The Limits of Economics

Today's Washington Post has a column on the economy by Larry Summers, a former member of President Obama's economic team. In it he talks about how the President's policies saved the country from economic collapse and what is needed to continue the recovery.

The big question is why anyone would listen to a word that Summers or any of the President's other advisors says? A bit over two years ago they projected how bad the recession would be with and without a stimulus and what the recovery would look like. They got everything wrong. The measures they took to stimulate the economy also failed. The economy stalled after the so-called QE2 instead of picking up.

The problem is that no one really understands economics. It is one of those chaos systems where there are too many inputs to even be identified to say nothing of tracked.

Economists think that they understand the economy but, unlike the hard sciences, they cannot test their assumptions in a lab. They can only observe the economy and come up with a theory that attempts to explain what happened. Even there, economists often come to different conclusions.

In addition, social policy has become heavily intertwined with economics. Take the year 1937. Paul Krugman wants to see more government spending. When he looks at 1937 he sees that FDR became worried about the deficit and took measures to reduce it, causing a recession. According to Krugman, the Great Depression would have ended if FDR had just kept spending.

But, a recent column by Amity Shales points out that other things also happened in 1937. The Social Security tax started and the Wagner Act was implemented which caused the number of strikes nationwide to more than double. This caused millions of lost hours of work. Could these have been a stronger factor in the recession than FDR's deficit reduction?

Several years ago, Christina Romer, another of Obama's former advisers, wrote a paper saying that government stimulus programs never worked. They either arrive too late or they are targeted at the wrong parts of the economy. After joining Team Obama, she reversed herself, justifying Obama's stimulus program. Would she have reversed herself if she had not joined the government?

Everyone agrees that government spending has an effect on the economy but there is a lot of disagreement on what that effect is. Obama's advisers believe that the effect is around 160%. Every dollar spent causes $1.60 in increased spending in the economy. Other economists believe that the effect is 60%. Every dollar spent caused $0.60 in economic activity. This is an important issue. Does government spending cause the economy to grow by 60% or to shrink by 40%? No one can say for certain.

I have been seeing a drumbeat of columnists insisting the the stimulus worked and that we need a new one, bigger if possible. Again, none of these people can really say if a new stimulus will work. I'm sure that they really think so but that is not the same thing as proving it.

The one thing that we know for certain - we will have to pay interest on every dollar borrowed to pay for new stimulus spending.

Yemen?

We're at war in Yemen? According to a wire service report the US is intensifying drone attacks in Yemen. That's in addition to Bush's two wars, Afghanistan and Iraq, and Obama's war in Libya. Granted, we are drawing down troops in Iraq and plan to draw them down in Afghanistan. Still, we are making 1/4 of the air strikes in Libya and our allies are pushing for us to increase that. Our involvement there has gone far beyond establishing a no-fly zone. Instead we are trying to overthrow the Libyan government.

In Yemen we seem to be trying to prop up a crumbling government against rebels allied with al-Qaeda.

I thought that the Democrats were the party of peace. Or at least the party of the War Powers Act.

Is there a right to buy a home that you cannot afford?

It has been a long time since I bought a house. When I did there were fairly tight standards about how large the down-payment had to be and how large the monthly payment could be in relation to your monthly income. The housing bubble and the corresponding mortgage crisis were direct results of waiving those standards.

In the wake of that crisis new standards have been proposed. To get a premium loan you will have to put down 20% down-payment and payments cannot exceed 1/3 of your income. These are important.

The down-payment is to keep people from walking away from their loans. It is one thing to default on a zero-down home because is it worth less than your loan. You are not losing anything. If you had to put up a big down-payment then you would be leaving that behind. It also reduces the amount of your loan so that your house could lose 20% of its value and still be worth the amount of the loan.

The requirement that payments cannot exceed 1/3 of income is even more basic. This makes sure that you can afford the payments.

If you don't qualify for a premium loan then you still might be able to get one but it would not be as attractive to you or the bank. On your end you would probably have to pay higher interest. The bank would have more trouble selling the loan so they would have an incentive to be selective about who they grant loans to.

These regulations should be obvious but there are objections.

If this rule goes through as it stands, the demographic of borrowers who get (favorable rates) will be white and wealthy," said David Stevens, chief executive officer of the Mortgage Bankers Association and former commissioner of the Federal Housing Administration. "African-American, Latino and first-time home buyers will be charged higher prices.

This raises the question, is it a right (or even desirable) to get a mortgage that you cannot afford? The Clinton administration seemed to think that there is such a right which is why the loan requirements were waived in the first place. The Bush administration continued this practice.

So, why is this a good thing? I know that "the American Dream" is supposed to include owning a house but historically more than a third of the nation rented. We got into trouble when we tried to change that proportion. Why keep encouraging people in self-destructive behavior?

The President and the Economy

The economy continues to slump. President Obama has around a year to turn it around. That will give people enough time to recognize a robust economy and for him to campaign on it. If things do not improve by the Summer of 2012 then he will be in the same position as George H. W. Bush. The mild recession of 1992 actually ended before the election but economists didn't announce that until early 1993. That let Clinton take credit for the recovery.

Obama will not be able to renew his "Hope and Change" campaign. Sitting president have to run on their record. Obama's foreign policy is too close to Bush's to win an election. Rather than removing troops from Iraq as fast as they could march, he continued Bush's policies. He escalated Afghanistan without much to show for it. the excitement over killing bin Laden has already faded. His promise to make America popular again never panned out. Obamacare continues to be divisive. That leaves the economy as the issue that will decide the election.

The current economy is in much worse shape than the one in 1992. Policies were put in place by Clinton and continued by George W. Bush to encourage home ownership. As a result, the percentage of families owning their home rose from an average in the low 60 percentage range to the high 60s. In addition, a lot of other people bought houses that were more expensive than they could afford. That created the housing bubble and caused a host of other problems. Things will not improve until housing values and ownership work back to where they would have been without the bubble. This process is still going on and will continue.

A big portion of the economy in the 2000s depended on new housing. This started with the actual home builders and mortgage companies but included every business that makes or sells the things needed to outfit a new home. So that portion of the economy will not recover in time to help Obama.

Obama has spent the last two and a half years blaming the Bush administration for the recession. Unfortunately the man in the Oval Office is held responsible for the economy. That allowed Clinton to take credit for a recovery that predated him but it also means that Obama will be held responsible for economic problems in 2012.

