Arguing About Monetary Policy

What do you know? Economist John B. Taylor is in a spat with Federal Reserve Chairman Ben Bernanke about monetary policy.

Taylor is the author of a rule that specifies the interest rate that the Fed ought to use to guide its monetary policy. According to the Taylor Rule, the Fed's policy was too loose in 2002-2005. Helicopter Ben gave a speech explaining, as Taylor writes in the Wall Street Journal, that things were OK after all:

In his speech, Mr. Bernanke's main response to this critique was to propose
alternatives to the standard Taylor rule—and then to use the alternatives to
rationalize the Fed's policy in 2002-2005.

Well maybe Ben has a point. Or maybe not. Id be a lot happier if the Fed chairman were a real banker, and the Fed were a completely private organization that didn't owe a dime to the government.

The fact is that ever since 1913 the Federal Reserve has been an obvious stooge of the US government. You can say that, in wartime, that's the right stance. But in peacetime the Fed spends far too much time pulling the politicians' chestnuts out of the fire. The result has been that the dollar has declined in a single century from $20.75 per ounce of gold to $1,100. It's worked out real good for the nation's biggest debtor, Uncle Fed, but not so good for widows and orphans.

The big problem with the Fed is that it is always trying to rush recovery from recessions, as right now. In doing so, no matter what the rules it tries to follow, it always delays too long the change from stimulative policy (printing money) to a restrictive policy.

What we need to do is take the Fed out of the policy mix for stimulating the economy. It should maintain the value of the dollar at a fixed gold price (or other price if it can find a better one) and stand by to rescue the credit system if it seizes up.

Of course, even if it did this one small thing, it still wouldn't solve the Fannie Freddie problem. But at least it's a start.

Educating Barry

I've said all along that we needed to elect a Democrat in 2008 because we needed to put the Democrats in charge of the war on terror.

As long as Bush and the evil Republicans were in charge, Democrats could say that Bush provoked the terrorists, that his cowboy diplomacy wrecked all efforts at peace, that the war in Iraq was the wrong war, that Bush was "stubborn," and so on.

That sort of thing is just politics. But it also arises honorably from the liberal belief system. Liberals adhere to a belief system that says that conflict arises out of social injustice and oppression. Remove the injustice and you remove the violence. That is the meaning of Reverend Al Sharpton's war cry: "No justice, no peace."

Liberals apply this doctrine to everything except their culture war with conservatives. But of course, that conflict is the fault of conservatives for being racists, sexists, and homophobes.

So the United States needs to educate its governing elite, liberals, to reality from time to time. Or as Smokoe Joe, the charcoal-burner in the boy's adventure story Brendon Chase said: We need to "larn 'em."

Just as President Carter entered office complaining of our "inordinate fear of communism," so President Obama entered office promising a "reset" of US foreign policy, an emphasis on "soft power" over crude neo-con "hard power."

The problem is that the American people expect its government to defend against enemies foreign and domestic. Whatever a Democratic president may enter office thinking, he finds sooner or later that reality and public opinion force him to fight communism or Islamic terrorism, or whatever the anti-American threat may be. So now President Obama has been forced to up the ante in Afghanistan and now, after the Christmas pantybomber, declare that:

"We are at war. We are at war against al Qaeda."

So that's all right. That has "larned" President Obama and taken care of our liberals friends on defense for the next generation.

Now we need to deal with our liberal friends on all the other things they know that aren't so.

I am thinking of health care, "affordable housing," education, regulation, environment, welfare, finance, monetary policy, public-private partnerships, excessive government pay, and so on.

Hey, we can't solve everything in one year.

Dems to Link GOP to Palin and Tea Party

Yes. You read it right. According to Patrik Jonsson the Democrats are planning to campaign against the GOP by linking candidates to Sarah Palin and the Tea Party movement.

Democrats are aiming to vilify the rising Tea Party movement as woefully old-school and out of touch. “Labeling their GOP candidates as being part of the Sarah Palin or Tea Party wing of the GOP will be the key element” of Democratic attacks in 2010, writes John Fund in The Wall Street Journal.

Old school? Out of touch? Democrats are planning to say that a brand-new grass-roots populist movement is old and out of touch? What are they smoking? Sounds like it's the Democrats that are out of touch, calling plays out of a 30-year-old playbook.

Here's more:

“The Republican Party is trapped by their base, which is going increasingly conservative,” says Mr. Abramowitz [, political scientist from Emory University, Atlanta].

Actually, the Republican Party has to do some pretty fancy footwork to keep its base at home and also capitalize on the Tea Party movement. But you don't need me to tell you that.

The big problem for the Republican Tea Party is to turn around folks like Larry Elder's dentist. Larry took his 94-year-old dad to the dentist, and all of a sudden, the dentist wanted to talk politics.

"Sarah Palin, do you guys really like her?"

