Our Two Party System: Two Sides of the Same Cronyism Coin

I hate to pile on when Obama is still dusting himself off from last night’s shellacking … but here you go …check out this quote from the QUEEN of poison pen liberal pundits, the NYTs Maureen Dowd: 
“It’s remarkable that President Obama, who came to power abhorring the manipulative and duplicitous tactics of the Bush crowd, should now be vulnerable to similar charges.”
The same can be said of Obama on domestic policy.  Obama says he is for the little guy and the so called “middle class,” but when you take a close look at his first stimulus package, or at Obamacare or Frank-Dodd, what you see are policies that reflect blatant old-fashioned Special interest Cronyism/Corporatism, i.e. favoritism and complicity between government and big business to make sure the economic game is rigged in favor of big business and to make sure the political game is rigged in favor of the incumbent party.   Fiscal stimulus is one big political payoff to public unions and politically connected Democrat supporters.   GM and organized labor gets bailout.  No one from Wall Street goes to jail.  Goldman pulls strings on Dodd-Frank.  Too big to fail banks are even bigger Big banks have only gotten bigger since 2008 –top 5 banks have increased market share!!!  Wall Street and big banks enjoy massive tax payer funded bailout from the Federal Reserve.  Obamacare increases coverage but does so with very little of the promised savings from drug company and insurance reforms -- leaving big pharma and big insurance in great shape to get even bigger.
The little guy gets screwed either way, no matter whether the Dems or GOP are in White House.  Politicians laugh all the way to the bank no matter whether they live on the left or right.   
Dems love to pretend they occupy morally higher ground than conservatives, but this is all a big hypocritical charade.  Of course, the GOP is just as bad for some of the same and some different reasons…but, please lets not pretend that the government is here to solve society’s problems.  It is here to get richer and bigger and more powerful.  Period.
PS… I am also aware that it is premature to crow about Romney who – even if he makes a miracle come back and wins -- is not going to change the selfish political culture in Washington DC or lead the kind of fundamental monetary reform we need to turn things around for US economy.  Both parties need the Fed to do their dirty work, which is to pay off special interests while soaking the middle class in direct and indirect (inflation) taxes.   Just like Obama has realized these past 4 years,  the GOP will realize when/if they occupy the White House next year, it is easier to complain about the other guy than to implement good policy when the system is already so captured by powerful special interests (military industrial complex, welfare complex, public unions, Wall Street, Fortune 50 businesses, farm lobby, homeowners).
What is my answer?  Constitutionally Limited government.  Our system was born as a limited government Federal republic system but over time it has turned into a failed democracy, which is merely a tyranny of, by and for the 51%.      

Op-Ed Columnist

Complicity in Duplicity?

By MAUREEN DOWD

A woman named Rice in a top administration job, ambitious to move up to secretary of state, hitting the Sunday talk shows to aggressively promote a Middle East narrative that’s good for the president but destined to crumble under scrutiny.

Accusations that intelligence on Al Qaeda links in the Middle East was cherry-picked by American officials to create a convenient reality.

A national security apparatus that becomes enmeshed with the political image-making machine.

Sound familiar?

Last time it was Condoleezza Rice helping her war-obsessed bosses spin their deceptive web, as they recklessly tried to re-engineer the Middle East. This time it was Susan Rice offering a noncredible yarn as the Obama team desperately tries to figure out the Middle East.

W.’s administration played up Al Qaeda ties, exploiting 9/11 to invade Iraq, which the neocons had wanted to do all along. The Obama administration sidestepped Al Qaeda ties in the case of the Libyan attack to perpetuate the narrative that the president had decimated Al Qaeda when Osama bin Laden was killed, and to preclude allegations that they were asleep at the switch on the anniversary of 9/11. Better to blame it all on a spontaneous protest to an anti-Islam video on YouTube.

It’s remarkable that President Obama, who came to power abhorring the manipulative and duplicitous tactics of the Bush crowd, should now be vulnerable to similar charges.

You know you’re in trouble when Donald Rumsfeld is the voice of reason. “The idea of sending a United Nations ambassador for the United States out to market and peddle and spin a story that has, within a matter of hours, demonstrated to be not accurate, I think is inexcusable,” the former defense secretary told Fox News on Tuesday. “I can’t imagine.”

His imagination fails him even though he, his pal Dick Cheney and his ward W. sent then-Secretary of State Colin Powell to the U.N. to market a story that fell apart one invasion later. Rumsfeld said that if the Obama administration’s critics are right, that perhaps officials were “bureaucratic and unwilling to respond promptly to a threat report.” Like when W. was unwilling to respond promptly to that threat report screaming “Bin Laden Determined to Strike in U.S.”?

There was something off-kilter about the tragic saga of Christopher Stevens from the beginning. Even for a highly regarded ambassador with a dash of Lawrence of Arabia’s empathy and mistaken sense of invulnerability, Stevens was obviously too lightly guarded in a region roiling with threats and hatred; he was in a susceptible complex without enough armed security and basic emergency equipment. Even afterward, the place was so unprotected that a CNN staffer could walk in and pick up Stevens’s private diary, which reflected the ambassador’s fear about never-ending attacks and being on an Al Qaeda hit list.

