Saturday, January 30, 2010

The Economics of Carbon Emissions

Suppose that you decided that you wanted to reduce carbon emissions in the United States. The extreme climate change advocates (think Al Gore) say that this must be done, worldwde, within the next two decades. If that is the case, then there is simply no point in even trying since it is not possible (without widespread economic dislocation, worldwide, that would be far, far worse then the predicted climate change). But, imagine a more realistic goal: substantial reductions in carbon emissions over the next half century, perhaps reducing new carbon emissions to negligible levels by 2060. How would you do it?

Announce a "sliding scale carbon tax." In five years the tax would begin by putting on a carbon tax that would, over time, increase at an escalating rate. Suppose, for illustrative purposes, that it is only oil consumption that you wished to reduce (and ignore for a moment all other sources of carbon emission). Place a $ 10 per barrel tax on oil beginning five years from today. Every year, increase the tax by $ 2 in year six, $ 4 in year seven, $ 6 in year eight, and so forth. By year 20 the tax would be $ 120 per barrel and rising fast.

This type of tax would basically tax oil out of business over a twenty year period. The proceeds would be used to provide broad based tax cuts or used to reduce the deficit. (It is very important that it not be used by the government to subsidize alternative energy).

The numbers in this example are not critical. What is critical is that sufficient time is given between today and a serious level of tax that will allow for alternatives to be developed. The free market can produce the alternatives on its own because of the ever increasing price of oil. One hopes the tax never gets paid at all as alternatives to oil (or carbon, if you like) are developed and flourish.

There is a good chance for a bi-partisan agreement to a plan such as suggested here. Especially, if clean energy sources like nuclear energy are combined with delayed and escalating carbon tax. This kind of program would improve the economy, not damage it (as Obama's climate change agenda does) and it is difficult to see why any one (other than the Copenhagen crazies) would oppose it.

Good, Not Great

Fourth quarter 2009 GDP growth figures released on Friday showed that the economy grew 5.7 % in real, annualized terms. (This number has to be divided by four to get the actual real growth in GDP since it represents a three month period). This is good news, not bad news, but it isn't anywhere near the usual growth rates of eight percent or better that typically accompany the early stages of economic recovery.

So, the good news is that we are experiencing economic recovery, but the recovery is, by historic standards, anemic. Final demand was up a meager two percent with inventory corrections providing 3.4 percent of the 5.7 percent number. This means the recovery is fragile, at best. The economy lost more than 200,000 jobs during the fourth quarter. Employers seem determined to avoid any significant hiring.

If there were no bad news coming from Washington (in other words, if Obama had no agenda), the economy could begin to get untracked. But, fear of the Obama agenda restricts the economy to slow-walking with the possibility that the economy could slip back into negative territory later in the year. The main problem looming in 2010 are the layoffs, sure to come, at the state and local government level.

We are, by no means, out of the woods. If Obama would change course, we could begin a normal economic recovery. It doesn't look like Obama has gotten the message, so look for the economy's future to be dicey.

Thursday, January 28, 2010

Keep It Simple

Both Democrats and Republicans seem to think that making small changes to the tax code can do all sorts of wonderful things for the economy. It's not true. Most of what Obama proposed as favorable tax changes for the middle class don't really cost much because few people will understand them enough to take advantage of them. Who understands the tax code, anyway?

If you want to move the needle, you need simple and broad policies. Imagine you really wanted a jobs program. Instead of targetting this and that, a better approach is an across the board cut in taxes -- say a five percent cut in personal income tax rates, corporate income tax rates and payroll tax rates, effective for the next three years. Something like that is easy to understand, easy to implement, and doesn't discriminate between those who can afford tax advice and those who can't. You could add Obama's notion of a tax credit for new hires, but that is a fairly easy thing to game. It is also gimmicky and requires tax advice.

Simplicity is always better than complexity when it comes to major policy initiatives. That's one of the many reasons the Obama health care packages came to ruin. The health care bills are just far too complicated. Why does it have to be like that? The answer is that it doesn't.

The public is poorly served by proposals that are intricately patched together so that average folks have no idea what the proposal really is and how it really effects them. Having laws and regulations that no one understands is not much different than not having laws and regulations. Complicated rules mean arbitrary government with uncertainty at every step of the way. How can business plan anything and take on an expanded work force if there is no rule of law and set of regulations that are understandable? How many lawyers do we really need?

Give business simple, broad and understandable policies that will encourage them to hire people. Don't design some Rube Goldberg scheme that is mainly structured so that no one who makes over X dollars gets any benefit. What's the point here? -- to get the economy going? - or to engage in class warfare? Poor people and middle class workers do not hire people, businesses hire people. They hire people in order to make money and lots of it. Give them that chance in a simple understandable way and the economy may have a chance to recover.

Same Ole, Same Ole

No news in the State of the Union last night, other than the President is now in campaign mode. A mild kneebend on nuclear energy and offshore drilling (with, as usual no real specifics) and an almost laughable set of gimmickry tax breaks for the "middle class." Otherwise, it was politics as usual from the President. Too bad if you are looking for a job, so is the President (or will be in three years).

The economy needs to be let alone. It doesn't require government to produce green jobs. The economy can do that by itself if Obama would just get out of the way. The message last night is that the President has learned nothing from the past twelve months and intends to pursue the same partisan, extreme left, grab bag of government take-overs of the economy that he has been pursuing since he took office.

