A Modest Proposal for a New Economic Foundation

The WSJ has two great op/eds in today's paper on what i believe are the 2 key pillars of the new foundation I am proposing for US economy:  supply side reforms and sound money.  The  first op/ed is Stephen Moore on Obamanomics vs Reaganomics.   The second is Allan Reynolds on how easy money is ruining economy.   See both copied at bottom of the blog commentary.

Stephen Moore;s piece is wonderful, but he misses one crucially important point about Reaganomics in his article having to do with the vital role sound money played in the Reagan recovery.  Moore doesn’t explicitly talk about sound money. 

And this is a massive and fatal mistake that modern Republicans have made.    I think this is the case because Reagan inherited sound money from the new Fed governor appointed by Carter named Paul Volcker who happened to be a card carrying Democrat.  Conservatives don’t like to admit Democrats may have done something right after all!!! 

The GOP talks about Reaganomics as a combo of deregulation and free markets and small government.    Unfortunately, they miss the most important ingredient of all:  i.e. sound money.  Reagan was lucky in a profound way that Carter appointed Paul Volcker as Fed chairman in 1979.

Volcker implemented a new sound money framework at the Fed, which in my opinion is THE key policy that underpinned the great Moderation (low inflation / high growth) in the 80s and 90’s that fueled low unemployment and secular bull markets in both stocks and bonds lasting 20+ years.  I understand some of Reagans key econ advisers thought Volcker was purposely trying to kill the US economy in order to stick it to GOP and Reagan. 

The Reaganomics lesson learned by the GOP is that de-regulation and tax cuts are the key to prosperity and that deficits don’t matter.   THE PROBLEM IS …  de-regulation is deadly in an easy money environment ... and deficits DO matter because they lead to easy money!!!

Further, if government massively distorts markets with subsidies, which is the case now and was the case in lead up to 2008 crisis, then markets can't work properly.     Every major sector of US economy is massively distorted with subsidies.    GOP pols love subsidies because they can win them political points with special interest groups while leaving the private sector ostensibly “in charge.”  The problem is that subsidies distort the market and sow systemic risk into markets.  When systemic risks play out, the nasty results are blamed on the evil MARKET and / or private greed and error.

Markets CAN’T work when they are distorted with a combination of easy money and subsidies.  If you add de-regulation and massive new structural fiscal deficits on top of easy money and subsidies, the result will be tragic as we saw in 2007-8. 

The GOP had no answer for the 2007-8 crisis except to say that all of the interventions proposed by the Dems were wrong. 

McCain had not the faintest clue what caused 2007 crisis or how to fix it.

The Dem answers were and are wrong and bound to leave fundamental disease of the market unsolved at best and at worst cause even worse problems going forward – i.e. an even bigger bust down the road. 

But until the GOP understands the insidious nature of easy money, deficits and subsidies – we are stuck with neither side having a clue.  WHICH IS WHY I CALL THIS BLOG MISTER CENTER.

The right and left are both addicted to easy money and subsidies and central bank financing for special interest goodies, simply grouped into two main categories, welfare for Dems and warfare for GOP.

Middle of the road compromise in this context means very ugly outcomes and ever bigger government and easier money. 

Thus, we are bound to remain stuck in political grid lock as neither side has compelling vision, thus locking us into a low growth, high employment, low productivity world that begs even more government interventions in self reinforcing cycle of negative unintended consequences and a painful trip on the Road to Serfdom.

What we need to grow our way out of the debt mountain we are under as a country and as a world economy …. is first and foremost sound money, WHICH MEANS we need a new monetary anchor for the Fed replacing the fatally flawed inflation targeting framework).  Contrary to what Paul Krugman asserts, the government cannot improve the wealth of society by causing inflation via the money printing press.  Why do we believe such promises of free lunch craziness???? 

Entrepreneurs build wealth, the government redistributes wealth and destroys it with well intended policies.  Why do "we" believe in free lunch promises from political or policy or academic elites?

What we need is less government, which includes entitlement reform (read CUTS), and the removal of major subsidy programs (e.g. housing, farm, healthcare, post office, education, banking. YOU NAME SECTOR AND I ASSURE YOU THAT WE HAVE A MASSIVE SUBSIDY PROGRAM FOR IT.)

We need to begin to reverse the ineluctable growth of the warfare / homeland security / welfare state.

and last but not least (in fact most important of all) we need to simplify the IRS tax code and broaden the tax base by eliminating write offs and lowering marginal rates for everyone!!!   get rid of all taxes on capital gains, get rid of double income taxation on companies, eliminate crazy death taxes and if we still want to tax companies implement a simple gross sales tax with NO deductions. 

Obamanonics vs. Reaganomics

One program for recovery worked, and the other hasn't.

By STEPHEN MOORE

If you really want to light the fuse of a liberal Democrat, compare Barack Obama's economic performance after 30 months in office with that of Ronald Reagan. It's not at all flattering for Mr. Obama.

The two presidents have a lot in common. Both inherited an American economy in collapse. And both applied daring, expensive remedies. Mr. Reagan passed the biggest tax cut ever, combined with an agenda of deregulation, monetary restraint and spending controls. Mr. Obama, of course, has given us a $1 trillion spending stimulus.

By the end of the summer of Reagan's third year in office, the economy was soaring. The GDP growth rate was 5% and racing toward 7%, even 8% growth. In 1983 and '84 output was growing so fast the biggest worry was that the economy would "overheat." In the summer of 2011 we have an economy limping along at barely 1% growth and by some indications headed toward a "double-dip" recession. By the end of Reagan's first term, it was Morning in America. Today there is gloomy talk of America in its twilight.

My purpose here is not more Reagan idolatry, but to point out an incontrovertible truth: One program for recovery worked, and the other hasn't.

The Reagan philosophy was to incentivize production—i.e., the "supply side" of the economy—by lowering restraints on business expansion and investment. This was done by slashing marginal income tax rates, eliminating regulatory high hurdles, and reining in inflation with a tighter monetary policy.

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Getty Images

Ronald Reagan talks taxes, 1981.

The Keynesians in the early 1980s assured us that the Reagan expansion would not and could not happen. Rapid growth with new jobs and falling rates of inflation (to 4% in 1983 from 13% in 1980) is an impossibility in Keynesian textbooks. If you increase demand, prices go up. If you increase supply—as Reagan did—prices go down.

The Godfather of the neo-Keynesians, Paul Samuelson, was the lead critic of the supposed follies of Reaganomics. He wrote in a 1980 Newsweek column that to slay the inflation monster would take "five to ten years of austerity," with unemployment of 8% or 9% and real output of "barely 1 or 2 percent." Reaganomics was routinely ridiculed in the media, especially in the 1982 recession. That was the year MIT economist Lester Thurow famously said, "The engines of economic growth have shut down here and across the globe, and they are likely to stay that way for years to come."

