You Must Remember This

It's 31 years ago now.  I remember the moment exactly, driving home from work in the summer of 1980.  Ted Kennedy was delivering "The Dream Shall Never Die" speech, and it terrified me.  How could the lightweight Ronald Reagan ever win against rhetoric like that?



The answer then, and probably now as well, is that Americans aren't persuaded by left-liberal class warfare rhetoric.  It makes them want to upchuck.  And anyway, back then the "lightweight" Ronald Reagan beat incumbent President Carter in a landslide, and went on to become America's most beloved and successful president since whenever.



That's what David Brooks is saying today in "The Fighter Fallacy."  It is one thing to promise big government when Americans trust government, and back in the middle of the last century, about 70 percent did.  Today, "only 15 percent of Americans asked said that they trust the federal government to do the right thing most of the time."  Writes Brooks:

This is a problem for Democrats. But Democrats can win elections in this climate if they defuse the Big Government/Small Government ideological debate.

Bill Clinton did it with the Third Way, and snuck a bunch of liberal policies through.  Barack Obama did it in 2008 as the post-partisan candidate.  Then he governed as the left-liberal president.



After the 2010 election Obama tried compromise with the Republicans (he did?) but it didn't work.  So now he is running as a fighter.

If Obama were a Republican, he could win with this sort of strategy: Repeat your party’s most orthodox positions and then rip your opponent to shreds. Republicans can win a contest between an orthodox Republican and an orthodox Democrat because they have the trust in government issue on their side.

In other words, "The Dream Shall Never Die" won't work today either.



And then there are the facts, or rather the myths.  John Hawkins has an article on five myths the Occupy crowd believe in.  He does it well, but I've boiled it down further.

1. Wall Street Created Housing Bust. Oh no kiddies. The government did it.  They told banks to lend to bad credit risks or they might have an "accident."  Now the whole economy had an accident.


2. Obama hates Wall Street.  Yeah, I've got a bridge to sell you.


3. Iraq War created deficit.  CBO says war cost $709 billion.  Doesn't seem so big any more after the bailouts and stimuli.


4. GOP wants to kill SoSec, Medicare. However much GOP hates old people, there's a $100 trillion hole there that won't get filled by class warfare.


5. Tax the Rich. Sorry chum.  Not enough money there to make a difference.

The Occupy chappies also believe the government should forgive their $1 trillion in student debt.  Sounds like a real vote winner among the young set.  But probably poison to the other 99 percent.

Too Little Too Late on Housing?

With the news that the president will announce a plan to make it easier for homeowners to refinance their underwater mortgages and a Larry Summers article boosting the idea in the Washington Post it is clear that the Obama administration is "doing something" about the housing meltdown.



Just how much it will help is a good question.  After all, if the government lets underwater borrowers refinance at lower rates then it is forcing the bankrupt GSEs like Fannie Mae and Freddie Mac back to subsidizing high-risk debt.  The only way that we will finally get out of the mess is when the market clears and the foreclosed homes are no longer hanging over the market and home prices start to climb.



Larry Summers, at least, has a good idea.  It is nonsensical for the government's conservators at Fannie and Freddie to stiffen their lending requirements at the bottom of the business cycle.

[C]redit standards for those seeking to buy homes are too high and too rigorous. The characteristics of the average successful applicant in 2004 would make that applicant among the most risky today. The pattern should be the opposite, given that the odds of a further 35 percent decline in house prices are much lower than they were at past bubble valuations.

That is a universal problem.   People are wildly optimistic at the top of the business cycle and pessimistic at the bottom of the cycle.  The risks to lenders are highest when asset prices are high after a strong run-up, and lowest after a substantial decline.  If government has a role to play in credit, it should be to lower credit standards at the bottom of the cycle and raise them as a bubble develops.  If home prices increase by 20 percent in a couple of years, then lenders should stop offering 80 percent mortgages and crank back to 75 percent or 70 percent.  But try telling that to geniuses like the Sen. Dodds and Rep. Franks of the world.



