After reading my blog about how many non-liberals support limited, targeted socialism, one of my conservative friends admitted that he supports targeted socialism too, and asked me how it might be possible to limit the limited or targeted socialism to the specified target, without allowing it to grow into the massive socialist boondoggle we call government today in America. (He blamed Obama for the massive boondoggle, which by the way is my term, not his, but in truth the cancer of socialism has been growing in American government since at least the "Progressive Era" in the first decade and a half or so of the 20th century, and arguably since even earlier.)
I suggested that he read Milton Friedman's Free to Choose to find examples of well-crafted, limited socialist policies proposed by someone who understands full well why markets work better than government. Free to Choose ironically, while advocating limited socialism (written at a time when almost no politician in American supported merely limited socialism), has done more to persuade people of the benefits of free markets than any other single book. Some libertarians simply loathe Friedman for not being sufficiently pure, and yet Friedman has done more to persuade people of the benefits of free markets and limited government than any single other libertarian writer. (I also suggested that my conservative friend read David Friedman's The Machinery of Freedom, Bastiat's Economic Sophisms and indeed anything by Benjamin Constant to learn why even limited government interventions, targeted socialist policies, produce bad results; Friedman should serve as a start, not an end, to one's education about the blessings of free markets and the curse of government intervention.)
Having read Free to Choose some months back, my conservative friend asked if Milton Friedman's negative income tax served as the inspiration for the earned income tax credit we currently have in the Internal Revenue Code.
In case you're not familiar, here's how a negative income tax works. Let's say that currently the Internal Revenue Code provides for a standard deduction of $5700 for a single individual, and a personal exemption of $3650, for a total of $9350. Under the negative income tax, the government would subsidize the $9350 for an individual who earned less than $9350. Friedman himself proposed a rate of 50% for the negative income tax. If you earned zero income, for instance, the federal government would pay you, right through the income tax system, 50% of $9350, or $4,675, instead of giving you a host of welfare benefits which you could get under the current system of federal social programs. For every dollar you earned, the federal government would reduce your subsidy by only 50 cents, so your after-tax (or after-subsidy) income would rise. At no point would you be worse off by earning more, as you'd gain 50 cents extra for every dollar that you earn.
The whole point of the negative income tax is that it reduces the disincentives to work provided by standard welfare programs. Under standard welfare programs you simply lose all benefits when you earn too much income, creating an extremely high marginal income tax rate at low levels of income. (Say, for example, that under the current welfare system, if you earn $5,000 in income you lose $10,000 of food stamps and $5,000 of AFDC, or a total of $15,000 in benefits. Losing $15,000 of benefits for earning $5000 of income produces a tax rate of 300%!!! Technically too that's just the average tax rate, not the marginal rate. If you get $15,000 of benefits at $4,999 of earned income and $0 benefits when you earn $5,000 income, you have a marginal tax rate--a rate of tax on your one extra dollar, of 1,500,000%!!)
The negative income tax works so that for every dollar you make, you lose less than a dollar, so your marginal income tax rate is always less than 100% and you always have more income after the income tax by earning more. Friedman also said that the negative income tax rate itself must be low, or the marginal tax rate of phasing it out becomes high (even though it's below 100%). Many people would rather stay on the negative income tax than to earn only 10 cents on the extra dollar. So if your negative income tax rate is only 25% (low subsidy) then your marginal tax rate for phasing out the negative income tax as your income rises will be only 25%. If the government is "generous" and subsidizes your personal and standard deductions 75% instead of 25%, then your suffer a 75% marginal tax rate getting off of the negative income tax, keeping only an extra 25 cents per extra dollar you earn.
So what happened to Friedman's negative income tax idea? Back in 1973, Democrats in Congress said, "Another welfare program! Hot damn!" and then voted to turn it into one of dozens of tax credits and welfare programs. President Nixon said, "Well, Friedman suggested it, so it must be a good idea," and he supported it too, as did Republicans in Congress, not bothering to read Friedman's caution that a negative income tax would reduce the disincentive to work inherent in our current welfare system only if we abolished all other welfare programs and relied solely on the negative income tax. Friedman also warns in Free to Choose that the current welfare system has too many vested interests for Congress to allow the negative income tax to become the only socialist program for the poor, and that Congress and such interests would always have an incentive to increase the subsidy rate above the 50% he suggested. The higher the rate, as I showed above, the more the disincentive to get off of the subsidy. Henry Hazlett has a decent article at http://mises.org/story/2406 about how the earned income credit did just what Friedman predicted--although for some odd reason Hazlett refused to admit that Friedman predicted it--grew out of control, until it has become the largest cash benefit for low-income Americans (and aliens) of any social program for the poor. (Of course the Social Security system, the massive socialist program for the retired elderly, the wealthiest age cohort in America, dwarfs even the earned income credit.)
The mutation of the negative income tax as the only welfare program into the earned income credit as merely the largest of dozens of welfare programs for the poor demonstrates how even the most well-crafted of limited socialism turns into just another tumor as targeted socialism metastasizes across the American body politic.