The economy would soon take flight for more than 80 consecutive months. Then the Reagan critics declared what they once thought couldn't work was actually a textbook Keynesian expansion fueled by budget deficits of $200 billion a year, or about 4%-5% of GDP.

Robert Reich, now at the University of California, Berkeley, explained that "The recession of 1981-82 was so severe that the bounce back has been vigorous." Paul Krugman wrote in 2004 that the Reagan boom was really nothing special because: "You see, rapid growth is normal when an economy is bouncing back from a deep slump."

Mr. Krugman was, for once, at least partly right. How could Reagan not look good after four years of Jimmy Carter's economic malpractice?

Fast-forward to today. Mr. Obama is running deficits of $1.3 trillion, or 8%-9% of GDP. If the Reagan deficits powered the '80s expansion, the Obama deficits—twice as large—should have the U.S. sprinting at Olympic speed.

The left has now embraced a new theory to explain why the Obama spending hasn't worked. The answer is contained in the book "This Time Is Different," by economists Carmen Reinhart and Kenneth Rogoff. Published in 2009, the book examines centuries of recessions and depressions world-wide. The authors conclude that it takes nations much longer—six years or more—to recover from financial crises and the popping of asset bubbles than from typical recessions.

In any case, what Reagan inherited was arguably a more severe financial crisis than what was dropped in Mr. Obama's lap. You don't believe it? From 1967 to 1982 stocks lost two-thirds of their value relative to inflation, according to a new report from Laffer Associates. That mass liquidation of wealth was a first-rate financial calamity. And tell me that 20% mortgage interest rates, as we saw in the 1970s, aren't indicative of a monetary-policy meltdown.

There is something that is genuinely different this time. It isn't the nature of the crisis Mr. Obama inherited, but the nature of his policy prescriptions. Reagan applied tax cuts and other policies that, yes, took the deficit to unchartered peacetime highs.

But that borrowing financed a remarkable and prolonged economic expansion and a victory against the Evil Empire in the Cold War. What exactly have Mr. Obama's deficits gotten us?

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

• AUGUST 26, 2011

The Fed vs. the Recovery

How is increasing the price of imported oil and industrial commodities supposed to make U.S. industry more competitive?

By ALAN REYNOLDS

One year ago, on Aug. 27, 2010, Federal Reserve Chairman Ben Bernanke explained the rationale for a second round of quantitative easing. "A first option for providing additional monetary accommodation is to expand the Federal Reserve's holdings of longer-term securities," he said, thereby supposedly "bringing down term premiums and lowering the costs of borrowing."

Yet the bond market promptly reacted by raising long-term interest rates. The yield on 10-year Treasurys, which was 2.57% at the time of his Jackson Hole, Wyo., address, climbed to 3.68% by February 2011 and did not dip below 3% until late June when QE2 was coming to an end. The price of West Texas crude oil, which was $72.91 a year ago, remained above $100 from March to mid-June and did not come down until QE2 ended and the dollar stopped falling.

When Mr. Bernanke spoke, the price of a euro was less than $1.27. By the week ending June 10, 2011, 15 days before QE2 ended, the dollar was down about 15% (a euro cost $1.46). In that same week, The Economist commodity-price index was up 50.9% from a year earlier in dollars—but only 22.8% in euros. How could paying much more than Europe did for imported oil, industrial commodities, equipment and parts make U.S. industry more competitive?

The chart nearby subtracts the contribution of government purchases (such as hiring and construction) from real GDP growth to gauge the growth of the private economy. The generally negative contribution of government purchases (column two) does not mean government spending has slowed, as some contend. Instead it reflects the fact that federal and state spending has been increasingly dominated by transfer payments (such as Medicaid, food stamps and unemployment benefits) which do not contribute to GDP, and in some cases reduce GDP by discouraging work.

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Associated Press

Federal Reserve Chairman Ben Bernanke

The chart also shows that growth of private GDP was also much faster before QE2 than it has been since, and the increase in producer prices (i.e., U.S. business costs) was much more moderate. And that is no coincidence.

Former Obama adviser Christina Romer, writing in the New York Times in late May, said that "a weaker dollar means that our goods are cheaper relative to foreign goods. That stimulates our exports and reduces our imports. Higher net exports raise domestic production and employment. Foreign goods are more expensive, but more Americans are working."

Well, foreign goods certainly did become more expensive during the second round of quantitative easing, but it is doubtful that "more Americans are working" as a result. Industrial supplies and materials accounted for 34.5% of U.S. imported goods so far this year, according to the Census Bureau, and capital equipment and parts accounted for an additional 23%. As Fed policy pushed the dollar down, higher prices for imported inputs such as oil, metals and cotton meant higher costs (producer prices) for U.S. manufacturing and transportation.

In demand-side theorizing, monetary stimulus means the Fed buys more bonds. The Treasury has certainly been selling a lot of bonds, and the Fed has been buying (monetizing) a huge share of those bonds. That helped push the broad M2 money supply up at a 6.8% rate over the past six months. Yet the only thing we have to show for all that stimulus over the past year has been rapid inflation of producer prices and a simultaneous slowdown in the growth of the private economy. Consumer price inflation also accelerated to 5.2% in the first quarter and 4.1% in the second, from just 1.4% in the third quarter of 2010.

Imported goods did indeed become more expensive while the dollar was falling, rising at a 15.1% annual rate over the past three quarters according to the government's report on GDP. But exported U.S. goods also became more expensive, rising at an 11.4% rate over that same period.

The fourth column in the chart shows that net exports were a subtraction from GDP in early 2010 when the private economy was growing most briskly, thus raising the demand for imported materials and components. The rise of dollar commodity costs and producer prices in the wake of QE2 reduced the growth of real imports because it reduced the growth of real GDP.

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Many journalists credit QE2 with raising asset prices, which was certainly true of precious metals but not of housing. It is also true that stock prices generally rose over the past year, but it is implausible to link that to quantitative easing.

Operating earnings per share for the Standard & Poor's 500 companies rose to an estimated $24.86 by June 30, up from $20.40 a year earlier. Fed policy cannot possibly explain that rise in earnings because domestic output slowed and producer prices rose under QE2, while more than 46% of the sales of S&P 500 companies have come from foreign countries.

Berkeley economist Brad DeLong, writing in the Economist, suggests that, "Aggressive central banks can shift expected inflation upward and thus make households fear holding risky debt and equity less because they fear dollar devaluation more." But individual investors often react to such fears by dumping equities and speculating in gold and silver. What good does that do?

In short, the Fed's experiment with quantitative easing from November 2010 to June 2011 was accompanied by a falling dollar and inflated prices of critical industrial commodities, including oil. The net effect was to reduce the profitability of manufacturing and distributing products in the United States, and therefore to shift such activities (and jobs) to other countries which were less handicapped by the dollar's weakness.

