Thursday, September 29, 2011


Our modern world is built on debt. Instead of saving up for big purchases, we borrow the money and pay them off over time. On the individual level it's how we buy our houses, cars, and fancy electronics. It is also how our cities and states build roads and bridges. Our businesses borrow money in order to expand. In general there is nothing wrong with debt.

Unless you start borrowing to meet operating expenses. That's where the world is right now and why the economy is not going to recover quickly, no matter what the politicians do.

Forty years ago people managed their debt better. General credit cards were rare. Most cards were tied to individual stores or chains. You had a gas card for the brand of gas that you bought and a card for the department store you went to. Sears and Penny's had their own cards. All of these were reviewed regularly to be sure that you didn't get too deep in debt (this was for the card-holder's protection). Banks had Christmas clubs where you put in a set deposit every payday for a year in order to have a set amount of cash for holiday spending (this is one reason that the Christmas buying season didn't start until Thanksgiving - people didn't have their Christmas shopping money before then).

Since then we have had an explosion of debt. Prior to the tax simplification in of 1986, interest could be deducted from your income tax. After that, only interest on your primary residence was deductible which caused a rise in mortgage-backed debt.

Short-term consumer debt (credit cards) always charged a rate higher than inflation but legal cap on interest was raised in the late-1970s to keep up with the high-inflation of the time. This was never lowered even though inflation has been negligible for more than a decade. That means that banks make huge profits on credit cards which gives them an incentive to offer ever-increasing amounts of credit.

In 1993, the economy was given a boost when long-term interest rates were lowered. That allowed people to refinance their homes at a lower rate and spend the difference. Banks could make a nice profit by refinancing loans then selling the loans. Starting in the late-1990s, programs to increase minority home ownership caused the standards for granting mortgages to be reduced or nearly eliminated. Previously you had to put up a 20% down-payment and show that the mortgage would be less than 1/3 of your monthly expenses. Those requirements were waived. Interest rates continued to drop fueling more refinancing. At the same time the lower standards caused a bubble in real estate values.

Banks figured out ways to combine mortgages into a new type of financial instrument. The idea was that real estate values might drop in one area but would keep increasing in general and the default rate on loans was fairly constant. If you combined mortgages from across the country into a single instrument and tossed in some mortgage insurance equal to the expected default rate then you had an investment that was nearly a sure thing. Given the low interest rates for business loans, fortunes could be made by taking out a loan to buy these instruments.

Complex mathematical models were created to evaluate the risk of these investments but they assumed a steady market. Besides, the rating agencies such as Standard & Poor made a fortune by rating these investments as safe.

So consumers borrowed which caused the big investment banks to borrow. There was so much money to be made that anyone who questioned the basis for this new economy was fired.

While consumer and corporate debt exploded, countries did a lot of borrowing of their own. As part of the progressive movement, most countries established an implied social contract which said that their government would help the poorest and provide free or discounted medical care and retirement. This was accompanied by an explosive growth in government. Compared with Europe, the US was a piker in this. Many European countries provide free medical care, university education, and child care along with generous vacation. The stability of this was always questionable because of Europe's low birth rate.

The problem is that, even with high taxes, there was not enough money to pay for all of this so Europe borrowed heavily. The US did a lot of borrowing of its own but hid a lot of it in the Social Security Trust Fund. Since this is money that the government owes to itself, it is not usually counted in the national debt but it has to be repaid, regardless.

When Bill Clinton became president he was shocked to find that the biggest single item in the budget was payments on the national debt. Working with a Republican Congress, Clinton managed to turn the deficit into a mild surplus (not counting the Social Security Trust Fund which continued to grow). Between the collapse of the Internet Bubble, the recession of 2001, and the terrorist attacks on 9/11/2001, and general spending by the Bush administration, the US budget went back into deficit. Payments on the national debt actually decreased as the Treasury took advantage of lower interest rates to refinance its own debt.

But you cannot keep running the world on debt forever. Rising demand in China caused an increase in the price of raw materials. In order to head off inflation, the Federal Reserve raised interest rates. This caused people with variable rate mortgages to default on their loans. This, in turn put enough newly foreclosed houses on the market to pop the real estate bubble. House prices started going down instead of up and a quarter of the country found that they owed more on their house than it was worth. The default rate went up again.

Suddenly the mortgage-backed financial instruments were not a sure thing any longer. Banks found that assets that had been worth billions were suddenly worthless. This led to a credit-crisis.

Between the sudden tightening of credit and the failure of the housing market, the economy went into a steep recession. This led to a drop in tax revenues which made the deficit much worse. The government's response was to try to stimulate the economy with new spending which made the recession worse.

Over in Europe, it turned out that many people had invested in Icelandic banks which went under leaving the Iceland government on the hook for more assets than the country was worth. Ireland had suffered its own real estate bubble. Spain had wasted billions on green energy initiatives that turned out to cost two jobs for every new job created. Portugal and Greece had been borrowing heavily just to finance lavish public benefits. With the world in recession, nations world-wide saw tax revenues drop and most of Europe found itself being squeezed.

Greece needs help just to pay operating expenses and still meet payments on its national debt. With a default a distinct possibility, no one wants to buy their bonds. Their only hope to remain solvent is for the rest of the Euro-zone to either give or loan them money.

Even though Europe is reaching limits on how much it can borrow, citizens are rioting in the streets. They want their promised services and refuse to believe that there is not enough money to pay for them. The same thing is happening in the US although not on the same scale, yet.

The long-term problem is that the debt-based economy was unsustainable. Period. Once you reach the position that Greece is in, you cannot keep borrowing because no one will give you loans.

The US will be in this position in a decade. By that time entitlements and interest on the national debt will take up the entire budget. There will not be any money left for anything. No roads. No education. Nothing.

Currently the left is calling for increased spending in order to try to restart the economy. "Yes," they say, "We will have to deal with long-term debt eventually but first we have to get past this short-term problem." This approach is just making things worse. a few days ago the White House pointed to a prominent, independent economist who said that the President's jobs program would reduce unemployment by as much as a million people. The proviso is that this boost would be for one-year only and after that it would be a drag on the economy.

