The Command Economy

According to his State of the Union speech, here is what President Obama would like to accomplish. He wants to redesign the American economy:

Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that's built to last — an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.

Three years ago he was going to rebuild the economy based on education, health care, and green jobs. It's tough to rebuild an economy when you change its basis every two or three years.

It sounds great to say that manufacturing jobs are coming back to America but is it true? Steve Jobs didn't think so a year ago when he told Obama that the jobs are not coming back to America. One reason is that the supply chain has moved off-shore. Another reason can be found in the story of the iPhone production line. Apple's workers live in dormitories at the plant. Steve Jobs changed the design of the iPhone at the last minute, substituting a glass screen instead of the planned plastic one. That meant that the first glass screens started arriving around midnight. Apple's managers woke the workers, handed them a cup of tea and a biscuit and sent them to work assembling phones. Not only couldn't you find American workers who would be willing to take a job with these conditions but Obama's government would close them down if they tried.

Obama made several proposals for changing corporate tax codes. He wants to do away with the mythical tax break for moving workers overseas and establish some sort of minimum corporate tax. One ray of light - he also proposed reducing the corporate tax rate. All of this seems needlessly complicated. Just lower the tax rate and eliminate most of the deductions.

Obama wants a better-trained work force. That is a noble goal although it is at odds with his previous goal of sending everyone to college. An educated workforce needs a lot of people who have been trained in trades and specialties that colleges would never touch.

Obama suggests simplifying the current programs for retraining workers. This sounds like a good idea. We will see if he can flesh it out. Otherwise it may just add another level of bureaucracy.

When talking about classrooms, Obama hit one of the teacher union sore points - teaching to the test. He thinks that doing away with standardized testing will help teachers. The reason that most states established tests in the first place was that too many teachers were simply warehousing students and passing them on to the next grade without teaching them anything. Teaching to the test was seen as an alternative to not teaching anything.

Obama did threaten colleges to keep tuition down or face cuts in government grants. This is probably an empty threat.

Back to jobs, this time small businesses:

Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow.  Expand tax relief to small businesses that are raising wages and creating good jobs.

So much for eliminating tax loopholes. We're only part-way through the speech and he proposed some new loopholes.

Obama gives lots of credit to government funding. He mentions the computer chip in the same breath as federally funded research but Intel created this without federal funding. He also give the government credit for discovering fracking (without using that term). Strangely he fails to mention the role of federal funding in extracting oil from tar sands - possibly because he just killed a pipeline that would have brought this into the US from Canada.

On to Obama's real passion - green energy. He never quite comes out and says it but he wants to promote clean energy by imposing higher government standards on efficiency and clean air.

This part is laughable:

In the next few weeks, I will sign an Executive Order clearing away the red tape that slows down too many construction projects.  But you need to fund these projects.  Take the money we're no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.

Ok, we are out of Iraq. But a lot of those resources moved to Afghanistan so there isn't much savings. And we can't use the savings to pay down the debt because we still have a huge deficit. We are borrowing $0.40 out of every dollar we spend. So, is the President is proposing that we pay down the debt with borrowed money? And saying that we cut back on deficit spending in one place does not mean that we can borrow and spend elsewhere.

Obama wants to allow people to refinance at lower rates. Fine. But then he mentions a new fee on the largest financial institutions. Again, he is picking winners and losers. What will he do if this breaks Bank of America? Another bailout? He says that he isn't going to do that any more.

He also insists that banks sold people loans that they could not afford. He mentions it multiple times. There is no acknowledgement that the person taking the loan was also at fault. Instead he is going to create a new set of enforcers to hunt down the bankers.

And tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans. 

How about some penalties for the people who lied on their mortgage application? Don't you think that they might have contributed to the problem, just a bit?

We are well into the speech but he chose this time to announce his immediate priority - continuing to gut Social Security by continuing the Social Security tax holiday.

