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Saturday, November 29, 2008

The Surreal Life Starring Kenilworth, Illinois

On a list of wealthiest U.S. cities, Kenilworth, Illinois is usually in the top five if not on the very top in any given year. This village of only about 2500 people had a median income of about $200,000 per family as of the last census. That's why it would surprise some that this village would be concerned that their community would fall "victim" to the rage of McMansions

McMansion is a pejorative neologism, coined by NY environmentalist Jay Westervelt[1][unreliable source?]to describe a particular type of housing that is constructed in an assembly line fashion reminiscent of food production at McDonald's fast food restaurants. The term is one of many McWords. A McMansion often denotes a home with a larger footprint than a median home, an indistinct architectural style similar to others nearby, and is often located in a newer, larger subdivision or replaces an existing, smaller structure in an older neighborhood.

While McMansions are certainly large, they are frankly rather small in comparision to the homes in Kenilworth. Yet, as this craze heated up, that's exactly what this town, the definition of old money, feared would happen in their neighborhood.

Apparently, the widespread craze of tearing down old buildings and replacing
with cookie-cutter buildings that don't really fit the character and style of the neighborhood and surrounding structures is *not* limited to the city limits of Chicago. With all the hype about the ongoing socioeconomic wars between the condo developer and the struggling artist renter here in the city, we were fairly stunned to hear that the same thing is happening in the places where the condo owners' parents

The National Trust for Historic Preservation named Kenilworth, a North Shore suburb, one of 11 endangered historic places nationwide in its yearly listing. Many of the homes in Kenilworth were designed by architects Frank Lloyd Wright and George Maher, and 32 houses have been torn down for new construction since 2001 and replaced with houses referred to as "McMansions". The Executive Vice-President for the trust, David Brown, was quoted as saying, "Architecturally and historically significant homes are being acquired by builders, torn down and replaced with houses that do not fit the character or scale of the neighborhoods." Hmmm. Seems like we've heard this tune before.

The political power structure had an idea that would stop the spread of McMansions in its tracks, register Kenilworth with national registry of historical places. The idea had some merit and logic. Many of the homes were designed by architectural legends like Frank Lloyd Wright and George Maher. The problem was that the power structure didn't consult with most of the folks in the town. There was some concern with turning Kenilworth into a historical landmark. Many of the town's folks feared that their property rights would erode, home sales would be adversely affected, and the tax implications were unknown.

The idea was put on the ballot for this past November 4th, however supporters of the plan didn't want to wait that long. They began making their application in the summer. Suddenly, we were in for a full out political brawl. Opponents of the plan used a sophisticated, 21st century, grass roots campaign to make the public aware of what their government was doing. Through emails, text, and other electronic correspondence, opponents built grass roots opposition to the plan. The plan was voted down overwhelmingly on November 4th. At first, proponents of the plan wanted to ignore the will of the voters and continue with their plans to make Kenilworth part of the historical registry.

On Dec. 5, the state is set to consider whether Kenilworth should be placed on the National Register of Historic Places.>

A fine and meaningful honor, if bestowed.

There's just one problem.

The majority of homeowners in this North Shore community don't want it.

In an advisory referendum on Election Day, 64 percent of voters said they didn't want Kenilworth to be placed on the national register.

Unfortunately, the train already has left the station.

The village board voted to submit its national registry application in May, five months before hearing from the public. That set the train rolling, which is why the application has a hearing on Dec. 5 before the Illinois Historic Sites Advisory Council. If approved, the application goes next to the federal government.

As the fight reached fever pitch, the politics of this relatively quiet North Shore suburbs reached fever pitch. The media in Chicago began to take notice and proponents knew their jig was up. So, a couple days ago, the powers that be finally scrapped the plan.

Kenilworth's attempts to have the 120-year-old North Shore community listed on the National Register of Historic Places are one step closer to becoming history. Trustees are scheduled to vote Friday to ask the Illinois Historic Sites Advisory Council to withdraw Kenilworth's application for the honorary designation.

The move follows this month's overwhelming rejection of an advisory referendum measure that asked residents whether the village should seek the designation.Supporters said the move would have helped protect Kenilworth from
the McMansion craze that has hit other North Shore towns.

On one level the whole thing was a study in surrealism. On another level, it also showed the best of our Democratic and media system.

Friday, November 28, 2008

Make Gay Marriage a Right...Another Step Toward Socialism

If you think that gay marriage is merely a culture war issue, think about this. The reason that proponents of gay marriage believe that gay marriage is a fundamental right is because without the basic tenets that our country was founded on are violated. The basic tenets are life, liberty and the pursuit of happiness. Proponents of gay marriage believe that not recognizing the gay lifestyle with the monikor of marriage violates a gay person's liberty.

Let's use that same logic and apply it to other rights. Let's start with the "right" to quality and affordable health care. Representative Jesse Jackson Jr. thinks the right to health care is so vital that we should add an amendment specifying as much.

Because our current economic crisis is forcing us to think outside the box, one topic worthy of renewed discussion is health care. What if the Constitution said: "All citizens shall enjoy the right to health care of equal high quality and the Congress shall have the power to implement this article by appropriate legislation?"

Without quality and affordable health care, eventually someone's life is threatened. So, if the absence of gay's right marry violated the right to pursue liberty, then by that logic the absence of quality and affordable health care violates someone's right to life.

Let's take another right: the right to a living wage. Without a living wage, how can someone possibly pursue happiness? As such, in order to guarantee the right to pursue happiness, the government must make a living wage a right.

By this logic, we can also make education, housing, food, clothing, and all sorts of other essentials a right. Without them, our right to either or all of the right to life, liberty and the pursuit of happiness would be violated. These are the very rights that are guaranteed in all Socialist states. It's the logic that leads people to believe that gay marriage is a right, and if we allow this logic to take hold, soon enough we'll be guaranteeing "rights" the way they do in Socialist nations.


I will be taking a short break from blogging for the next couple days. I should return to full time blogging again on Monday.

Watcher's Council Winners

My best finish so far

First place with 2 2/3 points! - The Colossus of Rhodey - Culture of Whine (a rant)
Second place with 1 point - (T*) - Joshuapundit - Zero Hour…Iran Now Has Material For First Nuclear Bomb
Second place with 1 point - (T*) - The Provocateur - Some Perspective on PNC, Fraud, and the Bailout
Third place with 1/3 point - (T*) - The Glittering Eye - Official History
Third place with 1/3 point - (T*) - Cheat-Seeking Missiles - Sunday Scan
Winning Non-Council Submissions
First place with 2 2/3 points! - Serendituous Altruism - American troops in Afghanistan through the eyes of a French OMLT infantryman
Second place with 1 point - (T*) - Israelly Cool - The despicable Lauren Booth
Second place with 1 point - (T*) - National Review Online - Party of Privilege
Second place with 1 point - (T*) - The Daily Beast - No Stimulus From Government Spending
Third place with 1/3 point - Jewish World Review - Why Reporters — and Judges and Professors — are Biased

Thursday, November 27, 2008

Happy Thanksgiving

Happy Thanksgiving to all, and hopefully, everyone has plenty to be thankful for.

The Politics and Policy of Bailouts and Corporate Tax Cuts

The other day, when speaking to a liberal colleague, I laid out plan for an economic stimulus and recovery. The plan is mostly a set of tax cuts including tax cuts to corporations. My colleague mostly liked the plan except the part where taxes were cut for corporations. Initially, he characterized these tax cuts as a bailout. Of course, I protested furiously. A corporate tax cut is in no way a bailout. Then, he said he was against giving fat cat corporations money. Again, I protested furiously. I wasn't proposing to give anything to anyone. A corporate tax cut would allow corporations to keep more of what they have already earned. My colleague next protested that corporations couldn't be trusted to do what's right with such a tax cut.

