The Kennedys Ain't What They Used To Be

Nobody could say that the Kennedy political machine didn’t practice nepotism. Old Joe Kennedy would probably have made Gov. Blagojevich (D-IL) look like a piker if we’d known about his shenanigans. (Why do you think we use that Irish word to communicate the notion of dodgy political footwork?)

But at least Jack Kennedy actually ran and won races for the House, the Senate, and the Presidency. And at least Ted Kennedy ran for the Senate in 1962.

But now we have the latest Kennedy scion, Caroline Kennedy Schossberg, campaigning for an appointment to the US Senate.

How about the idea that this political novice should actually run for a political office before she works the system to get into the Senate by the back door?

Otherwise, who can complain about Sarah Palin, a woman without political connections, who has actually won three different political offices in open elections? Indeed, she won the governorship by running against the Republican political machine in Alaska.

Well, never mind. Democrats are Democrats, and Republicans are different, honey.

As the Brits used to say. Not really out of the top drawer, old chap.

Pushing on a String

At this stage of the business cycle pundits usually talk about the Fed pushing on a string. They mean that the Fed can’t actually make people start to borrow. All the Fed can do is print money and hope that economic activity starts to revive.

The usual response is that, of course, economic activity will revive; it always does. But until it does, who knows how long it will be before greed takes over from fear.

The worry is that the Fed is reaching the zone of “quantitative easing.” That was what the Bank of Japan used to do during the lost decade of the Japanese economy, after its big real estate boom left many of its banks insolvent and unwilling to lend.

Well, we solved that problem, didn’t we? We bailed out the banks by recapitalizing them. But do we know that the banks are out of the wood? After all, the banks depend on the quality of their assets, and that depends, in many cases, on the value of commercial and residential mortgages, and they depend on housing prices.

The Fed is working on that, according to the Wall Street Journal, and its action is already leading to a reduction in mortgage rates which will help to advance a revival in real-estate prices. But what’s really needed is not an increase in liquidity, but an increase in confidence.

Meanwhile, according to Larry Kudlow, the Obama team is planning a massive purchase of mortgage paper.

Team Obama is also drawing up plans for a massive purchase of mortgages in order to get long-term borrowing rates down to 4.5 percent — a full percentage-point drop.

But is that the prescription for recovery? What nobody seems to be suggesting is a tax rate cut, worries Kudlow.

But I still believe the best economic stimulus would be a move to cut tax rates across-the-board for individuals and businesses. No matter how much money the Fed prints, or how many roads or mortgages Uncle Sam buys, none of it creates new incentives for private enterprise, risk-taking, and investment.

Yes. It took Bush two years to get Congress to agree to tax rate cuts. And it looks like the same could happen with the firm of Obama, Reid, and Pelosi.

Were Talent-spotters Right on Obama?

Federal Appeal Court Judge and über-liberal Abner Mikva was an early patron of President-elect Obama, according to Tom Hundley. He “was among the first to spot the potential of the skinny young law school graduate with the odd name.”

"I use a Yiddish expression, yiddishe neshuma, to describe him," explains Mikva. "It means a Jewish soul. It’s an expression my mother used. It means a sensitive, sympathetic personality, someone who understands where you are coming from."

That’s cool, because there’s a national problem right in the cross-hairs of the national radar that needs just that sort of sensitive, sympathetic personality. It’s the Big Three auto mess. Michael Barone rather neatly describes how the mess came to be.

It all started with Taylorism, after the book on “the one best way” by Frederick Winslow Taylor. Taylor’s brilliant idea was to measure worker productivity with time and motion studies and implement the one best way as a mandatory procedure for all workers.

Only one problem, of course. It treats workers like machines rather than people. So it provoked its nemesis, the Wagner Act of 1935, that legislated an adversarial relationship between business and labor. It worked great, for a while, as auto workers and steel workers won themselves fabulous wages and benefits.

Everyone thought that the new unionism was a wonderful idea, in particular liberal writers like John Kenneth Galbraith who made a fortune peddling conventional wisdom to a generation of liberals by telling them that he and they were intelligent iconoclasts that soared above mere “conventional wisdom.”

Well, it wasn’t such a great idea. It wiped out the steel companies a generation ago, and now it’s brought the auto companies to the edge of ruin, and brought the current generation of autoworkers to the edge of humiliation.

If President-elect is the genius that his patrons believe then he will use his yiddishe neshuma to lead the autoworkers and their union and their jobs back from the precipice.