It was the old "do as I say, not as I do." As one pundit noted, this was another of these "chin in the air speeches" with no substance. Agreed.

November cannot get here soon enough.

Wednesday, January 27, 2010

Unemployment Just Doesn't Bother This President

The State of the Union speech tonight that has now been leaked in some detail to the press is mostly an effort to try to turn around the polls, which show that the public does not approve of a single part of the Administration's agenda and that the public thinks the stimulus package was just money wasted.

But, the real problem is the economy. While the President will pay lip service to the economy and will discuss a handful of incredibly tiny and narrow proposals that he says will create jobs, the overall thrust of the President's agenda is to hammer down hard on the economy, demonize business folks, discourage business activity, raise taxes, and prohibit the free market from doing what it does best -- recover.

The Administration is now forecasting 10 percent unemployment by year end! That forecast and no plan of action! One can only conclude that the President just doesn't understand the economy, doesn't think that unemployment is really an important issue, and that words mean more than actions.

The other important area where the polls show that voters are concerned is the enormous Obama-Pelosi-Reid spending spree. Unless there is some other plan, even the CBO admits that the nation is headed for bankruptcy (The CBO, the Democratically controlled Congressional Budget Office describes this as an "unsustainable budget path" -- code words for an impending national bankruptcy). What does Obama propose -- a commission! This is laughable. As if everyone on the planet (except the President, I suppose) is not already aware that unless you are going to tackle the entitlements, the country's fiscal situation is not fixable). Prohibiting bonuses to White House executives saves 0.00001 percent of the budget. Thanks, Mr. President. As the Wall Street Journal noted today, this is the "politics of gesture."

With the economy tanking and the country facing prospective bankruptcy, the President blissfully wanders along the left bank in a world of unreality. Not only is the President's agenda opposed by the American public, but many of his own supporters and the media that has supported the President are beginning to raise the competence issue. Does this President really understand or relate to the important economic issues that face the country?

Tonight looks more like politics as usual as opposed to anything presidential.

Tuesday, January 26, 2010

Here Comes Nothing

The preview of tomorrow night's State of the Union being leaked tonight by the White House suggests that the President has no intention of dealing with the battered US economy. Instead the President will defend his first year in office and provide a variety of meaningless morsels: "middle class tax incentives" and phony "spending freezes." The latter items demonstrate mostly that this President hasn't got a clue why voters are in revolt and has no real interest in dealing with the problems of a depressed economy and staggeringly high levels of unemployment.

The stunning results of the Massachusetts Senate race seems to have been interpreted by the President as support for his agenda. The President seems to think that all Massachusetts voters were really expressing was anger at Wall Street. It's a free country...believe what you want. But, don't expect everybody else to buy into this nonsense. Polls show that folks are opposed to the President's agenda...and not just in Independents, nationwide, are against the Obama agenda and not just against it, but strongly against it.

So, here comes nothing. The President has learned nothing. His real education will come in nine months. Then, I guess, he will blame George Bush for the Democratic Party losing control of Congress. I guess it makes Obama, anyway.

Monday, January 25, 2010

Curbing the Deficit

In the next week there will be a lot of discussion about our rising national debt and the growing deficits projected over the next ten years. How to break the trend?

No matter what you hear, the real problem is the entitlements: social security and medicare. Medicare impacts not only federal deficit projections but imperils state fiscal survival as well because the states are also significant funding partners for medicare. Slowing any other spending items will not help. Even eliminating the military budget entirely will not help. Only a serious and realistic readjustment of social security and medicare has any hope of preventing a national bankruptcy.

The public is alarmed about the rise in the national debt. No honest politician would suggest that anything other than curbing entitlements has any hope at all of tackling this problem.

Obama will suggest Wednesday two solutions to the rising national debt: 1) a freeze on a minor part of the budget's discretionary spending component; 2) a bi-partisan commission that would recommend spending cuts and tax increases that would receive an up-or-down all-or-none vote in Congress. These are smokescreens and would actually divert the public's attention from the real issues regarding the national debt.

The reason we don't get anywhere on deficit reduction and slowing the growth of the national debt is an unwillingness on the part of politicians to face up to the real problem -- the entitlements. Obama shows that, in this regard as in others, he is an old style politician. He probably doesn't realize that the entitlements are a problem (how would he know?) and it is unlikely that he much cares what happens to the national debt. But the rest of us do.

In fairness to Obama, he is not alone. Neither Democrats nor Republicans are honest about what is driving our looming national debt disaster.

Obama's "Middle Class" Initiatives

The President announced today a series of special gimmicks designed to entice the middle class toward feeling better about Democrats. None of his announced gimmicks will do anything to create a single job anywhere in the economy. Indeed one could argue that the net effect of his announcement will be to put a further damper on the economy and job creation.

What the middle class needs and what it knows it needs is a healthy economy -- an economy in which businessman are looking optimistically toward the future and are expanding their hopes, their dreams, and their workforce. Nothing in the Obama initiatives accomplishes any of this. Not surprising, since the President views the business community as the enemy not as an ally.

Most of his policies help relatively affluent folks who already have jobs. Lets take them one by one:

1) A Child care tax credit for families with incomes up to $ 85,000 per year. The vast bulk of families earning under $ 85,000 per year don't pay income taxes, so their benefit is zero. The real beneficiaries would be those who earn close to the max of $ 85,000 nearly double the average family income in America. Hmmmm

2) A $1.6 billion increase in federal funding for child care programs (not needed if you are unemployed). No limit on family incomes for this one.

