Keynes was right? So what!

Paul Krugman starts off his most recent column with a quote from John Maynard Keynes:

“The boom, not the slump, is the right time for austerity at the Treasury.”

Krugman then goes on to give a rousing defense of Keynesian stimulus. He points out that austerity in Ireland and Greece has only depressed the economies in those countries even more. He finishes by noting that interest rates for US Treasury bonds remain at rock bottom levels, concluding that the markets are telling the United States to borrow and spend even more. Keynes was right, Mr Krugman concludes.

Krugman's quote of Keynes begs the question of whether the Treasury ever has exercised or ever will exercise austerity during boom times.

There is merit to the Keynesian hypothesis: a government that has demonstrated its fiscal probity by running surpluses over many years, a government that is but little burdened with debt, can, it would seem, during periods when the economy is depressed, increase its spending, run a temporary deficit, and thereby increase aggregate demand and stimulate the economy, only to take its foot off the accelerator and return to balancing its budget when the economy improves.

But that is not the situation we find ourselves in today. Rather, our government has never run an extended surplus at any time in the last 30 years and, by the end of his term, Mr Obama will have increased the debt burden by more than any President who came before him. We are now buried under a mountain of debt and entitlement liabilities. And the reason why Treasury rates are so low is certainly not because investors have great confidence in the economic prospects of the United States, but because they are terrified that things are much worse elsewhere and are fleeing to Treasuries as a last resort.

Under such circumstances, continued borrowing and deficit spending no longer stimulates, but instead depresses and undermines the economy. As Kenneth Rogoff and Carmen Reinhart have recently pointed out in their book This Time is Different, countries with significant debt burdens generally tend to follow a lower growth trajectory and to be vulnerable to unforeseen exogenous shocks. It is precisely this vulnerability to unforeseen exogenous shocks that Krugman so cavalierly ignores when he trumpets the fact that the United States continues to be able to borrow at such low interest rates. (Krugman reminds me of a someone who has smoked cigarettes for 30 years, who has recently upped his intake to 3 packs a day, and who says: "Well, I don't have cancer yet, so, obviously, smoking is not harmful to my health.")

As I have pointed out in another blog post, the real situation we find ourselves in is that of the Petro-State, as described by Daniel Yergin in his book The Quest:

When [oil] prices soar, governments are forced by society's rapidly-rising expectations to increase their spending as fast as they can -- more subsidies to hand out, more programs to launch, more big new projects to promote. ... But when world oil prices go down and the nations' revenues fall, governments dare not cut back on spending. Budgets have been funded, programs have been launched, contracts have been let, institutions have been created, people have been hired. Governments are locked into ever-increasing spending. Otherwise they face political and social explosions.

In other words, during boom times there never is any austerity, any setting aside of resources for future periods of economic downturn, any saving for a rainy day. Instead, during boom times politicians ramp up their spending as quickly as the tax dollars flow in. They generously expand social programs and make long term commitments to their political supporters, most notably in the United States, to the public service employee unions. And then, inevitably, when all this overspending on less productive programs inevitably collapses, they voice the Keynesian whine: "We need more stimulus, not austerity, to help us out of our economic slump!" Stimulus, in the form of deficit spending over the last several decades, is, in fact, precisely what has gotten them into the current economic mess. And yet, we are asked to believe that stimulus, in the form of even greater deficit spending, accumulation of even greater debt, is now the way out. Hogwash!

I can do no more than to paraphrase what I have already written:

[T]he problem with the Keynesian approach is not chiefly a theoretical one, but a practical one. There are two sides to the Keynesian coin: short-term stimulus during hard times, and counter-cyclical fiscal tightening during good times. But for the practicioners of modern Keynesianism there never, in fact, comes a time when austerity measures are applied and spending and debt are reined in. Instead, ever expanding government spending and borrowing become a permanent way of life. And what is worse, the government spending is often the kind of spending that has an abysmal return on investment ("crony" or "special interest group" capitalism). The end result of this process is that, as the years roll on, mountains of debt are piled up while the return on the spending funded by that debt becomes less and less. We owe more and more and get less and less in return.

Thus, it does little good, Mr Krugman, to point out that, theoretically, Keynes was right. Permanent deficit spending, along with the accumulation of enormous debt that goes with it, without any counter-cyclical tightening during boom times is, simply put, not Keynesianism anymore. Keynes would be appalled to see his name invoked to defend the kind of out of control deficit spending that Obama and other Democratic politicians are engaging in today.

Keynesianism is a zero-sum game

WSJ reports:

San Francisco on Jan. 1 will become the first big city in the U.S. with a minimum wage topping $10 an hour.

WSJ then quotes Donna Levitt, manager of the city's Office of Labor Standards Enforcement:

"[The increase in the minimum wage] provides some protection for San Francisco's most vulnerable low-wage workers, and it also stimulates our local economy" since workers have more cash to spend locally.

Finally, WSJ quotes Steve Sarver, owner of the San Francisco Soup Co., a restaurant chain with 12 of its 18 locations in the city, who says many of his more than 200 employees earn close to the minimum wage:

"[As a result of the increase in the minimum wage, p]rice increases will have to happen eventually," says Mr. Sarver, who charges roughly $5 for soup servings. "There's no way around it."

What I want to point out here is the ludicrous nature of Ms. Levitt's Keynesian claim that the increase in the minimum wage will "stimulate the local economy." Yes, minimum wage workers will have more cash to spend locally. But, this cash will come from individuals who will be forced to pay higher prices to support the increase and therefore will have proportionately less cash themselves to spend locally. In other words, the increase is a zero-sum game: the City takes from one set of people in order to give to another set of people.

The sad irony is that some of the people from whom the money is taken are likely themselves low wage workers, who frequent the San Francisco Soup Co. because it offers a cheap square meal.

The idiocy of the Keynesians, mindlessly parroting their nonsensical mantras, has no bounds.

The Intransigent Tea Party and Germans, Part II

Contrast the positions taken by the NYT and WSJ editorial boards on the "obligation" of the Germans to save the Euro.

According to NYT:

"[I]t should be utterly clear that no country — including Germany — is immune [from the potential disaster]. ... German officials are still insisting that their profligate neighbors need to pay for their sinful ways — and that Germany’s virtuous taxpayers will not be made to foot the bill. ... The best solution would be for the European Central Bank, which can print money, to become the lender of last resort and buy the bonds of distressed European nations."

It is remarkable to me that NYT can simplistically assume that flooding the world with Euros will end the crisis. A much more likely result of such an action would be that the Euro would decline in value and inflation would ramp up across the Continent. Lenders would still demand exorbitant interest out of fear that the value of their loans would be inflated away by the ECB, through a kind of "soft default."

WSJ takes a more sensible position:

"Berlin's alleged sin is its reluctance to write a blank check to save the euro—either by underwriting a new euro-zone fiscal union, or granting permission for the European Central Bank to buy trillions in sovereign debt. The chant comes in unison from the debtor nations themselves, the bailout caucus in Brussels, an Obama White House concerned about its re-election, and liberal pundits worried that their welfare-state economic model is under assault. Like the "rich" in America who must pay their "fair share," the Germans are supposed to pay up to save a united Europe. The reality is that the Germans—along with the Dutch and the Finns—are the rare Europeans who understand that saving the euro requires more than a blank check. It requires a new political commitment to better economic policy. Chancellor Angela Merkel and her cabinet are as euro-centric as the French, but they realize that money alone won't solve Europe's more fundamental debt and growth problem."

Once again the Keynesian, liberal, tax and spend lobby is trying to stampede the world into accepting the "too big to fail" argument: "Italy and Spain are too big to fail. If we don't bail them out, global catastrophe will ensue. And that catastrophe will overwhelm even the innocent. In fact, there are no innocents. We all, including the Germans, are sinners."

Hold your ground, Mrs. Merkel.

The Intransigent Tea Party and Germans

Intransigent. That is the adjective that is commonly applied these days to members of the Tea Party and to the Germans.

This adjective is applied to members of the Tea Party because they adhere to the principle, enunciated most vociferously by Grover Norquist, that taxes must not be raised and spending must be cut. Just this last Sunday on CNN, Senator Patty Murray, Democrat Co-Chair of the Joint Select Committee on Deficit Reduction, said: “Republican lawmakers ... feel more enthralled with a pledge they took to a Republican lobbyist than they do to a pledge to the country to solve [America's debt and deficit] problems.”

This adjective is applied to the Germans because they refuse to support the idea that the ECB should buy up all the debt of the various EU countries (for example, Greece, Italy, and Spain) that have spent and borrowed themselves to the brink of ruin. This week's Economist puts it succinctly: "Far better, goes the standard German line, to remain principled and just say no."

A similar criticism made of members of the Tea Party and Germans is that they are "moralizers," viewing excessive spending, borrowing, and the defaults that result therefrom as "sins" that must be expiated through the "pain of austerity," which serves as a "purgative" or "punishment" for the fiscal excesses. For example, back in September, Paul Krugman wrote:

"What Mr. Trichet and his colleagues should be doing right now is buying up Spanish and Italian debt ... In fact, the E.C.B. started doing just that a few weeks ago, and produced a temporary respite for those nations. But the E.C.B. immediately found itself under severe pressure from the moralizers, who hate the idea of letting countries off the hook for their alleged fiscal sins. And the perception that the moralizers will block any further rescue actions has set off a renewed market panic."

