Sunday, February 28, 2010

The Economy Has No Friends

Economic recovery, if there is any, is very, very slight. Normally, the economy should be growing at an eight to nine percent real annual rate during the early stages of economic recovery. The US is probably growing at half that rate. What is there to do?

Economists aren't much help. Republican economists advocate tax cuts; Democratic economists advocate spending increases. The science of macroeconomics is, in reality, a religious conflict between Republican and Democratic economists. There is not much science in macroeconomic science after all.

Capitalism seems to suffer booms and busts throughout history. The last few years are not exceptional. Historically, governments have done little that has helped, when economies have weakened. The Great Depression in the United States is probably the most famous example of government's failure to bring about an economic recovery. During most of the 1930s, the government interfered in the workings of the economy in a way that made businessmen frightened of the future. A similar fear of the government pervades the American business community today.

As economists, we aren't sure what pro-active steps one can take to get an economy rolling, but it is not likely that higher taxes, demonizing rhetoric, heavier business regulation, and large budget deficits are the answer. If the President and the Congress would take a twelve month paid vacation, we could probably make a start toward recovery. There is simply too much government, too much regulation, too much national debt, too much demonizing rhetoric from the White House, and too much fear of the future, to get the economy off rock bottom.

Reliance on government has never produced an economic recovery. Apparently, no economist is willing to admit this openly. But the facts are pretty clear. Recovery requires an enthusiastic business community. That is simply not in the cards, given the current political environment.

So, look for the economy to remain stagnant. There will be positive growth, but it will be the slowest on record for an economic recovery. It will take major changes in the political environment before any kind of serious economic recovery can begin.

Health Care and The Great Myths

The greatest myth is that all civilized nations in the world provide universal health care except the United States. This nonsense was once again repeated by Barrack Obama in the Health Care summit. You wonder what experiences Obama had while he was busy "community organizing." In what city or state in America can anyone -- anyone -- be denied medical coverage if he or she simply walks into the nearest emergency room? Why does Obama say the opposite to this truth every time he discusses this.

So, myth number one is that there are Americans who are denied health care. That does not and cannot happen, so there is simply no reason for Obama to continue to repeat that nonsense. This does not mean that Americans don't experience delays and occasional bad medical practice, but is there anyone out there familiar with the much, much longer (and routine) delays in other civilized nations. America has the best, quickest, most accessible health care in the world. Why did the Premier of Newfoundland, who is covered under the Canadian health care system, fly into Miami early last month, to have heart surgery? Here's a direct quote from Danny Williams, Premier of Newfoundland: "This was my heart, my choice and my health." Right! He can afford to fly to Miami. What about other Canadian citizens stuck in a national health care system that is the model for the Obama folks. They do what they are told and don't have the "choice" available Premier Danny Williams (and other rich and privileged Canadians). Canada denied Premier Williams the health care he needed, so he flew to Miami. End of story.

Myth Number 2: To quote the President last Thursday: "Why can't America afford a universal health care system that every modern nation can afford?" Answer, there is no other modern nation that can afford their "universal health care system." Every European nation is going broke -- there are no exceptions. Why are they going broke: one of the three reasons is their unaffordable health care system. If you read the local press in any European nation, you can hear constantly the idea that they need to cut back the access to health care that the government provides. This is a constant drumbeat. Meanwhile, every single one of these countries has explicit denial of certain coverages (can't be done at any price) and lengthy delays for others. The government picks and chooses who gets care. Too bad if you are not in the favored group, you don't get the care you think you need.

Myth Number 3: The insurance companies are the problem. Such nonsense. The insurance industry has one of the lowest profit rates of any major industry. They are not swelling with fattened profits. Anyone who says otherwise (and the President is constantly saying otherwise) is either misinformed or has an intention to say something other than the truth. Insurance companies are besieged by over-regulation by states and by the federal government. The insurance companies are owned by individuals, by pension funds, by private institutions. They are not owned by some mysterious bunch of bad guys out to do damage to the insured. If you want better insurance policies and better rates, then get government regulation out of this picture. Return the free market to insurance companies (and eliminate the favored tax treatment for employer-sponsored health insurance plans -- this favored tax treatment leads to the adoption of "comprehensive" health insurance, when families would choose "catastrophic" health insurance plans, if they paid for it themselves).

Myth Number 4: Costs can be reduced by getting government more involved in the process. This absurd view has been spouted most notoriously by Howard Dean, known otherwise as the Vermont Screamer. Dean thinks government delivers services best. Wonder where he gets his mail? The free market delivers products cheaper and in more abundance than any other system. Health care services are no different. If you want inexpensive, high quality, low cost health care, then return the health care industry to the free market and get government out of the way. Phase out medicare and medicaid and let people make their own choices. (Medicaid is in the process of becoming increasingly irrelevant as a growing number of doctors simply refuse to accept medicaid patients. How is Obama planning to get around that problem)? It is not accidental that there is a growing shortage of doctors and medical professionals. What medical student wants to work for the government? Obama seems to think you can have good health care without having doctors and nurses. Wonder how he gets there with those ideas?

