Three Hits on O's Osawatomi Speech

I had a go yesterday at the president's Osawatomi, Kansas speech, but now I'm really worked up.  As usual, my thoughts condensed after writing the blog, and now I find three things wrong with the speech.



First, there's the liberal history.  I really have a problem with the way that liberals insist that, but for liberals, people would work in sweatshops and Jim Crow would rule the South.  As Rush Limbaugh insisted yesterday, that flies in the face of the founding social science of the modern era, Adam Smith's Invisible Hand.  By working in the world to feed their families, he argued, people help the larger society.  Liberals are taking credit for the miracles of modernity when the credit really goes to the social system we call capitalism.  President Obama calls for the rich to pay their fair share.  Well, chum, back in the Crash of 1907, J.P. Morgan got the richest men into his library and got them to bail out the economy--with their own money.  I didn't see that happen with all the Democrat-contributing rich in the Crash of 2008.  So how come that the America of a century ago was worse than today?



Second there's the smallness of the goals.  Are we to believe that all the high-flown rhetoric and the dramatic call for fairness in your speech is just to increase college education funding and infrastructure spending?  Please, Mr. President.  It's not as if we don't already spend a ton of money on education.  And infrastructure spending?  What happened to the Great Stimulus?  I thought that was cram-jammed with shovel-ready projects.  The fact is that the problem with education and with infrastructure is not money.  The problem is liberals.  Liberals are standing the college door preventing reform of education and defending the indefensible status quo.  And it is liberals, as environmental activists and regulators, that are standing in the way of improving our infrastructure.



Third, whatever happened to entitlements?  You criticize President Bush for his tax cuts that "made it much harder to pay for... Medicare and Social Security" but we don't hear a whisper from you about what you intend to do about them. Apparently you haven't had a thought about the matter since you decided to solve the Medicare problem with the IPAB and rationing.



The fact is, Mr. President, that you have on a direct course for a Greek-like sovereign debt crisis.  There is no attempt to reform, let alone reduce government expenditures, just a determination to throw good money after bad at the usual Democratic constituencies.  Full speed ahead and damn the torpedoes.



You spoke a lot about "fairness" in your speech.  I think a lot about that too.  And what I think is that politicians like you don't have a clue what you are talking about.  Everyone wants an America where "everyone engages in fair play and everybody gets a fair shot and everybody does their fair share."  But here's the thing, Mr. President.  We conservatives think that as soon as you get government in on the "fairness" game, putting a thumb on the scales with entitlements and subsidies, then "fairness" flies out the window.  We present the history of the 20th century as evidence of this.  Let's just take Medicare as the poster-boy example.  With Medicare we have prosperous senior citizens like me being subsidized by ordinary working Americans trying to raise a family.  Where is the "fairness" in that?



Hell, forget "fairness."  What about justice?  Where's the justice, Mr. President, in rich older Americans voting politicians into office to take money from struggling young Americans?

President Obama's Tired Program for USA

They say that President Obama is trying to channel Teddy Roosevelt by going to Osawatomi, Kansas, and puttin' on the class warfare.  Good for him.  It gave the president another chance to rehearse the Democratic narrative that it's all the fault of the rich.



We have the most productive workers in the world, the president said.

But for most Americans, the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people.

Yeah, and I wonder why that is.  Greedy bankers, perhaps?



For a while, the president continued, "credit cards and home equity loans" papered over the harsh reality.

But in 2008, the house of cards collapsed. We all know the story by now: Mortgages sold to people who couldn’t afford them, or even sometimes understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets -- and huge bonuses -- made with other people’s money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn’t have the authority to look at all.

Yes.  How come that mortgages got to people that couldn't afford them?  Banks selling off the risk?  How come?  Regulators asleep at the switch?  Greedy bankers again?  Or could it be Democratic politicians bullying bankers into issuing mortgages to people that didn't have a prayer of servicing them?

It was wrong. It combined the breathtaking greed of a few with irresponsibility all across the system. And it plunged our economy and the world into a crisis from which we’re still fighting to recover.

The question is: what do we do about it? Some people, the president said, want to go back to the tried and failed.

And their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules.