This conversation crystallized in my mind the dichotomy between the politics and policies of corporate tax cuts and corporate bailouts. Throughout the campaign, Barack Obama demonized corporate tax cuts proposed by John McCain as tax cuts to fat cat corporations like Exxon. Yet, as soon as the bailout was proposed, Barack Obama was quick to embrace it. As such, Barack Obama is against allowing fat cat corporations to keep more of what they earn while he is perfectly comfortable giving fat cat corporations someone else's money. Worse than this, these perverse dual policies worked to perfection as part of a successful campaign.

How does such a thing occur, and more than that, what are the policy consequences? Bailing out struggling corporations has a populist political angle. Eric Cantor lays out the political angle of supporting the bailout when he referred to the banks as a sort of utility that funds the day to day operations of businesses, consumers, and most everyday activity through their lending. A bailout is necessary because the commoner will soon feel the effects of a lack of a bailout when they get a car loan, student loan, or mortgage. A similar political angle is in play with a bailout for automakers. Those that support such a bailout bemoan the fact that autos are a fabric of our society and that they provide jobs in one way or another to one in ten Americans.

A corporate tax cut, on the other hand, rewards those corporations that are already successful and in need of no help. It's almost impossible to create a populist angle to a corporate tax cut. The benefits of a corporate tax cut are largely invisible. They are almost always created on a macro scale. In order to believe a corporate tax cut would be worthwhile, one needs to believe that corporations would use the extra money in a good and beneficial manner. That would require viewing corporations in a positive manner. Such a perspective gets politicians absolutely no favors and even fewer votes.

Yet, the policy behind a corporate tax cut is on much firmer ground than the policy behind a corporate bailout. First, you would be rewarding success not failure. Second, a corporate bailout requires oversight and strict accounting of the money. A corporate tax cut requires none of this because corporations would simply keep more of their money. In this environment, a corporate tax cut is exactly the right medicine. By giving successful corporations more of their own money, they will have more money to hire all those folks that will lose jobs from failed corporations. Rather than trying to prop up failed corporations in a desperate attempt to maintain jobs in a losing endeavor, you reward successful corporations so they have more capital to hire as many of these folks as possible.

Of course, in our current environment such a plan is likely impossible. That's a shame. The Bush tax cuts cost 1.3 trillion Dollars over ten years. The bailout has cost $700 Billion already. Another $100 billion and counting is going strictly to AIG. We still haven't counted Citigroup, the autos, or Barack Obama's promised bailout. We could approach $2 trillion in bailout money. A corporate tax cut would cost one tenth as much. It would also be far more effective because it would target those entities with a history of using money effectively. The politics, however, forces weak kneed politicians, charlatains, and demagogues, to propose policies with far more lucrative politics, even though its likely their policy effects will ultimately be counter productive.

Barack Obama: the Enigmatic Presidency

During the campaign, I predicted that the Obama Presidency would go one of two ways. Either he would follow through on all his campaign promises, which I saw as an unmitigated disaster, or many of his campaign promises were just hot air and we all had no idea how he would govern.

What this will cause is a shrinking business and personal capital investment at exactly the time when it is needed. That will lead to lesser jobs, and that will eventually lead a depression. In other words, we are likely to face, if Senator Obama follows through on his promises, to not only face stagflation but depression and inflation at the same time. In other words, we are about to face an economic apocalypse if he is elected and follows through on his promises. Either that, or he is simply lying about everything he will do for everyone and we are electing an untested first term Senator and none of us know what he will do.

More and more, it appears that the latter was right not the former. In other words, no one, including the President Elect himself, really knows what sorts of policies the President Elect will implement.

On Iraq, Barack Obama ran on a platform of setting a firm timeline for a sixteen month withdrawal. He said over and over that as soon as he got into office he would bring together the Joint Chiefs and give them a new directive that would follow a course of sixteen month withdrawal. Now, he has elected to keep in as Secretary of Defense Robert Gates who publicly criticized this policy.

On Iran, Barack Obama said over and over that it was his goal for unconditional negotiations within the first year. Now, he has apparently chosen Hillary Clinton as his Secretary of State. Clinton criticized this very policy as naive and irresponsible.

To head up the GWOT, he has chosen Janet Napolitano for Homeland Director and Eric Holder for Attorney General. Here is how Dick Morris characterized their role in the GWOT.

Instead he chose a governor with no knowledge of the subject whose obvious credential is her proximity to the border. The Department of Homeland Security is a polyglot agency which includes immigration enforcement (the old INS) among its many missions. It is also charged with fighting drugs (the old DEA), and battling terrorism. By appointing someone who knows nothing about terrorism but everything about immigration, Obama has signaled the lack of priority he will give to domestic efforts to keep us safe.

Imagine if President George W. Bush had named the governor of Arizona as his Homeland Security director when the post was created in the aftermath of 9/11! The nation would have howled in protest. But now that nobody is focused on terrorism (except the terrorists who still want to strike at us), Obama has felt free to bury the task of battling terrorism in the bureaucracy dedicated to policing the Mexican border.

Just as troubling is Obama’s appointment of Eric Holder as his Attorney General. While criticism of the nomination has focused, justifiably, on his sell-out of the public interest by recommending the pardon of fugitive Marc Rich, it is his approval of commutations for the FALN - the Puerto Rican terrorists - that should raise red flags. Before 9/11, when we were not hyper-sensitive to terrorism, Holder did Hillary Clinton’s bidding in approving the pardon of those who bombed Fraunces Tavern in New York City, killing four people and injuring fifty others. Facing a run for Senate in New York State, with its sizable Puerto Rican population, Hillary was anxious to deliver a signal of her empathy with the desires of New York’s Hispanics. Bill, eager to please, sought Justice Department approval for the commutations. Even though the prisoners themselves had not asked for commutation (two refused to accept it),
Holder approved the action and cleared the way for a pre-election gift to New York’s Puerto Rican community.

If these two appointments presage Obama’s approach to the war on terror, we are going to be in deep trouble, indeed. There is not a hawk in the bunch.

On the economy, he campaigned on the populist theme of providing for the poor and middle class while taking more from the wealthy and corporations in order to provide funding for his plethora of entitlement funding. Furthermore, he campaign on a protectionist theme of being weary of new free trade pacts and potentially renegotiating existing free trade pacts. Here is how Forbes describes Obama's economic team..

If you paid attention to the political rhetoric that President-elect Barack Obama engaged in during the Democratic primary, then you probably expected his economic team to be made up of left-wing ideologues. When Obama took a rare holiday from blaming all of America's problems on NAFTA and deregulation, he bashed Hillary
for her cozy relationship with that corporate symbol of evil incarnate: Wal-Mart.

But that rhetoric was, we now know, just that. How "sensible" is Obama's economic team? So sensible, that one can construct a pretty stirring defense of supply-side economics relying solely on their work.

For example, the incoming head of the National Economic Council, Larry Summers, is an academic giant who early in his career published numerous path-breaking articles that highlight the importance of tax policy in influencing economic behavior. He,
along with Fumio Hayashi, was the first to integrate corporate tax policy into what economists' call the "Q" model of investment. These early efforts subsequently led to an explosion of research documenting that corporate tax policy can have an enormous impact on business behavior.

He also pioneered the analysis of consumption taxes and helped kick-start the literature that to this day is the strongest case for fundamental tax reform. But the list goes on. Along with colleagues Andrew Abel, N. Gregory Mankiw and Richard Zeckhauser, he developed a technique for ascertaining whether an economy has too much or too little capital. Applying their technique to U.S. data, one finds quite decisively that we have too little capital, suggesting that capital income taxation is harmful to our long-run welfare.

Of course, a cabinet full of supply siders, free marketeers, and free traders would advise policies diametrically opposed to those he campaigned on. On top of this, Obama is now being very wishy washy as to whether or not he will implement the promised tax increases on the wealthy that he promised. The only thing that we know for sure is that President Elect Obama wants a muscular stimulus package as soon as he enters office and that he wants to continue the bailout and possibly extend it to the automakers. None of these things were any real part of his campaign platform. He's made vague allusions to his other promises: universal health care, regulatory reform, and employment reform. It's unclear whether or not these will all be tabled for the time being.

