Tuesday, August 31, 2010

Katrina, New Orleans, and the Limits of Government

The flood protection system that was designed to protect New Orleans was big government at its finest, or at least its biggest. The people in the flood zone could not possibly afford to build the system themselves so the federal government (the rest of us) paid for most of it. This allowed developers to build cheap housing in areas that were below the natural water level.

What we got for our money was incomplete and sub-standard. Flood walls were anchored with local mud instead of more expensive clay brought in from out of state. Levies were inconsistent. Inspectors either failed to do their job or were bribed to ignore irregularities. The flood control "system" was not a real system. Instead it was a series of make-shift barriers that failed to stop even the moderate remnants of Hurricane Katrina that actually hit New Orleans. A lot of money went to graft and corruption.

It was recognized forty years ago that a hurricane coming up Lake Pontchartrain could overwhelm the flood barriers. There was a proposal to construct a giant flood wall at the mouth of the lake. This was stopped by environmentalists.

This is the reality of big government. Projects that start out with good intentions turn into excuses for the well-connected to line their pockets.

The response from the big government progressives as been to blame President Bush for problems that existed for decades. When he spoke at New Orleans, I doubt that President Obama ever gave a thought to how government had failed those people. Instead he was congratulating himself for how government was helping them.

The fact is that the government cannot do everything. There are limits on what can be accomplished. Even given things the government can do, it will not always be successful. Sometime it will fail in epic proportions and disastrous results.

Consider - without the government flood protection, the 9th Ward would have never been built. Without that, the flood damage would have been moderate. The disaster was caused because the government made a promise that it could not keep.

Friday, August 27, 2010

The Republican "Revolution"

Wednesday's top AP story was about the Republican "revolution" and how Democrats hoped to take advantage of it. There are several unreported aspects of this story. The biggest is that the Democrats had their own "revolution" a few years ago led by the Progressives and the Netroots. Consider the parallels:

Both revolutions called for a return to the values of the party's most memorable leader - FDR for the Democrats and Reagan for the Republicans. Both movements disdained moderates in their own party.

In both cases an organization operating outside of the official party gained influence over which candidates would be on the ballot. The Netroots spent as much on the 2008 presidential election as the Democrats did. Obviously the Tea Party has had a major effect on the Republican candidates in 2010.

Both revolutions turned out long-time incumbents who did not toe their line. In 2006, the Netroots turned on Joe Lieberman because of his support for Bush's wars. He lost the primary but ran as a 3rd party candidate and retained his senate seat. Several conventional Republicans have been defeated in the primaries. Prior to the current Republican surge, the Netroots led by the DailyKOS were threatening to defeat Yellow Dog Democrats.

The importance of the Netroots and the resurgence of the Progressives within the Democrat cannot be understated. They is why Barrack Obama is president today rather than Hillary Clinton. It remains to be seen if the Tea Party will have a similar effect on the 2012 Republican candidate.

There are some major differences between the two movements. The Netroots were much better funded and organized. They made heavy use of the Internet ("Netroots" stands for Internet Grassroots). The Tea Party has resisted traditional organization. Some people, like Sarah Palin, are influential within the Tea Party but they are not true leaders. Also, much more of the Tea Party takes place in the open. George Soros provided major funding to the Netroots but few people know his name.

The Tea Party is often portrayed as over-the-top conservative - so conservative that they will turn off the average voter. The current Democratic strategy is to refer to their opposition as "Tea Party Republicans" to try to capitalize on this. This presents a risk to the Republicans but consider the alternatives. The previous Democrat strategy has been to try to tie current Republicans to former President Bush and to characterize them as the "Party of 'no' with nothing new to offer."

The Tea Party gives the Republicans a chance to offer something new. Much of the country is worried about the growing deficit. Deficit worries propelled Ross Perot's 3rd-party candidacy in 1992 and the Democrats promised to reduce the deficit in 2006 and 2008. Bush Republicans have no credibility on this issue but Reagan Republicans do.

Without the Tea Party, the Republican's pitch to be returned to power is reduced to this.

Tuesday, August 24, 2010

Obama's Religion Problem

Two conspiracy theories keep recurring about President Obama - that he was born in a different country and that he is a secret Muslim.

The foreign birth conspiracy makes no sense. He was born to an American citizen so it makes no difference where he was born - just ask John McCain who was born in Panama. Some of the wildest versions of this theory say that he was born to a different mother but fail to explain why an American woman and her parents would be willing to raise someone else's child as their own after he abandoned them.

The secret Muslim theory has more traction for several reasons. One is that he actually was raised as a Muslim by his step-father. This was scrubbed from his biography during the 2008 campaign along with any mention of his middle name - Husein. When information is deliberately suppressed, it gives the impression that there is something to hide.

The President's own actions have added to the speculation. In 2004 he was given the keynote speech at the DNC national convention because he was a liberal Democrat who was willing to talk about god. Sometime in the intervening years, he stopped mentioning god except in the context of "clinging to" guns and religion.

Obama admitted in one of his autobiographies that he wasn't really a Christian until he joined the church of the Reverend Wright. When videos of Wright's sermons hit the Internet, Obama disowned him and quit the church. He has not joined a new church since then. For a president who claims to be more religious than Ronald Reagan, this seems a bit strange.

Obama should not have commented on the Ground Zero Mosque. It inserted him into a local controversy and it called attention to the fact that he was hosting a Ramadan dinner at the White House.

In his various apology tours of the Mid-East, he has recalled his Muslim heritage - the same heritage that people were forbidden to mention in 2008.

