Faith in America

Enough with the pessimism already, writes Ross Douthat in The New York Times, and I agree.

Yes, the Obama administration is bungling everything, and the recovery will be tepid at best. But it's unlikely that the economy will swoon into a double-dip recession. And yes, the decline in M3 is troubling. For sure the mega-tax increase that is scheduled for January 1 is an act of economic folly. As is the proposal being floated around to implement a VAT tax.

Actually, the experts are always worrying about a double-dip recession at this stage of the business cycle. So there!

They are right to worry, of course. The stupidity of the political class knows no bounds. And almost everything the political class does is harmful to the economy. Why? Because pretty well everything the political class does takes money out of the hands of people who are doing something constructive and productive and hands it over to people who are not.

But this is America and America is different. Here the people rule--or at least they manage to throw the bums out from time to time--and this nation of immigrants is born of people who had the courage to up sticks and try life on another continent.

Think on the bright side:

• President Obama is not the political genius we were sold in 2008. He seems to be a rather pedestrian, rather inarticulate leader who seems to be good at dividing the nation rather than assembling a consensus for his program.
• Democratic Underground, the liberal blog site, is banning criticism of Obama. Wow! That it should come to that!
• The election of a Republican Congress in 2010, or something close to it, will make it very difficult for President Obama to gun the economy for reelection in 2012. It was FDR's shameless policies in 1935-36 that set up the horror of the 1937 recession.
• The American people are in full revolt. And here's hoping that young people, who voted 67 percent or so for Obama, will soon start to appreciate they were sold a bill of goods.

This is not going to be a revolution. The walk back from Obamism will be slow and painful. Because we are Americans and we are conservatives. And we don't believe in reckless, divisive change.

We just believe that America is the last best hope of mankind on Earth. Lincoln said in his Second Inaugural that America was the "last best hope of earth." Ronald Reagan amplified his words to "last best hope of man on Earth."

America is the Great Exception. And long may it continue.

A SCOTUS That Thinks Like America

Our liberal friends make a big deal about diversity. But true to their values, they are not interested in a real diversity of thought and spirit, but only a diversity of the members of their political coalition, organized around race, class, and gender identity.

Still, with the anticipated elevation of Solicitor General Elena Kagan to the bench, the US Supreme Court is going to be singularly unbalanced, even by liberal standards. There will be three liberal women on the court. What about liberal men? OK, I suppose they are represented by Stephen Breyer, a former aide to Edward Kennedy. They should be so lucky.

You have to admit that the women span the gamut of liberal womanhood. There is the liberal ACLU activist, Ruth Bader Ginsburg. There is the liberal quota minority hack, Sonia Sotomayor. And now there will be the liberal university and executive branch administrator, Elena Kagan. That must be very satisfying to liberals. Three feminist role models. All on the Supreme Court. You go girls.

Only thing is, liberals are way overrepresented on the Court. According to Gallup, self-identified liberals represent 20 percent of the population. So that would make a maximum of two liberals on the bench. At 44.44 percent, liberals are more than double their share of the population. Instead we have three liberal women alone. What about a conservative woman, girls?

There are, of course, four conservatives on the Court, Roberts, Scalia, Thomas, and Alito. But that's OK, because conservatives represent about 40 percent of America. We sure could use a conservative woman in that bunch, if you ask me.

The real gap on the Court is moderates, people who switch from one view to another, as the mood takes them. Anthony Kennedy is the only moderate on the court, and all I can say is that moderates are sadly underrepresented. For one thing, the lack of moderates reduces the potential for suspense and excitement. You never know where a moderate is going to come down on any particular issue.

It's time that moderates get all riled up about this. After all, do they really want liberals making all the decisions for them, including three movement-liberal women?

I'll tell you what I think, as we head into the Independence Day weekend. I think the present makeup of the Supreme Court it's cruel, corrupt, unjust, wasteful, and deluded.

It is wrong to have so many liberals on the Court.

Testing Regulation to Destruction

My weekly oped discusses the endgame of Keynesianism, a bad idea when it was introduced with Wordworthian bliss 75 years ago, and a bad idea as it gets tossed onto the ash heap of history along with the Obama administration.

