sentiment perspective in consumers in the United States,” Glenn Murphy, chief executive officer of Gap Inc. (GPS), said in an Aug. 18 conference call with analysts. “Maybe the holiday season could be slightly positive, but we’re not counting on it right now.”

San Francisco-based Gap, the largest U.S. apparel chain, reported a 19 percent decline in second-quarter profit as price increases failed to keep up with higher costs to make clothes.

Other Measures

Today’s confidence report is in line with other figures. The Thomson Reuters/University of Michigan final index of consumer sentiment dropped this month to the lowest level since November 2008. The Bloomberg Consumer Comfort Index has been hovering at levels previously consistent with recessions.

A struggling labor market is weighing on consumer sentiment. Employers added 75,000 jobs in August, compared with 117,000 in July, as the unemployment rate held at 9.1 percent, according to the median estimates in a Bloomberg survey ahead of a Sept. 2 report from the Labor Department.

“Economic growth has, for the most part, been at rates insufficient to achieve sustained reductions in unemployment,” Fed Chairman Ben S. Bernanke said Aug. 26 at the Jackson Hole, Wyoming, central bank symposium.

The Conference Board’s data showed a measure of present conditions declined to 33.3, the second-lowest this year, from 35.7 in July. The measure of expectations for the next six months slid to 51.9, the weakest since April 2009, from 74.9.

Job Concerns

The percent of respondents expecting more jobs to become available in the next six months fell to 11.4, the lowest since March 2009, from 16.9 the previous month. The proportion expecting their incomes to rise over the next six months declined to 14.3 from 15.9. The percent expecting a drop rose to 18.7, the highest since November 2009.

Fewer respondents in the Conference Board’s survey indicated they were planning to buy a house, while more intended to purchase cars or major appliances in the next six months.

The cutoff date for the survey responses in this month’s calculation was Aug. 18, Lynn Franco, director of the Conference Board’s Consumer Research Center, said in an interview. The group looked at the responses received before and after the downgrade of U.S. debt by Standard & Poor’s and saw very little difference, she said.

“The decline we saw was already in place before the downgrade, and there was really already a significant change in confidence,” said Franco.

Broad-Based Drop

All of the 20 cities in the S&P/Case-Shiller home-price index showed a year-over-year decline in June, led by an 11 percent drop in Minneapolis.

Any recovery in home values is probably years away as foreclosures dump more properties onto to the market, while a jobless rate hovering around 9 percent and strict lending rules hurt sales.

“Prices aren’t going to rebound back rapidly,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto.

Rebel Leader Gives Qaddafi Forces Weekend Deadline

By Christopher Stephen

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Libyan rebel leader Mustafa Abdul Jalil pauses during a press conference on in Benghazi. Photographer: Gianluigi Guercia/AFP/Getty Images

Libyan rebel leaders expressed growing confidence that Muammar Qaddafi’s days on the run are numbered.

Mustafa Abdel Jalil, chairman of the rebel National Transitional Council, gave Qaddafi’s forces until Sept. 3 to surrender or face attack and said members of the former leader’s government would receive fair trials.

“We have a good idea where he is,” Ali Tarhouni, a rebel council minister, was quoted by the Associated Press as saying yesterday. “We don’t have any doubt that we will catch him.”

UN Secretary General Ban Ki-moon said yesterday that rebel forces have control over most of Tripoli since the Qaddafi family fled, the German press agency Deutsche Presse-Agentur reported.

“We are now looking for a quick conclusion of the conflict and sufferings of the Libyan people,” Ban told the UN Security Council, which met yesterday. The council approved the U.K’s request to release $1.55 billion of frozen Libyan banknotes held there.

Rebel leaders also demanded that Algeria return Qaddafi’s wife, Safia, daughter Aisha and two sons, Hannibal and Mohammed, who crossed the border into Algeria on Aug. 29.

Algeria closed part of the border with Libya after their arrival, according to the privately owned newspaper El Watan. The Algerian Foreign Ministry said yesterday that Aisha had given birth in Algeria.

Holdout Cities

The coastal city of Sirte and the southern town of Sabha are the key remaining bastions of Qaddafi loyalists, Abdel Jalil, the rebel council chairman, said yesterday in a televised press conference broadcast from Benghazi.

“The entry to Sirte and southern towns of Libya should be as peaceful as possible to avoid more bloodshed and destruction,” he said. “If there are no indications for conducting this peacefully, we can act decisively to end this situation in a military manner, but we do not wish to do so.”

Sirte, Qaddafi’s hometown, is the last major coastal city still resisting rebel forces, which are backed by the North Atlantic Treaty Organization. The opposition is seeking to capture Qaddafi and his closest aides, including son Saif al- Islam, to consolidate its gains and announce a new interim government after entering Tripoli, the capital, last week.

“We want the wise people of these cities to cooperate,” Abdel Jalil said. “We have been in contact with the elders and the wise men of these cities.”

NATO Attacks

NATO, which has supported the rebels by bombing pro-Qaddafi targets, will continue operations in the North African country as long as necessary, spokeswoman Oana Lungescu told reporters in Brussels.

“It looks as if we are nearly there, but we’re not there yet,” she said.

One of Qaddafi’s sons, Khamis, a military commander, was killed in a NATO air strike southeast of Tripoli, Sky News reported, citing a man claiming to have been Khamis Qaddafi’s bodyguard. A rebel official, speaking on the condition he not be named, said the deaths of Khamis and Qaddafi’s top security adviser, Abdullah al-Senussi, hadn’t been confirmed.

Balance of Strength

“The Qaddafi regime is collapsing and rapidly losing control on multiple fronts,” Colonel Roland Lavoie, spokesman for NATO’s Operation Unified Protector, told reporters. “The Tripoli region is essentially freed.”

Columns of rebel units in armed pickup trucks, some towing artillery and wheeled anti-aircraft guns, left Tripoli Aug. 29 and headed east to Misrata in preparation for an advance on Sirte.

Pro-Qaddafi forces committed possible war crimes in the battle for Misrata, Physicians for Human Rights said in a report released yesterday.

Those crimes include murder, torture and rape, the Boston- based group said, citing interviews with 54 residents of Misrata and its surrounding villages that it said were conducted in June, shortly after rebel forces captured the western coastal city.

“The rule of law must be the bedrock of a new and free Libya,” the group said. The transitional council “must ensure that perpetrators are brought to justice and held accountable.”

Jalil said the transitional council will try members of Qaddafi’s government in the courts.

“The safety and security of everyone is our responsibility,” he said. “We will provide fair trials for each of them, but we will not deal lightly with anyone who poses a threat to the revolution.”

Rebel officials have said that resuming oil production, halted by the conflict, will be a top priority. Oil prices rose to their highest level in almost four weeks in New York. The price of crude oil for October delivery rose by $1.63, or 1.9 percent, to $88.90 a barrel, the highest settlement since Aug. 3 on the New York Mercantile Exchange.

China's military power

Modernisation in sheep's clothing

by J.M. | BEIJING

THE good news, as suggested by the Pentagon's latest annual report on China's military power, is that Chinese leaders are still eager to avoid confrontation with other powers and focus on beefing up the economy. The bad news, it hints, is that this might not last. With its rapidly improving military capability (described by the Pentagon in great detail), China has the wherewithal to challenge the security status quo in the Pacific as well as potential motives to do so.

The report is diplomatically couched—though from China's perspective, not nearly enough. It hints at considerable unease about long-term trends in China's military buildup. The last few months have seen some headline-grabbing aspects of this: an assertion by the Pentagon in December that China was making faster progress than expected on an aircraft-carrier-killing ballistic missile, the DF-21D; a new stealth fighter, the J-20, making its first test flight just as Robert Gates, then defence secretary, was visiting Beijing in January; and then this month the maiden launch of China's first aircraft carrier, a refitted Kuznetsov-class ship (as yet unnamed) from the former Soviet Union.

About these particular weapons, the Pentagon avoids sounding alarmed. Of the DF-21D missile, it says that it is still being developed. It does not repeat the claim made by Admiral Robert Willard of America’s Pacific Command in December that the missile has reached “initial operational capability”. The J-20, it says, is not expected to reach “effective operational capability” before 2018 (China, it says, has yet to master high-performance jet-engine production). China is likely to build “multiple” aircraft-carriers with support craft over the next decade. But it will take “several additional years” for China to achieve a “minimal level of combat capability” with them, says the report.

The Pentagon does say, however, that China is steadily closing its technological gap with modern armed forces. The country’s lack of transparency about this, it says, is fuelling concern in the region about China’s intentions, with some of its neighbours fearing that China’s growing military and economic weight is “beginning to produce a more assertive posture, particularly in the maritime domain”. A senior Pentagon official, Michael Schiffer, told reporters that China’s capabilities could “contribute to regional tensions and anxieties”.

Like previous such reports, this one lists forces which could cause China’s self-proclaimed “peaceful development” to become less so. One of these, which was not listed last year, is a growing expectation at home and abroad that China will become more involved in addressing global problems and pursuing its own international interests. This is causing some of the Chinese leaders in responsible positions to worry about taking on more than they can handle, says the Pentagon. Nationalists at home, however, are pushing for a “more muscular” posture.

China is outraged that anyone could doubt its commitment to a peaceful ascent. The Pentagon’s assertions, said China’s state-run news agency, Xinhua, were “utterly cock-and-bull” and based on “a wild guess and illogical reasoning”. Thumping furiously on the table, China apparently believes, is a good way of convincing the world of its pacific intent.

Doing Business in Brazil

Rio or São Paulo?

by H.J | RIO DE JANEIRO AND SÃO PAULO

LAST year Paulo Rezende, a Brazilian private-equity investor, and two partners decided to set up a fund investing in suppliers to oil and gas companies. Although this industry is centred on Rio de Janeiro, Brazil’s second-largest city, with its huge offshore oilfields—and fabulous beaches, dramatic scenery and outdoor lifestyle—they instead established the Brasil Oil and Gas Fund 430km (270 miles) away, in São Paulo’s concrete sprawl. Even though it means flying to Rio once or twice a week, Mr Rezende, like many other businesspeople, decided that São Paulo’s economic heft outweighed Rio’s charms. But the choice is harder than it used to be.

For many years, São Paulo has been the place for multinationals to open a Brazil office. It may be less glamorous than Rio, as the two cities’ nicknames suggest: Rio is Cidade Maravilhosa (the Marvellous City); São Paulo is Cidade da Garoa (the City of Drizzle). But as Mr Rezende sadly concluded: “São Paulo is the financial centre, and that’s where the money is.”

Edilson Camara of Egon Zehnder International, an executive-search firm with offices in both cities, does 12 searches in São Paulo for each one in Rio. The biggest mistake, he reckons, is for firms to let future expatriates visit Rio at all. “They are seduced by the scenery and lifestyle, and it’s a move they can sell to their families. But many have ended up moving their office to São Paulo a couple of years later, with all the upheaval that entails.”

From a hamlet founded by Jesuit missionaries in 1554, São Paulo grew on coffee in the 19th century, industry in the first half of the 20th—and then on the misfortunes of Rio, once Brazil’s capital and its richest, biggest city. The federal government abandoned Rio for the newly built Brasília in 1960, starting a half-century of decline. Misgoverned by politicians and fought over by drug gangs and corrupt police, Rio became dangerous, even by Brazilian standards. The exodus gained pace as businesses and the rich fled, mostly for São Paulo.