In an effort to convince people that Obama is a practicing Christian, the White House was reduced to talking about daily bible reading sent to his Blackberry.

Does any of this mean that he is a practicing Muslim? No. But there is precious little to indicate that he is a practicing Christian, either.

I doubt that his mother or grandparents were practicing Christians. I suspect that they were atheists or agnostics. Certainly they didn't raise him as a Christian. If they had then the Reverend Wright couldn't have brought him to Christ.

I think that, coming from an ivy-league, liberal background, Obama is, at best, cool to religion. He joined the Chicago church as part of his quest to create a black identity. Membership gave him access to members of the black upper class of Chicago (including Oprah). But he was never a true believer.

That's why people suspect that he is a secret Muslim. They sense that he doesn't have any real enthusiasm for Christianity and look for alternate explanations. His Muslim background, and his suppression of it, make the secret Muslim idea plausible.

Personally, I don't think that Obama displays any more enthusiasm for Islam than for Christianity. His overtures are based on shared experience, not shared belief and I don't think that he really understands true believers in any religion.

Monday, August 23, 2010

Surprise us President Obama

In a recent column, Thomas Friedman wrote about Nelson Mandela in the movie Invictus surprised his country by supporting the mainly-white soccer team. President Obama has a couple of chances to surprise the country in his upcoming national address on Iraq. Iraq divided the country and this is Obama's chance to heal some of the partisan divide.

First there is the war itself. He could say, "We may disagree on whether the war was worth the cost but the world is a better place without Sadam Hussein."

I doubt that he will say this or that it would even occur to him. One of his original selling points in the presidential primaries was that he was always against the war. That is why it would be such a big deal for him to admit that there is another side. It would outrage the Netroots but he has already lost their favour and it would be a chance to be the post-partisan president that he claimed he would be.

The second surprise would be to acknowledge President Bush's role in the conclusion of hostilities in Iraq. This goes beyond reaching out to the other side because Bush was right and Obama was wrong. In fact, Obama was very wrong. When the Surge was announced, Obama predicted that it would make things worse. Instead it succeeded and Obama knows it. He not only knows it, he completely reversed himself on it. That is why the combat troops left in honour in August of 2010 instead of in defeat in the Spring of 2009 as Obama originally promised. He also based our operations in Afghanistan on Bush's Surge and put the same general in charge.

Anyone with the slightest bit of class would admit his mistakes and acknowledge Bush's role. This is where Obama really defines himself. Is he a statesman capable of admitting his own failability or is he a partisan political hack who takes credit for other's accomplishments?

This one would not cost Obama anything. Everyone knows that he reversed himself and followed Bush's lead. He can afford to be a bit gracious. Can he bring himself to do it?

Surprise us, Mr. President. 

Friday, August 20, 2010

What's Wrong With the Economy?

The verdict is nearly universal - last year's stimulus bill failed. The economy is still dragging and threatening to go into a double-dip recession. The neo-Keynesians explanation is that the effects of the stimulus bill were offset by cuts made at the state and local level by entities that have to balance their budgets. Their remedy is to double-up on stimulus spending.

The neo-Keynsians see the economy as being something like a bicycle coasting along a series of hills. When the bike is going downhill it is fine on its own but there are cyclical business cycles analogous to coasting uphill. When this happens the economy (and the figurative bicycle) slows and a push is needed by the government. This is a very self-contained model and does not account for outside influences. I think it is safe to say that there are a number of such influences.

Economies are partly behavioral. One reason that the current recession is the worst since the Great Depression is because of long-term behavioral changes involving spending and credit.

Two generations ago people saved more and borrowed less. Over the last several decades credit has become increasingly easy to obtain. One example is the layaway. A generation ago people used layaway to buy items. They would put down a deposit and the store would hold the item. The individual would keep making payments until it was paid for and could be taken home. If the payments were not made on time then the item would be put back on sale and the payments to date would be refunded minus a restocking charge.

Most cards were charge cards. You would be presented with a bill showing goods purchased during the month with your card and you were expected to pay it off. The cards were chain-specific and mainly existed as a convenience for customers.

Houses and cars required large down-payments in order to qualify for financing.

Over time this changed. Charge cards were replaced with credit cards and people started carrying a monthly balance. Stored eliminated layaway. The equity needed to finance a house or car dropped almost to zero.

For the past several years interest rates have been at record lows. This was like pouring gasoline on a fire. It accelerated the trend. With house purchases so easy, housing prices outstripped both inflation and reason.

People ran up large credit card bills then refinanced their house for money to pay off the cards. Then repeated the process, knowing that rising home prices could keep this cycle going forever. The national savings rate was at an all-time low and borrowing was at an all-time high. Credit was so easy and so abused that Bankruptcy law was changed in 2005 at the urging of the credit card industry.

At the same time that consumers were binging on credit, the financial industry was glutting itself on the profits from all of this credit. There were multiple dependent bubbles here and a crash was inevitable.

In the wake of the crash and bolstered by any number of stories about the Great Depression, people reevaluated their credit-driven lifestyles. They are saving more and borrowing less. The credit industry has also tightened up. It's harder to get credit these days.

This created a paradox. On one hand, saving more and borrowing less is good for the long-term health of the economy. On the other hand, the only way that we can have a robust recovery is if people spend like it's 2006. That just isn't going to happen. Not only have people changed their habits, for many people there is no going back. If you are among the 20% or so who is unemployed or underemployed then you have to be frugal. It you owe more than your house is worth then you cannot get money out of your home. If you are one of the people who walked away from a home because you owed too much on it then no one is going to trust you for some time.