The one saving grace of the negative income tax comes from the fact that for the working poor it helps offset the most evil of all taxes, the Social Security tax, which starts at the very first dollar of income. Poor, uneducated people, disproportionately members of minority groups, have to start working earliest and paying the tax first, even though they're lucky if they can make ends meet once they lose their welfare benefits. What's surprising is not that so many of them remain on welfare indefinitely (or as long the law allows) but rather that anyone in their position bothers to work at all, given the imposing marginal income tax rates for the working poor. Yet poor people, especially poor minorities, have the shortest life expectancies, and so collect the least in SS benefits. And who collects the most in SS benefits--wealthy white women, who live the longest of any large demographic in America. So the SS tax is a massive redistribution of income from poor, minority workers to retired, wealthy white woman. Liberals should be ashamed that the system their hero FDR engineered punishes the people they claim to care about and rewards people that liberals often sound like they hate. Most liberals of course have no shame anymore, as whatever feels good to them goes in their postmodern world of "judge me not because only I get to judge."
Republicans too should be ashamed that the most massive socialist welfare program of all is the one in which they're most complicit by their refusal to do anything to fix it or stop it from redistributing income from the poor to the rich. If ever there were a policy that supports the liberal claim that Republicans want to make "the poor get poorer and the rich get richer" it's Republican complicity in maintaining the liberals' SS system.
The very fact that the working poor need the earned income tax credit to (partially) offset the regressive SS tax demonstrates how one government intervention leads to another--how one socialist tumor inevitably metastasizes across the American body politic. So if you want to get rid of the socialist cancer, you need to agree to cut out not only the tumors you don't like, but the one you do like. Otherwise we're in for a long, slow, painful death--and you helped kill us.
Tuesday, April 7, 2009
Monday, April 6, 2009
Tea Party, Anyone?
It started in 1773, when a group of 200 American colonists, disguised as American Indians, tossed the cargo of tea from each of three British ships in the Boston Harbor to protest Parliament's imposition of direct taxes on the colonists, including on tea, to repay debt borrowed to fund the French and Indian Wars.
Fast forward to February 27, 2009, when 15,000 American attended the Chicago Tea Party and similar events in other American cities to protest the Obama-Bush-Democrat massive spending policies under which we're now suffering, which, if not stopped, will double the federal debt to about $20 trillion in the next few years. The success of the Chicago Tea Party inspired grass roots organizers to organize a bigger protest with more people in more cities on April 15, 2009, a mere 9 days from now as I write. You can learn more about the coming Tea Party at http://www.surgeusa.org/actions/taxday.htm. Michelle Malkin, the beautiful, conservative, oriental columnist and pundit (i.e., talking head) has signed on as a sponsor (http://www.michellemalkin.com/), has Newt Gingrich's American Solutions (http://americansolutions.com/teaparty). Sean Hannity of Fox News plans to do his April 15 show from the Atlanta Tea Party. People in the DC metro area plan a large Tea Party across the street from the White House. Facebook has a Tax Tea Party group (http://www.facebook.com/group.php?gid=55223597239&ref=ts), and between it and the Surgeusa.com website, it looks like we could have at least one Tax Day Tea Party in every one of the 50 states, and several in some states. (For an enthusiastic endorsement of the Tax Day Tea Party, please see my buddy Don's blog at http://donliberty1787.blogspot.com/2009/04/join-tea-party-movement.html.)
Joining the Tax Day Tea Party is fun, and I signed up too, but will it have an actual political impact? Of that I'm not sure. Even the large conservative resurgences during my lifetime have had relatively minor impacts, mostly serving just to slow the growth of Big Government. The Reagan resurgence did win the Cold War, so that had a lasting impact, but is the world safer now than during the days when the Soviets held the leashes of most of the world's terrorists? I warned people back when the USSR collapsed that the collapse of the Soviet Union wasn't 1) the "end of history" as the liberal media was proclaiming, 2) the "end of socialism" as the liberal media were also proclaiming, or 3) the beginning of a safer world.
I will also give the Reagan conservative resurgence credit for deregulating the price of domestic oil and gas, so that we never had a repeat of the gas station lines of the 1970s, and for indexing the federal income tax system, especially using the CPI, which overstates inflation, giving us each a tiny little tax cut each year. (The same political forces that led Congress to start deregulating oil and gas prices under Jimmy Carter led to the election of Ronald Reagan, who completed the deregulation of oil and gas prices.)
How about the Newt resurgence? He did manage to de-entitle some of the smaller entitlement programs, and at least start a phase-out of grain price subsidies. On the whole though I'd have to say that the Newt resurgence had even less long-term consequence even domestically than did the Reagan resurgence. So what will the Tax Day Tea Party achieve? If I had to bet real money--if I had any after the federal and state governments steal 28% of my income this year (not the marginal rate but the average rate for the year)--I'd bet that it will have no lasting impact. Alas I'm not even sure it will even have any short-term impact on taxes or spending.
In a recent email a friend of mine said that 98% of Americans support socialism. I don't know that it's 98%, and keep in mind that a large minority of eligible adults don't even vote, but I do suspect that a majority of adult Americans support some socialism or other. They do not all support systematic socialism (although pretty much everyone on the left does) but rather targeted socialism.
Some support socialism targeted to line their own pockets, such as the "conservative" Iowa farmers who think they have a divine right to grain price supports, or the mushy moderate chamber of commerce types who whine about paying taxes for welfare but have no trouble imposing local taxes to pay for bike trails for their kids or libraries that have their names up in neon lights.