It doesn't help that his policies have probably hurt the economy. His stimulus package didn't stimulate. A large portion of it went for tax breaks that were so small, most people didn't notice them. Most of the rest went to keep cities and states from laying off government workers.

Obamacare has probably hurt employment although it is hard to tell. Most of it has not gone into effect and thousands of waivers have been issued. Still, it increases the future cost of employing someone so it is unlikely to have helped.

The Obama administration has pursued a weak dollar policy. This is another continuation of the Bush administration but there is a difference. The idea is to reduce the value of the dollar overseas. This makes imported goods more expensive and encourages people to buy American. It also makes American products cheaper overseas and encourages exports. This might work in a strong economy but the rest of the world has its own problems. There are no strong markets to sell to. The main result of the weak dollar is to make imports cost more. That is one big reason the price of gasoline has gone up. It hurts food prices, also.

The Administration was counting on pent-up consumer demand to drive a the recovery. It worked for a while but rising costs, especially on gasoline, are causing consumers to cut back. This represents a failure of Obama policies.

The rest of Obama's economic plans are closer to crony capitalism than anything else. Businesses and industries that the President favors are given advantages or even direct subsidies. Others are left to fend for themselves.

The automotive industry is a perfect example of this. There are only two US-owned large car-makers - GM and Ford. Chrysler went from being German-owned to American-owned before Obama sold it to the Italians. Honda and Toyota are Japanese-owned but most of the cars sold in the US are made here by American workers. Of these five companies, GM and Chrysler were given billions in grants and loans (they paid the loans back but not the grants). Ford was offered assistance but refused it. Toyota was hit with a major recall.

Even allowing for the fact that the two Japanese companies were in better financial shape, it still looks like the Obama administration was favoring unionized manufacturers over non-unionized ones.

This example holds true in general. The Obama administration has given huge subsidies to industries like trains, wind and solar power that are unlikely to ever show any return. At the same time, it has crippled the oil industry.

The Obama Administration's love of picking winners and losers means that only a few parts of the economy are able to grow and even this is distorted by government money. In the 1970s and 1980s, Britain and the US reviewed regulations and rewrote the ones that kept businesses from hiring. The Obama administration would never even think of doing something like that. Their answer for everything is more government, not less.

While big pieces of the economy are beyond the Administration's control, the Obama administration has failed to properly manage the pieces that it does control.

A Debt-based Economy?

Reading columns by Paul Krugman is always an education. It's not what he says that is illuminating, it is what you learn from picking apart his arguments.

He has written several columns against the austerity measures being undertaken by several countries. His reasoning is that none of the measures enacted so far have brought prosperity so austerity is discredited.

Where to start with this one? Austerity is needed because of previous excesses. Countries such as Greece have run up such a debt that they cannot keep borrowing. There is a real danger that they will default on their current debt so no one wants to give them any further loans except with unaffordable interest rates. For these countries, austerity will not make things better. Services and social programs will have to be cut. This will be painful but not as painful as the crash that will occur if they don't make these cuts now.

Think of a family budget. You have been spending more than you earn for some time. You can stop eating out and switch to Hamburger Helper or you can keep on spending until you have to declare bankruptcy and loose your house and car. And are still stuck eating Hamburger Helper. Neither choice is desirable but one is less painful.

Krugman insists that the road to prosperity is paved with government spending. Since forty cents of every dollar the government spends is borrowed, he is trying to base the economy on ever-expanding debt.

A quick aside here - some government debt is a good thing. If the government needs to build a bridge it can either set aside money for years until enough is accumulated to pay cash for the bridge or it can borrow enough money to build it now and pay off the loan over time. If the economy grows then the amount of money the government can borrow also grows. The problem comes when the government starts borrowing faster than the economy is growing and interest payments get out of hand.

Krugman would brush off this argument saying that we can worry about the debt after the economy recovers. The problem is that we are two years into a recovery and economic growth has been sluggish at best. A major school of economics says that government spending slows an economy instead of accelerating it so Krugman's prescription might be doing ore harm than good.

More recently Krugman called for a jobs program comparable to the WPA. He proposed that it be sent to patch potholes. How many potholes can I find in Krugman's proposal?

First, this is an echo of the "shovel ready" jobs of a couple of years ago - the ones that President Obama admitted do not exist. Big infrastructure program take years to plan and get approval for. For immediate jobs, things have to be scaled back to something that takes no planning or approval. That means the simplest jobs like patching potholes.

Even there, there are problems. During the Depression a worker might be issued a shovel and told to get to work. Modern roads need heavy equipment. If a city has cut back on patching then it might have some excess capacity but otherwise some of the money will have to go for buying the required equipment. That caused delays and diverts money from a straight jobs program into a stimulus for heavy equipment manufacturers.

But, assuming that there is a large excess capacity, there is the matter of hiring the workers. Krugman treats the unemployed as an amorphous mass, willing and able to take any job offered. Will unemployed office workers be willing to take a job that requires them to work outdoors in the hot sun with dangerous equipment and hard manual labor? If my wife was unemployed she would never consider such a job.

How much will Krugman pay his patching crew?  A large percentage of the unemployed are getting unemployment benefits. They would lose these if they took one of Krugman's jobs. Will they break even? How many people would be willing to make this trade?

If the patching jobs pay more than unemployment benefits then they will cause other distortions in the job market. People who are already employed in lower paying jobs will be tempted to switch. This would create new openings but in low-paying jobs that would not interest people on unemployment.

Then there is the seasonal nature of his proposal. Around here you can only patch part of the year.

Part of the reason that unemployment has stayed to high for so long is that the new jobs that are being created are specialized and the majority of the unemployed do nto have the right skill set. Krugman would do nothing to solve that problem.

And then there is the problem of paying for these workers which brings us back to the national debt. He wants to borrow money to employ people to do essentially meaningless work. Any economic expansion will have to be repaid with interest at a later date.

Krugman's arguments boil down to one simple idea - cuts are painful so don't make them. Instead keep believing in the power of state spending state to solve all problems and keep borrowing.

Medicare and the Democrats

Medicare as we know it cannot continue. The trustees in charge of the trust fund say so. The Congressional Budget Office says so. The Republicans say so.