There is no good way out of this. We are suffering for years, maybe decades, of personal overspending. The best fix is to let things balance out on their own. Eventually the economy will strike a new balance and people will feel comfortable enough to start buying again, although probably not at the rate that they had been. This will take time. There is no quick fix.

Enter the neo-Keynesians. They are believers in big government's ability to fix anything. As they see things, the problem is a lack of spending. They figure that if they can just spend enough money on union jobs and construction projects, consumers will be fooled into thinking that everything is fine and go back to spending more money than they make. Their stated hope is that consumers will return to their bad habits long enough for the economy to recover then rediscover thrift so that the cycle does not start up again.

Not only is this unlikely but the reduction in tax revenues caused by the recession means that the government has to borrow its stimulus money. In effect, the neo-Keynesians are substituting unsustainable consumer borrowing and spending with unsustainable government borrowing and spending.

The obvious reaction of government to a long, slow recovery should be to cut back on expenditures. It will be a long time before the tax base recovers. Adding to long-term government debt now will hobble the government in the future. This will add to the general pain but people understand the idea of cutting back in hard times. Britain's new conservative government announced major cuts and their economy immediately improved.

Unfortunately, the current batch of progressives are constitutionally opposed to government cutbacks. They are intent on expanding government with will take money that they do not have. That locks them into quick-fix solutions that will ultimately just make things worse. Worse, some of the President's recent speeches suggest that he is going to try to force spending by penalizing savings. This could cripple the economy for years to come.

Wednesday, August 18, 2010

Neo-Hoover Deficit Hawks?

Robert Reich who was Secretary of Labor under President Clinton used the term "Neo-Hoover deficit hawks" in a recent column. It sounds good since Hoover's reputation never recovered from the stock market crash and the Great Depression but how accurately does it describe today's fiscal conservatives?

Fiscally, Hoover was all over the place. He started his administration believing in tax cuts and balanced budgets but, after the start of the Depression he pushed through the Revenue Act of 1932 which has been described as the largest peacetime tax increase in history. It raised tax rates across the board, with the rate on top incomes rising from 25 percent to 63 percent. The estate tax was doubled and corporate taxes were raised by almost 15 percent. He also raised tariffs and instituted a tax on all bank checks. Which party does that sound like? If there is any doubt, Reich's column makes it clear.

And don't believe the supply-siders who say we have to extend the Bush tax cuts for the wealthy. Because the wealthy save rather than spend most of their incomes, extending their tax cut won't do squat.
[...] Put more money in consumer's wallets by eliminating payroll taxes on the first $20K of income (and make it up by applying payroll taxes to incomes over $250K.)

Reich has his own interpretation of the term "save". The rich do not stick their money under a mattress or even put it in a savings account. They invest it. This is what leads to long-term growth, not government jobs.

Also, according to a news report, some school districts decided to save the federal grant money that they were given to re-hire teachers. It turns out that the type of stimulus money that Reich prefers doesn't do squat, either.

Reich also says

We need a giant jobs program to hire people and put money in their pockets that they'll spend and thereby create more jobs. Put ideology aside and recognize this fact. If it makes you more comfortable call it the National Defense Jobs Act. Call it the WPA. Call it Chopped Liver. Whatever, we have to get the great army of the unemployed and underemployed working again.

This is a call to be like FDR, not Hoover but the two do not have the bright distinction that Reich thinks is there. Wikipedia's entry on Hoover contains this nugget:

Even so, New Dealer Rexford Tugwell later remarked that although no one would say so at the time, "practically the whole New Deal was extrapolated from programs that Hoover started."

Reich is misquoting history in order to advance his own agenda of tax and spend. It failed when Hoover tried it; it failed when FDR expanded it; and it continues to fail in the age of Obama.

More on the Mosque

I found this list of reasons to support the Ground Zero Mosque in the comments of a post on Huffington. This is typical of the muddy thinking of the pro-mosque faction. I thought that it is worth examining in detail.

1. It's not even a Mosque
2. It's not even at Ground Zero
3. There is already an Islamic Community Center 4 blocks away, this would be 2 blocks away from one corner of the giant hole. + There's over 100 Mosques already in NYC.
4. This is closer to an Islamic YMCA/Chef school than anything, with a swimming pool, basketball court, auditorium, culinary center and yes a prayer room.
5. There is already a strip club and a sex toy shop 2 blocks from the "sacred" ground zero. Plus liquor stores and a peep show.
6. There are Christian churches in Hiroshima & Nagasaki
7. Timothy McVeigh was raised as a Christian ... why not ban all Churches in Oklahoma City then?
8. Even Tehran, Iran allows for Synagogues to be built, and in fact has 4 of them!
9. WTC # 2 actually had a Muslim prayer room in it, and Muslims died on 9/11 in the towers as well
10. The Pentagon (also attacked on 9/11) has had in Mosque within its walls since 9/11 - for Muslims who work in the Pentagon.

1. & 4. Is it a Mosque? Yes, according to the definition on Wikipedia. This also notes that "Modern mosques have a variety of amenities available to their congregants. As Mosques are supposed to appeal to the community, they may also have additional facilities, from health clinics to libraries to gymnasiums, to serve the community."

2. Is it at Ground Zero? While it is not part of the World Trade Center complex, the current building was struck by landing gear from one of the hijacked airlines. To me, that qualifies as part of Ground Zero.

3., 9. & 10. The existence of these other Mosques and prayer rooms shows that the dispute is over the symbolism of this particular building and not a reaction against Islam in general.

5. & 7. The WTC was not attacked by militant strippers or drinkers. McVeigh was an anti-government agnostic. None of this is relevant.