Let's be clear. I certainly agree with Mr Krugman that austerity measures will cause short term pain. This is because, over the short term, austerity measures always result in lower aggregate demand, which causes the economy to grow more slowly. But does this mean that we should instead engage in short-term stimulus to increase aggregate demand?

The problem is that the argument that short-term stimulus should be applied to an ailing economy is a sound one only for a government operating under "normal circumstances," where normal circumstances are defined as

a.) the government is not already burdened with debt from having taken on enormous social obligations and having run chronic deficits for the last 30 years, and

b.) the government has demonstrated over multiple business cycles that, when the economy starts to roar and tax receipts are running high, it will withdraw the stimulus and reduce its spending and borrowing to apply a counter-cyclical dampening influence on the economy and will set aside certain amounts of money to tide it over during future downturns.

But, this is never the way American government works. When the economy is roaring and tax receipts are high, that is precisely the time when federal and state governments ramp up their social spending and borrowing even further and take on even greater social obligations to their citizens. At such times of prosperity, the need for austerity measures, for reducing debt, and for saving, is forgotten.

Thus, the problem with the Keynesian approach is not chiefly a theoretical one, but a practical one. There are two sides to the Keynesian coin: short-term stimulus during hard times, and counter-cyclical fiscal tightening during good times. But for modern Keynesians there never, in fact, comes a time when the austerity measures are applied and spending and debt are reined in. Instead, ever expanding government spending and borrowing become a permanent way of life. And what is worse, the government spending is often the kind of spending that has an abysmal return on investment. The end result of this process is that, as the years roll on, mountains of debt are piled up while the return on the spending funded by that debt becomes less and less. We owe more and more and get less and less in return.

Laurence Fink, chief executive officer of BlackRock, said recently in a Bloomberg interview:

"Germany is playing their cards really well. ... We have seen two changes of government. Governments are working towards constitutional amendments to balance the budget. You have unions in Spain now talking about restructuring wages. So, you have countries like Spain and Italy that are finally now responding to the global capital markets. And Chancellor Merkel saying "We're not doing anything" and the ECB following suit has had some very good results. Now, obviously, the capital markets are not happy about it. We're getting really stressed about it. But, I think there has been positive movement in these countries. It is a very dangerous stake that Germany is playing.

Yes, it is a dangerous game that Germany is playing and, over the short term, there will continue to be stress in the capital markets and pain as the profligate economies get their fiscal houses in order. But, our only hope is that Germany, and the Tea Party here in the US, intransigently adhere to their principle that profligate spending and borrowing must stop. That is the only thing that can pull us back from the brink. Following the prescriptions of the Keynesians is like following the prescriptions of some mad doctor who claims that curing a heroin addict of his addiction will cause too much short term pain, so that what we must do instead is give him more heroin.

Meritocracy != Quotas

Eric Ries has written a piece about the recent brouhaha over the question of whether there is enough "racial diversity" in Silicon Valley. As I read Ries' piece, the phrases that kept coming to mind were "mealy-mouthed" and "fence sitting." Here is someone who obviously has been thoroughly cowed by the diversity police and shakedown artists.

Ries attempts to dress up his argument in scientific clothing. He writes:

"We should use science, whenever possible, rather than anecdotal evidence. ... Picture those two bell curves. ... There is some research on the differences between men and women, ... If you’d like to examine the math involved, check out this excellent slide deck courtesy of Terri Oda. ... There’s plenty of good research on the subject of team performance that shows that diverse teams outperform homogeneous teams on many different kinds of tasks. ... The whole premise of Moneyball was the triumph of science, data, and reason over the gut feelings and beauty contests of baseball scouts."

And yet, after spouting all this scientistic nonsense, Ries falls back on the favorite tool of the diversity police, the quota:

"For example, I have been a mentor for several years in the Founder Labs program, which was originally created by Women 2.0. It’s a pre-incubator program, that helps potential founders figure out if they should become entrepreneurs. They created it as a way of encouraging women to apply to startup schools and create companies. But they took a novel approach to this problem. They did not advertise the program as being about diversity. Instead, they adopted a minimal rule: each founding team had to have at least one woman. ... I believe this is why certain programs, like Founder Labs and 500 Startups, that boast of their meritocratic “moneyball” approach to admissions have more diverse applicants – and participants. [emphasis added]

How it is possible to be meritocratic at the same time you adopt a quota requiring that at least one person on each founding team be a woman is a non sequitur that Ries, despite all his protestations about being guided by reason, does not feel needs to be explained. Ries praises the protagonists of Michael Lewis' book Moneyball for using science, data, and reason instead of depending on gut feelings. He mocks the baseball scouts who were looking for the "right look" in players. And yet, if Ries is intent on using quotas, he has missed the point of Moneyball entirely.

The reason why Billy Beane uses spreadsheets and other analytical tools to measure baseball performance is to eliminate inessential characteristics, such as "the right look" (or "race," "gender," and "sexual orientation") from consideration in the selection of talent. Ries, on the other hand, apparently believes that the correct approach is to do precisely the opposite; namely, to reintroduce consideration of inessential characteristics back into the evaluation process through a quota requiring that there be at least one woman on each team. This is just mealy-mouthed nonsense.

A meritocracy is a meritocracy. You cannot have a meritocracy and quotas at the same time. Silicon Valley has thrived for decades because it is a meritocratic environment. If we ever lose that robust spirit, entrepreneurs won't kowtow to the diversity police or care if they offend equivocaters like Eric Ries, they will simply up and silently leave.

To CNN, "Asian diversity" isn't real diversity

In a stupid recent article CNN frets that there may not be enough "diversity" in the workforces of high tech companies of Silicon Valley and subtly insinuates that this state is due to racism and sexism. CNN places great emphasis on one metric, namely, that blacks, Hispanics, and women are underrepresented among Silicon Valley workers, while ignoring the plain implication of a second metric, namely, that Asians are vastly overrepresented among these same workers. Apparently, "Asian" diversity does not count as real diversity. In order to have "real" diversity, in CNN's view, workers must be black or Hispanic or female.

Anyone who claims that there is not enough diversity in Silicon Valley has never worked here, has never walked up University Avenue in Palo Alto on a weekend night, has never walked into a bank in Fremont or down the aisles of the Great Mall Shopping Center in Milpitas. Anyone who has actually done these things knows from first hand experience that Silicon Valley is one of the most diverse places in the entire United States, if, by diversity, you mean a mix of individuals from all corners of the world, and not just from the select "victim" categories of blacks, Hispanics, and women.

It is true that blacks, Hispanics, and women are underrepresented in the Silicon Valley workforce. But, the insinuation that this situation is due to racism and sexism is, in my personal observation, just wrong. The Silicon Valley engineering community is meritocratic to a fault. All non-essential aspects of the indivdual, such as race or color or sex, count for little. People judge you in Silicon Valley, for example, not by the clothes you wear, but by what you have actually accomplished. Take a look at Steve Jobs strolling out onto the stage of an Apple product introduction in Levis and a turtle neck. The most talented engineers at the software company I work for come to work every day in ripped Levis and t-shirts. No one respects Silicon Valley engineers for the clothes they wear or for the sharpness of the crease in their pants, but because they are fucking good engineers. Also, the number of hours one works is insignificant. Jeff, one of the best engineers I have ever worked with, always arrived at work at Informatica just in time to go to lunch, but he made up for it by working late into the night and over the weekend. Besides, even if Jeff had worked many fewer hours than other engineers, his productivity and the quality of his work were such that he was still more valuable than most other employees. What mattered was not the hours he put in, but what he produced.

In a meritocratic community like this, it hardly matters if you are Indian or Chinese or Eastern European or young or old or gay or black, Hispanic, or female. These attributes are not essential. What is essential is that you are a good, productive engineer. And, when it comes to judging good engineers, Silicon Valley engineers are quick to judge and keen and unforgiving in their judgment. If, on the one hand, you are a good engineer, it simply won't matter what the color of your skin is, what your ethnic background is, what set of genitalia is connected to your body, what you wear, or whether, even, you have taken a bath in the last couple of days; engineering teams are too starved for good talent to allow themselves to be distracted by such non-essential characteristics as race and gender and sexual orientation. On the other hand, if you are a crappy engineer, it won't matter how lily white and male you are: you will be received with nothing but contempt.

Yes, it is true that blacks, Hispanics, and women are underrepresented in the Silicon Valley workforce. But, this is not because of racism or sexism, but because blacks, Hispanics, and women simply are underrepresented in all the engineering occupations in the United States, just as they are underrepresented in math, science, and engineering classes in high schools and colleges all over America. Why this is so I do not know. But, it is certainly not because high tech firms in Silicon Valley are racist or sexist. Why is there a disproportionate number of blacks on high school and college basketball teams in the United States? Is it because coaches practice racism against whites?

One thing is for certain. If high tech companies are ever strongarmed into instituting "diversity programs" to increase the number of Hispanics, blacks, and women in the ranks of the Silicon Valley workforce, it will be the death knell of the area's vibrant economy (the only thing that might be more damaging would be the unionization of the high-tech workforce). Instead of being allocated strictly on merit, jobs will be allocated based on the color of one's skin or gender (or seniority in unions). As I noted above, these are non-essential characteristics that have nothing to do with engineering talent. Any industry that bases its selection of workers on such non-essential characteristics is doomed to failure. You might as well pick me to play center for the Golden State Warriors on the assumption that enhancing the "diversity" of the team will lead them to an NBA title.

