All the Wrong Moves

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In his 2015 State of the Union address, President Obama asserted that his economic policies are working. "The economy is growing and creating jobs at the fastest pace since 1999," he declared. "The shadow of crisis has passed." Later, in March, a giddy Obama took credit for the recovery, saying that unemployment had fallen to 5.5% and that 60 consecutive months of job growth had created over 12 million jobs.

The crisis has not passed. Nor has its shadow, which, almost seven years after Mr. Obama promised jobs, GDP growth, and a middle class revival, grows darker and broader. Under his stewardship, the economy remains chronically stagnant, despite profligate stimulus spending by the federal government (that has run up the public debt from $10 trillion to more than $18 trillion) and the Federal Reserve (that has run up its balance sheet from $850 billion to more than $4.5 trillion).

The bold policies of Obama’s first term (the Wall Street bailout, the Stimulus, Obamacare, Dodd-Frank financial reform, the Green Economy initiative, etc.) — praised by many, and often considered to be urgently needed — failed to revive the economy, even though the recession was already winding down, officially ending in June 2009. Ironically, all these efforts have stifled the recovery, except for the so-called 1% — the wealthiest Americans, whom Obama frequently excoriates; their share of the national income increased from 18%, when he took office, to 22% today. For everyone else, income share has fallen. They are not part of the Obama Recovery; for them, the recession has not passed.

The crisis has not passed. Nor has its shadow, which, almost seven years after Mr. Obama promised jobs, GDP growth, and a middle class revival, grows darker and broader.

These economic castaways — who have experienced flat, if not diminishing, economic improvement for more than seven years — have not been fooled by the falling (from 7.8%) unemployment rate, so often celebrated as success by the Obama administration. This rate, which measures only unemployed workers who have sought employment in the previous month, provides an incomplete and misleading picture of the US labor force. While it has dropped, so too has the labor participation rate. Today, 93 million working age adults do not participate in the labor force (have no job or have given up looking). Thirteen million of them have dropped out during Obama's tenure. Some of these are retirees, but not as many as one might think. More and more, the elderly have been forced to postpone retirement or return to the labor force. Since January 2000, the participation rate for the elderly has soared by 50%; for elderly women, by 69%.

And the equally celebrated jobs numbers are no less incomplete and misleading. The net jobs gained since Obama took office are barely six million, not 12 million, and most of them are low wage, low skill jobs. The only contribution to middle-class employment under the Obama administration has been the addition of about two million jobs in healthcare, education, and social services (aka the HES Complex). But these HES jobs were not generated by the natural forces of capitalism. According to former Reagan budget director David Stockman, they are a result of "the $1.5 trillion being spent on medical entitlements and another $1 trillion each on tax-subsidized employer health plans and tax-supported education at all levels, including the massive student grant and loan programs."

The April 2015 Bureau of Labor Statistics (BLS) “Employment Situation Summary” posted 109.2 million jobs, excluding HES Complex jobs. The corresponding number for December 2007 was 109.1 million, an increase of 0.1 million jobs. That is, not counting the taxpayer subsidized HES jobs, 7.5 years of economic recovery has produced a net gain of 0.1 million jobs.

All these efforts have stifled the recovery, except for the so-called 1%; their share of the national income increased from 18%, when Obama took office, to 22% today.

Stanford economist John B. Taylor, attributes the slowness of the recovery to policies (monetary, fiscal, and regulatory) that, over the past 10 years, have become significantly "more discretionary, more interventionist, and less predictable." This policy shift no doubt contributed to the financial meltdown that caused the recession of 2008, but Obama's overbearing, anti-growth intrusion has stifled economic activity and made true recovery impossible. Normally, economic recovery proceeds rapidly, even from recessions associated with financial crises. As Taylor notes, the average annual growth rate from such recessions (we have had a total of eight in US recorded business cycle history) is 6%; for the Obama Recovery, it is barely 2%.

An annual capital injection of, say, a trillion dollars (for plant and equipment, research, new hires, etc.) should be more than enough to extricate a $17 trillion economy from its doldrums (indeed, doing so at a GDP growth rate of almost 6%). But American businessmen are paralyzed with fear about Obama's boneheaded, clumsy meddling. Although their profits have risen 35% during Obama's reign, investment in new plant and equipment has risen by a meager 2.6%, as corporations keep to themselves a $1.8 trillion cash hoard. Banks are sitting on $2 trillion, afraid to lend at artificially low interest rates. Another $2.1 trillion in the profits of multinational companies is stashed overseas to avoid taxes. It's not the economy, stupid. It's federal government policy.

