Wednesday, June 29, 2011

Government workers acting badly

Have you noticed that all the people rioting in Greece and other countries over governments' new found austerity are welfare recipients and government workers? The British workers - sadly said to to that country's largest worker bloc - are threatening to go out on strike. Just like the state workers in Madison, Wisconsin acting badly, these government workers world wide are certainly not helping themselves with those of us who pay their bills. So here is a modest proposal: public worker's total package of salary and perks cannot be greater than comparable private sector workers. The president loves to rant and rail over private sector fact cats, but the silence is deafening over the compensation packages of union leaders. I would also like to see all active duty military fully exempt from all taxes state, local and Federal - much like what is accorded diplomats. Ronald Reagan fired the striking air controllers. It is about time that rioting government workers also get fired and their salaries and perks brought into line with the private sector workers. Another modest proposal would be to reduce the Federal workforce by 3 percent per year across the board. The government workforce is bloated because the government does not have a profit motive and can ignore all the basics fundamentals of finance and economics. As a former federal government employee, I say let the Fed's earn their money by enforcing discipline on them.

US women's soccer: No diversity so where is the outrage?

I admit I am not a soccer fan but we have been inundated with US women's soccer and the world cup. This is the whitest least diverse squad I have ever seen. It makes the BYU sports teams look like the University of Memphis. There is not a single black or Asian player. There is one hispanic surnamed player who looks like a blond barbie. This is in contrast to the men's squad that has hispanics, blacks and Asians. That squad looks like America. Yet I have heard not a single word of outrage among the usual suspects. Where is Jesse Jackson and Al Sharpton? Or even Chuck Schumer and Nancy Pelosi? Yet Germany (muslims), Canada, the Brits, Brazil all have diverse squads. I have not looked at all the team photos but I would not be surprised by a diverse Swedish, Columbian or Australian squad either. I would be surprised by a diverse North Korean or Nigerian squad (but maybe they have diverse tribal groups). But that the US is not diverse is a travesty. It is hard to imagine that there are no world class minority women soccer players in the US. I would have thought that Title 9 would have increased these numbers dramatically. So please someone: what is going on?