3) A program to cap student loan payments at 10 percent of income above "a basic living allowance." This benefit helps affluent Americans whose children choose to borrow while in college (which they can do easily) and then in their early working years, Obama proposes to forgive some of the loans.

4) Those with student loans who later take "public service" jobs will have some or all of their loan forgiven. This means you have to be rich enough to go to college in the first place. In the second place, public employment now has higher pay, better job security and better benefits than private employment. So, if you can get one of these cushy non-demanding union-protected public-be-damned kind of jobs, you get your loan forgiven. The poor or lower middle income folks need not apply...there is no benefit in this package for them.

So, who benefits? Certainly not the unemployed. They get zero benefit from any of these programs. Those who do benefit tend to be wealthier Americans (who goes to college in America -- poor people?). Once again, Obama targets folks that he think most likely to vote for him in 2012 and directs other people's money to his favored constituency.

The joke is, of course, that this is something that benefits middle class Americans.

More "Reverse Robin Hood" policies from the Obama folks and the back of the hand to the unemployed and economically disadvantaged.

Sunday, January 24, 2010

Obama on The Economy

What kind of policies stimulate jobs in the American economy? It should be admitted that no one really knows the answer to this question. Republicans say cut taxes and cut regulations. Democrats say increase spending, redistribute income and make sure that whatever is spent is subject to union contracts. Obama leans to the latter view, as one might expect. But, he has his own twist.

The main Obama theme is that businessmen are no damn good. This theme is present in every major piece of legislation and critiques of business show up in every Obama stump speech. The shrill Obama message last week in Ohio is likely to be repeated in the Obama State of the Union message on Wednesday. But, listen to Obama carefully on Wednesday. Look for words that extoll and encourage American business. You won't hear them. They won't be there. But look for words that suggest that businesses are the enemy and should be curbed, controlled and taxed by Washington. You will hear those words. They show up in every single Obama public appearance.

Obama does not like business. Capitalism is the great evil in Obama's mind. This mindset informs Obama's economic program which, in every aspect, is designed to reign in, regulate, tax, and humble capitalism. Obama is never happier or more at ease than when he is attacking business -- insurance companies, Wall Street, whoever is handy. The consistent downbeat rhetoric from the White House has real effects. Business folks are terrified by the Administration, the twists and turns of the Administration, the very personal anger and hatred voiced by the President himself. (A recent poll of investors showed that 77 percent of investors viewed Obama as anti-business).Obama seems to be a happy guy except when he discusses business and business folks. Then, he's angry.

The problem with this approach to the economy is that business is the source of private sector jobs. There is no other. This means that Obamanomics is essentially a war on business and war on those seeking to find employment.

Obama's war on business has been successful. His war on banking has dramatically reduced credit to individuals and business. The credit card legislation passed last Spring has had the effect of denying many households credit cards and led to the reduction of credit limits for those who already had credit cards. The mortgage protection legislation has led banks and other lenders to deny mortgage loans to large swaths of lower income Americans that pre-Obama qualified for mortgage loans. Now, his war on Wall Street threatens the fiscal survival of New York City and will inevitably shift financial jobs from the United States to other parts of the world.

Obama's bank regulators have squeezed available credit to small businesses to the breaking point. How this could be expected to produce jobs is a mystery that only the President seems to understand. Obama exhorts banks to lend when he is in front of microphone, while his regulators are instructed to reign in lending to the private sector. The latter is the true Obama policy, while the former is for show.

Nothing in the Obama agenda will lead to creation of jobs. Almost everything that the Obama Administration has proposed dramatically discourages job creation. Fortunately, much of it has not passed the Congress, limiting the potential destructive impact of Obamanomics.

The economy, by itself, can eventually recover if the Obama agenda is sidetracked. The election of Scott Brown suggests that the most economically damaging parts of the Obama regime may not make it into law. If so, the economy could begin a slow recovery as it fights through the mountain of obstacles that the Obama Administration has put into place.

An Obama Adminstration that did nothing at all (no stimulus, no nothing) would have guaranteed a vibrant economic recovery by now. President Obama is to blame for the sluggish economy and the dour prospects for economic recovery. Until Obama changes course or is defeated for re-election, the American economy will go nowhere and unemployment will remain staggeringly high.

Saturday, January 23, 2010

Experience Matters

One of the lessons of the Obama disaster (a term describing the collapse of Obama's popularity and support for his agenda) is that presidents need experience. Obama's complete lack of experience with executive authority (running a political campaign doesn't count) and dealing with Congress has to be cited as one of the main reasons his presidency is running aground.

Even George Bush managed to keep his presidency viable longer than Barrack Obama. Obama is now a political foil much as Bush became one in his second term. Obama is only in his second year and no longer seems to capture anyone's imagination but his enenmies. Even his erstwhile friends, Howard Dean and Maureen Dowd for example, have jumped ship. Obama is under attack from all wings of the Democratic Party and rightly so. He has put House and Senate Democrats on record supporting one of the most unpopular pieces of legislation in American political history, and for all price that they will pay for that support, the infamous health care legislation is now dead in the water.