He also made a dig at the Bush tax cuts, but only the part that affected the rich and a push for raising the capitol gains tax which has turned into a special subsidy. The fact-checkers have examined the claims about billionaires paying cut-rates and found that it is rare. There are some people, like Governor Romney, whose income mainly comes from capitol gains but it is a very small percentage while the President would have you believe that it is the rule.

Here's another amazing statement:

Finally, none of these reforms can happen unless we also lower the temperature in this town.  We need to end the notion that the two parties must be locked in a perpetual campaign of mutual destruction; that politics is about clinging to rigid ideologies instead of building consensus around common sense ideas. 

This from the man blew off Republican concerns about the stimulus and used parliamentary slight of hand to pass health care against strong Republican opposition. Ironically, Rep. Giffords was sitting in the audience. Just a year ago Republicans were being blamed, without any proof, for her shooting, Obama has made it clear since August that he was more interested in scoring political points against the Republicans than actually governing.

An even ore amazing statement:

The renewal of American leadership can be felt across the globe.  Our oldest alliances in Europe and Asia are stronger than ever.  Our ties to the Americas are deeper.  Our iron-clad commitment to Israel's security has meant the closest military cooperation between our two countries in history.

Obama has spent the last three years snubbing Great Britain. Just last week he snubbed Canada by rejecting the tar oil pipeline. His record on Israel has been the least-supportive since that country was founded.

Maybe the President hopes that we aren't paying attention or, that by saying something he can make it happen. Or maybe he really believes what his teleprompter says. He has bragged before about what a friend he is to Israel.

He closed by reminding us that he got bin Lauden.

One of my proudest possessions is the flag that the SEAL Team took with them on the mission to get bin Laden.

We are lucky that he didn't bring it along to wave.

The mission that killed bin Laden is symbolic of Obama's view of the world. He ordered it to happen and it did. There were a few disasters along the way - a top secret helicopter crashed and stripped and international law violated - and his involvement was minimal but he still sees it as his victory.

Obama sees that economy as something that can only operate with heavy government influence. He wants to decide the winners and losers. He wants to help the poor and punish the rich. And he has no conception of the limits of government or his own ability to manage the economy.

South Carolina and November

Gingrich won the South Carolina primary but the big loser was President Obama. As long as the Republican nomination is in doubt, Obama cannot run a negative campaign. He has to try to be positive. He already has his anti-Romney strategy worked out. The Obama campaign and its auxiliaries in the press, will attack Romney for being a wealthy venture capitalists and for being... different (code words for Mormon). Back when it looked like Romney would would sew up the nomination with South Carolina, I started to see columnists reminding us that Romney's great-grandfather had multiple wives (for what it's worth, so did Obama's father and grandfather). I suspect that Obama's State of the Union address was going to have some veiled references to Romney. But, with the nomination still in doubt, Obama will have to wait.

Worse for Obama, Gingrich's attack on Bain Capitol will make it harder for Obama to attack Romney. Gingrich's attacks already took enormous liberties with reality such as blaming Romney for things that Bain did after leaving Bain. The general rule of thumb is that if a candidate can survive an attack in the primaries then it will be useless in the general election. Think of Clinton's infidelities or Obama's lack of experience.

The same is true if Gingrich is the nominee. By airing an interview with Newt's ex-wife just before the primary, they proved that voters don't care how despicably Gingrich treated his ex-wives. During the 1992 primary it came out that Clinton had cheated on Hillary multiple times but he survived it. Newt can, too.

Another problem for Obama - as long as the nomination is in doubt, the Republicans take center stage on the nightly news and Obama is an afterthought.

An extended primary also helps the candidates hone their message. Romney is a better candidate than he was four years ago. His earlier run helped him. This is Gingrich's first run and he entered late so an extended primary will help him, also.