But, thanks to a special election held in New York last week, the Democrats will spend the next year and a half insisting that any attempts to change Medicare amount to throwing seniors off a cliff. They even ran an ad during the New York election that literally had a Republican pushing people over a cliff.

The Democrats are overestimating the meaning of the election. It was a three-way race between a Democrat, a Republican, and a Tea Party candidate who had previously been both a Republican and a Democrat. The district had been comfortably Republican and carried by McCain but the Democrat won after running a campaign focusing exclusively on the Republican plan for Medicare.

Because a Democrat won a Republican district, the party decided that they will run the same campaign nationally. The problem with this reasoning is that it was a three-way race and the winner's percentage of the vote was comparable to Obama's.

This is a problem because the Democrats have sacrificed real discussions about the nation's future for short-term tactical advantage.

The Republican plan as advanced by Paul Ryan would move Medicare from being a pure government program to one that includes insurance pools with government assistance. If the idea of insurance pools sounds familiar, it is because they are included in Obamacare.

Medicare will run out of money in the 2020s, partly because of rising medical costs. The Ryan plan hopes to contain costs by passing some of them on to seniors. The hope is that they will shop around. There are problems with these assumptions and the entire issue needs a real debate. Instead we have people like the new DNC chair, Debbie Wasserman Schultz saying

They would take the people who are younger than 55 years old today and tell them, 'You know what? You're on your own. Go and find private health insurance in … the health care insurance market. We're going to throw you to the wolves and allow insurance companies to deny you coverage and drop you for pre-existing conditions. We're going to give you X amount of dollars, and you figure it out.' And these are people who have paid for their whole life into the system, are counting on that safety net.

This statement has been ruled false by sites such as PolitiFact. The Democrats should be advancing their own proposal with will likely involve tax hikes and cuts in services. Instead they pretend that Medicare is sustainable and that the Republicans are trying to destroy it in order to satisfy the radical Tea Party.

It is easy to understand why the Democrats are taking this tactic. It allows them to score cheap points against the Republicans. It also allows them to hold off on the wrenching admission that their crown jewels (Medicare, Medicaid, and Social Security) have to be reformed.

But it puts the entire nation's future at risk.

Tornadoes and Global Warming

The reasoning goes like this:

• Global warming is supposed to cause bad weather events.
• We have had a series of deadly tornadoes.
• Global Warming must be the cause.

A recent Washington Post column used exactly this reasoning as did a recent Toles cartoon.

There is one problem with this reasoning - all of the unusual weather this year has been caused by cooling. There is a major La Nina event going on. That is a cool phase in the Pacific. Combined with an unusual jet stream pattern, this is causing an unusually cold and damp year. Last year we had an El Nino event going on. That's a Pacific warming phase and it caused an unusually warm Spring and Summer.

But the global warming alarmists don't want to know what is really influencing the weather. All they care about is pointing to anything unusual and declaring that it is proof of global warming.

Obama and Israel

In his speech last week on the Middle-East President Obama called for negotiations between Israel and the Palestinians based on the pre-1967 war boundaries with land-swaps. There was an immediate outcry. Over the weekend the President tried to convince people that this did not represent a change in US policy. Technically the President was correct but there is more to it than that.

President Bush (43) stated it slightly differently but he also called for the pre-1967 boarders plus land-swaps and there was no outcry. The reason is that no one doubted that Bush wanted a strong Israel. Presumably what he meant was that each side would get around the same number of square miles as before the war but they would be in different places.

No one is quite sure if this is President Obama's intention or not. He also called for the new Palestinian state to be contiguous. Since it will almost certainly include the Gaza Strip, there is no way to create a continuous Palestine without dividing Israel in half. This may have been an oversight. He could have been referring to the current patchwork of settlements which requires Palestinians to cross multiple checkpoints. He needs to clarify this position. In fact, he needs to clarify every part of his position.

It doesn't help that the Palestinians are also offended by other parts of his speech. I saw one headline over the weekend that indicated that outrage on both sides over Obama's speech guarantees that no new peace talks will begin.

All of this highlights the main difference between Obama's current Middle-East policies and those of President Bush. Bush was a strong supporter of Israel, possibly the strongest supporter to grace the White House. In contrast, Obama is the weakest and the contrast with Bush makes him seem almost hostile to Israel.

Obama faces problems because of who he is. Even putting aside the rumor that he is a secret Muslim (and, once again, I think that he is a secret atheist) he has a Muslim name and grew up in a Muslim country with a Muslim step-father. Supporters of Israel expect him to favor Arabs over the Israelis because of his background.

Obama brought some of this on himself. He made a point of reaching out to the world's Muslims early in his administration. At the same time he has been deeply critical if Israeli policies. His current speech was given the day before a meeting with the Israeli prime minister and did not include a heads-up of the content of the speech. The whole thing could have been smoothed over by the two country's respective state departments if some advance planning had happened. It didn't and Obama now has to face the fall-out.

A final reason to suspect Obama's motives comes from his political affiliations. He comes from the Progressive wing of the Democratic Party. This group tends to equate modern Israel and Nazi Germany and is often anti-Israel and sometimes anti-Semitic. My wife asked me last week why the political left is so anti-Israel. I did a little poking around over the weekend and realized that they inherited this attitude from the USSR. During the 1967 war, the US and Britain backed Israel and the USSR backed Egypt. Israel is a capitalistic democracy. Egypt in the 1960s was leaning heavily socialist under Nasser. The entire "Israel is as bad as the Nazis" meme came from the USSR ambassador to the UN during the 1967 war. Coming from the Left, Obama is tainted by these attitudes even if he does not share them.

All of this means that Obama may say approximately the same thing as President Bush but people are justified in wondering if he means it the same way.

The Trump Campaign

Trump is out of the 2012 race. In fact, he was never really in it but he managed to get a lot of publicity by pretending that he was. There is relief from the Right and anger from the Left. The Washington Posts's Jonathan Capehart says

Nothing in American politics has made me angrier than Donald Trump's faux campaign for the Republican nomination for president.

The Post's E. J. Dionne wonders

Why, exactly, was Trump allowed to revive the nonsensical stories about President Obama's birth certificate? Why did so many media people fall all over themselves (okay, ourselves) to "cover" him?

There was no reason to take Trump seriously. He has flirted with running and backed off twice before. More recently he sounded like a Democrat, praising Obamacare and President Obama in general. So what happened to make anyone take him seriously? I can think of two things.