Now, though, there are signs that the cost-benefit calculation is shifting. São Paulo’s economy has done well in Brazil’s recent boom years and it is still much bigger, but Rio’s is growing faster, boosted by oil discoveries and winning its bid to host the 2016 Olympics (see table below). Last year Rio received $7.3 billion in foreign direct investment—seven times more than the year before, and more than twice as much as São Paulo. Prime office rents in Rio are now higher than anywhere else in the Americas, north or south, according to Cushman and Wakefield, a property consultancy.
Community-policing projects are taming its infamous favelas, or shanty towns: its murder rate, though still very high at 26 per 100,000 people per year (two-and-a-half times São Paulo’s), is at last falling. Brazil’s soaring real is pricing expats paid in foreign currencies out of São Paulo’s classy restaurants and shopping malls; Rio’s recipe of sun, sea and samba is still free. Even Hollywood seems to be on Rio’s side: an eponymous animation, with its lush depictions of rainforest and carnival, is one of the year’s highest-grossing films.

Red-carpet treatment
Rio’s mayor, Eduardo Paes, has big plans for capitalising on the city’s magic moment. The sharp-suited, English-speaking lawyer has set up a business-development agency, Rio Negócios, to market the city, help businesspeople find investment opportunities, and advise on paperwork and tax breaks. Though all investors are welcome, it concentrates on those in sectors where it reckons Rio has an edge: tourism, energy, infrastructure and creative industries such as fashion and film. “A couple of years ago, foreign businessmen would come to Rio and ask what we had to offer,” says Mr Paes. “We had no answer. Now we roll out the red carpet.”

The political balance between the two cities has changed too. In the 1990s São Paulo was more influential and better run: it is the stronghold of the Party of Brazilian Social Democracy (PSDB), the national party of government from 1995 to 2002. Now the PSDB is in its third term of opposition in Brasília, and though it still governs São Paulo state, it is weakened by internal feuds. In Rio, by contrast, the political stars are aligned. The state governor, Sérgio Cabral, campaigned tirelessly for the current president, Dilma Rousseff—and received his reward when police actions in an unruly favela late last year were backed up by federal forces. Mr Paes and Mr Cabral are from the same party, and their pre-Olympic plans for security, housing and transport mesh well.

São Paulo’s socioeconomic segregation, long part of its appeal to expats, is starting to look like less of an advantage. Most of its nicer bits are clustered together, allowing rich paulistanos to ignore the vast favelas on the periphery. In Rio, selective blindness is harder with favelas perched on hilltops overlooking all the best neighbourhoods. But proximity seems to be teaching well-off cariocas that abandonment is no solution for poverty and violence. Community policing and urban-renewal schemes are bringing safety and public services. Chapéu Mangueira and Babilônia, twin favelas a 20-minute uphill scramble from Copacabana beach, are being rebuilt, with a health clinic, nursery and a 24-hour police presence. The price of nearby apartments has already soared. Several other slums are also getting similar make-overs.

Central do Brasil
Rio’s Olympic preparations include extending its metro and building lots of dedicated bus lanes, including one linking the international airport to the city centre. By 2016, predicts City Hall, half of all journeys in the city will be by high-quality public transport, up from 16% today. São Paulo’s metro extensions are years behind schedule, and the city is grinding towards gridlock. Its plans to link the city centre to its main international airport (recently voted Latin America’s most-hated by business travellers) rely on a grandiose federal high-speed train project, bidding for which was recently postponed for the third time.

Rio is still unpredictably dangerous, and decades of poor infrastructure maintenance have left their mark. Its mobile-phone and electricity networks are outage-prone; the língua negra (“black tongue”, a sudden overflow of water and sewage from inadequate hillside culverts) is a staple of the rainy season; exploding manholes, caused by subterranean gas leaks meeting sparks from electricity lines, are a hazard all year round. All in all, still not an easy choice for a multinational business—but it is no longer foolish to let prospective expats fly down to Rio to take a look.

Audio guide:

2011-07-15T16:32:00.001-07:00

EN RIESGO DE SUSPENSIÓN DE PAGOS

Standard&Poor's cierra el cerco sobre la deuda de EEUU

La agencia afirma que hay bastantes posibilidades de que degrade la deuda del país en los próximos meses.

Standard & Poor's situó hoy la deuda estadounidense "bajo vigilancia con perspectiva negativa", e indicó que hay un 50 por ciento de posibilidades de que la degrade en los próximos tres meses.

El anuncio de Standard & Poor's se suma al emitido el miércoles por otra de las grandes agencias mundiales de calificación, Moody's, que colocó bajo revisión la calificación "Aaa" de la deuda de Estados Unidos, ante la posibilidad de que no se logre un acuerdo que eleve el límite de endeudamiento del país antes del 2 de agosto. "El debate político sobre la posición fiscal de Estados Unidos y el asunto relacionado del techo de la deuda del Gobierno estadounidense, en nuestra opinión, no ha hecho más que complicarse", indicó Standard & Poor's en un comunicado.

De no lograr un acuerdo bipartidista en los próximos días, la agencia considera que el país no podría alcanzarlo "en varios años", lo que resulta "inconsistente con una calificación 'Aaa', dada la trayectoria esperada de la deuda en los próximos años.

John Chambers, director gerente de Standard & Poor's, comunicó la decisión de la agencia en una reunión privada con el líder de la mayoría demócrata en el Senado, Harry Reid, y a funcionarios de la Cámara de Comercio de EEUU y del Foro de Servicios Financieros.

Toque de atención

El subsecretario del Tesoro para finanzas domésticas, Jeffrey Goldstein, consideró la medida un nuevo toque de atención sobre la urgencia de que republicanos y demócratas encuentren cuanto antes un acuerdo que evite que el país entre en suspensión de pagos por primera vez en su historia. "La acción de hoy de S&P demuestra lo que el Gobierno de (Barack) Obama lleva diciendo un tiempo: que el Congreso debe actuar expeditamente para evitar un incumplimiento de las obligaciones nacionales, y para trazar un plan de reducción del déficit creíble y que tenga un apoyo bipartidista", dijo Goldstein en un comunicado.

Si el Congreso y el Gobierno finalmente llegan a un acuerdo antes del 2 de agosto, S&P "revisará los detalles" de ese plan en los 90 días siguientes para determinar si, en su opinión, "es suficiente para estabilizar la dinámica de la deuda de Estados Unidos a medio plazo", según el comunicado de la agencia.

Obama alentó a los líderes republicanos y demócratas del Congreso a esforzarse para llegar a un acuerdo en las próximas 24 a 36 horas, para evitar exponerse a la fecha límite en la que caduca el anterior tope de la deuda, de 14,29 billones de dólares.

El presidente, cuya propuesta inicial estaba ligada a una ambiciosa reducción del déficit valorada en unos 4 billones de dólares en los próximos diez años, sigue abogando por el "acuerdo más amplio posible", pero está ahora más dispuesto a aceptar un plan más modesto, con un recorte de unos 2 billones de dólares.

Sin embargo, la propuesta de Obama, que incluye concesiones demócratas como los recortes a la Seguridad Social, sigue contemplando subidas de impuestos, algo que los republicanos aseguran que no aceptarán.

David Ogilvy's Lesson for Libertarians

by Michael Cloud

"A good advertisement is one which sells the product without drawing attention to itself," wrote advertising legend David Ogilvy.

Good advertisements persuade people to buy and use the product. Bad advertisements convince people that the ad was clever or funny or interesting.

Good advertisements create an ever-growing number of customers. Bad advertisements leave sales stagnant, but they win advertising industry awards.

David Ogilvy's insight is equally true of libertarian speakers and talk show guests.

Good libertarian speakers win people to liberty. Slick libertarian speakers convince the audience that they are clever or interesting.

Good libertarian TV and radio talk show guests sell the audience on libertarianism. Slick libertarian guests sell the audience on them.

Good libertarian spokespeople leave the audience excited about liberty. Slick libertarian spokespeople leave the audience excited about them.

Do you want the audience jazzed about the product: liberty? Or the advertisement: the speaker?

Do you want new supporters of freedom? Or fans of the speaker?

Do you want the audience embracing and advancing liberty? Or embracing and promoting the speaker?

Why is this important to you? Why is this important to libertarianism?

Because your choice will determine whether we grow the libertarian movement, whether we advance the libertarian cause -- or whether we promote the careers of slick libertarian personalities who do NOT increase our numbers or advance our cause.

Because your choice will determine whether we make America more free -- or an ambitious libertarian personality more famous.

Because your choice will either push liberty forward or hold it back in America.

When you support and promote spokespeople who put liberty first, we will get more libertarians and more liberty.

Michael Cloud is author of the acclaimed book Secrets of Libertarian Persuasion, available exclusively from the Advocates.

Should You Oppose the "Redistribution of Wealth?"

by Michael Cloud ShareThis

"These government programs and policies take us closer to -- or are -- the redistribution of wealth," say pundits, bloggers, and talk radio hosts. Then they expose and explain and attack the "redistribution of wealth."

Some bring light to the subject. Others just heat.

Will you empty your mind of all you know and believe about "the redistribution of wealth?" Will you look at the matter with fresh eyes and an open mind?

Will you "examine your premises," as Ayn Rand wisely counseled?

Ask: What is the redistribution of wealth?

First, the meaning of the key words: "wealth" and "redistribution."

"Wealth" means all goods, services, or information that have economic value. Usually money or goods.

To understand "redistribution," we need to first grasp the meaning of "distribution."

"Distribute" means to deliver, disperse, spread, give out, or hand out. "Distribution" means the act of distributing or condition of being distributed.

"Redistribute" means to distribute again. "Redistribution" is the act of distributing again or the condition of being distributing again.

Wealth is first distributed when each of us earns or produces it.

Every transfer afterwards is redistribution.

When you barter, you redistribute wealth.

When you buy or sell, you redistribute wealth.

When you give or receive gifts or charity, you redistribute wealth.

When you borrow or loan money, you redistribute wealth.

Every voluntary transfer of wealth is redistribution. A free market is a mechanism for voluntary redistribution of wealth.

But there is also the involuntary, coerced, forced redistribution of wealth.

Armed robbery is a coerced transfer of wealth.

Burglary is, too.

Embezzlement and fraud are coerced transfers of wealth.

So is extortion.

I support each person's right to freely choose, to voluntarily redistribute his own wealth.

I oppose the criminal, coercive, involuntary redistribution of a person's wealth.

Don't you? Isn't this the litmus test for being a libertarian?

I'd wager that most of the critics of the redistribution of wealth would agree with you and me -- up to this point.

But then they'd add, "I'm talking about the GOVERNMENT'S redistribution of wealth."

Okay.

Every tax transfers money from the man or women who earned it to the government.

Every tax redistributes wealth. Then the government again redistributes the wealth to government contractors, government employees, politically-privileged special interests, and other beneficiaries.

Every government mandate on private citizens and private businesses redistributes wealth.

Many government laws and regulations redistribute wealth.

So, do these critics oppose ALL "government redistribution of wealth?" All taxes? All government spending?

Or, are they just against certain KINDS of "government redistribution of wealth?" Or for certain purposes? Or for certain individuals or groups?

Or, are they only against these KINDS or these PURPOSES when "the other political party" controls the White House, Senate, or House of Representatives?

Some critics are engaging in self-serving, misleading propaganda.

But many largely agree with the libertarian principle. Not totally. But mostly.

If they examine their premises, many will reject the phrasing and framing of the two-edged slogan. They will find better concepts and language to oppose Big Government -- to endorse and advocate individual liberty, personal responsibility, and small government.

Michael Cloud is author of the acclaimed book Secrets of Libertarian Persuasion, available exclusively from the Advocates.

Put a Ceiling on Overregulation

Make regulatory reform part of the big deal.

