Obama Whistling Dixie

Even the Los Angeles Times recognizes that President Obama is in political trouble for relection in 2012. Doyle McManus retails the line from the Obama campaign, and then critiques it. Here's the Obama line:

1. He can improve his standing with independent voters by compromising with Republicans
2. He has moved towards the middle
3. Next year's electorate should include more minorities.
4. Obama's a good campaigner with the same team as 2008.

The problems with the Obami scenario are obvious.

1. Indpendents just aren't going to vote 52 percent for Obama like in 2008.
2. Move to the center? Tell that to Boeing and Delta.
3. More minorities? First, the minority turnout is bound to be less. Second, Hispanics will almost certainly deliver a lot less to the Democrats; they are workers, they want a good economy.
4. Same team? Let's face it. The vital team members were the MSM that refused to tell us who Obama was and where he had been. Much as they want to, the MSM just isn't going to be able to deliver in 2012 like in 2008.

Back in the 1960s the media used to blather on endlessly about "credibility" and how President Johnson had lost it over Vietnam. They meant, I suppose, that LBJ had "lied" over Vietnam, or told liberals things they didn't want to hear on Vietnam. But "credibility" means simply that the American people had stopped listening to Lyndon Johnson. That's the problem facing President Obama. Chances are that in 2012 the American people just aren't going to be willing to listen to a word that President Obama and his crack campaign team tell them. As far as they are concerned, the economy is in a recession, and things don't look to be getting much better. It's hard to see that things could get to appear much better by November 2012. Investors Business Daily has the bullet points:

• Jobs: -2 million; Unemployment up 1.5 percent.
• Most long-term unemployed ever.
• US dollar down 12 percent.
• Americans on food stamps up 37 percent.
• Misery Index up 62 percent.
• National Debt up 40 percent.

Candidate Bill Clinton famously ran on the slogan "worst economy in the last 50 years" in the early stage of recovery from a mild recession. But the 2012 Republican nominee doesn't need such fancy footwork. All he or she has to say is "Obama made it worse."

2012: The Liberal Annus Horribilis

Like I always say, the ageing liberal dynasty could have learned a lesson or two on economic policy from Ronald Reagan in the 1980s. The corrupt liberal dynasty could have learned a thing or two from Newt Gingrich's 1994 win and subsequent efforts to balance the budget. The fortunate liberal sons of the 2000s could have paid attention to the travails of the Bush administration. But they didn't. Great imperial dynasties never do see the end coming.

But next year, 2012, will see the liberals experience their annus horribilis. If you have a liberal friend, have mercy on them and don't rub it in.

Why is it possible to predict, a year out, how bad things will be for liberals next year? It just takes a little knowledge of economics and a lot of common sense.

The whole liberal program of tax, spend, and elect relied on the fact that you could always raise taxes on the rich, or promise new spending to the poor and/or the well-connected. Because the US had a staggering wealth that could be mortgaged with a fresh issue of government bonds.

But after a big financial crash the old game can't go on. As we have seen, the US National Debt has zoomed up to the 100 percent of GDP mark. That is when government debt gets to be a problem. You can tell liberals know they are in trouble because all of a sudden they don't want to pass budget resolutions or appropriations bills. Last year, the Democratic Congress failed to pass budget resolutions and failed to pass most of the appropriations bills. But they still lost 63 seats in the House.

Just today we learned that President Obama has agreed to a "big" deal on the debt ceiling. That means he wants a deal that will get him past November 2012. Of course he does. And no doubt in the last few weeks his staff have been working up a deal with as much in the way of phony spending cuts and as much in the way of real tax increases as they can.

But it really doesn't matter. The die is already cast for 2012 and it almost certainly means slow growth, high unemployment and rising inflation.

And then, after 2012, we have to get the economy back on track. That means swingeing spending cuts, because all government spending is waste. It means tax rate cuts, swapping special interest subsidies for lower overall tax rates. It means hard money, getting back to zero inflation. And it means repealing all the crazed hyper-regulation of the last two years. Oh, and it means reforming health care so that average people spend more of their own money on routine health care, economizing on health care just as they do on groceries and everything else they buy.

At the end of it all, we'll have a leaner, better, more hopeful America. But in the next couple of years we are going to see liberals trying every trick in the liberal play-book to put off the inevitable: the race card, the class card, the sob story, the civility card, the mean-spirited card. Don't forget the "it's for the children" card!

But I think that the game is up. Jonah Goldberg reports that young people are using the insult "that's racist!" as a joke. The Senate's class warfare resolution that the rich should pay more is already a joke to the chaps at Wizbang.

That President Obama and his staff are already playing race and class cards is an indication that they are going for a "base" election, and they are giving up on getting the independent vote. You mean the independents that elected the president back in 2008? And just how are Democrats going to get improved turnout from a base that turned out in record numbers in 2008?

