Infiltrated

by Jay Richards


Knowledge and Power

by George Gilder


Darwin's Doubt

by Stephen C. Meyer


Wealth and Poverty

by George Gilder


Indivisible Review

by Jay W. Richards


The Israel Test

by George Gilder


God and Evolution

Edited by Jay Richards


Signature in The Cell

by Stephen C. Meyer


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August 19, 2013

Infiltrated Officially a Best Seller

The New York Times pre-publishes its best seller list and there it is, for "August 25", Infiltrated by Discovery Senior Fellow Jay Richards is Number 4.

Infiltrated (McGraw-Hill Education) provides riveting revelations of hypocrisy by extremely well-founded pseudo-reformers who helped collapse the housing economy with unsupportable below-grade loans. The pseudo-reformers made a killing for themselves, then used their money to fund attacks on the financial system. That they were remarkably successful and that their handiwork is still evident should wake up even callous progressive consciences.


Continue reading "Infiltrated Officially a Best Seller" »

July 24, 2013

Lawyers in the Dock

Hats off (my summer Panama, to be exact) to The New Republic for its series on the fate of the legal practice in America. The magazine, under new management, ran a cover story this week on the declining business--and Darwinian environment--of big law firms.

It has followed up with a series of commentaries that take other sides of the topic, much to the benefit of readers and the curious public at large. A symposium offers ideas on how to reform law school. Overall, it's one of the finest reportorial, analytic and opinion surveys on public policy I've seen of late. Attorneys, I'm told, have read of some of these developments in professional journals, but the rest of us have not.

Noam Scheiber, a senior editor, did serious, old fashioned reporting to show that of the current 150 to 250 big law firms in America, "only 20 to 25 firms" are likely to operate in the traditional grand fashion in the next decade. "The other 200 firms will have to reinvent themselves or disappear."

Scheiber focuses on one major example, Mayer Brown, headquartered in Chicago. That firm partners' discomfiture at his attention does not have to be imagined: he describes it in a way that makes even the reader squirm.


Continue reading "Lawyers in the Dock" »

July 8, 2013

The Good Job News is Bad

Ben Wattenberg, author of numerous contrarian books from the 60s to the 90s that showed America doing better than critics asserted, had a trope that "the good news is the bad news is wrong."

Unfortunately, when it comes to economic news, right now the bad news is that the good news is wrong. A fine analysis from James Pethokoukis of the American Enterprise Institute (AEI also is home to Ben Wattenberg) describes last week's jobs report as a disappointment masked in media accounts as "better than expected" employment gains.

It turns out that the increases in part time jobs is large, but is almost offset by the loss of full time jobs. That is, less desirable, low-wage, no-benefit jobs are increasing, not coincidentally, as good jobs with benefits and higher pay disappear. Writes Pethokoukis, " The underemployment rate surged to 14.3% from 13.8%" last month. Why is that happening?

Continue reading "The Good Job News is Bad" »

July 3, 2013

Green Energy's Future in Scrap Salvage

Green innovations have become the tattoos of the energy economy. Tattoos look good at first and people complement you on how "awesome" you've become, even if hardly anyone gets close enough to study the clever etchings on your body parts. Then you wish you hadn't. And one fair day, after another embarrassing swim in the neighborhood pool, you start figuring how to make them go away.

There is still a business etching the torsos of the young and guileless and printing indelible roses on the ankles of just-divorced matrons. But fashion changes, and there already is a big business in removing the magenta signs of disillusionment.

So it goes with windmills for generating electricity. It was only yesterday that they were the dazzling promise on the horizon. All you had to do was burn railroad loads of coal and oil, and mine vast pits of ore, to have them manufactured and erected above the mere human scale environment of the countryside. Then off they went, making their unearthly whooshing sounds, flap-flapping the heads off migrating endangered species birds, and slightly denting the peak energy needs of power companies whose corporate enthusiasm had been greased by crony government subsidies. But nowadays the controversy is less how to build them, more about how to tear them out.

Continue reading "Green Energy's Future in Scrap Salvage" »

June 12, 2013

Major Libertarian Award Goes to Gilder

George Gilder received notice today from Mark Skousen, noted libertarian leader and organizer of the 1800 member Freedomfest that is held in Las Vegas each July:

"I'm happy to announce that you have won the Leonard E. Read Book Award for 2013 for your breakthrough work 'Knowledge and Power.' This award is given yearly at FreedomFest for the outstanding libertarian book of the year. Congratulations!

"We will present the award at this year's FreedomFest (time to be announced) in front of the entire audience, and encourage attendees to go to your session on Saturday when you will be discussing it, followed by an autograph session."

Leonard E. Read was famous, among other things, for the great essay in economics, "I, Pencil", on the genius of collaborative free enterprise worldwide--the kind of unforced cooperation that lets hundreds of groups and thousands of people produce everything, from a pencil on..

It's very appropriate, given Knowledge and Power's new and unique explanation of the nature of creativity.

June 10, 2013

Forbes Hails Gilder as "A Modern Prometheus"

This is publication day for Knowledge and Power (Regnery Press). Forbes gets things rolling with a review by Ralph Benko that describes the book as Gilder's "most brilliant work yet--one of potentially explosive importance if taken to heart by our political and policy thought leaders."

Benko acknowledges that Knowledge and Power is "not for the faint of heart or the closed of mind," a book to sit down and read, not an amusement while standing in line at an airport. "Its early chapters drive the reader up a challenging learning curve." But it is worth it because "this near pitch-perfect book" proves that Gilder is "an intellectual Titan, in fact, a modern Prometheus..(bringing) humanity the fire of Knowledge..and Power."

george-gilder-1.jpgA very agreeable insight from Benko is that the new Gilder book "imports the fruits of a vividly fresh worldview from the intellectually vibrant Discovery Institute, based in Washington State, to the too-often stagnant Washington, D.C." This month, as it happens, also will see publication of another pathfinding book by Discovery Sr. Fellow Stephen C. Meyer: Darwin's Doubt (Harper). In August the public can expect Jay Richards' Infiltration(McGraw-Hill), the first new explanation of the housing and financial bust of '08 and how its repetition may be prevented.

The core messages of Gilder's new economic theory are based on information theory. "Once we, of DC, get done rethinking economic policy along Gilderian lines the world likely never will be the same," writes Benko. "It will be better. Information theory laps classical economics and, perhaps at last, drives the wooden stake into the heart of undead Keynians dogma haunting the capital. Gilderianism eats Keynesianism for breakfast."

Continue reading "Forbes Hails Gilder as "A Modern Prometheus"" »

May 15, 2013

B.C. Election Will Spur U.S. Pipeline

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A stunning provincial election surprise in British Columbia Tuesday returns the more free enterprise Liberal Party to power with a larger majority over the left wing New Democrats (NDP). The NDP was expected to win--it was up eight to nine points in pre-election surveys--because of supposed voter opposition to gas and oil pipelines to connect Alberta's energy fields to ocean shipment points in B.C. The NDP had pledged to stop the pipelines.

The Liberals will exact environmental protections, but they support the pipeline expansions, especially the controversial Kinder Morgan Trans Mountain pipeline to ship Alberta tar sands crude oil through Burnaby, B.C. With the oil pipeline and the Enbridge Northern Gateway gas pipeline expansion both likely to get a go-ahead in B.C., Canada's leverage in persuading the Obama Administration to approve the Keystone XL pipeline through the central U.S. probably is increased.

Had the New Democrats, who oppose the B.C. pipelines, won yesterday, the national Canadian government of Prime Minister Stephen Harper would have lost a psychological advantage on the energy issue, as well as a practical alternative to Keystone. Now Mr. Harper can advise the Americans, either allow Keystone to go through or we will send our added energy supplies to China.

The pipeline controversy was expected to hurt the incumbent government of British Columbian Premier Christy Clark. Instead Liberal Party strategists think it helped. British Columbians apparently were satisfied that the gas pipeline and the extension of an oil pipeline would not hurt the environment and would boost the province's economic future. This sentiment was plainly missed by pollsters going into the election.

Photo Credit

Continue reading "B.C. Election Will Spur U.S. Pipeline" »

May 14, 2013

Solutions on IRS

1) Reduce the size of government.
2) Reduce tax rates.
3) Clarify criteria necessary for attaining non-profit (tax free) status.
4) Prosecute those who leaked IRS data to political opponents.

Maybe start with 4).

Continue reading "Solutions on IRS" »

May 13, 2013

More Calls for Reshape or End of EU

The recent local election successes of the UKIP (United Kingdom Independence Party) have shaken everybody up, even the Labour Party. Regarding the EU Prime Minister Cameron wants to mend it rather than end it, and President Obama has given him his blessing. Cameron also is proposing a free trade zone with the U.S. and Britain, which has long made sense. But it is hard to see how that works--unless one of two things happens. 1) Britain exits the Eurozone, or 2) part of "fixing" the EU is to abandon much of the regulatory regime and to make freer trade among free market/democratic countries a stronger standard going forward. The "fix", in that case, means an end to the EU as we know it and a new free trade zone that includes Europe and North America.

Continue reading "More Calls for Reshape or End of EU" »

May 7, 2013

The Usefulness of Controversy

It is an irony that the Reinhart-Rogoff study on national debt's role in limiting economic growth was not widely known until the left started pummeling it recently. It was ushered into prime time by Rachel Maddow at MSNBC as if it were a new Watergate scandal. (Bengazigate gets no such attention.) Reinhart-Rogoff had omitted some data that changed the nature of their claim that after 90 percent national debt, economies flag. But, after they corrected their data, the validity of their main argument remains.

Our Discovery Senior Fellow Scott Powell finds it all distracting. You don't need the Reinhart-Rogoff study to know that governments that borrow to much are also borrowing trouble.


Continue reading "The Usefulness of Controversy" »

March 15, 2012

New Economic Center Already Successful

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This week launched Discovery Institute's new Center on Wealth, Poverty and Morality, led by George Gilder and Jay Richards, also starring Michael Medved and our new Fellow, Scott Powell (late of Hoover Institution).

5 big lies.jpgMichael, of course, recently published The Five Big Lies About American Business. The nationally syndicated talk show host and public intellectual has an excellent ten minute podcast here explaining the new Center, with David Boze (another talk show host well known in the Seattle area) conducting the podcast interview.

March 13 Richards and Gilder spoke at a reception opening the new Center. Richards' co-authored new book (with James Robison), Indivisible, already has made it on the New York Times Bestseller List for two weeks in a row. indivisible_3d.jpg

It obviously could not be better timed to address issues now on the public's mind. Jay described to a sold-out crowd at the Rainier Center his own intellectual journey and ended with a tribute to George Gilder, whose writing of the classic Wealth and Poverty (1981) had influenced him in his college years.

W&P.jpgAs it happens, a somewhat updated version of Wealth and Poverty is slated for republication this year by Regnery. Meanwhile, George has just finished his first draft of a sequel to W & P, Knowledge and Power. Regnery plans to bring it out in early 2013. In his remarks, George described his latest work as a new economic theory that undercuts the materialist assumptions of both many libertarian conservative writers of the past and all the leftist economists of our own day. In science, technology and economics alike, George said, innovation and progress usually come as a surprise, and government attempts to shape, censor, limit and provide incentives and punishments for economic outcomes almost always are deleterious.

The new Center on Wealth, Poverty and Morality thus fits nicely into Discovery's mission of "Purpose, Creativity and Innovation" in public policy and culture.

February 7, 2012

Elderly Smarting from Hurt Economy

Many politicians and commentators seems to think that the senior citizen vote is all about Social Security and Medicare these days. Conservatives hope that the elderly are informed enough about the dire condition of our federal budget to accept reforms--and progressives probably hope they're not.

But, meanwhile, one largely unnoticed economic trend may explain more than anything else why older voters, especially retirees, are showing up as critics of Mr. Obama. That is the lack of safe places for retirees to put their money with any hope of living off the interest. Low interest rates are great for borrowers--assuming they want to borrow--but in the long run they destroy hope for cautious savers. It used to be that retirees could count on five percent of so return on their money in either dividends or interest. Now, to make a nest egg last, retirees have to get into the stock market, and into somewhat risky stocks at that.

At least that is what many seem to have concluded. The Federal Reserve's announcement that low interest rates will continue for years only confirms the conclusion.

Trouble is, business growth, after a long recovery, is sliding again now. Unemployment is down a notch this month, but earnings are ominously scant. A report by Bernard Condon in the AP wonders if "the great profit engine of corporate America (is) running out of steam."

Cost cutting has been a way to boost profits for several years, but eventually you have to sell products to improve your bottom line. Price rises also may be resorted to. Colgate-Palmolive, for example, has decided to raise prices for the first time in the recovery. Looming in the background, of course, is continuing uncertainty over wastrel Europe.

In any case, many Americans' sense of financial well-being hinges on the stock market now, and that is particularly true of fixed income people, such as the very large voting bloc called senior citizens. As they get squeezed, they will make politicians feel their pain.

February 3, 2012

Medved on the Real Wealth Gap

Mitt Romney should probably enlist commentator Michael Medved to help him explain himself. In a column for USA Today (and, I take it, other Gannett papers), Medved describes the real issue for most people.
"
Contrary to claims of Occupy agitators," writes Medved, the most important division in our society isn't the gap between rich and poor. It's the distinction at every income level between earned and unearned advantage or, to use old-fashioned language, between honorable effort and ill-gotten gains."

January 25, 2012

Call His Bluff

President Obama thinks that the salient issue of our time is the supposed failure of "the rich" to pay "their fair share" of federal income taxes. Mr. Obama must know that the practical revenue potential of his proposal is relatively trivial in terms of meeting budget deficits--and quite probably would lead to a decrease in revenue in the end because it will discourage investment.

But stop arguing with the President about this in the media and go straight to the floors of Congress.

The Republicans should call Mr. Obama's bluff by putting his idea up for a vote, and as soon as possible. It probably would not come to a floor vote in the Senate because the Democrats themselves won't allow it. But the House leadership could cause a vote there. Make it a straightforward vote and see how many Democrats actually will vote for the tax increase the President wants. Many know it's a bad idea and will vote no as a matter of conscience. Others know that they will get little credit from the electorate by voting yes, but meanwhile would irritate liberals with investment income. Since a large share of the rich people in America today are liberals, the political risks for a yes vote would be high.

Republicans, meanwhile, could use the vote as a teach-in on economics to explain to the public just how much a distraction the class warfare is. The vote also would show how divisive the President's proposal is, even among Democrats.

Be daring; call the bluff.

January 19, 2012

Romney's Problem is also the Country's

Mitt Romney is having a hard time defending his record at Bain Capital and, simultaneously, the way private equity and venture capital work to create new jobs and lead the economy forward. His case is better than he is making it and the issues are more important for the economy than we are hearing.

Tom Alberg, co-founder of Madrona Venture Capital in Seattle (and a founding chairman of Discovery Institute's Board) explains the difference between private equity and venture capital.

"Most voters and the press, unfortunately, will never understand the positive role that private equity plays in our capitalist system. Private equity usually invests in old line companies that have become stagnant for various reasons, such as poor management (often family heirs) or failure to adopt new technologies.