The first was that he came in at the top of some early polls. It should have been obvious that this had more to do with name recognition than actual support but it was treated as a real indication of his chances. I think that this was caused by the second factor - the media wanted him to run.

Say what you will about him, Trump is interesting. He creates controversy. He sells newspapers. For the media he is the ideal candidate.

Since reporters tend to lean to the left, I suspect that Trump validates their view of the right. He talks without thinking. He blusters, suggesting that he use military force to take foreign oil. He is a birther. They can project every negative quality that Trump has on the Republicans.

That's why the press spends so much time covering marginal Republican and Tea Party candidates. They love to repeat anything questionable those people say. It isn't that conservatives are the only ones who misspeak. But when President Obama makes a misstatement it is only the conservative media that covers it. Capehart, who was so angry over Trump's departure, spends a lot of time obsessing on Sarah Palin even though she is not running. Why do you think that is?

With Trump's departure the Republican candidate pool became more serious and more likely to defeat Obama. And that really angers the Left.

Miscarriage of Justice

Last week John Demjanjuk was found guilty of being an accessory to the deaths of 27,900 jews during the Holocaust. He was railroaded.

Demjanjuk's early life is not in dispute. He was born and raised in the Ukraine during a period when Stalin killed tens of millions of Ukrainians through starvation. Demjanjuk survived and was conscripted into the Soviet Army during WWII. He was eventually captured and placed in a Nazi POW camp.

Details after that are in dispute until he immigrated to Cleveland in the 1950s where he lived a quiet life until investigators declared that he was a notorious war criminal, Ivan the Terrible. He was deported to Israel, put on trial, and sentenced to death. The trouble is that there was a lot of evidence showing that he was innocent. On appeal, the Israeli Supreme Court freed him.

In a fit of pique, the original investigators seem to have decided that he should pay for something so he was sent to Germany to be tried for being a guard at a completely different concentration camp. This was mainly based on an ID card.

It recently turned out that there were doubts about the ID card's authenticity going back years but the FBI never made this information available to Demjanjuk's defense. The Soviet KGB might have wanted to get revenge on someone they saw as a defector to the US and forged the card. So there is reasonable doubt. This should have been presented during his trial.

But, even if you think that the card is genuine, the trial is a miscarriage of justice for many reasons. Germans treated their Russian POWs almost as badly as they treated the Jews. Most of them starved to death. If Demjanjuk did take a job as a guard it was likely to keep from starving.

The prosecution insists that conditions for the POWs had improved by that point and Demjanjuk knew what he would be doing. Even if that was true, he was the lowest level of guard. No one from that level has ever been charged before. They were too powerless to be considered accomplices.

And if all of that wasn't enough, you have to consider the time that he has already served in Germany and on death row in Israel. He has already spent twice as much time in prison as officers who were directly responsible for atrocities.

The truth is that too many Germans involved in the trial are using this old man to make a statement that they have changed and they are not the Germans of the 1930s and 1940s. The fact that the man they are using to make this point isn't even German and was never a Nazi is irrelevant. Most of the real Nazis died a long time ago so Demjanjuk has become a proxy for them.

Gutsy or Expedient?

The initial reaction from supporters of President Obama to the death of Osama bin Laden was to call the President's actions "gutsy". This was the universal description but is it accurate?

The President could have done three things. He could have waited for more information. Apparently the CIA felt that their information was as good as it was going to get in the foreseeable future but he could have waited anyway. Between "kiss and tell" books and Wikileaks, this would have eventually gotten out and Obama's career would have been over. He could have ordered an air strike. This would have eliminated the chances of any American deaths but it would also have made positive identification difficult and eliminated any chance of gaining intelligence information from the building. Given that they were positive that the building was occupied by al Qaida, this would have been the act of a very foolish president.

So Obama ordered an armed attack. The advantages are obvious - a huge jump in the polls and intelligence information. America would have forgiven Obama if there had been American casualties so there were few risks. Afghanistan was insulted but they would have looked just as bad if a missile strike had killed bin Laden.

Obama made the right choice but it was the only one that was really open to him. That makes it expedient instead of gutsy.

There are aspects of the operation that are troubling. Officially the team was sent to kill or capture bin Laden but the rules of engagement made it almost impossible for bin Laden to be captured. There is some validity to bin Laden's son's complaints about his father being shot in the dead of night and his body dumped in the ocean. We have shrugged this off because Osama "needed killing" and bringing him to trial would have been a nightmare. There are also international issues about sending a squad into a friendly country without notifying them first. All of these have been shrugged off as irrelevant since this was a one-time issue. I think that conservatives are justified in asking if Bush would have gotten the same hands-off reaction? Would candidate Obama have approved of the actions of President Obama? Given the unsanctioned assassination attempt on Qaddafi, some discussion needs to take place. To what extent are President Obama's actions driven by expediency rather than policy or legality?

Obama and Immigration

Recently a cache of President Reagan's personal note cards came to light. They included little stories and jokes that he incorporated into his speeches. An example is:

"If you get up earlier in the morning than your neighbor — work harder — scheme more & stick to the job more closer — stay up later planning to get ahead — you'll leave more money when you die & you'll leave it a lot sooner."

Years from now when historians go through the files from President Obama's teleprompter, they will only find a few stories, ones that Obama repeats constantly. One of them would be his bit about the Republicans driving the economy into a ditch then asking for the keys back after the Democrats get it back on the road. He loved this one and kept extending it, talking about how hot and tiring it was down in the ditch and how the Republicans were drinking a Slurpee while watching. After the Republicans took back the House there were calls for a "Slurpee summit".

The President unveiled a new one this week. Talking about immigration reform he took credit for doing more to enforce immigration than any previous president then complained that, in addition to a fence, the Republicans want a moat with an alligator.

As President Bush discovered, there is strong opposition to a new round of amnesty for illegal immigrants. This was tried under President Reagan when the country had 3 million illegals. The deal was supposed to be that we would step up enforcement to prevent a new influx of illegal immigrants while allowing the ones already here to become legal. The promised enforcement never happened and the number of illegals grew to 11 million. Opponents of a new amnesty feel that it encourages people to sneak into the country in the hope of further amnesty programs. At the least, they want to slow the flood of illegal immigrants currently entering the country (the recession slowed this but this trend will reverse when the economy picks up).