Others support socialism targeted to benefit someone else whom they think has gotten or still has a raw deal, like many Jewish liberals who don't want social programs for themselves, but rather for poor blacks or other minorities whom the Jewish liberals believe have gotten a raw deal and therefore cannot succeed on their own (unlike Jews who got a raw deal but somehow managed to succeed on their own!).
Keep in mind too that people get addicted to the status quo, so if they're getting social welfare benefits, they don't want to lose them. That means that virtually every elderly person in the country supports the Social Security system, which is why even Reagan could make no headway with de-socializing the SS system. (W. Bush campaigned on a partial-privatization of SS, but then let it die on the vine in Congress without giving it any support. Liberals then used the collapse of the stock market bubble caused by liberal inflationary policy at the Federal Reserve System as "proof" that SS privatization would have been a bad idea, even though if you had been investing your SS tax in stocks for the last half century, you'd still be vastly better off than you are with your meager SS payments.)
With people who don't support systematic socialism, it's possible to persuade them to abandon at least pieces of the socialism they do like in favor of freer markets and better protection for their property rights. It's certainly possible to make reduce socialistic policy at the margin. That's a big part of why I wrote columns in Iowa and blog now.
And if the Tax Day Tea Party isn't just going to be a fun event where people vent their frustrations with Big Government, a lot of people are going to have to be willing to give up some of their targeted socialist policies.
Fast forward to February 27, 2009, when 15,000 American attended the Chicago Tea Party and similar events in other American cities to protest the Obama-Bush-Democrat massive spending policies under which we're now suffering, which, if not stopped, will double the federal debt to about $20 trillion in the next few years. The success of the Chicago Tea Party inspired grass roots organizers to organize a bigger protest with more people in more cities on April 15, 2009, a mere 9 days from now as I write. You can learn more about the coming Tea Party at http://www.surgeusa.org/actions/taxday.htm. Michelle Malkin, the beautiful, conservative, oriental columnist and pundit (i.e., talking head) has signed on as a sponsor (http://www.michellemalkin.com/), has Newt Gingrich's American Solutions (http://americansolutions.com/teaparty). Sean Hannity of Fox News plans to do his April 15 show from the Atlanta Tea Party. People in the DC metro area plan a large Tea Party across the street from the White House. Facebook has a Tax Tea Party group (http://www.facebook.com/group.php?gid=55223597239&ref=ts), and between it and the Surgeusa.com website, it looks like we could have at least one Tax Day Tea Party in every one of the 50 states, and several in some states. (For an enthusiastic endorsement of the Tax Day Tea Party, please see my buddy Don's blog at http://donliberty1787.blogspot.com/2009/04/join-tea-party-movement.html.)
Joining the Tax Day Tea Party is fun, and I signed up too, but will it have an actual political impact? Of that I'm not sure. Even the large conservative resurgences during my lifetime have had relatively minor impacts, mostly serving just to slow the growth of Big Government. The Reagan resurgence did win the Cold War, so that had a lasting impact, but is the world safer now than during the days when the Soviets held the leashes of most of the world's terrorists? I warned people back when the USSR collapsed that the collapse of the Soviet Union wasn't 1) the "end of history" as the liberal media was proclaiming, 2) the "end of socialism" as the liberal media were also proclaiming, or 3) the beginning of a safer world.
I will also give the Reagan conservative resurgence credit for deregulating the price of domestic oil and gas, so that we never had a repeat of the gas station lines of the 1970s, and for indexing the federal income tax system, especially using the CPI, which overstates inflation, giving us each a tiny little tax cut each year. (The same political forces that led Congress to start deregulating oil and gas prices under Jimmy Carter led to the election of Ronald Reagan, who completed the deregulation of oil and gas prices.)
How about the Newt resurgence? He did manage to de-entitle some of the smaller entitlement programs, and at least start a phase-out of grain price subsidies. On the whole though I'd have to say that the Newt resurgence had even less long-term consequence even domestically than did the Reagan resurgence. So what will the Tax Day Tea Party achieve? If I had to bet real money--if I had any after the federal and state governments steal 28% of my income this year (not the marginal rate but the average rate for the year)--I'd bet that it will have no lasting impact. Alas I'm not even sure it will even have any short-term impact on taxes or spending.
In a recent email a friend of mine said that 98% of Americans support socialism. I don't know that it's 98%, and keep in mind that a large minority of eligible adults don't even vote, but I do suspect that a majority of adult Americans support some socialism or other. They do not all support systematic socialism (although pretty much everyone on the left does) but rather targeted socialism.
Some support socialism targeted to line their own pockets, such as the "conservative" Iowa farmers who think they have a divine right to grain price supports, or the mushy moderate chamber of commerce types who whine about paying taxes for welfare but have no trouble imposing local taxes to pay for bike trails for their kids or libraries that have their names up in neon lights.
Others support socialism targeted to benefit someone else whom they think has gotten or still has a raw deal, like many Jewish liberals who don't want social programs for themselves, but rather for poor blacks or other minorities whom the Jewish liberals believe have gotten a raw deal and therefore cannot succeed on their own (unlike Jews who got a raw deal but somehow managed to succeed on their own!).
Keep in mind too that people get addicted to the status quo, so if they're getting social welfare benefits, they don't want to lose them. That means that virtually every elderly person in the country supports the Social Security system, which is why even Reagan could make no headway with de-socializing the SS system. (W. Bush campaigned on a partial-privatization of SS, but then let it die on the vine in Congress without giving it any support. Liberals then used the collapse of the stock market bubble caused by liberal inflationary policy at the Federal Reserve System as "proof" that SS privatization would have been a bad idea, even though if you had been investing your SS tax in stocks for the last half century, you'd still be vastly better off than you are with your meager SS payments.)