Myth Number 5: Forcing insurance companies to provide coverage to those with "pre-existing conditions" at the same price as those without is a good idea. No, this is a very stupid idea. Imagine insisting that auto insurance companies were forced to charge the same rates to drivers with good driving records as for those with bad driving records. No, this is wrong. If adopted, the "pre-existing" conditions requirement would dramatically increase insurance rates on folks that are perfectly healthy and make it uneconomic for them to have coverage. Mandating that such folks pay anyway is morally reprehensible. Some folks have "pre-existing" conditions through no fault of their own and a "high risk" pool (similar to what most states have for car insurance) can be created to deal with legitimate cases of folks who, through no fault of their own, have "pre-existing" conditions. But, what of those who smoke and drink and eat their way into the operating room? Should these folks be subsidized by the health conscious who eat right, exercise and avoid bad habits? That is what Obama is saying should be done by insisting on the "pre-existing" requirement. Obama's strategy encourages bad behavior and penalizes those who take explicit steps to reduce their future health care problems. How do these perverse incentives improve the nation's health care? The answer: they don't.

Myth Number 6: The Health Care debate is about lowering costs. This is probably the single biggest myth in the entire debate. Health care was, until medicare was adopted in the 1960s, affordable, high quality and not a subject of much conversation. Then, old folks health care became an entitlement when medicare became the law of the land. Almost immediately, health care costs, with a history of moderate increases, went through the roof. In the 1970s, Nixon and a Democratic Congress dramatically increased medicare coverage (and reduced the payments made by medicare recipients). That accelerated the health care cost increases into an explosion into much higher health care costs. Why? Because now you had a huge group of Americans who did not feel that they paid for their own medical care...that someone else paid for it. Americans quit saving for future health care needs and quit worrying about health care costs. Whenever folks don't care about costs, costs will explode. They did. It was the government -- not insurance companies -- that caused health care costs to explode -- by providing a health care entitlement (not paid for) for a huge percentage of the American public. Now, Obama says that expanding that entitlement will make it cheaper. That is absurd and I am sure that Obama knows it is absurd.

Myth Number 7: "We must get this done:" (no matter how bad this bill really is...lets show the American people we can do something, even if that something is really, really stupid and damaging). That is the Obama message. Who really cares what happens to health care and insurance premiums for the average American? Not Obama. What matters is to do what he (Obama) wants even if the public is overwhelming opposed (as they are, according to every single public opinion poll taken over the past eight months...did Obama notice the Massachusetts election?). No, we must not get this abomination done. Doing the wrong thing, just to show that you can do something is wrong.

Truth Number 1: Free markets are the way to provide for health care. Everything that brings competition and free markets to our health care provision will lower cost and improve health care. The government is the enemy not the answer.

Saturday, February 27, 2010

"Lets Get This Done"

So says Barrack Obama. He is now sending out an olive branch to Republicans saying that he is (now, finally) willing to compromise on health care reform. This is, no doubt, one more obfuscation in a long list of obfuscations since this whole discussion began. Obama has a one track mind and it never gets off health care. He also has an interesting definition of bi-partisanship: my way or the highway. No doubt, this is what he intends with his current move to "get this done."

It won't work. The polls show that the public is overwhelmingly against the Obama Health Care plan, with or without some mild compromise. There is no incentive for Republicans to jump aboard a sinking ship.

Friday, February 26, 2010

Life In the Eurozone

Crunch time is soon to arrive for Greece and crunch time is not far off for Spain, Italy, and Portugal. But, that will only be the beginning. There is not a single country in the Eurozone which will not face a debt crisis in the next year or two. They are all vulnerable and all for the same reason: (i) too much government employment and (ii) entitlements.

The correct process is for countries in trouble to simply default. Then they could issue new debt, albeit at pretty high rates and then continue on. That will buy each of them some time.

The other possibility is the dissolution of the Eurozone and a return to national currencies -- the mark, the franc, the lira, etc. This would fragment Europe and reduce its economic competitiveness. But, it will permit countries who want to run their countries responsibly to be free from having to support profligate regimes like Greece. I suspect Germany will, sooner or later, leave the Eurozone. It is certainly in their national interest to do so.

But even Germany cannot survive with its current government workforce and in-place entitlements for retirement and health care. Germany cannot afford their welfare state and will face catastrophe in the bond markets, sooner or later, unless they move away from the welfare state and quickly. The US is in essentially the same situation.

Many folks think that the example of Japan shows that you can run large debts indefinitely and survive. Keep in mind, however, that Japan's debt is owed mostly to Japanese people and institutions. Not much of Japanese national debt is in foreign hands. Not so with the US and some of the sicker countries in the Eurozone. It makes a big difference whether your national debt is mostly held externally or mostly held internally. An internal debt is much like one child in a family being in debt to their sibling. Does this mean the family is in trouble? Yes, but not in the same sense as if one person in a family had a large debt to a person in an entirely different family. So, Japan's situation is actually better than that of the US. Remember that the Japanese have a high savings rate with which to fund their enormous, mostly internal, national debt. The US has no savings and the debt is mostly external and the external percentage is growing.

