We Bought a House in the City

Downtown Columbus, Ohio

The Prolix Patriot believes that the future of conservatism will depend on restoring and rebuilding our cities after decades of liberal decay and neglect, so he and the Missus purchased a house in the city to put his money where his mouth is, as it were. For the first time in the history of the world, more people live in cities than do not. If conservatism is to remain a vital force in our civilization, we must bring our values back to the cities and our core institutions.

There are many obstacles to this project of course. In a map of precinct-level election returns, cities are the deepest of deep blue islands even in states that as a whole lean solidly to the right. Municipal elections are settled in Democratic primaries and the November elections might as well be like the Soviet Union where the only answer is "Yes." This is an unlikely place to look for conservative values. Living in the city is a decidedly counter-cultural proposition for us, especially when trying to have a large family.

However, because of this, conservatives in cities know the value of community perhaps more acutely than their liberal neighbors. Whereas for liberals the many boards and committees of municipal government provide numerous opportunities for civic involvement, for conservatives the first unit of organization (after the family of course) is the parish, and unsurprisingly, the most vibrant and conservative parish in Columbus is in the heart of the city, not at its periphery.

Fortified by communities of faith and family, conservatives are better prepared to engage with people of differing opinions instead of succumbing to the liberal tendency towards oikophobia. As conservatives, we can highlight the things that we do have in common with liberals without completely surrendering to radicalism. That said, instead of seeking to find common cause where none exists, we must use every opportunity to encourage our liberal neighbors to rethink their attitudes about conservatism—and perhaps even join our cause.

As one example, conservatives can demonstrate that conservation of nature (as opposed to radical environmentalism) is best achieved by making cities a desirable place to live instead of punishing people for the economically rational decision to live in the outer suburbs. As another example, horrible schools deter families from living in the city. Groups like Southside STAY in Columbus recognize this problem. Conservatives should emphasize our commitment to school choice and teacher accountability as the means to restore urban schools and make it easier for large families to thrive.

Many years ago, the Prolix Patriot wrote a letter to the editor of the Wall Street Journal defending the importance of cities even in an age where technology makes it easier to communicate across vast distances and sprawling infrastructure provides relatively quick access from the countryside to the urban core and vice-versa. These advances are wonderful in some ways but they also have their drawbacks, and they can never replace the value of proximity that nurtures and sustains communities and our society as a whole.

Conservatives recognize that human nature does not change. Instead of the Bloombergian nanny-state which tries to force people to live according to the latest fad, we recognize that the way to change behavior is by setting a good example ourselves and by providing incentives for others to do the right thing. It will take much time and effort to repair the damage (both physical and spiritual) that liberalism has inflicted on our cities over the past 50 years, but if we do not commit ourselves to the task, we cannot complain about the decaying and degraded society that our children will inherit.

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The View at the Bottom of the Cliff

Cliffs do not loom

As the old carol goes, "fast away the old year passes." In our frantic and impatient modern world there are never enough hours in the day, but with the shortness of the days in this bleak midwinter the sense of time passing far too quickly is only heightened. Paradoxically, these last fleeting and precious moments of the year are also a time to pause and take stock of where we have been and where we are going. At the end of the two-thousand twelfth year of our Lord, there is much to consider.

The Age of Obama has been extended for another four years and the so-called "fiscal cliff" is no longer merely "looming" [N.B., this should be a top contender for the cliche of the year], but is now a rumbling avalanche sliding down the mountain of debt and red tape to crush and bury us all. At the same time as we stare with horror into this thundering torrent of such immense and unimaginably massive doom it is also a time to consider how much less we have as well.

The liberals tell us that we are too fat, so we must have less food, less salt, less sugar, less trans-fats (whatever those are), and less carbohydrates. We must also have less alcohol, less smoking, and less of anything fun. This dread scourge does not only afflict us as adults though. Our children are too fat as well and there are too many of them. We need smaller children in smaller classrooms. In this respect, the liberals may get their wish, because we already have fewer children in smaller families. There are now fewer families with both parents present than there are children with single mothers or born out of wedlock.

The liberals tell us that the earth is getting warmer (or colder depending on who you ask and when), so we need to use less gasoline and have smaller cars (or no cars at all) and drive slower and not travel as far. We must use less coal, so that means less electricity, less warmth, less energy, and less light. We are told to spend more time outdoors, but there is less of that too. There is less solitude and less wilderness and the little that is left is farther away and harder to get to. There is less quality entertainment. There are fewer movies about heroic men. Perhaps there are fewer heroic men to make movies about, or perhaps it is because the liberals have demonized and deconstructed all the heroes of our past and turned them into villains.

The liberals tell us that we must not offend, so there is less prayer, less faith, less Christmas, less God. There are fewer practicing Christians. Perhaps it falls under entertainment, but there is less Tebow too. Hollywood celebrities with broken lives tell us how to live so it should not astonish us that there is less virtue, less fidelity, and less modesty. Dishonest politicians tell us they have all the answers and yet there are fewer principles, less integrity, less responsibility, less humility, less cooperation, and less trust in our public institutions. Despite having less freedom (or maybe because of it) there is less security and less peace. There is less pride in America, less dreaming, less exploration, and less hope for the future.