As I wrote, there was never going to be an easy exit from Keynesian economics:

We won’t bury Keynesian economics until after Keynesian economics buries the liberals.

The way things are going, Keynesian economics is going to bury liberals something frightful.

But then there's another bad idea that liberals cherish, and that's in trouble too. The regulatory state.

For liberals, the free market is inherently flawed. It doesn't meet basic human needs in health care, education, care for the poor, and care of the environment. Government must do this. It must create programs to correct the mistakes of the market, and it must minutely supervise the operations of corporations and businesses to correct corporate greed. The result is a vast regulatory and administrative structure directing resources and behavior by political means rather than market means.

After a dispiriting 30 years of Reagan-Bush when regulation was stalled and even rolled back, liberals have enacted a veritable spring flood of regulatory legislation. ObamaCare places the whole of health care under minute administrative regulation. The proposed cap-and-trade places the whole energy sector under minute regulation. The Dodd-Frank financial regulation bill proposes an intensified administrative regulation of the financial industry. And then there's all the stuff under the radar.

Meanwhile we are seeing the administrative state in action in the Gulf oil spill. We can see that in the past the regulators for the offshore oil business has been too lax. It was clearly a case of regulatory capture. But now that we have a disaster on our hands, the regulators are tightening up. No barges can go out until they have fire extinguishers. Giant Dutch oil skimmers can't operate because they don't quite meet the standard for oily water discharge.

Notice the difference between the regulatory approach and Wal-Mart at Hurricane Katrina. CEO Lee Scott told his workers that in the emergency they would be making decisions way above their pay grade. Just do the right thing, he said.

Conservatives have a faith system when it comes to the regulatory state. Our faith comes from the scholarship of Friedrich Hayek the Nobel economist. Beginning with The Road to Serfdom and continuing through The Constitution of Liberty and The Fatal Conceit he argued that the bureaucratic, administrative state was bound to fail because it did not, could not, know enough to direct the economy.

Our free economy, he argued, was the result of human action but not of human design. A complex system like the global economy evolves out of the millions of actions and decisions of market participants.

What was needed, he argued, was general rules and responsibilities, expressed in the legal code. What the regulatory state always ended up producing was detailed procedures and administrative discretion.

We have seen, in the Gulf oil crisis, how the regulatory state fails. The regulatory process results in the regulated industry conforming to the regulation rather than conforming to prudent business or technical practices. It is the same as the complaint we hear about education under national standards and testing. Teachers teach to the test, not to the needs of the children.

The whole point of law is to deal with things when they go wrong. When you damage someone or something then you must pay to make them whole. Of course, that is impossible, so the law attempts to provide compensation in lieu of making the damaged party whole.

But government regulation assumes that if you can create bureaucratic procedures and permits then you can make everything right before the fact. Of course, there is a place for standards and permits. But ultimately, you have to rely on the judgement of the parties involved.

Our liberal friends are making a huge bet on their regulatory state as they capitalize on their liberal hour. According to conservative political and economic ideas, it will fail, and it will fail big. Only then can we start to repair the damage with a common-sense conservatism that trusts but verifies.

If only we didn't have to have a meltdown first. But then we were never going to get out of the liberal regulatory state on the cheap.

We won’t bury the regulatory state until after the regulatory state buries the liberals.

And that's no error.

Be Careful What You Wish For

Senator John Kyl (R-AZ) reports to radio host Hugh Hewitt that Senate Democrats are planning to kill the filibuster. They want to get their cap-and-trade bill through to passage before the new Congress, with probably a lot fewer Democrats, assembles in January.

I say: be careful what you wish for, liberals.

You chaps don't understand the correlation of forces or your own interests.

The next few years are going to be hell for liberals. Because the next few years are going to be about cutting government debt and deficits. Guess where most of the problem comes from? Right first time: liberal programs for government pensions, government health care, government education and government welfare.

There's nothing quite like having a nice filibuster and supermajority requirements in the Senate to hold back the tide of change. Southern Democrats understood all of that in the Civil Rights era.

