Monday, August 29, 2011

Why Obama Can't Support A Real Jobs Program

President Obama’s much-anticipated jobs speech will undoubtedly cover more of the same things that already haven’t worked. He will propose an infrastructure bank, extension of unemployment and food stamps, promotion of green jobs, more government-corporate partnerships, and a one-year extension of the payroll tax reduction. He’ll advocate a second stimulus. He may be flanked by his jobs commission, headed by the CEO ofGeneral Electric, which earlier issued a lame interim jobs report.
His speech will not be about jobs. Instead, it will be a campaign speech in disguise.
Obama cannot propose a real jobs program. His constituents would rebel. A real jobs program attacks too many of the core beliefs of his party, such as minimum wages and higher taxes on the better off. Even if his presidency rested on it, Obama couldn’t emulate Bill Clinton’s 1996 Welfare Reform Act that triangulated him from his own party. There is no way for Obama to enunciate the equivalent of Clinton’s “We must end welfare as we know it.” His core beliefs rule out such a dramatic move to the center.
However, if Obama really wished to create jobs, he must:

Wednesday, August 24, 2011

A New York Times Columnist Fesses Up: Democrats Cost Jobs

Joe Nociera, a New York Times, columnist has had enough.  He cannot really believe that Obama’s National Labor Relations Board shut down Boeing’s new South Carolina plant, with its 5,000 jobs on charges that Boeing retaliated unfairly against labor. 

Let me give some quotes from his “Democrats Cost Jobs, August 22, 2100:

 “As companies have moved manufacturing offshore, Boeing has remained steadfast in maintaining a large manufacturing presence in America. It is America’s biggest exporter of manufactured products.”

“The N.L.R.B.’s proposed solution, believe it or not,(my emphasis) is to move all the Dreamliner production back to Puget Sound, leaving those 5,000 workers in South Carolina twiddling their thumbs.”

“Seriously, when has a government agency ever tried to dictate where a company makes its products? I can’t ever remember it happening.”

“Boeing’s general counsel …has also said that it was a disservice to a country that is ‘in desperate need of economic growth and the concomitant job creation.’ He’s right.  That’s also why I’ve become mildly obsessed with the Boeing affair. Nothing matters more right now than job creation.” 

“The word “retaliation” suggests direct payback….. Boeing did nothing like that. It not only hasn’t laid off a single worker in Washington State, it has added around 3,000 new ones. Seven out of every 10 Dreamliners will be assembled in Puget Sound.”

“That is what is so jarring about this case — and not just for Boeing. Without any warning, the rules have changed. Uncertainty has replaced certainty. Other companies have to start wondering what other rules could soon change. It becomes a reason to hold back on hiring.”

“When he was asked about the Boeing case earlier this summer, President Obama said that the N.L.R.B. is an independent agency and that his hands were tied. That may be true, though it’s worth pointing out that most of its top executives are his appointees.
But when he gets back from vacation, he might do well looking at his own administration, instead of simply blaming the lack of jobs on the Republicans.”

I agree with columnist Nociera. I imagine his bosses do not.

Tuesday, August 23, 2011

More Fuzzy-Headed Economics from the New York Times

“Congress and the White House have yet to figure out that the economy will not recover until housing recovers.”  “Homeowners Need Help,” NYT Editorial, August 22, 2011

To use NYT-like claims of consensus, I would say that “everyone” knows that the recession and financial crisis began with the dramatic overexpansion of housing.  We built more houses than people could afford to buy. The housing bubble was made possible by federally-guaranteed loans and federal government pressure to sell to low-income home buyers. The financial sector then kicked in by creating a murky market in toxic mortgages.

The contraction began when we recognized that we had a housing bubble. Housing sales and prices collapsed and so did the financial system.

Now the NYT tells us that we will not have an economic recovery until housing recovers! We do not need a recovery of the overbuilt housing sector. If we build more planes, cars, or TV sets than the market is prepared to buy, we cut back on their production. We should not conduct policy to keep resources in a sector that has become artificially too large.