I just needed to get this off my chest: A pox on black leadership

I am a retired finance professor who loves history. One question is does history matter? Of course you will answer yes. So the next question is why? Perhaps the vital reason is that it gives us a sense of purpose and a sense of pride in ourselves. Abraham Lincoln was a great president. Not because he freed the slaves - which he didn't do actually - but because he was precisely the right leader of the country at its most trying time. Yet Lincoln stated that blacks would never be the equal of whites. Well we showed him, didn't we? Lincoln was wrong but given the tenor of the times, who can blame him for that assessment? Let me re-phrase that: Lincoln was wrong but our black leaders would have us believe that he was right. This must be the case, for how else do you explain their moaning about the plight of blacks in America?
Studing ethnic groups is revealing. One realizes that different groups develop a sense of well being as a result of the establishment of business enterprise. Note that I did not say that these groups develop a sense of well being as a result of the establishment of political power. There are numerous cases in which minorities succeed economically but not politically. There are cases in which they succeed politically but not economically. However, in this latter case, few develop a sense of well being. I often ask blacks in major cities with black mayors if they are better off now with black rule. Usually the answer is no but they feel better knowing that black politicians are just as incompetent as white ones.
You see part of our problem is in the interpretation of events. Remember the story about the glass of water. Some people say that it is half full while others say that it is half empty. The problem with blacks in America is that for whatever reason, we are told to perceive the glass as being half empty. The policies of the government are based on emptiness in us rather than our fullness. The poor are an industry and it is profitable and logical to keep the poor poor in order to assure the well being of those who profit from that industry. And I'm not talking about "big business" either. I'm talking about social workers, poverty administrators and those persons who see that the poor receive only 37 percent of the total money allocated in poverty programs. This encourages an image of negativism rather than positivism. We subsidize failue in this country. If a person is failing, then give him money. We do not reward success. The single mother in the ghetto who sends her kids to school, who imposes values on them, who keeps them off of drugs and protects them from gang violence and who works hard should get the subsidy not the failures.
I]I accept all the statistics others give about the poor. However,Ii have some numbers for you. In 2009 we spent $533 billion on “income security”. Of these monies about $200 billion went to the poor in housing assistance, food assistance and other income security programs. If there are 30 million poor then thats about $7,500 per person or $30,000 a year for a family of four. We are spending enough each year to make the poor middle class. Do you know that the standard of living of america's poor is higher than that of the average european or japanese? You see its how we count income. Transfer payments (welfare) are not counted as income. So consider this, 62 percent of our poor households own cars and 75,000 poor households own homes worth over $300, 000.
Generally black facts are presented in a half-empty mentality. However, why is it that Asians are praised for their industriousness when they are also a people of small shopkeepers yet blacks are chastised? Koreans own mom and pop stores. Vietnamese push carts. They are considered smart. Blacks do the same and are ridiculed. When I lived in Washington D.C. its mayor, who was black NS knoqn drug user sought to enjoin another black from operating a business of push cart shoe shiners in DC because the mayor felt it was demeaning. If the owner were a Vietnamese, the mayor probably would have praised him and bemoaned the fact that a black didn't have the same initiative.
This is nothing new. When the history of black enterprise is examined it is done so in a negative fashion. However, there is a strong tradition of black enterprise and entrepreneurship in this country since the 1700s. It should be applauded not ignored.
Lets talk for a moment about other groups. Catholics, a traditionally oppressed group in Europe, did not develop a tradition of enterprise. Yet it was a tendency for groups which had been treated unequally to develop business enterprise in order to gain economic stability. Why didn't the catholics. It was because of their religion which thought that usury - the charging of interest - was a sin. Business could not therefore be fostered. On the other hand, judaism had no such limitation which is why the major bankers in europe are jewish and not catholic. The jews being traditionally oppressed and often not allowed to own property instead invested in their children. Thus, the high proportion of professionals among the jews. When they could own property, they experienced the growth in business enterprise.
modern black mythology, often invented by our so-called leaders, constantly refers to the lack of a strong business tradition among blacks. This is false. W.e.b. dubois published the negro in business in 1898. Henry milton's early history of negroes in business in philadelphia which told of black entrepreneurship in the 1700s was published in 1913 as was abram harris' the negro as capitalist.
blacks in philadelphia and in durham north carolina had a sense of economic stability and provided capital for business enterprises. Few other racial groups have as strong a tradition of self-help than blacks. These institutions developed into banking and insurance enterprises from the strong base provided by benevolent societies and churches.
durham has been a economic enclave for blacks. At the turn of the century scholars analyzed the business spirit of blacks in durham as they analyze the cuban-american spirit in miami today. Black businesses in durham are still vital. Durham does not bemoan the fact that its black bank is one-fiftieth the size of bank of america or that its insurance company doesn't compete globally with prudential. They are positive in their assessment not negative. Do you know that the 40,000 blacks in durham have more wealth than do the million blacks who live in chicago. Why? The answer lies in the business tradition of durham and the lack of one in chicago.
why not a more positive outlook. It is easy, too easy to blame it all on whites. But in large part its our own fault. The study condemning black banks was conducted by a black. Black students do not boast of their academic achievements at school. Why not encourage academic accomplishments? Lets give "a" students starter jackets for academic excellence. We give them to our athletes. Lets emulate the building societies of old by having our churches encourage their members to give an extra amount per week for scholarships for the needy. Currently affirmative action helps those who least need it. What do you expect of a government program? Affirmative action is a subsidy for the black middle class. If we want to help the poor then we must do it ourselves.
i have conducted research on lending discrimination for the past 20 years. Its now a topic of vogue. The latest data are purported in the press and by social activists to show that blacks are being discriminated by banks against because their rejection rates are higher than those of whites. Using the same logic one would conclude that whites are discriminated against as well because their rejection rates are higher than those of asians. So i guess the asians must be the ones in power and are the ones doing the discriminating. Right?
of course not. Asians are different from the rest of us. But then too are blacks from the west indies who are economically akin to asians. What is the common denominator here? Its that these groups value education, strong families, and capitalism.
We are ill served by black intellectuals and our spokesmen. I am looking forward to the day when we have no spokesmen. Who speaks for the jews? Who speaks for the Asians? Who speaks for the hispanics? Who is the white spokesman? In the main, black scholars are not comfortable analyzing the black business tradition. Black scholars almost uniformly condemn the black middle class. It is almost a sin to be middle class and black in america. Black scholars tend to be socialists rather than capitalists. That is to our detriment. We are left therefore with apologists who blame every ill on racism and demand more handouts rather seeking positive solutions.
I believe that it is difficult to substantiate a claim that institutional racism exists in America. I do not believe that corperate america is racist, or our universities, our banks, or our society. Yes racism exists on an individual level but to elevate that to the society is the fallacy of composition. If you want to see a racist society look at Sri Lanka, look at Dafur, look at much of Africa. Look at Libya. Do we look like those places? Don't be ridiculous.
There is a black middle class and they are properly heroes. There is a continuing middle class tradition. They support higher education, have a strong respect for black institutions and educate their children. They support and belong to benevolent societies, and in integrated settings they continue to belong to institutions which were created in the old atmosphere of racial segregation. They may be looked upon as conservative. So be it. But they carry the old values which for all our sake must be carried forward to their children and their children's children.
It is vitally important that today we build on the business acumen of our foreparents. It is time to practice self help rather than be dependent on the government dole. It is time to strive to eliminate those policies that prevent us from helping ourselves. And they are many. It is time to preach self-help to ourselves and to our youth. Do not look to the government for it helps us at our peril..
Also, America owes us less than we owe it. Those who say differently and "demand" reparations are simply trying to take advantage of white guilt. As they say here in East Tennessee, that dog won't hunt. Anyway, we have reparations aplenty. Consider CRA, certification by the SBA of minority firms to get federal contracts worth $4.4 billion without competitive bids, defense department setasides of $3 billion, FCC race preferences on buying radio and tv stations, labor department monitoring of federal contracts which carry with them hiring and promotion quotas, RTC contracts to steer work to minorities, agriculture department grants, energy department loans, justice department grants, state department contracts, transportation contracts. Reparations aplenty.
As to afrocentricity, one student told me that the whites stole mathematics from the Africans (as if Africans are a monolith). I said thats interesting. If I steal your car, its gone and you no longer have possession of it. If whites steal my mathematics, then I would have still have the knowledge. So what happened to the knowledge? Are we then apologizing to ourselves for our documented lack of academic achievements by saying our knowledge was "stolen"? By the way, the dramatic decline in black male college students is going to radically change our culture. Another student was wearing a t shirt that depicted blacks in chains with the caption "we didn't ask to come here." I said, "but aren't you glad" and she said "damn right." When my daughter, inspired by Alex Haley's Roots was wondering about ours, I told her that some things were left best uncovered. I reminded her that our ancestors both black and white were losers. The black losers were captured by other black Africans and sold to whites. The strong and winners actually marveled that anyone (read dumb whites) would want to buy their flotsam. Our white ancestors were losers as well being indentured servants brought over in chains from England. Tom Sowell describes this marvellously in his “Black Rednecks and White Liberals”. I told her to wonder at the transformation of that dross into her kin, highly educated, professionals all. Such is the wonder of America where the descendants of the slaves teach the descendants of the owners. Such is the power of democracy. Such is the opportunity of capitalism. Spread the word.

Deliberate destruction?

Rush Limbaugh has been saying for the past couple of years that Obama knows exactly what he is doing and what he is doing is deliberately destroying the American economy. Presumably this would leave the federal government to pick up the pieces and to make the rest of us even more dependent upon government largess. I just don't see it. Sure Obama believes in government being the solution and not the problem. Sure his administration has been party to more intrusive legislation and programs and all have failed. Do you know one (stimulus, cap and trade, taking over student loans, more TARP, Obamacare, moratorium on off shore drilling, the green agenda, Dodd-Frank, mortgage restructuring) that have worked? Not to mention that foreign policy has been an absolute disaster (Dafur, Middle East, Israel, South America, Britain, Nato, Africa, Egypt, Libya, Tunisia, the Kurds, abandoning the protestors in Iran. Name me a success. Calling Obama a marxist or a socialist also seems to be off base. His policies have linked government with big business (autos, Wall Street bankers, pharmaceuticals rather that the little guy). That looks like fascism to me rather than socialism or marxism. But I digress. Destroying the US economy would also destroy the democratic party. Americans do not like high unemployment, high inflation, high oil prices or any of the Obama debris from his policies. Obama deliberately destroying the economy is a sure ticket for republican control of both houses, the presidency and even state legislatures and governorships. So if Obama is trying to destroy the economy he can't do it alone. He has to have support of the democratic leadership (Pelosi and Reid and the DNC). I am all for it and hope that it is true. But sadly, I don't think it is deliberate. It is simply incompetence.

Here comes Mariano Rivera again

Obama's replacing the lamentable Joe Biden in the debt ceiling talks with himself recalls the posting I did on Aug 11, 2011 (Mariano Rivera for president). He is the relevant part of that post

"It is evident that this president likes the trappings of the office but not the job. He golfs all the time through crises. He takes vacations during crises. He goes off on foreign trips to exotic locales during crises. He has private parties and concerts with the stars and glitterati. However, he does not lead. AS some have said, he is President Present. He comes to the party late and adopts the democratic position as if it is his own, giving speech upon endless speech. If a republican did this, he would be vilified by the media and ridiculed without pity. I am old enough to remember the press remarking about Dwight Eisenhower’s love for golf “Sam Snead for president! If we are going to have a golfer, we might as well have a good one”. With Barack Obama the best analogy is not to ask for Tiger Woods to be president since this president is a closer. The American people thought they were electing a president. Instead, they got Mariano Rivera."

