Quotes of the week

From Edward Teller:

Life improves slowly and goes wrong fast, and only catastrophe is clearly visible.

A fact is a simple statement that everyone believes. It is innocent, unless found guilty. A hypothesis is a novel suggestion that no one wants to believe. It is guilty, until found effective.

(attributed to Teller, but I'm not sure...)

In every foolproof system there is a fool.

Very Highly Recommended: Inside Job

I have just watched Charles Furgeson's Oscar-nominated documentary movie Inside Job, an exploration of the causes and consequences of the current financial crisis. This documentary is not comfortable to watch - in fact it made me absolutely furious! One can watch one prominent figure after another lie through their teeth or weasle-word evasions to the questions (though of course many of the main culprits simply refused to be interviewed).

Not only did the people who caused this crisis escape any consequences - most of them made obscene amounts of money even while their companies were being bailed out by the government, and in fact in the end we the taxpayers paid much of their obscene bonuses. Not only that, the system is thoroughly corrupted, from members of Congress to key government agency heads to government regulators to the rating agencies to the academic economists who advise them. Presidents Reagen, Clinton, Bush and and Obama have all contributed to the mess, as have key members of Congress from both parties. The ruling elites in Washington, on Wall Street, and in academia are getting fabulously wealthy while the rest of the nation continues to suffer.

This movie will not make you happy, but it is important to watch it anyway. If we the American voters are stupid enough to continue to elect people who do this to us, we get exactly what we deserve!!

50 startling facts about the US economy

The site The Economic Collapse has an interesting list of 50 fairly startling and uncomfortable facts about the US economy (reproduced below). Personally, I found #49 to be the most startling figure of all, and #2 and #11 to be the most worrying. The site seems to me a little too pessimistic in tone, but the facts listed are worth thinking about:

#1 A staggering 48 percent of all Americans are either considered to be "low income" or are living in poverty.

#2 Approximately 57 percent of all children in the United States are living in homes that are either considered to be "low income" or impoverished.

#3 If the number of Americans that "wanted jobs" was the same today as it was back in 2007, the "official" unemployment rate put out by the U.S. government would be up to 11 percent.

#4 The average amount of time that a worker stays unemployed in the United States is now over 40 weeks.

#5 One recent survey found that 77 percent of all U.S. small businesses do not plan to hire any more workers.

#6 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million extra people to the population since then.

#7 Since December 2007, median household income in the United States has declined by a total of 6.8% once you account for inflation.

#8 According to the Bureau of Labor Statistics, 16.6 million Americans were self-employed back in December 2006. Today, that number has shrunk to 14.5 million.

#9 A Gallup poll from earlier this year found that approximately one out of every five Americans that do have a job consider themselves to be underemployed.

#10 According to author Paul Osterman, about 20 percent of all U.S. adults are currently working jobs that pay poverty-level wages.

#11 Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.

#12 Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job. In July, only 81.2 percent of men in that age group had a job.

#13 One recent survey found that one out of every three Americans would not be able to make a mortgage or rent payment next month if they suddenly lost their current job.

#14 The Federal Reserve recently announced that the total net worth of U.S. households declined by 4.1 percent in the 3rd quarter of 2011 alone.

#15 According to a recent study conducted by the BlackRock Investment Institute, the ratio of household debt to personal income in the United States is now 154 percent.

#16 As the economy has slowed down, so has the number of marriages. According to a Pew Research Center analysis, only 51 percent of all Americans that are at least 18 years old are currently married. Back in 1960, 72 percent of all U.S. adults were married.

#17 The U.S. Postal Service has lost more than 5 billion dollars over the past year.

#18 In Stockton, California home prices have declined 64 percent from where they were at when the housing market peaked.

#19 Nevada has had the highest foreclosure rate in the nation for 59 months in a row.

#20 If you can believe it, the median price of a home in Detroit is now just $6000.

#21 According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant. That figure is 63 percent larger than it was just ten years ago.

#22 New home construction in the United States is on pace to set a brand new all-time record low in 2011.

#23 As I have written about previously, 19 percent of all American men between the ages of 25 and 34 are now living with their parents.

#24 Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.

#25 According to the Bureau of Economic Analysis, health care costs accounted for just 9.5% of all personal consumption back in 1980. Today they account for approximately 16.3%.

#26 One study found that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt.

#27 If you can believe it, one out of every seven Americans has at least 10 credit cards.

#28 The United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.

#29 It is being projected that the U.S. trade deficit for 2011 will be 558.2 billion dollars.

#30 The retirement crisis in the United States just continues to get worse. According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

#31 Today, one out of every six elderly Americans lives below the federal poverty line.

#32 According to a study that was just released, CEO pay at America's biggest companies rose by 36.5% in just one recent 12 month period.

#33 Today, the "too big to fail" banks are larger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.

#34 The six heirs of Wal-Mart founder Sam Walton have a net worth that is roughly equal to the bottom 30 percent of all Americans combined.

#35 According to an analysis of Census Bureau data done by the Pew Research Center, the median net worth for households led by someone 65 years of age or older is 47 times greater than the median net worth for households led by someone under the age of 35.

#36 If you can believe it, 37 percent of all U.S. households that are led by someone under the age of 35 have a net worth of zero or less than zero.

#37 A higher percentage of Americans is living in extreme poverty (6.7%) than has ever been measured before.

#38 Child homelessness in the United States is now 33 percent higher than it was back in 2007.

#39 Since 2007, the number of children living in poverty in the state of California has increased by 30 percent.

#40 Sadly, child poverty is absolutely exploding all over America. According to the National Center for Children in Poverty, 36.4% of all children that live in Philadelphia are living in poverty, 40.1% of all children that live in Atlanta are living in poverty, 52.6% of all children that live in Cleveland are living in poverty and 53.6% of all children that live in Detroit are living in poverty.

#41 Today, one out of every seven Americans is on food stamps and one out of every four American children is on food stamps.

#42 In 1980, government transfer payments accounted for just 11.7% of all income. Today, government transfer payments account for more than 18 percent of all income.

#43 A staggering 48.5% of all Americans live in a household that receives some form of government benefits. Back in 1983, that number was below 30 percent.

#44 Right now, spending by the federal government accounts for about 24 percent of GDP. Back in 2001, it accounted for just 18 percent.

#45 For fiscal year 2011, the U.S. federal government had a budget deficit of nearly 1.3 trillion dollars. That was the third year in a row that our budget deficit has topped one trillion dollars.

#46 If Bill Gates gave every single penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for about 15 days.

#47 Amazingly, the U.S. government has now accumulated a total debt of 15 trillion dollars. When Barack Obama first took office the national debt was just 10.6 trillion dollars.

#48 If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

#49 The U.S. national debt has been increasing by an average of more than 4 billion dollars per day since the beginning of the Obama administration.

#50 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.

Congress does it again....

Polls show public approval of Congress at an all-time low, and a recent 60 Minutes piece that pointed out that members of Congress are exempt from insider-trading rules, and some are apparently profiting handsomely from that exemption, doesn't help. So the Senate promptly passed a bill (finally) outlawing insider trading by members of Congress, but House Republicans are stalling about passing the same bill, hoping, I suppose, to stall until the public forgets about it entirely.

This is by no means the only example of Congress exempting itself from rules it imposes on everyone else. I noted last year that the Obamacare legislation contained language, tucked deep into the 2000+ pages of the bill, that exempted some key Democratic members of Congress and the their staffs from the bill.

It pretty clear we need a substantial overhaul of Congress, but it is by no means clear what mechanism can drive that overhaul. Congress certainly doesn't seem inclined to do it themselves.

Recommended: A Nightmare of a Dream Team

Andrew Ferguson has an interesting piece in this week's Weekly Standard: A Nightmare of a Dream Team. He deals with President Obama's team of economic advisers, all of who are apparently proponents of the current fad in economics, "behavioral economics". As he points out, their theories don't seem to actually work well in practice. All in all an interesting discussion.

The EU treaty and the US

The new European Union treaty just negotiated today (and still not ratified by the 26 nations - Britain abstained) would impose a cap on the annual structural deficit (eg - the amount any member country can increase its sovereign debt in a year) of 0.5% of that nation's GDP.

If the US were to follow that guideline, with a 2010 GDP of about $14.58 Trillion, we would be limited to increasing the federal debt by no more than about $730 billion per year. The projected US 2011 deficit is about $1,300 billion, so to meet the proposed EU standard, we would need to cut expenditures by AT LEAST $570 billion per year. With this president and this Congress..... lots of luck!

Recommended: HALLELUJAH CORPORATIONS

On the same topic, I heartily recommend the YouTube video Hallelujah Corporations. We all need a good sense of humor to weather these difficult days.