Our own government, not unions and cheap foreign labor, is ruining the US manufacturing sector.

In addition to the confusing burden of fiscal and monetary policy, American business must contend with the crippling effects of regulatory policy. There is no greater middle class job killer than the stultifying morass of federal regulations that in recent years has grown with explosive speed. In his annual review of federal regulation (“Ten Thousand Commandments”), Wayne Crews of the Competitive Enterprise Institute calculates the annual regulatory compliance cost as $1.88 trillion, an amount that exceeds the combined total of corporate and individual income tax revenues. Such an astounding cost significantly reduces American competitiveness, innovation, and job creation, and punishes US households, who, in Crews’ estimation, are assessed "$14,976 annually on average in regulatory hidden tax."

Incapable of grasping the connection between excessive regulation and chronic stagnation, no one has done more with regulatory authority to destroy middle class jobs than Obama (“Regulator without Peer”). During its eight-year reign, the Bush administration increased the annual regulatory compliance cost by $318 billion. In only six years, the Obama administration has increased it by $708 billion. According to a recent study by the National Association of Manufacturers, the annual cost for the average US firm to comply with federal regulations is $9,991 per employee; for small companies, the engine of job growth during economic recovery periods, it is $11,724. Railing against the loss of middle class manufacturing jobs, Democrats blame companies that have outsourced to countries with cheap labor. Republicans blame labor unions. Yet the average US manufacturing firm must pay $19,564 per employee to comply with regulations; small manufacturing firms pay $34,671. Our own government, not unions and cheap foreign labor, is ruining the US manufacturing sector, and its unbridled fiscal, monetary, and regulatory "discretion" is destroying the middle class.

Unfortunately for the middle class, Mr. Obama's next move is to revive the middle class. According to the Washington Post, after six years of failure, "he's giving it one more try." His new plan is designed to reverse the decline of a beleaguered middle class that has been shrinking (in income, wages, savings, home ownership, stock ownership, pension ownership, and business ownership) since the day he took office. Its implementation once posed a "conundrum" for Obama, thinks the Post: "How to pitch policies aimed at a middle-class turnaround that his policies thus far have failed to deliver."

Such riddles are child's play for the clever Obama, who nimbly dubbed his new policies "Middle Class Economics" and, without taking the trouble even to define the concept, declared that "Middle-class economics works." He did, however, say what it is about: "lowering the taxes for working families by thousands of dollars, putting money back into their pockets so that they can have a little bit of cushion in their lives." Finally, the turnaround would be underway.

The 8.3 million jobs lost during the recession were mostly middle-class jobs. They have yet to return.

But a February Tax Policy Center report indicated otherwise. According to the New York Times, the Center’s analysis "found the president’s plan produced an average tax cut of just $12 for families in the middle quintile." The Obama Treasury Department shot back, insisting that "the average middle-income family would get a tax cut of about $150 under the president’s plan." No doubt this is intended to dispel any fear that the forgotten, shrinking middle class, which has lost thousands in annual income and tens of thousands in net worth over the last six years, will think it won’t get a big enough cushion.

American businessmen and entrepreneurs, intimidated and confused by fiscal and monetary policy, hoard trillions that could be injected into the American economy to create millions of good jobs. Oppressive regulations with dubious benefits continue piling up, diverting capital from, and stifling, industries such as manufacturing and energy — stalwarts of solid middle class occupations. Jobless working age adults also pile up, as fast as the federal government can borrow more money, or have it printed, creating a labor surplus that depresses the wages of those lucky enough to have a job. The 8.3 million jobs lost during the recession were mostly middle-class jobs. They have yet to return.

This is the Obama Recovery: a timid, sputtering burger-flipper economy, incapable of generating meaningful growth and high-paying jobs. The jobs that are being created are low-wage, low-skill jobs, appearing in monthly quantities large enough to fool Obama into thinking the crisis has passed. He flaunts this “growth” as evidence of a recovery, for which he then takes credit. To the low-wage cohort that is experiencing unprecedented growth under his policies, he offers an increase in the minimum wage. To the middle class, whose jobs are being replaced by the low wage jobs his policies generate, he offers a $150 tax break, calls it Middle Class economics, and pats himself on the back. He couldn’t even get the PR move right.




