Some days the news is just weird....

Some days the news is just weird - Alice-in-Wonderland weird. Today, for example:

North Korea, who from the assembled evidence (including fragments of the torpedo with North Korean markings on it) apparently fired a homing torpedo at the South Korean warship that blew up and sank in late March, has threatened all-out war if South Korea retaliates in any way. It's the same threat they made in 1987 after they shot down a South Korean airliner, killing all 115 people on board. Perhaps we will retaliate by once again providing them food and fuel - a tactic that has worked so well in the past.

The Senate, that staunch defender of the people's rights, just overwhelmingly passed an amendment to the banking bill that would largely prevent states from writing new laws to protect consumers from questionable financial products even if no federal law exists. It also blocked a proposal to ban banks from making the kind of proprietary trades in high-risk securities that helped fuel the financial crisis. (so what, exactly, IS being reformed in this bank reform bill?)

The UK has discovered that it can't deport two suspected al Qaida operatives, Abid Naseer and Ahmad Faraz Khan, to Pakistan, where they come from. This is because Article 3 of the European Convention on Human Rights states that "No one shall be subjected to torture or to inhuman or degrading treatment or punishment". The fact that no one thinks these people will be tortured in Pakistan (in fact they will probably be welcomed as heroes) doesn't matter. EU rules prohibit the UK from deporting them.

Some days ........

Recommended: In Afghanistan, It's About Honor

David Ignatius has an interesting piece in the May 16 Washington Post, In Afghanistan, It's About Honor. America keeps making serious mistakes because we don't understand other cultures, so his observations about how tribal fighting typically stops in Afghanistan, about the cultural expectations, are highly relevant.

Recommended: Galbraith: The danger posed by the deficit ‘is zero’

I have railed often enough about the dangers of the massive deficit that the government is accumulating, and in fact a good many others have done the same lately. But Ezra Klein has a piece in today's Washington Post worth reading. It is an interview with the University of Texas economist James Galbraith, who has an entirely different perspective on the problem. You can read it here.

I don't know that I find Galbraith's argument persuasive on first reading, but it is another point of view, and deserves careful attention if only because we humans are always susceptible to "groupthink", a widespread belief in an idea that is plausible, but wrong!

Spin vs Reality

The administration, for perfectly understandable political reasons, has been making much of any glimmer of good news (or not-bad news) that comes along. The 290,000 new jobs created in April are an example. One would think, from the administration’s PR campaign, that the recession was over.

REALITY: “Official” unemployment rose again last Friday from 9.7% to 9.9%. That is the “official” number. The actual number is much higher, around 17.4% if one counts people who are underemployed (the 9.2 million who would like to work more hours than they now have) and the 2.4 million who have just plain given up looking for work.

REALITY: Since World War II, the average recession has lasted 10 months, and the longest has been 16 months. Yet, 28 months after the last recession began, unemployment is still 10% and rising.

REALITY: Historically, deep recessions have typically had strong recoveries. The Bureau of Economic Analysis reports that economic growth in the first 3 quarters after the 1981-1982 recession was 5.1%, 9.3% and 8.5%. Yet, economic growth in the first 3 quarters after this last recession was 2.2%, 5.6% and 3.2%, not even half as much.

One can only conclude that the happy face the administration is putting on is pure spin – they are surely smart enough to understand that things aren’t really all that rosy, and that their attempts at economic stimulus haven’t really made much difference in the long-term problem – in fact the massive debt load that stimulus imposed may have made things worse in the long run.

Recommended: The Case for Economic Doom and Gloom

I'm not by nature a pessimist. In fact I once had a colleague describe me as a "malignant optimist" - and I took that as a compliment. Still, we face extraordinary economic and political difficulties, and it is hard not to take them seriously.

In that regard, I recommend John Juris' article in The New Republic this month: The Case for Economic Doom and Gloom. Juris discusses the work of UCLA economic historian Robert Brenner, who in the introduction to a book he wrote makes the case that we are far from out of trouble yet.

In essence, Brenner argues that our real difficulties lie not in the short-term problems in the financial sector, but in a global, long-term problem of global overcapacity. The world simply has more manufacturing capacity than the world's consumers can absorb, so there simply isn't the option any more for any nation to "grow out" of its economic problems by increasing exports.

I have simplified the argument, and the whole article is well worth reading and thinking about. If his argument is accurate, then the current economic stimulus approaches the politicians seem to favor so much is just (taxpayer) money down the drain in the long run.

Recommended: The Limits of Policy

Once again, David Brooks has written a profound piece in his May 3 New York Times article The Limits of Policy.