The CNN article claims that many Silicon Valley companies refuse to release information about the ethnic and sexual makeup of their workforce. If this is true, it is not because their workers are not diverse, but because of the perverse way that diversity has come to be "measured." As noted above, by any objective standard, Silicon Valley is one of the most diverse areas in the entire United States. But, maybe the companies are afraid to release demographic information because they know that, if the poisonous and divisive element of racial and sexual patronage (for patronage is all diversity programs are) is introduced into Silicon Valley hiring practices, the quality of the workers will decline precipitously.

There could be no surer way of killing the goose-that-laid-the-golden-egg that is Silicon Valley than by introducing racial and sexual quotas into hiring practices there.

Judging Mr Obama's policies in the Middle East

Now is an opportune time to assess Mr Obama's policies in the Middle East.

First, let me give credit where credit is due. Undoubtedly, the world is a better place without Osama bin Laden, Moammar Qaddafi, and Hosni Mubarak in positions of power. To the extent that President Obama was responsible for the removal of these tyrants, he deserves credit. Obviously, he deserves a lot of credit for launching the Special Forces raid that killed bin Laden. But it is just as obvious that George Bush and Dick Cheney also deserve substantial credit for bin Laden's demise, since it was they who led the invasion of Afghanistan and created the platform from which Mr Obama was able to launch his strike against bin Laden. It is less clear how much credit Mr Obama deserves for the elimination of Qadddafi and Mubarak. It would seem that the Libyan and Egyption peoples deserve the lion's share of the credit here, although, now that Qaddafi and Mubarak have departed from the scene, there is absolutely no guarantee that the new regimes that assume power in those countries will be any better, either for the Libyan and Egyption peoples themselves, or for US interests.

Another major feature of Mr Obama's Middle East policy is apparently: withdrawal. Giving in to Shiite radicals (led by cleric Moqtada al-Sadr) in southern Iraq, Mr Obama has agreed to withdraw all US troops from Iraq by the end of the 2012. This will be an enormous blow to our ability to project US power and influence in the Middle East and will open the door to Iran to destabilize its neighbor. When you put our departure from Iraq together with the fact that Mr Obama intends to pull us out of Afghanistan as soon as possible and has done absolutely nothing to prevent Iran from moving forward with its program to acquire nuclear weapons, it is obvious that the Middle East in the not too distanct future will be a much less secure place for US interests than it was when George Bush left office.

Another major accomplishment of the Obama Administration has been to alienate completely the government of Israel, who has traditionally been America's staunchest ally in the region.

So, what the Obama Administration will have accomplished by the end of 2012 is: alienate Israel, withdraw major detachments of US troops from the Middle East, appease Iran, and generally portray the United States as a nation that "leads from behind" and does not have the stomach to stand up to tinhorn clerics and follow through on long term nation building in the Middle East. In other words, Mr Obama will have sown the seeds of continued unrest and discord in the Middle East for decades to come.

Robert Reich on the benefits of Progressivism

In his most recent screed, Robert Reich tries to make the argument that Democrats are "progressives" who "push us forward," while Republicans are "regressives" who "pull us back."

The problem with this argument is that it does not comport with reality. Only a brazenly shameless Democrat would maintain that the nation has been moved "forward" over the last three years. As even Mr. Obama himself has admitted, if voters were asked the famous question Ronald Reagan put to them in 1980: "Are you better off today than you were 4 years ago?" the answer would be a resounding "No!" Yet, according to Mr Reich, Democrats are somehow supposed to have moved us forward over this period of time. Forward into higher unemployment? Forward into greater national debt? Forward into a lower standard of living? This is progress?

Mr Reich opines:

Progressives believe in openness, equal opportunity and tolerance.

Openness? President Obama promised several times that the deliberations over health care legislation would be conducted on C-SPAN. Instead, these deliberations were held behind closed doors with Republicans excluded. It seemed at times that the only parties given a place at the table were Mr. Obama's union cronies.

Equal opportunity? Democrats believe in equality of results, not equality of opportunity. That is why Democrats continue to support affirmative action. Ask Frank Ricci whether Progressivism fosters equality of opportunity. Mr Ricci, a white, dyslexic fireman from New Haven Connecticut, studied hard and took a test required for promotion to lieutenant. There was no question that the test, which incorporated both written and oral components, had been administered fairly. In the competition for eight positions, the top 10 exam scorers, including Mr Ricci, were all white. The top African-American candidate scored 14th, and the top Hispanic candidate scored 27th. The city decided not to promote anyone because they feared a discrimination lawsuit if they only promoted white firefighters. Is this the kind of equality of opportunity that Progressivism promotes?

Tolerance? Progressives believe in tolerance except when it comes to tolerating those with opposing opinions.

Mr Reich continues:

Progressives assume we're all in it together: ... [W]e all do better with ... a truly progressive tax system.

Yes, this is the heart of Progressivism: We are all in it together, just so long as our togetherness is funded by someone else's money. It always amazes me how willing Progressives are to spend other people's money, how confident they are that they know better how to spend it, and how truly awful the results of their spending often are. Mr. Obama continues to make the argument that the "rich" are not paying their "fair share" in spite of the fact that the tax burden of the top 1% is greater than the tax burden of the bottom 95%. Apparently, this tax system is not progressive enough for Messrs Reich and Obama and they would like to seize even more money from top income earners to spend on such green boondoggles as Solyndra.

Mr Reich rises to his crescendo:

[Regressives would] like to return to the 1920s - before Social Security ... In truth, if they had their way, we'd be back in the late 19th century - before the federal income tax ... and the Federal Reserve.

Well, yes. And I have no apologies for wishing it so. Let's consider Social Security for a moment. Social Security is sold to us as a "social insurance" program. Under an insurance program, what we get back out is supposed to be a function of what we put in. But, in the future it is quite likely that any Social Security payments to me will also be "means-tested," so that, if my income is above a certain level, the government will not pay me. I have been paying into Social Security all my working life. And now the government will tell me that they will renege on their payments because, in the government's opinion, I don't need it. Imagine if I were treated by a regular insurance company in a similar manner. Progressives would be passing 1000 page long bills to prevent such malfeasance. But, if the government does it, somehow it is ok. Why would I not want to go back to a time before Social Security when I alone was responsible for saving for my own retirement and would reap the benefits (or losses) of my investment?

As for Mr Reich's implication that a life with the federal income tax is better, well, maybe then we should impose the wonderful benefits of paying this tax on the 50 percent of Americans who currently do not pay any federal income tax whatsoever.

As for the wonderful benefits of the Federal Reserve, on the contrary, its loose monetary policy has not only been undermining the value of the dollar for decades now, but it was also a major contributing factor to the recent financial crisis.

I note that not even Mr Reich is foolish enough to include Fannie Mae and Freddie Mac in his litany of the many wonderful governmental agencies that have rained the benefits of Progressivism on us over the last 100 years.

In reality, the history of Progressivism has been that of a nation stumbling from one disaster to the next, all caused by the well-intentioned, but ill-informed central planning of the federal government and its distortion of market forces in the private sector. Hopefully, the disaster that has been the Obama presidency will result in the permanent discrediting of the Progressive/Keynesian program and America will return to the Classical Liberalism of the late 19th century that made America so great and that Mr Reich seems so utterly to abhor, wishing upon us instead the grey, dismal, dreary world that Progressivism has led us "forward" into.

Uncle Joe and the "plausible" argument

Joe Biden provided a wonderful illustration this week of my Theses 6 and 8.

These theses hold generally that: Increases to government spending or programs that benefit special interest groups are always justified by noble-sounding, plausible arguments about promoting the general welfare:

• when we increase teachers' pay, we are "helping the children;"
• when we increase the pay of policemen, firefighters, and prison guards, we are "improving public safety;"

If funds for these special interest groups are cut, we are told, catastrophic consequences will ensue. In fact, the extra money spent often does not result in a significant increase to the general welfare, but only serves to pad the salaries and pensions of public service employee unions, who, in turn, fund the political campaigns of those politicians who supported the increases.

Mr. Biden stood in a room of the Capitol backed by row upon row of uniformed police officers, firefighters, and teachers and declaimed:

In Flint, Michigan, they cut their force in half; murder rates have doubled in the last year ... Police departments, as I said, in some cases literally cut in half, like Camden, New Jersey, and Flint, Michigan. In many cities, the result has been -- and it's not unique -- murder rates are up, robberies are up, rapes are up ... I said rape was up, three times in Flint. There are the numbers. Go look at the numbers.

The implication is that if you vote for Republicans, you will be raped.

The Washington Post's Fact Checker, Glen Kessler, has written a marvelous refutation of Mr. Biden's claims:

In other words, even if you could make a link, it is likely one of many factors that affects the crime rate, not the single one, as Biden suggests. The FBI itself lists more than a dozen variables in what causes crime to increase in a community. Others believe the connection is tenuous, at best. “There is limited or no correlation between the number of officers and the homicide rate,” said David Carter, a Michigan State University criminal justice professor who works with the Justice Department to track homicides. “To draw any kind of conclusion on simply the number of officers and the number of homicides is virtually meaningless. There are too many other variables that will influence the commission of homicides as well as clearances. In essence, the reporting of this simple data, whether using Biden's data or city data, does not describe changes in the incidents of homicides in Flint or any city.

