Economics 101

An unexpected thing happened on the way to the health care summit. President Obama forgot to send his bill to the Congressional Budget Office (CBO) for scoring. According to the President his bill comes in (miraculously) just under $1Trillion.

Try closer to $3 Trillion.

Former CBO Director Douglas Holtz-Eakin takes issue with the $1Trillion price tag claiming the President's bill is similar to the House and Senate bills (though more generous) and they scored out around $3Trillion. Additionally he denies the President's soon to be released claim that the deficit will be reduced this year.

According to The Washington Examiner: "Holtz-Eakin said that said the Obama administration wrongly assumes it will receive $640 billion in revenue from the creation of a cap-and-trade system for polluters, which would rely on the passage of an energy reform bill that many Democrats oppose, plus another $200 billion from a controversial proposal to tax international businesses. The Obama administration is also counting on the idea that health care reform will not increase the deficit, which some believe is impossible."

By the way, for those who are economically challenged, the $640 in "revenue" means $640 billion dollars squeezed from an already overtaxed minority of Americans. Taxes in government speak is "revenue."

Deception. Empty Words.

The Party of No

"Let no one deceive you with empty words."

The Apostle Paul to the Ephesians, Chapter 5, verse 6

The President introduced (finally) his version of health care "reform" yesterday. And despite his warning to the Republicans to avoid "political theatre" he placed himself at center stage in this Tragedy. There are those much better equipped to analyze the bill but in summary, this seems to be the worst of the House and Senate bills, stewed into one giant ooze of higher costs, declining care and a greater role for the one of the most inept and unaccountable governments in our 200+ year history. All that and deficit reduction, too.

Deception. Empty words.

There is a small part of me that wants to watch the Great Magician pull that rabbit out of his hat, that is by spending one trillion dollars he will defy the laws of economics and actually REDUCE the deficit. But, of course, the stakes are too high, and he would never do it in front of the cameras anyway. Anita Dunn (Obama's former director of communications) was quoted in the January 25, 2010 New Yorker as saying the following: "For us, transparency has never meant that we put our internal decision-making on display. We didn't during the campaign. We try not to here. Transparency is what the decision is, and why it was made. The process by which it was arrived at is not central." (emphasis mine)

Is this even worth commenting on?

Deception. Empty words.

So Obama, chides the Republicans not to engage in "political theatre" as they prepare to come to a meeting he called to discuss the health care "crisis" in a bi-partisan fashion. Except, wait a minute, there is no discussion on the table. What is on the table is his bill, crafted behind closed doors with Democrats only. No Republicans allowed.

And it isn't a new bill, it is the worst of the old. Despite the fact that 61% of Americans polled (according to Rasmussen) say the old plan should be scrapped and a new plan developed from scratch Obama pushes forward with the destructive and unpopular ideas that swept Scott Brown into the Senate. After promising to make jobs #1 this President is introducing yet another job slaying bill while piling trillions of dollars onto the national debt.

So here's my vote. Mr. McConnell, Mr. Boehner, be the Party of No. Vote No. Argue No. Stand firm in opposition. Doing nothing when the something being offered stinks to high heaven is a good thing. Just as parents tell their children no when they indulge in bad or destructive behavior, tell Obama and Pelosi and Reid: "No! The American people don't want your health care. No more deception. No more empty words. No. No. No."

Oh, and Mr. McConnell, Mr. Boehner, consider the wise words of Sir Winston Churchill:

• Never hold discussions with the monkey when the organ grinder is in the room.
• An appeaser is one who feeds a crocodile, hoping it will eat him last.
• A fanatic is one who can't change his mind and won't change the subject.

President's Approval in the Tank and Sinking

So the Rasmussen poll now has the President's Approval Index rating at -19% with 22% of the nation's voters strongly approving of his performance and 41% strongly disapproving. The overall numbers are 45% approval, 54% disapproval. Rasmussen reports the Approval Index rating is at the lowest level seen only one other time in this presidency: December 22, the eve of the last health care push in the Senate; pre-Scott Brown.

