Thursday, December 31, 2009

A Year of False Choices

We are now at the end of one of the most incredible economic and political years in American history.

The year began with hope. The financial system seemed to have stabilized since the trauma of the Fall of 2008. The new president had campaigned as a post-partisan consensus builder and promised "change you can believe in." One of Barrack Obama's favorite campaign lines was to decry the "false choices" that prior administrations had made.

It all looked easy. Just put a nice guy in office -- someone articulate and worldly -- and our problems could be solved. Outside the United States, no American was more popular and more heralded than Barrack Obama as 2009 began.

Unemployment was growing as the New Year began and the economy was a serious worry. The unemployment rate was getting near 7 percent and threatened to get worse before it got better. There was still great fear in the credit markets, but a slight thaw seemed to have begun in the first few weeks of January.

There was good reason for hope and optimism as 2009 began. There was reason to hope that the new president could be a force for good and could bring a divided country together.

By the third week of January, choices began to be made.

The new Administration's first item of business, unique in American history, was to castigate the previous adminstration and to blame all domestic and foreign ills on past administrations. Where America faced problems, they were not the fault of dealing with difficult situations. No, that was not the problem. The problem was that American policy was wrong in every particular. Previous Administration had seen "false choices," when in reality, Obama seemed to believe, there were easy choices.

On the domestic front, the easy choice was to use the stimulus package to reward public employees, line the pockets of campaign supporters, and provide relief to those who were deemed worthy. Gone from the "stimulus package" was any serious "infrastructure" or "payroll tax cuts" or any of the elements that Obama's early January bi-partisanship had seemed to promise. Instead, the stimulus package was legislation worthy of the Chicago political climate from which Obama emerged. It was pure political pork with no stimulating effect whatever on an economy that was weakening. $ 800 billion was simply wasted for no purpose other than pure politics.

The next step was to take on the business community. The bully pulpit of the presidency was transformed into an attack dog aimed at business at all levels. The main target, early on, was the financial sector whose employees were described by Obama as purveyors of "greed and corruption." New czars were created by Obama to oversee large sectors of the American economy to be sure that they played by the Obama and Democratic party play book. On every occasion, Obama made clear his antipathy to the business community and his mistrust of the profit motive. In effect, the new president declared war on business -- a war that he continues to this day.

By March, it was clear that this Administration had no understanding of the deepening recession and, apparently, not much interest either. Instead, the Obama Administration focused on "climate change" and "health care reform." To the new president, these were the big issues and the growing ranks of the unemployed were not a problem.

As the summer of 2009 passed and unemployment climbed past the ten percent level for the first time since the early 1980s, the president continued to focus his attention on "climate change" and "health care," issues that were no longer in the top five issues considered important by the American public according to every opinion poll taken.

In the Fall, the public antipathy to the health care debate in Congress reached a tipping point as a majority of Americans preferred no action to the bills being debated in Congress. By Christmas Eve, the day of the successful Senate vote on the Obama health care bill, the public opposition was nearly two to one. All 60 Democratic Senators thumbed their nose at the public and voted to approve the most unpopular major piece of legislation in American history. Obama applauded their vote. The "public be damned" attitude of the Obama Administration and the Congress was on full display by Christmas day.

Now as the year is ending, it is clear that the Obama Administration is completely adrift. Even if the "health care bill" ultimately becomes law (which is not likely), it is clear that the final product achieves none of the objectives set out by Obama in his campaign. Obama's climate change agenda has become the butt of late night television comedy skits. Obama's personal popularity has sunk faster than any president in history during his first year in office.

Until the Obama Administration policies are dismantled or abandoned, the American economy will not really recover. It will either limp along or worse. This Administration despises business and free markets and that attitude (and accompanying policies) will prevent a serious business recovery. It was Roosevelt's antagonism toward business that helped to prolong the 1930s recession. Obama seems like Roosevelt in this regard.

The leader that Obama should look back to is Ronald Reagan. Reagan inherited an economy every bit as bad as the one that Obama inherited. Reagan did not lay the blame on his predecessors. Instead Reagan encouraged business, pushed through (a Democratic Congress) the largest tax cut in American history, and the economy responded with the greatest economic expansion in world history. (True bi-partisanship flourished under Reagan since he dealt mostly with Democratic Congresses).

These are "real choices" not "false choices." Elections matter. If Obama continues to crush the American economy, the public will have some choices to make in 2010. The public might be ready for "change we can believe in" by November. Obama was wrong. There are no "false choices."

Wednesday, December 30, 2009

Trickle Down -- Revisited

The Reagan years (1981-88) are often described as the years of "trickle down economics." The idea, of course, is that if you make businesses profitable, then good things will "trickle down" to employees. This idea is broadly lampooned by left wing columnists (typically untrained in economics). But, is the idea wrong?

When Reagan entered office in early 1981, the economy was in shambles. Inflation was above ten percent and unemployment was headed in that direction. Eight years later prosperity was rampant. Inflation was low single digits and unemployment was nearing the five percent level. The stock market had risen nearly 300 percent in eight years. Not a bad record. "Trickle down" worked pretty well.

But the left did not like Reagan and did not like the 1980s. Why? What is wrong with full employment and the absence of inflation? Good question.

The answer is that the left has trouble making a case for big government if the economy is doing well and the public is prospering. Nothing makes a left winger more angry than the idea that the public is doing well. That's not good for the left. So, columnist after columnist attacked Reagan as an out-of-touch, senile, and misanthropic politician. But, Reagan didn't mind. He cheerfully continued to talk about America as the "city on the hill" that promoted the individual and saw big government as the enemy. Meanwhile, the economy boomed and "trickle down" trickled down -- full employment and rising incomes for the American public.

The Obama crowd entered office with unemployment at seven percent and growing. Their first order of business was to attack business. Lashing out at "greed and corruption," Obama was quick to put in place pay czars and urge a raft of new regulations and restrictions on business. The Obama agenda promised new taxes, new employer mandates, and an environmental agenda that could easily double utility costs at present usage levels. Obama and his Democratic cohorts seized every opportunity to publicly lash out at business and business leaders.

Banks were forced into a tight noose. Some were given large doses of cash and told what they could or could not do. Other financial institutions faced increased regulatory scrutiny that actively discouraged them from making new loans. The result: predictably lending dried up in major areas of the American economy. If that wasn't enough, Obama pushed Congress to pass punitive legislation on credit card lenders which had the effect of reducing and eliminating credit card access for many Americans, especially those most in need of credit.

In short, in defiance of "trickle down" economics, the Obama Administration and its allies declared war on business. By forcing business to its knees, the Obama folks were moving toward a more just world, not a "trickle down" world.

Well, they have succeeded. If you are able to get and keep a job, you have many more mandated benefits today than last question about it. The problem is getting that job and keeping it.

The point of "trickle down" is that when businesses prosper, they hire more employees, pay them more and treat them better. When business is disastrous, then businesses lay people off, pay them less, and treat them worse. The Obama folks seem to prefer this latter scenario.

The economy is not getting better. Businesses are terrified by the Obama Administration and there is no "trickle down." We need to bring back "trickle down" economics.

Monday, December 21, 2009

Interesting "Surge" for the Economy

An unprecedented surge in the hiring of "temporary workers" has taken place over the past four months. This surge accompanied a continued loss of permanent jobs to the economy, as the economy grew slowly in overall output. What does this mean?

In prior recessions, an early surge in temporary workers quickly led to the hiring of permanent employees. Not so, this time. Why?

According to William J. Dennis, Jr., director of research for the National Federation of Independent Business:

"When a job comes open now, our members fill it with a temp, or they extend a part-timer's hours, or they bring in a freelancer -- and then they wait to see what will happen next."

There is a message here. The Obama mandates are making it less and less attractive to hire full time employees. While permanent employment will eventually pick up, we are headed toward much higher unemployment levels for a recovery than has been the postwar (post World War II) pattern. The overwhelming presence of big government overseeing the financial sector and the pattern of existing and proposed mandates on employees is stifling the natural forces of economic recovery.

Cap-and-trade, health care reform and "card check" are enough to discourage anyone from expanding their business and hiring employees -- temporary or otherwise. Only the select beneficiaries of Obama largesse (read: green industries) have anything to celebrate from this government's war on the economy.

The normal credit provision from the financial system has been strangled by regulatory overkill, financial uber czars, and credit card legislation. Now, new and expensive new SEC rules, combined with the excessive costs of Sarbanes-Oxley, threaten to dampen the outlook for public companies as well.

The Democrats war on business and on employees continues unabated. The midnight cloture vote on health care is an icon for future disaster for the American economy.

The good news is that the American public is opposed to the President and the Congress by overwhelming numbers. Nearly 60 percent of the public are now opposed to the Congressional action on health care. But, the President doesn't care, nor does the Congress. "Bi-partisanship" has taken on a new meaning. Not only the opposition is left out of the equation, the public's views don't matter either.

No amount of rhetoric and obfuscation can blur the real issues. The economy is in deep trouble and the Administration and the Congress could care less as they pursue their own agenda regardless of the negative consequences for the economy and for the unemployed.

Friday, December 18, 2009

Obama's "Unprecedented Deal" in Copenhagen

As President Obama ducked into Air Force One to conclude his bizarre trip to Copenhagen, he declared that "an unprecedented deal" is in the works. No details of course. China, meanwhile, announced that they had no intention of agreeing to reduce carbon emissions and signalled their long stated intention of permitting growing levels of carbon emissions from their industries. Ditto for India. So, exactly who is going to limit carbon emissions? No one in Copenhagen, that's for sure. So, one wonders what Obama means by "an unprecendented deal?"

