Saturday, September 12, 2009
It's Still the Economy, Stupid
It's been a long time since James Carville said the most famous thing he ever said: It's the economy, stupid. That famous phrase was in fact part of a sign hung in the Clinton campaign headquarters in 1992. There was a sense among the electorate in the fall of 1992, not entirely accurate, that the economy was foundering under George H.W. Bush. Bush lost control of the public's perception of the economy, and then he lost the presidency.
Why with unemployment heading above 10% was Barack Obama on TV last night draining a dwindling reservoir of presidential capital on health care? Redesigning the 17% of the economy that is health care appears to be the siren song of Democratic presidencies. Mr. Obama's crew has famously said it wouldn't make the mistakes the Clintons made on health care. How calling forth both houses of Congress in prime time to join him in betting the ranch on health care qualifies as smarter politics than the Clintons is a mystery. Even more so now than way back in 1992: It's still the economy, stupid.
To save himself and his party from enduring another health-care debacle, Barack Obama should put his agenda on the back burner, bend his efforts to raising the economy, and rebuild his political capital by taking credit for the inevitable rebound. That just might minimize the impending loss of House seats and allow him to revisit his wish list in 2011. The alternative is promising big, accomplishing little and getting credit for nothing. This could be America's greatest failed presidency.
The economy is Barack Obama's 9/11. If you're Mr. Obama, it must seem a little unfair. One year ago at the Labor Day turn toward the stretch, Mr. Obama and his team were on the cusp of one of the most thrilling wins in American presidential history. No matter that many Obama voters were looking past all the state-based initiatives in his politics; the air was filled with possibility.
This was history's moment. Then on Sept. 15, 2008, history hit the wall. Lehman Brothers filed for bankruptcy. The next day the Fed said it would lend a stunning $85 billion to AIG. A major money-market fund broke the buck. This wasn't just a recession, a reality already discussed in the summer campaign. There was a sense after the nightmare week of Sept. 15 that the American economy was imploding.
Assets in 401(k) accounts were ravaged. Much of the economy appeared to have fallen into the hands of fools and knaves. Businesses that once were economic beacons—GM, Chrysler, Lehman, much of Wall Street—were breaking off and falling into the sea. After its Inauguration, the Obama presidency should have been driving a new health-care entitlement into everlasting law on a wave of good will. Instead, it had to deal with the stumbling economy and credit system.
Whether what they did—stimulus, the auto bailout, TARP and the rest—was the right policy is beside the point for our argument. The administration seemed to think it put a big political problem behind it, clearing the way for health care. That was a false dawn.
The most recent Wall Street Journal/NBC poll has 87% of the public somewhat or very dissatisfied with the economy. The unemployment rate is likely to go above 10% for all 2010. Whatever GDP growth may occur, there is no evidence of new-job creation. Gold's price has risen above $1,000, suggesting inflation is swimming below the economy's flat surface. China is stockpiling gold and worrying out loud about the weak dollar. A U.N. panel said this week the world should abandon the dollar as the world's anchor currency. Just now, Barack Obama's mad obsession with arcane health-insurance puzzles looks beside the point.
I don't think anyone fully understands yet how much damage was done to the U.S. economy and financial system by the events of September 2008. Whatever one's belief in the $800 billion Obama-Pelosi-Summers-Romer Keynesian multiplier, it's reasonable to believe more than rote public spending is needed to restore the American job-creation machine. The public rightly worries that a damaged economy is vulnerable to more blows.
The White House may think it and Democratic incumbents can simply pocket the credit for whatever fly-wheel growth shows up the next six months. It's more likely the public will mark down a president who appears passive to its most pressing concern. A presidency seen leading a genuine agenda for renewed growth—offering at least some oxygen to the private economy—would be more likely to earn the broad support it simply does not have now for the agenda of its dreams.
Fat chance it will do that. We opened with the still-good advice of James Carville. We close with an even higher authority to explain last night's odd spectacle before Congress. It's Elwood, political director for the Blues Brothers: "We're on a mission from God."
Obama is in the pocket of the lawyers
Some "special-interests" are OK, apparently -- the most parasitic ones
On Wednesday the president told Congress "I will not stand by while the special interests use the same old tactics to keep things exactly the way they are." In fact, the administration is standing by to allow its most special, special interest to drive this debate. What the tort bar wants, the tort bar gets. Health insurers should be so lucky.
The legal question has become the starkest symbol of a broken health discussion, and offers insight into this presidency. For Republicans, legal reform has become a litmus test, proof that Democrats have no interest in a deal, and therefore a reason to step back. For many Americans, legal reform has become proof that President Obama is more interested in an ideological triumph than his stated goal of lowering health costs.
Tort reform is a policy no-brainer. Experts on left and right agree that defensive medicine—ordering tests and procedures solely to protect against Joe Lawyer—adds enormously to health costs. The estimated dollar benefits of reform range from a conservative $65 billion a year to perhaps $200 billion. In context, Mr. Obama's plan would cost about $100 billion annually. That the president won't embrace even modest change that would do so much, so quickly, to lower costs, has left Americans suspicious of his real ambitions.