"These companies usually face declining revenues, earnings and employment and often end up in bankruptcy if left to their existing management and investors. Private equity searches for this type of companies and invests for a controlling interest with the intent of providing better management, investing in technology, etc. Sometimes there are layoffs, but their goal is to build big successful companies which will incidentally employ many more people. Some of the companies do not succeed and go bankrupt but corporate bankruptcy is an essential consequence of risk taking. There are some abuses by some private equity firms but generally PE is important for our economic growth.

"Venture capital plays a much different role in that it mostly invests in new companies with high growth potential, usually involving technology in a deep way. Some of these companies also go bankrupt, but overall venture capital creates a lot of jobs. Both private equity and venture capital are important.

"Interestingly, Bain makes both private equity and venture investments. From an investor standpoint they have done quite well. It's hard to tell whether Romney was any better than their other partners and leaders, but it appears that he was at a minimum a very competent leader for Bain.

"It is too bad for Republicans that the combat for the Presidential nomination results in candidates distorting the facts and fundamental economic principles."

January 3, 2012

Why Business Startups Aren't Starting Up

Our old friend Richard Rahn, a senior fellow at CATO and a columnist at Newsmax, nails one of the main reasons for the current economic slump: the "reform" legislation passed by the Democratic Congress (especially Rep. Barney Frank and Sen. Chris Dodd), Presidential badgering and the regulatory excesses that followed. Today, the US has fallen behind China--a nominally Communist country--in in IPOs ( Initial Public Offerings of stock). Another old friend, Peter J. Wallison, at AEI, also has been clear on the history of the housing bubble.

If only the Presidential candidates and the talking heads on TV could be as clear as Rahn and Wallison!

January 2, 2012

Entitlement Coalition versus Merit Coalition

The Financial Times of London weekly publishes a luncheon interview by one of its reporters with someone prominent in business, politics or the arts, and last week the subject was 63 year old tycoon Peter Brant of Greenwich, Connecticut. Knowing about Mr. Brant only what he says in the interview with Vanessa Friedman, one indentifies in the "corporate titan", art collector and polo player the embodiment of the Entitlement Elite that compose a rival leadership team to the traditional Merit Elite, as one might call them.

A wealthy industrialist ($500 million to $1.4 billion, estimated), Mr. Brant is well-ensconsed in the "1 per cent", yet he proclaims, "I identify with the 99 per cent."

The "1 per cent" in America includes many people like Mr. Brant who give money to elite liberal causes, not conservative ones, and still think they somehow are in sync with "the 99 per cent" of society. There is no sense of irony when Mr. Brant lets it be known that he wants to give back to society, and has decided to do so by cultivating the most refined artistic tastes and accumulating the most avant garde painters and sculptors.

"I'm putting my consciousness towards trying to teach people through pictures and sculptures that here's something better in the world," he declares.

"That's what the world needs more of. To understand Occupy Wall Street, you have to understand artists. Art is freedom--freedom of expression--and its message has resonated through society for centuries."

Continue reading "Entitlement Coalition versus Merit Coalition" »

December 23, 2011

Christmas Business Way Up--for Shoplifters

If you don't pursue shoplifters and put them in jail, you will have more and more of them--as pointed out here a few weeks ago. Now, the prediction comes true. The last minute Christmas shoplifting season 2011 is in full swing, and up six percent from last year. Who says the economy isn't growing?

December 16, 2011

Gilder Still Bullish on Israel

Sr. Fellow George Gilder just returned from two weeks in Israel where he thinks high tech innovation has a new, better home than almost anywhere else. Globes magazine contrasts Gilder with local pessimists in Israel.

The consequences of Israel's high tech prowess are felt here not only in the business world, but, perhaps most significantly, in national security. For some reason, major media are not following the remarkable story of Israel military inventions. Do you think they will if a war starts up?

December 10, 2011

Russian Version of Crony Capitalism

No country's history proceeds on its own anymore, uninfluenced by events elsewhere. Thus, there was a great deal of interest in Russia in the Occupy Wall Street demonstrations, just as there were with the Arab Spring. Yet, in the aftermath of the demonstrations against Vladimir Putin and United Russia that followed the parliamentary elections, Putin is blaming the public displays on--Hillary Clinton.

This is like politicians in the American South during the civil rights movement who blamed the demands for change on "outside agitators." If Putin merely expressed annoyance with the tone of U.S. scolding, it would be hard to disagree. Whether it is Clinton or her predecessor, Condolezza Rice, moralizing U.S. Secretaries of State seem to think that they should be constantly announcing what other governments "must" do. It's hard to know what such near-daily lectures accomplish, other than infuriating heads of state with whom we must deal. Once in a while? Sure. All the time; it is a little hard to take.

Nonetheless, Putin cannot imagine that his problems with the Russian people are the result of comments made by Hillary Clinton and the United States government. There was too much Internet evidence of fraud in the elections. One blogger became famous for the beatings he endured in government hands. These protests hardly look like the work of Ms. Clinton or the CIA.

Instead, Prime Minister Putin might consider that the long-suffering Russian people can see in the Occupy demonstrations in the U.S. how a truly democratic country handles dissenters. Comparatively, America almost coddles them. Police protect them, even when they invade private parks and public buildings and then set up camps. In Russia, the Kremlin either attacks demonstrators (in the old days) or, at best, criticizes them as stooges of the West (these days).

Russia is suffering from crony capitalism, a politicized form of mercantilism: state sponsorship of industries, state manipulation of supposedly private companies, preferential regulations and official corruption that hobbles new businesses. It isn't fascism, but it is hardly the kind of free marketplace of ideas and enterprise that Russians thought they were getting twenty years ago. Sadly, the first efforts at liberalism after the fall of communism were chaotic and badly delivered, and the consequent economic collapse brought about the Putin reaction. Had his party spearheaded more serious reform and resisted the temptation to enrich its leaders and managers, Mr. Putin ciould have succeeded much more than he has. Had he merely decided to limit his leadershi to the twelve years he has put in so far, he would have retained his popular standing. He probably could have kept (and still may keep) the mansions he has built for himself since assuming public office.

Instead, Russia now serves as an example of how persistent, unyielding crony capitalism can demoralize an economy and democracy. People are right to object. Paired with the fiscal failures of Social Democracy--through over-spending--in most of Europe, you have twin dangers that should flash political warning lights in America during our own lesser, but very real crises.

December 7, 2011

Budget Taunts vs. Economic Progress

The scariest thing about our economic crisis is the unreal way the President and most media are addressing the subject; namely, by rhetorical taunts and symbolism. It's hard to believe tha tthey are serious about the economy to hold back on politicking. For example, the grandstanding Mr. Obama says he won't leave Washington until the Congress (he means the House) deals with (he means passes) an extension of the payroll tax reduction.

The first thing to be said is that the payroll tax reduction doesn't do anything to employ people. It goes to people who already are employed, and, of course, it raises the deficit even further. It is just more "stimulus". Of course, the President wants to "tax the rich" to pay for this stimulus. His proposed tax increase to cover it is "temporary", supposedly, but it can be counted on to reduce the amount of money in the private sector that is available for savings and investment--in creating new jobs.

It's too bad one can't call Mr. Obama's bluff and tax the daylights out of the super-rich. Many of them are Democrats, anyhow, especially the crony capitalists who manipulate government policies and connections for advantage. The difficulty is that taxing the rich won't help and may hurt economic growth. The tax may be sold as hitting rich bankers and trustfunders, but it actually will hit small businesses and venture capital firms. And, since taxing the rich can't possibly suffice to meet our "needs", the definition of "rich" will quickly after an election ratchet way down into the middle class.

The media's role in this charade cannot be understated. The Seattle Times today runs on page one a Washington Post news story that is so slanted as to constitute an editorial. After quoting a professor saying that Obama "is trying to show how far the Republican Party has strayed" (from Lincoln and Theodore Roosevelt), the reporter, David Nakamura, states (as if it were a counterpoint), "Still, Obama delivered a searing indictment of core Republican economic theory, with the GOP brand of 'trickle-down economics' drawing some of the harshest criticism.

"That theory," Nakamura goes on, "which holds that greater wealth at the top generates jobs and income for the masses, 'speaks to the rugged individualism and healthy skepticism of too much government,' Obama said. 'It fits well on a bumper sticker. There's the problem: It doesn't work. It has never worked."

Guess what, Mr. Obama and, especially Mr. Nakamura? Nobody in the GOP advocates something called "trickle down economics." That is a term of derision for supply side economics, which is a different matter. Further, "trickle down economics" has never been advocated on a bumper sticker, to my knowledge. So why are you both using this term-in a supposedly serious speech and a supposedly serious new story?

Who talks about the American people as "the masses", by the way? Why would Republicans ever adopt this phraseology that is typical of Marxists?

Obama increasingly sounds like a candidate in the last stages of a reckless campaign, and media representatives like Nakamura sound like his shills.

November 16, 2011

Banks Hammered; That's Good, Right?

Occupy Wall Street plans to put "tens of thousands" into Wall Street tomorrow to shut it down. They are going to show the big bad banks and brokerages what's what. This is exciting news for progressives.

Today, losses in bank stocks led the market down again, hitting stocks in general. It's a good thing you and I don't have any money in those banks, isn't it? Oh, wait, we do?

Well, at least our retirement funds are not invested in stocks and bonds, right? Oh, wait, they are?

Pension funds, too? Really.

At least those of us in non-profits don't have to worry about an impact on donations? Oh, oh, not that, too!

And nobody we know is trying to start a new business or expand a business or get a job at a company owned by filthy stockholders and managed by rich people. What, you know such people?

Well, in any event, the "1 percent" are going to have to pay more. What's that, they already pay 38 percent of the total income taxes the Feds get? And, as a result of the recession the numbers of millionaires and billionaires is going down--39 percent between 2007 and this year?

Are you trying to say that we're all in this together? Do tell.

I suppose the next thing you'll say is that attacking banks and rich people per se isn't smart policy.

Ah, but is it smart politics?

November 13, 2011

Bring Back the Rooming House

Neal Peirce--than whom there is none more knowledgeable on the subject of cities--has a column today on efforts to bring back the custom of rooming houses, places where "boarders" could live in their own rooms, but with some common facilities. The costs of rented rooms were almost always lower than in apartments and the community life was sometimes better.

Usually the rooming house of old was a former large house; think "Bed and Breakfast" in scope, but with less involvement by the owners. Peirce, following the ideas of Mark Hinshaw, a Seattle planner, and David Smith of Recap Real Estate Advisers of Boston, see the modern rooming house as a housing solution especially for young people trying to make their way in tough economic times.

Continue reading "Bring Back the Rooming House" »

October 11, 2011

Funding "Occupy Wall Street"

occupy-wall-street-t-shirt-occupywallstreet.american-apparel-unisex-fitted-tee.black.w380h440z1.jpg
$31.99

A certain amount of political "populism" is spontaneous, but someone usually pays for professional coordination, common signage, PR agents, stages and porta-potties. In the series of anti-free-trade demonstrations that started with anti-WTO riots in Seattle in December, 1999 ("The Battle in Seattle"), a major funder behind the scenes was Douglas Thompkins, founder and seller of Esprit clothes and North Face. For galloping hypocrisy it would be hard to match Mr. Thompkins, a very rich man who was anti-rich, a free trade beneficiary who fought free trade, an antagonist of high technology whose minions made early use of cell phones and social media to organize.

Continue reading "Funding "Occupy Wall Street"" »

October 10, 2011

Wicked Wall Street Sitting on IPOs?

The rich not only seem determined to ignore the Occupy Wall Street demonstrations, leaving reactions up to the politicians, they also seem to be putting off the economy's future. A CNBC interview reveals that there are nearly 600 IPOs (initial public offerings) waiting in the pipeline, and some more in a "dark pipeline" that analysts don't even know about. The explanations seem highly contingent; e.g., what's going to happen to the EURO? But surely it all boils down to uncertainty about the future of the economy.

Failure to invest in new businesses is part of a downward spiral. No new jobs in new businesses is the problem. The President's $447 billion stimulus bill to preserve local and state government jobs for another year is not the solution to that problem, but an exacerbating factor.

It doesn't go with the familiar rhetoric, but it is a fact that most of the rich were Obama supporters in 2008 and so were the office-holders who put in place the mortgage regulations and banking rules under which we live today. If today Wall Street employees and partners are scared, and if people on Main Street are unhappy that they can't get loans for small businesses and if old people are finding that their life savings are producing nothing (e.g., .75 percent per year) that can even catch up with inflation, whose fault is that? Wall Street greed? Or government incompetence?

If you are hesitant in this economy, welcome to the club. From great to small, people are afraid to commit whatever funds they have. Is this the proper environment for a "Soak the Rich" campaign?

September 19, 2011

European Political Union Fades Along with Euro

Maybe the governments of Europe should curb their diplomats' zeal for obfuscation and admit that the crisis in the Economic and Monetary Union is also a political crisis. Full European Union, politically speaking, is now deader than Monty Python's parrot.

Was it a mere two years ago that the Europeans seemed eager to enter into full political union? Only the votes of a Dutch plebiscite (then the Irish) initially held it up. U.K. elites (including especially the snide media elites at organs like The Economist and the Financial Times) were poised to surrender British sovereignty, and meanwhile to give up the British pound. Supposedly, only nostalgic right wingers opposed the trend. But in a national election David Cameron required a Tory/Liberal coalition in order to govern, in part because of his failure to attract enough Euro Skeptic votes to give his Conservative Party a majority on its own. Then the current economic crisis of the Euro hit. You don't hear much about a stronger EU any more.

Even the future of the currency union is suffering as ordinary voters who never had much time for EU politics realize that the full faith and credit of their own countries have been tied to the spendthrift nations like Greece that regard debts rather differently than do the bankers in Frankfurt or London.

British writer Roger Scruton thinks that culture, indeed, is at the heart of the matter. Writing in The American Spectator, he concludes,

"It was not economics but culture that engendered the euro--a culture of a ruling class at war with the people of Europe, wishing to establish trans-national government at all costs, and hoping to wipe away yet another trace of nationhood. By destroying those ancient currencies through which the people of Europe had expressed and managed their apartness, the European elite hoped to make a decisive move toward the goal of Union. Instead they have burdened the continent with new debts, new resentments, and a looming disaster that was not foreseen only because it had been ruled out as impossible."

The need for co-operation among the developed nations has never been more obvious, but it can't come at the cost of sovereignty. Ordinary people held back the tide. Bleak as prospects are now, they could have been worse.

September 16, 2011

No Storm Yet on Charitable Deductions

Most of what President Obama proposes to do with his jobs plan puts money either in the hands of people who already have jobs or extends unemployment compensation for the jobless. It does little to create new jobs. Mr. Obama also wants to hire more public workers--a core political constituency--that also will do little spur economic growth.

On the other hand, the President's bill, if passed, likely would destroy jobs in the non-profit sector. The President proposes to pay for his program by removing deductions for "rich" people (those making $200,000 or more, or those couples making $250,000 or more). That would raise about $400 billion, largely by disallowing charitable deductions.

Some unknown percentage of donors are incentivized by a tax break to support charities. If the tax break disappears there will be billions of charitable contributions foregone. That's why when this sort of thing was opposed by the non-profit sector when it was first offered in 2009. NGO programs operate on small margins, so NGO leaders understood that a cut in donations could prove devastating.

But back in 2009 the Administration said, don't worry; this law won't take effect until 2011. Of course, back in 2009, even under a new Democratic president and his Democratic Congress, the proposal to end tax deductibility for donations by the wealthy failed. However, note that if it had been adopted back then it would be in effect now. Would that be helping the job picture today?