There were, after all, Al Qaeda sympathizers among the rebels who overthrew Muammar el-Qaddafi with American help.

House Republicans will hold a hearing next week and have asked Secretary of State Hillary Clinton to explain why the consulate was not better defended given, as Representative Darrell Issa noted in a letter, the “long line of attacks on Western diplomats and officials in Libya in the months leading up to September 11, 2012.”

Susan Rice’s tumble is part of a disturbing pattern of rushing to pump up the president on national security, which seems particularly stupid because it’s so unnecessary.

Last year, the White House had to backtrack from the overwrought initial contentions of John Brennan, a deputy national security adviser, who said Bin Laden died after resisting in a firefight and that he was “hiding behind women who were put in front of him as a shield.”

Now that one of the members of the Navy SEAL team, Matt Bissonette, has written a book, there are contradictory accounts, one by a Democratic White House dying to sound tough, and one by an eyewitness. Bissonette wrote that the lead commando shot an unarmed Bin Laden in the head when he peered out of his bedroom door and they shot his convulsing body again inside the bedroom. In the administration’s version, the shot in the stairwell missed.

Just so, in an overzealous effort to burnish a president who did not need burnishing — especially against foreign policy bumbler Mitt Romney and foreign policy novice Paul Ryan — they have gotten tangled in contradictory accounts about Benghazi. The administration had benefited from the impression that it had diminished Al Qaeda, even though the public no doubt appreciates that it was never going to be so simple. But, as Romney learned when he prematurely rushed to the microphone to take advantage of the crisis and mangled his facts, there is a cost to letting the political spin cycle dictate how you discuss national security.

The U.S. military is preparing to retaliate for the Libyan attack. But, even if Stevens is avenged, will the president get the credit he deserves if his acolytes have left the impression that they’re willing to rewrite the story for political advantage?

Subsidies: A Bipartisan Scourge

Liberals and progressives often refer to the American economic system (derisively of course) as Cowboy Capitalism or Laissez Faire Capitalism because in the US we are supposed to have less government intervention in the economy and more competitive pressures compared to the European system, which is often refered to by conservatives (derisively of course) as a Democratic Socialism or Social Welfare Capitalism. 

The reality is that the United States has become an example of Crony Capitalism (aka Corporatism) as I've argued on previous blog entries.  Another name we could call the US system is Subsidy Capitalism. 

Every major sector of the US economy is subsidies -- massively -- by the Federal government.   Many of these subsidies are justified as necessary to help the poor, but in reality they end up profiting big business and high income earners. 

Let's get rid of subsidies.  conservatives love subsidies because they leave private enterprises in place in the so called free market.  Just because private enterprises remain does not mean we have a competitive free market.  Subsidies distort the so called market to the point that the market often "fails."  and then guess who gets blamed when the market fails?  Of course, the market gets blamed.  politicians never admit that their well meaning subsidies caused the distortions in the first place.

the Federal Reserve is by far THE biggest source of subsidies in the US economy / financial markets -- and therefore it causes the biggest distortions for two reasons.  The subsidies come primarilyt from two sources:  first because the Fed acts as a lender of last resort for big finance.  Tax payers bail out big finance.  It is no surprise that post 2008  the US banking sector is even more concentrated now!  Secondly, the Fed facilitates 'inflation' which is a subsidy for debtors and a tax on creditors and savers.   Private equity is one industry that benefits tremendously from debt subsidies thanks to the Fed's systematic bias toward ensuring postive inflation and to interest expense write offs. 

On top of the Feds subsidies to the financial markets, we have massive Federal subsidies for health insurance (tax deduction for business), housing (interest deductions plus Fannie and Freddie, etc), education (loan interest loans),  farm (price supports), infrastructure, banking and finance, green energy, exports.  You name it and there is a direct or indirect subsidyscheme!  Development economics has proven that subsidies typically benefit high income earners at the expense of low income earners because high income earners have the most to gain from them!!!  Subsidies are a terrible way to try to help the disadvantaged.  Lets get rid of them.

Living off handouts: it's not just the poor

The Economist Magazine

Sep 19th 2012, 13:20 by Buttonwood

THE latest gaffe by Mitt Romney (not so much Romneygate, as Romney-gated community) brings up a related issue, of how modern states have tended to extend benefits to the better-off, partly because of lobbying and partly as a way of buying the support of the wealthy for the welfare state. All this is well illustrated in Suzanne Mettler's book "The Submerged State", which shows how these hidden subsidies can distort voters' view of the way that government policy works; a 2008 poll found that 57% of Americans denied ever using a government programme. But when shown a list of 21 actual programmes, including student loans and home-mortgage interest deduction, 94% of the deniers turned out to have benefited after all.

Some of these programmes are heavily skewed towards the better-off. According to Ms Mettler, 69% of the benefits of the mortgage interest deduction went to those who earned $100,000 or more; 55% of the benefits from employer-provided retirement benefits* went to those earning $100,000 or more. Only 16% of workers in the lowest income quintile had employer-sponsored (and tax deductible) health insurance compared to 85% of those in the top quintile.

In cash terms, the average subsidy for those earning $200,000 to $500,000 is three times that for those earning $10,000 to $20,000.