Recommended: Obama’s Campaign for Class Resentment

Charles Krauthammer has another one of his pungent but accurate pieces on National Review On-line: Obama’s Campaign for Class Resentment. His point is that, faced with a myriad of national problems, many stemming from liberal overindulgence (entitlement programs that are bankrupting us, ballooning size of the federal government, an "affordable housing" scheme that was financially unsupportable), all President Obama can find to blame is "the rich", and his only solution is to soak the rich some more.

President Obama is a smart man, smart enough to know that if he confiscated everything the richest 1% had, it would make hardly any difference in the federal deficit. So, since he surely knows that, he can only be playing the class warfare card for political gain, to keep his liberal base happy, not because he really believes it would solve the problem. I am certainly not thrilled with the potential Republican nominees, but I do have to wonder if we the voters would be better off without a president who simply refuses to address the real national problems.

Recommended: The Ancient Virtues and Modern Sins

Victor David Hanson is a bit of a curmudgeon, as I have noted before. But he is SMART and PERCEPTIVE, and it is often worth the time to wander through his ramblings for the gems he produces. Along these lines I recommend his Dec 4 article The Ancient Virtues and Modern Sins. It rambles a bit, but his points are valid.

Recommended: God is not One

Stephen Prothero's book God Is Not One: The Eight Rival Religions That Run the World - and Why It Matters (2010 - see book list on sidebar for details) is a useful introduction to the eight largest religions in the world. In particular, he makes the point that despite ecumenical attempts to argue that all religions are simply different paths to the same God, the eight major religions differ at a fundamental level - they see different problems in the world and seek different solutions to their different problems. Christians, for example, worry about sin and seek salvation, while Buddhists worry about suffering and seek nirvana (many without any god required) and Hindus worry about getting off the wheel of reincarnation.

I appreciate the motives for trying to see commonality among religions, given how bloodily divisive these religious differences have been throughout history, and even to this day. But I do notice that most of those who argue all religions are just different paths to the same god all seem to assume (tacitly, at least) that that god is in fact their own god.

Any book about religion is of course going to be contentious, but I think this is a useful approach to understanding the core of each of these major religions -- what they see as the problem in the world and how they try to address that problem.

Fact checking sites

Now that an election is coming up the lies and half-truths and distortions are flying thick and fast from both parties. For those who haven't already found them, I recommend the sites Politifact and FactCheck.org. Both attempt to establish the truth or falsity of political claims being made by candidates and members of the government. Both are politically neutral.

Recommended: The New Tammany Hall

Matthew Kaminski has a perceptive article in today's Wall Street Journal: The New Tammany Hall. He deals with the distorting effects of increasingly powerful public unions, who use the required dues of their members for extensive political lobbying, always pushing for bigger government and higher pay and benefits for their workers, until many localities are now facing bankruptcy. It is worth thinking about his arguments.

Highly recommended: The Age of Absurdity: Why Modern Life Makes it Hard to Be Happy

Michale Foley, a British academic with a wry sense of very British humor, but an impressive span of intellectual resources, has written a book every American should read (but almost none will, because it actually requires some intellectual effort): The Age of Absurdity: Why Modern Life Makes it Hard to Be Happy (2010). I believe he has correctly identified the fatal flaws in our collective Western world cultural psyche. The very flaws that seem to be making it impossible for us to pull ourselves out of the mess are the same flaws have put us into the mess. I cannot write as good a review as has already been written by Phil Hogan of The Guardian in his piece The Age of Absurdity: Why Modern Life Makes It Hard to Be Happy by Michael Foley, and so I refer you to that review.

By all means get this book and read it. The writing is witty, but the message is profound.

Interest rates

I have always thought it was better, and far less painful, to learn from other people’s mistakes than to make the same mistakes myself. That thought might be relevant in light of today’s news that in Italy’s last bond sale this week the interest rate they had to offer jumped from 4.628% to 7.814% on two-year bonds, and jumped from 3.53.% to 6.504% on six month bonds. (today’s news is that their three-year bonds just jumped to 8.13%)

US Treasury notes currently sell for about 2.70% interest rates. At that rate, the US government pays about $454 billion per year in interest payments. Were the bond market to decide that our debt was as risky as Italy’s (for example, because our government is perceived to be incompetent and unable to reduce it’s debt), and require an 8% interest rate to refinance our debt as it became due, US interest payments would rise to around $2 TRILLION per year, half a trillion more than we currently borrow each year.

How bad does it have to get before the voters force Congress and the President to do something effective about this problem?

Recommended: Republicans And Democrats Dicker While The Deficit Yawns And Rome Burns

There is a very good piece on the Forbes website: Republicans And Democrats Dicker While The Deficit Yawns And Rome Burns. I agree completely with the author's claim that both Republicans and Democrats are lying through their teeth, and both are playing petty political power games (and many getting rich while they do it) while the nation goes ever deeper into debt and economic woes.

And I agree with his prescription - fire them all and put term limits on their replacements, and give them defined-benefits pensions like the rest of us, rather than lifetime sinecures.

Recommended: SEAL Target Geronimo: The Inside Story of the Mission to Kill Osama bin Laden

There have been a number of conflicting stories about the mission that killed Osama bin Laden. There were politicians who spun the story to make themselves look good. There were agencies who spun the story to inflate their part (if any) in the mission. There were sensationalist news stories geared mostly just to make news and increase ratings. There were stories by people with anti-war agendas to try and make it look inhuman. All in all it is hard to figure out what the real story was.

Chuck Pfarrer's book SEAL Target Geronimo (2011) is likely to be the closest to the real story that one is going to find. Pfarrer himself is a former assault element commander of SEAL Team Six, which means that he knows the system from the inside. He also had access to many of the key players in the mission, including some of the SEAL team members themselves.

The story is fascinating, though it doesn't reflect well on the politicians (who made much of the intelligence gathered from Bin Laden's hideout useless by promptly announcing that they had it), nor on agencies like the CIA or the FBI, who were in many cases more a hindrance than a help. The administration's politically-motivated need to crow about the mission meant that a number of Pakistanis who had helped were promptly identified, arrested, beaten and imprisoned for their efforts. And of course a number of people and agencies tried to prevent the book from being published, and are still trying to debunk it, because it contradicted the spin they were trying to put out.

One will come away from this story proud of American special forces, and disgusted with the self-serving politicians and Washington establishment. So what else is new?

Supercommittee autopsy

Well, to no one’s surprise the Congressional “subcommittee” failed to come to an agreement last week. Democrats insisted on tax hikes, and Republicans insisted on spending cuts, and so no agreement was possible.

So what are we to make of this? Well, as I noted a few days ago, it hardly matters. If the supercommittee had actually achieved their goal of finding $1.2 trillion in cuts over the next ten years, and if those cuts had been real cuts and not the smoke and mirrors accounting tricks Congress has been producing in recent decades, it still would have made almost no difference to the ballooning federal debt. Nor will the $1.2 trillion over ten years in automatic cuts (“sequesters”) that are now supposed to kick in make any real difference, even if Congress actually allows them to occur (unlikely).

A new poll by Quinnipiac University claims that 44 percent of Americans blame Republicans for the supercommittee's failure, whereas 38 percent blame Democrats. This, notwithstanding the fact that the same poll shows, by a 49-39 percent margin, Americans prefer closing the deficit with spending cuts only. Well, we already know voters are neither consistent nor very smart. If they were smarter they wouldn’t have elected these clowns to office in the first place!

The Democrats wanted to tax “millionaires” another $1 trillion, but couple it with a new $447 billion spending bill, which kind of misses the point of a “deficit reduction” committee. Republicans, on the other hand, adamantly refused to agree to any new taxes, though they were willing to look at simplifying the tax code and getting some extra revenue that way. They probably hold this position for the wrong reasons (party ideology), but I think the position is correct anyway.

In fact, we do need to raise taxes – we simply can’t afford our current government services at our current tax rates, which is why we are borrowing almost half of the federal budget each year and going deeper and deeper into debt. The problem is that Congress, under both parties, tends to use new revenue for new programs rather than for debt reduction, and that would probably have been true in this case as well had the committee agreed to raise taxes. (and in fact the Democrats already had announced what new programs they wanted to spend it on).

Reality is that we need to cut federal spending and/or raise taxes by about $1.5 trillion EACH YEAR just to stop borrowing and halt the growth in the federal debt, let alone pay it back. The only member of Congress who has been admitting that is Rep Paul Ryan (R – Wi), and no one is listening to him.

In the end, of course, we the voters are ultimately responsible for this. These people are only in Washington because we believe their TV ads and insincere promises, or because we blindly vote for our party’s candidate, even if they are incompetent.

Recommended: The Two Moons

David Brooks once again has an incisive piece in the New York Times: The Two Moons. He argues that we are now in a phase when neither major party is in the majority, and both are locked into an inward-turning cycle of trying to "stay ideologically pure". It is an interesting concept, and is persuasive.