As I said in "Just say no", the debt ceiling is the easiest way to limit government spending. I know that some republicans have proposed a balanced budget amendment but that only works if coupled with a provision that limits government spending to some proportion of GDP (say 18 percent). Otherwise congress would keep spending and then raising taxes to balance the budget.

Who was it that said Obama was smart?

Obama seems to have singled out corporate welfare to get his increases in "revenue" although this makes up only a small portion of the deficit. He is giving speeches attacking hedge fund managers, Wall Street bankers and the tax breaks on corporate jets? Excuse me? As the Washington Examiner rushed to say Obama's stimulus package contained a provision providing a tax break for corporations to buy their own planes. The provision was first provided after 9/11 to aid the corporate jet industry. So Obama's intelligence obvious does not include a good memory - nor does that of his advisors. If I were the president I would fire all of them. Bad advice, short memory and teleprompters are what this president is most noted for. Why the president wants to conduct class warfare escapes me. Surely he knows that many of the hedge fund managers and Wall Street bankers are democrats who contribute lavishly to the dems. How can they reconcile giving while been lambasted is beyond me. It is also beyond me why Obama keeps waging class warfare by attacking hedge fund managers, Wall Street bankers and corporations. The attack on his richest supporters is beyond me. Maybe he has wink wink agreements on the side but it seems to me that the rational millionaires and billionaires that he constantly attacks will send their money to the republicans instead. Obama's speeches offer us a false choice: we have to take away the tax breaks for the rich or else we will not be able to fund school lunches, food inspections, air safety and all sorts of other things. Who ever believes this nonsense is a fool. What Obama should do is to make the proposal one in which corporate welfare is ended - including labor union welfare. In reality all the mishmash in the income tax code extending corporate welfare dramatically lowers the real income taxes that corporations pay (General Electric anyone?). He should trade off all corporate specific tax breaks for dramatically lower corporate income taxes and lower capital gains taxes. He should lower taxes on repatriating earnings from abroad. He should offer reining in the EPA and the NLRB's discouraging of job creation. He should postpone the implementation of Obamacare until 2020. He should lift all tariffs and quotas. End government support for biofuels. Enact all free trade agreements. Instead of falling back into the old mantra of class envy he should do something for once that actually helps to create jobs. As I have said before, if he did this (whether he wants to or not) he will be re-elected by a landslide. Again the government cannot create jobs it can only hamper job creation. And this guy is smart? Heaven help us all.

Ten Year Itch

Have you noticed that we have had recessions in 1980, 1990, 2000 and 2010? What is spooky is that we have also had recessions at the start of each decade since the inception of the
republic: 1800, 1810,. 1820, 1830, 1840, 1850, 1860, 1870, 1880, 1890, 1900, 1910, 1920, 1930, 1937 (oops), 1950, 1960, and 1970. Every one of these we preceded by asset bubbles (irrational exuberance). Lets just go back to the more recent ones. In 1980 I was at the National Credit Union Administration having to deal with collapsing credit unions who were going to be forced to close because of loss of corporate sponsor. We converted the viable ones into community charters to save the credit unions and to save the insurance fund. The recession was the most significant since the Great Depression. I know we all seem to think that history begins yesterday and say the current downturn is "the most significant" but the recession of 1980 had double digit unemployment, inflation and interest rates. This one doesn't even come close. That recession was precipitated by high government spending, incompetent monetary policy (sound familiar?) and high oil prices. The recession of 1990 was precipitated by a burst in the real estate bubble (sound familiar?). The 2000 recession was preceded by the burst in the tech bubble. The current recession is due to the real estate bubble bursting. One of the differences in this recession is that the government and the Fed have striven to use discretionary policy to either prevent or slow down the recession. They have succeeded but have also failed. By doing so they have flattened out the recession. Instead of letting the bottom just happen they have just significantly grown the debt shoveling good money after bad. The result is that the "recovery" has been among the slowest in our history. It is ironic that the architect of the recovery in 1980 - Paul Volcker - was on the early Obama team. Volcker broke the back of his recession by the use of tight monetary policy. He told us that things would get worse before they get better and he was right. But when the economy came out of the recession it grew at rates in excess of 6 percent. This "recovery" is less than 2 percent and can be accomplished by increases in productivity rather than employment hence it term "jobless recovery". Where is Paul Volcker when we need him? In place we get gutless Ben Bernanke. So look for another recession in 2020. The question is what bubble bursting will cause it? My money is on commodities (gold).

Thursday, June 23, 2011

Did we elect Ned Ludd?

Isn’t it interesting that Obama is the least modern president of memory? His policies are a throw-back to FDR and he is obviously a split-the-pie rather than a grow-the-pie type of thinker. This looking back to the good old days of government expansion and intervention along with the spread the wealth mentality make sense of his comments on technological displacement. Obama saying that employment is lagging because innovations such as ATMs and kiosks show that this smart president is woefully ignorant. Obama is Ned Ludd – the British weaver displaced by mechanized looms thought he could get his job back by smashing and burning the looms. Instead of being rehired, he was hung. Someone needs to tell the president that thousands of jobs in the horse and buggy industry were lost when Henry Ford automated the automobile assembly line. When I was in graduate school thousands of women worked in typing pools at universities – all displaced by the PC and word processing. Obama must have taken classes at Harvard from professors who were members of the Ad Hoc Committee on the Triple Revolution who predicted in the 1960s that technology by the year 2000 would cause 90 percent of the labor force to be unemployed. When they made this prediction, I took the number of horses in 1863, ran my computer and discovered that by 1975 we would all be dead having been buried under 30 feed of horse manure worldwide.
The president does not realize that the displacement of workers by technology has not created permanent increases in unemployment. Technology creates new jobs and new opportunities for the creation of entirely new industries and jobs. I have lived through periods when there were not even transistors much less no color tvs, no cell phones, no ipads, no PCs, no Velcro, no personal software, no internet, and no gore-tex. The massive layoffs of middle managers during the recession of the early 1990s spurred a dramatic growth in entrepreneurial startups.
Technology is the single greatest threat to our society today. However, that has always been the case and always will be. I'm a professor and professors love to profess. The agricultural revolution was actually a technological revolution that replaced the hunting and gathering age. It devastated the existing political structure. Where once there were tribal groupings, now there were city states and feudal kingdoms. Then came the industrial revolution (obviously a technological revolution) and with it came mass production, mass bureaucracies, mass political organizations, and countries. Swept away, often violently, were the city states and feudal kingdoms. The old structure resisted but died. Workers also resisted but failed. Ned lud and his luddites were tailors displaced by automatic looms. Their reaction was to try and stop progress by burning them down. They failed and progress marched on. But the industrial revolution also occurred in agriculture, displacing workers and driving them to the cities. Yes there were sweat shops, horrible living conditions, child labor, rampant disease. But the workers were no longer serfs and indentured laborers on the farm. They were free and would shape the political structure of the future. Technology would aid the workers in the form of the printing press. Once information was the sole province of the church and its power was related to its control of information. Indeed, St. Thomas Aquinas was considered a genius because not only could he read, but he could read without moving his lips. The printing press changed all that and with widely disseminated news came the reduction in the power of the church.
Technology does not destroy jobs. It creates them. Implying that rolling back technology will create jobs shows that this modern president is actually the reincarnation of Ned Ludd.