6. The United States did not bomb Japan to advance Christianity. We did it to end a war that they started.

8. And there are thousands of Mosques in the US with over 100 in New York City. This is irrelevant.

Some other commentators pointed out that there are Shinto shrines within sight of Pearl Harbor. This is close to a parallel to the Mosque but there are significant differences. Shinto is a loosely-defined set of religious practices. After trade with Japan was forcibly re-opened, Japan adopted Shinto as the state religion and used it to promote nationalism. Emperor worship was added to Shinto during this period meaning that the Emperor could do no wrong.

Japan's part in World War II was not about establishing Shinto as the dominant religion. It was about establishing Japan as the dominant country in the Pacific. Shinto was only a part of that.

As part of Japan's surrender, emperor-worship was abandoned and the Emperor was no longer considered divine. The Shinto of today has reverted to the peaceful version that existed prior to the mid-19th century. It has little to do with the version practiced in the 1940s.

If Islam had gone through a similar conversion then there would be few objections to the Mosque. That has not happened. The leader of the group building the Mosque has been reluctant to distance himself from his violent co-religionists. One of the big fears is that the leaders of the extremist sects of Islam will claim the Mosque as a sign of victory over the US. This will cause irreparable harm to America's image abroad and could easily lead to further loss of life.

Tuesday, August 17, 2010

Obama and the Mosque

For some time the White House wisely treated the Ground Zero mosque (sometimes known as the Cordoba House and now simply known by its street address) as a local issue. Last week, President Obama reversed this policy during a statement at a White House dinner celebrating Ramadan. He presented it as a simple issue of constitutional rights. This set off an immediate firestorm and Obama diluted him message adding that he was not talking about, "the wisdom of making the decision to put a mosque there. I was commenting very specifically on the right people have that dates back to our founding.

He left it at that, apparently hoping that this would satisfy all parties. The issue is far more complicated than its supporters or the President let on.

The New York Times takes the project's organizers at their word:

He (Obama) would have done better if he had explained the wisdom of going ahead with the project, which developers said is intended to bring Muslims and non-Muslims together. In addition to a place of worship, it would have a pool and performing arts center. They also have said they want the board to include members from other faiths — a promise they should take care to keep.

What if the organizers are not working in good faith? A group that is really interested in bringing the two groups together would have moved their project at the first sign of controversy. Instead it is barreling along, full steam. With that in mind, how open will it be to non-Muslims? Will the swimming pool respect western values and allow men and women to swim together while wearing almost nothing? What sorts of productions will the performing arts center mount? Will there be an official internal policy against inflamatory rhetoric?

Obama was correct when he said that the Constitution gives the organizers the right to build a mosque anywhere they want as long as it is on private land but, again, he oversimplifies things. There have been a number of suits over Christian symbols being visible from public land. Zoning and other land-use restrictions have been applied to  churches and other Christian projects including a Greek Orthodox church across from the WTC site. The fast-track approval process that this project has been given implies dual standards. None of the supporters have acknowledged this.

This is one of many examples where the President seems totally insensitive to the rest of the country. As with the Arizona anti-illegal immigration law, he takes a stance and digs in.

Bill Clinton was known for being empathetic to both sides of an issue. Obama is the opposite. He takes sides and refuses to admit any validity to the opposition.

Monday, August 16, 2010

Obama and Social Security

Social Security just turned 75. President Obama used the opportunity to accuse Republicans of trying to destroy it. In fact, just one Republican, Rep. Paul Ryan of Wisconsin, the top Republican on the House Budget Committee, has proposed allowing younger citizens to put some of their money into private investment accounts rather than into Social Security. President Bush made a similar proposal and Obama mis-characterized it, also. In 2008, after the stock market crash, Obama told a crowd of seniors that Bush's proposal would have wiped out their savings. Since Bush's proposal only applied to people who were decades from retirement, this was an outright falsehood. Obama's characterization of Ryan's proposal is also knowingly false.

To recap, since it's founding, Social Security has taken in more in taxes than it pays out in retirement checks. The difference is put into special bonds which are payable on demand. Starting this year, the program is no longer running a surplus. The specials bonds have enough money to support the program for the next 27 years. The problem is that the bonds are payable from the general fund which is already borrowing $41 out of every $100 spent.

Ryan's proposal is to back some of Social Security with real funds instead of the general fund. There are obstacles to doing this. It would mean diverting funds from the current program into private investment. That would squeeze the current program, causing it to cash in more of its bonds and squeezing the general fund. Most politicians resist this because it would mean less money to spend now in favor of future benefits.

Paul Krugman's reaction is typical.

{...} Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won't have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program's actuaries don't expect to happen until 2037 — and there's a significant chance, according to their estimates, that that day will never come.

You would never know from that summary that the trust fund is paid from the general fund.

Obviously there is a concerted effort at misdirection about Social Security's solvency. Why is that?

On President Obama's part, some of it is that he is morally opposed to seeing private industry do something (and make a profit) that the government could do. This was his reason for changing the student loan program from a private/government program to an exclusively government program.

Krugman gives a different reason. Look at the reason that he thinks that conservatives hate Social Security:

What's really going on here? Conservatives hate Social Security for ideological reasons: its success undermines their claim that government is always the problem, never the solution. But they receive crucial support from Washington insiders, for whom a declared willingness to cut Social Security has long served as a badge of fiscal seriousness, never mind the arithmetic.
Let's turn that inside out. I've already shown why Krugman's own arithmetic is off. So, why is he fighting so hard to keep Social Security the way it is? Social Security was one of the great achievements of the FDR era and is often given as an example for how effective government can be. If Krugman, or Obama, admits that the system is flawed then they undercut their own progressive agenda. It is especially important for them to keep up the illusion that there is nothing wrong with Social Security. If they admit that Social Security, as currently structured, is a multi-generational income transfer and ponzi-scheme then they have to explain why they should be trusted on other vital programs.