If Democrats end the filibuster to pass their liberal agenda this year then they are just making it easier for a Republican Congress and a Republican president to roll back the welfare state next year. Or the year after that.

I'd say that the filibuster has already been enormously helpful to liberals. It lets them pass their stuff when they have a temporary supermajority, as in the 1930s, the mid 1960s and right now. Then, after the liberal supermajority disappears it becomes almost impossible to repeal the liberal programs. Because it takes a supermajority.

All in all, as a conservative, I want to keep the supermajority requirement of the filibuster. I don't want change in a conservative direction unless it is supported by a large majority of the American people. I believe in the notion of "the consent of the governed." I believe that government is force and you need more than a bare majority to legitimize force. You need a solid majority to give political change real staying power.

Napoleon wanted his generals to be lucky. Lucky was better than good. Liberals don't really appreciate how lucky they have been over the last century.

They got to put the blame for the Great Depression on the Republicans, although it was probably Progressive era politics and the mania for big government that created the mess. They got to shovel through a ton of liberal programs in the mid 1960s after Republicans nominated Barry Goldwater for president and he got tagged as an extremist. They got to elect a supermajority in the context of a banking crisis that issued mainly from their own insane home-mortgage subsidies.

But luck runs out in the end.

And when it does, you sure appreciate having a shelter from the storm. Like a filibuster that requires a supermajority before evil Republicans can toss your beloved programs in the trash can.

The Rich Pay More Taxes

The rich are different from you and me. They pay more taxes. Well, of course they do. They make more money.

Yes, but they also pay more in taxes as a percent of income than ordinary middle-class Americans. That's what the Congressional Budget Office reports and Powerline summarizes.

Is that really what Americans want? Do we want to force high-income Americans (not necessarily high net-worth) to pay significantly more of their income to support big government? Especially since high-income Americans are typically the ones creating jobs.

And by big government we mean the commanding heights of government spending: government pensions, government health care, government education, and government welfare. Oh, and national defense.

The assumption of liberals and their once-in-a-generation progressive "seize-and-hold" strategy is that Americans want more public services paid for out of taxes and that the rich should pay more, a lot more. Once liberals seize the progressive moment they can ratchet in another entitlement that can never be taken away.

Until the ratchet breaks.

In his latest op-ed article Michael Barone wonders if the ratchet still applies. The progressive ratchet only applies in a nation where most people don't own property. Property owners don't like redistribution. They fear that it will hit them.

Back in the days of the New Deal, most American rented their homes. So it made sense that they would vote for redistribution. Not today.

But we still live in an America like the America of the Founders, and unlike the America of the Progressives and the New Dealers, in which a majority of citizens are or have every prospect of becoming property owners. And a nation of property owners is less willing to plunder the property of others in search of some promised gain than a nation where most people don't and will never own significant property.

And that goes back to Irving Kristol's law. If you want to help the poor you must deal in the middle class.

Health care to help the working poor won't help the middle class. It already has health insurance. Cap and trade won't help the middle class. It will hit them in the pocket book when they pay the utility bill and fill up their SUVs.

If Barone is right then the voters will be acting like property owners this Fall and not like benefit recipients. I'm shooting for a 80 seat Republican gain in the House of Representatives. Because that would be one more than the 79 gain in the 1938 off-year elections.

How Bad Will It Get?

The London Telegraph's Ambrose Evans-Pritchard is a solid bear. He's been forecasting gloom and doom for years. Now he's writing about the possibility of a double-dip recession provoked by the current Euro crisis.

Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.

Leading indicators seem to be forecasting a US contraction by the end of the year. That means that the Fed will swing back to money printing. An analyst in Europe, Andrew Roberts, forecasts that the Fed will revert to the same policy as it followed during World War II when it printed enough money to keep US Treasury bonds yielding about 2 percent.

Well, of course we don't yet know what is going to happen. The markets clearly aren't sure. They are certainly calling for a very modest expansion from now on.