According to Rasmussen, only 39% support the President's health care plan, 58% are opposed. Still he plans to unveil it tomorrow. In front of the cameras (finally).

It will be interesting to see what the polls look like next week. Eventually, even the ideologically bankrupt may get tired of being lectured to by this President. We can only HOPE.

First, Mr. President, Do No Harm

Calvin Coolidge spent the majority of his life in politics. He was unrepentant in his commitment to individual liberty as espoused by the Constitution. Which meant he understood the value of government getting out of the way of private enterprise. Of allowing individuals to pursue their dreams without undue interference from the government. Coolidge understood that business and, therefore, America prospered when citizens knew what to expect from government. So his first determination was the politicians version of the Hippocratic oath to "do no harm," to keep government from meddling with the private sector. His second was, when things were going well, to" change less."

Coolidge would have been a stellar case study for Jim Collins, author of Good to Great, Why Some Companies Make the Leap...and Others Don't. Good to Great, published in 2001, is the finest business book I've read. Collins didn't chase the latest business or management fad when he conducted the research that lead to writing the book. He followed the facts. Much of what he discovered was counter-intuitive to the prevailing wisdom. For example: "Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. (10) Or: "The good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing." (11) Finally: "The good-to-great companies paid scant attention to managing change..."

Enter the current Administration. Personality-driven, striving to do something, anything (read: Health Care "Reform") in order to be perceived as great. Change for change sake, Change. Change. Change. Oh yes we can! Constitution be damned. Well, of course they have said those words, not overtly. The Administration, the Congress has quietly declared war on the Constitution and therefore, every American, through a kind of clandestine guerrilla warfare. In the dead of night, on Christmas Eve, while Americans are struggling through a severe economic downturn, serious unemployment, just trying to put food on the table push the legislation through, quickly!

It doesn't take much imagination to see where the blueprint for this kind of, well, audacity comes from. Take a moment to read the words of FDR's second inaugural address. If you are like me, they will take your breath away. Critical readers will challenge the assumptions made as a matter of fact, those who understand liberty and the intention of our founders will challenge each conclusion as fantastic in the original sense of the word.

"Government is competent when all who compose it work as trustees for the whole people. It can make constant progress when it keeps abreast of all the facts. It can obtain justified support and legitimate criticism when the people receive true information of all that government does.

Nearly all of us recognize that as intricacies of human relationships increase, so power to govern them also must increase—power to stop evil; power to do good. The essential democracy of our Nation and the safety of our people depend not upon the absence of power, but upon lodging it with those whom the people can change or continue at stated intervals through an honest and free system of elections. The Constitution of 1787 did not make our democracy impotent.

In fact, in these last four years, we have made the exercise of all power more democratic; for we have begun to bring private autocratic powers into their proper subordination to the public's government. The legend that they were invincible—above and beyond the processes of a democracy—has been shattered. They have been challenged and beaten.

...and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world. (emphasis mine.)

I imagine we will pull out of this mess, eventually, no matter what this Administration imposes. But the remedy is clear--get government out of the way, free up business to do business, to hire, to grow and Mr. President, please stop doing harm.

History Repeating Itself and Not in a Good Way

Do yourself a favor and get a copy of Amity Shlaes' The Forgotten Man, A New History of the Great Depression. Barack Obama's presidency and his economic policies are placed in context once you read Shlaes' account of FDR and his policies. Written in 2007, there is no way Shlaes could have manipulated the similarities.

Consider this account of the Roosevelt Administration in 1937, four and a half years after the New Deal was introduced and the economy refused to budge. She refers to this time as "a depression within the Depression. "

"...the Economist would conclude...that the United States "seemed to have forgotten, for the moment, how to grow."