So, where does this end? It ultimately ends with one of two possible outcomes: 1) a desperate country, Chavez-style (should I say Obama-style) proceeds to nationalize everything and slips into a Soviet-style economic stagnation that will persist indefinitely; or 2) the country will move toward free markets, dramatically curtail government employment and phase out entitlements.

Each country will choose its path. Perhaps, the current fight over "health care reform" is the first skirmish in the coming battle over which way the US is headed -- permanent economic stagnation or free market capitalism.

Bernanke as Luddite

Ben Bernanke spends too much time worrying about the political winds. One reason that many of us so admire Paul Volcker is that, unlike Ben Bernanke, Paul Volcker did what he thought was the right thing to do and stayed away from the politics. Not so, with Bernanke.

More than any other single person, Bernanke was the father of the 2008-2009 bailouts and, very specifically, Bernanke was the father of the AIG bailout that is still at the center of the public's anger over the financial service industry bailouts of the Bush-Obama era. Bernanke is the person who gave Geithner the reins in the fall of 2008 that allowed Geithner to behave in a dictatorial and capricious fashion while ruling over the New York division of the Federal Reserve.

Bernanke is obsessed with surviving as Fed Chairman. He has fawned over Obama after first fawning over Bush. He took the US over the cliff and now pretends to want to bring us back from the prospect of fiscal bankruptcy.

Now, Bernanke is busy investigating the CDS and derivatives market to see if they are the true cause of Greece's fiscal problems. What a joke? As if regulating the derivatives market can save countries from their own bad behavior. Bernanke has now joined the Luddites who believe that bad economic consequences are always the result of evil speculators.

It is always some outside force that causes companies and nations to collapse, according to the Bernanke Luddites. Bernanke has added his voice to those who think that reckless behavior is not the cause of financial collapse. Instead, the cause of trouble is a group of bad guy speculators. Once more Bernanke checks his economics education at the door and proceeds down the political path to try to protect his survival as a public figure. He should be ashamed.

The President as Moderator

To no one's surprise, President Obama had no intention of actually listening to anyone but himself at yesterday's "Health Care Summit." Hoping to catch the Republicans napping, the President, in his usual megalomaniacal fashion, assumed that his shining performance would change the arithmetic on health care.

So, the President proceeded, as he always does, to distort the facts and deny the obvious truths about his "insurance reform bill." The preposterous notion that expanding medicare, mandating untold new insurance requirements, fining businesses who don't go along, forcing American citizens to buy something they don't want and don't need, and so forth would do anything but harm is so absurd as to be laughable. But, the President wasn't laughing.

Instead, there were the usual idiosyncratic sob stories about folks who were sick and got a bad deal from their insurance company (or did not have insurance). Those sob stories, which are completely irrelevant to the issue at hand, were used to justify the most absurd and ridiculous piece of legislation in the last one hundred years.

The public sees through the Obama show and by huge numbers is opposed to the President's plan and he knows it. Does he care? No. The arrogance of this President has no bounds. Democracy is irrelevant. What matters is what Barrack Obama thinks and all thinking stops there, in his mind.

As a moderator, the President looked ridiculous. He frowned, pouted, looked angry, but clearly did not look like some neutral bystander listening with interest. It was clear that Obama could care less what anyone said. He knows what he wants: "my way or the highway" is the Obama governance strategy. Obama's face told all.

Now, it remains to be seen if, Chavez-like, the President tries to use brute force to get his way. The President hasn't got a bi-partisan bone in his body. He thinks bi-partisanship is when everyone agrees with him.

The public is not fooled. If he gets his way on his health care bill (which I don't think he will), he will be a one-term President, who will go down in history as the least successful President in the country's history. Who would have thought that Obama would make the country miss George Bush? But, that is now happening according to recent polls.

Monday, February 22, 2010

Sleep In, Mr. President

The problem with getting up early is that you sometimes have nothing to do. Then, you might have to find something to do in order to look busy. That problem seems to be plaguing our President. To wit, this morning the President, fresh from sleep no doubt, announced his new plan to put ceilings on insurance rates. He should have slept in.

Imagine, that the government put a ceiling on what you could make? Would that call forth better effort on your part? Would you then rededicate yourself to providing a better product now that you know that the government can decide, at its whim, to limit what you can make by producing a product?

The problem with our health insurance industry is that there are already too many laws on the books at the state level and at the federal level dictating what heath insurance companies can do or not do. As a result, many of these companies have simply left the business, thereby reducing competition and providing fewer and fewer good insurance plans at ever increasing rates. Is there something here that isn't perfectly predictable?

Go back to sleep Mr. President. That might be the best thing you can do to improve heath insurance coverage. All of your other ideas are bad dreams that will become nightmares for ordinary Americans.

Friday, February 19, 2010

Peggy Noonan Doesn't Get It Either

Peggy Noonan's op-ed in the Wall Street Journal is a good example of why we never make any progress on spending and on the national debt. She blithely perambulates about how "fairness" in the process of cutting spending is the big issue. What blather! One can only conclude that Noonan's response to the coming debt crisis is one of necessity but not one blessed with any knowledge of what the real problem is.