Tuesday, June 21, 2011

More random thoughts

1. Why is it that all female anchors smile when they deliver the news but no men do? It must be gender specific because have you ever tried to smile and talk at the same time? Even those who can't smile and talk at the same time always smile before and after they speak. Even the women on news panels smile when they are introduced. What gives?

2. Has anyone questioned the relationship between Madeline Albright and George Soros. News reported that a company they owned jointly bought a controlling stake in the energy firm APR for $250 million in March and then sold it for $800 million in June! Albright is also a trustee for the Center for American Progress - a think tank funded by Soros. Albright also lends her name to Albright Capital Management Company. Does anyone really think that she knows anything about either energy or investments? Her background is as an academic and political appointee in international affairs not in economics and finance. Lastly, where did she get the money to start buying companies? Nothing in her background shows the income generated necessary to be buying companies. And what about the George Soros connection? Why isn't this being scrutinized?

3. The ruling by the NLRB that Boeing could not open a plant in South Carolina is puzzling to me. How does the NLRB have the constitutional authority to dictate where or where not firms can operate? Since the plant is built and the workers hired, why doesn't Boeing just go ahead and operate it? Of course this has to be one of the dumbest rulings by the administration's lackeys. If Boeing can't go to a right to work state, it will make those aircraft out of the country. Some of said that Obama is doing this to appease the unions. I think maybe the fact that Washington's two senators are liberal democrats and South Carolina's senators are republicans including Jim DeMint may play a small role.

4. It will be interesting to see if EPA's war on coal fired plants will alter the political scene in the states most affected. West Virginia, Ohio, Pennsylvania, Illinois, Kentucky, Indiana (along with Montana, Wyoming, Colorado and Texas produce 90 percent of the country's coal. The EPS's proposed rules would shut down 60 coal fired plants and is said to destroy 250,000 jobs. How the democrats will be able to hold onto house and senate seats in the affected states will be interesting to see.

5. Did you know that both the Seminole Wars and Texas independence are both a direct consequence of slavery? The Seminoles did not recognize slavery and welcomed escaped slaves into their ranks. White slave owners agitated to get their slaves returned. The Seminoles refused. Osceola was even married to the daughter of a runaway slave and her kidnapping by whites was a main motivation for his leading the Seminoles into war. Also Texas was a province of Mexico which abolished slavery in 1829 and sought to ban it in Texas. The constant conflict between white Texans and Mexico over slavery finally exploded into the war of 1835 and the Alamo in 1836.

6. I am against a balanced budget amendment because it does not constrain spending. If spending increases then the legislature will likely balance it by raising taxes. The debt ceiling is a better constraint.

7. Notice how it has now become the vogue to adopt my idea of limiting government spending to a set percentage of GDP?

8. California has stopped the paychecks of state legislators for failing to pass a budget. What a great idea! Let's do that with the Congress.

Not a diamond in the rough

Peter Diamond withdrew his name from being a FEderal Reserve governor nominee. Diamond who is an MIT labor economist was clearly miffed. He wrote a self serving whine in the New York Times lamenting that while he was qualified to be awarded a Nobel prize in economics, certainly he was qualified to be on the Fed board. He is wrong. Certainly a Nobel prize is noteworthy but it does not guarantee expertise in monetary economics or financial institutions. Indeed, Diamond's area is labor economics and although Diamond says that understanding of the labor market is a "central part" of managing monetary policy, that statement by itself should disqualify him. Sen. Shelby (R-AL) ranking minority member of Senate Banking was right to insist on someone who would not need on the job training as Mr. Diamond would require. Put Diamond on the NLRB but not the Fed board.


An area where the left and the right find agreement is in housing. The right seems to be against housing because it is subsidized and is used by the government to advance social policies (i.e. affordable housing). The left seems to be against housing because detached dwellings consume more energy than high density dwellings. As a consequence the sacred cow of mortgage interest deductions appear to be on the chopping block. The politicians can say that in these days of large deficits, everything is under scrutiny. The truth of the matter is that the politicians are just looking for more sources of revenue. What makes housing an attractive whipping boy is the housing bust caused as much by cheap credit fostered by federal reserve policy than by subsidies, affordable housing and fannie mae. Even the Wall St Journal says that the main purpose of housing should be shelter. However, homeownership has been one of the main vehicles for wealth building in America. Homeowners build equity that can be used for kid's college education and for retirement. Traditionally, the growth in equity has been a superior investment vehicle for Americans. However, homeownership also means other things to most Americans who opt not to live in high density areas like Washington, DC and New York City. It means privacy, space, peace and quiet. Since the bursting of the housing bubble, house prices should fall to a new equilibrium level just like any other investment. Then it will start to grow again. The positive benefits of homeownership will continue with or without all of the government interference. However, for those in DC and New York who are forced to live on top of each other to insist that those of us who prefer to live amongst trees with room for our dogs to run are somehow either bad for the business environment or the green environment are simply jealous and trying to impose their inferior lifestyle on the rest of us.

Wednesday, June 15, 2011

So who do you want to be president and why?

I have often said that if Michele Bachmann were a democrat she would be idolized by the media - instead she is vilified like Sarah Palin. Actually, thank goodness for Sarah Palin. Palin has been spoofed so much, vilified so much that the left and the media have used up all their bullets. So the anti-Bachmann stuff just seems petty. How can you spoof someone who quotes Von Mises? Here is Stephen Moore's interview of Bachmann.


The Wall Street Journal

JUNE 11, 2011
'On the Beach, I Bring von Mises'
The tea party favorite on her start in politics, where she learned her economics, and why she disagrees with Reagan on the War Powers Resolution.


"If I'm in, I'll be all in," says Rep. Michele Bachmann of Minnesota, artfully dodging my question of whether she's running for president. Given that she just hired campaign strategist Ed Rollins, whose past clients include Ross Perot and Mike Huckabee, rumors abound. "We're getting close," she says, "and if I do run, like all my races, I will work like a maniac."
That's pretty much how she does everything, and it helps explain how the relatively junior congresswoman has become a tea party superstar—and uniquely adept at driving liberals bonkers.