I suspect that NGO leaders today are quiet mainly because they sense, correctly, that Mr. Obama's plan is not going anywhere. But if the proposal somehow does gain traction, the voluntary sector will wake up with a start.

China's New "Buy American" Plan

Many Americans think that the path of patriotism is to "Buy American," but consternation arises as China announces that it may like to follow the same road: buy into Intel, Apple, Boeing, etc. Meanwhile, the Chinese will sell U.S. Treasuries as soon as it is "safe".

How bad is this? At first blush, not so bad. True, the Chinese may be mainly interestered in cutting edge technology and the ability to get close to it. But, if so, they might find it more difficult than they think to gain access to trade secrets unless they buy whole companies and take them over. I own stocks in several companies whose activities I find truly confusion. Will it be easier for the Chinese?

It also bears recalling that the last time we had a scare of this sort was in the late 1980s when Japan was considered the economic suiperpower. Americans panicked when the Japanese bought motion picture studios and such iconic properties as Rockefeller Center. But buying into America actually is risky, as Americans know, and as the Japanese found out. In any case, what are you going to do with your American property, move it home?

Some national security restrictions make sense. But on balance, the American economy has more to fear from Washington, DC, than from Beijing.

September 6, 2011

Blocking AT&T, T-Mobile Merger Won't Create Jobs

(from Disco-Tech site)
Hance Haney, Discovery Sr. Fellow

Blocking the merger between AT&T + T-Mobile is apropos of this administration's strategy for creating jobs, according to James M. Cole, the deputy attorney general.

The view that this administration has is that through innovation and through competition, we create jobs. Mergers usually reduce jobs through the elimination of redundancies, so we see this as a move that will help protect jobs in the economy, not a move that is going in any way to reduce them.

Remarkably, someone forgot to include that in the complaint filed by the Department of Justice in the District Court for D.C. The complaint itself does not allege that the merger will cost jobs, nor does it suggest that blocking the merger would create or save jobs. As a technical matter, antitrust is not concerned with job protection, although many seek to exploit it for that and other purposes. More on why that is a bad idea in a minute.

Continue reading "Blocking AT&T, T-Mobile Merger Won't Create Jobs" »

September 1, 2011

The High Cost of Doing Good

From the Open Europe news site of the European Union today:

EU light bulb ban further increases cost of energy-saving lamps by 20-25%

Manufacturers have signalled that they intend to raise the price on energy-saving lamps in Germany by 20-25%, following today's EU ban on 60-watt light bulbs. The manufacturers say that increases in the costs of raw materials from China are to blame for the rise. Osram CEO Martin Goetzler told FTD the price increases of 20-25% will apply from today. Philips also intends to raise prices of energy-saving lamps by 20-25% in Germany over the coming months, a company spokesperson told (Die) Welt.

August 31, 2011

Gilder Tours his Oeuvre on ReasonTV

Reason TV has just put up its Nick Gillespie interview of George Gilder from the recent Freedomfest in Las Vegas, and, as usual, George is entertaining and provocative.

Gilder thinks President Obama is a "hard leftist" by background who has done more damage to America's economy than a "nuclear bomb". He would take any of the Republican alternatives, but when asked who would be best, he says, "Newt Gingrich, if he weren't such a jerk."

But mainly the 21 minute program is a tour of Gilder's works over 40 years and his efforts to link supply side economics with technology futurism and social conservatism.

(Also at Freedomfest, Gilder "debated" Peter Thiel on whether the future of technology is bright or dark. See Richard Rahn's article in The Washington Times.)

August 14, 2011

The Economy, All About Politics

If the New York Times is right, the main consideration for Democrats regarding the economy is what approach will help them most politically in the 2012 election--not the well being of the American people in the intervening 14 months. If the Times is wrong (including the quotations it used from people in the White House and on the Hill), then maybe the Democrats should protest this story. If the story is true, maybe the Repubicans should talk about it.

August 8, 2011

Downplaying the Downgrade

President Obama addressed the nation about the S & P downgrade of U.S. credit, with the Dow already down at that hour by 426 points. It continued down even as he spoke, like some horrifying approval meter used to test audience reactions at a debate. A few hours later the Dow--definitely not inspired or encouraged by the Orator in Chief--was down 635 points.

President Obama talked down to the Markets, treating them like some political crowd at a fundraiser. People who invest money in U.S. equities, including many from overseas, are not partisans, nor are they uninformed. They have been following the economic news closely. When the President, who thinks he is the model of persuasion, tried again to blame others for the economy and offered almost nothing hopeful on his own behalf, he misjudged his audience. Investors didn't like what they heard and they didn't believe him.

The one thing that might have redeemed his talk was his promise to put forward a new budget proposal. But he even stepped on that line.

I don't know how many more confidence inspiring talks by President Obama the economy can stand.

August 5, 2011

Debt Deal Made, but Stocks Drop, US Credit Downgraded; Could Serious Reform Follow?

Standard and Poors downgraded US credit today for the first time. So much for assertions that the S&P gets contracts from the US government and would never bite the hand that feeds it.

A downgrade was what was supposed to happen if Congress did NOT approve a debt deal. A stock market drop--which we are having--was supposed to happen also if the deal did NOT go through. The deal went through.

Maybe Standard and Poors and the market know something about the quality of the budget reduction package that the President does not; namely that it is tenuous and trivial in comparison with the size of the problem America faces.

There is a lot President Obama could do to revive the economy. Stephen Moore of the Wall Street Journal thinks the crisis in his presidency might actually force Mr. Obama to confront the need for pro-growth tax reform. As Moore points out, among the many ideas for a budget deal put forward in recent weeks was a bi-partisan proposal with such tax reform at its heart. Close business loopholes and reduce personal deductions--in other words, increase taxation of consumption--while lowering tax rates on investment--the creation of new jobs.

I see no reason rich people need a deduction on a $750,000 mortgage for a second or third home. I do consider it in the public interest that such persons be encouraged to put their money directly into investments.

Imagine if, instead of the gargantuan waste of "stimulus", the President had promoted a pro-growth investment strategy two years ago!

July 12, 2011

Canada Adds Jobs Far Faster Than U.S.

It turns out that Canada, whose population is one tenth that of the United States, added 28,000 jobs last month, while the U.S. was adding 18,000.

Canada is opening up its oil fields while the U.S. federal government encumbers new oil production.

Canada has avoided the mortgage meltdown of the U.S., partly because it lacks anything like Fannie and Freddy.

Canada is eager, not slow, to approve free trade agreements.

Canada's Conservative government (and even its predecessor Liberal Party government) has done relatively well restraining spending, while Mr. Obama's "stimulus" bought us nothing lasting--other than a potentially ruinous debt.

Canada has restrained the growth of new economic regulations, while ours grow apace.

Yet Mr. Obama, who has not even deigned to present a budget deal, is described by his staff and the dutiful media as an "adult" who tries to correct the behavior of the delinquent children in Congress. The "adult" now is threatening to cut off Social Security checks if Republicans refuse to adopt higher taxes as part of a debt limit increase. This is the "Washington Monument" syndrome--threaten to close the Washington Monument and other visible expenses the public likes if anyone suggests overall economies. This is not adult management, is it?

July 11, 2011

What Will Revive the Economy


In the Great Depression you could still make money if you invested in movies, radio, some automobiles and some utilities. These were all what one might call adolescent industries that had fared well in the 20s and were growing fast when the Depression arrived. They kept going and growing when older--and newer--industries faltered. The West was opening to electrification, people needed a cheap escape (radio, movies) and new technologies spurred automotive advances as well as communications and energy.

Today, it seems to me that the industries with a full head of steam (to use an industrial age metaphor!) are Internet sales and advertising that, among other things, let you purchase goods for less (Amazon) and enjoy a cheap escape (the Internet generally). Medical devices also are in a high tech adolescence industry, with fast paced changes enabling new solutions to health problems--and often saving money as well as lives.

A friend with a tumor in his head can now be treated with a neutron radiation device that has a success record three times as good as surgery, with less time (and, hence, less money) required for both doctors and patients. Better results for less money.

This weekend at the libertarian "FreedomFest" in Las Vegas, George Gilder will debate Peter Thiel (Paypal founder, angel investor for Facebook) on the theme of "Future Shock: Has High Tech Run its Course?" Peter is a pessimist on the topic, George an optimist. (I am moderating.) But I bet both will share many criticisms of our current government mismanagement of the entrepreneurial economy and some similar prescriptions for reviving science as well as tech. I know they both are skeptical of credentialism in education--the big bloated money eater of the old economy that is now stumbling and falling.

NOTE: George Gilder will speak at Discovery's Seattle offices on Friday, July 15 at 12:00 noon on "How High Tech Will Rebuild Our Economy." Phone 292-0401, x 102. Space is running out!

July 5, 2011

The Economic, Strategic Case for Israel

The Wall Street Journal today carries Discovery Sr. Fellow George Gilder's article on why America needs Israel as much as Israel needs us. No one has made the economic and strategic military case better than George. The staggering thing is the indifference of much of the American intellectual community. They can't dispute it, only ignore it--and attack Israel for not capitulating to its enemies.

July 4, 2011

Is Your Job Obsolete? Are You?

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Slowly it is dawning on people that the current economic slump is several crises intertwined: a financial crisis, a fiscal crisis, a housing crisis and simultaneously a restructuring of the economy due to technological change and global competition.

Labor unions, especially in the public sector, don't seem to understand that some government functions are going to go the way to typesetting at newspapers, door to door milk delivery and floppy disk manufacturing. One reason there is so little sympathy for demonstrating public employee unions in places like Wisconsin is that they seem to think they should have retirement and other benefits that are better than those of other workers.

What is happening in the private sector, meanwhile, is not just historic, but history speeding up. Recently I had dinner with four young men in their 30s. Each had a job, but not one had a job that existed ten years ago. Meanwhile, one sees the local video shop close and the live bank tellers and even grocery clerks diminish in number.

Many of us have gotten used to employment obsolescence. I operated an elevator as a college student once upon a time. Remember elevator operators?

Continue reading "Is Your Job Obsolete? Are You?" »

June 23, 2011

UK's Sigh of Relief That it's Not in Eurozone

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UK Prime Minister David Cameron once toyed with greater EU involvement, but avoided it to placate unreconstructed Thatcherites in the Conservative Party. However, he is quite clear now that Britain avoided a bullet by not joining the Eurozone.

Many good purposes of European union long ago were suffocated by bureaucracy, the delusional form of international government whose relentless will-to-power often challenges national democracy. The Brussels bureaucracy imagined that states like Greece eventually would be forced to whatever austerity measures would allow them to stay in the EU. Or out they'd go. That was the theory.

But, in the case of the Euro, strong states with strong economies (mainly Germany) also have major banks that made unwise investments in countries like Greece. Obviously, the Greeks need to take the medicine that is the only real cure for profligacy. The bureaucrats promised to enforce austerity in such cases.

The bankers in the north, however, don't want to suffer the pain with their debtors. So domestic political pressure is firmly exerted on the bankers' national governments to shift the consequences of Greek folly to northern taxpayers. Thus are the Europeans stuck in a political reality the bureaucrats never anticipated.

(The Greek government has adopted an "acceptable" set of new austerity measures, meanwhile. But it won't be the end of this story.)

Britain at least is prepared to take its own medicine. It doesn't have to take Greece's, too.

June 15, 2011

ISI Templeton Enterprise Award to Richards

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Each year the Intercollegiate Studies Institute gives three 'Templeton Enterprise Awards' for the best new books on enterprise, one of the themes close to the heart of the late Sir John Templeton, the investment entrepreneur. Yesterday, the Templeton "Silver Award" was announced for Money, Greed and God (HarperOne), by Dr. Jay Richards, Sr. Fellow of Discovery Institute and Co-Director (with George Gilder) of Discovery's new Center on Wealth, Poverty and Morality.

Presenting the award at a ceremony in suburban Philadelphia was Dr. John (Jack) Templeton, president of the Templeton Foundation. In his remarks, Dr. Templeton spoke on the relevance of personal character and the recognition of absolute truth, in contrast to relativism.

The "Gold" book award went to Dr. Ryan Hanley, for Adam Smith and the Character of Virtue. Hanley is an accomplished Adam Smith scholar at Marquette University and head of the International Adam Smith Society.

The third winner is Nicole Gelinas of the Manhattan Institute, for her book, After the Fall: Saving Capitalism from Wall Street and Washington.

Richards' award comes with a $7,500 prize. Dr. Richards began work on his book several years ago at Discovery Institute, but completed it at Acton Institute in Grand Rapids. He is back at Discovery Institute now, and, among other things, is co-authoring a book on the interaction of economic issues and social issues.

June 17, 2011

Brilliant Budget Idea from Illinois

Lets hear it for State Senator John Mulroe of Chicago who has come up with a way to bail out Illinois' broke state government: corporate ads on license plates. Instead of "Land of Lincoln," they now can read whatever a advertiser thinks appropriate. For example, "Land of Lincoln Towncars." Or maybe "Make Old Style Beer Your One for the Road."

Spendthrifts in Springfield have found their salvation. The Associate Press quotes Kim Drummond, spokeswoman for a firm called "My Plates", who says the auto messages would be "little billboards" along the prairie highways and byways.

Sen. Mulroe, you need to keep going on this one. Since Illinois has an income tax you could have various ads placed in the refund checks sent by the state tax authority: "Special Offer Today if You Spend Your Refund at Sears!"

State office buildings could get big bucks for commercial messages that would captivate riders on elevators and amuse attendees at trials in state courts.

"Have you reached a verdict, Jurors?"

"Yes, we have, Your Honor, but first a message from our sponsors...."

Think of the naming rights for state buildings: Bankers Life and Casualty State Prison, Sara Lee State Prison for Women, Caterpillar Inc. Toll Road, the Walgreens State Capitol, the University of Illinois Motorola Stadium. In fact, given the tax deals Gov. Pat Quinn has been cutting to favor special friends in big business, the state could change its name to Archer Daniels Midland. No problem finding that on a map.

June 8, 2011

Debate The Economy in Washington; Ask Mitch Daniels to Take the Case to the People

Many Americans feel as if we're in a railroad car on a runaway train, the train being the Obama Administration's economic policies. The car is connected, it can't decouple, and yet we, the occupants, know there is a problem with the engineer.

Maybe we are wrong, but the columns and commentaries giving one opinion, then another, don't enable most people to get a clear idea of what's happening to our economy, let alone what to do about it.

In a parliamentary system, a full fledged campaign would be taking place about now, as it did recently in Canada. Given a chance to consider the issues at length, the Canadian electorate surprised the Left--that forced the election this winter--by giving the Conservatives a real majority in Ottawa. But under America's presidential system, the cathartic election we need is still a year and a half away.

In this country, however, public opinion can still change public policies. Right now the public is divided and confused. The best ways to educate and then mobilize the public are 1) to run a high profile debate in Washington, where facts and solutions are forced to the surface; and 2) to take that debate to the country.

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Continue reading "Debate The Economy in Washington; Ask Mitch Daniels to Take the Case to the People" »

May 31, 2011

Republicans Need to Use Right Brain on Budget

In conversations in Washington one hears growing frustration among conservatives over the failure of Republican leadership--including the Republican National Committee--to answer emotive arguments on the budget by the Democrats with "Right Brain" arguments for the Ryan plan's efforts to cut spending and create jobs.