Yet Washington was doing all the wrong things. Officials in the capital seemed arrogant, obsessed with numbers, and oblivious to the pain the nation was suffering. People were angry that Congress and the president had recently raised taxes. With business so hard, why make it harder?" (2)

Sound familiar? Shlaes continues with a story of the treasury secretary giving a speech before the Academy of Political Science during this time:

"There had been a national emergency in the past, the secretary told listeners. But now it no longer existed. The secretary then went on to conclude that the country must now "continue progress toward a balance of the federal budget."

A member of the audience laughed out loud in shock. The remark seemed so much at odds with the painful reality of that November.

...Washington had already made thousands of efforts to help the economy, yet those efforts had not brought prosperity." (3)

Policy is not where the similarities end. "Roosevelt offered rhetorical optimism, but pessimism underlay his policies. ...Roosevelt cared little for constitutional niceties and believed they blocked progress. His remedies were on a greater scale and often inspired by socialist or fascist models abroad." (6)

And finally: "The problem was their naivete about the economic value of Soviet-style or European-style collectivism--and the fact that they forced such collectivism upon their own country." (7)

Arm yourself with historical fact. Read The Forgotten Man. For as Jefferson said, "If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be."

Super Bowl of Government Spending--A Zero Sum Game

A zero sum game is one where someone wins at an other's expense. The Super Bowl is a zero sum game. The Saints won. The Colts lost. One winner, one loser.

We would do well if our President, Congress and citizens understood government spending is, too, a zero sum game. A redistribution of wealth from one group to another. The government does not "create" jobs in the sense the private sector does. The government taxes or borrows to fund jobs or projects taking the money from those who earned it and presumably have their own, better, use for it and redistributing it somewhere else with all the attendant costs of government administration.

Today's Wall Street Journal editorial page summarizes Obamanomics so far: "Stimulus Plan A didn't work to create jobs or reduce unemployment. That was the $165 billion of tax rebates and money for states in February 2008. Plan B flopped too. That was last February's stimulus that has devoted $862 billion into mostly government programs. The unemployment rate climbed steadily until last month, and the main lasting impact has been nearly $1 trillion added to the national debt." And now the economic illiterates in Congress are proposing an $85 billion jobs bill which contains many of the same policies as the failed stimulus--Plan B.

Government stimulus does not stimulate for the reasons I wrote to you last year. Recall the following from James Payne's 1991 book, "The Culture of Spending:"

"Unfortunately, this is culture-of-spending ideology, not sound economics. When the government purchases what people can buy for themselves, two additional costs are introduced (emphasis mine): the cost of taxation, including the distortion of incentives governing production; and the cost of administration, including the distortion of incentives governing consumption. Calculating these costs is quite difficult but preliminary estimates suggest that for each dollar the federal government recycles through the taxation-subsidy system it wastes more than one additional dollar."

He goes on to explore the source and precise amount of this waste citing research studies on the taxation side of the equation (cost is about 60 cents for every dollar collected) and the disbursement side (50 cents for each dollar spent). The "bureaucratic rule of two." Government production of a typical good or service in 1991 cost twice as much as the same items produced in the private sector.

Last night I attended a presentation by senior staff from one of the largest, most liquid and prudent banks in the nation. The senior credit officer showed a chart of lending growth at the institution. The chart maintained a fairly flat line until the end of 2007. Beginning in 2008 and through 2009 lending rose at a steady pace. President Obama is telling us the problem with the unemployment rate is bank's aren't opening up credit to small business. Wrong, Mr. President. The problem is small businesses are paralyzed by current and proposed tax hikes in every nook and cranny of our lives. Business owners are frozen by confiscatory government policies that propose to take from the producers and give to the unproductive. And the government's reach doesn't end upon death--they will have theirs again through an onerous and, at the moment, entirely unclear estate tax.

Until Congress and the President declare a truce with small business and, therefore, the American people the Zero Sum Game will continue.

Unlimited Reckless Stupidity

“The difference between genius and stupidity is that genius has its limits.”

