A Preview Of The SOTU: Obama's 5 Pillars Of Deceit

Update: Post-speech analyisis here.
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Tuesday night, Obama will give his State of the Union (SOTU) speech. So what can we expect? According to the NYT, Obama will present as a newly minted centrist, focusing on "five pillars for ensuring America’s competitiveness and economic growth: innovation, education, infrastructure, deficit reduction and reforming government."

So let's predict what he means by all of that.

"Innovation." When Obama talks about "innovation," he invariably does so in the context of pushing his radical "green agenda." He is systematically disassembling our energy infrastructure, both coal and oil, while pushing "alternative energy." Yet alternative energy, even heavily subsidized, provides just a few percent of our energy needs. Unable to get Congress to pass a "cap and trade" bill to put his destructive policies on hyperspeed, he now has the EPA doing it unilaterally. When Obama mentions "innovation" in the SOTU, what he really means is that he has no intention of backing off of his destruction of our energy infrastructure, and that he intends to ask for even more money to toss down the black hole of subsidized green jobs and alternative energy.

"Education." Obama will wax eloquently about the need to increase spending for education, but what he really means is pushing more money to the teacher's unions that provide perhaps the major foundation of the Democratic Party power structure. States and their public union employees were the primary recipients of the $787 billion Stimulus, but that money started to dry up in 2010. Yet many teachers' unions refused to negotiate lower salaries or benefits, banking on Obama to come through for them. And he did. Recall the passage of the $26 billion XXXX Act of XXXX that Obama stumped for on the grounds of "education." It was "designed to keep teachers unions flush with taxpayer cash . . . [and] to insure that states don't negotiate down teacher salaries in the coming year." Now he wants to do it again.

Yet little is more clear than the fact that tossing more money into the black hole of public education has done nothing to improve the quality of education. Education spending, adjusted for inflation, is now more than twice what it was four decades ago. During those four decades, we have seen a massive expansion in the numbers of teachers - thus expanding union dues and unions corresponding spending in support of Democrats. Yet test results are showing zero student improvement in reading over that timeframe - and we are actually regressing in math and science to critical levels:

In short, the tests showed U.S. fourth-graders performing poorly, middle school students worse. and high school students are unable to compete [internationally].

There is an answer to this. Step one through one hundred is for Obama to call for an end to teachers' unions. No single entity has proven more destructive to quality education in America than teachers' unions. They are far more concerned with teachers salaries - and thus their union dues - than they are with improving the quality of education. But there is as much of a chance of Obama announcing that step in his SOTU as there is of Michael Moore passing up a cheeseburger.

"Infrastructure." Now two years removed from the stimulus, we can say with virtual certainty that John Maynard Keynes has lost the argument on how to "stimulate" an economy. Obama just refuses to admit it and now wants to double down on more "stimulus spending." Obama earmarked hundreds of billions of dollars for infrastructure projects in the Stimulus with nothing to show for it. So why does Obama want to repeat the process, now under another name? It is because Obama, like all left-wingers, refuses to admit that their policies have failed. Even when faced with reality, they think that any lack of success is only because of some unforseen pitfall that can be fixed with just a bit more money and/or a few more regulations. To the committed leftie, the problem is never the fatal internal contradictions of the statist policies they embrace. (See also this post on the topic from Gay Patriot)

Deficit Reduction - Obama is to deficit reduction what Tiger Woods is to monogamy. Recall Obama's idea of proving he was a deficit hawk was to have the government cut $17 billion on the heels of the $787 billion stimulus. I expect Obama to make a defense of current spending levels, to justify his new planned spending in "innovation, education and infrastructure," and then to wax eloquently on how Obamacare will reduce the deficit in ten years based on the fairy-tale CBO numbers. He may also throw in a paean to that most cynical piece of legislation, Pay-Go, just to add insult to injury. In any case, don't expect this deeply disingenuous man to say word one about reforming the entitlements that are a mortal threat to our economy.

"Reforming Government." This is another laugher. He is going to talk about his utterly meaningless Executive Order to have regulatory agencies review their regulations, yet he will not mention the tsunami of regulations yet to be written as a result of Obamacare and Frank-Dodd. Nor will he mention that there are now over 100 federal agencies each issuing reams of new regulation annually (See CRS: Federal Regulatory Reform). Nor will he show the slightest concern about of the vast overreach of the EPA in unilaterally deciding to regulate carbon dioxide or the FCC in assuming the authority to regulate the internet. Reform of government, to Obama, is Orwellian code for the vast expansion of government in every aspect of our economy and our lives.

Obama just spent two years ignoring our severe economic distress while he tried with much success to turn us into a socialist country in the European model. As a consequence thereof, we stand today in deep economic trouble. As I outlined in The State Of The Economy: oil, gas and food prices are going through the roof thanks to Obama policies; jobs are increasingly rare; small businesses, the engine of the economy, are not expanding as everyone waits to see how bad they are going to be hit with the tsunami of new regulations; jobs are increasingly outsourced overseas as Obama taxes investment income and keeps our corporate taxes near the highest in the developed world; and, Obama's profligate spending coupled with massive entitlements has us on a quick trajectory to a sovereign debt crisis - i.e., bankruptcy. As to the entitlements - medicare, social security, and now, Obamacare - Obama's deficit commission, which issued its report in December, highlighted the need to take quick and decisive action. Unfortunately, expect Obama not to address the substance of any of that. Obama is not, and never will be, a centrist, no matter what disguise he puts on for the SOTU.