The liberal solution always seems to be less of something. There is too much violence, so we need fewer guns. There is too much inequality, so we need less prosperity. There is too much suffering, so we need less comfort. There is too much death, so we need less life. In the end, that last point encapsulates the rest. There seems to just be less for us to give and less of anything at all. People are tired and worn and holding on desperately for something to change, but they are less and less sure what that something even is. People are yearning for more. We want more freedom. We want more hope. We want more heroes. We want more LIFE. Let us pray that in the new year we may find some.

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What Goes Around Comes Around

Fighting Fire With Gasoline Doesn't Work.

President Obama claims to stand on the side of police, firefighters, paramedics, teachers, librarians, and other public-sector employees. This is perhaps true insofar as he has committed the federal government, and thus the American taxpayer, to spend inconceivable amounts of money to win the affections of these groups. However, the new contract that will be voted on today by the Chicago Teachers Union and an internet video being circulated by the International Association of Fire Fighters both make clear that in the long run, Obama's policies will do more harm than good for public-sector employees.

While most private sector employers and even the federal government have transitioned to defined-contribution plans like the 401(k), most municipal governments continue to use defined-benefit pension plans. Unfortunately, defined-benefit plans are going bankrupt because the money that was supposed to be set aside for future pension payments was spent frivolously by local governments during the boom times under the flawed assumption that the economy would always be good. Unlike the federal government, state and local governments can't just print money to pay their pensioners when expenses exceed revenues. They have to issue new debt which usually has to be approved by voters in a referendum.

The biggest reason for funding shortfalls in the great recession is the decline in home prices and thus property tax revenues on which local governments depend. The crisis is real. Because of their profligacy, cities like Stockton, California and Camden, New Jersey are now unable to pay for even basic services like police. Eventually home prices and tax revenues will recover, but consider that sometime in the next 20-30 years there will be another major recession and tax revenues will collapse again, except that if we don't have pension and entitlement reform, next time the burden of payments on state and local governments will be many times worse than what we have seen in the last few years.

Of course, senior employees who have dedicated their whole lives to serving public health, safety, and education are right to be upset that their retirement is now in jeopardy. Any plan to address the public sector pension crisis must ensure that people do not lose the retirement that they have worked for. However, opposition to reform from public-sector unions like the IAFF and the CTU will ultimately result in less money to fund salaries, benefits, training, and equipment for their current and future employees as state and local governments are forced to spend more and more on pension payments. Moreover, just throwing more money at the problem now is like fighting fire with gasoline.

Winston Churchill probably never said that, "Any man who is under 30 and is not a liberal has no heart; and any man who is over 30 and is not a conservative has no brains," which is just as well, because it is false. As the slow-motion train wreck of the pension and entitlement crisis makes clear, people under 30 years of age have the most at stake in this election. If Obama is re-elected, his liberal policies of pandering and procrastination will continue and we will see more bailouts, more "stimulus" plans to pay for bankrupt public sector pension plans, and ever higher deficits and taxes to fund it all.

Who will pay these taxes? Obama has been traveling the country promising adoring college students that if he is elected they will not have to worry about the cost of federally-subsidized student loans going up. What he isn't telling them is that his own ObamaCare law eliminated subsidies for student loans issued by private banks, and that because of his policies, when their parents retire, current students will inherit a debt so shockingly enormous that a 3.4% increase in student loan interest will seem like a very small price to pay indeed. The old saying that "what goes around comes around" has never been more true.

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Joe "Sixpack" Biden?

They built it.

This past Labor Day weekend, one of the panelists on the "Chris Matthews Show" said something so preposterous that it defies belief, even for the shameless liberal pundits that are the staple of MSNBC’s political coverage. According to Joe Klein, Congressman Paul Ryan is upper-middle class while, "Biden is a working class guy," (around 16:30)--not a symbol of the working class or born of a working class family, mind you, but actually working class in the here and now in his capacity as Vice President of the United States and President of the Senate.

The irony of this howler is even more bitter when we consider that Labor Day was once more than just the last day the pool is open and actually a real celebration of the working man, like those glorified in the mural by Diego Rivera above. Conversely, how can a man who has served in the Senate for nearly 40 years now ever be described as "working class" by any definition whatsoever? The U.S. Senate is modeled after the original Roman Senate for which membership was open only to the wealthiest and most prominent citizens of the Republic. As a practical matter, the same is true in America today.

Furthermore, if Paul Ryan--who, like Biden, has spent his entire career in public service--is wealthy and a symbol of Republican plutocracy with his comparatively modest income in the House of Representatives--which is modeled after the British House of Commons, incidentally--wouldn't that imply that Biden is also one of the evil wealthy capitalist pigs by virtue of his higher salary and longer tenure in the more august upper chamber?

The only other explanation for Biden’s lower socioeconomic status is that he has foolishly outspent his means (all taxpayer funded, of course) and taken out a second mortgage on his million-dollar home, multiple lines of credit with his life insurance as collateral, and squandered more taxpayer funds on his infamous first-class daily commute on Amtrak while Ryan has carefully and judiciously invested his more modest income to build up a greater fortune for the security of his family and future generations.