Take a note, Peggy. The problem is entitlements. They need to be phased out....not cut...phased out. No system of retirement and medical entitlements has any chance of surviving over the long run. The political system, Republicans and Democrats, constantly raise the payouts to the entitled without providing any means of funding the entitlements. Your opinion piece seems unaware of this. Your opinion piece seems to suggest that if we cut this and that and all smile together in self satisfaction that we can get there. We can't.

Spending as spending is not the problem. You can build all the roads and construct all the parks and fight all the wars you want. Those things don't cost much and don't distort incentives. What matters are two things: 1) share of GDP that represents permanent, paid government employees; 2) social security and medicare. Nothing else really matters, Peggy. Go luck at the numbers.

Opinion puff pieces like Peggy Noonan's today in the Wall Street Journal set back a serious discussion on how to deal with the national debt. Her approach is no different than the pathetic approach of our young President. Most of her article is in praise of Obama's recently announced "bi-partisan" commission to study the national debt. Such a commission will not help. The national debt problem is not some mysterious thing that needs further study. It needs a bill in Congress to begin to lower the size of government and the number of folks working for the government and to begin the process of phasing out the entitlements. Nothing short of enacting legislation such as this will save the country from bankruptcy.

Another Bad Idea

The President is announcing another assault on the taxpayers' wallets today. He is tossing $ 1.5 billion of taxpayer money into a program to help homeowners who are the most underwater on their mortgages. Only a handful of states will qualify, mostly states where bubblemania was out of control, fed by bad behavior by Fannie, Freddie, and Wall Street.

This continues the trend. Locate those folks who have been the most irresponsible and transfer funds from taxpayer who were responsible to those who were most irresponsible. That's the Obama way. Too bad if you were responsible and took out a mortgage you could afford. You get to pay higher taxes to support the profligate. Standard Obama fare.

Wednesday, February 17, 2010

Thomas Friedman is Wacko

Thomas Friedman's opinion piece, "Global Weirding," typifies the approach of the global warming advocates. First and foremost, all weather outcomes seem consistent with the global warming hypothesis, according to Friedman. Extreme cold, extreme heat, no change in temperature, all of the above. Whatever occurs validates their hypothesis and condemns global warming critics to the "anti-science" category.

To prove this Friedman cites "..a leading climate writer ..." whose website, according to Friedman, has "a listing of the best scientific papers on every aspect of climate change..." Visit the website and you will see that, once again, the climate change boys have pulled a fast one. There are zero, yes zero, scientific papers cited on the the Joseph Romm website, unless you call popular puff pieces written on "global warming" by folks with political and literary backgrounds, scientific. There are zero pieces on the website by anyone with a scientific pedigree remotely connected with climate change.

Did Friedman bother to check out this web site before he touted it in his column? This kind of journalism is why the NY Times is losing its credibility and its readership and why Thomas Friedman seems more and more like Paul Krugman. Krugman and Friedman believe that facts and science are irrelevant. All that matters is being in lockstep with various mythologies that captivate Hollywood personalities.

NY Times as Spokesman for the Left

Headlines in the NY Times this morning: "Party Gridlock in Washington Feeds New Fear of a Debt Crisis." Are they kidding? "Party Gridlock" may be the only hope to stop a near certain US federal bankruptcy. The Obama budget virtually guarantees a future US federal bankruptcy unless stopped by -- you guessed it - Party Gridlock.

It isn't the lack of compromise between the political parties that is leading the US over the cliff. That is the Democratic Party line and the line emanating from the White House. Now, the NY Times, long the mouthpiece of the Democratic Party, has pushed this nonsense to its front page.

What is leading to the "fear of a debt crisis" is the "fact" of a debt crisis. In case the NY Times hadn't noticed, and I am almost certain that they haven't noticed, the US national debt is spiraling out of control. Whatever the mistakes may have been made in prior administrations, the Obama administration takes first prize in deficit spending and pushing the US over the debt cliff.

Trying to pretend, as the Obama White House and its mouthpiece the NY Times are doing, that lack of bi-partisanship is the problem is ridiculous. The budget proposed by the President, if adopted, puts the country on a certain path to bankruptcy. Only "Party Gridlock" can stop this headlong collapse of the US into a banana republic. Three cheers for Party Gridlock. Boo and hiss to the NY times.

Tuesday, February 16, 2010

Instead of Layoffs

Most states and localities are now facing very difficult budget decisions. Not free to borrow unlimited amounts of money like the federal government, these states and localities must cut expenditures any way that they can.

Laying off employees is always a cruel, even if unintentionally cruel, outcome. One way of avoiding these layoffs is to have an across the board pay and benefit cut that applies to everyone. If there is a budget shortfall, then cut all pay by X percent across the board. Then folks can keep their jobs. Those that quit over such an action should quit and good riddance.

In the private sector you often see across the board pay cuts to preserve jobs. The same should be done in the public sector.