By John Berlau, Clyde Wayne Crews

After months of saying it wanted a “clean” hike in borrowing authority, the Obama administration now proclaims it wants to do something “big” in a debt-ceiling package just as its self-imposed deadline is approaching. On NBC’s Meet the Press this Sunday, Treasury Secretary Tim Geithner said the president wanted to do the “biggest, most substantial deal possible, the deal that’s going to be best for the economy.”

GOP leaders should take up this challenge and put on the bargaining table something big that would also be a boost the economy: curbing overregulation that’s crushing economic growth.

With the economy teetering, leaders of both parties realize that long-term issues must be addressed in a debt-ceiling package. The American people agree and so, seemingly, do the markets. While the bond market has registered barely a hiccup to news about the debt-ceiling talks, stocks and other financial instruments continue to drop after the release of dismal growth and employment statistics.

Yet when it comes to the foundations of the U.S. economy, neither party is using the debt-ceiling talks to address the proverbial elephant in the room. In this case, it’s a trillion-dollar elephant that is stomping all over new business formation and job growth.

Taxes and spending are of course very important. House Speaker John Boehner is right to insist that debt reduction come from spending cuts rather than net tax hikes. It is more than reasonable for congressional leaders to shape most of the package to their liking, because the Constitution explicitly makes approval of new borrowing a prerogative of Congress, not the presidency.

But the problem here is that GOP leaders aren’t exercising this prerogative to deal with the vital issue of overregulation. Even if the GOP got all the spending cuts it is asking for, with no increase in taxes, Americans would still face the hidden tax of overregulation.

Even the Obama administration itself has pledged — in its rhetoric — to rein in regulation. “If they are not providing the kind of benefits in terms of the public health, and clean air and clean water, and worker safety that have been promised, then we should get rid of some of those regulations,” Obama said in his press conference on Monday following up on his calls earlier this year for repealing “outdated regulations that stifle job creation.”

This language sounds strikingly similar to language in the House GOP’s “Plan for America’s Job Creators” unveiled in May, which states: “We must remove onerous federal regulations that are redundant, harmful to small businesses, and impede private sector investment and job creation.”

Yet, amazingly, even though both parties now want the debt-ceiling package to address issues of economic growth — all the more so, in the wake of Friday’s dismal employment numbers — no one has put measures to rein in regulation on the table. Since both Obama and GOP leaders are saying that overregulation is a barrier to job creation, it’s time to make regulatory curbs part of the debt-ceiling negotiations. As Sen. Olympia Snowe (R., Maine), not generally known as an anti-government Tea Party stalwart, wrote recently in Politico, “One of the most effective ways government can spur job creation is to pass substantial regulatory reforms — immediately.”

A debt-ceiling deal to spur growth without adding to our fiscal woes must contain measures to halt and reverse the mounting regulatory burden. The Competitive Enterprise Institute’s annual study “Ten Thousand Commandments” found that the Federal Register, which spells out all the new regulation the government has issued, stands — as of the end of 2010 — at an all-time-record high of 81,405 pages. Meanwhile, the sheer number of regulations in the pipeline at the end of 2010 stood at 2,439, a 19 percent increase from 2009.

In 2010, the Obama administration issued more than 90 rules that regulatory agencies figure will cost the economy at least $100 million apiece. A single provision of the 2010 Dodd-Frank financial overhaul — the pending rule on new collateral requirements for derivatives — could cost U.S. manufacturers and other firms as much as $1 trillion in lost capital and liquidity, according to an estimate by the International Swaps and Derivatives Association. The Atlantic magazine finance columnist Daniel Indiviglio largely agrees with ISDA’s calculation, arguing that the cost “would certainly be in the hundreds of billions.”

This and other pending regulations have attracted bipartisan criticism. Democrats have joined Republicans in expressing objections to the Federal Communications Commission’s “net neutrality” mandates on Internet providers, the Department of Education’s “gainful employment” regulations on for-profit colleges, and the Environmental Protection Agency’s plans to regulate carbon dioxide as a pollutant under the Clean Air Act — a backdoor cap-and-trade scheme that Time has called “the most far-reaching environmental regulatory scheme in American history.”

The ideological gulf between Obama and the GOP on many of these regulations is indeed wide, and it may be unrealistic to address all these edicts in a debt-ceiling deal. Still, since both Obama and the GOP recognize that regulation can be a barrier to growth, the debt-ceiling package can set a framework to put constraints on regulatory agencies and hold them more accountable to Congress and the courts. At the very least, any hike in borrowing authority should be conditioned on passage of major elements of bills pending in Congress to reform the regulatory process. The GOP should give the Obama administration the chance to back up at least some of its rhetoric on overregulation.

First, a debt-ceiling deal should include passage of the Freedom Act sponsored by Senator Snowe. This bill received the support of 53 senators — including six Democrats — when voted on in June. The act would, among other things, give small business more access to the courts to challenge rules.

Current rules requiring agencies to minimize costs for smaller firms lack teeth, because firms are required to “exhaust” time- and money-consuming challenges before agencies before they can get judicial review. This can be next to impossible for firms that have trouble securing money for day-to-day operations, let alone a costly lawsuit. The Freedom Act would make this process easier for smaller entrepreneurs by allowing suits to be filed as soon as a rule is proposed.

And where Snowe’s bill would give the courts more oversight over regulations, the REINS Act would do the same for Congress. It would require that major rules scored as costing the economy $100 million or more be affirmatively approved by both houses of Congress.

The bill, a part of the House GOP’s job-creation plan, has been praised by such respected scholars as New York Law School professor David Schoenbrod and Case Western Reserve University professor Jonathan Adler. Adler writes in the current issue of the policy journal Regulation that “requiring congressional approval before economically significant rules may take effect ensures that Congress takes responsibility for major regulatory policy decisions.” Noting that the REINS Act designs a streamlined procedure for approval of regulations that is not subject to filibuster, Adler compares the bill to legislation creating “fast-track trade authority or base closing” procedures and argues that it will likely not delay “needed regulatory initiatives.”

Meanwhile, Sen. Mark Warner’s (D., Va.) “one-in, one-out” proposal for balancing new regulations by getting rid of old ones at least helps put a “ceiling” on today’s regulatory enterprise. It belongs on the table too.

Sober reflection indicates that ours is an age in which we need, not politicians who come to Washington merely to “get things done,” but leaders who recognize when it’s time to get things “undone.” Balancing the budget may address our fiscal woes. But to resolve the current “ceiling” we suffer on job creation, we must reduce the “regulatory budget” of costly mandates faced by entrepreneurs.

The Shadow Science of Economics

by John Derbyshire

Bodrum, Turkey

I spent the Memorial Day weekend as a guest of Professor Hans-Hermann Hoppe’s Property and Freedom Society at their annual conference in Bodrum, Turkey. It was a wonderfully relaxing break, for which I am very much obliged to the good professor, his charming wife, and their co-organizers. I gave a talk about China and got to see some of Turkey (a country that was new to me), and I listened to some interesting and instructive lectures.

The PFS exists to help promote the economic and political libertarianism of Ludwig von Mises and Murray Rothbard. I was in Bodrum because Prof. Hoppe was kind enough to invite me, not because I am a particularly dogmatic disciple of those gents. I approve of them and their doctrines in a vague, general sort of way, as I approve of anything much to the right of the statist elephantiasis dominant in the modern West and which looks to be sailing into some great crisis in the near future.

On the other hand I have issues with libertarianism—with free trade, for instance, and with the open-borders dogma that too many libertarians (though not all the ones at Bodrum, perhaps not even a majority) cling to with religious zeal.

If I had to be marooned on a desert island with an economist, I’d much prefer it to be someone from the Austrian School, merely for their devotion to liberty; but like other economists, the Austrians seem to be uninterested in the crooked-timber aspect of human nature. (I might exempt some behavioral economists from that observation, but as Nikolay Gertchev demonstrated in his talk at Bodrum, the Austrians look askance at behavioral economics. The title of Nikolay’s forceful address was “Psychology Ain’t Economics.”)

“Human nature, and a true understanding thereof, precedes everything in the human world.”

I have never read anything by an economist—though I confess I have read far too little in the field—or heard any lecture by an economist that did not leave me thinking, “If this guy’s fundamental assumptions about human nature were true, human history would have been utterly different.”

Still, I suppose someone has to do economics, and the Austrians do it closer to my own political tastes than any others. There was even something calming about listening to their airy abstractions there at Bodrum. I came away feeling about the Austrian school somewhat the same way I feel about the Anglican Church: unable to assent wholeheartedly to the doctrines, but sympathetic at some deep level and wishing them well.

Back home in New York, I checked through the mail that had arrived in my absence. It included my subscription copy of The Economist. Page 87, “The Future of Mobility”:

Immigration is unpopular in rich countries because people overestimate its costs and underestimate its benefits. An influx of unskilled migrants may drag down the wages of unskilled natives, but this effect is “very small at most, and may be irrelevant”, according to a number of different studies.

Really? According to a number of different different studies, that is not true. So what is the non-economist to think? Perhaps the same thing he finds himself thinking when surveying the list of recent Nobel Prize winners in economics and noticing that for every large opinion that has won a Nobel, the contrary opinion has also won one. Real sciences don’t work like that.

And then (going back to The Economist):

The next big wave of migration will come from Africa.

Oh. The Economist article (it is actually a book review) is illustrated with a photograph of some young black African men, presumably the leading edge of that “next big wave.”

I suppose the Economist reviewer would be shocked speechless to know that some large majority of Europeans and Americans, presented with that picture, imagine not fresh, keen young workers coming to help ease their labor shortage. Instead, in their wicked human hearts, they see sowers of discord, destroyers of civil peace, inmates of penitentiaries, carriers of disease, agents of social and economic entropy, and consumers of welfare.

That’s economics for you—and economists, and The Economist. The world of their imagination is a cool, well-lit world in which thoughtful human beings, responding to rational incentives, move along paths defined by elegant mathematical formulas. It is a shadow world, a dream of perfection. It resembles, but only as shadows resemble objects, the grimy, gamy, half-mad world of actual humanity—the substance of human affairs.

The human beings who populate the economist’s—certainly The Economist’s—imagination are mere tokens. They have no allegiance to nation, faith, family, or the huge old inbred extended families we call races. Still less do they exhibit features so evident to those of us who live outside great universities: pride, stubbornness, folly, misplaced loyalty, and the occasional irresistible urge to cut off one’s nose to spite one’s face. They are not biological entities at all.

Economics can have a future, if the human race does. It will not be a container of large truths, though, unless it somehow incorporates facts about human nature that the earthier human sciences—genetics, paleoanthropology, evolutionary biology, neurophysiology, and psychometrics—are only beginning to wrestle into submission.

Until it is willing to do this, and actually can do it, economics will be a discipline of shadows, not substances. Worse yet, it will continue to be a plaything of ideologues, as it has so disastrously been in the past. Human nature, and a true understanding thereof, precedes everything in the human world.

What is anarcho-capitalism?

1. What is anarcho-capitalism?

Anarcho-capitalism is the political philosophy and theory that

the State is an unnecessary evil and should be abolished, and
a free-market private property economic system is morally permissible.

Part one is simply the definition of "anarchism," and part two is soft propertarianism, known more generally as "a free market" or "laissez-faire." Let's look more closely at each of the two parts of our definition. Moral permissibility is a "minimum" position. Almost all anarcho-capitalists believe also that a laissez-faire economic system is generally better than alternatives. Some strong propertarians, such as objectivists, go further and claim that laissez-faire is the only moral economic system.