Given that our overextended entitlement programs closely resemble Biden's finances, this comparison is particularly instructive. Who should we trust more to manage the public fisc? In these lean times, we should place our trust in the proverbial ants who built up their store of provisions during the days of plenty than with the profligate grasshopper Biden. Like the grasshopper of fable, Biden's song and dance would be entertaining if we were at our ease in the golden days of summer.

We do not have that luxury. In these bleak and desperate times, we need men and women of substance and integrity like Congressman Ryan who understand that reforming entitlements is more than just a political game and is not merely necessary, but will become an existential crisis for our democracy if not solved within this decade. We cannot wait for 2016 to finally give serious thought to the defining issue of our age.

Fortunately for the future of this country, regardless of whether Mitt Romney wins or loses the election, Ryan will be in charge of the budget--either in the White House or in the House of Representatives. Democrats should be careful about mocking the man for his financial success, because they're going to have to work with him to mend the nation's finances whether they like it or not.

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The Power of Inequality

In Soviet Union, Winter Occupies YOU!

As the Occupy Wall Street movement fizzles out with the approach of colder weather, it is worth revisiting the Occupiers’ central argument. Namely, that income inequality between the top 1% and the rest is somehow relevant to the present economic crisis. However, this is a dangerous diversion from the heart of the problem. Instead of focusing on income inequality, we as a society should be focused on improving economic growth.

Income inequality is an inescapable reality. Even in famously egalitarian countries like Sweden or Norway, there is no such thing as perfect equality. Whenever people engage in economic activity together, there is some element of wealth creation over what could be achieved if each person had to fend for himself. Although on a small scale it is possible to apportion wealth creation evenly to all participants, history has shown time and time again that it is more efficient to apportion the rewards of economic activity in proportion to individual contributions.

Furthermore, according to recent economic data from the CIA Factbook, there is no real correlation between income inequality and economic growth. As an example, both South Korea with a low Gini coefficient of 31.4 and Mexico with a very high Gini of 51.7 have similar growth rates. Conversely, Japan and India have similar Gini coefficients, but the annual GDP growth for India is more than double that of Japan. Indeed, an academic paper on the subject concludes that, “Evidence from a broad panel of countries shows little overall relation between income inequality and rates of growth and investment.”

Worst of all, policies which are intended to promote income equality are not always successful and almost never contribute to greater prosperity. When pursued on a large scale, such policies can result in economic disaster as was the case during Stalin’s infamous five-year plans and Chairman Mao’s “Great Leap Forward,” both of which lead to crop failures and the deaths of tens of millions of people from starvation.

Income inequality is a distraction from policies which contribute more directly to promoting prosperity. Numerous studies have demonstrated the relationship between strong property rights and economic growth. As the evidence shows, Americans do not need the government to tell them how to live their lives. If the government fulfills it central purpose of protecting our long-cherished rights of personal liberty and private property, Americans will be free to pursue their own aspirations of happiness and prosperity in whatever way they see fit.

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Account Overdrawn

As the debt limit negotiations drag on, the Prolix Patriot was reminded this morning by a cousin-in-law of this passage from Atlas Shrugged:

Then you will see the rise of the double standard – the men who live by force, yet count on those who live by trade to create the value of their looted money – the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law – men who use force to seize the wealth of disarmed victims – then money becomes its creators' avenger. Such looters believe it safe to rob defenseless men, once they've passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

"Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it becomes, marked: 'Account overdrawn.'

The Prolix Patriot does not advocate for a return to the gold standard, as this would be disastrously impractical even in the best case. At the same time, it is fast becoming obvious that our trust in the "full faith and credit" of the U.S. government as the basic measure of value is sorely misplaced. Even if default is avoided this time around, what's to stop future politicians from further corrupting of our entire economic system?

More importantly, insurance companies, mortgage lenders, and retirement funds should not be punished because of the profligacy of our government. The last case is especially wicked. In exchange for a lifetime of honest work, millions of retirees and those nearing retirement are left with nothing except faith in the word of a politician.

It is written in scripture that, "No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon." Alas, our elected officials thirst only for power and don't even serve mammon, and the motto "In God We Trust" stamped on our currency has become a twisted joke.

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More Hoover-Carterism

Almost a year ago in these pages, the Prolix Patriot dubbed the President’s flawed economic policies a new era of “Hoover-Carterism.” Little has changed since then. In the debate over increasing taxes vs. cutting spending, Obama has led the liberal chorus of Cassandras who warn that cuts to spending will harm the economy far worse than increasing taxes, but there is scant evidence to support their claims. Rather, the only real support for Obama’s dubious policies is his own hubris.

Prior to 20th century, government spending was an infinitesimal fraction of anything comparable to today. Even when the government was not the behemoth that it is now, the economy grew far more quickly than it has in recent years. Then, on February 3, 1913, the state of Delaware--which ironically has no income tax of its own--provided the 36th vote for ratification of the 16th Amendment to the Constitution which created the federal income tax. With increased taxation, the federal government also began spending more money. The effects are striking.

Using data from economists at Saint John’s University and Miami University summarized in the chart above, we see that prior to 1913, real growth rates (after accounting for inflation) averaged roughly 4.2% per year. Meanwhile, the economy only contracted in nine out of more than 100 years. At the same time, there were 43 out of 100 years with better than 5% real growth.