Experience would have taught Obama the value of bi-partisan approaches to major issues. Lack of experience led him to naively believe he could ignore the other political party. Lack of experience led him to believe that details don't matter. Whatever health care bill emerged, he was ready to support -- regardless of content. The perils of that approach would have been obvious to an executive with experience. Experience would have informed other decisions such as the handling of the Christmas Day terror incident. Every aspect of the handling of that episode exhibits naivete and incompetence.

Experience would have pushed the President to recognize which issues should be front and center. To completely neglect a faltering economy and let it slide into the worst recession since the 1930s is something no person of experience would have done. Even now, Obama seems blissfully unaware of the difficult economic plight of average Americans. He certainly has no adult experience with economic difficulty and probably doesn't known anyone who has. He knows no struggling business folks. His acquaintances are mostly wealthy and famous. The recession really isn't a priority to these folks. But, a person of experience would look past these folks into the heartland of American and see the difficulties that people are facing every day. Such a person would move toward policies to help folks not hurt them. Obama's lack of experience blinds him to the simple recognition of the desparate situation faced by many Americans. That's not a world he really knows or wants to know.

At this point, the public has a pretty good sense that the Obama Administration is in a state of chaos. The recent attacks on Wall Street don't fool anyone and won't fool voters. Someone with experience would eat a little humble pie. Not this guy. He's never wrong. According to Obama, Massachusetts voters voted for Scott Brown because they were mad at George Bush. I'm not sure which is worse -- believing nonsense like that or letting the public hear you say nonsense like that. A person with experience would have done neither.

So, our President is doing some on-the-job learning. So far, his reactions to Massachusetts are visceral and wrong headed. Maybe between now and Wednesday night's State of the Union address he will find it in his heart and in his head to address the economic problems that most Americans are confronting every day.

True Health Care Reform

How do you get a product produced in large quantities at a low price? For reasons that defy common sense, Obama seems to think that the answer is government. That's not the answer.

China, for one, has figured this one out. China has abandoned state-run everything, opened their economy up to the free market, and are now the fastest growing large economy in the world. Venezuela has nationalized virtually everything and is rapidly imploding as an economy and a country. Obama thinks the Venezuela route is the way to go. It's not.

If you want health care in abundance and health care that is affordable, let the free market deliver the product. Let free markets produce health insurance. Get the government out of this process. This means eliminating the tax free status of employer-provided health care plans, something that would be unpopular (so, perhaps, phasing the tax free status out over a number of years would work). Put tort reform in place so that doctors can practice medicine not defensive medicine. Quit demonizing the insurance industry.

America has the best health care system in the world, even with its deficiencies. It is the best. Infant mortality statistics show that America has the best record in the world in infant mortality, if you look at the data by category. For example, among mothers over the age of fourteen, American has the best ranking in the world. Among mothers under the age of fourteen, American has the best ranking in the world. The problem is that American has the highest percentage of babies born to mothers under the age of fourteen in the developed world. Providing more health care can't reduce the number of babies born to mothers under the age of fourteen. The infant mortality statistics reflect cultural problems not problems with the health care system.

This same pattern shows up in much of the health care statistics that are used in the health care debate. European countries with homogenous populations may well have lower health care costs because of issues completely unrelated to the health care system in place. Facts, in this arena, have been used hypocritically to justify government intrusion into the doctor/patient relation. It is time for honest assessments to take place, something that has long been absent in the health care debate.

So true reform means eliminating state regulation of insurance companies, eliminating federal health care mandates, phasing out tax free health care for employer-provided health insurance, reforming the judicial malpractice award system (tort reform). And, yes, medicare should be phased out. Medicare is an unaffordable, inefficient way to provide health care. People should not be shoe-horned into a single health insurance plan such as medicare. In health care, one size does not fit all. Some folks would like to spend heroic amounts of money to prolong life for a few months, but others would not and should not fund those who have a different view. People should be responsible for their own health care decisions, including the decision to have insurance for old age. The government should butt out.

Remember that health care is certainly not as important as food. We would never entertain the notion of having the government provide us with food and decide what we should eat. Why take that tack on health care? We would never require auto insurance that paid for tires and gasoline consumption. Why require that on health care?

It is time to reform the system by returning free choice to individuals and the free market to health care. This does not mean that we ignore the plight of those who cannot afford health care or health insurance. We can deal with problems of the poor. We could have health care stamps just as we have food stamps and let folks buy what they need. There are many other ways to help folks, who through no fault of their own, cannot afford health care. But health care should not be an entitlement. No one has a "right" to health care funded by others. The country cannot afford a health care entitlement. No country can, as Europe is finding out to its chagrin.

Friday, January 22, 2010

Investors Get It -- Obama is Too Anti-Business

Bloomberg Financial Network polled investors this quarter and the results are not surprising: 77 percent of investors polled view President Obama as too anti-business. Obama is viewed favorably by 27 percent of US investors in the Bloomberg poll.

Obama and his gang at the White House do not like investors. That's pretty clear. Nevertheless, without investors, there would be no employees. And, with unenthusiastic investors, there will be fewer employees. Not something that worries Obama apparently.

Obama Goes Off the Deep End in Ohio

Today's speech in Ohio shows that President Obama is back on the campaign trail. Gone are any illusions about bi-partisan government, economic recovery, and the new politics.

This, I guess, is the best that David Axelrod and Rahm Emmanuel can dream up to counter the Democratic disaster in Massachusetts earlier this week. The angry man approach is the new Obama.