The problem is that we cannot put things back like they were. People are more wary of debt and the banks that survived are much more wary. You can't reinflate a bubble economy. At the same time, the long-term problems have to be addressed soon and they will take more than taxing the rich.

It is true that austerity budgets will cause short-term pain. The only payoff will be the lack of an international collapse a decade or more in the future. Many politicians see this as an opportunity. They will accuse the responsible side of wanting to throw grandmother off a cliff. They insist that the social contract is more important than fiscal realities. If all else fails, their back-up plan is to pay their debts through high inflation. All of this will be disastrous but the disaster will take place in the future.

Wednesday, September 28, 2011

On-Star and mileage taxes

GM's On-Star planned on tracking and storing information on everyone connected to the system, even if they had dropped the service. When news got out there was wide-spread outrage. Sen. Charles Schumer, D-N.Y., described as "one of the most brazen invasions of privacy in recent memory."

Would he feel better if the government was doing the tracking instead of a private (sort of) company? With the growth of hybrids and electric cars, there have been proposals to switch highway funding from a gas tax to a tax based on miles traveled. But this cannot be done by simply checking the odometer like a water meter. It matters where you drove. If you are being taxed for driving on federally-funded roads then the government has to prove that you were actually on those roads instead of state roads.

There are also state gas taxes. Since these are collected at the pump, there is a good chance that the roads you used were in the same state as the pump. If you drive a long distance then you will probably buy gas in other states. There is no way to get that from odometer readings.

The proposed solution has been to monitor where you actually drive using GPS. Some pilot programs already exist for this. But these programs are tracking the same data that On-Star tracks. Even if they are not saving the same level of detail, that could easily be changed.

So why is it creepy for a private company to track your every movement but ok for the government?

Monday, September 26, 2011

Class Warfare

"It's not class warfare, it's math," President Obama claimed when justifying his newest proposal for taxing the rich. Is he right? There have been telling indicators.

In 2008, it was pointed out to candidate Obama that lowering the capital gains tax causes tax revenues to increase. His response was that he was still in favor of raising the tax out of fairness. Since then he has regularly called for making the rich pay their fair share.

When talking with Joe the Plumber, Obama was in favor of raising taxes as a way of "paying it forward" in order to give a leg up to the next person. Senate candidate, Elizabeth Warren, used the same "paying it forward" justification.

The idea of "paying it forward" normally means that after someone does a kindness for you, you should do a kindness for someone else. Note that Obama and Warren turn an act of voluntary kindness into a government-mandated obligation.

But this is beside the point. The "pay if forward" phrase is just used as cover.

Every so often Paul Krugman gives the game away. Last year he insisted that conservatives want to see Social Security fail because they can't stand the thought of such a big government program being successful. His giveaway was that the reverse is true - liberals refuse to admit that Social Security has major structural defects because it is the cornerstone of big government.

More recently Krugman claimed that this is not class warfare. Then he quoted some statistics on long-term income by class. Obama has quoted some of the same statistics. They show that wages have been constant for most people but the wealthiest have seen their income quadruple.

Keep in mind that the rich are paying taxes on their wealth. The US has the world's most progressive income tax. The bottom 50% pay nothing or get money back. The highest percentage of wage earners pay a disproportionate percentage of the nation's taxes. By what measure are they not paying a fair share?

Warren gives us the answer. The problem is not how much they pay, it is how much they get to keep. It offends the left that people can make so much money. In Warren's view, it isn't really their money since they exploited the common infrastructure.

So what is a fair share? The real answer is that Obama and company want to tax the rich until they are no longer rich (or at least no longer as rich). Then they will redistribute the income through the government. They do not really care how effective this is as economic policy. They do not stop to consider what this would do to the economy. They just want the world to be a fairer place.

Is it class warfare? Of course. How could it be anything but? They are offended by the wealthy and want to tear them down.

Thursday, September 22, 2011

Who Owes Who?

Senate candidate Elizabeth Warren gives her answer to charges of class warfare. She says that it is all part of the social contract:

You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Wow. Sounds fair. Barack Obama said something similar to Joe the Plumber. Who could argue with this?

I can. On several points.

First, where did this "you" and "we" come from? She is implying that someone who builds a factory somehow escapes the taxes that pay for roads, education, etc. That is absurd. Taxes on the trucks that carry the goods pay for their share of the highways. Property taxes on the factory pay for education (at least in Ohio). Income taxes and corporate taxes help pay to keep down the marauding hoards. We all pay for these things and we all benefit from them. That's the social contract.

Next objection, she isn't really talking about paying forward to the next kid who comes along. She really wants to take money from the rich and give it to the rest of us. Obama's jobs bill is not trying to help students. It is trying to help (unionized) teachers.

She agrees that the rich can keep a big chunk of their earnings (how generous) but she fails to say how much should be confiscated for the rest of us. Our corporations already pay the highest taxes in the world so it's not like they are getting a free ride. So what is fair? All of the income tax is paid by the top 53%. Once you get into the top 10% of taxpayers, things get interesting. This group accounts for 42% of all income earned but they pay 72.7% of all income taxes. If that's not enough then what is?

Is it fair to say to someone, "You made a lot of money. Now you can use it to pay for my retirement."

At its heart, Warren is basing her argument on the old Marxist idea that the rich acquire their wealth by taking it from the workers. She doesn't see this as mutually beneficial. She only sees people getting rich and others left out. From her viewpoint, something has to be done. By the government.

Wednesday, September 21, 2011

Reforming the Electoral College

There is a proposal to change the way that Pennsylvania apportions its electoral vote. Like most states, it is currently a winner-take-all system. The proposal is to change it so that each congressional district is winner-take-all with the remaining two votes going to whoever wins the majority vote for the state.

If a similar formula had been in place in 2000, Gore would have been president. You would think that this sort of a reform would be a no-brainer. Pennsylvania wouldn't even the first state to apportion its electors this way. Maine and Nebraska use similar formulas.