Really Mr. President? I guess that would be liberals, since liberals believe that people should free themselves from rules and do their own creative thing, challenging society. Right?



But the president doesn't agree with his liberal cohorts. He wants us all to obey the same rules.

I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, when everyone plays by the same rules.

So that means that the president utterly deplores all the legislation that creates special rules for special people, all the way from affirmation action and diversity to tax breaks for the rich to benefit scams for the poor.



Not exactly. The president is concerned that some people want to solve the wholw thing by cutting taxes and regulations and letting the market take care of it, relying on "our rugged individualism and our healthy skepticism of too much government."

But here’s the problem: It doesn’t work. It has never worked.

So we've got to "up our game." Oh good. Now comes the brilliant ideas to renew America.

1. Education. "It starts by making education a national mission -- a national mission."
   
   


2. Science and Reseach, Training. "we also need a world-class commitment to science and research, the next generation of high-tech manufacturing. Our factories and our workers shouldn’t be idle. We should be giving people the chance to get new skills and training at community colleges so they can learn how to make wind turbines and semiconductors and high-powered batteries."
   
   


3. Infrastructure. We "should be rebuilding our roads and our bridges, laying down faster railroads and broadband, modernizing our schools".

Yes, Mr. President. Brilliant ideas. Boy, oh boy.  Like we haven't already been spending a ton of money on these things for decades, and all the time getting less and less return on the dollar.  And aso for infrastructure: what about liberal activist groups and regulators that do all they can to prevent us from "paving over the nation."



Of course, these wonderful things don't come free, the president explained.

Of course, those productive investments cost money. They’re not free. And so we’ve also paid for these investments by asking everybody to do their fair share...

I know that many of our wealthiest citizens would agree to contribute a little more if it meant reducing the deficit and strengthening the economy that made their success possible.

So all of this song and dance comes down to throwing more money at education, as if we haven't been doing it for the last half century, for very little return. And throwing money at research, as if that hasn't become impossibly corrupted by liberal pet projects in environment and climate. And community colleges. Well, everyone's in favor of that. But we already spend a ton of money on them.



It's true. The wealthiest citizens would agree to pay more. If they thought that the extra money would make a dime's worth of difference.



Mr. President, you proposal is simple. Take more money from the rich so you can pump up the higher-education bubble and send money to all the Democratic voters in the education blob. And send more money to union construction workers to build a few projects in ten years after your environmental friends have delayed the projects with their deep concern for the environment.



Meanwhile Medicare is going broke, Mr. President.  How about that?



The truth is that you don't understand the market economy and you don't want to. When we eevil capitalists say "let the market decide" we are not saying that it is everyone for themselves.  We are saying that the market is a social and economic system that naturally directs resources at the most urgent needs of the consumers. Why? Because that's there the money is.



But the market gets into real trouble when government subsidizes its pet projects and government credit policies distort it. You know, like in housing with Fannie and Freddie, and in education with student loans that go into buffing up university fees, bureaucracies, and recreational facilities.



Frankly, Mr. President I am glad that you are raising the class warfare issue and proposing tax increases to pay for stupid education expansion and infrastructure. Because it is time that we had a national conversation on this. With any luck, the American people will decide that they are fed up to the back teeth with empty promises about education and infrastructure and vote for the free market.



Because there is one thing for sure. When government spends money, then Wall Street stands at the head of the line for handouts. Why? Because government needs Wall Street to sell the debt.



Then, of course, politicians like you can assess those Wall Street honchos for political contributions, just like you did so expertly in 2008.

Anthony Watts is a Mensch

One thing has been crystal clear in the Climategate mess.  Chaps like Dr. Phil Jones of the Climatic Research Unit are clueless when it comes to computers, IT, email, and the Internet.



We know that because Dr. Phil cluelessly advised his pals to delete emails.  Give me a break!  Surely everyone knew, back in the early 2000s, that you can't delete an email.  Emails are forever!



Put it this way.  No American CEO can be ignorant of the fact that everything he puts into an email can be used against him and will be, if he gets sued.  One of the basic responsibilities of his job is to manage IT issues like email.  Not at the detail level, but at the grand strategic level, to make sure that his company obeys the law, but also protects itself as much as possible.