Pundits noted that Hugo Chavez was really the star of the Copenhagen show. He received thunderous applause as he denounced capitalism and bragged about his brutal dictatorship in Venezuela. The climate summit crowd love it. Chavez and "global warming" advocates had a love fest. They are certainly on the same page. Fortunately, opinion polls now show that most Americans and Europeans no longer buy into the global warming nonsense and they don't care much for Chavez either. Wonder if Obama is noticing?

An Administration in Freefall

More and more, the Obama Administration looks like a failed presidency in only its first year in office. Obama says he would give himself a B+ rating as president, but the polls suggest that voters would not give Obama a passing grade.

By focusing on health care reform and ignoring the growing unemployment levels in the economy, Obama has seriously misread the national will and the economic issues that face the country. His Administration seems completely out of touch. His speech today in Copenhagen reinforced this "out of touch" theme. Polls in the US show that the American public no longer supports the Obama climate initiatives and they have lost faith in the "global warming" siren song as well. Still Obama pushes on. By suffocating the economy with new, unlegislated, EPA carbon emissions guidelines, Obama attempts to thwart the public will.

The Admistration itself is in conflict with itself. On issue after issue, the White puts forth strident views often that contradict one another and consistently White House views are in opposition to the views of the American public, as evidenced by the polls. Obama and Sarah Palin are now neck and neck in favorability ratings and it won't be long before Obama will wish wistfully to change places with Palin.

The intriguing question is: will the White House wake up? or will the White House continue on a collision course with the American public and with history.

Who would have thought....just a year ago?

Wednesday, December 16, 2009

"We Will Go Bankrupt.....

So said President Obama when contemplating the possibility that Obamacare may not make it through Congress. Well, that's quite an admission. So, Obama admits that we are on the way to bankruptcy as a nation. Wonder why? Try: social security, medicare, and medicaid -- Obama's three favorite programs. The only way out, according to Obama, is for him and his gang to take control of medicare and medicaid and force spending cuts. Wonder what cuts he has in mind?

Apparently there is $ 500 billion in "easy" medicare/medicaid spending cuts if only Congress will pass his Obamacare. And if they don't? Then I guess the Administration will not bother to make the "easy" $ 500 billion in spending cuts, even though it is well within their legal authority to do so. Strange policies.

Only if we agree to destroy our private insurance system and add 30 million uninsured to the insured rolls will we get to save this $ 500 billion. Why the quid pro quo? Why didn't Senator Obama push for these $ 500 billion in easy medicare/medicaid cuts before he was elected to the White House? There is an answer.

You guessed it. The $ 500 billion in savings is a myth. Only by cutting actual services to the aged that now depend on medicare and medicaid can this be accomplished.

I guess that's how we avoid bankruptcy. Let the old folks go without the care that was promised. That's change that Obama can believe in. According to the polls, not many other Americans believe it though.

The public opposition to Obamacare is now approximately two to one (that's about the same as the opposition to the closing of the Gitmo there is some consistency in the Obama approach to public issues).

We are on a path to bankruptcy, unless the 2010 and 2012 bring a real change in the political direction of the country. With Obama, it's just a question of which road to bankruptcy we take.

Yes, Howard, Kill The Bill

Howard Dean, former Chairman of the Democratic Party, has urged Senate Democrats to "kill the bill." He is, of course, speaking of the Obamacare Bill that is frantically seeking to nail down 60 Senate votes for cloture to push the legislation toward enactment.

Dean is miffed that the "Public Option" has disappeared from the bill. The "Public Option" is just the quickest way to get nationalized health care. The bill, even without the public option, promises nationalized health care anyway. So, Dean should not worry. It's simply a matter of time.

It will be interesting to see if any on the left desert Obamacare at this late stage. The Senate Bill is so terrible it is unlikely that there will be any defections from the left.

The best hope to kill this horrible piece of legislation will be in the House of Representatives in January, when everyone is running for election. The public hates Obamacare and the House Democrats know it.

Tuesday, December 15, 2009

Obama and the "Fat Cats"

The majority of the big bankers, who Obama labeled "fat cats" this past Sunday, voted, funded and supported Barrack Obama for President (including famously Jamie Dimon and Lloyd Blankfein). Now they cheerfully meet with Obama, smile for the cameras, and gloat in the knowledge that there is really nothing he can do to get to them. Except for Wells Fargo, all the big banks have either paid off the TARP money or soon will. Even Wells Fargo has signaled its intention this week to repay TARP money. Thus, all Obama can do is make "fat cat" statements.

Obama knows and the bank CEOs know that there are no plans to expand small business lending -- not now, not next year. The regulators, for one, will not permit it. The OCC is forcing America's banks to reduce their commitment to small businesses. All the bombastic rhetoric by Obama aside, small business is in the deep freeze in the US and will not come out of the deep freeze until Obama and his Democratic majorities have gone down to defeat.

The truth, as Obama knows well, is that the American economy is going nowhere. If Obamacare passes, there is a real possibility of a double dip recession and unemployment levels will begin to increase from current levels. Obama seems in a fog about the economy. Larry Summers, his chief economic advisor, says the recession is over. It isn't (as Christine Romer, Obama's Council of Economic Advisors chieftan, pointed out after Summers' absurd comment).

Besides the possibility of the recession deepening, the other economic problem that Obama policies are aggravating is the national debt. The Obama Administration's own forecasts imply a tripling of the national debt within a decade. Clearly this is an underestimate. It is hard to see a way out of this, given the Obama program.

The "fat cats" aren't worried though. Their man Obama continued the Bush bailouts and have provided zero percent funding for the banking industry. Who needs to lend to small business even if the Obama regulators reversed themselves and permitted it. The banking industry doesn't need to lend to small business and they won't as long as Obama is around.

Friday, December 4, 2009

The Not-So-Reluctant Warrior

The nuanced approach by President Obama toward military activities -- evidenced by his West Point speech this week on Afghanistan -- is a far cry from his warrior approach to economic issues.

During the 2008 campaign, Obama, famously, declared his intention to destroy the American domestic coal industry. The plan: tax and regulate it out of business. Obama realized that if you tax something enough and put enough bureacratic hurdles around it, it will no longer be economically viable. He was right.

Which brings me to the unemployment problem. What if your plan was to destroy the American worker? What would you do? Why not place enormous taxes on the employment of labor and threaten even more with massive health care mandates? That should do the trick. Meanwhile, Congress is pushing for a guaranteed five day sick leave for American workers -- another enormous tax on employees. On top of the piles of payroll taxes, business taxes, costs of litigation (think "hostile work environment"), and the enormous regulatory burden of OSHA and other business nightmares, the gap between what it costs to hire a new employee and what the employee gets in wage and salary grows by leaps and bounds. Why not find new and interesting ways to avoid hiring employees? Sounds like a plan.

Obama is correct. If you make something completely uneconomic, businesses will find alternatives. Hiring employees has become extremely uneconomic for small businesses. Obama did not begin this trend, but he is pursuing the toxification of employees with vigor with the help of his Democratic Congress.

The Jobs Summit is a joke. Every business person can tell you why businesses are looking for ways to avoid adding employees -- costs. This Administration and this Congress are not reluctant warriors on the jobs front. The Obama Administration has declared war on business and employees and are pursuing that war with a vengeance.

The threat of "card check" alone is enough to dissuade a small businessman from taking on new employees and actively encourages small business to continue to reduce staffing levels.

High unemployment levels are the "new normal." It is common practice now for Obama and his Congressional colleagues to decry the economy of the 1980s and 1990s, when unemployment plunged to the four percent level. No one wants to return to that -- except, perhaps, people looking for a job.

Sunday, November 29, 2009

The Big Issues: Unemployment and the National Debt

While President Obama fritters away his time entertaining Hollywood celebrities, the real problems of the American economy get worse and worse.

Unemployment is a severe as any time in US history except for the decade of the 1930s. There are no guarantees that we won't reach the levels reached in the 1930s. Certainly, if Obama continues his war on business, we have a good chance of repeating the disastrous 1930s on his watch. He (and his advisors) seem to have no clue about the weakness in the economy. Worse, they don't even seem to care.

The national debt nightmare is historic. This is a crisis of immense proportions. Health care and (what is left of) climate change are relatively minor issues compared to the growing prospect of a US fiscal bankruptcy. Such a bankruptcy within the next twenty years is now an odds-on outcome. What are the Obama people saying? Nothing. On the matter of the exploding national debt, the Obama Administration is curiously silent. Does Obama care about the national debt problem. Does he understand it?

Sadly, this is an Adminstration that seems completely out of touch with the real problems that Americans face. There are no polls showing health care and climate change among the top two concerns of Americans -- none. Unemployment and the rising deficits are at the top of all public opinion polls.

I guess unemployment and the national debt were not topics that came up in the coffee shops at Harvard.

Saturday, November 28, 2009

A Transaction Tax -- Another Bad Idea

The transaction tax idea that is now floating through Congress is another absurdly bad idea. This one originated in the minds of Congressional Democrats, ever on the hunt for more tax dollars. Imagine that such a tax is enacted. China will be all for it. Taxing transactions in the US makes them more expensive if done in the US. Why not do the same transactions in China and avoid the tax?

If you want a good laugh, read Paul Krugman's defense of the transaction tax. Krugman seems to see this as a way of punishing bad guys and rewarding good guys. When the transactions move to China, how does that punish bad guys and reward good guys?

By making the US less competitive by imposing transaction taxes on security transactions, these transactions will simply take place somewhere else.

China must love American Democratic politicians. China could not write a better script.

Friday, November 27, 2009

The Jobs Summit -- Another Obama Joke

Having done everything possible to kill jobs and discourage employers from hiring, President Obama has now decided to hold a "Jobs Summit." The job that he seems most concerned about is his own. It is now obvious to everyone that this President has no understanding of even the simplest of economic principles.