Think about Krugman's column and Obama's attack. These men have to know that the current program is unsustainable but rather than admitting it and trying to fix it, they question the motives of anyone who dares to point out the truth.

Wednesday, August 11, 2010

Is Obama Anti-Business?

The big push from the White House is that President Obama is actually pro-business. Here is a typical piece from Newsweek's Ezra Klein. Klein himself made the news a couple of weeks ago when it came out that he had created the newsgroup JournoList which, among other things, allowed liberal journalists and Obama staffers to coordinate campaign strategies. Keeping that in mind, Klein's piece hits all of the White House's talking points.

Would that all presidents were this anti-business: according to the St. Louis Federal Reserve, corporate profits hit $1.37 trillion in the first quarter—an all-time high. Businesses are sitting on about $2 trillion in cash reserves. Business spending jumped 20 percent last quarter, and is up by 13 percent against 2009. The Obama administration has dropped taxes for small businesses and big ones alike. Maybe the president could be anti-me for a while. I could use the money.


The reality is that America's supposedly anti-business president has led an extremely pro-business recovery. The corporate community has recovered first, and best. The populist tone that conservative magazines and business groups decry is partly in reaction to this: as corporate America's position is getting better and better, the recovery is looking shakier and shakier. Unemployment is high. Housing looks perilously close to a double dip. Job growth is weak. And corporate America, for all its profits, isn't hiring. The 71,000 jobs the private sector added in July aren't sufficient to keep up with population growth, much less cut into the ranks of the unemployed.

He goes on to quote This Time Is Different, Carmen Reinhart and Kenneth Rogoffto to prove that the recovery is right on schedule. He also asserts that businesses are lined up at the gate ready to start hiring, all they need is more government stimulus and thing will really take off.

All of this is White House spin. What that Klein's piece lacks are any examples of pro-business policies that Obama has championed. In contrast, it is easy to find examples of him being anti-business. Early on he stoked anger at corporate bonuses then informed the heads of several big Wall Street firms that he was all that stood between them and the mob. He also informed them that he "owned" anyone who accepted TARP funds.

He appointed a "pay czar" to review corporate compensation packages. The scope of this office has always been fuzzy and may include companies outside of the TARP program.

He nationalized student loans because the idea that businesses were making money from student loans offended him.

He scolded a bank for having its annual meeting at Los Vegas, implying that the government would be watching other businesses to be sure that they were spending their money in a responsible way. This killed Los Vegas's convention business as companies that were never anywhere near TARP funds moved their conventions, sometimes at considerable cost.

He bypassed bankruptcy laws in reorganizing General Motors in favor of unions. Anyone who objected was vilified.

When asked if he had talked with the CEO of BP a month after the oil spill began, he said that he had no intention of talking with him, implying CEOs always lie so there was no point in talking with them.

During the 2008 campaign he was openly scornful of McCain's proposal to cut the corporate tax rate which is currently the highest in the developed world. He also invented the concept of Wall Street vs. Main Street.

Obamacare fines small businesses if their employees' health care costs are above a certain percentage of their income. It also requires companies to keep detailed records of all transactions and turn in a 1099 form showing any company that is does more than $600/year business with.

Then there is the total lack of anyone with business experience in Obama's cabinet.

Look at this telling passage from the official Obama web site about his wife:

After a few years, Michelle realized that corporate law was not her calling. So she left to give back to the city she loves and to help others serve their communities. She worked for City Hall, becoming the assistant commissioner of planning and development.

Leaving corporate law to become a bureaucrat does not inspire me.

We still have no idea what effects the recently-passed financial reform bill will have. Despite its length, it is mainly an authorization for bureaucrats to write new regulations. Cap and Trade has been scaled back but will still be legislation allowing the government to pick winners and losers.

Previously millage standards have been set by Congress. Under Obama, the EPA claimed authority over CO2 emissions allowing Obama to issue new, tougher, standards without Congress. This will push up the cost of new cars and cut sales.

The White House points out that corporate profits are up 65% from two years ago. Klein gives this as $1.37 trillion in the first quarter. Neither mentions that this is mainly due to imports. Klein also mentions the enormous cash reserves that businesses are sitting on. Rather than a sign of strength, this is a sign of uncertainty. Businesses are not sure what Obama will do to them next.

The fact is that no president who has used the words "fat cat bankers" will ever be perceived as pro-business. It doesn't help that he employs a double-standard, criticizing bankers for being paid too much when he takes vacations in Bar Harbor, Maine and sends his wife and daughter (and an army of Secret Service agents) to a luxury resort in Spain.

Obama has a real problem here. He dislikes business but the economy will not recover unless businesses feel confident to start expanding again. Instead there is a high degree of uncertainty as various industries try to figure out what the Obama administration will do to them next.

Tuesday, August 10, 2010

The Volt and Daniel Gross

Chevrolet's new hybrid electric car, the Volt, is expensive. It's list price is $41,000 and GM is reportedly selling it at a loss. You can get an additional $7,500 federal grant to buy the Volt which still makes the price twice what the same car costs with a traditional gasoline engine.