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The Greek Deceit

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It’s remarkable to me, the degree to which reporting on the continuing Greek crisis is sympathetic to the Greek government, whose intention is to continue stiffing its creditors, and hostile to the “hardline” states (such oppressors as Germany, Finland, Slovakia, and Slovenia), who want to obtain some assurances that if they increase their subsidies to spendthrift Greece, the Greek government won’t continue to lie to them.

The extent of the lying is indicated by a stray passage of pro-Greek rhetoric appearing in the Washington Post on Sunday:

Some [creditors’] requirements encompass such dramatic social and political reforms — such as ending government cronyism and safeguarding the integrity of economic statistics — that it’s unclear when or even if they could ever be achieved.

“We don’t agree on many points,” a member of the Greek delegation said as negotiations dragged on. “It’s problematic.”

Interesting. It’s dramatic to want accurate economic statistics. How could this ever be achieved? And notice the Orwellian synonym for ending deceit: “safeguarding the integrity of economic statistics.”

In the same report, we learn that Greece is experiencing “the deepest recession of any developed nation since World War II.” I guess the total wipeout of the central European economies in the late 1940s didn’t hold a candle to the torture now experienced by bankrupt Greece. I guess that communist Europe was doing swell, compared with contemporary Greece. I guess that Franco’s Spain was sitting pretty, compared with poor little Greece.

Is there anyone who believes this stuff? I don’t know. “It’s problematic.”




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Going for Broke

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Continuing Obamalaise

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A spate of reports just out shows the continuing economic malaise created by Obama’s benighted administration, a phenomenon we call Obamalaise. Obamalaise set in early in the administration, and it has continued, despite what the administration and lickspittles in the media hail as the “miraculous recovery.”

The first item, from the Wall Street Journal, notes that the most recent jobs report was very disappointing: only 162,000 jobs were added in July, far fewer than the 183,000 that had been predicted by various economists. Worse, prior months’ figures were revised downward. Worse yet, average hours worked and average hourly earnings both dropped.

While the unemployment rate did fall from 7.6% to 7.4%, the supposed improvement was due in great measure to more people giving up looking for work.

The only reason the stock market didn’t react dramatically is that the weak report made it obvious that the Fed will continue its aggressive bond buying, which “the Bernank” had earlier suggested might be reduced.

What we have now is a far cry from the 5% unemployment rate that the administration promised us, back in 2009, if we just passed its grotesquely bloated $800 billion “stimulus” bill, with all its payoffs for Obama cronies and supporters. Moreover — as James Pethokoukis notes — we have never come even close to hitting the administration’s projected unemployment rate. For example, Obama promised that the rate would never exceed 8%, but he was off by one-fourth: it hit 10% by the end of 2009.

The real rate of unemployment is upwards of 10%, when you count in the people who want a job but have ceased looking for one.

In that year, the administration also projected that the stimulus would result in over 4% GDP growth in 2011, 2012, and 2013. In reality, growth has been happening at only half that rate, and it has dropped even lower recently.

As I argued in these pages long ago, it is for this sort of governmental fraud that we should extend Sarbanes-Oxley to cover government, not just business. If a program is sold on certain projections by an administration, and the projections prove false, the president, vice president, relevant cabinet members, and the senators and congresspersons who voted for the scheme should do jail time after their terms.

Pethokoukis observes that the real rate of unemployment is upwards of 10%, when you count in the people who have dropped out of the labor force. More than six and a half million Americans want a job but have ceased looking for one. If you count the underemployed, the real rate is above 14%.

Speaking of that, another report points out that of the 953,000 jobs created this year, 731,000 (or 77%) are part-time jobs. The main cause is the impending imposition of Obamacare, which requires employers with 50 or more “full-time” employees — now defined down to mean people working 30 or more hours a week — to purchase costly insurance for all of them. Employers are doing the rational thing: turning full-timers into part-timers. As Tyler Durden puts it, we are being converted to a part-time worker society.

Another recent WSJ piece adds yet more somber news. Over half the new jobs recently created have been in the low-wage sectors of the economy, especially the restaurant and retail industries.

