Big government = big problems

Goerge Mason University economist, Walter Williams, describes what really caused the sub-prime mortgage crisis and how the so-called bailout is seriously flawed.

In my more cynical moments, I think that we Americans deserve what we get from our politicians, many of whom can be generally described as nothing less than loathsome. You say, "Williams, that's a pretty heavy putdown." My question to you is how else would you describe these congressmen who are now blaming the financial mess on the failure of the free market? Starting with the Community Reinvestment Act of 1977, that was given more teeth during the Clinton administration, Congress started intimidating banks and other financial institutions into making loans, so-called subprime loans, to high-risk homebuyers and businesses. The carrot offered was that these high-risk loans would be purchased by the government-sponsored enterprises Fannie Mae and Freddie Mac. Anyone with an ounce of brains would have known that this was a prescription for disaster but there was a congressional chorus of denial.

Five years ago, Congressman Barney Frank (D-Mass.) vouched for the "soundness" of Fannie Mae and Freddie Mac, and said, "I do not see any possibility of serious financial losses to the treasury." In 2004 congressional hearings, where the Bush administration sought greater oversight over Freddie Mac and Fannie Mae, congresswoman Maxine Waters (D-Calif.) said, "We do not have a crisis at Freddie Mac and particularly at Fannie Mae," adding that "the GSEs have exceeded their housing goals." Congressman Gregory Meeks (D-N.Y.) said, "There's nothing wrong with Fannie Mae and Freddie Mac." In these hearings Barney Frank said that he doesn't see "anything in the reports that raises safety and soundness problems." Earlier this year, Sen. Christopher Dodd (D-Conn.) praised Fannie Mae and Freddie Mac for "riding to the rescue" to help people get home mortgage loans, adding that they "need to do more" to help high-risk borrowers get better loans.

The financial collapse of Fannie Mae and Freddie Mac is not a failure of the free market because lending institutions in a free market would not have taken on the high-risk loans. They were forced to by the heavy hand of government. The solution is not a taxpayer-financed bailout. The solution is to let them fail and allow the people who invested in them, as well as the people who purchased homes they couldn't afford, suffer the losses. Of course that takes a level of political courage that is in short supply. There are other measures that should be taken as part of a second-best solution.

Go read the rest.

A Congress dominated by Democrats and B.O. in the White House will mean a world of hurt for America in terms of the economy, foreign policy, and personal liberties.

Mark my words. . .

Paulsen's ill-advised plan

A large number of economists in this country signed a letter to Congress requesting that we do not rush in to Paulsen's plan for bailing out specific investors and companies who made some bad investments.

I've reproduced the letter in it's entirety below the fold.

(This letter was sent to Congress on Wed Sept 24 2008 regarding the Treasury plan as outlined on that date. It does not reflect all signatories views on subesquent plans or modifications of the bill)

To the Speaker of the House of Representatives and the President pro tempore of the Senate: As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

Signed (updated at 9/27/2008 6:00PM CT)

Acemoglu Daron (Massachussets Institute of Technology)
Ackerberg Daniel (UCLA)
Adler Michael (Columbia University)
Admati Anat R. (Stanford University)
Ales Laurence (Carnegie Mellon University)
Alexis Marcus (Northwestern University)
Alvarez Fernando (University of Chicago)
Andersen Torben (Northwestern University)
Baliga Sandeep (Northwestern University)
Banerjee Abhijit V. (Massachussets Institute of Technology)
Barankay Iwan (University of Pennsylvania)
Barry Brian (University of Chicago)
Bartkus James R. (Xavier University of Louisiana)
Becker Charles M. (Duke University)
Becker Robert A. (Indiana University)
Beim David (Columbia University)
Berk Jonathan (Stanford University)
Bisin Alberto (New York University)
Bittlingmayer George (University of Kansas)
Blank Emily (Howard University)
Boldrin Michele (Washington University)
Bollinger, Christopher R. (University of Kentucky)
Bossi, Luca (University of Miami)
Brooks Taggert J. (University of Wisconsin)
Brynjolfsson Erik (Massachusetts Institute of Technology)
Buera Francisco J.(UCLA)
Cabral Luis (New York University)
Camp Mary Elizabeth (Indiana University)
Carmel Jonathan (University of Michigan)
Carroll Christopher (Johns Hopkins University)
Cassar Gavin (University of Pennsylvania)
Chaney Thomas (University of Chicago)
Chari Varadarajan V. (University of Minnesota)
Chauvin Keith W. (University of Kansas)
Chintagunta Pradeep K. (University of Chicago)
Christiano Lawrence J. (Northwestern University)
Clementi, Gian Luca (New York University)
Cochrane John (University of Chicago)
Coleman John (Duke University)
Constantinides George M. (University of Chicago)
Cooley, Thomas (New York University)
Crain Robert (UC Berkeley)
Culp Christopher (University of Chicago)
Da Zhi (University of Notre Dame)
Darity, William (Duke University)
Davis Morris (University of Wisconsin)
De Marzo Peter (Stanford University)
Dubé Jean-Pierre H. (University of Chicago)
Edlin Aaron (UC Berkeley)
Eichenbaum Martin (Northwestern University)
Ely Jeffrey (Northwestern University)
Eraslan Hülya K. K.(Johns Hopkins University)
Fair Ray (Yale University)
Faulhaber Gerald (University of Pennsylvania)
Feldmann Sven (University of Melbourne)
Fernandez, Raquel (New York University)
Fernandez-Villaverde Jesus (University of Pennsylvania)
Fohlin Caroline (Johns Hopkins University)
Fox Jeremy T. (University of Chicago)
Frank Murray Z.(University of Minnesota)
Frenzen Jonathan (University of Chicago)
Fuchs William (University of Chicago)
Fudenberg Drew (Harvard University)
Gabaix Xavier (New York University)
Gao Paul (Notre Dame University)
Garicano Luis (University of Chicago)
Gerakos Joseph J. (University of Chicago)
Gibbs Michael (University of Chicago)
Glomm Gerhard (Indiana University)
Goettler Ron (University of Chicago)
Goldin Claudia (Harvard University)
Gordon Robert J. (Northwestern University)
Greenstone Michael (Massachusetts Institute of Technology)
Gregory, Karl D. (Oakland University)
Guadalupe Maria (Columbia University)
Guerrieri Veronica (University of Chicago)
Hagerty Kathleen (Northwestern University)
Hamada Robert S. (University of Chicago)
Hansen Lars (University of Chicago)
Harris Milton (University of Chicago)
Hart Oliver (Harvard University)
Hazlett Thomas W. (George Mason University)
Heaton John (University of Chicago)
Heckman James (University of Chicago - Nobel Laureate)
Henderson David R. (Hoover Institution)
Henisz, Witold (University of Pennsylvania)
Hertzberg Andrew (Columbia University)
Hite Gailen (Columbia University)
Hitsch Günter J. (University of Chicago)
Hodrick Robert J. (Columbia University)
Hollifield Burton (Carnegie Mellon University)
Hopenhayn Hugo (UCLA)
Hurst Erik (University of Chicago)
Imrohoroglu Ayse (University of Southern California)
Isakson Hans (University of Northern Iowa)
Israel Ronen (London Business School)
Jaffee Dwight M. (UC Berkeley)
Jagannathan Ravi (Northwestern University)
Jenter Dirk (Stanford University)
Jones Charles M. (Columbia Business School)
Jovanovic Boyan (New York University)
Kaboski Joseph P. (Ohio State University)
Kahn Matthew (UCLA)
Kaplan Ethan (Stockholm University)
Karaivanov Alexander (Simon Fraser University)
Karolyi, Andrew (Ohio State University)
Kashyap Anil (University of Chicago)
Keim Donald B (University of Pennsylvania)
Ketkar Suhas L (Vanderbilt University)
Kiesling Lynne (Northwestern University)
Klenow Pete (Stanford University)
Koch Paul (University of Kansas)
Kocherlakota Narayana (University of Minnesota)
Koijen Ralph S.J. (University of Chicago)
Kondo Jiro (Northwestern University)
Korteweg Arthur (Stanford University)
Kortum Samuel (University of Chicago)
Krueger Dirk (University of Pennsylvania)
Ledesma Patricia (Northwestern University)
Lee Lung-fei (Ohio State University)
Leeper Eric M. (Indiana University)
Letson David (University of Miami)
Leuz Christian (University of Chicago)
Levine David I.(UC Berkeley)
Levine David K.(Washington University)
Levy David M. (George Mason University)
Linnainmaa Juhani (University of Chicago)
Lott John R. Jr. (University of Maryland)
Lucas Robert (University of Chicago - Nobel Laureate)
Ludvigson, Sydney C. (New York University)
Luttmer Erzo G.J. (University of Minnesota)
Manski Charles F. (Northwestern University)
Martin Ian (Stanford University)
Mayer Christopher (Columbia University)
Mazzeo Michael (Northwestern University)
McDonald Robert (Northwestern University)
Meadow Scott F. (University of Chicago)
Meeropol, Michael (Western New England College)
Mehra Rajnish (UC Santa Barbara)
Mian Atif (University of Chicago)
Middlebrook Art (University of Chicago)
Miguel Edward (UC Berkeley)
Miravete Eugenio J. (University of Texas at Austin)
Miron Jeffrey (Harvard University)
Moeller, Thomas (Texas Christian University)
Moretti Enrico (UC Berkeley)
Moriguchi Chiaki (Northwestern University)
Moro Andrea (Vanderbilt University)
Morse Adair (University of Chicago)
Mortensen Dale T. (Northwestern University)
Mortimer Julie Holland (Harvard University)
Moskowitz, Tobias J. (University of Chicago)
Munger Michael C. (Duke University)
Muralidharan Karthik (UC San Diego)
Nair Harikesh (Stanford University)
Nanda Dhananjay (University of Miami)
Nevo Aviv (Northwestern University)
Ohanian Lee (UCLA)
Pagliari Joseph (University of Chicago)
Papanikolaou Dimitris (Northwestern University)
Parker Jonathan (Northwestern University)
Paul Evans (Ohio State University)
Pearce David (New York University)
Pejovich Svetozar (Steve) (Texas A&M University)
Peltzman Sam (University of Chicago)
Perri Fabrizio (University of Minnesota)
Phelan Christopher (University of Minnesota)
Piazzesi Monika (Stanford University)
Pippenger, Michael K. (University of Alaska)
Piskorski Tomasz (Columbia University)
Platt Brennan C. (Brigham Young University)
Rampini Adriano (Duke University)
Ray, Debraj (New York University)
Reagan Patricia (Ohio State University)
Reich Michael (UC Berkeley)
Reuben Ernesto (Northwestern University)
Rizzo, Mario (New York University)
Roberts Michael (University of Pennsylvania)
Robinson David (Duke University)
Rogers Michele (Northwestern University)
Rotella Elyce (Indiana University)
Roussanov Nikolai (University of Pennsylvania)
Routledge Bryan R. (Carnegie Mellon University)
Ruud Paul (Vassar College)
Safford Sean (University of Chicago)
Samaniego Roberto (George Washington University)
Sandbu Martin E. (University of Pennsylvania)
Sapienza Paola (Northwestern University)
Savor Pavel (University of Pennsylvania)
Schaniel William C. (University of West Georgia)
Scharfstein David (Harvard University)
Seim Katja (University of Pennsylvania)
Seru Amit (University of Chicago)
Shang-Jin Wei (Columbia University)
Shimer Robert (University of Chicago)
Shore Stephen H. (Johns Hopkins University)
Siegel Ron (Northwestern University)
Smith David C. (University of Virginia)
Smith Vernon L.(Chapman University- Nobel Laureate)
Sorensen Morten (Columbia University)
Spatt Chester (Carnegie Mellon University)
Spear Stephen (Carnegie Mellon University)
Stevenson Betsey (University of Pennsylvania)
Stokey Nancy (University of Chicago)
Strahan Philip (Boston College)
Strebulaev Ilya (Stanford University)
Sufi Amir (University of Chicago)
Tabarrok Alex (George Mason University)
Taylor Alan M. (UC Davis)
Thompson Tim (Northwestern University)
Troske Kenneth (University of Kentucky)
Tschoegl Adrian E. (University of Pennsylvania)
Uhlig Harald (University of Chicago)
Ulrich, Maxim (Columbia University)
Van Buskirk Andrew (University of Chicago)
Vargas Hernan (University of Phoenix)
Veronesi Pietro (University of Chicago)
Vissing-Jorgensen Annette (Northwestern University)
Wacziarg Romain (UCLA)
Walker Douglas O. (Regent University)
Walker, Todd (Indiana University)
Weill Pierre-Olivier (UCLA)
Williamson Samuel H. (Miami University)
Witte Mark (Northwestern University)
Wolfenzon, Daniel (Columbia University)
Wolfers Justin (University of Pennsylvania)
Woutersen Tiemen (Johns Hopkins University)
Wu Yangru (Rutgers University)
Yue Vivian Z. (New York University)
Zingales Luigi (University of Chicago)
Zitzewitz Eric (Dartmouth College)

Un-recession

Much to the consternation of the gibbering media, it appears that this country is not in a recession.

Late next week the government will release initial estimates of real economic activity in the second quarter. Not long ago, in early April, when the quarter was just beginning, the consensus forecast for Q2 2008 real GDP growth was 0.0%, with as many economists predicting contraction as were predicting growth.

Now, three months later, the consensus is up to 2.2%.

The quote is from First Trust, but they're certainly not alone among economists who think we are not, nor have we recently been, in a recession. First Trust also took this swipe at the doomsayers:

Eventually, those forecasting recession are going to run out of time. The clock is already ticking and the economy remains resilient.

Ya gotta love their candor. I find it refreshing.

The truth of the matter is, all you have to do is look to America's highways to see the condition of the economy. See all of those eighteen wheelers? They're so plentiful that they add greatly to traffic congestion on the roads of America. Yet their presence on our roadways (even when the price of diesel is around $5/gallon) tells us that our economy is still humming along smartly.

Don't believe those who are trying to sell doom and gloom. The economy is sound despite the one-two blows of the housing bubble collapse and the skyrocketing price of fuel. (Both of those, by the way, are directly attributable to Congress, I'm sorry to say. It seems that Congress does not understand the free market system yet.)

Unemployment went up because the minimum wage did (thanks, again, to Congress) which forced businesses to cut back on the number of people they could employ.

Are you seeing a pattern here? Perhaps we should provide our Congressional representatives with remedial instruction in basic economics. Or, maybe we should just vote every one of them out of office until they start acting responsibly. It would make for a tremendous transformation of our representation in Washington, DC!

I just wish we had the cajones, as a nation, to do that . . .

[First Trust reference was provided by Mark Perry at Carpe Diem.]

Origins of the banking "crisis"

Thomas Sowell points out where the mortgage crisis had its beginnings. And it wasn't crooked lenders, either.

It was government intervention in the financial markets, which is now supposed to save the situation, that created the problem in the first place.

Laws and regulations pressured lending institutions to lend to people that they were not lending to, given the economic realities. The Community Reinvestment Act forced them to lend in places where they did not want to send their money, and where neither they nor the politicians wanted to walk.

Now that this whole situation has blown up in everybody's face, the government intervention that brought on this disaster is supposed to save the day.

Politics is largely the process of taking credit and putting the blame on others— regardless of what the facts may be. Politicians get away with this to the extent that we gullibly accept their words and look to them as political messiahs.

Remember this on election day.

Housing appears to have bottomed out

According to Larry Kudlow's Money Politic$

Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.

For example, the median existing home price has increased four consecutive months and is up 10 percent since February. Yes, it’s down 6 percent over the past year. But the monthly numbers show a gradual rebound. Actually, this median home price is $215,000 in June, compared to $196,000 last winter.

And there’s more. One of the hardest hit regions is the West, including California, Arizona, and Nevada. The other two bad states are Florida and Michigan. However, existing home sales in the western region are up four straight months, and are 17 percent above the low in October. At the same time, prices in the West have increased three straight months.

Meanwhile, overall national existing home sales are basically stabilizing at just under five million. And in the first and second quarters of 2008, these sales dropped slightly by 3 percent in each case, which is a whole lot better than the roughly 30 percent sales drops of the prior three quarters.

So maybe people really should quit their "whining."

Disadvantage: ethanol fuel

It has been discussed around the blogosphere that "flex fuel", or fuel that is 85% ethanol and 15% gasoline, yields less energy than pure gasoline. In fact, it will reduce a car's gas mileage considerably.

My father-in-law sat down, did the math, and sent me an email with his analysis:

For years countries lacking petroleum resources have used ethyl alcohol-blended with gasoline for fuel. Now, in an effort to reduce the United States dependence on imported oil the government is subsidizing the development and production of ethanol (ethyl alcohol) for motor fuel. The goal is to develop "E-85"; a fuel blend of 85% ethanol and 15% gasoline. Pumps at many gasoline stations already post a notice that the fuel may contain up to 10% ethanol, in part to reduce emissions. So what are the characteristics of ethanol? What costs are involved?

Chemistry text books/handbooks explain that dilute ethyl alcohol (grain alcohol) is produced by fermentation and the proportion of alcohol is increased by fractional distillation over some dehydrating agent to remove the water, an expensive process. It is an excellent solvent, and used in many products. Because it burns readily it is considered a valuable liquid fuel, but some changes are needed to an internal combustion engine for its use.

Text books on internal combustion engines note that ethanol has some desirable characteristics. It will maintain its composition under much higher compression than gasoline; up to 200 p.s.i. Also, no carbon is found in engines using a fuel containing over 35% ethanol. A problem exists when ethanol and gasoline are blended together because the ethanol will absorb water from the atmosphere and separate from the gasoline. Recently problems have been reported in sports news where "E-10" fuel stored in cans vented to the atmosphere for several weeks have caused damage to outboard motors when used later. The larger detriment to ethanol is that it contains oxygen in its chemical makeup which reduces the amount of heat energy per pound which is released during burning.

The heating value (energy) of ethanol is 11,600 BTU per pound with specific weight of 48.98 pounds per cubic foot, or 6.55 pounds per gallon. Multiplying we get a heating value of 75,980 BTU per gallon.

Gasoline has a heating value of 18,800 BTU per pound with specific weight of 47.24 pounds per cubic foot, or 6.32 pounds per gallon. Similarly gasoline has 118, 816 BTU per gallon.

Blending 85% ethanol and 15% gasoline:

0.85 X 75,980 = 64,583BTU

0.15 X 118,816 = 17,822BTU

"E-85" = 82,405BTU/gal.

"E-85" then has slightly less than 70% (82,405/118,816 =0.693) the heating value (energy) of gasoline. Thus a decrease in the miles per gallon of cars with the engine modified to use the blended fuel can be expected. Developing large scale production of ethanol for automotive fuel is an option for reducing the United States dependence on foreign oil, but at a broad ranging significant cost beyond just the cost of fuel.

In other words, if your flex fuel vehicle gets 25 mpg now, it will only be getting about 18 mpg with E-85.

Still no recession

Even after the Fed adjusted their 2008 Q1 numbers.

The U.S. economy was stronger than first thought because of a better trade balance and stronger business spending.

Gross domestic product rose at a seasonally adjusted 0.9% annual rate January through March, the Commerce Department said in the second estimate of first-quarter GDP . . .

Don't believe those doomsayers who keep harping on the recession. We haven't seen a recession in years, and it looks like our economy is still going to grow -- despite high energy prices, the global war on terrorism, and the housing correction.

One thing that would bring our economy to a standstill, though, would be if our government started raising taxes again. Taxes have never been the way to spur economic growth. In fact, they have the exact opposite effect -- always have, too.

And you can take that to the bank.

[Via Mark Perry at Carpe Diem.]

Who is causing America's oil woes?

Congress.

• For the past 31 years, Congress repeatedly prevented us from building any new oil refineries that we now badly need.

• More recently, congressional Democrats defeated and discouraged any bill that would let us drill in the deep sea 100 miles out. However, it's somehow OK for China to drill there.

• As a further indictment of our Congress, since the 1980s it has continually stopped all building of nuclear power plants while France, Germany and, yes, Japan, plus 12 other major nations, did build plants and now get 20% to 80% of their energy from their wise and safe nuclear plant investments.

• From 1990 to 2000, U.S. crude oil demand rapidly accelerated by 7.41 quadrillion BTUs, according to Department of Energy data. And our rate of foreign oil dependency dramatically increased while our domestic oil production steadily declined.

And we should let them know that we are unhappy with the way they've been doing things, because our Congressional representatives are neither cognizant of the economics of energy, nor are they being honest with us:

It is a national disgrace that all they now know how to do is relentlessly criticize, complain and condemn. They always attempt to blame, investigate and scapegoat someone else, in this case U.S. oil companies, when Congress is the true villain of ineptness for constantly blocking and obstructing every effort for us to become more productive and less dependent on foreign oil.

Do those now in Congress really think Middle America's voters are so gullible that they will believe that its latest best and brightest answer to increasing our supply of oil and gas is to slap a 25% windfall penalty tax on oil companies and remove all other incentives for oil companies to drill and explore for oil?

I think we should start a campaign to oust all incumbents in the November elections.

If that were to happen, it would certainly be construed as a "mandate."

Stock markets fear Obama

Has anyone else noticed that the stock markets start going down when Obama goes up, and they go up when he goes down? Cassy Fiano has.

In January and February the stock markets were dropping faster than Ted Kennedy dropping off a bridge. As everyone certainly remembers, that was a time during which Obama was scoring caucus and primary victories more often than Eliot Spizer once scored with call girls.

Then Clinton won big-time in Ohio and she won the popular vote in Texas too. The stock markets started jumping up like they were on "Dancing With the Stars."

Clinton obliterated Obama in Pennsylvania. The markets rose on heavy volume. The Dow, for example, ultimately crossed the 13,000 barrier, sharply above its intra-year low of 11,750 that was set in early-March.

Not surprisingly, however, the day after Obama won big in North Carolina and Clinton only prevailed narrowly in Indiana the stock markets were as depressed and angry as Lou Dobbs; the markets plunged across-the-board.

You see the pattern, don't you?

Maybe it has something to do with Obama's lack of economic savvy. Or the fact that the policies he supports invariably promote restricting the free market process.

And the markets represent you and I in so many ways. I vote in the stock market with my dollars. So do a lot of other Americans. Perhaps we should carry that to the polls in November.

Our do-nothing Congress

Investors Business Daily applauds Bush's scolding of our Congress for helping to create, and then exacerbating the current energy shortages in our nation.

Best of all, Bush didn't let the issue sit with just generalities. He reeled off a bill of particulars of congressional energy inaction, including:

• Failing to allow drilling in ANWR. We have, as Bush noted, estimated capacity of a million barrels of oil a day from this source alone — enough for 27 million gallons of gas and diesel. But Congress won't touch it, fearful of the clout of the environmental lobby. As a result, you pay at the pump so your representative can raise campaign cash.

• Refusing to build new refineries. The U.S. hasn't built one since 1976, yet sanctions at least 15 unique "boutique" fuel blends around the nation. So even the slightest problem at a refinery causes enormous supply problems and price spikes. Congress has done nothing about this.

• Turning its back on nuclear power. It's safe and, with advances in nuclear reprocessing technology, waste problems have been minimized. Still, we have just 104 nuclear plants — the same as a decade ago — producing just 19% of our total energy. (Many European nations produce 40% or more of their power with nuclear.) Granted, nuclear power plants are expensive — about $3 billion each. But they produce energy at $1.72/kilowatt-hour vs. $2.37 for coal and $6.35 for natural gas.

• Raising taxes on energy producers. This is where a basic understanding of economics would help: Higher taxes and needless regulation lead to less production of a commodity. So by proposing "windfall" and other taxes on energy companies plus tough new rules, Congress makes our energy situation worse.

We need a Congress, led by true statesmen, who do what is best for this country, and not what is best for their individual political careers.

Pelosi and Reid are blockheads, yes, but the really sad thing is that they are only two of the 435 blockheads in Congress.

So, how has it been for you?

It seems that our Democrat-controlled Congress has had a lot to do with our skyrocketing energy and food prices.

Wasn't it two years ago that then-Minority Leader Nancy Pelosi vowed, if her party took over Congress, to cut energy prices — especially gasoline?

