Economics Archives

Michael Medved's recent lecture "The Five Big Lies About American Business" at Discovery Institute was covered by his website pros in an especially succinct and entertaining way.

David Cameron has just revealed a manifesto that finally adds spark to the election campaign underway in the U.K. The spark is the Tory pledge to reduce taxes.

Without the tax cut issue, the Conservatives would appear as little more than the familiar budget slashers, and while slashing does need happen, the take home pay of the electorate probably matters more to the economy and to the fate of the Tories.

The rest of the campaign will revolve around the sad stories of (mostly) Labour MPs who abused their expense accounts--a juicy, but old scandal--and the sheer weight of growing government control of ordinary people's lives.

by George Gilder (from the Telecosm Forum today):

(Note: Bloomberg reports that "U.S. Treasury Secretary Timothy F. Geithner embarked on a previously unscheduled trip to China as the world's third-largest economy weighs letting its currency appreciate.

"Geithner is facing demands from Congress to label China a currency manipulator for keeping the value of the yuan at about 6.8 to the dollar, which some U.S. lawmakers say gives unfair advantage to Chinese exporters.")

Gilder comments:

A year ago, reviewing Amity Schlaes' The Forgotten Man, I noted the eerie similarities between the Depression policies of FDR and our new president, BHO. The runaway spending, the increased regulations, the oratorical denunciations of wealth and business, the tax increases and--a killer--the air of uncertainty that frightened people into holding onto their money instead of investing it: all that made a bad situation worse in the 30s and is threatening recovery now. Today, in addition, the ghastly distraction of health care reform--with its sinister nest of hidden costs--makes matters worse than no action at all.

A year and a half after the recession started, business profits in some sectors are up, the stock market is gingerly attempting a vote of confidence in the future. But unemployment is fiercely resistant to improvement, with unreported unemployment also biting at the heels of recovery. Small businesses and new businesses are still unable to get credit. All over the nation you see the sickening sight of empty storefronts that represent the ruin of this couple's dreams and that businessperson's lifetime savings.

Tom Donahue and the U. S. Chamber of Commerce are on the case, predicting that if the Obama Administration fails to control taxes and spending and regulations, the economy could slip back. If it does slip back now, does anyone doubt that the next bottom will be further down?

Obamacare by now is a dog's breakfast of policies. It's obvious that the only coherent "health care" purpose in the mess is to get something done soon, rather than to get something done well.

While this travesty against good government is underway, note that the public is far ahead of American big business "leaders" in expressing opposition. Many of the latter, in practice, have been trying for the past year to find a way to ingratiate themselves with the Administration. Each special interest wants to be spared in the coming onslaught of federal taxation and regulation. These opportunists have been quite willing to put themselves in the most obsequious postures of assistance to the Administration--and, of course, have compromised their supposed free market principles without the equally compliant media taking much notice.

You should place high in the category of willing victims much of the insurance industry, "Big Pharma" (the most craven interest in this regard) and a large share of others of the biggest corporations in the land. Now comes the restaurant industry.

Ever since the Clinton Administration, big business has put its external dealings--lobbying, public relations and philanthropy--into the hands of liberal staff. It started doing this to buy off opponents. Now it has been captured by them. "Personnel is policy" is a description that applies as much to business as to government.

Even the U.S. Chamber of Commerce was slow to figure out which side of the present health care debate it should be on, and then, when it did decide, it had to contend with the defection of a number of its most significant members, especially the ones beholden to the federal government for contracts. But the Chamber, at least, did get to the right place: Obamacare, it is making clear, will be bad for the American economy.

It would be nice to say that the others in the business world--the willing victims--will deserve what they get, but, unfortunately, we will all in the boat with them if it sinks. Let no one confuse the short term Machiavellian devices of big business with the long term interests of America.

Economist Richard Rahn is warning of a darkening economic future in America as spending under Barack Obama and Congressional Democrats reaches new extremes of recklessness. First comes the death of the dollar as the international currency, along with strangulation of U.S. government revenues from the private sector. When a supply-sider like Rahn says deficits now really do matter, and matter a lot, it shows that the tolerable spending limit truly has been reached. Eventually, even a robust economy cannot grow out of the hole dug by spendthrift politicians. "Eventually" has arrived.

Next come inevitably higher taxes, and not just on the rich. Small businesses already are saving any profits--knowing their taxes will be going up--rather than expanding and hiring new employees. The increasing resort to contract employees is a direct result of business wariness. When the reality of higher business and personal taxes arrives, things will get worse. Anemic growth is the best we can hope for in that case. A new recession, or worse, is just as likely.

Along with the growing tax burden comes increased government direction and a concomitant rise in the burden of paperwork--more forms, less human interaction and less customer service. This trend will leave us all on permanent "hold", as it were, and futilely "pushing '0' for more options." As Disraeli said, a crucial difference between left and right is that conservatives make you fill out less paper. In practice, that is not a small difference. It is the difference between freedom and petty tyranny.

Young people are conspicuous victims of "federal health care reform." They just don't know it, and opponents are really dim-witted about the subject, imagining that the young will figure it out for themselves. Robert Samuelson describes the truth.

So, when the Republican National Committee calls during the dinner hour, asking for a contribution, I intend to ask them what they are doing about the young--the sweet, ignorant, gullible young.

Pete Defazio is a popular and senior Democrat member of the U.S. House from Oregon and a leader in something called the "Populist Caucus" that was created earlier this year. His call for the resignation of the President's two top economic advisers, Larry Summers and Tim Geitner, should send shudders through the White House.

The misuse of TARP money now reverberates through the President's party on Capitol Hill. It means that the economic recovery is sputtering on Main Street, where it matters most.

Of course, the real scandal is not the salary bonuses at Wall Street, but the way the government has misused stimulus money on low impact, temporary projects that do nothing to create permanent jobs.

Talk to everyone you know and find out how many are investing in new businesses, new technologies, new equipment. Not many. Those who are investing are mostly in fields that are being revolutionized as part of sectoral technological change. Amazon.com does well, a start-up in traffic data, Inrix, does well.

Other people are making money bottom fishing in the old economy; for example, businesses buying up home foreclosures and distressed office buildings.

But try to find a new retail outlet. Drive down Main Street and notice the increasing number of boarded up shops and the office buildings at 4 p.m. whose lights are not burning.

You can blame the high spending, the penchant for demonizing businessmen, increasing regulations and plans for higher taxes. All that is true.

The assertion that Obamacare will lead to lower costs fortunately is not believed by most Americans.

Former U.S. Senator Slade Gorton, a Board Member of Discovery Institute, describes the true situation in the Seattle Times.

When it comes to technology, entrepreneur Jonathan Medved told George Gilder's Telecosm 2009 conference in Tarrytown, New York this week, Israel is the world's "startup nation," now eclipsing everyone else in the world (even the U.S. on a per capita basis).

There was great enthusiasm for Medved and other speakers at this year's Gilder show, which was built around The Israel Test, George's new book. A video greeting from Israeli Prime Minister Benjamin Netanyahu opened the conference.

On "Street Insider" at CNBC TV later, Jonathan Medved also described the remarkable prominence of Israel in green technologies, including desalinization, geo-thermal power and electric cars (thanks to Shai Aggaziz, who spoke last year at Discovery's Cascadia conference, "Beyond Oil".)

Another Medved, radio star/author/Discovery senior fellow Michael, was also a resounding success at Telecosm 2009. We hope to have his and other speeches at the event posted soon.

The Joint Committee on Taxation was asked by Sen. Orrin Hatch to figure out who will bear the brunt of the cost of the Baucus bill just passed in committee. Here is an account of the resulting report: the middle class, mostly.

There are certain statements by presidential candidates that you know, when you hear them, are destined for the contradiction of experience. One was Jimmy Carter saying, "I will never lie to you." Another was George W. Bush saying that anyone on his staff even caught in an apparent unethical lapse would be fired at once. Another, for sure, was Barack Obama's promise never to raise the taxes of anyone making under $250,000 a year.

Trade relations between the United States and Canada suffered an apparent rupture last year when candidate Barack Obama suggested that he would "re-open" the North American Free Trade Agreement with Canada (especially) and Mexico. Then came a "Buy American" campaign once President Obama was in office.

The re-opening of NAFTA was quietly buried. Now we appear close to a settlement of the "Buy American" campaign, at least so far as Canada, our biggest trading partner, is concerned. The Canadians have kept their cool, as did America's professionals in trade diplomacy, and this issue, too, seems likely to fade. That's progress.

This was always about the politics of pleasing the unions in the U.S. But, one supposes, so much else has been done in that regard that the unions are willing to let this one slide.

The news is that Social Security will pay out more than it takes in for the next two years because job layoffs and early retirement decisions have increased the demand for payments. True enough.

But how many Americans (may we see a poll?) understand that there is no Social Security fund in the first place, that the money you pay each month in Social Security taxes goes into no such fund--but into the general coffers of the Federal Government--and that we really are at point (and past it for the next two years) when spending on Social Security finally exceeds income from Social Security taxes?

Can a tax hike and/or benefits reductions be long away?

Meanwhile, add this new item to the list of runaway Federal deficit spending.

The showing of the conservative parties was even stronger than the exit polls suggested, though not exactly a landslide. The weaker-than-usual showing of the CDU/CSU and the strongest-ever showing of the FDP now indicate that Angela Merkel can well justify significant, if not sweeping, tax cuts to spur new job creation and de-regulation. And unapologetic nuclear power for energy also seems likely. Her coalition tilts right on economic recovery policies and toward reality on energy.

Can you imagine such a recovery program in the United States just now? Talk it up!

Whenever someone says that the terms of the proposed health care are not as onerous as critics allege, the response is to charge the critic with distortion, even deceit. Now Senator John Ensign (R-NV) has squeezed out of the Joint Committee on Taxation staff the fact that, yes, if you fail to have health insurance and refuse to buy it, you can face a fine of $1,900, and if you don't pay that you can go to jail.

The acknowledgement came after Sen. Ensign pursued tough questioning to get at the truth. This is how the committee process is Congress is supposed to operate and too seldom does.

In case you want to pick your own doctor, examine the linked chart. Republicans on the Joint Economic Committee are having a good time explaining to people how the health care bill drafted by Sen. Max Baucus (D-Montana) actually will work in practice. It makes dealings with your private insurance company look like a snap in comparison.

Some news stories say that President Obama supports the Baucus bill, though, truly, it is next to impossible to pin the White House down on exactly what bill and its provisions the President does back. The President's "plan" is thus a constantly moving target. How does one chart that?

Equality is the explicit, if unachieved, goal of communism, the promise of socialism and the sly aspiration of liberalism. When some people have much more than others, it is a cause for alarm, and we have so many alarmed studies to exhibit this worry that one only has to go back to--guess when?--August 21 to find an example.

But, today comes news in The Wall Street Journal that the trend has turned and income inequality is eroding in the new economic era of government ownership of the means of auto production, government squeezes on unjust executive compensation, government bailouts, runaway deficits and presidential jaw-boning of greedy businessmen and investors. What has not been achieved in ending inequality will soon be targeted by repeal of the Bush tax cuts and added taxes on top of that. This is the age of redistribution, even if it is only redistribution of poverty, not wealth.

Unemployment may be nearly 10 percent, but the Recession already has slashed the share of the economy that is enjoyed by the country's top one percent of income earners.

Companies may be cutting back or failing, but at least chief executive pay is down 15 percent. Huzzah for the White House Pay Czar! ("Long live the Czars!")

Investors in new products may be spooked, but at least the rich are not buying so many new cars and homes.

"In the brutal second half of last year, the number of charitable gifts of $1 million or more...fell by more than a third" (according to the Center on Philanthropy at Indiana University, as reported by the Wall Street Journal), and that is surely a happy result of the fat cats having to tighten their belts. All the good liberals in America's foundations and non-profits must be doing high-fives.

Many rich, like the family head and immigrant Anthony Carmenate who is interviewed by the Journal'sBob Davis and Robert Frank, may have dropped a few economic notches, and are looking for work, but that is a small sacrifice to make for real change, don't you agree?