But my guess is that he won’t. My guess is that he’ll choke on the chance to get the auto companies to reorganize and write Finis on the era of Wagner Act unionism.

The sensible thing for liberals to do would be to start a strategic retreat on their welfare state and its privileges, to preserve as long as possible the unsustainable privileges and subsidies they have awarded themselves and their servitors. But I don’t think they will.

My guess is that in the next few years the liberals are going to get themeselves suckered into the political equivalent of the Battle of Kursk. That battle, you will recall, was the last big offensive of the German Army on the eastern front in World War II. It seemed like a good idea to the German generals in early 1943 but by the time that Germans actually started the offensive the Russians were ready for them. So the greatest tank battle ever fought ended in failure. The Russians began a counter-offensive that didn’t stop until it reached Berlin two years later.

After all, Barack Obama didn’t run for president to sort out the labor union problem. He ran to lower the oceans and cure the sick. Much more fun.

Brit Laborites Propose Welfare Reform

They said it wouldn’t work. They said that millions of children would starve.

That’s what the experts and the advocates said when President Clinton signed the US welfare reform bill 12 years ago.

They were wrong. All that has happened in the United States is that the welfare rolls have gone down and poverty rates have decreased.

Now the British Labour Party, champion of welfare and social programs, has announcd a welfare reform plan for Britain. It comes not before time, as Brits have been regaled recently by several welfare horror stories, including the killing of Baby P by Mum’s current boyfriend. Then there was the disappearance of Shannon Matthews. She was one of seven children out of single-parent Karen Matthews by several fathers. Little Shannon disappeared because her welfare mum (it’s Mum, not Mom, in Britland) figured to get £50,000 in reward money. So she staged her daughter’s disappearance.

Anyway, Labour minister James Purnell last week announced a welfare reform bill in Britain. Even the Labour Party has a limit when it comes to turning a blind eye to the catastrophe of the underclass.

This may be Labour’s reform plan but it is the Conservative Party in Britain that is setting the pace on social reform, writes Tim Montgomerie. He quotes Conservative Party leader David Cameron in a recent speech about children trapped in the culture of social breakdown.

Raised without manners, morals or a decent education, they’re caught up in the same destructive chain as their parents. It’s a chain that links unemployment, family breakdown, debt, drugs and crime. Breaking that chain means recognising the scale of the problem and taking serious, long-term action.

Lots of people have sneered at David Cameron. That’s because he presents himself as a new kind of Tory. But if you look at the substance that the Conservative Party is developing, including radical ideas on education and welfare, you see a party that is setting itself up as the party of real hope and real change.

In many respects, David Cameron’s Conservative party is timid but on social reform it is groundbreaking. The Tories understand that the only way of reducing the size of the state is to cut the demand for government services by strengthening civil society. They understand, finally, that the Left has lost the war on poverty. And they are rediscovering that conservatism is at its best when politicians support and never supplant the Burkean little platoons of family, voluntary organization, and local school

Sounds like US and UK conservatives are all on the same page.

Of course, the Conservatives are in opposition. All they can do is talk. But whatever they are saying, the Labour Party seems to be listening and anxious to co-opt their ideas.

Double Whammy Morning

Faced with the failure of the auto bailout in the United States Senate and the collapse of a $50 billion Ponzi scheme markets plumm... well, they seem to have shrugged. At noon, 12/12/2008, the Dow was down 95.02 points and the Nasdaq was up 5 points.

So that just shows you. It’s not the end of the world. Yet.

Most likely, as long as the financial system holds up—and LIBOR rates are down sharply in the last two days—we can deal with the auto meltdown just fine. That’s what the bankruptcy system is for. You declare Chapter 11, you wipe out the stockholders. You make the bondholders the new owners of the company. You wipe out the labor contracts. And you keep going with special bankruptcy loans.

But why then did we have to bail out the banks? The answer is simple. We can’t let the banks fail because they’d bring down the whole credit system with them. We did a nationwide experiment on that in the 1930s. Banks failed left and right, and depositors lost their life savings. It brought the United States to a standstill and a ten-year Great Depression.

Don’t think you’d like a repeat of that? Then bail out the banks.

That’s not to say that there aren’t lessons to be learned. Lesson One is: Don’t get leveraged up like that. Don’t get leveraged up on home mortgages, or credit default swaps, or government sponsored enterprises like Fannie Mae and Freddie Mac. But that’s a subject for beneficial legislation, if Congress is up for the job.