A typical dictionary definition^Pf of anarchism is: "The theory or doctrine that all forms of government are oppressive and undesirable and should be abolished."^Pf This definition follows the etymology of the word: "Anarchism" is derived from the Greek αναρχία meaning "without archon" (ruler, chief, or king.) This is the core meaning of the term - against the State. This means against it in principle, as an institution, not merely against certain policies or personnel.

Murray Rothbard coined the term "anarcho-capitalist" in the winter of 1949 or 1950. "My whole position was inconsistent [...], there were only two logical possibilities: socialism, or anarchism. Since it was out of the question for me to become a socialist, I found myself pushed by the irresistible logic of the case, a private property anarchist, or, as I would later dub it, an anarcho-capitalist."^Pf

Some prefer the term "market anarchism" to avoid the negative connotations some people have with "capitalism."

2. Why should one consider anarcho-capitalism?

First, there is the issue of self-ownership, as the abolitionists called it, or moral autonomy as the philosophers call it. Is your life your own moral purpose? Do you owe anyone obedience regardless of consent? In natural rights language: Do you have rights - moral claims to freedom of action? If you answer yes to any of these questions, then logic leads you to the position of philosophical anarchism.

The defining mark of the state is authority, the right to rule. The primary obligation of man is autonomy, the refusal to be ruled. It would seem, then, that there can be no resolution of the conflict between the autonomy of the individual and the putative authority of the state. Insofar as a man fulfills his obligation to make himself the author of his decisions, he will resist the state's claim to have authority over him. That is to say, he will deny that he has a duty to obey the laws of this state simply because they are the laws. In that sense, it would seem that anarchism is the only political doctrine consistent with the virtue of autonomy." - Robert Paul Wolff, In Defense of Anarchism.

A second more utilitarian reason is the dismal record of States. Considering all the war, genocide, slavery, and repression perpetrated by States through history, might humanity do better without this barbaric institution? As the young Edmund Burke wrote in the world's first anarchist essay (before he went conservative):

These Evils are not accidental. Whoever will take the pains to consider the Nature of Society, will find they result directly from its Constitution. For as Subordination, or in other Words, the Reciprocation of Tyranny, and Slavery, is requisite to support these Societies, the Interest, the Ambition, the Malice, or the Revenge, nay even the Whim and Caprice of one ruling Man among them, is enough to arm all the rest, without any private Views of their own, to the worst and blackest Purposes; and what is at once lamentable and ridiculous, these Wretches engage under those Banners with a Fury greater than if they were animated by Revenge for their own proper Wrongs - Edmund Burke, A Vindication of Natural Society.

That was written in 1756, long before modern weapons of mass destruction and long before 170 million civilian people were murdered by their own governments in the 20th century. That's just civilian deaths perpetrated by their own governments; it doesn't count the deaths due to enemy States, deaths of soldiers, dislocated refugees, and so on. To quote Rothbard, "If we look at the black record of mass murder, exploitation, and tyranny levied on society by governments over the ages, we need not be loath to abandon the Leviathan State and ... try freedom."

3. Do anarcho-capitalists favor chaos?

No. Anarcho-capitalists believe that a stateless society would be much more peaceful, harmonious, and prosperous than society under statism. We see life under States as chaotic - the insanity of war and the arbitrariness of government regulation and plunder. Anarcho-capitalists agree with the "father of anarchism" Pierre Proudhon: "Liberty is not the daughter but the mother of order," and his contemporary Frederic Bastiat, who wrote of the "natural harmony" of the market, that "natural and wise order that operates without our knowledge." ("Economic Harmonies")

4. Isn't anarcho-capitalism utopian?

No. Anarcho-capitalists tend to be pragmatic, and argue that, no matter how good or bad man is, he is better off in liberty. If men are good, then they need no rulers. If men are bad, then governments of men, composed of men, will also be bad - and probably worse, due to the State's amplification of coercive power. Most anarcho-capitalists think that some men are okay and some aren't; and there will always be some crime. We are not expecting any major change in human nature in that regard. Since utopianism by definition requires a change in human nature, anarcho-capitalism is not utopian.

Tea Party Confusion

By Tibor Machan

The idea that politicians should sign a pledge to promote personal morality is contrary to the avowed Tea Party commitment to small government. If you want the government to have a restricted scope, you should stick to the US Declaration as your guide: Government is instituted so as to secure our rights! It is not instituted, at least in the American political tradition, so as to be our moral police!

This is the kind of inconsistency that will bode very ill for the Tea Party and the Republicans. It is just like the liberals’ inconsistency of preaching choice in the abortion debate but loving to take it from us in nearly everything else. Obama care comes to mind which commands people to buy health insurance and is, thus, anything but pro choice. And what about coercing us all to buy green light bulbs?

Who are these people, imposing their standards of right conduct on the rest? Both sides of the political spectrum are still wedded to their tyrannical ways. No wonder so few people vote.

Here is the pledge Tea Party Republican Rep. Michell Bockmann wants candidates to sign:
“Therefore, in any elected or appointed capacity by which I may have the honor of serving our fellow citizens in these United States, I the undersigned do hereby solemnly vow* to honor and to cherish, to defend and to uphold, the Institution of Marriage as only between one man and one woman. I vow* to do so through my:
Personal fidelity to my spouse.
Respect for the marital bonds of others.
Official fidelity to the U.S. Constitution, supporting the elevation of none but faithful constitutionalists as judges or justices.
Vigorous opposition to any redefinition of the Institution of Marriage – faithful monogamy between one man and one woman – through statutory-, bureaucratic-, or court-imposed recognition of intimate unions which are bigamous, polygamous, polyandrous, same-sex, etc.
Recognition of the overwhelming statistical evidence that married people enjoy better health, better sex, longer lives, greater financial stability, and that children raised by a mother and a father together experience better learning, less addiction, less legal trouble, and less extramarital pregnancy.
Support for prompt reform of uneconomic, anti-marriage aspects of welfare policy, tax policy, and marital/divorce law, and extended “second chance” or “cooling-off” periods for those seeking a “quickie divorce.”
Earnest, bona fide legal advocacy for the Defense of Marriage Act (DOMA) at the federal and state levels.
Steadfast embrace of a federal Marriage Amendment to the U.S. Constitution which protects the definition of marriage as between one man and one woman in all of the United States.
Humane protection of women and the innocent fruit of conjugal intimacy – our next generation of American children – from human trafficking, sexual slavery, seduction into promiscuity, and all forms of pornography and prostitution, infanticide, abortion and other types of coercion or stolen innocence.
Support for the enactment of safeguards for all married and unmarried U.S. Military and National Guard personnel, especially our combat troops, from inappropriate same-gender or opposite-gender sexual harassment, adultery or intrusively intimate commingling among attracteds (restrooms, showers, barracks, tents, etc.); plus prompt termination of military policymakers who would expose American wives and daughters to rape or sexual harassment, torture, enslavement or sexual leveraging by the enemy in forward combat roles.
Rejection of Sharia Islam and all other anti-woman, anti-human rights forms of totalitarian control.
Recognition that robust childbearing and reproduction is beneficial to U.S. demographic, economic, strategic and actuarial health and security.
Commitment to downsizing government and the enormous burden upon American families of the USA?s $14.3 trillion public debt, its $77 trillion in unfunded liabilities, its $1.5 trillion federal deficit, and its $3.5 trillion federal budget.
Fierce defense of the First Amendment?s rights of Religious Liberty and Freedom of Speech, especially against the intolerance of any who would undermine law-abiding American citizens and institutions of faith and conscience for their adherence to, and defense of, faithful heterosexual monogamy.”

Some of this is of course redundant–anyone who takes the oath to defend the US Constitution has made many of these pledges, namely, those that involve protection of individual rights. But many of them are meddling pieces of political posturing as the citizenry’s moral guide, as our nannies, just as Al Gore wants to be our moral guide vis-a-vis global warming or other environmental issues.

One thing is for sure: anyone who signs this would not be a supporter of limited government, the sort Tea Party folks are proud to claim to be.

Why U.S. Leaders Deceive Their Own People

by Ted Galen Carpenter

Professor John Mearsheimer's latest book, Why Leaders Lie, provides a number of intriguing insights and surprising conclusions. Perhaps his most unexpected conclusion is that leaders lie to foreign leaders far less frequently than is generally assumed. Indeed, he contends that leaders lie to their own people more than they do to foreign counterparts. He does, however, concede that less blatant forms of deception, such as "spinning" and "concealment" are pervasive in international politics.

Two other conclusions ought to be deeply troubling to populations in democratic countries, and especially so to Americans. One is that officials in democratic political systems are more likely to deceive their own people — even engaging in outright lies — than officials in autocratic systems. His reasoning on that point is solid, and he provides compelling evidence to support his case. Mearsheimer's thesis is that democratic leaders are much more dependent than autocrats on public support for foreign policy initiatives, especially when an initiative includes going to war. If the available evidence is weak that a major security threat exists, but political leaders believe that taking military action is in the national interest, a powerful incentive exists to inflate the threat to gain badly needed public support.

A second, related part of his thesis is that political leaders are much more inclined to lie involving wars of choice rather than wars of necessity. Again, there are ample historical examples supporting his argument.

Ted Galen Carpenter, senior fellow of foreign policy studies at The Cato Institute, is the author of Smart Power: Toward a Prudent Foreign Policy for America, as well as other books on international affairs.

More by Ted Galen Carpenter

If Mearsheimer is correct, Americans must face the troubling realization that U.S. leaders will be unusually prone to engage in lying as well as milder forms of deception to gull their own populations. Not only is the United States a long-standing democracy, but it is the nation since World War II that is most inclined to embark on wars of choice — often involving issues that have little or no connection to genuine American security interests. The list of U.S. military interventions just in the post-Cold War era — Panama, Somalia, Haiti, Bosnia, Kosovo, Iraq (twice), and the extended mission in Afghanistan — is definitive testimony to that tendency.

America's status as a democracy and a country inclined to wage wars of choice is a deadly combination that creates an overwhelming incentive for political leaders to use whatever techniques of threat inflation are necessary to stampede an otherwise skeptical public into supporting the latest dubious military crusade. The potential corrosive effect on America's political institutions and values are all too apparent. At a minimum, Americans ought to be on guard and doubly skeptical when an administration's spin machine goes into action making the case that Lower Slobovia's mistreatment of Upper Slobovians really, truly poses a dire security threat that only U.S. military action can prevent. The American people have heard such a refrain — and believed it — far too often for the health of the Republic.

Federal Spending Doesn't Work

by Chris Edwards

Despite ongoing federal deficits of more than $1 trillion a year, many liberals are calling for more government spending to "create jobs." At the same time, liberals are opposing budget cuts because that would supposedly hurt the economic recovery. And then there is the perennial problem of Democrats and Republicans defending spending on their particular favored programs.

With all these forces arrayed against budget sanity, it's time to take a back-to-basics look at the role of government spending in the economy.

Federal spending has soared over the past decade. As a share of gross domestic product, spending grew from 18 percent in 2001 to 24 percent in 2011. The causes of this expansion include the costs of wars, growing entitlement programs, the 2009 stimulus bill and rising spending on discretionary programs such as education.

The reality is that Washington is very bad at trying to micromanage short-term economic performance.

New projections from the Congressional Budget Office show that without reforms spending will keep rising for decades to come. The CBO's "alternative fiscal scenario" shows spending growing to 34 percent of GDP by 2035. Thus, the federal government is on course to gobble up almost twice as much of the U.S. economy 24 years from now as it did just a decade ago.

America is becoming a big-government nation

Sadly, America is rapidly becoming a big-government nation. Data from the Organization for Economic Cooperation and Development compares spending by all levels of government among its 31 high-income member countries. This year, government spending in the United States hit 41 percent of GDP, meaning that more than 4 out of every 10 dollars that we produce is consumed by our federal, state and local governments.