Slate's financial columnist and Obama apologist, Daniel Gross, thinks that the price will come down. His reasoning boils down to the fact that other prices have dropped so why not the Volt? As examples, he gives the price of the original Model T and PCs. In a related column, he defends government subsidies for the Volt, pointing out the returns that the government got on investments in telegraphs and railroads.

There are huge problems with his reasoning.

He spends the most time recounting the price drops for the Model T. While impressive, these are irrelevant. They reflected the transition from hand-built cars to mass-produced ones. We are unlikely to ever see that level of productivity increase again. The Volt already takes advantage of the same mass-production techniques used in other cars. In fact, except for its drive train, it is exactly the same as other cars. It has the same type of body, windshield, seats, etc. Can improvements in manufacturing the drive train bring down the cost? Probably, but these will be tiny improvements.

Comparisons with personal computers are also strained. The Volt is innovative but it is not a new technology. At its heart it is an electric car with a generator for recharging the batteries. Electric cars have been around for more than a century. Gas-powered generators are nothing new, either.

The real cost in the Volt comes from two sources. The first is that it is both an electric car and a gasoline-powered one. The Nissan Leaf is a pure-electric and costs thousands less (of course, the Leaf also has limited range).

The biggest expense is the battery pack. A battery pack for a notebook computer costs upwards of $150 and would only move a volt a few feet. It takes lots of batteries to power a Volt. They are expensive. They are also big and heavy which reduces available interior space.

This is also the biggest problem with Gross's predicted lower costs. Big leaps come from new technologies. Integrated circuits, the heart of the personal computer, have only been around since the 1970s. The big, easy gains in computer chips have already been made. It is getting harder and more expensive to design newer, faster chips.

In contrast, batteries have been common since the 19th century. Advances in battery life and weight have been incremental and require exotic (and often toxic) metals. R&D on batteries is not dependent on the Volt. Gross talks about the increases in computer power but fails to mention that battery life on notebook computers has been flat since they were first introduced (Netbooks and tablets get extended battery life by using special reduced-power chips.).

In order for the Volt to be competitive with the $20,000 Chevy Malibu, batteries will have to have a quantum drop in price. Ironically, the Volt, the Leaf, and the Prius are likely to cause battery prices to go up instead of down. The best batteries require fairly exotic metals and increased demand will push the price up. The sudden demand for conflict-free resources will make batteries even more expensive since most of the required metals such as lithium come from the third world.

The Volt is unlikely to ever be competitive with gasoline-driven cars. If the price of gas goes up enough to make the Volt desirable then the increased demand for batteries will make the Volt more expensive. In fact, the Volt and other electric and hybrids can only exist as niche products.

Friday, August 06, 2010

A Royal Wedding

If you listen to attack ads, the worst people in the world are politicians who have worked for financial companies, especially hedge funds. So, what if someone who spent several years working for a hedge fund married someone else in the same company? And what if the groom's father had spent five years in prison for fraud? These days this couple would probably be pictured as the worst people in the world (I hope that Keith Olbermann hasn't trademarked that term).

But what if the bride was Chelsea Clinton? That changes everything. In all of the fuss over Chelsea's dress and guest-list and expensive port-o-lets, and gluten-free wedding cake, no one mentioned what she's been doing since graduating from college. I'm not sure I even saw the groom's name published (although I wasn't paying much attention). Certainly the groom's occupation was never mentioned nor was anything said about his father.

Considering the fuss made over Chelsea's wedding, you would think that her father was a sitting president instead of one who left office almost a decade ago.

Contrast Chelsea's post-White House career with the Bush twins. Jenna is a teacher in Maryland and contributes monthly segments to the Today Show. Barbara currently works for a subsidiary of the Smithsonian Museum. Before that she worked with AIDS patients in Africa.

Even though she was the daughter of a sitting president, Jenna's wedding was a much lower-key affair.

I think that the media is engaged in Clinton-nostalgia.

Thursday, August 05, 2010

Gay Marriage

The proponents of same-sex marriage should learn from the decades-long abortion fight and change tactics.

During the early 1970s, legalized abortion was gaining acceptance. New York and Florida had already legalized it. Other states were considering it. It was well accepted that a teen-age girl who suddenly visited an "aunt in New York" had an abortion. Abortion clinics actually had billboards on other states. There was no organized opposition to this (at least none that I was aware of as a teenager). Then the Supreme Court declared that abortion was legal everywhere. After that the abortion protesters organized and this has become one of the most divisive issues in American politics since slavery. For at least 30 years the primary consideration for Supreme Court nominees was how they would vote if the court ever reheard the case. Bork was "Borked" out of fear that he would intellectually bully the rest of the court into rejecting Roe v Wade.

In the 1990s, the same-sex marriage movement resembled the pro-abortion movement of the 1960s. The movement was making gains based on issues of fundamental fairness. The most common tactic was a compromise - civil partnerships which had all of the legal benefits of marriage. Few people objected to this and the ones who did looked mean.

Then the leaders of the movement made two decisions. The first was that civil partnerships were second-class and unacceptable. They would accept full marriage or nothing. The second decision was to start going around the electorate through the courts, essentially forcing gay marriage on the populous.

There were some initial victories but this new tactic caused opposition to form. It was no longer an issue of fairness, it was an alteration of a fundamental institution. This battle continues with the court decision striking down Proposition 8 which banned same-sex marriage.

For a contrast, look at the UK which has allowed civil partnerships for some time. Society did not fall. People got used to the idea. Earlier this year the UK began allowing full marriages. Even granting that England is a more liberal country, the contrast is enormous.