Only when resources are transferred out of housing into more productive activities will we have a real recovery. There is no reason why construction workers cannot build oil and gas pipelines or work in offshore drilling rigs, if only government restrictions on these industries could be eased. To keep resources frozen in housing by artificial means (such as curbing foreclosures and forcing banks to modify mortgages) does nothing but delay the recovery. (By the way, what bank would lend to new customers after being forced to renegotiate loans in borrowers’ favor?)

I wish the editorial writers of the NYT would rely on some basic economics, not emotion, when they take pen in hand.

Monday, August 22, 2011

Will the New York Times Publish These Results?

"NEW YORK -- The majority of economists surveyed by the National Association for Business Economics believe that the federal deficit should be reduced only or primarily through spending cuts.
The survey out Monday found that 56 percent of the NABE members surveyed felt that way, while 37 percent said they favor equal parts spending cuts and tax increases. The remaining 7 percent believe it should be done only or mostly through tax increases."

Where is the Keynesian consensus the mainstream press writes about?

On the day this survey was released, the New York Times  published two interviews with fund managers (I guess they represent everyone) saying we need to spend more now and save later.

Why We Don't Need An Infrastructure Bank? Japan Is Why

A state infrastructure bank will be at the core of President Obama’s “jobs program” that he plans to unveil after his vacation. He will argue we desperately need a new government entity to repair our crumbling infrastructure and create jobs.
The president will spin seductive images of high speed trains, highways without traffic jams, and clockwork subways in every city.  With an infrastructure bank, the sky is the limit.
He will roll out respected moderate Republicans and even the Chamber of Commerce to vouch for his bank. He will explain that his miserly opponents, like the kooky Tea Party, favor collapsing bridges, traffic jams, and the loss of international competitiveness. Past generations gave us the interstate highway system and the Hoover Dam. What will we leave behind, he will ask?
read article on

Sunday, August 21, 2011

Obama’s Broken Record: Spend Now, Cut Later and Only Fools Disagree

The BEA’s downward revision of GDP revealed that we have yet to recover back to pre-recession levels. Rather than taking this bad news as evidence we need to cut government spending and deficits, the Obama administration sees an opportunity to spend more now and cut later. Maybe we won’t even need the cuts if business activity picks up, he says.

Obama’s liberal mouthpiece, the New York Times, reveals Obama’s new political strategy without apology:

“The President spent this week combining his pitch for deficit reduction with a renewed emphasis on the need for further temporary spending and tax cuts to encourage businesses to hire and consumers to spend.”

Note the “bait and switch:” We spend now temporarily and cut in the distant future, if at all. We have heard this “Let’s spend more now and save later” too often.  The elder Bush actually fell for it, and it cost him his reelection.

The NYT’s second drumbeat is that all “reasonable” economists agree that we should spend now and save later. After all, we all know the first Obama stimulus worked:

“Contrary to Republicans’ claims, economists generally judged his 2009-10 stimulus program to have helped, but to have been insufficient to overcome the deep downturn.”

The NYT has at least the decency to say instead of “all” economists that:

 “many economists argue that while temporary spending and tax cuts [e.g., a second stimulus] add to deficits initially, such measures can increase tax collections, reduce costs for safety-net programs and ultimately keep deficits smaller than otherwise by spurring business activity and lowering unemployment.”

What is this? Lower taxes raise revenue by promoting economic activity? Is this not “voodoo economics”? I guess as long as the tax cuts are not for the rich, the NYT can embrace voodoo economics.

President Obama reminds me of an inept  magician who attempts to misdirect his audience from the rabbit up his sleeve (more spending and deficits) to a beautiful bikini –clad female assistant (spending cuts and deficit reduction). No matter, how often he is caught, he tries it again.

I am becoming like a broken record too. This is at least the third post I have written on the lack of consensus on Keynesian economics and stimulus spending. Read
Tea Party

Saturday, August 20, 2011

Memories of Twenty Years Back: The Soviet Putsch

I was planning to return to Moscow on August 23, 1991. We were about to begin an advisory project for the USSR Oil and Gas Ministry. I was in Houston, Texas.