So, once again we have a liberal, progressive politician making the "plausible" argument that increasing pay and benefits for members of public service employee unions will achieve a noble-sounding result, improve the general welfare, and preclude catastrophic consequences, when, in fact, what is happening is that the politician is simply seeking to make sure that the governmental special interest unions that support him are well-funded so that their dues can continue to flow into his campaign coffers.

Plain and simple, this is corruption and political payoff of the most vile kind.

The Democrats keep talking about how awful the world will be if the Republicans are elected. How much worse could it get? Unemployment is running above 9% by the most optimistic figures. We have run trillion dollar deficits for the last three years. Dependency on the government is at all time highs. The catastrophe is already upon us, and its name is Obamaism.

Simply outrageous

Marketwatch reports:

Five top Democrats, led by Rep. Peter Welch, Democrat of Vermont, sent a letter Thursday calling on Attorney General Eric Holder to open an investigation into whether bank trade associations and individual banks have violated antitrust law by colluding. The letter comes after outrage has erupted over Bank of America Corp.’s announcement earlier this month to charge customers a $5 monthly fee starting January for debit-card-usage. Other big banks are testing debit-card-usage fees in select markets. ... “Statements made by individual banks and their trade associations raise questions about whether some price increases that have occurred this year have actually been coordinated,” the letter says. “This collective pricing activity is harmful to competition and raises serious legal questions.” Rep. John Conyers, Democrat from Michigan and ranking member of the House Judiciary Committee, also signed the letter, as did Reps. Michael Honda of California, Keith Ellison of Minnesota, and Raul Grijalva of Arizona. Ellison and Grijalva are co-chairs of the House Progressive Caucus.

As I have pointed out before, what we are seeing here is a repetition of what happened with Obamacare: Obamacare was passed; insurance companies raised premiums and non-insurance companies took charges to cover the additional costs imposed by Obamacare; the President, his Administration, and the Democrats immediately attacked and threatened those companies for taking these actions.

Now, the Dodd-Frank bill has passed; the banks have imposed new debit card fees to cover the additional costs imposed by the Durbin Amendment to that bill; and the President, his Administration, and Democrat thugs in Congress immediately start to attack, threaten, and strong arm the banking industry for taking these actions.

Simply outrageous!

We are all "Petro-States" now

I have been reading Daniel Yergin's new book, The Quest: Energy, Security, and the Remaking of the Modern World. In Chapter 5, entitled "The Petro-State," Yergin describes the ailments that afflict countries (for example, Venezuela) that are primarily dependent on oil revenues for national income. Yergin writes:

When [oil] prices soar, governments are forced by society's rapidly-rising expectations to increase their spending as fast as they can -- more subsidies to hand out, more programs to launch, more big new projects to promote. ... But when world oil prices go down and the nations' revenues fall, governments dare not cut back on spending. Budgets have been funded, programs have been launched, contracts have been let, institutions have been created, people have been hired. Governments are locked into ever-increasing spending. Otherwise they face political and social explosions.

What struck me about this passage was not that it was an insightful description of Venezuela and other Petro-States (which it is), but that it was a description that could be generally applied to the recent crises of so many governments around the world. For example, Michael Lewis describes the similar plight of the city of San Jose, California in his new book, Boomerang: Travels in the New Third World

The problem, [San Jose mayor Chuck Reed] explains, predates the most recent financial ciris. "Hell, I was here. I know how it started. It started in the 1990s with the Internet boom. We live near rich people, so we thought we were rich." San Jose's budget, like the budget of any city, turns on the pay of public safety workers: the police and firefighters now eat 75 percent of all discretionary spending. The Internet boom created both great expectations for public employees and tax revenues to meet them. ... Over the past decade the City of San Jose had repeatedly caved to the demands of its public safety unions. In practice this meant that when the police or fire department of any neighboring city struck a better deal for itself, it became a fresh argument for improving the pay of San Jose police and fire.

In other words, the phenomenon described by Yergin is not at all limited to countries whose primary source of revenue is oil. Rather, a more general description of the phenomenon can be given as follows: A boom in some segment of the economy (global oil prices for Venezuela, the value of Internet stock options for San Jose) causes an increase in tax revenues for the state. The state, flush with cash, spends these new revenues on lavish social programs for its citizens and lavish pay and pension packages for members of public service employee unions. The state locks itself in to obligations to continue paying for these programs and pay/benefits regardless of the future condition of the economy. The boom then ends, the gusher of tax revenues dries up, but the state is still left with its long-term obligations, which it now cannot pay. The beneficiaries of these programs, ordinary citizens and public service union employees, having grown accustomed to and dependent on government largesse, rebel at any suggestion that spending be cut back.

Under similar circumstances, private markets adjust: private companies lay off workers and cut back spending; in the worst case, they declare bankruptcy and abrogate the fixed obligations they are not able to meet. In the public sector, however, there are obstacles, political and legal in nature, that prevent govermental entities from declaring bankruptcy. Given the high degree of fiscal rigidity in politically supported social programs and labor contracts, government is unable to adapt, it cannot cut back. Fiscal crisis ensues.

This is the situation so many governments around the world find themselves in today. Besides California and Venezuela, we can see a similar situation in Greece. There the boom was not in oil or stock options, but in credit. The Greek government, flush with the proceeds from bonds it had issued at the same interest rate as its more financially conservative neighbors, expanded the public sector dramatically. Now credit has dried up, but the government is still obliged to spend, but cannot, and seeks to cut back on the salaries of public employees. These employees, having become dependent on the government, rebel. The result is the riots we have seen in Greece, the precursors of similar riots we are starting to witness with the Occupy Wall Street crowd here in the United States.

Here in the United States, we used to laugh at the financial trials and tribulations of "Third World Countries." Now it is our turn to be laughed at. We are all Petro-States now.

The Berkeley Free Speech Circle

In my last post, I pointed out the contradictory nature of the demands being made by one of the members of the Occupy Wall Street movement. One of the demands was that the government spend $2 trillion on new infrastructure and environmental remediation projects. I pointed out that the government would obviously have to incur additional debt in order to spend this amount. Another demand was that all debt all over the world be forgiven. I observed: “How exactly an additional $2 trillion of debt is to be incurred at the same time that all debt is being stricken from the "Books" is something our author does not feel requires an explanation.”

As I pondered the sheer ignorance evinced by these contradictory demands, I recalled a similarly self-contradictory revolutionary declaration made by various parties at the University of California at Berkeley some years ago. Unlike the Occupy Wall Street demands, however, this declaration is not contained merely in an ephemeral post on an internet blog, but rather is memorialized in stone in the most public place on the Berkeley campus. I am speaking, of course, of the so-called “Berkeley Free Speech Circle,” a circular granite slab embedded in the surface of Sproul Plaza with the following inscription: "This soil and the air space extending above it shall not be a part of any nation and shall not be subject to any entity's jurisdiction."

Such idealism! Such spontaneity, as Nancy Pelosi might say! But, if you actually think about what the words mean, they are completely self-nullifying. Obviously, the words are meant to be a statement by an authority with jurisdiction over the disk. For, if the words were uttered by someone without jurisdiction over the disk, they would have no force. And yet, the statement made by that authority with jurisdiction over the disk is that the disk “shall not be subject to any entity’s jurisdiction.”

As with their noble comrades in the Occupy Wall Street movement, how exactly the Berkeley revolutionaries thought they could exercise their jurisdiction over a plot of land by making a statement that no authority (including, presumably, themselves) had jurisdiction over that plot of land is something that the authors of the inscription did not feel required an explanation.

These are the kinds of pronouncements that pass for intelligent political discourse on our campuses today.

Demands of the Occupy Wall Street Movement

An anonymous member of the group styling itself the Occupy Wall Street movement has authored a list of demands, including:

• Raise the minimum wage to twenty dollars an hour.
• A guaranteed living wage regardless of employment [I'd like to get some of that].
• Free college education [as a parent of two boys in college, I'd really like to get some of that].
• One trillion dollars in infrastructure (Water, Sewer, Rail, Roads and Bridges and Electrical Grid) spending now.
• One trillion dollars in ecological restoration planting forests, reestablishing wetlands and the natural flow of river systems and decommissioning of all of America's nuclear power plants.
• Immediate across the board debt forgiveness for all. Debt forgiveness of sovereign debt, commercial loans, home mortgages, home equity loans, credit card debt, student loans and personal loans now! All debt must be stricken from the "Books." ... And I don't mean debt that is in default, I mean all debt on the entire planet period.

So, on the one hand, our author is demanding that an additional $2 trillion dollars be spent on infrastructure and environmental remediation. Presumably, this is in addition to the $3.8 trillion that the federal government spent last year, of which approximately $1.5 trillion already was borrowed. This implies that the author is demanding that an additional $2 trillion be borrowed by the federal government. And yet, at the same time, the author also demands that all debt, including "sovereign debt" be forgiven and "stricken from the books." How exactly an additional $2 trillion of debt is to be incurred at the same time that all debt is being stricken from the "Books" is something our author does not feel requires an explanation.