"Democrats have a common-sense plan to help bring down skyrocketing gas prices by cracking down on price-gouging; rolling back the billions of dollars in taxpayer subsidies, tax breaks and royalty relief given to big oil and gas companies; and increasing production of alternative fuels," Pelosi wrote back in April 2006, as part of her efforts to convince Americans to elect Democrats.

How's that working for you? As the chart below shows, the cost of energy — measured by the price of West Texas Intermediate crude — is up more than 70%.

Under Pelosi's "common-sense plan," Congress has achieved nothing. Actually, less than nothing, considering that what little has been done has hurt, rather than helped the U.S. to become more self-sufficient. This year alone, we'll spend $431 billion to buy 3.7 billion barrels of imported oil to run our economy. And in so doing, we are enriching some of the world's most unsavory regimes.

The irony in all of this is that we have over a trillion barrels of oil, in the form of oil shales, in the Rocky Mountains -- along with billions of barrels of oil in Alaska and offshore reserves. We have billions of tons of coal. We have the best nuclear power technology in the world. All off-limits thanks to our Democrat-led government.

Would someone please explain to me again why we elected these bozos into power?

NAFTA works

So, why do our nation's Democrats along with other nations' dictators want to kill it?

Fourteen years after the 1994 North American Free Trade Agreement was signed, President Bush, Mexican President Felipe Calderon and Canadian Prime Minister Stephen Harper's meeting in New Orleans this week is a vivid testimony to NAFTA's success. The three leaders, ironing out their differences peaceably, provide a beacon to the region about the benefits of mutual economic growth.

They all have something big to show for it. The U.S. economy is now 50% greater than it was in 1994. Mexico's GDP is 46% bigger and Canada's is up 54% since joining the world's largest free trade zone, where total trade now stands at nearly $1 trillion, three times what it was before the deal was struck.

As for Americans, NAFTA puts between $140 and $720 more income into the pockets of the average family of four each year, while tariff-scrapping has cut taxes another $210.

Mexican and Canadian incomes have risen comparably, with Mexico reporting the highest per capita income in Latin America.

With such a result from just dropping tariffs and leveling the investment playing field, it is little wonder that 10 other countries in the hemisphere want the same free trade benefits.

Yet free trade is under fire from many places, ranging from know-nothing populists to Big Labor bosses who see a threat to their privileges, all the way down to the newly emerging leftist states in Latin America that seek to end the private sector altogether.

Since 1994, when NAFTA was signed, the US has lost 2.9 million manufacturing jobs. During that same time, a total of 4.9 million other jobs (attributed to NAFTA) have been created in this country.

I wish Reid, Pelosi, Obama, and Clinton would explain to me how NAFTA has been bad for this country. The truth is, they cannot. Not rationally, anyway. So they just screech about how we've lost more than 2 million jobs since NAFTA was signed.

Evidently, they slept through their economics classes in college.

Economic woes - explained

Governmental ineptitude

Investors Business Daily has a good op-ed piece about permanent ways to bolster our economy.

Like a lot of things in life, the episode made us laugh not only because it was funny but because it revealed a tragic truth — insecurity is the canvas upon which modern American politicians can mix their primary colors: public fear and personal ambition.

That one moment exposed the hearings for what they were — political cover for what is shaping up to be to a grab bag of wasteful government spending and a forum to scapegoat Wall Street all in the name of protecting "working people."

In what must be considered a land speed record for any significant piece of tax legislation in the history of the republic, politicians from both sides of the aisle are desperately attempting to dispose of 12-figure levels of "stimulus" that would include, among other things, an extension of unemployment and food-stamp benefits and a tax rebate check from Uncle Sam.

Sadly, few policymakers would like to admit that no amount of government spending (or Fed easing for that matter) will address the root cause of the current economic slowdown — the unwinding of a housing bubble that started six years ago. The only cure for that malaise is, sadly, time and ensuring that current levels of employment and income remain intact.

What is most remarkable is that Congress, the administration and the Fed can propose $150 billion in new government spending without any meaningful discussion of perhaps the quickest, cheapest and potentially most effective way to restore business confidence and maintain the currently low levels of unemployment — making the Bush tax cuts on dividends and capital gains permanent.

Unfortunately, once again, our government is racing down the wrong road to put out a fire that will burn itself out. They should be concentrating on the future -- not the past.

The current economic pessimism is wrong!

Larry Kudlow points out some very positive 2007 Q4 numbers for durable goods, unfilled orders, and bank credit.

In spite of all the recession talk, the U.S. economy continues chugging along. Just this morning, we received news that new orders for durable goods ended Q4 on a very strong note. We had a 5.2 percent gain. That comes out to 22.6 percent annualized growth over the past three months. Meanwhile, unfilled orders, the leading indicator for sector activity, also showed strength with a 2.5 percent gain for December (20.5 percent over 3 months).

These are not recessionary numbers.

And don’t forget: firms have been able to keep up their capex activities because credit is still flowing; business loans are up 21 percent from a year ago, and bank credit (which includes business, consumer, and real estate loans) is up 11 percent. Remember that firms have filled coffers from some very profitable years.

Even in Q4, earnings outside financials are healthy. The latest tally shows that roughly one-third of non-financial companies in the S&P 500 have reported and market-weighted and share-weighted earnings per share are up about 23 percent from a year ago.

And that is something you can take to the bank!

Reality and the economy

Brian Wesbury, chief economist for First Trust Portfolios, L.P., points out that, despite the daily hysterical horse-pucky being thrown at us by the news media and others, the U.S. economy is doing just fine.

The irony is almost too much to take. Yesterday everyone was worried about excessive consumer spending, a lack of saving, exploding debt levels, and federal budget deficits. Today, our government is doing just about everything in its power to help consumers borrow more at low rates, while it is running up the budget deficit to get people to spend more. This is the tyranny of the urgent in an election year and it's the development that investors should really worry about. It reads just like the 1970s.

The good news is that the U.S. financial system is not as fragile as many pundits suggest. Nor is the economy showing anything other than normal signs of stress. Assuming a 1.5% annualized growth rate in the fourth quarter, real GDP will have grown by 2.8% in the year ending in December 2007 and 3.2% in the second half during the height of the so-called credit crunch. Initial unemployment claims, a very consistent canary in the coal mine for recessions, are nowhere near a level of concern.

Because all debt rests on a foundation of real economic activity, and the real economy is still resilient, the current red alert about a crashing house of cards looks like another false alarm. Warren Buffett, Wilbur Ross and Bank of America are buying, and there is still $1.1 trillion in corporate cash on the books. The bench of potential buyers on the sidelines is deep and strong. Dow 15,000 looks much more likely than Dow 10,000.

Go read the whole thing.

Kool-Aid

Larry Kudlow comments on the relative merits of free market economics and asks a question.

According to the front-page of today’s Wall Street Journal, Bill Gates is issuing a clarion call for a kinder capitalism to aid the world’s poor. Mr. Gates says he’s grown impatient with the shortcomings of capitalism. He thinks it’s failing much of the world, and he’s slated to say as much in a speech later today at the World Economic Forum in Davos, Switzerland.

This from a guy worth around $35 billion. (Give or take a billion.)

It appears Gates is ignoring the global spread of free-market capitalism that has successfully lifted hundreds of millions of people up from poverty and into the middle class over the last decade or so. Think China. Think India. Think Eastern Europe (and maybe even France under Sarkozy). Gates wants business leaders to dedicate more time to fighting poverty. But the reality is that economic freedom is the best path to prosperity. Period.

The Heritage/WSJ 2008 Index of Economic Freedom clearly shows that free-market countries are prospering mightily. Per capita GDP is closely related to, and positively correlated with, market economies. The fact is that free-market economics is spreading like wildfire. State socialism is on the decline. Unsurprisingly, the study also shows that the least-free economies are mired in poverty. We’re talking North Korea, Cuba, Zimbabwe, Iran, and others.

Also noteworthy is Venezuela’s plunge into poverty, orchestrated by the neo-socialist Hugo Chavez. His nation is sinking toward Cuba-type poverty as he attempts to adopt Fidel Castro’s failed economic model.

Check out the charts on economist Mark Perry’s Carpe Diem blog site. They show that the U.S. share of world GDP and its world stock market capitalization are shrinking. This is not a bad thing. It does not mean that America is heading downwards. On the contrary, it means that newly freed economies are heading up.

The reality here is that the rising tide of global capitalism is lifting all boats that employ it. It works. It’s a good thing. It’s the key to unlocking a nation’s prosperity.

So I just have to smile when a billionaire like Bill Gates turns a cold shoulder to the blessings capitalism bestows. Or when his buddy, Warren Buffett, broadcasts the importance of hiking tax rates on successful earners and investors. Look fellas, the command-and-control, state-run economics experiment was tried. It was called the Soviet Union. If you hadn’t noticed, it was a miserable failure.

What’s in the drinking water at this place called Davos?

One can only guess . . .

Cuts needed

And I'm not talking about job cuts. I'm talking about cutting taxes and the Fed's interest rates. Larry Kudlow says it best:

Right now the single best thing President Bush and Congress can do is slash the corporate tax rate for large and small businesses. Bush can reach out to Charlie Rangel and move the corporate tax to 25 percent from 35 percent. Then, instead of taxing successful capitalists as an offset, corporate-tax subsidy loopholes, special provisions, and other corruption-inducing K-Street tax earmarks can be eliminated.

A middle-class tax cut to help families and small businesses would also be welcome. This can be done by collapsing the three middle-income tax brackets of 15 percent ($15,650), 25 percent ($63,700), and 28 percent ($128,500) into one 15 percent bracket. These brackets apply to small-business owners who may be suffering the high costs of energy and raw materials. The biggest weakness in the jobs report is the household survey which is comprised of these owner-operated small businesses. Household job increases have slumped to only 262,000 over the last year, compared to a 1.3 million increase for larger corporations.

Essentially, a major cut in the corporate tax and a simplification of the middle-income tax brackets makes good sense for long-run tax reform. It would help the current softening of the economy and increase America’s long-run potential to grow. This is a good plan for President Bush as well as the GOP candidates on the campaign trail.

I recommend you read the whole post.

Stuck on stupid

The Associated Press is once again trumpeting its ignorance -- only this time, it's about the US economy.

Headline: "Despite Economy, Malls and Stores Jammed"

In a free market, retail sales, in other words the malls and stores, are significant indicators of the health of the economy. And don't forget to look at the freeways in America -- all of those eighteen wheelers indicate a thriving economy, as well.

It appears that the AP is no better at hiring economically savvy journalists, than they are at hiring competent war correspondents.

Just sayin'.

Despite the volatility in the stock markets . . .

. . . the US economy is going strong.

Here’s the key point: Outside the struggling financial and consumer discretionary sectors, the economy is firing on all cylinders. Economy-wide profits are up a smoldering 15 percent in the third quarter when you remove these two laggards. And in addition to today’s robust, expansionary jobs number, GDP blew away forecasts earlier this week, coming in a hair shy of 4 percent. (For the record, this represents the biggest back-to-back quarterly gain in four years.) This means healthy American businesses are generating jobs. Meanwhile, hardworking American workers are out there spending money, with real, disposable, after-tax, after-inflation income running around 4 percent — a big number.

In the October jobs report, average hourly wages for non-management workers increased 3.8 percent, well above inflation. These wage gains don’t come from home-equity lines. They come from strong job creation. This is the heart of the consumer story. The October jobs gain is the best in five months. Over the past year, 1.7 million new jobs have been created. The bulk of these, by the way, are coming from high-pay service jobs, including business and professional services, as well as education and health services.

The real-estate "bubble" burst is not seriously affecting our economy. These numbers are very positive.

If you don't believe the article, then look at our nation's freeways. The tremendous numbers of eighteen-wheelers on our highways are much more than irritating obstacles on your way home from work -- they are real indicators that we have a vibrant economy in this country. . .

Near-sighted Nancy

IInvestor's Business Daily explains how Pelosi's shepherding of the resolution censuring Turkey has already cost Americans $3.5 billion in fuel prices.

After Turkey's government warned on Oct. 7 that the declaration on Armenian genocide might damage U.S.-Turkey ties, the price of oil jumped from $79.03 a barrel to $87.61 Tuesday, a gain of 11%, or nearly $9 a barrel, in a little over a week.

The Democrats' move, blamed by oil traders for the upsurge in crude, has increased our monthly national oil bill by roughly $3.53 billion at current import rates. That's about $42 billion a year. Call it the Stupidity Tax.

Hit hardest will be the poor. A fuel tax is regressive, meaning it falls heaviest on those at the bottom. We're surprised we've not seen this levy dissected in detail by the mainstream media. But they've gone strangely quiet.

Who knows if oil will continue to rise following the Democrats' attempt to hijack foreign policy? It could trigger a recession — one the Democrats and the left-leaning media would blame on Bush.

So as you pull up to the gas pump and watch the digits rise ever higher, please avoid cursing OPEC's potentates or China or Hugo Chavez or whatever. This time, you've paid the Pelosi Premium.

Your tax dollars at work . . .

America's economic future

Bizzyblog shows what many newspapers have not: that our deficit has plunged 62% over the last four years.

And he talks of the future, as well.

Now for some cold water: I hope I’m wrong, but I believe that the long run of increased tax receipts is over, and that receipts in future years will go up by no more than 4%-5% annually — if we’re lucky. That’s because none of the economy-prodding suggestions made at the end of this post last year have been put into place. The current Congressional majority has no interest in making the Bush 2001-2003 tax cuts permanent. If that were miraculously to happen, the economy would likely go into orbit at the sudden rush of bi-partisan sanity. But that makes too much sense.

If, as appears likely, the Bush cuts are instead allowed to expire at the end of 2010, that will in reality represent a huge tax increase after seven years of a mostly-static tax structure. Worse still, a Democratic presidential victory in 2008 could not only mean a probable earlier end to the Bush cuts, but steep additional taxes on top of that. All three major Dem candidates have already promised exactly that.

Because of these things, it would not surprise me in the least that investors and corporate managers considering expansion are becoming more cautious, hindering current economic growth.

What’s really needed, as I’ve suggested several times in the past few months, is another tax cut. It would nice to hear at least one GOP presidential candidate talking about that, and not merely holding the line on the Bush cuts.

Check it out.

It should be about oil

And that is the point Greenspan made in his book (free subscription required to access the link).

Greenspan clarified his remarks in an interview with the Washington Post, telling the newspaper that although securing global oil supplies was "not the administration's motive," he had presented the White House with a case for why removing Hussein was important for the global economy.

"I was not saying that that's the administration's motive," Greenspan said. "I'm just saying that if somebody asked me, 'Are we fortunate in taking out Saddam?,' I would say it was essential."

He said that in his discussions with President Bush and Vice President Dick Cheney, "I have never heard them basically say, 'We've got to protect the oil supplies of the world,' but that would have been my motive."

Greenspan said that he made his economic argument to White House officials and that one lower-level official, whom he declined to identify, told him, "Well, unfortunately, we can't talk about oil."

Reality bites sometimes, but Western civilization has to acknowledge our tremendous dependence upon oil for much of our electricity, many of our chemicals, all of our plastics, and almost all of our transportation. Oil is the fuel for our modern economy.

Couple that with the fact that huge amounts of the world's supply of oil is tied up in the Middle East, and you've got a lot of people interested in stability in that region.

So, yeah, it should be about oil.

Ed Morrissey weighs in on this, as well.

A run on the bank

Larry Kudlow discusses the current economic situation in the country and urges the Fed to take action. Soon.

If central bankers would come to their analytical senses, they would appreciate that today’s financial panic is itself sufficient reason to slash the Fed funds target rate by at least a full percentage point from today’s 5.25 percent to something around 4 percent. New cash needs to be poured into the liquidity parched banking system. Such a move would be a much-needed injection of confidence into a rattled marketplace. In addition, a lower fed target rate would not only deliver much needed addition to bank reserves, but would help to raise asset values across the board by dropping the cost of money. A pro-growth Fed policy will actually strengthen the beleaguered US dollar and reduce the price of gold.

Earlier today, former Fed chair Alan Greenspan compared the current financial turmoil to that of 1987’s stock plunge and the 1998 dislocation of giant hedge fund Long Term Capital Management. (And, just for good measure the maestro threw in the land boom collapse of 1837 as well as the bank panic of 1907.) Fortunately, financial panics don’t occur very often. But what we have before us today is a modern version of the old fashioned run on the bank. The only difference is that the bank today is the global money market.

The Fed can fix this. But they better get moving.

He does a good job identifying the various elements that are involved in our current economic uncertainty. I recommend you read the whole thing.

It's a good economy, stupid!

Engram, over at Back Talk has a post up about how wonderfully the economy is doing in this country.

And he cites some significant indicators:

1. Economy Grows at Fastest Pace in a Year
2. Consumer Spending Rebounds in July, Helped by Strong Income Growth
3. CBO Sees U.S. '07 Budget Gap Falling to $158 Billion

All due to the robust economic growth brought about, in a large part, by the Bush tax reductions.

So, in light of this, why is Congress talking about raising taxes?

HR 3221 -- the wrong direction bill

The new energy bill being considered in the House, HR3221, is not what it's cracked up to be. Iain Murray of the Competitive Enterprise Institute explains why:

Speaker Pelosi says that HR 3221, the New Direction for Energy Independence, National Security and Consumer Protection Act “puts us on a path towards energy independence, strengthens national security, grows our economy and creates new jobs, lowers energy prices and begins to address global warming.” It will actually do none of these in any meaningful sense. It is a new direction, certainly, but it’s the wrong direction. This is an anti-energy bill.

The bill does not do anything to ease restrictions on nuclear power or resource exploration in this country, either, so it is little more than a sop to the public for political gain.

In terms of providing energy independence -- the bill will do just the opposite because it will force us to go overseas to increase our mining, drilling, and refining capacity.

It's just a bad idea, and should never have made it out of committee.

Good economy

Lawrence Kudlow weighs in with compelling facts that support his assertion that our economy is stronger than ever.

So, while the mainstream media peddles its flimsy “sky is falling” narrative, the reality is a 13,400 or so Dow, along with rising wages and a 4.6 unemployment rate, point to a prosperous nation. These are the key barometers. The Bush boom continues.

Read the whole thing.

UPDATE: Kudlow provides some remarks on the Corner blog at NRO following yesterday's DOW closing over 13.468.

Wall Street stabilized today with a triple-digit Dow gain as of this writing. All those Bear Stearns rumors on Friday were totally over-baked and hyperactively alarmist. The firm is money-good, and its daily security positions are being financed by its top lenders, including Citibank and J.P. Morgan. What’s more, the two credit rating agencies, Moody’s and S&P, gave Bear Stearns a positive and sound outlook with respect to liquidity and credit. S&P downgraded because of the possible likelihood of lower earnings over the medium term. But S&P said liquidity is fine. All the negative speculation and rumors about the firm are just wrong.

Meanwhile, I still believe the Goldilocks economic scenario is alive and well. Jobs came in at 120,000 for the private sector, and if government teachers had contributed 30,000 as usual (probably due to a statistical estimating error, they didn’t), then the jobs report would have met consensus.

Unemployment has essentially been unchanged at 4.5 percent to 4.6 percent for a year. Weekly jobless claims are low. Wages are running ahead of inflation. The ISM report suggests at least 2.5 percent real growth. The global economic boom continues as commodity indexes are holding the high ground. In the U.S., business loans are growing about 12 percent.

Second quarter profits are running 15 percent on a market-cap basis, 11 percent on a net income basis, and 9 percent for continuing operations. Those profits are two-to-three times higher than consensus expected. Corporate bond spreads and yields are normalizing, but sources tell me that new money is coming in from petro countries and China to bottom fish cheaper corporate loans. All of which are money-good.

The sub-prime mortgage virus is still the biggest issue and no one can be sure how large the total damage will be. But with a global boom abroad and Goldilocks at home, the stock market is in better fundamental shape than so many commentators would have us believe.

Call it money-good.

Robust economy

Larry Kudlow explains why the recent stock market reductions do not indicate a bad economy. Because profits and the GDP are up, and inflation is down.

Be it loan worries or the stock correction, the key point in all this is the steady stream of rising profits. Profits matter. They are the best guarantee for the credit worthiness of corporate loans and the value of stocks. As classical economist Benjamin Anderson wrote in the 1920s when he was the top economist at the old Chase National Bank, “profits are the heart of the business situation.” Down through the years, I’ve paraphrased that as “profits are the mother’s milk of stocks and the economy.” It’s time to add credit-worthiness to that list.

Read the whole thing . . .

Energy price issues

Dr. John Felmy, chief economist for the American Petroleum Institute, answers questions about what factors are affecting the price of gasoline right now. As it turns out, and with not a little irony, Congress' deliberations on a new energy bill are a significant factor in why we're paying such high prices . . .

It kind of makes all the Congressional posturing and puffery in implicating "big oil" seem like hypocrisy, doesn't it?

Tanking the U.S. economy

Senator Judd Gregg has some sobering things to say about the Democrat approach to national fiscal responsibility. Here's how he starts:

The extraordinary success of the U.S. economy over the past several years is evidenced by 22 consecutive quarters of economic expansion, the creation of nearly eight million new jobs, and surging tax revenues that have outpaced projections by $300 billion. Recently, however, an enormous anchor was attached to the economy, in the form of the fiscal-year 2008 budget resolution.

This five-year budget blueprint, a partisan plan designed and passed by congressional Democrats with no input from Republicans, will weigh down the economy with the largest tax increase in U.S. history, hundreds of billions in new spending, and billions of dollars in new debt. Most egregiously, the budget completely ignores the $69 trillion long-term entitlement crisis that threatens to swamp future generations with debt and taxes.

Despite a solid record of success for the fair, pro-growth tax system put in place in 2001 and 2003, this budget chooses not to extend existing policies past 2010. That decision will cost hard-working American families, seniors, and businesses dearly — to the tune of $916 billion in new taxes. In putting us on a path to European tax levels, this budget is just like a French soufflé, except it will be the American economy which will collapse.

Read the whole thing.

Congress: take note

Ed Morrissey provides an analysis of the latest Congressional Budget Office study of the poor in this country. The study showed that welfare reform and an expanding economy have provided the poorest 20% of Americans a 78% increase in income over the last 15 years. The best increase of all income brackets.

"A new study by the Congressional Budget Office says the poor have been getting less poor. On average, CBO found that low-wage households with children had incomes after inflation that were more than one-third higher in 2005 than in 1991.

"The CBO results don't fit the prevailing media stereotype of the U.S. economy as a richer take all affair -- which may explain why you haven't read about them. Among all families with children, the poorest fifth had the fastest overall earnings growth over the 15 years measured. (See the nearby chart.) The poorest even had higher earnings growth than the richest 20%. The earnings of these poor households are about 80% higher today than in the early 1990s."

So much for John Edwards' "two Americas" theme . . .

Economic inflation

Larry Kudlow talks about the "four dead bodies of inflation" and how they help indicate the prospects of inflation increasing -- and how Congress can make it worse.

Loose talk from a protectionist-leaning Congress is arguing for a lower dollar to curb the trade deficit. This would be exactly the wrong policy. The Fed should ignore this banter and instead keep its eye on all four dead bodies in the inflationary morgue.

Recommended.

Employment, wages up again

Despite Congress' and Iran's best efforts, and the media's chicken little predictions, the U.S. economy is still improving.

The job market showed little sign of losing its vigor last month as wages climbed and job growth rose, the Labor Department reported yesterday.

Economists said the numbers were consistent with an economy that was being supported by strong consumer spending, with considerable hiring in businesses like restaurants, bars, department stores and educational services.

In all, the Labor Department said that employment outside the farming sector grew by 180,000 in March. And in another sign of the job market’s resilience, employment growth in January and February was stronger than the government first reported.

The national unemployment rate also edged down last month to 4.4 percent, from 4.5 percent, matching a five-year low that it reached briefly in October.

Still more reason NOT to roll back Bush's tax cuts . . . Supply-side actually works -- whether you believe in it or not . . .

Economic realities

Irwin Stelzer, director of economic policy studies at the Hudson Institute, rightfully points out that slower growth is not a recession.