We used to have a substantial government size advantage compared to other countries. But Figure 1 shows that while government spending in the United States was about 10 percentage points of GDP smaller than the average OECD country in the past, that gap has now shrunk to just 4 points. A number of high-income nations — such as Australia — now have smaller governments than does the United States.

This is very troubling because America's strong growth and high living standards were historically built on our relatively small government. The ongoing surge in federal spending is undoing this competitive advantage that we have enjoyed in the world economy.

CBO projections show that federal spending will rise by about 10 percentage points of GDP between now and 2035. If that happens, governments in the United States will be grabbing more than half of everything produced in the nation by that year. That would doom future generations of Americans to unbearable levels of taxation and a stagnant economy with fewer opportunities.

Government spending doesn't stimulate

There is renewed talk in Washington about further spending measures to try and stimulate the weak economy. That idea is remarkably naïve and misguided. It is now more than two years after passage of the $821 billion stimulus package in 2009, and it is obvious that that effort was a hugely expensive Keynesian policy failure.

The Obama administration's attempt to pump up "aggregate demand" in the economy simply hasn't worked. In Keynesian theory, the total amount of deficit spending is the amount of "stimulus" delivered to the economy. Well, we've had deficit spending of $459 billion in 2008, $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.4 trillion in 2011.

Yet despite that enormous deficit-spending stimulus, U.S. unemployment remains stuck at more than 9 percent and the recovery is very sluggish compared to prior recoveries. Indeed, the current recovery appears to be slower than any since World War II, according to a recent Joint Economic Committee study.

Obama administration economists had claimed that the Keynesian "multipliers" from government spending are large, meaning that spending would give a big boost to GDP. But other economists have found that Keynesian multipliers are actually quite small, meaning that added government spending mainly just displaces private-sector activities. Stanford University economist John Taylor took a detailed look at GDP data over recent years, and he found little evidence of any benefits from the 2009 stimulus bill. Any "sugar high" to the economy from recent increases in government spending was at best very small and short-lived.

The reality is that Washington is very bad at trying to micromanage short-term economic performance. Its failed stimulus actions have just put the nation further into debt, which will harm our long-term prosperity. Harvard University's Robert Barro calculated that any short-term benefit that the 2009 stimulus bill may have provided is greatly outweighed by the future damage caused by higher taxes and debt.

The government's leaky bucket

Let's take a look at how government spending damages the economy over the long run. Spending is financed by the extraction of resources from current and future taxpayers. The resources consumed by the government cannot be used to produce goods in the private marketplace. For example, the engineers needed to build a $10 billion government high-speed rail line are taken away from building other products in the economy. The $10 billion rail line creates government-connected jobs, but it also kills at least $10 billion worth of private jobs.

Indeed, the private sector would actually lose more than $10 billion in this example. That is because government spending and taxing creates "deadweight losses," which result from distortions to working, investment and other activities. The CBO says that deadweight loss estimates "range from 20 cents to 60 cents over and above the revenue raised." Harvard University's Martin Feldstein thinks that deadweight losses "may exceed one dollar per dollar of revenue raised, making the cost of incremental governmental spending more than two dollars for each dollar of government spending." Thus, a $10 billion high-speed rail line would cost the private economy $20 billion or more.

The government uses a "leaky bucket" when it tries to help the economy. Former chairman of the Council of Economics Advisors, Michael Boskin, explains: "The cost to the economy of each additional tax dollar is about $1.40 to $1.50. Now that tax dollar … is put into a bucket. Some of it leaks out in overhead, waste and so on. In a well-managed program, the government may spend 80 or 90 cents of that dollar on achieving its goals. Inefficient programs would be much lower, $0.30 or $0.40 on the dollar." Texas A&M economist Edgar Browning comes to similar conclusions about the magnitude of the government's leaky bucket: "It costs taxpayers $3 to provide a benefit worth $1 to recipients."

The larger the government grows, the leakier the bucket becomes. On the revenue side, tax distortions rise rapidly as tax rates rise. On the spending side, funding is allocated to activities with ever lower returns as the government expands. Figure 2 illustrates the consequences of the leaky bucket. On the left-hand side, tax rates are low and the government initially delivers useful public goods such as crime reduction. Those activities create high returns, so per-capita incomes initially rise as the government grows.

As the government expands further, it engages in less productive activities. The marginal return from government spending falls and then turns negative. On the right-hand side of the figure, average incomes fall as the government expands. Government in the United States — at more than 40 percent of GDP — is almost certainly on the right-hand side of this figure.

In his 2008 book, Stealing from Ourselves, Professor Browning concludes that today's welfare state reduces GDP — or average U.S. incomes — by about 25 percent. That would place us quite far to the right in Figure 2, and it suggests that federal spending cuts would substantially increase U.S. incomes over time.

All the official projections show rivers of red ink for years to come unless federal policymakers enact major budget reforms. Unless spending is cut, the United States is headed for economic ruin. We need to cut entitlements, domestic discretionary programs and defense spending, as Cato has detailed at www.DownsizingGovernment.org.

Chris Edwards is editor of Cato Institute's Downsizing Government.org.

More by Chris Edwards

Cutting spending would boost the economy because many federal programs have very low or negative returns. Many programs cause severe economic distortions. Other programs damage the environment and restrict individual freedom. And the federal government has expanded into hundreds of areas that would be better left to state and local governments, businesses, charities and individuals.

With the upcoming debt-limit vote, fiscal conservatives in Congress have a real chance to start turning the tide. If they don't stick to their guns, the "life, liberty and pursuit of happiness" we celebrate this July 4 will become meaningless as Washington usurps an ever larger share of our incomes and our economy.

Tim Pawlenty: The Latest Dangerous Neoconservative

by Doug Bandow

Republicans have spent a decade as the party of war. In fact, since President George W. Bush abandoned his call for a "humble foreign policy" the country has not been at peace. Now former Minnesota Gov. Tim Pawlenty has unabashedly raised the neoconservative banner.

President Bill Clinton famously wished to be a wartime leader, but ordering 78 days of high-altitude bombing of Serbia doesn't count. When he left office Americans were not in combat, other than undertaking episodic air and missile strikes to enforce the "no fly" zone over Iraq. Looking back, those were the good ole days.

Unfortunately, this relative peace ended with 9/11. Rather than limit his response to targeting al-Qaeda, President Bush launched two nation-building crusades.

Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to Ronald Reagan, he is the author of Foreign Follies: America's New Global Empire (Xulon)

More by Doug Bandow

The first, in Afghanistan, is nearing its tenth year with little success to show. As the attack on the Intercontinental Hotel demonstrates, even the capital of Kabul is not safe.

The second, in Iraq, generated a new terrorist franchise and turned an entire nation into a charnel house. Over time, U.S. military operations spread into Pakistan and Yemen, and today qualify as "hostilities" by any definition except that used by the Obama administration.

President Barack Obama has initiated his own war, in Libya, for largely discredited humanitarian claims. Nevertheless, the GOP's most avid cheerleaders for war, Senators John McCain and Lindsey Graham, have pressed for escalation in North Africa. Sen. Graham also has proposed military action against Syria.

Four years ago advocates of permanent war dominated the Republican presidential race. Rudy Giuliani was perhaps the most hawkish but least informed candidate. The other GOP presidential candidates, other than Rep. Ron Paul, also advocated pursuing the American imperium, irrespective of cost. Even Mitt Romney, who presented himself as a responsible businessman, sounded like a neocon bot.

Sen. McCain ended up as the Republican presidential nominee and his hawkish mien defined the GOP fall campaign. He even urged confrontation with nuclear-armed Russia in its conflict with the country of Georgia — which started the conflict. Had McCain won the election, no one knows how many additional wars Washington now would be fighting.

But reality has made a reemergence in Republican ranks. Rep. Paul has been joined by another ideological libertarian, former New Mexico Gov. Gary Johnson. Former Utah Gov. Jon Huntsman has expressed skepticism of the Afghan war. And the newly refurbished Mitt Romney has taken several carefully choreographed steps away from the neocon cry of "Afghanistan forever."

The result has been much wailing and gnashing of teeth in the neoconservative camp, and especially by Senators McCain and Graham. In their view, anyone who fails to endorse killing foreigners in at least five different countries or believes that Americans cannot afford to forever police the globe is an "isolationist."

Now candidate Pawlenty has taken up the cry of "war now, war forever" with his speech to the Council on Foreign Relations. Naturally, it took him little time to toss the "I" word at his primary opponents: "parts of the Republican Party now seem to be trying to out-bid the Democrats in appealing to isolationist sentiments."

The talk was long on rhetoric but short on reality. Candidate Pawlenty obviously is a true believer in Washington's ability to run the world. The U.S. president need only speak with sufficient firmness — unlike Barack Obama, naturally — and the world will come to heel.

Pawlenty focused on the struggle of Arab peoples against authoritarian governments, many long supported by the United States: "We can help steer events in the right direction." He complained that the Obama administration stood by as an election was stolen in Iran only "to see the Green Movement crushed." He decried the reduction in foreign aid as "a lack of support" for democracy in Egypt. Declared Pawlenty: "I called for Assad's departure on March 29; I call for it again today."

As for policy, Pawlenty called for more American micro-management in more countries:

"We must do more than monitor polling places."
We must use foreign aid "to build good allies."
"We must insist that our international partners get off the sidelines and do the same."
We must tell new government "the truth," that "economic growth and prosperity are the result of free markets and free trade."
We must "commit America's strength to removing Qaddafi."
"We should press new friends to end discrimination against women, to establish independent courts, and freedom of speech and the press."
"We must insist on religious freedoms for all."
"We need to tell the Saudis what we think."
"We need to be frank about what the Saudis must do to insure stability in their own country. Above all, they need to reform and open their own society."
"We need to encourage opponents of the [Syrian] regime by making our own position very clear, right now. Bashar al-Assad must go."
We must "hasten the fall of the mullahs" in Iran.
We should keep the military option against Tehran on the table.
"Peace will only come if everyone in the region perceives clearly that America stands strongly with Israel."
"I would ensure our assistance to the Palestinians immediately ends if the teaching of hatred in Palestinian classrooms and airwaves continues."
"I would recommend cultivating and empowering moderate forces in Palestinian society."
We must seek "victory" like "in the 1980s."

It's an impressive litany, and most of the sentiments are reasonable or at least defensible. But most are sentiments, not policies. And certainly not realistic policies. Nor are any of the points new. Unfortunately, none so far has worked. Because most people, irrespective of how friendly, will not allow Washington to run their lives. They want to govern themselves.

Of course, foreign aid should be used to build "good allies." Like giving billions of dollars to Hosni Mubarak year in and year out. He was a "good ally." Moreover, with his overthrow has come rising hostility to Israel and religious minorities. Does Pawlenty believe that all we have to do is "insist" that the newly democratic Egyptians adopt our liberal values and all will be well?

Of course, the Saudi ruling family should be encouraged to reform. Does Pawlenty believe that the Saudi royals run a quasi-totalitarian state because they have never considered the benefits of reform? That all we have to do is tell the Riyadh autocrats that empowering women and freeing religious minorities would be good for the country, and the regime will act?

Why didn't Presidents Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Carter, Reagan, Bush, Clinton, Bush, and Obama realize how easy it was?