After 1913, real growth rates have only averaged 3.4% per year—almost a full percent less each year than pre-income tax levels. At the same time, the number of years with contractions increased from 9 to 22 out of slightly less than a hundred, while the number of years with better than 5% real growth shrank from 43 to only 29. Worse still, after the creation of the modern welfare state in response to the Great Depression, each passing decade has seen declining growth rates. The last year with real GDP growth above 5% was 1984.

Some will argue that it’s not fair to compare growth rates during the 19th and 20th centuries due to technological and societal changes. However, the agricultural innovations and the invention of the microchip of the late 20th century are no less revolutionary--and probably more so--than the invention of the steam engine which launched the 19th century industrial revolution. If anything, growth today from the agricultural and information revolutions should exceed that of the 1800’s. Instead, we live in a time of economic atrophy.

It’s clear from this exercise that as government taxation and spending have increased as a proportion of economic output, the growth of the economy over time has slowed until today, where it is at a virtual standstill. Despite living in an era of unprecedented technological advancement, the economy is so overburdened with taxation, government spending, and debt, that a year with 5% real GDP growth is now rare.

Obama and his liberal allies claim that more taxation and spending will save us from our current plight, but even a cursory look at history shows just how absurd this Keynesian prescription really is. The hard truth is that the government really has no power to help the economy. Despite the best efforts of tinkering technocrats, the economic growth of the last 60 years has been pathetic compared to historical averages. Rather, the lesson of history shows that the government can do very little help the economy, but is quite capable of doing harm.

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How Big Is $1.5 Trillion?

Marinus van Reymerswaele, "Two Tax Collectors"

With talks on raising the debt limit grinding along in Washington, D.C., it's worth considering just how big the problem really is.  President Obama and the Democrats have been pushing tax increases as a solution to the nation's budget woes, but don't think for a moment that such increases will only affect the super rich.  When the tax man comes around, we're all going to pay the price for the government's profligacy.

According to the Congressional Budget Office, the estimated 2011 U.S. federal budget deficit is $1,480 billion dollars.  But what does that really mean?  Comparing this number to data from the International Monetary Fund, the U.S. federal deficit is roughly the same as the Gross Domestic Product of the following countries and regions:

• Canada - $1,574 billion

• India - $1,537 billion

• Russia - $1,465 billion

• Spanish-speaking South America (i.e., except Brazil) - $1,443 billion

• Spain - $1,409 billion

• Australia and New Zealand combined - $1,375 billion

• All of Africa, minus South Africa - $1,357 billion

Consider this when evaluating President Obama's claim that we can solve the nation's fiscal problems if we simply close some tax loopholes for "millionaires." Unless we make major cuts to spending--including entitlements--the scale of the problem is so immense that we are all going to have to bear some of the burden.

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A Real Bridge to Nowhere

During the 2008 election, vice-presidential candidate Sarah Palin was pilloried by the media for her initial support of the $400 million “bridge to nowhere” that would have been funded with federal taxpayer dollars. However, this is nothing compared to the vastness of the mounting debt crisis. A few hundred million dollars is laughable compared to a national debt that is measured in tens or even hundreds of trillions.

While discussing the national debt limit with a friend, he compared the looming debt limit to a car that is low on gas. He argued that just as you would not slam on the brakes when you realize that you need to stop for gas in 20 miles, politicians should not treat the debt limit as a crisis. This is a useful metaphor, and perhaps it has some validity, but even if the debt limit is raised, our nation will still be in dire straits.

Yes, the car of state, as it were, is low on gas. However, this is a better analogy for the problems of the private sector economy. Businesses in this country are burdened by a combination of too much uncertainty in all the wrong places plus plenty of bad certainty about over-regulation and excessive taxation. As a result, the economy is sputtering and we are on the verge of an even deeper double-dip recession.

However, the car of state is also being pushed by the government towards a bridge that has not yet been fully built. As in the climactic scene from “Back to the Future III,” we have already passed the point of no return, but unlike the movie, there is no such thing as time travel. The debt problem is not going to go away by itself. Instead of gliding gracefully across a bridge to the future, we are racing towards a bridge to nowhere.

As of today, the official national debt is hovering around $14.3 trillion, or about 98% of gross domestic product. Meanwhile, the balance sheet for Social Security, Medicare, and Medicaid contains about $115 trillion in red ink, or roughly eight times the current gross domestic product. Even if the government confiscated 100% of all income, assets, and property from every man, woman, and child in the nation, we still wouldn’t have enough to cover our current obligations.

As the deadline for a deal to raise the debt limit nears, the Obama Administration is asking Republicans to balance cuts in spending with tax increases, but increasing the debt limit and cutting spending will accomplish nothing unless politicians have the courage to reform the choking burden of entitlement spending.

Unlike the movie, it doesn’t make any difference if we go over the economic cliff at the magic Hollywood time-travel speed of 88 miles per hour or 5 miles per hour--the end result will be the same. If we are to avoid national bankruptcy, we don’t just need to slam on the brakes; we need to throw the engine into reverse. Current proposals call for cutting between $2 and $4 trillion from spending over the next decade, but unless politicians can add a few zeroes to those figures, we are only delaying the inevitable catastrophe.