That's not how the Democrats see it. I have seen several columns insisting that this is nothing more than an attempt to steal the next election. The reason is that they consider Pennsylvania a "safe" state, one that will reliably vote Democrat so any attempt to change this is likely to hurt them. Also, the way that the congressional districts are drawn, there are more Republican-leaning districts than Democrat-leaning.

Side-note - this is really a matter of demographics. The state's Democrats are crowded into a few big cities. The rest of the state is Republican.

Pennsylvania is not as reliably Democrat as this plan's critics would have you believe. In the last ten elections, Democrats won the state six times and Republicans four times. Democrats won the last five elections but never took more than 55% of the vote. Out of the last ten elections, the state went the same way as the national winner eight times. The only two times the state backed the loser were in 2000 and 2004 and even then, the Democrat only got 51% of the vote. Republicans have always gotten at least 40% of the vote.

The Democrats' objections would make more sense if the last several elections had been blow-outs. Since the state is nearly evenly divided between Republicans and Democrats, the current setup gives the Democrats an unfair advantage in electoral votes.

One objection is that John McCain would have gotten 10 votes and President Obama would have only gotten 9 plus two for winning the state (11 in all). That actually comes close to how the vote went. Obama got 55% of the vote, McCain got 44% and 1% went to "other". So this objection is that Obama's share of the electoral votes would have matched his share of the popular vote. BTW, Obama picked up an electoral vote from Nebraska even though McCain won the state.

You can see the source of my numbers here.

This is a cause that the Democrats should not take up. It is designed to make the election results more closely match the popular vote. Many Democrats thought that this was a good idea after Al Gore won the popular vote in 2000 but George W. Bush won the electoral vote. Also, there is no guarantee that the Democrats will take the state in 2012. The 2004 vote was 51%-49%. That makes it a potentially winnable state for the Republicans. But, if a Republican takes the state, it will be close and Obama has a chance at picking up the same nine districts.

Possibly the Democrat's biggest objection is that it hurts their ten-state strategy. The Democrats only need to win ten of the largest states to win the election. With the possibility of Pennsylvania's votes being split, they would have to make up the votes elsewhere. This has nothing to do with fairness, only with winning.

Monday, September 19, 2011

Should Obama Retire?

President Obama is ahead of his fundraising goals and well on the way to reaching his goal of $1 billion dollars. That is about the only thing he has going for him. He keeps dropping in the polls. Even among minorities his approval rating is dropping.

Some of this is his own fault. The world first noticed him when he gave the 2004 keynote speech calling for political unity. If that man had been elected president then I would not be writing this. Instead we got a partisan, inexperienced Chicago hack. While the country's top priorities were jobs and the recession, Obama's priorities were health care and finance reform. He didn't even try to compromise with the Republicans. He simply use his majority to pass bills that had little or no Republican support and were unpopular with the public. The assumption was that the public would learn to love Obamacare. That may happen in the future but, since most parts will not take effect until after the election, it will not happen in time to help his reelection.

At the same time that his partisanship and free-spending energized the Republicans, he disappointed the Democrats. You would think that the president who delivered health care reform would be a Democratic saint. Instead, the Progressive wing is disappointed. They are recruiting candidates to run against him in the primaries. They are not looking to replace him, just "rigorously debate his policy stands" on issues related to labor, poverty, foreign policy, civil rights and consumer protections."

Obama cannot work with the Republicans and he has given up trying. Raising taxes on the rich seems to be his current top priority considering how often he proposes it and how many different ways he frames it. The Republicans are willing to eliminate loopholes as part of a tax simplification plan similar to the one that Reagan worked out with Democrats in 1986 but they insist that it be revenue-neutral (just as the one under Reagan was). Since Obama will not agree to any plan that does not include a tax hike, this will not happen.

He has spent September tossing out proposals that he knows the Republicans will never pass. These are not meant to be taken seriously. They are campaign points, trying to make it seem that the Republicans are siding with the rich against the regular worker.

With no chance of getting any major legislation through Congress, Obama's only real hope for reelection is an economic recovery. That looks increasingly unlikely. Even if we manage to avoid a double-dip recession, Europe's problems will be a drag on the US economy.

Had Obama made the economy his top priority for his first term he would have a better chance at a second term. The electorate would be more willing to forgive him for a weak economy if they thought that he cared about it. The fact that he had to "pivot to jobs" after pushing his own priorities shows that he put ideology ahead of country.

Reagan and FDR survived bad economies because they were seen as trying to fix it.

So going into his reelection campaign, Obama's main achievements are a health care reform that only 40% of the population likes and an unemployment rate that seems stuck at 9%. Obama will likely face an opponent who is a former governor with a record of creating jobs. While he has a chance at reelection, it is not a good one.

This would be a good time for Obama to retire and throw his support to Hillary Clinton. He doesn't actually like being president, he has said so. His wife hates it and, if their marriage is to have any chance, he needs to get out now.

While liberal, Hillary has a better record of working with Republicans than Obama has. She could also run on the economy under her husband and promise to recreate it (she can't but it makes a good campaign platform). In 2008, Hillary won more big states and open elections than Obama did. She is a tough campaigner who managed to win every state she said that she would (Obama won caucus states and a string of uncontested primaries when Hillary ran out of campaign cash).

This is not to say that Hillary would make a good president. But she would energize the race. She would be immune to Obama's biggest drag - the economy.

So why doesn't Obama do the right thing for his party? Ego. After his defeat George H. W. Bush said that the worst thing about it was the humiliation. If Obama announced that he would be a one-term president he would be admitting his failure. His only chance at redemption is a second term.

Friday, September 16, 2011

The Causes and Results of 9/11

Last weekend was full of commentary on September 11. All of it that I saw missed the point. Most of it even managed to keep from mentioning why the attacks happened. Osama bin Lauden and al Queda struck at the US because of two wide-spread beliefs:

The first was that the US was a hollow superpower which would collapse if hit hard enough. They based this on the collapse from within of the USSR. The hope was that a US collapse would create a power vacuum which could be filled by a new Caliphate.