Nor is it any news that the economy is slowing. But there is a big difference between slower growth and a recession. The recent survey by the Federal Reserve Bank of Kansas found "modest expansion" around the country, with "steady growth in retail sales," "generally positive" tourism activity, "steady or expanding manufacturing activity," agricultural conditions "generally improved," and tight labor market conditions. Some areas--most notably Boston and Dallas--seem to be slowing more than others, and auto sales are weak in most places around the country. But, all in all, at least for the present, the economy is doing exactly what the Fed wanted it to do when Greenspan began ratcheting up interest rates--it is cooling. The "froth" is off house prices, investors are realigning share prices with more reasonable expectations of risk and growth, and people who shouldn't be lending to people who shouldn't be borrowing are writing down the value of their enterprises. All of these are arguably in the long-run interests of a healthy economy.

So don't believe the econo-pundits who are nervously asserting that we're heading toward a recession. Our markets are strong and have overcome some negatives like 9-11 and the housing bubble bursting. As long as the Democrats support the market-friendly policies of the Bush administration, this country's economy will continue to grow.

One consequence of raising the minimum wage

Arizona recently raised the minimum wage and is now suffering from one of the consequences.

Oh, for the days when Arizona's high school students could roll pizza dough, sweep up sticky floors in theaters or scoop ice cream without worrying about ballot initiatives affecting their earning power.

That's certainly not the case under the state's new minimum-wage law that went into effect last month.

Some Valley employers, especially those in the food industry, say payroll budgets have risen so much that they're cutting hours, instituting hiring freezes and laying off employees.

And teens are among the first workers to go.

In any business, when you raise wages, you have less money for other things. If the other expenses cannot go down enough to offset the raise, then you have to cut back on the number of workers that you employ.

Otherwise the business has to make more money. Usually by raising the price of its goods and services. Thus, the consumer ends up funding the Congressionally-dictated minimum wage increase.

It's very simple, really.

Which may be why Congress couldn't figure it out.

Clueless in D.C.

David Frum, over at the American Enterprise Institute, provides a sobering assessment of our economy and how it will be reported. Here's how he begins:

Want to get rich in the American stock market? Here's some advice: Don't watch the news.

I'm not being facetious here. One of the iron laws of U.S. news reporting is that the economy gets positive reviews under Democratic presidents and negative reviews under Republican presidents.

In 2004, the Virginia-based Media Research Center (MRC) produced a stark summary of the disparity.

In 1996, Bill Clinton ran for reelection as president. The U.S. economy was doing well at the time: unemployment down to 5.2%, inflation under control at 3%, and overall growth at 2.2%. And the press reported all this good news: According to the 2004 MRC study, 85% of all major economic stories on the economy in the summer of 1996 were positive.

Eight years later, George W. Bush was running for re-election as president. The U.S. economy in 2004 did much better than in 1996: The economy grew at a 3.9% pace, while unemployment and inflation roughly matched their 1996 levels (5.4% and 2.7% respectively). Yet this time, 77% of all major media economic coverage was negative. (For the full report, see www.mediaresearch.org/realitycheck/2004/fax2004
1020.asp.) And since the 2004 election, the barrage of bad news has continued: reports of housing bubbles, warnings of an imminent collapse in the U.S. dollar, and so on.

Things are definitely not looking up in this country now that the Democrats have taken control.

Falling deficit

Bizzyblog asks a good question: What happens if a deficit falls and no one reports it?

Why ethanol is NOT the answer

Deroy Murdock makes a compelling case against the widespread use of ethanol in gasoline. Here is his conclusion:

This economic damage will accelerate if President Bush promotes, or if the federal government mandates, a one-fifth drop in gasoline use by 2017. According to estimates by Cato Institute scholars Jerry Taylor and Peter Van Doren, writing in the Winter 2007 issue of The Milken Institute Review, “If all the corn produced in America in 2005 were dedicated to ethanol production…it would have reduced U.S. demand for gasoline by, at most, 12 percent.” So, to reach Bush’s 20 percent goal, corn production must grow to 167 percent of its 2005 levels, and every kernel must go into ethanol. Kiss your corn pudding goodbye.

Cultivating that much corn will require even more farmland. Securing it likely will require chopping down the same trees that inhale the carbon dioxide that humans and cars exhale. If Al Gore is telling the truth, this will increase global warming. So one of the environmentalists’ favorite tools for fighting global warming could actually exacerbate it. Meanwhile, as the Wall Street Journal editorialized on January 27, “ethanol increases the level of nitrous oxides in the atmosphere and thus causes smog.”

How lucky we are to have a government big enough to tie its own shoelaces together.

Read the rest.

The Bush economy

Larry Kudlow, over at NRO, presents some good reasons for crediting Bush for our strong economy. And Wall Street agrees:

On a day when the GDP report came in strong and the Federal Reserve proclaimed a balanced economy marked by healthy growth and contained prices, President George W. Bush became only the second sitting American president to visit the floor of the New York Stock Exchange. As he moved from trading post to trading post, floor brokers and assistants stopped their work and started to cheer.

Huge cheers. Loud applause.

This is the same guy the mainstream media loves to kick around — the same guy who suffers sinking polls while standing resolute on the subject of Iraqi freedom, and who gets virtually no credit for the Goldilocks economy and unprecedented four-year stock market boom. He’s also the same guy who continues to prove he has more character than most anyone serving in public office today.

Go read the rest.

On greed

Thomas Sowell talks about the "greed" fallacy. Here is his conclusion:

Every time oil prices shoot up, there are cries of “greed” and demands by politicians for an investigation of collusion by Big Oil. There have been more than a dozen investigations of oil companies over the years, and none of them has turned up the collusion that is supposed to be responsible for high gas prices.

Now that oil prices have dropped big time, does that mean that oil companies have lost their “greed”? Or could it all be supply and demand — a cause and effect explanation that seems to be harder for some people to understand than emotions like “greed”?

I urge you to read how he arrived at that . . .

Congressional backbone, please!

Federal Reserve Ben Bernanke is warning Congress of the dangers of fiscal inaction.

Federal Reserve Chairman Ben Bernanke warned the U.S. Congress on Thursday that failure to take action soon to deal with the budgetary strains posed by an aging U.S. population could lead to serious economic harm.

"Unfortunately, economic growth alone is unlikely to solve the nation's impending fiscal problems," Bernanke told the Senate Budget Committee.

Bernanke acknowledged that official projections suggest the U.S. budget deficit could stabilize or shrink in the next few years, but cautioned: "We are experiencing what seems likely to be the calm before the storm."

Left unchecked, the costs of so-called entitlement programs, such as Social Security and Medicare, are set to soar as increasing numbers of the baby boom generation retire.

Recognize the chorus? We need to rein in our entitlement programs! Perhaps the Democrat-controlled Congress will take some decisive action -- the Republican-controlled one surely did not.

Good economic news from Iraq

James C. Roberts at the Washington Times provides us with a glimpse of Iraq's economic strides since Saddam's regime came to an end.

Did you know that Iraqi real-estate prices have gone up several hundred percent since the fall of Saddam Hussein?

That Iraqi workers' salaries have increased more than 100 percent in that time?

That the number of cars in violence-torn Baghdad has grown by 500 percent in the same period?

That the Iraqi construction, retail and wholesale trade sectors are all growing at a healthy pace?

Chances are that you are astonished by these facts. I certainly was when I read them in an article by Silvia Spring in the end-of-the-year edition of Newsweek International.

Go read the whole thing.

The Iraqi dinar exchange rate . . .

. . . has been going up and up since October.

Iraqi currency is getting stronger. I wonder why the market is so bullish on Iraqi money? Do they know something we don't know?

A letter to Lou Dobbs

Donald Boudreaux, Chairman of the Department of Economics at George Mason University, writes a letter to CNN managing editor, Lou Dobbs, and provides him with a remedial economics lesson. Here's how he begins.

Dear Mr. Dobbs, Congratulations on having a large new bloc of voters bear your name! Politicians ignore the "Lou Dobbs Democrats" at their peril.

Every night on CNN you claim to speak for these people. They are America's middle class: decent folks who work hard and play by the rules but who, you insist, are abused by the powerful elite. Free trade is one of the policies allegedly supported by the elite and for which you reserve special vitriol. You thunder that imports destroy American jobs, reduce wages, and make the economy perilously "unbalanced."

But you are mistaken.

Go read the rest.

Back to the future

R. James Woolsey, co-chairman of the Committee on the Present Danger, and director of central intelligence from 1993 to 1995, has a new years op-ed about using hybrid, plug-in, and ethanol technologies in combination to more than double the mileage of current hybrids. This kind of utilization of technologies would not only serve to conserve oil, but would also reduce carbon dioxide emissions, facilitate America attaining energy independence, contribute to our national security, and reduce consumers' fuel costs.

Gentlemen, Start Your Plug-Ins
How does 500 miles a gallon sound to you?

BY R. JAMES WOOLSEY
Monday, January 1, 2007 12:01 a.m. EST

An oil and security task force of the Council on Foreign Relations recently opined that "the voices that espouse 'energy independence' are doing the nation a disservice by focusing on a goal that is unachievable over the foreseeable future." Others have also said, essentially, that other nations will control our transportation fuel--get used to it. Yet House Democrats have announced a push for "energy independence in 10 years," and in November General Motors joined Toyota and perhaps other auto makers in a race to produce plug-in hybrid vehicles, hugely reducing the demand for oil. Who's right--those who drive toward independence or those who shrug?

Bet on major progress toward independence, spurred by market forces and a portfolio of rapidly developing oil-replacing technologies.

In recent years a number of alternatives to conventional oil have come to the fore--oil sands, oil shale, coal-to-diesel and coal-to-methanol technologies. But their acceptability to a new Congress, quite possibly the next president, and a public increasingly concerned about global warming will depend on their demonstrating affordable and effective methods of sequestering the carbon they produce or otherwise avoiding carbon emissions.

Ethanol's appeal rose a few years ago when it became clear that genetically modified biocatalysts could break down the cellulose in biomass and thus enable ethanol's production from a wide range of plant life. This means that, compared with corn, little fossil fuel is needed during biomass cultivation and land use presents much less of a problem. Indeed two years ago the National Energy Policy Commission (NEPC), making reasonable assumptions about improved vehicle efficiency and biomass yields over the next 20 years, estimated that just 7% of U.S. farmland (the amount now in the Soil Bank) could produce enough biomass to provide half the fuel needed by U.S. passenger vehicles, and that production costs for cellulosic ethanol were headed downward toward around 70 cents per gallon. Further, conversion of only a portion of industrial, municipal and animal wastes--using thermal processes now coming into commercial operation--appears to be able to yield an additional several million barrels a day of diesel or, with some processes, methanol.

But in spite of the technological promise of alternative liquid fuels, skeptics rightly point out that it will take time to build production facilities and learn the practicalities of operating biorefineries and shifting industry from hydrocarbons to carbohydrates. Most of all there is a sense of investor caution, driven by memories of the mid-'80s and the late '90s when sharp drops in oil prices, driven in part by increased production from Saudi reserves, bankrupted such undertakings as the Synfuels Corporation. Also, industry support for moving away from oil dependence has long been weak outside agribusiness, and consumers see little immediate savings from using alternative liquid fuels.

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All this is likely to change decisively, because electricity is about to become a major partner with alternative liquid fuels in replacing oil.

The change is being driven by innovations in the batteries that now power modern electronics. If hybrid gasoline-electric cars are provided with advanced batteries (GM's announcement said its choice would be lithium-ion) having improved energy and power density--variants of the ones in our computers and cell phones--dozens of vehicle prototypes are now demonstrating that these "plug-in hybrids" can more than double hybrids' overall (gasoline) mileage. With a plug-in, charging your car overnight from an ordinary 110-volt socket in your garage lets you drive 20 miles or more on the electricity stored in the topped-up battery before the car lapses into its normal hybrid mode. If you forget to charge or exceed 20 miles, no problem, you then just have a regular hybrid with the insurance of liquid fuel in the tank. And during those 20 all-electric miles you will be driving at a cost of between a penny and three cents a mile instead of the current 10-cent-a-mile cost of gasoline.

Utilities are rapidly becoming quite interested in plug-ins because of the substantial benefit to them of being able to sell off-peak power at night. Because off-peak nighttime charging uses unutilized capacity, DOE's Pacific Northwest National Laboratory estimates that adopting plug-ins will not create a need for new base load electricity generation plants until plug-ins constitute over 84% of the country's 220 million passenger vehicles. Further, those plug-ins that are left connected to an electrical socket after being fully charged (most U.S. cars are parked over 20 hours a day) can substitute for expensive natural gas by providing electricity from their batteries back to the grid: "spinning" reserves to help deal with power outages and regulation of the grid's voltage and amperage.

Once plug-ins start appearing in showrooms it is not only consumers and utility shareholders who will be smiling. If cheap off-peak electricity supplies a portion of our transportation needs, this will help insulate alternative liquid fuels from OPEC market manipulation designed to cripple oil's competitors. Indian and Chinese demand and peaking oil production may make it much harder for OPEC today to use any excess production capacity to drive prices down and destroy competitive technology. But as plug-ins come into the fleet low electricity costs will stand as a substantial further barrier to such market manipulation. Since OPEC cannot drive oil prices low enough to undermine our use of off-peak electricity, it is unlikely to embark on a course of radical price cuts at all because such cuts are painful for its oil-exporter members. Plug-ins thus may well give investors enough confidence to back alternative liquid fuels without any need for new taxes on oil or subsidies to protect them.

Environmentalists should join this march with enthusiasm. Replacing hydrocarbons with fuels derived from biomass and waste reduces vehicles' carbon emissions very substantially. And replacing gasoline with electricity further brightens the environmental picture. The Environmental and Energy Study Institute has shown that, with today's electricity grid, there would be a national average reduction in carbon emissions by about 60% per vehicle when a plug-in hybrid with 20-mile all-electric range replaces a conventional car.

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Subsidizing expensive substitutes for petroleum, ignoring the massive infrastructure costs needed to fuel family cars with hydrogen, searching for a single elegant solution--none of this has worked, nor will it. Instead we should encourage a portfolio of inexpensive fuels, including electricity, that requires very little infrastructure change and let its components work together: A 50 mpg hybrid, once it becomes a plug-in, will likely get solidly over 100 mpg of gasoline (call it "mpgg"); if it is also a flexible fuel vehicle using 85% ethanol, E-85, its mpgg rises to around 500.

The market will likely operate to expand sharply the use of these technologies that are already in pilot plants and prototypes and heavily reduce oil use in the foreseeable future. And given the array of Wahhabis, terrorists and Ahmadinejad-like fanatics who sit atop the Persian Gulf's two-thirds of the world's conventional oil, such reduction will not be a disservice to the nation.

[Used with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.]

Sounds almost too good to be true doesn't it? Yet it is a definite possibility. One that we may want to investigate, develop, and advocate.

Unfinished work

Clive Crook, over at National Journal, has a good op-ed about Milton Friedman's unfinished work.

Enormously influential as he was, and triumph as he invariably did in debate with his intellectual opponents, I don't know if you could say that Friedman was on the winning side in the 20th century's great battle of ideas. Communism collapsed, to be sure, but in Europe and the United States, economists like Friedman saw a lot of ground surrendered to higher taxes and public spending, and to an ever-proliferating web of economic regulation. There were interruptions now and then (notably Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom), but interruptions is all they were. Over recent decades the trend in America has been toward gradually diminishing economic freedom.

It's a good look at economic freedom in this country. Recommended.

World economic future looks bright

James Peron discusses a World Bank report, Global Economics Prospects 2007, that was released today and projects that the poor will be getting richer, faster.

The report expects the world economy to grow from last year's $35 trillion to $72 trillion by 2030. And this "is driven more than ever before by strong performance in the developing countries." Only two decades ago the poor nations provided only 14 percent of wealthy nations' manufactured imports. Today they provide 40 percent and by 2030 they are projected to provide over 65 percent.

As it was over the last 25 years it is the poor who will benefit the most. "The number of people living on less than $1 a day [in constant dollars] could be cut in half, from 1.1 billion now to 550 million in 2030." And the number living on less than $2 per day will decline by an estimated 800 million.

Suppy & demand: labor

Thomas Sowell does a good job pointing out some basic economic truths to Hollywood types. Here's his conclusion:

What the Third World needs are more multinational corporations, not less.

As more multinational corporations move into a poorer country, the people there not only get additional economic opportunities, they acquire skills and job experience that raise their productivity and earnings potential, even if that outrages the economically illiterate in Hollywood.

Go read how he got there.

Economic outlook

Larry Kudlow has an optimistic outlook for the American economy in 2007. Here's his summary:

Markets are better forecasters than economic pundits and the models they cite. Rising stocks — helped along by lower energy prices, spectacular profits, and rock-bottom tax rates on capital — are telling us that a soft-landing growth scenario is in the works for next year. Lower bond rates are saying we can bank on lower inflation and an easier Fed in 2007.

I’m still betting on Goldilocks.

Go read how he can to that conclusion.

Whence our economic boom?

Rep. Richard Baker (R-La.), chairman of the House Financial Services Committee’s Subcommittee on Capital Markets, discusses America's economy, why it is so good now, and how the election may affect it.

Despite the shocks of a burst dot.com bubble, the terror attacks of 9/11, corporate scandals, and the hurricanes of 2005, the economy has maintained historically low inflation, interest rates, and unemployment since May 2003, while adding more than six million new jobs and growing at a robust average rate of more than 3 percent. The extraordinary resiliency of the American economy is the great untold story of our day.

This surge did not come about by accident or artifice. Instead, it was unleashed by the creative energies of the American people, and touched off by the passage of investor-class tax cuts on capital gains and dividends by the Republican-controlled Congress in May 2003. The result has been the creation of $5.7 trillion in new investor wealth and an increase to $14.4 trillion in household net worth.

When Democrats talk about how they plan to rollback only “tax cuts for the wealthy,” it’s a safe bet that these are precisely the tax cuts, and investor gains, they have in mind to cancel. If you are among the 91 million Americans (or more than half of all American households) who now own stocks directly or indirectly through mutual funds and 401(k)s, don’t be surprised to discover that you are precisely the “wealthy” folks that Democrats have in their crosshairs.

But the ability to keep, save, reinvest, and retire with more of what you earn, though crucial, is only half the story of recent investor success. The other half is historical, and has to do with the long-standing preeminence of American capital markets as the deepest, most liquid, and most efficient markets across the globe.

We take pride in the fact, even if we sometimes take it for granted, that U.S. markets are the envy of the world. We understand the truth of John F. Kennedy’s aphorism, seemingly long forgotten by his Democratic party, that “a rising tide lifts all boats.” When U.S. markets serve as the trusted destination for capital the world over, business creation, corporate expansion, job formation, and technological innovation are supercharged, a process that circles back to greater returns on investment.

And yet much of this is today at risk.

He goes into a lot more detail. Recommended.

It's the economy, stupid!

Cesar V. Conda has an interesting article about America's economic outlook.

Back to the Federal Reserve, monetary policy has been just about right since 2001: Interest rates were reduced to combat deflation, and starting in mid-2004 were tightened to control for inflation without damaging economic growth. Since the Fed’s pause in August, inflation-sensitive commodity prices have come down by about 20 percent while inflation-protected Treasury securities have reacted favorably. Core consumer prices (excluding energy and food) have risen by 2.9 percent over the past year, an annual rate lower than the average for the 1990s.

The U.S. economy will continue to grow, create jobs, and increase wages, so long as the right fiscal and monetary policies remain in place. Fed Chairman Ben Bernanke has established himself as a credible inflation fighter, and will continue to provide a steady hand with monetary policy. However, low-tax fiscal policy is unlikely to continue if the Democrats take control of Congress on November 7.

Read the whole article.

The decline of the Eurozone

Anatole Kaletsky has some disturbing things to say about how the Maastricht Treaty, creating the European economic zone, is suppressing the economies of many of the countries who signed it.

The Maastricht treaty has turned the Eastern Europeans into second-class citizens. The belated recognition of this fact is starting to have the predictably ugly impact on the politics of Europe’s eastern periphery. But before getting too indignant about the injustices to Eastern Europe, let us spare a thought for the citizens of old Europe who are privileged to “enjoy” full membership of the eurozone. The latest budgetary crisis in Italy may well be averted and the Prodi Government will probably survive for a few more months. But as Signor Prodi’s huge tax increases begin to bite, the Italian economy is almost certain to sink back into recession. Moreover, there will be no chance of Italy tackling any of its real economic problems once unemployment starts rising next year.

What Italy needs today is competition, privatisation of grossly inefficient state-sponsored utilities, deregulation of the financial system and changes in labour laws. Such reforms can be hard to implement even in a booming economy. In a stagnant or declining one, they will become impossible.

To make matters worse, Italy will be tightening its budget at the same time as Germany implements the biggest tax increases in its modern history — also in deference to the Maastricht Treaty, if not under quite such direct compulsion from the EU. These simultaneous fiscal blunders in Italy, Germany and Eastern Europe will almost mean another “lost year” for the euro zone, with economic performance falling far behind America, Britain and Japan. But the long-term consequences could be more far-reaching.

At some point the people of Europe will realise that there is something rotten in a political system that leaves them forever in the world economy’s slow lane — and which cannot be changed by any democratic process, regardless of how people vote.

Recommended.

2 percent

George Will explains why, as Bill Clinton said to the British Labour Party's annual conference, America is "now outsourcing college-education jobs to India."

It's the economy, stupid!

But Clinton-as-Cassandra should not persuade college students to abandon their quest for diplomas: The unemployment rate among college graduates is 2 percent.

He goes on to discuss many other very positive economic indicators.

I recommend you read the whole thing.

Shame on you, Republicans!

You helped renew and expand our thriving economy, but have failed to take credit for it!

President Bush and the Republican Congress took direct action to stimulate the economy and boost investor confidence by trimming the capital-gains tax to 15 percent and cutting in half the double taxation of dividend income paid to investors by corporations.

By increasing after-tax rewards for saving and investing, the 2003 tax-rate cuts worked precisely as advertised. Since May 2003, the U.S. economy has expanded by a quarterly average of 3.7 percent (annualized) and has added 6.6 million new jobs. As of the close of the markets on Monday this week, a total of $5.7 trillion in new shareholder wealth has been created since the tax-cut agreement was reached on May 20, 2003. Total dividend and share repurchases increased an astonishing 123 percent to over $600 billion for the 12-month period ended in June. Total household net worth is up $14.4 trillion, or 37 percent, since the tax cut.

Instead of touting this amazing record of success to America’s investor class, Republicans have been virtually silent about the economy this campaign season.

Recommended.

12,011.73

More exceedingly good economic news.

The finish above 12,000 was the latest sign that the stock market continues a cautious recovery from the losses and despair investors suffered in the early part of this decade. After peaking in early 2000, the Dow and other indexes fell precipitously amid the dot-com collapse, recession and the impact of the Sept. 11, 2001, terror attacks.

I say that we should just blame Bush!

Good news from America

Michael Barone points out all of the good economic news that you won't see on the front pages.

The Labor Department Friday announced that the number of jobs increased between April 2005 and March 2006 not by 5.8 million but by 6.6 million. As an editorial in the Wall Street Journal notes, "That's a lot more than a rounding error, more than the entire number of workers in the state of New Hampshire. What's going on here?" The most plausible explanation, advanced by the Journal and by the Hudson Institute's Diana Furchgott-Roth in the New York Sun, is that lots more jobs are being created by small businesses and individuals going into business for themselves than government statisticians can keep track of. Newspaper reports on the number of jobs usually focus on the Labor Department's business establishment survey. But over the past few years, the Labor Department's household survey has consistently shown more job growth than the business establishment survey. The likely explanation: The business establishment survey misses jobs created by new businesses. Our government statistical agencies do an excellent job. But statistics designed to measure the economy of yesterday have a hard time reflecting the economy of tomorrow.

The federal budget deficit has been cut in half in three years, three years faster than George W. Bush called for. Why? Tax receipts were up 5.5 percent in FY 2004, 14.5 percent in FY 2005, and 11.7 percent in FY 2006. That's up 34.9 percent in three years. And that's after the 2003 tax cuts. When you cut taxes, you get more economic activity, and when you get more economic activity, the government with a tax system that is still decidedly progressive gets more revenue.

The bottom line: The private-sector economy is much more robust and creative than mainstream media would have you believe.

All of that in spite of record expenditures in Washington, D.C., massive disaster-relief efforts following the 2005 hurricane season, supporting military and reconstruction efforts in Afghanistan and Iraq, and record-breaking high fuel costs last year.

Oh, and let's not forget that the Dow Jones is breaking all-time highs now, as well.