The utter "Michael Moore" incoherence of this programme would be laughable if it were not for the fact that it was immediately endorsed by the leading lights of the Democratic Party. President Obama expressed sympathy with the protesters. They are, he said, "giving voice to a more broad-based frustration about how our financial system works … and that's going to express itself politically in 2012 and beyond." House Minority Leader Nancy Pelosi, D-Calif added, "God bless [the protestors] for their spontaneity. It's independent ... it's young, it's spontaneous, and it's focused. And it's going to be effective." Spontaneous indeed, if we understand that characterization to mean that the protestors' demands were made without prior reflection.

I find it deeply troubling that young people these days cannot seem to grasp that a default on debt is the breaking of a promise, a violation of a moral obligation. If we are not to keep our promises to repay our debt, why should we keep any of our promises at all? Why should we hold ourselves bound by any agreements? Why should we stay married? Why should we feel ourselves obligated to care for our children or our parents? Why shouldn’t we just dispense with all law and morals and live as animals in the wild?

The truly shocking thing is that many young people, never having read Burke or Bloom, never having experienced a French or Russian Revolution, would applaud a proposal to wipe civilization from the “Books.” They would welcome this brave new world, stripped of all hypocrisies, as “authentic” and would perceive it as a return to a state where we were once more “in touch with ourselves.”

Alas, once again the virus that has infected our society since the Sixties rears its ugly head. I had hoped that it would perish with my generation, the old Hippies, but, unfortunately, the fever is being rekindled by the likes of Obama and Pelosi and the rest of their amoral thugs.

I am left to hope in the American People, to hope that, yes, the activities of the Occupy Wall Street movement will have an impact on the 2012 elections, only not the one anticipated by Mr. Obama and Ms. Pelosi.

The Ongoing War against the Banks and the Insurance Industry

Treasury Secretary Timothy Geithner said Thursday that financial institutions in the U.S. risk holding back the economy because they are unwilling to lend. "If you look at the U.S. economy today, I'd say the biggest risk we face is institutions not taking enough risk," Mr. Geithner said at a Senate Banking Committee hearing.

Now, why might the banks be reluctant to take on risk these days?

Consider, for example, what President Obama said in an interview with George Stephanopoulos yesterday:

Stephanopoulos: Can you put a stop to this [Bank of America’s new $5 per month debit card fee]?

President: ... [T]his is exactly why we need this Consumer Finance Protection Bureau that we set up that is ready to go ... [Th]is is exactly why we need somebody whose sole job it is to prevent this kind of stuff from happening.

Stephanopoulos: Can you stop this service charge?

President: Well, you can stop it because, if you say to the banks, you don’t have some inherent right, just to get a certain amount of profit, if your customers are being mistreated, that you have to treat them fairly and transparently. And my hope is you’re going to see a bunch of the banks say, you know what, this is actually not good business practice. Banks can make money, they can succeed, the old-fashioned way, by earning it, by lending to small businesses, by lending to consumers, making sure that we are building the economy together. But without the kinds of protections we’re starting to see the Republicans roll back, we’re going to continue to have these kinds of problems, and this is exactly the sort of stuff that folks are frustrated by. This, by the way, is an example, of the contrasting visions we have. If the Republican Party believes that we should do nothing to curb abuses on Wall Street, and roll back regulations put in place to prevent the next big financial crisis, well, I’ve got a big difference with them.

Let’s break this down.

• The President is claiming to know the business of the banks better than the bankers themselves. All the banks have to do, according to the President, is “earn money the old-fashioned way.” How quaint. The amount the President does not know about the banking industry could fill an encyclopedia.
• The President is claiming that the new debit card fee is an “abuse” under the terms of the Dodd–Frank Wall Street Reform and Consumer Protection Act and that this abuse is actionable and preventable by the Bureau of Consumer Financial Protection under the terms of this Act. What BofA did may not be good business practice (that is for BofA's customers to decide), but there is not a speck of evidence that what BofA did is an "abuse" or that the CFPB can do anything about it.
• The President opposes BofA's new fee in the name of preventing the "next big financial crisis." If BofA were to refrain from imposing this new fee, how would that prevent the next major financial crisis? On the contrary, if BofA's fee has the desired effect, it will strengthen BofA's balance sheet, thereby reducing the risk of a financial crisis. It is rather the ongoing war being waged by the Democratic Party against the financial services industry that is destabilizing markets and increasing the risk of a new crisis. If the Democratic Party really wanted to pass legislation that would reduce the likelihood of a future financial crisis, they would have passed a bill to close down Fannie Mae and Freddie Mac. They did not do this. Instead, Messrs Frank and Dodd have been staunch defenders of Fannie and Freddie for years, with Mr. Frank making his famous statement about Fannie: "The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios."
• The President is setting himself up as the arbiter of what the appropriate profit margin is for a major industry. Does the President seriously believe that American businesses don't have an "inherent right" to maximize their profits so long as they operate entirely within the bounds of the law (supplemented by massive new regulation) and so long as their customers show themselves willing to bear the costs?

What we are seeing here is a repetition of what happened with Obamacare: Obamacare was passed; insurance companies raised premiums and non-insurance companies took charges to cover the additional costs imposed by Obamacare; the President and his Administration immediately attacked and threatened those companies for taking these actions.

Now, the Dodd-Frank bill has passed; the banks have imposed new debit card fees to cover the additional costs imposed by the Durbin Amendment to that bill; and the President and his Administration immediately start to attack and threaten the banking industry for taking these actions.

And so we are led to the spectacle where, at the same time the Obama Administration undermines the banking industry with threats of action from the new Bureau of Consumer Financial Protection, the Treasury Secretary attacks the banking industry for not taking on new risk.

The Democratic Party. We raise your taxes, your gas prices, your insurance premiums, and now, your debit card fees. And yet, it is we Democrats, not those evil Republicans, who have your best interests at heart.

America not "soft" or "dysfunctional" or "racist," just rejects Obamaism

It's not that America has become "soft" or "dysfunctional" or "racist." Americans are dragging their feet simply because they reject the Obama agenda.

"Stop complainin', stop grumblin', stop cryin'." shouted out Mr. Obama with a preacher's fervor in a recent speech in front of the Congressional Black Caucus. Even Maxine Waters was taken aback.

On his weekly radio speech yesterday, Mr. Obama said: "It is time for Congress to get its act together and pass this jobs bill so I can sign it into law."

The President cannot bring himself to acknowledge that there is significant disagreement with his policies, both on the Left and on the Right. Since, in Mr. Obama's mind, this disagreement cannot have any rational basis, cannot be legitimate or offered in good faith, it must have some other, darker, cause, namely, that America has become "soft" or that Congress is "dysfunctional" or that the Tea Party is "racist." Therefore, Americans need to be bullied into doing what Mr. Obama wants them to do.

We have seen this modus operandi before with the passage of Obamacare. Don't deliberate. Just "get your act together" and pass the damn bill. People will realize later what is in it and how smart I was to pass it.

It is as if the President is saying: "It is enough that I, Barack Hussein Obama, have thought deeply about these issues and have decided for everyone what is the best thing to do. Any further delay or deliberation is just a waste of my precious time. So, just shut up and do what I tell you to do."

There is a certain haughtiness in this, a disgust with having to descend to the level of ordinary politics. Why can't they all just see how brilliant I am, how impeccable my reasoning is? This is the certainty of the central planner. The intelligence and knowledge of a single individual or of a small cadre of bureaucrats is supposed to substitute for all the distributed wisdom of the masses. And, if the policies fail, it will not be the fault of the policies themselves. Rather, it will be because the masses didn't cooperate.

Yes, fortunately, in circumstances like these, the masses do begin to slow walk.

Searching for fresh scapegoats

For the past 3 years, President Obama has blamed George Bush for our country's economic woes. The Administration has now come to realize that, as time passes, this strategy will become less and less effective. We can imagine, for example, how laughable the spectacle will be if Mr Obama runs for reelection in 2012 by blaming the President whose last day in office was nearly 4 years ago.

So, instead of exercising effective leadership and getting America's fiscal house in order, something this inexperienced and ideologically rigid President seems incapable of doing, over the last 6 months Mr Obama and his supporters have been engaged in a search for new parties they can pin the blame on.

We have heard the following assertions:

• It was the tsunami in Japan that caused the recent slowdown.
• It is the fault of the Europeans, who can't get extinguish their sovereign debt crisis (for example, as reported just this last week by the German magazine Der Spiegel, the German periodical, Bild, wrote: "The President's scolding [on the European debt crisis] is a pathetic attempt to distract attention from his own failures. How embarassing.")
• It is racism (including now, it seems, racism on the part of white liberals).
• It is the fault of all the millionaires and billionaires who aren't paying their fair share of taxes and fly around in their corporate jets.
• It is the intransigent, lunatic, do-nothing Repulicans.
• It is George Bush's fault (whoops, old habits are hard to break).

It's just not going to be possible for Obama to win if his campaign has to address inconvenient facts like:

• We have 9% unemployment.
• We are still running trillion dollar deficits.
• We have lost our AAA credit rating for the first time in our history.
• The only proof that the stimulus saved or created any jobs at all is Mark Zandi's computer model that was originally used to predict that the stimulus would save or create jobs.
• We have thoroughly alienated our most trustworthy ally in the Middle East, Israel, while Iran continues to develop nuclear weapons.
• Obamacare is deeply unpopular and may be overturned by the Supreme Court by next summer.

Instead, the only possible route to reelection is to find a fresh set of scapegoats to blame all of our woes on, to demonize the opposition, to label those who disagree with you with every term for crazy that you can find in the thesaurus (looney, unhinged, imbalanced, nutcase, wingnut, mad, fringe, and so on, ad nauseam).