In other words, it looks more and more as though the Obama Presidency will be an enigma that will unfold as the Presidency unfolds. That isn't necessarily a problem. Rarely does a Presidency unfold according to any plan. Obama has two major constituencies. The first are those that are extremely ideological, and they saw Barack Obama as the conduit of a new progressive era. If I am now right, those folks will likely be very disappointed. They want out of Iraq now, negotiation not confrontation with Iran, and they hate the bailout. In fact, the bailout will get very little ideological agreement on the bailout. His ideological supporters are sure to be very disappointed very soon if his Presidency continues the way his transition has unfolded.

The second group of Obama supporters see him as some sort of a trans formative figure a la Colin Powell. To them, there is little ideological in their support of Obama. They would call the sort of pragmatism that we have seen so far as proof that they were right. They will likely follow Obama for a long time no matter what he does. They are the sort of folks that will defer to him and assume that no matter what he does, he's right. As such, this sort of pragmatism shouldn't affect his support from this niche of his base.

To me though, there is a great danger in the sort of pragmatism that Barack Obama is showing. At least when he was pitching a left wing populism, one could predict the outcome. Now, no one is really sure what he will do. The world is a dangerous place. Our economy is in a dangerous position, and there are a lot of evil despots and tyrants just licking their chops to test this novice. Meanwhile, we have just elected a first term Senator with a history of accomplishing ABSOLUTELY NOTHING and now we know absolutely nothing about what he is about to do. Let's hope Obama's most fervent followers are right and he really can walk on water. If they are wrong, an executive and political novice is about to make it up as he goes along in a world of terror, Putin, a recession, and a growing Culture and Class war.

Some Context on the Passage of the Security Pact by the Iraqi Parliament

Rarely has there been a more shrewd politician than Nuri Al Maliki. In the summer of 2007 folks like Hillary Clinton used Nuri Al Maliki as a blunt against President Bush. Many a Democratic politician, Clinton included, were calling for his removal. In the last year and a half though, Maliki has grown and he has become one of the shrewdest and most effective politicians in the world. In the summer he shocked the entire political world when he endorsed Obama's timeline for withdrawal. Obama's plan would have troops out of Iraq by May of 2010. Then, only weeks ago, there were reports that the Cabinet had approved a plan to keep troops in Iraq for another three years.

Immediately, Maliki faced the same sort of internal pressures. Muqtada Al Sadr immediately organized a very visible protest of tens of thousands in the middle of Baghdad against this agreement.

More than 10,000 supporters of the radical Shiite cleric Moktada al-Sadr gathered in Baghdad's Firdos Square on Friday to protest the Iraqi government plan to sign a security agreement with the United States.

With powerful symbolism, demonstrators hanged a black-hooded effigy of President George W. Bush from the column that once supported the statue of Saddam Hussein that was toppled by U.S. troops in April 2003.

Removing the hood to beat the effigy with a shoe, they put a whip in its right hand and in its left a briefcase, on which were written the words, "the security agreement is shame and dishonor."

The government of Prime Minister Nuri Kamal al-Maliki this week signed the pact, which would place new limits on the powers of U.S. troops in Iraq but provides for them to stay in the country up to the end of 2011, if the Iraqis so desire. The agreement still needs to be approved by Parliament and the country's three-man Presidency Council.

The internal dynamics of Iraqi politics is significantly more complicated and sophisticated than even here in the U.S. Iraq has several groups and dozens more sub groups and all of them have their own agenda. None of them want American troops in country any longer. Yet, a precipitous withdrawal would very likely reverse the gains we have seen in Iraq over the last year and a half. Maliki was facing a military reality that came up against a totally different polling reality. As such, he withstood the visible protests of Sadr and worked behind the scenes and today the Iraqi parliament approved the security pact.

The Iraqi Parliament on Thursday ratified a long-delayed security agreement that lays down a three-year timetable for the withdrawal of American forces from Iraq.

The pact was approved by a large majority, with more than 140 of the 198 lawmakers present in the assembly voting in favor. The vote marks a watershed moment in the era of the post-war American occupation, and the onset of a relationship in which Iraq has more sovereignty over U.S. and other foreign troops on its soil.

The new agreement comes into force when the United Nations mandate that currently governs the American troops expires on Dec 31. The new pact says all American combat forces should withdraw from Iraqi cities by June 30 next year and all American troops should be out of Iraq by Dec. 31, 2011.

The news of the security pact being approved comes only days after news that President Elect Obama will keep on Secretary of Defense Robert Gates.

It may have been the economic crisis that delivered the election to BarackObama but his consistent opposition to the war in Iraq was also a key plank in his campaign – first to be the Democratic nominee, and then for president.

So it might therefore be surprising that he has retained the services of a Bush appointee, Robert Gates, as defence secretary. What's more, Gates has publicly disagreed with Obama's commitment to a 16-month timetable for withdrawal of combat troops from Iraq.

These two events taken together mean that it's almost certain that Obama's campaign promise for a precipitous withdrawal is dead on arrival. Gates has publicly opposed Obama's timetable, and he's one of the architects of the surge. To demand a precipitous 16 month withdrawal now would be to not only go against his own Secretary of Defense but the security agreement just reached. Obama is likely to focus on the economy in the first year regardless. I simply can't imagine Gates would have stayed on unless he was assured that the strategy would not change while he was still in office.

Nuri Al Maliki has just orchestrated one of the shrewdest political power plays I have ever witnessed. He backed Obama's plan during the election handing him a major electoral coup, and then turned around undercut that very plan by agreeing to a timeline much longer than any Obama wanted. Now, Obama is stuck. To go against Maliki and Gates would put him in a terribly vulnerable position. If he does this and it blows up, it will literally spell the end of his Presidency entirely. The American people and the world are the big winners because this new security pact allows for the job to finish and victory to be secured. The second biggest winner is the legacy of George W. Bush which will now be significantly enhanced by the successful liberation of 20 million Iraqis and the successful transformation of not one but two tyrannies into Democracies.

The Latest on Terror in Mumbai

Yesterday, a group calling itself Deccan Mujahadeen pulled off a series of coordinated attacks on the airport, two hotels, a cafe, a railway station and a gas station all with a startling amount of Westerners gathering. While this group. Deccan Mujahadeen, is obscure, the attacks have all the hallmarks of Al Qaeda. The coordinated and spectacular nature of the attacks is the sort of thing that Al Qaeda is unfortunately known for. Photos of the suspected bombers show that they dressed in Western clothes with shaved beard in a likely attempt to blend in and not be noticed. The hotels targeted were the Leopold Cafe, the Ville Parte, the Oberoi Hotel, the Trident, the Taj Mahal Palace Hotel. At least 100 people have been confirmed dead, 800 plus injured, and dozens more are still being held hostage. Several top Indian police, including a top anti terror cop, are among the confirmed dead.

The latest from Fox News is that there is a stand off between Indian Commandos and some of the terrorists.

Indian police have taken at least seven people out of the luxury Oberoi-Trident hotel in Mumbai, one of three buildings where gunmen are still holding hostages in country's financial capital.

The Associated Press reports one of the rescued hostages told reporters he had seen many bodies inside the hotel. He did not give his name.

He refused to give more details, saying he had promised police not to discuss the rescue while it was ongoing.

Indian TV, meanwhile, reports commando teams are engaged in a gunfight with terrorists on the eight floor of the Oberoi-Trident. The battle broke out as commandos were conducting room-to-room searches.

CNN reports that flames at the Oberoi Hotel.

Fires were reported at the Oberoi Hotel in Mumbai, India, a day after a series of attacks that killed 125 people. Flames could be seen coming from the building. CNN sister network CNN-IBN reported the fire was on the fourth floor and that 30 people were trapped. CNN correspondent Sara Sidner reports fresh explosions at the Taj Hotel, the scene of another attack

MSNBC has an eyewitness report.

Bill Roggio gives his analysis of the web of loose associations of terrorists.

Indian intelligence believes the Indian Mujahideen is a front group created by Lashkar-e-Taiba and the Harkat ul Jihad al Islami to confuse investigators and cover the tracks of the Students' Islamic Movement of India, or SIMI, a radical Islamist movement. The groups receive support from Pakistan's Inter-Service Intelligence and are al Qaeda affiliates.
As always in a situation like this, events are fluid and constantly changing.