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Great Expectations

With this week's announcement of "worse than expected" unemployment numbers, it is worth investigating how often the experts have gotten their predictions wrong.  While admittedly an unscientific approach, a comparison of Google search results is a quick and easy way to compare news coverage of the economy.  Below are screen captures of the Google results for the phrases "better than expected" and "worse than expected" plus unemployment.

While both searches show an increasing trend over time, this is probably attributable to better access to recent data with the growth of the Internet.  On the other hand, there is a clear bias in favor of "worse than expected" economic reports by a margin of about 28,300 to 18,100, or roughly three "bad" stories for every two "good" ones.

In is impossible to predict the future with any certainty, so it's hardly newsworthy when reality fails to meet projected targets.  However, we should be concerned when journalists distort uncertain economic predictions in order to manipulate public opinion.  If journalists were honest in their reporting, we would expect an even number of articles for better than expected and worse than expected economic performance.

By consistently favoring bad news which undermines consumer confidence, journalists create a self-fulfilling prophecy of negative feedback that makes it all the more difficult for the economy to recover.  Worse still, this unsophisticated approach to economics also undermines the vital role of the press in maintaining the educated public which is at the core of republican self-government.

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The Man with Two Faces

With an announcement today of a “federal property board” to evaluate and propose the sale of federal assets, President Obama demonstrated again his impeccable gift for exceptionally poor timing.

"For too long red tape and politics have prevented the government from moving forward on these fronts," the official said, adding that the board was expected to return $15 billion over the first three years in operation.

The White House estimates there are around 14,000 federal properties designated as excess, plus thousands of others which are either no longer needed, or are underutilized.

Democrat Obama, under intense pressure from his Republican opponents to cut government spending and narrow a budget deficit estimated at $1.645 trillion this fiscal year, is trying to squeeze savings by making the government more efficient.

This announcement comes just as members of Congress from Montana and Idaho are bringing legislation to the floor that would require Congressional approval before permanently closing federal lands to mineral and energy exploration.

Rehberg said his bill is needed because it was revealed last year that the Department of the Interior was planning to declare millions of acres in Montana as a national monument. "This 'Treasured Landscapes' plan relied heavily on input from a few special interest groups and seeks to abuse the Antiquities Act for the presidential designation of National Monuments across the west, including Montana," Rehberg said.

Thus, the Obama Administration is proposing the sale of federal property—although presumably only in urban areas—to generate a mere $15 billion over the next three years while at the same time closing off millions of acres of federal land to lucrative uses such as lumber, mining, cattle grazing, and energy drilling. According to the Bureau of Land Management’s own website:

The public lands provide significant economic benefits to the Nation and to states and counties where these lands are located. Revenues generated from public lands make BLM one of the top revenue-generating agencies in the Federal government. In 2007, for instance, BLM’s onshore mineral leasing activities will generate an estimated $4.5 billion in receipts from royalties, bonuses, and rentals that are collected by the Minerals Management Service. Approximately half of these revenues will be returned to the States where the mineral leasing occurred.

A savings of $15 billion is trivial compared to the overall deficit and is made even more laughable when compared to the loss of federal revenue for the use of public lands. The duplicity of this maneuver is enough to shock even the most cynical observer of national politics.

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"Prolong the Recovery"

The Washington Post reported on Saturday that, faced with a pre-election foreclosure crisis, the Obama Administration is considering a nationwide moratorium on foreclosures. You have to admire their chutzpah: rather than facing up to economic realities, the President and his advisors believe they can simply command the economy to improve. If only it were so easy! Even the Washington Post admits that the plan will likely backfire, in a roundabout way:

With foreclosed properties comprising one in every four homes sold in the United States, the spreading moratorium could disrupt real estate deals in progress, slow down the process of clearing the backlog of troubled home loans and prolong the economic recovery, analysts said.

Prolong the economic recovery indeed! When did the recovery begin? The unemployment rate has remained nearly constant over the past year at between 9-10% despite constant gaming of the system with over-reporting of census and election workers. The real unemployment rate is much higher if you consider that the private sector has continued to shed jobs for more than two years straight.  Worse still, just when it seems things couldn’t get any worse, the suggestion of a foreclosure moratorium comes as yet another assault on the markets.

Part of the reason why there has not been a robust and broad-based recovery is that investors are terrified of just this sort of government involvement. The administration’s proposal would force banks to write off massive losses with no recourse to obtain payment from borrowers who bought homes without ever realistically having the ability to pay. The plan is somewhat reminiscent of a scene from Atlas Shrugged, summarized below by SparkNotes:

The Fair Share Law dictates that Rearden must supply metal to all who ask, but there is no way to meet all the orders. Men with influence manage to acquire much more than their “fair share,” while legitimate orders go unfilled...Rearden chooses to ignore an order from the State Science Institute for something called Project X. A week later, a man from the Institute comes to see Rearden...Rearden tells the representative to bring in trucks and steal as much metal as the Institute needs, but he will not help Washington pretend that he is a willing seller...

Meanwhile, in another article published today, the Washington Post profiles Barney Frank, the man at the controls when Fannie and Freddie melted down, which in turn lead to the largest destruction of wealth in the history of the world. Just as with the proposed foreclosure freeze, Democrats gambled on unsustainable short-term economic manipulation to appease their constituents, but ultimately brought about the global financial crisis. The Post is slightly more charitable though:

For all his efforts, Frank readily acknowledges that there are more people needing decent housing than there were when he started in Congress. And with millions of others losing their homes to foreclosure, Frank asks to be judged by how much worse things would have been without him.