Instead of owning up to the failure of the Obama Agenda for his first twelve months in office, Obama has now chosen to tack to the Howard Dean fringe strategy. The shrill speech given in Ohio today shows that Obama no longer has an agenda -- just anger and vituperative rhetoric.

Because Bush and Obama poured hundreds of billions into the bailouts, Obama now feels that he needs to attack those self same institutions that received the bailout (exempting, of course the favorites: FNM, FMC, AIG) . Who cares if this negative rhetoric prolongs the recession? Who cares if it increases the ranks of the unemployed? Certainly not President Obama. He has another agenda -- politics.

A Glimmer of Sanity But Bad Timing

Amidst the vitriol and phony populism from the President yesterday was the seed of a good idea in Obama's proposals on the banking system. The central problem with the financial system is the "too big to fail" policy. Even the public, resentful of the bailouts, has had it with this Bush/Obama policy.

Paul Volcker is the guiding influence behind Obama's proposal, announced yesterday, to limit bank size, separate proprietary trading from banking, and raise capital requirements for "risky" activities. Volcker's concern, rightly, is that the "too big to fail" policy guarantees bad resource allocation and guarantees that banks, indeed, will fail. He's right.

The only problem is that we are in the middle of the worst recession since the 1930s. Apparently, the White House hasn't yet noticed this. Simple back-of-the-envelope estimates suggest that the new rules will reduce lending to the private sector by $ 1 Trillion. That number could rise to $ 2 Trillion depending upon details. In the middle of a recession, it is not likely to be good policy to contract lending by that amount.

This is another example of Obama policy that seems disconnected to the real world situation on the ground. The Volcker proposal should not be dismissed out of hand, as there is some merit to it. But, the time could not be worse for this idea. If enacted now, as a populist measure to attempt to resurrect Obama's declining popularity, this plan will only further exacerbate the deepening recesssion.

The right tack for the President is to propose things that would increase lending not reduce lending. The President needs to encourage hiring not discourage hiring. The President still doesn't get it.

Thursday, January 21, 2010

This Is Not The Way

Barrack Obama has now decided that demagoguery is the new solution to the problems of unemployment and out of control deficits. The financial service industry is an easy target, why not them?

The President still can't seem to get his arms around the idea that what the country needs are policies that will put people back to work and get the economy humming again.

The country doesn't need more hate-filled rhetoric against business from the White House. The country doesn't need more punitive taxes laid on anyone, including on Wall Street. The country needs hope and a vision that the business community can galvanize around. That would lead to job creation and prosperity. Villification and confrontation with businesses, including Wall Street businesses, is not the answer. The Obama Administration's political posturing as angry about Wall Street is absurd. It is a completely cynical political ploy.

It is going to be hard to get American growing again with this President. Obama's animosity toward business, and thus indirectly toward American workers, is unprecedented. This animosity, coupled with anti-business policies is stifling the American economy. It may have already destroyed Obama's effectiveness as a President.

What is needed is encouragement to the business community. They are the only source of private sector jobs. There is no other. When will Obama understand this?

White House Still Doesn't Get It

The Obama White House always seems to have to demonize someone. For the past ten months, that someone has been the insurance industry. Now that Massachusetts voters have shut the door on the incredible nonsense known as "health care reform," the Obama White House has now decided to demonize the financial industry. Obama's $ 90 billion tax on the industry plus demonizing rhetoric from the President and his lackeys is the new strategy.

Hate mongering and ill will is the same old White House strategy. This will not get the economy going. This is not a "jobs" program. In fact, it will reduce jobs. It will reduce the interest and incentive on the part of the financial system to provide much needed credit to Main Street. Wall Street can, in the end, pay the $ 90 billion tax. But, the cost will be born by further job losses and continued restriction on credit to American business. The White House strategy is an "anti-jobs" approach. That has been the consistent way with the Obama Administration and it continues.

To make matters worse, the President is pressing for a new financial strangulation (oops, I mean regulation) regime that "reduces the risks" taken by financial companies. One sure way to reduce risk is to quit lending to American business. That will reduce risk. In fact, that is largely what American financial institutions have been doing since Obama took office.

The White House still doesn't get it. If you want the private sector to increase job offerings, then you need to try to put in place policies that encourage job formation not policies that discourage job formation. Everything out of this White House discourages business, discourages entrepreneurship, and ultimately, reduces job creation.

Given, Obama's background as a community organizer, it is not surprising that he is unfamiliar with ideas that could encourage business to expand jobs. Ideas like lower taxes, less regulation are not appealing to this White House.

So, in spite of the Massachusetts vote on Tuesday, look for this White House to continue its war on business and its war on the American middle class. Heaven help you if you are looking for a job in the private sector. Maybe after November, the environment will change. Not likely until then.

Wednesday, January 20, 2010

Morning in America

The election results in Massachusetts ring a loud bell for free markets. Voters in Massachusetts, and throughout the United States, are opposed to Obamacare and opposed to industry bailouts by taxpayers. If the Administration does not abandon these extremely unpopular policies, the Massachusetts results will be repeated throughout the country this coming November.