Update: Some additional posts on the SOTU and its various aspects:

Hot Air - Obama to propose an earmark ban, budget freeze tonight

Hot Air - Video: Inhofe frames SOTU on regulatory adventurism

Instapundit: Heh

A reader emails: “If I were more conspiratorial and Islamaphobic, the ‘five pillars’ mention with regards to the SOTU speech would send me on a You Tube bender. But I’m well adjusted, so I just going to get back to work.” Well, good.

Q&O - Obama And The Anticipated Move To The Middle

Welcome, readers from Larwyn's Linx; Pundit and Pundette; Gina Cobb; What Bubba Knows; Nice Deb;

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A Conservative Economic Narrative

At City Journal, The Free Marketeers Strike Back. It is a long and probing look from the perspective of conservative economists at free markets, regulation, and the origins of our current fiscal crisis. I highly recommend the entire article. To summarize the conclusions:

- Keynes was demonstrably wrong.

- Rising costs of energy were implicated in our economic meltdown and are the looming challenge for our future economy. Our government is not moving to meet this challenge, it is moving in the opposite direction.

- Don't underestimate the importance of monetary policy. Keep interests rates high enough so that prices remain stable but sufficient currency and credit are available to finance steady growth. Interest rates set too low for too long are a major factor in causing spectacular bubbles. That is what happened with Greenspan and the housing bubble.

- Market bubbles are an inevitable part of capitalism. You can't kill bubbles without killing capitalism. It is only when bubbles are combined with a very cheap money supply that they become truly dangerous in size.

- Recessions, as a part of the business cycle, are an intregal part of capitalism. Recessions are necessary for our system to correct market imbalances. You can't stop recessions without killing capitalism.

- The much maligned derivative market brought tremendous financial benefit, particularly to the world's poor. They allow for the efficient allocation of risk, thus increasing the availability of cheap credit. Some have recommended greater transparency for the market by funneling them through a clearing house that would create a record of the swaps.

- Big banks do not bring any economy of scale and, therefore, we should consider limiting the ability of banks becoming "too big to fail."

- Big banks should not enjoy taxpayer protection because that harms free competition, putting smaller banks at a disadvantage

- Reasonable regulations are necessary to efficient markets, and that includes requiring sufficient reserves. Banks become far too overleveraged, leaving them vulnerable during the economic downturn.

- Republicans need to stand up more forcefully for markets.

- Ballooning American and European debt poses a huge threat to long-term prosperity.

- By increasing taxes and imposing the wrong regulations, Western governments are hindering entrepreneurship and hence growth, that is the path to long-term prosperity.

The one thing Guy Sorman touches upon in his article does not go into any great detail about is the dismantleing of traditional lending standards. It is critical to note that Democrats dismantled our lending standards in the 1990's on a now discredited assertion that racism was endemic in the mortgage and loan industries. Even though now fully discredited, the race based standards remain in our laws and have actually been strengthened by Obama as part of the financial regulatory overhall recently passed into law.

Sorman does make one interesting point in addressing this issue. That is that, in comparing U.S. to Canadian home ownership, the Canadians fared better because of higher down payment requirements, yet the overall home ownership percentage between the U.S. and Canada are the same, suggesting the final irony, that Democrats destroyed our credit system for nothing. Here is how Sorman addressed the issue:

. . . [E]asy money helped expand a massive credit bubble. And that credit helped fund a wild proliferation of risky subprime mortgages, often issued with little or no money down, thanks to relaxed mortgage-lending laws and to Fannie Mae and Freddie Mac, the now-infamous “government-sponsored enterprises” that busily bought mortgages from lenders to keep homeownership expanding. The bursting of the bubble in 2008 brought the U.S. banking system, which had invested extensively in the subprime mortgages, to its knees. Given the enormous scale of the crisis, Taylor says, it’s clear that the private sector could not have caused it on its own. “Distorted incentives encouraged private speculation,” he says. “Central banks should return to their former global targets against inflation and be less erratic and more predictable.”

Taylor’s analysis draws support from a comparison of the financial crisis in the U.S. and Canada. Canadian banks, it turns out, weathered the financial storm much more effectively than American banks did. The reason: Canadian mortgages, unlike American ones, legally required robust guarantees, usually a 20 percent down payment. That helped keep homeowners from running away from their mortgage payments when things turned south, as happened in the United States. Canada and the U.S., it’s worth noting, still have the same percentage of homeowners—roughly 67 percent—meaning that the American incentives that favored risky bank behavior failed to increase ownership levels.

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Keynesian Economics Finally Discredited?

Dave Price, writing at Dean's World, opines

Tim Cavanaugh has a devastating cite from just-retired Obama economic adviser Christina Romer:

The generally precise Romer spells out the difference for us: Using this approach, the estimated multiplier for monetary policy is 0.823 and the estimated multiplier for fiscal policy is -0.233.

You don’t say. Gee, that would have been nice to know a few trillion dollars ago.

Democrat Party water-carriers like Paul Krugman love Keynesian economics, with its assumed large fiscal multiplier, because it meshes so perfectly with leftism’s general preferences: more government, bigger government, more public-sector employees, higher pay for those employees — and, naturally, higher taxes to go with all that. Their continued insistence we need to spend (and tax!) more, more, more even as unemployment goes higher and deficits mushroomm is growing ever less credible with each additional “unexpected” signal of economic failure.