And these programmes are large; mortgage-interest tax relief cost $104.5 billion in 2010 while the tax subsidy for retirement benefits was $67 billion. But these programmes are politically very hard to get rid of.
A similar problem dogs the British coalition. The Conservative Party is uneasy about ending child benefits for the higher paid, and has promised not to end the winter fuel subsidy for wealthy pensioners. But if you spare the middle classes from the cuts, more of the burden must fall on the poor.

Universal benefits are very expensive. But targeting benefits requires means-testing, an instrusive process that causes hard cases at the margin. And restricting benefits to the poorest may weaken political support for the whole system, along the lines highlighted by Mr Romney; people may believe that the hard-working "us" are subsidising the feckless "them".

High Gas Prices, Liberty and the Law of Unintended Consequences

This is an interesting analysis of why US gas prices are near the highs of 2008 despite crude oil being $50 a barrel cheaper and despite near global recession conditions, including weak growth in US, EZ, China, etc.   This analyst argues that global demand conditions (for distillates) remain strong -- despite low growth -- and thus he assumes a bullish outlook for gasoline prices going forward.
Think about what happens when the world economy actually starts to recover!  We may very well go from high gas prices to super high!   In my view this bullish analysis for US gasoline prices argues that the Fed’s easy money program is sowing the seeds for global stagflation. 
The law of unintended consequences will surely play a role in undermining the Fed’s attempt to use easy money to reduce unemployment in the US. 
The path to higher growth and lower unemployment sounds logical enough when you read the Fed’s reasoning for “QE 3/infinity,” but if we step back for a moment and just think about what the Fed is really saying is that money printing will make the economy healthier.  Who really believes that money printing can set in motion a positive self reinforcing cycle of healthy growth?   Why are we so gullible?   
The law of unintended consequences ALWAYS undermines well intended public policies aimed at guaranteeing certain social or economic outcomes.  There is no way for the government to  ensure outcomes without at the same time sowing the seeds for invisible second round effects that ultimately undermine the well intended goal.  If government could guarantee social or economic or market outcomes, then we would all live in a world without poverty or financial crisis or global warming. 
As soon as the government attempts to control or inject certain desire social or economic outcomes into our world, the law of unintended consequences comes into play, thus undermining the best designed and best intended macro policies. 
To believe that government can inject favorable outcomes into society and the economy assumes the government can provide free lunches via enlightened policy making. 
The law of unintended consequences often results in outcomes that are not just less than hoped for but diametrically opposite of the intended policy.  What this means for the Feds “QE to infinity” program is that it very well may result in higher, not lower unemployment levels.  
The road to hell is paved with good intentions.  Let me clarify what I mean by this.  I am not saying that all good intentions go punished.  Good intentions are a healthy part of our day to day lives.  We should all live according to the golden rule, do unto others as we would like them to do unto us.  We should all have a gracious and grateful heart and we should all seek to do good in the world.
The problem comes when we turn to the government to do good on our behalf.  The problem comes when we think we can use government to inject positive macro outcomes into the world.  There is a fundamental difference between offering a neighbor in need a place to sleep and a warm meal and between the government guaranteeing this for everyone in society.  When the government attempts to guarantee equal outcomes and a level playing field and promises to get rid of business cycles thanks to a Central Bank, we should all be circumspect.  Why should we believe the government can deliver free lunches.  There will always be mysteries that we don’t understand that undermine well intended public policy aimed at guaranteeing such outcomes as “income inequality” or “a level playing field” or “universal healthcare” or “sustainable growth” or “world peace.”  IN each of these cases, the government must use an ends justifies the means approach which automatically undermines the intended positive outcome.  For example, there is the argument that we need to use military force to deliver peace to the world.  The same sort of might-makes-right logic is required and entailed in delivering social equality or level playing fields or universal healthcare.   The “free market” is often accused of being unfair to the small guy or to the small business, and thus is the justification used for the well intended hand of the government to make things “right.”  But in the very act of trying to make things right, the government must behave as the worst selfish monopolist who is constrained by no other force.  The nature of government’s well intended actions is “coercion.”  The nature of transactions in a “free” market is mutual agreement.  At the heart of the market is the logic of peace and agreement.  In a market setting, we can agree to disagree.  In fact, there would be no exchange if we didn’t think we would better off making the exchange.  So I think the exchange is better and you do too!!!  such exchange leads to positive social welfare.   when the government gets involved, this results in a logic of the zero sum game.  One person gains at another’s expense, but this reality is rationalized as a price to pay for the intended outcome.  The process of guaranteeing the outcome requires -- one way or the other --  that the government enforces its univocal view of what is “correct.”  There is no room for agreeing to disagree.  Means are justified by well intended ends, no matter if the means are in direct opposition to what is “intended” – and in fact, it is often the case that the means to achieve well intended ends requires coercion or some violent force or the threat of force.  This is the opposite of peace and harmony. 
We can live in a world that offers liberty and equal protection under the law – and that is inherently unfair, unpredictable and unequal.  Or we can try to engineer a more perfect world that trades personal liberty for “social justice.”  What we find out when we trade liberty for social justice is that we get neither.  This is the law of unintended consequences:  the best we can do is guarantee equal treatment under the law.  We cannot guarantee equal outcomes or social justice or equal opportunity or fairness without at the same time giving something up in exchange.  In fact, when we try to guarantee social outcomes, we must first trade liberty in order to achieve the intended outcome – which always proves unachievable thanks to the law of unintended consequences.