So how come Dr. Phil Jones, CEO of CRU was so clueless?



I will tell you why.  The rules that apply to business don't apply to the little darlings of the NGOs.  These little pets of the politicians, so obligingly churning out actionable research that can be used to justify tens of billions in climate rescue programs, don't have to obey the laws you and I do.  So they manage to stay stunningly ignorant of the law and the technology.



Anyway, Anthony Watts, proprietor of WattsUpWithThat.com, the climate skeptic site, found out that Jones and Co. had been sending emails to each other with "open links" to their research papers on the websites of the scholarly journals they use to communicate their science to the world.  The open links include the password of Jones's account at Journal of Geophysical Research (JGR).



Har! Har!  You might guess that Anthony Watts would publish this embarrassing fact to the world,  but you would be wrong.  Watts is a mensch, and so he sent a private email to Dr. Jones instead.

I know that you know me, and probably do not like me for my views and publications. Regardless of what you may think of me and my work, it has been brought to my attention by a reader of my blog that there are open access links to your manuscripts at JGR included in the email that are now in the public view.



Therefore, it is my duty to inform you that in the recent release of Climategate 2 files there are links to JGR journal review pages for your publications and also for the publications for Dr. Keith Briffa.



For example, this link:



http://jgr-atmospheres-submit.agu.org/cgi-bin/main.plex?el=[access code redacted]



I have verified that in fact that link opens your JGR account and provides full access to your JGR account.

Now that the chaps at CRU have changed the password, Watts has published his email in an interesting post that discusses who could have assembled all the Climategate emails for publication.  Answer, it had to be an IT administrator, because only those chaps have both the knowhow and the passwords to do the job.



Actually, it's not surprising that Watts would do this.  The famous Robbers Cave experiment shows that when people divide over an issue each side takes a lot of trouble to be different from the other guys.  Since the Hockey Team has a culture of bullying, statistical incompetence and data manipulation, it is natural that the skeptics should make a point of being completely different.



But that doesn't alter the fact that Anthony Watts is a mensch.

After the Welfare State

Whether or not the Tea Party and the Occupy movements are comparable, there is this about them.  They both represent discontent with the welfare state.



The Tea Party represents older Americans that experience the pressure of welfare state politics on their wellbeing.  The Occupy movement represents young people that drank the Kool-Aid, went to college, and now find that there is no payoff.



The Tea Party and Occupy are not the end of the new activism.  There will be more trouble; there always is when a ruling class starts to confront the contradictions of its raison d'etre. 



The whole idea of the welfare state was that the green eye-shade bother of social protection were better done by disinterested rational experts.



But the experts were not disinterested; they were shills for the ruling class.  And the ruling class, in its contest for votes, has promised the same money to different people.  That's why there is an unfunded deficit for Medicare and Social Security.



Also, of course, the "disinterested" experts have made 30, 40-year assumptions about economic growth and demography.  The auto companies tried that in the 1940s and the promises they made couldn't be redeemed.  So now the auto companies are in bankruptcy and the Obama administration is paying off the promises with monies from the pockets of the taxpayers.



The sensible Robert Samuelson has sensible thoughts about all this.  The welfare state was planned in an era of remarkable economic growth.

The great expansion of Europe's welfare states started in the 1950s and 1960s, when annual economic growth for its rich nations averaged 4.5 percent compared with a historical rate since 1820 of 2.1 percent, notes Eichengreen. This sort of growth, it was assumed, would continue indefinitely. Not so. From 1973 to 2000, growth settled back to 2.1 percent. More recently, it's been lower.

There is no mystery about what happens next.  There will be a fight for resources.  And I suspect that, despite its voting power, senior citizens like me will come out on the losing side.  After all, that's where the money is.  If senior citizens don't agree to a reduction in benefits then the fight will move out of the voting booth into the streets.



To me, that is the bottom line on the welfare state.  It has screwed the young generation.  It has given them lousy schools, kept them incarcerated in child custodial facilities and away from the adult world of work.  And then, when they actually get to work, they are burdened with outrageous taxes to benefit their parents. Remember them?  They are the folks that sent their kids dutifully off the the child custodial facilities. Why aren't the kids all in the streets?