So, after telling us how bad the Republicans are on immigration, where does the President stand? We don't know. He has avoided taking any strong stands on the issue. He even abandoned the rather mild Dream Act at a time when he still had Democratic majorities in both houses.

Obama's dilemma is that amnesty is a divisive issue. At the extremes, one side wants to deport all of the illegal immigrants immediately. The other side wants to give them de facto citizenship as soon as they arrive. These extremes do not match party lines, either.

President Bush found out how volatile the issue is. He released a moderate proposal that included a guest worker program. No one liked it. Obama will have the same problem. Any moderate proposals will be rejected by both extremes and neither extreme is workable. That is why Obama has avoided specifics. Currently he is hinting to the Hispanic community that he is pro-amnesty but any actual proposals will probably cost him more votes than he will gain.

Obama got 2/3s of the Hispanic vote in 2008 but a lot of that was based on his skin color and time spent living abroad. For reelection he will be judged on his non-existent record.

His only option it to generate a lot of smoke and hope that no one notices that there is no fire. He held a summit with some Hollywood Hispanics (which Eva Longoria later denied was about immigration) and he criticized the Republicans but he still has not told us where he stands.

Self Censorship

There was a bit of news self-censorship yesterday. The story that most people heard was fairly tame.

A Yemeni man accused of trying to break into the cockpit of an American Airlines flight from Chicago to San Francisco over the weekend was charged on Monday with interfering with a flight crew.

A flight attendant and passengers subdued Rageh Al-Murisi, 28, after he tried to barge into the cockpit of Flight 1561 by ramming the door with his shoulder, according to the criminal complaint filed in District Court filed in San Francisco.

Some important details were left out of the wire service story:

Marty, 35, recalled Monday that she and other passengers on the plane were stunned when they saw Almurisi walking down the aisle. She said a woman in a row across from her who speaks Arabic translated that Almurisi said "God is Great!" in Arabic.

Wai, 27, also remembered on Monday that the wife of one of the men who took Almurisi down later said Almurisi was yelling "Allahu Akbar."

"There was no question in everybody's mind that he was going to do something," Marty said.

A male flight attendant tackled Almurisi, and other crew members and passengers, including a retired Secret Service agent and a retired San Mateo police officer, helped subdue him as he banged on the door, police said.

This account from SFGate has more details.

Al-Murisi, described as a burly man, got up from his seat near the back of the plane and "walked briskly" toward the front, where he began yelling and tried to open the cockpit door by turning the handle, police and witnesses said.

"He was walking very fast all the way up to the front," said Angelina Marty, 35, of San Francisco, a passenger on the plane. "He kept walking faster and faster and faster. He was screaming something, and the lady in the row across from me who had spoken Arabic said, 'That's Arabic,' and she had translated it and said it was roughly, 'God is great.' "

Marty said Al-Murisi had approached the cockpit right after the pilot announced that the flight was within a half hour of arriving in San Francisco.

"It wasn't innocent at all, the way he was screaming and how quickly he was walking," Marty said. "You knew he was going to do something. It was by far the scariest thing I've ever been through."

A flight attendant thought Al-Murisi was looking for the bathroom and told him where it was, but Al-Murisi looked at the attendant and then "lowered his left shoulder and rammed the cockpit door," federal air marshal Paul Howard wrote in a court affidavit. The flight attendant got between the door and Al-Murisi, who "kept yelling and pushing forward in an attempt to open the cockpit door," Howard wrote.

Another flight attendant and several passengers - including a retired Secret Service agent, a retired San Mateo police officer and an off-duty American Airlines pilot - helped wrestle Al-Murisi to the floor, officials said.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/05/09/BA6P1JDPHP.DTL#ixzz1LxZxUhWU

So, the facts that the man was yelling "Allah Akbar" and it took more than four passengers to subdue him were not worth mentioning?

Lingering Questions

President Obama's bin Laden bump will not last until the election. George H. W. Bush won a war and still lost the next election because of a bad economy. The only question is how long will it last? The White House seems to be doing everything it can to neutralize the good will that the nation felt at the news of bin Laden's death.

Exactly what happened? We got several versions. First, bin Laden was killed while using a woman as a human shield. Then we heard that she died on a different floor. Bin Laden may or may not have been resisting. The SEALs may have thought that he was about to resist.

How many helicopters were there? Originally they said two and one went down for mechanical reasons. Then they insisted that they had never said "mechanical". Other reports said that there were additional helicopters. Were these backup copters?

Some reports said that the "armed resistance" was only one man.

How many women were shot? How many were killed?

Originally it was implied that the President and staff were watching the entire thing live through a helmet cam. Later we heard that they could not see the actual 20 minute raid. What were they looking at in the photo?

Obama is reported to have taken 16 hours to decide to make the raid. That's more than just sleeping on it. So much for his decisiveness.

Exactly what were the orders? Was the team supposed to capture or kill bin Laden or outright assassinate him?

Today the White House came up with a simple solution to multiple versions - no new details will be released.

The burial at sea disturbed many people, also. It seems overly sensitive to someone who ordered mass murder. Obama personally ordered that pictures of the body will not be released. He is almost apologizing to the Muslim world for having killed a terrorist.

Personally I think that we should have desecrated his body. Many devout Muslims worry about how their body will be treated. The lead 9/11 hijacker, Mohamed Atta left orders on how his body should be treated.

I think that we should announce that if you kill Americans then we will eventually find you, we will invade your home, we will shoot your wife/wives, we will shoot you in the brain, and we will desecrate your corpse. That might discourage future attacks.

By taking personal credit for every aspect of the operation, Obama set himself up for criticism and made the White House responsible for getting the details straight. The more they withhold information or issue conflicting statements the more they distract from the feel-good buzz that would help Obama.

The Death of Osama and Lingering Questions

Congratulations are in order for the President that Osama bin Laden was killed on his watch. That does leave several questions.

The big one is what happens now in Afghanistan? We invaded that country to eliminate Al-Qaida. The Taliban was only targeted because they protected bin Laden and Al-Qaida. Will we continue nation building in Afghanistan or declare "mission accomplished" and leave?

It was assumed that bin Laden was hiding in a remote village somewhere in the mountains. Instead he turned out to be living just 40 miles from the capital of Pakistan, Islamabad, just 100 yards from a military academy that has been described as Pakistan's version of West Point. How could the most wanted man in the world be living there without official knowledge? Or, more likely, how far up did the knowledge go?