Watch for the President to formulate some type of program that would reward his few remaining supporters. This is not about jobs; it is about politics. This President has no interest in creating jobs. If he was, he would immediately abandon "cap and trade" and "Obamacare" and focus his attention on proposals that would encourage free markets to produce jobs. An example of this might be a proposal that would lower payroll taxes or lower income or capital gains taxes. But, Obama's agenda is the exact opposite.

The President will not be happy until unemployment climbs above 15 percent. If he succeeds in getting Obamacare and Cap-and-Trade passed, he can probably get there. But the public is opposed, by very large numbers, to both of these proposals. The public has a better understanding of Economics than this President. Thank goodness.

Thursday, November 26, 2009

On to Copenhagen

Now that the Asian photo-ops are over, President Obama is off to Copenhagen. As the evidence for climate change induced by mankind's carbon emissions has exploded in a cascade of fraud and political chicanery, the President, undaunted by the facts, is headed off to Copenhagen in the attempt to drive some more stakes into the staggering health of the US econoomy.

Serious scientists no longer believe there is any evidence of global warming. Indeed, the emerging concensus seem to favor a coming ice age. No doubt, the "political" climatologists (think Al Gore), will eventually decide that "global cooling" is the real problem. Conveniently, the Al Gores of the world will then discover that only if the US economy returns to the stone age can we prevent a new ice age. Gore's view is that if everyone but Gore himself will lower their carbon footprint, then we can be saved.

So, off he goes...our young and inexperienced President. The gang at Copenhagen will love him, no doubt. Unfortunately for Obama, the folks in Copenhagen don't vote in the US. Folks in the US no longer buy the global warming myth and would prefer that the President shelve his global warming crusade and focus on real problems, like unemployment and a staggering US economy. Trips to Asia and to the Baltic, no doubt, serve to take the President's mind off the real problems that face ordinary Americans. But, that doesn't make these real problems any less problems.

Americans are worried about the economy and their jobs. They oppose the various Obamacare plans under consideration by Nancy Pelosi and Harry Reid. Americans are also dubious about Obama's climate change agenda. They wish the President had some interest in their real problems, not his goofy left wing agenda. But the "change" President doesn't appear willing to change any time soon.

Tuesday, November 24, 2009

3rd Qtr GDP is Anemic

Today's revisions to the GDP estimate for third quarter 2009 are stark testimony to the failure of the Obama economic agenda. There is no real recovery in this data. The new reality is Obama stagnation, soon to be made significantly worse if the health care legislation floating through Congress becomes law.

This Administration is beginning to make Jimmy Carter look good. Obama seems to think that the way to resuscitate a beaten fighter is to hit him with a two by four. Every part of the Obama agenda will cost jobs and run the national debt to a level unheard of in American history. All of this probably sounded good in the coffee houses of Harvard, but it is slowly destroying the great American economic engine. What used to the be the envy of the world is becoming the sick patient whose life support is being removed piece by piece.

Fortunately, Americans live in a democracy and when an Adminstration takes a sledge hammer to crush their hopes and dreams, the public has its own chance to talk back -- in the voting booth in 2010 and 2012. There is no popular support for any part of the Obama agenda and a declining minority support for the President himself. This self destructive Administration and its fawning Congress has now received another terrible report card.

Saturday, November 21, 2009

Change You Can Believe In

You have to wonder about the slogan: "Change You Can Believe In." This sounded good back when the poll numbers showed that Barrack Obama was a fresh new face with fresh new ideas. Now, it seems the haunting background to a growing nightmare.

The recently released Gallup Poll shows that Obama's favorables have now slipped below 50 percent. Support for his health care proposals vanished long ago. Various polls show that approximately 60 percent of the public are opposed to Obama's health care proposals. There is no public support left for any of the Obama agenda.

Wow! What a difference ten months makes.

Perhaps the new slogan should be: "Change You No Longer Believe In." .

There seems to be a "death wish" in the rush by the Democratic Congress to impale themselves on the bureacratic and costly disaster known as health care reform. This seems a way to take a majority party and turn it into a perpetual minority. Republicans should quietly pray for a victory for Obama in the health care battle in Congress. This will assure a Republican takeover in 2010 and 2012.

Friday, November 20, 2009

Early Death Rattles

An Administration in chaos. There were calls yesterday for Tim Geithner's resignation as Secretary of the Treasury from both sides of the aisle, Democratic as well as Republican. Why?

The Administration made a dramatically wrong guess back in January of this year. They thought that the economic slide would be mild. Their own forecast, part of the paperwork supporting their $ 800 billion stimulus package, estimated that unemployment would go no higher than eight percent. As a result, the stimulus package was no stimulus at all. It simply provided relief to very select groups picked by the Obama Administration, mostly along political grounds. There was no real effort to help struggling employers and employees battle the economic problems that they were facing.

The result, perfectly predictable, was that the economy proved to be far worse than the Obama folks thought. Now, they blame the Bush Administration. No one is buying that...not Democrats, not Republicans. Obama and his Treasury Secretary are in the crosshairs of the public anger over the economy. They have earned that spot by foolish policies and their policies to dramatically expand the national debt.

Now, having added a trillion dollars to the national debt and proposed even higher future debt levels in their health care plans, the Obama Administration is feeling the heat from the public. That will continue. Unemployment is not going to get any better for quite some time. For that, the Administration deserves full credit. Every plank of the Obama Administration program destroys jobs.

The public's downbeat view of the Obama economic plan will continue until someone in that Adminstration wakes up. That probably won't happen until sometime in November of 2010.

Until then, American businesses and workers will continue to suffer the predictable effects of an Administration in chaos.

Sunday, November 15, 2009

The US Savings Rate

Why does the US have the lowest savings rate in the world? This was a question that would not have been asked in the 1950s and 1960s, because the US did not have the lowest savings rate in the world back then.

So, why did the US savings rate plunge to zero after the mid 1970s?

The answer to this question tells us what will happen to the savings rate for the US of the future.

Most pundits argue that Americans will increase their savings in the future because "they have learned" that leverage is dangerous. Is that what Americans have learned? Or have they learned the exact opposite?

Americans began to save much more of their income after the great economic difficulties of the 1930s battered the economic prospects of average Americans. The new higher savings rates persisted right through the second World War and right up until the mid 1970s. Then what happened?

What happened is that Richard Nixon and a Democratic Congress expanded the entitlements known as Social Security and Medicare to the point that the vast majority of Americans realized that the need to save was now greatly reduced. Why save for the future, if the government will take care of that future? After the expansion of Social Security and Medicare, the savings rate collapsed.

Savings has increased over the past sixteen months, but that increase will dissipate when (and if) the economy begins to show some signs of life. Why should anyone save for medical emergencies, if the government takes over the medical system and outlaws insurance schemes designed to deal with medical emergencies? No reason. Why should Americans save for their old age if the government guarantees income for their old age? No reason.

Americans rationally choose not to save. Once the fear of the current economic climate goes away, Americans will return to that rational choice and the savings rate will slide back to zero or negative territory.

Why do the Chinese save over forty percent of their income? Because they have to. There is no government safety net to encourage Chinese to spend as much of their current income as possible, as there is in the United States. The Chinese high savings rate will persist. The US savings rate will go to zero once more.

What is the significance of the savings rate? Those who save will eventually own everything and those who dissave will work through their assets till they no longer have any. What this means is that, over time, the great wealth of the United States will be transferred to those who save. Americans' wealth will be reduced and Chinese wealth will be increased.

These trends have been in place for decades and will, once the US regains its economic footing (presumably, after Obama has been retired back to the community organizing world), resume. Entitlements reduce and perhaps eliminate the need and the desire to save.

Saturday, November 14, 2009

State Budgets Imploding Too

California is not the only state in big, big trouble. Governor Patterson of New York state announced this week that New York state will run out of cash in four weeks. New Jersey, Oregon, and California all have income tax rates north of ten percent and they are likely to raise them even higher. Why?

The states suffer from the same malady that afflicts the federal government: entitlements and income transfers. In truth, what most of us think of as government costs very little. In our first century and a half as a nation, the US government absorbed barely one percent of the nation's national product. That was back in the days when government was supposed to provide police, a court system, deliver the mail, provide for the national defense, build roads and bridges and provide for basic education. All of these items are absurdly cheap to produce and would require only a modest government expenditure at all levels.

Instead of one percent of national product, the Obama agenda, if enacted, would move government to nearly forty percent of national product (if you include state and local government activities in the mix). Why? Does government cost that much more? No. Government, actual government, is dirt cheap. What isn't cheap are entitlement programs and income transfers?

Social security, medicare and medicaid are enough, by themselves, to bankrupt the nation and will bankrupt the nation and the various states unless curtailed or eliminated. But these are just the beginning. The vast bulk of government activity since the early 1930s has been to take wealth and income from one group of citizens (mostly from citizens not yet born) and give to another group of citizens (current voters).

States are unwilling partners in this grand scheme of income transfers. That's why they are going broke too. You can only borrow so much from unborn Americans. Eventually those holding US and state debt will balk. They are beginning to balk already.

Not only do these income transfers suggest bankruptcy within a generation for the US government and for most states (especially the larger states of California, New York, New Jersey, Illinois, Michigan and Massachusetts), it distorts incentives for ordinary people, reducing the efficiency of the economy, slowing the growth of technology, and dampening entrepreurial enthusiasm.

One side effect of all of this is a growing and permanent group of unemployed Americans. While the economy will probably stagger along (at Japanese growth levels), those who are adversely effected by the government's overwhelming new role in the economy, will not recover quickly. Minorities, old folks, women are the most likely victims of the Obama economy. Obama folks will attribute this to racism, sexism, etc.