It looks as if President Bush got the economy right. Hopefully other leaders will recognize that and stop talking about killing the tax cuts. (What are they thinking, anyway?)

Sarbanes-Oxley report card

Mallory Factor sums up the SOX implementation on it's fourth anniversary.

So that’s Sarbox at four: The law is a disaster. SEC Chairman Chris Cox is for it. And John Kerry hopes to fix it by making government bigger.

I know that Sarbanes-Oxley has caused the company I work for to add a whole new section of accountants and bookkeepers. And yet, no benefits have been forthcoming -- except, perhaps, that the company hasn't been sued or penalized for non-compliance. It has just added a huge amount of bureaucracy to our company. Thus costing us, and our customers, more money for no discernable gain.

Deficit cut in half -- 3 years early

Bizzyblog shows us that the Bush administration has reduced the reported deficit by half -- 3 years before predicted.

And there are other gems in Bizzy's post:

But first, let’s recap what has happened in the past three fiscal years:

• Tax receipts have soared by over 35% (with 5.5%, 14.5%, and 11.7% increases in fiscal 2004, 2005, and 2006, respectively) from $1.78 trillion to $2.41 trillion (2004 and 2005 results can be found at Page 2 of this PDF from the Congressional Budget Office [CBO]; 2006’s receipts were estimated by adding the $253 billion revenue increase reported near the end of this longer story).

• Despite the costs of the Iraq War, the rest of the War on Terror, Katrina relief, and not nearly enough control over other spending, the administration has accomplished its goal of cutting the reported deficit in half by the time it leaves office a full three years early (fiscal 2009, which ends a little less than three years from now, is the last budget over which the Bush Administration will have responsibility). Andrew Taylor of the Associated Press reported on the deficit yesterday (commented on here) but “somehow” missed this little nugget of good news, even though he reported on the administration’s original fiscal 2004 promise in a “not going to happen” manner just under a year ago on October 14, 2005 (last two paragraphs at link) –
  

  The White House has set a goal of cutting the deficit in half from the $521 billion prediction for 2004 that it issued at the beginning of that year. (the original goal was therefore set sometime before October 1, 2003, the beginning of the 2004 fiscal year — Ed.)

  The administration says it is still on track to reach that $260 billion goal by the time Bush leaves office. But administration budget projections leave out the long-term costs of occupying Iraq and Afghanistan, and have yet to be updated with cost estimates of hurricane relief.

  Even with all of those costs included, the administration has reached its goal. How ’bout that, Andrew?

• Economic growth has averaged an annualized 3.89% during the past 13 quarters since the 2003 Bush tax cuts were passed. This is a record that for all practical purposes matches the best seven years of the Clinton administration, but trails the best seven years of the Reagan-Bush 41 and Kennedy Johnson eras, when more aggressive tax cuts were enacted:
  
  

Too bad this tremendous news is not being trumpeted by our news media like some sordid emails have been.

The Bizzyblog post also discusses "reported deficit" vs. "federal deficit", and how we could easily see the beginning of a string of budget surpluses in fiscal 2009.

Recommended.

The castle market

John Tamny asks the question: What housing bust?

Jan Hatzius, chief U.S. economist for Goldman Sachs, puts the odds of a consumer-led recession at one in three. His reasoning for this bearish assessment goes as follows: The current housing slump could negatively impact consumer spending which would bring down the economy. But there's one glaring problem with this sequence of events: There simply is not a lot of evidence that real estate has hit a rough patch.

Go read the rest.

No bubble this time

Jerry Bowyer points out that we are in a very positive growth-based economy right now. And this time it's different.

After flirting with record closings for more than a week, the Dow Jones Industrial Average surpassed its all-time close of 11,722.98 on Tuesday, ending the day at 11,727.34.

Some say this new Dow territory merely puts us back where we were five years ago. But this argument misses the point. We’re not back where we were five years ago. Five years ago, the markets were working their way out of a bubble; this time it’s the real thing.

Our fiscal future

Rep. Jim Cooper (D - Tenn.) has an interesting post up about how our national deficit calculations do not include Social Security or Medicare entitlements, and when those are factored in, the deficit is 5 times bigger than reported.

Ask a congressman what the national debt is, and he will say $8.5 trillion. That’s a lot of money, but it completely ignores our two largest and most important government programs, Social Security and Medicare. If you include the promises made by those programs to workers who are already paying Social Security and Medicare taxes, the national debt jumps to $46 trillion.

So which number is correct? Do we face a mountain, or a Mount Everest, of debt? If you believe that Congress was just kidding about your retirement or health care benefits, we owe $8.3 trillion. If you think America is serious, the total is $46 trillion.

Go read the rest.

[Hat tip to Captain Ed at Captain's Quarters.]

Numbers

Larry Kudlow has a post in his blog that supports the contention that tax cuts were good for us -- and he provides the numbers:

Democrats told us three years ago that we could not afford President Bush's tax cuts.

With a straight face, they told us that none of them were affordable.

They told us none of them creates jobs. In fact, they actually warned us that tax cuts would do damage to our long-term economic growth and contribute to the national deficit.

That's what they told us.

Well, the facts tell us something different. Just look.

Since President Bush's 2003 tax cuts we've witnessed:

-34 consecutive months of growth.

-GDP growth has averaged 3.7% a year.

-5.7 million new jobs have been created.

-unemployment has fallen to 4.7%, (lower than the average of the past four decades when it averaged 6%)

-tax cut revenues have increased 36%

Just in case you were wondering.

Good, strong economy

Larry Kudlow has a good op-ed up about a speech by Federal Reserve chairman Ben Bernanke, jobs, tax cuts, and Democrats. And he takes a gentle swipe at the media, too.

Long-term jobs growth has moved to an all-time high of 145 million in the household survey and 136 million in nonfarm payrolls. Both measures are rising at about 1.5 percent, the average for jobs growth dating back to 1995. As for unemployment, at 4.7 percent it is well below the 5.1 percent long-run rate.

This suggests we are near full employment and that the economy is operating close to its full potential to grow. It’s still the greatest story never told.

He talks about the recent reports in the news that say after-inflation wages have actually fallen over the last 5 years.

Along with articles in the New York Times and Washington Post, the Economic Policy Institute released a Labor Day study complaining that while productivity has increased 33 percent over ten years, real wages have declined since 2000.

But this neglects a broader measure called total compensation, which includes tax-free retirement and health benefits. Across the 2000-05 period, inflation-adjusted total compensation has increased 13.1 percent, and over ten years has advanced 31.8 percent, in line with the productivity rise. That’s a bright picture.

I recommend you go read the whole piece.

Good news on the financial front

Larry Kudlow is almost waxing poetic about the still-growing, strong, low-tax economy.

Bush inherited the Internet bubble-meltdown from the Clinton years, as well as the corporate scandals. Then came the attacks of 9/11 and the ensuing war. But the Bush recovery also followed suit, the result of slashing high marginal tax rates on investment in mid-2003.

And the recovery continues. Recent strong numbers for retail sales and industrial production suggest a 3.5 percent economic growth rate in the second half of 2006, a far cry from soft-landings, hard-landings, or the recession scenarios that are beginning to proliferate.

And when the president says economic growth has had a positive impact on the budget, he’s right again. Tax receipts are growing around 14 percent for the second straight year, the biggest gain in a quarter of a century. Income-tax collections, bolstered by the success of owner-operated business entrepreneurs and other self-employed, are helping lift these revenues.

And all of this is in spite of record high energy prices, an expensive war, and reconstruction efforts in Afghanistan and Iraq.

Recommended.

Israel vs. Hezbollah from a financial perspective

Jerry Bowyer has an interesting chart and brief analysis commenting on a correlation between the Dow Jones Arabia Titans 50 Index and the Israeli-Hezbollah war. [Emphasis added.]

You probably won’t be surprised to learn that the Israeli stock exchange rallied and fell in step with Israel’s fortunes in the war. But as the above chart shows, the Arab Titans index did the same, rising and falling in step with Israel’s success. Why? Because Israel’s counter-attacks were not the destabilizing factor in the region. Hezbollah’s failed-state warlordism was.

Israel’s attack was part of the solution. That’s because the conflict isn’t between Arab and Jew; it’s between civilization and chaos. The complex web of information that constitutes Saudi bankers, Kuwaiti phone execs, and their shareholders seems to have been voting that civilization is either winning, or that it must win.

Very interesting . . .

Clueless in the DNC

Now the Democrats have decided to take on Wal-Mart.

“Wal-Mart as an example of the problems that exist in America today is a powerful political issue,� [John Edwards] said in an interview on Wednesday. “I think our party pretty much across the board agrees that people who work hard should be able to support their families. When a company like Wal-Mart fails to meet its corporate responsibility, it make[s] it impossible for that to occur.�

Not exactly proponents of market-driven economics, are they?

Solzhenitsyn on the West

Alexander Solzhenitsyn gave an address at Harvard on 8 June 1978 about why the West was not prevailing over tyranny. Though these words were spoken 28 years ago, they are so very pertinent to the world we find ourselves in today that I just had to share them with you.

This speech really resonates.

I've reprinted it in the extended entry.

(NOTE: I failed to note the blog where I first stumbled upon a reference to this speech, but I'll gladly give credit, if you just let me know.)

A World Split Apart
Commencement Address Delivered At Harvard University June 8, 1978

By Alexander I. Solzhenitsyn

I am sincerely happy to be here with you on the occasion of the 327th commencement of this old and illustrious university. My congratulations and best wishes to all of today's graduates.

Harvard's motto is "VERITAS." Many of you have already found out and others will find out in the course of their lives that truth eludes us as soon as our concentration begins to flag, all the while leaving the illusion that we are continuing to pursue it. This is the source of much discord. Also, truth seldom is sweet; it is almost invariably bitter. A measure of truth is included in my speech today, but I offer it as a friend, not as an adversary.

Three years ago in the United States I said certain things that were rejected and appeared unacceptable. Today, however, many people agree with what I said ...

The split in today's world is perceptible even to a hasty glance. Any of our contemporaries readily identifies two world powers, each of them already capable of destroying each other. However, the understanding of the split too often is limited to this political conception: the illusion according to which danger may be abolished through successful diplomatic negotiations or by achieving a balance of armed forces. The truth is that the split is both more profound and more alienating, that the rifts are more numerous than one can see at first glance. These deep manifold splits bear the danger of equally manifold disaster for all of us, in accordance with the ancient truth that a kingdom - in this case, our Earth - divided against itself cannot stand.

Contemporary Worlds

There is the concept of the Third World: thus, we already have three worlds. Undoubtedly, however, the number is even greater; we are just too far away to see. Every ancient and deeply rooted self-contained culture, especially if it is spread over a wide part of the earth's surface, constitutes a self-contained world, full of riddles and surprises to Western thinking. As a minimum, we must include in this China, India, the Muslim world, and Africa, if indeed we accept the approximation of viewing the latter two as uniform.

For one thousand years Russia belonged to such a category, although Western thinking systematically committed the mistake of denying its special character and therefore never understood it, just as today the West does not understand Russia in Communist captivity. And while it may be that in past years Japan has increasingly become, in effect, a Far West, drawing ever closer to Western ways (I am no judge here), Israel, I think, should not be reckoned as part of the West, if only because of the decisive circumstance that its state system is fundamentally linked to its religion.

How short a time ago, relatively, the small world of modern Europe was easily seizing colonies all over the globe, not only without anticipating any real resistance, but usually with contempt for any possible values in the conquered people's approach to life. It all seemed an overwhelming success, with no geographic limits. Western society expanded in a triumph of human independence and power. And all of a sudden the twentieth century brought the clear realization of this society's fragility.

We now see that the conquests proved to be short lived and precarious (and this, in turn, points to defects in the Western view of the world which led to these conquests). Relations with the former colonial world now have switched to the opposite extreme and the Western world often exhibits an excess of obsequiousness, but it is difficult yet to estimate the size of the bill which former colonial countries will present to the West and it is difficult to predict whether the surrender not only of its last colonies, but of everything it owns, will be sufficient for the West to clear this account.

Convergence

But the persisting blindness of superiority continues to hold the belief that all the vast regions of our planet should develop and mature to the level of contemporary Western systems, the best in theory and the most attractive in practice; that all those other worlds are but temporarily prevented (by wicked leaders or by severe crises or by their own barbarity and incomprehension) from pursuing Western pluralistic democracy and adopting the Western way of life. Countries are judged on the merit of their progress in that direction. But in fact such a conception is a fruit of Western incomprehension of the essence of other worlds, a result of mistakenly measuring them all with a Western yardstick. The real picture of our planet's development bears little resemblance to all this.

The anguish of a divided world gave birth to the theory of convergence between the leading Western countries and the Soviet Union. It is a soothing theory which overlooks the fact that these worlds are not evolving toward each other and that neither one can be transformed into the other without violence. Besides, convergence inevitably means acceptance of the other side's defects, too. and this can hardly suit anyone.

If I were today addressing an audience in my country, in my examination of the overall pattern of the world's rifts I would have concentrated on the calamities of the East. But since my forced exile in the West has now lasted four years and since my audience is a Western one, I think it may be of greater interest to concentrate on certain aspects of the contemporary West, such as I see them.

A Decline In Courage

A decline in courage may be the most striking feature that an outside observer notices in the West today. The Western world has lost its civic courage, both as a whole and separately, in each country, in each government, in each political party, and, of course, in the United Nations. Such a decline in courage is particularly noticeable among the ruling and intellectual elites, causing an impression of a loss of courage by the entire society. There are many courageous individuals, but they have no determining influence on public life.

Political and intellectual functionaries exhibit this depression, passivity, and perplexity in their actions and in their statements, and even more so in their self-serving rationales as to how realistic, reasonable, and intellectually and even morally justified it is to base state policies on weakness and cowardice. And the decline in courage, at times attaining what could be termed a lack of manhood, is ironically emphasized by occasional outbursts and inflexibility on the part of those same functionaries when dealing with weak governments and with countries that lack support, or with doomed currents which clearly cannot offer resistance. But they get tongue-tied and paralyzed when they deal with powerful governments and threatening forces, with aggressors and international terrorists.

Must one point out that from ancient times a decline in courage has been considered the first symptom of the end?

Well-Being

When the modern Western states were being formed, it was proclaimed as a principle that governments are meant to serve man and that man lives in order to be free and pursue happiness. (See, for example, the American Declaration of Independence.) Now at last during past decades technical and social progress has permitted the realization of such aspirations: the welfare state.

Every citizen has been granted the desired freedom and material goods in such quantity and in such quality as to guarantee in theory the achievement of happiness, in the debased sense of the word which has come into being during those same decades. (In the process, however, one psychological detail has been overlooked: the constant desire to have still more things and a still better life and the struggle to this end imprint many Western faces with worry and even depression, though it is customary to carefully conceal such feelings. This active and tense competition comes to dominate all human thought and does not in the least open a way to free spiritual development.)

The individual's independence from many types of state pressure has been guaranteed; the majority of the people have been granted well-being to an extent their fathers and grandfathers could not even dream about; it has become possible to raise young people according to these ideals, preparing them for and summoning them toward physical bloom, happiness, and leisure, the possession of material goods, money, and leisure, toward an almost unlimited freedom in the choice of pleasures. So who should now renounce all this, why and for the sake of what should one risk one's precious life in defense of the common good and particularly in the nebulous case when the security of one's nation must be defended in an as yet distant land?

Even biology tells us that a high degree of habitual well-being is not advantageous to a living organism. Today, well-being in the life of Western society has begun to take off its pernicious mask.

Legalistic Life

Western society has chosen for itself the organization best suited to its purposes and one I might call legalistic. The limits of human rights and rightness are determined by a system of laws; such limits are very broad. People in the West have acquired considerable skill in using, interpreting, and manipulating law (though laws tend to be too complicated for an average person to understand without the help of an expert). Every conflict is solved according to the letter of the law and this is considered to be the ultimate solution.

If one is risen from a legal point of view, nothing more is required, nobody may mention that one could still not be right, and urge self-restraint or a renunciation of these rights, call for sacrifice and selfless risk: this would simply sound absurd. Voluntary self-restraint is almost unheard of: everybody strives toward further expansion to the extreme limit of the legal frames. (An oil company is legally blameless when it buys up an invention of a new type of energy in order to prevent its use. A food product manufacturer is legally blameless when he poisons his produce to make it last longer: after all, people are free not to purchase it.)

I have spent all my life under a Communist regime and I will tell you that a society without any objective legal scale is a terrible one indeed. But a society based on the letter of the law and never reaching any higher fails to take full advantage of the full range of human possibilities. The letter of the law is too cold and formal to have a beneficial influence on society. Whenever the tissue of life is woven of legalistic relationships, this creates an atmosphere of spiritual mediocrity that paralyzes man's noblest impulses.

And it will be simply impossible to bear up to the trials of this threatening century with nothing but the supports of a legalistic structure.

The Direction Of Freedom

Today's Western society has revealed the inequality between the freedom for good deeds and the freedom for evil deeds. A statesman who wants to achieve something highly constructive for his country has to move cautiously and even timidly; thousands of hasty (and irresponsible) critics cling to him at all times; he is constantly rebuffed by parliament and the press. He has to prove that his every step is well founded and absolutely flawless. Indeed, an outstanding, truly great person who has unusual and unexpected initiatives in mind does not get any chance to assert himself; dozens of traps will be set for him from the beginning. Thus mediocrity triumphs under the guise of democratic restraints.

It is feasible and easy everywhere to undermine administrative power and it has in fact been drastically weakened in all Western countries. The defense of individual rights has reached such extremes as to make society as a whole defenseless against certain individuals. It is time, in the West, to defend not so much human rights as human obligations.

On the other hand, destructive and irresponsible freedom has been granted boundless space. Society has turned out to have scarce defense against the abyss of human decadence, for example against the misuse of liberty for moral violence against young people, such as motion pictures full of pornography, crime, and horror. This is all considered to be part of freedom and to be counterbalanced, in theory, by the young people's right not to look and not to accept. Life organized legalistically has thus shown its inability to defend itself against the corrosion of evil.

And what shall we say about the dark realms of overt criminality? Legal limits (especially in the United States) are broad enough to encourage not only individual freedom but also some misuse of such freedom. The culprit can go unpunished or obtain undeserved leniency - all with the support of thousands of defenders in the society. When a government earnestly undertakes to root out terrorism, public opinion immediately accuses it of violating the terrorist's civil rights. There is quite a number of such cases.

This tilt of freedom toward evil has come about gradually, but it evidently stems from a humanistic and benevolent concept according to which man - the master of the world - does not bear any evil within himself, and all the defects of life are caused by misguided social systems, which must therefore be corrected. Yet strangely enough, though the best social conditions have been achieved in the West, there still remains a great deal of crime; there even is considerably more of it than in the destitute and lawless Soviet society. (There is a multitude of prisoners in our camps who are termed criminals, but most of them never committed any crime; they merely tried to defend themselves against a lawless state by resorting to means outside the legal framework.)

The Direction Of The Press

The press, too, of course, enjoys the widest freedom. (I shall be using the word "press" to include all the media.) But what use does it make of it?

Here again, the overriding concern is not to infringe the letter of the law. There is no true moral responsibility for distortion or disproportion. What sort of responsibility does a journalist or a newspaper have to the readership or to history? If they have misled public opinion by inaccurate information or wrong conclusions, even if they have contributed to mistakes on a state level, do we know of any case of open regret voiced by the same journalist or the same newspaper? No; this would damage sales. A nation may be the worse for such a mistake, but the journalist always gets away with it. It is most likely that he will start writing the exact opposite to his previous statements with renewed aplomb.

Because instant and credible information is required, it becomes necessary to resort to guesswork, rumors, and suppositions to fill in the voids, and none of them will ever be refuted; they settle into the readers' memory. How many hasty, immature, superficial, and misleading judgments are expressed everyday, confusing readers, and then left hanging?

The press can act the role of public opinion or miseducate it. Thus we may see terrorists heroized, or secret matters pertaining to the nation's defense publicly revealed, or we may witness shameless intrusion into the privacy of well-known people according to the slogan "Everyone is entitled to know everything." (But this is a false slogan of a false era; far greater in value is the forfeited right of people not to know, not to have their divine souls stuffed with gossip, nonsense, vain talk. A person who works and leads a meaningful life has no need for this excessive and burdening flow of information.)

Hastiness and superficiality - these are the psychic diseases of the twentieth century and more than anywhere else this is manifested in the press. In-depth analysis of a problem is anathema to the press; it is contrary to its nature. The press merely picks out sensational formulas.

Such as it is, however, the press has become the greatest power within Western countries, exceeding that of the legislature, the executive, and the judiciary. Yet one would like to ask: According to what law has it been elected and to whom is it responsible? In the Communist East, a journalist is frankly appointed as a state official. But who has voted Western journalists into their positions of power, for how long a time, and with what prerogatives?

There is yet another surprise for someone coming from the totalitarian East with its rigorously unified press: One discovers a common trend of preferences within the Western press as a whole (the spirit of the time), generally accepted patterns of judgment, and maybe common corporate interests, the sum effect being not competition but unification. Unrestrained freedom exists for the press, but not for readership, because newspapers mostly transmit in a forceful and emphatic way those opinions which do not too openly contradict their own and that general trend.

A Fashion In Thinking

Without any censorship in the West, fashionable trends of thought and ideas are fastidiously separated from those that are not fashionable, and the latter, without ever being forbidden have little chance of finding their way into periodicals or books or being heard in colleges. Your scholars are free in the legal sense, but they are hemmed in by the idols of the prevailing fad. There is no open violence, as in the East; however, a selection dictated by fashion and the need to accommodate mass standards frequently prevents the most independent-minded persons from contributing to public life and gives rise to dangerous herd instincts that block dangerous herd development.

In America, I have received letters from highly intelligent persons - maybe a teacher in a faraway small college who could do much for the renewal and salvation of his country, but the country cannot hear him because the media will not provide him with a forum. This gives birth to strong mass prejudices, to a blindness which is perilous in our dynamic era. An example is the self-deluding interpretation of the state of affairs in the contemporary world that functions as a sort of petrified armor around people's minds, to such a degree that human voices from seventeen countries of Eastern Europe and Eastern Asia cannot pierce it. It will be broken only by the inexorable crowbar of events.

I have mentioned a few traits of Western life which surprise and shock a new arrival to this world . The purpose and scope of this speech will not allow me to continue such a survey, in particular to look into the impact of these characteristics on important aspects of a nation's life, such as elementary education, advanced education in the humanities, and art.

Socialism

It is almost universally recognized that the West shows all the world the way to successful economic development, even though in past years it has been sharply offset by chaotic inflation. However, many people living in the West are dissatisfied with their own society. They despise it or accuse it of no longer being up to the level of maturity by mankind. And this causes many to sway toward socialism, which is a false and dangerous current.

I hope that no one present will suspect me of expressing my partial criticism of the Western system in order to suggest socialism as an alternative. No; with the experience of a country where socialism has been realized, I shall not speak for such an alternative. The mathematician Igor Shafarevich, a member of the Soviet Academy of Science, has written a brilliantly argued book entitled Socialism; this is a penetrating historical analysis demonstrating that socialism of any type and shade leads to a total destruction of the human spirit and to a leveling of mankind into death. Shafarevich's book was published in France almost two years ago and so far no one has been found to refute it. It will shortly be published in English in the U.S.

Not A Model

But should I be asked, instead, whether I would propose the West, such as it is today, as a model to my country, I would frankly have to answer negatively. No, I could not recommend your society as an ideal for the transformation of ours. Through deep suffering, people in our own country have now achieved a spiritual development of such intensity that the Western system in its present state of spiritual exhaustion does not look attractive. Even those characteristics of your life which I have just enumerated are extremely saddening.

A fact which cannot be disputed is the weakening of human personality in the West while in the East it has become firmer and stronger. Six decades for our people and three decades for the people of Eastern Europe; during that time we have been through a spiritual training far in advance of Western experience. The complex and deadly crush of life has produced stronger, deeper, and more interesting personalities than those generated by standardized Western well-being. Therefore, if our society were to be transformed into yours, it would mean an improvement in certain aspects, but also a change for the worse on some particularly significant points.