Wednesday, November 26, 2008

Wealth, Health Care, and Fundamental Rights

In today's Huffington Post, Congressman Jesse Jackson Jr. makes this stunning suggestion.

Because our current economic crisis is forcing us to think outside the box, one topic worthy of renewed discussion is health care. What if the Constitution said: "All citizens shall enjoy the right to health care of equal high quality and the Congress shall have the power to implement this article by appropriate legislation?"

Beyond the obvious benefits of greater and better health care itself, imagine the economic consequences: thousands of doctors and nurses being trained; new medical colleges established and older ones expanded; increased medical research; a massive preventive health care industry springing up; new hospitals in needy urban and rural areas with the private sector, federal, state, county and local governments all working cooperatively under the authority granted by the Constitution and Congress.

The absence of this human right as a health care constitutional amendment has major economic consequences as well. Preventive medicine is almost entirely missing from our current health care system, which costs taxpayers billions.

As such, Congressman Jackson Jr. doesn't merely believe that health care should be a right, but he wants the Constitution to be amended so that the right the quality health is forever ingrained into the Constitution. Even more stunning is the comparison Jackson makes to "prove" his point.

The Constitution is the wall that surrounds everything within it. The current wall consists of material from two central sources: a supreme law and the free enterprise system. The Constitution gives direction and authority to Congress, the president, federal agencies and to the states (under the Tenth Amendment). It is this sacred document that also grants the free market, our laissez-faire capitalist system, the legal authority to operate.

The First Amendment illustrates the interaction between these two wall-building materials -- the public and the private sides. That familiar amendment states that Congress shall make no law prohibiting or abridging the freedom of speech, or of the press. That's it! The Constitution doesn't say USA Today, New York Times, Chicago Sun-Times, Chicago Tribune, Chicago Defender, AM, FM, Satellite Radio, Newsweek, Time, Channels 2, 5, 7, or 9, PBS or CNN. Nor does it state cell phones, i-phones, the internet, and on-and-on. So, while it's impossible to truly determine the economic impact of the First Amendment, the Constitution clearly has a major impact to our nation's economic vitality

It's true that media has proliferated in part because none of them are worried that the government will step in to silence them. That said, the government is not doing anything to threaten someone from entering the health care field despite health care not being a right. The comparison is totally ridiculous and fallacious. Jackson Jr. doesn't stop there. He sees the right to health care as a necessity because we are already spending an enormous amount on health care.

How can we afford such a system? Without a constitutional right to health care we already spend nearly twice as much as any other developed nation in the world -- about $2.5 trillion or 16% of our GDP -- yet nearly fifty million Americans are without health insurance and often receive their care in the most expensive manner possible, in the local hospital emergency room.

With a health care constitutional amendment, instead of plugging a hole in the dike, we would be building a wall with a strong and solid foundation. Instead of spending money on more band-aids, a revised Constitution would give direction to a unique American purpose and, over time, solve an historic problem. And with American innovation we could put millions of Americans to work expanding a more balanced economic system on the solid foundation of health care for all. Health care would be a human right protected by the American people in our Constitution.

In other words, in the view of those like Jackson Jr. anything that we spend an enormous amount of money on needs to be considered a right. This sort of a thought is extremely dangerous. There are lots of things that government spends an enormous amount of money on: housing, food, jobs, research, etc. By Jackson's line of thinking, all of these things should also be rights. After all, our country spends hundreds of billions yearly on housing and yet not everyone has their own home. If you think as Jackson does, the only way to make this a reality is to make home ownership a right. This is frankly exactly the sort of thought process that eventually leads right to Socialism.

Examining the Nightmare of a Corrupt and Speculative Loan Modification Market

Introduction: If you are new to the process of loan modifications, here is a quick run down. This is the process by which banks create a new loan for borrowers that are struggling to pay their current loan. Terms and rates are set not by credit worthiness but frankly by credit unworthiness. In such cases, borrowers have loans they can't afford. Banks adjust the loan and make the payment something they can afford.

I have written often now about loan modifcations. I have predicted an upcoming mortgage class war, and I have predicted how the process would be corrupted. Now, it's time to predict what exactly would be the outcome if I am right.

If I am right, then two things will happen and each will involve unqualified borrowers receiving these loan modifications. First, unqualified borrowers will get brand new and much better loans only to screw that up as well. These folks will now still need to be foreclosed on only this would come after their original foreclosure was halted in order for their loan to be modified. Two things would happen as a result of this. First, the real estate market would appear to be stabilized because all of these loans were modified only to have it blow up again a couple years later. Second, and much more destructive, these newly modified loans would often be guaranteed by the federal government as the FDIC has. By guaranteeing these loan modifications, the FDIC also assumes that no more than 1% will eventually go bad. I expect that number to be dramatically worse. Most folks that get a loan modification already have at least one mortgage late. Those with a mortgage late are dramatically more likely to be late on their mortgage in the future, and thus, the FDIC is now guaranteeing loans on folks with a significantly higher risk profile than those that winds up paying their loan back at least 99% of the time. This will likely cause the FDIC itself to be in need of a bailout, and thus, the U.S. Treasury would wind up borrowing even more.

An even more troubling outcome will be millions of people who have no real need for a loan modification also being able to get one. These will be millions of borrowers that are perfectly capable of paying their current mortgage that will game the system to make themselves appear needy and get a below market mortgage as a result. The average rate for a loan modification is about 5% (from those I have spoken with) but they can be as low as 3% and lower. Now, millions of perfectly capable borrowers will hold onto a mortgage that the bank can't sell. (since they'd all be below market rates) Furthermore, let's imagine the economy recovers a bit and interest rates go up. Now, banks will hold onto millions of mortgages that have the potential of losing them money in that environment. If they are holding onto millions of mortgages at 3% and below and money market and savings rates happen to go up enough, these banks will now be upside down on billions of Dollars worth of debts. Banks make money by creating a spread between the money deposited in their banks and the money they lend with those deposits. If mortgage rates were to go up to 9% or more, savings and money market rates could easily be above 3%. Banks would once again face a liquidity and capitalization crisis.

As such, if I am right, then in the next two to five years we will unleash an economic terror possibly even worse than what has been unleashed now.

Examining FDR's Economic Record

To really examine FDR's economic record it would take much more space than merely a blog post, however a full examination of his economic record is critical now. That's because many pundits are pushing President Elect Obama to create a New, New Deal. Those pushing Obama in such a direction work under the assumption that FDR's New Deal was a shining beacon of success. FDR has properly been lionized as a President however with this lionization there comes a rather rose colored glasses look at his entire Presidency. In my opinion, FDR deserves a special place in our pantheon of Presidents, and that's because he lead the U.S. through WWII. Any wartime President will always be defined by their success or failure in war. I doubt anyone can tell me any part of Lincoln's record beside that of successfully prosecuting the Civil War. The Great Society has little place in LBJ's legacy because of the Vietnam War. The same is true of FDR.

Still, I firmly believe that FDR is given economic credit where frankly he doesn't deserve it. As such, FDR's policy of massive government spending, massive government expansion, and massive government intervention are all given historical precedent as being successful. I believe a firm examination of his economic record reveals something a lot more complicated.