The jobs news is especially ironic in one way: Obamalaise is going hardest on one of the groups that were most enthusiastic about voting for Obama: young people. Unemployment among 18–29 year olds stands at 16.1%. Again, the figure doesn’t include people who have only part-time work but want to work full-time. Only 43.6% of young people now have full-time work. And black teen unemployment has now hit an astounding 41.6%. This is up from 36% a year ago.

One last report puts the present youth predicament with tragic clarity. It turns out that 21.6 million Americans aged 18 to 31 now live with their parents, the highest number recorded in 40 years. This is 36% of all so-called millennials.

Obama built this. He did it with Obamacare. He did it with overregulation, and the leftists that he inserted into regulatory bodies. He did it with tax increases. He did it with his Green jihad on fossil fuels, led by like-minded people at the Department of Energy, the Department of the Interior, and the EPA — the “Employment Pulverizing Agency.” He did it with massive taxpayer-backed loans and subsidies of Green energy companies that employed few people (before going broke) but funneled untold millions to political supporters.

Some are predicting that with continued Fed support, the economy’s growth will accelerate, and Obama will finish his administration with unemployment low again — meaning in the 5% range.

Perhaps. But, there is still a business cycle, and if in the next two or three years we have another recession, the workers of this country will be hit very hard, since the “recovery” has been so very anemic. To put it in another way, if this “miracle recovery” involves a record level of dependency on food stamps, a record number of young people forced to live at home, a record percentage of people having left the work force, more and more people forced into part-time work, and a national debt that will soon stand at $20 trillion — what will the next recession look like?




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Pulling Into Santa Cruz

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I’m down in California for a few days while my middle daughter attends a basketball camp at UC Santa Cruz. It’s been a pleasant trip, so far. And a window into the Golden State’s economic devolution.

If you’re not familiar with it, Santa Cruz is located on California’s central coast, south of San Jose and north of Santa Barbara. It’s a short drive from Carmel, where Clint Eastwood once served as mayor, and the famous Pebble Beach golf course. Some people consider this area the most scenic in the world.

Santa Cruz is the University of California’s “hippie” campus. A late addition to the UC system, Santa Cruz allows students great leeway in the courses they take; at one point, it offered a variation of the Great Books program that emphasized reading primary documents from various points in history, but that program has either vanished entirely or atrophied so severely that it’s unrecognizable.

The school’s sports teams are called, with knowing irony, the Banana Slugs. While most UC campuses compete athletically at the NCAA Division I level, the Slugs compete at the more laid-back Division II level.

When I checked my daughter in to the camp, I recognized parents of the aspiring college athletes — not the individuals, specifically, but their type. Driven, detail-oriented and deeply involved in their daughters’ prospects. They knew all about the head coach’s background and repeated his camp’s promise of an intimate setting and individualized attention to each young player. True to this promise, the coach was there when we all arrived and took a few moments to chat with each player and her family.

Some of the parents did recognize each other, literally. They compared notes about camps as far away as Texas and the East Coast. And these plugged-in parents were impressed that, even though the UC Santa Cruz camp is relatively small, it has attracted a corporate affiliation with the athletic gear giant Nike.

“We went to the Stanford camp and it’s just a factory,” one carefully-appointed mother said. “I mean, you can tell right away which girls they’re interested in. The rest are treated like cattle.”

There are two strategies among parents of young basketball players for drawing the attention and scholarship money of college teams. The first strategy is to put the player on a private club team that plays in tournaments and exhibitions to which college coaches and recruiters are invited. The second strategy is to attend summer camps hosted by target colleges and hope that the player makes a good impression.

At least twice, I saw trim middle-aged men wearing tie-dyed t-shirts climbing out of German cars that cost more than most people’s houses.

The two strategies tend to be mutually exclusive: the first is, in my opinion, somewhat passive; the second, a little more proactive. And the parents pursuing each tend to reflect the corresponding attitude.

After I checked my daughter in, I kissed her goodbye for a few days and headed out. There’s an important line between being involved and being a pushy “helicopter” parent. Even though my daughter’s just 16, I want her to stand on her own.

The city of Santa Cruz is pretty, perched on hills immediately above the Pacific Ocean. It has a mix of classic California bungalows and larger, vaguely Victorian houses. The commercial blocks demonstrate the carefully composed shabby chic common to high-end college towns. No Starbucks . . . but lots of locally-owned, even more precious coffee shops, with chalkboards announcing specials and damning — suicidally — the 1%.