If there’s one positive to come out of the Great Recession, it should be the end of Keynesian economics as a serious policy choice. The notion you can grow the economy via North Korea-style command economics should have been long-dead even before Romer’s 1992 paper, but Obama’s miserable failure may finally drive a stake through this productivity-sucking, economy-killing meme.

Let me put this simply — and contradict a too-widely-held assumption of macroeconomics:

THERE IS NO SUCH THING AS AGGREGATE DEMAND. . . .

Keynesian economics, coupled with our modern welfare state, has been a disaster. And if the only thing that comes out of this "Great Recssion" is the discrediting of Keynesian economic theory, than it will be a postive thing indeed.

On a related note, if you missed it, you can read Paul Krugman's defense of his beloved Keynsianism and his attack ad hominem attacks on Paul Ryan for articulating a conservative economic plan here.

And on another related note, do see this exceptional short video explaining the fallacy of the Broken Window Theory - a theory related directly to Keynesianism as well as, more generally, the Democrat's seemingly innate desire to tax and spend.



(H/T American Digest

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Krugman's Incredibly Sloppy Hack Job On Rep. Paul Ryan

I am not surprised that Paul Krugman, in his most recent column, has demonized Wisconsin Republican Representative Paul Ryan as a "fraud" and a "flim flam man." Demonizing one's ideological opponents rather than engaging in reasoned debates is, after all, central to how the left operates. And there are few further to the left than Krugman, a "Nobel prize winning economist" who has made a career at the NYT acting as a shill for the far left. And indeed, Krugman has been one of the foremost champions of the Obama administration's economic policies that today have us mired in the worst recession since World War II.

Rep. Paul Ryan is rapidly becoming recognized as the intellectual leader of House Republicans. Months ago, Ryan drafted a "Roadmap For America's Future." It is a detailed and comprehensive economic plan that addresses deficits, taxes, and entitlements. It is a very serious plan aimed at putting America back on a robust economic footing. And it is a plan that has been getting a lot of positive press as Obama's Keynesian solutions to our severe economic distress only have us heading further into the swamp.

Krugman starts off his diatribe with a statement that, coming from him, is the height of irony:

One depressing aspect of American politics is the susceptibility of the political and media establishment to charlatans.

If anyone could attest to the truth of that statement, its Paul Krugman.

At any rate, Krugman relies heavily on information from the Tax Policy Center, a left leaning organization that, Krugman claims, has determined that Ryan's plan is based on faulty assumptions and is, therefore, unworkable. Krugman then goes on to rake Ryan over the coals." Krugman claims that, in reality, Ryan's road map would cut taxes for the rich (ahhh, there's that class warfare again), slash entitlements generally, and destroy Medicare.

This has to be one of the sloppiest hack jobs ever written.

Krugman charges Ryan with fraud in part because Ryan did not have the CBO (Congressional Budget Office) score the revenue side of his plan. Krugman apparently doesn't know that that job is not within CBO's purview, but rather has to be done by a different organization - the JCT (Joint Committee on Taxation). The JCT is responsible for providing the official revenue score of tax legislation - and they did it for the Roadmap.

But perhaps most damning of Krugman's hackery is the fact that the members of the Tax Policy Center were so disturbed by Krugman's distortion of what they had written that they felt it necessary to post on their website a detailed defense of Rep. Ryan and a refutation of Krugman's ridiculous charges of "fraud:"

In Defense of Congressman Paul Ryan

Given that columnist Paul Krugman relied on Tax Policy Center estimates to level claims that Congressman Paul Ryan is a “flimflam man” and that Ryan’s plan to address our fiscal problems is a “fraud,” I think a defense of the Congressman is in order. . . .

You can read the entire defense here.

Similarly, Meagan McArdle at the Atlantic, no right winger herself, also rises with a defense of Ryan. And then, of course, Rep. Ryan himself has responded to Krugman:

Despite watching European welfare states collapse under the weight of their own debt, those running Washington are leading us down precisely the same path. With the debt surpassing $13 trillion, we can no longer avoid having a serious discussion about how to address the unsustainable growth of government.

Unfortunately, rather than make meaningful contributions to this conversation and bring solutions to the table, Democrats have attempted to win this debate by default. Relying on demagoguery and distortion, the left would prefer that entitlements - often labeled the "third rail" of American politics - remain untouchable, and the column by Paul Krugman of The New York Times is indicative of the partisan attacks leveled against the plan I've offered, a "Roadmap for America's Future." . . .

You can find Ryan's lengthy response to Krugman here.

As an addendum, let me ask, what is it about left wing economists? There has yet to be a centrally controlled economy that can compete with a capitalist economy (and a less regulated one the better.) There has yet to be an instance of which I am aware where Keynesian economics has actually worked as hypothesized. Indeed, just ask Obama's now retiring Chairman of Economic Advisors, Christina Romer. Every time for the last century, when we have cut tax rates, our economy has expanded to the point where government revenues increased. Yet the left, pointing to Krugman and his ilk, have a death grip on their Keynesian beliefs, their desire to use tax policy to punish our most productive citizens, and to use government to redistribute wealth. I can only conclude that Krugman is as worthy of his Nobel prize in economics as Robert Merton and Myron Scholes were. They are the two Nobel prize winning economists who started a hedge fund that failed after losing $4.6 billion in less than four months in 1998. I suspect, before all is said and done, Krugman will join them in ignominy.

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Obama and Keynes, Hayek and Laffer

Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10% of GDP.