The second belief was that, even if the US did not fall, we did not have the will to engage in a long struggle with significant casualties. The most we were willing to commit to was a risk-free high-altitude bombing or an invasion that only lasted a few days and used overwhelming force. This was based on Viet Nam and our behavior in other conflicts afterward. They also counted in the invasion of Afghanistan by the USSR.

Obviously the first belief was wrong. September 11 was a sting rather than a blow. Instead of collapsing the US, it roused us.

The second belief is more problematic. Had Kerry won in 2004 we would almost certainly have left Iraq and convinced future enemies of our weakness. We may yet snatch defeat from the jaws of victory in Iraq and Afghanistan but we have shown that we are willing to wage a decade-long battle and that we are remorseless about hunting down our enemies.

So, 9/11 happened because of our perceived weakness and as a result we discovered that we are strong, after all.

Thursday, September 15, 2011

About the Palin Book

A new book on Sarah Palin claims that a) while working as a sports reporter she had a one-night stand with a future NBA star Glen Rice. It also claims that she is uncomfortable around people with dark skin and had a group of workers fired because of their skin color.

Funny thing - Rice is black. Does anyone see a contradiction here?

Note - at the time of the alleged one-night-stand, Palin was single. This is stretching for a tell-all book.

Wednesday, September 14, 2011

Obama's Jobs Package

Last week President Obama gave his jobs speech. He immediately hit the campaign trail calling on Congress to pass the bill. Interestingly, the bill didn't even exist until four days after he gave his speech. This isn't the first time the President has done this. He has also complained about Congress not approving trade deals that have not been submitted to them yet. This shows that the President is more interested in scoring points against Congress than in actually doing something that would help the economy.

It is also unlikely that he is serious about wanting his jobs bill passed. Originally he insisted that it would be paid for and indicated that a Congressional super-committee should take care of that. When he released his actual jobs bill he included funding. Not surprisingly it was limited exclusively to soaking the "rich".

There is some question about what Obama would be willing to sign. At times the White House has said that it knows how Congress works and would accept a compromise. Other statements have said that this is a package, not an a la carte menu, and the President would not sign a piecemeal approach. If the latter is accurate then Obama needs a refresher on the Constitution and how Congress works. The President cannot submit bills, only suggestions.

The money will mainly benefit Obama constituents - public service employees and construction workers, both heavily organized by unions supporting Obama. If this bill is like the first stimulus then the spending rules will be written so that unions have an advantage in getting contracts.

This is another example of the Obama administration being too clever. His indifference to long-term unemployment is hurting him in the polls and the unions are disappointed in his performance on their pet issues. Obama's jobs bill lets him appear to care about the economy while limiting the help to his constituents. As a bonus, by including tax proposals that he knows are unacceptable to the Republicans, he hopes to create a defining issue for the 2012 presidential race.

This is not particularly subtle. Here is what Robert Reich has to say about it:

On Monday the president will offer ways to pay for his $467 billion American Jobs Act mostly by increasing taxes on the wealthy.

I'm all in favor, but it's an odd strategy. If any Republican was prepared to vote for the jobs bill, this will send him or her scurrying.

So if the president was never really serious about getting Republican votes in the first place -- if his jobs bill and the tax increase on the wealthy were always going to be part of his 2012 election year pitch -- why didn't he make his jobs bill big enough to do the job?

Clearly Obama is not serious about helping the economy. Very few economists believe that you can tax one segment of the economy an additional half billion, give it to a different segment and see long-lasting benefits. If it passes, Obama's plan will do nothing except redistribute some wealth. But it is not even likely to pass.

Obama's jobs strategy is nothing but an election strategy. Will the electorate be fooled?

Tuesday, September 13, 2011

Why Does President Obama Hate Charities?

When he gave his jobs speech, President Obama left the hard job of paying for the $450 billion stimulus to a Congressional super-committee. Yesterday the White House released a set of suggestions for where the money could come from. The bulk of it would come from limiting line item deductions for the "rich". This would raise $400 billion. It would also eliminate the long-standing tax deduction for donations to charity.

Currently any money that you give to a recognized charity can be deducted from your taxes. This is meant to encourage charitable giving. It keeps you from having to pay taxes on money that you gave away.

Obama's proposal will raise the cost of charitable giving by at least a third. The marginal tax rates for the people affected by this proposal are 33% and 35%. Under current tax law, if you contribute $100 to charity then it is deducted from your gross income and you do not have to pay taxes on it. Under the new plan, it would still be taxed so that contribution would cost you at least $133 of pre-tax income.

This can lead to strange results. If three ghosts visited a wealthy man and induced him to donate his entire income for the year to charity to make up for past slights, he would still owe taxes on that income.

Actually, all of the line item deductions either recognize money that is gone and should not be taxes or are meant to encourage specific behavior. Eliminating them will have profound and unpredictable consequences.

Certainly charitable donations would drop. The easy way to adapt to the new tax law would be to figure in taxes and donate the taxed amount. This might mean donating the $65 dollars left after the government taxes $100. Some people might quit giving completely out of disgust. The point is that charitable giving is voluntary. If the government raises the cost of giving then people can economize by reducing their donations.

This is the second time that Obama has proposed eliminating charitable deductions from the tax code. Since this will hurt charities much more than the rich one has to wonder why he is doing this? Especially since most charities are already stretched because of the Great Recession. Fewer people are donating and the demand for services has increased. This is the wrong time to discourage charitable donations. The people most affected will be the poor, not the rich.

Why is Obama doing this? Does his desire to tax the "rich" blind him to the likely results of this policy? Or is he actually trying to hurt charities? Many Democrats distrust charities since some of them are related to religious organizations. It is possible that they see the charities as infringing on areas better server by the government. If that is the case then a tax policy that hurts charities is easily understood.

Regardless of other considerations, this makes Obama's jobs bill nothing more than a transfer of income. It will take money from the "rich" and redistribute it mainly to democratic constituents - government workers and unionized industries. That make it even less likely to do any real good.