It’s hard to expect very much of the Washington Post these days, but this is beyond incredible. Not only has Frank failed entirely in his mission to give more people a roof over their heads, but we’re supposed to believe that had he and fellow Democrats not rigged the system to create trillions of dollars in bad loans that the economy would be even worse today?

Instead of trying to force economic growth through government control, Democrats need to accept that the only way to create long-term sustainable economic growth is by vigorously protecting personal property rights and by preserving the rule of law. By thumbing the scales in favor of special interests, the Democrats have tipped the markets into chaos and upheaval. The last thing we need is for President Obama and Barney Frank to create more regulations that will “prolong” (i.e., delay) a lasting economic recovery.

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Another Slice of Pie?

Slate has been running a series about the widening income gap in America. Refreshingly, after almost a century of government policies designed to decrease income inequality, liberals are admitting that these policies do not work. Still, Timothy Noah, the series’ author, cannot resist using the language of class warfare to decry the evils of American capitalism. White-collar office jobs are bad, but unionized blue-collar jobs are good. One quote is particularly telling:

The top was occupied by a group that Clinton's first labor secretary, Robert Reich, labeled "symbolic analyst." These were people who "simplify reality into abstract images that can be rearranged, juggled, or experimented with" using "mathematical algorithms, legal arguments, financial gimmicks, scientific principles, psychological insights," and other tools seldom acquired without a college or graduate degree. At the bottom were providers of "in-person services" like waitressing, home health care, and security. The middle, once occupied by factory workers, stenographers, and other moderately skilled laborers, was disappearing fast.

What about plumbers, electricians, auto mechanics, steamfitters, carpenters, train conductors, and all of the other blue-collar trades? These are respectable jobs with good pay and strong growth potential. As long as there are people, these moderately skilled jobs will always be in demand. These jobs are manually intensive so they cannot be automated, and they cannot be outsourced because they depend on a local workforce. The theory advocated by Mr. Noah seems to ignore this segment of the economy.

For insight into how Noah manipulates the data to feed his storyline of the downtrodden proletariat, notice that his analysis relies entirely on the share of aggregate income statistics from the Census. According to these figures, the share of aggregate income for all but the top 20% has decreased. However, at the same time, the economy has also grown. It's not as if millionaires are fighting with the homeless for a slice of a never-changing pie.

If we look at the actual household income figures, we see that all quintiles, even the lowest, saw an increase in income in inflation-adjusted terms. The reason the top quintile has grown more than the others is because the rich are the ones who generate growth in the economy. You don't see very many bums opening factories, shopping malls, or office parks. Contrary to Mr. Noah's polemic about the inherent evils of capitalism, if you take away money from the rich in the pursuit of “equality,” you will only slow economic growth for all.

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The Rise of Hoover-Carterism

Remember when President Obama was popular? Last year, when the media was spreading stimulus propaganda, the meme was "worst downturn since the great depression." As an incredible testament to the power of groupthink, that exact phrase returns more than 700,000 results on google.

Of course, when Obama enjoyed high approval numbers, the "worst downturn" trope was a good thing! By trumping up the scale of the disaster, liberal media types thought they were giving support to the argument at the time that Obama, in his exalted greatness, was going to rescue us all like F.D.R. supposedly did back in the '30's.

But now Obama is not popular. Instead of being "somebody else's mess" that Obama was going to clean up, the "worst downturn" is becoming a real political liability for the current administration. Even more tellingly, comparisons of Obama to Herbert Hoover and Jimmy Carter are becoming more frequent.  As Niles Gardinier put it in the Telegraph the other day:

In contrast to the soaring rhetoric of his 2004 Convention speech in Boston which succeeded in impressing millions of television viewers at the time, America is no longer inspired by Barack Obama’s flat, monotonous and often dull presidential speeches and statements delivered via teleprompter. From his extraordinarily uninspiring Afghanistan speech at West Point to his flat State of the Union address, President Obama has failed to touch the heart of America. Even Jimmy Carter was more moving.

Like a motorcycle daredevil, Obama promised us he could jump the moon only to crash and burn. Unlike the fickle opinions of media elites, the immutable laws of gravity--and of economics--are not swayed by flashy self-promotion and arrogant bravado. As a symptom of this, the New York Times includes this hilarious quote in an article about the dismal condition of the economy:

Mr. Herzon said that he was not expecting a double-dip back into recession, however. “It’s difficult to point to a shock that would be bad enough to put the economy back into a recession,” he said. “I just think it means that this recovery is going to be slower and more painful than we originally expected.”

In the words of Tanto, "Who do you mean 'we,' kemo sabe?" How could anyone have honestly expected to go from the "worst downturn since the great depression" to the "summer of recovery" within a year or even two years? The media's unaccountable optimism that massive Keynesian spending, increased regulation, higher taxes, and crippling uncertainty in the marketplace would somehow produce different results this time around is only matched by Obama's own audacity and self-regard. As Adam Smith wrote:

The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things towards improvement, in spite both of the extravagance of government, and of the greatest errors of administration. Like the unknown principle of animal life, it frequently restores health and vigour to the constitution, in spite not only of the disease, but of the absurd prescriptions of the doctor.