In education, where teachers are being layed off, the school boards should impose across the board pay cuts of a given percentage for all teachers. These pay cuts would elminate the need for teacher layoffs. Let those who wish to quit, quit. Many of the remaining teachers will be happy to have a job with good benefits, while many of their neighbors are out looking for work.

The Euro and the European Welfare State

The crisis in Europe over Greek debt problems is only the beginning of the end for the European welfare state myth. The myth is that the welfare state "works" in Europe. The truth is that the coming demographics spell doom for the European welfare state. Greece is simply the opening salvo in what is to come.

The "pay as you go" nature of European welfare funding depends upon a growing population and strong and vibrant economies. Europe has neither. Basically, "pay as you go" is a ponzi scheme. Benefits are provided today to folks who have not paid for them. Instead, you kick the can down the road on payment to the next generation of citizens. That is what it means to run big deficits to finance current profligacy. Europe and the US are poster children for this fiscal insanity.

If Germany and France agree to a bailout of Greece, Spain, Portugal, and Italy (and there will be others), then Germany and France will become the future countries in need of a bailout. Who will bailout Germany and France? Good question.

For many years, there has been a naive belief in the European myth: that somehow you can provide huge benefits -- medical, retirement, unemployment, education -- without any of the beneficiaries paying for the benefits. It is complete nonsense. If there are no squirrels setting aside acorns during the summer and fall, then there will be no acorns to consume in the winter. It is wintertime in Europe.

Only dismantling the welfare state will solve Greece's problems and Europe's problems. The same is true for the US.

Monday, February 15, 2010

Poor Krugman

Your heart has to bleed for this guy. Krugman is a marvelous writer whose ideas are bizarre, to say the least. In some ways, Krugman is the economist version of Obama. Everything sounds good, until you look at the substance.

The lastest Krugman piece in the NY Times is an effort to explain the plight of Greece (and much of the Euro zone). He dismisses cavalierly that the problem is mainly one of irresponsible fiscal spending. No, that can't be the real problem. It never is, in Krugman's view. Spending is always a magic elixir that will make everything right -- government spending that is. Private spending, on the other hand, is always the evil that mucks everything up. If we could just dispense with private spending altogether and have the government have the exclusive right to spend, all would be well -- so implies Krugman.

So, guess who is to blame for Greece's problems? The bad guys who put the Euro in place. Yes, they are the bad guys in this case. The Euro itself is to blame, robbing the Greeks of the opportunity to simply devalue their currency (that should be good for bondholders) and thereby escape from the mess that they are in. The obviously painful and tortured argument that Krugman presents shows how truly artful he really is. The economics is ridiculous, but the prose flows gently along the page as if there was something really going. Unfortunately, for poor Krugman, there is nothing going on but another failed experiment in too much government.

Sunday, February 14, 2010

Curbing Evil Insurance Companies

Insurance companies are pilloried daily by the politicians. The charge is that they make too much money and they don't provide good insurance policies. Imagine you heard of a company doing that in some other industry? Take the computer industry. Suppose you saw a computer company that charged too much for their computers, made way too much money, and provided badly designed computers. What would the solution to this problem be? Government?

Hardly. Instead, the forces of competition would drive the computer company with an expensive, but poorly conceived product, out of business. In fact, that is precisely what has happened as prices of computers have come down consistently over the past twenty years as their quality has dramatically improved. Competition does the trick. The same is true of the insurance industry. If you want better health insurance products, then get government out of the way. Eliminate cumbersome state regulations and rules that prohibit interstate purchase of insurance. Get rid of all federal rules pertaining to insurance contracts. Let the market provide the product, subject only to truth in advertising.

The idea that government can provide anything efficiently is so absurd that it suggests an unfamiliarity with government's present activities. From medicare to public education, the record is clear -- the government is the most inefficient provider that one can imagine. Get government out of the way and let the free market provide products with minimal government role.

Saturday, February 13, 2010

The US Economy Has Run Aground

After losing seven to eight million jobs in the last two years, the US economy is floating somewhere near the bottom. But, improvement is very weak. The ongoing dialogue between Barrack Obama and the business community is not helpful. The biggest victims are the unemployed. The Administration remains unconcerned and largely uninterested in the plight of unemployed Americans and the distress that most businesses face. The Congress and the White House have piled bad legislation upon bad legislation and crippling regulatory activity that ensures that the economy will remain in the doldrums for a generation.

If health care makes it through Congress via reconciliation, then the economy could easily take a new leg down. The destruction of the private health care industry that the Obama plan envisions, will mean signficantly higher health care costs imposed on an economy in the midst of the worst economic collapse since the 1930s. There will be more layoffs, more business failures, and unemployment could easily move into the 20s. Not a pretty picture, but a likely consequence of the policies of an Administration bound and determined to destroy the private sector of the economy wherever and whenever it can.

The country took a great risk when it elected a young man with little or no experience and a great gift for rhetoric. The rhetorical powers are still there but the lack of experience (and knowledge) threatens the economic survival of the country.