Had the activists in the 1990s gone for the incremental approach, there is a good chance that the US would be ready for full gay marriage by now. Instead the movement is mired in a state-by-state fight with the majority of nearly every state against it.

There have been casualties along the way. Ohio passed a constitutional amendment that not only outlawed same sex marriage, it also outlawed civil partnerships. Unless the Supreme Court does another Roe v Wade and overrides the states, it will be exceedingly difficult to recognize any legal gay partnerships in Ohio.

All of this is a shame. The activists need to back off and return to an incremental approach. It may be frustrating to them but it is more likely to produce results. Had they stuck to that strategy in the 1990s then their cause would be much further alone today. So far the all-or-nothing approach they have pursued has produced nothing (or short victories followed by defeats).

Wednesday, August 04, 2010

The 9/11 Mosque

You have probably heard that a mosque is planned to be built two blocks from the site of the World Trade Center. This has created a huge controversy. The planned mosque will be 13 stories high and cost $100 million.

Opponents of the mosque complain that it is sacrilege to build a ,osque so close to the site where 3,000 people will killed in the name of Islamic superiority.

Supporters of the mosque see nothing wrong with this. One poster on Huffington points out that the mosque site is two blocks away from the WTC site and rhetorically asks how far is far enough? My own answer for that is outside the debris field from 9/11. The current building was struck by the landing gear from one of the 9/11 planes which clearly makes the site part of the attack.

More rational supporters point to the First Amendment. I have long held that you don't count as a supporter of the First Amendment unless you uphold its use by people you disagree with. My initial opinion is that the mosque is distasteful and disrespectful but should not be blocked.

There are other issues.

Years ago the KKK sued and got the right to place a cross on the Ohio statehouse grounds on the basis that other religious symbols were allowed so theirs should also be included. If they had simply put up a cross I would have agreed but they had various slogans painted on their cross. That should have transformed it from a religious issue to a political one. The same is true for the mosque.

Why is does it have to be so close to Ground Zero? Its supporters say that it is in the spirit of reconciliation. There are reasons to doubt this. The very existence of the mosque so close to an act of Muslim extremism seems designed to stir division rather than healing.

The backers of the mosque have refused to identify themselves. Two other mosques in Manhattan have links with groups that provide financial support to terrorists. I see no problem with refusing to allow anyone associated with terrorists to build a mosque (or anything else).

The name of the building will be the Cordoba House. This is supposed to be in honor of the period in Spanish history when Cordoba was under Islamic rule but welcomed Christians and Jews in peace and brotherhood. A different reading of history shows that this was a period when Muslims had seized parts of Christian Europe through jihad and only allowed Christians and Jews as dhimmis. This period is as offensive to Christians as the Crusades are to Muslims. Further, the ultimate goal of al Qeada and the 9/11 terrorists was to establish exactly this sort of government in the US. Again, if this is meant as a $100 million incitement for the overthrow of the United States then I have no problem with having it moved.

Another factor is that the First Amendment requires equal treatment under the law. A Greek Orthodox church that was damaged on 9/11 has faced a number of obstacles to rebuilding including a restriction on the sight of the dome. In contrast, the mosque is getting a fast track. A proper application of the First Amendment would require the mosque to follow the same standards that the church has to follow.

Which brings me full circle back to the First Amendment. The mosque seems to be getting preferential treatment over a church which invalidates most First Amendment arguments.

Tuesday, August 03, 2010

Deficits and Tax Hikes

Hold onto your wallet - the let is suddenly worried about the deficit. Their solution? Raise taxes. Fareed Zakaria just wrote a column complaining that 1) the Bush tax cuts are responsible for today's deficit, 2) Americans are undertaxed. Zakaria doesn't want President Obama to roll back taxes on just the rich. He wants all of us to pay more.

The Bush deficit has become a rallying point for the Democrats and an easy excuse for the Obama deficit. Is this fair? Or even accurate? Obama insists that he inherited a deficit of $1.3 trillion and is only responsible for pushing it to $1.4 trillion. Dick Morris takes issue with those figures pointing out that a big chunk of the Bush deficit was caused by the TARP. Since most of the TARP was repaid, that part should not count the same as regular spending. Under that measure, Obama doubled the deficit.

Another issue here is that the Bush years were not "a decade of spiraling deficits" as a White House adviser called them. They were fairly moderate until the economy collapsed. Look at the graph in this article from The New Republic (hardly a Bush backer). Bush's deficits averaged 2% of the GDP while the average deficit since 1970 has been 2.6% GDP. Compared with everyone except Clinton (with a Republican Congress), Bush's deficits showed fiscal restraint. And this was with tax cuts, two wars, and a recession early in the decade. Obama and his supporters prefer to look only at the surplus when Bush took office and the deficit when he left and ignore everything in-between (or pretend that it was a straight line).

Zakaria echoes the current Democratic party line by implying that the only reason that we have a deficit now is because of tax cuts that were passed years ago. This argument falls apart when you look at the actual Bush deficits. How can the tax cuts be causing such huge deficits now when they did not at the height of military spending on the two wars?

Zakaria's other point is that we are undertaxed. This has been a common message from the left for months - that other countries have higher tax rates therefore we are not paying our fair share. There are opposing viewpoints. Here is one that points out that we would have to raise taxes on the rich to confiscatory levels in order to reduce, but not eliminate, the deficit. Note that this column was written in response to a statement by Hillary Clinton in May.

Here is an old but still relevant piece (as far back as 2007, Nancy Pelosi was saying that we are undertaxed). It points out that the total tax burden under Clinton was at a historic high. Here is a piece from a couple of months ago that averages taxes differently. This calculates the tax burden on a per-person basis. This calculation puts the US in the middle of the pack.