After all, even though people with money say they no longer can finance new job-creating enterprises, the Administration has a way to make them cough up. The higher tax rates that are coming will give the Federal Government the money to "invest" for them.

Once the Recession ends, and then as it swoons again in a year or so, we finally will achieve the new achievement of "Social Justice." The motto is, "Share the Poverty".

You can't see it, but I'm doing hand-springs.

If you are like me, you will enjoy this video of a phenomenal American character and the curious phenomenon of culture he has created. Ephemeral art on the beaches of California are glorious expressions of individuality, causing us to ruminate on the transitory nature of this life. Lovely garden-farm meals for hundreds (bring your own plate) cause the overly-urban to ruminate on mankind's ineffable ties to the land.

But the art is captured for posterity only through photography. It is performance art, a cultivated taste for the cultivated aesthetic palate. Likewise, meals that cost each person (except participating local farmers) about $125 a "plate" are the luxuries of an urbanized society that has produced enough surplus that the products of the pre-industrial world may now be savored as piquant symbols of an elevated sensibility, as miuch as delectable morsels from the soil.

Among conservatives, you may want to consult Crunchycons, by Rod Dreher, celebrating the nexus of practical frugal living and voting with the environmental ethic that sees man as steward of the natural gifts of God. This is not Gaia-worship, it is a worldview for sober men and women who cherish an ancient heritage that has been lost by alienated moderns.

But also note Money, Greed and God by Jay Richards (Discovery Sr. Fellow, Acton Fellow, now Discovery Fellow once again) and his explanation of how crunchy conservatism is only achievable in a society that has attained a high degree of specialization and, let's face it, successful mass production. As I say, it is a luxury. It's a fine, desireable luxury, and one to be encouraged (in Dr. Richards' opinion, and my own). But it does not lead to a description of how Everyman should be pushed to live, let alone how the government should order our economy. It usually has to be subsidized, one way or another.

Surely we should aspire to be a Western society where small scale farms and local produce, backyard gardens and an appreciation for the land are more easily sustained. But they constitute a social good, not so much an environmental solution. We need to find reasonable ways to make such goods sustainable and not exaggerate their potential to make our environment sustainable.

The best book reviews are the ones that add not only to what one knows about a subject, but also to what the book author knows. That is what characterizes Sol Stern's City Journal review of George Gilder's The Israel Test. Stern knows how Tel Aviv is faring in the current economy--which is, great--and how French Jews are buying condos on the new Israeli Riviera. And how, if the Palestinians had some control on their rage, Gaza's sandy beaches could become a huge tourist draw, too.

Needless to say, this all supports Gilder's themes in The Israel Test, and Stern, needless to say, thinks Gilder's book itself is outstanding. He goes on to express an amused observation about the likelihood that Gilder's "stark, almost apocalyptic terms will bring out all the old Gilder haters." Who might they be? Discovery Institute friends will know.

"Just as his seemingly elitist defense of the traditional capitalist virtues and of the nuclear family infuriated them, just as they were enraged by his objections to modern feminism and, more recently, his evangelizing for Intelligent Design, they will surely reject out of hand (Gilder's) understanding of the underlying factors behind the current conflict in the Middle East. That's too bad."

I'll say. But for all those who appreciate the full Gilder canon, The Israel Test will prove an exciting adventure.

Peter Singer speaks for rationing of health care, especially at the end of life, and it has become a quiet cause of many on the Left who support expanded government health care. There has to be control of costs at some point under that system, and the way to do it is to deny care to the terminally ill. Another name for this is euthanasia.

But some right wing libertarians apparently also think there is a case for rationing. This is described by Cato's Will Wilkinson in The Week.

It's an important point he makes, even if he gets it wrong. There already is cessation of care in many, if not most cases of terminally ill patients. Even the Catholic Church does not require care to continue if it is invasive and will cause more suffering than it will alleviate. We all die, after all. If people want to minimize medical care, other than pain relief, as life winds down, that is their business.

The thing is, decisions about cessation of care now are not really made very often by insurance companies, let alone by the government, nor should they be. They are made by the patients themselves, their families and their doctors, all of whom tend to err on the side of life. When they decide to call off further treatments, it is their choice, not some bureaucrat with another agenda.

With the government health care "reforms" under consideration, the decision is bound to be influenced by the government's own need to save money. That is an entirely separate and invidious issue and should not be inserted into the life and death process. In the Netherlands, many old people resist going to the hospital because they know that they might not be cared for in a way that elongates their lives, but shortens it instead.

There is a cold, callous rationality to the likes of Singer and also, apparently, to some variations of libertarianism on this subject.

I don't know if the city government of Fort Wayne, Indiana received "shovel ready" money from the federal government that is causing them to spend $1 million dollars to "improve" a downtown street that really doesn't need improving. But I wouldn't be surprised.

Sometimes the mere availability of money (and some jobs) makes officials impulsive. They even spoil something good (in this case, a livable street that attracts visitors) simply because the alternative is to do nothing.

Or is it? Why can't local governments find other ways to spend their money? Are there no bad streets in Fort Wayne? (Answer: there are, I have seen some.)

Of course, it is possible that no federal funds are involved and that the City of Fort Wayne is just so flush in this recession that the $1 million of local money is burning a hole in the civic pocket. No, that can't be. Indiana has been harder hit than most other states by the Recession.

So, why do city fathers and mothers feel so compelled to waste money?

**

Footnote: Yes, the author, Howard Chapman, and the blogger are related. And he is an adjunct fellow of Discovery Institute.

More and more it seems like we are living in Orwell's 1984 where words have ceased to have their ordinary meaning. Yet another example of this occurred recently when President Obama, in conference call with religious leaders, called healthcare reform a "moral obligation" and accused those who question it of "bearing false witness." When did it become a "moral obligation" to provide government run healthcare?

One sees much in the Bible about the virtue of charity (e.g. the Good Samaritan paid for the man set upon by robbers out of his own means, Luke 10:25-37) but nothing about lobbying for government mandates. One sees how the early church members voluntarily provided out of their own means for widows & orphans (1 Timothy 5) and admonished believers to provide for their own destitute family members but nothing about them lobbying Rome for a tax to provide universal healthcare. Indeed, if anything, it would seem to be a moral obligation of the church to oppose government actions that would, of necessity, unjustly deprive people of property, robbing Peter to pay Paul to continue the religious idiom, foreclosing on the possibility of private charity in the future. It is a Fabian Socialist conceit to imagine the government is just a person writ large, with the same moral character.

But newspeak is nothing new for President Obama. In campaigning he labeled his redistributionist social engineering as "fairness." The President seems to fail to realize, or willfully overlook, that "giving" coerced by the government is not giving at all, nor is it virtue. For virtue to be true virtue, it must be voluntary.

Americans are charitable people; as author Arthur Brooks has noted we give more per capita than any other country even adjusted for income. If President Obama really wants to help the 15% of Americans that are without health insurance, a transitory pool, then he would remove the government impediments to charitable medical treatments. Let doctors & hospitals deduct 100% of pro bono work. Reduce the liability of opening free clinics by reforming tort law. Reward pharmaceutical companies that give away drugs to needy patients by letting them write-off those contributions. Our moral obligation to care for our neighbors is not something that can be assigned through payroll taxes but is, as it has always been, a personal responsibility.

In National Review, our colleague Yuri Mamchur describes the Russian resort to bartering these days.

Could such a thing work in the USA? Probably not. On the other hand, here is a story idea for some reader who also happens to have a job as a journalist. Check out the "black market" that operates inside America already, the informal trades and exchanges that escape taxation either because they are too trivial (you give me a few jars or jam and I give you a home-made cake), or because they simply are hidden: for example, chop shops that repair cars for cash or professionals who trade services for products.

As taxes go up, of course, so does the popular resort to barter--on or off the books. It is, I have to emphasize, another argument against the growing nanny state and the high taxes that go with it. What Yuri Mamchur describes is legal, but under socialism in any country, there is a whole lot of exchanges that take place under the table and are nominally illegal. A healthy society operates above the table, of course.

The Wall Street Journal suggests bluntly what people in the pharmaceutical industry should have been asking for weeks: In the process of selling out on Health Care, has Big Pharma been sold out?

Or has Big Pharma just sold out the public that counts on its ever-burgeoning cornucopia of new wonder drugs? That the industry has tried to cut a deal with the White House to escape serious assaults on its income stream is not a matter of conjecture now. It's in the statements of its lobbyist, the White House and those in the liberal leadership of Congress who think the protection "price" was not high enough.

Billy Tauzin, former Democratic member of Congress from Louisiana, is typical of the folks brought in by business to broker a good relationship with the new Administration and Congress. But instead of serving as an ambassador to his party, Mr. Tauzin turns out to be an ambassador from his party to his new clients. He tells them what they have to pay to play. The price is high and it is not even settled when agreement supposedly is reached.

Left out of the picture is the consumer, the patients, the public. In a way, the eager-to-compromise pharmaceutical companies are behaving like the opportunists the Left has portrayed them.

Increasingly, that is the story of big business in America. Most of its leading members backed a Democratic presidential candidate for the first time in 2008. Now they act astonished that the new Administration is not the irenic, moderate force they expected and backed. They just can't believe that the new crowd would want to take over one industry after another, balloon the deficit, dictate executive salaries, set prices, demonize free enterprise, attack venture capital and debase the currency in service of growing the government's share of what's left. They are beginning to feel like the Oysters in Alice in Wonderland who were so happy when the Walrus invited them to lunch.

But who said big business was smart? Too smart by half, as the British say, is more like it.

Maybe it's time some of them start to ask how they got that way.

Did hiring liberal lobbyists and charitable donations chiefs possibly have something to do with it? Have they possibly turned "external relations" over to a kind of person who only supports conservative principles to the limited extent they apply to the particular business that pays them, while using corporate money to fund people and causes that undermine those principles in general? It occurs to me that while each big business may have external relations people loyal to its respective agenda, the sum of all corporate "external relations" in the big business sector is to support more regulation, big government, more taxes and government dictation. And, in the end stage, many an individual business finds out that even its own "representatives" to government are subtly selling it out.

Apparently, some in the U.S. Chamber of Commerce are on top of this problem, but many corporations have dropped out of the Chamber or pursue what they imagine is their own enlightened path.

I am a fan of entrepreneurs--the crucial risk takers of capitalism--and I am sympathetic to the small businesses that cannot compete with the big boys in the hiring of lawyers, lobbyists and environmental experts when they need to fend off a greedy government. And I have to admire those big businesses that try to hang tough in this political climate. But I find it hard to sympathize with those big business officers who are willing victims of the steady erosion of freedom and enterprise in this country.

I do sympathize, of course, with their ill-served stockholders.

Whenever anyone complains about a provision they think is in the proposed health care reform, they are told that the bill isn't even written yet (except in the House). But then why the furious rush to get something passed right away?

Even backers of President Obama are beginning to get queasy over certain innovations that may or may not be in the bill. They are not paranoid, they are noticing that some of the most radical social engineers in America are involved in this project.

The co-director of the Discovery Center for Human Rights and Bioethics, Wesley J. Smith, has been covering the topic especially well, undoubtedly because he has been on this very ground for a long time.

Thursday night, as I left a garage in downtown Seattle after dinner, I found I had a flat rear left tire on my car. I called Triple A. The truck arrived in 15 minutes and the driver changed my tire in another five. Friday morning on the way to work I stopped at a Goodyear store and left my flat tire to be repaired. It took one hour and the store called me to let me know that I could pick it up. Cost: $23.00. Everyone was friendly and responsive at Triple A and Goodyear.

Now, imagine if the government were in charge of such services. I probably would still be trying to get them on the phone and then I'd be filling out paperwork and finding that I needed to wait in line for a "repair opening" to come available.

We now have GM (Government Motors) and soon we may have Government Health Care. But thank goodness there is no plan yet for the government to take over something really important like the maintenance of existing automobiles.

They don't even know the difference between an organization that strategically seeks funds for aspiring, start up companies and an organization that invests in existing stocks or buys positions in existing companies. Apparently, also, the members of Congress writing the bills don't know the difference, either. It's a great way to encourage new economic growth, isn't it?