Every postwar recession but one (1960) has been preceded by a spike in oil prices of the sort we experienced when the dollar fell and oil prices doubled from August 2007 to July 2008 (reaching $142.52), and to a lesser extent when the dollar fell and oil prices rose to $112.30 at the end of April 2011 from $72.91 in late August 2010. Conversely, during the 1997-98 Asian currency devaluations (and soaring dollar), the U.S. experienced a booming domestic economy as the dollar price of oil dropped to $11 by the end of 1998.

Those who are now looking backwards at how poorly the U.S. economy performed under QE2 in order to "forecast" the future appear to be neglecting the potentially beneficial effects of a firmer dollar in deflating the bubble in U.S. commodity costs. In the end, quantitative easing turned out to be an anti-stimulus which stimulated nothing but the cost of living and the cost of production. Good riddance.

Mr. Reynolds, a senior fellow with the Cato Institute, is the author of Income and Wealth (Greenwood Press 2006).

Is Warren Buffett Socially Minded?

To all of my friends out there who believe Warren Buffett is a knight in shining armor for advocating higher taxes for super rich, please consider the following thoughts on Buffet triggered by the story I just read (copied below) about Warren buffet buying $5 bn in preferred BoA shares.

Buffet supports big government and he expects reciprocity.  Buffet’s act – if viewed in the proper context -- is far from a selfless or “socially responsible.”

If we look through (what I consider) the proper lens, Buffets support of higher taxes on the super rich can be seen as driven by base greed.

Big government and big finance/big biz/big labor all go together like peas in a pod.  You can’t create a big government solution for social problems without at the same time creating special interests who hijack the public policy for their own selfish purposes.

This is exactly what we see with Warren Buffet. 

The timing of Buffet’s purchase of BoA shares and publication of his op/ed in WSJ is not coincidental.  Adam Smith noted over 200 years ago that big business is NOT an advocate of “free markets.”  Big business loves government regulations and interventions because big business has relatively large resources which they can deploy to hijack the regs for their own selfish interest via money politics.   The government aims to help the little guy, but the big guy always wins.

The way I see it, Buffett wrote his op/ed as a way to solidify his pact with Big Government before investing $5 bn of his hard earned dollars into a “private” bank.  Buffets message:  You scratch my back, and I’ll scratch yours.

I am sorry if this upsets people who want government to intervene into the economy and society in order to “level the playing field” or to fix market failures.  Unfortunately, (according to Nobel Prize winner James Buchanan and his Public Choice theory) any time the government injects its solutions into the market, there are special interests that hijack these interventions for their own purposes; thus, the government inevitably becomes hostage to special money (big biz) interests and cannot fix the market even under the best circumstances and with the best of intentions. 

Campaign finance reform aims to fix merely one terrible SYMPTOM of the big government disease (ie, money politics), and thus campaign finance can’t hope to provide a durable solution for this awful scourge on society.  The only real and durable solution to money politics is to reduce the size and scope of government’s intervention in the economy:  get government out of the business of picking winners and losers – and suddenly money politics won’t “pay.” 

The little guy has a chance to compete in the free market, but in the one carefully circumscribed and regulated by government, the little guy is (paradoxically) screwed!!!  Why did Obama pass a health care reform that gave huge concessions to big pharma and big insurance and big labor?  It was the GOPs fault, right?  No.  The Dems had a super majority in Congress and yet Obamacare missed the opportunity to create a system that reduced costs.  Special interests hijacked the reform process.  This is predictable and inevitable because government created the Frankenstein monster that has become big insurance and big pharma through a combination of subsidies and massive regulation.   

There are no free lunches.  Life isn’t fair.  and government can’t change these simple facts.  This may seem hard hearted and counter intuitive to our knee jerk instincts of wanting to do the right thing … but I think we need to admit limits of government intervention lest we kill the market in the name of fixing it.  We fail the market.  the market doesn’t fail us.    the market is inherently imperfect, but it is also (unfortunately) the best we can do. and by the way, the free market doesn’t mean might makes right and the big kill the small. 

The free market means mutual respect for property rights and mutual restraint.  It means cooperation between big and small.  It means competing to provide the best product at the best price.  When government tries to fix market imperfections (erroneously called market failures), it actually imposes a might makes right ethic into what was previously an ethic of mutual respect.   When government provides enlightened services like “leveling the playing field” for example (by providing public education or cheap loans for housing), it must use force to accomplish its goals.  Government intervention injects the immoral logic that the ends justify the means.  In a market the ends don’t justify the means and might does NOT make right.  In a market, there is mutual respect and mutual restrain based on the logic embedded in freedom and property rights.   

 try to turn an imperfect market into a perfect human design and you risk making market imperfections even worse to the point of risking the very viability of the system itself.  that is the law of unintended consequences.  That is the road to serfdom.  That is why the middle way doesn’t work.  the middle way sows government distortions that trigger unintended consequences that beg more government solutions and so on … paving the road to serfdom as we are seeing play out in the EZ and in the US which is following in footsteps of EZ. 

Aug. 25, 2011, 10:26 a.m. EDT

Bank of America rallies on Buffett investment

Billionaire’s Berkshire Hathaway buys $5 billion in preferred stock

By Steve Gelsi, MarketWatch

NEW YORK (MarketWatch) — Warren Buffett on Thursday tossed a $5-billion lifeline to beleaguered Bank of America Corp. that sent the stock charging higher and, of course, padded his own wallet in the process.

Following the announcement, shares of Bank of America (NYSE:BAC)  scored solid gains for their second straight day — a reversal following weeks of steep losses in the wake of the European sovereign debt crisis and rising jitters about a double-dip recession.

Shares of Bank of America rose 17.7% but are still down almost 40% since the beginning of the year. Investors have fled the stock amid concerns that the bank might need to raise capital as it works to heal itself from the bruising mortgage-loan debacle.

Buffett’s move, which is similar to the deal he pulled with Goldman Sachs Group Inc. (NYSE:GS)  back in the financial crisis of 2008, should go a long way in easing those fears.

“Bank of America is a strong, well-led company, and I called [CEO Brian Moynihan] to tell him I wanted to invest in it,” said Buffett, chairman and CEO of Berkshire Hathaway Inc. (NYSE:BRK.A)   (NYSE:BRK.B)  in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.

Reuters

Warren Buffett, CEO of Berkshire Hathaway.

“Bank of America is focused on their customers and on serving them well,” he added. “That’s what customers want, and that’s the company’s strategy.”

Terms call for Bank of America to sell 50,000 shares of cumulative perpetual preferred Stock with a liquidation value of $100,000 a share to Berkshire Hathaway in a private offering.

Berkshire’s the holding company controlled by Buffett that owns financial services, insurance, building products and consumer goods companies.

The preferred stock has a dividend of 6% percent per annum, payable in equal quarterly installments, and is redeemable by the company at any time at a 5% premium.