After spending a good part of two days with her in Washington as she scurries from one appointment to another, I have no doubt that Ms. Bachmann will announce her presidential bid soon. And it would be a mistake to count her out: She's defied the prognosticators in nearly every race she's run since thrashing an 18-year incumbent in the Minnesota Senate by 20 points in 2000. Says Iowa Congressman Steve King, "No one has electrified Iowa crowds like Michelle has."
Ms. Bachmann is best known for her conservative activism on issues like abortion, but what I want to talk about today is economics. When I ask who she reads on the subject, she responds that she admires the late Milton Friedman as well as Thomas Sowell and Walter Williams. "I'm also an Art Laffer fiend—we're very close," she adds. "And [Ludwig] von Mises. I love von Mises," getting excited and rattling off some of his classics like "Human Action" and "Bureaucracy." "When I go on vacation and I lay on the beach, I bring von Mises."
As we rush from her first-floor digs in the Cannon House Office Building to the House floor so she can vote, I ask for her explanation of the 2008 financial meltdown. "There were a lot of bad actors involved, but it started with the Community Reinvestment Act under Jimmy Carter and then the enhanced amendments that Bill Clinton made to force, in effect, banks to make loans to people who lacked creditworthiness. If you want to come down to a bottom line of 'How did we get in the mess?' I think it was a reduction in standards."
She continues: "Nobody wanted to say, 'No.' The implicit and then the explicit guarantees of Fannie Mae and Freddie Mac were sopping up the losses. Being on the Financial Services Committee, I can assure you, all roads lead to Freddie and Fannie."

Steve Moore says that Rep. Michele Bachmann could win Iowa.
Ms. Bachmann voted against the Troubled Asset Relief Program (TARP) "both times," she boasts, and she has no regrets since Congress "just gave the Treasury a $700 billion blank check." She complains that no one bothered to ask about the constitutionality of these extraordinary interventions into the financial markets. "During a recent hearing I asked Secretary [Timothy] Geithner three times where the constitution authorized the Treasury's actions, and his response was, 'Well, Congress passed the law.'"
Insufficient focus on constitutional limits to federal power is a Bachmann pet peeve. "It's like when you come up to a stop sign and you're driving. Some people have it in their mind that the stop sign is optional. The Constitution is government's stop sign. It says, you—the three branches of government—can go so far and no farther. With TARP, the government blew through the Constitutional stop sign and decided 'Whatever it takes, that's what we're going to do.'"
Does this mean she would have favored allowing the banks to fail? "I would have. People think when you have a, quote, 'bank failure,' that that is the end of the bank. And it isn't necessarily. A normal way that the American free market system has worked is that we have a process of unwinding. It's called bankruptcy. It doesn't mean, necessarily, that the industry is eclipsed or that it's gone. Often times, the phoenix rises out of the ashes."
She also bristles at the idea, pushed of late by the White House, that the auto bailouts were a big success for workers and taxpayers. "We'll probably be out $15 billion. What was galling to so many investors was that Chrysler's secured creditors were supposed to receive 100% payout of the first money. We essentially watched over 100 years of bankruptcy law thrown out the window and President Obama eviscerated the private property interests of the secured creditors. He called them 'greedy' for enforcing their own legal rights."
So what would she have done? "For one, I believe my policies prior to '08 would have been much different from [President Bush's]. I wouldn't have spent so much money," she says, pointing in particular at the Department of Education and the Medicare prescription drug bill. "I would have advocated for greater reductions in the corporate tax rate and reductions in the capital gains rate—even more so than what the president did." Mr. Bush cut the capital gains rate to 15% from 20% in 2003.
She's also no fan of the Federal Reserve's decade-long policy of flooding the U.S. economy with cheap money. "I love a lowered interest rate like anyone else. But clearly the Fed has had competing goals and objectives. One is the soundness of money and then the other is jobs. The two different objectives are hard to reconcile. What has gotten us into deep trouble and has people so perturbed is the debasing of the currency."
That's why, if she were president, she wouldn't renominate Ben Bernanke as Fed chairman: "I think that it's very important to demonstrate to the American people that the Federal Reserve will have a new sheriff" to keep the dollar strong and stable.
As for foreign policy, she joined 86 other House Republicans last week in voting for the resolution sponsored by antiwar Democrat Dennis Kucinich to stop U.S. military action in Libya within 15 days. Is she a Midwestern isolationist? "I was opposed to the U.S. involvement in Libya from the very start," she says. "President Obama has never made a compelling national security case on Libya."
Even more striking, she says the 1973 War Powers Resolution, requiring congressional approval for military action after 60 days, is "the law of the land" and must be obeyed. That's a notable difference from every recent president of either party, including Ronald Reagan.

Ms. Bachmann attributes many of her views, especially on economics, to her middle-class upbringing in 1960s Iowa and Minnesota. She talks with almost religious fervor about the virtues of living frugally, working hard and long hours, and avoiding debt. When she was growing up, she recalls admiringly, Iowa dairy farmers worked from 5 a.m. to 10 p.m.
Her political opponents on the left portray her as a "she-devil," in her words, a caricature at odds with her life accomplishments. She's a mother of five, and she and her husband helped raise 23 teenage foster children in their home, as many as four at a time. They succeeded in getting all 23 through high school and later founded a charter school.
She got started in politics after seeing the failures in public schooling. "The kids were coloring posters in 11th grade algebra class," she says. "I decided to do my duty, go to the Republican convention. I had on jeans, a sweatshirt with a hole in it, white moccasins, and I showed up in this auditorium and everyone said, 'Why are we nominating this guy [Gary] Laidig every four years?'"
"I thought, 'I'm nobody from nowhere but maybe if I challenge the guy, he'll shape up a little bit.' So I gave a five-minute speech on freedom, economic liberty and all the rest. And no one could believe it, but I won a supermajority on the first ballot and he was out on his keister."
She ran for Congress in 2006, the worst year for Republicans in two decades. "Nancy Pelosi and all her horses spent $9.6 million to defeat me in that race"—almost three times what Ms. Bachmann had raised. She won 50% to 42%. In 2010, the Democrats and their union allies raised more than $10 million to try to defeat her. "My adversaries have certainly been highly motivated," she says.
But her adversaries—or, at least, rivals—aren't limited to the left. There's Sarah Palin, with whom journalists are convinced she has frosty relations, and fellow Minnesotan Tim Pawlenty, now running for president. About Ms. Palin the congresswoman shrugs, "People want to see a mud-wrestling fight. They won't get it from me because I like Sarah Palin and I respect her." As for whether Mr. Pawlenty was a good governor, "I really don't want to comment."
Ever ready to cite stories from American history, Ms. Bachmann notes with a grin that the last House member to be elected president was James Garfield in 1880. If she were to take her shot, she'd run on an economic package reminiscent of Jack Kemp, the late congressman who championed supply-side economics and was the GOP vice presidential nominee in 1996. "In my perfect world," she explains, "we'd take the 35% corporate tax rate down to nine so that we're the most competitive in the industrialized world. Zero out capital gains. Zero out the alternative minimum tax. Zero out the death tax."
The 3.8 million-word U.S. tax code may be irreparable, she says, a view she's held since working as a tax attorney at the IRS 20 years ago. "I love the FAIR tax. If we were starting over from scratch, I would favor a national sales tax." But she's not a sponsor of the FAIR tax bill because she fears that enacting it won't end the income tax, and "we would end up with a dual tax, a national sales tax and an income tax."
Her main goal is to get tax rates down with a broad-based income tax that everyone pays and that "gets rid of all the deductions." A system in which 47% of Americans don't pay any tax is ruinous for a democracy, she says, "because there is no tie to the government benefits that people demand. I think everyone should have to pay something."
On the stump she emphasizes an "America-centered energy policy" based on "drilling and mining for our rich resources here." And she believes that repealing ObamaCare is a precondition to restoring a prosperous economy. "You cannot have a pro-growth economy and advise, simultaneously, socialized medicine."
Her big challenge is whether the country is ready to support deep spending cuts. On this issue, she carries a sharper blade than everyone except Ron Paul. She voted for the Paul Ryan budget—but "with an asterisk." Why? "The asterisk is that we've got a huge messaging problem [on Medicare]. It needs to be called the 55-and-Under Plan. I can't tell you the number of 78-year-old women who think we're going to pull the rug out from under them."