The share of the US working-age population with jobs in June actually fell from 58.7% to 58.5%. This is the real stress indicator. The ratio was 63% three years ago. Eight million jobs have been lost.

The average time needed to find a job has risen to a record 35.2 weeks. Nothing like this has been seen before in the post-war era. . . .

"Legions of individuals have been left with stale skills, and little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2m."

. . . This really is starting to feel like 1932.

- Ambrose Evans-Pritchard, The Telegraph, With the US trapped in depression, this really is starting to feel like 1932, 4 July 2010

. . . With significantly lower revenues and higher outlays, debt would reach 87 percent of GDP by 2020, CBO projects. After that, the growing imbalance between revenues and noninterest spending, combined with spiraling interest payments, would swiftly push debt to unsustainable levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2025 and would reach 185 percent in 2035.

The CBO warns of potentially devastating consequence for the United States if this debt mountain is not tackled, and even points out that its “projections understate the severity of the long-term budget problem because they do not incorporate the significant negative effects that accumulating substantial amounts of additional federal debt would have on the economy” . . .

With his reckless big government policies, Barack Obama threatens to run his country into the ground, with American decline the inevitable end result. . . .

- Niles Gardner, The Telegraph, America is sinking under Obama’s towering debt, 2 July 2010

We are in a recession - if not a depression - that finally came to the fore in 2007 after two decades of Democrat social engineering of our financial sector. And we today are still in a recession - if not a depression - because of the election of a President who is deeply anti-business and who has demonized the profit motive. Indeed, it is those, along with his twin drives to socialize our economy and empower unions which have been the defining features of Obama's nearly eighteen months in office. Well, those four in addition to world record profligate spending. And on the horizon, Obama promises us massive new taxes ("don't read my lips"). Moreover, the centerpiece of his proposed financial regulations is to reinstall the same social engineering into our financial sector that led to our current economic mess in the first place. For the sake of brevity, I will stop my list there.

And yet now, Obama, in advance of November, is trying to convince America that he is not anti-business. According to Obama, all problems are the result of Republicans, he is struggling mightily to correct the situation (pay no attention to his projections in January 2009 that promised solutions if we immediately passed the Stimulus), and that he is a friend of business, both large and small. All of that is at least as outlandish as it would have been for Bill Clinton, during his last year in office, to try to convince America that he had always been deeply committed to monogamy.

I doubt much of America is fooled at this point:



(H/T Hot Air)

And then there was this the other day:

You’d think the well-heeled and enlightened eggheads at the Aspen Ideas Festival . . . would be receptive to an intellectually ambitious president with big ideas of his own.

In a way, the folks attending this cerebral conclave pairing the Aspen Institute think tank with the Atlantic Monthly magazine might even be seen as President Obama’s natural base.

Apparently not so much.

“The real problem we have,” Mort Zuckerman said, “are some of the worst economic policies in place today that, in my judgment, go directly against the long-term interests of this country.” . . .

“If you’re asking if the United States is about to become a socialist state, I’d say it’s actually about to become a European state, with the expansiveness of the welfare system and the progressive tax system like what we’ve already experienced in Western Europe,” Harvard business and history professor Niall Ferguson declared during Monday’s kickoff session, offering a withering critique of Obama’s economic policies, which he claimed were encouraging laziness.

“The curse of longterm unemployment is that if you pay people to do nothing, they’ll find themselves doing nothing for very long periods of time,” Ferguson said. “Long-term unemployment is at an all-time high in the United States, and it is a direct consequence of a misconceived public policy.”

Ferguson was joined in his harsh attack by billionaire real estate mogul and New York Daily News owner Mort Zuckerman. Both lambasted Obama’s trillion-dollar deficit spending program—in the name of economic stimulus to cushion the impact of the 2008 financial meltdown—as fiscally ruinous, potentially turning America into a second-rate power.

“We are, without question, in a period of decline, particularly in the business world,” Zuckerman said. “The real problem we have…are some of the worst economic policies in place today that, in my judgment, go directly against the long-term interests of this country.”

Zuckerman added that he detects in the Obama White House “hostility to the very kinds of [business] culture that have made this the great country that it is and was. I think we have to find some way of dealing with that or else we will do great damage to this country with a public policy that could ruin everything.”

Ferguson added: “The critical point is if your policy says you’re going run a trillion-dollar deficit for the rest of time, you’re riding for a fall…Then it really is goodbye.” A dashing Brit, Ferguson added: “Can I say that, having grown up in a declining empire, I do not recommend it. It’s just not a lot of fun actually—decline.”

Ferguson called for what he called “radical” measures. “I can’t emphasize strongly enough the need for radical fiscal reform to restore the incentives for work and remove the incentives for idleness.” He praised “really radical reform of the sort that, for example, Paul Ryan [the ranking Republican on the House Budget Committee] has outlined in his wonderful ‘Roadmap’ for radical, root-and-branch reform not only of the tax system but of the entitlement system” and “unleash entrepreneurial innovation.” Otherwise, Ferguson warned: “Do you want to be a kind of implicit part of the European Union?

This was greeted by hearty applause from a crowd that included Barbra Streisand and her husband James Brolin. “Depressing, but fantastic,” Streisand told me afterward, rendering her verdict on the session. “So exciting. Wonderful!”

Brolin’s assessment: “Mind-blowing.”

What does it say when even rabid lefties Brolin and Steisand start to think that you are too far to the left and are leading us into economic Armageddon?