Of course, a society cannot remain in an abyss of lawlessness, as is the case in our country. But it is also demeaning for it to stay on such a soulless and smooth plane of legalism, as is the case in yours. After the suffering of decades of violence and oppression, the human soul longs for things higher, warmer, and purer than those offered by today's mass living habits, introduced as by a calling card by the revolting invasion of commercial advertising, by TV stupor, and by intolerable music.

All this is visible to numerous observers from all the worlds of our planet. The Western way of life is less and less likely to become the leading model.

There are telltale symptoms by which history gives warning to a threatened or perishing society. Such are, for instance, a decline of the arts or a lack of great statesmen. Indeed, sometimes the warnings are quite explicit and concrete. The center of your democracy and of your culture is left without electric power for a few hours only, and all of a sudden crowds of American citizens start looting and creating havoc. The smooth surface film must be very thin, then, the social system quite unstable and unhealthy.

But the fight for our planet, physical and spiritual, a fight of cosmic proportions, is not a vague matter of the future; it has already started. The forces of Evil have begun their decisive offensive. You can feel their pressure, yet your screens and publications are full of prescribed smiles and raised glasses. What is the joy about?

Humanism And Its Consequences

How has this unfavorable relation of forces come about? How did the West decline from its triumphal march to its present debility? Have there been fatal turns and losses of direction in its development? It does not seem so. The West kept advancing steadily in accordance with its proclaimed social intentions, hand in hand with a dazzling progress in technology. And all of a sudden it found itself in its present state of weakness.

This means that the mistake must be at the root, at the very foundation of thought in modern times. I refer to the prevailing Western view of the world in modern times. I refer to the prevailing Western view of the world which was born in the Renaissance and has found political expression since the Age of Enlightenment. It became the basis for political and social doctrine and could be called rationalistic humanism or humanistic autonomy: the pro-claimed and practiced autonomy of man from any higher force above him. It could also be called anthropocentricity, with man seen as the center of all.

The turn introduced by the Renaissance was probably inevitable historically: the Middle Ages had come to a natural end by exhaustion, having become an intolerable despotic repression of man's physical nature in favor of the spiritual one. But then we recoiled from the spirit and embraced all that is material, excessively and incommensurately. The humanistic way of thinking, which had proclaimed itself our guide, did not admit the existence of intrinsic evil in man, nor did it see any task higher than the attainment of happiness on earth. It started modern Western civilization on the dangerous trend of worshiping man and his material needs.

Everything beyond physical well-being and the accumulation of material goods, all other human requirements and characteristics of a subtle and higher nature, were left outside the area of attention of state and social systems, as if human life did not have any higher meaning. Thus gaps were left open for evil, and its drafts blow freely today. Mere freedom per se does not in the least solve all the problems of human life and even adds a number of new ones.

And yet in early democracies, as in American democracy at the time of its birth, all individual human rights were granted on the ground that man is God's creature. That is, freedom was given to the individual conditionally, in the assumption of his constant religious responsibility. Such was the heritage of the preceding one thousand years. Two hundred or even fifty years ago, it would have seemed quite impossible, in America, that an individual be granted boundless freedom with no purpose, simply for the satisfaction of his whims.

Subsequently, however, all such limitations were eroded everywhere in the West; a total emancipation occurred from the moral heritage of Christian centuries with their great reserves of mercy and sacrifice. State systems were becoming ever more materialistic. The West has finally achieved the rights of man, and even excess, but man's sense of responsibility to God and society has grown dimmer and dimmer. In the past decades, the legalistic selfishness of the Western approach to the world has reached its peak and the world has found itself in a harsh spiritual crisis and a political impasse. All the celebrated technological achievements of progress, including the conquest of outer space, do not redeem the twentieth century's moral poverty, which no one could have imagined even as late as the nineteenth century.

An Unexpected Kinship

As humanism in its development was becoming more and more materialistic, it also increasingly allowed concepts to be used first by socialism and then by communism, so that Karl Marx was able to say, in 1844, that "communism is naturalized humanism."

This statement has proved to be not entirely unreasonable. One does not see the same stones in the foundations of an eroded humanism and of any type of socialism: boundless materialism; freedom from religion and religious responsibility (which under Communist regimes attains the stage of antireligious dictatorship); concentration on social structures with an allegedly scientific approach. (This last is typical of both the Age of Enlightenment and of Marxism.) It is no accident that all of communism's rhetorical vows revolve around Man (with a capital M) and his earthly happiness. At first glance it seems an ugly parallel: common traits in the thinking and way of life of today's West and today's East? But such is the logic of materialistic development.

The interrelationship is such, moreover, that the current of materialism which is farthest to the left, and is hence the most consistent, always proves to be stronger, more attractive, and victorious. Humanism which has lost its Christian heritage cannot prevail in this competition. Thus during the past centuries and especially in recent decades, as the process became more acute, the alignment of forces was as follows: Liberalism was inevitably pushed aside by radicalism, radicalism had to surrender to socialism, and socialism could not stand up to communism.

The communist regime in the East could endure and grow due to the enthusiastic support from an enormous number of Western intellectuals who (feeling the kinship!) refused to see communism's crimes, and when they no longer could do so, they tried to justify these crimes. The problem persists: In our Eastern countries, communism has suffered a complete ideological defeat; it is zero and less than zero. And yet Western intellectuals still look at it with considerable interest and empathy, and this is precisely what makes it so immensely difficult for the West to withstand the East.

Before The Turn

I am not examining the case of a disaster brought on by a world war and the changes which it would produce in society. But as long as we wake up every morning under a peaceful sun, we must lead an everyday life. Yet there is a disaster which is already very much with us. I am referring to the calamity of an autonomous, irreligious humanistic consciousness.

It has made man the measure of all things on earth - imperfect man, who is never free of pride, self-interest, envy, vanity, and dozens of other defects. We are now paying for the mistakes which were not properly appraised at the beginning of the journey. On the way from the Renaissance to our days we have enriched our experience, but we have lost the concept of a Supreme Complete Entity which used to restrain our passions and our irresponsibility.

We have placed too much hope in politics and social reforms, only to find out that we were being deprived of our most precious possession: our spiritual life. It is trampled by the party mob in the East, by the commercial one in the West. This is the essence of the crisis: the split in the world is less terrifying than the similarity of the disease afflicting its main sections.

If, as claimed by humanism, man were born only to be happy, he would not be born to die. Since his body is doomed to death, his task on earth evidently must be more spiritual: not a total engrossment in everyday life, not the search for the best ways to obtain material goods and then their carefree consumption. It has to be the fulfillment of a permanent, earnest duty so that one's life journey may become above all an experience of moral growth: to leave life a better human being than one started it.

It is imperative to reappraise the scale of the usual human values; its present incorrectness is astounding. It is not possible that assessment of the President's performance should be reduced to the question of how much money one makes or to the availability of gasoline. Only by the voluntary nurturing in ourselves of freely accepted and serene self-restraint can mankind rise above the world stream of materialism.

Today it would be retrogressive to hold on to the ossified formulas of the Enlightenment. Such social dogmatism leaves us helpless before the trials of our times.

Even if we are spared destruction by war, life will have to change in order not to perish on its own. We cannot avoid reassessing the fundamental definitions of human life and society. Is it true that man is above everything? Is there no Superior Spirit above him? Is it right that man's life and society's activities should be ruled by material expansion above all? Is it permissible to promote such expansion to the detriment of our integral spiritual life?

If the world has not approached its end, it has reached a major watershed in history, equal in importance to the turn from the Middle Ages to the Renaissance. It will demand from us a spiritual blaze; we shall have to rise to a new height of vision, to a new level of life, where our physical nature will not be cursed, as in the Middle Ages, but even more importantly, our spiritual being will not be trampled upon, as in the Modern Era.

The ascension is similar to climbing onto the next anthropological stage. No one on earth has any other way left but - upward.

Reprinted from A World Split Apart by Aleksandr I. Solzhenitsyn, (Harper & Row Publishers, New York, 1978).

Minimum wage

Thomas Sowell points out that increasing the minimum wage will reduce the number of jobs available to unskilled workers. Classic cause and effect.

A survey has shown that 85 percent of the economists in Canada and 90 percent of the economists in the United States say that minimum wage laws reduce employment. But you don't need a Ph.D. in economics to know that jacking up prices leads fewer people to buy. Those people include employers, who hire less labor when labor is made artificially more expensive.

It happens in France, it happens in South Africa, it happens in New Zealand. How surprised should we be when it happens in Chicago?

[. . .]

There is no free lunch. Higher labor costs mean fewer jobs.

Recommended.

Wartime economy

Larry Kudlow has some good things to say about our economy. He also points out that investors are optimistic about the economy -- despite high energy costs, natural disasters, and war in the Middle East.

Could it also be that world stock markets are rallying as Israel and its freedom agenda advances toward a Hezbollah-free Lebanese border, highlighting a significant defeat not only of the thuggish and cowardly Hezbollah murderers, but their totalitarian backers in Syria and Iran?

Go read the whole thing.

Global good news

Michael Barone sees some good things going on in the world.

But as we ponder these problems, we need to take a deep breath and reflect on the larger picture, as Thomas Barnett does in his blog (Thomas P.M. Barnett :: Weblog):

"Plenty of people look at the world today and see only decline and violence and chaos since 9/11. I am amazed at how little the Functioning Core of globalization has suffered since that date: no real violence or threats of same amidst our ranks, slow but steady political integration that's still not keeping up with the economic bonds that are booming, spotty but emerging sense of shared security values, and the usual pinpricks of harm inflicted by terror and God, but all in all, nothing really bad despite all this 'tumult' centered in the Middle East and the rising price of oil."

Recommended.

Laffer Curve

Thomas Nugent, over at NRO, takes a quick look at tax cuts and their effect on revenue. And he has a warning for us:

Given the recent data provided by Gov. du Pont and the logic of the Laffer curve, it is obvious that Democratic proposals to roll back President Bush’s tax cuts will do substantial harm to the economy.

Go read how he came to that conclusion.

More tax cuts!

Tom Nugent, over at NRO makes an excellent case for more tax cuts.

Today’s outsized tax-revenue stream should alert knowledgeable politicians to the fact that both corporations and individuals are still overtaxed. As I discussed in my previous column, the Laffer curve (pictured below) instructs us that lowering any tax rate in the “prohibitive zone� will produce higher tax revenues. So, even though the government is now benefiting from the 2003 tax-rate cuts, further reductions in marginal tax rates will in all likelihood produce even higher tax revenues.

Very informative article. Recommended.

How to help the poor

"Congress can best help low-income workers by leaving the minimum wage alone and permanently repealing the estate tax."

Go read how that conclusion was reached . . .

Milton & Rose

Tunku Varadarajan, editorial features editor of The Wall Street Journal, talks about a delightful interview with economists Milton and Rose Friedman.

I've reprinted it in the extended entry.

The Romance of Economics
Milton and Rose Friedman: Dinner with Keynes? Yes. War with Iraq? They disagree.

BY TUNKU VARADARAJAN
Saturday, July 22, 2006 12:01 a.m. EDT

PALO ALTO, Calif.--One doesn't interview a man like Milton Friedman--the Nobel laureate in economics in 1976 and among the five or six most consequential thinkers of the 20th century--without doing some assiduous homework.

So I gathered his books--reading some, re-reading others--and made pages and pages of notes. I also emailed several intellectual heavyweights, asking them what they might enquire of Mr. Friedman--now 94 years of age--if they had him cornered at a cocktail party. Replies flooded back. "Inflation targeting," wrote a (marginally) younger Nobel economist. "Education," said another Nobel laureate. "Does the recent record of spending with a Republican president and Congress make him reconsider his support for the party?" wrote a man who, until a while ago, worked on economic policy in the White House. "Is there something distinctly difficult for capitalism in the Islamic world?" wondered a Middle East scholar. "What music does he listen to?" a Democratic political economist mused, unpredictably. More predictably, a big-cheese blogger was "dying" to know whether "Milton reads blogs--and will he ever write one?"

Everyone had a question--and many had more than one (an economist in Chicago had 10). For Milton Friedman is everyone's idea of an American oracle, an American sage.

Sages, of course, have their oddities, and the interview last week--at Mr. Friedman's surprisingly petite office at the Hoover Institution, on the campus of Stanford University--got off to a surreal beginning. By his desk hangs a map of Belize--one of those stylized souvenirs made of cloth, embroidered to catch the eye. Why, I asked him, did he have a map of Belize on his wall? Mr. Friedman turned, looked at the object, and said: "I don't know. I really don't know." Not a good start to the interview, some might say; so I asked, by way of ice-breaker, whether he was keeping well. "Oh, yes!" was the spirited reply. "But my wife has gone through a session of shingles, and she's not quite through it." Here, he paused, and asked: "Have you had shingles yet?"

---

Maladies behind us, we moved to economics, and here I made a reflexive apology for not being an economist myself. "You mean you're not a trained economist," was Mr. Friedman's comeback. "I have found, over a long time, that some people are natural economists. They don't take a course, but they understand--the principles seem obvious to them. Other people may have Ph.D.s in economics, but they're not economists. They don't think like an economist. Strange, but true."

Was Keynes a "natural economist"? "Oh, yes, sure! Keynes was a great economist. In every discipline, progress comes from people who make hypotheses, most of which turn out to be wrong, but all of which ultimately point to the right answer. Now Keynes, in 'The General Theory of Employment, Interest and Money,' set forth a hypothesis which was a beautiful one, and it really altered the shape of economics. But it turned out that it was a wrong hypothesis. That doesn't mean that he wasn't a great man!"

It cannot be said of too many economists that they "altered the shape of economics." Would Mr. Friedman say--modesty aside--that he was one of them? A long silence ensued--modesty, clearly, was hard to put aside--before he mumbled, as if squeezing words out of himself, "Er . . . very hard to say . . ." And then he was saved by the belle: The door opened, and in walked Rose, his wife, bringing a waft of panache into the drab office, her impact enhanced by a beautiful mink coat--worn, it should be said, on a late afternoon when it was 80 degrees outside. "It will be very cold tonight," she forecast with a shiver. The Friedmans were dining al fresco that night--along with 1,200 others at the Stanford quad--and Rose had come prepared for the mercury to plummet to, oh, the late 60s. "It's a crazy time to have a dinner outside!"

Mrs. Friedman settled herself in a chair, her eyes twinkling, and my questioning resumed. If they were to throw a small dinner party--indoors!--for Mr. Friedman's favorite economists (dead or alive), who'd be invited? Gone was his tonguetied-ness of a moment ago, as he reeled off this answer: "Dead or alive, it's clear that Adam Smith would be No. 1. Alfred Marshall would be No. 2. John Maynard Keynes would be No. 3. And George Stigler would be No. 4. George was one of our closest friends." (Here, Mrs. Friedman, also an economist of distinction, noted sorrowfully that "it's hard to believe that George is dead.")

Had it helped their marriage--now in its 68th year--that they are both economists? Rose (nodding affirmatively): "Uh-unh. But I don't argue with him . . . very much." Milton (guffawing): Don't believe her! She does her share of arguing . . ." Rose (interrupting): ". . . and I'm not competitive, so I haven't tried to compete with you." Milton (uxoriously): "She's been very helpful in all of my work. There's nothing I've written that she hasn't gone over first."

The spark between the Friedmans is clear, and rather touching. So I'm tempted to ask whether there is a romantic side to economics, in the way there is to history, or to philosophy. "Is there a romantic side to economics?" Mr. Friedman repeats after me, sounding incredulous, and then chuckling. "No, I don't think so. There's a romantic side to economics in the same way there's a romantic side to physics. Fundamentally, economics is a science, like physics, like chemistry. . . . It's a science about how human beings organize their cooperative activities." Was that his preferred definition of economics? "Well, the standard definition is the study of how a society organizes its resources. In that sense, it's not particularly romantic."

---

Is immigration, I asked--especially illegal immigration--good for the economy, or bad? "It's neither one nor the other," Mr. Friedman replied. "But it's good for freedom. In principle, you ought to have completely open immigration. But with the welfare state it's really not possible to do that. . . . She's an immigrant," he added, pointing to his wife. "She came in just before World War I." (Rose--smiling gently: "I was two years old.") "If there were no welfare state," he continued, "you could have open immigration, because everybody would be responsible for himself." Was he suggesting that one can't have immigration reform without welfare reform? "No, you can have immigration reform, but you can't have open immigration without largely the elimination of welfare.

"At the moment I oppose unlimited immigration. I think much of the opposition to immigration is of that kind--because it's a fundamental tenet of the American view that immigration is good, that there would be no United States if there had not been immigration. Of course, there are many things that are easier now for immigrants than there used to be. . . ."

Did he mean there was much less pressure to integrate now than there used to be? Milton: "I'm not sure that's true . . ." Rose (speaking simultaneously): "That's the unfortunate thing . . ." Milton: "But I don't think it's true . . ." Rose: "Oh, I think it is! That's one of the problems, when immigrants come across and want to remain Mexican." Milton: "Oh, but they came in the past and wanted to be Italian, and be Jewish . . ." Rose: "No they didn't. The ones that did went back."

Mrs. Friedman, I was learning, often had the last word.

---

With Mr. Friedman, personal questions are often inextricable from the currents of history. How did he cope, I ask, with the great opposition to his views in and out of the economics profession during much of his active career? And how does it feel to have gone from being a person reviled in certain quarters as Evil, to one revered across the world?

Milton (suppressing a laugh): "I don't think I was ever regarded as 'evil.' " Rose (alluding to the protests that followed him everywhere, especially after he gave economic advice to the Pinochet regime): "It was very difficult to go to the colleges . . ." Milton: "I remember a fellow who came to see me from Harvard or somewhere. . . . He wanted to see 'that devil from the West'!" Rose: "Harvard probably still feels that way!"

Here, Mr. Friedman explains "the story of the postwar period" in the U.S. "In 1945-46, intellectual opinion was almost entirely collectivist. But practice was free market. Government was spending something like 20%-25% of national income. But the ideas of people were all for more government. And so from 1945 to 1980 you had a period of galloping socialism. Government started expanding and expanding and expanding." Mr. Friedman stopped, as if deciding whether to use the word "expanding" a fourth time, before continuing: "And government spending went from 20% to 40% of national income.

"But what was happening in the economy was producing a reverse movement in opinion. Now people could see, as government started to regulate more, the bad effects of government involvement. And intellectual opinion began to move away from socialism toward capitalism. That, in my view, was why Ronald Reagan was able to get elected in 1980." I noted, here, that Mr. Friedman, too, had some role to play in this shift in opinion. He was, characteristically, reluctant to take any credit. "I think we have a tendency to attribute much too much importance to our own words. People saw what was happening. They wouldn't have read my Newsweek columns and books if the facts on the ground hadn't been the way they were." (Rose: "Oh, don't be so modest!")

Does it disappoint Mr. Friedman that the Bush administration hasn't been able to roll back spending? "Yes," he said. "But let's go back a moment. During the 1990s, you had the combination that is best for holding down spending. A Democrat in the White House and Republicans controlling Congress. That's what produced the surpluses at the end of the Clinton era, and during the whole of that era there was a trend for spending to come down. Then the Republicans come in, and they've been in the desert, and so you have a burst of spending in the first Bush term. And he refuses to veto anything, so he doesn't exercise any real influence on cutting down spending. In 2008, you may very well get a Democratic president"--(Rose, interjecting: "God forbid!")--"and if you can keep a Republican House and Senate, you'll get back to a combination that will reduce spending."

Mr. Friedman here shifted focus. "What's really killed the Republican Party isn't spending, it's Iraq. As it happens, I was opposed to going into Iraq from the beginning. I think it was a mistake, for the simple reason that I do not believe the United States of America ought to be involved in aggression." Mrs. Friedman--listening to her husband with an ear cocked--was now muttering darkly.

Milton: "Huh? What?" Rose: "This was not aggression!" Milton (exasperatedly): "It was aggression. Of course it was!" Rose: "You count it as aggression if it's against the people, not against the monster who's ruling them. We don't agree. This is the first thing to come along in our lives, of the deep things, that we don't agree on. We have disagreed on little things, obviously--such as, I don't want to go out to dinner, he wants to go out--but big issues, this is the first one!" Milton: "But, having said that, once we went in to Iraq, it seems to me very important that we make a success of it." Rose: "And we will!"

Mrs. Friedman, you will note, had the last word.

Mr. Varadarajan is editorial features editor of The Wall Street Journal.

[Used with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.]

Revenue windfall

OpinionJournal has an op-ed up that describes the current federal revenue bonanza and the reasons behind it.

I've reprinted it in the extended entry. Recommended.

Soaking the Rich
Guess who is paying more in taxes now?

Wednesday, July 12, 2006 12:01 a.m. EDT

Yesterday's political flurry over the falling budget deficit shows that even Washington can't avoid the obvious forever: to wit, the gusher of revenues flowing into the Treasury in the wake of the 2003 tax cuts. The trend has been obvious for more than a year (see our May 23, 2005, editorial, "Revenues Rising"), but now it's so large that Republicans are trying to take credit while Democrats explain it away.

Republicans do deserve some credit, though not exactly the way they're claiming. Democrats are right that the White House February estimate of a $423 billion budget deficit in Fiscal Year 2006 was inflated, perhaps to be able to claim progress later this election year. Also not very important is the White House claim that it has already met its second-term goal of "cutting the deficit in half." That was always a minor and political ambition.

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The real news, and where the policy credit belongs, is with the 2003 tax cuts. They've succeeded even beyond Art Laffer's dreams, if that's possible. In the nine quarters preceding that cut on dividend and capital gains rates and in marginal income-tax rates, economic growth averaged an annual 1.1%. In the 12 quarters--three full years--since the tax cut passed, growth has averaged a remarkable 4%. Monetary policy has also fueled this expansion, but the tax cuts were perfectly targeted to improve the incentives to take risks among businesses shell-shocked by the dot-com collapse, 9/11 and Sarbanes-Oxley.

This growth in turn has produced a record flood of tax revenues, just as the most ebullient supply-siders predicted. In the first nine months of fiscal 2006, tax revenues have climbed by $206 billion, or nearly 13%. As the Congressional Budget Office recently noted, "That increase represents the second-highest rate of growth for that nine-month period in the past 25 years"--exceeded only by the year before. For all of fiscal 2005, revenues rose by $274 billion, or 15%. We should add that CBO itself failed to anticipate this revenue boom, as the nearby table shows. Maybe its economists should rethink their models.

Remember the folks who said the tax cuts would "blow a hole in the deficit?" Well, revenues as a share of the economy are now expected to rise this year to 18.3%, slightly above the modern historical average of 18.2%. The remaining budget deficit of a little under $300 billion will be about 2.3% of GDP, which is smaller than in 17 of the previous 25 years. Throw in the surpluses rolling into the states, and the overall U.S. "fiscal deficit" is now economically trivial.

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This would all seem to be good news, but some folks are never happy. The same crowd that said the tax cuts wouldn't work, and predicted fiscal doom, are now harrumphing that the revenues reflect a windfall for "the rich." We suppose that's right if by rich they mean the millions of Americans moving into higher tax brackets because their paychecks are increasing.

Individual income tax payments are up 14.1% this year, and "nonwithheld" individual tax payments (reflecting capital gains, among other things) are up 20%. Because of the tax cuts, the still highly progressive U.S. tax code is soaking the rich. Since when do liberals object to a windfall for the government?

The other favorite line of critics yesterday was summed up by North Dakota Democrat Kent Conrad, who said the deficit would still "explode" in the long term because of the "coming retirement of the baby boom generation." But this is a political bait-and-switch. When Senator Conrad had the chance to do something about the "long term" by reforming Social Security in 2005, he refused. But now that the tax cuts he opposed are reducing the short-term deficit, he's back to fretting about the long term. At least Mr. Conrad is consistent in wanting a tax increase.

There surely is a long-term budget problem, driven largely by fast-growing entitlements for seniors. Federal spending is still climbing by 8.6% this year, with Medicare alone growing at an astonishing rate of 15.5%, or $33 billion in the first nine months of this fiscal year (which ends September 30). Thank the GOP prescription drug benefit for that future taxpayer burden. The only solution to the entitlement problem, short or long term, is to reform both Medicare and Social Security.

As for the 2003 tax cuts, the current revenue boom is one more argument for making them permanent. They are now set to expire in 2010, and, even if they are extended, federal revenues will continue to climb as a share of GDP as more taxpayers earn higher incomes and move into higher tax brackets. If liberal Democrats are really determined to soak the rich--and we don't doubt it for a second--they'll also vote to make the tax cuts permanent.