Obama and the XL Pipeline

The proposed XL Pipeline will bring oil from Canada's tar sands to refineries in the southern US. From there it will be sold in the US and exported at a profit to the US. Building the pipeline will be a boon to the (unionized) construction industry. Oil pipelines are nothing new or extraordinary. Most of the oil in this country is moved around via pipeline and there is nothing about the XL pipeline to make it riskier than the other pipelines. The pipeline would also ease relations between the US and Canada which have been strained since Obama became president.

There is opposition to the pipeline. Most of it is based on global-warming guru James Hansen who says that if we allow the tar sands to be refined then it will be "game over" for the planet. There are several problems with this statement. One is that it would take hundreds of years to burn all of the Canadian oil. Another is that Canada says that it will allow China to build a pipeline and refine the oil instead.

The Obama administration wants to please both the construction unions and the environmentalists so it put off the decision on the pipeline until after the election. The excuse is that time was needed for an environmental impact study on alternate routes.

Republicans in Congress are in a hurry for the pipeline to be approved so they tried to force the President's hand and demanded a decision. Obama obliged, sort of. He rejected the pipeline because the environmental impact study has not been completed but allowed that the pipeline could be resubmitted and would be judged in due time. This is a double triumph for the Obama administration. They get to tell the environmentalists that they killed the pipeline while hinting in private to the unions that the pipeline will be approved when it is resubmitted.

This is typical of the way the Obama administration has conducted itself since September. Nothing happens unless it helps the Obama reelection campaign. There is no question that the pipeline would create jobs but the Obama administration would rather score political points than help people.

Climate and Politics

Michael Gerson has a column in the Washington Post on how climate change has become politicized. At the same time, Wired has an article about the National Center for Science Education (NCSE) adopting a new policy supporting the teaching of evolution and climate change.

Gerson is one of a group of right-leaning moderates who accept climate change theory as established fact. In Gerson's view, the right rejects warming theory largely because the left uses it to advance its agenda. There is some truth to this but it is incomplete. He dismisses the Climategate emails.

Climate scientists, in my experience, are generally careful, well-intentioned and confused to be at the center of a global controversy. Investigations of hacked e-mails have revealed evidence of frustration — and perhaps of fudging but not of fraud.

What the emails actually show is that climate scientists are indeed true believers but some of them have questioned why their predictions are off. More importantly, they act in concert to suppress dissenting opinions. If a peer-reviewed journal publishes a dissenting paper, they get the editor fired.

This is the hallmark of an information cascade. This happened with dietary fat. For 50 years it was accepted that dietary fat caused heart disease. Finally a major study proved otherwise. It turned out that a small minority of dedicated scientists had pushed the dietary fat/heart disease link to hard that it became the accepted view and any dissent was tamped down. This is happening to some extent with global warming.

As for the Wired article, I would like to know what would be taught in schools. Would they include Al Gore? He has admitted that he finds the IPCC's findings to be too conservative and has his own set of experts. Would they include the IPCC? Sections of their most recent report were copied from environmental group's position papers instead of from peer reviewed journals. Would they include the recent Berkeley Earth Surface Temperature Project which verified that the world has warmed over the last several decades and if they do include it, would they point out that this same study shows that warming stopped around the year 2000? Would they include predictions from the last 20 years of climate science that have failed to materialize (in 2000, NASA's James Hansen predicted that parts of Manhattan would be underwater by now)?

This is the problem with climate science. The field has a number of alarmists who think that the only way to get action is to exaggerate the risk. This totally discredits their cause, especially when it has been co-opted by political extremists.

The earth has warmed in the last century or two but it is still debatable how much of this was caused by humans as opposed to natural cyclical forces. Even more debatable is how much more the climate will warm. All of the warming productions are based on unproven feedback models. Finally, no debate at all has been given to the benefits of a warmer world.

Nancy and Michelle

Have we been too hard on Michelle Obama's spending? Here's a comparison from 1981.

When Ronald and Nancy Reagan moved into the White House, Nancy discovered that the official china was in a bad way. The White House did not have enough matching china to serve everyone from matching plates at a state dinner. So she ordered a new set.