We are coming up to an election with an incumbent Democratic president who, while personally likable, is clearly not up to the job, and a number of Republican opponents none of whom seem likely to be any better at the job. Democrats are simply unwilling or unable face reality about the huge deficits our entitlement programs are producing, and Republicans are lost in a right-wing never-never land.

Our choice in the upcoming election seems to be between:

(a) an incumbent who hasn't succeeded at any of the major tasks he promised to undertake -- changing Washington's political culture, closing Guantanamo, resetting the relationship with Russia, restoring the economy, reducing unemployment, resetting the relationship with the Muslim world, getting us out of Iraq (well, we will get out of Iraq now that the Iraq government has kicked us out, but he wanted to stay) and Afghanistan, reducing the size of the massive "black" intelligence world, etc. etc.

What he has done in his first three years in office is lumber us with a hugely expensive (CBO etimated appx $1 trillion) new health care bill, Spend about $1 trillion to save Wall Street firms and the bonuses of their CEOs, and to save the jobs of auto unions and public sector unions, increase the size of the federal payroll by 7.7% (from his Jan 2009 inauguration) despite a recession (see chart below),

and increase the federal debt by about $4.5 trillion (The debt was $10.626 trillion on the day Mr. Obama took office. Three years later it has just passed $15 trillion).

or (b) one of a series of pigmy Republican challengers who either don't accept the overwhelming scientific consensus on evolution and/or global warming (Gingrich, Perry, Cain, Ron Paul, Romney), or thinks God talks to them and told them to run (Perry), or is in favor of torture (Cain, Bachmann), or can't keep their Middle East nations straight (Cain). And none of whom has proposed a viable plan for reducing the federal debt, reducing unemployment, making America more competitive in the world market, fixing our education problems, solving our energy dependence on the Middle East, solving the entitlement problem, or any of the other major issues facing the nation.

A dismal choice!

Recommended: The Loss of American Manufacturing Jobs

The Global Economic Intersection site has an interesting post entitled The Loss of American Manufacturing Jobs: The Reasons are not just "Unfair Labor Practices Abroad". We certainly have been losing manufacturing jobs to foreign countries for years now. This chart, from the article, makes the point:

But the article also makes the point, as the title suggests, that lower wages elsewhere is not the only reason manufacturing jobs have been lost in America. It is a more nuanced vierw of the problem.

Recommended: Obama Unbound

Victor David Hanson makes some interesting points in his Nov 14 posting Obama Unbound. In this surrealistic world of political double-think, a Constitutional lawyer (Obama) can flout the constitution and hardly cause a ripple, as in the case of military action in Libya. As Hanson says:

In other words, right-wing presidents can sometimes act left-wing, and left-wing presidents can act right-wing — to the embarrassed silence of their respective bases, but to the private delight of their greenlighting opponents.

We have no better examples of that irony than our two most recent presidents. George W. Bush was still damned as an uncaring reactionary by the Left even as he pushed for big-government programs such as No Child Left Behind and unfunded entitlements such as Medicare prescription-drug coverage. Barack Obama was alleged to be squishy about hunting down terrorists, even as he increased targeted assassinations tenfold and found plenty of opportunistic former legal critics of Bush’s national-security protocols to write justifications for them.

Does Supercommittee agreement really matter?

The Congressional "Supercommittee" is supposed to come up with at least $1.2 trillion in federal spending reduction over the next ten years by Thanksgiving or a series of automatic across-the-board cuts ("sequesters") will occur. Of course, the cuts don't come until 2013, and Congress is perfectly capable of voting not to do the cuts anyway, and probably would if it came to that. For example, there are supposed to have been automatic cuts in doctor's fees in Medicare for years now (that was a large part of the assumptions Democrats used to "prove" that Obamacare was not going to cost us any more), but each year Congress votes not to let the automatic cuts occur, so one can see how the political system works - a real "bait-and-switch".

But in typical Washington fashion, we have been hearing all sorts of alarmist reports of how bad things will be for this or that agency if the cuts occur -- unpaid soldiers and starving homeless and all the rest of the emotional tearjerkers have been rolled out. But does it really matter?

The Mercatus Center at George Mason University has put out an enlightening posting entitled Federal Spending Without & With Sequester Cuts. The relevant chart is this one:

As one can see from the chart, this is all smoke and mirrors -- even with the sequester cuts federal spending still increases, and the sequester cuts make almost no difference at all!! Considering the magnitude of our debt problem (we just reached $15 TRILLION in federal debt this week!), this whole Supercommittee exercise is just political theater, just rearranging the deck chairs on the Titanic.........

Recommended: Europe's Crisis - Beyond Finance

George Freidman, CEO of STRATFOR, has written a fascinating piece Europe's Crisis: Beyond Finance.  In it he argues that Europe's current financial crises are not just about banks and debts, but also about European elites against the general European public. He has a whole new perspective on what is going on, and it is well worth reading his piece.

And of course it makes one think of America, where in similar fashion the current ruling elites are trying to muddle through the current crisis at minimal cost to themselves, thereby maximizing the cost to everyone else.

Is concern justified?

I have had several friends mention to me that my posts have taken a notably pessimistic tone in the past couple of years.  Whereas I have been known by some in the past as a "malignant optimist", I seem now to be perennially pessimistic.  Is this really warranted, or am I just getting crotchety in my old age?

Well, all I can say in reply is that it seems to me our nation is in greater danger now than at any time in my life, including even the Cold War years when we lived under the threat of nuclear annihilation. I truly fear for the quality of life, and even the very livelihood, of my children and grandchildren over the coming decades.  As I pointed out in yesterday's posts, the fiscal and unemployment issues that consume our focus these days are, in fact, fairly trivial compared to the much larger and more difficult-to-address structural issues the nation faces.

And it seems to me that neither the public at large nor our leadership, political or intellectual, are facing up to the magnitude of our problems or doing much of anything effective to even begin to explore possible responses. There are a few voices here and there, like Fareed Zakaria's CNN series "Restoring the American Dream", that are trying to raise public awareness about the looming issues, but there is remarkably little real public discussion about these problems.  The right is consumed with it's ideological and religious purity and the left is locked in a failed liberal social model from the last century. If there was ever a time for a new voice, a new political philosophy, and new cultural norms adapted to today's changed world, it is now.  But where are they?

It's not so much that we as a nation are in deep trouble that makes me pessimistic. It is that we as a nation seem to be largely unaware we are in such deep trouble, and unwilling to face up to the difficult choices we need to make and the difficult sacrifices that will be required and the hard work those sacrifices will entail.  We as a nation seem to be prepared to continue shopping at the mall with our iPod earbuds in our ears even as the tsunami approaches!  That is what really drives my pessimism.

Recommended: Storm Clouds Ahead: Why Conflict with Public Unions Will Continue

The Manhattan Institute has put out an interesting issue paper, Storm Clouds Ahead: Why Conflict with Public Unions Will Continue.  The author argues that faced with public union pension costs that have grown so large that they are crowding out everything else in the state budgets, states really have only three viable options: (1) change and restrict the union's bargaining power, (2) austerity by reducing  services and laying off people, or (3) concessions (give in to the unions) and raise taxes.

Ohio citizens just overturned Ohio's attempt to  try route (1), but there is no free lunch, so they will now be faced with austerity and reduced services and/or higher taxes. There just isn't any other option available.  Of course neither austerity and layoffs, nor higher taxes will be popular, nor will they do anything to make Ohio more competitive in the world markets.

Public unions, of course, have every incentive to keep fighting for more for their members, even if it eventually wipes out their jobs, as has already happened in many private industries (think American steel plants, or American shipbuilding), or bankrupts their states (think California and New York). But it is suicidal in the long term, both for the union members and for the states.

More on the previous post

After writing the previous post, I ran across two pieces that bear directly on the points I made:

Walter Russell Mead, who is one the better thinkers around, wrote a piece entitled Listen Up, Boomers: The Backlash Has Begun in the Nov 13 The America Interest. He is pretty blunt. The boomers - the generation that has been running things for the past few decades (and actually the generation just after mine) - has made a royal mess of things, and now we are beginning to suffer the the consequences.

After reciting a litany of lousy choices the boomer generation made, Mead says

All of this was done by a generation that never lost its confidence that it was smarter, better educated and more idealistic than its Depression-surviving, World War-winning, segregation-ending, prosperity-building parents. We didn’t need their stinking faith, their stinking morals, or their pathetically conformist codes of moral behavior. We were better than that; after all, we grokked Jefferson Airplane, achieved nirvana on LSD and had a spiritual wealth and sensitivity that our boorish bourgeois forbears could not grasp. They might be doers, builders and achievers — but we Boomers grooved, man, we had sex in the park, we grew our hair long, and we listened to sexy musical lyrics about drugs that those pathetic old losers could not even understand.