Monday, September 12, 2011

Why Does Obama Hate Social Security?

Last December, as part of a package to extend the Bush tax cuts for everyone, Congress passed a temporary reduction of Social Security's payroll tax dropping it from 6.2% to 4.2% of the first $106,800.

In last week's jobs speech, Obama proposed dropping the payroll tax to 3.1% and reducing the employers' share.

Why does Obama like reducing this tax so much? Probably because you only pay it on the first $106,800 and it was a simple way of limiting the benefit of the tax break that the rich received.

Reducing the employers' portion reduces the expense of having employees. In theory, a company with 100 employees could use the tax savings to add two or three employees.

The President's proposals will not help the economy much. Getting an extra 1.1% take home pay is not likely to make people go out on a buying binge. For most people it will be eaten up by inflation.

Employers are not likely to use it to boost the workforce. For one thing, this will be a temporary tax cut. Why take on employees that you may have to lay off later? The only thing that will entice employers to hire more people is more economic certainty.

So, this will not help the economy recover. What about the damage to Social Security? The immediate effect is to cut the amount that Social Security has to work with at a time when enrollment is rising. This will either come out of the trust fund (which will require transfers from the general fund which will add to the deficit) or it will reduce surpluses going to the trust fund which will effect future payments. It also strikes at the heart of the social compact that Social Security is based on - everyone pays into the fund their entire working lives and in exchange are supported after they retire. Will we make corresponding cuts in future benefits?

Social Security has enough structural problems without adding new ones in the name of economic stimulus.

Are We Safer?

Ten years ago, who would have thought that we would make it this long without another successful major terrorist attack? Note my qualifiers. Several follow-up attacks were stopped in the planning stage and some attacks succeeded but were on a different scale. The London Underground bombing is an example as well as more recent attacks in India. The most recent was just last week but it was an order of magnitude smaller than the September 11, 2001 attack.

This does emphasize that terrorism is a global issue, not one just for the US. The September 11 attack was planned outside the US and carried out by foreign nationals.

Since the attack there was a drumbeat of accusations that some policy or action made us less safe. This was mainly used as an attack on President Bush but more recently this has been used against President Obama. Let's look at some of the big ones.

The invasion of Afghanistan. Even before the fires were out in the World Trade Center some voices said that we needed to treat it like any other crime. The military should not be involved. An echo of this was heard when the Navy Seals killed bin Laden - that this is how it should have been handled from the start.

One problem with this - we tried it and it failed. We informed the Taliban that we wanted them to turn Osama bin Laden over for trial. They refused and threatened us. So we invaded and overthrew the Taliban as well as disrupting al Qaeda which had its leadership and training camps in Afghanistan. The immediate reaction from the left was "Now look what you did. You made them mad."

It was not until presidential nominee John Kerry said that Afghanistan was the "good war" that these voices were quieted. Even then some people like Michael Moore insisted that the invasion of Afghanistan had noting to do with terrorism. It was done on behalf of some oil companies in order to get the rights for an oil pipeline (which has not been started ten years later).

Result: With its training camps gone and its leadership in hiding, al Qeada no longer had the ability to mount an attack on the level of September 11.

The Invasion of Iraq. Iraq was not involved in 9/11 but it was sponsoring terrorism and it was assumed that Saddam Hussein was rebuilding his stockpiles of WMDs and had restarted his nuclear program. The invasion of Iraq was supposed to have made us less safe because 1) it angered people who would then turn to terrorism and 2) it distracted us from the real war against terror in Afghanistan.

Result: Al Qaeda was not in Iraq when we invaded but they soon established a presence as "al Qaeda in Iraq". Eventually it became obvious that they were more interested in stirring up civil war than helping the Iraqis expel the Americans. They also killed more Muslims than Americans. This realization led to the "awakening" movement which combined with the Surge to essentially win the war in Iraq. Al Qaeda lost credibility world-wide.

Iraq also got the nation past its Viet Nam Syndrome. Prior to Iraq, US presidents had been careful to avoid any long-term conflicts. The Powell Doctrine codified this. The theory was that the US citizens would not support another war that lasted more than a few weeks or had significant casualties. Both our leaders and our enemies believed this which strengthened opposition. Now our enemies know that we are willing to fight a decade-long war if we have to.

Guantanamo (Gitmo) - After the fall of the Taliban, the US had a problem. What to do with the POWs? The Geneva Conventions do not cover them and attempting to try them under US law was unworkable. The solution was to put them in a facility controlled by the US but not in the country. There they could be tried by a tribunal following precedents from WWII and other conflicts.

The members of the left who had wanted 9/11 to be treated like a crime insisted that this was unacceptable. We had to bring the prisoners to the US and try the under US law. After years or delaying the tribunals the left also started complaining about how long the prisoners at Gitmo had been held without a trial. Since they were the ones who had delayed the trials, this was a bit like the man who killed his parents and asked for mercy because he was an orphan.

Like Afghanistan and Iraq, the existence of Gitmo was supposed to inspire more acts of violence.

Result: Two and a half years after taking office, President Obama has not been able to close Gitmo. The one trial held in the US was a near-disaster with most charges being dismissed due to stronger rules of evidence. The Obama administration eventually restarted the tribunals.

The Patriot Act - I'm not sure that anyone actually claimed that this would make us less safe but there were major protests over it. Many of the protests had nothing to do with the Patriot Act proper. Any examples of government abuse such as overseas wiretaps were lumped together as Patriot Act abuses.
Result: While the Democrats controlled the White House and both houses of Congress they renewed and strengthened the Patriot Act.

Border Control - Several of the 9/11 attackers were here illegally. In addition, an attack planned for 1/1/2000 was stopped at the Canadian border.

Immediately after 9/11 the government reviewed the status of all known people who entered the country legally. Many people were deported or imprisoned until their status could be cleared. There were calls to strengthen controls on the Mexican border since there was no reason to believe that terrorists would only enter the country from Canada. These have been, at best, half-hearted.