[Used with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.]

Economic food for thought

David Malpass, chief economist for Bear, Stearns, is concerned about inflation.

I don’t agree with the Fed’s sense that inflation expectations are contained. The best indicator is gold, which, at $600 per ounce, is 72 percent above its 10-year moving average. The market prefers gold to a 5.25 percent yielding U.S. dollar, a strong vote against the dollar and in favor of inflation.

Petrodependency and funding terrorism

Victor Davis Hansen makes some good points about the war on terror.

One of his points really struck a chord with me:

Another undercurrent to this war is the abject failure to do anything about imported petroleum — the hundreds of billions that accrued to the Middle East and Gulf when petroleum skyrocketed from $30 to $70 a barrel. Without such excesses of free-floating and impossible-to-trace petrodollars, bin Laden, Zawahiri, and Al-Zarqawi would have remained clownish portraits on the pathetic street posters of a Jericho or Zarqa. Instead, we are indirectly paying for their IEDs.

The truth is that as long as American petroleum demand, coupled with restrictions on our own energy development, helps drive the world oil price up, we are simply funding psychopaths who otherwise would have no viable economic means of support. Without Saudi petrol money, Wahhabism, the godhead of Islamic fascism, devolves into just another localized lunatic sect. So we talk seriously about new alternative energy, and seriously do nothing — in the vain hope that the price soon collapses or, barring that, we can stop the guy on a motorbike in Damascus or Ramadi from delivering millions in cash satchels from Saudi financiers to al Qaeda killers.

Yet, when the fifth anniversary of this war approaches this September, we are no closer to energy independence than we were in 2001. There is no better proof of this than our continual appeasement of rich sheiks who have ensured that the venom of their own incoherent imams reaches billions.

If America were to stop having to import oil products from overseas, our foreign policy could be firmer versus those countries who weild their petroleum politically. Also, the overabundance of petrodollars floating around would be greatly reduced, thus putting a squeeze on such "luxuries" as funding terrorism. Finally, the price of oil would plummet, thus bringing down profit-margins and reducing further the resources available to support terrorism.

By greatly reducing or eliminating our dependence on oil, this country could seriously damage the terrorists' financial support.

And we can all take part in that. So why not show your patriotism by advocating development of alternative sources of energy (ANWR, nuclear/wind/geothermal/solar power) and by reducing your consumption of energy -- and show countries like Venezuela, Saudi Arabia, and Iran what our economic muscle can do.

Oil supplies highest this century

Economist Larry Kudlow has an encouraging column up at Townhall about the very real possibility that the price of oil will drop dramatically.

Prince Turki al-Faisal, the Saudi Arabian Ambassador to the U.S., recently told the United States Energy Association that any U.S. conflict with Iran would threaten the Strait of Hormuz and triple the barrel price of oil. Of course, such language could be an attempt to get President Bush to rule out the military option as Iran pushes to weaponize its uranium-enrichment program. But the administration will not rule anything out as it grapples with this belligerent power. That said, I’d like to challenge the prince’s assessment of the potential direction of oil prices, and the idea that the Middle East necessarily holds all the cards.

Go read the rest. The outlook is very positive.

Remember voodoo economics?

Well, Rich Lowry over at NRO says that they really work.

I think he's right.

Recommended.

International Iranian oil embargo?

William Kucewicz, editor of GeoInvestor.com has an interesting column up at OpinionJournal about the economic impact of an international trade embargo of Iran.

It's not as bad as you'd think . . .

I've reprinted the whole thing in the extended entry.

Over a Barrel
Trade sanctions could prompt regime change in Iran.

BY WILLIAM P. KUCEWICZ
Friday, June 2, 2006 12:01 a.m. EDT

Condoleezza Rice, in signaling a new U.S. willingness to negotiate with Iran, also warned that "international isolation and progressively stronger political and economic sanctions" would follow if Tehran defies its international obligations by continuing to develop nuclear weapons. Although the likelihood of those sanctions increased yesterday after the Iranian regime rejected the U.S. offer, it has been the threat of such sanctions, and the crippling effect an international embargo would have on Iran's economy and exchequer, that have always been the likely catalysts for any possible negotiation.

There's simply no getting around the fact that you can't eat petroleum. Iran's 132.5 billion barrels in proved oil reserves--10.2% of the world total--are of little benefit unless they're earning money. A trade embargo would hit Iran especially hard, because its economy and government budget are inordinately dependent on petrodollars. Oil shipments account for about 25% of GDP, represent 90% of total export earnings and provide as much as 50% of fiscal receipts.

Further, the country imports about one-third of its gasoline. Additional gasoline supplies and other oil products are refined in Tehran from 60,000 barrels a day (bbl/d) in imported crude that arrives via pipeline from the Caspian Sea in a swap arrangement. In Iran, gasoline, like foodstuffs, is heavily subsidized--to the tune of $3 billion this year--as part as the regime's strategy to buy off public opinion. With gasoline retailing at just 40 cents a gallon, consumption, not surprisingly, has been growing by 8% to 10% a year.

---

The regime already feels the pinch of unilateral sanctions, first imposed by Bill Clinton and extended by President Bush, that forbid U.S. companies and their subsidiaries from doing business with Iran. Additionally, the Iran-Libya Sanctions Act of 1996 authorizes mandatory and discretionary sanctions against non-U.S. companies investing more than $20 million a year in Iran's oil and natural gas industries. The effectiveness of the restrictions can be measured by the volume of Iranian crude oil output. In the six months ended March, Iranian production was down 1.3% from a year earlier versus a comparable gain of 1.5% for OPEC, excluding Iran and Iraq. Compared with the six months ended March 2002, Iran's output in the latest six-month period was up 13.4% against a 21.7% increase for the eight members of OPEC sans Iran and Iraq.

Iran's below-average oil production is explained by a shortage of investment capital. Its 40 producing oilfields need modernizing. Recovery rates are a meager 24% to 27% compared with a 35% world average. But Iran doesn't have the capital to pay for upgrades. In fact, it has been counting on foreign investment to help it boost production from last year's 4.2 million bbl/d (of which 3.9 million bbl/d was crude oil) to a targeted five million bbl/d in 2010 and eight million bbl/d by 2015. Tehran further hopes, with foreign help, to expand its oil refining capacity by 50% to 2.2 million bbl/d by 2008. Sanctions would put the kibosh on these ambitious plans.

U.S. bans on technology transfers also have frustrated Iran's efforts to develop its massive natural gas reserves, the world's second largest. U.S. companies dominate natural gas liquefaction, and most liquefied natural gas (LNG) plants in the world use U.S.-licensed processes. Iran is limited to non-U.S. technology and so far hasn't built a single LNG facility. The cost: $11 billion in foregone annual earnings from one natural gas field alone.

What Tehran knows, and what the outside world has yet to grasp, is that an international trade embargo would hurt Iran infinitely more than it would hurt the U.S.

For oil-importing countries, even though Iran exports roughly 2.7 million bbl/d in petroleum, a complete cutoff of these shipments could be offset in large measure by increased OPEC and non-OPEC output, greatly diminishing the dreaded prospect of $100-a-barrel oil. Saudi Arabia has the most untapped capacity, in the order of 1.3 million to 1.4 million bbl/d. Other OPEC members, according to the International Energy Agency, have spare capacity of 1.1 million bbl/d, not including Iraq's estimated 700,000 bbl/d. With a total of 2.4 million to 3.1 million bbl/d in idle capacity, OPEC alone could offset a loss of Iranian exports. Furthermore, global oil consumption is anticipated to grow in the range of 1.4 million to 1.6 million bbl/d this year, while new supply is expected to increase by 1.2 million to 1.3 million bbl/d. Much of the imbalance is expected to be covered by OPEC exports of LNG.

Oil's fungibility notwithstanding, Asia in general and Japan in particular would be hardest hit by a cutoff of Iranian crude. (The U.S., Canada, Britain and Germany, among others, no longer import Iranian oil.) China has already taken steps in response to high oil prices that could lessen the effects of an Iranian trade embargo. It has eliminated tax rebates on gasoline exports, raised gasoline, diesel and jet fuel prices by 3% to 5% and levied higher taxes on larger vehicles. Chinese electric power generators, too, are scaling back on oil use.

Besides, it's not like we haven't been through this before. Following the 1991 Gulf War, Iraqi oil exports fell by some 2.3 million bbl/d to a mere 61,750 bbl/d between 1991 and 1996. Even now, Iranian exports are way below their pre-revolution high of 5.5 million bbl/d, which was equal to 19.2% of OPEC's 1974 crude and products shipments. Thirty years later, Iran shipped three million bbl/d, or 11.7% of OPEC exports.

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To be sure, there are other risks to global oil supply--notably in Nigeria, Venezuela, Ecuador, Chad, Russia and Iraq. But should it be necessary, the U.S. could always play its trump card--namely, the Strategic Petroleum Reserve. Established after the 1973 OPEC oil embargo, the reserve has a current inventory of 688.6 million barrels of oil, sufficient to provide about two months of U.S. import protection. Were, say, 500,000 bbl/d to be siphoned off to partially offset a loss of Iranian crude, the stockpile would last more than three-and-a-half years.

Iran doesn't have the world over a barrel. It's the other way around. The economic and fiscal squeeze of new trade sanctions could indeed become so painful as to prompt regime change.

Mr. Kucewicz edits GeoInvestor.com.

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(Editor's note: Iran's proven oil reserves are 132.5 billion barrels, not trillion as this article originally stated.)

[Used with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.]

Petropolitical economics ad nauseam

Jonathan Adler is concerned that Congress does not understand free-market economics.

Criminalizing “price gouging� will do more to encourage gas shortages than control price increases. Whether politicians like to admit it or not, the profit motive plays a key role in calibrating supply and demand. Limit the ability of companies to profit from energy-related investments, and they will make fewer of them. Limiting the potential for profit will limit future supply. Threaten companies with prosecution should they respond to market conditions by raising prices, and shortages are the inevitable result. During the debate, House Energy and Commerce Committee chairman Joe Barton said, “Price spikes are a scourge, but dry pumps are a catastrophe.� Barton and his colleagues supported a proposal that will make “dry pumps� more likely nonetheless.

I'm inclined to agree.

And, personally, I'm glad that my family now has a hybrid vehicle -- because things, petrochemically speaking, are going to get worse before they get better. If they get better.

Recommended.

Looking back from the future

Hans Moleman, on National Review Online, puts polls in perspective with an historical example.

The sight is a pathetic one. An embattled president moves into a second term that quickly turns into an uninterrupted downhill slide: poll approval sinking to the low 30s; his own party members distancing themselves at every opportunity; his political capital now consumed by a once-popular war that became a hopeless quagmire with no end in sight; a war in which he persists, determined to stay the course despite the political cost, refusing to abandon the valiant allies who took his commitment seriously.

George W. Bush? Oh yeah, him too. But we were discussing Harry Truman, weren’t we?

It's a good read . . .

Supply-side state economics

Lawrence J McQuillan and Hovannes Abramyan, over at the Pacific Research Institute, have an interesting article that suggests supply-side economics is at work in states just like it is working nationally.

No surprise, there. I've reprinted the whole thing in the extended entry.

OPINIONJOURNAL FEDERATION

'Live Free or Move'
Jobs are flocking to low-tax states for a reason.

BY LAWRENCE J. MCQUILLAN AND HOVANNES ABRAMYAN
Tuesday, May 16, 2006 12:01 a.m. EDT

Voters will elect governors in 36 states this year. And as they decide who to send to the governor's mansion, they will also be shaping the economic future of their state. On taxes, the gubernatorial candidates fall into one of two camps. Either they believe that the best way to close a budget gap is to raise taxes. Or, like Ronald Reagan and George W. Bush have done from the Oval Office, they believe in raising revenue by growing the state's economy with tax cuts.

Now new data is out and it shows that the states that embraced supply-side tax cuts are not only financially more sound and enjoy stronger economies, but they are draining residents away from the states that opted for high taxes. The Pacific Research Institute has crunched the tax numbers in all 50 states and published the "U.S. Economic Freedom Index" ranking all states according to how friendly or unfriendly their policies were toward free enterprise and consumer choice in 2004--the most recent year that comparative data is available for each state. It's clear that the economic policies of 2004 determined where each state fell in the rankings, and shaped 2005 economic performance.

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It isn't just fun to pinpoint which states are getting it wrong. Where a state falls on the U.S. Economic Freedom Index also indicates how likely it is to experience real economic growth over the long term. Individuals looking to open a new business, expand operations or market new products weigh the comparative costs and benefits of different locations. They evaluate local universities, transportation networks, labor skills, market size and even the weather. They also assess the policy climate. Economic freedom--a favorable state tax, regulatory, and legal climate--attracts entrepreneurs and capital, thereby increasing jobs and wages.

In 2005, per capita personal income grew 31% faster in the 15 most economically free states than it did in the 15 states at the bottom of the list. And employment growth was a staggering 216% higher in the most free states. It hasn't been a "jobless recovery" in states that have adopted pro-growth tax and regulatory policies.

Compared to the rest of the world, the U.S. has a uniformly pro-growth economic climate. But policies vary dramatically from state to state and the biggest single policy states have to get right to out-compete the other states for jobs and high-skilled workers is taxes. Taxpayers paid 14% less in "effective tax rates" in 2005 in the most economically free states than did the taxpayers in the least free states. Effective tax rates are based on what people actually pay after deductions, exemptions and credits. This helps explain why entrepreneurs are attracted to more free states and why personal income and jobs are growing so much faster there.

Though typically tax cuts are opposed with the argument that slashing rates will force state revenue to fall, new data from the Nelson Rockefeller Institute shatters the myth that budget deficits are caused by supply-side policies. In 2005, the 15 states with the most economic freedom saw their general fund tax revenues grow at a rate more than 6% higher than the 15 least free states, despite their lower effective tax rate. Instead of blowing a hole in state budgets, lower tax rates rewarded productivity and risk-taking and allowed the economy to grow. As the economy expanded it also generated more revenue for the state Treasury as capital and people flowed in. Census data shows an astounding 245% difference in net state-to-state migration rates in 2005 between the freest states (net inflow) and least-free states (net outflow). "Live Free or Move" is fast becoming the national motto.

California, Connecticut, Illinois, Massachusetts, New York, Ohio, Pennsylvania, and Wisconsin all elect governors this year. And all languish near the bottom in terms of economic freedom. They have all also struggled with significant budget deficits. Candidates from California and Ohio highlight the stark differences on taxation.

California gubernatorial candidate Phil Angelides vows, if elected, to raise the upper tax rate on individuals to 12% from 10.3%, in part to close California's $7 billion deficit. But this high rate, the nation's highest, has not prevented California from suffering a multi-billion-dollar budget gap. What the 2005 fiscal facts show is that raising it even higher will likely make the problem worse in the long term. When Gov. Pete Wilson raised taxes in the early 1990s, hoping to close a budget gap, revenues actually fell and deficits lingered. The 2005 numbers foretell the same outcome with Angelides's tax-hike scheme.

---

On the other hand, Ohio gubernatorial candidate Ken Blackwell vows, if elected, to cut taxes and to support a tax-and-expenditure limit to curb the growth of state spending. The 2005 numbers clearly support his approach to economic prosperity. Low taxes expand economic opportunities and lift a state's personal income, employment, and tax revenues. It's a lot easier to close a budget gap when the economy is growing and more money is flowing into the state's coffers (assuming the legislature doesn't spend the new revenue faster than it comes in).

Voters might want to keep some of these facts in mind and reject the flawed tax-hike approach when they head to the polls for the primaries in the coming months and the general election in November. Supporting candidates and policies that promote economic opportunity through cutting taxes is the best way to fiscal health for both taxpayers and states. Lower taxes, less burdensome regulations and a reasonable civil-justice system rejuvenate economies, lift incomes and even fatten state revenues.

Mr. McQuillan is director of business and economic studies and Mr. Abramyan is a public policy fellow at the Pacific Research Institute.

Something our state legislators should keep in mind . . .

Too much environmentalism?

Robert Farago has some choice things to say about President Bush's "Declaration of Less Dependence" on foreign oil. Here is his conclusion:

In fact, the nuclear power plant debate-- or lack thereof-- encapsulates all that’s wrong with America’s energy policy: we don’t have one. As long as environmentalists set the political agenda, as long as our oil companies go along to get along, America’s push for energy independence is doomed. President Bush’s finale about leaving our children a “cleaner, a healthier and a more secure America� reveals the extent to which our future has been hijacked by environmental politicial correctness. The truth is, unless we detach ourselves from imported oil first and fast, all those clean, healthy Americans and their life-sustaining economy will continue to be at the mercy of foreign despots.

I recommend you go an read the build up to it.

Economic boom

The editors at NRO make no bones about the fact that Bush's tax cuts have contributed to the current economic boom, and they want to extend them.

For a boom is what it is. The economy is growing, jobs are increasing, wages are up, and the stock market is rising. The tax cuts are not responsible for all of this good news, but both common sense and the timing of the recovery suggest that they have played an important role.

An interesting read.

More petronomics

Economist and business owner, Noel Sheppard, has provided more evidence that there is no price-gouging by 'Big Oil'. And, despite some snarkiness (not un-deserved, by the way) towards so-called journalists reporting about 'Big Oil' profits, he points out some additional details about the economics of our high energy prices.

. . . using Horsley’s numbers, $2.79 out of the $2.90 that folks are currently paying for a gallon of gasoline are oil companies’ costs.

Very interesting reading.

Axis of obstruction

Gary Andres has an editorial up at The Washington Times describing the history of liberal environmental politics -- leading to today's expensive fill-ups. (I am not saying that environmentalism is inherently liberal, but rather that liberal environmentalism is generally too radical to be practical. Case in point: fuel prices today.)

For years Democrats conspired with environmental special-interest groups in Washington to block a host of even modest proposals, ranging from expanded domestic drilling, to increased use of nuclear power, to common-sense rules allowing more adequate refining capacity — all factors that would increase supply and reduce prices. Now Democrats have the audacity to stand in front of gas stations and say prices are too high.

We need to stop blaming "Big Oil" and set our sights on our esteemed national leaders. Perhaps then we can start dealing with this problem rationally and responsibly.

Recommended.

Petronomics update

Brendan Miniter gives us some insight into why our energy policy has contributed to higher fuel prices.

I've reprinted it in the extended entry.

Running on Empty
On the highway, fuel is in short supply. In Washington, ideas are.

BY BRENDAN MINITER
Tuesday, May 2, 2006 12:01 a.m. EDT

ALONG INTERSTATE 95, Md.--Driving to New York from Washington recently I came across something worse than $3-a-gallon gasoline, price gouging or oil-company windfall profits. At a rest stop outside Baltimore a makeshift sign had a stark message for motorists: "No gas." The Exxon station serving northbound traffic had run dry. I eventually found enough regular unleaded to keep going north, but only after watching two other drivers argue over a working pump at another station that was running out of gas.

This is not a replay of the 1970s with widespread shortages, long gas lines and rationing. But with gas prices off the charts, crude above $70 a barrel, and now "spot shortages" at service stations in Delaware, Maryland, New Jersey, Texas and elsewhere, it's not hard to see why lawmakers in Washington feel compelled to do something. And what we're getting is the kind of policy ideas we can expect in a panic.

Congress is now considering revoking $2 billion in tax credits for oil companies that it stuffed into an energy bill just last year. The House Energy Committee plans hearings. And there's already plenty of grandstanding about lavish executive pay and record profits. (Adding more fuel to the fire, Exxon Mobil reported last week that it took in $8.4 billion in profits over the past three months, up 7% from a year earlier.) Rep. Jack Kingston, a Georgia Republican and sometime sane voice, captured the mood when he told a reporter that "Nobody has any sympathy for oil companies on Capitol Hill right now."

On the other side of Pennsylvania Avenue, President Bush is also revving his engine with nowhere to go. He too wants to suspend oil-exploration tax credits that he signed into law a mere eight months ago, though he doesn't say how this will increase crude oil production and therefore bring down prices at the pump. He wants to investigate allegations of price gouging and to raise fuel-economy standards for cars. And he will stop steering oil into the nation's Strategic Petroleum Reserve, making a few additional million barrels available on the market. The man who complained about America's addiction to oil now says "every little bit helps."

Actually looking to the reserve is not such a bad idea. Steering oil away from or even tapping into the reserve won't cut the price of gasoline by much. President Clinton proved that in the 1990s by releasing oil from the reserve and watching as just a few pennies were shaved off prices at the pump. But if law makers insists on doing something, tinkering with the reserve is one of the less destructive things they can do.

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One reason for all the creative thinking on energy policy in Washington these days is that Congress has embraced little more than bad policy for years. Last year's energy bill actually contributed to this year's price spikes and shortages with new mandates that in effect strip out one antipollution gasoline additive (MTBE) and add in another (ethanol). Energy experts don't describe it that way. Instead they tell us that the MTBE requirement is disappearing as of May 5. But with the additive now said to pollute groundwater, any oil executive worth his salary knows that leaving it in one day longer than federal law requires it to be there is an open invitation to be sued.

Congress could have given oil companies a little flexibility by including liability protection in the energy bill. It chose not to. And it's true that oil companies can decide where to sell ethanol-blended gasoline. But the new rules require four billion gallons of it be sold somewhere in the U.S. this year and even more next year. That's great for corn growers, but not so good for consumers as oil companies figure out where to sell the new fuel.

With MTBE on its way out, something has to take its place. Substituting ethanol is even a good idea, except that it's only gotten more expensive since Congress mandated its use. And it's a lot easier to add a subsidy for the corn-based fuel to a piece of legislation than it is to add the fuel itself to a gallon of gas. Ethanol can't be mixed at refineries. Instead it has to be shipped separately to terminals closer to local gas stations and blended there. That requires new equipment and new supply chains. Ethanol also doesn't mix well with the old MTBE gas, so service stations have to empty and scrub their tanks before taking delivery of the new fuel. That's creating hiccups in the system we see as spot shortages. Congress could make the changeover a lot easier if it would repeal the ethanol mandate. But that's a non-starter on the Hill.

With the president's approval rating at 36% and Congress's at 22%, no one is willing to step on the breaks before Washington pushes through more bad policies. The president is right about one thing. It's going to be a tough summer for drivers.

Mr. Miniter is assistant editor of OpinionJournal.com. His column appears Tuesdays.

[Used with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.]

Petro-economics redux

Charles Krauthammer gets it. Supply and demand. Now, if only those meatheads in Washington would regard the problem as such, our government would be in a lot better position to solve the problem for the long-term.

George Shultz once said, "Nothing ever gets settled in this town." But even Shultz, who has seen everything, must marvel at the perfect regularity, the utter predictability, of the bottomless cynicism of Washington in the grip of gasoline fever.

Recommended reading.

Energy outlook

Larry Kudlow tells us the greatest story never told.

The big point here is that free markets work. Rising prices from the global boom will lead to more conservation, less consumption, and more production, but only so long as government stays out of the way. Instead of blaming ExxonMobil for high gas prices, irate motorists and voters should blame Congress for mandating, regulating, and taxing against energy.

It's good news about the economy . . .

Recommended.

Petronomics

Economist Thomas Sowell has another column up explaining the economics of oil.

Price movements up or down provide incentives for people to consume less or to consume more -- and to produce more or produce less. From the standpoint of the economy as a whole, the history of any particular batch of oil is irrelevant.

Prices need to ration all oil according to existing supply and demand. At the same time, prices need to provide incentives to produce more oil or less oil, according to the same supply and demand conditions.

"Windfall" profits and windfall losses are all part of the same adjustment process. If politicians seize the windfall profits and leave windfall losses alone, what that means over a cycle of years is that the average rate of return on oil production falls below what is needed to attract the investments that greater oil exploration and production require.

Recommended.

Petropoliticians and what they have wrought

Thomas Sowell has a good column up that provides us with a basic lesson in supply and demand, and then he gets serious about oily politicians.

Ironically, the people who are making the most noise about the high price of gasoline are the very people who have for years blocked every attempt to increase our own oil supply. They have opposed drilling for oil off the Atlantic coast, off the Pacific coast, or in Alaska. They have prevented the building of any new oil refineries anywhere for decades.