What the Boomers as a generation missed (there were, of course and thankfully, many honorable individual exceptions) was the core set of values that every generation must discover to make a successful transition to real adulthood: maturity. Collectively the Boomers continued to follow ideals they associated with youth and individualism: fulfillment and “creativity” rather than endurance and commitment.

The second relevant piece is one of Fareed Zakaria's TV specials in his CNN series Restoring the American Dream. This one is called "Fixing Education". If you missed it when it aired on TV this week and last week, the transcript can be found here. I have been hunting around to try to find a site where one can replay the video, but haven't found one yet, but excerpts can be seen here.

Previous posts have mentioned repeatedly that US students score dismally against other developer nations, despite spending more money per pupil than all but one nation. Zakaria mentions that, as well as the terrible dropout rate from US schools, but this piece also highlights some new successful approaches that the country could adopt, if it could free itself from the straitjacket of local and national politics in education.

The real dangers

The problem with crises is that they tend to produce tunnel vision. The near-term problems tend to divert attention from the long term problems, even though the long-term problems may be far more serious and dangerous. That, I think, is what is happening here in America. The nation, and the political system, is all focused on the immediate problems of the current financial crisis, with the growing federal debt and high unemployment, and politicians have been looking for short-term solutions, like extending unemployment insurance and raising taxes.

Far more dangerous, however, are some long term structural problems in America. Yes, we have high unemployment at the moment, but the real problem is that many of those lost jobs will never come back, whatever Washington tries to do. Yes, we have too much federal debt at the moment, but the real problem is that without major readjustments America will never again have the rate of growth that can pay back those debts.

In a nutshell, America is losing manufacturing to other nations with lower wage rates, we are losing our lead in innovation to other nations with better-educated, more highly motivated engineers and scientists, we are losing new businesses to entrepreneurs on other countries with more favorable tax rates and larger skilled labor pools who are willing to work harder for lower wages.

For decades now places like Silicon Valley have been filled with bright foreign engineers, programmers, scientists, and entrepreneurs who came to America because they could do better here than in their home country. Now many are migrating back to their home countries to start their own competing companies, creating jobs back in their home countries rather than here in America..

The playing field is changing for America, and we no longer have such a clear advantage. If we don’t adapt, and quickly, we will almost certainly follow the British Empire into second-rate status over the coming decades.

This is a hard problem, and it will take a serious and extended national debate with our best minds to figure out how to adapt effectively. Certainly we need to rethink our educational system from the ground up, free it from the political constraints of teacher’s unions and the ideological constraints of local school boards, reverse the widespread trend to “dumb down” courses to make kids “feel better about themselves” and reverse the trend of colleges to put money-making ahead of academic rigor.

Certainly we need to invest heavily in our crumbling infrastructure, and in fields like basic science, which is what underlies and provides the feedstock for technological innovation.

More difficult are the cultural adjustments we need to make to wean ourselves as a nation from the comfortable indolence we have adopted over the decades when America had little real competition, and return to some of the work ethics we had as a nation in earlier, more difficult times – work ethics which our serious competition in places like India and China still have. This is not a matter of spending money – this is a matter of rethinking and readjusting our core values as a culture, and the values we teach our children in the home.

The real problem at the moment is that our national leaders are still playing petty short-term political power games with each other to see who can promise more to the voters, when what we really need is an all-out, all-hands-on-deck, wartime crisis sort of unified national attack on these long term structural problems.

The Supercommittee's "Savings"

Unbelievable! The so-called "Supercommittee" is supposed to find at least $1.2 trillion in savings over the next ten years by Thanksgiving. Of course, this is a ridiculously low target. The government currently has to borrow almost $1.5 trillion EACH YEAR, so cutting $1.2 trillion out of the budget over the next 10 years is a pittance -- less than 10% of what would be required just to keep us from going further into debt.

But, according to TheHill.com, Democrats on the committee are now proposing to use the "savings" from not being in Iraq any more to fund a new stimulus plan. In other words, they are proposing to use money we weren't going to spend anyway to actually INCREASE government spending! Unbelievable! The very committee that is supposed to find at least token budget cuts is now trying to spend more!

How much longer will we the taxpayers let these jokers in Washington, Republican and Democrat alike, play these stupid political games in the face of a real and extremely dangerous national crisis? How much longer before it will spark an "American spring" in the streets?

Whose is the election to lose?

A month or so ago I said that President Obama was so vulnerable that the election was the Republican’s to lose – though they might just be stupid enough to nominate such a far right candidate that they would lose it anyway.

Today I would say the election is President Obama’s to lose. Not that he looks any better on his record or in the polls than he did a month or so ago, but the Republicans seem bent on self-destruction and may hand the election to him.

The announcement that a group of influential conservatives have launched a campaign to deny Mitt Romney the nomination because he isn’t conservative enough is the final straw. Apparently the Republicans aren’t willing to consider anyone who isn’t ideologically “pure”, meaning that they are against abortion, don’t believe in either global warming or evolution, and are stuck in the fantasy that cutting taxes will solve all our fiscal problems. It now looks like the Republicans are going to do Obama’s work for him, and destroy any potentially electable nominee (meaning moderate enough to get significant independent votes) before they even reach the general election.

Well, if they are that ideologically rigid, that politically naïve, and that out of touch with reality, I guess I don’t want them in control of the government anyway. Not that I relish another four years of liberal denial and spending either.

The Emperor’s clothes

It has always seemed interesting to me that the world accepts paper money, even though it is no longer backed by anything of value. Once, of course, a paper bank note could be exchanged at any time for an equivalent value in silver or gold, so the paper money was really just a promissory note. But most nations have abandoned that practice by now, and so the whole system now runs on faith. That works as long as everyone agrees to pretend that the paper notes (or now, their electronic equivalents) really have value, and in fact the system has worked well for decades now in that manner – though it does encourage governments to “cheat” by just printing more banknotes to cover their debts (the euphemism for this is “quantitative easing”, and the US just did that).

This comes to mind this morning as I think about the world financial crisis – or more accurately, the debt crisis. Europe is teetering along, having bailed out Ireland, and Portugal, and now Greece (for the second time), but in fact the measures taken thus far are clearly too little. Even with a 50% “haircut” on Greek bonds, the Greek debt is still about 120% of GDP, far more than the nation can ever pay off with its current economy. And now Italy is looking shaky as well. Greece, Portugal and Ireland were relatively small nations, but the Italian economy is simply too large to bail out.

So in fact a large number of European banks (and probably a few big US banks as well) are actually insolvent, since they hold bonds from various EU nations that will never be paid back in full, if at all. No one wants to admit this out loud, because it would cause the banks to immediately fail, and precipitate a major banking crisis around the world. But it is true nonetheless.

And we are playing the same game here in the US. The Federal government currently has financial obligations that far exceed any revenue it could ever possibly collect. I’m not just talking about the $14 trillion in national debt – I’m also talking about the estimated $70-100 trillion in future obligations for federal pensions, Medicare and Medicaid, and Social Security. Not to mention the estimated $5 trillion that Fannie Mae and Freddie Mac are short from bad mortgages. Not to mention the estimated $3 trillion in unfunded pension liabilities at the state and local level. (Notice we are in trillions here -- billions are small change in this conversation!)

So far American politicians have been pretending that the Emperor still has clothes. They have been pretending that minor adjustment here and there (cut $1.5 trillion over 10 years from the federal budget, tax millionaires, etc) will solve the problem. And so far the financial world has agreed to this fiction, because to admit out loud how bad things really are would precipitate a crisis.

In fact, it is not unreasonable to pretend things are OK for a while to buy time to fix the real problem. That would be quite a reasonable strategy. Unfortunately that is not what is happening, either in Europe or in the US. Nothing effective at all is being done to address the underlying problem – all the effort is on “patching things up” month by month to maintain the fiction and avert the crisis.

At some point, no doubt, the world will realize that the Emperor has no clothes, and then things could get very bad indeed.

Pew poll references

I tracked down the original Pew Research Center studies referred to in the previous post.

For the May 2009 public perception of evolution and climate change, a summary can be found at http://www.people-press.org/2009/07/09/section-5-evolution-climate-change-and-other-issues/.  That summary has links to the complete report and to the questionnaire.

An additional fact I found interesting is that public perception of whether there is a consensus among scientists on these issues is at variance with reality. The relevant section of the report reads:

Despite the overwhelming agreement among scientists about evolution and climate change, substantial minorities of Americans think there is no scientific consensus on these issues. While a 60% majority of the public says that scientists generally agree that humans have evolved over time, nearly three-in-ten (28%) say that scientists do not generally agree.

A comparable majority (56%) says that scientists generally agree that the earth is warming because of human activity. However, more than a third (35%) says that scientists do not generally agree.