In conjunction with this agreement, Berkshire Hathaway will also receive warrants to purchase 700 million shares of Bank of America common stock at an exercise price of $7.14 a share.

The aggregate purchase price to be received by Bank of America for the preferred stock and warrants is $5 billion in cash.

“We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value,” said Moynihan. “I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”

a world-view rant on James Taranto's Best of the Web Column

James Taranto’s column “Best of the Web” in today’s online WSJ got me thinking …  here are a "few" (ok more than a few) thoughts that came to mind after reading it.  I copied full column below my comments.

I’m sure this Taranto column will be about as fun for Progressives as an episode of Jon Stewart is for conservatives.  I personally loved it.  Having said that, I would still nitpick a bit with the assertion he makes in the first section of his column that “progs loved Bill Clinton.    The way I see it “progs” loved Clinton because he was a winner, but they also clearly hated and despised him for not pushing the progressive agenda far or hard enough. From what I understand, “progressives” felt utterly betrayed by Clinton, but at least he was a political winner – thus keeping evil Republicans out of White House, which made his centrist politics at least palatable.  Progressives were giddy when Obama was elected because they thought they had one of their own – a principled ideologue – as compared to power hungry pragmatist – who they assumed would be ready to fight the good progressive fight!   

From what I understand, “progressives” felt utterly betrayed by Clinton, but at least he was a political winner – thus keeping evil Republicans out of White House, which made his center-right economic policies at least palatable.  (He was center-left on military and foreign policy which progressives liked better.) 

Progressives were giddy when Obama was elected because they thought they FINALLY had one of their own (after many many years in the political dessert since Jimmy Carter left office in 1980): i.e. a principled ideologue – as compared to power hungry pragmatist – who they assumed would be ready to fight the good progressive fight!   

In recent months and weeks prominent progressive pundits (like Paul Krugman and Maureen Dowd) are turning on Obama like rats leaving the ship -- not just because Obama is looking more and more like a political loser.  They are turning on him because he is looking like a political loser (as evidenced by recent political weakness across the board– e.g.  failed rhetoric, tactics and strategy reflected in falling approval ratings) who also has failed to push the progressive agenda far or hard enough. 

Obama was supposed to be the progressive version of Ronald Reagan.  But Obama has made amazing rhetorical, tactical and strategic political blunders including his approach to Simpson Bowles commission and recently with the debt limit debate and series of ridiculous speeches which has compromised his ability to promote progressive priorities.  

While it is true that Obama is turning out to be politically much less talented than supporters hoped for, they cannot put all of the blame on Obama. 

My progressive friends out there who share the increasingly negative view expressed by Paul Krugman and Dowd (in her NY times column from yesterday) about Obama should first take a deep breath and look in the mirror. 

Progressives can blame themselves for believing an impossible political narrative offered by Obama: that is he could deliver Reagan-like results for the US economy with anti-Reagan policies);  the very notion of such an idea is upside to begin with. 

Clinton used a successful dose of political pragmatism (e.g. by throwing in the towel on progressive priorities (healthcare reform) together with another healthy helping of constructive “conservative” policies (e.g. welfare reform & financial sector deregulation – yes it was Clinton’s Treasury Secretary Larry Summers who pushed the unwinding of Glass Stegal!!!) which provided positive dynamic for market confidence leading to positive economic results and the accumulation of important political capital.  He thus was able to keep the Dems in (and at least as importantly to progressives, it kept the GOP out of the White  House!!) for 8 long and wonderful years.   

Yet, the Clinton era left progressives wanting more and OBama promised it:  a true progressive ideologe.  I have to admit, Obama has in some examples been less ideologically intransient than I expected --  he pulled what I call “a Clinton” when he extended Bush tax cuts last year.  That move made progressives crazy.  But unfortunately for Obama, his shift to the pragmatic center has only limited the erosion of his political capital faster than it was otherwise eroding in a weak post-debt bubble / bust economy.  Clinton had the benefit of a uniquely strong economy and fiscal position thanks to the tech bubble -- and to a center-right economic policy orientation.  

Obama is dealing with the legacy of a historic easy money, debt boom-bust cycle that is -- by my understanding of economics -- unresponsive (by definition) to “progressive” (i.e. government activist) economic policy (fiscal and/or monetary stimulus).   

 (NOTE:  government spending doesn’t drive sustainable economic growth it merely reallocates capital from more efficient to less efficient projects.  The Austrian school of economics posits that only private savings can drive sustainable private investment and thus economic growth, which is precisely the opposite of what Keynesians propose.  Keynesian pump priming may work in typical temporary business cycle, but it doesn’t work following a debt boom bust cycle. 

to be fair, neither the GOP or the Dems has an answer for the debt boom / bust cycle.  GOP presidential candidate JOhn McCain didn't have a clue on economic policy .... and rur nominally Republican central bank governor believes printing money can produce a self reinforcing positive cycle of economic growth. 

Progressives like Krugman are screaming for more fiscal stimulus and pounding Obama for not successfully selling the country on larger temporariy deficits and higher taxes.  Obama isn't followiong this default liberal / progressive policy orientation mainly i believe because he fears the Tea Party and public animosity toward active fiscal pump priming.  So he is out of ideas. 

By the way, Krugman is dead wrong about fiscal stimulus being "the" answer.  Japan ran massive fiscal deficits for over a decade following their historic stock market crash in 1989 yet experienced a lost decade and counting.  The US debt to GDP is already over 90% but Japan’s debt to GDP is nearing 200%!!! and like i said, Japan is going on two “lost” decades, i.e. 20 yrs of avg 1% growth.)

Progressives may be able to get away with cutting the economic pie up more equitably or pursuing sustainable economy / social justice program in an already strong economy, but in a post debt bubble economy, more government (in all the various guises, including QE1, 2, 3?? as well as Obamacare, Frank-Dodd regulations, NOT pushing free trade, activist FDA, activist labor board, activist EPA, etc. etc. ) means less economic dynamism and more, prolonged economic pain. 

Obama may have gotten away with his Obamacare fiasco in a strong economy, but piling a new massive entitlement on top of a still massive debt overhang (govt bailouts of financial sector merely shifted private debt to public balance sheet) is a net head-wind on the economy.  Progressives argued (and still believe) that health care reform in general and Obamacare in particular) is required to help put the US back on sustainable fiscal path and to help dig the US out of Great recession of 2008.    (This is what officials I met with in US Treasury told me this past January and last July when I met them in DC.  They claimed containing health care costs was key to putting US back on sustainable fiscal path.)  That may be true, BUT, progressives are dreaming when they think a government solution in general -- let alone the specific Obamacare solution for the health care “crisis” is the way to fiscal sustainability for the US. 