It must have been August 20. I awoke to the news that hardliners organized a putsch against the vacationing Gorbachev. His reforms were too much for them. CNN showed a rather sorry group of  old and typical party apparatchiks. They did not exude confidence.

Everything was in flux. The commentators had nothing so say. CNN turned to live feed from the streets. No commentary. Crowds were everywhere. Tanks and troops were everywhere.

One live feed convinced me that the Yeltsin side had a good chance. It was a scene of an old woman, pleading with a young soldier in a tank: “Please do not fire. Do not do anything. Just go home.”

CNN then showed the huge crowds around the White House. The famous scene of Yeltsin mounting the tank to address the crowds. Finally, there was the withdrawal of troops and tanks. The reformers had won.

I remember Gorbachev’s return. He appeared before the Duma. No one paid him attention. The old communist Soviet Union was, in effect, no more.

I was in Moscow several days later. I must have stayed there three weeks or so. The most vivid memory was the sense of optimism and joy. I talked to a friend whose sons had joined the crowd protecting the White House. I asked: Did you not try to persuade your sons not to go. At that time, the best guess is that they would have been shot.  Her answer: I was proud that they went. The cause was worth it.

I was in the White House shortly after the victory. I remember the optimistic parliamentary deputies saying: Now we have the power. We will transform Russia. One made a special point to show me the White House cafeteria. Its food was no better than anyone else’s. What a change from the communists.

By looking backwards from the present-day Putin KGB state, I understand the sense of disappointment of the Russian people. Russia had its brief chance and blew it. What a shame.

Thursday, August 18, 2011

What Really Worries American Business

The President's claim that we have a "crumbling" infrastructure is based on the World Economic Forum's rankings of factors that presumably affect international competitiveness. In reading their latest publication, I learned that their rankings are based on surveys of some 100 businesspersons/experts from each country. In other words, Ethiopians ranking of their infrastructure is compared with the rankings of U.S. businesspersons of U.S. infrastructure. This methodology yields all kinds of odd results, such as U.S. public trust in politicians being below Kazakhstan, Iran ranking better than the U.S. in favoritism of government officials, and so on.

Therefore, I suggest that in general the World Economic Forum's rankings are questionable, putting it  in the most favorable light. In some cases, it is better to ignore their results.

I did find one comparison that made sense and whose results are interesting. U.S. business persons are asked to select the most problematic factors in doing business.  Their answers show the real concerns of American business.  The results also make sense.

As the figure shows, the major concern is financing. Credit has dried up. No one is lending. We already know that; so this result makes sense.

The second greatest concern is bureaucracy. We suspected that, but here it is in numbers.

The next two concerns are tax rates and tax regulation. Again no great surprise. 

Although our inflation is low and the Fed tells us not to worry, concerns about inflation rank high, especially to those facing higher prices of materials.

The next two factors of concern are a poorly educated and motivated work force. 

Not surprisingly, businesses are worried about policy instability. They have been buffeted by too many changes in the last few years.

Two major policy issues -- health care and infrastructure concerns- rank among the lowest of concerns of American business persons.We spent the first three years of the Obama administration fighting about something the business community does not regard as a problem. We will begin a debate on a state infrastructure bank. The business community does not appear concerned about our "crumbling" infrastructure.

Studies such as these suggest we should not shoot from the hip in the upcoming political campaign. We should not assert concerns that are really not there.

Wednesday, August 17, 2011

Spoof Turns into Reality

I was thinking of writing a tongue in cheek post about granting S&P whistle blower protection after its downgrade.

Imagine my surprise when I saw the following on Drudge just now:

US Inquiry Eyes S&P Ratings of Mortgages


Tuesday, August 16, 2011

Yes, There Is No Mainstream or Consensus on Stimulus Spending

In its Sunday edition, the New York Times informed its readers that “a wide range of economists say the administration should call for a new round of stimulus spending, as prescribed by mainstream economic theory, to create jobs and promote growth.”