America's number one problem is joblessness. The, now embarrassing, "stimulus package" passed last February did nothing to slow the loss of jobs in the economy. That is no accident. The $ 800 billion was mostly payback to supporters of Barrack Obama. That's it and nothing more. There was never any intent by the Obama Administration to stimulate jobs or improve the economy. As if to reinforce his lack of concern for the economy, the President used the bully pulpit of the presidency to demonize and demoralize business in a seeming effort to crush the economy under his rhetoric. In this effort, he succeeded. Obama made things far, far worse than they would have been by his rhetoric and by his proposals.

It is clear now that the Obama Administration underestimated the weakness in the economy a year ago. Worse, their ill-advised and intemperate attacks on business have made matters worse. The final straws were "health care reform" and "cap and trade." By mid-year business was terrified of the new Administration, as it watched the President shaking hands with Hugo Chavez and intervening in Central America on the side of Chavez's allies. It seemed as if Barrack Obama lived in some world quite different from that inhabited by ordinary Americans. "Welcome back Carter," was a slogan that aptly fit the new administration.

Now the voters, especially independent voters, have sent the message one more time. So far, the White House isn't listening. The arrogance that has characterized the Obama Administration continues unabated. But, now the cavalry is coming in November. Obama no longer really matters.

Americans like their free markets and will vote to keep them. It is morning in America once again.

Tuesday, January 19, 2010

Change Comes in Massachusetts

The election today of Scott Brown dooms the health care changes that President Obama has been focusing on since he first took the oath of office. It was probably doomed anyway. It is hard to imagine how having sixty percent margins in both the House and Senate doesn't translate into a new health care law, but Obama has pulled off a miracle. He is going to get nothing. Even overwhelming majorities in both houses of Congress was not enough for Obama to succeed. One wonders how he will do after this coming November.

Obama may already be a lame duck.

The good news in all of this is that the "war on business" by the Obama Administration may not be winnable. Just possibly, the American economy will be given a chance to recover in spite of the the onslaught by the Adminstration for the past twelve months to take over and/or destory American business. If the Obama agenda can be stopped, the American economy has a real chance to heal itself.


Monday, January 18, 2010

So Much for Democracy

With the polls showing that over 60 percent of Americans are opposed to the Obama Health Care Plan, the Administration forges on. By Tuesday night, the state of Massachusetts will elect it's first Republican senator in half a century, mainly because one-fourth of registered Democrats and two-thirds of independents are voting for the Republican in an effort to stop Obama's Health Care Plan.

There is no question what the public mindset is on Obamacare. The public is overwhelmingly opposed.

This cuts no ice with the "post-partisan" crowd that currently runs the White House and the Democratic Congress. They know best. The public be damned.

Now we hear talk of plan B. In various forms, plan B amounts to breaking a variety of long standing parliamentary rules of Congress to force the health care bill toward passage. So much for democracy. This is the most arrogant president in American history. He could care less what the public thinks.

Pay in the Public Sector -- College Presidents

As tuitions skyrockets, courses are cut, and layoffs continue at colleges across the United States, one thing continues to rise -- the salaries and benefits of college presidents. Even without actual cash pay, most college presidents are provided free housing, free meals, free transportation, free attendance to expensive athletic events, free this, free that....then, on top of all the free stuff, they receive wampum cash and benefits. The grand winner is the current president of Ohio State who makes $ 1.4 million which is about the 30 times the average compensation of the typical Ohio taxpayer (assuming he/she has a job).

Why the largesse for a job that a large number of qualified folks would gladly do for nothing? That's easy enough to answer. There is no market here. Being president of a college is basically a public job. You have little or nothing to do but ceremonial functions. After all, most of your work force can't be fired, disciplined or controlled in any mannner whatsoever. Most have tenure and those that don't, have effective tenure. So, what is your job exactly. You aren't permitted to interfere whatsoever with performance, work rules or anything that ultimately determines delivery of the product. Instead you are dispatched to snuggle up to rich folks and convince them to write your college a big check. More and more college boards of trustees see fund raising as the main responsibility of a college president.

Needless to say there is not much accountability here. They can pay the president whatever they want and their employees can do whatever they want. To distinguish themselves, college presidents have taken up various liberal causes that they know will be popular with faculty and students -- diversity, environmentalism, multi-cultural studies, etc. These are mostly political adventures and have nothing to do with the basic functions of education, but they play well politically with their constituency. If you don't play these kinds of political games, you have no chance or gaining one of these coveted presidencies. Free marketers need not apply.

The result: exploding tuition, overcrowded classrooms, a broad decline in educational quality, skyrocketing grades, expanded vacations, focus on big time athletics, and extraording pay packages of college administrators. It isn't just the college president, who is raking in the long green. The burgeoning population of special purpose administrators routinely are paid three to four times the compensation afforded full professors.

Nothing will check this trend. There is no market force at work here and boards of trustees do what the administrators want them to do and number one on their agenda is more money for themselves. Meanwhile, like most rich folks, the college presidents of today lead the charge for big government and big deficit spending.

Sunday, January 17, 2010

The Earth is Moving in Massachusetts

Republican upstart Scott Brown is poised to be the first Republican Senator in Massachusetts since 1979. The special election vote will be held on Tuesday and has come down to nothing less than a referendum on the Obama Administration held in the most Democratic state in the country. Who would have thought? A victory for Brown will likely sink the entire Obama legislative agenda including the controversial health care plan. The plan circulating through Congress is, ironically, essentially the same plan that Massachusetts now has.