First, FDR was given quite the economic malaise to begin his Presidency. He walked in with unemployment at 25%. It's important to examine his record in the context of the most extreme and difficult circumstances. It isn't a minor point though that unemployment was still double digits as we entered WWII . By any economic measure, if the economy is still in malaise eight years after taking over, it is not unfair to say that the President's economic platform was a failure. Reagan was given only a smaller mess when he entered office. He faced stagflation, and yet only three years later the economy was booming. FDR shrewdly continued to blame Hoover into 1940 for the continued high unemployment but history should not be so kind.
Clearly, as you can see from this chart, FDR certainly presided over an expansion of our GDP. Two things need to be kept in mind. First, our economy had been so crushed that it really had nowhere to go but up. Once, he stopped the proverbial bleedin with the 100 days and begin unadulterated spending, the economy was bound to start expanding. Second, I don't think anyone doubts that massive new government spending will expand the economy.
The question is at what price will that expansion come. The reason that FDR's economic expansion was largely a "jobless recovery" is in my opinion two fold. First, when it is government "creating the jobs", that creation largely doesn't spill over into the private sector. Second, he combined this massive new government spending with the introduction of several new taxes. The most corrosive was the introduction of the payroll tax, now known as Social Security. Beyond this, FDR raised the inheritance tax on more than occasion throughout his first term. Because FDR has been so lionized, most people never once point out the futility of these actions and how the stunted job creation. As such, we have a President that literally promised to raise some of the very same taxes in a similar economic donwturn and a country that bought this hook, line and sinker, even though history clearly shows that such moves stunted job growth.
What's rarely discussed about FDR's record is the long term corrosive effects of his policies on future generations. It was FDR after all that first introduced what I refer to as the Ponzi Scheme known as Social Security. We can all thank FDR for a program that takes an extra 7.5% of our incomes (up to $102,000), and will likely be bankrupt before most young people get a chance to enjoy its benefits. Yet, FDR also was responsible for the creation of Fannie Mae. FDR saw home ownership as far too vital for the free market so he created Fannie Mae to securitize loans. By doing so, he created a mortgage market that became monopolized. A lot of the current mortgage problems can be traced back to the structure that FDR created. He also created the Federal Farm Board. This was then a roughly $60 million program that would buy up crops from struggling farmers. The program has grown to north of $100 billion and continues to prop up failing farmers today. In fact, it was FDR that first set in motion the monster of ever increasing government.
So, now we must all ask some very important questions. Is it really such a good idea to allow our government to spend us out of a recession? Is allowing the government mass expansion the sort of thing that will do good or harm in the long run? Is raising taxes on the very rich really the right thing to do in an economic downturn? It is all of these quesitons that are largely overlooked because FDR has been so lionized. His economic record should be examined much more closely or we will face the fate of its second coming.

Why Mass Loan Modifications in this Environment With Unnecessary Government Interference is so Dangerous

Introduction: If you are new to the process of loan modifications, here is a quick run down. This is the process by which banks create a new loan for borrowers that are struggling to pay their current loan. Terms and rates are set not by credit worthiness but frankly by credit unworthiness. In such cases, borrowers have loans they can't afford. Banks adjust the loan and make the payment something they can afford.

To understand just how truly dangerous loan modifications are everyone needs to wrap themselves around this concept. The better one's financial situation is combined with a steady mortgage rate and payment...the less chance someone has for a loan modification. The worse someone's financial situation is combined with a moving interest rate and payment...the better chance someone has for a loan modification. There is one other concept everyone needs to understand...perception is reality. In other words, the key to loan modifications will soon be to present the borrower as someone in hardship whether that perception is real or not. In other words, loan modifications work in reverse of the way in which loan approvals are supposed to work. More than that, the process of loan modification was something that banks kept in their back pockets to use in those extreme cases where fairly good borrowers really had a hardship and the bank thought they would be responsible enough to handle a lower payment.

Now, this process is about to explode. Nearly every single mortgage company is now developing a loan modifications division. Many former loan officers are creating loan modifications businesses. Why not? Loan modifications are perfect for borrowers that have mortgages that are far too expensive for their monthly budgets. They are extremely appropriate if this process has happened or will happen if a loan adjusts to a higher payment. In other words, the overwhelming majority of sub prime loans that put us into this mess will now be perfect candidates for loan modifications. Just how good a deal does the borrower get. One proprietor of a loan modification business told me they average a new interest rate of 5%.

This is combined with another potentially explosive dynamic. This was never meant to be an en masse business and so not only is it totally unregulated but banks have no set rules for it. There are no guidelines for this process. Banks simply look at a person's financial profile and decide what sort of a payment they should get. Finally, federal and state governments are essentially forcing banks to make this process into something of a mass scale. The state of California has outlawed any foreclosure procedure unless a loan modification has been performed. In other words, if you fall behind on your mortgage in the state of California, have no fear because this action will be rewarded with a loan that is affordable. The bank can't foreclose on you. They have to give you a loan modification by law. Only if you fall behind on your modified loan will you be foreclosed on. The FDIC is now insuring millions of these modified loans as well.

Let's look at some places where there will no doubt be abuse. First, there is the option arms. These are gimmick loans in which the first five years the borrower's payments is set artificially low for the first five years and then resets. The loans were never meant to be kept more than five years. The problem is that will falling real estate prices and restricted credit many of these borrowers simply can't get out of these loans. If you have a $300,000 mortgage, you could for the first five years have a payment as low as $1296 (the payment is figured out as though you had a 30 year mortgage at 2.95% and often times the payment is based on an even lower pretend rate). Once that loan adjusts, your payment will be $2120 (this is based on the rate being 7% over the last 25 years). As this example clearly illustrates, anyone in an option arm can scream hardship. There are very few people that could possibly afford to add $1000 to their mortgage. In other words, almost everyone currently in an option arm is eligible for a loan modification. Many of these folks got into an option arm because the artificially low payment was the one they could afford in order to buy the house they wanted. In other words, they aren't going to necessarily afford much more than their current payment. As such, the loan modification would fit them with an interest rate equivalent to their current payment, or in this case 2.95%.

Then, there is the case of self employed borrowers. Self employed borrowers normally have great difficulty being approved for loans because their income is difficult to track and they write off so much that it looks as though they make nothing. For the purposes of loan modifications, this works to their advantage. There used to be a certain genius to punishing self employed borrowers for writing everything off. After all, if you are going to take advantage of the tax implications of write offs, you are then punished by the mortgage implications. The exact opposite works out to be true in loan modifications. The more upside down a business looks the better a chance the owner has to receive a loan modification. This is also open to so much abuse and manipulation. Borrowers can apply for a loan modification immediately after a bad year. It's even possible that some banks will look at year to date earnings. Once borrowers get an idea of how the system works, the shrewd and unscrupulous ones will be able to find all sorts of ways to abuse the system.

Loan modifications are also perfect for commissioned borrowers. If someone's commission has taken a recent hit, that is the perfect set up to cry hardship. Once again a shrewd and unscrupulous borrower may hold off on collecting on commissions in order to make their income appear low while they are applying for a loan modification. They may ask their company not to pay them commission until such a modification process is over. They may simply apply for a loan modification when their business is slow. The potential for abuse is nearly unlimited here as well.

Finally, there is an obscene amount of potential abuse as far as manipulating debt. One thing that was told me in no uncertain terms was that taking on extra debt wouldn't be rewarded. In other words, if a borrower were applying for a loan modification and the bank looked at their credit report and saw a new car payment, that borrower would almost certainly be rejected. There are plenty of other ways to manipulate debt. Perfectly able borrowers can make their situation look dire. What if you had a long standing credit card which you always paid off monthly but it had a massive limit. Let's say you had a credit card with a limit of $15,000. A borrower could take out cash right befor applying for a loan modification. A really good borrower might have several such cards. Will the bank be able to know that this increased balance was recently manipulated? That's a great unknown of loan modifications because the whole process is brand new.

Then, there is the matter of cash and equivalents. Will banks know just how much borrowers have stashed away if they don't reveal it? What if a borrower is upside down on their debts, but they also have a million Dollar pension? Will the bank know? This is another area that can be manipulated if necessary. Accounts can be liquidated and transferred to family and friends prior to applying for a loan modification. Borrowers may start to cash checks at currency exchanges and hoard cash in order to make their situation appear more dire. This is yet another area where a borrower can potentially make a perfectly good situation look dire.

Finally, once this process really takes off banks will have no choice but to standardize this. Most will have guidelines for who qualifies and for what. They simply won't be able to look at these on a case by case basis when there are millions of them. Once professionals understand how the system works, they will no doubt manipulate it. That's exactly what the entire industry did in manipulating mortgages throughout the boom. The same way in which mortgage professionals figured out how to get unqualified borrowers qualified for mortgages they couldn't afford, these same folks will figure out ways to get borrowers qualified for loan modifications they don't need. Since the federal government is now essentially underwriting these loan modifications, banks will be all too willing to oblige in the next great mortgage fraud.