Obamacare did NOT improve the US fiscal position!!!  I would argue it added a major new social entitlement to the government balance sheet.   The CBO ran the numbers and it shows Obamacare modestly reduces deficit over 10 years, but the CBO also points out that OBamacare also exposes government to massive new potential financial liabilities going forward that are not captured in their forecast models.   Obamacare was able to show net decrease in deficits by redeploying proposed savings from Medicare into Obamacare.   If the savings on Medicare were used for Medicare this might have made sense!!!   But instead Obamacare decided to deploy Medicare savings in order to “pay for” a massive new social health care entitlement system!  So Obamacare left structural financing problems in Medicare untreated while it added a huge new unfunded health care insurance scheme to public sector contingent liabilities.   

[Socialized medicine will never be the answer to fiscal discipline in a democracy because socializing medicine means removing price signals from the market.  without price signals, the “market” (i.e. individuals) will always demand more, more, more.   the idea that health care is different from other consumer products is a joke.  we all need to eat, but we all don’t have to eat at the 4 seasons.  We make choices based on our priorities and resources.  When we say people shouldn’t have to choose, we are saying there are free lunches in life.  socialized medicine means either the government pisses people off and risks losing the next election by rationing care (unlikely in democracy) or health care costs continue to spiral upward (despite good intentions) until the sh-t hits the fan like it is in Greece.  Is our current system broken?  yes, but the market isn’t at fault.  We failed the market, by adding massive public subsidy systems to health insurance which has caused price inflation crisis by insulating consumers of health care from market prices" of health because we have this crazy subsidized (and thus distorted) insurance scheme in America. Btw, the market doesn’t “do” anything evil or good.  and the market is inherently unfair, but it is also the best we can do.]

   

Progressives will argue that Obama failed in the end because he was not true to progressive principles.  If Obama was more true to progressive principles, however, he would have cratered the economy and been a 1 term president.  Progressive principles are self defeating in the real world!!!!

these principles sound enlightened but they don't work in practical real world democracy.  look at Greece and France and the UK.  that is where we are headed!  progressives always blame poor implementation or they blame opposition by the GOP for their failures to implement the progressive vision in the US.  Obama was their latest, greatest big hope.    Obama was always a false hope.  he was always promising more than he could deliver.  the government can't just come in an design good outcomes into complex markets.  there are ALWAYS negative unintended consequences to activist govenrment policy that occur no matter how good the intensions.  

When the "market fails" it is for one of two reasons. either it failed because that is the best the makret can do.  such "failures" are features of markets NOT failures.   Government can't fix such features without triggering cycle of negative unintended consequences that creates worse situation than what problem was identified to start with.  income inequality, creative destruction (failure of firms and banks), pollution, business cycles are all natural features of the free market.  we call them "failures" but this is lazy language.  it is like calling an earthquake a failure of nature.  Earth quakes are a feature of the complex system we call the earth system.  without earth quakes we wouldn't have plate tectonics and without plate techtonics we wouldn't have intelligent life on earth.  there are always trade offs.  life is often tragic and unfair, but that is life.  we don't know when the next earth quake will hit.   if we had a majic wand and could rid the world of earthquakes to save people from destruction, do you know what would happen?  life on earth would die.  This is analogous to progressive economic world view.

progressives think enlightened policy can rid the free market of its natural features, which they erroeously call externalities or failures.  the problem is, if they get rid of pollution, income inequality, business cycles, they kill the economy.  North Korea has little pollution, income inequality and they have no business cycles, but they also don't have an economy.  is there an enlightened middle way? 

no.  there is not.  it is a slippery slope to improving on what we believe are market failures.  if we try to reduce income inequality or pollution or business cycles with macro policy, what we do is set in train a cycle of self defeating dynamics that create unintended consequences, begging more government intervention and so on, until the problem we solved gets worse while we create other related problems.  There is a natural rate of income inequality and pollution and business cycle that is inherent to the free market just like earth quakes are natural to the earth system.  the eoconomy is not some artificial creation of man.  every attempt to design an englightened society has failed.  the free market based on property rights, division of labor, entrepreneurial risk taking and free exchange underpins a totally natural system we call the human eocnomy.  the eocnomy is made up of artificial components (cars, computers, etc) but the system is naturally and spontaneously organized.  it is not designed by the human mind.     

I argued in January 2008 that Obama would be a failed president one way or the other.  if he aggressively pursued progressive agenda, he would cause economic implosion and thus be a failed one term president.  If he charted to the center in order to avoid being one term president, I figured he would fail in the eyes of progressive supporters who expected a transformational presidency.   I thought Obama would push a more ideologically rigid policy agenda and thus be a one term president.  He has been more pragmatic than I thought he would be, and that is the only reason he still has a chance in 2012.  If he had been ideologically intransient the economy would be in even worse shape than it is.  One major problem for Obama is that he still doesn’t get “it” – i.e. how the economy works.  Thus, his pragmatism appears to be transparently self-serving especially to progressive supporters (who also don't understand how the economy works, which is according to iron clad laws of nature that disallow free lunches provided by government).   

A key problem for progressives in general and for Obama in particular is that their/his agenda (and understanding of the economy/economic policy) is based on a fairy tale vision of social justice which promises free lunches to society as long as we trade in a bit of our personal liberty and economic freedom.  We are supposed to believe that as long as we all come together and let the government solve our problems that we are being good citizens.  Ben Franklin said those who are willing to give up liberty for safety deserve neither.   I agree.   Those who claim that the government can solve complex social problems (e.g. using the government to cut the economic pie up more equitably) are dreaming.    the world is not fair. the market is not fair, but it is the best we can do. the government can’t make life or markets more fair.   activist government policy requires trade-offs in the real world.   if you want to make the economy more fair, you will make it less dynamic and able to produce wealth and productivity gains over time.  (again this is based on the iron clad natural law of unintended consequences.  complex systems of exchange can't be pre-designed, they have to "emerge" spontaneously.  if you try to pre-design complex system you will face the law of unintended consequences.  when we allow free exchange the law is positive.  we get productivity gains -- as well as some natural negative features like income inequality. 

but if we try to design outcomes into the system to eliminate the "bad features" such as income inequality, we face negative side of law of unintended consequences.  the active attempt to design positive features into a complex system like eocnomy reduces abiltiy of system to deliver positive unintended consequences, such as sustainable growth and productivity gains.  try to rid the world of income inequality and you kill the economy's natural abiltiy to deliver positive unintended  consequences such as productivity gains.  if you try to actively increase productivity gains directly to increase growth, you will fail.  this is all part of the wishful thinking of progressives.  they think man can improve on nature.  this is basic hubris. 

the more equitable you try to make the economy, the smaller the pie will be for everyone.  this is the trade off.  progressives would have us believe that the government can make the economy healthier and more dynamic and more sustainable and more productive by using various policies to inject more equity and fairness and technology and infrastructure and education into the system.   All of these things are results of a dynamic natural system.  once the system is up and running it naturally produces a self reinforcing cycle of education, fair opportunities (not results) and ethical behavior and culture and good infrastructure.  the government cannot design proximate causes of growth and expect to create a sustainable "economy" because allocation of resources will be ad hoc, politicized and unmoored from discipline of micro market signals. 

progressives are dreaming when they believe the government can improve on the market.   lately some environmental progressives have been arguing that the only way we can create a sustainable economy is to stop our fixation on economic growth.  they suggest we stop economic growth so we can avoid polluting the earth and killing ourselves.