There was an immediate uproar over Nancy's free-spending ways. It was pointed out that the money to buy the china was donated but that didn't help. Instead, critics pointed out that the donation was tax-deductible and figured out how much the china actually cost the paying public in lost taxes. At the time the top marginal tax rate was 70% so charitable deductions were worth more as tax deductions.

If getting matching china for state functions was spending too much then what are we to make of the Obamas?

Venture Capitalism

There have been a lot of attacks on Mitt Romney based on his work at Bain Capital. Here's how Bain worked. They looked for small businesses that were in trouble but had the potential to be turned around. They would buy them, lay off non-productive section and build up new ones. Some of these companies went out of business anyway but many prospered - enough to more than double Bain's investment.

The current complaints about Bain (and Romney) are because some jobs are eliminated along the way. The expectation seems to be that somehow a company can be saved without laying anyone off and that the layoffs must have been motivated by the desire for higher earnings by Bain.

So, how does a compassionate leader handle a turn-around? We have a great example - President Obama's handling of GM and Chrysler. GM is particularly instructive since it is the bigger of the two and Chrysler was sold to a foreign company.

Obama poured money into GM but he also cut out the non-productive sections. Some were put up for sale. If they could not be sold then they were closed. People were laid off - a lot of people. The resulting company was stronger and stands a good chance of surviving.

How is this different from what Bain did? Money was invested but some people still lost their jobs.

Here is an example closer to home for me. The company that my wife works for had a simple business model. They would take out a loan and use the money to buy merchandise and print catalogs. Then they would sell the merchandise, pay off the loan, and bank the profits. They did this quarterly. Then the recession came and credit dried up. So they brought in some outside investors who decided that their business model would no longer work. Instead they came up with a new model. While much of their merchandise was produced outside the company, they did have a line of cookbooks and calendars that they made in-house. The catalog sales arms was closed and a good chuck of the staff laid off. The cookbook and calendar operation was expanded and the remaining part of the company was saved.

So, which is the greater evil - laying off some workers so that a company can survive or keeping everyone employed rught up until the company goes out of business? Most people would agree that some jobs are better than none, even President Obama.

Remember this when you hear about the evils of Bain Capital.

Recess Appointments

An iron-clad law of politics is that whatever dirty tricks you use today will be used against you tomorrow.

According to the Constitution, there are several offices that require Senate approval of Presidential appointees. When the Constitution was written, it was assumed that Congress would be in recess for months at a time and that it would take days or weeks to unexpectedly reassemble. That was reasonable when messages had to be carried by someone on horseback. This created a conflict between the need to fill offices and the difficulty of assembling Congress during a recess. This was bridged through recess appointments. The President can appoint someone for a year allowing plenty of time for a formal confirmation the next time Congress is in session.

For the last century presidents have used recess appointments as a way of getting controversial appointees into office without a Senate approval. A few years ago the Democrats decided to stop the Bush administration from making recess appointments. They did this by never going into recess. During periods of traditional recess, a few senators would stay behind and hold pro-forma sessions in which the only business conducted was a motion to adjourn. Note that the Democrats supported this including Senator Obama.

The Republicans followed this precedent and left the Senate in session at the end of the year. They could do this because each house has to have the assent of the other house in order to declare a recess so the Republican-controlled House could keep the Democratic-controlled Senate in session.

But, when President Obama returned from Vacation he declared that the Senate was in recess and made the appointments anyway.

The dirty tricks are piling on each other. First there was the misuse of recess appointments, then pro-forma sessions, and now a President ignoring the Constitutional definition of a recess and declaring one on his own. This last one was particularly odious because it tromps all over the separation of powers. If allowed to stand then this could mean the end of Senate approval. You know that this will come back to haunt both parties.

This is also one of the worst examples of an imperial presidency imaginable. And it came from a former professor of Constitutional law.