When Alan Greenspan dropped the Fed Funds Rates to below 1%, this created the artificial push that started the speculative market of sub prime mortgages. Now, the Federal government is doing much the same thing by guaranteeing these loans and by forcing banks to do them prior to foreclosing. The very same kind of artificial stimulation that lead to the sub prime crisis is now being created in this largely unregulated and misunderstood area of loan modifications. Furthermore, the very same artificial stimulation is being done to the very same industry with largely the very same players. Most former mortgage brokers are now getting into loan modifications. They will be dealing with the same banks. They will learn to manipulate the system much like they did when sub prime was booming. The elements for a horrible speculative market are largely the same as those created to start the sub prime crisis. The next great mortgage fraud is here.

Watcher's Council Submssions

Council Submissions
Mere Rhetoric - Obama’s Top NSA And CIA Picks: Harsh On Israel, Sympathetic To Iran And Hezbollah
Both James Jones, rumored to head the NSA, and John Brennan, rumored to be the new head of the CIA, are put under the microscope. Some troubling perspective by both regarding Israel and Iran is examined in this piece.

Soccer Dad - Well, duh
Soccer Dad once again examines media bias in the last election. This time in light of a report by Mark Halperin of Time magazine. John Heilmann is quoted as excusing the bias because the media generally thought Obama was smart. That, frankly, speaks for itself.

The Colossus of Rhodey - Culture of Whine (a rant)
Collosus goes into a long rant about a bratty class he had. Welcome to the real world of education my friend.
The Glittering Eye - Official History
Glittering eye examines the manner in which the Chinese tell their history with other accounts. To no one's surprise, the totalitarian government portrays the history of the Chinese people as entirely uninfluenced by outsiders. The piece then goes on to debunk this and other accounts of ancient history.

Joshuapundit - Zero Hour…Iran Now Has Material For First Nuclear Bomb

Joshuapundit examines a new IAEA report that speculates that Iran has enough raw material for a nuclear bomb and is only missing the technology to harness it. Frankly, I don't know that anyone but the Iranians know for sure. The day of reckoning is fast approaching and it's better to act sooner rather than later.

Cheat-Seeking Missiles - Sunday Scan
Cheat Seeking Missiles has nominated their entire past Sunday lineup. This includes a piece about a monumental "mistake" by scientists that claimed that this past October was the hottest on record only to find they were measuring September. It also includes an indepth look at President Elect Obama's new car, and a piece about the bru ha ha over Governor Palin's interview in front of turkey slaughterer.
The Provocateur - Some Perspective on PNC, Fraud, and the Bailout
My piece puts into perspective the fraud I broke two weeks ago involving PNC bank and the bailout.
Bookworm Room - Halting the Schism
Bookworm room takes a look at whether or not social conservatives are killing the Republican party. I wrote a piece similar to this myself. It's an absurd notion put out by elitist conservative pundits like Kathleen Parker, and moderate Republicans like Christine Todd Whitman. It might be good fodder for punditry, but social conservatives aren't going anywhere, and they aren't about to be exorcised from the Republican Party.
Non-Council Submissions
Submitted By: Mere Rhetoric - Defense Tech - The Big Three/National Security Risk Myth
Submitted By: Soccer Dad - Israelly Cool - The despicable Lauren Booth
Submitted By: The Colossus of Rhodey - Times Higher Education - Nine out of ten dogmas
Submitted By: The Glittering Eye - Serendipitous altruism - American troops in Afghanistan through the eyes of a French OMLT infantryman
Submitted By: Joshuapundit - Serendituous Altruism - American troops in Afghanistan through the eyes of a French OMLT infantryman
Submitted By: Cheat-Seeking Missiles - National Review Online - Party of Privilege
Submitted By: The Provocateur - The Daily Beast - No Stimulus From Government Spending
Submitted By: Bookworm Room - Jewish World Review - Why Reporters — and Judges and Professors — are Biased

Tuesday, November 25, 2008

Isolation: Dealing With Despots, Tyrants and Thugs

A couple days ago, I was stunned to read that President Bush sat down with Russian President Dmitry Medvedev.

U.S. President George W. Bush and his Russian counterpart Dmitri Medvedev has met in Lima on the sidelines of the ongoing APEC (Asia-Pacific Economic Cooperation) economic leaders' meeting, Peru's Andina news agency reported Sunday.

Bush and Medvedev agreed during their meeting Saturday to continue cooperation on a number of issues including piracy off the Somali coast and international security.

They also discussed their positions on Iran and Georgia, the news agency said. Russian Foreign Minister Sergei Lavrov said the two sides also discussed the global economic crisis and that Moscow hopes that practical cooperation would continue after U.S. President-elect Barack Obama takes office early next year.

It wasn't but a couple months ago that Russia brazenly violated the sovereignty of its much smaller neighbor and invaded Georgia. The world talked tough. They said there would be punishment and there would be consequences. Now, just a couple months later our President sits down with theirs as though the invasion never happened.

There has been a lot of debate about whether or not our President should sit down with the leaders of Iran. The argument against such a meeting is that their leader would gain legitimacy from such a meeting. Yet, that's exactly what this meeting provided to the thug, Dmitri Medvedev.

To me dealing with thugs, tyrants, and despots would be fairly easy if the world spoke with one voice. That voice, in my opinion, should be the voice of isolation. In April, our ambassador to Venezuela was attacked in Caracas. My first question was why we had an ambassador in Venezuela.

To me, dealing with tyrants is simple. All you need to do is isolate them. Kick out their ambassadors. Remove your own from their embassies. Furthermore, you isolate them economically. For instance there is the website Divest Terror. This site encourages pension funds from U.S. states to divest from any company that does business with Iran, Syria, North Korea and other despots. If there were real economic punishment for doing business in Iran, Iran would immediately be economically isolated. If the peace loving world came together to isolate tyrants, then the only folks tyrants would ever interact with is other tyrants. In such an environment, tyrants wouldn't be able to stay in power very long.

Such isolation is difficult and it is painstaking. The model for success of such isolation was the apartheid government of South Africa. That took decades but eventually the will of the South African government was broken.

The problem is that much of Europe is in love with the idea of engagement and dialogue. They welcome any opportunity to engage countries like Iran. We have diplomatic apparatus like the United Nations that welcome despotic regimes like Iran so that business can't be done. If we lived in a world where peace loving nations did everything they could to isolate despots, despots would survive for a very short time. Unfortunately, the world hasn't reached a consensus on how to deal with despots. As such, the forces of isolation are countered by the forces of engagement.

No Stimulus in Government Spending

Arthur Laffer is a well known supply side economist and he was one of the main architects of Reaganomics. He is most famous for the Laffer curve.

In economics, the Laffer curve is used to illustrate the idea that increases in the rate of taxation do not necessarily increase tax revenue. (For instance, a 100 percent income tax will generate no revenue, as citizens will have no incentive to work). Increasing taxes beyond the peak of the curve point will decrease tax revenue. The Laffer curve was popularized by Arthur Laffer (b. 1940) in the 1980s. However, the idea is not new to him. In his General Theory of Employment, Interest, and Money, John Maynard Keynes described how past a certain point, increasing taxation would lower revenue and vice versa.[1

The Laffer curve stated that there was an optimum level of taxation that would both not mitigate productivity and also maximize tax receipts. Today, Laffer writes an interesting piece bemoaning the idea that government spending would stimulate the economy.

It is true, as the proponents of these stimulus packages argue, that recipients of government checks will spend more than they otherwise would have spent. And, that increased spending will have a multiplier effect increasing spending even further. But this is only part of the story.

The government can only transfer resources; it can’t create resources. There is no tooth fairy. Every dollar given to someone comes from someone else. The government can’t bail some people out of trouble without putting other people into trouble, plus a hefty “toll for the troll.”