My dad's doctor asked me this a couple of weeks ago. His smile seemed to shout, "Are you guys crazy?" I had taken my 94-year-old Republican father to see him several times, but politics never came up.

Larry took the dentist through a long dialog in which he challenged all the Democratic talking points: that Palin's stupid, not prepared. And on through Joe Biden being on the wrong side of every issue for thirty years. And then to Bush actually being smarter than Al Gore and John Kerry according to their test scores.

Basically, the dentist was a Democrat and liked Democratic policy and politicians. Until it came to ObamaCare.

Dad's doctor suddenly turned into Mr. Hyde. He teed off on the government dictating how he should practice medicine. He predicted that costs would go up, not down. He predicted that quality would go down, not up. He talked about the importance of the profit incentive.

"Sarah Palin feels the same way you do."

Well, now. Do tell.

Roiling Political Currents

Are we having fun yet? This is a week when Democrat officeholders have been taking a look at the political winds and deciding not to run. As in Sen. Dodd (D-CT), Sen. Dorgan (D-ND), and Gov. Ritter (D-CO).

Then there are Dick Morris and Eileen McGann writing that the center-right Democrats are finished. Back in the Nineties it was the center-left Republicans that got wiped out. They voted with the center right and their constituents decided that they wanted real Democrats, not fake ones. Of course, some of the liberal Republicans, like Sen. Chafee of Rhode Island and Jeffords of Vermont, switched parties. But now it's the turn of center-right Democrats to face the music or switch.

Now that Ben Nelson, Blanche Lincoln, Mary Landrieu and Byron Dorgan in the Senate and the likes of Marion Berry, Tom Perriello and John Spratt Jr. in the House have shown how easily they fold under pressure and how thin their conservatism really is, their states and districts will no longer be deceived into re-electing them. They will be replaced by real Republicans.

The question is, of course, should the switchers go all the way and become Tea Pary members? David Brooks notes how the American people are turning against the "educated class."

Americans are moving away from the administration, not toward it...

The public is not only shifting from left to right. Every single idea associated with the educated class has grown more unpopular over the past year.

As in health care, cap-and-trade, abortion, gun control. You could call it the "tea party tendency." Of course, Brooks assures us, "I’m not a fan of this movement." No, darling, not really recherché enough.

Yep, things are on the march, but we don't know where they are heading.

This is exactly why I wanted Barack Obama to become president. I felt that once the American people got a taste of real Democratic government they would upchuck on the spot, just like they did in the Nineties when they got a taste of Bill Clinton in 1993-94.

The problem for the Democrats and the educated class is that they have been around running things for over half a century. Inevitably, over a period like that, a political elite gets really corrupt. And I don't just mean in a flagrant Chicago-politics way. I mean in a lazy self-dealing way.

Eventually, despite all the pretty words and the goodies given to them, the people turn against an entrenched elite, and the tea party movement looks like it symbolizes that turning for us in the 2010s.

How about a Republican Tea Party? Any takers?

Democrats Help the Rich

Although the Obama stimulus package was advertised as a way to keep unemployment under 8 percent it is pretty clear that, from the start, it was designed as a mammoth earmark program. Writes Mona Charen:

[U]nemployment has continued to climb since passage. That's not surprising when you consider that the overwhelming majority of funds (116,625 grants) have gone to governments, not the private sector (13,080 grants).

And, of course, Democratic districts have been getting twice the stimulus money that Republican districts have gotten.

But wait a minute. We've been getting reports recently that government workers earn more than private sector workers, on average, Federal workers are earning about 40 percent more than private sectors, and state and local workers are earning about 37 percent more.

So doesn't that mean that this government-centric stimulus is going to the rich?

Somewhere in these United States there is a politician that is planning to ride to victory on the injustice of government workers earning more than private sector workers. Just wait.

Obama's Grass Roots

Whatever happened to President Obama's grass-roots supporters? Weren't they supposed to be transforming politics? That's what Micah F. Shifry wonders at techPresident.com.

The answer is not what he wanted. The grass roots were never more than a means of ascent for the Obama campaign, to be used in the primaries and for fundraising, but not to be encouraged as an independent force in politics. Now that Obama's president the grass roots are nothing more than a nuisance, making it difficult for Obama to pivot towards the center.

Which means, of course that the wonders of the Obama grass roots were all along a media mirage. And what else could they be? The Obama phenomenon was always a personal campaign. The Obama grass roots mobilized to elect Obama. They were inspired from the top down by his vaporous agenda of hope and change, youthfulness and energy that was intended to contrast with the tired administration of Bush and its reincarnation in the aged John McCain.

But Obama was always an establishment candidate, never an insurgent. Remember? He came to national attention when he was invited to give a speech at the Democratic National Convention in 2004.

If you want a true insurgency, look no further than the Tea Party movement. It came out of nowhere, unbidden and unattached to any candidate.