In my post of August 11 Paul Gregory Forbes I rejected the notion of a  consensus and pointed out that  the seven Nobel Prizes  went to economists who cast doubt on the Keynesian model and zero to  economists for advancing the Keynesian agenda. The Nobel prize committee itself has cast serious doubt on the characterization of Keynesian economics as “mainstream.”

In his “No Near-Consensus Among Economists for Another Stimulus Package” John Taylorwrites “there are plenty of economists who think that gradually reducing spending and not increasing taxes is better for job creation.  In June, for example, 150 economists (including me) wrote that a debt deal ‘that is not accompanied by significant spending cuts and budget reforms would harm private-sector job growth.’”

Disagreement among economists on Keynesian stabilization policy is not new. Two researchers  analyzed a randomized survey of one thousand members of the American Economic Association from 2003. AEA members were asked their views on a wide range of issues, including a set of questions on the economic role of government. The results of this study were published in 2006.

The key question for our purpose is the degree of support for “tuning the economy by fiscal policy.”  Some fifty percent supported strongly or mildly and thirty percent opposed as of 2003. The rest had mixed feelings. Of the eight questions on the role of government, the Keynesian fiscal policy question had the greatest variance – that is the greatest amount of disagreement. Note that this question is not ideal. It was asked at a time of rapid economic growth and low unemployment and did not address the question of a stimulus as huge as we have recently seen.

Note that AEA members were last surveyed in 2003. If there is a consensus about the last three years, I would imagine it would be that the massive Obama stimulus failed. For this reason, the same survey today should yield even larger percentages of Keynesian skeptics

The professional competence of the average economist to answer questions on macroeconomic stabilization has diminished over the past two decades. The high growth and low unemployment starting in the early 1980s diverted attention of economists from the business cycle. Accordingly, relatively few economists know the modern stabilization literature. We do not have a survey of economists who specialize in the business cycle. The results of such a survey would be informative.

A final note: As of 2003, democratic-voting economists outnumbered republican-voting economists by almost three-to-one. The vast majority of those answering the fiscal tuning  question voted democratic..

Personally, I do not see the mainstream consensus that the New York Times does. Perhaps I am too dense.

The authors of the survey report an interesting fact about the answers of the surveyed economists:  “Economists have something of a reputation for favoring free-market principles, yet we see that economists on average are supportive of most economic interventions, mixed on a few interventions, and opposed only on immigration (weakly opposed to tighter restrictions), government ownership of industry, and tariffs. It seems that most economists in fact stand in the  middle of the road or even on the interventionist side. Why, then, do they have a reputation for being free-market supporters?”

Daniel Klein and Charlotta Stern, Economists’ Policy Views and Voting,” Public Choice (2006) 126: 331–342, 2006

Friday, August 12, 2011

The Government Kills a Bank, Small Business, and Jobs

In my introductory economics classes, I teach that a well-run bank spends its time getting to know it customers and then makes loans to those who are credit worthy. I point out that the most important employees of banks are its loan officers, whose job it is to know its customers.

With creation of the mega-bank, much of this wisdom has been lost. Mega banks lend money to customers they do not know. They buy syndicated mortgage derivatives they do not understand, and they are surprised when they are left holding the bag with worthless paper. Once bitten, they fear making loans and sit on he cash reserves.

Main Street Bank of Kingwood Texas, was one of the traditional banks I teach about in my class. It got to know its local customers. It made loans primarily to small local businesses – the very ones who provide jobs for the local community. Man Street Bank was profitable, and its portfolio of bad loans was well below the national average.

Enter the federal regulators.  In July of 2010, Federal regulators ordered the bank to boost its capital and bring in a new top executive. More tellingly, it ordered the bank to shrink its lending to small businesses. It ordered that small business loans be dropped from 90 percent to 25 percent – there were too many eggs in one basket.

On Wednesday August 10, Main Street Bank surrendered its bank charter and sold its four branches. We lost a bank that was doing exactly what the economy needs – a  bank that actually makes loans to small business customers whom it knows well.