As I say: next year is going to be an annus horribilis for liberals.

Liberal La-la Land

There's a big New York article by Frank Rich on "Obama's Original Sin." Obama oughta have dealt out a "reckoning from the moneyed interests who brought the economy down" in 2008, he writes.

Good idea. But why wasn't there a mention of Fannie Mae or Freddie Mac in the article? Just a tear-jerker about a retired policeman that got a foreclosure notice on his debt-free home.

Now that the New York Times's own financial reporter Gretchen Morgenson has a book out on the Times imprint, Times Books, and that book, Reckless Endangerment, fingers the Community Reinvestment Act, Fannie Mae, and Fannie Mae CEO James A. Johnson as the culprits for the meltdown, you'd have thought that Timesman Frank Rich would at least make a nod towards the CRA/Fannie explanation. But he doesn't, and I trawled through the comments looking in vain for a commenter that got it. OK, there was one commenter that referenced George Will's review of Reckless Endangerment.

Look, I understand that the liberal line is that the meltdown was caused by greedy bankers and slack regulation, but even liberals need to know the time of day. As Noam Chomsky wrote about the Wall Street Journal: the news side is solid because the rich need to know the truth about the economy for they need to manage their riches. But it doesn't matter to them that the opinion side is deluded right-wing craziness.

Liberals need to know the truth about their favorite government programs, especially when they are going badly wrong.

Then there's Medicare. According to Michael F. Cannon:

The three most salient characteristics of Medicare and Medicaid fraud are: It’s brazen, it’s ubiquitous, and it’s other people’s money, so nobody cares.

A conservative estimate of Medicare fraud is that it is 10 percent of spending. Maybe it's worse; maybe it's 20-30 percent.

The point is, of course, with Medicare and with the financial meltdown, that the problem is not the fraudsters. The problem is the government. Medicare was set up as a fee-for-service operation, so medical providers have an interest in gaming the system to maximize the number of reimbursable procedures. The government's affordable housing programs forced lenders to lend to borrowers without proper income and credit. So of course we ended up with toxic debt swilling around all over the world.

You can fool some of the people all of the time, said Abraham Lincoln, and it certainly seems that liberals are completely fooled about the financial meltdown and about Medicare.

But at some point, the people that understand what is going down are going to have to stand up and be counted. It was government that set up the financial meltdown and nearly broke the economy. It is government that is breaking Medicare, and forcing the end of Medicare as we know it. Until we get to that point, where the American people understand this and insist on it, we are still heading downriver for the waterfall.

Liberals Tiptoe Around "Reckless Endangerment"

For three years liberals have insisted that the financial meltdown of 2008 was the fault of Republican de-regulation of finance and greedy bankers. The New York Times has not been any more shy in the propagation of this narrative than the Democrats' financial point man, Phil Angelides, chairman of the Financial Crisis Inquiry Commission set up by law in October 2009.

But now comes Reckless Endangerment by Gretchen Morgenson and Joshua Rosner. Morgenson is a financial editor for The New York Times. You'd think from the subtitle "How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon" that Morgenson and Rosner continue the official Democratic line, but it is clear from the reviews that they don't. What emerges from the book, surprise, surprise, is the Republican line, that the problem was the convergence of federal housing regulation in the form of the Community Reinvestment Act and the government-sponsored cheap money from the two mortgage giants, Fannie Mae and Freddie Mac. Morgenson and Rosner even go so far as to finger former Fannie Mae CEO James A. Johnson as the #1 culprit. Johnson was the campaign manager for Vice-president Mondale's 2004 presidential campaign, so he knew a lot about finance.

When George Will pointed all this out in the Washington Post the commenters went ballistic.

But The New York Times has now published two reviews of the book by its "assistant business and financial editor" and published by its own imprint. Both reviews, by Robert A. Reich in the Sunday Book Review, and business journalism professor Pam Luecke, acknowledge the central role of Fannie Mae and James A. Johnson in the debacle, and then scurry for the exits.

Even Michael Barone, reviewing the federal role in subsidizing property ownership over two centuries, doesn't make the obvious judgement, that government interference in the financial system has been a disaster for ordinary Americans. Let's follow his argument, anyway.

First, the government subsidized ownership of farms.

Government sold land cheaply and on credit, and under the Homestead Act gave it away free to those who worked it for a few years.

Yes, but President Andrew Jackson's efforts in that department led to the Specie Circular and a ten year deflationary depression in the 1830s and 1840s. After the Civil War, of course the US experienced a financial war between and the Free Silver movement and the deflationary effort to resume gold payments at the pre-war price of $20.75 an ounce. In other words, the efforts of the government to subsidize farm ownership led to eye-watering booms and crashes and untold misery.

When people moved to the cities and bought homes, government stepped in there too.