The irony is that the Occupy chaps are in the streets for more of the same: subsidies, freebies, and taxes on the "rich."  Don't they realize that's what got us in this mess in the first place?


The way of social animals is that when we are faced with a problem we stumble towards a solution using trial and error.  It's not hard to figure out what the solution should be: a lot less top-down rational planning that predictably goes badly astray, and a lot more real social cooperation and social adaptation.



Fortunately we already have a system that does that.  It is called democratic capitalism, buttressed by authentic social institutions like the family, the church, the neighborhood and the member association.



The problem is, of course, that such a system leaves no role for an educated elite, disinterested experts, and compassionate politicians.  It runs on its own.



We can expect that our liberal friends, who fill important positions as disinterested experts in the educated elite, will fight any such solution to our problem to the last dollar of sovereign debt.

Mixed Employment News

Unemployment went down last month, to 8.6 percent.  The trouble is, it got that way by a statistical fluke.  Employment went up by 278,000.  That's good.  But the labor force went down by 315,000.  That's how you get the unemployment rate to drop by 0.4 percent in one month.



It's good news that the unemployment rate went down.  But at this stage of the recovery it would be better news if the unemployment rate went up.  Why?  Because in a healthy recovery you get people entering the labor force in their hundreds of thousands looking for work in lockstep with the people actually getting jobs in their hundreds of thousands.  For about a year, when the economy really starts to kick into forward gear, you can expect healthy job growth but no reduction in the unemployment rate.



The labor force has been essentially flat for the last four years.  By comparison, from 2002 to 2008 the labor force increased by 10 million.  Put it this way.  Absent the Great Recession the labor force should be about 4 million higher than it is right now.  It will take years of healthy job growth to fix that, and get back to the robust job market of the mid 2000s.  And that healthy job growth is only just getting started.



It is true, of course, that, with the housing crash, there was no way to get back to full employment in a couple of years.  But it is also true that the Obama administration has made things worse with its regulations, its ObamaCare, its spending splurge, and its green energy boondoggle.  The American people might have something to say about that next November.

"Who Lost Egypt" Misses the Point

In NRO today Andrew C. McCarthy, who prosecuted Sheik Abdul Rahman in the 1990s, is bewailing the election result in Egypt:

It would be hard to overstate what a catastrophe the Egyptian elections are shaping into. Reports about stage one of the long process show not only that the Muslim Brotherhood may be getting over 50 percent of the vote; an even more extreme Islamist party — called “Nour” — is apparently getting between 10 and 15 percent.

Well what do you expect?  The army has ruled Egypt for the last half century--Nasser, Sadat, Mubarak--and today Egypt is broke.  What do you expect the Egyptians to vote for?  A secularist-socialist party with its core support in the educated elite?  Please.



The tone of the conservative reaction to the Islamist surge is reminiscent of the "Who Lost China" blame game in the 1950s.  Egypt isn't ours to win or lose, any more than China was in 1949.  China--and Egypt--has to find its way into the modern era.  And that means adapting its moral-cultural tradition to the modern facts of life. Obviously, this is a very hard thing to do.



Usually countries start by making a bad choice.  In the 20th century, the bad choice was typically to try and ape the secularist-socialist culture of the western educated elite.  That's what Russia tried, China tried, and India tried.  It led to starvation and stagnation until they threw off the secularist-socialist yoke and tried a bit of capitalism.



The Middle East tried the same thing and the result was disaster, compounded by the petroleum boom that allowed rulers to coast on oil revenue without needing to confront the cultural challenge of the modern era.  Given the failure of their secularist army government, it is natural that the Egyptians should return to Islam.  The problem is that Islam has not really confronted the challenge of modernity in the way that Christianity has done.  There has been no equivalent of the Protestant Ethic merging with the Spirit of Capitalism.  And there has been no attempt to separate church and state in the Muslim world.



The modern problem is that, if you combine church and state you get totalitarianism.  And that applies in particular when the church in question is the secular church of socialism or communism.  If you combine economy and state you get crony capitalism.  And if you combine church and economy you get I know not what.