Sam Harris has a piece in The New York Times suggesting that Francis Collins' Christian views render him unsuited to serve as head of the National Institutes of Health. That is so, says Harris, even though Collins is a devoted Darwinist. Clearly Harris would like a sign that says "Only Atheists Need Apply" to hang over the NIH.

Only a couple of days ago Nicholas Wade wrote a blog for the The Times about Thomas Bouchard, Minnesota psychologist, who contends that science is damaged by conformism, just as economics and other fields are:

Researcher Condemns Conformity Among His Peers

By Nicholas Wade

What's wrong with consensuses is not the establishment of a majority view, which is necessary and legitimate, but the silencing of skeptics. "We still have whole domains we can't talk about," Dr. Bouchard said, referring to the psychology of differences between races and sexes.

Richard Karlgaard, publisher of Forbes, reminds us about Walter Wriston's "law" on the correlation between the way a society treats talent and merit and the way that society's economy performs. People who grow to believe that they simply are entitled to leadership in business or any other field--like traditional welfare recipients at the other end of the spectrum who come to think that they entitled to benefits without working--are a huge drag on progress for the many. They drag down people of ability and that hurts us all.

George Gilder's new book, The Israel Test, was released yesterday and likewise describes a variation on Wriston's Law as it applies to the way Jews are treated in society, analogizing that question to the international treatment of Israel. (You can order The Israel Test at Amazon, Barnes & Noble and other outlets as of now.)

A Wall Street regular of 35 years told me last night that he is "optimistic" about the economy because of the native inventiveness, grit and push of the American businessman--and in spite of the Obama Administration's devaluation of the dollar, expansion of government bureaucracy and regulation and the loming threats to the free market in energy and health care.

Maybe so. But the prospects surely would be a light brighter if a big government hand were not on the tiller of the ship of state.

Here's a less sanguine commentary from Discovery Sr. Fellow John Wohlstetter.

Freedom and opportunity are the salient reasons America is a success in the world. That heritage is the birthright of American citizens. But the horizon of freedom and opportunity is receding for the current generation of the young. Unfortunately, most of them don't even know it.

The headlines are full of fake priorities. Instead of reports about the real economy--how people assess the chances for getting ahead in this recession and after it--you have stories from Washington excoriating private sector executives who make what someone considers too much salary. Even if that were a problem, what business is it of the government's? And if it somehow is a legitimate government concern (for example, because the government is busy nationalizing various previously private corporations), why is it more deemed more important than the opposite issue--the disincentives for people of skill and talent to save and invest? Why is there so little focus on what it takes to get people who still have money to create wealth, add jobs and provide a way to pay off the mountain range of debt President Obama has raised up?

The younger generation is being asked to endorse new government programs--including the take over of health care by stealth--and are not being told that they will have to pay for it. They will pay either through higher payroll and income taxes or through the hidden tax of inflation. The only other option is to grow the economy fast enough to provide new sources of government revenue, but that option is being closed by the Obama Administration's high-tax, high regulation policies and its unremitting demonizing of business people.

Mark Steyn asked a week or two ago (in National Review) how the generation now being born can handle all the new debt being piled up when the next generation, in plain fact, isn't big enough--the age cohort is too small--to do the job.

Ask yourself: how many children have you had? (Remember, the replacement rate is technically, 2.1 children per woman.) How many of those--and those of your friends--are getting married and having children themselves? Of those, how many are applying themselves to the study and hard work that will provide a living as high or higher than that which you have achieved?

Do the math. It doesn't pencil out when you are looking at the country as a whole. Even immigration doesn't solve the problem, since most immigrants are not educated for the jobs of the future.

So, you have a population too small to carry the burden being placed on them and unequipped to shoulder it anyhow. Then you adopt tax and regulatory policies that discourage rather than encourage enterprise and economic growth. And guess what? You get a rather more bleak future than people have faced in a very long time.

We can get over this, but it won't be easy or painless and it won't happen with the present media slant that misinforms the people about what is really going on. The beginning of constructive change is honesty about our problems.

Sadly, the generation whose hopes are being blighted is the generation that has been most successfully bamboozled about the present reality.

The nationalization of a large part of America's auto industry is such a shock that the full realization has yet to settle in one's brain. John Wohlstetter (Discovery senior fellow) puts it in context.

Will someone please find out how long this public ownership is supposed to last? Surely those who care about the functioning of a free market will want the beast put up for sale as soon as possible.

I hear from liberal friends that it is not. Martin Feldstein says it is.

Business people and foundations should be supporting efforts to teach young people the facts of economic life. Instead, most capitalists' educational charities over time devolve into sentimentalism and showboating. The schools certainly don't help, including the universities. As a result, very few young people understand anything of macro-economics (or micro-economics, for that matter).

Anne Neals' piece in the DC Examiner is worth examining.

"Rollover" Your IRA Into Your House -- Tax Free!
An Alternative Stimulus Idea
BY KEN SCOTT

High Point, N.C. -- Some say that government spending on a massive scale is the best answer to the economic crisis. Others believe that immediate tax cuts are the solution. I propose a better option -- something that would require neither immediate government spending nor tax cuts, but which could still have a substantial "stimulative" impact. Here is the proposal: Make a change to the retirement account withdrawal exception list so that homeowners can use retirement fund assets (401K, IRA, etc.) to "pay-off" primary home mortgage debt without tax penalties or consequences.

Under my scenario, homeowners would have immediate monthly cash (their previous monthly payment) available to reinvest at now favorably low rates. They would spend into the consumer economy, pay down other debt, and/or increase savings. Regardless of how the funds are used, their mere availability would likely increase the economic confidence factor, an important consideration in any economic recovery. This "payoff" of mortgages would inject substantial cash into the mortgage and housing lenders. That's right where it needs to be given that's where the economic crisis began and where "loanable" assets are needed.

The impact of this measure on government tax revenues would be spread out and diffuse because tax revenues from these retirement assets aren't expected for several years (usually until the homeowners reach retirement). And, in fact, the reduced interest deductions in early years will add money to the government tax coffers. I'd suspect that many of those who would take advantage of this option would already have used the majority of their interest deduction as their home loans are toward the end of their life.

My proposal would allow homeowners to convert from riskier assets (such as the stock market and related investments) into a more stable asset -- their own home. It took around 25 years for the U.S. stock market to return to 1929 pre-crash levels. If past is prologue, anything remotely similar following today's situation would reinforce the wisdom of pursuing other uses for that capital.

As homeowners exercised this newly available option, there would be short-term negative downward pressure on stock prices. This would be offset by the greater positive impacts of the stimulus package and the positive impact of consumer purchases made possible by new cash flow available to homeowners.

The fact that this measure can substantially stimulate the economy without a large government outlay can't be emphasized enough. There is nearly $10 trillion in primary residence U.S. mortgage debt. One hundred billion dollars (about 10 percent of the current "stimulus" package) would enter the U.S. economy if only one percent of the U.S. mortgage debt could be retired.

This measure is likely to benefit those homeowners who have done things right (i.e. made their payments steadily, didn't buy beyond their means, etc.). It will, however, help many homeowners who would likely not receive any direct stimulus benefit otherwise. Although it's true that homeowners would give up the long term upside of their investment holdings used in this way, a portion of this loss would be offset by the interest payments they would no longer be required to make.

The success of this measure in part relies on it not being misused. It does no one any good if homeowners deplete retirement accounts and do nothing to rebuild them. For those who prefer to have their decisions made by elected officials, this level of risk tied to personal responsibility unfortunately makes them nervous.

To alleviate legitimate concerns, certain administrative constraints could be placed on this measure. Among these could be its application on a year-by-year basis. That is, a homeowner could pay the next 12 months of primary home payments using retirement accounts assets without penalty. This would minimize impact on retirement account balances while providing "stimulative" effects. An alternative control might be to place a limit or guideline on the percentage of the retirement funds that could be used. While perhaps difficult to implement, this limitation would minimize gross depletion of retirement accounts and would at least allow home refinancing based on a substantially lower remaining balance. It would, of course, be paramount for homeowners considering this option to seek out sound and prudent guidance as to whether their personal financial situation would benefit from leveraging this policy.

The implementation of this measure would benefit our current economic situation and could be put in place quickly, with little administrative or bureaucratic overhead. In stark contrast to most solutions now on the table, where the government is making the decision and the bureaucracy will implement it, this idea could be triggered by and through a series of personal decisions.

The market doesn't like the stimulus plan, the bank reorganization plan or the prospective tax plan.

It could be worse. Every month some large share of the 92 percent of Americans who still have jobs put money automatically into their 401(K) and IRA investment instruments. Unless they specify that their money will be held back and saved in Treasury notes or CDs (as many do specify), it is available for fund managers to invest. This is a huge hidden asset for upward momentum in the economy. Without thinking about it much, some people are still voting with their wallets to support growth. Brokers are in the business of assisting them.

Yet it is not enough to save the day, is it?

The reason is as plain as your own motivation, dear reader. Are you investing now? Or are you holding your money back?

If you really believe in the new economic team you should be in the market with all you've got, right? But are you?

Talk to relatives and friends. Are they "in cash" or are they investing? If not, what is the collective result? Is it not the market's seemingly bottomless downturn?

The Administration seems strangely oblivious. Congress has barely enacted a nearly unexamined stimulus plan of unprecedented size and now is talking about needing another. The Congress and the president talk about cutting the deficit by taxing the rich. That, of course, is what Herbert Hoover and FDR did and we had a whole decade of depression. Of course, there were other factors involved in the 30s. But demonizing the people who instead should be wooed--the people who have money to invest and who are too frightened to invest it now--is a very poor economic strategy.

Big government spending cannot turn the economy around, either. Having big business lining up for handouts and promising to accept whatever industrial policy and regulations are thrown at them by sage, experienced businesspeople like Nancy Pelosi and Barney Frank and Chris Dodd will not turn things around. The private economy has to be induced to function, to lend and take reasonable risks (with commensurate rewards clearly possible), to invest in expansions, new ventures and jobs.

A few months ago, for the first time, a majority of rich people, along with (as usual) most media and academics, voted for the Democratic presidential ticket. When these people connect what is happening to their savings, their retirement nest eggs, their funds for children's education, and their charitable dollars, and then start talking turkey to the White House, maybe the message will get through.

But first they need to ponder the question, why am I not investing now?

When an elected official publicly admits his bill may be wasteful, but wants it passed anyhow, you really know he is going to lose politically, whether right away or over time.

Either the present stimulus bill dies in the Senate or the Democrats provide their opponents an issue that won't go away for years. From board rooms to living rooms, Americans can see that the stimulus is an excuse for political backscratching--passing huge sums of money, without hearings, for proposals that mainly expand government.

Billions for higher education grants, for example? That will take months, if not years, to administer and do nothing to build the workforce in the meantime. It will be popular with university presidents, of course, because they can raise tuition accordingly. That will help shore up their budgets, and the effects eventually will trickle down....to somebody.

This is "Change"?

Why not back down gracefully, Mr. President, and develop a pro-growth package?

Evidence is accumulating that the stimulus bill not only is a stinker, but also that more and more people know it.

We need 1) to clear out the bad debt. 2) We need a classic, short-term stimulus bill of relatively modest girth (350 billion) that emphasizes immediate public works. And 3) we need to induce people with money on the sidelines to invest it voluntarily to create new jobs.

We don't need to reward people who already have jobs, to pay off the education lobby, the government unions and the community organizers. That kind of thing soaks up available capital and damages the economy long term.

We also don't need legislation that is seen as punitive and rewards the trial bar; e.g., the new Lilly Ledbetter Act that the President made his first bill to sign and that will lead to more discrimination lawsuits, hardly the medicine the business world needs right now.

Money isn't infinite. You can confiscate everything people who have jobs make beyond basic living expenses and you still will not have enough government funds to cover all the dependent people in America (the poor elderly, the physically handicapped, the mentally ill, the prison population, the homeless and the children), let alone provide work for people now unemployed. Look at the mess California's over-generous politicos have gotten that state into.