Was it just me or was President Obama taking a little too much credit? ("I directed the CIA.", "I received intelligence.", "I held meetings.", "I gave the order.") He didn't even mention which branchs of the service made the actual strike (Navy SEALs and CIA). He gets to take a victory lap regardless, he can afford to share some of the credit with the people who had boots on the ground. I think that Bush would have been a little more modest.

Bin Laden was located through a courier who had been named by detainees in 2007. Was this information extracted during the Bush administration under conditions that the Obama administration has condemned (water boarding)?

The Economy

On paper, the economy looks fairly good. Inflation is low, unemployment is high but falling, and the economy is expected to resume growth later this year. When you look closer, things are not as rosy.

The official measure for inflation is rather strange and designed to understate the real inflation rate. It ignores energy prices so $4+/gallon is not reflected. It also gives a large weight to housing prices. Currently gas, food, and clothing prices are rising but this is either ignored or minimized by stagnant home values.

Unemployment figures are based on the number of unemployed people looking for work. If you give up and stop looking the unemployment figure drops. If you are underemployed meaning that you have a part-time or low-wage job you are not counted, either.

The economy is expected to return to 3% growth later this year. That is not enough to make much of a dent in the unemployment figures. Worse, economic growth figures depend on accurate figures on inflation. If inflation is understated then economic growth is overstated.

Some of these problems are global, especially oil and food prices. Domestic policy has caused other problems. Both the Bush and Obama administrations have supported a weak dollar. The idea is to make American exports cheaper in order to strengthen manufacturing while making imports more expensive. This has not been particularly successful. Probably one reason is that a weak dollar adds to the price of imported raw materials. It also depresses commerce based on resale of imported goods.

One way that the dollar was kept low was to keep interest rates low. This also fed home sales and second mortgages, causing the housing bubble. Millions of people took out variable-rate loans. When rising gas prices in 2008 triggered price increases, the Fed raised interest rates, pushing those variable rates above what many people could pay. This had repercussions throughout the economy.

Because interest rates had been so low for so long, the Fed had very little to work with to boost the economy. They did what they could, lowering interest rates to near-zero and buying back bonds. Neither had much effect and both weaken the dollar further, threatening future inflation.

The Bush administration tried a stimulus by sending out tax rebate checks. This was insufficient. The Obama tried a much larger stimulus but it was poorly designed. Around a third went to weekly tax cuts which were too small to actually affect spending. These expired recently, anyway. Another third went to bailing out state and local governments. This did not stimulate the economy. The most that can be said for it is that it postponed further cuts at the state and local level. That money is also gone which is why the nearly all the states are facing a budget shortfall now instead of two years ago. The rest of the stimulus went for pork barrel projects that made no attempt to match spending and unemployment. The result of all of this is a massive deficit with nothing to show for all of the spending. To quote Henry Morgenthau Jr., FDR's Secretary of the Treasury, "We have tried spending money. We are spending more than we have ever spent before and it does not work."

We seem to be headed for stagflation, the scourge of the 1970s. This is a stagnant economy coupled with high inflation. The effects of high unemployment on an economy have been visible for the last couple of years. Even people who are employed are cautious about spending because they don't know if their jobs will last. Inflation is worse. You can see inflation at work at the gas pump. Every time you go to fill your tank the prices are higher. It affects your plans. Imagine seeing this happen on everything, especially food.

The future does not look bright. Housing prices have not recovered and may still be dropping in some markets. Rising gas prices will hit vacation areas. Eventually the Fed will have to choose between stimulating the economy and controlling inflation. The economy could be headed for another recession.

There are some things that the government could do. A commitment to domestic oil and gas would stop long-term speculation and would stimulate energy-related jobs in the Gulf states. Ending subsidies and mandates on corn ethanol would directly lower the price of corn and indirectly the price of meat, eggs, and dairy. The first would be generally popular but would alienate President Obama's base. The second would alienate Iowa farmers and is politically impossible until after the caucuses and possibly the election.

In the meantime it's going to be a tough year or two.

About That Birth Certificate

Let me begin by saying that I believe that Barack Obama was born in Hawaii. If there had been any real proof that he was born in another country then the Clinton campaign would have found and released it in 2008. Furthermore, even if he was born elsewhere, he would still be eligible to be president because his mother was a citizen (John McCain was born outside the US to American parents). I suspect that the whole "birther" rumor started with the Clinton campaign just as the "Obama is Muslim" rumor has been traced back to a Clinton worker.

That said, the long form birth certificate that the White House released just adds to the controversy. The problem is that two versions of the birth certificate were released. The one that the news media got is on a plain blue background. The White House also has a PDF version on the official White House blog site. This one has been superimposed on a background similar to a check. There was also some clean-up done and the certificate was done in parts making it possible to turn off layers and have text vanish.

Because an official release has been doctored, the controversy will not die down. But, because something has been released, the birthers will look crazy to most people.

There are two possibilities - one is that a campaign worker wanted the birth certificate to look more official and did the doctoring. The other is that the Obama campaign wants to keep the birther movement alive while making them look crazy at the same time.

In the meantime, I wish that all of the effort that the news media puts into making the birthers look bad was also used to make the 911 Truth Movement look bad. We have Truthers in Congress and at least one White House appointee (Van Jones) was a truther.

Defending the Defense of Marriage Act

King & Spalding, the legal firm hired to represent the DOMA (Defense of Marriage Act), quit after the Human Rights Campaign, a gay rights group, launched a campaign against it. There are three issues here that should be examined.

Working backwards, it was wrong of King & Spalding to back out of representing the act and it was wrong of the Human Rights Campaign to pressure King & Spalding. This establishes a bad president that may be used in the future on both sides. Trying to assure that an unpopular law is not given competent representation in a legal challenge eats away at our entire legal system.

What of the DOMA itself? Basically it says that states do not have to recognize same-sex or polygamous marriages from other states. It does not stop any state from legalizing same-sex marriage. Dahlia Lithwick in Slate dismisses the act as a GOP Hatefest but it was passed in 1996 by a large bipartisan majority (85–14 in the Senate and a 342–67) and quickly signed into law by President Clinton. Clinton himself said at the time, "I remain opposed to same-sex marriage. I believe marriage is an institution for the union of a man and a woman. This has been my long-standing position, and it is not being reviewed or reconsidered."