The interesting part, for me, with the bailout failure in the Senate is that Majority Leader Sen. Harry Reid (D-NV) now proposes to go home for the holidays. Oh really? Can’t be all that urgent, can it.

The murmur you hear is that the Dems did the whole bailout thing as payoff for the United Auto Workers support in the election. And the bailout package failed because eevil Republican senators wouldn’t sign onto a bailout bill unless the UAW bit the bullet on wages and accepted “parity” in 2009.

So the Dems took a dance on the floor with the partner what brung them. But, it looks like the agreement was one dance only. Now the partner could be on their own.

Unless President Bush rushes into the breach.

But Mr. President. It looks like the market has already discounted an auto industry failure. And it looks like it thinks that it’s not the end of the world. So why worry?

Yes. There are all those “high net-worth individuals” who got taken to the cleaners by an accused Ponzi scheme. Oh well.

What About a Stimulus That Works!

Everyone agrees that what the world needs now is Stimulus.

But what kind of stimulus should it be? Should it be a tax rate cut, as Republicans and conservatives would recommend? Or should it be spending on stuff like infrastructure, as Democrats and liberals would recommend, and as President-elect Obama seems to prefer?

Harvard economics prof Greg Mankiw has some ideas on this. And like a true economist, he grades the different approaches by their “multiplier” effect. Here is what he means:

One way to think about the issue is the size of the fiscal policy multipliers. The multipliers measure bang for the buck—the amount of short-run GDP expansion one gets from a dollar of spending hikes or tax cuts.

That’s a fancy way of saying: If I spend a dollar on stimulus, how far would it go?

Guess what. Republicans are right and Democrats are wrong.

In their new blog, Bob Hall and Susan Woodward look at spending increases from World War II and the Korean War and conclude that the government spending multiplier is about one: A dollar of government spending raises GDP by about a dollar. Similarly, the results in Valerie Ramey’s research suggest a government spending multiplier of about 1.4.

Oh goody. The spending stimulus goes down like a lead balloon. But what about the prescription of eevil mean-spirited Republicans?

By contrast, recent research by Christina Romer and David Romer looks at tax changes and concludes that the tax multiplier is about three: A dollar of tax cuts raises GDP by about three dollars.

Well now. That is what you call a real bang for the buck, as they say Out West.

But this is exactly what conservatives would expect. What matters, we conservatives believe, following the 1870 marginal revolution in economics, is economic decisions on the margin. The way to stimulate the economy is to reduce the marginal cost for workers to work and investors to invest. You do that by cutting marginal tax rates on labor income and capital gains.

This is not rocket science. It is 140 year old science.

But liberals aren’t interested. If they were to accept the ideas of marginal economics then they would have to dismantle their vast, tottering patronage and client state.

Naturally, they won’t do that. Because their liberal client state is the foundation of their political power.

You’ll recall that all power corrupts, and absolute power corrupts absolutely. When you live by political power you get Chicago politics and politicians like Gov. Blagojevich (D-IL).

Something to think about, Mr. President-elect.

Politics and Programs and Corruption

Everyone is chuckling about the criminal allegations made against Illinois Governor Rod Blagojevich (D). His blatant determination to “sell” the vacated US Senate seat of President-elect Barack Obama for value received is so over the top that you can’t help but laugh. Even the Wall Street Journal was able to crack a grin.

Of course, the president-elect had nothing to do with this. Nothing.

But liberals, isn’t it time to look in the mirror as little? If you chaps insist on gathering up 35 percent of the national output every year and running it through the political system, this is what you get.

All that money sloshing around, not doing very much except rewarding supporters, sets up the occasion for corruption. It’s not helping people, it is stealing from people.

Now you might say that to make the United States into a patronage state, where people get their livelihood from their association with a great lord, is no bad thing. Indeed you could argue that the world as always worked this way and always will. Political rulers naturally fall into the role of patron, and the voters and minor party functionaries naturally fall into the role of client.

But I don’t think that liberals really believe that the patronage state is really the highest and best form of political association.

Conservatives certainly don’t. That’s why we are ashamed of the corrupt Republicans who spent the last eight years trying to stay in power instead of trying to reform government programs. And why we weren’t that sorry to see the Republican Congress defeated in 2006.

Conservatives believe in an America of trust and honesty, where government is limited and Americans get their livelihood from serving each other rather than by becoming the client to a great political lord.