Unknown

Since taking office over a year ago, President Obama has declared war on just about everyone except for our real enemies. He has gone after the CIA and their terrorist interrogation policies, the Cambridge police, the Bush Administration, the Health Care System, Guantanamo, the military, the Supreme Court, the Bush Administration, the banks, highly paid corporate executives, the economy, the Bush Administration, the town-hall-tea-party crowd and, therefore, the average American citizen and, finally, the Bush Administration. We are pummeled with despair at every turn of the TV dial. Soaring unemployment. Sagging GDP growth. 9-11terrorists being granted constitutional rights by our own Attorney General. Rising taxes.

For my part the President has advocated a great deal of, well--it simply can't be sugarcoated--a great deal of stupid things. Turning the health care system upside down, spending a trillion dollars to insure somewhere around 30 million people is not only bad business, it is certainly not the kind of policy one would expect to be advocated by the "smartest president" to sit in the Oval Office. But I digress.

What really has me going is his posture on American security. After signing an executive order, day two of his presidency, declaring the closure of Guantanamo Bay within one year, the prison (thankfully) remains open. In a May speech, President Obama said the following according to the Wall Street Journal, "The record is clear: Rather than keep us safer, the prison at Guantanamo has weakened American national security."

What does that mean? Does the statement make any sense? And if true, why is Guantanamo still open?

Then there is this business about trying the so-called 9-11 mastermind, Khalid Sheikh Mohammed in a civilian trial in New York City. Another thoroughly ridiculous decision. Like Guantanamo the president seems not to have considered the implications and far reaching ramifications. Instead he gives us platitudes and ill-advised ones at that. Read the exchange below from an editorial in today's Wall Street Journal.

"When NBC's Chuck Todd asked him in November to respond to those who took offense at granting KSM the full constitutional protections due a civilian defendant, the President replied: "I don't think it will be offensive at all when he's convicted and when the death penalty is applied to him." Mr. Obama later claimed he meant "if," not "when," but he undercut his own pretense of showcasing the fairness of American justice."

I know there has been much made of the President's remarkable dependency on teleprompters when speaking to groups large and small. For me it doesn't make much difference. Whether he is declaring the "record is clear" on Guantanamo, or predicting the guilty conviction of KSM or mispronouncing corpsmen by calling the "corpse-men" I see reckless stupidity at every turn.

“Whenever a man does a thoroughly stupid thing, it is always from the noblest motives.”

Oscar Wilde

Some of the People Fooled All of the Time

I am sorry. I just have to ask. How can it be that President Obama's approval rating (this according to Rasmussen) can fluctuate so widely following the State of the Union?

On January 23rd, prior to the speech, his Presidential Approval Rating hovered at a career low of -19; 24% strongly approving of his performance, 43% strongly disapproving. Overall, his approval was at 44%, overall disapproval at 55%.

For my part the January 27th speech was exceedingly disappointing. No new ideas, no acknowledgement of past errors. Rather, the president appeared arrogant, defiant, petulant; in short, he looked like an unrepentant adolescent. Still, just a few short days later his Presidential Approval Rating shot up to -4%, a swing of 15%. I considered and reconsidered the fact I may have missed something in the speech that others found appealing.

But then, no even two weeks later his Presidential Approval Rating has plummeted back down to -17% and his overall approval is once again 44% with 56% (one percent greater) disapproving overall. Roughly back where to where he was before the speech.

Who are these people? The ones who vacillate back and forth? I am all for strong-minded, independent voters, but this is something else. President Obama has never strayed from his leftist, Marxist, certainly unconstitutional policies. He may have sugarcoated them from time to time, re-characterized them perhaps, but he remains firmly grounded in his dogmatism.

How is it then, that such a wide margin of the voters can be fooled over and over again?

You may deceive all the people part of the time, and part of the people all the time, but not all the people all the time.

Abraham Lincoln

The Unexpected Expectation

Is it me or is everything so breathlessly unexpected in this historic presidency?