The reality is that what Zuckerman and Ferguson point out is apparent to very many Americans. On a similar note, Wayne Allen Root colorfully described the situation in his column in the Las Vegas Review-Journal:

The current occupant of the White House claims to know how to create jobs. He claims jobs have been created. But so far the score is Great Obama Depression 2.2 million lost jobs, Obama 0 -- a blowout.

Obama is as hopeless, helpless, clueless and bankrupt of good ideas as the manager of the Chicago Cubs in late September. This "community organizer" knows as much about private-sector jobs as Pamela Anderson knows about nuclear physics.

It's time to call Obama what he is: The Great Jobs Killer. With his massive spending and tax hikes -- rewarding big government and big unions, while punishing taxpayers and business owners -- Obama has killed jobs, he has killed motivation to create new jobs, he has killed the motivation to invest in new businesses, or expand old ones. With all this killing, Obama should be given the top spot on the FBI's Most Wanted List.

Meanwhile, he has kept the union workers of GM and Chrysler employed (with taxpayer money). He has made sure that most government employee union members got their annual raises for sleeping on the job (with taxpayer money). He made sure that his voters got handouts mislabeled as "tax cuts" even though they never paid taxes (with taxpayer money). And he made sure that major campaign contributors collected billions off government stimulus (with taxpayer money).

As far as the taxpayers -- the people who actually take risks with our own money to create small businesses and jobs and pay most of the taxes -- we require protection under the Endangered Species Act. . . .

The days of believing the Obama propaganda about a jobs recovery are over. The trillion-dollar corporate handouts (neatly named "stimulus") may have kept big business in the money for the past 18 months, and artificially propped up the stock market, but small business is the real canary in the coal mine.

My small business-owning friends aren't creating one job. Not one. They are shedding jobs. They are learning to do more with fewer employees. They are creating high-tech businesses that don't need employees. And many business owners are making plans to leave the country. In a high-tech world where businesses can be run from anywhere, Obama has a problem. His one-trick pony -- raise taxes, raise taxes, raising taxes -- is chasing away the business owners he desperately needs to pay his bills. . . .

For less color, but more facts, there is this frightening report from the LA Times:

For the recovery to gain steam, most economists believe small businesses need to be strong enough to hire new workers. But according to one measure, the employment picture in this sector is weakening.

Intuit Inc., which provides payroll services for small employers, says the nation's tiniest companies had fewer new hires last month than any time since October.

The data are further evidence of a trend that has had many economists worried for months and intensifies concerns that smaller firms may not be robust enough to help lead the country out of its financial slump. The slowdown in hiring is particularly troublesome, experts say, because small businesses typically hire first during a recovery. A reluctance by little companies to add positions could mean that the big firms, which typically lag behind, will add jobs even more gradually.

"It's a bad sign," said Susan Woodward, an economist who tracks small business employment for Intuit. "Small businesses hire first — and they're losing their steam."

To calculate its estimate of national hiring, Intuit uses payroll information from its 56,000 small-business customers. The company defines small businesses as those with fewer than 20 employees.

Intuit's data show that small businesses hired just 18,000 additional workers last month. That's still positive territory, but it's less than a third of the 60,000 that were added in February, when it seemed that an employment recovery was imminent. Additional hiring dropped steadily during the spring, to 40,000 in April and 32,000 in May. Another payroll company, Automatic Data Processing Inc., painted an even gloomier picture, saying that small businesses lost 1,000 jobs nationwide in June. . . .

Robert Alva, who owns Super Cool Air Conditioning in South El Monte, said he's been trying for months to expand his four-person shop to about 10 people to break into the potentially lucrative business of installing solar energy systems. But customers are reluctant to buy new cooling systems right now or even repair their old ones, he said. Whereas he would normally be able to finance a modest expansion by obtaining a loan, Alva said, he's been turned down twice for a small-business loan — squeezed by the credit crunch that has affected thousands of small firms.

To understand the oversized importance of these little businesses to the U.S. jobs picture, consider that the smallest firms — those with fewer than 20 employees — employ more than one-sixth of the nation's workers. But so far this year, these companies have provided about one-third of all new private-sector jobs, said Brian Headd, an economist with the Small Business Administration. So any cutbacks would be felt disproportionately throughout the economy.

"Small-business hiring is right at the heart of it because small businesses usually are the engine of job creation in the U.S.," said John Challenger, president of the employment consulting firm Challenger, Gray & Christmas. "It's small businesses that drive the unemployment rate down, and if the small businesses are faltering, that suggests that the risks of recession are growing." . . .

As I pointed out in prior posts, Obama has done anything but help businesses generally or small business in particular. Every one of his goals for America, from Obamacare to cap and trade to a complete revamp of our financial regulations, involve vast increases in costs, both to individuals and businesses. And as to small businesses, well, Obama pays little beyond lip service. Of the $787 billion Stimulus, only 2.6% was earmarked to help with small business loans. The vast majority of the remainder was wasted subsidizing profligate state governments and public union employees for a year.

Which brings us to a final point. In the Depression of the 1930's, there were two schools of thought as to how to handle a deathly sick economy. One, that of John Maynard Keynes - and beloved of the budding socialists then and now - suggested that massive government spending was necessary to stimulate the economy and restore confidence. The second school of thought, that of Friedrich Von Hayek, was that the government needed to limit spending and reduce or remove regulations that stifled private sector growth and inhibited trade. Indeed, you can find dueling letters between Keynes and Hayek, setting forth their positions, printed in the 1932 newspaper, The Times.