They have fought against the building of hydroelectric dams or nuclear power plants to generate electricity without the use of oil. They love to talk about their own pet "alternative energy sources," without the slightest attention to what these would cost in terms of money, jobs, or our national standard of living.

Even when one of their pet "alternative energy sources" -- windmills -- is proposed to be built near them, suddenly it is not right to spoil their view.

Politicians have indulged these spoiled brats for generations. Now, when the chickens come home to roost, they are screaming about high prices and Big Oil. That is world class chutzpa.

Recommended reading.

Partly cloudy to clear -- economically speaking

Economist Irwin M. Stelzer warns of a bumpy ride ahead, but ultimately smooth sailing. He summarizes with:

In addition to an effective end to efforts to forge a meaningful free-trade agreement, a likely halt in the Fed's rate-raising programmed, and a softer dollar, we can reasonably guess that the era of high-priced oil and gas will not end any time soon. OPEC is just about at the limit of its near-term ability to pump more oil, and is unwilling to grant access to the Western investment and technology it needs to increase output in the longer term. Iran has every incentive to continue roiling markets by rattling its nuclear saber. Threats to continuity of supply that push prices up by, say, $5 per barrel, increase the mullah's income by over $100 million per week. Not a bad fee for a threatening speech or two.

Of course, all bets are off if we decide to take out Iran's nuclear facilities, or . . . add your own nightmare. Even then, the U.S. economy will snap back, as it did so quickly after the disastrous attack on the nation's financial center on September 11. So if you investors can keep your heads when disaster strikes, you can be rich men, my sons.

Go read the whole thing.

Wrong again, Oprah!

Economist Walter Williams watched an Oprah show about people living on minimum wages, and he found grave inaccuracies in the statistics cited during the show.

The show claims that 30 million Americans earn the minimum wage of $5 an hour. Actually, the federal minimum wage is $5.15 an hour, and 17 states mandate a higher minimum wage that approaches $7 an hour. At one point, Oprah did manage to clear up this aspect of the show's errors.

The U.S. Department of Labor reports: "According to Current Population Survey estimates for 2004, some 73.9 million American workers were paid at hourly rates, representing 59.8 percent of all wage and salary workers. Of those paid by the hour, 520,000 were reported as earning exactly $5.15."

Workers earning the minimum wage or less tend to be young, single workers between the ages of 16 and 25. Only about two percent of workers over 25 years of age earn minimum wages.

Before you tune to Oprah for your informational needs, I highly recommend you read Dr. Williams column.

Conspiracy

Rich Lowry, over at NRO, has an op-ed up wherein he describes, with tongue firmly planted in cheek, the vast conspiracy by Big Oil to gouge consumers. And he names names, too!

How powerful and resourceful must be the cackling executives? Boundlessly. Iranian president Mahmoud Ahmadinejad might strike most observers as deeply irrational, unworried about possibly prompting a nuclear exchange one day in the Middle East. But this interpretation misses the true measure of the man. Oil executives apparently have his ear: Why else would he do them such a huge favor by driving up world crude prices with his nuclear crisis?

"Supply and demand" must be an extremely difficult concept for politicians, because they keep wasting taxpayer's money on investigations into why prices go up when the demand for oil outstrips supply.

Let's look at alternatives

National Review Online has a good editorial about the emerging energy shortage. So far, with all of the wailing and teeth-gnashing, no one has really addressed the real cause of the shortage -- we have more demand than we do supply.

Those are just the kinds of numbers we don’t want to see if keeping gas prices low is our goal. The only way to put downward pressure on prices over the long term is to make sure supply can match demand — and that means encouraging domestic oil and gas production, not discouraging it. Hastert, Frist & Co. have it exactly backward.

Read the whole thing.

More petrolitics

Bill Murchison, senior columns writer for The Dallas Morning News weighs in with more insightful commentary on petrolitics. Here's an excerpt:

Lacking a Jimmy Carter type to sign anything economically idiotic into law, Congress will likely pass on to other matters after some Category 5 bluster. Oil prices, bloated for now by anxieties over the Middle East and strong worldwide demand, rather than by a '70s-style embargo, will likely abate. But not as far as they might if Congress opened the Arctic National Wildlife Refuge to at least delicate exploration, and if California and Florida permitted the expansion of offshore drilling, and if environmental attitudes softened just enough to admit the need for growth in domestic refining capacity to enable the wider provision of what Gov. Schwarzenegger calls "a product that everyone needs" -- gasoline. And so on. And so on.

Recommended reading.

Petrolitics

While politicians are calling for Congressional investigations into price-gouging and profit taking by Big Oil, the discriminating reader need not look any further than our own Congress for the high gas prices and spot shortages that we are experiencing here in the U.S.

Read the whole thing. It's in the extended entry.

Denny Pelosi
Gas prices rise, and Republicans panic.

Tuesday, April 25, 2006 12:01 a.m. EDT

Few things are less becoming in a political party than desperation, as Republicans are now demonstrating as they panic over rising oil and gas prices. If blaming private industry for Congress's own energy mistakes is the best the GOP can do, no wonder its voters may sit out the November election.

Oil prices hit $75 a barrel last week, while gas has reached a national average of about $2.85 a gallon. The Republican response has been to put on Chuck Schumer and Nancy Pelosi fright wigs and shout about corporate greed and market manipulation. House Speaker Denny Hastert and Senate Majority Leader Bill Frist fired off a letter to President Bush yesterday demanding the Federal Trade Commission and Justice Department investigate "price fixing" and "gouging." Senator Arlen Specter wants to go further and impose stricter "antitrust" laws for oil companies, as well as a "windfall profits" tax. Mr. Hastert also delighted the class warriors in the press corps by lambasting recently retired Exxon CEO Lee Raymond's pay "unconscionable."

There's been unconscionable behavior all right, most of it on Capitol Hill. A decent portion of the latest run-up in gas prices--and the entire cause of recent spot shortages--is the direct result of the energy bill Congress passed last summer. That self-serving legislation handed Congress's friends in the ethanol lobby a mandate that forces drivers to use 7.5 billion gallons annually of that oxygenate by 2012.

At the same time, Congress refused to provide liability protection to the makers of MTBE, a rival oxygenate getting hit with lawsuits. So MTBE makers are leaving the market in a rush, while overstretched ethanol producers (despite their promises) are in no way equipped to compensate for the loss of MTBE in the fuel supply. Ethanol is also difficult to ship and store outside of the Midwest, which is causing supply headaches and spot gas shortages along the East Coast and Texas.

These columns warned Republicans this would happen. As recently as last year, ethanol was selling for $1.45 a gallon. By December it had reached $2 and is now going for $2.77. So refiners are now having to buy both oil and ethanol at sky-high prices. In short, the only market manipulation has been by politicians.

---

For the record, the FTC has an entire crew that pores over weekly average gas prices in hundreds of cities, looking for evidence of gouging--to no avail. Perhaps this is because no oil company controls enough of the market to exercise enough power to raise prices. The Hastert-Frist call for an investigation is nothing but short-attention-span political theater.

Beyond the ethanol fiasco, the oil markets are once again providing a tutorial in supply and demand in a global commodity market. Strong economic growth from the U.S. to China is driving up demand, even as political uncertainty in oil-producing countries such as Venezuela and Iran is leading to supply worries and some speculation. The Federal Reserve has also played a role by flooding the market with dollar liquidity that has produced higher prices across all commodity markets.

Congress could help a little in the short term if it asked the Bush Administration to end the 54-cent-a-gallon tariff on imported ethanol. That would especially help drivers in coastal states suffering from spot shortages. Naturally, however, the domestic ethanol industry is threatening retribution against any Member who suggests such a thing; so much for industry gratitude.

The GOP might also refocus its attention on legislation the House passed last year to reduce the number of "boutique fuels" to six from 17. These special gasoline blends are required in different parts of the country in the name of reducing pollution. Their primary effect, however, is to raise gas prices and make it difficult to move gas around the country during shortfalls. The Environmental Protection Agency could also ease environmental rules for those parts of the country suffering shortages.

Meanwhile, we're also hearing more about the country's reliance on "foreign oil." But if Congress wants to ease that dependence, it will have to open more of the U.S. up to oil and gas exploration. Had the Senate opened up the Arctic National Wildlife Refuge to exploration when the Bush Administration requested it in 2001, some of this oil might now be joining American supplies. The same goes for natural gas drilling along the Outer Continental Shelf. Yet the very Democrats who deplore foreign supplies and shout about high prices vote again and again to block domestic oil exploration.

The last time the U.S. had a gasoline panic, in the wake of Katrina, some quick Bush Administration action and private ingenuity eased the problem in record time. Gasoline prices that had climbed above $3 a gallon quickly settled back closer to $2. Markets will make the same adjustments today if they are allowed to send price signals without Congress getting in the way. Republicans can blame business all they want for high prices, but sounding like liberal Democrats won't save them in November.

[Used with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.]

AMT - A Monstrous Tax

Terence Jeffrey tells the reader about how the Alternate Minimum Tax is getting ready to body slam middle income families.

A prodigal GOP may have already spent middle-class American families into a tax increase.

It will come in the form of the Alternative Minimum Tax.

This is not good.

Economic future is bright

Jack Kemp has an op-ed up at Townhall wherein he advocates extending the tax cuts. Forever, I think. Here's an excerpt:

Reminder to the Republicans in Congress and to the White House speech writers, as well: Stop worrying about a so-called post-DeLay vacuum, stop worrying about '06 or '08 elections. Just get back to a pro-growth, pro-trade liberalization, pro-ownership society in which every child and family in America can own a share of the American dream and a stake in America's future.

I truly think that he is pointing toward the right path. It is up to us, and our elected representatives in Washington, to march down that path.

I'm willing . . . how about you?

Welfare state

Michael Barone has a good op-ed at Townhall in which he discusses the slippery slope of entitlements in America. Here's how he starts:

"This much is certain: The welfare state as we know it cannot survive." So Charles Murray writes in The Wall Street Journal in an article on his new book, "In Our Hands."

"No serious student of entitlements thinks that we can let federal spending on Social Security, Medicare and Medicaid rise from its current 9 percent of gross domestic product to the 28 percent of GDP that it will consume in 2050 if past growth rates continue."

Scary? It is to me. Now go read the rest. We have got to do something about entitlements in this country -- or we'll end up like France.

Iraqi economic news

. . . is guardedly optimistic.

I've reprinted the article (originally published at The American Spectator, and re-published at OpinionJournal) in the extended entry.

Bullish on Baghdad
The Iraqi economy shows signs of strength.

BY ROBERT T. MCLEAN
Tuesday, April 11, 2006 12:01 a.m. EDT

A key to success in Iraq will be the ability of the Iraqi people and coalition members to transform the country's economy from a state of ruin to a model for prosperity in the Middle East. Iraqis with jobs and opportunities are less likely to join or sympathize with terrorist and insurgent efforts, focusing more of their energies on improving their individual situation than on political developments that could be interpreted as a danger to their sect. This outcome parallels one of the Bush administration's original goals of the invasion in establishing a bridgehead for reform in the Middle East, while reducing the potential of a drawn out and costly American presence in Iraq. Thus, while the vast majority of attention has been placed on the political violence plaguing Iraq, the economic development of the country deserves additional scrutiny and provides reason for guarded optimism.

As the Iraq campaign continues to be labeled a disaster by political opponents of the Bush administration at home, by those suspicious of the United States abroad, and increasingly by conservatives who call themselves realists yet have no realistic plan for Iraq, positive indicators about the Iraqi economy are not too hard to find. Though the economy expanded by an unimpressive 2.6% in real terms in 2005, that figure is scheduled to reach over 10% this year, as reported by the International Monetary Fund. Dawn Liberi, director of the U.S. Agency for International Development in Iraq, noted in February that per capita income has increased from $500 at the time of the invasion in 2003 to $1,500 today.

Despite the charge by Anthony Cordesman of the Center for Strategic and International Studies that American efforts to improve the devastated Iraqi economy "have largely been a wasteful, and highly ideological and bureaucratic failure," more than 30,000 new businesses have been registered with USAID in the past seven months alone. While the bureaucracy undoubtedly has been responsible for waste and inefficiency--not something uncommon with these types of establishments--ideological efforts to introduce conservative principles into the Iraqi economy seem as little cause for alarm.

In 2004 a modest 5% national tariff rate was imposed to help fund reconstruction costs. A flat corporate tax rate of 15% was applied by the Coalition Provisional Authority and foreign investment restrictions were extremely limited, with the exclusion of national resources such as the country's oil fields. After years of sanctions and isolation--with the exception of Saddam Hussein's corrupt enterprises--the above noted efforts have been relatively successful in opening up the nation's economy.

As Niall Ferguson persuasively advanced in his work "Colossus: The Price of America's Empire": "It has been convincingly shown that one of the principal reasons for widening international inequality in the 1970s and 1980s was in fact protectionism in less developed countries." Citing a 1995 publication by the Brookings Institution, Mr. Ferguson supports the claim by illustrating that when the per capita GDPs of developing countries were contrasted, it was discovered that "closed" economies grew at an annual rate of only 0.7% while "open" countries expanded by a healthy 4.5%. The Bush administration, therefore, has not merely steered the Iraqi economy in a direction of a liberal market economy based on ideology, but has done so under a historical precedent of success.

Historical precedents are also relevant in examining how to establish long-term stability and productivity. An influential piece by Stanley Kurtz titled "Democratic Imperialism: A Blueprint" that appeared in Policy Review in April 2003 predicted a protracted but ultimately beneficial occupation of Iraq. The paradigm, according to Mr. Kurtz, was to follow the lessons of the British imperial experience in India. Of principle importance to establishing a peaceful, democratic, and prosperous nation is the development of a sound education system.

Although coming well short of suggesting a similar dawdling reform process, Mr. Kurtz professes that "the educational policies set up by liberal British administrators 100 years before independence had laid the foundation for democratic self-rule in India." Whereas the British sought to hold on to their colonial possession throughout much of their rule of India, the United States wants nothing more than to return home. Thus, the success in the construction of schools, the training of more than 36,000 teachers, and the provision of nearly nine million textbooks should prove to be a valuable investment for the political and economic future of Iraq.

---

Of the most disingenuous, or simply ignorant, charges that were leveled prior to, during and following the spring 2003 invasion of Iraq was that the war was conceived to rob the Iraqis of their oil reserves. This imprudent accusation has largely disappeared because few have the audaciousness to carry on this conspiratorial paranoia. However, the administration's reluctance to become thoroughly engaged in the Iraqi oil industry--a result of domestic and foreign critics--has made things unnecessarily difficult for the Washington and Baghdad alike. Put simply, the Bush administration needs to focus more on Iraq's oil.

One of the first actions taken by the United States following the ouster of Saddam Hussein was the nearly immediate transfer of sovereignty of Iraq's oil industry back to the people of Iraq. Even after handing the key to nation's wealth back to Iraqis, the United States has sought little influence in oil policy-making decisions. When asked by the Baghdad based daily Al-Adalah about American and British interference in the Iraqi oil industry, former oil minister Dr. Thamir al-Ghadban responded:

No doubt the U.S., British and other forces are here in Iraq. This is an accomplished fact and known to everybody. But throughout my experience after the fall of the regime until I left the ministry I can affirm that no person or side tried to influence on the approach that we adopted in the oil policy. Where is the influence?

Attacks on oil pipelines have made deliveries north to Turkey virtually unattainable, limiting Iraq's near-term export potential. Additionally, the lack of investment from Saddam Hussein's regime left the technology and infrastructure of the country's oil industry in desperate need of modernization. The goal articulated by the Bureau of International Information Programs of the U.S. State Department is for Iraqis to expand production to more than five million barrels a day from the 2.1 million that is currently extracted from the country's vast reserves. A dedicated commitment through investment and technological assistance from the United States is necessary to help the Iraqi government generate revenue and decrease dependence on American assistance. This is entirely achievable, and as attacks on pipelines decrease, the oil industry will become a boon to an increasingly diverse Iraqi economy.

As with the oil industry, other significant problems needlessly obstruct potential economic growth. As noted by Rashid Ashraf of the Financial Times: "More than half of the families in Iraq still receive a monthly food parcel of basic supplies. This legacy of the oil-for-food programme in the long years of sanctions is expensive, and distorts the market." Socialist prescriptions such as these were necessary under the sanctions regime to keep millions of Iraqis from starving, but are no longer appropriate. As the economy continues to advance, free market principles will rightfully continue to be encouraged by the United States as a means to facilitate those gains.

The new Iraqi dinar, the official currency introduced in July 2003, has become a stable and unifying presence in the economy of Iraq. The banking sector is emerging as a powerful economic staple now that the Baathists no longer corrupt and distort the system. A similar development has occurred with the 2004 introduction of the Iraq Stock Exchange, as it too is free from the corruption that beleaguered the Hussein-era Baghdad Stock Exchange. About 90 stocks are listed, and market capitalization grew from $1.15 billion at the end of 2004 to $2.14 billion at the same time last year. However, fear of foreign domination of the market has kept it closed to international investors. An Iraqi investor noted to Agence France-Presse late last February that the best way to increase the capital flowing into the Iraq Stock Exchange is to "open the market to foreign investors and get money into the market." This will happen over time.

Some foreigners, however, are already bullish on Iraq. In fact, United States and other coalition forces serving in Iraq are betting on an economically successful future for Baghdad. Many American troops are putting their money into purchasing the new national currency in hopes that a secure and prosperous Iraq will emerge. The fact that they are already not paid enough for the work that they do and that they are using their hard-earned paychecks and intimate knowledge of the Iraqi environment to purchase a share of Iraq's future speaks volumes about the potential for a forthcoming significant economic expansion in Iraq. Perhaps the not-too-distant future will teach the impatient that, with time, large returns can come from a substantial investment.

Mr. McLean is a research associate at the Center for Security Policy in Washington. This article appeared on the Web site of The American Spectator.

U.S. economy

Jason, over at TexasRainmaker has an excellent summative post on America's thriving economy.

1. Real GDP increased 3.5 percent in 2005. The economy has been growing for 17 straight quarters, and the composite index of leading indicators has risen the past 6 months, indicating continued growth.

2. Consumer Confidence rose to 107.2 in March - the highest level in nearly four years.

3. Inflation remains contained.

4. Over the past year, employment has increased in 48 states.

5. Real disposable incomes have risen 2.2 percent over the past 12 months.

6. Real household net worth is at an all-time high of $52.1 trillion, and the median net worth of American households rose 1.5 percent between 2001 and 2004.

7. Real consumer spending has increased 3.2 percent over the past year, and nominal retail sales are up 6.7 percent over the past 12 months.

8. College Graduates face the best job market in five years.

9. Manufacturing activity grew for the 34th consecutive month in March.

10. Non-manufacturing business activity grew for the 36th consecutive month in March.

All this has been happening amongst predictions of gloom, doom, and dire consequences from the political Left. I'm just grateful that Bush and the Republicans in Congress didn't listen to the naysayers . . .

I recommend you read the rest of Jason's post.

The economics of oil

Thomas Sowell provides us a lesson in the economics of oil.

After hurricane Katrina destroyed a lot of oil processing capacity around the Gulf of Mexico, there was -- surprise! -- less oil being processed. With less oil being supplied -- surprise again! -- gasoline prices rose.

However much economists rely on supply and demand to explain price movements, politicians need villains, so that the pols can play hero. Big Oil is a favorite villain and has been for decades.

He also talks about taxes:

It so happens that Big Government takes more money in taxes out of a gallon of gas than Big Oil takes out in profits. But apparently somehow taxes don't raise prices. They certainly don't raise indignation from the politicians who voted for those taxes.

There's more. Recommended.

A letter to the President

Peggy Noonan, over at OpinionJournal has some questions for Prsident Bush regarding his spending habits:

Mr. President:

Did you ever hold conservative notions and assumptions on the issue of spending? If so, did you abandon them after the trauma of 9/11? For what reasons, exactly? Did you intend to revert to conservative thinking on spending at some point? Do you still?

Were you always a liberal on spending? Were you, or are you, frankly baffled that conservatives assumed you were a conservative on spending? Did you feel they misunderstood you? Did you allow or encourage them to misunderstand you?

What are the implications for our country if spending levels continue to grow at their current pace?

What are the implications for the Republican party if it continues to cede one of the pillars on which it stood?

Did compassionate conservatism always mean big spending?

Good questions.

'Shop and Awe'

Kris Alexander, over at Intel-Dump has an excellent post up about an ingenious approach to winning the hearts and minds of our real and potential adversarys. Here's a taste:

Our country has not pursued a strategy that capitalizes on all our assets. We have the most powerful military in the world and have not been hesitant to use it. We also have the world's most powerful economy but haven't leveraged it into the fight. We should be pursuing policies that capitalize on the success of several private sector companies and jump start the economy's of strategically important regions helping to create a bigger middle class in the Middle East. But, myopic US and European trade policy is standing in the way of total economic commitment.

Global climate change

Steven F. Hayward has an informative article up about the uncertainty, scientifically and politically, of global climate change. Here's an excerpt:

If there is any subject more certain than the federal budget process to bring on eye-glaze, it is global warming and the drearily repetitive argument about the Kyoto Protocol to reduce greenhouse gas emissions. The issue combines the worst of wonky numerology (parts per million of various gases, complex computer models, opaque cost-benefit analyses), an alphabet soup of unctuous international bureaucracies (IPCC, UNFCCC, SRES, TAR, USGCRP, etc., etc.), and the incessant braying of interest groups. No wonder Al Gore loves it so much. Yet the issue, seemingly stuck in a rut for almost two decades, is starting to shake loose and head in new directions.

It's rather long, but is much more comprehensive than what you get in news media snippets on the topic. Recommended.

Economic conundrum?

Director of economic policy studies at the Hudson Institute, Irwin Stelzer, has an op-ed up at the Weekly Standard that points out some out-of-sync indicators about the American economy. Here's an excerpt:

It is now clear that the Christmas sales season was a success for the nation's retailers. And, with happy recipients of Santa's largesse cashing in their gift cards last month, sales of a sample of 60 retail chains started the new year with a jump of almost 5 percent over last January's rate, according to Retail Metrics, a market-research firm. There is more to come. Economists at Goldman Sachs captioned their latest report, "The U.S. Consumer Roars Back."

But the bond market would indicate that bond investors anticipate weak or no growth -- or even a slight recession. Except . . .

It's worth reading . . .

2005 & 2006, economically speaking

Irwin M. Stelzer, director of economic policy studies at the Hudson Institute, has an op-ed about America's economy in 2005 (great) and 2006 (?). Here's a snippet:

Economic forecasters were invented to make weather forecasters look good. Skilled analysts have trouble interpreting what has already happened, much less predicting what will happen. Consider this: on the day after the Federal Reserve Board's monetary policy committee met and raised interest rates last month, the Wall Street Journal headlined its story, "U.S. Fed raises rates, indicates more to come." The equally respected Financial Times captioned its report, "Fed signals end to rate tightening era."

So take the following with the appropriate pinches of salt.

Recommended.

Our robust economy

President Bush spoke in Kernersville, NC on Monday. Gateway Pundit talks about his speech and our Media's reaction to it.

Here is a quote from Bush's speech where he details some documented economic figures:

Just this past Friday, the latest figures show:

* Our economy added 215,000 jobs in the month of November alone.
* Our unemployment rate is down to five percent.
* Unemployment is lower than the average of the 1970s, the 1980s and 1990s.
* The latest numbers also show the economy grew at 4.3 percent last quarter.
* And it has been growing at near that average for more than two years.
* This economy of ours is on the move.
* Americans are buying homes, and that's good news for this country. We hit an all-time high in October, in terms of home buying.
* More Americans now own their homes than any time in our nation's history.
* Minority ownership -- home ownership is at an all-time high in the United States of America.
* Real disposable income is up
* Our consumers are confident.
* New orders for durable goods, like machinery, have risen sharply, and shipments of manufactured goods are up, as well.
* Business activity in our manufacturing sector reported its 30th straight month of growth.
* In the past five years, productivity has grown at some of the fastest rates since the 1960s.
* Our small businesses are thriving.
* Fortunately, I didn't listen to the pessimists about tax cuts. The tax cuts are working.
* We've cut the rate of growth in non-security discretionary spending.
* We're on track to reach our goal of cutting the budget deficit in half by 2009.

Thanks to tax relief, and spending restraint, and pro-growth economic policies, this economy is strong, businesses are booming, and the people in this country are working.