We are in for an ugly spectacle over the next 14 months. Sadly for Mr. Obama and the rest of the Democrats, the blame game will likely only further alienate the moderates who are already fleeing the President in droves. To win the election, the Republican candidate need only stick to the facts and focus on being statesmanlike and optimistic. The other side will drown in its own vitriol.

The Rational Optimist, Hayek, Ron Paul, and Obama's centralized, Keynesian stimulus

In a recent column in WSJ, Matt Ridley, author of the The Rational Optimist, discusses the influence of Friedrich Hayek on his thinking. The point of the column is that what matters most in human society is not the extraordinary intelligence of individual members of the species, but the fact that those members communicate and interact with each other and exchange ideas, thereby forming a collective intelligence far more powerful than the contribution of any individual member. Ridley sums up his column as follows:

The political implications are obvious: that human collaboration is necessary for society to work; that the individual is not—and has not been for 120,000 years—able to support his lifestyle; that trade enables us to work for each other not just for ourselves; that there is nothing so antisocial (or impoverishing) as the pursuit of self-sufficiency; and that authoritarian, top-down rule is not the source of order or progress. [my emphasis added]

The last point, that “authoritarian, top-down rule is not the source of order or progress” is especially important. One implication is that centrally planned, top-down government programs, like, for example, Obama’s current $450B jobs program or his earlier $800B stimulus program, are doomed to failure. This is because the authors of such programs cannot possibly have enough knowledge to be able to conceptualize and implement these programs effectively. All you need to ask yourself is the following question: Who is going to have a better understanding of how to create jobs, Obama and a few government bureaucrats in Washington DC, or the collective intelligence of all the entrepreneurs in Silicon Valley? It would not matter if Obama were the most intelligent person in the world (which he most certainly is not); it is simply an epistemological impossibility that he could have all the dispersed, real-time, localized knowledge embodied in the minds of all the entrepreneurs in the Valley. Obama confidently claimed that the stimulus was going to be spent on “shovel-ready projects,” only later on to be forced to admit that the projects were “not as shovel-ready as we expected.” What Obama overlooked was that it was impossible for him to know how spending could most profitably and effectively be distributed among the most deserving individual projects. This knowledge is dispersed among countless market participants at the local level and is changing constantly in real-time. This is one of Hayek’s basic theses. People like Matt Ridley, Ron Paul, and I adhere to this view. This thesis is where economics and biology come together. The economy is like an enormous ecosystem. It is completely dispersed and not under any central control. It is impossible to know in advance where new mutations (economic innovations) are going to pop up. And it is impossible to know in advance which particular mutation (innovation) will be naturally selected over others. Who ever could have predicted that Steve Jobs and Steve Wozniak would have been so successful? Mark Zuckerberg was not successful because the Obama administration identified him at an early stage and backed him with capital.

In sum, the Keynesian philosophy of the Obama administration (and thinkers like Paul Krugman and government officials like Ben Bernanke) that the government can centrally know and plan how to stimulate the economy is just complete hogwash. Instead of trying to act and spend and intrude into and distort the markets, the government should rather be trying to withdraw itself from interfering in those markets. By doing so, the government would unleash the enormous creative energy of the private economy, an energy that derives from the dispersed knowledge and initiative of millions of individual actors, a force infinitely more powerful than any puny, misguided, wasteful, ill-timed stimulus coming from the central government.

There is one question I always ask myself: If extraterrestrials were to descend from outer space and observe the human species, what would be the things that they saw as most typically characteristic of the human species? In my opinion, it would be language, exchange, a monetary system, and a dispersed and flexible market economy in which rationality, locally applied, calculates and recalculates in real-time the prices for exchange and thereby assures that the best human ideas and inventions (the best memes) are dispersed in the most flexible way. In other words, it is dispersed, flexible, non-centrally-controlled systems that are most characteristic of the success of the human species.

As Ridley remarks: “Only the cloud knows.” The problem with Obama and Tim Geithner and Ben Bernanke is that they are not and never can be the cloud. For them to pretend otherwise is an exercise either in gross stupidity or hubris.

Obama's jobs speech

Obama does not understand that government is not the source of prosperity. Obama does not understand that prosperity does not result from short term stimulus. Obama does not understand that government is never the proximate cause of prosperity; that, instead, government should operate in the background, creating a stable, long-term environment that serves as a matrix within which the private economy, the true engine of prosperity, can flourish.

No, it is not government, but rather the vast American people and myriad American businesses that, when allowed to operate in a stable, open, and undistorted environment, have always been and always will be the wellspring of prosperity. This is the story of Amrican exceptionalism. If Obama would only unleash the creativity and energy of the American people, the American economy would flourish.

Obama is caught in the various fallacies of central planning. He does not understand that central planners cannot possibly have more aggregate intelligence about economic decisions than the great mass of the American people. This would be true even if the central planners were the most intelligent individuals in our society (and Obama certainly does not fit that description; it is laughable now to think how much was expected and "hoped for" from this man whose chief experience in life was as a community organizer). Neither can central planners have enough information nor can they react quickly enough to be able to manage the enormous American economy effectively. These things were demonstrated by Hayek.

The vanity of Obama is simply astounding. He really thinks it all starts and stops with him and the rest of his Beltway compatriots. He has no comprehension of the vast worlds and energies that exist outside the Beltway. Although he travels to the West Coast frequently and hobnobs with the high-tech glitterati, he really has no clue how Silicon Valley works. Our heroes are Steve Jobs, John Chambers, Bill Gates, Larry Ellison, Jeff Bezos, Meg Whitman, Sergei Brin, and many, many more, people who have actually done something in this world besides spending money expropriated from the taxpayers. They have taken risks. They have created companies from scratch. These companies employ hundreds of thousands of workers and indirectly benefit millions more. These companies were not built by handing over $1T in stimulus money to Maxine Waters and Robert Reich, but through creative genius melded with persistence and ultra-hard work.

Obama does not understand any of this. But, in fact, to say that Obama does not understand this is to go too easy on him. The cold reality is that much of this new stimulus money will go to paying off favored political constituencies. So, at best Obama is inexperienced and inept, and at worst thoroughly corrupt.

WaPo's Harold Meyerson and Solyndra

Harold Meyerson's column in the Washington Post this week was timely. Meyerson encouraged Steve Jobs to bring Apple's manufacturing and assembly (MA) jobs back to the United States:

Steve Jobs ... has abandoned nonprofessional American workers. It wasn’t always thus. In his first stint at Apple, in the mid-’80s, he built, with Jobsian attention to form and function, a heavily automated factory in Fremont, Calif., that employed hundreds of workers to turn out personal computers. But the Macs didn’t sell fast enough, Jobs was fired, and, in 1992, the factory was closed. ... [Apple now] employs no U.S.-based production workers. Which is why Jobs’s elevation to our national pantheon is premature. Bringing some of those production jobs home while holding down the price of his products probably would require devising factories so automated that they wouldn’t employ all that many workers. Then again, Apple is sitting on $76 billion in cash, and Jobs is still Apple’s chairman. Devoting a few billion to reshape and restart American manufacturing, even if it employs fewer people than in Henry Ford’s time and narrows Apple’s profit margins, could work wonders for exports and, just possibly, lead to Jobs’s most amazing invention of all: a newly vibrant American working-class.

Well, in the very same city of Fremont where Jobs once built his Mac factory, we found out once again this week why it is a very bad idea to locate MA jobs in expensive Silicon Valley.

Solyndra manufactures and sells solar panels. Solyndra was given a $535M loan guarantee by the Obama administration as part of its policy to promote green technologies. Solyndra used a large part of that money to build an enormous, state-of-the-art manufacturing facility in Fremont. Real estate is very expensive in Fremont. Construction costs are very high in Fremont. The wages for high-tech workers, even for MA workers, are very high in Fremont. Because of these and other factors, Solyndra's products were simply too expensive to compete in the global marketplace. As a result, Solyndra declared bankruptcy. In sum, Solyndra, with the support of taxpayer money dished out by the Obama administration, did everything Harold Meyerson is recommending that Steve Jobs and Apple do. And the result was economic disaster.

It has been well known for decades by all operators in Silicon Valley that it makes no economic sense whatsoever to locate MA jobs onshore in the United States. The main reason for this is because offshore workers are as well or better qualified than American workers and will work for substantially less. Any business that refuses to acknowledge this reality will be eaten alive by its global competitors. And any columnist who encourages Apple, the crown jewel of America's high tech industry, to engage in such self-destructive behavior simply reveals his complete ignorance of the way high-tech businesses operate in the global marketplace.

The self-avowed socialist, Mr. Meyerson, actually has the audacity to presume (like all too many other so-called progressives) that he knows better how to spend Apple's "$76B of cash" than Apple itself. He advises Apple to "devot[e] a few billion" to relocating Apple's MA operations back to the US. "Waste a few billion" might be a more apt description. He encourages Mr. Jobs, the chairman of Apple, to ignore the fact that doing MA work in the United States could "narrow Apple's profit margins." Apple shareholders would be aghast if Mr. Jobs were to follow Mr. Meyerson's advice. It was precisely by engaging in such non-economic practices that Solyndra went belly up.