The question of who was correct was never definitively answered at the time. FDR adopted the Keynesian approach, but we were still in the grips of the depression in 1941 when World War II intervened and solved the problem of double digit unemployment. Most economists agree that it was WWII that drove the end of the depression. So today, the question remains, what should we be doing to treat an economy in deep distress.

Clearly, Obama, like FDR before him, has followed Keynes, at least partly. Obama counted on the massive government stimulus - and Bush's TARP - to put the economy well on the road to recovery, projecting that unemployment would top out below 8% and then recede. But he also did something else that Keynes clearly never supported. Obama has attacked confidence in our economy by promising ever greater spending and taxes and by attacking the private sector and the profit motive.

On the other hand, there is economist Arthur Laffer. He recently wrote an artice in the WSJ taking Crazy Nancy to task for her wildly false assertion that funding yet another extension of unemployment benefits (on even more borrowed money - the left refuses to pay for it with existing borrowed funds) is the best way stimulate the economy and create new jobs. Indeed, even without an explanation from Dr. Laffer, the fact that extending such benefits hasn't worked for two years now ought to be a clue that Crazy Nancy is either being disingenuous or that she is clinically insane (I, in all honesty, think she is both). At the conclusion of his article, Laffer writes:

Any government program that would reduce unemployment has to make working more attractive for both employer and employee. Since late 2007 the federal government has spent somewhere around $3.6 trillion to stimulate the economy. That is a lot of money.

My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound

Interestingly, Laffer is a bit between Hayek and Keynes. He would use government revenues to ease the burden on the private sector.

I happen to agree wholeheartedly with Laffer. Whether Laffer is right will likely be a question argued in the halls of academia many years into the future. But in any event, what is quite clear today is is that a pure Keyesian answer to the problem, as instituted with an Obama twist, has proven a disaster. And it seems, to me at least, that he will lead us into a true depression if allowed to continue on his current path.

Welcome, Larwyn's Lynx readers.

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The Orwell-Obama-Hoyer Pay As You Go Legislation

Democrats won't be the party of deficits.

Rep. Steny Hoyer (D-Md), Congress Must Pay for What It Spends, WSJ, 25 June 2009

To see Democrats at their most Orwellian, no need to go further today than Steny Hoyer in the WSJ, shilling for Obama's "pay-go" legislation and blaming all deficits on a combination of profligate Bush spending and "reckless" Bush tax cuts. As the Wall St. Journal's senior economic writer, Stephen Moore, explained in a recent interview:

President Obama can read the opinion polls, and he is seeing what we've been talking about every night, which is the American people are absolutely incensed about the debt that's going on in this country. And so now President Obama is trying to sound like a born-again deficit hawk.

The difference between Obama's words and deeds is a vast and yawning chasm. It is true that the greatest sin of post-Reagan era Republicans has been to jettison fiscal discipline. It is a fundamental failure that has allowed the left to paint Republicans as hypocrites. But for the left to claim the mantle of "fiscal discipline" for themselves is to pass beyond the bounds of any reasonable definition of the word "hypocrisy" and enter into Orwellian space. But that is precisely where Hoyer, on behalf of Obama, takes us today.

The Hoyer article deserves a full roasting, so here goes.

In recent years, America's fiscal story has been one of steady decline -- from record surpluses to record deficits. In 2001, the federal government had a projected 10-year surplus of $5.6 trillion. Today, we are looking at a fiscal year 2009 deficit of $1.7 trillion.

"Steady decline?" In other words, today's multi-trillion dollar deficit is the natural evolution of the Bush years? The actual budget deficit in 2006, before Pelosi, Reid and the Democrats took control of the purse strings, was $248 billion. The only way you go from that to a $1.75 trillion deficit in 2009 and describe it as a "steady decline" is to redefine the word "steady" to mean "fell off a cliff."

Further, the Clinton surplus was the function of an accounting gimmick with Social Security enacted during the 90's. Social Security surpluses of those years - and continuing through today - were used to buy government bonds, thus making the annual revenues a part of the general funds of Congress (and that a profligate Congress spent wholesale every year). It was and is a vast Ponzi scheme. Our actual national debt increased every year under Clinton. Social Security is now a time bomb set to blow up because the left in Congress refused to do anything about it. The huge number of baby boomers who gave the government the illusion of surpluses in the Clinton years are starting to make claims on the system that will steadily grow and overwhelm the system in just a few years.

A number of factors have brought us to this cash-strapped point, including reckless tax cuts, the cost of two wars, entitlement programs that have grown on autopilot, and the necessary, though costly, efforts to get our economy out of recession.

Wow. There is not a shred of intellectual honesty in that sentence.

1. Bush's tax cuts not only raised tax revenues because of an expanding tax base, they did so at the greatest rate in our nations history.


That was completely predictable from the historical data we have on the effect of tax cuts on the American economy during the 1920's, 60's and 80's..

2. The cost of the two wars we are fighting added to our deficit, but pale in comparison to real culprit, the growth in domestic spending. To put this in perspective, the total cost of the Iraq War from 2003 to 2008 was $551 billion dollars. Obama quadrupled that in his first hundred days with massive domestic spending - which, as an important aside, he did at the cost of our national defense. His budget reduces defense-related R&D, cuts major weapons systems, cuts missile defense, and holds defense spending below inflation, resulting in an ever-shrinking defense budget. As Michael O'Hanlon wrote in the Washington Post:

After three months of very impressive decisions regarding national security, President Obama made perhaps his first significant mistake. It concerns the defense budget, where his plans are insufficient to support the national security establishment over the next five years.