Government stepped in to subsidize that property, too, in the form of low- or no-interest mortgages and tax deductions for interest payments.

This all worked pretty well for many years, according to Barone.

Then, as with farm programs, government went too far. Fannie Mae and Freddie Mac, with support from administrations of both parties, financed loans to uncreditworthy borrowers on the theory that, hey, you didn't really need a down payment or steady income to be able to afford a house.

In fact, we have had a 50 year inflationary boom in housing which has pushed housing above the level it would have reached absent the subsidies, and that has, all along, put an immense burden on the young and the poor trying to buy a first home. Housing subsidies tend to give windfall profits to people that already own homes.

Now, of course, the whole sordid game has blown up, and who are the people hardest hit? Why women and minorities, of course. They got to buy houses that they couldn't afford and now they are kicked out of their dream homes and back into rentals. Canny speculators (people with money) are already out there picking up bargains. And people that bought homes 20 years ago are doing fine. Sure, their homes aren't worth millions any more, but they still represent a decent return on investment.

The lesson here, and it is a big one, is that government is clueless when it comes to economic management. If it subsidizes farms, then farm prices get caught in a tornado that sends prices soaring one moment and crashing to the ground the next. In housing, the government's meddling has caused untold misery and unemployment for millions.

There are two kinds of government finance in the world. There is Dutch finance, invented by the Dutch in the 17th century, that keeps the financial system pretty well in the hands of the bankers, with the government benefiting by getting low interest rates on its funded debt. Then there is French finance, invented by Scotsman John Law, where the government tries to manipulate the financial system to maximize its seignorage from cheap money and subsidies. Dutch finance (copied by First Treasury Secretary Alexander Hamilton) leads to prosperity and economic growth. French finance leads to inflation, misery, and collapse.

Which would you choose?

Obama vs. Reagan

Back in 1981 an extremist conservative was inaugurated President of the United States in the middle of a teeth-rattling recession and immediately executed on a program of spending cuts, income tax rate cuts, deregulation, strong defense, and continuing the Volcker policy of hard money.

In 2009 an extremist liberal was inaugurated President of the United States in the middle of a teeth-rattling financial crisis and immediately executed on a program of increased spending, tight regulation, and easy money.

We know now that President Reagan's policies were followed by an astonishing boom that continued more or less for the next 20 years. We do not know what the economy will look like 20 years after President Obama's 2009 policy mix, but things are not looking good.

Columnist David Limbaugh experiments today with a column imagining President Obama admitting that he got everything wrong.

I'm going to ask my party to join with Republicans in focusing on the national debt instead of ginning up envy, jealousy and animosity among people who earn different amounts of money... It may involve some cuts in benefits, but if we don't do this now, eventually everyone will lose his benefits, because Medicare, Medicaid and Social Security are headed for insolvency -- and much sooner than we thought.

Limbaugh's imaginary president continues: "Endless government spending, I now see, will not stimulate economic growth... I'm also going to get real about discretionary spending cuts because trillion-dollar deficits are hardly sustainable." Forget defense spending cuts. "I can now see... that my [ObamaCare] will in fact increase costs... I'll also have to temporarily back off my demand for high-speed rail... [and] my various quixotic renewable energy ruses... My party was instrumental in pushing affordable housing on everyone, which was the biggest culprit in our financial meltdown. I was in the Senate for much of this time, and I went along with Barney Frank and others in obstructing remedial action proposed by President Bush."

Put like that, you can see why the president's Wednesday news conference was such a bust. There he was, mouthing empty but presumably focus-group tested political insults at the Republicans, demonstrating to all the world that he is fresh out of ideas.

The best thing for the nation is a blowout election next year that will cure the Democratic Party for a generation of its tax and spend and subsidize and divide big government politics.

After that blowout, my fellow Americans, by all means put the Democrats back in power. For now, you have the opportunity to teach them a powerful lesson.

But only if you really want to.

The Chimera of the "Commanding Heights"

Back in the old days, statists and thug dictators wanted to control the "commanding heights" of the economy. That was Lenin's line. With the "New Economic Policy" that allowed a resumption of some capitalist enterprise after the disaster of War Communism, he needed to assure his Bolshevik comrades that he still believed in The Plan.

He told them not to worry: The reforms were relatively modest, and the new Soviet state would always retain its control over what he called the "commanding heights" of the economy.

In those days, according to Arnold Kling and Nick Schulz in "The New Commanding Heights," the commanding heights were heavy industry, energy, and transportation. Socialists fascists, and other statists all over the world were determined to control them, and they did. They did something more. They just about destroyed them. They did destroy the Soviet Union, of course.

But now the socialists and the statists are determined to control the new commanding heights of the economy: education and health care. Conservatives and libertarians aren't paying enough attention to this, and are losing the battle for control to the socialists. Even George W. Bush increased the government control of education with No Child Left Behind and Medicare Part D, write Kling and Schulz. Only now, with ObamaCare and the state budget battles, are conservative politicians and activists finally engaging on health care and education.