Naturally, Pawlenty closed with the usual rhetorical boilerplate used to justify an American imperium. It is wrong "for the Republican Party to shrink from the challenges of American leadership." "Weakness in foreign policy costs us and our children much more than we'll save in a budget line item." "America already has one political party devoted to decline, retrenchment, and withdrawal." "Our enemies in the War on Terror, just like our opponents in the Cold War, respect and respond to strength." Of course. All the U.S. government has to do is stand strong for "the ideals of economic and political freedom of equality and opportunity for all citizens" and all will be well.

Patriotism is the last refuge of the scoundrel said Samuel Johnson, and so it is today. What current politician does not believe in the traditional values which have animated the American republic? What presidential candidate does not want to ensure U.S. security in a dangerous world? What national leader wants America and Americans to be isolated from and uninvolved in the world?

The challenge is how to best promote those values and best ensure that security. America as empire — constantly bombing, hectoring, invading, lecturing, occupying, and instructing other states — is not.

Today the U.S. is involved in the equivalent of five wars: Iraq, Afghanistan, Yemen, Pakistan, and Libya. Americans have not enjoyed peace for more than a decade, and if Tim Pawlenty has his way, would not enjoy peace for years if not decades to come.

The costs are high. Some 6000 Americans have died and tens of thousands of Americans have been wounded in Afghanistan and Iraq alone, and the human toll continues to climb. In Iraq perhaps 200,000 civilians died in the violent aftermath to the U.S. invasion; millions of people were pushed into internal or external exile; the historic Christian community was ravaged. The financial cost continues to rise. Washington is effectively bankrupt, with a $14 trillion national debt, trillions more in unfunded federal retirement liabilities, and more than $100 trillion in unfunded Social Security and Medicate obligations. Yet America has doubled military spending, adjusted for inflation, over the last decade. The U.S. now spends more, in real terms, than at any point in the Cold, Korean, and Vietnam wars, and accounts for roughly half of the globe's military outlays.

Finally, every new bombing run, invasion, and occupation creates more enemies, and thus encourages more terrorism. Better calibrated responses relying on Special Forces, drones, intelligence, and international cooperation are less costly, more effective, and less likely to trigger blowback.

Far from being an early neocon, Ronald Reagan was a master of restraint. He used force only three times — in Grenada, Libya, and Lebanon. All were limited actions, and in the latter case Reagan responded to the bombing of the Marine Corps barracks by pulling out U.S. forces rather than launching a nation-building campaign. He recognized that the stakes in Lebanon were no where near the cost of expanding the conflict.

Ultimately, advocates of limited government and individual liberty must choose between empire and freedom. Perpetual intervention and conflict have been among the most important political fertilizers for the growth of the Leviathan state.

Tim Pawlenty has endorsed war and Big Government. Let us hope his competitors decide differently.

Why U.S. Leaders Deceive Their Own People

Why U.S. Leaders Deceive Their Own People

by Ted Galen Carpenter

Professor John Mearsheimer's latest book, Why Leaders Lie, provides a number of intriguing insights and surprising conclusions. Perhaps his most unexpected conclusion is that leaders lie to foreign leaders far less frequently than is generally assumed. Indeed, he contends that leaders lie to their own people more than they do to foreign counterparts. He does, however, concede that less blatant forms of deception, such as "spinning" and "concealment" are pervasive in international politics.

Two other conclusions ought to be deeply troubling to populations in democratic countries, and especially so to Americans. One is that officials in democratic political systems are more likely to deceive their own people — even engaging in outright lies — than officials in autocratic systems. His reasoning on that point is solid, and he provides compelling evidence to support his case. Mearsheimer's thesis is that democratic leaders are much more dependent than autocrats on public support for foreign policy initiatives, especially when an initiative includes going to war. If the available evidence is weak that a major security threat exists, but political leaders believe that taking military action is in the national interest, a powerful incentive exists to inflate the threat to gain badly needed public support.

A second, related part of his thesis is that political leaders are much more inclined to lie involving wars of choice rather than wars of necessity. Again, there are ample historical examples supporting his argument.

Ted Galen Carpenter, senior fellow of foreign policy studies at The Cato Institute, is the author of Smart Power: Toward a Prudent Foreign Policy for America, as well as other books on international affairs.
More by Ted Galen Carpenter

If Mearsheimer is correct, Americans must face the troubling realization that U.S. leaders will be unusually prone to engage in lying as well as milder forms of deception to gull their own populations. Not only is the United States a long-standing democracy, but it is the nation since World War II that is most inclined to embark on wars of choice — often involving issues that have little or no connection to genuine American security interests. The list of U.S. military interventions just in the post-Cold War era — Panama, Somalia, Haiti, Bosnia, Kosovo, Iraq (twice), and the extended mission in Afghanistan — is definitive testimony to that tendency.

America's status as a democracy and a country inclined to wage wars of choice is a deadly combination that creates an overwhelming incentive for political leaders to use whatever techniques of threat inflation are necessary to stampede an otherwise skeptical public into supporting the latest dubious military crusade. The potential corrosive effect on America's political institutions and values are all too apparent. At a minimum, Americans ought to be on guard and doubly skeptical when an administration's spin machine goes into action making the case that Lower Slobovia's mistreatment of Upper Slobovians really, truly poses a dire security threat that only U.S. military action can prevent. The American people have heard such a refrain — and believed it — far too often for the health of the Republic.

How to Get Real Spending Cuts

How to Get Real Spending Cuts

by Michael D. Tanner

It is getting close to "crunch time" in the debate over raising the debt ceiling. Much of the debate continues to focus on whether Republicans will accept tax hikes as part of the package, and how big the debt-reduction package will be. All sorts of numbers are being tossed out: $4 trillion over twelve years? $6 trillion over ten years? $3 trillion over two years?

But focusing on dollars — even trillions of dollars — may be setting Republicans up for a fall.

After all, we've heard promises of spending cuts before. Remember the deal over the continuing resolution that kept the government open back in April? That deal was supposed to include $61 billion in spending cuts, but, in reality, it was crammed full of gimmicks such as counting savings from spending that hadn't occurred in the previous year or not funding programs that actually didn't exist. In the end, the actual reduction in spending was less than $8 billion.

Budget history is flush with promises of cuts some day in the future — but some day never actually comes.

And President Obama, in his most recent budget proposal, counted interest savings and the elimination of tax breaks ("spending in the tax code") as reductions in spending. They might show up that way on a balance sheet, but that sort of budget cutting does very little to reduce the size and burden of government — which is what this debate should really be about.

Republicans must also ask when those spending cuts will occur and how will they be enforced. Budget history is flush with promises of cuts some day in the future — but some day never actually comes. This is especially true when budget savings are anticipated not from actually eliminating programs, but from making government "more efficient." For example, the Obama administration claims that the health-care-reform law will ultimately save some $500 billion in Medicare spending. But even Medicare's own actuaries don't believe those savings will ever occur.

Now, the administration is reportedly offering another $340 billion in Medicare and Medicaid cuts as part of a budget deal. But because the administration continues to resist any changes in the structure of the program, those savings are likely to be as ephemeral as the Obamacare cuts.

And speaking of those Obamacare cuts, the health-care law "double counted" those Medicare savings by routing them through the so-called Medicare Trust Fund. This type of "trust-fund accounting" allowed the administration to "extend the life of Medicare" and reduce the program's unfunded liabilities, even as the savings were actually spent elsewhere. Will the debt-ceiling deal include similar smoke and mirrors?

Michael Tanner is a senior fellow at the Cato Institute and coauthor of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.
More by Michael D. Tanner

That is why Republicans should not get hung up on seeking any particular amount of spending cuts. The dollar amount matters far less than getting the structural and institutional changes that will actually bring down the size, cost, and intrusiveness of government in the future.

Republicans should push hard for a balanced-budget amendment to the Constitution — and not one that simply requires a balanced budget, but one that includes meaningful spending limitations. If they can't get the two-thirds vote that such an amendment would require, they should at least insist on a statutory spending cap. Republicans should also insist on fundamental structural changes to Medicare, Medicaid, and Social Security.

In the end, this is not really a debate about budgeting or the size of the national debt. It is a debate about whether we will have a limited constitutional government or a European-style social democracy. Winning that debate will not be a question of whether there is an agreement to cut $2 trillion over ten years rather than $1.5 trillion. If Republicans get an extra $500 billion in cuts on paper, but leave the structures of big government in place, they will find out down the road that nothing has really changed.

Stocks Advance Behind Energy, Tech Shares

By Nikolaj Gammeltoft -

U.S. House Speaker John Boehner (R-OH), right, listens as U.S. House Majority Leader Eric Cantor (R-VA), center, answers questions during a press conference on a balanced budget amendment at the U.S. Capitol July 14, 2011 in Washington, DC. Photographer: Win McNamee/Getty Images

U.S. stocks rose, trimming the Standard & Poor’s 500 Index’s weekly loss, as gains in energy and technology shares were enough to overcome concern that an impasse over raising the federal debt limit is putting the nation’s top credit rating in jeopardy.

Google Inc. (GOOG) jumped 13 percent after reporting sales that beat predictions, a sign that it’s making progress expanding beyond search advertising. Petrohawk Energy Corp. (HK) rallied 62 percent as BHP Billiton Ltd. agreed to buy the oil and gas company for $12.1 billion in cash. Gauges of energy stocks and technology companies advanced at least 1.5 percent. Clorox Co. (CLX) rose 8.9 percent after Carl Icahn offered to buy the company.

The S&P 500 rose 0.6 percent to 1,316.14 at 4 p.m. in New York. The gauge fell 2.1 percent this week. The Dow Jones Industrial Average added 42.61 points, or 0.3 percent, to 12,479.73 today.

“There’s a lot more company-specific issues driving stocks now, even though there’s still macro uncertainty about the debt negotiations in Washington and the European crisis,” Jeffrey Coons, president of Manning & Napier Advisors Inc. in Fairport, New York, said in a telephone interview. His firm manages $44 billion.

Stocks lost their gains this morning amid concern negotiations toward raising the U.S. debt ceiling are failing to progress. House Speaker John Boehner, a Republican from Ohio, told reporters that his party wouldn’t accept any tax increases as they work with President Barack Obama on a deal to lower deficits and possibly raise the U.S. debt limit. Moody’s Investors Service and S&P said this week that they may cut the federal government’s credit rating if the issue isn’t resolved.

Higher Rates

Obama said a failure to raise the U.S. debt limit would trigger a default on the nation’s obligations that could drive up interest rates for everyone in the country.

“We could end up with a situation where interest rates rise for everyone,” he told a Washington press conference. In effect, it would be “a tax increase for everybody.”

The S&P 500 rallied 93 percent from its low in March 2009 through yesterday as the Federal Reserve used large-scale asset purchases to buoy the economy and companies posted earnings that beat analysts’ estimates. Of the 13 S&P 500 companies that have posted results so far this earnings season, 11 have beaten forecasts for per-share profit.

Stocks fell from their highs of the day after the Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 63.8 in July from 71.5 the prior month. The gauge was projected to rise to 72.2, according to the median forecast of 62 economists surveyed by Bloomberg News. Estimates for the confidence measure ranged from 75 to 68. The index averaged 89 in the five years leading up to the recession that began in December 2007.

Stress Tests

Stocks briefly extended their advance after the European Banking Authority said eight banks failed the European Union stress tests with a combined capital shortfall of 2.5 billion euros ($3.5 billion).

Agricultural Bank of Greece SA, Austria’s Oesterreichische Volksbanken AG and Spain’s Banco Pastor SA were among the failures. The companies were found to have insufficient reserves to maintain a core tier 1 capital ratio of 5 percent in the event of an economic slowdown, the European Banking Authority said. All banks tested in Italy, Germany and the U.K. passed.