More recently, President Obama instituted programs to force employers to check on job applicants' status and has deported a million illegal immigrants. These were not directly related to terrorism but would make it harder for terrorists to exist in the country.

At the same time, the recent stories about Obama's "Uncle Omar" showed flaws in the current system. Omar was ordered to leave the country years ago and simply ignored the order. After his current arrest he disappeared again. This has led to complaints that Obama's "catch and release" program makes us less safe.

Result: This is hard to determine. Disruptions to al Qaeda have kept it from trying to sneak terrorists into the US so stronger border controls are not as important as they could have been.

TSA Searches - After the Shoe Bomber we all have to take off our shoes. After the Underwear Bomber, people have to submit to a virtual strip-search.

Result: This has been referred to as "security theater". It is not being done to make us safer. It is being done to make us feel safe.

The Death of bin Laden - The execution of Osama bin Laden has sort of a dream-like quality to it. By the time it was announced, the body had been buried at sea and no photographs of the body will be released. Even so, some pundits claimed that this would trigger new terrorism in response.

Result: If al Qaeda was capable of doing major strikes they would not have waited for their leader's death to do them. The organization still exists and claimed credit for a bombing in India just last week but it has lost its charismatic leader.

Bottom line
: al Qeada has been discredited and has lost most of its experienced leadership. Ten years ago it was the organization that hit the US. Now it is the organization that brought death and destruction down on Muslims by angering the US. Follow-up attacks have been progressively smaller and more localized. It was bin Laden's idea to strike at the "far enemy" meaning the US. He believed that we were a hollow power and that a strong blow to our nation would cause us to implode much as the USSR did a decade earlier. We proved him wrong and showed that striking the US can bring horrible retribution. I doubt that al Qaeda would have planned 9/11 if they knew what things would be like a decade later.

At the same time we have proved that we are not a hollow power propped up with technology. We have the best fighting forces in the world.

Friday, September 09, 2011

Jobs Speech or Campaign Speech?

Last night President Obama gave his long-awaited speech to the joint houses of Congress. This was billed as his "pivot to jobs" and he claimed that passing his proposals would add or save millions of jobs. He learned from his first stimulus not to give any hard numbers that could be used against him. Remember that the original stimulus was supposed to keep unemployment below 8%.

What was offered was similar to Obama's previous stimulus. It has tax breaks for workers. These are small in the hope that people will spend the extra few dollars rather than save them. There is also infrastructure spending, what he called "shovel ready" last time. The first stimulus included bailouts for states and cities so that they would not have to lay off (union) workers. Stimulus 2 will only prevent teacher layoffs.

The total sum proposed just over half of the original stimulus - $450 billion instead of $800 billion.

So, was this a real proposal or simply a campaign plank designed to insulate Obama from charges of mismanaging the economy? There are a lot of signs that it was the second, a campaign point with little chance of passing.

While the President has insisted that the first stimulus saved the economy from becoming a depression, there is no evidence for this. The economy hit bottom and began its slow recovery before any stimulus money was spent. If the first stimulus didn't help the recovery noticeably then why would a second, smaller one? It should be noted that Christina Romer who chaired Obama's team of economic advisers for two years had previously written a paper showing that government stimulus packages never worked.

Obama's proposal is incomplete. He said multiple times that it would be fully paid for but he did not propose how this would happen. He kicked this can over to the super-committee already charged with defining $1.5 trillion in deficit reduction. Raising a half-trillion is going to upset people. By passing the hard part to the committee, Obama hopes to take all of the credit but escape the inevitable blame. This argues that he is more interested in campaigning than stimulating.

Even before the speech, Obama was already criticizing Congress for failing to pass the bill (which they had not seen). As a follow-up, Obama is giving speeches in Top Republicans' districts to try to pressure them.

Congress's reaction to the speech is illuminating. The Republicans didn't bother to offer a rebuttal. They listened in silence broken only by a few snickers. Many Democrats failed to even show up and those who did looked bored. The press failed to fill the press box.

I have said before that the worst thing that could happen to Obama is to have Congress pass his package. It will fail. Even if government stimulus packages could succeed, this one is flawed. But that is irrelevant. The Eurozone is failing anf threatens to take the rest of the world's economy down with it. A half-trillion in new spending cannot offset the impact of a European recession.

Thursday, September 08, 2011

Science and Partisan Politics

"The Republican party has abandoned science leaving the Democrats as the party of reason."

It makes a great campaign slogan but is it true? The accusations against the Republicans mainly feature Creationism and Global Warming. I will leave warming for last. As for Creationism, I will give that point to the Democrats. There seems to be more Republicans who are openly skeptical of evolution. Note the qualifiers. There could be some closet creationists among the left but they don't dare admit it.

I have no problem with people who reconcile God and evolution. They might see the billions of years between creation and the present as necessary steps or they might see God taking a more direct role in creation - possibly sending a dinosaur-killer to Earth to speed things up. On the other hand, anyone who believes in a young Earth is rejecting just about every branch of hard science.

So that's one strike against the right. Are there any crazy theories from the left?

How about Peak Oil? Just a few years ago the left was convinced that we had already discovered most of the world's recoverable oil and that it would run out by 2050. Between new discoveries and new technologies, a lot more oil is recoverable now than just a few years ago. The US alone is now considered to be sitting on the world's biggest known supply. No one is saying much about peak production any more.

One of the world's most promising technologies is genetic engineering. The left hates it. They prefer to do their gene-tinkering the old-fashioned way - expose a batch of seeds to radiation and see if any of the mutations are desirable.

After a woman died from brain cancer after using a cell phone, the left has been convinced that phones are harmful. And vaccinations. And power lines. It doesn't matter how many studies prove the opposite.

To the left, once a species is endangered, it is always endangered. They have sued to stop the government from changing the status from endangered to threatened on such animals as the bald eagle. They have also fought to have the polar bear listed because of possible future damage caused by global warming.