The real truth is that government programs that favor groups, end up hurting the very groups that they favor. If Joe can sue you, then you would be better off hiring Sam not Joe. If you are going to force feed your employee benefits program into a new Orwellian Obamacare, then why not outsource? Why not do that part of your business that requires employees by importing that part from China. They don't have Obamacare and aren't going to have Obamacare. The Chinese can see clearly where the US is taking itself.

Gradually, the American public is waking up to the disaster of the Obama Administration. Public opinion polls have turned dramatically against the President and against his political party. That doesn't mean that the President and his party won't ram their unpopular programs through this Congress. The President and the Congress seem unconcerned about what the public thinks and unconcerned about the number one problem facing the economy -- unemployment. Fortunately, 2010 and 2012 aren't that far away.

Thursday, November 12, 2009

A Jobs Summit? Is He Kidding?

You have to admit that this President has a sense of humor if not a sense of direction. Now as the unemployment rate roars into double digit territory, the President, at last, seems to have taken notice. Having proposed one job killing measure after another since taking office, the President and his merry band now wonder why the unemployment rate is roaring along and the economy is mired in a very deep recession.

Get a message to this President....somebody, please....if you want people to hire people, give them some incentive to do so. Why make employees so expensive and so toxic (with litigation threats because of age, gender, race, etc.) that all employers want to do is reduce their work force. Isn't their anyone in the White House that gets it. Economics 101.

This White House seems to think that raising the minimum wage and making health care more expensive and more burdensome to businesses (and raising everyone's electrical bills to further cool off an already cooling global environment) is an inducement to hire employees. What a joke? No one in this administration seems to have any idea how jobs get created. The Obama folks seem to think that raising taxes on businesses, raising taxes on families and mandating more employer costs for employees will encourage hiring.

And now, a jobs summit. Obama's statement today is priceless:

"We all know there are limits to what government can and should do even during such difficult times, but we have an obligation to consider every additional responsible step that we can to encourage and accelerate job creation in this country."

Is he kidding? How can this be a serious statement, given the Obama jobs-killing agenda. I am surprised that they haven't proposed a law mandating that hiring an employee be made a criminal offense. It's getting pretty close to that already.

The polls now show clearly that the public has figured out that Obama has no idea about the economics of unemployment and they are angry. The public is nearly two to one opposed to Obamacare and they are taking it out on Democratic candidates according to recent polls in Connecticut and Ohio.

Even staunch Obama fans like Bob Herbert of the NY Times can see where this is going. Herbert's opinion piece in the NY Times on November 9th, entitled "A Word, Mr. President" shows that even liberal Democrats are fed up with the Obama Adminstration's preoccupation with destroying our health care system and are urging the President to shelve that agenda and focus on the economy and unemployment.

Health care is dead, cap and trade is dead, card check is dead. This is a failed presidency and it is only ten months old.

Sunday, November 8, 2009

The House is Not Enough

The narrow vote (five vote margin)in the House of Representatives for the passage of the Obamacare bill just shows how far away the road to victory for Obama really is. Senator Harry Reid has already announced that there will be no vote in the Senate until 2010, within months of the Congressional elections. Once the Senate votes, there will be need to be a new bill refashioned by a conference committee composed of House and Senate members to be brought back before both the House and Senate. This is likely not to occur until the Spring of 2010, at which time every member of the House of Representatives will be scrambling to get re-elected. 80 Democratic Congressman are in Congressional Districts that McCain carried over Obama in 2008. All of these folks are in trouble over Obamacare. Obamacare is dead regardless of the House vote on Saturday.

To see why, one need only read today's article in the NY Times by Peter Goodman entitled "The Recession's Over, But Not the Layoffs." Jobs are far more important than Obamacare to the voters, as one would expect since nearly 60 percent of voters are now polling against Obamacare. Barely 40 percent of the electorate supports Obamacare at this point. What matters to voters is the economy and their jobs. Obama has forgotten this, but the public has not.

Goodman's article is an interesting one. He notes that for some reason (unstated in the article) businesses are continuing to lay off employees and are reluctant to hire new employees even as business improves. Why? Goodman really gives no reasons, but the reasons are obvious. Government mandates have made employees much, much more expensive. This means that businesses will find other ways to produce goods rather than hire much more expensive employees.

The entire Obama program, whether one thinks of Obamacare, Cap and Trade, or card check, simply reinforces businesses in their determination to avoid hiring. Only die-hard leftwing Democrats like Paul Krugman deny the obvious. But, then, Klugman is not a businessperson and he doesn't care what their problems may or may not be. But, at the end of the day, businesses make the hiring decisions, not politicians. Obama policies and threatened Obama policies are enough to convince to any rational businessperson to put off hiring as long as possible and to outsource to China and India as much as possible.

No surprises here.

Friday, November 6, 2009

Obamacare Is Dead

There will be no health care "reform." Obamacare is dead.

The centerpiece of the Obama legislative program will never make it. It may, narrowly, pass the House of Representatives on Saturday, but the chances in the Senate have dimmed dramatically. There is some chance the vote will fail in the House on Saturday. We shall see. The AMA and the AARP may be supportive, but their membership is not.

History buffs will note the striking similarity between Clinton's first year in office and Obama's. Both stumbled on health care "reform." Clinton wisely abandoned the effort. Obama seems determined to go down with the ship. If, by some miracle, Obamacare survives, Obama will be drowned by voter revulsion in 2012. Clinton woke up; Obama sleeps on.

Obama turns out to be a tone deaf politician. Who would have expected that?

Wednesday, November 4, 2009

Seismic Shift in Independant Voters

The numbers were dramatic yesterday in both Virginia and New Jersey. In 2008, independent voters in both states favored Obama. By nearly two to one margins, independents yesterday voted for the Republican gubernatorial candidate in both Virginia and New Jersey. That dramatic shift reflects lots of things, no doubt. But, clearly the Obama economic policies do not sit well with these voters. Exit polls said that "economic issues" were the top area of concern for more than eighty percent of the voters in both states.

The exception was the 23rd district race in New York State, where 55 percent of the voters chose candidates supporting the Obama programs. The peculiar dynamics of that three way race may explain the outcome, but, on the issues, the results were favorable to the Obama program.

But, Virginia and New Jersey were the big enchiladas and the results from independents should help focus the White House on measures to aid the ailing economy instead of more programs designed to crush it. Hopefully, this will put the brakes on health care legislation, cap and trade and card check -- all programs that threaten the economy with no offsetting benefit.

Tuesday, November 3, 2009

NY Times Distorts the News Once Again

Dateline: New York's 23rd Congressional District where the Republican Candidate, Dede Scozzafaza, dropped out of the special election to fill this heavily Republican Congressional seat and endorsed the Democratic Candidate Bill Owen. This leaves Conservative Party candidate, Doug Hoffman, in a position to pick up the Congressional seat. (Obama received 52 percent of the vote in this district over John McCain twelve months ago).

According to the NY Times today, the issue that prompted Doug Hoffman to enter the race and surge to a commanding lead were: 1) abortion; 2) gay marriage. According to the times, Scozzafaza supports both, but Hoffman is opposed. But, in actuality, few voters in the 23rd have any interest whatever in either of these issues. (It's worth noting that a majority of Americans, right or wrong, agree with Hoffman on these issues).

No, the real issues, not mentioned by the NY Times is that Scozzafaza supported the Obama stimulus package, supports Obama's health care plans, and support the infamous "card check" plan that denies workers a vote on whether or not to have a union. On those issues Scozzafaza, her Democratic opponent and President Obama are in 100 percent agreement. Those are the real issues. And Doug Hoffman disagrees with all three on these issues.

Every poll in the 23rd district shows voter interest in these latter, bread and butter economic issues, and no interest whatsoever in the social issues. Why the NY Times has so distorted the facts of this campaign is open to speculation.

In any event, the battle in the 23rd District of NY State is a battle over economic issues, not social issues. If Hoffman wins, it is a repudiation of the Obama agenda, not a statement about voter preferences on social issues...regardless of what the NY Times may like to think.

Monday, November 2, 2009

A Catastrophe for Americans

Today's Wall Street Journal analysis of the Pelosi Health Care Bill is detailed and accurate. The Journal editorial describes the Pelosi bill as ranking "with the Smoot-Hawley tariff and FDR's National Industrial Recovery Act as among the worst bills Congress has ever seriously contemplated." Amen. No wonder 56 percent of Americans are opposed to this bill, which effectively destroys the American health care system and US fiscal credibility. If this passes and becomes law, watch for US Treasury auctions to get more and more dicey.

Sunday, November 1, 2009

Referendum on Health Care Reform

The voters finally get a shot. Obama was elected to deliver bipartisan reform to many problems that Americans face. Events, however, overtook the Obama presidency. That happened in the Bush presidency with 9/11 coming in the first year of the first Bush Term.

What happened to Obama is that the recession, somewhat mild (7 percent unemployment) when he was inaugurated, quickly went from mild to severe. Now, in his tenth month in office, Obama faces almost ten percent unemployment with that rate likely to grow not decline in coming months.

After 9/11 President Bush made "fighting terror" his number one priority, for good or evil. Obama has chosen to mostly ignore the recesssion.

The stimulus bill initiated by the Obama White House in February was written by the House of Representatives Democratic leadership -- mostly Nancy Pelosi. The bill was a grabbag of new entitlements, wealth transfers, and a host of political payoffs to somewhat shadowy groups (like Acorn). There was little infrastructure spending in the $800 billion bill that was passed into law by heavy Democratic majorities. It is now painfully obvious that this law has provided virtually no stimulus. So, now what?

Obama's refusal to acknowledge the ever-deepening recession and growing unemployment is causing a major reassessment by voters of the Obama presidency. It is showing up in every opinion poll.