The administration's moves seem to have moved the homebuilder stocks a little.  But I wonder if it isn't all too little too late for the president and his reelection.  Even with these efforts at tweaking the housing market the economy is hardly likely to be a barn burner by next summer.  If Obama wanted to run on the economy, he should have had the economy in good shape by summer 2011 at the latest.



The president and his party are paying for the mistakes of 2009.  They thought back then that it was first and ten, and they could fix the economy and enact the liberal agenda at the same time.  They were wrong; it was first and twenty on the five yard line, and now they are reduced to a Hail Mary on fourth down with a quarterback not known for his strong arm.

Steve Jobs and the Coolness Factor

Now they tell us.  Steve Jobs apparently told Barack Obama in 2010 that he was on track to be a one term president.  From HuffPo:

"You're headed for a one-term presidency," he told Obama at the start of their meeting, insisting that the administration needed to be more business-friendly. As an example, Jobs described the ease with which companies can build factories in China compared to the United States, where "regulations and unnecessary costs" make it difficult for them.



Jobs also criticized America's education system, saying it was "crippled by union work rules," noted Isaacson. "Until the teachers' unions were broken, there was almost no hope for education reform." Jobs proposed allowing principals to hire and fire teachers based on merit, that schools stay open until 6 p.m. and that they be open 11 months a year.

But Jobs offered to author campaign ads for the president in 2012.  So here's a question.  Just how bad would it have to get for the cool kids like Jobs to vote for a Republican?  Here was Jobs, who lived and worked in the most anti-business state in the Union, yet he obviously went to his grave a Democrat.



We know why, of course.  Democrats and liberals have managed to define Republicans and conservatives as narrow-minded bigots, "anti-science," racists, and bitter clingers.  So they have persuaded generations of Jobses and "economically conservative, socially liberal" educated people that Republicans and conservatives are radioactive extremists.



Jay Cost describes how this process of political irradiation works.  He calls it "front-lashing."  Here's how it got Harry Reid reelected to the Senate in Nevada even though Nevadans were both anti-Obama and anti-Reid.

A solid majority of Nevada voters disapproved of both President Obama and Senator Reid, yet the latter was able to win a secure victory. The reason? A decisive minority of this group found Angle to be unacceptable. She only won 78 percent of the Obama disapprovers and a terrible 82 percent of the Reid disapprovers.

Over 90 percent of the Obama/Reid approvers voted for Reid.  Only 80 percent of the Obama/Reid disapprovers voted for Angle.  "A staggering 45 percent of voters thought that Angle's positions were "too conservative," and 75 percent of them voted for Reid.



Obviously, Cost writes, the Obamis are going to be trying this strategy.

Any time you hear the Democrats squawking about how the Republicans are “anti-science,” that’s the frontlash in action. The goal is to tag the GOP as a bunch of flat earth throwbacks who are too extreme for the independent swing voters to support.

Notice that in 2008 it was difficult for Republicans to play this game by painting Obama as "too liberal" without running into the race card, especially as Obama was presenting himself as "post partisan."



It really is about time that conservatives broke out of the box we've been put in, and start to define liberals as narrow-minded and intolerant and anti-science.  It's not as if there's no evidence to prove it, e.g., political correctness and climate "science."



Some day we conservatives are going to have to get Steve Jobs and the cool kids back on the side of conservatism.  After all, conservatism ever since Edmund Burke has been a moderating influence against the craziness of modern secular religion, from Jacobinism to Communism to environmentalism. What could be extreme or uncool about that?

Augustine and Government

Christianity is held up by two philosophical tent poles, and one of them is St. Augustine.  He had a jaundiced view of government.

Justice being taken away, then, what are kingdoms but great robberies?  For what are robberies themselves, but little kingdoms?

He goes on to declare that the defining attribute of a kingdom over a robber band is "impunity", for only government can rob without consequence.