In both cases, people’s perceptions of a scientific consensus are strongly correlated with their own views on the issue. Fully 79% of those who say life has evolved due to natural selection say there is a scientific consensus on this issue. Fewer than half (43%) of those who say life was created in its current form see such a consensus.

This pattern is even more pronounced when it comes to views about whether there is a scientific consensus over climate change. About three-quarters of people (76%) who say human activity is driving global warming think that most scientists agree on this point. Fewer than half (41%) of those who say warming is mostly due to atmospheric changes think there is a scientific consensus on the issue. Among the small share of the public (11%) that says there is no solid evidence of global warming, just 22% say there is scientific agreement that human activity is causing global warming, while 68% think there is no agreement among scientists on the issue.

The US religious knowledge report was issued in September, 2010, and a summary can be found at http://pewforum.org/Other-Beliefs-and-Practices/U-S-Religious-Knowledge-Survey.aspx.  The section specifically devoted to what people know about the Bible can be found at http://pewforum.org/U-S-Religious-Knowledge-Survey-Who-Knows-What-About-Religion.aspx.

Recommended: The Age of American Unreason

Susan Jacoby, who also authored Freethinkers: A History of American Secularism (2004) examines the cultural history of the past 40 or so years that has led America to its current anti-intellectualism, in which even supposedly well-educated politicians don't believe in evolution and climate change, despite an overwhelming scientific consensus worldwide on these issues. Recent Pew polls show an astounding level of ignorance about science among Americans (one in five still believe the sun revolves around the earth!!), and an almost complete lack of knowledge about history.

Some of this anti--intellectualism is driven by the fundamentalist religious right, but even in their own chosen area of expertise, the Bible, this group is amazingly ignorant.  According to the Pew survey about half think the Golden Rule is one of the ten commandments, and only 45% can name the four Gospels.

This is a disturbing book to read -- one fears for the future of the nation.  But it is important, nevertheless, to understand the roots of this problem, and the effect it is having on our children.

The dangers of inequality

As a matter of human nature, the ruling elites always arrange to take care of themselves first. Even in a democracy, "we are all equal, but some are more equal than others" (from George Orwell's Animal Farm). This certainly seems to fit the overpaid CEOs and Hedge Fund managers we have been hearing about.

But as a matter of self-interest, those at the top need to be sure the inequality doesn't get too bad, or the natives will revolt, as has happened repeatedly throughout history, including recently in the Middle East. And when the natives revolt, things usually aren't very pretty.

So the rising anger we are seeing in our own country, with the Wall Street protests as just one visible symptom, is a warning to those at the top of the heap that the pyramid of inequality has gotten close to the point where things become unstable. If they were wise they would pay attention to this.

Recommended: Biden’s Fourth-Grade Economics

Mark Steyn has a wonderful piece in today's National Review Online: Biden's Fourth-Grade Economics. Vice-President Biden apparently gave an impromptu economics lesson to some fourth-graders on York, Pennsylvania recently. What he said would be hilarious and worthy of a Monty Python satire if it weren't that liberals like him, who unfortunately currently lead the country, really believe the fictions -- either that or they are telling us outright lies.

Dilemmas and unintended consequences

Whoever occupies the White House after the next election will face a difficult dilemma. On the one hand, there is absolutely no way the government can continue to spend almost twice as much as it takes in, borrowing the rest. On the other hand, to reduce the government back to a size that matches its income will involve putting millions of people out of work. And these won't just be government bureaucrats who are "declared redundant". It will probably involve an even larger number of people in the private sector -- all the people who clean their offices, run their cafeterias, maintain their buildings, provide their office supplies, service their fleet cars, etc, etc etc. Not to mention the millions of private sector contractors who will have to be laid off when their government contracts disappear.

So this "small government" movement has some difficult unintended consequences.

The same is true of the plan to reduce our defense expenditures. Clearly we spend way too much on defense - about as much this year as the whole rest of the world put together. We could spend half of what we currently spend and still have the most formidable military on the planet (if we spent the remainder wisely). BUT reducing defense spending by half would put millions more people out of work. And again, it wouldn't just be military people, it would include an even larger number of contractors and suppliers from the private sector.

So once again, reducing federal spending is a two-edge sword, especially in these times of already-high unemployment.

Enlightened Self-Interest

It is no surprise that the wealthy and powerful work hard to keep themselves at the top of the pyramid, and to maintain their wealth and the privileges that go with it. In fact, it is simply human nature. So we see this same theme everywhere in the world and all through history, in nations ruled by oligarchies or dictators and in nations like ours that are supposedly "democratic". In good times it is not so apparent, because everyone feels they are doing well. But in bad times like these it is painfully obvious that the ruling elite takes care of its own first.

What ought to be obvious to the ruling elite, but apparently isn't, is that their continued wealth and prosperity depends upon a strong and healthy economy, with lots of well-off consumers who can buy the products that their companies make and provide the profits that feed their wealth. Henry Ford was wise enough to see that he had to pay his workers well enough that they could buy the cars he was making.

This is an elementary observation about economics. Even slave owners know that one needs to keep feeding the slaves so they can keep working. But apparently today's ruling elite hasn't yet understood this simple principle, or they would be a lot more worried that they appear to be about the precipitous decline of consumer purchasing power and the high unemployment rate.

Recommended: The Ugliness Started With Bork

Joe Nocera makes a point in today's New York Times that I have made often: The Ugliness Started With Bork. It was the bitterness, and essential unfairness, of the liberal battle to prevent Robert Bork from being appointed to the Supreme Court in 1964 that started the civil war between the Democrats and the Republicans in Congress.

As Nocera says:

I bring up Bork not only because Sunday is a convenient anniversary. His nomination battle is also a reminder that our poisoned politics is not just about Republicans behaving badly, as many Democrats and their liberal allies have convinced themselves. Democrats can be — and have been — every bit as obstructionist, mean-spirited and unfair.

I’ll take it one step further. The Bork fight, in some ways, was the beginning of the end of civil discourse in politics. For years afterward, conservatives seethed at the “systematic demonization” of Bork, recalls Clint Bolick, a longtime conservative legal activist. The Atlanta Journal-Constitution coined the angry verb “to bork,” which meant to destroy a nominee by whatever means necessary. When Republicans borked the Democratic House Speaker Jim Wright less than two years later, there wasn’t a trace of remorse, not after what the Democrats had done to Bork. The anger between Democrats and Republicans, the unwillingness to work together, the profound mistrust — the line from Bork to today’s ugly politics is a straight one.

It is not that the liberals opposed his nomination - that was understandable. It was that they were willing to use any means available, fair or unfair, truthful or not, to destroy him. So they should not be surprised that the same tactics are now used against themselves.

Recommended: The World As It Is: Dispatches on the Myth of Human Progress

Chris Hedges was a foreign correspondent for the New York Times for over twenty years, covering most of the major and minor wars of that period. He is also a Pulitzer Prize winner. His experiences, especially close-up and personal in wars, have given him a distinctly non-mainstream view of the world. A committed socialist and follower of people like Noam Chomsky, who have been railing against “the system” for years, he is outraged about American policy, and deeply worried about the future of America.

I have generally found the ranting of people like Chomsky neither convincing nor interesting, but I have to say that Hedges makes a persuasive argument in this collection of articles that our problems in America are far more fundamental, and far more dangerous, than most of us have assumed. It is worth reading this book and pondering whether our ”mainstream” views are really incorrect, and whether perhaps we really have been brainwashed by the media and the political elite, and whether perhaps the emperor really doesn’t have any clothes.

Certainly watching politicians in both America and Europe try to cope with the financial crisis, one is struck by how they seem to be taking care of the ruling elite first (Wall Street, the senior management of big corporations, powerful unions, other in-group politicians, and all the media hangers-on).

This is not a comfortable book to read, It challenges a lot of our "conventional wisdom" and common world views. For that reason alone it is important. We should never cease to listen to, and seriously consider, other views that challenge our own comfort zones.

The Israeli trade

I don't understand why people never seem to learn that paying ransoms just encourages more kidnapping! Israel just agreed to release 1000 Palistinain prisoners -- many mass murderers and terrorists - to get back one kidnapped Israeli soldier. Can you think of any action more likely to encourage more kidnapping by Hamas? What will they trade for the next kidnapped Israeli?

Recommended: Congress, Governors Nix Obama's High-Speed Trains

Sometimes sanity does eventually prevail, even in Washington. As I have noted in previous posts, high-speed passenger trains are not economically viable in America. Actually, they are not economically viable in most places, any more than the supersonic Concord was ever economically viable. But among some of the Washington elite, who may be politically savvy but are naive about the realities of engineering and economics, high speed rail has had a persistent appeal.

As Michael Barone notes in his piece today Congress, Governors Nix Obama's High-Speed Trains, most Governors have been smart enough to see that accepting federal grants to begin to build high-speed rail lines would encumber their states with huge long-term subsidies, and Congress has finally cooled on the idea of wasting any more money down this rat hole.