As he notes, bad policy can make things much worse, but good policy can only do so much. What happens in the world is much more affected by culture and relationships than it ever is by government policy. I like his concluding paragraph:

Finally, we should all probably calm down about politics. Most of the proposals we argue about so ferociously will have only marginal effects on how we live, especially compared with the ethnic, regional and social differences that we so studiously ignore.

Whose carbon footprint?

Al Gore, April 24, 2009 testimony to Congress:

"Every penny that I have made, I have put right into a non-profit deal, Alliance For Climate Protection, to spread awareness of why we have to take on this challenge. And Congresswomen, if your, if, if you believe that the reason I have been working on this issue for 30 years is because of greed, you do not know me."

Nice words, but Al Gore just paid $8,875,000 on a gated ocean-view villa in Montecito, California, sited on 1 1/2 acres with a swimming pool, spa and fountains. You can see pictures here. The Italian-style house has high ceilings with beams in the public rooms, a family room, a wine cellar, terraces, six fireplaces, five bedrooms and nine bathrooms in more than 6,500 square feet of living space. Of course he also still has his 10,000-square-foot, 20 room, 8 bathroom mansion in Belle Meade, Tennessee, and his home in Virginia as well.

So much for the man who is asking us all to reduce our carbon footprint.......

Recommended: What Health Law Didn't Fix: Medicare Doctor Pay

I have mentioned in several previous posts that the Democrat's claim that the recently-passed health care bill would save money was based in large part on assuming that the 21% Medicare cut in doctor's pay would occur - even though Congress has been putting off this pay cut every year since 1997 and is likely to continue to do so, adding an estimated $276 billion to the health care bill's cost over the next decade (that brings the total estimated REAL cost of the new health care bill to about half a trillion dollars over the next decade.)

Of course, as Julie Rovner's NPR piece today What Health Law Didn't Fix: Medicare Doctor Pay points out, if they really cut Medicare payments to doctors by 21%, most doctors would simply stop taking Medicare patients, because they would lose money on each one. It doesn't take a rocket scientist to understand that no business person can afford to keep selling a product they lose money on, and that includes doctors.

My neighbor, a doctor, tells me his group already loses money on each Medicare patient, even at today's rates, and even if he limits a Medicare patient's visit to only 15 minutes, which he feels is often far too short.

So no doubt Congress will again put off cutting doctor's Medicare payments,which is probably the right thing to do, but makes a mockery of Democratic claims that the health care bill will save us money.

I’m looking for an intelligent, principled pragmatist

It’s clear we in America are in a very bad mess. And I don’t refer to the current business slowdown or recession or whatever it is politically correct to call it. Bad as it is, this current slowdown will seem trivial compared to the financial tsunami that appears to be coming.

Consider:

1) Our current Federal debt is about $11.4 trillion, or just under 90% of our entire GDP (Gross Domestic Product, a measure of the size of the entire annual America market).

2) The budgets currently projected by the administration almost double the Federal debt to about $20 trillion by 2015, just 5 years from now.

3) At the moment, the Federal government has to borrow almost half of what it spends each year. ($1.8 trillion borrowed out of a total 2010 budget of $3.55 trillion). The Federal government now spends just under 10% of its budget on interest payments alone (around $400 billion per year), and this is with low interest rates.

4) Projected Medicare/Medicaid costs (unfunded future obligations) are not counted in the budget. As currently constituted, Medicare is estimated to cost the Federal government $34 trillion over the next 75 years, and there is no plan to pay for it. Demographics are against us here. Currently there are 3.9 workers paying taxes into Medicare for every older American receiving services. By 2030, as the baby boom generation retires, that is projected to drop to 2.4 workers for each beneficiary. Yet Medicare spending is expected to grow by about 7 percent per year for the next 10 years, so while it is currently about 20% of the budget, in ten years it will be almost 100% of the budget.

5) And these are just the biggest issues, not even mentioning “minor” issues like the Social Security funding problem, the excessive farm subsidies, the gold-plated military contracts, the thousands of special-interest loopholes and giveaways and earmarks used to buy votes, the extremely generous benefits and wages won by public sector unions, and dozens of other bottomless sinkholes for our taxpayer dollars.

So clearly we are in trouble, and yet we have a political system that rewards promises for yet more expensive benefits (principally Democrats) or for cutting taxes (principally Republicans).

Some of our politicians are just stupid, or at least terribly naïve about economics, as when Democrats argue for more Federal health benefits when we can’t afford what we already have, or when Republicans push for tax cuts when the government already doesn’t have enough revenue to cover its costs.

Some of our politicians are blinded by their ideology, liberal or conservative, to the point where they can’t see (or don’t care about) the economic consequences of their proposals.