What's the difference between organic produce and non-organic? Organic is more likely to make you sick. Organic fertilizer is often animal droppings. If the animal is diseased then the pathogen can be incorporated into the produce. That doesn't happen with chemical fertilizer.

We did away with freon in car air conditioners and spray cans in order to stop the ozone layer from vanishing which would lead to every one getting skin cancer. That made us feel better but it didn't eliminate most sources of ozone-depleting chemicals. Some projections showed that the space shuttle alone would destroy the ozone layer. Except it didn't happen.

Toilets made before the late-1990s flushed better. The left got upset about the water levels in the aquifers in dry areas. So they mandated that the whole country has to have water-saving toilets (which actually use more water by requiring multiple flushes).

Similarly, the left worried about acid rain. Lakes were becoming so acidic that nothing could live in them. So they passed laws regulating SO2 emissions. This was done in a rush because they knew that the biggest study on acid rain was about to be released. It said that acid rain was not a problem. Acidity in lakes was rising because pine forests were recovering. The few lakes that were suffering from acid build-up could be treated with lime for pennies.

Led by Carl Sagan, a group of left-wing scientists urged nuclear disarmament. They said that a nuclear exchange would cause a "nuclear winter" in which dust would block the sun and all life would perish. Later they admitted that they over-estimated the effects and a nuclear winter was unlikely.

Going back 40 years we find credible scientists predicting that pollution would increase so much that we would have to put domes over our cities by the 1980s. Before then the population would outgrow the food supply and there would be food riots by the end of the 1970s. The people who made those predictions have moved onto climate science.

Which brings us to global warming and the claim that 97% of scientists agree that it is real. This is an interesting percentage. It implies a large number of scientists. The actual number if 75 out of 77 agree. This came from a survey of people who either work in climate studies for the government or universities. Over 1,000 were polled. They were asked 1) Has the world warmed since 1700 and 2) has human activity contributed to this. Note that these statements are so broad that many skeptics would agree with one or both. But only 82% of the people surveyed agreed. So they winnowed the respondents down. The only people who counted were those who had published major papers. That's where the 77 came from.

But what if you polled a wider sample of scientists? Solar scientists tend to think that the sun is the primary driver of climate. Some of them just published a paper in Nature showing that cosmic rays from the sun are responsible for formation of low-level clouds. Previously it was assumed that the only influence on these clouds was terrestrial. According to the article, all of the climate models are wrong. It is a miracle that this article was published. The Climategate emails showed that allowing a skeptical paper to be published can cost an editor his job. This continues to happen.

A majority of meteorologists are skeptical of global warming. They have access to temperature records and have run their own numbers.

So, yes a majority of scientists think that human-caused climate change is real but it is not an overwhelming majority.

Sometimes a majority can be wrong. There is a phenomenon known as an "information cascade" where a small but dedicated group controls an issue. This happened with dietary fat. For decades "everyone knew" that dietary fat is bad for the heart. There were no studies to show this. In fact, it was dis-proven by studies but anyone who did not agree was shouted down.

That is what happened with global warming. The evidence for it is still thin and the effects have been exaggerated. But, a small group has seized control of the conversation. They have been co-opted by big-government progressives who see the threat of global warming as a way of controlling everyone. Which is how this became a partisan fight.

Given the left's track record, I'm willing to overlook a Republican's belief in a Young Earth. They are less likely to try to use it as an excuse to change society.

Wednesday, September 07, 2011

Middle Class?

The middle class has emerged as a political battleground. Everyone is fighting for them. The problem is that the term is mushy. Every group uses the definition that helps it most.

The middle class began as the group in-between the land-owners and the peasants but the term as we use it now was defined by Marxists. To them, the middle class is the group between the workers and the property owners. That usage is irrelevant today because of the overlap in pay between office workers and factory workers.

A recent article in the Columbus Dispatch suggested defining the middle class by demographics. Rank everyone by pay and drop the top and bottom 20%. The 60% in the middle is the middle class. Using this method, the middle class is anyone who makes between $31,900 and $62,030. Apparently everyone in the top 20% is considered rich.

There are major problems with this approach. The life of someone making $65,000 a year is not much different than someone making $62,030 a year. Even someone making $125,000 - twice the upper limit by this measure - has a similar lifestyle.

Another problem with this approach is that it puts some people normally considered to be middle class in the upper class. The top pay for police officers and elementary school teachers in Columbus is well above the $62,000 limit. Auto workers also skirt the top edge. And that is not counting benefits.

Several union meetings over Labor Day including one attended by President Obama made it clear that they consider union membership to be the determining factor in belonging to the middle class. If you are not in a union then you are not middle class. Obviously this is a self-serving definition. It is also the basis of their campaign to keep collective bargaining rights.

One problem with defining the middle class is that the percentage of people who are rich by any measure is very small. President Obama talks about millionaires and billionaires but actually counts the rich as starting at an annual income of $200,000/year ($250,000 family). This is a nice sum compared to $62,000 but, again, it is not a life-changing one. Someone in that range is going to have a bigger house (with a bigger mortgage) and newer cars and worries less about bills but does not live the "lifestyle of the rich and famous".

The real wealth is concentrated in the top 1%. That's where the millionaires and billionaires are. The trouble, at least for politicians, is that it just doesn't sound right to say that people in the 98th% income group are in the middle class.

More in the Washington Post fact check column here.

Other polls suggest that 90 percent or more of Americans consider themselves to be "middle class" or "upper-middle class" or "working class." An April 2007 poll by CBS News found that of 994 adults surveyed only 2 percent said they were "upper class," and 7 percent said they were "lower class." In another poll, taken by Gallup/USA Today in May 2006, 1 percent said they were "upper class," and 6 percent said they were "lower class." Interestingly, since 12.3 percent of Americans were living below the official federal poverty level in 2006, these poll findings suggest many who are officially poor still consider themselves to be "middle class" or "working class."