Americans, for good reason, do not want Obama's health care reform. The latest polls were 56 percent opposed and only 40 percent favorable. But, Obama and the Democrats remain undaunted by the growing unpopularity of their proposals. "Cap and trade" isn't even supported by the major environmental groups who, you would think, would be behind Obama's major environmental initiative. "Card Check" is mostly a sop to well paid union executives. The public, while liking Obama, doesn't support any of his economic agenda.

At some point the White House should "listen up." Tuesday might provide that magic moment.

Virginia is a good example of a referendum on White House policies. McDonnell began his campaign as a race against the Obama policies and that is exactly what has brought him thumping poll majorities. Governor Corzine is in serious trouble in New Jersey, a state where Democratic candidates for governor normally pull over 60 percent of the electorate. In upstate New York, a Republican candidate on record as favoring "Card Check" and the bulk of the Obama health care program has been forced to withdraw by overwhelming public opposition to the Obama program. Look for the third party candidate, Hoffman, to win that race handily.

Bill Clinton was able to rescue his presidency by backing away from Hillarycare, the absurd health care reform proposals advanced by Clinton's wife and overwhelmingly rejected by the public and by Democratic lawmakers. Clinton went on to become a very popular president and was handily re-elected to a second term. Clinton reversed course when he saw that the public was not on his side on the issues.

So, what is Obama doing? He is arguing that the 56 percent of Americans who oppose his health care reform are unpatriotic, ignorant, and mostly liars. Well, maybe so. but 56 percent is 56 percent.

Obama's narrow band of followers is not likely to provide enough numbers to survive the Republican onslaught in 2010 and is not likely to provide enough support for his own re-election.

Watch the results on Tuesday. It portends the future.

Thursday, October 29, 2009

The Political Ramifications of Obama Care

The Obama White House push for an omnibus health care bill is really surprising in light of its likely political impact. Once enacted, there are few Americans that won't feel dramatic cost increases and substantial reductions in health care provision. Within the next twelve months, most American families' health care costs will rise more than thirty percent thanks to Obamacare and within twelve months, they will know it. What happens in twelve months? The 2010 Congressional elections -- that's what.

Republicans should vote for cloture and then vote against Obamacare. That way they can insure its passage. It is a free pass for the Republican Party for a generation. Virtually no American will feel better about their health care than before Obamacare. Those on Medicare will be especially aggrieved since over $ 50 billion per year of their current care is eliminated in all versions of Obamacare. The over 65 population is the single fastest growing demographic in the American population, which will become solidly Republican for years to come.

How about the young? The burden of cost is shifted to the young in this bill. The young have only slight need for health care insurance, but they will pay mightily under Obamacare. Their romantic illusions of life under Obama will be shattered by the realities of Obamacare.

There simply are no winners, except Republican politicians who will not likely be in any big hurry to roll Obamacare back. Better it stay in place as a reminder of what happens when government takes over a large sector of the economy. Too bad if you need health care.

At least with "card check," the unions are happy. No one will be happy with Obamacare. It may as well be retitled the "Republican Congressional Full Employment Act"

Wednesday, October 28, 2009

Another Dumb Idea Courtesy of Barney Frank

Barney has decided that financial service firms should contribute to a fund that would then be available to "bail out" firms that go belly up. Great!

Imagine that, in your neighborhood, everyone was required to contribute to a fund in case any of your neighbors couldn't pay their bills. This shifts the responsibility away from the decision makers. Folks could easily run up big bills without difficulty. Why not? If I know there is a fund available in case Joe Smith can't pay, then I will lend Joe Smith unlimited amounts of money (so long as the fund is unlimited). And Joe? He will gladly borrow to the hilt, since the rates he pays reflect the fund that stands behind him, not his own profligacy.

So, what happens. Barney's bill will encourage financial service companies to take much greater risks than they have in the past and the market will provide these companies with the wherewithal to take these risks, since there is a fund hiding behind the scenes to absorb the losses. Of course, in reality, since so much risk will be taken, the taxpayer will ultimately bear the brunt of the losses in Barney's "too big to fail" world.

Better would be simply to let those who take the risk bear the brunt of the losses. Let the profligate go "poof" and leave the poor taxpayer alone. And, stop providing incentives for lenders to lend to those taking the most risk, which is exactly what Barney's fund would do.

Barney and Chris are in a race to see who has the dumbest ideas. I would say that Barney now has a slender lead. But, Chris is still in the running.

NY Times Leonhardt on Target

I don't often get the opportunity to praise an economics article in the NY Times, but this morning's NY Times has a sterling piece by David Leonhardt. He tackles the Obama proposal to give America's senior citizens $ 250 apiece to make up for the absence of a cost of living index increase in social security payments this coming year.

Obama's idea is strange on two counts: 1) The cost of living index increases were supposed to offset inflation. If there is no inflation (and there is none), why does Obama think seniors need the $ 250? Is he just being generous (profligate?) with our unborn grandchildren's money? 2) Senior citizens are the demographic least effected by the current economic recession. Why single them out for special treatment? Leonhardt makes these points effectively in his probing article.

The answer of course is that Obama is in trouble with seniors because his health care reform promises to make major cuts in the actual provision of health care for senior citizens currently on medicare. They know that and he knows that. So, this is Obama's effort to buy them off. Once again, "change you can believe in." There is a pattern here.

Tuesday, October 27, 2009

Dodd Takes Us Back in Time

Chris Dodd holds the record for the most ridiculous Congressional proposals in modern time. He is working hard to hang on to that record (Barbara Boxer is closing in fast).

Dodd's latest is a proposal to "freeze" credit card interest rates. There's a great idea. That was the way the world used to work -- "usury" laws. The idea is that some rates are just plain unfair. Heck, in the Islamic world, all rates are unfair. They ban interest on loans. Islamic banking manages to get around that in practice by redefining what is meant by a loan.

So, what is Dodd up to? His idea is that by capping interest rates, borrowers will be better off and those stingy old lenders will not be able to "rip off" the borrowers. But, what if the stingy old lenders behave rationally. What will they do?

They will quit offering loans to all but the best credit borrowers -- rich people. Middle income and lower income folks need not apply. They will lose access to credit or worse, be forced to deal with unsavory illegal lenders.

When you pass a "maximum price" law what you are doing is telling a willing buyer and a willing seller: "Sorry, government knows better." You prohibit the transaction. This doesn't mean the buyer gets a lower price. What it means is that the transaction does not place. (Hint: that's why minimum wage laws create unemployment...such laws prohibit a transaction between a willing buyer and a willing seller).

That is what will happen in Dodd's brave new world. If borrowers can't charge the interest rates they need to take the risk of lending to middle income Americans, then they won't lend to middle income Americans.

Thanks to Chris Dodd, the plight of American middle income families could become worse than it is already.

Monday, October 26, 2009

Krugman Says Health Reform "Will Work"

Once again, Paul Krugman has ventured forth in the health care reform debate (in today's NYTimes). Krugman begins with the premise that medicare works. Wonder why he thinks that? He, like Michael Moore, thinks Medicare is great. He and Moore are not old enough for Medicare so they have no idea what it is like. Furthermore, they will never really be subject to Medicare as their wealth will buy them whatever health care they want (even if they have to fly to India to get it). Rich people won't be restricted to Medicare so they think it's great. It is great, if you don't have to use it.

The problem is that for those who are eligible for Medicare, it is a complete nightmare. To begin with, just getting enrolled can be quite a project. It took me ten months to get enrolled in medicare after I became age-eligible. Thank goodness I didn't need it. (It is really a great system if you don't use it). I am covered by a policy covering University of Virginia employees. So, like Krugman and Moore, I don't really need it either. But, I have great familiarity with medicare as both my mother and sister are enrolled in medicare. Let me assure you that medicare is a nightmare to use and many things are not covered by medicare (and medicare supplemental packages) that are routinely covered by ordinary health insurance that one can buy over the counter (before Obamacare outlaws such insurance policies).

Of the 50 million Americans without health insurance, eleven million are currently eligible for free medical care under medicaid. Guess why they don't enroll? They can't figure out how to enroll. It is an absurdly complicated system and it takes social security the better part of a year to even consider an application, assuming you have the persistence to go through the mind-boggling application process. (Wonder why Nancy Pelosi and Max Baucus don't worry about the fact that eleven million eligible citizens don't bother to sign up for does a new program with new, more complicated, signup procedures help this group?).

As is widely known medicare is not only a poor payer for medical services, it is enormously over budget and, combined with medicaid, will run out of money in a very few years. Then what? The great system that Krugman and Moore like, but will never use, will simply quit paying for much of anything once the money runs out.

What a brave new world! Everyone will have health insurance but no one will get medical care and the costs of this absence of provision will be astronomical. (This is similar to what has happened to our educational system -- astronomical costs (highest in the world) and very little education actually provided)

Maybe Krugman should spend some time with folks that are currently on medicare and medicaid and then he might learn that medicare is a complete mess and bankrupt to boot. Is this what he things the rest of the country needs? Is this what will work?

It is not an accident that the vast majority of folks now on medicare are protesting the Obamacare proposals. They know what a disaster this will be. They are already experiencing it.

Saturday, October 24, 2009

Crunch Time

Attempting to meld together the impossible, Senator Harry Reid and House Speaker Nancy Pelosi are trying to bring a "compromise" "health care reform" package before the Congress. Given the enormous differences between House and Senate, this is no small task.

The bottom line is cost. The Democrats don't mind eliminating choice from health care. After all, that's pretty much what medicare and medicaid are all about. That doesn't bother them. They don't mind blowing away the free market either. After all, that is what the GM and Chrysler (and other) bailouts, the Pay Czarr, etc., are all about. The problem for the Democrats is simply one of cost. The US fiscal situation is completely out of control and the passage of the Obama health care plan (any version) simply nails the coffin shut. It is hard to see how the US avoids bankruptcy as a nation, if this bill passes and is signed into law.