Retails sales unexpectedly weak. GDP unexpectedly low. Unemployment unexpectedly high. As a thirty plus year observer of the markets and the economy, never has so much unexpectedness bedeviled those whose business it is to forecast expectations.

How is it possible that the December jobless claims originally reported at a loss of 85,000 jobs (which I needn't point out was unexpected) be revised down to a loss of 150,000? How could it also be that the January report of an unexpected loss of 20,000 jobs added to the revised December number (which doubled the original jobless claims reported) result in a decline in the unemployment rate from 10.1? to 9.7%?

Excuse me for suspecting the numbers...but something unexpected is going on here.

According to today's Wall Street Journal, 2009 jobless claims were revised to reflect 600,000 more jobs lost than reported. Hmmm. Highly unexpected wouldn't you say?

And the Journal reports, "The so-called "underemployment" rate--which includes everyone in the official rate plus those who are neither working nor looking for work, but say they want a job and have looked for work recently--fell to 16.5% in January from 17.3%." But how can that be if the jobless claims were revised up?

Highly unexpected.

Nothing can be unexpected forever. Eventually the unexpected becomes a trend and the forecaster has to admit they are simply wrong. I now look at every number reported with suspicion. The government's "unexpected" has become my expectation and when that happens investors move to the sideline until they can figure out what exactly is going on.

For my part, nothing in rising unemployment, slowing to negative GDP growth, a weaker dollar and ballooning debt is unexpected. The policies of this Administration are having the expected effect.

Only a fool or the very naive would expect otherwise.

Obamics Part 2--This isn't Monopoly Money or a Theoretical Exercise--It's Sheer Lunacy

"Money is...that which sustains its (government) life and motion"

Federalist 30, Alexander Hamilton

My undergraduate degree is in Psychology. One of the first principles we study is: projection--the attribution of one's own ideas, feelings and beliefs onto others. Projection is dangerous in many human interactions to be sure, but it is especially dangerous in elections. As voters, we make certain assumptions about our leaders and their conduct. We expect them to tell the truth, not to steal (especially from us) and to work hard. Very hard. At least as hard as we do each day rushing to work, caring for our families. In short, we project our basic values onto them.

And we expect them to act like grown-ups.

Instead they are acting like drunken sailors. Adolescent ones at that.

These are the facts:

• Since the end of January 2009, the annual deficit has more that tripled from $422 billion to $1.42 trillion at the end of October and RISING.
• The National Debt hovers around 12.3 trillion equal to approximately $40,000 per capita.
• In FY 2009 the government paid $383 billion in interest on the debt. It is important to note that interest rates are at historical lows, artificially camouflaging the real, sustainable cost of servicing the government's (exorbitant and rising) debt.
• GDP--which is a measure of all the goods and services produced in the U.S. was $14.2 trillion. That equates to approximately $46,500 per capita. (Remember the per capita share of the National Debt is $40,000 per capita--a slim margin and shrinking.)
• The debt has grown $3.9 billion/day since 2007.
• President Obama's new budget, just submitted to Congress, calls for a 5.7% increase in spending despite his much touted "spending freeze" on some portion of discretionary spending. And while we're on the subject--discretionary spending in his budget exceeds $1.4 trillion dollars. This is not defense spending or security of our borders spending, this is DISCRETIONARY--read: entitlement spending.
• The National Debt is projected to grow to $18.6 trillion dollars (according to Obama's budget) in 2020. Or 77.2%. And I think we can all agree, that might just be a tad optimistic.
• In 2008 the government collected $2.2 trillion in revenue. (reminder: they collected the majority of that from us: individual taxpayers).

What does all this mean? Well, the government is spending somewhere around 60% more than they are earning each year. And the accumulation of that debt--the National Debt-- is currently hovering close the per capital earnings (Gross Domestic Product) of each citizen in the United States. They have bankrupted the government and now they are about to bankrupt us. Any grown up can see that this kind of deficit spending is not sustainable. Not responsible. It is LUNACY.

So my fellow citizens, we need to stop projecting our values and honor onto those in Washington. We need to stop assuming they have our best interests at heart.