People need to feel confident that if they take risks with their investment capital they won't be punished or attacked. They need to know (as in any capitalist economy) that the rules won't be changed suddenly. Right now they lack incentives to take risks again. Our economy needs to grow out of the current slump and the President needs to show that he understands this.

There are supposedly smart people on the new president's team, such as Volker, Summers and Geithner. Can they get through to him while there is time?

Democrats are using the stimulus bill to go on a wild spending spree that otherwise would have been hard to sustain, even with large Congressional majorities. Funding proposals that ordinarily would take months to review were just waved through in the House of Representatives and now are in the Senate, where the President wants prompt action. It would be hard to spend nearly a trillion dollars without some of it doing good, but that should not be the standard of good fiscal stewardship.

The country's and world's problems are the result of a credit bubble, in turn the product of banking speculation and government demands for granting high risk mortgages. Therefore, you'd think that the biggest topic in Washington right now would be the creation of a "bad bank" to absorb the bad loans and free up the credit market.

You'd think that the second hottest topic would be a stimulus bill that would induce investors to put their capital at risk to create new enterprises and, therefore, new jobs. There may be several trillion private dollars sitting on the sidelines waiting for the right time to get back into the market and invest. Right now, the federal government is undermining investors' confidence, not building it up.

The stimulus bill has many well-informed opponents and it is not popular with the public. Let's be clear, the Bush/Congressional compromise stimulus bill last fall also was largely misguided, especially the short-term "refunds" (including unearned refunds). Those checks dropped into the economy like rocks thrown in a pond; there were no ripples and nothing changed after they dropped. All that resulted was an increase in the federal deficit. So there is lots of blame to go around. But the refund checks having failed, now we face a far larger variation of the same mistake.

Some programs are worthy and will have real results in the economy, but the best examples of that are in the rather modest transportation programs. Others--I've heard 80 percent--won't even be felt for a year and a half or more. Much is just political teen agers joy-riding for Big Government, the Democrats ("I won.") having fun doing favors for such political constituencies as teachers unions and other government employees. Government workers may be worried, but they have suffered least so far.

The economic thinking for the new programs being "stimulated" is vapid. Why are we proposing in this economy to provide help with college loans to families whose bread-earners are still employed? When the need to revive the job machine, why the big effort to lower the cost of living for those already employed?

Of course, the people already employed are also the class of people who are going to pay for all the hoopla, the ordinary, hard-pressed taxpayers. The highest cost will be a debauched currency.

Even the specific recipients of the stimulus handouts should be skeptical. The help for college tuition, for example, is not really going to help parents much. It is going to help college and university administrations that are having a hard time meeting their budgets (as who isn't?) and who, once the bill is law, will promptly raise tuition to meet the availability of the new funding capacity of parents.

It is hard not to be entirely cynical about this bill. But let us acknowledge also a sincere impulse to take care of people through government. In a future blog I will address the motive force of a lot of big spending schemes; namely, the liberal desire to have the government take over the seemingly over-whelming problem of providing care for all the dependents in our population. With an aging baby boom, a big population of indigents (the homeless numbers grew even in boom times), the large numbers of physically handicapped, the mentally ill, the growing prison population, not to mention the children, how can all these people be cared for? The free market isn't up to it. Surely getting money out to people who are unable to care for themselves will help spur the economy, right?

But how is government going to be up to it, either, when the government is supported by the free market? How does Mr. Obama solve anything by redistributing the wealth when there is less and less wealth to redistribute? Before he gives it away, he might try to figure out how wealth is created in the first place.

The multi-billion dollar bank bailout last fall supposedly would allow recapitalization by getting rid of toxic debt that was sinking banks forced by law to "mark to market" their non-performing loans--that is, show them on their books at their currently distressed valuations. Unfortunately, the mark-to-market rule still applies and is still causing havoc.

There have been proposals lately for a giant "bad" bank to assign all the bad loans, with government support, freeing the currently burdened institutions to go about their business. The "bad bank" idea apparently worked in Scandanavia.

Brian Westbury and Robert Stein have another idea, and it's interesting and hopeful. It would a huge feather in the new Administration's cap if Mr. Obama were to follow their advice.

Readers will recall my enthusiasm for The Forgotten Man by Amity Shlaes, formerly of The Wall Street Journal, now of Bloomberg news. Here she brings her subject into tight contemporary and comparitive focus.

The Great Depression was not like what we are experiencing now. You didn't have "Help Wanted" signs in windows of restaurants as you do now. People were "desperate for work" and would "take anything." A government job was prized because, while the pay might get cut, it was "steady." You admired the man of "grit" and "moxy" and "gumption", the one who "knows his onions," and could find work, and you despised the "leaner" or "moocher". You had pity for the hobos who came to the back door asking to do chores for a meal. "Mister, Do You Think I Could Sleep in Your Barn?" was a song of the time, along with (of course), "Brother, Can You Spare a Dime?"

But you cut off complainers with, "Yeah, things are tough all over." And you joked about Herbert Hoover's promise that good times "are just around the corner," ("so," as the song said, "let's have another cup of coffee and let's have another piece of pie").

When liquidity dried up, "hard boiled" bankers "wouldn't lend you money unless you didn't need it," so people turned to "cash only" exchanges, and then barter. Kids wore hand me downs, mothers darned socks.

Playwrights and communists presented people's troubles as political tragedies, but ordinary folks wanted escapism at the picture shows, not high drama. That, indeed, is the message of Preston Sturgis' late Depression motion picture romp, Sullivan's Travels.

Generational theory suggests that when an age cohort dies out--as the generation of those who were adults at the start of the Depression has nearly died out now--the new crowd starts to make the same mistakes over again. For those of us whose parents were around to experience the Depression, the knowledge of it comes second-hand or from books like Amity Shlaes' fine current work, The Forgotten Man.

It was a modern era, nonetheless. Television had been invented, there there was no TV broadcast system yet. People "listened in to the radio". Cars were common, but the first freeways were still in the future. "Auto touring" was something the well-off enjoyed. In the early years of the Depression, no business was spared, except perhaps bootlegging under Prohibition, but eventually Hollywood and automobiles revived, and government employments boomed. Not much else. As we all know, the Second World War pulled us out of the Depression at last.

What caused it? Hoover and FDR failed to supply liquidity, for one thing (Milton Friedman was to blame much of the economy's ills on it) both engaged in major fiscal stimulus--that was the main theme of the New Deal, after all. Some new banking and stock market regulations were warranted, but there was a tendency under Roosevelt to try to scapegoat the "economic royalists" for the nation's ills, and that frightened Main Street as well as Wall Street. Even a man as great as the former Treasury Secretary, Andrew Mellon (who later gave us the original art collection and the building for The National Galley on the Washington, D.C. Mall) was assailed and sued. People under attack generally don't make confident investors.

Regulations changed repeatedly, also adding to investor stress.

At the same time, tax rates were raised by both Hoover and Roosevelt, another huge mistake. Trade protectionism was adopted (by Hoover). These two blunders further fated the nation for a long, long slump.

The big fight over public versus private power was a waste of time, since the real need was to build the dams and get the power delivered at low cost. Government could have helped ease the way and the private sector could have delivered--just as is the case now with our neglected opportunity for nuclear power plants. Instead, the matter was turned into another stage for ideological drama.

Overall, the Great Depression of the 30s was not necessary. A cyclical downturn was turned into something far worse by government mistakes, and the resulting economic swamp became a world-wide breeding ground for totalitarian opportunists, from Nazis to Communists.

Now we face another cyclical slump, the product of living beyond our means as individuals and as a government that encouraged the tendency. Government policies helped provide incentives for reckless risk-taking, especially in home ownership.

Again we are dealing with a crisis. Government certainly has provided liquidity this time, but it hard to know the principles upon which financial bailouts have been proffered. Last spring's "stimulus" amounted to a big handout that had virtually no effect. The lesson is that monetary policy should be clearly understood and fiscal stimulus very limited.

Now, too, instead of new protectionism, we should emphasize free trade. The rest of the world needs us as customers and we need them.

We should have tax rate cuts at the top margins--not out of any misguided love of the rich--but because businessmen and farmers and pensioners need to have incentives in this environment to takes educated risks--and in the process, create jobs.

It would be a great mistake to engage in class warfare through the medium of litigation. We do not need new laws like the Lilly Ledbetter Fair Pay Act that would encourage trial lawyers to sue businesses for real or imagined mistakes. The Paycheck Fairness Act, another liberal favorite, would force feminist "comparable work" policies that would distort market forces within companies and expose those companies to endless lawsuits over supposed discrimination going back decades. Making a recession into a source for adventurous lawsuits is like holding parade inspections of an army while it is on the battlefield fighting. It is a gift to the enemy, in this case the recession.

Then there is the "card check" bill of the AFL-CIO. All by itself it can help crush small businesses by forcing unions--without a vote of workers--onto struggling companies. Yet it has passed the House once and has nearly enough votes to prevent a filibuster in the Senate,. President-Elect Obama campaigned in favor of it.

Right now, the new Administration seems to mean well, but is rudderless on the big challenge facing it and all of us, the economy. Confusion, constantly changing signals and too much experimentation contributed to the length and depth of the Great Depression. One senses similar scary ambiguities in the present situation. There is much talk of growth, but repeated examples of subsidizing failure instead.

The culture may have changed since the 30s. We have "food banks" now rather than bread lines, but human nature has not changed. Neither, for the most part, has economics.

Brian Wesbury is one of the best economists around and his column with Robert Stein is tops. So it is with encouragement that I read the new column in Forbes that the U.S. economy may be turning around. The key indicators are improved productivity and the dividends from lower prices (especially oil) that are acting faster and more efficiently than any federal stimulus program, past or prospective.

I support a public works stimulus program in the present environment that builds long term infrastructure --boost American economic competitiveness--getting products to market through better roads and rail connections, for example. We need that anyhow. But now the idea has gotten out of hand. It is hard to see the value of the hundreds of billions now being discussed for education, government worker salaries--and who knows what "shovel-ready" boondoggles that normally couldn't pass legislative or executive scrutiny.

Take government salaries in the states and localities. These have ballooned in the past two decades of prosperity, far outstripping the economy itself. Paring them back has to happen sometime. Some states, indeed, were beginning to run ruinous deficits even in the good times. So, institutionalizing waste in places like California now just seems a bad use of taxpayer money.

The worst of it is that the inflation let loose by poorly inspected trillion dollar spending "stimuli" will come back in due course in the form of one of the most insidious taxes that government can levy on ordinary people: inflation.

Senior Fellow Hance Haney entertains the useful contrarian suggestion that in some spheres, such as technology, less government regulation is needed--maybe to the extent of abolition.

Abolishing the FCC stands little chance in the Obama Administration. But worthy ideas require a long road to implementation, and that one might as well start now.

Amity Shlaes has a perspicacious article on the 1930s Depression in The Washington Post, along with some advice for President-Elect Obama. Don't keep experimenting; it confuse and frightens investors. "Rebuild" the Securities Exchange Commission and bring the capital gains tax down to five percent.

The Seattle Post-Intelligencer today proposes an increase in the Washington State gas tax as a way to pay for increased infrastructure costs, but the editors also propose to make the tax increase temporary and "flexible." That is, the tax increase would be removed when gasoline prices get back to where they were six months ago. Think of it as a temporary "windfall" tax on consumers who are benefitting from gas prices that are under $2.00.

Low prices at the pump keep us dependent on foreign oil and retard investment in alternative fuels and technologies. A per-gallon tax increase reverses some of those influences. In a recession it also can be justified as a way to pay for much-needed infrastructure improvement and to provide revenue to offset cuts in other taxes. The tax cuts especially should be tied to increasing investments in new industries and jobs.

I privately advocated this idea for several years, but finally abandoned it a few months ago, thinking high prices were here to stay. But now it makes sense again. The question is whether the temporary tax increase is really tied to prices below, say, $3--so consumers don't get gouged when prices rise again, which they will. The danger, of course, is that government will make the tax increase permanent. A sunset provision at least would make that less likely.