The people are carefully composed, too. At least twice, I saw trim middle-aged men wearing tie-dyed UC Santa Cruz t-shirts climbing out of German cars that cost more than most people’s houses.

I was staying a few miles south in Watsonville, where I was able to Priceline a decent hotel here for less than half of what I would have paid for a worse place in Santa Cruz.

Watsonville is a working-class place aspiring to the middle class, full of big-box stores and chain restaurants. And, while Santa Cruz is predominately white, Watsonville is overwhelmingly brown.

There are long lines for just about everything in Watsonville — at the grocery store checkout, at Starbucks, at the bank. Getting dinner at a Panda Express, I instinctively asked the woman across the counter for dos entrees because that’s how everyone in front of me had done it.

Watsonville’s houses are smaller and more cheaply built than those up the road in Santa Cruz. The cars are older and more likely to be dented or discolored. In general, Watsonville has more in common with inland agricultural towns like Gilroy or Fresno. Most of the residents seem to be simple people, content with basic material comfort.

Watsonville has a number of big, ugly modernist government buildings. Its library, especially, looks terrible. The outside walls are adorned with giant faces, meant to represent the local “community.” The city is heavily Hispanic, so it’s no surprise that most of the giant faces look that way; but there are almost as many black faces pasted on the library. And I’ve seen few black people in the city or its stores and restaurants.

Most of all, the giant faces are ironic — and not in a knowing way, like the UC Santa Cruz Banana Slugs.

In my business, I’ve watched libraries shrivel up as a market segment, rendered less relevant by the Internet and cheap ebooks. In their fear of irrelevance, they’ve resorted to all sorts of odd outreach efforts. The giant faces on the Watsonville library are a fundamentally illiterate way to try to draw people into a place that’s about reading. And, in this inappropriate illiterate appeal, the faces are profoundly condescending.

The Porsche-driving leftists in Santa Cruz may be interested in reading hand-lettered coffee shop menus laced with wordy political screeds, but Watsonville is more interested in shopping at Target. When the economy in California eventually recovers, I suspect that recovery will have more to do with Watsonville than Santa Cruz.




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Neo-Socialism: The Results Are In

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Despite his campaign promise to govern as a moderate, President Obama has aggressively pursued what can only be described as neosocialist economics. This is a system of governance within which the government essentially runs business, but not in its own name — so that when failures occur, it can disown responsibility and blame business instead. It is a new and “improved” socialism, so to say.

The program has included outright government takeovers of most of the auto industry and the student loan industry, massive new control of the financial industry, near total control of the health industry, near total dominance of the energy industry, stimulus spending bills (often favoring campaign donors), housing bailouts, cash for clunkers, cash for weatherproofing, and so on. All of this is Obama’s doing. So is the $5 trillion he has added to the national debt — pushing us past France in debt as a percentage of GDP.

The result has been a long, lingering malaise — the Obamalaise — posing as a “recovery.”

The latest jobs report starkly illustrates the failure of Obamanomics. It shows that last month the economy — in the third year of an economic recovery — created a ludicrous 80,000 jobs. Considering that the economy needs to create about 125,000 new jobs each month just to keep up with population growth, this was a profoundly pathetic report card. The unemployment rate stayed at 8.2%, only because — again — more people dropped out of the work force.

Worse, of the 80,000 jobs created, 25,000 of them — nearly a third — were temp jobs.

Even worse, in June, while a net 80,000 jobs were created, 85,000 people went on federal disability! Yes, more people got on the SSDI disability rolls than got productive jobs. Indeed, since June 2009, while Obamanomics has created 2.6 million jobs, it has put nearly 3.1 million new people on SSDI disability. Moreover, a whopping 275,000 additional people have applied for disability. Obama is truly the Disability King.

Add to this the fact that yet more people went on food stamps, cementing Obama’s rightful title as the Food Stamp King. In fact, from June 2009 to April of this year, the number of food stamp recipients exploded upwards by 11.3 million, or nearly a third.

Amazingly, while Obama has his highest support among blacks, followed by Hispanics, and his lowest support among whites, it turns out that white unemployment stands at 7.4%, Hispanic unemployment at 11%, and black unemployment at a gut-wrenching 14.4%.

The general unemployment rate has now been over 8% for 41 months in a row, which sets another new record — one that beats all previous administrations over the last six decades. And the length of time the average person has been unemployed under Obama’s “recovery” has been 20.6 weeks, completely eclipsing the earlier record of 10.5 weeks.