This intrusive regulation is part of the federal program to identify excessive risk and prevent bank meltdowns. As you can see, the Feds are using a one-size-fits-all approach. Regulation of this type is scheduled to get even worse with the looming Dobb-Frank Act.

Do we wonder why there is so little lending and so few jobs? Do we really need Washington bureaucrats telling small banks how to run their business? Do we really think that a Washington bureaucrat can foresee risks that private companies that are risking their own money cannot see?

Thursday, August 11, 2011

Tea Party Understands Economics Better Than Obama Or Bill Maher

Liberal commentators and comedians appear to accept Keynesian economics as such an evident truth that non-believers must be stupid. Keynesian economics has become a liberal dogma, not subject to challenge by reasonable people.

Consider comedian Bill Maher’s quip to a former Obama advisor on Aug. 6, 2011:
“Keynesian economists and climate scientists both know real things, but the stupid people who don’t know things get an equal vote. Isn’t that frustrating?” (Laughter from the audience.)

Liberals target the Tea Party as their favorite nominee for the “stupidity” prize. Tea Party members are not only dunces. They are irresponsible hostage takers who do not care if they bring the country down with them.
Here is a shocker for Obama, Maher and Tea-Party haters: Since the Nobel Prize in economics was established, seven Nobel Prizes have been awarded to economists who cast serious doubt on Keynesian economics. Not one Nobel Prize has been awarded to an economist who advanced the Keynesian agenda. New York Times liberal columnist, Paul Krugman, won his Nobel Prize for trade theory, not for macroeconomics.

Maher’s “stupid people” who reject Keynesian economics, it seems, are in rather distinguished intellectual company.

Let me go down the list of Nobel-laureate Keynesian skeptics:

1) Permanent or life-cycle income (Milton Friedman, Franco Modigliani)
This theory says that consumers are forward looking. They base their consumption decisions on income they expect to earn over a longer period of time, not what they earn now. They change their spending only in response to changes in long-term income, not in current income.

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If the UN Wants to be Useful: Build Villas for Dictators

Egypt is prosecuting Mubarak in a hospital bed inside a cage. He faces the death penalty. An international court has indicted Kaddafi.  If his Libyan enemies get their hands on him first, he will be killed. Pinochet was hounded to the end of his life despite a grant of immunity after he turned over power following a democratic election.

What signals do these three cases send out? They tell dictators to fight on, to the bitter end if necessary.  In the meantime, NATO warplanes must be deployed, national treasure lost, and thousands of innocent civilians killed. In many cases, the dictator will prevail and continue in office. Nothing has been gained. The costs have been high.

If the UN wanted to make itself useful, it should have a protection program for dictators who negotiate to leave office. The compound should be heavily guarded, have all the latest luxuries, and the staff must be attentive and deferential. A deserted island might do the trick or a scenic down-on-its-luck country may want the business.

Those countries that want to extract revenge from fallen dictators would find this a tough proposition to accept. They are already rid of their dictator. Why should they help other countries get rid of theirs? But from a cost-benefit perspective, the UN-sponsored retirement community makes a lot of sense. This is one case where we need an “international community” to persuade reluctant members to do what is best.

I can imagine such a dictator-retirement community. Robert Mugabe takes a leisurely stroll, chatting with Mohammar Kaddafi and Bahsar Assad as Raul and Fidel Castro nap on  chaise lounges at the pool. Their mistresses would be welcome as well. What a sight!

Tuesday, August 9, 2011

The New GM: It Should Do Well With No Debt

The new GM reported a profit of $2.5 billion for the second quarter of 2011. This compared to a loss of $15 billion in the same quarter of 2010.

Indeed, the new GM appears to be doing a lot of things right. It has reduced its labor force from 263,000 to 208,000. It operates fewer plants. It made slightly more cars, and it has reduced its buyer incentives.

The Obama administration will use this success story as his major economic achievement. He saved GM with the government’s $50 billion bailout. He did not save the shareholders of the “Old GM.” They lost everything.

There is one fact missing in this optimistic story. The $50 billion bailout wiped out $40 billion of GM debt. It is a lot easier to make a profit if you have no debt payments.