Ms. Bachmann also voted for the Republican Study Committee budget that cuts deeper and faster than even Mr. Ryan would. "We do have an obligation with Social Security and Medicare, and we have to recognize that" for those who are already retired, she says. But after that, it's Katy bar the door: "Everything else is expendable to bring spending down," and she'd ax "whole departments" including the Department of Education.
"I think people realize the crisis we face isn't in 25 years or even 10 years off. It is right now. And people want it solved now—especially Republican primary voters."

Mr. Moore is a member of The Journal's editorial board.

Does Newt know about this?

As you know, ethanol is evidence of three of Harold Black's laws: 1. if it is mandated it is bad 2. if it is subsidized it is bad and 3. if competition is restricted it is bad. We all know that if Iowa did not have the first important presidential primary that we would not have the ethanol albatross. What idiot would mandate that we buy a product that is worse for the environment than fossil fuels, shorten engine life, and drives up food prices? Only an idiot would advocate burning up food and further impoverishing the world's poor. Yet ethanol does all of this with the US allocating a ridiculous 40 percent of its corn production for ethanol and causing food riots around the world. Of course we don't pay much attention to poor people in poor countries rioting because the price of corn - a vital foodstuff - has sharply risen. Now if the good old boys who use corn to bait for deer start rioting because a 50 pound bag that used to cost $4.50 now is $11 then the administration would take notice. Now comes the UN. How many times can you think of agreeing with anything coming out of the UN? For me, its one. The UN just published a report has called for an end to ethanol subsidies, citing ethanol as a primary cause of rising food prices worldwide. I am waiting to hear Newt Gingrich, leading spokesman for the ethanol lobby to explain away this one.

Return of the Manchurian Candidate

Who (or what) is the entity inhabiting the body of Ben Bernanke? This Ben Bernanke is a lackey of the administration in power. Taking the lead of his predecessor Alan Greenspan, Bernanke accommodated Bush spending and is now Obama's lackey. Instead of the Fed being the independent monetary policy body envisioned by its founders and codified in the Federal Reserve Act, one would be hard pressed to differentiate between this Fed and a central bank that is an adjunct of the Treasury. The latest example is Bernanke going before Joe Biden's committee for a responsible federal budget. Who is the wag that thought up that name? Just like with most things named in Washington - like legislation - the name has no bearing at all with reality. At his testimony Bernanke did not talk about the irresponsibility of Fed policy but rather supported Treasury's Geithner lie by saying that congress should raise the debt ceiling in order to preserve America's creditworthiness. Certainly he didn't say this with a straight face because he knows it is a lie and assumes that we all are fools. First, as I have pointed out before, not raising the debt ceiling will have no impact on the ability of the US to repay its debts. Revenues are sufficient to do that. Not raising the debt ceiling will simply limit the amount of new spending that the government can conduct. Thus Bernanke is assuming that the congress is made up of a bunch of fools. Actually, he may be right on that score. Second, Bernanke (or the Bernanke body double) is assuming that the rest of the world are fools. The damage to the dollar that the Fed under Greenspan and Bernanke in monetizing the debt is the culprit. Yet this Bernanke look alike says not raising the debt ceiling will "create fundamental doubts about the creditworthiness of the United States, and damage the special role of the dollar and Treasury securities in global markets in the long term." But this Ben-like-person, has already done this along with the rest of the Open Market Committee. Raising or not raising the debt ceiling will have no effect at all on creditworthiness. Eve if the debt ceiling were raised, why should the world keep buying American debt if the dollar keeps being devalued by Fed policy? Who would do this? A fool.

Wednesday, June 8, 2011

The subprime culprit

Currently, home ownership is under assault. Mind you its under assault from those who probably already own their homes and are not renters (unless they are New York media types). First, the right blame the government’s encouraging home ownership and pressuring lenders to lend to the unqualified thereby causing the great recession by fostering the subprime crisis. Second, the left is also critical of subprime because they assert it is predatory. Of course they are both wrong. As I have pointed out before, subprime is just a convenient whipping boy for those who have agendas. It was not large enough to cause the entire real estate market to crash. It was part of the overall mortgage bubble created by the Fed’s low interest rate policy which was a result of their supporting increased government spending. The right by attributing this to subprime think that they are attacking government social policies – when they just look like racists. The left attack subprime because it ultimately means financial independence for poor people – especially poor minorities. Americans traditionally build wealth through the growth in home equity. Now that we have entered a period in which equity is eroding everyone is piling on home ownership as being bad. In doing so they remind me of the commentators of the NBA finals. When Miami won the first game, they all said that Dallas was dead and the series was over. The Dallas won game two and they all foresaw the demise of Miami. The Miami won game three and they all flip flopped again. Now with Dallas winning game four, they are all piling on one Miami star and saying that Miami is in serious trouble. The conclusion is that they don’t have as clue. The same is true about the critics of home ownership. They are only critical when home values fall. We all know that home prices will eventually recover and wealth will again be built through home ownership. It is a shame that the Fed has written rules that essentially kill subprime. Sure, subprime’s risk assessment did not work in the face of an overall collapse in the market – but which one did? Still, 80 percent of all subprime loans are current and giving home ownership to a group that has been ill-served by traditional mortgage lenders. As the market recovers, they will build wealth much to the chagrin of the critics on the right and on the left. A pox on both of their houses.