There are other problems with the undertaxed claim. We have one of the world's highest corporate taxes. We also get fewer government services than most other countries. Once you figure in additional costs like insurance then the difference vanishes.

This brings us to the real issue. The Democrats still hope to make over America to be more like European socialist governments. That means increasing taxes, leveling earnings, and nationalizing many services that are currently offered privately. As an example, the Democrats still hope to revive the public option for insurance.

That is what this talk about. The Democrats are not interested in reducing the deficit. They want to expand government. A few days ago I complained about a column where Fromma Harrop proposed raising taxes in order to reduce the size of government. My argument is that, absent a balanced budget amendment to the Constitution, this would just encourage government growth. The same is true for Zakaria's column. The current administration has not shown the slightest fiscal restraint. Giving them more taxes to work with will not produce a mid-life conversion to limited government. It will only enable them to spend more.

Not that this would bother Zakaria or Harrop or E. J. Dionne, or Hillary Clinton, all of whom have raised the undertaxed claim. They have a long record of wanting expanded government. Remember this any time you see someone use the word "undertaxed" and ask if this is someone who would like to see the government expanded?

Sunday, August 01, 2010

Social Security Myths and Truth

MoveOn.org is pushing a set of "myths" about Social Security. Here they are:
Myth: Social Security is going broke.
Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.3 trillion surplus (yes, trillion with a 'T'). It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever.1 After 2037, it'll still be able to pay out 75% of scheduled benefits--and again, that's without any changes. The program started preparing for the Baby Boomers retirement decades ago.2 Anyone who insists Social Security is broke probably wants to break it themselves.

Myth: We have to raise the retirement age because people are living longer.
Reality: This is a red-herring to trick you into agreeing to benefit cuts. Retirees are living about the same amount of time as they were in the 1930s. The reason average life expectancy is higher is mostly because many fewer people die as children than did 70 years ago.3 What's more, what gains there have been are distributed very unevenly--since 1972, life expectancy increased by 6.5 years for workers in the top half of the income brackets, but by less than 2 years for those in the bottom half.4 But those intent on cutting Social Security love this argument because raising the retirement age is the same as an across-the-board benefit cut.

Myth: Benefit cuts are the only way to fix Social Security.
Reality: Social Security doesn't need to be fixed. But if we want to strengthen it, here's a better way: Make the rich pay their fair share. If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come.5 Right now, high earners only pay Social Security taxes on the first $106,000 of their income.6 But conservatives insist benefit cuts are the only way because they want to protect the super-rich from paying their fair share.

Myth: The Social Security Trust Fund has been raided and is full of IOUs
Reality: Not even close to true. The Social Security Trust Fund isn't full of IOUs, it's full of U.S. Treasury Bonds. And those bonds are backed by the full faith and credit of the United States.7 The reason Social Security holds only treasury bonds is the same reason many Americans do: The federal government has never missed a single interest payment on its debts. President Bush wanted to put Social Security funds in the stock market--which would have been disastrous--but luckily, he failed. So the trillions of dollars in the Social Security Trust Fund, which are separate from the regular budget, are as safe as can be.

Myth: Social Security adds to the deficit
Reality: It's not just wrong -- it's impossible! By law, Social Security funds are separate from the budget, and it must pay its own way. That means that Social Security can't add one penny to the deficit.1
 To be fair to MoveOn, the did paraphrase some of these points directly from Social Security's own web site. This does not make the points any more true.

Anyway, this list contains one outright lie, a big lie by omission, and some haggling over semantics.

The lie by omission is important because, without this additional information, the rest of the statements are true. If we only looks at Social Security then it is in fine shape.

The omission is that Social Security does not stand alone. It is part of the federal government and must be considered along with the whole. To do this, we must follow the flow of money into and out of the system.

When the Social Security Administration receives a payment they can use it to pay outstanding liabilities. If there is a surplus then the money is transferred to the general fund and a special bond is issued. This bond is payable on demand but only to Social Security. It cannot be sold or traded and no other entity can cash it in. This means that it is not really a bond no matter what they call it. It is a future order for transfer of funds from the general fund. MoveOn and Social Security may argue that this is not an IOU but the differences are too small to matter.

So, surplus funds are transferred and spent. On the other hand, if the Social Security Administration cannot pay its liabilities then it cashes in a bond. This is paid from the general fund. Since the government is paying itself, this is just another transfer of funds.

Here is the lie by omission. Social Security may be financially sound but cashing in the bonds it holds strains the general fund. This leads to the outright lie. The money to pay off Social Security's deficit comes from the general fund. There is no surplus to draw from so that money has to increase the deficit.

Let me repeat this - Social Security has no money of its own. All it has are bonds that have to be paid out of the general fund. Demographics say that the general fund will be unable to pay for this in the foreseeable future.

If Social Security is unsustainable as it is then we have to raise the retirement age, decrease benefits or both. MoveOn must know this but they are hoping that people will trust them and disbelieve the truth. 

So, why is MoveOn pushing this fable? It might be that they are denying reality. Social Security is one of the biggest successes of the Progressive Era. Admitting that it cannot continue in its present form would be an admission of failure.

Or they might be more cold-blooded about it. They are still hoping to pass the rest of their agenda. They still want single-payer health care and a host of other programs. Admitting problems in Social Security will stop the Progressive movement dead in its tracks. How can you expand government when it is already overextended. If this is true then they are willing to saddle the government with unsustainable debt in order to further their agenda.

It's hard to know which to hope for - are they stupid or dishonest?