Republican leaders still seem to think that they can win the economic argument on logic and facts alone. They lost the recent New York 26th district election that way (at least in part) and they will collapse next year if they continue to imagine that a majority of the public is mainly, let alone exclusively, interested in budget discipline. Ronald Reagan, for example, was not elected on budget discipline alone.

The right talks a good game on alternative media and on effective branding, but they are still behind the Democrats. The criticism is so widespread now, however, that they probably will catch up, and when they do, they will be drawing on a much bigger public reserve of support.

Watch for Ross Perot-style "informercials", iPhone apps and e-manuals for organizing. But the key may be finding out first how voters react to the arguments already being heard. Observes Connie Marshner, an independent conservative consultant, "When Congressmen say 'The Ryan plan doesn't touch Medicare for anyone 55 or older,' what makes them think that the voters even believe them? What politicians say and voters hear often are different."

May 14, 2011

High Taxation Correlates With High Cronyism

Crony capitalism--a form of soft economic fascism in which companies get ahead to the extent they play ball politically with the government in power--is becoming a troubling feature of American business and a threat to American democracy. It is seen in special deals for bailouts and "stimulus" at the federal level and in new White House plans to require businesses to report their contributions to politically related groups if they want to be considered for federal contracts. (This latter is offered up, shamelessly, as a "reform".)

It also is in active play in state governments. The state of Illinois is burdened with one of the nation's highest public debts. Its taxes are going up on business and individuals alike, and still there is little hope of meeting the spending appetite of the state government. Meanwhile, businesses that almost are identified with Illinois--such as Sears, founded in 1887, and Caterpillar--are threatening to leave.

Continue reading "High Taxation Correlates With High Cronyism" »

May 9, 2011

Moral Theme of Economics--Finally a Dialogue

Give Prof. Neil J. Young of Princeton credit at Huffington Post for a serious review of Discovery Senior Fellow Jay Richards' book, Money, Greed and God. Most Huffers and Puffers would rather excoriate the subjects of Young's review than accept their challenge. Essentially, Young acknowledges Richards' argument (if not its correctness) that capitalism is a moral economic system--like Churchill's defense of democracy as "the worst form of government except for all the others." He also accepts that RIchards finds that morality grounded in the Bible.

Young is right, too, to notice that there are differences on the right on this topic, though not in the Tea Party, as he imagines, but between classic conservatives and Randian libertarians. Richards criticizes the atheist Ayn Rand for thinking that the altruism of Christianity is a vice, not a virtue. So, yes, there is a split about this on the right. Oddly, however, few Randians in politics (for example Sen. Rand Paul, or his father, Rep. Rand Paul) turn out to share many of their heroine's views on social issues. They are energized instead by her demand for human liberty and self-reliance. That's why many plain vanilla conservatives can appreciate certain insights of Rand.

On the other side from Richards, in any case, and much more his target, are Christian liberals who suppose that capitalism is deeply flawed, as is America, and must be reformed by more government regulation and redistribution. The real issue, then, is whether limited government or the welfare state is more beneficial to the poor in body and spirit, as well as to everyone else. That's the real battlefield. Richards is saying that conservative economic policies, properly understood and implemented, are much more in the interest of the poor--the very folks whose interests liberal Christians and the secular left claim to represent. Young's chief service is to shine a light on this real contest of views.

Meanwhile, however, Prof. Young makes several unfortunate errors. Dr. Richards' is not speaking mainly for evangelicals, as Young states several times. He is addressing a general audience, though especially Christians--Christians in general. (As it happens, Richards himself is a Catholic.)

Contra the Young review, Richards also does not argue for unregulated capitalism, if that means that rule of law is somehow unnecessary. He doesn't see the free market strictly as selfish, either, and if he did the case hardly would fit Dr.Young's later (also erroneous) assertion that Richards' wants people to see capitalism as altruistic. Richard holds that capitalism (as the review also acknowledges!) is the best system available and the one most in accord with Biblical principles.

Nonetheless, Jay Richards, in Money, Greed and God, has done one of the best jobs since his friend George Gilder, who wrote Wealth and Povety three decades ago, in revealing the profoundly moral nature of the nation's and our time's controversies over economics. Prof. Young has done a service in recognizing that that a dialogue on the moral questions is needed.

May 4, 2011

Will U.S. Taxpayers Bail Out Spain and Italy?

American taxpayers, already tapped for domestic bailouts for big companies favored by the Administration, are about to get another violent shaking, this time to bail out European countries. Congresswoman Cathy McMorris Rodgers of Spokane is calling attention to the worsening situation at the International Monetary Fund.

Quoted by Human Events, McMorris Rodgers says, "Clearly, we hope that Spain doesn't request a bailout from the IMF, but given the direction of IMF policy over the last year, it's extremely likely. Let's remember: One year ago, we were told that Greece wouldn't need a bailout from the IMF. It happened. Then we were told that Ireland wouldn't need an IMF bailout. It happened. Ditto for Portugal. Basically, it's been a year of broken promises from the IMF and the European Union. Because Spain and Italy are afflicted with the same disease as the other three countries--too much government spending and borrowing--and since the Obama administration has made no attempt to protect U.S. contributions to the IMF, it would seem to be only a matter of time before Spain and Italy are standing in line for American tax dollars."

Already the American disbursements for earlier European bailouts are substantial. "The IMF has refused to provide a reliable number but, given America's contribution to the bailout, we estimate that our support of the package is equal to writing a check worth $600 for every man, woman, and child in Portugal," Rodgers stated. This ratio "was nearly identical for Greece and Ireland bailouts," she said.

McMorris Rodgers, Vice Chairman of the House Republican Conference, and Rep. Mike Pence of Indiana, are proposing legislation for tighter controls to protect U.S. interests at the IMF.

April 29, 2011

The Issue is Medical, Not Just Moral

The Wall Street Journal is just one of the news media that don't care to examine the embryonic stem cell issue closely. Notice this treatment today of the news that an appellate court has given at least a partial victory to the embryonic stem cell researchers, led by Dr. Francis Collins.

"Supporters of the research say the stem cells, which can develop into any type of body tissue, could help treat ailments from diabetes to heart disease.

"Opponents question the morality of using cells derived from embryos in a process that destroys them, saying that amounts to taking a human life."

Actually, as one of the lead plaintiffs in the case, Dr. Theresa Deisher, repeatedly points out, embryonic stem cell research, after huge sums of money and much time, has not proved successful. Embryonic stem cell treatments often cause tumors. In contrast, adult stem cells (Dr. Deisher's field) are showing very good therapeutic results.

So, the Alice in Wonderland public policy position of the establishment is: Many people regard embryonic stem cell treatments as immoral, but we should pursue them anyhow because they are not successful, while adult stem cells are.

Another point. You hear what Dr. Francis Collins says reported on the matter, and I expect that his views also will be carried in the Seattle press, as well as everywhere else. I wonder how many will carry the views of lead plaintiff Dr. Deisher--including in Seattle, where she lives and has her lab.

(Discovery senior fellow Wesley J. Smith describes the appellate court ruling and where the case heads now.)

April 22, 2011

Obama Rules Evoke Film, "Atlas Shrugged"

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The National Labor Relations Board proposed this week that Boeing had wrongfully built a new plant in South Carolina to wreak revenge on the Boeing union in Washington State. It's a strange way of second-guessing a business decision. Without taking sides in present or past labor disputes, doesn't a company have a right to build its plants where it wants without the federal government dictating to it?

Also this week, it was revealed that the White House is considering an Executive Order to require all contractors doing business with the government to provide lists of any campaign contributions it and its executives have made to political parties or candidates. The pose is that of "transparency," but, in fact, it is a bold effort to intimidate businessmen from supporting political foes of the President. Do you think politics is ever considered by this Administration in the awarding of contracts? Does "GM" mean anything to you, or "GE"?

The proposed order notably would exempt campaign contributions by unions. No reason for "transparency", there, no sir!

Traveling around a few hundred theaters this same week is "Part 1" of the trilogy based on Atlas Shrugged, Ayn Rand's classic novel of libertarianism (or "Objectivism" in the Rand version). Rand's America, in this film set in 2016, evokes the era in which wrote the novel six decades ago, but it also seems set credibly in present day America, as well as a wholly believable imminent future in which government over-spending and over-regulation have wrecked most of the economy and torn apart society. Today's crony capitalism has reached the point (in the film) where almost no one can succeed without government approval and true entrepreneurs are punished. Government language is Orwellian. The Washington officials in the film use Obama-like rhetoric to justify "fair" competition that actually is rigged. The results of such government management of the economy are disastrous. A gallon of gas costs $37.50 and Depression style soup lines are commonplace on urban streets.

Reviews of Atlas Shrugged are mixed, but reliable liberals like Roger Ebert have had to resort to mischaracterizations to damn the project. I am no Randian, and the bloodless heroes are not very appealing in the movie. But the content is timely and provocative, in the best tradition of political films. Last weekend Atlas Shrugged played in only 299 theaters; but this week it expands to 465. If it continues to gain an audience by word of mouth it will be the result of its scary echoes of what Washington, DC already is becoming.

April 12, 2011

After Disaster is a Good Time to Visit

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Kyoto, Japan

Contrarian that I am, I have found that the moment that everyone else starts canceling their vacation or business trips because of a disaster is often an excellent time for me to go. In almost all cases--a few weeks after a terror attack, earthquake, revolution--provides a fine opportunity to pay a call. The hotels are still vacant (and the staff very happy to see you), the restaurants likewise, and the locals will be eager for company. You will be treated well.

Yes, of course this advice can be stretched too far! I am not recommending tours to Afghanistan or Libya right now (maybe later). Still, the principle of contrarian travel is worth considering. My late father-in-law canoed down the Danube in the late 30s, just before World War II erupted. In days just after the Japanese invaded Manchuria, my future mother-in-law, was a young girl with family friends visiting China and Japan as Americans--when Beijing was still "Peking". Both came back with indelible, fascinating--sometimes sobering--memories. And both, I might add, had been quite safe.

Continue reading "After Disaster is a Good Time to Visit" »

April 6, 2011

Ryan and Van Hollen Should Debate Budget

Be prepared for all out political demagoguery on Rep. Paul Ryan's proposed reform budget, and unfortunately it will be enabled by biased news coverage. In the New York Times, for example, you have to turn to David Brooks' column on the opinion page today to get a straight account of the issues involved.

Pete Wehner, former Bush aide, writes in Commentary online today about stilted coverage by Dana Milbank of The Washington Post. First Milbank wrote about the failure of Republicans to address the real source of funding imbalance, which is entitlement spending. But then, when the Republicans do address entitlements (as Democrats, including President Obama, have not), Milbank attacks them for their recklessness.

Implicit in all the "news" attacks is the supposed alternative of raising taxes on the rich to cover the huge spending gap. The trouble is, you could get the rich to pay an even higher proportion of income taxes--in fact you could wipe them out--and still not solve the massive deficit and debt problem. Former Democratic officials such as Alice Rivlin and Erskine Bowles, as well as Republicans, are warning that the entitlement problem cannot be blinked any longer. Entitlements have to be brought under control or our whole country's future is in peril.

Here is a suggestion on how to avoid continuous demagoguery on the Ryan proposals: stage a nationally televised debate between Paul Ryan and his House Democrat counterpart, Rep. Chris Van Hollen. The Maryland Democrat, who is ranking member of the House Budget Committee that Ryan heads, has been outspoken in opposing the reforms Ryan proposes. Let him put his criticism to the test of a suitable long public debate that can give ordinary citizens a chance to hear out the contending parties.

In fact, there is a nice, tried and true venue that used to hold debates of the kind I suggest, though it has been underused in recent years. That venue is called the floor of the House of Representatives. There is even at least one TV network that is sure to cover it live and in full: C-Span. Most the time the House floor is the scene of one and two minute exchanges and political feather preening. A real, two person debate would be a welcome and unusual treat.

Gentlemen of both parties: give the American people a two hour debate on this urgent national issue, and let us make up our own minds, unfiltered by reporters who think they know better what's in a proposal than its author does.

March 16, 2011

Starbucks and the Foodie Revolution

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The original Starbucks

Starbucks, the international coffee chain that has helped revolutionize the cultural phenomenon of coffee, is 40 years old this month, and reminiscences are appearing. Like Daniel Jack Chasan, who has a story up at Crosscut, I also actually knew a couple of the young men who started the first Starbucks, located in the Pike Place Market. Gordon Bowker and Zev Seigel were unassuming revolutionaries, surely more than they realized.

The food culture was ripe for change. David Brewster (founder of Crosscut, and, formerly, The Seattle Weekly) began publishing a sophisticated and local restaurant review newsletter that led to a whole string of publishing innovations. (Among other things, Brewster stimulated production of local interest books in subjects from history to nature to recreation, resulting in whole sections of bookstores devoted to "Northwest Authors"; but that's another story.) Ethnic restaurants were becoming popular even outside the biggest cities; that is, you didn't need to be French or Italian to cultivate an enthusiasm for French or Italian restaurants. In Pioneer Square, Seattle Francois and Julia Kissel operated The Brasserie Pittsburg, humorously named after a Gold Rush cafe once at the same location. Over the years the Brasserie became an unpretentious hang out for people in politics (from the nearby Municipal Building and County Courthouse), media people from the papers and TV stations, delighted patrons of the Allied Arts lobby for good urban design and many young professionals. It was splendid, reasonably priced and collegial, but not replicable--alas.

Continue reading "Starbucks and the Foodie Revolution" »

John Cochrane on How to Exit Economic Mess

Entropy chief Bret Swanson, friend and former Discovery Fellow, has an interview with Chicago economist John Cochrane that should be read by media and politicos. We need serious management now of spending and regulation, not the current Obama drift, to avoid major--possibly swift--decline. Particularly sobering is Dr. Cochrane's predictions on rapid inflation.

March 4, 2011

Understating Unemployment

The cheerful news that unemployment has dropped to 8.9 percent (from 9 percent) is leading to a bit of false optimism. The economy may be improving (or not), but the amount of damage from the recession/restructuring we have to overcome is greater than most people realize. Economist John Williams, (covered at World Net Daily) has the real unemployment rate--including discouraged workers--at more like 22 percent.

Elaine Chao, former Labor Secretary under G. W. Bush believes the figure is 16.7 percent ("see Table 6A of the Bureau of Labor Statistics report," she told me after a speech she gave in Florida recently), and the sad news is that many of "new jobs" of the past year have been in the public sector and do not reflect real economic growth.

Chao contends that the Obama Administration is impeding job growth, rather than stimulating it. Obama officials, she notes, "have never worked in the private sector" and and don't understand that all their new regulations, taxes and fees under Obamacare, statements demonizing business leaders and proposals for cap and trade lead companies to hold back on investments or to move overseas.

The Department of Labor "has over 400 lawyers," says Chao. "Essentially it is an AFL-CIO office." Already there are 104 new regulations of business in the labor field.

Add to all that the rising cost of oil, in part due to failure to develop sources in the US, and you have a low-growth, low-job creation economy.

March 2, 2011

How Universities Misuse Donors' Gifts

The paper below was given by Neal B. Freeman, chairman of the Foundation Management Institute, a student of philanthropy and a long time contributor to public policy. Though it was prepared for the Bradley Center for Philanthropy and Civic Renewal and Hudson Institute several years ago, I just came across it and wanted to share it with you.