With people who don't support systematic socialism, it's possible to persuade them to abandon at least pieces of the socialism they do like in favor of freer markets and better protection for their property rights. It's certainly possible to make reduce socialistic policy at the margin. That's a big part of why I wrote columns in Iowa and blog now.
And if the Tax Day Tea Party isn't just going to be a fun event where people vent their frustrations with Big Government, a lot of people are going to have to be willing to give up some of their targeted socialist policies.
Friday, April 3, 2009
US Loses 663k Jobs in March; Unemployment 8.5%
I'm afraid that the month of March brought more bad economic news: the US economy suffered a net loss of 663,000 jobs. The 663,000-job loss is a net loss, meaning that employers cut 663,000 more jobs than they created, and that actually more than 663,000 people lost their jobs. The new net job loss brought the US unemployment rate up to 8.5%, the highest since 1983, during the last great recession.
While 8.5% unemployed means 91.5% still or newly employed, the increased rate and the net job losses--5.1 million since December of 2007--gives the 91.5% reason to fear, even though most of them will never lose their jobs. Militating against the fear I see only three small pieces of good news at the moment. Consumer spending has risen now for two months in a row; US factory orders rose for the first time after six months of steady declines; construction and housing sales beat the forecasts of most economists, as housing prices have finally started to fall substantially (encouraging more sales and thus more construction), as they need to after the bursting of the Fed's horrible real estate bubble. I can't say though that the economy won't shed more jobs on net and that the unemployment rate won't rise further before the economy hits bottom and starts to improve again.
I can say what caused the recession--at least primarily what caused it. Earlier in the decade, Alan Greenspan, then Chairman of the Federal Reserve Board, caused the Fed to inflate the money supply at a rate well in excess of the growth rate of the real economy. Thanks to the massive and political loan guarantees by Fannie Mae and Freddie Mac to buy votes from poor people who couldn't afford to pay back the loans, much of the money went into the real estate market, driving up home prices, and making homeowners feel wealthier.
Since most of the money went in to real estate purchases, most of it did not go into buying consumer goods, and thus the inflation caused by the Fed's excessive expansion of the money supply did not show up in the Consumer Price Index (CPI), so most people did not realize at first that we were experiencing covert inflation. Since most of the money went into purchasing existing homes, the sales of which do not go into computing Gross Domestic Product (GDP), the most common measure of goods and services produced by the economy, the covert inflation did not show up even in a broader measure of inflation like the GDP Implicit Price Deflator.
A few people tried to warn about the inflation, but most of us did not listen. I freely confess that I fall into the category of those who looked at the CPI and the GDP Deflator and saw no inflation. The major news media publish the CPI regularly, and I didn't take the time to look at the growth rate of M1 or M2, the most common measures of the money supply. The people yelling about inflation were right, and I was wrong back in 2006. I will say that I did tell my economics students about the warnings I heard, and that by 2007 I had started to heed the warnings. The real estate bubble had clearly started to burst by 2007, which in turn started to drag down or at least slow down other parts of the economy, especially home construction and related industries.
By 2007 Greenspan had finished his second term as Fed Chairman, and President W. Bush had appointed Bernanke to replace Greenspan. People were saying of Bernanke--like they had of Greenspan--that he was a monetarist (meaning that supposedly he understood that growth of the money supply at a rate in excess of the rate of growth of the real economy produces inflation). I looked at Bernanke's textbook, which you can read free online, and found out that it has an even stronger Keynesian bias than the textbook I'm required to use for the economics classes I teach. I don't know where anyone ever got the idea that Bernanke is a monetarist, but as the real estate bubble continued imploding before our very eyes in 2007, Bernanke began to run the worst sort of Keynesian inflationary policy, buying tens and even hundreds of billions of new dollars worth of US Treasury bills (short term debt) and US treasury bonds (long term debt) to try to drive down nominal interest rates, injecting tens and eventually hundreds of billions of dollars of excess money into the economy. (I also started to read Greenspan's autobiography at the time, and discovered within the first two chapters that contrary to common belief, Greenspan is a Keynesian expansionist too, despite once having been in the anti-Keynesian inner circle of Ayn Rand many decades ago.)
In case you're not familiar, Keynesian economic theory believes that government can cure a recession through inflating the money supply with deficit spending--that is, by government spending more than it collects in taxes. Government, according to Keynesian theory, can wave a magic wand and create out of thin air new "aggregate demand" to push up GDP. Keynesians do not understand that everything government spends, it must take from someone else, either through taxation or borrowing. Borrowing from the Fed (meaning that the Fed buys Treasury debt) just means more dollars chasing the same volume of goods and services, driving up the average level of prices--in other words, causing inflation. Inflation, which drives down the value of your dollar, is just a covert tax on every dollar you own.