Recommended: The Way Forward

Nouriel Roubini, known as Dr Doom before the recession because he kept predicting (accurately) the coming crisis, has co-authored a new paper by the new America Foundation: "The Way Forward: Moving from the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness."

The authors argue that nothing proposed thus far by either the Democrats or the Republicans is adequate to deal with the current fiscal crisis, and propose the sort of long-term massive infrastructure rebuilding program that might be needed to restore the nation's economic health. And by the way, they don't believe deficit reduction at this point makes any sense either.

This paper is somewhat academic in tone, but very important and well worth reading anyway. The nation is clearly in a serious financial crisis, and we need our best minds to help us figure out how to get out of it. These three authors are among our best minds on this topic.

Taxing miilionaires

President Obama would like to levy a tax on millionaires to pay for his jobs bill. It certainly sounds reasonable, considering all the Wall Street types and CEOs who have been taking home obscene salaries and bonuses even while their companies fail and their actions bring on a recession.

Still, I do have to wonder why he insists on looking for new revenue instead of cutting government spending to find the money for his bill. Nothing has changed recently -- we still borrow almost half the money the government spends each year and a tax on the rich will make almost no difference to that situation. We still need to cut something like $1.5 TRILLION per year from the government budget just to balance the budget, let alone begin to pay back our debts. Some $450 billion in millionaires taxes is a drop in the bucket compared to the $1.5 TRILLION that needs to be cut.

But then, it has been obvious for some time now that this president has no intention of tackling that problem, any more than his proposed job bill does much of anything effective for the current high unemployment figures.

More on the Jobs Bill

As a follow -on to the last post, note this news item:

Senate Democrats buck Obama on jobs proposal by changing 'pay-fors'
By Alexander Bolton - The Hill, 10/04/11 08:35 PM ET

Senate Majority Leader Harry Reid (Nev.) on Tuesday further distanced his Democratic Conference from President Obama by nixing a major component of the White House’s jobs plan.

Reid said he would revise parts of the proposal that some Senate Democrats have found unpalatable. The Nevada Democrat announced his new strategy on the same day he blocked a Republican effort to force a vote on Obama’s jobs bill.

-------------------------

Reid told his Democratic colleagues Tuesday that he would put together a new plan to pay for the package after rank-and-file colleagues balked at proposals to limit tax deductions for the wealthy and raise taxes on oil and gas companies.

So it's not just the Republicans who won't support the president's jobs bill.

Political theater

An amusing, if pathetic, little piece of political theater this afternoon revealed just how meaningless are President Obama's repeated attempts over the past few weeks to paint the Republicans as the obstacle to a workable job bill. Minority Leader Mitch McConnell (R-Ky.) attempted this afternoon call up President Obama’s jobs plan for an immediate vote in the Senate. The attempt was blocked procedurally by Senate Majority Leader Harry Reid (D-Nev.)

McConnell admits the move was made just to embarrass the Democrats, because what McConnell and Raid both know is that there are not enough Democratic votes in the Senate to pass the President's bill, even though the Democrats have a majority in the Senate. It is not just the Republicans who won't support higher taxes; it is also a lot of Democratic Senators who are up for re-election next year and want no part of being associated with President' Obama's higher-taxes plan.

So the dirty little secret exposed by this political theater is that it is not just Republican opposition that is blocking his plan -- it is strong opposition from his own party. More than that, President Obama is perfectly well aware that his plan is a non-starter with his own party; moreover he was aware of this even before he proposed the plan, because the Congressional leadership of his own party told him so in no uncertain terms.

That means that he never expected his plan to pass, so pushing it is nothing more than a pre-election maneuver, not a serious attempt to deal with the unemployment problem. For this descent into Chicago-style political gamesmanship in the face of such a serious national problem he has now finally lost my vote for good, whomever the Republicans nominate.

Recommended: Making Movies

Sidney Lumet, director of such successful movies as Serpico (1973) Dog Day Afternoon (1975) and Q & A (1990) , has written a wonderful insiders book about movie –making., This is not an exposé of the lives of famous actors, but rather a discussion of what goes into the making of a movie from the director’s point of view. Fascination for those of us who have watched movie-making from the outside.

See the book list in the sidebar for details. This book was published in 1996, and so will be found among the 1996 books in that list.

Recommended: Packing for Mars: The Curious Science of Life in the Void

Surviving in space for long periods, as will be required for a trip to Mars, is difficult. But we have already been preparing with our near-earth space station, the shuttle flights, and the Apollo moon flights. And it isn’t all that glamorous, seen up close. Mary Roach, whose previous books are Stiff: The Curious Lives of Human Cadavers, Spook: Science Tackles the Afterlife, and Bonk: The Curious Coupling of Science and Sex, has a wonderful talent for entering a field and describing it with wit and humor, as she does in this book. Ever think about the problem of defecating in zero gravity? Ever wonder what the astronauts eat (and whether they like it)? Ever wonder why airline passengers don’t have parachutes? This is the book that will explain it. A wonderful, entertaining but highly educational read.

Recommended: Finally, The Cognoscenti Ask: What Could We Be Thinking?

Mark Steyn isn't one of President Obama's supporters, but having said that, his new piece on Investors.com: Finally, The Cognoscenti Ask: What Could We Be Thinking? is worth reading.

Lots of us drank the Cool-Aid in the last presidential election (myself included) and bought the "New Hope" and "Change in Washington" message. As Mark says:

You handed a multitrillion-dollar economy to a community organizer and you're surprised that it led to more taxes, more bureaucracy, more regulation, more barnacles on an already rusting hulk?

Well, the results aren't impressive. Nancy Pelosi kept Congressional politics at its usual civil-war, let's-screw-the-other-party-while-we-can level (and the Republicans are reciprocating now). The economy is going nowhere (except perhaps into a second dip), the federal deficit continues to climb with no plan or proposal from the President to do anything effective about the problem.

Perhaps we, the voters, should have been a little more savvy than to expect a junior Senator who never ran a business, never met a payroll, never governed a state to be able to run a nation the size of ours, especially during a recession. It would be a difficult job even for an experienced governor or legislator; we were naive to think an inexperienced person could do the job. Eloquence (which Obama certainty does have) is no substitute for experience.

In the end, as Aristotle said: "Every country gets the government it deserves". We wanted Obama, so we got him. Now we have to live with the consequences of our decision.

Recommended: Obama's Dilemma: U.S. Foreign Policy and Electoral Realities

George Friedman, the director of STRATFOR, the world's larges private intelligence agency, has a very good piece on the STRATFOR site: Obama's Dilemma: U.S. Foreign Policy and Electoral Realities. It is a concise appraisal of just where President Obama stands today, and the forces that constrain his possibles avenues of action until the election.

It is well worth reading.

Recommended: The great schools revolution

The Economist has an interesting article in this month's issue: Reforming education - The great schools revolution.  While the USA has been spending more and more money on education, our ranking has fallen further and further behind the rest of the developed world.  We now spend more per student than almost any other country, yet our 15 year olds rank between 17th (reading) and 25th (math) among the developed countries of the world.

As the article notes:

"Above all, though, there has been a change in the quality of the debate. In particular, what might be called “the three great excuses” for bad schools have receded in importance. Teachers’ unions have long maintained that failures in Western education could be blamed on skimpy government spending, social class and cultures that did not value education. All these make a difference, but they do not determine outcomes by themselves."

and:

"So what are the secrets of success? Though there is no one template, four important themes emerge: decentralisation (handing power back to schools); a focus on underachieving pupils; a choice of different sorts of schools; and high standards for teachers."

Recommended: The Social-Democratic Illusion

One of the persistent dangers of political discourse is falling into the "group mind" trap -- of beginning to believe that all the solutions are somewhere within the range of political views commonly discussed. In our case that means the political narratives of the two major parties - Republicans and Democrats. But a study of history will reveal many occasions in which neither the ruling elite nor their "loyal opposition"  understood the current circumstances correctly , and in which the political consensus was completely wrong. One suspects we are at such a point right now.

In that context, it pays to begin to cast further afield for new ideas and different perspectives. Immanuel Wallerstein has always been outside the mainstream of political thinking, viewing circumstances from a different perspective, and for that reason I pay attention to his occasional writings. His Sept 15 posting
The Social-Democratic Illusion is a case in point.

Wallerstein argues that the "Social-Democratic" view (which in America corresponds roughly to the neo-liberal view) of an expansive welfare state was sustainable through the decades following World War 2 because of two factors: the incredible expansion of the world economy, and the stabilizing influence of America. However, both of those have lost their force now, so the social-democratic welfare state system is tottering, both here in America and especially in Europe. His argument has some force, since in both America and Europe the current economic crisis seems to be driven largely by the huge debt governments have built up, largely trying to sustain entitlement programs.