Regardless of your opinion on same-sex marriage, the law was a good thing. At the time, court challenges had legalized same-sex marriage in a couple of states and gay advocates were hoping to use this to force nation-wide legalization of gay marriage. This would have been a disaster. It would have meant that a handful of state judges had redefined marriage on a national level. Consider how disruptive it was when the Supreme Court legalized abortion. That battle is still being re-fought. Every candidate for the court is carefully scrutinized against a future challenge to Roe v. Wade. The nation does not need another ongoing conflict like that.

In fact, the whole battle over gay marriage has been waged poorly since the late 1990s. In the mid-90s the idea of civil partnerships was gaining favor. It is hard to argue with the basic fairness of partnerships. The problem was that the more radical element in the gay advocacy groups decided that civil partnerships were insufficient. They demanded an all or nothing approach. That led directly to the DOMA. Fifteen years later they are still engaged in an all or nothing battle with little to show for it. If they had accepted an incremental approach they probably would have achieved their goals by now. Great Britain took that approach and fully legalized same-sex marriage last year. By going with the confrontational approach the gay rights advocates set their cause back a decade and a half and counting.

Handicapping Obama II

Last post I examined the presidents who lost their reelection. Now I am going to examine the ones who were successfully reelected and see how their example applies to the Obama campaign.

I was too young to be aware of Ike's reelection and Johnson was not a real two-term president. On the other hand, the 1972 race was the first one I really paid attention to so I will start with Nixon.

I consulted Wikipedia's entry on Nixon to remind myself what happened during his first term. Looking over his accomplishments, it is amazing the the left hates him so. He was a big-government Republican whose agenda was well to the left of Carter and Clinton. His administration was almost an extension of LBJ's Great Society with major, successful, initiatives on desegregation and environmental protection. He opened relations with China and eased tension with the USSR. While he did expand the Viet Nam war into Cambodia, temporarily, he also decreased American troops. When Nixon took office troop levels were 475,200. By the 1972 election they were down to 24,200 with the last American combat troops withdrawn in 1973. If Obama had accomplished half as much as Nixon his progressive base would still be fired up. Economically Nixon was credited with slowing inflation.

For a challenger, the Democrats picked George McGovern who was a flawed candidate. He ran to Nixon's left which probably made him unelectable from the start. His first running mate had problems with stress requiring electo-shock therapy. McGovern made a number of policy flips and the main campaign ad I remember showed a coin flipping back and forth while an announcer read McGovern's conflicting statements. It is incomprehensible that the Nixon team felt threatened enough to break into McGovern's campaign headquarters. He never had a chance. Had Nixon's people been less paranoid he would be remembered as a successful president.

There aren't many lesions here for Obama. It is hard to believe in retrospect but Nixon was very popular in 1972 and always led in the polls.

Reagan's reelection is the one the Obama administration would most like to follow. Reagan won a tight race in 1980 only to see the country enter a double-dip recession, the only one comparable to the Great Recession. Reagan's approval ratings dropped and the opposition made heavy gains in Congress in 1982. By 1984 the economy had improved enough for the Reagan administration to proclaim "Morning in America". Reagan went on to win by a huge margin. The only question on election night was if he would carry all 50 states.

Clinton has been held up as a model for the Obama administration. He took office at the tail end of a recession and had major losses in the mid-term election but still won reelection.

The final president to consider in George W. Bush. Again, Bush took office during a recession and was reelected. Unlike the others, Bush made gains in the mid-term election.

One thing that all three presidents had in common was a weak challenger. Reagan ran against Mondale who had been Carter's vice-president and tried to make the election a referendum on the 1980 election. Clinton ran against Dole who had been Ford's running mate. In 2004, the Democrats were willing to support ABB (Anybody But Bush). They settled on John Kerry on the basis of his record in Viet Nam. A boring senator, Kerry's campaign collapsed when it came out that he had only served three months in combat and was better known as a war protester.

There are two lessons that the Obama campaign can learn from these three examples. Presidents who take office during a recession and run for reelection during a recovery tend to win. This will be important if the current recovery continues. The other lesson is that no matter how vulnerable a president looks at mid-terms, a poor challenger will still loose. Unfortunately, neither of these in within Obama's control.

There is one final lesson from all four presidents. All of them looked and acted presidential. They took every opportunity to surround themselves with the trappings of office. It was obvious that they were comfortable in office. They may have originally run as outsiders but they ran for reelection as insiders. There are lessons here for Obama. As I said yesterday, he needs to stop complaining about the office. We don't want to hear about how lame the phones are or how hard it is to do anything. After all, why should we return someone to an office he hates?

The Obama administration has recognized that they have problems. They know that they cannot run a Hope and Change campaign again and are now running as the underdog. This is the exact opposite of the Clinton strategy. Clinton presented himself as the inevitable winner and spent more time being presidential (doing official duties in public) than campaigning. By admitting weakness, the Obama campaign is taking a huge risk. Their goal is to raise record campaign funds by making their candidate seem vulnerable but this type of image can be self-fulfilling.

To summarize, administrations live and die by the economy. Presidents running for reelection during a recovery are almost always reelected. Ones running during a recession lose. Midterms are a poor predictor of reelection, especially if the opposition nominates a poor candidate. Sitting presidents who act presidential (Nixon, Reagan, Clinton, Bush 43) tend to be reelected but ones who seem ill at ease (Ford, Carter, Bush 41) are defeated. None of this looks good for President Obama since the economy is, at best, sluggish, and he has made a point of his disdain for Washington, DC and its culture. The best he can hope for is a weak challenger, maybe Donald Trump.

Handicapping Obama

There have been 11 presidents during my lifetime. Three of them were defeated when they ran for reelection. What does this mean for President Obama's reelection chances?

The three that were defeated were Gerald Ford, Jimmy Carter, and George H. W. Bush. There were significant differences between these presidents. Only Carter won the office on his own. Ford inherited the office from Nixon, and Bush was Reagan's chosen successor. Regardless, the parallels with these three presidents should be keeping the Obama team up nights.

Like Obama, all three had stratospheric approval ratings early in their presidency. Both Ford and Carter came to be seen as nice men who were in over their heads. Bush never seemed incompetent but he was seen as being out of touch. Most importantly, all three ran during economic downturns and seemed clueless about how to handle the economy.