That is the heart of the Democrats problem. Why does cost matter when it never mattered before? Because this time, something will have to be done if the country is to survive. There is no alternative but ridiculously high taxes (and even that won't work), absurdly high inflation (which will only work for a little while), and massive cuts in actual health care provision. Everyone will eventually be insured, they just won't get any medical care.

More and more Americans and more and more Democrats can see clearly where this is headed.

Senator Reid and Speaker Pelosi are in a pickle, but the real loser (besides the American public) is Obama. Obama is in big trouble if this passes. His presidency will never recover because the public will feel the damage that this "reform" produces very quickly. Certainly in time for the next election.

Wednesday, October 21, 2009

Volcker Stands Alone

Paul Volcker is a great American. Appointed by Jimmy Carter to be the Federal Reserve Chairman in 1979, he served two four year terms ending in 1987 (succeeded by Alan Greenspan). Volcker broke the back of the great inflation of the 1970s (which peaked at 14 percent in August of 1979) and ushered in (helped by Reagan's tax cuts) the greatest wealth increase in a single country in human history. Today's Dow Jones average of 10,000 seems a long, long way from the August 1981 reading of 780. The 1980s and 1990s were great years for the United States and Paul Volcker is one of the folks to thank for those great years.

These days Volcker is an economic adviser to Barrack Obama, who listens to no one, apparently. Obama certainly does not listen to Volcker. Volcker is calling for the breakup of the very largest commercial banks and a return to Glass-Stegall (which would divorce commercial banking from investment banking). Volcker does not like the "too big to fail" concept and would prefer to eliminate "bigness" rather than over-regulate the financial sector. Obama prefers massive new regulation, which will simply shift financial leadership to Asia and relegate the US to the financial backwaters of the modern world. Volcker sees the problem.

While not in agreement with Volcker's recommendations, I have to admit my admiration for this great man and his ability to point to the real issues. No one else in the Obama White House seems to believe in anything but bigger government, higher taxes, and an endorsement of a permanently stagnant US economy. Three cheers for Paul Volcker.

Monday, October 19, 2009

The New Obama Tax System

Monday's Wall Street Journal contained a terrific opinion piece pointing out the new marginal tax rates that American workers will face when Obamacare is passed into law. For those between the poverty line and twice the poverty line the marginal rates will approach 70 percent of income. The effective marginal rates for taxpayers with income under $ 60,000 per year from the health care bill alone are generally between 20 and 35 percent for most working Americans and 70 percent or more for lower income Americans. These new marginal tax rates are in addition to the existing tax structure and represent a new and burdensome slamdown on the American middle class.

The reason for these huge marginal tax rates is that subsidies are provided in the bills to offset the dramatically higher health care premiums that everyone will face under Obamacare, but these subsidies are drastically reduced as your income rises. So, you will pay huge amounts at the margin for your health care if your income rises.

This doesn't bother Obama because he doesn't think incomes will rise given his other economic policies. He might be right about that. There certainly won't be much incentive for workers to push for higher incomes or take any steps to improve their income after Obama gets done.

Saturday, October 17, 2009

The "Good Idea" Syndrome

There is no shortage of "good ideas" that can be translated into legislation. Years later these good ideas become the present day nightmares. A great example of this is the tax free status of employer provided health care insurance. This tax gimmick was inserted into law back in the days when the free market reigned in health care and,in its early years, it did not do much damage.

As time passed having a tax free benefit in health care created an arbitrage for employers. They could provide a benefit to employees that, unlike ordinary wage and salary income, would be tax free to the employee, even though the employer received the full tax benefit as if the health care benefit were simply part of ordinary wage and salary expense. As a result of this arbitrage, employers provided "comprehensive" health care plans, not "catastrophic" health care plans. If employees paid for their own health insurance (if it were not a tax free benefit provided by employers), employees would no doubt choose a catastrophic plan just as they do with auto insurance, home insurance, life insurance and all other forms of insurance that average citizens routinely purchase.

As a result of employers choosing "comprehensive" health insurance, the result is what you would expect if auto insurance were comprehensive and paid for routine oil and gas bills and tire changes -- massive and unbounded cost increases. And, of course, that is exactly what happened. Perfectly surprises here.

As if that wasn't enough to push health care cost increases to astronomic levels, the Congress went further. In the mid 1960s, the Congress passed the Medicareprogram into law. After the dramatic expansion of Medicare that occurred in the mid-1970s, it then became a fact that most Americans who use health care do not pay for it directly. They pay for it and then are reimbursed or they are reimbursed at the point of purchase.

Anytime you don't think you are paying for something, then you don't much care what it costs and that is precisely what happened to health care.

Nothing will stop the escalating and skyrocketing health care costs as long as the free market is basically outlawed by Congress, as it is with Medicare and tax-free Employer provided health insurance.

So, in essence, the Obama plan is to take the current disastrous health care payment system and extend it to everyone. Once Obamacare is in place, it obviously will bankrupt the nation if it works as proposed. So, the Obama folks and their successors will begin the process of eliminating health care procedures they don't like and promote the ones they like. They will also dictate, as a matter of law, who gets what treatment and who doesn't and when and where and by whom.

Free choice in health care will become a thing of the past.

The quality will collapse because the kind of folks that have historically gone to medical school to become doctors will abandon that pursuit and find some other, less bureaucratic profession. Being a doctor in the future will be a detested profession of low esteem. It won't pay much either.

All of this because of what seemed like two "good ideas:" tax-free employer provided health care and medicare.

Just abolishing tax-free employer provided health care and medicare (for future, not current, recipients) would solve the problem of rising health care costs and let Americans decide for themselves how to deal with their health care needs, instead of almighty government. The problems that we have now would simply disappear.

Unfortunately, such an outcome is not now in the cards thanks to Obama and his cohorts.

Beware of Congressionally mandated "good ideas." They inevitably become the nightmares of the future and are extremely difficult to reverse.

Thursday, October 15, 2009

The Quote of the The Year

"We're going to continue to explore each and every avenue that I can think of that will lead to job creation and economic growth."

This from President Obama today while touring a make-work project in Springfield, Virginia funded by the infamous stimulus bill.

The good news is that the President has finally acknowledged that unemployment is a problem. Now we need to get the President to the next level of recognition. Who is it that hires people?

Here's a hint for the President: making employees much more expensive to hire and raising business taxes to extraordinary high levels probably is not the ticket.

More Politics as Usual

Obama is in deep trouble with seniors over his proposed health care reforms. Seniors see clearly that the $ 500 billing "savings" from Medicare over the next few years will come out of their hides. So, they are mad at Obama.

How to make up? Obama has now proposed spending (wasting?) $ 250 per person in additional spending next year (as if we don't spend (waste?) enough). The proposal includes other groups as well. Without doubt, Obama thinks this will make seniors (and others) change their mind about Obamacare. It won't.

Like all of the rest of the Obama proposals, the $ 250 per person giveaway, takes income and wealth away from unborn American citizens. They can't vote, so he socks it to them.

Politics as usual. More "Change we can believe in" I suppose.

Tuesday, October 13, 2009

The Problem for the Dollar

Since World War II, the dollar has been the reserve currency of the world. As such, global products like oil were priced in dollars. Central banks held large dollar reserves as a natural part of their facilitation of international trade. Why is everyone now talking of abandoning the dollar as the world's reserve currency?

The answer is very simple. Holding dollar reserves means holding a dollar-denominated asset. (No one holds dollars themselves...that would be silly). Up to now, holding treasury bills was the preferred method of holding dollar reserves. Increasingly, other countries no longer trust the security of US Treasury bills. That is the problem. Not the dollar per se, but how do you hold dollar reserves safely.

Maybe the Chinese will solve this problem for us. They could issue Chinese government bonds denominated in dollars. Then central banks around the world would hold Chinese government debt and the dollar could remain the reserve currency of the world. But as long as treasuries are the main instrument for holding dollar reserves, look for the world to abandon the dollar as the reserve currency.

This will be part of the Obama legacy...a legacy well earned.

Sunday, October 11, 2009

The Rally is Over for Now

2009, so far, has been a great year for stocks. The first two months of the year certainly didn't look that way as the Dow collapsed to the 6400 level by the 9th of March. But, since then, it has been nothing but straight up. My guess is that this rally is basically over.

The headwinds are enormous. Where to begin?

The US national debt is spiraling out of control. The debt situation is far, far worse than is being reported because of: 1) consistent underestimation of future spending; 2) consistent overestimation of future economic growth and future tax revenues; and 3) the staggering amount of "off balance sheet" obligations of the US government. The Congress and the Administration have consistently favored legislation that adds to the national debt and resist any effort to slow its growth.

The war on lower income Americans by the President and the Congress implies high and persistent unemployment levels, a lack of credit availability, and a growing dependence on government as opposed to the private sector. Things like a nearly 40 percent increase in the minimum wage in just a few years mean fewer jobs for low income Americans. Remember that the minimum wage law does not say: you must hire this person and pay them a minimum wage...that is not what it says. What the minimum wage law says is: if you would like to hire someone (or be hired by someone) at less than $ X per hour, you are a criminal. Minimum wage laws outlaw contracts desired by both parties! You and your employer's views don't matter in this equation...only the government's views matter. Most people who support this kind of legislation will never be subject to it -- unions, highly educated folks, rich left wingers...they love this stuff, because it doesn't extract any penalty from them. Only the poor and low income suffer from this type of legislation.