What Mr. Freeman describes is all too common. Donors and prospective donors are wined and dined by their alma mater and other universities. School officials laugh uproariously at the target's jokes and consider his most prosaic observation profound. That is, they do until a short time after the gift is made. If he is at all conservative, none of his comments are contradicted. But the intents he has for his gift may be totally subverted over the passage of time.

Mr. Freedom describes The Robertson v. Princeton Case that shows that gifts to universities are "too important to be left to the lawyers." Let it be a warning. There are probably only a couple of dozens of institutions of higher education that can be trusted with your gifts.

Continue reading "How Universities Misuse Donors' Gifts" »

February 27, 2011

Bureaucrats are New Aristocrats at Budget Time

Gov. Scott Walker appeared on Meet the Press today, finally getting a chance to explain some of the ways that collective bargaining at the state and municipal level in Wisconsin make long term budget balancing more difficult. As a former county executive (Milwaukee) Walker recalls the times when unions thwarted efforts to implement reforms that would lead to economies. He also pointed to the example of state teachers union decisions to require members to get their health insurance through a union-owned concern rather than through the regular state employee insurance system--at an added cost of $68 million to the taxpayers.

Continue reading "Bureaucrats are New Aristocrats at Budget Time" »

February 25, 2011

Public Pro-Walker, But Wavering on Details of Wisconsin Budget Proposal

Polls are showing public a) opposition to teachers' unions b) disapproval of the Wisconsin Democratic Senators' tactic of high-tailing it to Illinois to prevent a quorum; but also c) approval of collective bargaining for public employees. (Three polls have made the latter point; including one from Gallup. However, over all, the public sides with Walker.)


The problem for Republicans is "c". People don't understand yet what collective bargaining is. Hence the contradictory views (anti-union, pro-collective bargaining). They probably don't know that Gov. Walker aims to restrict collective bargaining to non-pay issues, and that collective bargaining on such non-pay issues as health and pension benefits in Wisconsin (and elsewhere) is responsible for hidden deals that are contributing to the long range insolvency of many state budgets. In the private sector, writes Robert M. Costrell in the Friday Wall Street Journal, typical health/pension benefits equal 24 cents to each dollar of pay; but for public employees in Wisconsin the figure is now up to 74 cents for each dollar of pay.

February 20, 2011

Public Employee Unions' Unnatural Advantage

A Rasmussen poll says that more Americans oppose the Wisconsin public employee unions (48%) than support them (38%). But even more opposition might develop--and more support grow for Gov. Scott Walker--if the general public fully understood the reason behind the proposal to remove collective bargaining power for state employees on non-pay issues. It's not just about the current budget, serious as that is, but future budgets. It is largely because of past, poorly reported agreements that arose from collective bargaining that the unions have managed to get pension and health care packages far more lucrative than those of the vast majority of other citizens--the folks that pay the taxes to support those benefits.

Simply put, the public employees unions in Wisconsin and in many other states represent the best funded, most determined and most wily advocates of constantly increased government spending. Knowing the ins and outs of government better than anyone, and knowing also how to work their political will on elected officials (their putative bosses), they have an unnatural advantage in obtaining increased benefits. That is especially so since negotiations on long term benefits are not always seen as part of the budget process reported in the yearly budget struggles.

The public employee unions not only are the part of the polity that has the most immediate and special interest in government, but they also are a uniquely powerful position to intimidate state office holders. Consider: what other group in Wisconsin, for example, could skip work and mobilize several scores of thousands of protestors day after day at the capital? That's power.

Continue reading "Public Employee Unions' Unnatural Advantage" »

February 18, 2011

Entitlement Spending at Heart of Budget Woes

by Keith Pennock

The headline for a Los Angeles Times editorial, "Too deferential on defense," wants readers to believe that defense spending is to blame for the federal deficit. That is where we'll find the "big money," it says. The actual editorial, however, is really nothing more than a predictable attack on national defense spending that ignores the lion-share of the federal budget, entitlements.

The newspaper misleadingly reports that 61% of the annual appropriations bill goes to defense-a distortion of the budget picture since entitlements aren't considered annual appropriations, but rather "mandatory" spending. Nowhere does the editorial say how to cut entitlements.

Continue reading "Entitlement Spending at Heart of Budget Woes" »

February 17, 2011

Government Debt is a Moral Issue--Jefferson

When 40 cents out of every dollar of federal spending is borrowed, and when government leaders dissemble on the subject, a properly educated electorate will be outraged.

This quote from Thomas Jefferson is going around, and I am happy to keep it going:

"We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude. If we run into such debt, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our calling and our creeds...[we will] have no time to think, no means of calling our miss-managers to account but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers... And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for[ another]... till the bulk of society is reduced to be mere automatons of misery... And the fore-horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression."

February 14, 2011

Gilder: Why Creativity Comes as a Surprise

George Gilder is down on the government and not impressed, either, these days with Silicon Valley (much of which is in bed with the government). But he is high on Israeli innovators--and pleased that his predictions about the "teleputer" (what has become your iPhone, iPad, etc.) have come true.

He also thinks, like Peter Drucker, that the last person to understand your business is your CFO. Ouch.

George--our Senior Fellow who helped found Discovery Institute--wants more respect for venture capitalists. So do we all at Discovery. It will take a innovation-led boom to bring America out of the cramped and crabbed economy that confines us now. To get that boom we have to encourage and reward knowledgeable risk takers.

Read the interview George had with Steve Forbes for Forbes magazine.

February 7, 2011

Argentina Previews Next Inflation Horror Show

Americans should mind the lesson of Argentina, whose bright potential once again is being squandered.

Spend to create jobs, only to see businesses dry up; use political power to pressure "reforms" that increase the power of government; mobilize the poor against the "rich," only to have inflation rob the poor of their bread. That is the illusionary agenda of left wing economics on display again right now in Buenos Aires.

Alexi Barrionuevo writes in the New York Times that the government of Cristina Kirchner "has tried to quell concerns about mounting inflation by continuing to keep the economy growing in China-like rates, largely fueled by high soybean prices. The government also says the country is in the midst of a consumption boom, pointing to domestic car sales that reached record levels in 2010.."

Continue reading "Argentina Previews Next Inflation Horror Show" »

January 31, 2011

Why California's Folly Threatens US Recovery

California's Gov. Jerry Brown has just announced plans to raise taxes. He'll ask for a public vote, which is risky for him once voters figure out how little the state government is prepared to cut spending and how much prices are going to rise due to the state's manic environmental policies. Regrettably, the whole country will be affected. Here is George Gilder's article on it, "The California Green Debauch," featured prominently in the new issue (February) of The American Spectator.

by George Gilder

California's Treasurer Bill Lockyer has a bridge he wants to sell you. No, he is not putting the Golden Gate on the market. That would actually find buyers. He is trying to foist a "bridge loan" on the country that in effect would require us to buy the entire state.

Shuffling off the streets of Sacramento into the bond market a few weeks ago seeking to raise some $14 billion in so-called "revenue anticipation notes," Lockyer is offering notes that can be repaid only by future revenue anticipation notes, in a delusional statewide recycling binge of bonds on bonds.

Since the state at the same time officially projected $20 billion annual deficits for the next six years (Governor elect Jerry Brown says $28 billion in 2011), the end of this road is another of those bridges to nowhere that politicians believe stimulate an economy but ordinary people prefer not to drive on or off. So now Lockyer is following up with a drive to get the federal government to guarantee California's debt against default, which means the taxpayers will have to be the ultimate buyers.

Before we close the deal to purchase the state, however, ordinary financial due diligence would require Congress to make California rescind a "poison pill" provision in its state laws. This poison pill is not medical marijuana. But it renders any bridge loan or "revenue anticipation note" utterly hallucinogenic.


Continue reading "Why California's Folly Threatens US Recovery" »

January 27, 2011

One Man's Dissent Tells Real Story of Housing and Financial Meltdown

The best possible contemporary example of the law of unintended consequences is the federal policy (actually several policies) enforced since 1992 to expand home ownership through promotion of non-traditional, sub-prime mortgages. This policy, enforced to an extent not even known to the government at the time, let alone to the financial community, provoked a US housing bubble that grew for more than ten years--and then deflated as 27 million government-induced bad mortgages began to go under. A financial panic ensued and a recession soon followed. Trillions of dollars of public funds were spent. The repercussions were international.

The true story of the public policy blunders that created the housing and financial crisis has been sidestepped for two years now . A new Congressionally commissioned report out today would like to continue down the path of truth avoidance. But a courageous, well-researched and ultimately devastating report by a dissenting member of the Commission, Peter J. Wallison, a former Counsel to President Ronald Reagan, serves to expose the problem--and the Commission majority cover-up.

The majority (Democratic) report of the Financial Crisis Inquiry Commission issued today seems to have been written to support preconceived opinions that the financial crisis was the product of Wall Street greed and under-regulation from Washington. That is an ideological fairy tale. The minority report of three of the Republican members, though better, mainly widens the responsibility for the financial crisis so far as to become nearly useless itself. It finds fault with so many public and private entities, and every conceivable exterior development and force short of global warming, that one is left feeling that, since everyone is responsible, no one is responsible. Neither report gives to the truth.

The Commission report therefore would be a one-day news story except for the explosive, factual revelations in the 98 page, dissenting report by Wallison. A lawyer who served in the Reagan Treasury before his White House stint, Wallison is one of the very few people who warned for years about the dangerous lowered loan standards being enforced, first on Fannie Mae and Freddie Mac, the government chartered agencies, and then the banking world.

Wallison provides evidence now of the determinative role of "NTM" (non-traditional mortgages) in the housing bubble and ensuing financial collapse.

Continue reading "One Man's Dissent Tells Real Story of Housing and Financial Meltdown" »

An Uptight Priest Attempts Elvis Imitation

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The first part of President Obama's State of the Union address, to paraphrase Daniel J. Henninger's column this morning in the Wall Street Journal, sounded like a Ronald Reagan speech written by Discovery Sr. Fellow George Gilder. But then the address veered off into another wish list of new and expanded government programs that sounded unlike the Gipper and more like Jimmy Carter.

Why does this happen? How is it that even when Mr. Obama sings Reaganesque lyrics he can't carry the tune? He sounds instead like an uptight Episcopal priest trying to channel Elvis Presley.

One reason is that the current president has a liberal's prejudiced understanding of capitalism, business and wealth creation. He can't get past the left wing supposition that government action is responsible for the successes, if any, of business. When he is told that he is viewed as hostile by the business community he makes friends with the CEO of General Electric, commits the government to supporting GE projects and appoints the CEO of GE to a council on, of all things, "competitiveness." When he does try to embrace capitalism, he does not seem to get the difference between true capitalism and crony capitalism.

Deep down he does not seem to see the moral dimension to the free market. He thinks it mainly has to do with greed.

In contrast, The American, the online magazine of the American Enterprise Institute, today highlights an article by Discovery Sr. Fellow Jay Richards on the spiritual basis of wealth creation. In a list of top ten ingredients for wealth creation, nine either are immaterial or have a immaterial/spiritual dimension. Government's role in fostering wealth creation, in this (realistic) understanding is not to pick winners and losers, but to provide for "rule of law" that does not discriminate.

January 25, 2011

It's Tough to Get the Truth About "Non-Profits"

Non-profits now supposedly account for one tenth of the nation's employment. But what does that mean? Are non-profits an ornament of a successful capitalist economy, or have they also become a hidden engine of growth and economic stability? Does non-profits' growth provide economic growth overall?

Jeff Cain of Philanthropy Daily contends that the latter proposition is getting undeserved support in a new stuy on non-profits in Michigan by the C. S. Mott Foundation, assisted by the US Labor Department and the Johns Hopkins Center for Civil Society Studies. To read the Mott report, one would think that the non-profit sector in Michigan is a true silver lining in an otherwise cloudy economy. Non-profits, the report claims, have become "a major economic force" in Michigan, and presumably across the land.

Continue reading "It's Tough to Get the Truth About "Non-Profits"" »

January 18, 2011

Hey, Boeing, Time to Move Hq. Back to Seattle?

Nine years ago, The Boeing Company, founded in Seattle by Bill Boeing and long associated with the Puget Sound region, decided to move its corporate headquarters and its top staff to Chicago. The stated reasons were notions about the advantage of not collocating administrative headquarters with airplane production and the "strategic" worth of being in an central airport hub rather than in one corner of the country.

But, below the surface, it was plain to all that Boeing executives were frustrated by Washington State's corporate taxes and seemingly punitive policies that seemed to treat big companies as cash cows--making Boeing pay for an access road to a new plant in Everett, for example. Also, Chicago and Illinois officials were so welcoming.

Well, the great State of Illinois, following at least a decade of profligate spending, now has some of the highest corporate taxes and is raising them 50 percent under Gov. Pat Quinn. The state has a personal income tax and that is going up 67 percent (which those Boeing executives must appreciate). A state death tax is being enacted.

Illinois neighbors Wisconsin and Indiana are enjoying the discomfiture of the Illinois business community and trying to poach among them as fast as possible. But even those states have income taxes.

Meanwhile, back "home" in Washington State, the governor and legislature are dealing with the reality that voters last fall once, by a margin of two to one, once again defeated enactment of an income tax (even though it was one supposedly targeted only to the "rich"). Voters in the same election also removed some earlier taxes on soft drinks. As a result, the Democratic governor and legislature are taking a very different tack than their co-partisans in Illinois: cutting spending rather than raising taxes.

If there is an advantage--besides low crime rates, beautiful scenery and a highly educated work force--that distinguishes Washington from states like Illinois, it is the absence of a personal income tax.

If the highly taxed Boeing officers and board are looking for consolation, maybe it's the defeat of the Seahawks by the Bears last weekend. Now the Boeing crowd can go out to Soldiers Field this Sunday and watch the home team play the Packers. The weather prediction is 19 degrees Fahrenheit, and snow.

December 22, 2010

The Day the Spending Died

Discovery Sr. Fellow John Wohlstetter has a smart, tidy analysis of the impact of two conservative victories in Congress as the folks prepare to go home. It's in The Daily Caller.

The conservative failure on other matters--notably, the Don't Ask, Don't Tell bill and the SMART treaty (presumably)--are relatively less important than the success in continuing the current tax rates and the defeat of the omnibus budget.

November 24, 2010

California Can't Figure it Out, Warns Gilder

"They're going to have to grow a lot of medical marijuana out there," George Gilder says on Fox News Business today. At some point his warnings about California's suicidal state fiscal policies are going to have to be heeded.

November 23, 2010

End Ethanol Subsidies for Corn

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The excuses for huge federal subsidies for corn-based ethanol are running out. Now Al Gore has admitted that his original endorsement (and casting the key Senate vote in 1994 when he was Vice President) was a mistake. Not a political mistake; it benefitted him back then. Just a policy mistake.

In 2010, however, the environmental community is finding the ethanol program an embarrassment.

Corn ethanol cannot be supported by the market; it costs too much to produce. It doesn't help the environment. It doesn't really free us from overseas oil and has much less potential than other biomass products. Moreover, federal subsidies have driven up the cost of food, especially since corn is used in so many different food products.