In fact the Tea Party movement dramatizes the utter fatuity of the "community organizer" notion so popular on the left. The Tea Party is real people organizing themselves at the grass roots and reaching out to find others out there doing the same thing. It is messy and contentious. Nobody knows whether it will fold into the Republican Party or split the conservative vote by trying to organize as a third party.

The "community organizer" concept is a top-down wheeze of the left. It imagines communities of the oppressed waiting around to be organized by left-wing cadres and fashioned into a force for progressive politics. Think astroturf.

The point is, of course, that the Tea Party people are middle-class voters that are capable of self-organizing. They have the can-do skills and the middle-class culture that amazed Tocqueville back in the 1830s. Americans have always formed associations when they wanted to achieve a community purpose. The Obama grass roots are just unorganized liberals that were energized by the charisma of Obama and the Obama campaign to help Obama get elected.

If the Obama people did organize their grass roots into a political force, the new organization would probably do more harm than good. The problem that liberals have is that they are really different from the average moderate or independent and, as Rush Limbaugh says, they have to keep that quiet. The natural home of most independents is probably in the Republican Party. They can only be enticed into voting for Democrats if they are fed up with the Republicans and if you present them with a candidate that looks like a conservative.

Right now independents and moderates are finding out that voting for a moderate Democrat doesn't mean that you get moderate policies. When the chips are down those nice moderate Democrats vote the Pelosi or the Reid line. Voting for a Democrat, any Democrat, means voting for liberal policies.

Why would the Obama people try to flood the streets with energized liberals? When you are trying to persuade the American people that your liberal policies are really moderate, you want to keep your liberal grass roots quiet. They might let the cat out of the bag.

Repeal the Deal

There is still time, some say, to kill the health bill that has now passed the House and the Senate and needs to go through a conference process before passing out as a final bill for the president's signature.

But I wonder if that is the right strategy.

It seems that Democrats didn't get the right message from the failure of HillaryCare back in 1994. Back then we killed the bill and dealt the Democrats a severe defeat in the 1994 elections, and so President Clinton retreated to a policy of incremental change on health care. No longer would he propose the Democratic dream of universal health care run by the administrative state. Instead he would do it by inches.

But Democratic policy analysts went to work to come up with a new way of selling universal health care to the American people. ObamaCare is the result.

Democrats clearly believe that if they can just get something, anything past the finish line then they will have succeeded in passing landmark social welfare thata can never be repealed. That was how the Democrats understood their victory on Social Security, and that is how they understand their victory on Medicare. They believe that once they pass an act to put health care under the administrative control of government, there is no turning back.

The only way to change their minds is to do the unthinkable. We must mount a campaign to repeal a major piece of social legislation and carry it through to victory.

Let us understand what this means. It means that we must declare ObamaCare unjust and illegal. We must mount a campaign to repeal it. We must persuade the American people of the justice of our cause. We must elect legislators sworn to repeal ObamaCare, and then we must press our case until a Congress is elected that repeals ObamaCare and a president is elected who will sign the repeal.

There must be a decisive battle sooner or later on social welfare. The battle is necessary to decide the larger war, which is: Shall the United States achieve social cohesion by means of administrative government programs? Or shall it reject this model and try another model?

The history of the past century and a half has been the history of the growth of government programs to deliver social services like education, health care, pensions, and charity. The prime movers of these programs were not the working classes. All they ever wanted was more money. No. The driving force behind social legislation has been the progressive educated class.

The progressive educated class arose in the mid-19th century and by the turn of 20 century has coalesced around a program of government expansion. They believed that an unregulated private sector could not deliver the education and the protection from poverty that the people needed. They proposed a legislative program to deliver these services with government programs that they would lead and control.

Obviously this program of government expansion will continue until it is stopped. Obviously it will eventually stop. It cannot take over the whole economy, for it requires a healthy private sector to deliver the goods and services to finance its programs. At some point the expansion of government will end.

Either the era of government expansion will end in meltdown, or it will end in a decisive battle in which the ordinary people tell the progressive educated class that they don't want their administrative state.

Michael Barone wrote recently about a similar decisive battle that occurred in the past. It was the Kansas-Nebraska Act that Sen. Stephen Douglas (D-IL) shepherded through the Senate in 1854. He thought that his plan of deciding the issue of slavery state by state through "popular sovereignty" was a sensible plan that would end the conflict over slavery.

But he was wrong. The Kansas-Nebraska Act ignited a firestorm of rage in the North, and the Democrats lost 73 seats in the House in the 1854 elections (That would be like 140 seats lost today). Seven years later the states were at war.

Without the Kansas-Nebraska Act the anti-slavery North would not have been roused to political rage, and the Republican Party might not have been created to fight slavery. Perhaps there would have been no civil war.

Without the passage of ObamaCare we may not get the political rage that is needed to turn the tide of government expansion back and return once more to a nation of limited government.

We can only hope that the campaign to take back America from the progressive educated class does not end in civil war.