I warned my economics students in 2007 that if Bernanke tried a Keynesian inflation of the money supply, he would just cause inflation, and not stop the bursting of the real estate bubble--and that's just what happened. While the news media were quick to blame cartels and "oligopolies" for the surge in food and gasoline prices that followed the Fed's inflation of the money supply, the growth in money supply caused the surge in prices as predicted. For a long while the Bernanke inflation also pushed up stock prices, which do not go into either the CPI or the GDP Deflator, so while both indexes rose, they still understated the true amount of inflation Bernanke was causing. You might recall, however, that the rising food and gas prices caused a great deal of pain to consumers and producers alike. Airlines and auto manufacturers suffered greatly, as people cut back drastically on both traveling by air and buying gas-guzzling SUVs.
Just as Greenspan's inflationary real estate bubble eventually had to burst, so too did Bernanke's inflationary food, gas and stock bubbles. The food and gas bubbles burst first, and gas prices fell by half in a very short period--in a shorter time than it had taken them to rise that amount in the first place. By the time the gas bubble burst though it was too late for the airlines and auto companies to avoid severe contraction, as they'd already had a recessionary year. When the stock market finally caught on, it too collapsed virtually overnight. By "collapsed" I mean that the Dow Jones Industrial Average fell back at first to 2003 levels. Not until 2009 did it fall all the way back to 1997 levels. In 2008 the stock market reached artificially inflated levels, but most people didn't realize it, and felt wealthier, so that when the bubble burst, they felt poorer, even though the value of their stocks, on average, still equaled what it had reached been back in 2003, when people felt wealthy because their stocks had climbed so much since, say, 1997.
Late in 2008 President Bush and the Democratic majority in Congress responded to the stock market crash by trying yet more Keynesian deficit spending. The Fed under Bernanke, without any legal authority, assisted by bailing out AIG directly itself, and then indirectly (and legally) by buying all the Treasury debt needed to allow the Bush-Democrat trillion-dollar bailout for the financial industry and the smaller auto bailout, both done in 2008. In 2009 President Obama and an even larger Democratic majority in Congress have continued and expanded the Bush-Democrat Keynesian policies with first a $410 billion Keynesian "stimulus" bill passed a few weeks ago, and now with a budget that calls for a $2 trillion dollar federal budget deficit for 2010 alone, and $10 trillion dollars of deficits in the near future.
Obviously the Obama-Bush-Democrat Keynesian policies are not stopping the recession. By taking income out of productive hands and putting it into the hands of politicians and politically-connected executives and labor unions, the fatally-flawed Keynesian inflationary policies actual worsen the recession. So as the Keynesian policies remove the incentives for productive people to save, invest, work and create jobs, I expect the economy to get worse before it gets better. I am just hoping that the Keynesian polices aren't bad enough to prolong this recession for years. Even a deep recession like the one in the early 1980s didn't last for years. Real (inflation-adjusted) GDP fell from 1981 to 1982, but by 1983 had already risen above its 1981 level. Because of large cuts in our marginal income tax rates that President Reagan got Congress to pass starting in 1981, disposable income, perhaps the best measure of economic well-being (and certainly better than GDP), actually rose in 1982 over 1981, so that for those who had jobs, economic conditions actually improved during 1982, deep recession notwithstanding. Unlike Reagan, however, Obama and many congressional Democrats would like to raise tax rates, sadly, so I would expect disposable income to decline along with GDP during the Bush-Obama recession.
Currently the unemployment rate stands at 8.5%, the highest since 1983, when it averaged 9.4% for the year as a whole. In 1982 the unemployment rate averaged 9.7%, and for a time in 1982 even exceeded 10%. In fairness to the earlier recession, however, I have to note that unemployment stood at 7.6% already in 1981 before the 1982-1983 recession even started, but had fallen to nearly 4% prior to the current Bush-Obama recession. So while the unemployment rate hasn't risen as high this time (yet), it has risen much more than it did during the 1982-1983 recession. There is no doubt that we're currently suffering through a bad recession.
Government could really help the economy if government would stop increasing spending and regulations, and cut marginal tax rates, which would increase the incentive to work, save, invest and create new jobs. Restraining the growth of government spending and regulations, combined with large cuts in marginal tax rates, allowed the worst recession since the Great Depression, 1982-1983, to turn into what became the longest peacetime expansion in US history, 1983-1990 (and is still the second-longest peacetime expansion in US history). With the anti-growth policies of Greenspan, Bernanke, Bush, Obama and the Democratic Congress, however, I think we're more likely to see the longest downturn since the Great Depression instead.
You can read more about the bad news at http://www.foxnews.com/politics/2009/04/03/jobless-rate-jumps-percent-k-jobs-lost/.
While 8.5% unemployed means 91.5% still or newly employed, the increased rate and the net job losses--5.1 million since December of 2007--gives the 91.5% reason to fear, even though most of them will never lose their jobs. Militating against the fear I see only three small pieces of good news at the moment. Consumer spending has risen now for two months in a row; US factory orders rose for the first time after six months of steady declines; construction and housing sales beat the forecasts of most economists, as housing prices have finally started to fall substantially (encouraging more sales and thus more construction), as they need to after the bursting of the Fed's horrible real estate bubble. I can't say though that the economy won't shed more jobs on net and that the unemployment rate won't rise further before the economy hits bottom and starts to improve again.
I can say what caused the recession--at least primarily what caused it. Earlier in the decade, Alan Greenspan, then Chairman of the Federal Reserve Board, caused the Fed to inflate the money supply at a rate well in excess of the growth rate of the real economy. Thanks to the massive and political loan guarantees by Fannie Mae and Freddie Mac to buy votes from poor people who couldn't afford to pay back the loans, much of the money went into the real estate market, driving up home prices, and making homeowners feel wealthier.