If there is a double-dip recession in the US we will know who to blame. President Obama and the Democrats. For trashing the credit markets with lunatic housing credit subsidies. For wasting a trillion dollars on stimulating state and local government union workers. For raising taxes in a recession. For burdening the economy with a huge new health care entitlement. For scaring consumers and businesses with lunatic green energy taxes.

It could all end up in a huge political realignment.

But will it be worth the cost? The millions of unemployed. The shattered lives.

What's the point of all this political power and subsidization and preening if it all leads to a massive meltdown as big government shows what a waste it all is?

Frankly, I'd rather have the the foolish President Obama continue in power and the utterly corrupt Democrats in Congress continue in power than subject the American people to another Great Depression.

The Limits of Stimulus

What is the point of Keynesianism and economic "stimulus?" Is it all just political gamesmanship--naive inflationism and politically-connected economists truckling to politicians who always need another justifiction to spend?

The Reason chaps are having their fun with the New York Times' Paul Krugman. Who is still calling for more "stimulus." Trillions, not billions. Even more stimulus after the trillions already thrown over the side. But the Europeans don't like it. As Tim Cavanaugh writes:

Europeans have lost their appetite for digging deeper holes of debt for the same reason Americans have: because they don't have a choice. As Margaret Thatcher predicted would happen, we have all run out of other people's money.

That is to say: Europeans are worried about sovereign default, meaning that the government can't borrow any more to fund stimulus. Why? Because just like a homeowner with an adjustable-rate mortgage, there comes a time when the interest payment becomes so high that you can't pay for policemen and firemen and teachers and health care and government pensions.

The financial markets are worried that Greekonomics, the inability to service government debt, is likely to spread.

I've decided that the point of stimulus is quite simple, despite all the clouds of rhetoric. It is to float the underwater debtors. Capitalism is simple. If the debtors are afloat, meaning that their assets exceed their liabilities, and the market is confident that they are afloat, then the world goes on. Creditors can trust that debtors will meet their interest payments.

But if debtors are underwater, then nobody knows when the debtors will default. That goes for governments, bankers, corporations, and homeowners. In that situation creditors are right to lose confidence in the underwater debtors.

Keynesianism is the economic doctrine that the government should print and borrow money in an economic crisis. The purpose is to float the debtors. And the government should spend money to push money towards the underwater debtors and thus enable them to meet their obligations and, hopefully, increase asset prices and thus refloat the underwater debtors.

The question is this. Once you have refloated the banks, as the US government did in the fall of 2008, is there a need for stimulus?

Well, I'd say that, once the banks are rescued, then it is time for triage, as practiced by J.P. Morgan in 1907.

Morgan and the richest men in the US sat in a room and decided which companies to lend money to. Hopeless case? No money. Likely to survive without a loan? No money. The only debtors Morgan lent money to were companies he thought he could save with a loan.

Notice the difference between then and now. The banks have been rescued. Thanks Hank Paulson. But you have to rescue the banks, otherwise "this sucker could go down," in the words of President Bush.

But auto companies? Who needs to rescue auto companies? Yeah. The criterion of Obama bailouts is politics. And the criterion of Obama stimulus is politics. The politically powerful get rescued and the rest go to the wall.

Not a good way to run a railroad.

OK. But what about lessons learned? The lesson is that we need a lot less leverage in the economy. The excessive leverage and debt is not the fault of greedy bankers. It is the fault of politicians. Politicians like easy money and excessive debt because voters and organized interests are always agitating for cheap money.

But excessive debt means that debtors can't afford a decline in asset prices, e.g., houses. When you shovel credit at the housing market with Fannie and Freddie, you push up housing prices with your 90 percent and zero-down loans. All it takes is a decline in home prices of ten percent and a ton of people are underwater.

What about overleveraged banks. There was an excuse for bank leverage in the old days. In the old days there wasn't an organized market in equities. Banking was the only efficient way to channel capital through the economy.

But today we have a market in just about everything. So a lot of today's leverage could be transformed into equity.

And equity is so much more civilized.

Debt is rigid. I lend you money and you pay me a fixed interest. Or else. Equity is flexible. I invest money in your enterprise and now we are partners. We share in the profits and we share in the losses.