Friday, February 12, 2010

Merkel is Right

There is absolutely no reason for Germany to lift a finger to save Greece or any of the other profligate countries in the Euro community. Greece created its own nightmare. What a country! George Papandreou and his father Andreas (an economist I am dishearteded to note) were probably the two people most responsible for Greece's current situation. Both George and Andreas were noted socialists and helped take Greece down the path to massive entitlements and a nearly 50 percent share of the economy for the government. What little is left over for the private sector is so heavily regulated that businesses have no real hope. So, Greece is doomed. Yes, there is no hope for Greece -- bailout or no bailout -- unless Greece backs off from absurd entitlements and ridiculous deals for government employees. No hope at all. Any temporary help from Germany just postpones the inevitable. (The same, by the way, is true of California and New York as we shall all soon see).

So what is Papandreou saying. He is blaming the European Commission for "failing to crack down on [Greece's] previous government record in falsifying statistics. Oh, really! Where was George when this was going.

George Papandreou is a complete hypocrite. German Chancellor Merkel is right to demand that Greece take very specific steps toward putting their own house in order before anyone else contemplates a rescue. Three cheers for Angela Merkel. Hopefully, the IMF (think USA) will stay away as well.

Again, The Unwarranted Assumption

With the Greece bailout on the horizon, it is useful to look back to 2008 and ask what would have happened if the US Treasury and the Federal Reserve had not bailed anyone out...anyone. Starting with Bear Stearns, simply let them go bankrupt and continue with Fannie, Freddie, AIG, Lehman and even mighty Goldman Sachs and Morgan Stanley, if it came to that.

The assumption is usually made that the some cataclysmic disaster would have occurred. Why make that assumption? What is most likely to have occurred is that bondholders would have shared in the losses along with stock holders and that these businesses would have been reorganized in some more reasonable fashion. The bailouts that actually took place did not prevent the worst recession since the 1930s from taking place. Why assume that things would have been worse?

You have to wonder why the burden of proof is not on those who supported the bailouts. These unprecedented, undemocratic, probably unconstitutional actions taken by the US government in 2008 have shattered the faith in the free market and are hastening the bankruptcy of the federal treasury. How can one comfortably assume that simply letting bad actors suffer the fate of their mistakes would have been worse.

Bondholders who willing lent money to Bear Stearns, Fannie, Freddie, AIG should have suffered major losses for being foolish enough to lend to over-levered institutions that would not, in the long run, succeed. Instead taxpayers suffered the losses and bondholders learned nothing from their cupidity. Why is that a better outcome?

Now, the Euro community is facing the same dilemma. Should they bailout Greece. If they bailout Greece, what is the message for other Euro nations living far beyond their means -- Spain, Portugal, Italy? Who will bailout Germany after they bailout these countries? Who will bailout the UK? Who will bailout the US?

Bailouts are "easy think." They make the next five minutes feel good. But, in the long run, bailouts simply put off the day of reckoning for institutions that are run in stupid ways. It rewards non-thinking bondholders. It paralyzes the economy, by turning off the credit spigot to companies that are doing the right thing.

Why assume that the bankruptcy of Greece is the worst thing that could happen? It's not. The worst thing that could happen is that EU nations cobble together some type of bailout and kick the can down the road. Greece will continue to spend like a drunken sailor and, within time, the contagion of bad fiscal behavior will spread.

Bankruptcy is a good thing, not a bad thing. It is the only way that markets can discipline stupid companies and stupid governments. If you don't permit the profligate to go bankrupt, then, eventually, all will be bankrupt.

Wednesday, February 10, 2010

Meanwhile, Back to Health Care Reform

The President seems to have a one issue agenda in reality -- health care reform. He just cannot let it go. But, it is gone.

The economy is the issue that Americans care about, not health care reform, but the White House is relentless. One wonders after the Republicans take the House and Senate in November, if Obama will continue his quest for health care reform. Will this ever end?

For those who care, the economy has collapsed and shows no real sign of much recovery. Job losses have slowed but job creation is nowhere in sight. The economy is flatter than a pancake. The next shoe to fall is state and local government layoffs (for the pretty much the same reason that Greece, Portugal, and Spain are falling apart). What then?

At some point, there needs to be private sector job creation, but this Adminstration abhors the private economy and villifies business at every opportunity -- insurance, oil, Wall Street -- who's next? Businessmen are the enemy. Sounds good on the stump, doesn't it? But, such rhetoric doesn't warm up the job creation machine.

So, the President wanders back to the centerpiece of his failed agenda -- health care reform. The President makes Don Quixote look like a realist.

Tuesday, February 9, 2010

Let Greece Go

The market rallied today and the pundits said that the rally was based upon hopes of a Greece bailout. Greece is teetering on bankruptcy because of the usual combination of entitlements and public employment largesse.

How does bailing out Greece help? It just means Greece continues along the same path without any course correction. Let Greece go bankrupt! Greece cannot afford what they are doing and others should not step forward to help continue this nonsense.

Greece is not alone. They are, in fact, the first of many to come. No countries can afford what the western nations are doing to themselves. Bankruptcy is the only way these countries will learn that they cannot afford what they are doing. So, let them go bankrupt.