This is exactly the argument Thomas Malthus made in the early 1800's.  Malthus argued productivity wasn't growing fast enough to keep up with population growth and therefore we were headed for mass starvation if we didn't actively reduce population growth.   he has been proven wrong, yet new waves of Malthusians continue to re-cycle the same tired ideas over and over again.  What causes "shortages" is easy money supplied by the central bank.  when the central bank adds easy money to economy, the economy grows too fast and it appears we are running out of stuff.  this is what happened in 1970s and again what is happening now and what happened in lead up to Lehman crisis.  before Lehman crisis the facilitation of historic USD monetary inflation fueled food and natural resource price spikes that got the mainstream press screaming about shortages of land and oil.  when Lehman collapsed, easy money reversed (temporarily) suddenly the resource crisis evaporated.  Since the Fed has reflated the world economy with easy money again we are seeing similar dynamics to pre-Lehman resource inflation and worries about running out of natural resources.

the reality is that if the government stays out of the way and lets the price and market system work properly, then households can plan and economize such that the larger macro-economy NEVER "runs out of anything".  If we always price resources, then human ingenuity will always come up with an alternative for the scarce resource.  the first law of thermodynamics, the most fundamental law in the universe says that energy (and matter!!!) can neither be created nor destroyed.  we thus have unlimited "energy" and natural resources (matter) on our home planet earth.  As long as we don't inject easy money into our natural system, the system as a whole will never run out of energy or natural resources required to fuel productivity gains and growth.  We may run out of oil, but the price signal and market signal will spur creative solutions over time to replace oil with some other more efficient energy source. 

we can't know what this will be before price signals tell us their story.  there is no way for government to create incentives or itself design a solution to energy shortage before the shortage plays out because the solution requires market signals, without which there can be no solution.

just because the government can put a man on the moon does not mean governmetn can design positive outcomes into society.  putting a man  on the moon is a discreet project.  it is not a problem related to the design and management of a natural complex system of exchange which is far from equilibrium.  such "problems" are beyond the scope of government.  in fact, we can be certain that anythi9ng the govt does will bump up against the law of unintended consequences and be self defeating, thus begging more interventions and so on, leading ineluctibly to the road to serfdom.... 

throughout history, existing energy sources have been deployed in novel ways to create new energy sources.  for example, the steam engine was invented to drive water pumps that allowed coal miners in UK to dig deeper mines to access more coal.  Without the steam engine technology, the world would have run out of coal.   without rising prices of coal  back in the day, entrepreneurs wouldn't have had the signal to invent a new technology to access coal below the water level.  this is the way the world works.  micro shortages faced by households and firms provide the spark of creative entrepreneurial activity and risk taking that leads to macro solutions for what may appear in the near term to be constraints on growth.    we need micro shortages and price signals in order to allocate entrepreneurial energy to problem solving.  

the government can't just see a macro shortage or problem and solve it with a magic wand minus price signals!!!  by definition once the govenrmetn intervenes either with subsidies (which conservatives love) or direct action, this distorts the market price signal and thus by definition self defeats any decision the government makes because it will be based on distorted price signal -- that it caused itself.  there is no way around this paradox.  the best the government can do is to protect individual property rights and ensure maximum freedom of exchange in the market. and let the chips fall where they may. 

constant entrepreneurial problem solving does its job and accomodates growth without leading to shortages AS LONG AS THE GOVERNMENT facilitates free exchange.

ironically, it is the case that as soon as the government attempts to actively ration macro resources via government fiat, it creates a self fulfilling cycle of guaranteed shortages. or the governmetn can print money to avoid short term shortages, but again, that will create macro shortages as well in medium term as growth outstrips availability of resources as economy is pumped up above its natural rate of growth via easy money provided by the central bank.  so called enlightened policy makers argue they are just trying to solve social problems especially aimed at helping the little guy.  but in fact, government well intended fiat ends up hurting worse those it is aimed at helping.for example,  inflation hurts the poor most and typically helps the rich who can hedge inflation risks via asset purchases.   the poor and elderly on fixed incomes and little asset holdings get screwed via inflation.   

In the real world, the trade off for government efforts to increase equity in soicety (e.g. higher marginal tax rates) leads to lower growth.    lets at least start with a language of trade offs.  progressives would have us believe that if we only handed over management to government the market could work better and we would all be better off.  if only this was true, we could just keep handing off tasks to benevolent government and improve our lives little by little.  the problem with this is that there is no optimal middle way where even a little government intervention can make us all better off.  there is no middle way.  the law of unintended consequences begins as soon as the moment government intervenes.  there is no win/win solution for society if we design the government intervention to be "market" friendly.  there is no market friendly intervention.  there is only freedom and intervention. 

Infrastructure, education and technology are results of a vibrant economy.  once the economy is producing these factors of production, the results are self reinforcing.  Education and infrastructure produced by the market for specific market demand will drive growth and more of the same:  more education, more infrastructure etc. 

But if you try to start with government monopoly production of education and infrastructure (as we largely have in the US), you will get maladaptive education and infrastructure.  The education will serve political ends, not practical ends for society.  Just because education is correlated with growth and social dynamism does NOT mean the government can reproduce these inputs out of whole cloth and expect them to provide sustainable base for future economic growth. 

IT doesn’t work that way.  government monopolies in education, health care, money, law, infrastructure, energy will not and cannot build a new foundation for society (as Obama would have us believe.  see his new foundation speech from April 2009 here:  http://www.huffingtonpost.com/2009/04/14/obama-economy-speech-majo_n_186559.html  ) .  Obama finally ditched his New Foundation rhetoric for “Let’s win the future.” 

are you kidding me?  the government can be a cheerleader and enforcer of individual freedom.  that's it.  the government can't lead a program to "win the future" or build a new foundation for the economy.  those are fantasies -- pie in the sky!  we want to believe so we do. and progressives claim to be true to science and facts and reason and rationality.  in fact, believe in government solutions is completely mad, insane and irrational because govt intervention contradicts how the natural world actually works.  reason is based on how the world works, not how we want the world to work.

Any way you slice the rhetoric, the bottom line is the same: Obama’s progressive world view assumes the government can inject free lunches in society.   having the government build new foundations and win the future is literally a contradiction in terms; it is fantasy !!! 

Forgetaboutit!