Since most of the money went in to real estate purchases, most of it did not go into buying consumer goods, and thus the inflation caused by the Fed's excessive expansion of the money supply did not show up in the Consumer Price Index (CPI), so most people did not realize at first that we were experiencing covert inflation. Since most of the money went into purchasing existing homes, the sales of which do not go into computing Gross Domestic Product (GDP), the most common measure of goods and services produced by the economy, the covert inflation did not show up even in a broader measure of inflation like the GDP Implicit Price Deflator.
A few people tried to warn about the inflation, but most of us did not listen. I freely confess that I fall into the category of those who looked at the CPI and the GDP Deflator and saw no inflation. The major news media publish the CPI regularly, and I didn't take the time to look at the growth rate of M1 or M2, the most common measures of the money supply. The people yelling about inflation were right, and I was wrong back in 2006. I will say that I did tell my economics students about the warnings I heard, and that by 2007 I had started to heed the warnings. The real estate bubble had clearly started to burst by 2007, which in turn started to drag down or at least slow down other parts of the economy, especially home construction and related industries.
By 2007 Greenspan had finished his second term as Fed Chairman, and President W. Bush had appointed Bernanke to replace Greenspan. People were saying of Bernanke--like they had of Greenspan--that he was a monetarist (meaning that supposedly he understood that growth of the money supply at a rate in excess of the rate of growth of the real economy produces inflation). I looked at Bernanke's textbook, which you can read free online, and found out that it has an even stronger Keynesian bias than the textbook I'm required to use for the economics classes I teach. I don't know where anyone ever got the idea that Bernanke is a monetarist, but as the real estate bubble continued imploding before our very eyes in 2007, Bernanke began to run the worst sort of Keynesian inflationary policy, buying tens and even hundreds of billions of new dollars worth of US Treasury bills (short term debt) and US treasury bonds (long term debt) to try to drive down nominal interest rates, injecting tens and eventually hundreds of billions of dollars of excess money into the economy. (I also started to read Greenspan's autobiography at the time, and discovered within the first two chapters that contrary to common belief, Greenspan is a Keynesian expansionist too, despite once having been in the anti-Keynesian inner circle of Ayn Rand many decades ago.)
In case you're not familiar, Keynesian economic theory believes that government can cure a recession through inflating the money supply with deficit spending--that is, by government spending more than it collects in taxes. Government, according to Keynesian theory, can wave a magic wand and create out of thin air new "aggregate demand" to push up GDP. Keynesians do not understand that everything government spends, it must take from someone else, either through taxation or borrowing. Borrowing from the Fed (meaning that the Fed buys Treasury debt) just means more dollars chasing the same volume of goods and services, driving up the average level of prices--in other words, causing inflation. Inflation, which drives down the value of your dollar, is just a covert tax on every dollar you own.
I warned my economics students in 2007 that if Bernanke tried a Keynesian inflation of the money supply, he would just cause inflation, and not stop the bursting of the real estate bubble--and that's just what happened. While the news media were quick to blame cartels and "oligopolies" for the surge in food and gasoline prices that followed the Fed's inflation of the money supply, the growth in money supply caused the surge in prices as predicted. For a long while the Bernanke inflation also pushed up stock prices, which do not go into either the CPI or the GDP Deflator, so while both indexes rose, they still understated the true amount of inflation Bernanke was causing. You might recall, however, that the rising food and gas prices caused a great deal of pain to consumers and producers alike. Airlines and auto manufacturers suffered greatly, as people cut back drastically on both traveling by air and buying gas-guzzling SUVs.
Just as Greenspan's inflationary real estate bubble eventually had to burst, so too did Bernanke's inflationary food, gas and stock bubbles. The food and gas bubbles burst first, and gas prices fell by half in a very short period--in a shorter time than it had taken them to rise that amount in the first place. By the time the gas bubble burst though it was too late for the airlines and auto companies to avoid severe contraction, as they'd already had a recessionary year. When the stock market finally caught on, it too collapsed virtually overnight. By "collapsed" I mean that the Dow Jones Industrial Average fell back at first to 2003 levels. Not until 2009 did it fall all the way back to 1997 levels. In 2008 the stock market reached artificially inflated levels, but most people didn't realize it, and felt wealthier, so that when the bubble burst, they felt poorer, even though the value of their stocks, on average, still equaled what it had reached been back in 2003, when people felt wealthy because their stocks had climbed so much since, say, 1997.
Late in 2008 President Bush and the Democratic majority in Congress responded to the stock market crash by trying yet more Keynesian deficit spending. The Fed under Bernanke, without any legal authority, assisted by bailing out AIG directly itself, and then indirectly (and legally) by buying all the Treasury debt needed to allow the Bush-Democrat trillion-dollar bailout for the financial industry and the smaller auto bailout, both done in 2008. In 2009 President Obama and an even larger Democratic majority in Congress have continued and expanded the Bush-Democrat Keynesian policies with first a $410 billion Keynesian "stimulus" bill passed a few weeks ago, and now with a budget that calls for a $2 trillion dollar federal budget deficit for 2010 alone, and $10 trillion dollars of deficits in the near future.