The economy is rolling along better now than it has in the last three decades -- especially if you take into account the major economic hits we took with Katrina and Rita, and the drain on the economy the war and reconstruction in Iraq is effecting.

So why do we, as a people, think that things are not doing well in this country economically?

GM's problems

Michael Barone points out some basic economics relative to General Motors' current financial woes.

General Motors' layoffs of 30,000 workers and the bankruptcy last month of the GM spinoff Delphi are widely taken as proof that the days of high-wage, high-benefit manufacturing jobs in the United States are over. But that's not quite the case. An editorial in yesterday's Wall Street Journal (available to subscribers only) pointed out that Japanese and German auto companies employ 60,000 workers in American plants with payroll costs per employee only 8 percent lower than those of the Big Three. But there is one big difference: Few of these 60,000 workers are represented by unions.

Mr. Barone also wrote an op-ed piece for OpinionJournal that I've put in the extended entry.

Once Upon a Time in America
Why GM and the UAW's postwar economic vision failed.

BY MICHAEL BARONE
Sunday, November 27, 2005 12:01 a.m. EST

The end, or the beginning of the end, of a familiar and comfortable world: That's how General Motors' announcement last week of massive layoffs and plant closings, following the bankruptcy of Delphi last month, strikes one who grew up in the Detroit area in the two decades immediately after World War II. In that world, it was easy to imagine you were at the center of the economy. Detroit was then the fifth-largest metropolitan area, the home of the Big Three auto companies and the United Auto Workers--national institutions of the greatest importance. The news media followed the negotiations between the UAW and the Big Three company it picked as a target every few years, and it was assumed that the wages and benefits agreed to would set a pattern for the whole economy.

And a very good economy it seemed to be. Left behind were the Depression and the anxious years of World War II. The UAW was able to negotiate big hourly pay increases and generous medical and pension benefits as well. With no effective competition, the Big Three could pass along the cost of UAW contracts to consumers who seemed willing to pay more for dramatically restyled and heavily advertised cars. General Motors' president, Harlow Curtice, was Time's Man of the Year for 1955. This was a recognition not just of an individual (I wonder how able an executive Curtice was) but of a system; Time might have honored UAW's longtime president, Walter Reuther.

The success of the Big Three and the UAW seemed a fit symbol of America's postwar economic dynamism. In fact, this was an economy characterized not by dynamism but by stasis, to use Virginia Postrel's term in "The Future and Its Enemies." New Deal legislation had been designed not for economic growth but for protection from the downward spiral of deflation. Those laws, not least by encouraging unions, strove to prop up wages and prices and to provide security to workers and existing firms. Keynesian economics was employed to flatten out the business cycle as much as possible and to reduce unemployment.

By the mid-1960s, it was generally agreed that this system worked and would continue indefinitely. The Big Three could always make money by rolling out the big cars families needed to go up north each summer. As John Kenneth Galbraith then argued, auto makers could induce consumers to buy as many cars as they wanted to sell by clever advertising. UAW workers could always look forward to ever-increasing wages and benefits. The big demand in the 1970 contract negotiations was retirement for auto workers in their early 50s. The confrontational labor-management politics of the 1940s and 1950s was replaced by consensus, as Henry Ford II joined Reuther in endorsing LBJ in 1964.

Reuther, a man of great energy and ability, wanted to use the UAW as an entering wedge to transform America into a Scandinavian-style welfare state. His contracts would set the pattern for national wages; the union movement would expand into new industries and unionize most of the economy; growth would enable workers to enjoy not only high wages, but job security, medical benefits, generous pensions. They would be protected against competition by large corporations. Reuther employed a Scandinavian architect to build Solidarity House, the union's headquarters on the Detroit River, and Black Lake, its educational center in northern Michigan. Reuther, like Marx, and like so many other social democrats, envisioned workers devoting their increasing leisure hours to pursuing the culture that seemed so inaccessible to workers earlier in the century.

---

The problem was that the default character of the economy, after the shocks of depression and war, turned out to be not stasis but dynamism. Private-sector unionization peaked in the mid-1950s; employment in unionized firms grew less than in nonunion firms. Union leaders believed that Section 14(b) of the Taft-Hartley Act, which allowed state right-to-work laws, was preventing unionization in the South, the Great Plains and much of the West. But the attempt to repeal 14(b) was one of the few defeats for LBJ's Democrats in the 1965-66 Congress.

The Big Three auto firms--and the UAW--would soon face competition from foreign firms and an unforeseen demand for cars not large enough to take the family up north every summer. Attempts to wall themselves off from foreign competition either failed legislatively or produced perverse results. Faced with domestic-content laws, Japanese and European firms built large plants in the U.S. with nonunion work forces. That has left the Big Three and their spinoffs, like Delphi, with redundant work forces and huge legacy costs in the form of generous pensions and open-ended retiree health benefits.

Union-driven legacy costs have already forced many steel companies and airlines into bankruptcy, with pension obligations fobbed off on the Pension Benefit Guaranty Corp. The Big Three auto companies might as well do the same. At least there aren't that many big unionized private industries left to fall. Besides, taxpayers and politicians angry at costs imposed by unions--particularly in the public sector--can always change the rules and reduce unions' bargaining leverage. Just as the economic marketplace eventually reduced the power of the old industrial unions, the political marketplace could, in time, reduce the power of the "post-industrial" unions.

The attempt to protect workers from all risk has turned out to be very risky indeed, since in a dynamic economy large corporations are subject to competition from firms with lower costs. In the auto industry the result is significant pain for those who relied on the Big Three and the UAW; but the result is also a vastly faster growing economy and many more opportunities than provided by the European welfare states.

A broader result has also been the consolidation of a more demotic, market-based culture. On the Michigan freeways going up north, the big attractions are not the UAW's cultural haven of Black Lake but Indian casinos and outlet malls, places where people throng to win sudden riches or to take advantage of low prices on brand-name goods. The attempt, made when the economy seemed static, to promise security and leisure and restrained good taste, has failed. We remain, as we have been in most of our history, a nation of hustlers (as historian Walter A. McDougall so strikingly put it)--a people who strive mightily to get ahead and advance their interests, enjoying the sometimes vulgar opportunities a dynamic economy provides.

Mr. Barone is a senior writer at U.S. News & World Report and a contributor to the Fox News Channel.

[Used with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.]

Price gouging?

No, not price gouging. Rose and Milton Friendman Foundation Senior Fellow Thomas Sowell says that it's just simple supply and demand (basic economics).

What do higher prices do? Force people to restrain their own purchases more so than usual. What do higher profits do? Cause more money to be invested in producing whatever is earning higher profits, and this in turn expands output. Isn't a larger supply of oil and a reduced consumption of it what we want? Whenever there have been sharp rises in gasoline prices, whether nationwide or locally in California, Senator Barbara Boxer has loudly demanded an investigation of the oil companies. These repeated investigations over the years have repeatedly failed to turn up anything other than supply and demand.

The real irony is that it has been precisely liberals like Barbara Boxer who have been the chief obstacles to increasing the supply of oil because they are dead set against drilling for oil in more places and against building more refineries.

When you refuse to let supply rise to meet rising demand, why should you be surprised -- much less outraged -- when prices rise?

So, then, what is all of the wailing about when it comes to gasoline prices?

Gas prices

Captain Ed talks about the price of gas.

In the Upper Midwest, the price of a gallon of gas has fallen by almost a third from its peak just a month or so ago. We had seen regular unleaded go as high as $2.99/gallon in October, but this weekend, Minneapolis pricing had dropped to the $2.05/gallon range. With more of the Gulf refining capacity coming back on line and action taken this week in Congress to expand exploration and refining capacity in the next few years, expect the pricing to drop even further.

Sometimes good government happens . . .

Porkbusters

There is a movement afoot to help our federal congressional representatives to return to a more fiscally conservative approach to legislation. In the blogosphere, an aspect of this effort is to point out to Senators and Congressmen the pork that they have inserted into legislation like the recently passed transportation bill, and urge them to pull it. Thus, the effort earned the moniker "porkbusters".

Last week, Senator Tom Coburn and six other Senators (Sam Brownback, Jim DeMint, John Ensign, Lindsey Graham, John McCain, and John Sununu), styling themselves as the "Fiscal Watch Team", released an "offset package" aimed at identifying budget cuts to pay for hurricane relief. The key provision in the bill for our purposes is that it would elminate all "offsets" ( i.e., pork) in the highway bill --- wiping away a vast chunk of pork in a single stroke.

You can read more about this effort at the Truth Laid Bear.

I support the Fiscal Watch Team Offset Package. And I urge you to do the same. We have got to reign in the dangerously irresponsible spending that has taken hold in Washington, D.C.

Oh, one last thing. It is safe to come out now . . . my 'political activism moment' is over . . .

Entitlements' legacy

Philip Wallach shares his concerns about the burgeoning entitlements budgets in this country. Here's a taste:

But even apart from these concerns, we will be pinned and wriggling on the wall by the simple arithmetic of the budgetary black hole our (fore)fathers have created. Right now, a little more than one in ten of our federal tax dollars goes to debt service. This is a mere pittance when compared to what we face in the future. Our own Comptroller General, David Walker, has warned that if we stayed our current budgetary course, by 2040 we might be required to pay nearly all of our federal taxes to service the debt left to us by the big spenders now in charge. These are not trifling concerns.

We owe it to our children to read this and ponder upon its ramifications.

Perspective

Michael Barone reminds us about the big picture. Here's an excerpt:

A world spinning out of control: That is what the old-line broadcast networks seem to be showing us. But I see other patterns. George W. Bush has consistently asserted that one reason for removing Saddam Hussein's regime in Iraq was to advance freedom and democracy in the Middle East. In spite of the improvised explosive devices, that seems to be happening. Lebanon's Cedar Revolution was as inspiring an example of people power as the fall of the Berlin Wall in 1989. Libya has dismantled its weapons of mass destruction. Egypt, by far the largest Arab nation, had its first contested election this month, and, as the Washington Post's David Ignatius writes from Cairo, "the power of the reform movement in the Arab world today ... is potent because it's coming from the Arab societies themselves and not just from democracy enthusiasts in Washington." Which is evidence that Bush was right: Muslims and Arabs, like people everywhere, want liberty and self-rule. Afghanistan has just voted, and Iraq is about to vote a second time this year. Violence continues, but the more important story is that democracy and freedom are advancing.

He also covers the economy, the proliferation of nuclear weapons, and America's lack of popularity with the rest of the world. A good read.

Now you're talkin'

Here's some, perhaps surprising, news about a few celebrities who are doing advertisements urging the elimination of farm subsidies.

Late last year, in hotel rooms and photo studios in Los Angeles, New York and London, a group of celebrities agreed to get doused with buckets of coffee, milk, cocoa and sugar. It was messy, sticky and sometimes smelly, but it was all in the name of easing world poverty.

The photo shoots were organized by the nonprofit advocacy group Oxfam America as part of an ad campaign to raise awareness of what they say is the unfair nature of agricultural subsidies. The campaign urges wealthy nations like the United States and European countries to stop dumping agricultural products onto the world market, which Oxfam argues makes it impossible for farmers in poor countries to compete.

The celebrities who agreed to be dumped on - the actors Minnie Driver, Colin Firth and Antonio Banderas; U2's lead singer, Bono; Coldplay's lead singer, Chris Martin; R.E.M.'s lead singer, Michael Stipe; Alanis Morrissette; and Radiohead's lead singer, Thom Yorke - say they donated their time for the campaign because they believe it is important to level the playing field for developing nations.

"People think more aid will help, but it won't," said Ms. Driver, an actress who is working on her second music CD. "Trade is the surest way of decreasing the savage amount of poverty in our world. These countries have got to be able to trade fairly."

At least some celebs are starting to think things through. Bush figured it out a while ago.

Now, if only more people (here and abroad) will pay attention and act, we will be on our way toward helping to eliminate a great deal of the suffering going on in Africa.

Sebastian Mallaby on CAFTA

Mr. Mallaby has a column up at washingtonpost.com detailing why he thinks CAFTA Deserves To Pass.

It's worth a read.

[Hat Tip to Betsy Newmark.]

Live 8 doesn't help

Jean-Claude Shanda Tonme, an international law consultant and columnist for a Cameroonian daily paper, has an op-ed in the New York Times entitled All Rock, No Action. He starts by saying:

LIVE 8, that extraordinary media event that some people of good intentions in the West just orchestrated, would have left us Africans indifferent if we hadn't realized that it was an insult both to us and to common sense.

We have nothing against those who this month, in a stadium, a street, a park, in Berlin, London, Moscow, Philadelphia, gathered crowds and played guitar and talked about global poverty and aid for Africa. But we are troubled to think that they are so misguided about what Africa's real problem is, and dismayed by their willingness to propose solutions on our behalf.

And then he goes on to propose solutions of his own:

Neither debt relief nor huge amounts of food aid nor an invasion of experts will change anything. Those will merely prop up the continent's dictators. It's up to each nation to liberate itself and to help itself. When there is a problem in the United States, in Britain, in France, the citizens vote to change their leaders. And those times when it wasn't possible to freely vote to change those leaders, the people revolted.

In Africa, our leaders have led us into misery, and we need to rid ourselves of these cancers. We would have preferred for the musicians in Philadelphia and London to have marched and sung for political revolution. Instead, they mourned a corpse while forgetting to denounce the murderer.

He concludes, cynically perhaps, that Live 8 does not help solve the problems in Africa. That, in fact, Live 8 helps to prolong those problems:

But the truth is that it was not for us, for Africa, that the musicians at Live 8 were singing; it was to amuse the crowds and to clear their own consciences, and whether they realized it or not, to reinforce dictatorships. They still believe us to be like children that they must save, as if we don't realize ourselves what the source of our problems [are].

The op-ed was originally published in Le Messager, the paper he is associated with in Cameroon. It was translated from the original French. You have to register (it's free) with the New York Times to read it, but it is worth your time.

Live 8 doesn't help

Jean-Claude Shanda Tonme, an international law consultant and columnist for a Cameroonian daily paper, has an op-ed in the New York Times entitled All Rock, No Action. He starts by saying:

LIVE 8, that extraordinary media event that some people of good intentions in the West just orchestrated, would have left us Africans indifferent if we hadn't realized that it was an insult both to us and to common sense.

We have nothing against those who this month, in a stadium, a street, a park, in Berlin, London, Moscow, Philadelphia, gathered crowds and played guitar and talked about global poverty and aid for Africa. But we are troubled to think that they are so misguided about what Africa's real problem is, and dismayed by their willingness to propose solutions on our behalf.

And then he goes on to propose solutions of his own:

Neither debt relief nor huge amounts of food aid nor an invasion of experts will change anything. Those will merely prop up the continent's dictators. It's up to each nation to liberate itself and to help itself. When there is a problem in the United States, in Britain, in France, the citizens vote to change their leaders. And those times when it wasn't possible to freely vote to change those leaders, the people revolted.

In Africa, our leaders have led us into misery, and we need to rid ourselves of these cancers. We would have preferred for the musicians in Philadelphia and London to have marched and sung for political revolution. Instead, they mourned a corpse while forgetting to denounce the murderer.

He concludes, cynically perhaps, that Live 8 does not help solve the problems in Africa. That, in fact, Live 8 helps to prolong those problems:

But the truth is that it was not for us, for Africa, that the musicians at Live 8 were singing; it was to amuse the crowds and to clear their own consciences, and whether they realized it or not, to reinforce dictatorships. They still believe us to be like children that they must save, as if we don't realize ourselves what the source of our problems [are].

The op-ed was originally published in Le Messager, the paper he is associated with in Cameroon. It was translated from the original French. You have to register (it's free) with the New York Times to read it, but it is worth your time.

Cautious Congrats

OpinionJournal published an op-ed last Friday about good economic news -- and some warnings concerning our seemingly out-of-control federal spending.

I've reprinted the article in the extended entry. Please note that I was unable to find the specific chart that the author refers to in this piece.

Windfall for Washington

The deficit is shrinking, thanks to the Bush tax cuts.


Friday, July 15, 2005 12:01 a.m. EDT

Let's see if we can get this straight: When tax revenues fall and budget deficits go up, it's bad news. But when tax revenues rise and deficits decline, it's still bad news.

At least that seems to be the way a sizable chunk of Washington is reacting to this week's report from the White House budget office that the federal deficit is down by nearly $100 billion this fiscal year, that the deficit as a share of GDP is down to 2.7% (very near its historical average), and that this is all happening because tax receipts are surging by more than 14%. Uncle Sam is having a better year so far than even Paris Hilton, but half of the Beltway is depressed.

John Spratt, the ranking Democrat on the House Budget Committee, seems especially upset that this revenue surge isn't coming from wage income, but rather from investment income--that is, the so-called non-withholding income tax collections, which have skyrocketed by some 30% this year. "These are typically taxes paid on one-time capital gains, bonuses, stock-options income that may not recur," he laments.

Well, sure, Congressman, the 2003 reductions in the tax rates on dividends and capital gains seem to be resulting in much higher tax revenues on . . . dividends and capital gains. This is called the Laffer Curve effect, and we thank Mr. Spratt for validating it. If he wants those revenues to "recur," maybe he'll even vote to make those tax cuts permanent.

This revenue surge from investment income also rebuts the mantra that the 2003 tax cuts were a giveaway to the rich. Nearly half of all Americans have some kind of stock ownership, and thus have shared in these gains in investment income. And if most of the extra tax income is coming from capital gains and dividend payments, that would have to mean that the rich in America are paying more taxes, not less, as a result of the 2003 tax cut.

By the way, we don't recall Mr. Spratt and other Democrats lamenting when a similar spike in taxes from investment income was boosting tax revenues to historic heights as a share of GDP during the dot-com bubble of the late 1990s, as per the nearby chart. Then it was all said to be an economic miracle; now it's a windfall for the wealthy. This selective budget criticism couldn't be related to who's sitting in the White House, could it?

---

There is a looming budget problem, but it has nothing to do with the Bush tax cuts or insufficient tax revenue. It is a government spending crisis, especially the liabilities that politicians have promised to retirees in Social Security and Medicare. The Congressional Budget Office predicts that spending as a share of our national output based solely on current promises will surge from about 20% today, to 25% in 2025 and to 34% by 2040.

In order to balance the budget at those spending totals, we would have to double the highest income tax rate to 70%, raise payroll taxes to 30%, and the corporate income tax rate would rise to twice the average of U.S. trading partners. Or if we tried to borrow to finance all this spending, our debt ratings would slip to junk bond status, according to an analysis by Standard and Poor's.

Republicans share a hefty part of the blame for creating the most fiscally unaffordable new spending program in the past quarter century: the Medicare prescription drug bill, with an unfunded liability that is larger than the GDP of every other country in the world.

But the "deficit hawk" Democrats have been equally disingenuous. Most Democrats who voted against President Bush's prescription drug bill did so because the multi-trillion- dollar plan wasn't generous enough to seniors. They have also rejected every overture by Mr. Bush to shore up Social Security's long-term finances, even a proposal to trim future benefits for wealthier retirees. Every White House proposal to cut spending in this year's budget--agriculture subsidies to upper income farmers, slight cutbacks in Medicaid payments, reductions in Amtrak subsidies, a decline in pork barrel highway projects--has been rejected by the "deficit hawks" in Congress.

So thank heaven for the tax cuts that have helped to spur the economy that is now throwing off higher tax revenues. As the chart shows, those revenues are now rising back to their modern average as a share of GDP, just as supporters of the tax cuts predicted. And if the tax cuts are made permanent, and as the economy grows and incomes continue to rise, Americans will be paying even more in taxes as they move into higher tax brackets. The real windfall here isn't for the rich but for Washington. Instead of griping, Mr. Spratt ought to be doing cartwheels.

[Used with permission from OpinionJournal.com, a web site from Dow Jones & Company, Inc.]

African tragedy

Thomas Sowell, a senior fellow at the Hoover Institute in Stanford, CA, writes about why the G8 is missing the boat in regards to Africa.

[Hat tip to Betsy Newmark]

African tragedy

Thomas Sowell, a senior fellow at the Hoover Institute in Stanford, CA, writes about why the G8 is missing the boat in regards to Africa.

[Hat tip to Betsy Newmark]

Still more (good) economic news

Good news on the US trade deficit: Trade gap unexpectedly shrinks 2.7 pct.

Also, good news on the US budget deficit: Sharp Rise in Tax Revenue to Pare U.S. Deficit

See my related post here.

Trade -- not aid

Here is an article at allAfrica.com wherein the Sierra Leone Minister of Trade and Industry Development says that trade is what is needed.

Minister of Trade and Industry Dr.Kadi Sesay said Thursday that it is only trade that can develop Sierra Leone, not aid.

In a SPIEGEL interview of another African economics expert, James Shikwati, some counter-intuitive (at least to a G8/Live 8 perspective, but not to a free market one) things were stated:

SPIEGEL: Mr. Shikwati, the G8 summit at Gleneagles is about to beef up the development aid for Africa...

Shikwati: ... for God's sake, please just stop.

At SPEIGEL's query, Shikwati expands upon his initial statement:

SPIEGEL: Stop? The industrialized nations of the West want to eliminate hunger and poverty.

Shikwati: Such intentions have been damaging our continent for the past 40 years. If the industrial nations really want to help the Africans, they should finally terminate this awful aid. The countries that have collected the most development aid are also the ones that are in the worst shape. Despite the billions that have poured in to Africa, the continent remains poor.

Through the rest of the interview, Shikwati discusses why development aid provided by the West has been so harmful, the corruption of many African governments, and how AIDS has been overstated.

It's an informative article (in English), and one that I recommend.

Bush: End Farm Subsidies

Last Thursday, President Bush stated that the G8 was working to end farm subsidies.

President Bush said Thursday that he is seeking agreement with the European Union on a plan to eliminate by 2010 the $112 billion a year that wealthy countries spend subsidizing their farmers. "We want to work with the EU to rid our respective countries of agricultural subsidies," Bush said at a news conference in Gleneagles, Scotland, where he is attending a meeting of the Group of Eight industrialized nations.

Here's a later report:

Leaders of the Group of Eight nations agreed Friday to work toward the abolition of farm-export subsidies and reduce subsidies on all agricultural products, though they stopped short of a broader proposal from President Bush. "We have made the commitment to end all export subsides," British Prime Minister Tony Blair said at a news conference at the conclusion of the G-8 meeting in Gleneagles, Scotland. "We should set a credible end date" at the World Trade Organization’s December summit in Hong Kong, he said. Bush said Thursday that he’s seeking agreement with European Union leaders to scrap subsidies by 2010. Assistance should be ended as part of the so-called Doha Round of negotiations of the WTO, he said.

Bush’s appeal is the most farreaching yet by a political leader of a major industrialized nation, going beyond the proposals now being considered in the WTO. The EU has said it’s prepared to phase out farm-export subsidies provided more advanced developing countries make what European Trade Minister Peter Mandelson called "equivalent gestures."

Our President seems to be successfully pushing real solutions to our world's problems. Good for him.

More (good) economic news

See what Bush's tax cuts have wrought?

According to the Treasury department, the U.S. government took in a single-day record $61 billion in tax receipts on June 15. This surpassed the previous single-day high of $56 billion set on December 15, 2000. The recent surge in tax revenues is not just a one-day event. Fiscal year to date, total government receipts are up 15.5 percent, the fastest rate of increase on a comparable FYTD basis since 1981. The difference between the growth rate of tax revenues and the growth rate of government spending has widened to 8.4-percentage points, the largest since late 2000 when the budget was in surplus.

I think there is good evidence that supply-side economics does, in fact, work on a national scale. IMO Bush is on the right fiscal track . . .

More (good) economic news

See what Bush's tax cuts have wrought?

According to the Treasury department, the U.S. government took in a single-day record $61 billion in tax receipts on June 15. This surpassed the previous single-day high of $56 billion set on December 15, 2000. The recent surge in tax revenues is not just a one-day event. Fiscal year to date, total government receipts are up 15.5 percent, the fastest rate of increase on a comparable FYTD basis since 1981. The difference between the growth rate of tax revenues and the growth rate of government spending has widened to 8.4-percentage points, the largest since late 2000 when the budget was in surplus.

I think there is good evidence that supply-side economics does, in fact, work on a national scale. IMO Bush is on the right fiscal track . . .