The fate of Solyndra reminds us why it is such a bad idea to listen to socialist political activists like Mr. Meyerson or the former community organizer Barack Obama when it comes to running the American economy. Although these activists start from good intentions, they simply cannot get it through their heads that the main purpose of any business is to turn a profit. Instead, these activists view businesses as nothing more than tools that the government may manipulate to advance its own social policy agenda. And, in doing so, they encourage government sponsored entities to engage in the kind of uneconomic behavior that often results in financial disaster, with the costs then being borne by the American taxpayer.

Solyndra is not an isolated phenomenon, but part of a pattern. Over the last decade we have seen many examples of the government encouraging government sponsored entities to engage in uneconomic behavior to advance social policies. The government encouraged Fannie Mae to guarantee junky subprime loans in the name of promoting low cost housing. The government is now encouraging General Motors to manufacture the Chevy Volt, in spite of the fact that the Volt is an utter failure in the automotive marketplace. Until the government stops trying to manipulate American businesses for the purpose of advancing its social policies, we will continue to see government waste, corruption, and failure on a monumental scale, with the American taxpayer picking up the tab.

Solyndra goes belly up

Many Silicon Valley commuters are familiar with Solyndra, the solar panel manufacturer with the enormous, modern, brand spanking new building on the side of Highway 880 as you drive north from San Jose. Construction of the building was completed only recently. The paint on the walls is probably not yet dry.

Well, it turns out that Solyndra is going bankrupt.

Solyndra is one of the crown jewels of President Obama’s “renewable energy” strategy. He gave them a cool half billion dollars and came to Fremont, lowly little Fremont, last year to visit the factory and wax eloquent about its magnificent future. Now the new Solyndra building is just a monument to spectacular failure, yet another reason for commuters stuck in traffic to be depressed in this awful economy.

The government’s investment in Solyndra is typical of how badly the government botches things when it tries to create government sponsored business entities to further its social policies (whether it's creating Solyndra to further its green energy goals or creating Fannie Mae to further its low-income housing policies). Government officials always start with good intentions. But, they have absolutely no understanding of how a business should run. They have no market discipline. They don’t need to care about the money they are throwing away, because it’s not theirs, but has been expropriated from the taxpayer. And they are taken advantage of by savvy operators who are only to happy to suck at the teat of a thoroughly wasteful and corrupt government and devour the enormous amounts of money that the government shovels their way.

Anyone with a little common sense could have guessed as he drove by that Solyndra was a bad investment: land in Fremont is too expensive, the wages you have to pay Fremont workers are too high (Why do you think all hi-tech manufacturing and assembly jobs have fled Silicon Valley and moved overseas?), it makes no sense to build an enormous, brand new facility when the company could have gotten by with much less grandiose digs, and all these extra costs result in the prices of Solyndra’s products being too high for the average buyer. Only a bunch of fanatic bureaucrats blinded by "green religion" would fail to anticipate all this.

The simple fact is that when you have 9% unemployment (actually, much higher in California), when you are attacking the banks every day, when you are strangling American businesses with new regulations, when you are running trillion dollar deficits, it is very difficult for the average American consumer to have enough confidence to invest the thousands of dollars required to install new solar panels on his house. Any new business would find it difficult to operate in such an environment.

The best thing Obama could do to boost a renewable energy industry would be to stop waging war on American businesses, quit coddling the unions, and start cutting government regulation and spending on useless Keynesian stimulus. Actions like these would allow the private sector to start to grow again. And, it is entrepreneurs in the private sector, after all, guys like Steve Jobs of Apple, or Bill Gates of Microsoft, or Larry Ellison of Oracle, or Diaz Nesamoney and Gaurav Dhillon of Informatica, or Vivek Ranadive of Tibco, who produce new jobs, not a bunch of bureaucrats in Washington who are so stupid that they can't make it in the business world and therefore take refuge in academia and the Washington bureaucracy and are called “experts” or “members of the President’s Council of Economic Advisors.”

Obama is an economic disaster. Of course, I have no idea why anyone expected anything different from someone whose main experience before he became POTUS was as a community organizer/agitator. And now, he's managing to give the renewable energy industry a bad name, too.

Krueger or Jobs

Which of the following events do you think will have more of an impact on the unemployment rate in the United States over the next 12 months:

• President Obama’s appointment today of Alan Krueger (a Princeton economist well known for his research into labor markets) to head the Council of Economic Advisors;
• the retirement of Steve Jobs?

Krugman: America should fight space aliens, not the Taliban

Paul Krugman appeared on a recent Sunday on Fareed Zakaria’s GPS program. Mr. Krugman’s general thesis appeared to be something like the following:

If the Federal government were to cut spending now to reduce the debt and deficit, these cuts would have a negative, contractionary effect on the American economy and would increase the unemployment rate. Therefore, given that the unemployment rate is already very high, not only should the government not cut spending, it should actually increase it. Americans are misguided when they worry about the debt and deficit. Instead, they should worry about unemployment, prolonged stagnation, and another recession, and they should increase spending, even at the risk of running up the debt, to eliminate these threats.

What Mr. Krugman can’t seem to grasp is that it is precisely when he starts talking like this that Americans really start to worry about their pocketbooks. They worry that their taxes will be raised to pay for all this new government deficit spending. And they worry especially when they hear about the kind of spending that Mr. Krugman is recommending. According to Mr. Krugman, one of the best things that could happen to the United States would be if an announcement were made that the Earth was being invaded by space aliens:

“If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better [off.] … There was a Twilight Zone episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time...we need it in order to get some fiscal stimulus.”

Thus, an announcement that we were under attack from space aliens would spur the government to make massive increases in defense spending so that our armed forces could mobilize to ward off the invaders. Just as the massive spending of WWII put an end to the Great Depression, so Mr. Krugman argues, the new round of spending to fight imaginary space aliens would stimulate our economy and put an end to our current economic malaise.

This is the kind of amusing nonsense to which the Keynesian virus leads. We can well imagine some of the additional policy recommendations that Mr. Krugman might urge upon us. For example, space alien defense workers should be organized into unions by the SEIU, union dues collected, and these dues used to lobby the government to increase the wages and pensions of space alien defense workers.

But, what was most striking about Mr. Krugman’s space alien defense proposal was the fact that he did not even realize how utterly inconsistent it was with his position on the “Bush wars in Afghanistan and Iraq.” On the one hand, Mr. Krugman always has been and remains opposed to the Bush wars for economic reasons. For example, on Mr Zakaria’s program Mr. Krugman stated:

We came into [the current economic malaise] with more debt than I would have liked. We really in some ways are paying the costs of the Bush tax cuts and the Bush unfunded wars, which leave us with a higher starting point of debt.

On the other hand, Mr. Krugman states that he would be in favor of a massive increase in defense spending to mobilize against space aliens. According to standard Keynesian analysis, the significant increase in defense spending that resulted from the two Bush wars should have functioned as a stimulus that launched America into an era of prosperity, just as the massive spending of WWII ended the Great Depression and launched America into the prosperous decade of the 1950’s.

Mr. Krugman can’t have it both ways. If a massive increase in spending to fight off space aliens would be stimulative, then, so should have been the two Bush wars. If, on the other hand, the Bush wars were bad for the country because they were “unfunded”, then it would also be bad for the country now to engage in massive unfunded, deficit spending to fight imaginary space aliens or to promote any other Keynesian “make-work” stimulus project.

Thus, the most prominent Keynesian in the world today is revealed as nothing more than a jumble of contradictions and inconsistencies. Perhaps Mr. Krugman needs to spend a little more time thinking about the logical consistency of his positions and a little less time sitting on the couch watching old reruns of The Twilight Zone.

Nailing my theses to the door

It is said (perhaps apocryphally) that in 1517 Martin Luther nailed his 95 Theses on the corrupt state of Catholicism to the door of the Wittenberg Church. Here is my set of theses describing the corrupt state of government in California and America in general. You may consider these theses as rules of thumb for judging the statements we hear every day coming out of Sacramento and Washington.

1. Government always gets bigger and more centralized.
2. Cuts to government spending are always made "in the out years" and always prove ephemeral or non-existent. Cuts are never actual reductions, but just increases that were smaller than hoped for.
3. Increases to taxes are always made immediately and prove real and permanent.

Theses 2 and 3 may be referred to as the "Grover Norquist" theses.