Obviously the Obama-Bush-Democrat Keynesian policies are not stopping the recession. By taking income out of productive hands and putting it into the hands of politicians and politically-connected executives and labor unions, the fatally-flawed Keynesian inflationary policies actual worsen the recession. So as the Keynesian policies remove the incentives for productive people to save, invest, work and create jobs, I expect the economy to get worse before it gets better. I am just hoping that the Keynesian polices aren't bad enough to prolong this recession for years. Even a deep recession like the one in the early 1980s didn't last for years. Real (inflation-adjusted) GDP fell from 1981 to 1982, but by 1983 had already risen above its 1981 level. Because of large cuts in our marginal income tax rates that President Reagan got Congress to pass starting in 1981, disposable income, perhaps the best measure of economic well-being (and certainly better than GDP), actually rose in 1982 over 1981, so that for those who had jobs, economic conditions actually improved during 1982, deep recession notwithstanding. Unlike Reagan, however, Obama and many congressional Democrats would like to raise tax rates, sadly, so I would expect disposable income to decline along with GDP during the Bush-Obama recession.
Currently the unemployment rate stands at 8.5%, the highest since 1983, when it averaged 9.4% for the year as a whole. In 1982 the unemployment rate averaged 9.7%, and for a time in 1982 even exceeded 10%. In fairness to the earlier recession, however, I have to note that unemployment stood at 7.6% already in 1981 before the 1982-1983 recession even started, but had fallen to nearly 4% prior to the current Bush-Obama recession. So while the unemployment rate hasn't risen as high this time (yet), it has risen much more than it did during the 1982-1983 recession. There is no doubt that we're currently suffering through a bad recession.
Government could really help the economy if government would stop increasing spending and regulations, and cut marginal tax rates, which would increase the incentive to work, save, invest and create new jobs. Restraining the growth of government spending and regulations, combined with large cuts in marginal tax rates, allowed the worst recession since the Great Depression, 1982-1983, to turn into what became the longest peacetime expansion in US history, 1983-1990 (and is still the second-longest peacetime expansion in US history). With the anti-growth policies of Greenspan, Bernanke, Bush, Obama and the Democratic Congress, however, I think we're more likely to see the longest downturn since the Great Depression instead.
You can read more about the bad news at http://www.foxnews.com/politics/2009/04/03/jobless-rate-jumps-percent-k-jobs-lost/.
Freedom for The Doctors--and Their Employers Too
I once had a small fellowship through The Heritage Foundation, a conservative think tank in DC that, more than any other, influenced the good policies of the Reagan administration. I'd say that I agree with their positions, as a practical matter (i.e., in terms of what's achievable at the margin, versus what I'd like to see ideally) about 90% of the time.
Right now The Heritage Foundation is fighting an Obama administration attempt to eliminate a federal regulation forcing employers of doctors not to require doctors to perform abortions. I'm pro-life and I support a doctor who will not perform abortions. I know it's easier for a pro-life doctor if the government forces his employer not to require him to perform an abortion, but isn't the whole point of conscience doing what's right even when it's not easy? A doctor whose employer requires him to perform abortions should go work elsewhere. That's the American way.
I frankly think it would be great if all doctors who refuse to perform abortions withdrew their medical talent from all employers who force doctors to perform abortions. I think it would be great if pro-life doctors published a list online of all hospitals who force their employees to perform abortions, especially the third-trimester and partial-birth abortions that 60-80% of Americans oppose even being legal. I'd like to see millions of pro-life Americans in small towns and rural areas (and a few even in suburbia and big cities) go out of their way to patronize hospitals who do not force their employees to perform abortions.
Can you imagine the hue and cry from statist-liberals if a state forced its anti-death-penalty employees to perform executions? I'd like to see these statist-liberals, who want to regulate everything except abortion, publicly defending forcing a doctor to perform abortions against his conscience. I think hospitals and medical practices would perform substantially fewer abortions if pro-life medical customers took their medical dollars to places that do not force their employees to perform abortions.
Vote with your dollars in the market place--that's the American way.
Right now The Heritage Foundation is fighting an Obama administration attempt to eliminate a federal regulation forcing employers of doctors not to require doctors to perform abortions. I'm pro-life and I support a doctor who will not perform abortions. I know it's easier for a pro-life doctor if the government forces his employer not to require him to perform an abortion, but isn't the whole point of conscience doing what's right even when it's not easy? A doctor whose employer requires him to perform abortions should go work elsewhere. That's the American way.
I frankly think it would be great if all doctors who refuse to perform abortions withdrew their medical talent from all employers who force doctors to perform abortions. I think it would be great if pro-life doctors published a list online of all hospitals who force their employees to perform abortions, especially the third-trimester and partial-birth abortions that 60-80% of Americans oppose even being legal. I'd like to see millions of pro-life Americans in small towns and rural areas (and a few even in suburbia and big cities) go out of their way to patronize hospitals who do not force their employees to perform abortions.
Can you imagine the hue and cry from statist-liberals if a state forced its anti-death-penalty employees to perform executions? I'd like to see these statist-liberals, who want to regulate everything except abortion, publicly defending forcing a doctor to perform abortions against his conscience. I think hospitals and medical practices would perform substantially fewer abortions if pro-life medical customers took their medical dollars to places that do not force their employees to perform abortions.
Vote with your dollars in the market place--that's the American way.
Obama Nominee Koh Wants to Impose Foreign Law; Shariah?!