Ironically, Adam Smith's medical metaphor is especially apt when we consider that Obama's blind and irrational obsession with health care reform has done more harm to the economy than his inaction with regard to tax cuts. Like Adam Smith's quack doctor, Obama has given our economy a medical treatment far worse and more damaging than the disease it was meant to cure. We can only hope that Dr. Obama's euthusiasm for snake oil and liver pills does not kill the patient entirely before it has a chance to recover on its own.

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Moratorium on Brains

President Obama waving goodbye to American jobs

The Washington Post reports today that Obama’s deep-water drilling moratorium is creating plenty of new jobs--in Egypt, and elsewhere abroad:

This month, Diamond Offshore Drilling announced that it is sending one of its deep-water drilling rigs from the Gulf of Mexico to Egypt. The rig, which can work in water up to 10,000 feet deep, has a new contract running at least through June 2011. On Monday, Diamond said another Gulf of Mexico rig called the Ocean Confidence would depart for Congo.

Diamond said it might move more of its three remaining Gulf of Mexico rigs to foreign countries. While apologizing for the loss of jobs in the United States, Diamond chief executive Larry Dickerson said, "We are actively seeking international opportunities to keep our rigs fully employed."

That should help jump-start the ailing economy!

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The Irish Grasshopper

Today's New York Times reports on a new kind of "troubles" in Ireland. After more than a decade of capitalizing on cheap labor and goods in the expensive Euro-zone, Ireland has fallen harder than most in the global downturn. The same forces that propelled Ireland's economy forward before the crash have now driven unemployment above 13%. Trapped by the Euro, Ireland cannot now devalue their currency to boost economic growth.

Despite this, the Times portrays Ireland's economic troubles as the tragic consequence of so-called austerity measures that were enacted in 2008 to prevent Ireland's government from defaulting. Sticking with the liberal playbook, the Times trumpets Keynesian stimuli enacted by other countries while lamenting that Ireland couldn't afford to save jobs with a stimulus of their own. This is preposterous: raising taxes while Ireland's economy was going down the toilet is the source of their trouble, not a lack of stimulus.

To wit, we have seen that the Democrats' massive $800 billion Keynesian "stimulus" package has done nothing to slow the loss of jobs here in America. After passage of the bill in February of 2009, the US unemployment rate continued to rise, spiking at 10.6% in January of this year. At 9.3%, it is still higher than it was then. Worse still, jobs "created or saved" by the stimulus—if not outright fabrications—are at best only temporary. Unless the private sector starts creating new jobs—which it has not—unemployment will spike again.

The real problem with Ireland's austerity is that, like all of Europe, they waited until after the crisis to address outrageous deficits and runaway spending. Like the grasshopper of fable, Ireland and the rest of Europe danced in the summertime, blithely spending money they didn't have to fund an ever-increasing entitlement state. Now, Europe's welfare bomb has exploded, and it can't be put together again. America still has hope of avoiding the same fate, but we must learn to save when times are good.

The Obama Administration has created vast new spending programs that will not take full effect for several years, and while repealing ObamaCare is a good start, it will take much more to put America back in the black. Politicians hate cutting spending; more so when revenues are high, but when the economy eventually recovers, we must remember this moment. If we do not reduce spending when times are good, we too will end up like the grasshopper, dying in the cold.

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Sound as a Pound

The BBC reported today that the British pound took a massive hit as a major ratings agency issued a warning about the scale of the United Kingdom’s debt crisis. Fitch’s warning echoes Britain’s new Prime Minister, David Cameron, by drawing attention to one of the highest debt ratios in the world. At the same time, the loss of confidence in the pound is a warning that no country is safe from the emerging worldwide debt crisis, not even the United States.

Of course, not all debts are bad. The United States is forced maintain a large amount of government debt as a consequence of our position as the world’s dominant reserve currency and the same is true for Britain, although to less of a degree. In order to hold dollars in reserve, a large portion of our debt will be continuously renewed by the same countries that are holding it now. Far more important than the amount of a nation’s debt is whether or not a nation is able to meet its obligations.

In this regard, a much more important measure than the size of the debt is the ratio of interest payments on the debt to GDP. For 2009, the interest on the U.S. debt totaled more than $383 billion, or about 2.7% of GDP, thanks to extremely low interest rates. Meanwhile, the Guardian reports that the interest on the debt for the United Kingdom is currently about £42 billion, which is about the same in terms of GDP.

That 2.7% may not sound like a lot, but when interest rates start to increase, the ballooning debts here and in the United Kingdom will take an ever larger proportion out of tax revenue. With no end to trillion-dollar deficits in sight, our national debt is well on its way to doubling as a percentage of GDP within a few years compared to the 69% debt-to-GDP ratio of 2008.

It is worth considering that defense spending and government health care each account for about 5-6% of GDP right now, but as the baby-boomer generation ages, government health care expenditures are going to skyrocket. If the ratio of interest on the debt to GDP approaches 5%, the United States will face massive societal upheaval and economic collapse. Britain is making painful choices now in order to avoid this bleak forecast. We postpone the same difficult choices at our peril.

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Don't They Know It's Rude To Point?