The Mystery Behind High North American Gas Prices: Solved

Seeking Alpha, September 25, 2012

By Keith Shaffer
(Keith Schaefer writes on oil and natural gas markets in a simple, easy to read manner. His new newsletter will outline which TSX-listed energy companies have the ability to grow, and bring shareholders prosperity even in these tough times. He has a degree in journalism and has worked for several dailies in Canada, but has spent the last 15 years assisting public resource companies raise exploration and expansion capital.)
North American drivers are now competing with global drivers -- and global industry -- for cheap American crude. I went on FOX National Business News to explain why that is.
For starters, keep in mind that driving gasoline is 50% higher today than in 2008, relative to the oil price. Put another way, gas prices right now are near the highs of 2008 (when oil was a whopping $147 a barrel.) Yet the oil price is $50 a barrel lower today - that's what I mean by 50% higher gas. Why is that, exactly?
Look at these two charts that I talked about in the Fox segment , which help explain one part of a complex story. The first chart says there is a low amount of middle distillates globally-- these are the refined oil products that are used to power and transport the world: diesel, jet fuel, home heating oil, etc.

go to original article link to see chart:  
http://seekingalpha.com/article/886691-the-mystery-behind-high-north-american-gas-prices-solved?source=email_macro_view&ifp=0

The above chart means that either demand is low, or supply is low. But then I look at the chart below, and I see supply is high and rising, so I conclude demand must be higher (which I have to think is bullish).

go to link to see chart:
http://seekingalpha.com/article/886691-the-mystery-behind-high-north-american-gas-prices-solved?source=email_macro_view&ifp=0

U.S. refineries are dramatically increasing their exports of light / middle distillates from the Gulf refinery complex out into the rest of the world. And yet global distillate levels are still low. That intimates a bullish world demand case to me, and tells me we won't see a dramatic drop in the price of oil.
Refineries export into a global market for their refined products, which are all priced on Brent Crude, while their input costs-- North American crude oil -- is priced on cheaper WTI, or West Texas Intermediate. That $15/barrel price difference between the Brent and WTI is pure profit for refineries. The WTI price is so much cheaper because of the HUGE supply of new oil created by the U.S. in the fast-growing Shale Revolution.
It allows refineries to choose whatever global product has the best price for export, and that's not always driving gasoline for North Americans. Several North American refineries are trying their best to move their processing over to other products besides driving gasoline. But even with lots of gasoline, domestic drivers are now competing with those around the world for cheap North American crude products. And that should keep retail gasoline prices high.

the Real "Taker's" are NOT who you Think!!!

This article from the on line version of the Economist Magazine hits the nail on the head by elaborating on a theme I have been pounding for a long time now:  i.e. both major parties are two sides of the same Big-government, Crony-Capitalism (aka Corporatist) coin. 

It is no coincidence that the Washington DC metro area now contains seven of America’s ten richest counties!!! 

Washington DC was one of the few (if only) regions where real estate prices kept going up in the wake of the 2008 crisis!  Why?  Because Washington DC continues to be ground zero for decision making in the economy.  The more decisions and regulations set in Washington DC, the more opportunities there are for lobbyists and congress members to enjoy new and ever more lucrative rent seeking activities.   The economic boom in Washington DC comes at the expense of the rest of the country. 

Why do we believe the hollow promises by politicians to solve our social and economic problems?

More than half of the members of Congress are millionaires, many of whom are professional politicians.  How do professional politicians accumulate so much wealth?   

The more power we give to government, the more opportunities we give to politicians to take advantage of big-government corporatist rent seeking activities. 

Obamacare is full of sweeteners to big pharma and big insurance.  Dodd-Frank does nothing to reduce the incredible consolidation of the financial sector.    In fact, Obamacare doubles down on a failed system organized around massive subsidies to health insurance companies. 

Meantime, the five largest banks hold a share of U.S. assets 30 percent larger today than in 2006! 

THE BIG KEEP GETTING BIGGER!  Trust busting in the early 20^th century is often used as an example of successful and necessary government intervention that works.  the law of unintended consequences, however, always catches up with such superficial and initial "successes."  it often take times to manifest, but it always does. 

Anti-trust is often used now by companies to gain government favors and competitive advantage rather than to reduce market power. 

Central banking has also been an example used by defenders of government intervention in the economy.  Since the Fed was established in 1913, we’ve had 2 world wars, a Great Depression, the Great inflation of the 1970s, the Iraq and afghanistan War and the Great Recession of 2009 (and counting).  The Fed facilitated spending for war and also facilitated the booms that led to bust in the 1920s and again in the 2000s.  The Fed sows the seeds for disaster then argues it is the only institution that can save us from disaster. 

ALL government interventions aimed at guaranteeing social and/or economic outcomes are subject to the law of unintended consequences.  This natural law leads to the general impoverishment of society and the enrichment of politically connected elites!!!

Romney took a lot of flack for talking about the 47% who don’t pay taxes.  This issue is a distraction from what really matters.  That is the fact that cronyism is on the rise -- and neither major party has an answer!!!