Every government loots the nation to feed its supporters, but some loot more than others.  Take Cuba, for example.  After the United States returned the government of Cuba to the people after the intervention of 1898, the free Cuban government quickly descended into the crudest corruption.  Writes Tom Gjelten in Bacardi and the Long Fight for Cuba:

Cuban politics had grown dirtier by the year, with electoral fraud practiced on all sites and widespread graft within the government itself... In the fall of 1905 Interior Secretary Fernando Freire de Andrade began dismissing government employees, even schoolmasters, who favored the opposition Liberal Party[.]

The Liberal Party withdrew its candidates from many races in the fall elections.  By August 1906 the Liberals had backed an insurgency that was marching on Havana.  By the end of September the government had resigned and the US took over again.

The more that people look at government for benefits and rewards, and the more that politics descends into a fight for spoils.

It's instinctive, of course.  People feel that the more the other guy has, the less than they have.  And it certainly applies for the agricultural age.  The more land that I have, the less that's available for others.  The more powerful my patron, the safer I feel, even if he keeps most of the loot for himself.

In the industrial age, things are different.  The more products that corporations make, the more that's available for everyone.  The richer the corporate CEOs get the more jobs they can create at their corporations,  And you never know when someone is going to invent something and create a whole new form of wealth: textiles, railroads, steel, electricity, autos, radio, TV, computers, internet.

The latest invention seems to be the horizontal fracking technology that is creating a boom in natural gas and is causing US domestic oil production to reverse its decades-long decline.

Here is the deal. We humans are programmed instinctively to believe in a fixed pie, with more for you meaning less for me.  Yet capitalism has produced a new reality.  The better I serve the consumer with better products and services the bigger the pie and the more there is for everyone.

When will President Obama get the message?

Bacardi and Fidel

In my view, everyone has it wrong.  The capitalists pride themselves on being rugged individualists when in fact nearly all capitalist enterprise is profoundly collective and cooperative.  The political activists pride themselves on being compassionate collectivists when in fact they are the most naked selfish and vain individualists imaginable.

Take the case of Cuba.  There was a time when the Bacardi rum company was the poster boy for Cuba: "the one that made Cuba famous."  But then along came Fidel Castro and nationalized the company--and everything else that moved in Cuba.  Bacardi's factory became "Administrative Unit 1, a subdivision of the Santiago Beverage Combine, which in turn was under the Provincial Directorate of Beverage and Liquor Enterprises."  It's all told with clarity and charm by NPR correspondent Tom Gjelten in Bacardi and the Long Fight for Cuba.

If you look at the story of the Bacardi company and the men that led it, they combined unquestioned leadership ability with the talent to herd a bunch of cats, from the Bacardi family to the talented employees.  Along the way there were numerous challenges, from bankruptcy after an earthquake in Santiago de Cuba to figuring out why the rum made at Bacardi's factory in Mexico tasted different from the rum made in Cuba.

Then there is Fidel Castro.  From his public debut as a student activist at the University of Havana he demonstrated himself as the most rugged individualist that ever lived.  Writes Gjelten:

Tall and solidly built, with a long, sloping nose and high forehead, the nineteen-year-old Castro projected self-confidence and authority.  His fellow students were either drawn to him as a natural leader or put off by his know-it-all attitude and his tendency to monopolize conversations.

And of course as he matured, he because more know-it-all and more monopolistic.

The fact is that even though capitalism ruthlessly uses people and resources, it must successfully mix them together and fine tune them in a thousand different ways every day; otherwise it will decline and die.  It lives and dies by cooperation, charming consumers into buying, and employees into over-performing.

But government is a horse of a different color.  It talks a good line about community and cooperation, but in fact what is does is force.  It divides people, exploits people, and everything it does has the taint of coercion.  And when things go wrong it blames the people.  Governments decline and die when the lose the will to use force.

In the 19th century and thereafter, business people and socialist activists have all agreed that business is the acme of rugged individualism and the survival of the fittest.  So it is, except that most of the time business is a team effort and a never-ending need to serve the consumer.

Government, on the other hand, tends always to an undeclared civil war and a naked attempt to loot the state on behalf of your supporters.  Because with government there is always the temptation to resort to force.  Why not?  The government has a monopoly on force.