Colleges and universities are having to cut back in these hard times. Tuitions that have gone up at twice the rate of inflation for decade--and now exceed $50,000 a year in the Ivy League--are beginning to meet market resistance from parents (remember them?). Eric Gibson in the "de Gustibus" column of The Wall Street Journal ("Pleading Poverty: Colleges Want Parents to Foot the Bill for Their Largess," December 5, 2008) takes a welcome cynical view of collegiate administrations' arrogance and presumption.

Anyone who has escorted a 17 year old on a college tour knows what it is like to see the world class new athletic facilities that are better than anything the parent has available to him, the superb library with the cushy chairs, the Lucullan dining facilities, the free high tech support, etc. It turns out that the bill-paying parents have been covering the increases, the students are oblivious and the school endowments have just kept growing as alumni are festooned with laurels by very professional university flatterers.

But now parents are beginning to hoard their resources. A few have figured out at last that the big college diploma is not necessarily the ticket to big success any more and that the family might like to do something else with a quarter million per kid. Alumni are having trouble with their stock portfolios, too..... and so, by the way, is old Slippery Rock U. itself.

Meanwhile, as Victor David Hanson describes, the original ideal of higher education--the liberal education of future leaders--has fallen by the wayside.

Harvard, founded almost four centuries ago by Puritans as a seminary for pastors, is so provincially smug and so vehemently secular that the faculty kills potential courses on religion as injurious to the university's reputation. (Harvard has no concept of what Veritas means anymore, of course.) The University of Virginia, founded by Mr. Jefferson as an example of how a free republic should raise up leaders capable of governing, is in thrall to rank careerism. The Progressives of a hundred years ago presented the University of Wisconsin as an advertisement for the "laboratory of the states." Madison today is synonymous with stultifying conformism.

Who needs these places? They are killing our culture, not advancing it. They are anti-scientific now--following dogma instead of evidence--and they are definitely anti-humanities. Forget going to college to learn philosophy, it's dead. Ditto poetry. Ditto the Great Books and English, unless you long to study "theory" and become a professor yourself. Are you interested in politics and public life? Then don't bother with the so-called Political Science Department. It is not about politics or science or anything real. And it is withering anyhow.

One does not go to a university any more to experience disinterested research and practical ideas. For those one goes to independent think tanks. One does not go to college to enjoy free speech, unless the free speech he seeks is on the Left. Universities are now the least free of intellectual environments.

It is doubtful that the reader's alma mater is any different. During the past 40 years the Left has marched through nearly all of the schools of higher education, including ones that still try to fool alumni givers into thinking that they are genuine groves of academic inquiry. The exceptions are maybe a literal handful of evangelical schools and a like number of traditional Catholic schools.

So show some backbone as the year ends. Stand up to the cagy development officers, the scholarship students they pay to call you and especially to your deluded former classmates. Save your money for somewhere that deserves it.

The U.S. Federal Government is printing mountains of money and will continue to do so as more "stimuli" are adopted to combat the recession. Some stimulus is well-warranted, especially in regard to neglected public works projects. To qualify for infrastructure grants, local and state government have been told to come up with proposals that are "shovel ready." That will accelerate certain road and bridge projects, for example. Recall, however, that not two years ago the Congress was being attacked for such "pork" spending. Actually, much of it was sound investment in decaying transportation and communications systems. Too bad more of that pork hadn't been approved; it would have been helpful to have more work underway right now.

Sadly, the longer term infrastructure we need, such as a 21st century national passenger rail system, is unlikely to get funded.

Regardless, public works projects that can turn dirt in 90-120 days undoubtedly will help get people hired and does meet a real public need.

The trouble is that the Obama Administration apparently also is thinking of giving stimulus money out directly in the form of so called tax rebates of the kind the Bush Administration reluctantly approved last summer. That "stimulus" was mostly a waste of federal credit and certainly didn't stop the onset of recession. Now, when prices are stable or even declining (gasoline, retail products, housing), people with jobs are not needy. Post-Christmas present bonuses for them will do the economy little good, but printing the money to cover the costs will help attract the notice of the Demon Inflation that is prowling just over the horizon.

Keep using up the credit of the U.S. Government and eventually people will stop investing in our investment instruments (T-bills, and the like). When that happens, the dollar will go down again, the relative cost of fuel and other imports will go up, and we will have a bad recession and bad inflation simultaneously. That would be ruinous.

So what, in addition to short term public works projects, might help the economy and not boost inflation? Pro-growth investment policies. It is growth we need--the kind that comes from individuals and businesses making prudent decisions that are beyond the competence of Congress or regulators. Government bailouts become addictive. Then they become disastrous.

It is because we cannot spend beyond our means for much longer that we need policies that spur investment and growth. One idea I'd like to offer now: Give people with regular 401(K) plans relief from the current requirement that any sales from IRAs will be taxed at the rates applied to regular income. As it is, many (most?) people who over the years put, say, $100,000 into their IRA or SEP-IRA are now finding that their stock investments there have shrunk, not grown, in value. Yet the government insists on taxing any sales as regular income.

It was one thing to state that $100,000 that grew to $200,000 should have, say, a 33% tax on it when sold. That was meant to deal with both the original (untaxed) money invested and the gain on that investment. But now people who have seen their $100K shrink to, say, $50K are totally disinclined to sell because their depreciated value is taxed as if it were all gain. In other words, unlike regular stock accounts where one can accumulate losses to help offset gains for tax purposes, the government seems to regard gains in IRAs as their business and losses as your business. That is a deterrent for people who need to sell in this market or to use IRA money for investments of other kinds, say, real estate. Some are finding that they have to sell from their IRAs to pay their taxes.

Hard cheese for them, you say. Well, sure, but it also is bad for an economy that needs investors--people who sell and then buy other stocks, real estate and make other investments that will stir market forces and create jobs. A huge number of ordinary people have those IRAs. Right now, some are having to sell in desperation out of their IRAs in order to pay taxes. That also acts as a damper on the stock market's recovery by depressing prices. Give IRA holders relief.

Another idea: stop forcing elderly workers who already have completely vested in Social Security to keep paying into the Social Security system at the full rate and on all their salary income. Isn't it enough that they have to pay tax on the benefits they receive from Social Security?

Effectively, the current system is a disincentive for older people to keep working. When they stop working--and paying Social Security taxes, they also stop paying income taxes, of course and the Treasury loses revenue. It would be one thing if the older workers were in jobs that unemployed young workers were seeking, but that is seldom the case.

Moreover, older workers are likely to use unspent funds for investments that will create growth. Why double tax them on Social Security? Why not derive even greater benefit from the productivity of hard working older people by exempting them from continued payments into Social Security after they are already vested? By the way, with the market downturn, more older people have to work now. For them the double tax is an equity question as well as an economic one.

In the campaign, Sen. Obama pledged tax cuts for 95% of Americans. If that means one-time rebates (or handouts), it does almost nothing for the economy. But relieving people from tax policies that punish investment and working past the supposed retirement age would be the kinds of real tax cuts that would build a more productive, job-creating economy.

These are just a couple of examples. We need other ideas now that will spur growth in the economy, not just growth in the money supply.

Richard Rahn, former DI fellow now at CATO, has several trenchant recent columns on the economic crisis and they make unsettling reading. If you have the feeling that the Federal Government is making up policy as it goes along and that we are in uncharted territory--with no one fully aware of what is happening--Rahn will not cheer you up.

Further, Dr. Rahn calls our attention to the prospects of truly violent international mayhem as the economic crisis becomes a political and military crisis worldwide. People here are worried about their jobs and their retirement accounts, and those are serious concerns. But people in some emerging market countries are becoming worried about their next meal, and their physical safety as dictatorships squeeze and anarchists activate. (Shades of the '30s!) The Somali pirates story is an example of what has occurred in recent years because the West (including Washington) has been unable to deal with the root sources--in this case, Somalia. History suggests that we are for much more of this.

None of this is pretty. But surely the first objective of any correct policy is to understand the nature of reality. That objective is still illusive. Many are yet luxuriating in the afterglow of a domestic election shift.

Philadelphia wants a bailout, so does Phoenix. New York City relies overwhelmingly for its tax revenue (as does New York State) on Wall Street millionaires, and they don't have a lot of income to declare these days. Instead they have losses. New York needs a bailout.

California, Washington State, the list goes on and on. Everyone seems to need a bailout.

Detroit carmakers certainly do. I'll bet that a number of distressed newspapers that are covering all this would like bailouts. Soon someone will produce a T-Shirt with the inscription, "Where's MY Bailout?"

After the banks got relief--some of them--it became clear that we would soon have a very long line forming at the Federal Bailout Window. That now has happened. Obviously, this particular window is closing, however, if it hasn't closed already.

The stock market crash in September hit just at the moment the campaign promises, especially from the Obama camp, were flying forth at top speed. John McCain kept saying that he would not raise anyone's taxes, while Barack Obama said he would give "95 percent" of the people tax cuts and only raise taxes on those families earning over $250,000. Exit polls showed that people in that top category voted Democratic this year by large proportions, so, presumably, few of them will mind getting a stiff tax increase very soon.

The trouble is, the amount of money being earned above $250,000 per household is about to crater. You could take all of those people's income (leaving just a little to pay state and local taxes), and you still couldn't stop the runaway federal budget. Tax increases in a recession, moreover--the real Herbert Hoover lesson--would be counter-productive. Likewise, new tariffs on imports. Yet both those simplistic ideas have been part of the Obama plan for "change".

But the realities of "change" have now changed. The rhetoric of only a couple of weeks ago is already out of date.

Things could calm greatly if the President-Elect would get together with the current President and leaders of both parties to find a common ground on tax and spending policy. People on the far left will complain loudly if their favorite new projects are held up, but their point of view will have almost no political clout if the new president has a more or less united Congress behind him.

I am tempted to say that President-Elect Obama should adopt Sen. McCain's agenda--at least short term, until there is some economic revival, and new money, to be spent on all the promises that the Democrats have made. But, I can't say that, because even some of Sen. McCain's proposals of the campaign are too expansive for this environment.

But he was right that we don't need tax increases, we need tax cuts. We need some public spending (on infrastructure and the initial safety bailouts to provide liquidity for the financial system), but we also should expect serious belt-tightening by governments at all levels. After Ronald Reagan put through his reforms during the recession of 1981-83 the economy roared back, despite furious opposition from the Democrats and the media in the early years. In the end, as George Schultz told someone who asked about the condition of the country (I paraphrase), "The government is bad shape, but the country is doing great." He added that it had been the opposite under Jimmy Carter.

Barack Obama and his team have huge Congressional majorities. They can impose their issues and they can have the illusion of government "change". Then a recession could well become a depression. Some change.

Or they can get our finances under control and free the private sector to grow again. They also should hold off on new regulations that will make it difficult for businesses to start up and expand. Only then will there be substantial revenue wealth generated--however you want to spend it.

My preliminary account of the Bush Legacy (yesterday) did not really include the recent economic meltdown. That meltdown was not Bush's fault, but his appointee, Alan Greenspan, certainly bears some responsibility. Steve Forbes tells the tale in his column in the November 17 Forbes. The worst misjudgment was "regarding the integrity of the dollar. Greenspan treated it like a yo-yo. The dollar is the world's principal currency, and its instability has wreaked havoc."

Forbes points out that the "real price of oil" is not necessarily higher than it was five years ago. "On paper oil does look higher, despite its recent tumble from the summer's peaks. But consider this: In 2003, when oil was $25 to $28 per barrel, an ounce of gold bought 12 barrels. Today, with oil at $65 to $70, an ounce of gold buys about 11 barrels."

Forbes, in a companion editorial on Henry Paulson, faults him, too, for "his support of the Fed's weak-dollar policy," along with his "refusal to modify the mark-to-market rule that was gratuitously destroying the balance sheets of banks and insurance companies."

The whole awful story of the stock market collapse will employ a number of able writers in the months and years ahead. Meanwhile, we must deal with a potential follow up catastrophe: a new Congress and (likely) President that think that higher taxes on business and investment is the way to get the country out of a recession.