If the labor force participation rate were now what it was when this neosocialist administration took power, the unemployment rate would be 10.9%. It is only as “low” as it is because many people have stopped “participating” (i.e., looking for jobs).

Three years of Obamanomics recovery has created job growth of 75,000 a month on average, or 2.6 million in total. By contrast, Reaganomics (neoliberalism) over the same length of time averaged 273,000 a month, or 9.8 million in total.

Of course, the nation was smaller then. If we correct for population size, the Reagan neoliberal recovery produced the equivalent of 360,000 jobs a month over the same period, or a total of 13 million.

The “recovery” brought by Obamanomics created a total expansion of real GDP of only 6.7% over eleven months. Again, by comparison, Reaganomics brought a total expansion of real GDP of 17.6% in the same period — or well over two and a half times as great a growth rate.

So what shall we call the president: The Disability King? The Food Stamp King? The Long Term Unemployment King? The Slow Growth King?

Perhaps “the clown-prince of neosocialism” will do.




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Europe: The Problem and the Prospects

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The flow of history sometimes looks so obvious in hindsight.

In 2004 the European Commission issued a formal warning to Greece, having found that it had falsified budget deficit data in advance of joining the Eurozone. That’s right, Greece had not just failed to meet the budget requirements for joining the new currency — lots of countries did that — but it had lied about it for the privilege of swapping drachmae for euros.

Over the next few years the Greek government's modest attempts to reform the coddled Greek labor market, particularly the obese public sector, met with massive protests, many of them violent.

In the late spring of 2009 I sat across from an old law school friend, drinking wine on the terrace of a Parisian bistro near the Bastille. It was a mild early evening with hours of sunlight left, yet as usual my friend was already in his cups. But then, this guy (call him “Jay”), was smarter drunk than I am sober.

As I drained my glass of Beaujolais Cru, just a few years after Greece had joined the Euro, the Greek debt crisis was in full cry. Bailout negotiations between the EU and Greece had begun. Jay is a prominent international finance lawyer, and he represented the EU on the legal side of the negotiations. So I ordered another drink and got an inside view of the proceedings.

Jay and I debated the virtues, vices, and prospects of a bailout. It was all very speculative and academic, reminding me of so many college rap sessions in which my friends and I handily remade the world to no good (or ill) effect. The curious difference here, decades later, was that Jay really was involved in remaking the world.

As an aside, think of Professor Obama noodling over, say, the constitutionality of a federal mandate that everyone buy health insurance, the kind of seemingly harmless brain game that is played all day, every day in our universities and law schools. Most of the highly accomplished students who, like Obama, attended the top schools become convinced that they know what’s good for you. And some of them attain the power to give it to you. A student’s collectivist or paternalist nonsense is harmless. But with the stroke of a pen wielded by the nerd who used to sit next to you in Social Studies, governments convulse huge sectors of the economy. The difference is that the harmless nerd, the student Obama, for example, has become the hand of power.

At that early stage of the Greek debt crisis (which became the Italian, Irish, and Portuguese debt crisis, which became the euro crisis, which became the Europe crisis, which is becoming the second dip of the Great Recession, and which may doom the European Union to diminishment or dissolution and trash the feeble recovery in the US), it was hard for me to see the historical context of the problem. Jay went straight to it, talking about the German fear of inflation and profligacy, at odds with the German fear of the consequences of a divided Europe.

With the stroke of a pen wielded by the nerd who used to sit next to you in Social Studies, governments convulse huge sectors of the economy.

I know this is remedial history, but just in case: Germany suffered three great traumas in the 20th century, and two great boons. The three traumas were the first war of Europe divided, WWI; the second war of Europe divided, WWII; and between them the hyperinflation of the Weimar Republic, which probably resulted in German National Socialism. The two boons were first, Germany’s long, vigorous period of growth and prosperity, which persisted and accelerated in conjunction with the economic, monetary, and political integration of Europe; and second, German reunification, which came with the collapse of Soviet communism.

France, the other dominant player in the current crisis, has learned much different lessons from history. Of course it fears Germany as Germany fears itself, but it trusts government in a way that Germany does not. The French ruling class favors European unity, not just because it wants to restrain Germany but also because it thinks it can harness the Germans. This has made France the serial instigator of Euro-government activism.