Some version of the Obama "health care reform" legislation will be passed by this Congress and signed into law. That "reform" will add trillions of dollars to the already staggering national debt (for reasons cited above). It will also add layers and layers of government bureacracy to the health care system and, ultimately, abolish free choice and free markets from our health care system. There will be a decline in the quality and quantity of our medical personnel (a trend that is already in place) and America's health care system will eventually rank side by side with its public education system -- among the worst in the civilized world. Meanwhile, plaintiff lawsuits will abound with taxpayers more and more the target of the John Edwards crowd, since the government will more and more become our health care provider.

"Cap and trade" will pass in some form and will deal another body blow to the US's economic future. A new law that does nothing to lower global carbon emissions will bring crippling increases in the electricity bills for all American households and businesses. This act of economic suicide will be cheered by Europeans and others who despise the historic strength of the American economy. But, it will be another body blow to the average American trying to dig out of the current malaise.

The new regulatory regime will have the effect of shifting global capital market primacy away from the US and to other countries. New York will loses its prime position (that trend is already under way...the Obama policies will simply accelerate that trend). Lending markets will become much, much more restrictive under the new regulatory regime and financial innovation will be effectively outlawed in the US. Shanghai and Hong Kong will be the beneficiaries. The Asian economies will not adopt these self inflicted wounds that would prevent their capital markets from flourishing. The Asian economies will flourish.

Where to invest?

Here is what I would guess:

1) Bet against the dollar and against the US treasury market

2) Buy US real estate. The reason this works is that America will become more and more like Europe. Business innovation will shift to Eastern Europe and Asia and America will become a stagnant land of folks spending their time trying to divide up a never growing economic pie. Stagnant assets do well in that environment. The US will become cheap compared to the rest of the world as the American dollar collapses. It won't take too many yuan to buy the average American house in a few short years.

3) Buy a diversified portfolio of global stocks and bonds with the heaviest weights in Eastern Europe and Asia. Underweight the US and Western Europe. They are going nowhere fast and are preoccupied with programs that devastate economic growth.

The world is changing and economic strength is shifting. The US and Western Europe are digging their own economic graves. That may not be so bad though. Perhaps it is time the rest of the world got a shot at economic prosperity. My guess is that Asia is most likely to fill the void that the US is rapidly creating.

Saturday, October 10, 2009

Obama Continues the War on Lower Income Americans

Earlier this year, President Obama proposed and Congress dutifully passed a bill that "prevented credit card companies from deceptive practices." These so-called "deceptive practices" were, of course, clearly spelled out in every single document that the "duped" customers were required to sign. No matter.

Now, such practices as raising rates on variable rate credit card loans are simply prohibited by law. What is the practical impact of this nonsense? It is a return to the discredited "usury" laws of the eighteenth century. By denying credit card issuers the right to contract lawfully with their customers, you force the credit card issuers to simply quit dealing with low income borrowers. And that is precisely what they are doing.

As is well known and has been thoroughly documented, credit card issuers are eliminating credit card access to their lower income users and denying new credit cards to this same group as a response to the Obama legislation. Exactly when lower income Americans need credit help, the Obama Adminstration and the Congress have taken positive steps to make certain that lower income Americans will once again have to turn to loan sharks and illegal markets to obtain much needed credit.

As if this blow to lower income Americans wasn't sufficient, the Obama Administration is now pushing a new plan to deny lower income Americans access to the mortgage market and the consumer bank credit market. The new so-called "financial regulation" bill would prohibit "predatory" practices. The main import of these provisions will be to eliminate most of the bank lending to small businesses and to lower income households.

This is more of the "reverse Robin Hood" strategy of the Obama Admistration. My guess is that this is meant perversely to offset the redistribution schemes in the Obama stimulus bill. Lower income folks will only be effected if they need credit or a mortgage loan. Otherwise they will be fine.

The war on low income Americans continues. Wonder what's next?

Friday, October 9, 2009

Decline in Job Openings -- Does it Matter to the Administration?

More data for the Obama Administration to chew on: August job openings, reported in today's Wall Street Journal, were down again. Job openings reached the lowest level since the Labor Department began tracking such data in December of 2000.

So, the beat goes on: higher unemployment every month accompanied by fewer job openings every month. Is the White House paying attention?

It is becoming increasingly hard to fathom why every program proposed by this Administration makes employees more expensive and reduces the incentives for business to hire anyone. It's interesting that the parts of the world that are climbing out of this recession - parts of Eastern Europe and virtually all of Asia -- do not have such silly policies. Why are we adopting them?

Is unemployment an irrelevant sideshow for the Obama Administration?

I am sure that the growing economic malaise in the United States is popular with Europeans. So, Obama is riding high with Europeans. But, unless this Administration turns on a dime, which isn't likely, America will live with double digit unemployment throughout Obama's first (and hopefully last) term. This is not a "Bush problem," this is an Obama problem.

Strangely, I don't think Obama really minds high unemployment. He certainly isn't proposing anything to deal with it. Quite the contrary.

Saturday, October 3, 2009

Lets Hear It for the New York Times

On today's editorial page, the NY Times headline reads: "Wanted: Leadership on Jobs." In a well written editorial the Times says that "Congress and the administration have not done enough...don't pretend that the deteriorating jobs picture will self-correct, or act as if it is tolerable." Amen

Reich on Unemployment

You gotta love Robert Reich, former Clinton advisor. This guy is definitely his own man. His latest pitch is that the government needs to tackle the unemployment problem. No question, Robert has figured out the country's great national problem. It isn't health care, it isn't climate change, it isn't a lack of unionization, it isn't the locale of the next's unemployment. That is the problem. Now inching toward ten percent with growing evidence that businesses just don't seem to want to hire anybody. Surprise, surprise.

Reich says that we need another WPA (Work Projects Administration) like the one we had in the 1930s to build roads, parks, bridges, and put people to work doing these things. Where were you last February, Robert? We could have used you. The so-called stimulus was supposed to be "infrastructure" projects just like you suggest. But, as Reich knows, Obama abandoned infrastructure in favor of redistribution of income. So, the vast bulk of the $ 800 billion stimulus became non-stimulus pork.

But Robert Reich is right about one thing. Our number one national problem is unemployment. The Administration has chosen to ignore the problem and focus attention everywhere else. But, this problem won't go away. The Obama economic policies imply perpetual high levels of unemployment. The Obama policy of making employees more expensive to employers is the wrong policy.

Friday, October 2, 2009

Meanwhile Back in the USA

You have to wonder why the Obamas and Oprah Winfrey thought they could win in Copenhagen. At stake -- the site of the next Olympic games. In a contest between four cities, Chicago finished dead last. The Obamas' and Oprah's magic did not seem to do the trick. In fact, it had been rumored before the Obama-Oprah act, that the US was in second place, just behind Rio (the eventual winner). But, lo and behold, Madrid and even Tokyo bested the US. If you read the Obama presentation carefully, there wasn't much there about Chicago, other than it's relationship to the Obama family. Perhaps hearing about the Obama family just wasn't enough to put the city of Chicago (whose other traits went largely unmentioned by the Obamas) over the top.

Meanwhile, the unemployment rate in the US, predicted by the Obama Administration to go no higher than 8.0 percent at the time of the signing of the infamous stimulus package, inched ever closer to the double digit mark. The reading was 9.8 percent -- the highest unemployment rate since 1983. So much for the job creation effectiveness of the $ 800 billion Obama stimulus plan. Economists are revising their unemployment predictions upward and their economic growth forecasts downward. It's not surprising that the Obamas preferred to be out of the country.

The only good news is that the Obama Administration is no longer talking of a second stimulus plan. What the economy needs is for the Obamas to get back on Air Force One and go back to Copenhagen and stay there for a few weeks. Let the health care bills and card check and cap-and-trade die a quiet unmolested death and give the economy a chance. It's only a dream, but sometimes you have to dream.

Cash for Clunkers .... Thud!

As expected, as soon as the "cash for clunkers" program lapsed, auto sales plummeted. September sales for GM fell 36 percent, Ford sales fell 37 percent and Chrysler sales dropped 33 percent. The September collapse in auto sales offset the sales generated by the cash for clunkers but unfortunately will not offset the hit to taxpayers of this foolish program.

The national debt is now higher because of the cash for clunkers program. The economy is no better off and car sales are about where they would have been before this waste of taxpayer money. Another lesson that never seems to get learned.

Tuesday, September 29, 2009

Health Care Without Doctors -- The Obama Plan

Investors Business Daily recently polled doctors on their future plans if Obama's health care "reforms" pass. The result: 45 percent of all doctors polled said they would seriously consider retiring and/or closing their medical practice. That's a resounding endorsement!

None of the bills before Congress expand the number of doctors and nurses that will provide Obamacare and the trend is in the other direction. Every day that passes more and more doctors refuse medicare and medicaid patients. Why? The $ 500 billion that Obama claims that he will save in Medicare and Medicaid will leave more health care practitioners to look for better paying patients or simply leave the health care profession entirely.

Obama is truly a magician. He can somehow improve our healthcare by bankrupting the nation and lowering the numbers of doctors and nurses at the same time. He may well be successful in bankrupting the nation and lowering the number of doctors and nurses, but it is doubtful that this will do much for the nation's health care.

Monday, September 28, 2009

10.9 Million and Counting

The Urban Institute study of Medicaid and SCHIP (that's the so-called Children's Health Insurance Program) estimated that 10.9 Million people, eligible for these programs under the law, failed to sign up for them in 2007. That accounts for more than twenty percent of the people that "don't have insurance." Why haven't they signed up? You think that that many people are not aware of their eligibility? Why doesn't the Congress check into that? I didn't notice Senator Baucus commenting on that particular problem. Who is to say these same folks are going to sign up for Obamacare, when they don't bother to sign up for its current equivalent?

Almost 20 million people who don't have health insurance currently have income that is twenty five percent higher than the average income in America. Why don't they buy insurance? Should we tax the average American to pay for folks who have twenty five percent more income than they have?