The truth of our deficits is ever increasing profligate spending above tax receipts on the domestic front - something Obama has just put on steroids.

3. The entitlement programs didn't grow on auto-pilot. "Auto-pilot" suggests that no one has attempted to curb the growth. The truth is that Steny Hoyer and the left beat back every attempt at reforming Social Security. Does this look like "auto-pilot" to you.



4. The massive spending by Obama was not "necessary" to get our economy out of recession. It was a choice the left made to fund every liberal special interest program they could think of under the rubric of Keynesian economics. Other alternatives to stimulate the economy were equally viable, but none offered the left a chance to go hog wild at the public trough.

But by far the worst decision was the abandonment in the Bush years of the principle that our country should pay for what it buys. It's time to learn from that error and establish that principle in law. President Obama has made the pay-as-you-go rule -- a.k.a. "paygo" -- a central part of his campaign for fiscal responsibility. Under paygo, Congress is compelled to find savings for the dollars it spends.

This is a joke, right? True, Bush and the Republican Congress deserve opprobrium for their lack of fiscal discipline. But their lack of discipline is infinitesimal compared to Obama and the far left who control Congress and the purse strings today. In this instance, a WaPo graph is worth nine trillion words:


The truth is that this pay-go legislation is a penultimate act of political cynicism. Its the left trying to cover-up their Obama Gone Wild spending spree by turning reality on its head. There are two truths to this snake oil Steny Hoyer is peddling. The "pay-go" legislation Hoyer is hawking specifically exempts Obama's multi-trillion dollar pet projects from its restrictions. It will provide cover for the largest planned expansion of spending and borrowing in our nation's history. It's only practical effect beyond pure propaganda for Obama will be to make tax cuts a thing of the past.

In the 1990s, paygo proved to be one of our most valuable tools for climbing out of a budgetary hole. As President Obama put it earlier this month, "It is no coincidence that this rule was in place when we moved . . . to record surpluses in the 1990s -- and that when this rule was abandoned, we returned to record deficits that doubled the national debt."

President George W. Bush and the Republican Congress set paygo aside, turning borrowed money into massive tax cuts for the most privileged. Borrowing made those tax cuts politically pain-free as long as Mr. Bush was in office, but it only passed the bill on to the next generation -- along with ever-inflating interest payments.

As I indicated above, a good part of the budget "surpluses" of the 1990's were nothing more than accounting changes that, in essence, made of Social Security a ponzi scheme. To the extent there was any fiscal discipline, it was the discipline imposed by Newt Gingrich and the House on the Clinton administration. As discussed in the quote below, pay-go legislation played little if any role in imposing fiscal discipline during the 90's as it was regularly ignored under House rules.

Pay-go was terminated in 2001 to allow for the Bush tax cuts - and you can see the result in the graph above. We didn't lose revenues, we gained them on a historic scale. Yet under pay-go, the math would have ignored this historical certainty and required massive cuts in spending to enact the tax cuts. Pay-go, since revived by Pelosi as a House rule in 2007, has been equally ineffective. It has been regularly ignored whenever convenient for Democrats - such as, for example, when passing Obama's massive 9,000 ear-mark strong "stimulus" package. This from Brian Riedl at the Heritage Foundation:

PAYGO has proven to be more of a talking point than an actual tool for budget discipline. During the 1991-2002 round of statutory PAYGO, Congress and the President still added more than $700 billion to the budget deficit and simply cancelled every single sequestration. Since the 2007 creation of the PAYGO rule, Congress has waived it numerous times and added $600 billion to the deficit.

Creating a PAYGO law and then blocking its enforcement is inconsistent and hypocritical. And given their recent waiving of PAYGO to pass a $1.1 trillion stimulus bill, there is no reason to believe the current Congress and the President are any more likely to enforce PAYGO than their predecessors were. And even if it were enforced, PAYGO applies to only a small fraction of federal spending (new entitlements). Consequently, PAYGO is merely a distraction from real budget reforms that could rein in runaway spending and budget deficits.

You can read the rest of Mr. Hoyer's Orwellian scratchings here. Pay-go legislation really is political cynicism taken to its zenith. And neither Steny Hoyer nor Obama display the least bit of intellectual honesty in pushing it as political cover for an experiment in deficit spending that could truly doom our economy.

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Depressing (& Depression) News

The Great Depression began in June, 1929 and lasted until the early 1941. FDR didn't solve it with his "New Deal", WWII did. By 1933, unemployment had risen to 24.9%, average incomes contracted by 40%, global trade fell by half in volume, and millions lost their homes and farms. How do we compare to the Great Depression?

We are now running a budget deficit closing in on two trillion dollars. Unemployment is at 9.4% and seems headed only upward. Our bond rating is on the cusp of being downgraded - an occurrence that promises a whole host of problems. The fed is printing money as never before:



Even with no new deficit spending, new and heavy taxes seem inevitable to service this debt. Plus, with such an increase in the money supply, massive inflation and devaluation of the dollar seems inevitable.

But much more is waiting in the wings to hit, some sooner rather than later. Obama is doing nothing to rein in spending or to avoid taxation. Indeed, to the contrary, Obama has not even begun to tax and spend. In an Orwellian move, he is calling for institution of "pay as you go" legislation that will make future tax cuts next to impossible but will not apply to any of the massive new deficit spending he has planned in his pet projects.