The Republican candidate. Martha Coakley, has the appearance of a patrician, but her campaign statements make Sarah Palin seem like a Rhodes Scholar. She labeled famed Red Sox pitcher Curt Shilling a "yankee fan" and vacantly commented that "there are no terrorists in Afghanistan." This latter statement was made two weeks after terrorists blew up eight CIA operatives in southern Afghanistan. When Coakley discusses the health care bill, one thing is certain: she doesn't understand the bill and is not familiar with any of its important provisions. The only thing Ms. Coakley seems to know about Obamacare is that she supports it.

The Massachusetts voter, however, is familiar with Obamacare and opposes it.

Win, lose, or draw, the Massachusetts Senate race shows that the independent voter has deserted the Obama Administration. This November there will be change that the president can believe in.

Saturday, January 16, 2010

Another Strategy of Cynicism

The Obama folks have been looking for something...anything...that would make them look less like "the bailout administration." The Bush guys began this terrible policy, but the Obama Administration took it to new heights by bailing out the auto industry and expanding commitments to dead ducks like Fannie Mae, Freddie Mac, and AIG.

Hypocritically, Obama and his allies then attacked the bonuses paid to AIG employees after tossing in hundreds of billions of dollars to AIG. What a joke!

Now we have another... "the bank tax." This $ 90 billion tax is a direct assault on the American middle class. The tax, if enacted, will reduce bank lending and raise ATM and other fees that ordinary Americans pay to banks. The banks will survive, but the American people will get slammed once more by the continued war on business by the Obama Administration.

It is worth noting that none of the commercial bank leaders, mostly all of them Obama allies, complained about the new $ 90 billion levy. That's because they know that, in the end, they won't be paying it...the average American will be paying it.

Even Europe sees this latest Obama proposal as wrong headed and cynical. Today's Wall Street Journal has this to say after speaking with European leaders:

"For their part, European governments are cool toward the U.S. tax because of its potential impact on lending at a time of slow economic growth."

Hello...hello...Is anyone in the Obama Administration listening?

Friday, January 15, 2010

Regulatory Reform?

The use of the word "reform" by the Obama Administration stretches credulity. How much protection did we get from the overbearing regulatory environment that our financial services industry already lives in? Numerous regulators, already, pore over the books and operations of our banks and other financial institutions, at great cost to all of us. None of this regulation helped. So, why should more regulators and more cost do us any good. The answer: it won't.

The right answer is to let bad banks (and other businesses) fail. We need to let those who make economic and financial mistakes take the financial consequences. Big government doesn't know anything and should never have bailed out any of the financial institutions. GSEs like Fannie and Freddie should not exist. These GSEs will always be accidents waiting to fail and to be bailed out by our already overburdened citizens.

The correct answer is to let the market work. That didn't happen in the events that led up the 2008 financial crisis. Instead, government recklessly pushed Fannie and Freddie into highly leveraged activity in increasingly poorer assets. Barney Frank deserves a large share of the credit for the 2008 disaster, although Bill Clinton, George Bush, Chris Dodd all deserve a gold medal for poor policy as well. All of these people thought that government should overstimulate the housing market and they all made sure that the government pushed both the private sector and GSEs to do a lot of stupid things. Now, they point the finger in another direction. Ridiculous.

Let the free market work. More regulation will not prevent future crises. More regulation will simply provide higher costs to be passed on to the average American citizen. If the government would get out of the way, our financial insitutions could do what they are supposed to do. If the government continues to strangle our financial institutions, lending will not return to the American economy anytime soon.

It is just a matter of time until we repeat the recent financial collapse, but next time it will be larger because of more regulation and the now fully implemented policy of "too big to fail." "Too big to fail" guarantees failure.

Thursday, January 14, 2010

More on the War on Business

The President has once again savaged the business community. His attack today on the large financial companies, which he has been bailing out, is less than disingenuous. This is hypocricy at its extreme. Alienating and weakening our largest financial institutions is simply going to make matters worse.

The war continues. Sorry if you were looking for a job. The President has other plans.

Wednesday, January 13, 2010

The Plight of the Middle Class

Government programs are sinking the American middle class. Private schools provide the metaphor that best describes the problem. Private school tuitions are high. But, they are made higher because some of the tuition that is paid is diverted to scholarships for other students. This puts tuition out of the reach for many in the middle class who would, otherwise, be able to afford the tuition.

The same practice prevails at major universities and colleges. The wealthy are subsidizing other groups through higher tuition. The problem is that this higher tuition puts the middle class in a squeeze. They are not in the favored groups who receive the money siphoned off from the higher tuition charges. The middle class simply stares at higher costs with no offsets. The result: more and more of the middle class are caught in the cost squeeze and are priced out of colleges and universities that they once could afford.

This metaphor applies to health care costs. The official line is that the wealthy are subsidizing the poor, but the cold hard truth is that the middle class will pick up the tab for the health care nightmare that the Obama Administration wishes to impose upon the country. The effort to have the "rich pay" always results in higher costs for the middle class and no way for middle class Americans to protect themselves.

The result is a steadily declining after-tax and after-benefits disposable income for the American middle class. Nothing will change this unless there is a complete rethinking of the modern welfare state. The position of the middle class will continue to erode as the middle class faces increasing staggering tax bills and mandates imposed by the wealthy Democrats who control Congress: Pelosi, Kerry, Feinstein, Boxer, Schumer, Warner, and others. These folks don't care because they are rich and none of this will ever affect them.