It's also a political no-brainer. Americans are on board. Polls routinely show that between 70% and 80% of Americans believe the country suffers from excess litigation. The entire health community is on board. Republicans and swing-state Democrats are on board. State and local governments, which have struggled to clean up their own civil-justice systems, are on board. In a debate defined by flash points, this is a rare area of agreement.
The only folks not on board are a handful of powerful trial lawyers, and a handful of politicians who receive a generous cut of those lawyers' contingency fees. The legal industry was the top contributor to the Democratic Party in the 2008 cycle, stumping up $47 million. The bill is now due, and Democrats are dutifully making a health-care down payment.
During the markup of a bill in the Senate Health Committee, Republicans offered 11 tort amendments that varied in degree from mere pilot projects to measures to ensure more rural obstetricians. On a party line vote, Democrats killed every one. Rhode Island senator and lawyer Sheldon Whitehouse went so far as to speechify on the virtues of his tort friends. He did not, of course, mention the nearly $900,000 they have given him since 2005, including campaign contributions from national tort powerhouses like Baron & Budd and Motley Rice.
Even Senate Finance Chair Max Baucus, of bipartisan bent, has bowed to legal powers. The past two years, Mr. Baucus has teamed up with Wyoming Republican Mike Enzi to offer legislation for modest health-care tort reform in states. That Enzi-Baucus proposal had been part of the bipartisan health-care talks. When Mr. Baucus released his draft health legislation this weekend, he'd stripped out his own legal reforms. The Montanan is already in the doghouse with party liberals, and decided not to further irk leadership's Dick Durbin ($3.6 million in lawyer contributions), the Senate's patron saint of the trial bar.
Over in the House the discussion isn't about tort reform, but about tort opportunities. During the House Ways & Means markup of a health bill, Texas Democrat Lloyd Doggett ($1.5 million from lawyers) introduced language to allow freelance lawyers to sue any outfit (say, McDonald's) that might contribute to Medicare costs. Only after Blue Dogs freaked out did the idea get dropped, though the trial bar has standing orders that Democrats make another run at it in any House-Senate conference.
It says everything that Mr. Obama wouldn't plump for reform as part of legislation. The president knows the Senate would never have passed it in any event. Yet even proposing it was too much for the White House's legal lobby. Mr. Obama is instead directing his secretary of health and human services to move forward on test projects. That would be Kathleen Sebelius, who spent eight years as the head of the Kansas Trial Lawyers Association.
The issue has assumed such importance that even some Democrats acknowledge the harm. With bracing honesty, former DNC chair Howard Dean recently acknowledged his party "did not want to take on the trial lawyers." Former Democratic Sen. Bill Bradley, in a New York Times piece, suggested a "grand bipartisan compromise" in which Democrats got universal coverage in return for offering legal reform. The White House yawned, and moved on.
It isn't clear if Republicans would or should take that deal, but we won't know since it won't be offered. The tort-reform issue has instead clarified this presidency. Namely, that the bipartisan president is in fact very partisan, that the new-politics president still takes orders from the old Democratic lobby.
The Keynesians Were Wrong Again
We won't see a return to growth without incentives for job-creating investment. From the beginning, our representatives in Washington have approached this economic downturn with old-fashioned, Keynesian economics. Keynesianism—named after the British economist John Maynard Keynes—is the theory that you fight an economic downturn by pumping money into the economy to "encourage demand" and "create jobs." The result of our recent Keynesian stimulus bills? The longest recession since World War II—21 months and counting—with no clear end in sight. Borrowing close to a trillion dollars out of the private economy to increase government spending by close to a trillion dollars does nothing to increase incentives for investment and entrepreneurship.
The record speaks for itself: In February 2008, President George W. Bush cut a deal with congressional Democrats to pass a $152 billion Keynesian stimulus bill based on countering the recession with increased deficits. The centerpiece was a tax rebate of up to $600 per person, which had no significant effect on economic incentives, as reductions in tax rates do. Learning nothing from this Keynesian failure, which he vigorously supported from the U.S. Senate, President Barack Obama came back in February 2009 to support a $787 billion, purely Keynesian stimulus bill.
Even the tax-cut portion of that bill, which Mr. Obama is still wildly touting to the public, was purely Keynesian. The centerpiece was a $400-per-worker tax credit, which, again, has no significant effect on economic incentives. While Mr. Obama is proclaiming that this delivered on his campaign promise to cut taxes for 95% of Americans, the tax credit disappears after next year.
The Obama administration is claiming success, not because of recovery, but because of the slowdown in economic decline. Last month, just 216,000 jobs were lost, and the economy declined by only 1% in the second quarter. Based on his rhetoric, Mr. Obama expects credit for anyone who still has a job.