Tuesday, June 7, 2011

Poor University of Chicago (redux)

Last January I lamented in a posting about the University of Chicago having Obama's chair of the council of economic advisors on its faculty. While I am certain that Austan Goolsbee has a sterling record of economic academic achievement to be a full professor at Chicago, he is also a liar. He has uttered a constant stream of pronouncements about the economy that not even the most ardent cheerleader believes. When the current rate of job creation was announced along with anemic economic growth, he actually said that we were on target. He along with Treasury secretary Geithner were spreading doom and gloom about not raising the debt ceiling - causing the effects "catastrophic". As I have pointed out before, no one believes that. The US takes in enough "revenues" to service the debt, pay entitlements and some other bills. Politicians consider it a catastrophe if they cannot spend ever increasing amounts of taxpayers monies. Since the debt ceiling is the only real hard stop to this government's profligateness, then it may be our only realistic solution to government spending excesses. While his predecessor Christie Romer (see my posting "Poor Christie Romer") actually had a pained look on her face when she uttered lies for the administration, Goolsbee actually looked like he believed the nonsense that came from his lips. I simply amazes me that he could do all this in good conscience. Now he returns back to the university where he can also make up stuff when he lectures to students. Hopefully they are smart enough to discount whatever he is opining.

All that glitters

I am not a gold bug. Sure gold has its uses but its just not to my taste. I don’t own any jewelry, I don’t collect coins, and my fillings don’t glitter. Today there are two issues: should I buy gold and should the US go on the gold standard? Should you buy gold? I don’t really care but I won’t. Gold has now ventured into the greater fool territory as in “I know the price is high but there is a greater fool than me out there who will pay more.” If that were not the case then no one would buy it – the old buy high sell low axiom. Sure gold was a good buy when it was $350 an ounce but at $1,500? Not a chance. Throughout my lifetime gold has proven to be a lousy investment. Its natural price seems to be below $400 an ounce so a buy and hold strategy is a losing one. People do not buy gold as an investment, rather they buy it as a hedge against inflation. Thus, knowing when to sell to that greater fool is as important as knowing when to buy. The key is to not be that greater fool. Personally I would rather buy real estate. Its price is low and edging even lower. Real estate is cheap and we all know it will eventually go up. Just like we all know that gold will eventually go down. But do what you think is best but know that you cannot find any evidence that a buy and hold gold strategy is a good one.

Well what about a return to the gold standard? Those who advocate this argue that a gold standard would stop the government from controlling the money supply. All governments it is argued are tempted to inflate the money supply and cause inflation, devaluing the currency. If money creation were tied to gold, the argument goes, then there would be no inflation. Such an argument is naïve at best. Governments under the gold standard have always found ways to create more money. The easiest way is simply to change the value of the currency in terms of gold. Instead of a $1,000 an ounce make it $2,000 an ounce. Voila! The money supply is doubled! Governments have also debased the currency by adding lead to the coin or by decreasing the purity of gold coin. Where there is a will there is a way.

What is more curious is that most of the gold standard advocates profess to favor free markets – that is markets free from government interference. How they can reconcile a gold standard with that philosophy is beyond me. The government would have to artificially set a price for gold and then manipulate prices to maintain that standard. This is the antithesis of the free market. First, what should the price be? What about the market price? Well the market price is the price today. If we set it at that price, then what happens when the market price changes? Do we increase the money supply when the price of gold rises and then decrease it when the price of gold falls? What about economic growth? Historically the US economy grows at about 2 percent real GDP per annum. If the money supply grows at that rate then we have economic growth without inflation. The question is what is the growth rate in gold? It is around 50 million ounces per year ,If the gold supply increases faster then we have inflation. If it increases slower then we have deflation. Do you really want economic growth dependent upon how much gold is dug out of the ground or that flows into the US Treasury? I don’t. Next consider that we set the price at around today’s price ($1,400 an ounce). The last time I looked, the US held a little more than 8,900 tonnes of gold (a tonne is 2,204 pounds). If my math is correct, then that would leave the US a money supply of $390 billion. Well currently M2 is $8,900 billion. US GDP is $15 trillion. This means that velocity is around 2. So under the gold standard we would have to shrink GDP by around 15 times to around $1 trillion. Say what? Moreover, there are around 140,000 tonnes of gold out there which means that US reserves are around 6 percent of the total. If you look at the amount of US debt held around the world, the top fifteen countries hold more of our debt than what would be the US money supply under the gold standard. Any of these countries and many others could show up and say “exchange your debt for your gold” any essentially plunge the US economy into depression. Then there is the famous Gresham’s law – bad money drives out the good”. Historically this is one of the biggest problems of the gold standard in that gold has a price as a commodity which is determined by the market and a price as money which is determined by the government. The two are only equal by happenstance. If gold is worth more as a commodity it flows out of circulation and the economy slows down and deflates. If it is worth more as money, then gold flows into circulation and causes inflation. Lastly, one of the largest private owners of gold lies with the enemy of the right – George Soros who could manipulate the US supply. Do we really want to turn over the fate of the US economy to George Soros. Hum. Maybe he is secretly financing those pushing for a gold standard.

Monday, June 6, 2011

Bullets or Wizards?

Several years ago political correctness came to the NBAs Washington Bullets who became the Washington Wizards. That transition is even more appropriate today when I see headlines like "To keep his job, Obama needs more jobs" coupled with "Has the Fed run out of bullets?" If Obama could transform bullets into wizards, he might get re-elected. Actually it is a sad commentary - and probably an incorrect one - to say that despite a record of consistent failure and incompetence, Obama is re-electable. A president that has given us unprecedented government spending, additional regulatory burdens, socialized healthcare, burdensome and often stupid legislative initiatives (Dodd-Frank, Obamacare, cap and trade), hundreds of czars and czarinas finds his re-election hinging only current unemployment rates? Give me a break. However, he can get re-elected and fairly easily. Most observers admit that Obama seems likable - if you like aloof snobs with a great smile. Here's how he can be re-elected. First he admits that his administration is staffed with Keynesians who believe - despite the evidence - that government can get the economy out of a recession. So all his policies were driven by that belief. However, the competing school of macroeconomic thought believes the opposite: government spending drives out private investment and reduces employment; increased regulation adds cost to employing people and also reduces employment; the legislative initiative of Obamacare also increased the cost of employment and reduces employment; the threat of cap and trade and Dodd-Frank have increased uncertainty and reduced employment; the Federal Reserve has monetized the national debt by directly buying Treasuries to support the increase government spending with the results of driving interest rates to zero, pushing capital offshore, devaluing the dollar and weakening the dollar as a reserve currency. So Obama should say "Keynesianism has failed. It is obvious that none of this has worked to get America working. As a matter of fact it has done the opposite. So it is now time to try something different. It may just be a theory because it has really never been tried in this country. Although politicians on the right have paid lip service to it, they never implement it because it reduces their power. What is it? Its the free market." Obama should say, "From this point forward, I will suspend Obamacare, cap and trade, and put a moratorium on Dodd-Frank. I will sign the free trade agreements with Chile, Columbia and Korea. I will move to reduce government spending back to 19 percent of GDP. I will reduce Federal employment across the board at each agency by three percent per annum for the rest of my term. I will introduce legislation to make it illegal for the Fed to monetize the national debt except in the case of a national emergency. I will adopt all the provisions of the bipartisan Bowles-Simpson committee on social security reform, medicare/medicaid, discretionary spending and income tax reform. I will eliminate for the rest of my term as president the capital gains tax and the corporate income tax. And lastly, we as a grateful national will eliminate the Federal income tax for all active duty military personnel." I guarantee you that if Obama said these things and implemented them, regardless of the outcome he would be re-elected in a landslide.