There is a grim fascination these days with stories about the Depression of the '30s and how it really developed and continued for a full decade.

Discovery Sr. Fellow George Gilder, co-founder of Discovery Institute, has a fine Forbes magazine piece up today that shows the confidence and hope the political candidates are missing.

The stimulus plan passed in the the summer didn't do anything to salvage a drooping economy, did it? So now the Democrats have an idea: they want another one. Somehow in the feverish days of a presidential campaign a scheme to hand out another $300 BILLION in checks is barely considered worth discussing.

But Steve Forbes discussed it first last February and hit it again at the Gilder/Forbes Telecosm conference and again lately.

Bailout mania has overtaken common sense. Even the United States cannot just throw money at a problem and hope to solve it. What we can do is damage our dollar--a surprising strength right now--and go into long term economic decline. Instead invest that money in new businesses and jobs through tax cuts and infrastructure.

Sen. Rick Santorum of Pennsylvania was defeated--soundly--in the last election, and the consequences for the Senate and the country are still being felt. His take on the current meltdown in the economic is instructive.

Prices for commercial real estate have been running counter to the downward trend in home prices--but not any more. Hit hard is Manhattan, but other cities are sure to follow. One almost can hear the construction of new commercial buildings, not to mention condos, grinding to a halt.

'Twas ever thus. You can visit almost any big city and see in its architectural record the story of previous booms and busts. How beautiful were the sparkling Art Deco structures of the Roaring Twenties, and then it all stopped. (With notable exceptions like Rockefeller Center in New York. There young Nelson R. prevailed on his father to follow through, and the investment did pan out.) Films of the 1930s overall show a New York of nostalgia rather than progress.

In Seattle, there is almost a line in the northward march of the city's business district, from where the Progressive Era petered out, about Second and Marion. And then nothing new of substance was constructed for another twenty five years! Thereafter, one discovers in confident new buildings the Seattle booms of the late 50s, the late 60s and especially the 90s. Now what? The Washington Mutual Building, astride the new Seattle Art Museum, could turn into a wounded dinosaur or it could be someone's lovely new bargain headquarters.

One hopes a commercial real estate bust is not what we are facing, but if it is, we'll manage. Somehow, I don't think it will last long.

Peter Wallison, former Assistant Secretary of the Treasury and General Counsel to President Reagan, is now a senior fellow at American Enterprise Institute, offering this much-needed reposte to the fallacious claims that the credit crisis was caused by deregulation. The truth is more complex, but not the sort of thing the media want to report, apparently.

Was the policy of easy credit for home ownership worth it?

Even as of April this year, according to Census Bureau numbers, home ownership--the American Dream--was falling below a rate of 67 percent, down from a high of 68 percent a year earlier.

It stood at 64 percent in 1995 when loan policy emphasis in the Clinton Administration was radically liberalized. With often no-money down and few questions asked, home ownership increased, along with supposed home values. But the modest improvement rested on an illusion, a bubble. The crisis did not originate in the Bush Administration.

So, to get what turned out to be a net three percent bump in home ownership since 1995 the entire financial system has been put at risk. If you insist, put some of the blame on irresponsible banks that took advantage of the new incentives. Also blame the tactics of slicing and dicing mortgages so that nobody specific was held accountable, though now we see that that was because everybody--the public, through the government and through a declining economy--is being held to account.

Regardless, home ownership is likely to sag further this year and next. The poor who were supposed to benefit will be worse off in a deteriorating economy, while middle class stockholders already are watching their retirement evaporate.

It is a sad story for go-go regions like Southern California, Las Vegas and South Florida, but at least those areas seem likely to recover. In the past decade most families in California have been priced out of any home ownership, regardless of mortgage conditions. So falling prices may help many of them in the long run.

But, as the Canadian television has been showing, it is a different story in places like Detroit and Cleveland where boarded up houses in marginal neighborhoods are signs of speeding decline. It is a particularly bitter story for citizens in such places who have kept up their house payments and now watch their values plummet because of imprudent neighbors--or, one should say, former neighbors--and the public policies that encouraged imprudence.

Why is that on Canadian television, you ask? Because Canada doesn't have our no-down payment mentality and laws, so fewer houses are in danger of foreclosure there. Even though Canada's economy is greatly affected by ours, their pain in this downturn is likely to be less. Understandably, they are fascinated with the contrast.

So, again, will someone ask whether Washington's policy of easy money for housing was worth the resulting consequences? If the answer is "no" (or maybe, "NO!"), then maybe it also is time to think about real reform. Few in Washington want to admit that too-easy credit was and is a false bargain and should be reigned in.

The answer, George Gilder tells me, may be hedge funds.

The disappearance of Lehman Brothers and the transformation of Morgan and Goldman Sachs into heavily regulated commercial banks presents an opportunity for entrepreneurial risk taking by someone else. Such as hedge funds. New technologies make it possible for them to stay in touch with clients and handle trades quickly.

The turmoil in the markets world-wide disagregates the economy and makes new entitites possible. Dispossessed "animal spirits" will surely find a new home.

It is worth pausing here to recall that Fannie Mae and Freddy Mac helped over several decades to get home ownership up to 70 percent in this country. Very good, up to a point. They were distinguished by one advantage, government guaranteed money, and one vice, greed (or, if you prefer, self-serving ideological pride). Financial organizations looked at this situation and saw opportunities to build huge new leveraged edificies on top of it. They and Fannie and Freddy went overboard.

The "mark to market" regulation, meanwhile (for all you who love regulations) quite possibly has made the current situation seem worse than it needsto be. No one really knows what the price of a house is if it isn't selling, so the mark to market exercise is conducted with far too little knowledge. Now we see through a glass darkly.

Overall, is this not a political problem as much as an economic one? Is not the risk of posturing members of Congress now at least as big a scare factor as the housing market and financial markets?

1) How big is the $700 billion proposed financial bailout? It is just about as big as the sum the U.S. spends every year on imported oil. The difference is that the bailout money at least will be spent mostly in the U.S. The money we send overseas to buy oil just goes to undermine the U.S. economy and help precipitate the need for bailouts.

2) A solution that many individuals and businesses have found to ease their anxiety is to buy Treasury notes and other government-backed securities. They don't make any interest worth noticing, but they are really secure. Since millions of people are coming to this conclusion at once, the money that is hemoraging out of banks and Wall Street seems be going largely into the Federal government.

Isn't that cool? This way the Feds will have more money to back the bailout of the banks and Wall Street.

Everyone tells us that individual depositors should not worry if their bank
fails, because their deposits are insured by the government's Federal Deposit
Insurance Corporation for amounts up to $100,000.

That means $100K per customer, not per account, unless the accounts are
under different names. Thus, you might have one account for $100 K and your
wife might have another for $100K and, we are told, they both would be
covered. But, if you have one account with both names on it and over $100K
in the account, the amount over 100K might be gone after the bank fails. If
that is your circumstance and it worries you, you might want to move some of
your money into a new bank.

But, now comes the really tough question. As a practical matter that
probably would completely absorb your attention if and when your bank
really does fail, how hard would it be for you to get your money ($100K or
under) that is insured by FDIC after the bank fails?

We called the Federal Deposit Insurance Corporation to find out. You may be
relieved to hear that, historically, the FDIC has been very timely in its distribution
of insurance payouts. Their goal is to complete insurance reimbursements
within two business days. According to the official we spoke with, that goal
is usually met, either by transferring money to a healthy bank or by paying
the depositor with a government check.

But this raises another worry. The FDIC was created in the Depression. We
haven't had massive bank failures since then. If many banks or even one or
two big national ones fail, why should we think that the Feds will be able
to pay out sums of up to $100K all at once? Is there some majestic software
program that will do that? Isn't there a chance they will be overwhelmed?

And might not the federal government suddenly find out that there are
"issues" with some of these accounts? Maybe someone will raise the
possibility of fraud. Maybe, in other words, the federal government--for all
the best possible reasons, mind you--will decide to take a while to
investigate the situation and pay out the money "responsibly."

Meanwhile, might you not wind up on the phone, in lines, filling out papers,
maybe even going to court, for weeks, months or years? And what does one do
in the meantime if that happens? There are bills to pay.

Prudence might seem to argue at least for having more than one bank.

(This post was co-authored by Bruce Chapman)

It was another terrible day on Wall Street, the Dow down 449 points, and oil prices are up slightly in the aftermath of Hurricane Ike and the temporary closure of Gulf Coast refineries. But, overall, oil prices are down by about 38 percent from their high in July. The precipitous oil price drop is still getting processed through the system, but it already has been a quiet, nearly unreported boon to consumers, plus such industries as food and transportation.

Inflation has to be a long term concern as the federal government prints money to bail out major corporations. However, the bite is not being felt now. The dollar finally has begun to strengthen. For example, the value of the Euro has dropped since July from 1.56 to the dollar to 1.42 today.

These are small, but real, consolations. The oil spike was one major reason for the economic problems of the country. Now the drop could begin to help a recovery.

The best ideas for "transforming transportation" involve new technologies and, as Shai Agassi notes in the following speech at "Beyond Oil", the conference of the Cascadia Center of Discovery Institute, every economic crisis in the past 150 years has ended with new, transformative technology in transportation and/or energy.

The stakes for the economy and national secuirty, not to mention the environment, are huge.

Agassi is introduced by Tom Alberg, Seattle venture capitalist in the tech sector.

Seattle is one of the few big cities with continuing economic prosperity. Building cranes fill the sky and unemployment is still only 3.9 percent.

But, unfortunately, both state and local governments appear to have used the good times to expand government growth far beyond the dictates of prudence, and the results are now in. Even without an economic downturn, new taxes and fees are "necessary".

In Seattle garbage rates are going up 29 percent, water 18 percent (though there is no shortage of natural water in Seattle) and bus fare increases are anticipated at seven percent.

Local governments also will ask the voters this fall for approval of three new property taxes to support repairs to the beloved Pike Place Market, maintain city parks and expand rapid transit. Such a heaping plateful would be be seen by voters as overfeeding even in the most optimistic of times. Seattle is very liberal, but even the digestive capacity of liberals may have a limit.

But now I turn to the real argument clincher, the kind of new tax that is mainly show and therefore truly annoying. The mayor and City Council have just approved a 20 cent tax on each paper bag and plastic bag used at supermarket checkout counters. A nickel will go to the grocers and 15 cents to the City. Supposedly, this will encourage people to use canvas shopping bags brought from home and thereby save the world from global warming.

But will it do any good at all? Many people line their kitchen garbage cans with the plastic or paper bags they get from shopping. As of January, 2009 they will simply have to purchase plastic bags--also at the grocer--to take over the task. Is this a big help to the environment? There may even be a net increase in plastic bags in this town.

Of course, the people who will get clipped by the grocery bag tax meanwhile are the poor and improvident who don't keep a stash of cloth bags to use for shopping, plus anyone who suddenly finds himself needing to stop for milk or bread on the way home from work (the home where the cloth bags are kept).

The beneficiaries of the new bag tax are the grocers--who didn't ask for this tax but are keeping very quiet--and the City Government that (I think I mentioned) is on the lookout for new revenue sources. Oh, and the environmental showmen who often seem more interested in putting other people in the wrong and reordering other people's habits than in doing any well-researched good. Recently some unknown source put up a lot of money to promote this bag tax idea with costumed dancers and bands at public events this summer. "Polar bears" flounced and a giant revolving globe was displayed at one such parade I watched a couple of weeks ago. It reminded me of the hoopla of the anti-WTO demonstrations in 2000. I wonder who paid for this campaign. I wonder why the media don't bother to find out.

I have to add now that the local Seattle Times has backed the new bag tax, at least, on its editorial pages. I was thinking how odd it is that they would take such a position, since every single day their own product arrives on my porch placed inside a plastic bag. Unlike the ones at the grocery check out stand, moreover, these plastic bags have no secondary use. They are inconvenient for garbage cans, packing lunches or picking up dog poop.