But the middle class is doomed without a major shift in direction in government policy. The middle class faces three severe economic problems: 1) permanently higher levels of unemployment, 2) permanently higher taxes to fund a government debt problem that is unsustainable, 3) permanent loss of control of disposable income due to the increasing mandates imposed on employment. This third item simply reflects the fact that employees, not employers, ultimately pick up the bill on employer mandates. These mandates reduce employee disposable income without increasing the overall economic package that employees receive.

The politics of this war on the middle class reflects the true situation. The rich and the poor vote for all of this and the middle class votes, by overwhelming numbers, against this. Obama was the darling of the rich. His campaign contributions from rich people were unprecedented. It is no accident that Warren Buffett and Bill Gates support Obama. Almost all of the old line wealthy American families are hard core Democrats -- not just the Kennedys. The rich pay no price for being supportive.

Buffett is all for higher income taxes, because most of his income is not subject to the taxes that he favors. Wealthy folks have a unique ability to shift income from ordinary income to special itesm like capital gains, tax free income from municipals. They can benefit from conservation easements and other devices that are simply unavailable to middle class Americans. All of these things protect the wealthy from the tax and spend policies of their Democratic protectors.

The middle class picks up the tab for all of this. But, in 2010, it is beginning to look like the middle class is ready to fight back.

Tuesday, January 12, 2010

Election Season Begins January 19th

The first real test of the new election year will be in Massachusetts a week from today. A special election is being held to fill the seat held for two generations by the late Teddy Kennedy. The race pits Massachusetts Attorney General Martha Coakley against state Senator Scott Brown. Health care "reform" is front and center in this electoral contest.

Coakley is suggesting that she doesn't approve the health care bill as is. She opposes, apparently, both the House and the Senate version, a convenient position to take considering that polls show citizens in Massachusetts overwhelming opposed to any and all versions of Obamacare. Brown is on the side of the angels, at least as far as the public sees things. Brown opposes all versions of Obamacare and vows to provide the 41st vote to kill it in the Senate.

Meanwhile, Senate Majority Leader Reid has vowed that he will not seat Brown, if Brown wins the election, until after the Senate votes on cloture on the health care bill. So much for respecting the will of the people, but that has never been on Reid's agenda anyway. Reid believes, as do most left wingers, that his views are more important than the views of ordinary Americans -- a group for which he has little truck. Reid, and Obama, know what's best for us, even if we don't.

But, it is just a matter of time until Reid and Obama wind up in the political graveyard. You cannot ignore public opinion indefinitely as Reid and Obama will learn in 2010 to their chagrin.

Look for Brown to pull off the political upset of this generation.

Sunday, January 10, 2010

State Budget Woes - The Next Front

In times of prosperity, state and local governments cannot spend money fast enough. The most glaring example of overspending is in the area of employee benefits. State and local pension funds hold $ 1.9 trillion in assets, but have an estimated $ 5.6 trillion in liabilities. This is the state-and-local version of social security -- promise the moon, but don't provide the funding. Let future generations of the unborn foot the bill for the current generation.

It gets worse. State and local governments in California, New York, Massachusetts, and New Jersey are in dire straights. They have paid off their union allies, postponed needed infrastructure spending, and wasted enormous sums of money. In order to do all of this, they have borrowed money in the municipal bond market and created enormous unfunded liabilities. These governments have been completely irresponsible.

Some states (Texas to name one) have not embarked on this profligacy. Their finances are strained, but manageable.

But now, California is "demanding" that the federal government bail them out. This means that taxpayers in other states are being asked to bail out the profligate states. Always, of course, the request is made in the name of "fairness" and protecting education and health care for the poor. But, the reality is very different. California and New York have public employees retiring at benefit packages that exceed $ 250,000 per year. To fund that nonsense, Governor Schwartzenegger is asking citizens of Texas and Virginia (with average incomes of $ 40,000 per year) to pony up additional taxes to support this largesse.

Don't be fooled. If the federal government bails out California, New York, New Jersey, Massachusetts and the other profligate states, it will be rewarding corruption, wasteful spending and ideology and punishing those who budget wisely and whose governments are relatively free of corruption and rhetorical hypocrisy.

Saturday, January 9, 2010

Obama and Jobs

It is still unclear to the President how the country loses jobs. His theory, apparently, was that George Bush was the main reason. But, of course, George Bush is no longer president, so why don't employers rush to hire more workers? I am sure that ponderous question keeps the President up late at night.

The December jobs report showing a continued loss in jobs simply documents the obvious. The economy is not producing new jobs. The stimulus package was a flop. The Obama Administration may play well in the home of wealthy left wingers, but it is a continuing disaster for the average American.

It's time for a little Economics 101 for the White House. Here goes: Employers hire people to make money. Surprise, surprise. That's the whole story. There is no other story.

The net effect of the Obama program is to encourage American business, if they intend to expand their business, to outsource American jobs to China, India, anywhere where government policy does not actively discourage hiring. Businesses will find a way to recover without hiring American workers, because the Obama folks have made hiring American workers too expensive.

The war on American business being conducted by the Obama Administration will not create jobs, but will instead prolong and deepen the current economic recession.

There is no sign that Obama and the Democrats get the message. Ideology continues to trump common sense in this Administration.