Finally, the farmers whose votes are at stake (many of them Republicans) in key states like Iowa--where the presidential caucuses for 2012 will take place only 14 months from now--are getting good corn prices these days. They don't need the subsidy. If getting rid of corn ethanol subsidies is part of a broad range of budget cuts across the country and across varied occupations, it probably will be accepted in the farm belt.

So let's see: corn ethanol is not a wise source of alternative energy, it is hugely wasteful of taxpayer dollars at a time when the country is deeply in debt, it raises food costs and doesn't particularly help the farmer. All it has going for it is a lobby of fadied-green lobbyists who profit from the subsidies. Can we find a little courage in Congress to cut it?

Photo credit: planetware

November 22, 2010

California Owes So Much it Has Lost Track

Unfunded pension commitments in the state of California are so big that even officials differ on what they represent. Is it $200 billion? 300? 500? Regardless, it is coming due and Calpers, the state pension system, is counting on what seem like unreasonable returns on its investments.

Much is based on Calpers' decision to invest heavily in "green technology" that requires federal subsidies.

November 16, 2010

California's Fall Threatens All

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Our Sr. Fellow George Gilder commands the "most read" space on the Wall Street Journal opinion page today with his article, "California's Destructive Green Jobs Lobby". The information adds nails to the coffin that voters in the Golden State have fashioned for themselves. It has been a familiar theme for this space, Discovery News, for several weeks now.

You might think that the California calamity opens opportunities for other states, notably nearby Washington, where voters just turned down an income tax on the wealthy (e.g., entrepreneurs, small businesses, investors in new jobs) and where the next state legislative session is not about new taxes, but major surgery on spending. Washington has energy for power-hungry computer companies and it has an outstanding employee base. Texas is another state that would seem likely to benefit from the follies in California.

However, in the last analysis, we all are damaged by the bad judgement of California politicians, high tech leaders and, yes, voters. Gilder spells it out, but it's only "Chapter 1." There is more to come.

Romantics are in charge in the energy field in California now. They have equally romantic friends in Silicon Valley and Hollywood. They need a course in realism and they are going to have to take it. So are we all, unfortunately.

Getty Images

November 10, 2010

Potential Tax Hikes Threaten Non-Profits

Anecdotal evidence suggests that many, if not most, non-profit organizations--from colleges and universities to church run charities--are populated by political liberals who support tax increases for the well to do (often described as annual income of over $200,000). One wonders how many of them have considered the link between high taxes and philanthropy. A Merrill Lynch study just out suggests at least that a bad market means cuts in charitable giving.

Anecdotal evidence also suggests that the damage may be worse than is being reported. If the number of semi-desperate appeals I receive from non-profits in the mail and by email are an indication, the long economic slump is biting harder as time goes by.

Raising taxes at this point not only would hurt small businesses and entrepreneurs, but also, indirectly, non-profits. The added money that goes to the government, in many cases, would stop going to charities. Instead of toying with new taxes, officials would be better advised to urge all folks with good jobs to give more to favorite charities.

November 9, 2010

Can US Regain Prosperity Without California?

Syndicated radio host Dennis Prager, who lives in Orange County, asks, what is the difference between Californians and the passengers on the Titanic? The answer:

"The passengers on the Titanic didn't vote to hit the iceberg."

I have my own question: How can the United States recover from the slump when California, home to Silicon Valley and representing one-tenth of the nation's population, is bent on destroying its economy? Voters in California, as noted before, have voted to give themselves a huge hike in energy costs for the dubious honor of combatting global warming and have elected the same governor, Jerry Brown, who in the 70s opened the door to collective bargaining for state workers, even though the government now has $500 billion in unfunded pensions and already is unable to pay its bills. They have passed an initiative sponsored by the teachers union that will make it easier for the Legislature to increase spending and taxes.

The Census count for 2010 is expected to show that for the first time in its history, California is not growing enough to add a new House seat. It soon may be showing a substantial outflow of middle class voters. What's left are those too rich to care about taxes and those to poor to care. Ah, but the real tax base is in the vast middle, and that is about to shrink.

The states that will benefit most are Texas, Arizona and Washington.

November 5, 2010

Great "Jobs Report" for Republicans

If, as the previous post notes, there has been a small uptick in hiring nationwide, there is one precinct in the country where hiring suddenly is red-hot: Capitol Hill in Washington, DC. Of course, as a result of Tuesday's election unemployment rates there also are high. The turnover in the House is greater than after any election in sixty some years. As a result, Republican Members are encountering a dearth of seasoned talent, unless they want to hire Democratic staffers on their way out. Some old Republican staff veterans of the Hill who retired years ago are fluffing up their resumes and sending them in. Experience may not count much any more in elections, but it still does in staffing Hill offices.

Meanwhile a similar picture is emerging in state capitols, where the GOP picked up some 680 new seats around the country, a bigger shift than any since the 1920s. The staffing needs are less than in a Congressional office, and some cover only the Legislative sessions that typically start in January next year and end three months later.

New Jobs Come Late for Democrats

In the past--under Ronald Reagan and Bush 41 and Bush 43--Republican strategists believed that some curse afflicted them when it came to the timing announcements for unemployment and jobs figures. It seemed that just after any campaign wherein the Republican president and his party were attacked for high unemployment rates the picture would improve almost immediately after the election. That was frustrating.

Now the curse seems to have settled on the Democrats. Today's jobs report shows 151,000 new jobs created in October, the greatest gain since April. Had the numbers come out last week there would have been quite a lot of partisan crowing. The "summer of recovery" finally would have arrived, albeit a couple of months late. Instead, there has to be some gnashed teeth at the White House and the Democratic National Committee. Of course, skeptics might point out that the unemployment rate remains stubbornly at 9.6 percent.

The employment/unemployment numbers are collected each month by the Census Bureau (in two forms, based on business' unemployment figures and on self-reported figures by individuals). Then they are analyzed and publicly announced by the Labor Department. No peaking allowed at the White House, which is probably a good thing if you want people to believe in the objective of our statistical services.

October 27, 2010

Marriage Down, Poverty Up

Twenty eight years ago a Census Bureau study by Dr. Gordon Green, an economist and chief of the bureau's Government Division, revealed that poverty was not going up in those days because of lack of federal programs to support the poor, but because of family breakups. This was a splash of cold water on the face of social analysis in America since it contradicted the familiar trope that it is poverty that causes family breakups. In fact, to repeat, it is family breakup that causes chronic poverty in most cases.

Now the Census is out with another study. We see poverty growing again, even during relatively good times (2008, before the economic slump began to bite) and this time it is happening largely because families are not forming at all. Marriage is going out of style among the poor. It is not too much in style among the upper classes, either.

No one wants to talk about this as a public policy issue, but it is major. Some 3.7 million Americans fell into poverty in 2008, which, as I say, was well before the brunt of the recession was felt. Crucially, single mothers bearing children out of wedlock are five times more likely to fall into poverty than those women who are married.

Continue reading "Marriage Down, Poverty Up" »

October 30, 2010

Moving Toward Government Of, By and For the Government

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This year, for the first time, the general public is becoming aware that the huge debts of states and local governments are largely the result of public pensions and salaries that under collective bargaining have far outpaced inflation. As The Economist reports, they now are at a point that they probably cannot be paid back without bankrupting some jurisdictions. Facing freezes or cutbacks, it is no wonder the unions are among the most ardent proponents of tax increases.

What people are discovering, in this and other ways, is that the biggest special interest in government is the government itself. The part of the electorate that is never bored by an election campaigns and that never fail to vote are the public employee unions. Do you want to hold a rally? If you're on their side, they'll supply the crowd. Do you want someone to attack your opponent? Look to the American Federation of State, County and Municipal Employee Union (AFSCME), the Service Employees International Union (SEIU) and their counterparts.

This year is different only in that the power of government unions finally are getting some media attention. The Wall Street Journal has reported that public employee unions not only are bigger than private sector unions, but are supplying more campaign cash than any other group.

How did the government unions get such power? A hundred years ago the study of government was not considered a "science" in any modern way. Americans and Englishmen studied "political economy" or "government," or just "history". Asked how to take a role in government, Churchill advised, "Study history! In history are all the secrets of statecraft."

But starting in the late 19th Century American college graduates found reasons to do advanced study in Bismarkian Germany, where universities had invented something called "political science." Like everything else in their government, the social democrats and social Darwinists of Germany wanted to turn what--since the time of Aristotle--had been regarded as a art or craft into "science", a predictable, testable field reserved to experts. The American graduate students came home to places like Johns Hopkins and Columbia and created "political science" departments.

Continue reading "Moving Toward Government Of, By and For the Government" »

October 21, 2010

Huge New Bailout Coming for Fannie & Freddie

Rep. Barney Frank is beginning to own up to his mistaken judgment in the runaway spending at Fannie Mae and Freddie Mac--which played a huge role in the housing bubble. But, meanwhile, the Administration is planning an even bigger bailout for these two semi-governmental entities.

This is the most significant and most neglected issue in the current campaign. The airwaves are alive with exaggerated attacks on opponents' character and slippery insinuations about opponents' policies. But the glaring issue that started the recession--and may cause a double dip--is still not being faced.

In Britain the new Conservative/Liberal government is cracking down on many of the "quangos" (quasi-governmental organizations) that operate largely outside the accountability of parliamentary democracy. But America has not begun to do anything similar.

Spending versus Saving, a Worldview Choice

The Obama Administration has an answer for the continuing economic slump: more spending. Critics on the right want less spending and more rewards for saving and investment. An excellent example is Social Security. Because there was no inflation last year there will be no cost of living increase for Social Security, which seems straightforward enough. But the Democrats want to provide a $250 check to seniors to compensate for the lack of a cost of living increase. In other words, when inflation goes up, you get a biggest payment. When inflation is flat, you still get a payment. As Debra Saunders explains at The San Francisco Chronicle, this is the pattern.

Meanwhile, our currency is being devalued daily and rewards for savings are shrinking. Senior citizens who watch this development know that their savings are getting negligible returns. How charmed will they be that the Administration's response is yet more spending ($14 billion)--throwing fuel on the inflation fire, as it were?

October 18, 2010

Higher Taxes May Mean Less Charity

Raising taxes--as planned for next year, if President Obama has his way--will likely lead to a continued decline in charitable giving. The poor economy of the last two years already is taking its toll on non-profits that count on donations.
The Chronicle of Philanthropy today reports that the top 400 charities in America experienced an 11 percent decline in contributions for 2009.

As an indication of how stock drops can hurt charity, the Fidelity Charitable Gift Fund plummeted 40.3 percent in 2009, according to the report.

On the other hand, some charities experienced an increase, perhaps attributable to those with jobs trying to help out more in hard times. Something similar happened in the early days of the Depression. Catholic Charities, for example, rose an impressive 60 percent. World Vision and AmeriCares both posted gains.

The economy is a bit better in 2010 and the charitable sector therefore may stabilize or show a tiny gain this year (the Chronicles report sees a possible 1.6 percent rise). But if taxes go up as planned in 2011--the income tax, the capital gains tax, the Estate Tax, and state and local taxes and fees--you can probably expect a further belt-tightening.

For me, the implication is clear: money the government gets will come partly at the expense of private philanthropy.

October 16, 2010

New "Stimulus" Okay if It's for Seniors?


The White House and Congressional Democrats have been trying to recover from assertions that they have wasted hundreds of billions of dollars on unproductive stimulus programs that failed to stimulate. Yet now, in face of a second year with negligible inflation, the President and Speaker Pelosi are promising to give a $250 check to seniors to over-ride the Social Security law that provides a cost of living increase (COLA) for recipients only if there there really is a cost of living increase in the economy. The point of the law is that people on fixed incomes cannot accommodate to inflation, so a cola is warranted in such times. However, we are in an economy with little or no inflation, and where, on the other hand, our future is burdened with ever-increasing federal deficits--now $1.3 trillion.

Reckless U.S. spending is contributing to a weakening of the dollar worldwide. Eventually, with further Fed paper manufacturing expected, the effective devaluation of the dollar will lead to inflation in American prices. Oddly, the President and Speaker Pelosi are causing the very kind of problem they supposedly would like to compensate for.

Candidates this fall who have been had a born-again conversion to fiscal integrity should think hard before they get behind this latest boondoggle. "Rather than pluinge $14 billion deeper into debt, Congress should get to work to save Social Security, averting painful across-the-board cuts for those in an near retirement as scheduled under current law, " is the way Rep. Paul Ryan (R-WI) puts it.

Some liberal voices already have been raised again the latest cyncial election campaign pander. "On this the president gets a failing grade," says a Washington Post editorial this morning.

October 14, 2010

Truth Emerging About Economic Meltdown

Rep. Barney Frank's re-election campaign has become the scene of a surprising spate of truth-telling about the economic meltdown in the housing market that began two years ago this fall and still complicates recovery. Several stories have appeared in which Mr. Frank acknowledges his own failure to grasp the true nature of the problem seven years ago when something still could be done. In fact, he and Rep. Maxine Waters of California and Sen. Christopher Dodd of Connecticut virtually demonized those warning of danger.

The Bush Administration at the time was trying to promote more regulatory oversight of Fannie Mae and Freddie Mac, and Sen. John McCain was sponsor of unsuccessful legislation on the topic. Unfortunately, they did not push hard enough and publicly enough. When the crisis broke in 2008, Sen. McCain did not even understand at first that his own warnings of three years earlier had been vindicated. He pointed instead at "Wall Street greed."

In fact, a very large majority of bad loans in 2008 were those arranged by federal agencies.

The federal commission that is supposed to be looking into the whole matter is slated to report to the public by December 15 this year. Rumors are that the report is slow in developing and may not make its deadline. Nonetheless, the pressures of campaigning and the current tensions over foreclosures seem to be bringing the subject back into view.

It's important that the full truth of the 2008 economic crisis be told and be told accurately if we are to dig out permanently from the current economic slump.

October 11, 2010

How the Rich will Cope When Their Taxes Go Up

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When the irrepressible Grover Norquist of Americans for Tax Reform makes a speech these days he likes to pass out a sheet that lists all the tax increases that are coming on line in the weeks ahead. (His website provides the list, too.) You get the idea that even if the Tea Party and its candidates swept the elections clean next month there would be no stopping some of the tax hikes. And it all is going to hit in the midst of a de facto recession.

A former Bush economic adviser from Harvard, N. Gregory Mankiw, wrote in an op-ed for the New York Times this past weekend that people like him simply will work less when taxes get so high that added income only represents a gift to the government. In effect, they will withhold some of their labor, and it is the economy that will feel the loss.

Unfortunately, most Americans are too young to recall the 1970s when this kind of dis-incentive last obtained. In England, pre-Thatcher, it was even worse. I remember visiting London in those days and remarking on all the highly visible money. I remember exclaiming, Some economic slump!

The trouble was, appearances were deceptive. For a wealthy person, the last dollars (or Euros) he earns in a high tax economy are virtually worthless to him, so he or she not only spends less time working, but more time in consumption of luxuries. You saw lots of Rolls Royces on the street in the old U.K. There was Lucullan, expense account-driven eating at fine restaurants. Business and law offices became grande and imposing. That sort of thing escapes the tax man. Plenty of other money went into pricey property overseas, especially in tax havens like the Bahamas.