This is an excellent point about the futility of stimulus checks. The government issued an extra $170 billion in U.S. government bonds to send out these checks. While some of these bonds were bought by foreign entities, most of them were bought by Americans. In other words, this stimulus merely transferred money from those that bought the bonds to the tax payers at large. On top of this, the government now owes interest on all of these bonds. In effect, this was a net loss and that as good an explanation as any for why the stimulus of last February failed to stimulate the economy.

From the standpoint of accounting, the government is $170 billion further in the red, and taxpayers are liable for an additional $170 billion worth of taxes. Therefore, for every dollar of transfer payment there’s at least an equivalent dollar of future tax liabilities. Those people with the increased tax liabilities will spend less, thereby dis-employing people who had been supplying them with goods they’ll no longer buy. And the reduction in spending of those with higher tax liabilities will lead to a multiplied reduction in total spending equal to and fully offsetting the increase in total spending from the recipients of government checks. There is no stimulus from the stimulus programs!

To see this point more intuitively, imagine what the “stimulus effect” would be if they borrowed the $700 billion from the same people to whom they gave the $700 billion and then promised to raise their taxes by enough in the future to pay off their bonds. Where’s the stimulus in that?

This point is hugely important. For the proponents of increased government spending to argue that their policies will increase output, it is absolutely essential that the increased spending by transfer recipients more than offset any decline in spending by others. If the income effects of fiscal policy net to zero, there is no rationale for these spending policies. And, the income effects of fiscal policy do indeed net to zero.

Now, here Laffer makes an excellent theoretical point however in practice it may or may not hold water. Laffer's point is that any stimulus which would be borrowed, of which this would be, would be offset by everyone spending less that would wind up being taxed more to pay for said stimulus. In practice, no one yet has had their taxes raised. As such, no one should be minimizing their spending because no one's taxes have been raised. Furthermore, defenders of stimulus through government spending would argue that taxes would only be raised on those wealthy enough to have stopped spending long before the tax increase. For this, Laffer has a rather vague and confusing response.

The diffuse and imprecise nature of just who bares the increased tax liabilities makes the point difficult to understand. We all know who benefits from government programs: mortgage holders, undercapitalized banks, auto companies, low-income earners and the like. But who bears the increased tax burden? That’s a far trickier question, the answer to which I don’t have. But in the aggregate I do know that for every beneficiary of government spending there is someone who has to pay for it. As Milton Friedman so wisely noted, “There ain’t no such thing as a free lunch.”

What I don’t really know is just how far this process can go and just what it will take to stop this vicious cycle. Combine the unintended consequences of a flawed model with a crashing economy in ever more desperate need of beneficial policies, and the results are lethal. The old adage “if you don’t like government problems just wait till you see government solutions” has never been truer.

If we don't know who is going to bear the burden, then why would those folks stop spending. Furthermore, defenders of this policy would say that taxes would be raised when the economy has recovered and is need of a tax increase. Still, Laffer makes a very simple and important point...government creates nothing, but rather it transfers it. That's an important thing to keep in mind as we watch all of this government stimulus evolve.

President Elect Obama: Something Doesn't Add Up

Yesterday, President Elect Obama announced his economic stimulus proposal.

The president-elect said he wanted Congress to act “right away” on a stimulus measure that would blend spending and tax cuts. Asked for details, he said without elaboration that he wanted a measure “of a size and scope that is necessary to get this economy back on track.”

Democratic officials in Congress said the stimulus plan could include aid to cash-strapped states to provide health care to the poor, along with road and bridge funds. More money for food stamps is also likely, they said.

Obama renewed his campaign-long call for middle-class tax cuts but said he would let his advisers make a recommendation on whether to roll back Bush-era tax cuts for the wealthy.He offered few details about the economic stimulus measure he wanted from the new Congress, saying he would ask his new team of advisers to consult with lawmakers.

As a candidate, he supported a $175 billion measure, but the economy has worsened since then, and many lawmakers and economists argue for a more robust jolt. Obama said his goal was to create 2.5 million jobs by “rebuilding our infrastructure, our roads, our bridges, modernizing our schools and creating the clean-energy infrastructure of the 21st century.”

Today, here is what President Elect Obama said about fiscal restraint.

We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of a politician, lobbyist, or interest group," he said.

Obama said he would ask his economic team to "think anew and act anew" to meet new challenges.

"We will go through our federal budget -- page by page, line by line -- eliminating those programs we don't need, and insisting that those we do operate in a sensible cost-effective way," Obama said.

Herein lies the rub, as Shakespeare might say. President Elect Obama wants to stimulate the economy through increased government spending. He wants to create jobs through a series of public works projects like building roads, bridges and highways. At the same time, he wants to cut funding to projects and programs that he thinks are inefficient and no longer useful. The problem is that cutting those programs would contract jobs.

Let's say the government is funding some useless study on mice. While there maybe no reason to fund this study, the funding creates jobs. Whoever receives said grant hires researchers, rents space, buys equipment. Some of the research may even be outsourced. The project may even hire consultants. All of this goes to expand the economy. This program may in fact be inefficient and even worthless but it also creates jobs. Cutting it will cut jobs. Cutting a mass number of wasteful programs will also cut a mass number of jobs.

What President Elect Obama is going to realize soon is that any plan in which the government leads in job creation is not a plan in which efficiency is of any priority. FDR didn't begin cutting "inefficient programs" while he expanded government. It would have been a counter productive move. Barack Obama will take jobs out of the economy at the same time he is putting jobs into the economy. What Barack Obama is proposing is creating jobs through one set of new government spending while at the same time cutting jobs through the elimination of other government spending. Does anyone else see this as totally fallacious?

This of course exposes the fallacy of using the government as the driver of economic growth. In order for any such plan to work it requires a massive growth in the size, scope, and spending of government. You can't cut government spending and expect the government to create jobs. Ultimately, the success of Obama's plan will come down to just how efficiently the new spending will be compared to how inefficient the old spending was. Even if Obama is able to spend efficiently the gains will still be marginal. In Barack Obama's plan, there is nothing to stimulate job growth in the private sector (like the plan I developed) In such a plan, making government more efficient is vital. Instead, President Elect Obama's plan relies on making the government as big, powerful, and expansive as possible. Such is, in my opinion, a recipe for economic disaster.

My Mostly Conservative Stimulus and Economic Recovery Plan

With Barack Obama as President and Nancy Pelosi and Harry Reid leading the Congress, expect any and all stimulus packages to focus on massive expansion of government, massive new spending, and all sorts of government regulations as part of any stimulus package. Jobs will be created with the government taking the lead. As such, what I am about to propose is nothing more than a pipe dream in the current environment. At the very least, we can all compare the conservative approach to stimulus than what Barack Obama proposed yesterday.

My proposal would focus on a series of across the board tax cuts. First, I would make the Bush tax cuts permanent, and I would drop each and every marginal rate another three percent which would expire in five years unless they are extended. Currently the rates are 10, 15, 25, and 33% and so under my plan they would be 7,12,22, and 30% for the next five years.

Second, I would reduce the corporate tax rate from 35% to 27%. Right now our corporate tax rate is the second highest in the civilized world behind only Japan. When Ireland reduced their rate to 10%, their economy exploded. When I saw Rudy Giuliani speak during the primaries, he made an interesting point about the corporate tax rate.

He spoke about productive and unproductive taxes. An unproductive tax is one that is among the most extreme when compared to the civilized world. For instance, he pointed out that our corporate income tax is one of the highest in the entire civilized world. He said that if we merely lowered our tax so that is closer to the middle not at the top that it would keep a lot of the business we lose. He said his tax policy would focus on identifying and lowering those taxes that he determined to be unproductive.

Putting the corporate tax rate at 27% would put the U.S. in the middle of the civilized world. It would continue to allow the Federal government to collect a relatively healthy amount of corporate taxes, but also, it would keep the U.S. competitive against other nations. Corporations won't have high taxes as a motivation to move offshore.

Next, I would encourage strongly for FASB to suspend and eliminate the corrosive marked to market. This new rule forces companies to write down long term assets like mortgage backed securities. Many times MBS are used as part of capital requirements. Marked to market causes capital requirements to be drained fairly artificially.