At the center of France’s vision of European peace and unity is an organ grinder with an elephant instead of a monkey, but the elephant does not collect peanuts and coins; it distributes them. France is the organ grinder. Germany is the elephant. The rest of Europe stands around applauding, and collecting peanuts and coins.

Later in 2009, Greece lost its credit rating. Much bad news, “reforms,” and bailouts followed in a parade of horrors that continues now more than 2.5 years later, like shit hitting a fan in super slow motion. Greece, the EU, France, and Germany made and broke a series of promises about Greek debt. Greece was solvent. There would be no second (or third) bailout. Greece would never default. Greece would reform. Etc.

More of the same, until something really breaks, is a good prediction. Sarkozy the organ grinder will play furiously. Like an Indian mahout, he will even bring out the “ankus,” the goad. At the sharp end of the ankus are reminders of Germany’s behavior in World War II. The elephant will give out more coins and peanuts in greater quantities but with greater reluctance, and greater resentment for the crowd of client states that surround the center of Europe. In exchange, the crowd, and even France, will give up freedom, sovereignty, and independence. France does not like loss of sovereignty but believes it will always call the tune. The UK will congratulate itself for staying out of the euro and will refuse to sacrifice its own sovereignty to save the newish currency.

By helping us see how people in nation states see themselves, history helps us guess what they will do. But it does not tell us the results of their choices, which they themselves always fail to predict. After all, none of the EU, France, Germany, or Greece intended the Greek crisis or predicted it early enough to do anything to avoid it. How did that happen?

Descriptions of economic crises past reveal the historian’s perspective, bias, and even philosophy. The Great Depression makes a good example, over which commentators continue to fight. Was it caused or worsened by too much trade protection, too little Keynesian stimulus, a shrinking money supply, the bursting of the credit bubble that preceded it?

Soon there will be as many descriptions of the euro crisis.

I see that crisis and America’s subprime mortgage debacle as symptoms of the same contradiction, one that has strained most of the developed economies for decades and seems to be reaching some kind of limit now. The contradiction is between the love of state largesse and the limits of governments’ ability to raise revenue. That is not a very original observation, but in diverse countries and regions, the fallout from this strain takes surprisingly diverse and original forms.

The form of the fallout seems to depend on the particular weaknesses of a country’s institutions. In Greece, they overborrowed, overspent, cheated, lied to their creditors, and chronically failed to collect taxes due. In Germany they turned a blind eye, because European profligacy spurred Germany’s exports, and exporters had the ear of the German government.

More of the same, until something really breaks, is a good prediction.

In the United States we accepted war as an excuse for big deficits, and when the electorate showed resistance to faster growth of the welfare state, Congress contrived to finance it “off balance sheet” through Freddie Mac and Fannie Mae. And now the Great Recession gives us a reason to bail out financial institutions and automobile manufacturers and to print money (“monetary easing”).

In all these cases, the severity of the crises will partly depend on how and how thoroughly a state and its people fool themselves. The exact nature and severity of the crises are hard to predict. There may be cause for real fear.

I am afraid. For the first time in years, I feel financially insecure. I thought that, through work, good fortune, and saving, I had acquired financial security. Now I don’t know. Will quantitative easing cause high inflation? Will the markets where I store my wealth behave bearishly for long enough to beggar me before I die? Will the European crisis grow so deep and severe as to badly infect the world economy? Is Greece in effect a domino? I don’t know, but it’s falling. There will be no soft landing.




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Poverty and Crime

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If you’re like me, you have been instructed, from your youth on up, that crime is caused by “conditions” — meaning economic conditions, meaning poverty. You’ve also been told that crime can be reduced, or even eliminated, by the abolition of poverty — which, of course, can come only by means of massive government action.

These were some of the ruling theses of President Lyndon Johnson’s War on Poverty, which continues in its thousand institutional forms unto this day, more than four decades after he declared it.

The theses were always vulnerable, on their face. What do you mean by “crime”? Do you mean a Hollywood producer’s rape of a female staffer, who is too afraid to report the crime? Do you mean a party in West LA, where rich people snort a barrel of coke, and are never caught? Or do you mean a guy who’s pushing weed in Fresno, or a girl who’s arrested for prostitution on the streets of Grand Rapids? Do you mean crime that’s successfully prosecuted, or do you include crime that never gets recorded?