Let us step back a moment, and think about the big picture. First of all, our liberal friends believe in government and in political power. So their approach to politics is to seize the commanding heights of the economy for government power. That is what they do; that is what they are. But how can conservatives push back against this? The answer is: they can't, not until the commanding heights in question are broken.

Let's think back. The stunning achievements of the railroads and the steel industry were stigmatized as the work of bandits, like the robber barons of the old Alpine mountain passes that robbed travelers between France and Italy with impunity. It wasn't until government had run the old commanding heights into the ground, with the steel industry bankrupt and transportation losing money for decades that the voters came around and elected politicians to deregulate industry and transportation. Government is still up to its ears in energy, and making a complete mess of it.

The same is true about education and health care. When government offers subsidized education and health care, who is going to say: forget it? On the contrary, you would be a fool to say No. It's free isn't it?

But, of course, government is busy breaking education and health care just as it once broke heavy industry and transportation. Education is a complete mess, with about half the students going to college requiring remedial instruction. And don't even start talking about the educational mess in the inner cities. Health care? The Rand Corporation back in 1971 found that the funding of health care didn't seem to have much of an effect on health outcomes. The more money people had for health care, the more they spent.

Kling and Schulz hold out hope that conservatives are beginning to make a difference in education and health care, but I think that is missing the point. There is only one way that we will force education and health care out of the grip of government. We will get to do it when they are broken.

In a better world, voters would understand that government is force, politics is power, and government wrecks everything it puts its hands on. They would say: forget adding this program or that program; all that will happen is that government will wreck it. But in the real world, people like free services.

In the real world reformers must wait. Reform can only happen when government is broken. If it ain't broke, the voters won't let you fix it.

What Is Called "Austerity?"

When I was a lad growing up in Limeyland in the 1950s the older generation used to talk about the post WWII "austerity." I understood, of course, that they were referring to the rationing and general hard times after the war, during which Britland had to adjust to the fact that the war had pretty well eaten up the seed corn and then some.

Now we are talking about "austerity" again, particularly in the case of the Greeks, who seem, like Falstaff, to "have misused the king's press damnably."

That is to say, the Greek government has handed out tax money and borrowed money left and right and now it is going to have to cut back a bit. In response, the Greeks are rioting in outrage.

We saw a similar, though muted, action in Madison, Wisconsin, from government employees when Gov. Scott Walker (R) proposed to increase, moderately, the contributions required of said government employees to their health and pensions benefits.

In other words, "austerity" means that the government proposes to cut back a little on government benefits. And the usual response by the recipients of government benefits is to riot in the streets (Greece) or take over the State Capitol (Wisconsin).

For some reason, I find this obscene. Here we have monies taken by force from citizens and given, out of the kindness of many hearts, to deserving beneficiaries. When it turns out that there ain't any money left in the kitty, the government determines that benefits must be cut, and so the beneficiaries riot.

There is only one sensible takeaway to this. The government should not distribute benefits among the people. Recipients don't regard the benefits as a remarkable and generous benefaction. They regard them as a right, and they get violent if anyone proposes to cut back on their rights. On top of everything, these government employees are not desperately low-paid, but usually earning something like 50 percent more than equivalent workers in the private sector who, wages and benefits aside, lack the tenure and security of government employment.

None of this is remarkable. Joseph Schumpeter wrote half a century ago that democracy is the rule of the politicians and politicians, before anything else, are people good at winning elections. They promise anything, if it will help them get elected. The problem comes later, when the extravagant promises must meet reality, usually in a recession.

Center-left philosopher Jürgen Habermas has attempted to differentiate between "representational culture" where "where one party [e.g., the king,] sought to "represent" itself on its audience by overwhelming its subject," and "Öffentlichkeit" culture, "a public space outside of the control by the state, where individuals exchanged views and knowledge." The representational culture is pure strategic/instrumental reason, one side trying to use the other as a means, to get something out of them. The Öffentlichkeit culture Habermas calls a process of communicative action, of two sides in a conversation of equals trying to tease out a path to social agreement through discourse. Wikipedia:

Unlike "representational" culture where only one party was active and the other passive, the Öffentlichkeit culture was characterized by a dialogue as individuals either met in conversation, or exchanged views via the print media.

The interesting thing about the administrative state is that it is clearly a "representational" culture, where only one party is active, although our liberal friends go on endlessly about dialog and national conversations.

When are our liberal friends going to catch up with the ideas of their greatest thinkers, release their white-knuckle grip on political power, and allow free and equal dialog about the great political and social questions of the age, most notably the bankruptcy of their administrative welfare state? If we can get to a bit of Öffentlichkeit as a result of all this "austerity" it will be worth the pain and the rioting in the streets.