It is an article well worth reading.

Recommended: A Ponzi scheme that should be fixed

Charles Krauthammer, in the Sept 15 The Washington Post,  has a piece: A Ponzi Scheme that should be fixed.  He makes much the same points I did in my post a few days ago about Governor Perry's claim that Social Security is a Ponzi scheme -- yes, of course it is, but it can be fixed and it should be fixed.  Burt he has a few interesting twists to his arguments, and I recommend it.

Recommended: They Gave a Recovery and Nobody Came

There is a very interesting posting over on Reason.com by Tim Cavanaugh: They Gave a Recovery and Nobody Came. He argues that the economic figures show that as far as Keynesian economic models are concerned, the recovery has already happened.  Despite the repeated claims by Keynesians that the problem with the economy is that consumption is down, the government's own figures show that both personal and government consumption is now higher than it was before the recession, so there is no aggregate-demand gap at the moment. But of course the disastrously-high unemployment figures have hardly moved, so clearly the Keynesian model of what needs fixing is simply wrong.

Cavanaugh argues that Keynesian economics has no way to deal with high indebtendess -- its models are essentially blind to that condition -- but that it is just the high indebtedness of companies that is keeping unemployment high, along with all the uncertainty over future taxes, future regulations, and future employee health care costs. It is, he argues, just too uncertain a future for companies to hire lots of new workers.

All in all an interesting alternative view of our problems.  And since the current Keynesian view of what is wrong and how we ought to fix it is by now clearly wrong, we need fresh ideas like this.

A Real Dilemma

The upcoming 2012 presidential election (and the accompanying House and Senate elections as well, for that matter) present a real dilemma – two alternatives neither of which is particularly attractive.

On the Democratic side we have President Obama with his lackluster first term. Actually, I don’t fault him for not solving the recession problem – it is clear that no one really knows how to resolve this issue, and the high-powered academic economists can’t even agree among themselves as to the proper course.

But I do fault him for not trying harder – for wasting his first three years in office saving the bonuses of Wall Street executives and CEOs, and subsidizing the jobs of union members who make up his base, and pushing through his heath care bill while all across the nation ordinary people’s homes were being foreclosed and jobs were being lost and small businesses were being forced out of business.

And I fault him, and especially Nancy Pelosi, for ramming through a messy and expensive (and perhaps even unconstitutional) health care bill while cutting Republicans completely out of the negotiations.  It caused such bitterness among Republicans that it has been full-scale civil war between the parties in Congress ever since, and resulted in putting some 70+ intransigent Tea Party freshmen onto the House that even Republican Speaker John Boehner has difficulty controlling.

And finally I fault him for not putting in place a medium-term plan for cutting the ballooning federal debt. One might reasonably argue that the middle of a recession is not the time to cut the federal budget, but that argument only holds water if accompanied by a credible plan to cut the deficit in the medium term. He has presented no such plan, and such “budget cutting” he has finally agreed to (forced to it kicking and screaming by the Tea Party members) has largely been smoke and mirrors, and far too little to make any real difference.

All-in–all this Democratic administration has clearly been over its depth both domestically and in foreign policy.  Remember the Russian “reset” and the “open hand” offered to the Arab world? – not much came of either of those initiatives.

But on the Republican side we have what appears to be equal incompetence. None of the current candidates look particularly promising, and while at this point the presidential election is the Republican’s to lose, they do seem quite capable of nominating some right-wing extremist and losing it.

The Republican fixation with cutting taxes, while there is indeed some logic behind it, appears to be held as an unthinking non-negotiable ideological position, not a logical one. More than that, there is little evidence from their performance in the previous Republican administration that they are any less feckless about the debt problem than the Democrats.  It is true that this Democratic administration managed to add as much to the nation’s debt in three years as Bush did in eight years, but that isn’t saying much good about the Bush administration either.

Finally, despite all the hype and talking points, I have yet to hear from any Republican candidate a better idea for getting the economy moving again.

So we have a real dilemma – I may again want to vote “none of the above” in this next election.

Recommended: Obama's Crony Capitalism

Over on Reason.com A. Barton Hinkle has written an article entitled Obama's Crony Capitalism that summaries the issues with the recently bankrupt Solyndra solar cell company that the administration poured so much money into and touted as such a big deal.  As he notes, aside from the Chicago-style politics involved (one of the biggest investors was also one of Obama's biggest money men in the last campaign), it is a case study in why the government ought not to try to pick winners and losers in the marketplace.  It is worth reading.

Is Social Security a Ponzi Scheme?

Governor Perry has made quite a splash with his repeated claim that Social Security is simply a Ponzi scheme. The liberal press has had a field day with this, and even some of his Republican opponents have attacked him on this.

But is he right?  Well, a Ponzi scheme, like the one run by Bernie Madoff, works by taking the money from people who invest later and using some of it to pay "dividends" to people who join earlier, and then diverting the rest of the "investment" to the crook's own use.  It works fine until there are no more new people joining and investing new money, after which the whole scheme collapses and the latecomers all discover that they are going to get nothing back for their investments.

That sure sounds like Social Security.  We older folks put our money in, and theoretically it went into a "lockbox" (the Social Security Trust Fund) not to be used for anything but eventually paying monthly checks out to us. But in fact the money didn't go into a "lockbox" -- it went back out to Congress as fast as it came in to pay for all sorts of pet Congressional programs, replaced by paper IOUs (Treasury Bonds). So all that is really in the "lockbox" is paper IOUs, no "real" money. So where does Social Security get the money to pay out the monthly Social Security checks?  It can't get it from the "lockbox" because there is no real money there, just paper (actually electronic) IOUs. So it gets it from the people paying in the month before.

This system works fine until there aren't enough new people paying in each month to cover the amount that Social Security needs to pay out, and we are just about at the point, as our population ages and we have an increasing number of older people collecting Social Security against a smaller number of workers paying in each month.
 
But what about the Treasury Bonds in the "lockbox"?  Isn't that real money? Fancy as it sounds, a Treasury Bond is nothing more than an IOU that promises to pay back the capital and a little interest at some future date.  These days when a Treasury Bond comes due, the government just sells another Treasury Bond to get the money to pay out the first bond, "rolling over" the debt rather than really paying it back (something the government and banks frown on individuals doing, but seems for some reason to be OK if you are the US Treasury....) .  That works fine so long as someone will buy the new Treasury Bond.  The day there are no new buyers the whole scheme falls apart.

If you or I tried to run a scheme like this, we would be quite properly arrested, tried, convicted and jailed, as was Bernie Madoff.  But when the government does it.............

So it may be offensive to liberals to call Social Security a Ponzi scheme, but if it walks like a duck and looks like a duck and quacks like a duck..........

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Added thought: To say it is a Ponzi scheme now (which it is) is not to say it couldn't be repaired and "un-Ponzied".  In fact, it could with some relatively simple changes, such as slowing raising the eligability age, taking the cap off of earnings taxed for Social Security, and changing the over-generous inflation adjustment to make it track core inflation rather than wages.  The problems with Social Security are much smaller, and much easier to repair, than those for Medicare/Medicaid.

Obama's Proposals

Finally, three years into his term and three years into a devastating recession, President Obama took on the jobs issue for real. It is what he should have done at the beginning of his term, instead of wasting time and political capital on the healthcare issue.

As usual, President Obama was eloquent in his speech last night. But as usual, it offered nothing new.  It was clearly a re-election speech, designed to maneuver Republicans into damaging positions ahead of the upcoming election, rather than a problem-solving speech aimed at really solving the nation's problems.

As usual, his solution was to throw more (borrowed) money at the problem rather than address any of the underlying structural problems. The word "stimulus" was assiduously avoided, but that is in fact what he proposed.  Since a "stimulus" twice that big had almost no measurable effect except to dramatically increase the national debt, it is not clear how one half that size can be expected to have much effect.  He proposed tax cuts, but since he didn't propose cutting federal spending at all the reduced revenue just increases the deficit.

I didn't really expect anything new from the president's team, and I see most pundits didn't expect much either.  The coverage of the speech this morning is remarkably sparse, even from the pundits who usually think he walks on water.

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PS - I see that the world's stock markets have taken a steep nose dive in the wake of President Obama's speech (the Dow is down 338 points as I write this). Last time he gave a speech the stock market dropped a hundred points even as he was speaking. One might think this was a message...............

What the government should (or can) do (Part 1 – what we know)

There is no question that the roots of our current economic mess are very complex indeed. The crisis stems from a long accumulation of natural circumstances, shifts in technology, demographic changes,  short-sighted corporate and government policies, poor consumer choices, and improvident government by both political parties, among other factors. Decades or centuries from now, with ample perspective, historians may be able to untangle the threads enough to identify the major contributing factors, but in the present day we can only go from what we know or understand now.