Well, there's a reason why not.  Humans are social animals, and that means that they survive as cooperative beings that work with each other, because it turns out that cooperation is much more effective than individual effort.  When it is necessary to resort to force within the community it means that cooperative social behavior has failed.

And for anyone that doesn't get it, we humans have conducted a planet-wide experiment in the efficacy of force.  It was called Communism.  Everywhere it was tried it killed social cooperation and turned society into a prison where everything was conducted by the rule and nothing was done by trust and good will.

Economy 2012

The big question for the economy in 2012 is the impact of QE2. That's the Fed's huge money-printing operation that ended in the middle of 2011.  How big?



The Fed's response to the 2008 meltdown was QE1.  The Fed increased the monetary base from about $0.8 trillion to $2.0 trillion, more than doubling it.  Then in QE2 the Fed increased the monetary base further from $2.0 trillion to $2.7 trillion where it now stands.



The question for ordinary Americans is what happened to the actual money supply.  Back in 2008 the M2 monetary aggregate stood at about $7.7 trillion.  The first monetary burst took M2 up to $8.5 trillion, a 10 percent increase.  Then M2 flatlined for about six months before resuming "normal" growth.  In the last three months it has ballooned from $9.0 trillion to about $9.6 trillion in response to QE2.



Of course, M2 has not increased in proportion to the increase in the monetary base.  This shows that people really are "deleveraging" and reducing their debt load.  But in the end the increase in the monetary base will feed into M2.



Generally speaking the nominal GDP growth (i.e. GDP growth including inflation) is reckoned to parallel  M2 growth, with a lag.  Thus, the M2 pulse at the end of 2008 yielded a bounce by mid 2009.  And so we should expect the QE2 money pulse to boost GDP starting about now.



But the question is whether the monetary pulse will result in real GDP growth or just a pulse in inflation.  If it results in real growth, it will lead to a hangover a year later, just when the next administration is inaugurated.  If the pulse just feeds into inflation then we will not see any real growth next year but just price increases, particularly in food and fuel.



President Obama is clearly setting up his campaign to run against economic villains.  We have had millionaires and billionaires and Wall Street thus far.  Can Wal-Mart and Exxon be far behind, as food and gas prices balloon?



The ugly truth about the economy is that it is never the fault of corporations.  The government sets the rules for commerce, from Wall Street to Main Street.  The government controls the money supply; the government makes the regulations; the government awards the market-distorting subsidies; the government hands out entitlements to its supporters.



Then the government blames Wall Street, banks, and corporations when things go wrong.



What a world!

Will Obama Benefit from OWS?

When the president of the United States does something, even if it is stupid, his action benefits from the aura of the office.  So when the president launches into a full-throttle Occupy Wall Street class warfare campaign, even the most hardened opponent has to wonder: Does he know something I don't know?



After all, there is a reason why politicians are very careful about choosing their enemies.  When you get attacked, it wakes you up.  It makes you angry.  It prods you into getting an opposition organized.  No politician wants that.  He wants, if possible, to put the opposition to sleep.



So I've been watching the daily Rasmussen Reports daily Presidential Tracking Poll, looking for changes that might reflect reactions to the president's class-warfare campaign.  Frankly, I don't see any results.  Not yet.



If you look at the Total Approve number, it started declining during the Debt Ceiling debate, and has flatlined at 43-45 percent ever since.



If you look at the Strongly Approve number, it has been in steady decline since the start of 2011, and seems to have flattened out at 21-22 percent since the beginning of September.  So is this the effect of the class warfare campaign, that it has stopped the erosion in the president's base support?  Big Deal!



If you look at the Strongly Disapprove number, it had declined from about 43 percent at the end of 2010 to about 36 percent by May 2011.  But during the Debt Ceiling debate the Strongly Disapprove numbers strongly rallied back to 43 percent.   Since the beginning of August the number has flatlined at 42-43 percent.



I don't know what the Obamis see in their polls.  But I'd say that whatever it is they are doing, it isn't working.



Looks like the old Clinton campaign slogan still applies.  It's the economy, stupid.