The challenge and the opportunity of the modern age is to develop a Greater Separation of Powers between state, economy and the moral-cultural sector.  If you do not do it, then the result is disaster.  But people have to do it on their own.  They cannot be prodded or "nudged"--i.e., coerced--into it by a supposedly enlightened elite.



We can see that India seems to have made the break from the 20th century Wrong Turn.  China is maybe doing it, if it can get the Communist Party to loosen its grip on political power.  Russia seems to have exchanged church-state totalitarianism for economy-state totalitarianism.



The problem for the US in "losing Egypt" is Israel.  Will an Islamic Egyptian state decide that the way to the future lies through the smoking ruins of Israel?  They certainly might.  Typically, post-revolutionary states get pretty expansionary.  Take the USA.  We conquered most of the North American continent within a century of our revolution.



The US has two options on Israel.  It can help Israel fight off the invaders or it can bring the Israelis here to the US.  Meanwhile Egypt is broke, and needs a bailout from the international community.  That means us.

The Fed Gooses: Dutch Finance or French Finance?

Today the markets have soared in response to the Fed's latest ploy: making dollars available to foreign banks.  But it hasn't solved the problem.

At best, analysts said the move could buy the 17 nations of the euro zone a little more time to agree on a broader plan to stabilize financial markets.

Why is that?  Because all the Fed has done is solve the liquidity problem.  It has not solved the solvency problem.



The solvency problem is that a number of European nations have run up debts that cannot be repaid.  There will be sovereign default, and there will be haircuts for bondholders, and there will be welfare state spending cuts.



Why are these nations in this mess?  The reason is quite simple.  They follow the principles of what I call "French Finance."



The modern era has two models of national finance.  There is Dutch Finance, invented by the Dutch Republic in its war with Spain back in the 16th century.  Then there is French Finance, invented by John Law in France in the early 18th century.



The difference is simple, and understandable by any of us financial ignoramuses.  Let's start with French Finance.



In French Finance the resident wizard, be he John Law or Benjamin Strong or Alan Greenspan or Ben Bernanke, manipulates the financial system to get the government out of its latest jam.  You get inflation, government-sponsored companies like the Mississippi Company and Fannie and Freddie.  It always ends in tears. And the reason is pretty simple.  The credit system runs on trust (credit means faith).  It requires the participants to believe that the other participants can be trusted.  Obviously, under French Finance with its John Laws and Alan Greenspan and Ben Bernankes the question always is: how can I manipulate the markets so my political masters can coast through to the next election?  They spend and borrow and don't give a damn about the long term.  And in the long term the government ends up with debts that cannot be serviced.  After the election comes the deluge.



But what about Dutch Finance?  Now you are talking.  The idea of Dutch Finance is that you take all the government's mess of IOUs and convert them into long-term government bonds.  Then you create a tax and allocate it to the payment of interest on the bonds.  The tax is big enough that the market has confidence that the interest can be paid,.  And paid, and paid.  The result is a big boom, because the government's rock-solid bonds become the best kind of collateral for individuals and the best kind of reserves for banks.  The Dutch did it, and then they invaded Britain in 1688 and set up the same system up with the Bank of England and the "funds," i.e., the National Debt "funded" with earmarked taxes.  If you read your naval fiction you will find that your Jack Aubreys always put their prize money in the "funds."  Alexander Hamilton gave the US Dutch Finance in 1792 when he converted all the Revolutionary War debt into government bonds serviced by import tariffs and excise taxes.  Pretty soon the US had actually paid off its National Debt.



There is always a temptation for governments to cheat, to pretend that they are doing Dutch Finance when they are actually veering towards French Finance.  The Germans had their fill of French Finance in the first half of the 20th century with hyperinflations that reduced money to zero twice after defeat in war.  They want a financial system that will never again ruin the German people.



In the present crisis, as the Wall Street Journal opines, everyone wants the Germans to write a blank check for the defaulters.  The German people, perhaps more than their leaders, are dead set against it.  And who can blame them?



No doubt we will soon get to the end game on this mess, and nobody knows how wide the damage will be.  Will the contagion spread to the US and push the economy back into recession?  Nobody knows.



But one thing we do know.  French Finance always ends in tears.  Dutch Finance is different.  It leads to peace and prosperity.