Some (perhaps most) of our politicians are just interested in getting elected or re-elected, and will tailor their message and promises to whatever will get votes in their distracts in the next election, whether it is good for the nation or not.

In the face of this, I sure would like to find a politician I can vote for who is

1) Intelligent, not stupid or naïve about economics or the government or foreign affairs

2) Principled, willing to do unpopular things that are in the best interests of the nation, even if they won’t get him/her re-elected, and

3) A pragmatist, not blinded by some social or political ideology, like most liberals and conservatives seem to be these days.

Lots of luck!

Recommended: The 'No Good Options' Era: We're all Greek now

Re my last post, you might want to read Matt Miller's piece in today's Washington Post: The 'No Good Options' Era: We're all Greek now.

It is remarkable how obtuse the Greeks in the streets are: their country is in dire financial straits because of their cultural habits (demanding ever higher pay and benefits, avoiding taxes), and yet they are rioting for the right to keep on doing what clearly isn't working.

Does this ring a bell? Aren't we Americans being just as obtuse, as we elect people on the basis of how much more government benefits they promise us and/or how much they promise to cut our taxes? The Greeks need to get real. So do we!!

Where to cut ??

The rioting in the streets of Greece today reminds us that bringing our own government's budget into line with its revenues isn't going to be easy. Most of us are going to take a hit one way or another, in higher taxes and/or reduced benefits from the Federal government.

In fact, as several economists have pointed out recently, higher taxes alone still won't be enough to reduce our deficit. And the perennial political chestnut about taxing the rich more is nothing more than a fantasy and a convenient political sound bite - if you took away EVERYTHING the rich owned, it still wouldn't be enough to cancel the deficit, let alone the accumulated Federal debt.

So in fact besides raising taxes we need to cut the Federal budget, and cut it a lot, probably something like 25-30% or more. So where do we cut? Here is how the Federal budget is divided now:


Defense, Social Security, and Medicare/Medicaid make up the largest portion of the budget, and Social Security and especially Medicare/Medicaid are on track to consume almost all the budget within a few decades, so clearly the largest cuts need to come in these areas. Of course the present administration has not only failed to address this problem, they have made it significantly worse with the recent health care bill.

Will people take to the streets in America and burn banks and government offices when these cuts come? Or will politicians simply keep avoiding the hard choices until we get a Greek-style debt crisis, with no one in the world big enough to bail us out, and fall into a depression that makes the current financial troubles look minor?

Recommended: The Greek Unions - And Ours

If you have been following the news recently you know that Greek civil servants are fighting police in the streets in their opposition to the austerity measures Greece agreed to in order to have the EU (mainly Germany) bail them out of their imminent bankruptcy. In this regard, Rich Lowry's article in today's New York Post, The Greek Unions - And Ours, is relevant.

Greece is indeed a basket case from decades of mismanagement, of government deceit about the extent of their debt, and at bottom because they have been living well beyond their means for decades. There is a lesson for America here. We too have been living well beyond our means for decades, with a federal government spending far more than it receives in revenue, and covering the deficit by endless borrowing. The Bush administration made this worse, and now the Obama administration is making it much, much worse.

In the end there is no free lunch in life - we Americans too will someday (perhaps sooner than we think) face a Greek crisis, when the markets suddenly decide we can't possibly be good for our debts, and abandon the dollar and Treasury bonds en masse.

There is something of a classic Greek tragedy in our situation. Our fate is staring us in the face plain as day, yet our political system can't find the will to avoid it.

The GM payback spin

There was much fuss made recently by General Motors and the administration when GM "paid back" the $6.7 billion loan made to the company by the government during it's financial melt-down. This was touted by administration spokesmen as showing that the taxpayers would be getting their money back after all, and the TARP wasn't going to cost us all as much as originally estimated.

Unfortunately, there was a bit more to the story that wasn't widely reported, as you can read in the article Repaying Taxpayers With Their Own Cash in the New York Times on April 30.

In essence, the treasury allowed GM to "repay" it's TARP loan from another taxpayer-funded account held by the Treasury. So in fact GM didn't repay anything to the taxpayers; it just shifted it's loan from one Treasury account to another. There may have been good technical reasons for doing that, but for General Motors and the administration to portray that as "repaying" the taxpayers is, frankly, deceit. No wonder the public trust in the Federal government is at an all-time low.

Excuse me???

This appeared this morning:

Associated Press, May 1, 2010. ANN ARBOR, Mich. - President Barack Obama made plans to visit the Gulf Coast on Sunday for a firsthand update on the worst U.S. oil spill in decades and Cabinet members leading the administration's response booked a heavy round of talk show appearances.

Excuse me? We have a major environmental crisis, and the administration's top people think the most important thing to do is to get on the talk shows and get the spin out???