Continue reading "How the Rich will Cope When Their Taxes Go Up" »

September 20, 2010

Public Unions Move to Front of Politics

Nobody anywhere wants to take on the public employee unions. First of all, while the problem with the unions is not the members, but the leadership, it is hard to make that clear if the latter are running an "independent" ad campaign tearing you apart. Second, while businesses can take advantage of "soft money" provisions in elections, they so far have been shy about doing so; they have mixed constituencies, after all, and they are afraid of retribution. But labor unions toil under no such inhibitions. Third, unlike the business sector or manufacturing unions, public sector unions are not being hurt much by the recession. But they are very alarmed that future cutbacks may reach them. That means they currently have money to spend on political campaigns, along with ample motivation to spend it.

The role of the unions in politics is back in the news in England, where some old timers recall that resistance to union abuse in the 70s is what propelled Margaret Thatcher to power and maintained her there.

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September 19, 2010

770,000 Jobs Lost with Tax Hike

Robert J. Samuelson is one of the more adroit and useful economists writing for the media, and almost opposite from the ranting Paul Krugman, who finds a propaganda angle and then tries to support it. If anything, Samuelson of The Washington Post and Newsweek tries too much to coat his bitter pill of reality with sugary moral equivalence, as in Monday's column on whether tax hikes on "the rich" will help the economy.

You have to get well down in the article before you realize that the real point of the piece is the folly of raising taxes on investors and small businessmen in a recession.

Quoting Moody's, Samuelson cites predictions of 770,000 more jobs lost if the Obama tax increase goes through. Elsewhere Moody's has predicted a net loss of .4 percent of GDP with the tax increase. In other words, in the end, soaking the rich right now is a money loser for the federal government, as well as an economy poisoner.

September 17, 2010

Baseball is as American as, well, Free Enterprise

Earlier this week New York Yankee shortstop Derek Jeter was embroiled in a minor controversy when he pretended to be hit by a pitch and so got a free ticket to first base. Replays, and an after-game admission by Jeter, proved that he hadn't been hit by the pitch at all, but simply pretended to have been. Even as he was pretending the home plate umpire was telling him to take his base. Whether he was granted the base because of his dramatic antics is unclear, as the umpire seemed to already have been persuaded that he'd been hit by the pitch. You can watch MLB's coverage which shows you specifically what happened. And then the fallout.

Needless to say. there are a lot of views within the sports world about what transpired that are all over the board. While this is a rather minor instance to be sure, it still involves a major player. And I think it strikes a chord in Americans for a reason they may not realize. Because they're Americans! And by that I mean, capitalists. Entrepreneurs. People who like innovation and who like to succeed.

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September 6, 2010

Greek Default Still Looms in Europe

Economic news in Europe is beginning to reflect the continuing prospect of a debt default by Greece, regardless of current austerity measures. Leaving the Eurozone is one option for Greece, regarded by some as the "least terrible" and others as the most terrible. Riots, even "civil war", are predicted.

Regardless, a Greek default could lead to other disruptions in Eurozone and, initially, to a general weakening of the Euro. It is hard to believe that strengthening the EU was considered inevitable only three years ago. Not any more.

Germans in particular do not want to pay Greece's bills. Some Germans think that in the long run the Eurozone would be stronger with much more fiscal stringency.

All of this forms another potential pothole in the path of economic recovery in North America and Europe. In the long run, however, it is important for real costs to be borne opening in any society. A confederation like the EU is especially vulnerable when real costs are hidden.

August 3, 2010

New Book Pricks Higher Ed Bubble

Americans' superstitious belief in the assured blessings of a college diploma is waning. A degree by itself does not mean someone is well-educated, in the classic sense of, say, 100 years ago. If it did, there still would be an audience for philosophy, for example, and for poetry, but there is not.

A college diploma (in contrast to most doctoral degrees) also does not by itself signify that someone has acquired a vendable set of economic skills--the litmus test of most parents paying the bills these days. The current recession displays how inadequate a college degree has become, with your average espresso barista boasting a bachelor's degree in English literature theory or sociology. Slowly the frustration is growing among the young as they realize that they have not just been indulged, but cheated.

A college degree doesn't even mean that students are smarter, rather than merely older, than when they arrived as freshmen. Surveys show, for example, that some seniors know less about the U.S. Constitution and the American form of government (crucial knowledge for a responsible citizen in a republic that subsidizes these students' education) than do their first year counterparts.

But what our education system does accomplish in the college years is to provide increasingly good livings for tenured professors, largely trivial journals that publish their trivial writing on navel-gazing trivial subjects, and layers of administrators to create and manage forms.

The higher ed bubble is pricked in a new book by Andrew Hacker and Claudia Breifus that is reviewed today in the Wall Street Journal.

Before readers complain that the article and the book (and my comments above) constitute an overly sweeping indictment, let us all acknowledge that there are some fine colleges and that even the bad ones have a some good professors. A few professors can even be called outstanding, whether on teaching or research grounds, or both.

Okay? But let the reader also acknowledge that the institution of college education is ripe for reform. If nothing else, the customers will demand it.

July 19, 2010

Future in Space, Courtesy the Private Sector

Bill Whittle enthuses over America's space program that thrilled him as a boy, but now is relegated to sclerotic, bureaucratic drift. Plainly, the current Administration is not much interested. The odd and exciting consequence, Whittle says in a Pajamas Media TV talk, is that the way has been cleared for private pioneers using their own money, "or money they can talk out of someone else." Paul Allen and Jeff Bezos are among the the new class of space explorers, like Lindbergh and Howard Hughes.

July 16, 2010

Obama Names Tom Alberg to New National Council on Entrepreneurship

Tom Alberg, who helped found Discovery Institute in 1990 and was president of its Board for many years (and still serves as a Director), is one of the most innovative entrepreneurs around. He knows the importance of pro-growth economic policies and is keenly aware of the dangers of the present moment. So it is with delight that I note that he has been appointed by President Obama to the prestigious new National Advisory Council on Innovation and Entrepreneurship. The Council will operate under Commerce Secretary Gary Locke, former governor of Washington State.

Alberg is a lawyer by background, who served as Sr. Vice President at McCaw Cellular when it was sold to AT&T. He was an early investor in Amazon and a founding principal in Madrona Venture Group, the Seattle-based high tech investment house. He also is responsible for Novelty Hill winery and several other original-ideas-taken-concrete-shape. Many of his business projects, such as Oxbow, a model farm in the Snoqualmie Valley east of Seattle, combine philanthropic vision with business purposes-- as for example, a teaching program for schoolchildren visiting Oxbow Farm.

Tom has a talent for innovation, appreciates talent and promotes talent. He's an unusually enlightened and resourceful businessman. Good for President Obama for recognizing this, and here's hoping the President listens to his appointee's advice on his Advisory Council.

Among the other members of the Council announced yesterday are Steve Case, co-founder of AOL, Jerry Yang, co-founder of Yahoo! and Carl Shramm, CEO of the Kauffman Foundation.

Continue reading "Obama Names Tom Alberg to New National Council on Entrepreneurship" »

July 12, 2010

The Strivers versus the Privileged Rich

Current support for raising income taxes on all people making $200,000 and more typically confuses that category of people with "the rich". Yachts and mansions are visualized, and if one is a bit more sophisticated, one imagines trust funds and the ability to hire lawyers and lobbyists to look after the rich person's business breaks. But in the real world folks with yachts and mansions--the truly rich--are not much bothered by the income tax for the simple reason that their money seldom rests on salaries; the truly rich are far beyond that.

But the people trying to become rich--the strivers we need to generate new businesses and jobs--are hit hard.

Surely one should not have a moral position on the rich. It's not morally bad to be rich any more than it is to be middle class or poor. It's also not morally good to be rich. It all depends, doesn't it, on how one uses his resources.

Unfortunately, while the income tax tends to hit strivers hard (and will hit them much harder come January, 2011), it still affords great advantages, such as tax breaks and incentives that are "subsidies for the reckless rich," as Ross Douthat writes today in The New York Times.

Continue reading "The Strivers versus the Privileged Rich" »

July 1, 2010

New Federal Tax Policy Creates New Mysteries

The new Health Care Bill defies clear understanding, as Speaker Nancy Pelosi hinted when she said we would have to wait until it was adopted to find out what's in it. In truth, though adopted now, it is still opaque.

Here's an example. A helpful Capitol Hill staff analyst has assisted me as I try to comprehend all the taxes that are going to be raised by the Congress and Obama Administration. By now you know (I hope) that the top income tax rate for wage earners is going from 35 percent to 39.6 percent as of January 1, 2011. The capital gains tax goes up to 20 percent, the Estate Tax goes up to 55 percent (from zero percent this year). Pretty horrible if you think that economic recovery requires private sector incentives to invest in new businesses and jobs.

But another downward pressure on growth is uncertainty, including the sheer complexity of the tax code.

Note that Obamacare now adds new surcharges on "high income" earners and investors at the beginning of the following year (2012). But the process is so byzantine that it definitely will confuse many and frustrate everyone, even accountants, as they seek to comply. See if you can follow.

Continue reading "New Federal Tax Policy Creates New Mysteries" »

June 25, 2010

Do You Know How High Taxes Are?

I meet all kinds of people, including frustrated liberals who think that many of our problems today would disappear if only the "rich" and "the corporations" paid more in taxes. Government obviously needs more money, or else budgets wouldn't keep going up, right? So we need to take a bit more from people who have more than they need and redistribute it.

So I try this experiment. I ask people, "How high do you think the top federal income tax rate should be?" I get a lot of blank stares, then they often say something like, "Twenty percent."

Then I ask, "What do you think the top income tax rate actually is right now?" This is a test, obviously, and it makes some people uncomfortable. But many finally answer something like, "Fifteen percent?" Maybe, "Twenty percent?"

I then explain that the top federal marginal rate of income tax today is 35 percent. Obviously, by their own valuation, that is too high.

In a couple of cases, people say, well, maybe that's just fine.

Then I ask if they are aware it is about to go up--January 1, 2011--to 39.5 percent. At that point, they start to perceive the truth: taxes are already too high. We are at the point where we start to discourage entrepreneurship and strangle growth--when what we desperately need is strong economic activity.

Then I point out that the new Obama Health Care Act will add a further "surcharge" of three percent to payroll taxes of the "rich"....Meanwhile, the Estate Tax (the "Death Tax") goes up to 55 percent next year on estates worth at least $1.2 million....Capital gains taxes are slated to rise from 15 to 20 percent.

And all of this comes before state and local income taxes in most states.

The truly rich can manage it. Their money is mostly not in salaries. The people who get soaked are those folks aspiring to get rich by building businesses and creating new jobs--the people on salaries or commissions. High income taxes thwart their ability to save and invest.

I have had some success with this socratic approach. Deep down, even many liberals don't believe in the policies of their leaders.

June 24, 2010

Here's a Rich One: You

The great hope of political liberals is that ordinary Americans can be made to dislike and resent "the rich". Most don't, fortunately.

Some very rich people--the folks with millions or billions in banks, securities, tax-free municipal bonds, Treasuries, gold, trusts, various shelters--are calling for increases in income taxes. Easy for them. The income tax primary hits salaries, and the rich don't have much of their real income in salaries.

People who want to become rich do. They are the ones about to get socked by rising income taxes and surcharges (Obamacare). Today "rich" starts at $200,000.

Now we learn that that may not be enough. House Majority Leader Steny Hoyer says so. In comments two days ago he says the middle class may have to bear more income taxes, too.

June 23, 2010

Canada's Big G-8 and G-20 Confabs Could Become Big Headaches

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The G-8 conference on the international economy is about to take place in small town Muskoka, Ontario, followed by a G-20 meeting this weekend in Toronto. Together they offer at least as big an opportunity for the world's traveling tribe of protestors to show off as they do for economically prosperous Canada.

The trouble is, whenever some city or country decides these days to boast a bit, the leftist furies assemble to undercut the effect. Remember the WTO in Seattle? As happened in Seattle, much of Toronto will be closed down.

Expenses for the international meetings in Ontario already are estimated at $1 billion. There will be a sightseeing and cell phone and airspace limits imposed for part of the time. To protect VIPS from agitators a $5.5 million fence has been erected--sure to be likened to that along the US southern border or the line between Israel and Gaza. Today a man was arrested for attempting to plant a bomb at the conference site.

Meanwhile, the conferences themselves are likely to be relatively boring. That is because international leaders don't agree yet whether a recovery is underway and sustainable, and are uncertain therefore whether to goose spending or reverse it. Our President wants to spend. But you knew that. The other G-8 leaders think deficits have to be reduced.

June 15, 2010

You Can Do This Tax Experiment Yourself

Find a registered adult who doesn't work for Congress or a think tank that covers the economy. Ask him or her two questions: 1) What do you think the highest income tax rate for individuals should be? After they tell you, ask, 2) What do you think the top rate is right now?

Continue reading "You Can Do This Tax Experiment Yourself" »

June 14, 2010

California Taxpayers Fooled Again

In 2004 the taxpayers of California approved a bond issue of $3 billion to set up a state program for embryonic stem cell research. Medical miracles were virtually promised. We are now six years later and there are no miracles. They are always just around the corner.

But what has arrived, meanwhile, is public indebtedness in California that is requiring cuts in public services and public employment--and tax increases. I wonder if anyone in California would like to have their 2004 money back.

A Los Angeles Times opinion piece acknowledges that little has happened with the billion dollars spent so far. But what no one seems to be asking is, why was this a state initiative anyhow? If the case for embryonic stem cell research was so terrific, why didn't the federal government handle it?

One public policy analyst who did see the problem clearly at the time was bioethicist and Discovery Institute Senior Fellow Wesley J. Smith.

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June 10, 2010

Is Big Business the Problem?

Things are falling apart for the Obama Administration and the White House folks are not interested in taking responsibility. It's getting a bit late in the term to blame George Bush, though that continues. And while there also are efforts to blame recalcitrant Republicans in the Senate and House, it's obvious to anyone that Democrats control Congress overwhelmingly.

So who you gonna blame?

Big business. In a number of fora progressives (nee, "liberals") have decided to try left wing populism and put the fault for the nation's ills on big business.

There are a couple of problems with that. First, many of the failures of the Administration--in foreign policy, for example--have little to do with business, big or small.

Second, for the past two elections rich people have donated more to Democrats than to Republicans. President Obama carried all 20 of the zip codes with the highest percentages of rich people. And big businesses have been prominently won over to support of such legislative aims as Cap and Trade and Obamacare. Big Pharma alone spent $150 million in soft money TV ads boosting leading Democrats who supported the President's health bill. Seduced or coerced, either way they paid. As for Wall Street, their strong Democratic proclivities in 2008 definitely were the product of easy seduction.

As for oil, BP contributed $1 million to the Obama campaign and more to Democrats than to Republicans in Congressional races.

So, blaming big business makes something of a circle of blame that winds up back in the White House.

June 8, 2010

News Source on Philanthropy Debuts

Dr. Jeffrey Cain, cited several days ago here for his important paper on government threats to the independence of the philanthropic center, officially begins Philanthropy Daily online today.

Cain and his associates have strong backgrounds in the fields of philanthropy and fund-raising for non-profits. Most valuable, in addition, is their perspective of respect for the tradition of charity and their suspicion of government offers to "help" the sector.