“The stress test results are coming in pretty much as expected, at least at the headline level,” E. William Stone, who helps oversee about $110 billion as chief investment strategist at PNC Wealth Management in Philadelphia, said in a telephone interview. “Everybody is waiting for more news on the U.S. debt ceiling and more about the EU sovereign debt situation, and nobody wants to get too far on one side or the other ahead of the weekend.”

Google, Clorox

Google soared 13 percent to $597.62, its biggest gain since October 2008. Sales, excluding revenue passed on to partner sites, rose to $6.92 billion. That topped the $6.57 billion average estimate of analysts surveyed by Bloomberg.

Clorox advanced 8.9 percent to $74.55, its highest price since at least 1980. Icahn, a billionaire, offered to buy the maker of the namesake bleach for about $10.2 billion in a move designed to draw out other potential bidders.

Petrohawk Energy rallied 62 percent to $38.17. BHP Billiton, the world’s largest mining company, agreed to buy the company for about $12.1 billion in cash in its biggest acquisition, betting natural gas demand will gain in the U.S.

Chesapeake Energy Corp. (CHK) climbed 9.1 percent to $32.96. The natural-gas driller would be worth $58 a share should it be taken over based on the valuation of the Petrohawk acquisition, Ticonderoga Securities LLC said in a note.

Energy Stocks

Energy companies rose 2.3 percent, the most among 10 industries in the S&P 500. Technology stocks added 1.6 percent as a group.

Ralcorp Holdings Inc. (RAH) fell 0.7 percent to $86, dropping for a sixth straight day. The maker of Raisin Bran cereals and private-label food brands plans to spin off Post Foods after failing to sell the unit to rival foodmakers or private-equity firms.

Flir Systems Inc. (FLIR) fell the most in the S&P 500, slumping 9.9 percent to $28.92. The maker of night-vision cameras used by U.S. combat forces reported second-quarter profit excluding some items of 35 cents a share, trailing the average analyst estimate by 4 cents, according to Bloomberg data.

Is Obama a One-Termer?

Republicans have a golden opportunity to break Barack Obama's presidency, ensuring he will be a one-termer. Mr. Obama has backed himself into a corner on the debt-limit talks; the GOP can smash his re-election prospects if they have the will—and intelligence—to do it.

Mr. Obama has asked that the nation's $14.3 trillion debt-ceiling be raised, and he knows that cannot be done without support from House Republicans. Moreover, along with Treasury Secretary Timothy F. Geithner, Mr. Obama warns that fiscal Armageddon is coming unless the ceiling is lifted before Aug. 2—the date Mr. Geithner claims the United States begins defaulting to its debtors.

Mr. Obama seeks a "grand bargain": a debt reduction package that includes $1 trillion in tax increases to accompany entitlement spending cuts, including Social Security and Medicare. He wants to go big. His target is to slash $4 trillion over 10 years. He has repeatedly vowed to veto any "small" debt-limit increase—one that keeps America paying its bills until a more comprehensive agreement is ratified. In other words, Mr. Obama has issued an ultimatum to congressional Republicans: either break your 2010 campaign pledge not to raise taxes or else be blamed for the debt-limit debacle. As he put it, it's time to "eat our peas." The president is playing Russian roulette with the economy and our nation's future.

Yet, he has badly played his weak hand. Mr. Obama has committed a fatal mistake: overreach. The president has issued a public ultimatum that either must be upheld or he must back down from. Either way, it is Mr. Obama's political credibility that threatens to be shattered.

House Speaker John Boehner is holding all the cards. Mr. Boehner should insist on a small deal—lifting the debt ceiling accompanied with corresponding spending reductions. Every debt dollar raised should be coupled with a dollar cut. Hence, the package pays for itself. More importantly, it places Mr. Obama in a no-win situation. House Republicans will pass legislation that raises the debt-limit. Therefore, they cannot be blamed for any economic fallout should America default. Mr. Obama can veto it, which means he will be solely responsible for the fiscal calamity. Or he can sign it—publicly standing down from his earlier threats. Thus, he will be denuded among his liberal supporters and the larger electorate, and shown to be a weak leader whose words mean nothing.

Either way, it will be his Waterloo: the effective end of his presidency.

AOL Touts Masturbation Huffington-Style

America Online is now endorsing masturbation. Recently, AOL posted an item on its general page discussing how men often fake orgasms, and that they should engage in masturbation to help "discover what stimulates you." Apparently, women aren't the only ones faking it in the bedroom.

The fact that AOL would even run a lewd story like this—never mind give it top billing—reveals the change in editorial content since its merger with the far left Huffington Post. The liberal website, founded by Arianna Huffington, was acquired by AOL in February for a stunning $315 million. Moreover, the deal made Ms. Huffington the editor-in-chief of AOL's 1,200-member newsroom. AOL's stories are starting to reflect her radical views—undermining its credibility as a respectable Internet news source.

This is what now passes for informative news at AOL? Under Ms. Huffington's leadership, the popular website has become a pimp for the sexual revolution. It is peddling the Playboy philosophy, hoping to make it mainstream. Perversion and moral indecency are packaged as part of a "healthy lifestyle." What's next: the benefits of bestiality, polygamy or oral sex?

Ms. Huffington is frittering away the hard-won reputation of AOL and dragging it into the journalistic gutter.

Beck's Swan Song

Glenn Beck, the radio host and former FOX News talking head, apparently needs to capitalize one last time on his dwindling fame. His solution: publish a redundant book on the Federalist Papers.

In "The Original Argument" (Threshold Editions, 430 pages), Mr. Beck seeks to translate and adapt the Federalist Papers for contemporary readers. Therefore, many of its passages—written in 18th-century English prose—are updated to be more understandable and, hopefully, relevant. The book contains footnotes explaining the historical events or references of the time. There are short summaries of key arguments, as well as one-paragraph nuggets on the essays seeking to apply their wisdom to today's problems. "The Original Argument" is really a version of the "Federalist Papers for Dummies."

But do we really need another work on the Constitution, or the Federalist Papers for that matter? The subject has become a cottage industry. There have been countless volumes written on the topic. Mr. Beck argues that the Federalist Papers are "boring" to read and arcane, thereby there is a need for his book. This is false—and puerile. I (along with millions of students) had no trouble reading the essays in college years ago. The same held true for the Bible, Shakespeare, Plato and all the other canons of Western civilization. Hence, will Mr. Beck be coming out with his adaptation of the Bible anytime soon—maybe one for those of his Mormon faith.

Mr. Beck has cynically positioned himself as a so-called leader of the Tea Party. His rise to fame and fortune has been based on one giant gimmick: the wannabe constitutionalist professor, eye glasses and chalk-board in hand, preaching about the evils of progressivism. Yet, Mr. Beck is really a phony: He has placed Vaseline near his eyes so he could cry on cue about the suffering caused by President Obama's socialist policies. Mr. Beck is the court jester of the conservative movement.

He is a modern-day P.T. Barnum, whose act has finally worn thin. His ratings at FOX dropped dramatically. He had become overexposed—the speaking tours, the countless books and novels, the metamorphosis into a self-help guru preaching personal empowerment and bogus uplift. He is now leaving the stage, launching his own Internet-based television network (GBTV). My prediction: it will flop. Just like "The Original Argument," Mr. Beck has nothing new or meaningful to say. This is a non-book by a non-author.

2011-07-15T09:54:00.000-07:00

High-stakes dealing on debt ceiling

President prepares to trade endgame for blame game

By Donald Lambro

The Washington Times

Illustration: W.C. Obama

Click-2-Listen

The gulf between President Obama and a divided Congress grows ever wider as the debt limit crisis stumbles toward a potentially catastrophic deadline.

Tempers flared Wednesday at the high-level negotiating session, with Mr. Obama walking out of the meeting at one point, angrily warning House Majority Leader Eric Cantor, “Don’t call my bluff. You know I’m going to take this to the American people.”

But apparently the president, who thinks he can tax his way out of this mess, is unaware that Americans are strongly behind Mr. Cantor and the Republicans on the issue of tax increases versus spending cuts.

A Gallup poll reported Thursday that when people are asked how Congress should deal with the mountain of deficits and debts that threaten to sandbag our economy, 50 percent prefer spending cuts to tax hikes.

The nationwide poll showed 20 percent saying the debts should be dealt with only through spending cuts, while another 30 percent opted for “mostly with spending cuts.”

Only 32 percent said the government should cut the deficits equally between tax hikes and spending cuts, with just 7 percent saying “mostly with tax increases.”

Neither side is giving an inch as we near the Aug. 2 deadline when the government will run out of sufficient capital to pay all of its bills.

The White House and most Republican leaders agree that failure to raise the debt limit will roil the financial markets and could plunge our fragile economy into yet another recession.

Even if an agreement is reach-ed in the negotiations, leading credit-rating agency Moody's warned midweek that our AAA status could still be downgraded. With the government’s public debt rapidly approaching $15 trillion, or more than our economy’s entire gross domestic product, our debts now exceed our total annual income.

A downgrade would mean not only that the Treasury would have to pay higher interest rates to borrow money, but it also would drive up interest rates for mortgages, car and business loans, and credit card users.

“President Obama wants a big deficit reduction deal - a long-term solution to the nation’s unbalanced finances. Yet, what the president and Republicans propose - even if both could accept much of what the other offers - would only delay the inevitable. Like Greece, America’s finances will grow worse and worse,” writes University of Maryland business economist Peter Morici.

The reasons: Dangerously excessive spending levels that even the largest economy in the world cannot afford to maintain and a 2 percent, snail’s-pace economic growth rate, combined with near-zero job creation and an ever-climbing unemployment rate that have flattened federal tax revenues.

Mr. Obama’s tax-raising proposals would worsen our fiscal situation. His plan to raise taxes on incomes more than $200,000 would hit tens of thousands of small businesses struggling to survive and wouldn’t make a dent in this year’s $1.6 trillion deficit. Slapping manufacturers and corporations - such as oil companies - with higher taxes would shrink domestic production, yield less revenue and worsen the budget.

Throw in Obamacare, which is driving up state Medicaid costs and private insurance premiums and raising business expenses that force job cuts, and that would result in less revenue to pay the government’s bills.

Until now, Republican leaders believed that just the threat of not raising the debt ceiling would force Mr. Obama to drop his insistence that higher taxes be a major part of any budget deal. But he knows that would anger his liberal political base, which is already showing signs of division and disapproval of his presidency. As of Wednesday, he was not budging from his tax posture.

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Obama: ‘Big’ opportunity to calm economy

President Obama makes an opening statement on the ongoing budget negotiations before a press conference at the White House on July 15, 2011. (Associated Press)

By Jim Kuhnhenn

Associated Press

WASHINGTON — President BarackObama said Friday Congress has a “unique opportunity to do something big” and stabilize the U.S. economy for decades by cutting deficits even as it raises the national debt limit ahead of a critical Aug. 2 deadline. But, he declared, “We’re running out of time.”

Obama said he was ready to make tough decisions — such as on Medicare costs — and challenged Republicans to do the same. He attempted to turn the Republicans’ opposition to any tax increases back against them, warning starkly that failure to raise the debt ceiling would mean “effectively a tax increase for everybody” if the government defaults, sending up interest rates.

Still, Obama said that “it’s hard to do a big package” in deadlocked Washington, acknowledging Republicans are opposed to any new tax revenue as part of a deficit-cutting deal.

“If they show me a serious plan I’m ready to move,” he said.

The president spoke at the White House Friday after five days straight of meetings with congressional leaders failed to yield compromise, and amid increasingly urgent warnings from credit agencies and the financial sector about the risks of failing to raise the government’s borrowing limit.