In the second quarter of 2011, GM had no interest expenses. Ford, which borrowed money to stay in business, has around a half billion in interest expenses each quarter. The government bailout, in effect, gave GM a huge competitive advantage over its rivals. Without the bailout, GM would be paying more than $2 billion a year in interest costs.  Its second quarter profit would have been $1.7 billion instead of $2.5 billion.

GM now faces an increasingly bleak third and fourth quarter. If its profit drops to, say, $800 million, virtually all of that is due to the bailout of its debt.

Is GM the success story we are told it is?

Monday, August 8, 2011

A Tale Of Three Thefts: China, Russia, And The U.S.

The denial of the rule of law for the few may affect the economic actions of many.

Russia 2006 
In December of 2006, Gazprom, the Russian energy monopoly, "accepted" control of Sakhalin-2 from Royal Dutch Shell (RDSA - news - people ). Sakhalin-2 is a drilling venture off Sakhalin Island in Russia's North Pacific. Shell negotiated the offshore drilling rights with the Russian government to be Sakhalin-2's owner and operator along with its two Japanese partners. In return, Shell agreed to invest $8 billion. Shell's deal was unusual because it included no Russian partner, but it was approved at the highest levels in 1994. As the end of 2006 approached, Sakhalin-2 was ready to go into production. Shell's investment had grown to $20 billion

Rhode Island Is Smarter Than Everyone Else

A new Rhode Island state law places bondholders before other creditors in the case of bankruptcies of municipalities.

The town of Central Falls declared bankruptcy recently, but its bondholders are scheduled to be paid in full. The pensions of retired city workers will  suffer a cut of one third.

Why did Rhode Island take this unusual and politically-costly approach?  A Rhode Island official explained it as follows: “We do not want bondholders to think this state was not a good place to put their money.” He also noted that without this law, Rhode Island municipalities will have to pay higher interest rates for its borrowing.

How is it that such economic rationality trumped politics in Rhode Island? Why could we not have had such rationality during the federal debt limit debate?

Municipalities in states borrow in highly competitive markets. They must compete against 49 other states. If the state’s investment climate is inferior to others, they cannot attract lenders. If you wanted to buy municipal bonds, would you buy from Rhode Island or California?

The federal government faces less competition, and the competition it faces is weak (such as European and Japanese sovereign debt).  Our federal government believes it can sell its debt not matter how badly it misbehaves.

The recent Standard and Poor downgrade may change this way of thinking.

Sunday, August 7, 2011

The NYT Says What Obama Cannot Say: Raise Everyone’s Taxes

The New York Times Sunday editorial reveals point blank the liberal agenda. According its the editorial writers, we cannot cut spending in any significant way without curtailing core liberal programs. Hence, “there is no economically sensible or politically honest way to address the deficit without also increasing revenues and reforming the tax code.”

Even more remarkable is their candor with respect to taxes. Contrary to Obama’s promise not to raise taxes on the middle class, the NYT calls for raising taxes on just about everyone. 

I supply their blueprint for taxation during the second Obama administration without comments:

1). Let the Bush tax cuts expire at the end of 2012 for those making $250,000 and above.  The other tax cuts could expire at the end of 2013. The middle class should keep their tax cuts for a year to prop up consumer demand. The expiration of all the tax cuts would “save” $3.8 trillion over the next decade.

2) Tax reform should not touch breaks for home ownership and retirement saving, but they should be targeted only to help low and middle-income tax payers. Capital gains should be taxed at 35 percent. Tax breaks that subsidize profitable industries like oil must be ended. If the ending of tax breaks permits, tax rates could be lowered generally.

3) We should use a value-added tax or carbon taxes to raise “needed revenue for deficit reduction, and for what government provides” so that all additional tax revenue need not be squeezed from income taxes.

The NYT ends with its reading of public sentiment: “The public is open to new taxes, and the economic facts are clear. Until tax increases are considered in equal measure to spending cuts, there will be no budget fix.”

I imagine this editorial is not being greeted with enthusiasm in the White House. It lays bare the fact that Obama’s core supporters do not want to cut spending. Instead, they propose massive tax increases on middle- and low-income families.