June 4, 2010

Next Takeover Target: US Philanthropy

Dr. Jeffrey Cain heads Philanthropy Daily online and has just published an important article (at Washington Legal Foundation) on efforts by activist groups and government to gain control of what used to be called the "independent sector". It isn't enough that most non-profits are led by people who enthusiastically supported the present Administration and that the over-whelming majority of foundations that take an interest in public policy back "progressive" causes. Now the left wants direct pay-outs. Dr. Cain's paper follows:

Five Threats To Philanthropic Freedom In These Recessionary Times

By Jeffrey Cain, Ph.D.
June 4, 2010 (Vol. 25 No. 22)


The generosity of individual Americans is the envy of the world. No developed country even comes close to the amount of time that Americans volunteer or the amount of money Americans give to charity. Within eight days of Hurricane Katrina, Americans had donated over $580 million to relief efforts; within fifteen days of the earthquake in Haiti, $528 million.1 Collectively, Americans gave over $308 billion to charity in the recessionary year of 2008. We are uniquely, even congenitally, generous. When it comes to philanthropy, something has gone gloriously right in the United States.

Yet one would hardly know this from the litany of grievances and regulatory proposals now emanating from activists, politicians, and philanthropic bureaucrats. Recent years have yielded bumper crops of reports, legislative efforts, and pleas calling for greater oversight, transparency, and governance of America's independent charitable sector. In different times, these complaints might be brushed aside as the perennial chatter of self-proclaimed and self-serving advocacy groups. However, as the effects of the recession linger -- widespread unemployment, soaring deficits, budget shortfalls, and popular dissatisfaction with elite institutions -- long-held grievances against private philanthropy may find a more receptive ear, especially given Washington's reform-minded political ethos.

Continue reading "Next Takeover Target: US Philanthropy " »

Hungary Default Specter Scares Markets Anew

The new center-right government in Hungary is telling the IMF and the world that the former, socialist government left Hungary in even worse fiscal shape than suspected. They may be exaggerating as a bargaining tool with the IMF, but there is no doubt that the prospect of another bankrupt country is scaring world markets.

In the US most of the "new employment" created in May were temporary positions in the Census Bureau, a further sign on this side of the Atlantic that Obamanomics isn't working.

May 21, 2010

Economic Growth is the Only Way Out of the Hole

How can we get out of the deep economic hole we're in?

The old advice, "First, stop digging," is apt, since the Obama Administration continues to contend that "stimulus" is helping and we just need more of it. We also supposedly need more taxes on individuals who make investments in businesses and jobs.

The stock market for a while had some people feeling confident, even though salaries weren't rising and unemployment has remained high. Now that confidence is shaken, too. Demand side economics isn't working.

The real advice we need is reduced public spending and reduced (or at least not increased) taxes especially on investments. We need growth.

Continue reading " Economic Growth is the Only Way Out of the Hole " »

May 15, 2010

Sympathy for the Greeks? Save it for U.S.

The "back story", as they say, about the Greek riots and the supposedly harsh cutbacks Greeks are bearing in order to win European Union and IMF (including U.S.) bailouts is not the sort of thing as to make one overly sympathetic.

Greece really is an advanced case of the statism that threatens Spain and Portugal, but also the U.K, and, yes, the U.S. down the road. Public employees are numerous--more numerous than France!--and given lavish pay programs that include 14 months of pay for 12 months of work. Government workers with an extra month's pay each Christmas and Easter. So do government workers for their retirement pensions. Some can retire as early as their 40s.

Continue reading "Sympathy for the Greeks? Save it for U.S." »

May 14, 2010

Governor Christie, Hero for Restored Economy

There are so many "wets" around--the name Margaret Thatcher gave Conservatives who talk about conservative principles but are hesitant to put them into practice once they achieve office--that it is exciting when a true "conviction politician" (another Thatcher term) emerges.

One has emerged in New Jersey, of all places. Moreover, he defies the standard expectations of politicians since John F. Kennedy that newcomers, at least, should be svelte, blow-dried anchorman-look-alikes. Gov. Christie is, well, not that.

What he is doing, with little media support and large public support, is trimming the fat in Trenton and trying hard to re-ignite the dynamism of New Jersey. Here is his takedown of a liberal reporter who asked if he didn't think his "confrontational" position on spending would damage his cause:

May 11, 2010

Medved's Wisdom on Business--Distilled

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.

May 10, 2010

Kids Lack Summer Jobs While Small Farm Owners Want Workers

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Produce from Oxbow Farm, Carnation, WA

America is full of small "farms" that have been purchased for summer homes or retirement abodes, or just a nice ex-urban address some miles outside the range of urban sprawl. People who acquire such places soon find that it is impossible to farm them in any conventional way, however. They cannot earn enough money. Their counterparts were sold long ago to conglomerates or housing developments. Most nominal small farm land lays fallow as a result--pastoral landscape with no pastoral animals, truck gardens with no large gardens, and, for that matter, no trucks. Good people wind up wasting good land.

It takes workers to maintain farm animals, even the cattle or sheep or horses that might seem to require little care. Orchards need frequent pruning. When vegetables ripen, many hands must work long hours over a few days to harvest them.

Continue reading "Kids Lack Summer Jobs While Small Farm Owners Want Workers" »

May 5, 2010

Pensions Spell Doom for Western Economies, Including US Federal Government and States

People tend to follow news piecemeal--the story about spending in the state capital, the story from City Hall and the County Courthouse, the federal government, Greece (riotously right now), Portugal, Spain, Italy, the U.K. (get set for the post-election wake-up call); not to mention confirmed basket cases like Venezuela and Argentina.

But in various ways, all are part of a trend. All are facing a giant hangover from years of deficit spending, and worse, unsupportable spending commitments for the future. Much of it has to do with public pensions.

Andrew Biggs covers some of the problem in a very useful American Enterprise Institute papers, "The Market Value of Public-Sector Pension Deficits." it's only part of the picture, but a key one.

Says Bigg, an AEI resident scholar, "State pension funds ar underfunded by over $3 trillion; this is more than six times the $438 billion in underfunding the plans themselves report."

Continue reading " Pensions Spell Doom for Western Economies, Including US Federal Government and States" »

April 27, 2010

The Big Pander on Wall Street

If you fully understand the problems of the American finance, please feel free to opine on the bill before Congress. But following the political horse-race coverage of the bill by the Washington Post, you can see that not everyone is really interested in the content. Instead, politics rules.

The one thing certain is that is that Democrats, having lost this vote, finally may be ready to deal. Indeed, maybe the point of the vote was to show their base the necessity of so doing.

Strangely, multi-billionaire businessman Warren Buffeted added at the end a note of sobriety to the proceedings by arguing frankly for his own interests. Buffet is much admired. He supported Obama. But he does not see this bill as advancing real reform. His Nebraska senator, Democrat Ben Nelson, voted with the Republicans.

Republicans, however, also are ready to deal after this vote, and have been ready to deal all along. They are not, in fact, any more in bed with Wall Street than are the Democrats.

Republicans must disenthrall themselves publicly yet again from the image of the "Party of the Rich." In fact, they deserve a reprieve, especially since the "rich" voted for Democrats in 2006 an again in 2010.

The problem for Democrats is that they have not disenthralled themselves from the new and entirely valid image as "the party of big government" that gets into every aspect of life as an uninvited and self-proclaimed "expert."

April 13, 2010

Conservatives to Cut Taxes in Britain

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.

Continue reading "Conservatives to Cut Taxes in Britain" »

April 8, 2010

Debauch the Dollar, Damage the Economy

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:

Continue reading "Debauch the Dollar, Damage the Economy" »

January 12, 2010

A Double Dip Recession is Quite Possible

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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?

January 6, 2010

Lobbyists for Dog's Breakfastfood

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.

December 23, 2009

Mr. Obama's Pleasure Island

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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.

Continue reading " Mr. Obama's Pleasure Island" »

November 23, 2009

Finally, the Word is Getting Out: the Young are Targets

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.

November 19, 2009

Democrats Turning on Obama Economic Team

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.

November 18, 2009

A Weak Dollar Produces a Weak Economy

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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.

Continue reading "A Weak Dollar Produces a Weak Economy" »

"Insurance Reform" Translates to "Higher Prices"

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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.

November 13, 2009

Israel is now "The Startup Nation"

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.

October 13, 2009

Tax Increase for Middle Class Hidden in Health Care Bill?

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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.

October 1, 2009

Trade Deal Finally Close

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.

September 28, 2009

Public Doesn't Know the Truth About Social Security

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.

September 27, 2009

Update: Expect German Tax Cuts, and More Nuclear Power

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!

September 25, 2009

Health Insurance Shocker: Buy, Pay Fine or Face Jail

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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.

September 23, 2009

How to Keep Your Own Doctor Under New Senate Bill

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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?

September 10, 2009

Great News at Last! Economy is Solving Income Inequality

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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.

September 7, 2009

Outstanding in the Field, a Cultivated Taste

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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.

August 31, 2009

Sol Stern on The Israel Test--and "Gilder Haters"

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.

August 27, 2009

Libertarian Examines Cost Control Case for Care Rationing

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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.

August 25, 2009

The Wrong "Stimulus" Can Ruin a City

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.

August 21, 2009

President Obama's Orwellian "Moral Obligation"

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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.

August 14, 2009

Maybe America Should Try Barter, Too

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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.

August 13, 2009

Big Business, If You're So Rich, Why Aren't You Smart?

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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.

August 11, 2009

What's in the (Non-Existent) Health Care Act?

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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.

August 8, 2009

If Government Ran Car Care

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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.

August 7, 2009

The Folks Who Want to Run the Economy

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?

July 27, 2009

Conformity in Science and Economics

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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

"Academics, like teenagers, sometimes don't have any sense regarding the degree to which they are conformists."

So says Thomas Bouchard, the Minnesota psychologist known for his study of twins raised apart, in a retirement interview with Constance Holden in the journal Science.

Journalists, of course, are conformists too. So are most other professions. There's a powerful human urge to belong inside the group, to think like the majority, to lick the boss's shoes, and to win the group's approval by trashing dissenters.

The strength of this urge to conform can silence even those who have good reason to think the majority is wrong. You're an expert because all your peers recognize you as such. But if you start to get too far out of line with what your peers believe, they will look at you askance and start to withdraw the informal title of "expert" they have implicitly bestowed on you. Then you'll bear the less comfortable label of "maverick," which is only a few stops short of "scapegoat" or "pariah."

A remarkable first-hand description of this phenomenon was provided a few months ago by the economist Robert Shiller, co-inventor of the Case-Shiller house price index. Dr. Shiller was concerned about what he saw as an impending house price bubble when he served as an adviser to the Federal Reserve Bank of New York up until 2004.

So why didn't he burst his lungs warning about the impending collapse of the housing market? "In my position on the panel, I felt the need to use restraint," he relates. "While I warned about the bubbles I believed were developing in the stock and housing markets, I did so very gently, and felt vulnerable expressing such quirky views. Deviating too far from consensus leaves one feeling potentially ostracized from the group, with the risk that one may be terminated ."

Conformity and group-think are attitudes of particular danger in science, an endeavor that is inherently revolutionary because progress often depends on overturning established wisdom. It's obvious that least 100 genes must be needed to convert a human or animal cell back to its embryonic state. Or at least it was obvious to almost everyone until Shinya Yamanaka of Kyoto University showed it could be done with just 4.

The academic monocultures referred to by Dr. Bouchard are the kind of thing that sabotages scientific creativity. Though they sprout up in every country, they may be a particular problem in Confucian-influenced cultures that prize conformity and respect for elders. It's curious that Japan, for example, despite having all the ingredients of a first rate scientific power -- a rich economy, heavy investment in R&D, a highly educated population and a talented scientific workforce -- has never posed a serious challenge to American scientific leadership. Young American scientists can make their name by showing their professor is dead wrong; in Tokyo or Kyoto, that's a little harder to do.

If the brightest minds on Wall Street got suckered by group-think into believing house prices would never fall, what other policies founded on consensus wisdom could be waiting to come unraveled? Global warming, you say? You mean it might be harder to model climate change 20 years ahead than house prices 5 years ahead? Surely not -- how could so many climatologists be wrong?

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.

July 23, 2009

Attacks on Talent are Attacks on the Economy

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.)

July 1, 2009

Why the Economy is Queasy

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.

June 12, 2009

Youth Unaware that Their Birthright is Being Squandered

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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.

June 11, 2009

Government Motors

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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.

April 19, 2009

Inflation is or is Not a Threat?

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

March 10, 2009

Economics Now Taught Mainly at School of Hard Knocks

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.

February 26, 2009

"Rollover" Your IRA Into Your House -- Tax Free!

"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.

February 25, 2009

So, Why Aren't YOU Showing Confidence in the Economy?

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?


February 6, 2009

Exhausted Stimulus

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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?

January 31, 2009

Stimulus Bill is Bombing

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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?

January 29, 2009

Over-Stimulated, Under-Productive

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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.

January 23, 2009

Take out the Economy's Toxic Waste

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.

January 22, 2009

Amity Shlaes ("The Forgotten Man" author) on Obama and FDR

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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.

January 15, 2009

"You Think the World Owes You a Living?"

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.

January 13, 2009

Wesbury and Stein Say We've Touched Bottom

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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.

January 7, 2009

Contrarian Suggestion: LESS Regulation, Please

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.

January 1, 2009

Cut Taxes to Revive Growth

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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.

December 8, 2008

Raise Gas Tax, But Cut Others

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.

December 7, 2008

Stiff Your Alma Mater

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.

December 6, 2008

Stimulate the Economy, Not Inflation

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.

November 23, 2008

Grim Immediate Economic Future

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.

November 14, 2008

Where's MY Bailout?

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.

November 4, 2008

The Economy Could Get Much Worse

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.

October 25, 2008

Bet Your Hedges: Gilder Says Creativity Will Revive Economy

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.

October 21, 2008

New Stimulus Plan is Old Bad Idea

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.

October 9, 2008

Santorum on Why the Economic Meltdown

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.

October 1, 2008

The Financial Problem Reaches Commercial Real Estate

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.

September 30, 2008

Phony Issue of Banking Deregulation

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.

September 29, 2008

America's Home Ownership Rate is Dropping

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.

home-ownership-rate-1.jpg

September 23, 2008

Who is Going to do Investment Banking Now?

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?

September 22, 2008

Bailout Ironies

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.

So Your Bank Fails, Just HOW Do You Get Your Money?

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)

September 17, 2008

Falling Gasoline Prices are Silver Lining in Economy

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.

September 15, 2008

Before We Bailout Detroit...

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.

August 3, 2008

Taxaholics, Environmental Showboaters and Bagmen

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.

July 10, 2008

Wall Street Journal Describes Same EMP Scenario Wohlstetter Warns About

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.

June 27, 2008

Steve Forbes on Why a Weak Dollar Means a Weak Economy

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.

June 25, 2008

Florida's Sugar Deal Also Could Prove Sweet for Overseas Allies

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.

June 2, 2008

Oh, the Poor Suffering Middle Class

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

May 23, 2008

Pain Ahead on Inflation

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.

April 16, 2008

Who's to Blame for the Economic Slowdown?

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?

November 10, 2007

Bogus Threat from Foreign Investment

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?

November 9, 2007

Ideas That Get No Respect

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

October 12, 2007

George Gilder, ESP and Spooky Action at a Distance (on Tax Revenues)

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).

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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.

January 18, 2007

Savings: Ben Bernanke on Behavior

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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

January 1, 2007

Conservatives will Likely Desert if Taxes Go Up

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.

October 31, 2006

The Economy is this Year's Orphan Issue

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?

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