The real beneficiaries of public largesse are politicians and their crony allies in the sectors of economy that enjoy the largest public subsidies:  big banking and finance, big insurance, big pharma, big farm, big green energy, secondary education, the military industrial complex and the latest arrival to the public pork pig-out:  big homeland security.  As the Economist explains in the article copied below:  "a rapidly expanding security state is more parasitical than protective."

We can thank the Republicans and Bush 43 for establishing the homeland security industrial complex. 

The problems we face are bipartisan problems which will not be solved by finger pointing or nostalgic talk of how government used to solve problems with bipartisan cooperation. 

Our two major party system is a false choice between two different flavors of big government.  Until we recognize that, it doesn’t matter which party is in charge, Washington DC will get wealthier and wealthier, and our country will continue to be impoverished – financially, culturally, physically and socially.

Wake up fellow Americans. 

We are so trained to vilify the “other” no matter whether it is the other party, or the other socio economic group or the other in terms of foreign policy threats, that we fail to look in the mirror and to see that neither major party is really willing or able to fix what is really broken in this country. 

What is really broken is our own fault individually and collectively.

We have willingly handed over to the government more and more responsibility to keep us safely employed, to keep us protected, to keep us healthy and educated and to help provide “equal opportunity for all” (by leveling the so called playing field).  We have consistently and willingly and knowingly traded our liberty little by little for safety, and we have ended up with neither… just as Ben Franklin warned would be the case 200 years ago.

Obama promised to change Washington DC and now he admits it is impossible to change Washington from the inside.  We have seen Obama co-opted at every turn.  Co opted by big Wall Street (big banks have gotten bigger!!!), co-opted by big insurance and big pharma (Obamacare is a fiscal disaster thanks to give-aways to big insurance and pharma), co-opted by big labor (blocking school reform), coopted by big Green energy (solydra), coopted by his own party and Congress (in two failed and pork stuffed stimulus packages). 

George Bush created a massive new industrial complex:  the homeland security complex which now employs tens of thousands of analysts and requires billions of dollars in bureaucratic over sight and that will only grow and grow and grow bigger and bigger.  Note the reference at the end of this article when the author says that Obama is likely to be slightly more “corporatist” and Romney is likely to be more “militaristic” but in the end both parties are defenders of the status quo crony capitalism aka corporatism we “enjoy” today.

All those Dems who think government can protect the little guy from big business, look at Obama’s record and please take the rose colored glasses off!  Big banks and big insurance and big pharma have only gotten bigger under Obama and they will continue to do so.  all those Republicans who think the GOP is for “free” markets is kidding himself or herself given the fact that the GOP is also for an unaffordable military and homeland security industrial complex as well as for a Central Bank system that is anything but a “free” market.  The GOP has no answer for “market failure” as happened in 2008 because it doesn’t understand or admit to the massive interventions it promotes in the economy that undermine and distort the market, including massive public spending on defense and homeland security, and the central bank system that is required to fund GOP public spending priorities.

both parties promise that we can have our cake and eat it too.  both parties promise free lunches. 

we need a new language of trade offs.  whenever politicians promise "free lunches" we should understand they are fooling themselves and we are fooling ourselves for believing them.  the government can't guarantee peace through war anymore than the government can guarantee equal opportunity or so called social justice or cradle to grave safety nets.

Life isn't fair.  Success results from failure and nothing else.  there are no free lunches.  What if our politicians were forced to use a language that assumed such realities.  Instead what we get -- all because we naively want to believe it -- is the language of blame, finger pointing and entitlement.

It is often said that a democracy can’t function with a gold standard.  I believe history will prove the opposite.  That a democracy can’t survive without a gold standard – by a gold standard I mean a monetary standard that cannot be manipulated by politicians and where the market provides sound money. 

Naysayers who say the world is too complicated for a gold standard have it upside down.  The world has become overly complicated thanks to government manipulated money.  Central banking IS systemic risk.  There is no such thing as systemic risk in a market without a central bank. 

One day we will demand sound money when the government inevitably crashes their pie-in-the-sky central planning monetary system that promises the ultimate free lunch:  wealth via money printing. 

are we really that stupid?  no we are not that stupid.  we just stopped thinking for ourselves.  "we" (our political elites with our tacit approval) have developed a massive infrastructure of experts who design massively complex models and theories that "prove" to themselves and thus to all of us non-experts that money does grow on trees.  

Wake up America! 

  

Democracy in America

American politics

The capital of takers

The splendour of empire

Sep 24th 2012, 13:22 by W.W. | HOUSTON

·         SPEAKING of making versus taking, the Washington, DC metro area now contains seven of America's ten richest counties. Matt Yglesias of Slate comments:

The simple explanation is that we've gone corrupt and decadent, and as the vitality of the American empire declines its capital grows more splendid. The more sophisticated explanation, offered by David Leonhardt in August, is that the DC area is affluent for the same reason the other affluent parts of America are affluent—a very high share of the population has college degrees. But that in some ways only pushes the question back a further step. All these college graduates didn't end up in DC by coincidence. Rather, the national economy has transformed in such a way as to encourage large numbers of educated people to move here in search of work or because you accepted a job offer.