The Associated Press ran a story yesterday analyzing the financial "reform" bill which recently passed in the Senate with the absurd headline, "New financial rules might not prevent next crisis."  Stop the presses!  Messrs. Wagner and Jacobs might really be on to something here!  As reported on these pages earlier, the final version of the bill does not include the tough measures proposed by Senators McCain, Shelby, and Gregg to force Fannie Mae and Freddie Mac out of government conservatorship.

Instead, the government will continue to own and run the two institutions at the very heart of the financial collapse.  Bad mortgages will continue to be issued or underwritten by Fannie and Freddie, backed by the unlimited credit of the federal government.  Big Wall Street banks will still find loopholes in the laws and regulations in order to make a profit, emboldened by new rules which only further strengthen the policy of "too big to fail."  Loose monetary policy and speculation will continue to drive up prices and lead to another asset bubble.

Democrats have used this crisis as nothing more than a cynical ploy to claim that they're "getting tough on Wall Street" and to shift public rage away from the health care fiasco leading up to the elections.  However, the longer-term implications of this self-serving blame game are troubling for the nation.  By claiming that they have fixed the problem, Democrats reinforce the dubious notion that the government can predict and control the future even though the events which led up to the crisis argue precisely the opposite.

In a profile of Sheila Bair, the head of the FDIC, Time magazine notes that she saw warning signs that mortgage markets were headed for trouble almost immediately after her appointment:

Bair had hardly been named to the FDIC post by George W. Bush in 2006 when aides alerted her to a dangerous disintegration of lending standards across the banking industry — loans with hidden fees, poor documentation and explosive adjustable rates. Even though the regulation of these standards was the primary responsibility of the Federal Reserve, Bair authorized her staff to purchase a large industry database to confirm their suspicions. "It was just amazing to us what we saw," she says.

Despite these and many other warnings in 2006 and 2007, the Democrat-controlled Congress failed to act.  It takes a stunning credulity to think that next time will somehow be any different.  The problem was not a lack of regulations or oversight, but a lack of will on the part of politicians to respond.  Instead of pointing fingers at the private sector, Democrats could have implemented real reform, but that would have required them to admit that government is the problem, not the solution.

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Takin' Care of Business

While walking along a street in San Francisco, the Prolix Patriot saw a strange sign in the window of a shop advising passersby that a public hearing must be held before the store could be sold to new owners.  Apparently, shopkeepers in the city by the bay are required to submit detailed proposals for public debate for even the most modest changes.

In this case, a frozen yogurt store had to obtain a fourteen-page document which grants government approval to change the restaurant to a take-out counter.  The document also specifies what hours the cafe may be open and also certifies that the change will not cause environmental damage or alter traffic patterns.  Moreover, the new owner could not even apply for building permits, let alone begin work, until the approval was granted.

As a more extreme example of the problems caused by a hyper-bureaucratic state, a mob of angry hipsters converged on City Hall last year to protest the proposed construction of a new American Apparel--ironically, a purveyor of hipster-style clothing--in their midst in the gentrifying Mission District.  A check of the company's Northern California store locations reveals that the proposed store was never built.

For a vocal minority of neighborhood busybodies, this is undoubtedly a great victory which sends a message to much larger national brands that they had better stay out.  However, such draconian policies also carry a high cost for the same "quirky" local businesses that these ordinances are meant to protect.  By creating a Gordian knot of bureaucracy, the city discourages potential entrepreneurs from even beginning the process without a sufficient bankroll.

Worse still, a struggling business owner might have to wait months to get through all the approvals necessary to save his or her store from financial ruin.  For many businesses, that wait was too long.  The San Francisco examiner reported last year that the retail vacancy rate was somewhere near 13 percent and it appears to be holding steady.  Neighborhood activists may be winning their battle against big box stores, but at what cost?

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Money to Burn

Last week, Senators McCain, Shelby, and Gregg introduced an amendment to the Democrats' phony financial "reform" bill which would have actually reformed the culprits at the very heart of the financial meltdown--namely, Fannie Mae and Freddie Mac.  However, the Washington Post reports that while the Senate should hold a vote on the amendment any day now, it is unlikely to pass.

Meanwhile, ABC news reports that Fannie and Freddie continue to hemorrhage taxpayer dollars from their unlimited government credit line.

Fannie Mae, the largest U.S. residential mortgage funds provider, on Monday asked the government for an additional $8.4 billion after the company lost $13.1 billion in the first quarter.

Including the latest request, Fannie Mae will have received more than $84.6 billion from the government, and the firm said it saw no end in sight to federal assistance.

The announcement comes less than a week after smaller mortgage finance company Freddie Mac, said it would need $10.6 billion in government funds after losing $8 billion in the first quarter.

If the McCain-Shelby-Gregg amendment does indeed fail, it will be impossible to take Democrats seriously when they claim they are fighting the big banks to fix a broken financial system.  In July of 2008, the New York Times reported Fannie and Freddie were the biggest players of them all.  Before the big crash, Fannie and Freddie owned or guaranteed more than half of all mortgages issued in the United States.

Moreover, it is worth remembering that the author of this legislation, Senator Dodd, was consistently the top recipient of campaign contributions from Fannie and Freddie during the past two decades.  And who was number two on the list?  A young and charismatic senator from Illinois named Barack Obama.

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