And the thesis has long been vulnerable to the evidence. Johnson’s War on Poverty immediately preceded an enormous wave of crime. The hundreds of billions of dollars that American communities spend on welfare has not demonstrably reduced the incidence of crime, however you want to define that term. Most serious analysts believe those dollars have increased it, by fostering a culture in which principles of individual responsibility are no longer considered necessary.

But wait a minute: what is “poverty,” anyhow? What’s the standard? What’s the definition? Was “poverty” the welfareless condition of virtually all Americans in the 1920s? If so, was it the lack of government welfare that induced millions of people to violate the Prohibition laws, and some thousands of them to kill and maim their fellow-citizens in pursuit of profits from that violation? In a larger sense: isn’t poverty relative? The poor of the 1950s were much richer in absolute terms than the poor of the 1920s, yet fewer people were sent to prison in the 1950s. The poor of the 1980s and 1990s were richer still; yet a much larger proportion of the populace went up the river in the 1980s and 1990s than in the 1950s.

Now comes the following announcement from a website in my town (voiceofsandiego.org), about the FBI’s new report on crime in America during 2010, the year of a great depression, especially here in far southern California:

“In San Diego, the number of violent crimes — murder, rape, robbery and aggravated assault — dropped 5.3% from the previous year and the number of property crimes — burglary, theft and vehicle theft — dropped 4.6%. (Nationwide, violent crime dropped 5.5% and property crimes were down 2.8%.)”

The author adds a reference to the prevailing wisdom:

“Nationwide crime declines in recent years have continued to puzzle criminologists, who expected worsening economic conditions to lead to more crime.”

Experts might be puzzled, but no one with any sense, or historical perspective, would suffer their fate. Officially recorded crime went down during the 1930s — the time of the Great Depression. Why shouldn’t it go down in 2010?

We can’t quantify the sources of crime, but we should know this: crime, and the definition of crime, has less to do with “economic conditions” than with community mores, individual opportunities, and (in a reverse sense) government action. When the government declares alcohol or drugs to be illegal, “crime” automatically results. But when individuals and communities hunker down in order to get through a period of relative poverty, crime may well diminish. Only God knows the exact linkages, but it’s not puzzling that people whose families are making less money than before may respond by doing something legitimately and dependably profitable rather than something criminal.

Indeed, as William Blake commented two centuries ago, the idea that poverty causes crime is a slander on poor people. It ought to be resisted by every person of generous mind, and especially by all of us — and there are many, many of us — who have struggled to come out on the other side of bad “economic conditions.”




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The Government's "Green" Jobs

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Jonathan A. Lester, president of Continental Economics Inc., has written an insightful critique of artificial stimulus to wind power and the like (“Gresham’s Law of Green Energy,” in the Cato Institute’s journal Regulation, Winter 2010–2011, pp. 12–18). Like similar critiques, however, it could benefit from better placement of emphasis.

Lester laments the wasteful diversion of resources into uses that would otherwise not pay (waste, that is, barring untypically sound “externality” arguments). Furthermore, as for jobs created by subsidy- or regulation-based spending on green energy, the money so spent would have to come from somewhere. It would necessarily be diverted from spending on other public or private activities, where jobs otherwise created or maintained would be lost.

Such arguments put too much emphasis on spending itself relative to the allocation of real resources, including labor. Would the workers newly drawn into green jobs come from elsewhere, or would they have otherwise remained unemployed? Do green subsidies, tax breaks, and regulations really remedy economy-wide unemployment exceeding the frictional unemployment of normal times?

Unemployment in a recession reflects discoordination. Mutually advantageous transactions among workers, employers, and consumers are somehow frustrated. That is what needs attention. Putting emphasis on spending and its destinations is superficial. As W.H. Hutt used to say, spending is a measure of transactions accomplished; it is not what drives transactions.

Now, what impedes transactions in a recession? Usually or often it is a deficient quantity of money in relation to desires to hold it at the prevailing price and wage level. Sometimes (as now, apparently) the demand to hold money has increased, even if only passively or by default, because individuals and firms are especially uncertain about what transactions would be worthwhile. Adding to the usual uncertainty about business is uncertainty about taxation, government deficits and debt, complicated and costly regulations, and other government interventions, including unintended consequences of earlier ones.  This is what needs attention, not the allocation of spending between green and other employments.

Recession is not something to be remedied by shifting resources around. Besides channeling resources into relatively inefficient uses, artificially favoring green energy obscures the true nature of recession.




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