Tuesday, September 06, 2011

Labor Day

Labor Day featured a couple of events involving labor. The first was President Obama's appearance before a union convention in Detroit. It was billed as a preview of the speech he will give to Congress on Thursday. If was actually a campaign speech complete with chants of "four more years". Many have focused on the call to arms issued by Jimmy Hoffa, jr. More important is Obama's message to Congress - if you don't vote for my jobs program then you are un-American. Most presidents would think twice before delivering such a message to a joint session of Congress but Obama has a history of verbal bullying. I would not put it past him to lecture Congress on their responsibilities while advancing an ineffective jobs program.

During his speech on Labor Day, Obama also gave his support for organized labor and collective bargaining.

In the meantime, news broke that the Post Office is broke and about to default on more than a half-billion in payments. Their biggest problem is that the volume of mail has dropped 20% over the last few years. They need to shed 220,000 jobs but their union contract prevents layoffs. This is just the latest in a series of problems involving public service unions. Not surprisingly, the head of the union representing the postal workers is unwilling to cooperate with the layoffs.

In private business the choice is usually simple when asking unions for concessions - give us something or we will go out of business. The government cannot go out of business. Instead we have a series of bailouts.

Considering that one function of public service unions seems to be to funnel tax money into the Democratic campaign chests, we can assume that the Democrats will resist any postal layoffs. That means more taxpayer bailouts.

Friday, September 02, 2011

The Malaise Speech

Three years into his presidency, Jimmy Carter's pollster came to him with results showing that the majority of the country was pessimistic about the future. Carter went to Camp David and held meetings for more than a week to decide what should be done. This was later described as a week of "navel gazing".

Carter's eventual response was a prime-time address in which he said that the nation suffered from a "crisis in confidence". It immediately became known as the "malaise speech". Carter's defenders are quick to point out that he never used that word but many people who watched the speech are certain that he did. What happened?

While the broadcast speech did not have the line, the advance copy sent to the networks said that the President would say that "a malaise has fallen across the nation." Figuring that most viewers had never heard the word, the network anchors told viewers that Carter would say this and what the word meant.

The actual speech was fairly boring and most people didn't pay enough attention to notice that this phrase was dropped from the final version. After being told that Carter would say this phrase, most people were sure that he had said it.

Carter's approval rating climbed 11 points for a short time after the speech but, as Vice President Mondale pointed out to Carter, the country had real problems. Unemployment and inflation were rising and an Arab gas embargo caused lines at the gas stations. Four months later Iran invaded the US embassy and took the staff hostage, dooming any chance that Carter had of reelection.

Thursday, September 01, 2011

Obama's Problems

President Obama has some recurring problems that should be keeping his campaign staff up nights worrying. Here is a sample:

Summer - Things go wrong for Obama during the Summer. In 2009 his health care proposal started hitting significant opposition and public approval for it dropped. While the bill eventually passed, it remains unpopular with only around 42% of the population supporting it compared to 44% that want it repealed. In 2010 his "Recovery Summer" turned into a cruel joke when the unemployment figures were released. This was followed by the Gulf oil spill. Obama made himself look helpless by talking about kicking butts but never actually doing anything. At the same time he showed how hostile he is to business when he refused to talk to the CEO of BP because "CEOs lie". Going into the Summer of 2011, the Democrats planned on hitting voters on the Republicans' plans to change Medicare but got distracted and lost focus over the debt ceiling raise.

Obamanomics - In 2009 Obama promised to end the boom and bust business cycles and replace them with a new economy based on education, health care, and clean power. Two years later there is talk of an education bubble, health care costs continue to spiral, and clean energy looks like a mirage. Most European countries have backed away from commitments to renewable energy because of the cost. Spain in particular found that every green job created cost the economy 2.5 other jobs. In the US, three makers of solar panels have gone out of business in the last month alone, taking hundreds of millions of dollars of grant money with them. With an economy growing at 1%, Obama has managed to eliminate the boom and bust cycles. We are stuck in a permanent bust cycle.

Foreign Relations - Name one country that has closer relation with the US now than during the Bush administration. There is at least one - Cuba. Now name one that we want better relations with. Obama has alienated traditional allies such as England, France and Germany. He has pushed away new allies such as India. He is openly hostile to Israel. Post-revolutionary Egypt is less friendly than before. Even countries that we absolutely have to have as friends such as Afghanistan and Pakistan are becoming hostile.

Tin Ear - In 2008, Obama played politics with the best of them. His gift seems to have deserted him, possibly half-way through his oath of office (which had to be administered twice because of a stumble). His vow to work with Republicans didn't make it to February, 2009.
His wife goes on extravagant vacations. He vacations on Martha's Vineyard Hawaii. His bus trip in a $1,000,000 bus was transparently a campaign trip paid for by the taxpayers (it didn't help for the Secret Service to say that the second bus would be available to the Republican challenger during next year's campaign). As Hurricane Irene closed on the East Coast, his first instinct was to continue with his vacation and return to the White House hours before the hurricane was due to hit the DC area. After wide-spread criticism about the expense of the President and First Lady taking separate flights to Martha's Vineyard, they took separate flights back. Next week will be his 3rd or 4th "pivot to jobs". He shows disrespect to the other branches of government, telling the Supreme Court that they made a bad decision to their faces during a State of the Union address and summoning members of Congress as if they worked for him instead of being part of an equal branch of government.

Strength - Obama picked a couple of fights with the Republicans that he didn't have to have. The debt ceiling could have been raised while the Democrats controlled both houses of Congress and the Bush Tax Cuts should have been dealt with before the last minute. In both cases, Obama seemed to fold under pressure. The White House felt it had gotten a good deal but the rest of the country saw things differently. Even on such a basic thing as scheduling his jobs speech, Obama forced a fight with Congress and lost. He could have, and probably should have, given the address from the Oval Office. Instead he decided to have it before a joint session of Congress and he scheduled it to conflict with a Republican presidential debate. After White House spokesman Jim Carney dismissed the debate as too unimportant for the President to worry about, Obama moved his speech. A basic rule of politics is that you should never start a fight that you can't win. Obama still has to learn this.

Put it all together and Obama has an uphill battle to win reelection.