Bailouts just prolong bad policies and eventually they will go bust anyway.

Obama Is Getting Desperate

The meeting with Republicans by President Obama was a last ditch effort on his part to salvage the unsalvageable. The health care plan pushed by the President is dead. It cannot be revived. The Democrats know this; the Republicans know this. Only the White House remains in denial.

Obama's State of the Union Address received zero bounce in the opinion polls. His polling favorability numbers never increased and are now falling once more.

The President's national polling numbers reflect the views expressed by voters in Massachusetts, New Jersey and Virginia. The President's agenda is arguably the most politically unpopular agenda in American history.

Up to now, the polls showed that the President remained popular but his agenda was not popular. That is changing. Now the President is catching up with his agenda. They are both now unpopular. Most polls in the last few weeks show that more Americans view President Obama unfavorably than view him favorably. This can only get worse for the President.

Sarah Palin's favorables are now higher than Obama's. And all the polls show that the public agrees with Sarah Palin's views and disagrees with the views of Obama.

But, Obama trudges on. Hoping against hope that some Republicans will swim toward the sinking Obama ship and sign on to his health care plan. It's not going to happen. Continuing to push this lost cause will only lead to further erosion of support for the President.

Monday, February 8, 2010

Three Cheers for Glenn Hubbard

This morning's Wall Street Journal has a brilliant article written by Glenn Hubbard, currently the Dean of the Business School of Columbia University. The subtitle of the article, in the opinion section of the WSJ, is "Tax Increases Can't Plausibly Address the Coming Entitlement Crisis."

This article is a well reasoned and fully accurate picture of the problems that the entitlements have created.

The entitlement problem is compounded by the fact that the very existence of these entitlements (social security and medicare) have reduced the incentive to save to zero for most middle class Americans. Why save when the government guarantees money and health care in retirement for you? In the mid 1970s when social security and medicare were dramatically expanded, the savings rate in the US fell off the cliff and has never recovered. Not even the current recession will keep savings from collapsing back to zero.

Until the entitlements are effectively phased out, which is really what Hubbard is advocating with a velvet glove, there will be no aggregate savings in the United States. This means larger and larger trade deficits and certain bankruptcy for the federal government and most states. If the squirrels don't put away acorns in the summer and fall, then none are available come winter.

We have changed the behavior of the average American with the entitlements. They don't save anymore. As Hubbard notes, the entitlements will surely bankrupt the country unless they are phased out and until they are phased out the US will continue along the zero savings path.

Sunday, February 7, 2010

Dimitris Damianidis Is On Strike

Mr. Damianidis is a high school teacher in Greece, expecting to retire soon on a government pension of 28,000 Euros annually. He is on strike because the Greek government is going broke and threatening to make cuts in his salary and pension.

You might wonder what Mr. Damianidis job was like before retirement and at what age Mr. Damianidis is retiring. As the New York Times puts it in this morning's story:

"Like many public-sector workers and civil servants in Greece, Mr. Damianidis has led a comfortable middle-class life over his 34 years working for the state. His house is paid for, he can afford to go away for a two-week vacation every year, and he has a daughter in private school. His job is protected by the constitution, and the pay of public sector workers has doubled over the last decade."

Not bad. Please note that Mr. Damianidis is retiring at the official retirement age in Greece -- 60 years of age!

But, Mr. Damianidis is now angry because this cushy deal is threatened by a Greek government that hovers on bankruptcy. Not surprising, no one wants to buy Greek government bonds anymore. Who is to pick up the tab for Mr. Damianidis? That is now the interesting question.

Greece has been following the plan of most countries in the world: provide massive government benefits and finance these benefits with debt. That works until it no longer works. For Greece, it no longer works.

Greece is a member of the European Union, so all eyes are on Germany. The German and French economies are the only EU nations that are experiencing any real economic recovery. For the EU to do a bailout, Germany would have to provide the wherewithal. That would work -- for a while. But, then Germany has the same problem as Greece, so, in time, that won't work either.

Greece is a harbinger of the future in two respects: 1) public sector jobs, protected by union political activity are ultimately not affordable by Greece or any other society (see California and New York, if you are looking for American examples); 2) the practice of promising benefits to large parts of the population without providing any means of funding these benefits other than debt will eventually fail (think social security and medicare in the US).

Now Greece is looking to the IMF (think USA) to bail out these protected characters like Mr. Damianidis. Why? Mr. Damianidis should go get a real job and Greece should go bankrupt. If not, the contagion will spread to other countries. The US is not too far down the chain.

Saturday, February 6, 2010

Mistakes Provide Information

The Intergovernmental Panel on Climate Change (known more commonly as the IPCC) presented a 938 page Fourth Assessment Report that was the basis for the panic-mode approach to climate change of the Obama Administration (think Al Gore). This report, ostensibly from experts, is so riddled with mistakes that one wonders if any of the authors bothered to read it themselves. The reported melting of the "Himalayan Glacier" story was one of the funniest. Now, we find out that 55 percent of the Holland is below sea level, according to the IPCC. Not so, says Holland. We are only 26 percent below sea level. The IPCC is now in the process of correcting another of the numerous errors in the report. No wonder folks are skeptical about the global warming siren song.