The fallacies of Keynesian economics were exposed decades ago by Friedrich Hayek and Milton Friedman. Keynesian thinking was then discredited in practice in the 1970s, when the Keynesians could neither explain nor cure the double-digit inflation, interest rates, and unemployment that resulted from their policies. Ronald Reagan's decision to dump Keynesianism in favor of supply-side policies—which emphasize incentives for investment—produced a 25-year economic boom. That boom ended as the Bush administration abandoned every component of Reaganomics one by one, culminating in Treasury Secretary Henry Paulson's throwback Keynesian stimulus in early 2008.
Mr. Obama showed up in early 2009 with the dismissive certitude that none of this history ever happened, and suddenly national economic policy was back in the 1930s. Instead of the change voters thought they were getting, Mr. Obama quintupled down on Mr. Bush's 2008 Keynesianism. The result is the continuation of the economic policy disaster we have suffered since the end of 2007. Mr. Obama promised that his stimulus would prevent unemployment from climbing over 8%. It jumped to 9.7% last month. Some 14.9 million Americans are unemployed, another 9.1 million are stuck in part-time jobs and can't find full-time work, and another 2.3 million looked for work in the past year and never found it. That's a total of 26.3 million unemployed or underemployed, for a total jobless rate of 16.8%. Personal income is also down $427 billion from its peak in May 2008.
Rejecting Keynesianism in favor of fiscal restraint, France and Germany saw economic growth return in the second quarter this year. India, Brazil and even communist China are enjoying growth as well. Canada enjoyed job growth last month.
U.S. economic recovery and a permanent reduction in unemployment will only come from private, job-creating investment. Nothing in the Obama economic recovery program, or in the Bush 2008 program, helps with that. Producing long-term economic growth will require a fundamental change in economic policies—lower, not higher, tax rates; reliable, low-cost energy supplies, not higher energy costs through cap and trade; and not unreliable alternative energy surviving only on costly taxpayer subsidies.
Unfortunately, Mr. Obama seems to be wedded to his political talking points, and his ideological blinders seem to be permanently affixed. So don't expect any policy changes. Expect an eventual return to 1970s-style economic results instead.
Obama seen failing to sway health debate: "President Obama's address to Congress Wednesday night did little to immediately convert factions in the Democratic party to unify behind a health care overhaul plan Thursday, and his call for an end to "bickering" was met by Republican carping that he failed to "reset" the debate. Liberal House lawmakers said they still want to see the president embrace a government-sponsored public insurance option as part of any bill, and centrist Democrats said they remain worried about the price tag. "I believe a costly government-run public option is the wrong direction for reform and I will not support it," Rep. Mike Ross, a moderate Blue Dog Democrat from Arkansas who has come out in opposition of the plan that he helped shepherd through committee, said in the aftermath of Mr. Obama's speech."
ACORN crooks caught: "The community organizing group ACORN has fired two employees at its Baltimore office who were seen on hidden-camera video giving advice to a man posing as a pimp and a woman pretending to be a prostitute, as some legal experts raise questions over whether the employees broke the law. The staffers appeared to commit federal tax fraud by offering to help the visitors — for a fee — to establish a child brothel, legal experts say. In a video made public Thursday, two visitors to an ACORN office in Baltimore told staffers they needed assistance securing housing where the woman, a 20-year-old who called herself ‘Kenya,’ could continue to run her prostitution business. An ACORN official told the couple how to falsify tax forms and seek illegal benefits for 13 ‘very young’ girls from El Salvador that they said they wanted to import as prostitutes.”
ATK successfully test fires Ares 1 booster: "With the future of NASA’s embattled moon program in doubt, Alliant Techsystems test-fired a huge five-segment solid-fuel booster in Utah Thursday, a ground-shaking demonstration designed to collect performance data for a new rocket intended to replace the space shuttle. Generating 22 million horsepower, the lengthened 154-foot-long shuttle booster ignited with a torrent of flame at 3 p.m. EDT, sending a towering column of dirty brown exhaust into the Utah sky as hundreds of spectators looked on. Two minutes later, after consuming 1.4 million pounds of solid propellant, the rocket burned out.”
If you can afford beer and cigarettes, you can afford health insurance: "I’ve been doing some shopping on health insurance. I could get a policy that covers me, and I’m no spring chicken, for anywhere from $110 to $220 per month, depending on the deductible and co-payment. Most day to day health care is relatively cheap. It is really on[ly] the major problems, which get covered by the higher deductibles, that ought to cause people to worry. So why don’t people have that? A few, but very few, don’t have that sort of basic policy because of finances. But it is rubbish to say that the X million of ‘uninsured’ don’t have it due to costs. That is a lie. Reason TV’s satirical commercial used footage from interviews they did with people about why they don’t health insurance. And many of the people, as you see here, were quite candid. They don’t have health insurance because they prefer to spend the money on booze, clubbing, cigarettes, fancy jeans, etc.”
My Twitter.com identity: jonjayray. My Facebook page is also accessible as jonjayray (In full: http://www.facebook.com/jonjayray). For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, GUN WATCH, SOCIALIZED MEDICINE, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena
List of backup or "mirror" sites here or here -- for readers in China or for everyone when blogspot is "down" or failing to update. Email me here (Hotmail address). My Home Pages are here or here or here
The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)
Posted by JR at 12:41 AM