Social Security - a massive ponzi scheme that the left utterly refused to attempt to reform during the Bush years, is now running in the red. Medicare isn't being fixed, its being subsumed in a plan that will only expand care to 1/3 of the uninsured, yet cost us trillions in extra dollars. Cap and Trade is another massive regressive tax.

We are on the cusp of an energy crisis that Obama is ignoring. The price of oil is set to skyrocket from a host of contributing causes. The green energy Obama has promised us is not even cost effective, nor can it possibly be scaled up as quickly as it would need to be to provide a realistic alternative to oil and coal.

Global trade, already under extreme stress, is set to experience far more stress. Some 80% of all goods traded internationally are shipped. David Smick, writing at the Washington Post, notes "[t]he U.N. agreement last October on sulfur-burning levels for ships . . . is expected to send shipping costs skyrocketing." Thus the price of the vast majority of goods traded internationally will be effected, all in the name of global warming.

Then to top it off, we have Obama, instead of fixing the issues that led to this global economic meltdown, proposing a massive new regulatory regime for our financial sector. This is precisely what the respected Harvard economist Niall Ferguson warned against a few weeks ago.

Could this news get any more dire? Well, . . . yes. We now have sufficient data to make a reasonable comparison of where we are as compared to the same time frame after the start of the Great Depression. And the news is depressing indeed. Even without this next round of price increases, massive spending and high taxation, we are at or below the same economic indicators in the same time frame as existed during the Great Depression. This from the Financial Times:

Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one.

Two economic historians, Barry Eichengreen of the University of California at Berkeley . . . [document] that this recession fully matches the early part of the Great Depression. . . .

First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely. Within Europe, the decline in the industrial output of France and Italy has been worse than at this point in the 1930s, while that of the UK and Germany is much the same. The declines in the US and Canada are also close to those in the 1930s. But Japan’s industrial collapse has been far worse than in the 1930s, despite a very recent recovery.

Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures.

Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.

The two authors sum up starkly: “Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event.” . . .

You can read the rest of the article here. The authors go on to discuss the fact that Obama is attempting to rely on both Keynes and Friedman to guide his acts. Keynes theorized that massive public spending could be used to stimulate an economy while Friedman concentrated on monetary supply. The authors conclude hopefully that this will stop the full spiral into depression.

What gives me great pause is that these authors give no consideration to all of the additional taxes and the rising costs that we are about to have imposed upon us, plus what looks like new draconian regulation of our financial sector. Fed Chairman Ben Bernanke warned a few weeks ago that we needed to taking steps now to rein in spending and borrowing or we face severe problems in the foreseeable future. Obama is doing anything but that. I have never been so pessimistic about America's future. This could easilly go from bad to castrophically bad.

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"Terrible" Treasury Auction Signals Rough Economic Waters Ahead

"What if we hold a treasury auction and no one shows up?" That was the question posed by Ed Morrisey at Hot Air after a Treasury Auction saw the Treasury having to offer higher than planned interest rates to induce buyers to purchase our government's bonds. The answer - it means trouble for the economy. As the Heritage Foundation puts it, "[t]his is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected."

According to the Heritage Foundation, signs are that the recession is bottoming out and the economic situation will stabilize this summer. That signals the start of the unplanned consequences of the massive spending by Obama. This from the Heritage Foundation:

There are two critical consequences to the economy stabilizing. The first is that the massive liquidity injected into credit markets by the Federal Reserve and central banks around the world transforms from economic medicine to inflationary heroin. Central banks are going to face a difficult task of extracting the excess liquidity before inflation soars and without causing another recession. Doubt about the fight against soaring inflation means higher inflation premiums in interest rates.

The second dangerous consequence is that President Obama is on course to double the national debt in just four years. After years of complaining about annual deficits of $300 billion or $400 billion and their effects on interest rates, liberal commentators are suddenly silent now that the deficit is heading toward $2 trillion under a liberal administration. But now the vaunted “crowding out” effect from government borrowing is almost a certainty, as are the resulting higher interest rates.

Healing financial markets and a stabilizing economy generally translate into higher interest rates for long-term, high-quality bonds like 30-year Treasuries. The effect of the projected massive government borrowing, however, is to drive interest rates as much as a full percentage point higher yet. This will mean higher interest rates for consumer loans, mortgage loans, business loans, etc. Instead of a 6.5 percent mortgage rate, home buyers will face a 7.5 percent rate. The debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

And as Ed Morrisey points out, the rise in Treasury interest rates that resulted from the most recent auction means that the huge defecits forecast by the Obama administration - and, for that matter, the even larger defecits forecast by the Congressional Budget Office - are already unrealistically low. Here is the chart of the estimates:



And to think that my bill of particulars against the Republicans was a lask of fiscal restraint. Those guys were penny-pinchers compared to the real far left deal. At any rate, as Ed Morrisey writes:

These projections had to consider interest payments on all of the debt Obama planned to buy while running these deficits, and any hike in interest rates means that those interest payments will have to go up. That also means that we will have to spend more money than Obama projected, creating even higher deficits and the need for even more bond sales — and more interest payments on those.

It’s basically a Ponzi scheme, and it’s accelerating.

One of two things will have to occur to resolve the situation. Either the federal government will have to massively cut its spending in order to service all that debt at the higher interest rates now demanded, or it will have to pass massive new taxes in order to generate enough revenue to accomplish it. Which do you think Obama is likely to try?

As I've written before, we may soon be pining for the good economic times of the Jimmy Carter economy.

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