Administration officials and private economists say that if the U.S. fails to raise its borrowing limit and begins to stop paying its bills as a result, the fragile U.S. economy could be cast into a crisis that would reverberate around the globe. Democratic and Republican congressional leaders agree on the need to avert that outcome, but that hasn’t been enough to get Republicans to agree to the tax hikes on corporations and the wealthy sought by Obama — or to convince Obama and Democrats to sign onto the steep entitlement cuts without new revenue that Republicans favor.

The president spoke at his third news conference in two weeks on an issue that is increasingly consuming Washington and his presidency.

The president said he was ready to make tough decisions such as restructuring Medicare so that very wealthy recipients would have to pay slightly more. He said he had stressed to Republicans that anything they looked at should not affect current beneficiaries, and he said providers such as drug companies could be targeted for cuts.

On Capitol Hill, meanwhile, Democrats and Republicans in the House emerged from closed-door meetings to reiterate their hardened stances. Republicans announced plans to call a vote next week on a balanced budget constitutional amendment that would force the government to balance its books.

Obama dismissed the idea, saying, “We don’t need a constitutional amendment to do that. What we need to do is do our jobs.”

Failure to reach compromise has focused attention on a fallback plan under discussion by Senate Republican leader Mitch McConnell and Senate Majority Leader Harry Reid. That plan would give Obama greater authority to raise the debt ceiling while setting procedures in motion that could lead to federal spending cuts.

Obama insisted the public was on his side in wanting a “balanced approach” that would mix spending cuts and the tax increases opposed by Republicans.

“The American people are sold,” he said. “The problem is that members of Congress are dug in ideologically.”

He renewed his pitch for a major package of some $4 trillion, about three-quarters of which would be spending cuts along with about $1 trillion in new revenue.

“We have a chance to stabilize America’s finances for a decade or 15 years or 20 years if we’re willing to seize the moment,” the president said, adding later that everyone must be “willing to compromise.”

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Lower the Debt Ceiling

Mises Daily: by Mark Thornton

[An MP3 audio file of this article, narrated by the author, is available for download.]

Currently, the big show in Washington, DC, centers around raising the debt ceiling. Congress began setting this ceiling in 1917 so that the Treasury could independently issue debt. The debt ceiling is like the limit on your credit card, except the federal government sets the limit on itself. When President Nixon took us off the gold standard in 1971, the national debt was $400 billion. The increase in the national debt last year alone was four times the entire debt in 1971.

Both Democrats and Republicans tell us that not raising the debt ceiling would have a negative — even catastrophic — effect on the American and world economies. They are in agreement on this. The only matter of debate is what concessions are necessary in order to establish a bipartisan majority to pass a bill raising the ceiling. Democrats seem to want larger cuts and tax increases, while Republicans want smaller cuts with no tax increases. The multitrillion-dollar cuts that they are discussing only occur over a ten-year time frame and do not balance the budget, so no one except Ron Paul is really discussing the kinds of budget cutting that would actually help the economy.

What we really need to do is to lower the debt ceiling. If Congress passed legislation that systematically reduced the debt ceiling over time, the economy could be rebuilt on a solid foundation. Entrepreneurs in the productive sectors would realize that an ever-increasing proportion of resources (land, labor, and capital) would be at their disposal, while companies that capitalized on the federal budget would have an ever-declining share of such resources.

Congress would have to cut the pay and benefits of its employees (FDR cut them by 25 percent in the depths of the Great Depression) as well as the number of such employees. Real wage rates would decline, allowing entrepreneurs to hire more employees to produce consumer-valued goods.

Congress would have to cut back on its far-flung regulatory operations, which are in fact one of the biggest drags on the economy due to the burden and uncertainty that Obama and Congress have created in terms of healthcare, financial-market, and environmental regulations. A recent study by the Phoenix Center found that even a small reduction of 5 percent, or $2.8 billion, in the federal regulatory budget would result in about $75 billion in increased private-sector GDP each year and the addition of 1.2 million jobs annually. Eliminating the job of even a single regulator grows the American economy by $6.2 million and creates nearly 100 private-sector jobs annually.

Under a reduced debt ceiling, the federal government would also have to sell off some of its resources. It has tens of thousands of buildings that are no longer in use and tens of thousands of buildings that are significantly underused — about 75,000 buildings in total. It also controls over 400 million acres of land, or over 20 percent of all land outside of Alaska, which is almost wholly owned by the government. There is also the Strategic Petroleum Reserve and many other assets that could be sold off to cover short-term budget shortfalls.

Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government's regulatory apparatus. This would put Americans back to work producing consumer-valued goods.

Passing an increase in the debt ceiling merely perpetuates the myth that there is any ceiling or control or limit on the government's ability to waste resources in the short run and its willingness to pass the burden of this squander onto future generations.

A Short History of US Credit Defaults

Mises Daily: by John S. Chamberlain

On July 13th, the president of the United States angrily walked out of ongoing negotiations over the raising of the debt ceiling from its legislated maximum of $14.294 trillion dollars. This prompted a new round of speculation over whether the United States might default on its financial obligations. In these circumstances, it is useful to recall the previous instances in which this has occurred and the effects of those defaults. By studying the defaults of the past, we can gain insights into what future defaults might portend.

The Continental-Currency Default

The first default of the United States was on its first issuance of debt: the currency emitted by the Continental Congress of 1775. In June of 1775 the Continental Congress of the United States of America, located in Philadelphia, representing the 13 states of the union, issued bills of credit amounting to 2 million Spanish milled dollars to be paid four years hence in four annual installments.

The next month an additional 1 million was issued. A third issue of 3 million followed. The next year they issued an additional 13 million dollars of notes. These were the first of the "Continental dollars," which were used to fund the war of revolution against Great Britain. The issues continued until an estimated 241 million dollars were outstanding, not including British forgeries.

Congress had no power of taxation, so it made each of the several states responsible for redeeming a proportion of the notes according to population. The administration of these notes was delegated to a "Board of the Treasury" in 1776. To refuse the notes or receive them below par was punishable by having your ears cut off and other horrible penalties.

The notes progressively depreciated as the public began to realize that neither the states nor their Congress had the will or capacity to redeem them. In November of 1779, Congress announced a devaluation of 38.5 to 1 on the Continentals, which amounted to an admission of default. In this year refusal to accept the notes became widespread, and trade was reduced to barter — causing sporadic famines and other privations.

Eventually, Congress agreed to redeem the notes at 1,000 to 1. At a rate of 0.82 troy ounces to the Spanish milled dollar, if we take the current (July 2011) price of silver, $36 to the troy ounce, this first default resulted in a cumulative loss of approximately $7 billion dollars to the American public.

Benjamin Franklin characterized the loss as a tax. Memory of the suffering and economic disruption caused by this "tax" and similar bills of credit issued by the states influenced the contract clause of the Constitution, which was adopted in 1789:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts.

The Default on Continental Domestic Loans

In addition to its currency issuance, the Continental Congress borrowed money both domestically and abroad. The domestic debt totaled approximately $11 million Spanish dollars. The interest on this debt was paid primarily by money received from France and Holland as part of separate borrowings. When this source of funding dried up, Congress defaulted on its domestic debt, starting on March 1, 1782. Partial satisfaction of these debts was made later by accepting the notes for payments of taxes and other indirect considerations.

In an act of 1790, Congress repudiated these loans entirely, but offered to convert them to new ones with less favorable terms, thereby memorializing the default in the form of a Federal law.

The Greenback Default of 1862

After the Revolutionary War, the Congress of the United States made only limited issuance of debt and currency, leaving the problems of public finance largely to the states and private banks. (These entities defaulted on a regular basis up to the Panic of 1837, in which a crescendo of state defaults led to the invention of the term "repudiation of debts.")

In August of 1861, this balance between local and federal finance switched forever; the Civil War induced Congress to create a new currency, which became known as the "greenback" due to the green color of its ink. The original greenbacks were $60 million in demand notes in denominations of $5, $10, and $20. These were redeemable in specie at any time at a rate of 0.048375 troy ounces of gold per dollar. Less than five months later, in January of 1862, the US Treasury defaulted on these notes by failing to redeem them on demand.

After this failure, the Treasury made subsequent issues of greenbacks as "legal-tender" notes, which were not redeemable on demand, except through foreign exchange, and could not be used to pay customs duties. Depending on the fortunes of war, these notes traded for gold at a discount ranging from 20 percent to 40 percent. By the stratagem of monetizing this currency with bonds and paying only the interest on those bonds in gold acquired through customs fees, Lincoln's party financed the Civil War with no further defaults.

The Liberty Bond Default of 1934

The financing of the United States government stepped up to a whole new level upon its entry into the Great War, now known as World War I. The new enterprises of the government included merchant-fleet maintenance and operation, production of ammunition, feeding and equipping soldiers entirely at its own expense, and many other expensive things it had never done before or done only on a much smaller scale.

To finance these activities, Congress issued a series of debentures known as "Liberty Bonds" starting in 1917. The preliminary series were convertible into issues of later series at progressively more favorable terms until the debt was rolled into the fourth Liberty Bond, dated October 24, 1918, which was a $7 billion dollar, 20-year, 4.25 percent issue, payable in gold at a rate of $20.67 per troy ounce.

By the time Franklin Roosevelt entered office in 1933, the interest payments alone were draining the treasury of gold; and because the treasury had only $4.2 billion in gold it was obvious there would be no way to pay the principal when it became due in 1938, not to mention meet expenses and other debt obligations.

These other debt obligations were substantial. Ever since the 1890s the Treasury had been gold short and had financed this deficit by making new bond issues to attract gold for paying the interest of previous issues. The result was that by 1933 the total debt was $22 billion and the amount of gold needed to pay even the interest on it was soon going to be insufficient.

In this exigency, Roosevelt decided to default on the whole of the domestically held debt by refusing to redeem in gold to Americans and devaluing the dollar by 40 percent against foreign exchange. By taking these steps the Treasury was able to make a partial payment and maintain foreign exchange with the critical trade partners of the United States.

If we price gold at the present-day value of $1,550 per troy ounce, the total loss to investors by the devaluation was approximately $640 billion in 2011 dollars. The overall result of the default was to intensify the depression and trade reductions of the 1930s and to contribute to fomenting World War II.

The Momentary Default of 1979

The Treasury of the United States accidentally defaulted on a small number of bills during the 1979 debt-limit crisis. Due to administrative confusion, $120 million in bills coming due on April 26, May 3, and May 10 were not paid according to the stated terms. The Treasury eventually paid the face value of the bills, but nevertheless a class-action lawsuit, Claire G. Barton v. United States, was filed in the Federal court of the Central District of California over whether the treasury should pay additional interest for the delay.

The government decided to avoid any further publicity by giving the jilted investors what they wanted rather than ride the high horse of sovereign immunity. An economic study of the affair concluded that the net result was a tiny permanent increase in the interest rates of T-bills.

What Will Happen in August of 2011?

Many people are wondering about the possibility of a default by the Treasury on August 3, 2011, when, according to the Treasury's projections, it will no longer be able to meet all expenses without additional borrowing.

In this event, it is unlikely a default will occur. Historically, governments prioritize debt service above all other expenses. If the expansion of funds via debt becomes ipossible, the Treasury will cease paying other expenses first, starting with "nonessential" discretionary expenditures, and then it will move on to mandatory expenditures and entitlements as a last resort.

In extremis, what will happen is that all the losses will be foisted onto the Federal Reserve. The Fed holds something on the order of $1.6 trillion in debt issued by the Treasury of the United States. By having the Federal Reserve purchase blocks of Treasury debt and defaulting on these non-investor-held securities, the United States can postpone a default against real investors essentially forever.