If Obama were to publicly embrace these proposals in his upcoming campaign, his chances of reelection would shrink virtually to zero. Republican candidates should keep this editorial ready for use.

It’s Not the Tea Party Stupid: Why the Bond Market Does Not Like What It Sees

Those who blame the kamikaze, hostage-taking tea party for ruining the U.S. credit rating do not see what the bond market sees. The last-second budget deal, which was really about nickels and dimes, underscored two things:

 First, it again revealed a political system unable to address the big issues. And if it tries to address them, it is likely to make things worse.

Second, it shows a nation that is no longer able to grow itself out of fiscal difficulties.

Experts know that the deficit and debt figures tossed around in public discussion are only the tip of the iceberg. The real iceberg is the unfunded liabilities of Social Security and Medicare. Their unfunded liability is how much money we would have to set aside to meet the future obligations of these two programs.  Our national debt, which may soon reach the size of GDP (say $17 trillion), is dwarfed by the unfunded Social Security and Medicare liabilities that may have already reached $100 trillion!

The bond market is looking at our deficits and our unfunded liabilities, and it does not like what it sees.  Moreover, it sees that any and all serious attempts to deal with these fiscal problems impose huge costs on potential reformers.

As examples, I would cite:

The savaging of George Bush’s attempt at the start of his second term to reform Social Security via partial privatization.

The demogoging of Paul Ryan’s plan to salvage Medicare and Medicaid by turning it into an insurance grant program.

The passage of Obama Care under the fig leaf of a deficit reduction plan, with all parties understanding it raises unfunded liabilities.

In the past, we have been able to ameliorate deficits and unfunded liabilities by economic growth. There is now doubt as to when or whether we will return to healthy growth. We have an economy that does not lend, does not take risks, does not buy, and is strangled by regulations. We have an administration that is perceived as anti-business and more interested in redistribution than growth and efficiency. If we are doomed to European-style growth, our fiscal woes will grow worse and worse and worse.

The S&P downgrade speaks to all these concerns. It surely did not help that the Obama administration ordered the free coverage of a wide variety of women’s health costs in its latest administrative guidelines for Obama Care. As more of these administrative rulings come out, the colossal unfunded mandates of Medicare will be better understood.

If things are so bad, you might ask, why is our federal government not already paying higher interest rates? The answer is that although things are bad here, they are worse elsewhere. It is like a marathon with some of the world’s slowest runners. We are running very slow but others are slower.

That’s not the way to win a race – by relying on the ineptitude of others.

Friday, August 5, 2011

Only in Putin’s Russia: Prosecute a Dead Man!

On November 16, 2009, lawyer Sergei Magnitsky died in a Russian prison. He was jailed for alleged tax evasion, but his mains sins were representing Hermitage Capital’s case against the Russian state and for blowing the whistle against crooked Russian officials. In prison, he was denied medical attention despite repeated requests and died in custody.

Magnitsky case became an international incident. The U.S. State Department has issued a list of Russian officials involved in the case whom are to be denied visas. Russian justice authorities cleared the prosecutor who handled the Magnitsky case and even awarded him a medal. Russian authorities are preparing a list of U.S. officials to be denied visas to Russia.

In a possible Kremlin rift, President Medvedev named a human rights commission to look into the case. They concluded that Magnitsky’s arrest contravened the European Human Rights Convention, the case against him was fabricated and pursued by the same Interior Ministry officials he accused of a $230 million theft from the Russian Treasury, and he was beaten immediately before his death in custody. The Russian interior ministry rejected these findings.

On August 5, the Russian Interior Ministry announced they plan to prosecute  Magnitsky for alleged tax evasion, although  he has been dead for twenty months. They justified this bizarre action as a humanitarian move to give Magnitsky’s family the satisfaction of a chance to clear his name. This  claim was rejected by Magnitsky’s mother, who said: "To put a man on trial after he was killed, when he can no longer defend himself, is an evil and base act. It goes against all human morals, and law."