Obama believes in public sector provided free lunches deep in his heart.   And he believes the only thing holding him back from delivering his vision is an evil GOP selfishly looking out for its own pecuniary interests.    But this is fantasy.  In the real world, rhetoric can’t change the natural law, which says government can’t provide free lunches to society. 

What we need are leaders in government to talk about policy trade-offs and personal responsibility.  to be fair, even Reagan talked nonsense when he argued ( in effect that) we could have our cake and eat it too – low taxes, big military and high growth.   Reagan’s version of the free lunch worked better than the progressive / Carter / Obama version because he also added market friendly reforms to the mix.  but Reagan’s own free lunch framework  underpins crazy notion in GOP echoed by VP Cheney that “deficits don’t matter.”  

Deficits do matter.  a lot.  Sound money matters.  Reagan missed these two critical points and thus his legacy in modern GOP is that the GOP lacks a way to explain so called “market failures” we saw in 2008.   Without an understanding of linkage between deficits and easy money, there is no way to explain the boom / bust period of the 2000’s.  the modern GOP is fixated on tax cuts and de-regulation.  high deficits and easy money combined with de-regulation or under-regulation is a disaster as we saw in 2000’s!!!  

But the answer isn’t more government intervention as progressives propose.  The answer is fiscal responsibility, limited government and sound money.   Only then will markets be able to function – imperfectly as they are.  free markets aren’t a solution to “everything.”  Free markets are merely the best we can do in a fundamentally unpredictable and unfair world.  to try to remove unpredictability from the world and/or inject fairness into it through government policy is to remove the positive results of the market, i.e. sustainable productivity gains and increased social wealth consistently over time.    there is always a tradeoff to government intervention.  always.  lets talk tradeoffs.  lets not talk about the other side being evil and blocking our brilliant social engineering ideas.  government interventions can't be win/win.  we must give something up if we want to "improve" on the market.  we must be willing to sacrifice unintended consequences that come from intervention.  at least admit this.  politicians talk about free lunches from the market and free lunches from government.  there are no free lunches.  there are trade offs.  the market isn't perfect.  the GOP is wrong for selling the idea that markets can solve everything.  as long as we cut taxes and de regulate all is well.  that is wrong -- when the market inevitably fails, the Dems are there to pick up the pieces.  we have no alternative.

We need what i call “englightened conservative” leadership that points us back to basic understanding why limited government aimed at protecting maximum individual freedom and protection of private property rights (including sound money) is the “best” we can do.  that such a “free market” system isn’t perfect doesn’t mean we can use our human minds to design a better system.   it also doesn't mean we can fix society in patterns developed by the past.  conservatives have to be open to creative change of the system.  progressive have to understand humans can't design progress into the systme.  we have to let it happen via entrepreneurial risk process.  entrepreneurs are true engine of society. 

a system designed to be “more equitable” and “more stable / sustainable” will be less equitable and less stable.  i come to this paradoxicaly conclusion via general system theory and the law of unintended consequences – both of which govern the behavior of complex systems like the human economy and society.  

We need a newly framed articulation why even despite market imperfections, we are better off NOT agreeing to the progressive Faustian bargain, i.e. trading our personal liberty for economic safety provided by a “benevolent” government.  power corrupts and absolute power corrupts absolutely, so the very powers you give to government to solve problems will sow the seeds for problems including government rent seeking and endemic corruption.   In the private sector one evil man can cause harm, but only when the government holds monopoly power over whole sectors of economy is there possibility of systemic failure risk!!!  if we look to the govenrment to solve micro problems, we open up the risk of government sowing macro systemic risk.  this is what we are seeing play out in markets since Lehman collapsed in 2008.    Markets have natural circuit breakers, including rule of law.  When government has monopoly over the ruling making and regulation and design of large sectors of economy, that is when you open way for systemic failure in society. 

Progressives want us to believe if we weren’t all so individually selfish, we could collectively solve social problems.  This is an illogical understanding of how the world actually works.  any attempt by government to guarantee “social justice” are bound to trigger a series of unintended consequences that beg further market failures, begging new government interventions and so on, until society lands on “the road to serfdom.”    Markets are unfair and messy.  Let us focus on developing individual tools (via family and other private institutions) to adjust to life challenges rather than trying to design or engineer challenges out of life through some fairly-tale benevolent government utopian model of macro management.     

BEST OF THE WEB TODAY

• AUGUST 9, 2011

Stand by Your Man

Progressives are betraying Obama, not the other way around.

By JAMES TARANTO

Amid President Obama's recent political difficulties, one recurring theme from unhappy lefties is that the president is either too willing to compromise his progressive principles or else never adhered to such principles in the first place. Former MSNBC host Cenk Uygur, writing at the Puffington Host, grouses that "Obama is the world's worst negotiator and has absolutely no interest in fighting for progressive principles." Tom Hayden, Jane Fonda's erstwhile lesser half, claims that in attempting to transcend the racial divide, Obama made himself a "centrist" and thereby "forfeited the ability to identify in a full-throated way with . . . progressive liberalism." And of course former Enron adviser Paul Krugman has described the president as a "moderate conservative."

This strain of criticism is distinct from the collapse of the Cult of Obama phenomenon, which we've been discussing in recent days. It comes from ideologues, many of whom never harbored any fantasies about Obama as some sort of transformative leader. Krugman, for example, has been consistently hard-headed in his view of Obama.

Left-wing progressives have abundant reason to be unhappy with the Obama presidency. If it continues on its current trajectory, it could be the greatest setback to progressive ideology since the Vietnam War. Uygur is also correct in reckoning the president an atrocious negotiator as we argued last week.

But the notion that Obama is not a progressive or has not been "fighting for progressive principles"--a very different activity from negotiating, we should note--is bunk. If you doubt it, reread this Peggy Noonan column from February 2010:

The president had a stunning and revealing exchange with Sen. Blanche Lincoln, the Arkansas Democrat likely to lose her 2010 re-election campaign. He was meeting with Senate Democrats to urge them to continue with his legislative agenda. Mrs. Lincoln took the opportunity to beseech him to change it. She urged him to distance his administration from "people who want extremes," and to find "common ground" with Republicans in producing legislation that would give those in business the "certainty" they need to create jobs.

While answering, Mr. Obama raised his voice slightly and quickened his cadence. "If the price of certainty is essentially for us to adopt the exact same proposals that were in place leading up to the biggest economic crisis since the Great Depression . . . the result is going to be the same. I don't know why we would expect a different outcome pursuing the exact same policy that got us in this fix in the first place." He continued: "If our response ends up being, you know . . . we don't want to stir things up here," then "I don't know why people would say, 'Boy, we really want to make sure those Democrats are in Washington fighting for us.' "

In the recent budget negotiations, too, Obama was combative and unyielding. "Eric, don't call my bluff," he imperiously told the House majority leader. He said he would take his case "to the American people," and he did. He was still taking his case to the American people yesterday afternoon, repeating his demand for higher taxes against the backdrop of the plummeting stock market.