And on Sunday the news folks deliver 500,000 of these plastic bags in Western Washington, along with about three inches of printed flyers with ads that instantly go into the trash and, presumably, contribute to global warming. Today, however, the paper contained an Office Depot ad that I actually saved. It was a garbage pail sized paper bag with their ad copy written on it. Very useful. A real 20 cent gift from the Seattle Times.

Discovery fellow John Wohlstetter opens his book, The Long War Ahead and the
Short War Upon Us, with a catastrophe scenario in which the Iranians use
EMP -- electromagnetic pulse -- technology against the United States.
Disguised as a tanker, a ship releases a missile from international waters
off the Atlantic coast. It detonates approximately 300 miles above Kansas.

No one instantly dies, vaporized by the mini-sun, no one is ignited in
flames from the blast's thermal pulse, no buildings collapse due to the
blast's immense over-pressure shock wave. But the lights goes out and
computers crash by the millions, from Boston to Phoenix, from New York to
Washington, DC, to Los Angeles and San Francisco, from Miami to Seattle.
Seventy percent of America's electrical grid is fried by the powerful pulse
of electromagnetic energy that suddenly surges through the American electric
power grid. With a 360 degree radius of 1,470 miles from the detonation
point, the pulse disables America from coast to coast.

It would seem that the danger is being heard. An editorial in the Wall
Street Journal this morning echoes many of Wohlstetter's concerns:

Iran may already have the capability to target the U.S. with a short-range
missile by launching it from a freighter off the East Coast. A few years ago
it was observed practicing the launch of Scuds from a barge in the Caspian
Sea.

This would be especially troubling if Tehran is developing EMP --
electromagnetic pulse -- technology. A nuclear weapon detonated a hundred
miles over U.S. territory would create an electromagnetic pulse that would
virtually shut down the U.S. economy by destroying electronic circuits on
the ground.

One of the highlights of the recent Telecosm conference organized by George Gilder at Lake George, N.Y. was Steve Forbes' keynote speech on the economy. Discovery Institute is one of the conference sponsors and the video of all the conference highlights is up on our website.

Forbes is surely right, sadly, about the damage done by weakening the dollar.

Here is the full Steve Forbes speech. If you want to buffer it all before listening, apparently you can push the pause icon on the bottom of the screen and wait a few minutes for the whole thing to be available.

The announcement by Gov. Charlie Crist of Florida that his state will pay $1.75 billion to buy out the 187,000 acres of sugar cane grown by U. S. Sugar Corp. around Lake Okeechobee is being welcomed--correctly--as great news for the cause of improving clean water flow south into the endangered 1.5 million acre Everglades National Park.

But isn't it also potentially good news for the some 40 friendly countries, including many in Latin America, that have had trouble breaking the U.S. sugar quota all these years? The biggest thing the United States could do to help the people in certain tropical lands of limited export potential would be to end the tariff-rate quotas that artificially prop up the sugar industry in the U.S. That industry is not a very big employer, but it has huge political clout. The new Florida deal is bound to reduce that clout.

Every farm bill that seeks to end agriculture quotas finds an agile lobby opposing increased sugar imports. Cane growers in Louisiana, Hawaii and Texas, and sugar beet growers in the Mountain West, are among the foes of relaxing quotas, but some of the most weighty political opposition has come from Florida.

There will still be 300,000 acres of sugar cane in production in Florida after U.S. Sugar phases out its production over seven years. But mighty U.S. Sugar has been the key to Florida's anti-free trade mood on this issue, just as Florida has been key to sugar protectionism in Congress.

The sugar issue makes the U.S. look like a hypocrite on free trade. As the sugar lobby weakens, the free trade lobby--including not only many allies in warm climates, but also the huge domestic confection, soft drink, cereal and baking industries--should grow relatively stronger. And free trade may become more feasible.

Would someone please screen this fine excerpt from "Reason.tv" for the presidential candidates--and the MSM?

Steve Forbes is usually right and never more so than on the issue of inflation.

Two comments:

* The greatest damage to an economy is done when neither party is on top of the issue. That seems to describe the present moment.

* It takes about one generation--twenty or so years--to unlearn a lesson in economics. When was inflation licked? Early 1980s--twenty five years ago. The young of today have no idea of how the Carter years damaged this country, while the older have conviently forgotten.

It has not been exactly a perfect storm, but certain policies and trends did come together to hamper economic growth in recent years.

I don't know who is to blame for easy credit in housing, and it doesn't appear that I am alone in this deficiency. It would be helpful if the topic could be discussed outside the partisanship of this election year.

When it comes to greatly elevated energy costs, another drag on the economy, I mainly blame the Left, but also the Right to a modest degree. For years the Left has prevented almost any new drilling for oil in the United States and also opposed the building of new refineries or even the clean burning of coal. This was a feel-good position to show that one is ecologically pure at heart. The thought seemed to be that if America didn't produce the oil, or burn coal (or develop nuclear power) we wouldn't use the same amount of oil imported from somewhere else and would flock to buses and (non-existent) trains. That expectation was wrong, wasn't it?

Meanwhile, the Right, including the Bush Administration (until lately), failed to recognize the usefulness of the new plug-in hybrid technology that could greatly reduce our use of oil in the transportation sector. PHEVS are a win-win strategy for saving oil, lowering costs and preventing pollution. Promoting them--and lowering oil use--would have helped the conservative case for drilling for domestic oil.

PHEVS are not a new idea; Discovery Institute has been promoting this technology for several years. But the first reaction from the Administration was a yawn. Of course, the Democrats were no more eager for PHEVS until recently than were the Republicans, but they also were not in charge. (To their great credit, new leaders in the Department of Transportation and Department of Energy seem willing to get moving on these priorities.)

So, looking back, the right answer was to drill for oil (build refineries, clean coal burning power stations and nuclear power plants) and simultaneously allow the country to greatly reduce dependence on all oil by deploying plug-in hybrids (PHEVS).

A related energy/transportation issue where public policy has neglected the economy's long-term interest is passenger rail. For at least twelve years Discovery Institute has been promoting a revived national passenger rail system. The Bush Administration was slow at first to see the need for reform and redirection of Amtrak. In reality, we would be better off today if the federal government had given this serious attention ten years ago. It would have reduced traffic congestion, saved oil and provided a badly needed national security alternative to our crowded airports. Eventually, the Bush Administration did "get on board"-- weakly--but its modest reform program met a really reckless opposition from Democrats who were beholden to the Amtrak rail unions. (The latter don't seem to realize that a new system would be a bigger system, with more jobs.)

The Democrats don't even want to build a serious, European style system, let alone a system that provides incentives by the private sector (as we proposed). And the Republicans, while not opposed, are also not much interested. It is a poor political bet by both parties. Have the two parties forgotten how many people live close to major rail routes that already exist? They are ignoring that huge constituency, for a start.

So, on balance, Democrats get most of the blame for the transportation and energy problems that have helped run up the cost of oil and contributed to inflation. But Republicans don't get any kudos, either.

Next comes foreign trade, an increasing share of America's economic future. Bob Samuelson writes about it today. Here, the Republicans have been generally positive and the Democrats--at least as a party in Congress, including the two lead presidential candidates--have been derelict and irresponsible. Again, the unions have undue influence and serious Democrats (such as the former leaders who spoke out yesterday) know it.

Finally, there is the other big hope for our economic future, the high technology sector. Once again, the Democrats have been AWOL on a key issue, FISA, chiefly because, one suspects, they consider the telephone companies that are threatened with major lawsuits for helping the government spy on potential terrorists to be political allies of the Republicans. That's bad enough. But there also has been a general ho-hum attitude toward deregulation in the tech field and little appetite for standing up for American companies as they battle, for example, mercantilist regulators from the European Union. Of course, the Republicans haven't exactly challenged the Democrats by making deregulation a high priority, either.

Eventually, these failures of economic and infrastructure policy catch up with you, even if you are the United States of America.

But, I admit, I don't know whom to blame, or blame most, for the credit collapse. Do you?

So, "Newly Rich Nations Want a Piece of Us," The Washington Post reports, and The Seattle Times features in today's issue. http://seattletimes.nwsource.com/html/nationworld/2004005678_oilinvest11.html

Why should these papers wring their hands over such a development? Both supposedly understand global finance and neither is an economic nativist. Why are they trying to stir up such totally inappropriate angst in this country?

David Cho and Thomas Heath tell us about funds from oil-rich countries and China "buying stakes in key industries in the U.S...including banks, ports, stock exchasnges and energy companies." Well, yes, and that's good, isn't it? Nationalists elsewhere are always decrying U.S. companies' purchases of property and companies in their countries and that doesn't seem to upset Americans. In fact, the best thing those countries can have is investment from us. So, why should it upset us when the shoe is on the other foot?

Back in the 80s when Japan was riding high we were supposed to be alarmed that the Japanese were purchasing such American landmarks as Rockefeller Center. Well, did it make any difference? The answer is, none. Last time I was in New York, Rockefeller Center was still there and looking good.

When foreigners buy property and companies here they actually are expressing confidence in our future, and they also are helping assure it. The money they pay goes to Americans, doesn't it? The business they help to generate employees Americans, doesn't it? The international links that are forged benefit us as much as the foreigners, don't they?

Then why the scare stories?

This blog is fond of the important events, developments and ideas that the major media ignore, not to mention the correct definitions of ideas that keep escaping many media reports. High on the list must be supply side economics. Perhaps the people who won't credit the Bush tax cuts with the economic expansion of the past four years, and didn't give Reagan's cuts credit for the long run of expansion in the 80s and 90s, would have to be more forthcoming in the clear case that Estonia presents. That is, they'd have to if they bothered to exmine it. Fortunately, Steve Moore does examine it in the Wall Street Journal here: http://online.wsj.com/article/SB119457501118587478.html?mod=googlenews_wsj

Poor George Gilder. My long time friend and co-founder of Discovery Institute is reviled in a new book by New Republic editor Jonathan Chait (reviewed in National Review by Kevin A. Hassett here) and all because he was, and is, one of the biggest proponents of supply-side economics. Chait, drinking deep of the current liberal doctrine (borrowed from Herbert Marcuse's writings) that people who are left wing should have free speech, while others should not, makes many of his arguments ad hominem.

When it comes to George Gilder, Chait digs back almost 40 years to find a time in George's life when he experimented with extra-sensory perception. I remember George telling me what fun he was having with the ESP versions of card tricks. In the most memorable case, he tried to reveal the best possible book of poetry to send to his girlfriend, Nini. He did it by walking backwards through the poetry section of his local bookstore in Lenox, Massachusetts, bending his arm over his head to select a book off the shelf. Taking one, he opened the book at random and put his finger down, blindly, on what happened to be the perfect poem -- something about a couple walking together through the snow in Lenox, Massachusetts. As it happened, George and Nini had just enjoyed such a walk. Talk about serendipity! That would almost make me believe in ESP.

Nini, of course, was dumbfounded and impressed when the book arrived, with that spectacularly apt page bookmarked, and undoubtedly inscribed with some ornate sweetness from George. He thinks it helped finally to crack her reluctance to become involved with such an oddball as he; and they were married and have lived happily ever after (about 32 years so far, with four fabulous children, now grown).

Photo Credit: Jerusalem Post

Even with that experience, George doesn't do ESP tricks any more, though I have seen good Christians do about the same when, consulting the Bible randomly for wisdom, they open it and plunk their finger to some verse, hoping it will enlighten them. (I tried it once and wound up with something about dietary restrictions, which was not appropriate at all!)

What George does examine these days is high technology and, yes, economics. In the field of physics he can educate you beyond your capacity, and certainly beyond your interest, in "spooky action at a distance." Maybe that is also attached to supply-side economics, which, after all, contains an idea that seems so contrarian to liberals like Chait: cut tax rates and you will get back more revenue, not less. Don't try this at home, as it were, because it doesn't apply to every situation. But it does so beautifully whenever government's greed has exceeded the economy's ability to produce.

Chait doesn't want to talk much about actual results of supply side economics, of course. But here we have the record, from the administrations of Calvin Coolidge, John F. Kennedy, Ronald Reagan and, now, George W. Bush: low tax rates work. A rising tide lifts all boats, as Kennedy would put it.