4. Regulation always expands. All initiatives to sunset inefficient or outdated regulations simply spawn new bureaucracies that waste even more taxpayer money.
5. All tax increases result not in any improvement of the general welfare, but only in an expansion of waste and corruption in government.
6. All governmental bailouts are unnecessary to preserve the general welfare of the people and are done instead to protect special interest groups, whether banks or unions or bondholders.
7. Increases to government spending or programs that benefit particular special interest groups are always justified by noble-sounding, plausible arguments about promoting the general welfare:
   • when we increase teachers' pay, we are "helping the children;"
   • when we increase the pay of policemen, firefighters, and prison guards, we are "improving public safety;"
   • when we increase spending on defense contractors peddling the latest computer hardware and software, we are "keeping America safe from Muslim extremists;"
   • when Fannie Mae purchases junk loans from banks, we are "expanding homeownership;"
   • when we expand affirmative action programs for various minority groups, we are “combating racism;”
   • when we funnel billions of dollars to venture capitalists, we are “promoting green technologies.”
   In fact, the money spent does not go to promoting the general welfare, but primarily benefits only the narrow special interest groups.
8. If the government decides to spend money towards a particular noble-sounding end, there will spring up countless businesses and organizations that will "assist" the government in achieving its “noble purpose.” These businesses/organizations will be funded by the government at the general expense of the taxpayer. They will set aside a portion of their funding for two ends: a.) to produce massive amounts of "research" purporting to demonstrate that the government funding is achieving its noble ends and that "catastrophic" consequences will ensue if the funds are cut off; b.) to build a massive lobbying organization to elect and influence politicians who will continue and expand the funding.
9. When the government provides cheap credit to subsidize the purchase of certain goods or services, the price of those goods and services skyrockets, putting them further and further out of reach of those very individuals the government was seeking to help. By securitizing and guaranteeing subprime loans, the "government-sponsored enterprises" (GSEs) Fannie Mae and Freddie Mac created a supply of cheap credit for the purchase of homes; the price of homes skyrocketed. The government provides cheap student loans to students in need; the price of a college education has skyrocketed. We can well imagine what is going to happen with Obamacare; as the government pours massive subsidies into the market to help the poor purchase health insurance, the market will soak all that money up and the cost of health insurance and health care will skyrocket.
10. Any industry or governmental entity whose workforce is highly unionized will eventually fail. We need only look at the American steel and automobile industries and the current budget deficits of so many of our states and municipalities to see the truth of this thesis. As with Thesis 6 above, the modus operandi of public service unions (teachers, firefighters, policemen, and others) is a.) gather mandatory dues from all union employees, b.) use these union dues to fund 1.) massive lobbying efforts to elect to office officials who will support the efforts of the unions to increase union pensions and benefits, or 2.) litigation to prevent pensions and benefits from being cut. In this way, the government officials who end up negotiating with the unions are bought and paid for by the unions themselves.
11. We have reached the terminal stage of democracy. Modern democracy is nothing more than a form of legalized theft, a system whereby the unproductive many, who have fewer assets, use the mechanism of universal suffrage (instead of, say, arms) to redistribute the wealth of the productive few, who have greater assets, to themselves. Alternatively, democracy is nothing more than a mechanism whereby politicians amass power for themselves by making noble-sounding promises to the masses that the government can never possibly afford to keep.

    Update [7/17/2019]: The following quotation has been attributed by various conservatives to Alexander Fraser Tytler, a Scottish advocate, judge, writer and historian who served as Professor of Universal History, and Greek and Roman Antiquities at the University of Edinburgh:

    A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.
    The above quotation has also occasionally been attributed by conservatives to Alexis de Tocqueville. Both of these attributions are, apparently, incorrect and the left-wing media has ridiculed conservatives for getting the attribution wrong. The media never seems to consider, however, whether there is any truth in the assertions made in this quotation. Does it matter whose authority is attached to the quotation if it constitutes a fairly accurate description of the progress of democracies?
12. We have reached the terminal stage of Keynesianism, a situation where government spending does not stimulate, but instead government borrowing depresses the economy.
13. We have reached the terminal stage of the regulatory state, where the strictures placed on the private sector by the regulatory agencies strangle the very businesses whose operation justifies the existence of the agencies in the first place.
14. If government is always getting bigger and more centralized, all attempts to discourage lobbying will fail. Why are we always surprised by the fact that, as we concentrate more and more power in Washington, more and more lobbying of Washington occurs? Lobbyists are simply responding rationally to the continued expansion and concentration of power in a particular locus. If everything is decided in Washington, it only makes sense for interest groups to send ever more lobbyists there to influence the decision makers.
    
15. Government programs always cost more and deliver fewer benefits than forecast. Think Big Dig, east span of the Bay Bridge, high speed rail, green energy.
16. Keynesians always explain the failure of Keynesian stimulus with the following set of excuses:
    • The stimulus was too small; if only we pass new, additional stimulus (often, it seems these days, trillions of dollars in size), the outcome will be better.
    • The regime that came before us was at fault and left us with an economy that was worse than we expected (this argument fails to address the epistemological question of why their expectations were so mistaken in the first place)
    • The outcome would have been worse if we had not passed the stimulus at all.
17. Regulators explain the failure of regulation with a similar set of excuses:
    • The regulation was not extensive enough; if only we pass new, additional regulations (often, it seems these days, in legislation 1000’s of pages long), the outcome will be better.
    • The regulated entities were evil (greedy, pick a negative adjective) and circumvented our regulations (an argument that fails to explain why the regulators were so stupid that they did not anticipate the circumventions and write the regulations to preclude them).

Note the “other world,” "contrary to fact" flavor of the Keynesian and regulatory arguments in the theses 16 and 17: we are asked to believe that a world better than the current one will exist if only new regulations and stimulus are passed; or, we are asked to believe that a world worse than the current one would exist if only the preceding regulation and stimulus had not been passed; and you can be sure that we will be asked to believe that the awful economic state we almost surely will find ourselves in during President Obama's reelection campaign in 2012 would not have been so awful if only congressional Republicans had passed his new $447 billion jobs plan. Keynesians and regulators always ask us to believe that the next time around they will get things right, in spite of the fact that there is always massive evidence in the real, actual, current world that they got things so utterly wrong the last time. With Keynesians and regulators, past failure is always an argument for doing even more of the same in the future.

Note: As a confirmation of what I wrote above, I find that David Stockman, in his book The Great Deformation: The Corruption of Capitalism in America, writes:

[T]he [Obama "Making Work Pay"] tax holiday was extended again through 2012. And when the predicted hearty cyclical rebound still did not appear, Professor Summers’ heirs and assigns (he had fled the White House by then) summoned help from the contrafactual. Peering into a realm visible only to Keynesian true believers, they espied an economy that would have grown even more anemically, save for the $ 500 billion of MWP, ERP, and payroll tax handouts that had been added to the national debt over 2009– 2012 to induce citizens to buy more shoes and soda pops.
18. The Keynesian crusade to achieve full employment is inherently inflationary. Until the Fed is relieved of the bipolar mandate given to it by the Humphrey-Hawkins Full Employment Act to promote "maximum employment" and "stable prices" at the same time, the American economy is doomed to long-term inflation and the erosion of the dollar.
19. The level of taxes imposed by the Federal government and various state governments (for example, California) will become so confiscatory that residents will begin to flee and move to other countries/jursidictions with lower tax rates. At this point, the Federal and state governments will attempt to impose tax penalties on those who seek to move away, thereby creating a tax-based Berlin Wall to lock the most successful in. This will only cause our best and brightest to flow out even faster. The attempts to lock their citizens inside will be justified by the politicians with appeals to "fairness" and excuses like "we are all in this together." Progressives are very fond of the claim that we are all in this together, since they assume that our "togetherness" will always be funded with someone else's tax dollars.
20. America's most precious natural resource is nothing more than the fickle willingness of others to lend us money. Heaven help us if that resource should ever run dry.
21. The accounting for government finances is, as Niall Fergusson recently put it, simply fraudulent: "There are no regularly published and accurate official balance sheets. Huge liabilities are simply hidden from view. Not even the current income and expenditure statements can be relied upon. No legitimate business could possible carry on in this fashion." There is no hope of reforming government finances until the government is forced to adopt GAAP.
22. Progressives are always in favor of tolerance and diversity except when it comes to showing tolerance for the opinions of non-progressives.
23. In our day and age, there is no such thing as a good or bad investment per se. Rather, all our investments become good or bad insofar as the central banks manipulate the money supply to make them so. There is no such thing anymore as a product or service that is good or bad per se. Rather, a product or service is good insofar as it responds to the myriad incentives created by the vast machinery of government.
24. Income inequality does not result from greed or mean-spiritedness or a lack of fairness or any of the other canards proffered by the Left. Rather, it results from the fact that low-skill workers are becoming less and less valuable in society today and knowledge workers are becoming more and more valuable. My favorite example is: tolltakers and RFID engineers. In the not too recent past, armies of low-skill tolltakers manned tollbooths on all our bridges. These jobs were government, union jobs, so the tolltakers made a decent living. Then, along came a bunch of engineers and invented RFID technology and Fastrak. No one can dispute that Fastrak is a better system than manual tolltakers. It is cheaper and it doesn't result in automobiles lining up for miles wasting enormous amounts of fossil fuels as their drivers idle along, waiting to hand over their tolls. So, the tolltakers are out of a job and the engineers who created FastTrak are millionaires. Voila: an increase in income inequality. The next place this will happen is with BART workers. Google has already developed self-driving cars. Self-driving trains are not far behind. And when they take over, many of the BART drivers will lose their jobs. And once again a cry will go up that those damn heartless Google employees are putting government, union workers out of work.
25. Following Burke, I am guided by the following principle: as soon as a person starts talking about tearing down the entire system (private health insurance) and replacing it from the ground up (with Medicare-for-all), I know s/he is a charlatan. For, as Burke correctly observed, when you tear down the entire system, what you end up with is not a wonderful new system, but a wasteland. This is because you have destroyed the old system and then you discover that replacing it with a new system from the ground up is frighteningly more complex and expensive -- and oftentimes bloody -- than you ever could have imagined. The French and Russian Revolutions taught us this lesson. And it is with the horrors of the French and Russian Revolutions in mind, that we ought to reject the crazy, utopian, abstract, socialist theorizing of the Kamala Harrises and Alexandria Ocasio-Cortezes of the world.