Ford started his administration with a huge store of good-will. He was originally appointed to be vice-president when Agnew resigned over a scandal in 1973 and became president less than a year later when Nixon resigned so he was viewed as an outsider to the Nixon White House. He also came to office after American troops had withdrawn from Viet Nam so his presidency was seen as the start of a new era. Unfortunately he was unable to work with Congress and quickly became known for the number of bills he vetoed as well as the number of vetoes overridden. Most important, both unemployment and inflation topped 7%. Ford tried to control inflation with what amounted to a public relations campaign called WIN (Whip Inflation Now). It was a total failure. Ford's pardon of Nixon is often cited as the reason he lost the election and it was certainly a factor but if the economy had been solid then the fallout over the pardon would not have made a difference. Ford's foreign policy was also seen as weak. During Ford's administration North Viet Nam invaded South Viet Nam. Ford was unable to convince Congress to deliver military aid money promised by the Nixon administration. Consequently, many on the right, starting with Ronald Reagan, blamed Ford for losing Viet Nam.

Ford's weakness was shown when Ronald Reagan ran against him in the primaries. Ford won easily but Reagan gained national exposure and enthusiastic supporters.

Jimmy Carter seemed to come from nowhere and ran as a Washington outsider and as someone untouched by the Watergate scandal. He won in a very close election. Unfortunately for Carter, the economy did not improve. He had popularized the term "misery index", the inflation rate added to the unemployment rate, during his campaign but was unable to improve it. Instead it went from 12.72 to 19.72, the highest on record. On top of that, oil prices spiked because of an Arab oil embargo. All of this gave Ronald Reagan a major campaign point - "Are you better off now than you were four years ago?" Carter had little success working with Congress and was seen as weak overseas. During the Carter administration communism was seen as expanding into South America and Africa and the USSR invaded Afghanistan. Iran went from a friendly country to a hostile Islamic theocracy. The low point for Carter came when Iran invaded the US embassy and took the staff hostage for 444 days. The common perception of Carter was of a nice guy who wasn't up to being president. As with Ford, Carter's weakness was shown when he was challenged in the primaries, this time by Ted Kennedy. While Carter easily captured the nomination, he lost a close election to Ronald Reagan.

George H. W. Bush won the 1988 election on a promise to continue the Reagan Revolution. He lost a lot of support from conservatives over a tax increase and passage of major legislation such as a revised Clean Air Act and the Americans with Disabilities Act. His popularity spiked with the successful conclusion of the Gulf War but dropped because of concern over the economy, especially unemployment, the trade surplus with Japan, and the deficit. He was seen as out of touch. He openly admitted that foreign policy interested him more than domestic policy. Worse, a picture of him vomiting into the lap of the Japanese Prime Minister seemed to summarize trade relations. He lost a close election to Bill Clinton.

In all three cases, the president's reelection campaign never seemed to catch on. Carter and Bush had run near-perfect campaigns for their first terms but their reelection campaigns never really caught on. All three seem to have assumed that incumbency was everything and that a sitting president should be able to win easily. All three had problems running on their accomplishments or downplaying problems during their administrations.

Most important, all three ran during an economic downturn. As the Clinton campaign pointed out, "It's the economy, stupid". The voters want a candidate who will make the country more prosperous.

So, what does this mean for President Obama? The lessons here are do not favor him. First, his policies only produced a weak recovery which is constantly in danger of tipping back into recession. If that happens or if inflation continues to rise then he is in trouble. If both happen then he will loose. The misery index is already the 4th highest in post-war history. Unemployment is declining but the news media is full of stories about rising prices. A good bit of inflation can be linked to Obama's economic policies. The weak dollar was supposed to help the export business but it causes the price of imports to rise and his energy policy includes burning 40% of the nation's corn as fuel which affects food prices. The electorate is also worried about the deficit and the long-term solvency of Social Security and Medicare. Obama's signature accomplishment, Obamacare, is still hurting him as much as it helps him. A smart Republican challenger will concentrate on Obama's economic record and ignore Obamacare.

Like Carter and Bush, Obama will have to mount a completely different campaign for 2012 than his 2008 campaign. He can no longer run on "hope" and "change". Now he has to run on solid accomplishment or lack of it. He has not come to terms with this change. He has talked about trying to recapture the excitement of the 2008 campaign but that was a challenger's campaign. For reelection he will need something like Reagan's Morning in America campaign but that goes back to Obama's problem with the economy.

I've left the challenger for last. A weak challenger can help a president's reelection campaign. Mondale in 1984 and Dole in 1996 were deep establishment candidates who lacked any excitement at all. Mondale ran on a campaign of raising taxes.

Much has been written in the last few weeks about the weakness of the Republican field. It is wrong. This is too early in the cycle to have a clear front-runner. At the beginning of 1978 no one knew who Jimmy Carter was. Reagan was considered too radical to ever be elected. The Bush administration was openly cheering for Clinton, expecting that he had too many negatives to be electable.

Reagan and Clinton are instructive. Before Reagan, no one thought that a candidate who had been divorced and remarried was electable. Clinton had multiple affairs while governor and had used drugs while in college. Either of these should have disqualified him (not to mention Obama who openly admitted that he used cocaine in college). If a candidate's negatives are well-known ahead of time then he can still win.

Where does this leave President Obama? I have identified three factors that he needs to worry about and only one is under his control.

The challenger - Mondale and Dole were establishment candidates who got the nomination because their parties "owed" it to them. There is no Republican establishment candidate right now and if there was, the Tea Party would sink him. The best that Obama can hope for is someone prone to misstatement.

The economy - Obama has already had his shot at this. It will recover or it won't. The Fed has run out of options and any economic incentives will have to be acceptable to the Republicans.

The campaign - This is the only thing that Obama can control but he needs to change his message. No more complaining about the crappy phone or how the job is tougher than he expected. No more complaining about "hostage taking". No more "car in the ditch" analogies. No more blaming Bush. Absolutely no more talk about how much easier the head of China has it. He has to be seen as comfortable in the office and firmly in control. He has to talk about what he has done and why he should continue. He is the most powerful person in the world. In order to keep that position he has to be present himself as a strong leader. The election has to be about him, not the Republicans.

It is still too early to know how this will turn out but I place Obama's chances around 50/50 depending on the economy. If gas prices, inflation, or unemployment are top stories this time next year then Obama will likely be a one-term president.