So what do we know right now?  Well, we know that Keynesian “pump priming” by the government with its last massive stimulus package didn’t work very well. Nick Gillespie yesterday had an interesting piece on Reason.com, One Reason Why Keynesian Stimuli Aren't Working: They Aren't Keynesian, that argues that Keynes himself would have been appalled at how his theory is being applied (or rather, misapplied) today.

We also know that the current academic economic models don’t fit the real world very well. We have had the nation’s leading academic economists using their models over the past two decades to project the results of various policies, and more often than not these models have failed. As I noted in a post a few days ago, these models didn’t predict the current recession (in fact most of them projected continued strong growth through this period), they didn’t correctly predict the result (or lack of result) of the first stimulus package, they didn’t correctly predict the real risks in all the fancy new risk derivatives swamping Wall Street, they didn’t predict the 2006-2007 housing bubble, nor for that matter the 1999-2000 “dot.com” bubble.

We also know that increasingly the American workforce is not adequately prepared for the jobs of tomorrow. We still have an infrastructure and educational system and regulatory environment suited to the agricultural and manufacturing nation we were decades ago, but blue-collar manufacturing (and to a certain extent agriculture as well) provide less and less US jobs every year, while the growing number of high-tech technical, engineering and innovation jobs in the US are increasingly filled with bright foreigners because there are not enough American citizens trained to take those jobs.  The three-yearly OECD Program for International Student Assessment (PISA) report, which compares the knowledge and skills of 15-year-olds in 70 countries around the world, ranked the United States 14th out of 34 OECD countries for reading skills, 17th for science and a below-average 25th for mathematics.

We know that the federal government, in the form of Congress and the Presidency, have become thoroughly dysfunctional, so polarized ideologically as to be hardly able to function at all. For example, this administration has been funding the government for over two years now on continuing resolutions, because it can’t get a budget passed at all, let alone by the end of the preceding fiscal year.  This sharply limits what can reasonably be expected from federal government action. Nor is this likely to change as long as both parties have gerrymandered their House districts to make them safe seats for one party or the other – which has produced the undesirable side effect of eliminating moderates of either party from the House.

We know that the current federal government funding, in which we borrow almost half the federal budget every year, is unsustainable, and that major entitlement programs like Social Security and Medicare will have to sharply curtail their benefits soon, because there simply won’t be enough money to cover these obligations in the near future as they are currently constituted.  Economist Lawrence Kotlikoff has recently estimated the total unfunded liabilities of current federal programs, largely Social Security, Medicare and Medicaid, at $70 trillion.

We know that we have too many regulations in this nation, promulgated by too many federal agencies which often have overlapping authority and conflicting agendas. Certainly regulations are necessary in a large nation like ours, but like the Sorcerer’s Apprentice, things have long since gotten way out of hand in the regulatory sphere. Of course, this is to be expected – once an agency is established and given some authority, it will naturally work to perpetuate itself and expand and defend its area of authority, its legitimate “tuft”. That is simply human nature – or at least the nature of bureaucracy.

Regulations are estimated to cost US businesses somewhere between $2 trillion and $2.8 trillion per year. According to the Office of the Federal Register, in 2007, the Code of Federal Regulations (CFR), the official listing of all regulations in effect, contained a total of 145,816 pages that claimed 21 feet of shelf space. In 2011 alone, 50,000 pages of new regulations have been added thus far to the Federal Register.  Clearly something is wildly amiss.

We know that the federal tax code has become unwieldy and ineffective.  The Federal Tax Code weighs in at 71,684 pages as of 2010! We have one of the highest corporate tax rates in the world (and then double tax the dividends as well), but offset it with trillions of dollars of special interest exemptions and  rebates, so that some US companies that report billions in profits pay no federal  tax at all.

We also know that we have put off maintenance and improvement of our national infrastructure too long.  Bridges, roads, rail lines, power transmission lines, power plants, dams, etc etc are all aging and in need of repairs or replacement, but we haven’t been doing it at either the federal or the local government level, preferring to put funds into social programs, entitlements, public employee pension funds, and unfunded wars in the Middle East.  We are the inventors of the internet, yet US average internet service speed, at 4.8mbps, ranks 15^th in the world (Japan, at 61mbps, is the leader, with South Korea close behind).

This is what we know.  Part 2 will deal with what, if anything, the government could do about these issues.

Recommended: Obama's Economic Trifecta

Joel Kotkin has an interesting piece over on the Forbes website this morning: Obama's Economic Trifecta: How The President Helped Kill Progressivism, Capitalism And Moderation. It is not very flattering to the administration, as is obvious from the title, but on balance I think his charges are pretty accurate. Of course, he is not particularly kind to the Republicans either, and again I think his criticisms are accurate.

What has been notable about this administration's attempts to deal with the recession is that despite all the rhetoric, the measures actually taken have been aimed largely at preserving jobs on Wall Street, in large corporations like the auto companies, and among union members, with little or no effective action to help main street small businesses, homeowners facing foreclosure, or the jobless. It is hard not to come to the conclusion that despite being a Democrat (supposedly representatives of the common working person), Obama is actually more concerned with shoring up the in-group wealthy establishment and his union political base than helping the nation as a whole.

He will apparently propose yet another expensive stimulus plan tonight, even though his last, much larger stimulus plan didn't seem to do much to help the situation.  There is a legitimate question, of course, about just how much the government can do in any case to "create" jobs.

Government policy can certainly make it harder for companies to function, but I think there is relatively little the government can do to actually create more productive jobs (as oppose to simply more bureaucratic jobs). Only private businesses can create jobs that actually add to the national wealth, and the administration's efforts to push high speed rail and green technology companies as new sources of jobs has been pretty naive at best, and look more like pandering to his supporters than actually trying to do anything effective.

It will be interesting to see exactly what he does propose tonight, and whether it is any departure from Washington's usual solution of just throwing more (borrowed) money at a problem.

President Perry?

As President Obama's numbers plummet along with the stock market and the nation's economic growth numbers, and Governor Perry's poll numbers continue to rise, now well past his only serious opponent, Governor Romney, the possibility that Perry might become our next president is increasing. One cannot discount the fact that Texas, under his stewardship for the past twelve years, is booming economically and has produced about half of the new jobs in the nation over this recession.

Still, he has some extreme views that worry me. But Russ Smith in his piece Is Barack Obama Dumb? (he argues he isn't) makes this point:

As I’ve written before in this space, Perry’s adherence to creationism, apparent fear of homosexuals, abortion opposition, constant invocations of God and dismissal of global warming make me queasy, but in next year’s election those extreme right-wing positions won’t really matter. The only issue is the dreadful economy, which shows no sign of improving before voters pass down their verdict, and while you can scoff at Texas’ remarkable job creation in the past several years—the general liberal reckoning is that all those jobs are at minimum-wage fast food joints—it’s not as if Obama can make any boasts about his own record on that score.

I think he is right. President Obama has said all the right things (from my point of view, at least) about gays, global warming, and abortion, but he has failed miserably at getting the economy going again and dealing with the joblessness. I could tolerate some extreme views on these subjects (especially since the President can't really put many of them into practice without the full support of Congress) if it came along with some effective and hard-nosed approaches to things like the economy and the debt.

Still, Republicans would be wise to listen to Mike Huckabee's recent advice:

Republicans have to nominate someone better than the person they want to defeat. If they get so adamant that they will only support a candidate that believes everything on their checklist, they will re-elect Obama.

Recommended: Economyths

If there is one thing that is painfully obvious these days, it is that the grand economic models that have won some economists fame, fortune, and even Nobel Prizes, are shams. All those fancy models didn't accurately model the risks in the derivatives market. All those fancy models didn't forecast the current global financial crisis. The stimulus steps those models predicted would stem the recession and limit unemployment well below 8% have failed, and failed miserably. Economists are quick to explain away these failings in all sorts of ways, but the test of a scientific principle is that it works, and their models clearly don't work.

Of course there have been people telling us all along that the emperor had no clothes, among them Nassim Taleb (author of The White Swan), Warren Buffet (the immensely successful investment manager) and economist Nouriel Roubini (known as "Dr Doom" before his predictions of imminent market failure all turned out to be highly accurate). But the academic economists and their highly-paid brethren in the financial industry ignored these voices, naively content that their elaborate models accurately modeled the world.

Oxford mathematician David Orrell argues in his book Economyths: Ten Ways That Economics Gets it Wrong (2010) that the fundamental assumptions underlying current economic dogma (or ideology, as he terms it) are false, and explores the roots of these myths in the history of civilization. This is a serious book, despite being only a 250 page paperback (proof that size, cost, and abstruseness of an economics book is no reliable indicator of its worth). This book is well worth reading, and a good follow-on to my previous recommendation, Economics Without Illusions.