Errors occur, of course, in every report. Witness, the recent popular book, "Game Change." On page 392, you find the following curious statement:

"The following Monday, September 29, the Paulson bailout plan was voted down in the House of Representatives, 228-205; not a single Republican pulled the lever in its favor." Bullshit. Not only did the entire House Republican leadership including Boehner and Cantor vocally support the Paulson Bailout, only a bare majority of Republicans voted against the bailout. The tide was turned by near unanimity of the Democratic "black caucus" vote, which went almost solidly against the Paulson bailout plan.

This tells you that authors Heilemann and Halperin weren't paying attention during the debate over the Paulson bailout. The vote for and against the Paulson bailout was significant for its bi-partisan character, not as Heilmann and Halperin suggest. It was not a partisan vote at all. But, Heilemann and Halperin are men on a mission. They want to show that the Republicans were partisan but Democrats were not. Don't let facts get in the way. Heilemann and Halperin made numerous other mistakes in the book that are of the same character. Their reporting of the Sarah Palin candidacy is so one-sided that one wonders where they were during the campaign. Certainly, the didn't pay much attention to the Paulson bailout controversy and perhaps Katie Couric was their main source on Sarah Palin.

Mistakes are often telling. Some mistakes are trivial and inadvertant. But some mistakes can and do reveal biases and raise questions of motive and integrity.

Friday, February 5, 2010

Job Losses Continue

Friday's unemployment reading was more bad news. Instead of net job creation, the economy had net job losses for January. 20,000 fewer jobs in January than a month earlier. The unemployment rate fell to 9.7% only because more Americans simply gave up looking. If everyone gives up looking, then I guess we can get the unemployment rate to zero (even with no new jobs).

There are few hopeful signs for the economy. It seems that everything is simply being put on hold until the Congresssional elections this November. The Administration has made minor cosmetic changes in its war on the economy in an effort to stem the dramatic erosion of public support. So far, the polls show that the public is not fooled. This Administration is committed to nationalizing much of the American economy and stifling whatever is left.

The combination of anti-business rhetoric and class warfare policies has undermined the business atmosphere, which won't improve until the policies changes. It looks like we have to wait another ten months to see if that will happen.

Tuesday, February 2, 2010

The 29 Percent Solution

The budget proposal announced by the President on Monday provides for spending increases of 29 percent over levels in 2008, the last year of the Bush Administration. This puts federal spending at a whopping 25 percent of GDP, a peacetime record.

The budget assumes a booming economy to provide the revenues for this largesse. It includes an estimated $ 2 trillion in tax increases and, even at that, the national debt pushes on toward bankruptcy.

Here are the two biggest lies in the budget:

1) Increasing tax rates will increase tax revenues. To see why this can be predictably false when tax rates are exhorbitant (as they are), imagine that personal tax rates were raised to 100 percent. Would that rate raise a lot of revenue? There probably won't be anywhere near $ 2 trillion in new revenues, because of the damage that the Obama tax increases will do to the economy.

2) The economy is going to boom in the face of the most massive increase in tax rates in world history. No economic theory that I know of suggests a boom in the face of the largest tax rate increases in human history.

This is the anti-Reagan, anti-Kennedy prescription. Waste a lot of money and increase taxes to record levels.

If much of this budget becomes a reality, you can expect stagnation for more than a generation. Worse, bankruptcy of the United States government is now on the table as a likely outcome.

Monday, February 1, 2010

Same Old Obama -- Blame The Last Ten Years

This morning the President twisted history a bit to deflect attention away from the runaway spending that he, yes he, has initiated. George Bush did not have anything to do with the $ 800 billion bill wasteful spending that Congress passed at Obama's urgings last January. George Bush had nothing to do with enormous increase in discretionary spending done at President Obama's behest. George Bush did not propose the climate change bill and the health care bill that have frozen the business community into solidity. Take credit where credit is due: President Obama holds the record as biggest spender and deficit financer in the history of the planet. He seems out to break his own record with the $ 3.8 trillion spending announced today for the coming fiscal year. Maybe the Nobel Prize committee can come up with an award for profligacy. Obama would certainly win it on merit.

Someone needs to tell Obama that he is the President, not George Bush. Folks are getting tired of the same old excuse for incompetence. Obama is making the Bush Administration look like a model of transparency and competency. The hypocrisy in the President's talk on the budget today is amazing. All of this is fooling no one. The so-called post-State of the Union "bounce" in the polls did not happen this time -- one of the first times in history that a sitting president got no benefit from his State of the Union address. Gallup showed the President's popularity stuck at 47 three days after the SOTU address, meaning no change. The public is tired of partisanship and obfuscation. Somebody needs to get through to the White House: enough is enough.

The problem with the national debt and the deficit is the growth in entitlement spending, a subject the President did not mention in his talk today. You can eliminate all other spending but social security and medicare and it will not matter -- the country still goes bankrupt. Why can't the President see this?