Mr Yglesias rightly notes that the capital region's magnetism to the well-schooled isn't entirely a matter of an increasingly politicised economy. He mentions, for example, the movement of many publications and journalists to the Washington area as an effect of the decline of local newspapers in the internet age. But, Mr Yglesias argues,

...it seems a little implausible to avoid the conclusion that on the whole the American economy has gotten more deeply invested in influence-peddling—broadly construed—and that this is driving the Washington area to the top of the charts.

Agreed.

What, then, are we to make of the fact that the Washington area's rising affluence has resulted from an influx of highly-educated workers? If you refuse to assume that lobbying, lawyering, and contract-seeking generally create rather than consume wealth, it would appear that many of America's best-trained workers are increasingly drawn into enterprises that, on the whole, take more than they make. Which augurs ill for America's future.

This implies, moreover, that there is a non-silly "maker/taker" distinction, but that Mitt Romney has it all wrong. It's well and good to worry about welfare dependency, but it's rather more important to highlight the economic drag of dependency inherent in America's increasingly corporatist political economy. Tim Carney of the Washington Examiner nails it:

Romney was correct that a portion of America backs President Obama because they "are dependent upon government" and "believe that they are entitled." We even know these dependents' names: Duke Energy CEO Jim Rogers, General Electric boss Jeff Immelt, Pfizer lobbying chief Sally Sussman, Solyndra investor George Kaiser and millionaire lobbyist Tony Podesta, to list a few.

In the last few years of bailouts, stimulus, Obamacare and government expansion in general, we have seen median income fall and corporate profits soar. Industries are consolidating as the big get bigger while the little guys shut down.

When government controls more money, those with the best lobbyists pocket most of it. The five largest banks hold a share of U.S. assets 30 percent larger today than in 2006. Also, as Obama has expanded export subsidies, 75 percent of the Export-Import Bank's loan-guarantee dollars in the past three years have subsidized Boeing sales.

Romney, however, wasn't talking about corporate welfare queens. He was talking about the 47 percent of the population that pays no federal income tax.

If the taker economy has less to do with citizens receiving transfer payments and rather more to do with crony capitalism (or "public-private partnership", as boosters like to put it) and a rapidly expanding security state that is more parasitical than protective, then it is not at all clear which major-party presidential candidate is most on the side of the makers. My hunch is that Mr Obama is slightly more corporatist and slightly less militarist than Mr Romney, but that's no more than a hunch. Sadly, I'm confident that the opulence of the imperial seat will only wax, no matter who deals and doles from the west wing.

(Photo credit: AFP)

Dear John (#9)... why the stock market means nothing today

Dear John,

The other day you said in defense of Obama:  “but where is the DOW? Where was it when he took over? This at least has to be considered.”

No it doesn’t.  what we really need to consider is why stocks are so high despite Obama’s self-destructive interventionist policy program.    The reason is simple. 

Low interest rates thanks to the Fed. 

Thanks to QE1, QE2 and now QE3 (also being called QE infinity) plus various other interventions, e.g. TARP and 2 massive rounds of Fed govt stimulus,the Feds (including Fed Reserve and US Federal govt) have “successfully” replaced a historic global real estate bubble, private credit bubble, stock market bubble, commodity and a global bond/US Treasury bubble it created in 2001 to 2008 with another real estate bubble (smaller), another stock bubble, another global commodity bubble and another even bigger Treasury bubble while replacing the private debt bubble with a public debt one.

Some day we will all pay the piper.

There is no such thing as financial markets anymore. The Federal government uses a combination of regulation, GSEs (Fannie and Freddie) and the Federal Reserve to manipulate (at least for the moment) the major stock, bond and asset markets in the US and to a large extent, the world.  This can’t last. 

In one of the great intellectual debates in modern history called "the socialist calculation debate" (also called  "the economic calculation problem"), Ludwig von Mises and FA Hayek turned upside down Carl Marx's dialectical argument about why capitalsim sows the seeds of its own self destruction. 

see wikipedia:  http://en.wikipedia.org/wiki/Economic_calculation_problem

  

Mises and Hayek together provided a compelling (and i would say definitive) argument why central planning / socialist systems (eg USSR) -- and NOT capitalist free market economies -- sow the seeds of their own destruction.  Hayek elaborated on his ideas in his book the Road to Serfdom and showed why even well intended "third-way" systems (like Europes Social welfare democracy or America's Special Interest / Crony Capitalism system) are also ultimately self destructive.  Enlighted Third Way systems slowly, but surely distort and eliminate market signals and replace them with central planning institutions.  This occurs because each round of enlightened intervention aimed at solving some identified "market failure" ends up creating and introducing new "artificial" distortions that lead ineluctably to new "market failures" that are then the focus of additional rounds of enlightened public policy.  And this continues until the government's reach extends further and further into the market crowding out market players and distorting market price signals.

This is exactly where America is today.  The stock market (S&P and the Dow’s) excellent performance since Obama came to office in 2009 has NOTHING to do with Obama or his policies.  One of the huge problems we have today is that the stock market isn’t allowed to discount any policy news no matter how bad its been and is likely to be going forward under Obama because the Fed is flooding the market with easy money and keeping the short term rate at zero percent. 

There is no such thing as zero percent interest rates in a real market.  This is a completely artificial and irrational and unsustainable situation that will only lead to a worse outcome down the road.