For many, not bothering with health insurance is a perfectly rational decision. Those currently with health insurance want to keep what they have. What is the point of the Obama push to nationalize health care?

Saturday, September 26, 2009

Aftermath of the G20

Obama is definitely the king of the photo-ops. But after the champagne bottles are hustled into the garbage bins, what is left from the G-20 conclave this week in Pittsburg? Nothing.

The American economy is mired in stagnation. Housing is at a dead end with nearly seven million unsold homes on the market. Home prices have stopped falling in most markets, but significant increases in new construction are nowhere in sight. Businesses have no interest in adding to their work force, especially with Obama's war on capitalism in full throttle.

The only thing really going up is the national debt and it is definitely roaring right along. Future deficit estimates are way, way understated for two reasons: 1) The Obama administration is vastly overestimating the future tax revenues that the economy will generate; and 2) The Obama administration is vastly underestimating the future cost of their ambitious agenda, some of which, no doubt, they will get passed in Congress.

So, after all the fun times with the international jet set and the adoring media, it is time for the US to face its rather bleak future. Obama is a classy guy, who would have made a great late night TV host. It's really a shame he didn't pursue that career.

The US needs a leader who understands that the economy is going nowhere and the national debt is out of control. Obama doesn't seem to understand what's really going on in the US. (Maybe he should go back to Harvard and take an Economics course or are we too late for that?).

Tax Health Care Benefits

Under current tax law, employer-provided health care is a tax free benefit for the employee. This should be changed. Employer-provided health care should be taxed as ordinary income to the employee. Treating this benefit as tax free is the reason that employer provided insurance is not really insurance at all. Instead, employer-provided health care insurance is inevitably some form of "comprehensive insurance," which provides payment for "predictable" normal and routine health care services.

What this means is that employer-provided insurance is similar to a car insurance plan that pays oil and gas purchases, tire changes, inspection fees, and routine car maintenance as well as accident and liability coverage. No rational person would purchase a "car insurance" plan that includes all of these routine, predictable expenses. Instead, they would purchase "catastrophic" insurance and pay the routine, predictable expenditures on their own. How do we know that? Because that's what folks do when they pay for their own car insurance, because Americans pay directly, not indirectly for their automobile insurance.

Employees, if they pay for their own insurance would never buy insurance that covers routine and predictable expenses. Why? Because it is cheaper in the long run to pay predictable expenses on your own. The only need for insurance is for large, unpredictable expenses. That's what insurance is. Insurance "insures" you against the unknown, not the known.

Eliminating the tax exempt status of employer-provided health care would push the cost of health care onto the employee (the employee currently pays it anyway in lower wages, but the employee doesn't realize that). If the employee pays for their own health care insurance directly, instead of indirectly, they will buy catastrophic policies instead of comprehensive policies. That reform alone would dramatically slow the pricing pressure in health care.

Coupled with tort reform and removing the restrictions on interstate insurance sales, eliminating the tas-free status of employer-provided health insurance would solve the vast bulk of problems with our current health care system. A government take-over, the Obama solution, will simply make our health care system emulate the worst of our public schools at catastrophic expense to the taxpayer.

Friday, September 25, 2009

Obama Starts a Tariff War

The tariff hikes on tire imports that Barrack Obama foisted on the US economy two weeks ago has led to major retaliation, not just from the Chinese. German steel tariff hikes have now added to the momentum for protection. It is no accident that Obama has encouraged the Congress not to move forward with reciprocal trade deals that would improve international trade, long stalled in the Democratic Congress.

This moves Obama further and further from the FDR analogy. Recall that Hoover was the great believer in protection. The Smoot Hawley tariff was Hoover's idea. It was passed by Congress in 1930 and signed eagerly by Hoover, who never stopped defending the Smoot Hawley tariff even long after he left office.

It was FDR that gradually moved the US back toward free trade. Obama is a Hoover repeat. He thinks not trading with other countries will be good for us. It won't be good for us and it won't be good for the rest of the world either. For a US economy that remains mired in a major recession, the Obama policies continue to put roadblocks in the way of recovery.

Monday, September 21, 2009

Mankiw Gets to the Heart of It

Greg Mankiw is a Professor of Economics at Harvard University. His article in Sunday's NY Times is profound. Professor Mankiw imagines that a medical process is found that costs $ 150,000 annually with the power of extending life for the user by one year.

Who can use this process?

In a free market, the answer is obvious. The users will be those who can afford it. The result: a limited number of relatively affluent folks will pay $ 150,000 annually and live another year (eternally in principle).

What happens in Obamacare? Using the principle that all citizens have an equal right to health care and that medical care should not go to the highest bidder, then the answer is obvious. No one will get to use this process that can extend life. It will be outlawed. It has to be under Obamacare. If anyone gets to use this process, then all must get to use it. All will want to use it. But society cannot afford it. Therefore, no one gets to use it.

Think about that for a moment. Expensive medical procedures, if they have the possibility of improving life chances for all of us will be outlawed, because, in the aggregate, under Obamacare it breaks the budget.

Put another way, if we decided that cars should not go to the highest bidder, but that all Americans should have the right to own the same car as everyone else, the result would be the lowest common denominator. We would all be driving cheap cars -- no more Lexuses, no more Mercedes (maybe GM would make a comeback!).

This is where Obamacare will take us. Since everyone must have access to identical health care, anything that is very costly and could, in principle, be widely used will simply be outlawed. If you want expensive, life enhancing health services, you will have to move to another country that permits free market health care in order to get such services.

In a free market, you could buy insurance that would provide the money to have the very expensive life enhancing procedures if you so choose. Under Obama's bills in Congress, such insurance policies will be illegal.

Not only do you lose the freedom to have the care you want and need, an insurance company that sells you a policy to provide for that care will be breaking the law.

The free market is the best allocator of scarce resources. Under a government allocation scheme, either the government must pick and choose who gets a limited resource and who doesn't or the government must outlaw that resource so that no one gets it. That's why the free market is the right answer for health care, not Obamacare.

When is a Tax Not a Tax

Once again, the President believes that only he knows the meaning of words. When asked on Sunday if his nearly $ 4,000 "fine" for families who cannot afford his Obamacare is a tax, he answered that the $ 4,000 penalty is not a tax, it is something "good for people." I wonder if Americans can make that distinction. A stunned Democrat George Stephanopolous would not accept the Obamaism and pointed out that by Webster's Dictionary definition of a tax, Obama's fine of $ 4,000 per family would be a tax. Obama's response: "..that' stretching it.."

The stretch, according to Obama, was to consult a dictionary for the meaning of a word. Obama believes we should only consult Obama for the meaning of words (in this, he and Bill Clinton seem to be on the same page. Recall the famous Clintonism: "...that depends upon what the meaning of the word 'is' is....)" So, according to Obama, dictionaries should no longer be consulted because Obama can tell us which things we pay the government are taxes and which things aren't.

Now, I understand Obama's pledge that "...middle class taxes will not be increased." All you have to do is redefine what you mean by a "tax." This guy really is clever. But, I don't think he's really fooling anyone but himself.

Saturday, September 19, 2009

FHA and FDIC are Broke

It always sounds good to say that you are going to "help" homeowners and "help" those who ........ But such "help" is not free. Someone is doing the "helping." Who? You! and future generations of unborn Americans. That's who picks up the tab on the trillions of dollars now being wasted by the FHA and FDIC. Congress will, no doubt, soon provide them with more dollars to waste.

Medicare, Social Security, and Medicaid are broke as well. So, lets expand them. Why not double down. Obama's health care plan is a double down strategy. As the country tips into bankruptcy why not expand our vision. If we are going to go broke anyway, why not splurge on the way down.

The seems to be the Obama strategy for now.

Friday, September 18, 2009

Obama Could Win Over the Republicans

Yes, surprisingly, the Republicans in the House and Senate would give Obama plenty of votes and cover for his health care plans if he would retreat on tort reform. The enormous costs of litigation involving medical malpractice could easily destroy the American health care system regardless of what that system is like. If Obama would simply agree to let America have the same limits on medical malpractice suits that are in place everywhere else in the civilized world, then Republicans would eagerly jump on board his health care bandwagon.

But, he won't do it. These trial lawyers, like John Edwards -- a paragon of virtue, that one -- are his mainstay supporters. Obama will not cross the wealthy trial lawyer crowd even to get his health care goals accomplished. He likes his rich people, he just doesn't like your rich people.

In the end, Obama won't get much and the voters will take away his huge majorities in the House and Senate next Fall. Voters don't like any of this and, once enacted, they will know fairly quickly who was telling the truth and who wasn't. Obama's Congressional allies are in deep, deep trouble in the Fall 2010 elections, no matter what finally passes, if anything.

Wednesday, September 16, 2009

Judge Rakoff is Right

US District Judge Jed S. Rakoff has hit the nail on the head in the $ 33 million settlement between the SEC and Bank of America. The issue is the payment of 2008 bonus payments to Merrill Lynch employees without accurately informing the acquiring firm's shareholders -- the shareholders of Bank of America. As Judge Rakoff correctly notes, the shareholders of Bank of America are the victims. Why should the victims be hit with a $ 33 million fine?

Why hit the shareholders, asks Rakoff and he is absolutely right? What did the shareholders do wrong in this case? They were the injured party. It is typical of the SEC to complain about inadequate disclosures to investors and then turn around and penalize those self-same investors with a fine. Who would pay the $ 33 million settlement that the SEC has levied on Bank of America? The shareholders, of course.

This is typical policy that extracts payment, not from the guilty party, but from the innocent victim. Why? The innocent victim has a deeper pocket and an inability to protest this outrageous settlement.

Three cheers for Judge Rakoff