With Successes Like These …….

We have come a long ways. In 1979 when Chrysler was bailed out by Jimmy Carter, the initial cost was $1.2 billion and rather than an infusion of cash from the government, the $1.2 billion was in guarantees for Chrysler loans. Although that bailout was also touted as a success, research by the Heritage Foundation showed that the overall job loss at Chrysler would have been little different than if the company had gone through bankruptcy. The only difference was that stockholders were bailed out but at a cost of reduced net wealth suffered by the drop in share price.
It probably comes as no surprise that the president and his men – Timothy Geithner and Joe Biden - have been going around touting the automobile bailout as a success. However, what constitutes success. The Wall Street Journal says that after shedding 334,000 jobs, Chrysler and GM have hired 55,000. So is the loss of 279,000 jobs a success? The bailout cost $60 billion and I won’t calculate how much this is per job since it would not take into account suppliers and other ancillary factors. Nevertheless, the administration is also telling us that in the end the loss will be $16 billion. Actually the loss is more because the $16 billion does not include the $4 billion in Chrysler debt that was forgiven by the Treasury Department.
Now we have the definition of success: it is a loss 279,000 jobs and $20 billion. The president seems to have conveniently forgotten that he initially promised that the taxpayers would not lose a dime. What is disappointed is that the otherwise clear thinking Bob Coker (R-TN) seems to have bought into this curious definition of success. He told Investor’s Business Daily "The resurgence of the companies would not have occurred without the tough restructuring measures I laid out and the administration generally followed. Like most Americans, I am glad the companies are doing well ... and that taxpayers are being repaid." Apparently, Coker the politician has trumped Coker the business man on this issue. What Coker has also forgotten is that the GM IPO was $35 and now is $28. A price of $54 would mean no taxpayer loss and that seems like a pipe dream. But just like the Chrysler bailout of 1979, the essential question is whether the same results would have been achieved under normal bankruptcy proceedings without costing the US taxpayer billions of dollars. The answer can be found in the excellent piece by Professor Todd Zywicki ( who finds little merit in the government bailout. Finally, if GM and Chrysler lost 279,000 jobs and $20 billion on their own and their CEOs had run around the country proclaiming success, the rest of us would have looked upon them as fools (unemployed fools).

Sunday, June 5, 2011

Another bad idea: No surprise given the source

In May Barney Frank announced that he was introducing a bill to reform the Fed. After co-authoring one of the worse pieces of legislation in history (the Dodd-Frank Financial Reform Bill), Frank is now outdoing even himself. The new proposed legislation would strip the reserve bank presidents from the Fed's Open Market Committee. This committee has the responsibility for the conduct of monetary policy and is currently composed of the seven Fed governors, the president of the New York Fed and four of the other 11 reserve bank presidents who rotate on one year terms. Although at the FOMC meeting all reserve presidents attend, only five have a vote. Why Frank wants to get rid of the reserve bank presidents is anyone's guess. He states that he doesn't like it that they are not political appointees and are chosen by the directors of their reserve bank. The elimination of the presidents would make for bad policy. As I have written before, one of the problems with the Fed is that it is based in Washington and would make better policy if it were located somewhere else - say Kansas City. Historically, the reserve bank presidents have been a moderating voice on the FOMC. The problem with the Fed's policy making is the opposite of what Frank is trying to accomplish. Instead of getting rid of the presidents, all the presidents should have a vote. This would mean that the governors would no longer have a majority on the FOMC. The presidents have generally been a ballast, tempering the influences of Washington. To get rid of them would make for policy that is more political and less in the interests of the economy. Washington's influence is bad enough, leading this fed to monetize the national debt, to support out of control government spending, driving interest rates down, causing capital flows out of the country, depressing the value of the dollar, driving the monetary base through the roof and paving the way for inflationary recession. Only an idiot would think that we need more of this. And more of this would be precisely what we would get if Frank's bill became law. Perhaps the republicans are asleep at the wheel - no surprise there. But instead of simply opposing Frank's bill, let's hope that someone introduces a bill to expand the FOMC to include all the reserve bank presidents.

Friday, June 3, 2011

Medicare versus Mediscare

The recent discussions on Medicare remind me of the old saying that everyone wants to go to heaven but no one wants to die. In the case of Medicare everyone knows that the current structure is not sustainable. Current retirees will receive over $100,000 in benefits than they paid into the system. That difference grows each year. If left unchecked the federal budget by 2040 will go almost entirely to Medicare, Social Security and debt payments. Social Security is a simple problem that can be dealt with simply by gradually raising the age of full benefits. Note I did not say "the age of retirement" - a mistake made by almost everyone but me. You can retire anytime you wish. However, Social Security payments are made beginning at a certain age dictated by law. As to Medicare, there are currently two approaches. The Ryan approach is to address the issue now. The Administration approach is to criticize the Ryan plan without offering any other solution. What is interesting is that the press and the pundits also have their heads in the sand. They all are interpreting the recent democratic congressional victory in New York as a repudiation of Ryan. Nothing could be further from the truth. Polling indicated that voters understand the problems inherent in Medicare but also do not want the entitlement cut. Well the Ryan plan does not affect those 55 years old and older. So it does not cut their benefits. What it does is give a voucher to those under 55 when they reach the benefit stage. The voucher allows them to choose their medical provider and limits the budgetary drain of the current system. What is ironic is that Obamacare actually made Medicare worse off by taking $500 billion away. So the republicans should argue that they are addressing the budget problems, restoring the money taken away by the democrats and not taking away benefits. What is there not to like? Since they are not going to get help in the media that is not named Fox or talk radio, they need to hammer these points over and over. One day the message will get through. As I used to tell my students "the world is made up of three types of people: the 1 percent that makes things happen, the 4 percent that know whats happening and the 95 percent that haven't a clue as to whats happening." The challenge to the republicans is to move enough of that 95 percent who vote into the 4 percent category.