As i already said above:  We will pay the piper eventually.  There are no free lunches in life and surely none the Federal government or the Federal Reserve (thanks to money printing) can offer. 

Progressives and conservatives – Dems and GOPers -- are blinded by wishful thinking when they assume their ideas can work because their ideas only work in a fantasy world of free lunches and central bank printing presses facilitating debt accumulation to the moon and back!!!    Both sides pretend they are the fiscally responsible side.  We know the GOP is full of it because it has a history of big deficits.  but we also know the Dems are full of it, even though Clinton succeeded in reducing public debt because the Dems like to ignore the enormous contingent liabilities of the government entailed in entitlement programs that are clearly unsustainable. 

Bottom line:  America is broke any way you slice it thanks to bipartisan overreaching and over spending -- all facilitated by the Fed and bipartisan support for the Fed.   The options we have are bad and worse.  Either we default directly on our public debt or we default indirectly by debasing the dollar.   it looks like we are headed for option #2.

America is a house divided where each mainstream political party argues the other side is going to drive our country over the cliff.  Each sides' increasingly die hard supporters believes they own "the truth."  The fact of the matter is that neither side has the answer or "the truth."  Both sides are driving us off the cliff with lies and wishful thinking.  The progressive Dems pretend they have science on their side giving them a claim to the truth, and conservatives pretend they have a deep understanding of free markets on their side as their claim to the truth. 

The free market has its own logic and truth that isn't owned by either progressive or conservatives.   we think of progressives and conservaties as opposite sides of the political spectrum, but along one fundamentally important dimension they are identical:  both need and embrace an artificial central bank money printing press to implement their vision.

Whatever looks rosy today will  look like a nightmare when interest rates “normalize” some day in the future.  We are kicking the can down the road for ourselves and our children.  Consider this article i copied below arguing why stocks are over-valued: stock prices today have everything to do with low rates.

The Fed replaced a massive unprecedented credit and real estate bubble with an EPIC unprecedented Treasury bond market bubble plus another big stock market bubble and another real estate bubble.   this doesn’t end well.

John, you’ve often argued that my ideas are too abstract, ideological and impractical to be of any use in the "real" world. 

Someday, we will see that the exact opposite is true.  Ideas have consequences.  And some day we will see the destructive consequences of bipartisan political support for the Federal Reserve printing press.  Defenders of the Fed claim that a market can’t work without a central bank as proven by the harsh volatility of econmoic business cycles (called panics) in the 1800’s.   Such "conventional wisdom" is revisionist history and it is plain wrong.  What history has taught us if we would open our eyes for a minute or two is that the establishment of the Fed has facilitated a century of unprecedented war and economic destruction like we’ve never seen in the history of the world. 

We had panics in the 1800s and we had a few wars.  But, we also had the most peaceful and productive and wealth creating period in the history of the world in the 19th century.  all with small government and no Federal Reserve.   

In the 20^th century we had 2 world wars, a Great Depression, the Vietnam War, the Iraq War 1 and 2, the war in Afghanistan, the Great inflation of the 1970s and now the Great global credit crunch and Recession of 2009 – which ain’t over yet!  by any stretch of the imagination. 

The market will continue to be under attack going forward as it inevtiably “fails” again thanks to additional rounds of well intended government interventions implemented in the wake of the 2008 Lehman collapse.  This is the Road to Serfdom that FA Hayek warned about.

We are failing the market.  

Nature entails great natural disasters resulting in human suffering, like earthquakes and hurricanes and droughts.  The economy also entails similar "natural disasters" like temporary booms and busts, business cycles, bankruptcy, income inequality, industrial accidents, etc. 

But, such economic natural disasters never resulted in what we now call systemic risk until the Federal Reserve was established in 1913. 

Only humans when they are organized in powerful government central planning organizations have the capacity to destroy the world.  we pretend that only government can solve market failures when in fact the truth is the opposite:  government cannot solve market failures without also triggering a cascading of unintended consequences that end up causing more social harm than good.  On the other hand, a powerful central govenrment can inject systemic risk into the economy and/or financial markets that couldn't otherwise develop in a "free economy."    Free market doesn't mean anything goes or selfishness rules.  it means that we understand a central govenrmetn cannot guarantee certain social outcomes without undermining the natural ability of markets to improve social welfare.    Free markets channel self interested behavior into socially productive ends.  Selfishness is NOT a natural feature of markets.  Self interest is NOT selfishness.  Selfishness and greed and other anti-social behaviors manifest most when the government intervenes to try to make markets better, such as when the central bank prints money.  money printing is what drives self interest into the abnormal behavior range of selfishness and greed.  When the central bank prints money, (like it is doing now as reflected in ultra low interest rates) this turns savers into suckers!!

Central government intervention tends to crowd out natural local cooperation in times of need and crisis.  By trying to fix so called market failures, the government prevents us from learning how to adjust to and adapt to what are really just natural features of markets.   

the government creates the necessary conditions for systemic failure in society and then it claims it is the only entity that can save society from the very horrors it created in the first place.  this is the history of the Federal Reserve Bank.