To appreciate what is happening, Chait should examine the latest report on the U.S. deficit. Despite all the terrible spending increases of the Bush years (Democrats pushing Republicans, who were only too ready in many cases to meet the challenge), and despite a war, the post-tax cut economy continues to grow, increasing tax revenues and driving the deficit downwards. Very "spooky". And very nice.

You can thank supply-siders like George Gilder for that, and have a chuckle, meanwhile, at Mr. Chait's pitiful personal attacks.

This morning Fed Chairman Ben Bernanke testified on the budget, trade, and savings gaps -- the "triple deficits." He believes the trade deficit is mostly caused by the savings deficit. Overseas consumers save a lot. Americans save very little -- at least according to the conventional measures. Foreigners invest their savings in America. Americans buy lots of foreign goods. To the point of over-consumption, or spending "beyond our means," say many economists and other preachy observers. Thus the trade deficit.

Bernanke deserves some credit for not hyperventilating about the trade gap. But he does think it's a "problem." Increasing American savings, Bernanke says, is the solution. Bernanke referred several times to new research in "behavioral economics," a relatively new field that, among other things, looks at factors that affect consumer or business behavior beyond traditional incentives like taxes. Bernanke offered the example of 401(k)s savings accounts. He said that even though the tax incentives of 401(k)s are substantial, many employees do not take advantage of the opportunity. But, Bernanke said, research shows that if employers automatically enroll their employees in the 401(k) from the start and allow them to opt out, rather than opt in, the employees are much more likely to remain in the plan. Maybe this automatic 401(k) approach is one way to increase American savings.

After mentioning the possible positive effects of this more "behavioral" approach, Bernanke offered a mild critique of the traditional incentives to save, like tax-favored IRA accounts. Such accounts might just allow consumers to save less in other areas or other accounts if they know their IRA is the primary savings vehicle. But isn't this true of Bernanke's 401(k) approach as well? Of course it is.

Using Bernanke's "behavioral" approach, we can see why the American savings rate has now dropped "below zero." According to the traditional savings measures developed 75 years ago, Americans are now dis-saving. Sounds ominous, right? But Americans have really adjusted their saving and spending behavior according to dramatic changes in the American and global economies and in financial technologies. For example, the high-tech American service economy appears to be much less volatile in terms of unemployment and recessions than the old industrial economy. American platform companies, according to GaveKal Research, have outsourced the "high beta"--or high risk--manufacturing components of their businesses to other parts of the world. The residual knowledge work we've retained seems to be much more flexible and stable and thus resistant to unemployment and recession.

In addition, securitized assets, from equities to residential housing, have become the primary savings vehicles for American consumers, not bank accounts or cash under the mattress. These new forms of savings are not counted in the official "savings rate." So Americans can be adding to their net worth at a rate of some 10% per year and yet are said to be dis-saving. Using the old methodology makes no sense.

Adding to the American household net worth of $54 trillion--more than the rest of the world combined--the lesser chance of unemployment and severe recession means a more stable future income stream. A stable job and good prospects for alternative employment is a huge asset in itself.

In the more volatile economies around the world, which resemble an older American economy, consumers must save more under the mattress for unemployment or medical disasters. In many parts of Asia, Africa, South American, and even Europe, property rights are less certain, or non-existent, and mortgages are not in widespread use. Thus real estate is not the savings vehicle it is in the U.S. Likewise, even in fast growing economies like China and India, financial markets are not as sophisticated and mature, and savings is thus plowed into U.S. treasuries by the governments. In the future, Chinese consumers will be able to buy Chinese equities in much larger quantities than today. The U.S. trade deficit will fall.

All this gets us back to saving in the U.S. and the related topic of Social Security. Although Americans save more than most commentators think they do, it would still be nice for Americans to save more. But how?

The idea of personal retirement accounts as a way to transform Social Security gained some steam during the Bush presidency, but with the Democrats controlling Congress it seems dead for now. That hasn't stopped Democrats from taking the idea and turning it on its head, however. Reviving a plan from the Clinton Administration, some in Congress would like to create new savings accounts, in addition to Social Security--or "add-on accounts" as they are known. These accounts wouldn't affect Social Security but would be a new sort of entitlement for low-income workers. Others have proposed numerous and varied savings accounts for new-born babies or children up to age 18 or workers of a certain age or income, all with varied subsidies and rules and acceptable uses.

These proposals would only add to an already exploding variety of savings accounts--IRAs (traditional and Roth), 401(k)s, Keogh plans, 529 and state-based education plans, and Health Savings Accounts (HSAs). In part, these plans are the result of the ugly legislative process. In part, they are constructive efforts to reduce tax exposure in a way that works around the complex tax code and the budget rules. And in part they are paternalistic efforts to make sure you can only use money for government approved purposes.

But regardless of the tax efficiency arguments (which I favor) and the paternalistic ones (which I don't), this proliferation of specific savings vehicles at some point becomes ridiculous. How many accounts can the average family manage? How useful are these plans when families quickly outgrow the income thresholds and can no longer contribute to the savings vehicle they set up a few years ago? How will all these plans work when people change jobs and tax-status and home-states so often? And isn't the administration of all these duplicative accounts pretty inefficient?

The answer is not to create additional special savings accounts, with new rules and rights and thresholds and bureaucracies. Instead, raise the existing Roth IRA contribution limit and income threshold. Or even better, reform the entire code to tax only consumption, not investment. Elimination of the capital gains and dividends taxes would be the ultimate Roth IRA. Invest as much after-tax income as you want without being penalized as your savings grow. Keep all your savings in a manageable account, or set of accounts, with the flexibility to use the funds for retirement, health care, education, emergency, or entrepreneurship. And even make Bernanke's beloved behavior--automatic 401(k) participation--the default position for employees. That minor switch seems simple enough and is still voluntary.

Americans save more than we think. New efforts to encourage more saving should only be adopted if they are simple and boost economic growth.

-Bret Swanson

The self-deluding temptation for a conservative president whose party has lost control of Congress is to cut deals with the opposing party in order to "get something done" before leaving office. When the deal is about trading off higher taxes for lower spending, he should be doubly on guard. And so should his supporters.

Unfortunately, President Bush has been making noises--or perhaps I should say, he is allowing "pregnant pauses"--that are encouraging speculation about a possible compromise to "save" Social Security. In a deal with the new Congressional majority, the Administration supposedly would get budget savings in the future (note: the future) while Democrats will get a definite increase in the Social Security tax for those making over $94,000 a year and maybe another raise in the retirement age. Even if the Democrats made good on their word, it would not be a good deal. "Savings" not spent this year can easily be spent in later years, while it is very hard to get any payroll tax reduced once it has been raised.

Experience in the Reagan years and the Bush 41 years shows that liberals ultimately cannot help spending any new tax revenue that comes along, no matter their fulsome promises beforehand. Liberals offer conservative presidents deals on taxes and spending the way the guy in the old story asks the restaurant owner, "Will you give me a hamburger today for $3 next Thursday?" If the owner is foolish, the burger gets eaten today and "Thursday" somehow never comes.

Why would the Bush 43 fall into that trap? I wouldn't believe he could, except that even Tony Snow--candid, reliable Tony Snow--is hedging in public statements now. Therefore, my sincere, loving, gentle message to the Administration is this: If you think your public opinion ratings are borderline now, watch the bottom fall out after you raise taxes.

Yes, you will get some false congratulations for "statesmanship" and "bipartisanship" from the New York Times and the network news, but that good feeling will last only until the bill is passed--and it will apply only to this topic. Former Sen. Warren Rudman (the gent who proposed the nomination of David Souter to the Supreme Court) will praise you warmly, of course, if that matters. Your approval ratings from members of the League of Women Voters will get a small, temporary bounce. You may even go up a notch in overall public approval--until the word gets out to your conservative base. Don't believe anything you hear to the contrary now: that base will be furious if you agree to a Social Security tax increase. They won't get over it, either, and it will undercut your ability to rally them for other purposes. It even will hurt you on Iraq.

As for your legacy, Mr. President, you have achieved a continuous economic expansion of historic significance. Bask in that. Don't destroy your credibility now.

Six years ago it was almost impossible to get the public or the media, let alone the presidential candidates, to take foreign policy seriously in the election campaign. Then, eleven months later came the 9/11 attacks and the spotlight has been on terrorism and war ever since. In the today mid-term election campaign, it is the topic of the economy that is being underplayed.

A political adviser once told me that the three permanent vote-deciding issues are always jobs, taxes and peace. If so, in the current campaign season we are suffering amnesia on items one and two. The reason is that since the 2003 tax cuts took hold the economy has been expanding handsomely. So why worry?

The valid worry, in truth, is that it won't last. If you think the relatively conservative Congress turned out to be spendthrift, look out if a more liberal one takes over. If you think you don't care about further tax cuts, ask yourself if you are willing to let the 2003 tax cuts lapse--as they will without Congressional action--and watch as your taxes go back UP? Even though the drop-dead date technically is not until 2010, failure to act in the next Congress will have long-term consequences for economic expectations.

President Bush is understandably exasperated. The economic downturn he inherited began (statistically) only a couple of months before he took office. Among other things it ballooned the deficit. Even by the 2004 election, a year after the supply side cuts in marginal tax rates were implemented, the recovery was still mainly a stock market phenomenon that hadn't taken hold very impressively in the "lagging economic indicator" that is the job market. Many candidates railed against free trade and globalization as the culprit.

Today the picture is stunning in comparison with either a few years ago or, according to the polls, many people's current perceptions. The stock market, with participants that include a majority of all Americans, is at a record high. There have been 37 months of job increases in a row, adding 6.6 million new jobs. The tax cuts themselves have benefited all taxpayers, with the average family getting to keep a couple of thousand dollars more a year, and with investment capital freed to promote not only new jobs, but higher productivity and--finally, at long last--wage increases.

Families have enjoyed an increased tax credit for children. The marriage penalty was reduced.

Home ownership is close to an all time high. Inflation remains at a near record low, which means the real cost of making major purchases is far lower than it was a generation ago. The price of existing homes finally has dropped after an unrealistic surge, though new home construction remains strong. The high energy prices of last year have abated.

Fears that we could not compete in an era of global free trade have proven to be exaggerated, despite the inevitable pains of change and adjustment. New enterprises continue our national trait of leadership in innovation. Overall, we have an economy of historic strength.

Some conservative and moderate voters are justifiably agitated that federal spending has increased thanks to Congressional earmarks and a big new Medicare entitlement program for prescription drugs. But despite the "bridge to nowhere" stories, most earmarks were for a badly under funded transportation infrastructure that deserved more support anyhow. (The only question was whether to let elected officials direct some of the money or leave it all to bureaucrats.)

Regardless, most new spending has been for defense and homeland security. As Peter Beinart of the liberal New Republic writes, "To listen to Bush's critics, you would think that discretionary, nonsecurity-related spending has exploded on his watch. But it hasn't...When you take account of inflation and population growth, it grew a mere 2 percent between 2001 and 2006. And, as a percentage of GDP, it actually fell."

The reason it fell is that the tax cuts worked spectacularly well to increase economic activity and boost tax revenues. The Administration expected progress, but even it has been surprised at the extent of success. Whereas last February the Treasury predicted a $423 billion deficit, the current year deficit is now expected to come in at $250 billion. If the trend continues, the Bush Administration will eliminate the deficit altogether in the next few years.

The reason again--and the lesson for policy makers--is that the stimulus of supply side tax cuts was so powerful that it offset much of the increase of the deficit. The same national boom also has been a boon to state governments whose budgets were strapped only a few years ago.

You don't hear a lot about this record I've just described, do you? More importantly, you don't hear nearly enough about which members of Congress now demanding massive but vague change in Washington, D.C. voted against the tax cuts that made the current economic expansion possible.

In the remaining days of the Congressional elections, here is a simple question for candidates for House and Senate everywhere: Will you pledge to vote in the coming term for continuation of the lower tax rates enacted in 2003 that turned our economy around, or are you prepared to let them lapse--and effectively raise taxes?