If you've been reading my blog at all in the past few weeks, you know that Obama has already tried to appoint 7 anti-Israel, pro-terrorist politicians to his administration. We managed to defeat one so obviously vile that even elected Jewish liberal Democrats who supported Obama last November opposed him, but that still leaves Obama with 6 anti-Israel, pro-terrorist miscreants in his administration. You might also recall that in his $410 billion socialist pork "stimulus" act, Obama got the Democrat majority in Congress to send hundreds of millions of dollars to Obama's terrorist buddies in Hamas, who contributed illegally to his campaign last fall.
Not content to help mass-murdering Muslim monsters exterminate the Jews in Israel, now Obama wants to appoint Harold Koh as the chief legal advisor for the US State Department. Koh, a leftist in charge of the notoriously left-wing Yale Law School since 2004, advocated subordinating the US Constitution to "international law." Koh has written and spoken widely against US sovereignty, likening the US to terror states like North Korea and Iraq under Saddam Hussein. According to New York attorney Steven J. Stein, Koh, during a speech in 2007 where Koh advocated imposing the laws of various foreign countries on US courts, Koh mentioned Islamic law, or Shariah, as one type of law that he advocated imposing on American courts.
Shariah, as you might know, is the Muslim law that allow a husbands to beat his wives for being disobedient, forces all women to cover themselves from head to toe in order to subjugate them into virtual nonexistence as individuals, and authorizes a husband to kill any wife who sleeps with another man. Liberals, who often get hysterical over even a law preventing third-trimester abortions, claiming that such a law somehow dehumanizes them, should have exploded in outrage over Obama's nomination of a pro-Shariah lawyer to the State Department. Other than Stein, however, not a single liberal has uttered a peep, and the liberal media refuse to even report the story. You can read more at http://www.foxnews.com/politics/2009/03/31/obamas-appointment-koh-state-department-legal-adviser-stirs-controversy/.
Working together we managed to defeat one pro-terrorist nominee, as you can read at http://david-lifelibertyandproperty.blogspot.com/2009/03/recently-ive-documented-how-obama-has.html. Now's your chance to oppose the nomination by sending a free email to your US Senators (who have to consent to the nominee) at http://www.traditionalvalues.org/modules.php?sid=3604 (toward the bottom of the page). If you're one of my liberal Jewish high school friends, or indeed any liberal, and you've read this far, I give you kudos! Now please use any connections you might have to Democrats in Congress, the Obama, administration, or the liberal media to oppose the nomination of Koh and to publicize the issue further.
If we can pressure the liberal media into actually reporting the story, as we did to defeat the nomination of Charles Freeman, if we can just get word of his pro-Shariah comments to Democrats on Capitol Hill, we might just defeat Harold Koh too. Even if your connections consist of just a $50 contribution to Obama, Hillary, or some Democrat in Congress, please write to them opposing Koh. Let them know that you supported them. They're more likely to respond to favorably when their own supporters oppose what they're poised to do. So please don't delay, but contact them in opposition to Koh now. Thank you.
David
Not content to help mass-murdering Muslim monsters exterminate the Jews in Israel, now Obama wants to appoint Harold Koh as the chief legal advisor for the US State Department. Koh, a leftist in charge of the notoriously left-wing Yale Law School since 2004, advocated subordinating the US Constitution to "international law." Koh has written and spoken widely against US sovereignty, likening the US to terror states like North Korea and Iraq under Saddam Hussein. According to New York attorney Steven J. Stein, Koh, during a speech in 2007 where Koh advocated imposing the laws of various foreign countries on US courts, Koh mentioned Islamic law, or Shariah, as one type of law that he advocated imposing on American courts.
Shariah, as you might know, is the Muslim law that allow a husbands to beat his wives for being disobedient, forces all women to cover themselves from head to toe in order to subjugate them into virtual nonexistence as individuals, and authorizes a husband to kill any wife who sleeps with another man. Liberals, who often get hysterical over even a law preventing third-trimester abortions, claiming that such a law somehow dehumanizes them, should have exploded in outrage over Obama's nomination of a pro-Shariah lawyer to the State Department. Other than Stein, however, not a single liberal has uttered a peep, and the liberal media refuse to even report the story. You can read more at http://www.foxnews.com/politics/2009/03/31/obamas-appointment-koh-state-department-legal-adviser-stirs-controversy/.
Working together we managed to defeat one pro-terrorist nominee, as you can read at http://david-lifelibertyandproperty.blogspot.com/2009/03/recently-ive-documented-how-obama-has.html. Now's your chance to oppose the nomination by sending a free email to your US Senators (who have to consent to the nominee) at http://www.traditionalvalues.org/modules.php?sid=3604 (toward the bottom of the page). If you're one of my liberal Jewish high school friends, or indeed any liberal, and you've read this far, I give you kudos! Now please use any connections you might have to Democrats in Congress, the Obama, administration, or the liberal media to oppose the nomination of Koh and to publicize the issue further.
If we can pressure the liberal media into actually reporting the story, as we did to defeat the nomination of Charles Freeman, if we can just get word of his pro-Shariah comments to Democrats on Capitol Hill, we might just defeat Harold Koh too. Even if your connections consist of just a $50 contribution to Obama, Hillary, or some Democrat in Congress, please write to them opposing Koh. Let them know that you supported them. They're more likely to respond to favorably when their own supporters oppose what they're poised to do. So please don't delay, but contact them in opposition to Koh now. Thank you.
David
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