Democracy is a false god.  we need rule by law and equal treatment under the law.  we do not need rule by special interests and money politics and/or tyranny of the 51% over the 49%.

we need a system that accomodates people's right and freedom to agree to disagree.  we don't need a system where there is an assumption that society can come to agreement over what is the truth or what is fair or what is equal or what is decided to be social justice.  Implementing progressive ideals like equality, justice, fairness, level playing fields, equal opportunity necessarily requires and results in an inherently self destructive process of ends-justifies-the-means logic.  Progressives say they want to eliminate might makes right from society and they want to eliminate cynical ends justify the means behavior.  they pretend that these sins are a result of the so called "free market."  in fact, the opposite is true.

the free market requires mutual acceptance which is the opposite of might makes right.  the market requires if a company gets big and enjoys market dominance, it won't stay that way for long if it doesn't keep offering a good deal to its customers.  progressives worry about evil monopolies taking advantage of consumers in the market.  in reality, large firms can only get large or stay large if they meet the needs of customers who are able to pick and choose between other suppliers.  

ironically, the only truly sustainable monopoly is a government monopoly enforced by brute force of the state and financed by the bottomless pockets of tax payers.  private sector monopolies can't survive without the assistance of the state as enforcer because there is always an entrepreneur ready, willing and able to offer a better deal for consumers than offered by the entity attempting to enjoy so called monopoly power in the market. 

too big to fail banks were not a natural creation of the so called "market."  too big to fail banks were created, like Frankenstein, by Federal Reserve bailouts and its lender of last resort function which resulted in the opposite of natural selection of the most adaptive and successful banks surviving and the weakest banks being weeded out.  instead, the Fed and Federal govt have promoted policies that have resulted in "adverse selection" where the most aggressive and least risk averse banks got bigger and bigger. 
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ironically, it is through anti-trust laws that many private companies win an advantage over a business rival that they wouldn't otherwise be able to achieve without state intervention.  anti trust doesn't promote competition and level playing fields, it promotes special interest politics aimed at creating market advantage for politically connected companies.  

why are progressives afraid of monopolies in the market -- where they cannot survive except with a powerful state protector-- yet they promote and support monopolies when they are controlled by the state for example in monetary policy, primary education, regular mail, infrastructure building and soon in health care.  if we look at the record of government monopolies, the record is one of failure, low quality/productivity and eventually of bankruptcy and/or chronic deficits.  

Wake up America!     

Not Under-Valued

September 20, 2012  | 7 commentsby: John Early  |  about: SPY

Have you noticed that, over the last four years, Treasury yields have tended to go up when the stock market goes up? For most of the last 50 years interest rates and stock prices moved in opposite directions. Those who claim that the stock market is cheap because Treasury yields are so low may not have caught on to this change and thus don't realize the market (SPY) may be 73% over-valued and headed for a fall.
From 1965 to mid 2008 the 10-year Treasury yielded more than 5.5% and had an inverse correlation with stock market valuation, i.e. higher yields meant lower valuation. However, looking at a broader history the correlation flips to positive when the yield has been below 5.5%. The highest stock market valuation tends to come with a yield of about 5.5%. History suggests the near record low yields should come with near record low valuation. In other words, the risk premium for stocks declines as the 10-year Treasury yield falls toward 5.5%, but then rises as the yield falls below 5.5%. With the 10-year yield down around 1.8% the risk premium should be near an all time high.




chart1
to see chart go to original article:  http://seekingalpha.com/article/877791-low-interest-rates-mean-stocks-are-over-valued-not-under-valued?source=email_macro_view&ifp=0

In the scatterplot above, each dot represents a month and shows the month's PEses on the horizontal scale and what the 10-year Treasury yield was on the vertical scale. The current PEses is 37.4. The best fit line (red) suggests a 10-year Treasury yield of 1.78 should have a PEses of 10 - thus suggesting the stock market is 73% over-valued.
For more info on PEse, see here.
If you use Shiller's PE10 the best fit line suggests the PE10 should be at 10 rather than 21.9, representing a 54% over-valuation.


chart2
to see chart go to original article:  http://seekingalpha.com/article/877791-low-interest-rates-mean-stocks-are-over-valued-not-under-valued?source=email_macro_view&ifp=0

If you use a standard PE with the last 12 months of available "as reported" earnings, the PE is 16.4 while the best fit line suggests it should be 11 - thus indicating the market is over-valued by a third.


chart3
to see chart go to original article:  http://seekingalpha.com/article/877791-low-interest-rates-mean-stocks-are-over-valued-not-under-valued?source=email_macro_view&ifp=0

There is not enough "operating" earnings history to estimate a best fit line.
In the three charts above the more accurate the historical correlation, the greater the suggested over-valuation. The best fit line between the PEses and the 10 year yield has an R-squared of 0.57. The best fit line for the PE10 has a respectable R-squared of 0.46. The R-squared for the PE is a poor 0.08, so the degree of overvaluation is likely closer to the 73%.
Just because the stock market is over-valued does not mean it could not go up and become more over-valued in the next few days or weeks, but it does suggest that the risk is great and the downside dwarfs the upside.

All the pundits I have heard who claim the stock market is dramatically under-valued base the claim on low interest rates. The charts above suggest these claims are a bit like Wylie Coyote running off the cliff, and not falling until he reaches down and finds there is no support. The stock market has run off the cliff and thinks interest rates are right under its feet. Sometime soon it will look down to see they are actually way down in the valley.