Next, I would eliminate the capital gainst tax for any investment made in the next three years. In other words, any home, business, or other investment purchased in the next three years would face absolutely no capital gains tax if and when the gain is realized. This will spawn some much needed investment and home buying.

Next, I would eliminate all fees and taxes on early withdrawals from IRA's, 401ks, and any other retirement vehicle if the withdrawal is used for the purchase of a property. Such a suspension would be another help to the distressed housing market.

I would also immediately halt the bailout and announce that any further bailouts would only come under the most extreme of circumstances. While I am firmly against any bailouts, I also would want to leave myself some room for a very disastrous situation.

I would also set up an advisory committee to look at regulating two markets, credit swaps and loan modifications. While I am generally against regulations, these two highly unregulated markets are open to a lot of abuse and fraud. I would be hesitant to institute and mass regulations while the economy is weak, but it would be a priority to look at putting in some much needed regulations in these two markets. On that note, I would reverse and halt all federal government interventions that encourage loan modifications. The FDIC, for instance, is now insuring loan modifications. My government would not be in the business of rewarding irresponsibility. Loan modifications occur when a borrower gets a better loan because they can't afford the one they have. Federal government help for such behavior would end right now.

This would all be combined with John McCain's idea of a freeze on all non essential government spending. Under my administration, we would attack the weakened economy be encouraging the private sector and keeping the federal government as far away as possible. Keeping spending down would limit the deficits we would incur by dropping taxes dramatically.

Monday, November 24, 2008

The Cynicism of Hillary Clinton as Secretary of State

Compare the positions of Hillary Clinton and Barack Obama on domestic issues and you will find little difference between the two. Both want some form of universal health care and differ mostly on specifics like whether it will be mandatory for everyone to be covered. Both want some form of middle class tax cuts. Both are in favor significant new government spending on infrastructure, job creation, and green technology. Both believe the spirit of deregulation played a very large part in creating the crisis and so both favor some form significant new regulations. Both are socially liberal. They both favor most abortions. They both favor liberal judges. Neither favors gay marriage though both favor some sort of civil unionship.

If you were a voter that made their choice on positions, there would be little to choose from on domestic issues. On foreign policy, that was a far different issue. First, Obama made the centerpiece of his campaign that he had the wisdom to see Iraq for the unmitigated disaster that Democrats see it as and that his more experienced opponents didn't have the same kind of wisdom. It is this wisdom, in the view of Barack Obama, that was most important in making foreign policy decisions.

On Iran, Barack Obama was the only candidate to say that he would meet unconditionally with their leaders in the first year of his Presidency.

Here is how Hillary Clinton characterized such a policy.

I thought that was irresponsible and frankly naive," she told the Quad-City Times of Iowa.

Later, it was Hillary Clinton's turn to say something controversial about Iran.

"I want the Iranians to know that if I'm the president, we will attack Iran [if it attacked Israel]," Clinton said. "In the next 10 years, during which they might foolishly consider launching an attack on Israel, we would be able to totally obliterate them."

Here is how Barack Obama characterized that statement.

"It's not the language we need right now, and I think it's language reflective of George Bush," Obama told NBC's "Meet the Press."

In February of 2007, Barack Obama made his first major foreign policy speech in front of the Council on Foreign Relations. He indicated that if Pakistan wasn't ready to act against Al Qaeda stationed within their borders, the United States, under his command, would act with or without their permission. Here is how Hillary Clinton characterized such language.

White House hopeful Hillary Clinton slammed her Democratic rival Barack Obama Tuesday for suggesting he would order a raid against Al-Qaeda inside Pakistan if President Pervez Musharraf failed to act.
Clinton, who has sought to paint Obama as lacking the foreign policy experience to be commander in chief, questioned the wisdom of Obama's threat during a key debate here before crucial nominating contests in Ohio and Texas.
"Last summer, he basically threatened to bomb Pakistan, which I don't think was a particularly wise position to take," Clinton said.
"I have long advocated a much tougher approach to Musharraf and to Pakistan and have pushed the White House to do that," she said ahead of next Tuesday's do-or-die nominating contests.

There is a rather perverse cynicism in having Barack Obama choose Hillary Clinton for his Secretary of State. If she were chosen for his HHS Secretary that would have been one thing. Here, Barack Obama spent an entire primary staking out a foreign policy position that differentiated from Clinton's on most major points. He criticized her on more than one occasion, and he even said often that her vote to authorize the war showed she wasn't fit to be President. She called his policy toward Iran naive, and he called hers much too much like George Bush's. Yet, now he has put her in charge of his entire foreign policy platform. What will Hillary Clinton do if Barack Obama follows through on his threat and attacks Al Qaeda without the permission of Pakistan? What Will Hillary Clinton do if she is directed to broker a deal between Barack Obama and Mahmoud Ahmadinejad?

Some of these things are natural criticisms made in a campaign. Certainly, if a President could only pick those that never disagreed with them that would leave very few people to choose from in a cabinet. Still, there are fundamental differences here between how these two view geopolitics. Barack Obama believes that voting in favor of the Iraq war indicates an individual doesn't have the judgment to be President. Hillary Clinton thinks that unconditional Presidential level negotiations is a naive and dangerous policy. Yet, these two will come together to make foreign policy. Not only is this cynical, but it is the sort of cynicism that Barack Obama promised to get beyond.

Some Random Thoughts on 24: Redemption

Introduction: please note that I will talk a bit about plot and so if you haven't seen it and want to, you may not want to read further.

No one got a more raw deal from the writer's strike than fans of the show 24 which saw the entire season cancelled because of the timing of the strike. That's why this season's prequal 24: Redemption was a welcome to all super fans. Here are a few thoughts.

First, I immediately put myself in the postion of the President. There was a military coup trying to take over a country we are allied with. The government is democratically elected. Yet, the country offers no strategic value to ours and we would be inserting ourselves into their Civil War. Would I, as President, insert troops to help the Democratically elected government? While I reserve my right to change my opinion based on new information, at this point I would not. The President of the United States represents the interests of the United States. The President is not the chief do gooder. Our country needs to have a strategic reason to insert itself into a war, and merely avoiding a genocide of an internal conflict is not enough reason.

Second, the scene that will stick with me for the longest period of time is the scene in which Jack's special ops buddy, Robert Benton, turns himself into a suicide bomber in order to take out the posse that was out to assassinate them in the woods. There is something perverse and very powerful about showing a scene in which someone uses the technique of a suicide bombing to a strategic asymetrical warfare victory of sorts. By drawing the posse in, Benton was able to blow them up with him (he had stepped on a mine trying to save one of his kids from the same mine). This gave Jack and the kids he was with a free path into the city.

Third, I just love how the UN peacekeeper was portrayed as not only hapless but also as totally void of character and courage. That's the television show version of giving your audience red meat. Furthermore, the description is totally accurate and appropriate.

Fourth, many of the scenes reminded me of the movie, Blood Diamond. That's frankly because both are able to rather accurately portray the unfortunate realities of life in much of Africa. The use of children to fight Civil Wars is a very unfortunate fact of life on that continent. The initial scene in which a child is essentially forced to behead a prisoner is very similar to one out of Blood Diamonds. That's frankly because both portray everyday realities of Civil Wars in Africa.

Finally, it appears the show may take a decidedly left slant this season. If this is intentional, it is also brilliant. There are quarters of liberal thought where this show is seen as some sort of a right wing schill. This season may present injecting ourselves into a Civil War to avoid a genocide as good and noble, a la the Sudan and many other left wing causes. Certainly, the new President will be in favor of such an action. It also appears possible that the show will take a decidedly more negative stance to Jack's torture, another sore spot for the most rabid leftwing critics of the show. If the show presents a more left wing perspective, that will leave critics with little more to criticize. It's hard to criticize it's suspense, acting, writing, presentation, or anything else. The only thing you could criticize is its supposed politics. By presenting this season from the other ideology, that will leave no more criticism at all.