As Hamilton went on to say in Federalist #30 "...in the usual progress of things, the necessities of a nation, in every stage of its existence will be found at least equal to its resources." He was almost right. The current government's insatiable appetite for power requires they confiscate our money and our children's money and their children's money and their children's children's money...

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Obamics: Gladly Pay You Tuesday for a Hamburger Today

In the Popeye Cartoon, Wellington Wimpy's oft repeated phrase: "I'll gladly pay you on Tuesday for a hamburger today" was ludicrous even to the five and six year olds watching the show. Children understand the morality lacking in Wimpy's request. They know that eating a hamburger you can't pay for until tomorrow is wrong. They know it intuitively. The request is laughable. And laugh they did. Popeye is a cartoon after all.

All the more tragic as we watch Wimpy Economics (aka Obamics) being played out before our very eyes. With our very own money.

Would that Obama had studied at the feet of Popeye instead of Wimpy. At least then we could imagine he was fighting for our side. For good. Against evil.

Every month whether you want to (or even know it) or not, you pay a hefty tax for Social Security benefits to be claimed at some date in the future. When you retire after decades of hard work. And are dependent on whatever you set aside in your 401k and paid into Social Security. The plan was established as a Sacred Trust between you and your government. The money set aside was to be left in the giant Social Security pot of funds to pay benefits. Instead the system is bankrupt. Congress has seen fit to take the Sacred Trust money--your social security and use the funds to reduce the deficit--in other words: imagine your teenage son drains your savings account to purchase a brand new Mustang--the Shelby GT 500--the one he has always wanted. Of course he doesn't have the money. Who cares? He can steal yours. That, my friends, is what Congress has done with your Sacred Trust. They spent it.

No matter the dishwasher blew and you had to purchase a new one unexpectedly. No matter your daughter got a flat tire on both front tires, or you need dental work, or new drapes or a new car, clothes, a vacation... though you earn the money your priorities are second to the government. They will get their fair share come hell or high water and never-you-mind what they do with it. Nancy Pelosi knows how to spend money, you can count on that. Flowers and bottled water and tax-payer funded jaunts in military jets with family and colleagues are just a few small perks. Would you begrudge her these? She is, after all, a very important person.

In 1998, The Heritage Foundation published the following:

SOCIAL SECURITY'S

GLOOMY NUMBERS

June 22,1998

Social Security's long-term unfunded liability is immense because the system will begin paying out more in benefits than it collects just 12 years from now. Although the cash deficit in 2010 is less than $1 billion, the numbers quickly climb to staggering levels thereafter:

• Social Security's annual cash shortfall will reach $90 billion in 2015.

• Social Security has promised to pay nearly $500 billion more than it will collect in taxes by 2025.

• In 2035, just ten years later, the annual deficit will be more than $1 trillion.

• In 2075, the last year for which the Social Security Administration provides numbers, the total annual shortfall will reach an incredible $7.5 trillion.

• Even after adjusting for inflation, the deficits are immense, reaching $200 billion in 2025, $300 billion in 2035, $400 billion in 2056, and $500 billion in 2068 (in 1998 dollars).

• The aggregate inflation-adjusted shortfall in the Social Security system between now and 2075 will be more than $20 trillion. This unfunded liability is more than 6 percent higher than it was just one year ago.

• The "present value" of the shortfall (which measures how much money would need to be invested today to finance future unfunded benefits) is more than $5 trillion.

Sources include the OASDI Trustees’ Report and the Social Security Administration's Office of the Actuary. The Trust Fund report includes annual estimates for the next ten years and for every fifth year thereafter.

That was then. When the economy was still booming. When unemployment was half of what it is now. When spending deficits were in the Billions not the Trillions.

The Sacred Trust is bankrupt. Add the effects of the Obama budget--spending spending spending--and we have a very dangerous game of Wimpy Economics. A government willing to gladly pay us later for retirement benefits now....Obamics.