To be sure, in the interim he folded. But he did so only because the alternative--failing to reach a deal acceptable to the Republican House--would have risked catastrophe.

In short, Obama is a fighter for the progressive cause. Progressives are upset with him because he is a loser.

Associated Press

The face of a winner

Bill Clinton, by contrast, was a winner. By all accounts he emerged victorious from the 1995-96 budget battles with Republicans, and he was easily re-elected. There are, of course, many differences between Clinton and Obama, and between those times and these. But one salient difference is that Clinton was ideologically flexible whereas Obama is rigid.

Unlike Obama, Clinton abandoned "health care reform" when it was clear it was politically untenable. Clinton drove a hard bargain with Republicans in the budget fights, but he never demanded that they raise taxes. And his signature legislation turned out to be welfare reform, a centrist initiative that drew bipartisan support but bitter opposition from the progressive left.

Yet the left not only stood by him but rallied behind him when he was impeached for perjury and obstruction of justice in a sex scandal. If Barack Obama were caught in flagrante delicto with a White House intern, does anyone doubt the left would demand his resignation--and would be relieved at having a good reason to do so?

Progs loved Bill Clinton because he was a winner. They loathe Barack Obama because he is a loser. But Obama is a loser in large part because he is unwilling to do what Clinton did to make himself a winner: cast aside progressive ideology when it is expedient to do so.

Obama isn't betraying the left, the left is betraying Obama--and they are doing so precisely because he has done what they say they want him to do.

Opportunity Knocks?
"President Barack Obama says there's some good news from the bitterly partisan debt debate," the Associated Press reports. This should be good--and it is! He says "it made people so frustrated with Washington that Democrats will be able to draw a clear divide with Republicans heading into the 2012 election":

The president said Monday that the public thought divided government might make some sense--but not dysfunctional government. . . .

"The good news is that I think there has been enough frustration at Washington, sort of reached a fevered pitch last week, that we're now looking at 16 months in which there's going to be a clear contrast and a clear choice," he said.

Obama was speaking at a fund-raiser "with tickets priced at $15,000 per family to benefit the Obama Victory Fund," the AP notes. We suppose people who would make such a donation at this point would believe just about anything, but really, is this the best he can do?

Are Americans frustrated with Washington? No doubt. Is government dysfunctional? For sure. Is this an argument for re-electing an incumbent president? Not in any universe we've ever visited. Maybe Obama could resign and run as an outsider.

Reuters reports on the same fund-raiser under the headline "Obama Says He Inherited Economic Problems." Wow, there's a game-changer!

The New Civility
"Unless things change and Obama can run on accomplishments, he will have to kill Romney," an unnamed "prominent Democratic strategist aligned with the White House" tells Politico.com. Of course he is referring to character assassination rather than the literal kind:

The onslaught would have two aspects. The first is personal: Obama's reelection campaign will portray the public Romney as inauthentic, unprincipled and, in a word used repeatedly by Obama's advisers in about a dozen interviews, "weird."

"First, they've got to like you, and there's not a lot to like about Mitt Romney," said Chicago Democratic consultant Pete Giangreco, who worked on Obama's 2008 campaign. "There's no way to hide this guy and hide his innate phoniness."

A senior Obama adviser was even more cutting, suggesting that the Republican's personal awkwardness will turn off voters.

"There's a weirdness factor with Romney, and it remains to be seen how he wears with the public," the adviser said, noting that the contrasts they'd drive between the president and the former Massachusetts governor would be "based on character to a great extent."

Assuming Romney is the nominee, this seems as plausible an attack as any. Certainly he is vulnerable to the charge of being "inauthentic and unprincipled."

On the other hand, does Barack Obama, the president from the faculty lounge by way of Hawaii, Indonesia and Jeremiah Wright's church, really want to run a campaign on the question of who is more "weird"? Campaign operatives tell Politico they are looking for inspiration to President Bush's campaign against John Kerry, the haughty, French-looking Massachusetts Democrat who by the way served in Vietnam. But Obama running as a regular guy is about as credible as Kerry running as a war hero.

The Politico story also mentions in passing that "Obama remains personally popular." No doubt there are numbers to back up this assertion, but every time we see it, we can't help thinking that Obama is about as "personally popular" as Willy Loman was "well liked."

If He's Lost Jesse Jackson, He's Lost Middle America
Der Spiegel has an interview with dinosaur: Tyrannosaurus race, better known as Jesse Jackson. If you know the background, this exchange is risible:

Spiegel: When was the last time you spoke to President Barack Obama?

Jackson: It has been a while.

Spiegel: But you were one of his early mentors in Chicago and the picture of your public tears in Chicago's Grant Park after his election victory in 2008 went around the globe. How would you describe your current feelings about his presidency?

Jackson: At that moment in Grant Park, we were finally winning, but I was reflecting on the long journey, the many years of struggle for civil rights. Obama ran the last lap of a 60-year campaign. I thought of all the bruises we endured during this campaign and I thought of Dr. Martin Luther King and wished he had been there just for 20 seconds to see how 60 years of struggle suddenly paid off. Sure, some layer of the excitement of that night is gone.

We'll bet some layer of the excitement is gone! This is the same Jesse Jackson, after all, who said of the future president in July 2008: "I want to cut his nuts out."

Also amusing is that Jackson does not dispute the interviewer's description of him as having been a mentor to Obama. If he was, the Associated Press got it terribly wrong in this March 2008 dispatch:

Early in Barack Obama's political career in Illinois, Jesse Jackson helped slap him down. Even now, Jackson's son is a more vocal Obama advocate than his internationally known father. . . .

The two are not close. Twenty years older, Jackson, the trailblazer, was never Obama's mentor.

What a comedown for Jackson to be reduced to pretending he was an influence on Obama.

Respect My Authoritah!
Mediaite.com quotes Al Gore's latest carefully reasoned defense of global warmism:

And some of the exact same people--I can go down a list of their names--are involved in this. And so what do they do? They pay pseudscientists to pretend to be scientists to put out the message: "This climate thing, it's nonsense. Man-made CO2 doesn't trap heat. It may be volcanoes." Bullsh--! "It may be sun spots." Bullsh--! "It's not getting warmer." Bullsh--!

Hey Mr. Gore, just because you're hot under the collar doesn't mean the globe is warming.

Those Thoughtful, Open-Minded Liberals
"Although I try to understand my parents' political beliefs, I don't. When I see what Newsmax 'article' or Wall Street Journal editorial my father 'likes' on Facebook, or glance at a photo, taken a few years back, of my folks dressed as McCain and Palin for Halloween, I feel physically sick. Sometimes it's hard to even have simple conversations with them. Even the most innocent pleasantry, like 'Nice weather,' could spiral out of control if I don't watch what I say."--Sue Sanders, Salon.com, Aug. 7